Global markets are stuck in a holding pattern with S&P futures up modestly after fluctuating overnight, as European and Asian shares rise with oil while the dollar has dipped lower ahead of the biggest central bank event of the year: the Fed’s Jackson Hole symposium where Janet Yellen and Mario Draghi will speak at 10am and 3pm ET, respectively. Meanwhile, world stocks drifted toward their best week in six on Friday, as a near three-year high in emerging markets shares and a roaring rally in industrial metals bolstered the year’s global bull run.
US futures got a marginal boost by comments from Gary Cohn before the FT shortly after 5am ET, pushing back against suggestions he will leave the White House and confirming another push for tax reform.
European Stocks were mixed for much of the morning session before edging higher, with gains for miners eclipsing retailer declines in the wake of Amazon’s announcement it would cut Whole Foods prices on Monday in the Stoxx Europe 600 Index.
As discussed over the past week, the only show in town over the next couple of days is the Yellen and Draghi show at the Jackson Hole symposium (today’s agenda here). They talk at 10am and then 3pm (EST/NY time). As for Yellen it seems the swing factor is whether the Fed is placing greater weight on very loose financial conditions and financial stability concerns over any supposed short term soft inflation numbers. Deutsche Bank yesterday published a piece re-visiting Yellen’s July 2014 speech on ‘Monetary Policy and Financial Stability’ as a benchmark for assessing any changes in her views on the topic. The bank suggests that there is an interesting parallel between today and mid-2014 when Yellen delivered that speech. Then, as now, financial conditions were very loose. Yet despite easy financial conditions at the time, Yellen’s speech concluded that the nature and magnitude of financial stability considerations as of mid-2014 were insufficient to justify tighter monetary policy. The key question for markets is whether enough has changed since July 2014 for Yellen to reach a different conclusion and send a more hawkish signal about the future monetary policy path at Jackson Hole?
‘Will financial-stability concerns prompt the Fed to hike, even when inflation is so low? This is what the market wants to know,’ John Cairns, a strategist at Rand Merchant Bank in Johannesburg, wrote in a client note. ‘With little else to focus on, the market has morphed the symposium into a colossus. Risks are two-way: Yellen could take the hike off the table, or reaffirm it.’
This post was published at Zero Hedge on Aug 25, 2017.