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 speculating over whether the Federal Reserve Chair will open the door for interest rate cuts.

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Futures on the S&P 500 rose 0.4% and Europe’s main equities benchmark edged higher. The 10-year Treasury yield was steady at 3.84% while the dollar retreated. The yen strengthened after hawkish comments from Bank of Japan Governor Kazuo Ueda.

Powell’s address later Friday at the annual symposium in Wyoming has hung over markets all week. Stocks and bonds took a hit on Thursday on concern he would use the speech to throw cold water on market expectations for aggressive interest-rate cuts.

“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.

The latest US economic data was mixed. American jobless claims data showed the labor market is cooling only gradually — rather than rapidly slowing amid elevated rates. US manufacturing activity shrank at the fastest pace this year. And existing-home sales increased for the first time in five months.

Heading into the Jackson Hole meeting, “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.”

Swaps traders are broadly pricing almost 100 basis points of cuts through December.

Yen’s Gains

Meanwhile, the Japanese currency rose as much as 0.7% versus the dollar. 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.

Ueda’s comments in parliament “put an end to speculation that the BOJ could back off from hiking again due to the market turmoil seen,” said Charu Chanana, head of currency strategy at Saxo Markets. “Keeping the door open for further rate hikes is positive for yen and negative for stocks at the margin.”

Earlier, Japanese inflation data exceeded forecasts. Consumer prices in July rose 2.8% from a year earlier, the same as the prior month and higher than the 2.7% expected by economists.

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 8:18 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 0.3%
The MSCI Emerging Markets Index fell 0.1%

Currencies

The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.1% to $1.1126
The Japanese yen rose 0.5% to 145.61 per dollar
The offshore yuan rose 0.1% to 7.1362 per dollar
The British pound rose 0.2% to $1.3119

Cryptocurrencies

Bitcoin rose 0.8% to $61,151.54
Ether rose 2.1% to $2,679.47

Bonds

The yield on 10-year Treasuries declined one basis point to 3.84%
Germany’s 10-year yield was little changed at 2.24%
Britain’s 10-year yield declined two basis points to 3.94%

Commodities

Brent crude rose 0.2% to $77.35 a barrel
Spot gold rose 0.3% to $2,492.94 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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