Stocks experienced modest gains as traders eagerly anticipated Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium. The S&P 500 futures climbed 0.4%, and major European equity indices also edged higher. Meanwhile, the 10-year Treasury yield held steady at 3.84%, and the dollar weakened. The Japanese yen strengthened by 0.7% following hawkish comments from Bank of Japan Governor Kazuo Ueda.
Powell’s upcoming address, scheduled for later today, has been a focal point for financial markets throughout the week. Concerns arose on Thursday when stocks and bonds fell, driven by fears that Powell might temper expectations for aggressive interest rate cuts.
Jim Reid, a strategist at Deutsche Bank AG, highlighted the significance of Powell’s speech for investors: “The key question is to what extent Powell will validate expectations for a rate cut in September and whether he will provide any indication of the potential size of such a cut.”
Recent U.S. economic data presented a mixed picture. Jobless claims indicated that the labor market is cooling only gradually, while manufacturing activity contracted at its fastest pace this year. On a positive note, existing-home sales increased for the first time in five months.
Christopher Wong, FX strategist at Oversea-Chinese Banking Corp, remarked on the market’s expectations: “It can be challenging for Powell to significantly diverge from market expectations, but as long as his speech does not contain any hawkish surprises, markets will likely continue to embrace the ‘Goldilocks’ scenario, which involves fading rallies in the dollar.”
Swaps traders are currently pricing in nearly 100 basis points of rate cuts by December.
In currency markets, the yen’s gains were notable, rising as much as 0.7% against the dollar. BOJ Governor Ueda’s recent remarks in parliament, which indicated a potential continuation of interest rate hikes if economic conditions align with forecasts, helped strengthen the yen. Charu Chanana, head of currency strategy at Saxo Markets, noted, “Ueda’s comments have quelled speculation that the BOJ might halt rate hikes due to market volatility, which is supportive for the yen and slightly negative for stocks.”
Japanese inflation data for July also exceeded expectations, with consumer prices rising 2.8% year-over-year, matching the previous month’s rate and surpassing the 2.7% forecast.
Key Economic Events This Week:
1.U.S. new home sales report, Friday
2.Jerome Powell’s speech at Jackson Hole, Friday
Market Movements:
Stocks:
1.Stoxx Europe 600: +0.2%
2.S&P 500 futures: +0.4%
3.Nasdaq 100 futures: +0.6%
4.Dow Jones Industrial Average futures: +0.3%
5.MSCI Asia Pacific Index: +0.3%
6.MSCI Emerging Markets Index: -0.1%
Currencies:
1.Bloomberg Dollar Spot Index: -0.2%
2.Euro: +0.1% to $1.1126
3.Japanese yen: +0.5% to 145.61 per dollar
4.Offshore yuan: +0.1% to 7.1362 per dollar
5.British pound: +0.2% to $1.3119
Cryptocurrencies:
1.Bitcoin: +0.8% to $61,151.54
2.Ether: +2.1% to $2,679.47
Bonds:
1.10-year Treasuries: Yield down one basis point to 3.84%
2.Germany’s 10-year yield: Little changed at 2.24%
3.Britain’s 10-year yield: Down two basis points to 3.94%
Commodities:
1.Brent crude: +0.2% to $77.35 per barrel
2.Spot gold: +0.3% to $2,492.94 per ounce
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Top 10 Reasons Why Stock Futures Are Rising