Senior Relationship Manager
Summary: Powell in Focus
Good Morning,
Today all focus will be on the speech of Jerome Powell at 16:00 CET at the Jackson Hole conference.
Despite the hawkish tones from various officials (see below) , risk sentiment remains fairly strong on what seems to be confidence that the Fed will lower rates quickly once inflation is under control and the expectation remains that to be the case early Q2 2023.
Any change to that sentiment will cause spikes in the markets, for now all else seems to fade to the background.
Some Key comments from fed Speakers:
James Bullard: 3.75 -4% IS MY TARGET FOR THIS YEAR, MY BASELINE IS THAT INFLATION WILL BE MORE PERSISTENT THAN WHAT MANY EXPECT
Raphael Bostic: "Some weakening is to be expected, it's going to be really important that we resist the temptation to be too reactionary, and really make sure that we get inflation well on its way to 2% before we take any steps to increase accommodation in our policy stance."
Patrick Harker "I don't see the risk of a sustained or deep recession to be very high,"
Esther George "The labor market is very tight ... I suspect to get some loosening in that labor market you will see higher unemployment"
Equities gained across the board yesterday with the Nasdaq strongest at +1.67% and the USD Index holds at 108.60 while Yields remain near 3%.
The GfK conducted a survey of around 2,000 Germans, and the confidence Index fell to -36.5, falling even lower then the record last month. I am not sure if this is not exaggerated,
The cost of energy for British consumers can rise by 80% from October, regulator Ofgem announced, taking the average annual household cost to 3,549 pounds.
GBPUSD is testing the 1.18, EURUSD is at 0.9964, XAUUSD at 1757 and Silver 19.27.
In terms of economic data we expect the US PCE at 14:30 and the Michigan confidence at 16:00
Expiries
Physically Settled Futures:
Henry Hub Natural Gas (NGU2) will expire 26th Aug at 19:30 GMT
10 Year Government of Canada Bond (CGBU2) will expire 29th Aug at 15:00 GMT
Long Gilt (FLGU2) will expire 29th Aug at 15:00 GMT
Dutch TTF Gas (TTFMU2) will expire 29th Aug at 9:00 GMT
Expiring CFDs:
10YUSTNOTESEP22, COPPERUSSEP22, CORNSEP22, GASOLINEUSSEP22, HEATINGOILSEP22, SILVERSEP22, SOYBEANOILSEP22, SOYBEANSSEP22, WHEATSEP22 will expire 29th Aug at 15:00 GMT
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach