What to Expect as Stocks and Bonds Ride High Ahead of Powell and ECB Speakers at Jackson Hole

The S&P, Dow and Nasdaq indices all pushed to new session highs ahead of Jerome Powell’s speech at Jackson Hole, Wyoming set for Friday at 10:00 a.m. ET.  Two ECB appearances are expected. Isabel Schnabel and Francois Villeroy will appear on a panel on the “outlook for policy post-pandemic.” We discuss the key points and agendas that markets will react to. Today a combination of short covering and hopes of a measured rate-hike path fueled the buying. The positive bias saw all 11 S&P 500 sectors in the green with gains ranging from 0.5% with consumer staples to 2.3% for materials. The 10-yr note yield moving markedly lower falling eight basis points to 3.03%. 

Ahead of Fed Chair Powell’s speech at 10:00 a.m. ET key data will be released including the July PCE Price Index and core PCE Price Index and the August University of Michigan Consumer Sentiment final reading.

Jackson Hole 1

Key Points for Jackson Hole

The Fed chairman’s speech is the highlight of the annual event, and various Fed chairs previously have used the Jackson Hole meeting to send important messages. Anything dramatic is unlikely as that would front run the September FOMC meeting. He and the other Fed voices would not want to see any further fallout from one disastrous crisis after another and the fallout on President Biden’s popularity.

  • Fed officials will meet in person at Jackson Hole, Wyoming.
  • The big question, the intention of Fed officials with monetary policy.
  • To that end what will Algorithmic traders key in on?
  • Fed officials will aim seek to avoid a ‘taper tantrum’ set off by algos as they keep ‘taper and rate talk’ going
  • How much will the political background in the US move things out for rates or postposing discussion thereto

Key Markets are Screaming Risk Off

August 23 – Bloomberg (Gowri Gurumurthy): “The US junk bond market was pummeled after a six-week rally as yields jumped to near 8% Monday… US junk bonds suffered the worst rout in two months, with a loss of 0.88%. The losses extended across the high-yield market, with CCCs suffering the most posting a loss of 0.97%.”

August 26 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy): “Global equity funds witnessed their biggest weekly capital withdrawals in five weeks in the week to Aug. 24 on concerns that rate hikes would lead to a recession… According to Refinitiv Lipper, investors disposed of a net $10.48 billion worth of global equity funds in the week, which compares with just $3.15 billion worth of purchases in the previous week.”

The Fed governors have had a look at the miserable housing data along with earnings reports from banks, through oil, retail and technology to give them a reminder of the consumer. Federal Reserve officials, in numerous recent speeches and interviews, have already managed to shape expectations for when they raise rates and a terminal rate.

Powell doesn’t need to roll the dice here. What he wants and needs to do is avoid a disorderly reaction or melt down. This is why clear messaging is critical, markets don’t like surprises.

The week has a few economic reports for the Fed to peek at. Existing home sales released Monday with manufacturing, Services and Composite PMI; pending home sales Tuesday and durable goods Wednesday. Friday has personal consumption expenditures data and the inflation index, closely watched by the Fed.

One would expect volatility around the Fed’s symposium given the release this past Tuesday of minutes from the last official meeting rattled the markets.

Powell could provide a road map for how the Fed will attack inflation, but with a caveat of being able to step back if the economic fallout becomes more serious than expected.

Jackson Hole Economic Policy Symposium: Reassessing Constraints on the Economy and Policy

Aug. 25, 2022

  • 6:00 p.m. Opening Reception and Dinner
  • host: Esther L. George President and Chief Executive Officer

Aug. 26, 2022

  • 8:00 a.m. – 2:00 p.m. Friday Session chair: Peter Blair Henry Dean Emeritus, Stern School of Business, New York University
  • 8:00 a.m. Opening Remarks speaker: Jerome Powell Chairman of the Board of Governors, Federal Reserve System
  • 8:30 a.m. Reassessing Economic Constraints: Maximum Employment author: Nicola Fuchs-Schündeln Professor, Goethe University Frankfurt discussant: Stephanie Aaronson Vice President and Director of Economic Studies, Brookings Institute
  • 9:05 a.m. General Discussion
  • 9:55 a.m. Reassessing Economic Constraints: Potential Output author: John Fernald Professor, INSEAD discussant: Janice C. Eberly Professor, Northwestern University
  • 10:30 a.m. General Discussion
  • 10:55 a.m. An End to Pre-Pandemic Trends or Just a Temporary Interruption? panelist: Jason Furman
  • Professor, Harvard University panelist: Gita Gopinath First Deputy Managing Director, International Monetary Fund panelist: Valerie A. Ramey Professor, University of California-San Diego
  • 11:55 a.m. General Discussion
  • 1:00 p.m. Luncheon Address speaker: Agustín Carstens General Manager, Bank for International Settlements

Aug. 27, 2022

  • 8:00 a.m. – 12:00 p.m. Saturday Session chair: Kristin J. Forbes Professor, Massachusetts Institute of Technology
  • 8:00 a.m. Reassessing Constraints on Policy: Fiscal Constraints author: Francesco Bianchi Professor, Johns Hopkins University discussant: Ethan Ilzetzki Associate Professor, London School of Economics
  • 8:35 a.m. General Discussion
  • 9:00 a.m. Reassessing Constraints on Policy: Central Bank Balance Sheets author: Viral Acharya Professor, New York University discussant: Wenxin Du Associate Professor, University of Chicago
  • 10:00 a.m. General Discussion
  • 10:25 a.m. The Outlook for Policy Post-Pandemic panelist: François Villeroy De Galhau Governor, Banque de France panelist: Thomas J. Jordan Chairman of the Governing Board, Swiss National Bank panelist: Chang Yong Rhee Governor, Bank of Korea panelist: Isabel Schnabel Member of the Executive Board, European Central Bank
  • 11:25 a.m. General Discussion

Source: Kansas City Fed

From The TradersCommunity Research Desk