Stocks Advance Ahead of Powell’s Speech; Yen Gains: Markets Wrap

(Bloomberg) — Stocks ticked higher in the run-up to Jerome Powell’s Jackson Hole speech, with traders speculating over whether the Federal Reserve Chair will open the door for interest rate cuts.

Futures on the S&P 500 rose 0.4% and Europe’s main equities benchmark edged up 0.2%. The 10-year Treasury yield was steady at 3.85% while the dollar retreated. The yen strengthened after hawkish comments from Bank of Japan Governor Kazuo Ueda. 

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 send a hawkish message. 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.

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

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 currency rose as much as 0.7% versus the dollar before paring gains. In replies to lawmakers, BOJ Governor 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. 

Key events this week:

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

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.2% as of 10:31 a.m. London time
• S&P 500 futures rose 0.4%
• Nasdaq 100 futures rose 0.6%
• Futures on the Dow Jones Industrial Average rose 0.3%
• The MSCI Asia Pacific Index rose 0.2%
• The MSCI Emerging Markets Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.1% to $1.1125
• The Japanese yen rose 0.2% to 146.01 per dollar
• The offshore yuan rose 0.1% to 7.1381 per dollar
• The British pound rose 0.3% to $1.3133

Cryptocurrencies

• Bitcoin rose 1% to $61,298.94
• Ether rose 2% to $2,677.46

Bonds

• The yield on 10-year Treasuries was little changed at 3.85%
• Germany’s 10-year yield was little changed at 2.25%
• Britain’s 10-year yield declined one basis point to 3.95%

Commodities

• Brent crude rose 1% to $77.98 a barrel
• Spot gold rose 0.6% to $2,500.32 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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