August 26, 2016

Markets Today: Speak now

In a night of still very contained major FX crosses, Fed commentary has started to kick in from Jackson Hole.

In a night of still very contained major FX crosses, Fed commentary has started to kick in from Jackson Hole.  There have been TV interviews with Fed President’s Robert Kaplan (non-voter) and Esther George (voter, and dissenter).  Kaplan told CNBC the case for hiking is “strengthening” and we should be able to hike in the “not too distant future”. Kaplan also expressed some caution over China and its debt problems and the potential for that issue to be the catalyst for some market instability.  Fed hawk (and dissenter) George said “I do think it is time to move on that rate,” though hedging that with “it doesn’t mean I favour high rates or that raising short-term rates needs to happen rapidly.”

Take from those sound bites what you will; even George’s comments embody a degree of caution about the speed and extent of tightening, even though she favours a hike now.  There could well be more wire coverage during our morning here from interviews.  At 830 AEST, Kansas City Fed President George is scheduled to speak (again), in a meeting at Jackson Hole with the Center for Popular Democracy’s Fed Up campaign.

Among the key data points released overnight, the German Ifo business survey for August disappointed missing on expectations and its current assessment components, the UK CBI retail survey through threw up another positive surprise (as had the industry counterpart earlier this week), the US durable goods orders report for July also surprising on the higher side.  Not only did headline orders bounce back 4.4% thanks to higher aircraft orders, but core orders rose 1.6%, hinting at some upside potential for US business fixed equipment investment into this half.  Weekly jobless claims remained low at 261K right in line with the average so far this quarter and this year.  Two year US Treasury yields firmed up by around 2-3bps in response, with Fed Fund futures also firming a little for the session.  After this week’s data, the Atlanta Fed’s GDPNow estimate for Q3 sits at 3.4%.

Coming up

Aside from Fed Chair Yellen’s address to the Jackson Hole Symposium tonight (set your alarm for midnight and beyond to track her speech and any aftermath) there are several other data points on the horizon today and tonight.  Today we have Japan’s CPI report for July (and the Tokyo August CPI) with the market looking for an unchanged annual 0.4% decline for the headline and for ex-fresh food core CPI. In the European session, there is the German Gfk consumer confidence report for September and, in the UK, a later vintage of June quarter GDP and the monthly Index of Services for June. In the US, on the data front, there is the advance goods trade balance for July and the next vintage of their June quarter GDP.  The University of Michigan Consumer Sentiment survey (updated for late August responses) is also due, the market more likely interested in the medium to long-term 5-10 years’ consumer inflationary expectations that was 2.6% in the preliminary August survey.

As for Jackson Hole, while the market understands that the thrust of Fed Chair Yellen’s speech is to address medium term policy and low inflation issues rather than titled to address the outlook for the economy and monetary policy (and thus designed to confirm or have markets reassess Fed funds pricing), there is always the potential for some such coverage and with key press in attendance to get full wire coverage. As one of my colleagues as already commented this week, perhaps the most can be expected is that she might indicate each upcoming meeting is “live”, not wanting to be tied down to specific timing (or indeed outcome) given decisions are yet to be made and ahead of key data between now and the September 20-21 FOMC meeting.


On global stock markets, the S&P 500 was -0.14%. Bond markets saw US 10-years +1.20bp to 1.57%. In commodities, Brent crude oil +1.30% to $49.69, gold-0.3% to $1,325, iron ore -0.4% to $61.44. AUD is at 0.7617 and the range since yesterday 5pm Sydney time is 0.7603 to 0.7634.

Good luck.

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Markets Today – Sweet Spot

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