U.S. Indices closed at record highs on Friday. Fed Chair Powell set the tone of trade for Friday after he alluded to a September rate cut (more below), despite many expecting the Fed Chair to signal a wait-and-see approach given data is due between now and September – he also echoed some of the arguments for cutting rates mentioned by dovish Dissenters Waller and Bowman. This saw equities rally across the board, with the Russell 2000 clearly outperforming. Sectors were almost all green, with outperformance in Consumer Discretionary, Energy and Communication Services, while Consumer Staples was the only sector in the red, while Utilities and Health care lagged peers on their defensive nature. T-Notes bull steepened on the dovish Fed Chair with front-end yields tumbling while the Dollar plummeted, supporting G10 currencies. The Australian Dollar outperformed on the risk environment, while the Japanese Yen also rallied on US/Japan yield differentials. Oil prices settled only marginally higher with little reaction to Powell despite the Dollar weakness, but gains were seen in the morning after the Hungarian Foreign Minister said oil deliveries to Hungary via the Druzhba pipeline have been halted due to attacks near the Russia-Belarus border. Gold prices rallied on the weaker Dollar and lower-yield environment post-Powell. Attention this week turns to US PCE. Overall, Powell was very dovish at Jackson Hole. He has implied the shifting balance of risks may warrant adjusting the policy stance – a hat tip towards a September rate cut, even with more economic data due before the next meeting. Powell warned that both goals are in tension with the downside risks to the labour market rising. He also suggested that effects on consumer prices are now clearly visible and expects the effects will accumulate in the coming months. He added that it is a reasonable base case that the inflation effect of tariffs will be short-lived, something the dovish dissenters argued in July. He also noted that it is possible tariff-driven upward pressure could spur a lasting inflation dynamic but believes this is unlikely due to downside risks in the labour market. He also stated that as labour supply has softened in line with demand, the breakeven job growth rate is down sharply and the labour market is in a “curious” kind of balance. However, he did acknowledge that stability in the unemployment rate allows the Fed to proceed carefully as it considers changes to the policy stance, but pre-emptive action likely would be warranted should a tight labour market pose a risk to price stability. In the wake of the speech, a clear dovish reaction was observed, with markets now pricing in 55bps of easing by year-end, vs 48bps prior to the speech. A September cut is still not fully priced, but the probability has risen to 84% from 72%. Fed Member Collins did not commit to a September decision, given data is still due between now and then. She appeared slightly more focused on inflation goals due to conversations among the Boston Fed district, but she is still focused on the labour side of the mandate. She suggested risks are roughly in balance, and stressed it is about balancing those risks. Meanwhile, Fed Member Hawker echoed her hawkish comments from the day prior, despite the dovish speech earlier from Fed Chair Powell. She is clearly more concerned about missing inflation goals than labour market goals, noting she tries not to take too much from one report when asked about the July report and revisions. When asked if she would like to see rate cuts later in the year, she said she would like to see inflation coming back to target, reiterated that rates are only a small distance away from the neutral rate, and the Fed needs to be cautious about any move to cut rates. Elsewhere, both Oil and Gold closed higher by 0.43% and 1% respectively.
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For anyone following my Platinum Service it made 25 points on Friday and is now ahead by 2645 points for August after closing July with a gain of 3753 points after closing June with a gain of 3530 points, having closed May with a gain of 3606 points, after closing April with a gain of 7685 points after closing March with a gain of 2254 points while closing February with a gain of 4180 points. January ended with a gain of 2768 points while 1997 points were gained in December. October ended with a gain of 2179 points, after closing September with a gain of 4402 points, following a loss of 301 points in August. July gained 1908 points while June saw a gain of 2074 points. The Platinum Service made a record 9619 points in October 2022. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 2300 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
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