Awaiting Jackson Hole Awaiting Jackson Hole Awaiting Jackson Hole

Awaiting Jackson Hole

Summary:  Complacency all around, the melt up continues and tech stocks sore to fresh highs overnight. However Asian markets take pause in a lacklustre trade ahead of the Jackson Hole event risk, Powell's speech will be keenly watched, as tensions between the US and China simmer. Tik Toks CEO has resigned and ballistic missile tests by the PLA, firing into the South China Sea fuels the ongoing sabre-rattling by the two superpowers.

In the midst of COVID-19 crisis, the big picture is rates are going nowhere fast, secular stagnation fuels the proliferation of zombie companies and financial repression looms large fuelling mounting inequalities and wealth disparities throughout broader society. “We’re not even thinking about thinking about raising rates,” Powell told reporters post the June FOMC meeting.

Despite this, the Jackson Hole speech delivered by Chairman Powell tonight will still be consequential for traders and risk assets alike. With central bank watchers poring over Powell’s every word for confirmation of dovish ramifications and clues on the outcome of the year-plus monetary policy framework review. This year’s Jackson Hole theme is “Navigating the Decade Ahead: Implications for Monetary Policy.” Although a formal announcement is not expected, Powell may signal where the Committee are placed in terms of changes to monetary policy and their new inflation commitments. Commentary which will be key for the continuation of the speculative met up in risky assets aggressively recouping their COVID induced losses. And the plunge in real yields supporting precious metals.

The July FOMC minutes pushing back on the prospects of YCC, which is likely off the table for now, raising the likelihood of outright forward guidance and average inflation targeting (AIT) becoming a key piece of the Fed’s fresh commitment to achieving their inflation target.

This could include a commitment to keeping the fed funds rate close to zero until actual inflation reaches and preferably exceeds 2% target. Then add in a dash of average targeting, which could see a range of 2%-4% inflation tolerated, as an offset to inflation running below 2% for so long prior. Making a clear signal that the Fed are determined to see inflation above 2% in tolerating a temporary overreach. These accommodative policy changes will be pivotal for real yields if the Fed commit to anchoring nominal yields, music to the ears of growth stocks, and precious metals that thrive off the persistent collapse in real yields. But also the commitment to inflation driving demand for alternative assets, hard commodities and inflation hedging. And without anchoring nominal yields, the commitment to inflation, if yields pick up will be detrimental to the performance of growth stocks - primarily the long duration mega caps whose relative attractiveness has been boosted by low rates. 

With the very notion of continued central bank intervention, zero rates for years to come and AIT in mind, gold and silver futures have notched up their highest finish in a week, as expectations run high for Powell’s speech.

Although Powell will be wary of disappointing asset markets whilst the real economy flounders in the wake of the global pandemic, it seems the bar to disappoint could be relatively low given the expectations surrounding AIT already embedded. Last week’s disappointment to the July FOMC simply being “not dovish enough” stoked sharp reversals across the risk asset and precious metals complex. The feverish buying in the Nasdaq, and almost parabolic trend, this week makes us wary into tonight’s speech of a corresponding sharp reversal should disappointment ensue.

Rising Nasdaq volatility (VXN), alongside a surging index itself also flashes warning signals that all may not be rosy beneath the surface. Particularly as the spread between the VIX (S&P 500 volatility) and VXN sits at a historic extreme, last witnessed prior to the Volmageddon meltdown in February 2018. This corrects one of two ways, VIX rises or VXN falls. However, rising volatility in conjunction with fresh highs for the Nasdaq signal mounting fragilities and renders the feverish upwards trend, accompanied with FOMO buying, prone to sharp reversal, regardless of the content of Powell's speech.

As we have said before, although we believe technology companies leveraged toward the secular growth thematics accelerated by COVID-19 will outperform in the medium/long run, valuations and excessively one sided crowded positioning make us tactically cautious with respect to entry to this trend at present. In other words don’t buy growth at any price! Opportunity can be found elsewhere as market leadership broadens within more cyclically oriented sectors, where the risks of overly crowded positioning and excess speculation are not prevalent. Clearly these allocations require the participation of the real economy for true outperformance. However, with the Fed set to make a serious commitment to inflation, commodity, metal and mining stocks represent not only a hedge against rising inflation expectations, but also the bubblicious environment in crowded growth and tech names. A key diversification benefit for portfolios. 

Complacency and manic speculation are the name of the game for now, but risks are accruing, and when sentiment shifts, liquidity quickly disappears. Then, the previous stability in the seemingly never-ending melt up is destabilizing in itself, as every rushes for the same exit. Particularly with the increased retail and hot money participation chasing momentum in high-flying stocks. These dynamics increase the risk of compulsive selling when sentiment shifts. Long growth/short value positioning remains at a historical extreme and any reversal in this positioning will be painful.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.