US Stock Futures Advance Ahead of Powell’s Speech: Markets Wrap

(Bloomberg) — Stocks ticked higher in the run-up to Jerome Powell’s Jackson Hole speech, with traders seeking clues on how fast and how far the Federal Reserve will cut rates.

Powell’s address, slated for 10 a.m. New York time, has been the main focus for traders all week and markets took a hit on Thursday on concern he would push back on the market’s aggressive easing bets. At the same time, strategists from JPMorgan Chase & Co. and Deutsche Bank AG say they expect moderate bond moves during the conference, while options traders are betting on small swings for stocks in the days ahead.

“For investors, the big question is to what extent Powell validates expectations for a September rate cut, and whether he offers any indication of how big any rate cut might be,” said Jim Reid, a strategist at Deutsche Bank AG.

Futures on the S&P 500 rose 0.6% and Europe’s main equities benchmark edged up 0.3%. The 10-year Treasury yield was steady at 3.84% while the dollar retreated.

Fed’s Jackson Hole Conference Is Underway: Here’s What to Expect

The annual gathering of policymakers and academics in Wyoming may ultimately prove uneventful. Over the past decade, yields on both two- and 10-year notes moved less than 4 basis points on average, data compiled by Bloomberg show. The S&P 500 Index has been more reactionary, fluctuating around 1.3% on average. 

A jolt isn’t out of the question, however. Two years ago, Powell surprised the market by delivering a hawkish speech that sent the S&P 500 tumbling 3.4%, while 10-year yields notched an 8-basis-point intraday swing.

Jackson Hole History Points to Powell Sidestepping Market Shocks

Bets on lower Fed rates have helped drive a rebound from the slump at the start of August. Investors are pricing in a quarter-point rate cut at the Fed’s Sept. 17-18 gathering, but see almost a full percentage point of reductions by year end, according to futures markets. 

“It can be a very high bar for Powell to out-dove markets,” said Christopher Wong, FX strategist at Oversea-Chinese Banking Corp. “But at the same time, I doubt many are expecting him to do that — so as long as there is no hawkish surprise from his speech, markets are happy to continue trading the Goldilocks thematic, i.e. fading rallies in the dollar.”

Yen’s Gains

Meanwhile, the Japanese yen rose as much as 0.7% versus the dollar before paring gains. In replies to lawmakers, Bank of Japan Governor Kazuo Ueda signaled the central bank is still on the path to raise interest rates, provided inflation and economic data continue in line with its forecasts. 

When asked about the market ructions that occurred earlier this month, Ueda played down the significance of the BOJ’s July rate hike in the turmoil. At the same time, he signaled that he doesn’t plan to rush ahead with the next rate hike, saying the BOJ needs to carefully watch the impact of unstable financial markets on the inflation outlook. 

Corporate Highlights: 

• Nestle shares fell as much as 4.1% in Zurich, hovering near a five-year low, after the consumer-goods company said Laurent Freixe will replace Mark Schneider as CEO.
• Workday Inc. shares jumped in extended trading, reversing earlier declines, after executives said the company would sharply increase profitability over the next three years.
• Danish transport group DSV A/S and a consortium led by CVC Capital Partners Plc separately put in binding bids that value Deutsche Bahn AG’s logistics unit at about €14 billion ($15.6 billion), according to people familiar with the matter.
• Alibaba Group Holding Ltd. shareholders have approved a plan to upgrade its Hong Kong listing to primary status on Aug. 28, a maneuver expected to attract billions of dollars in investment from mainland China.

Key events this week:

• US new home sales, Friday
• Jerome Powell speaks in Jackson Hole, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.5% as of 7:33 a.m. New York time
• Nasdaq 100 futures rose 0.8%
• Futures on the Dow Jones Industrial Average rose 0.4%
• The Stoxx Europe 600 rose 0.3%
• The MSCI World Index was little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $1.1111
• The British pound rose 0.3% to $1.3124
• The Japanese yen rose 0.1% to 146.08 per dollar

Cryptocurrencies

• Bitcoin rose 0.2% to $60,825.27
• Ether rose 1.2% to $2,656.56

Bonds

• The yield on 10-year Treasuries was little changed at 3.84%
• Germany’s 10-year yield was little changed at 2.25%
• Britain’s 10-year yield was little changed at 3.95%

Commodities

• West Texas Intermediate crude rose 1.4% to $74.04 a barrel
• Spot gold rose 0.5% to $2,498.23 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Richard Henderson and Divya Patil.

(An earlier version was corrected to show that markets expect about 100 basis points of cuts by the Fed this year)

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