Will Powell Move the Market?

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Another Quiet night in equities and FX
Powell Speech on tap
Nikkei -0.35% Dax -0.5%
UST 10Y 0.67
Oil $43
Gold $1941/oz
BTCUSD $1443

Asia and the EU
No Data

North America Open
USD GDP 8:30
USD Weekly Jobless Claims 8:30

Its been another quiet night of trade in the markets with mild risk-off overtones as equities traded slightly lower ahead of a key speech by Fed Chair Jerome Powell.

Stock index futures could not push past the record highs set yesterday as profit-taking kicked in and traders remained cautious ahead of Hurricane Laura landfall. Although Laura did hit land with ferocious intensity, fortunately, it missed the population centers in the Gulf and lost power as it made its way north. Much of the oil drilling industry will likely remain shuttered for a while but the storm has not produced any catastrophic damage and oil was steady around $43/bbl.

In FX the dollar was slightly higher ahead of Mr. Powell’s speech which is expected to reaffirm Fed’s commitment to a loose monetary policy. But Mr. is also likely to stop well short of suggesting that the Fed will entertain any further nonstandard measures such as yield curve control which will temper any dovish impulses in the buck.

One interesting point of note will be the Fed’s view of the current state of economic performance. Despite the lack of additional stimulus the US economy appears to maintain its recovery momentum and if today’s weekly jobless claims continue to decline towards the 1M mark the news would suggest that there is organic demand that may need further policy help.

Overall, Mr. Powell is likely to keep a neutral stance but if his reading of the current improvements strikes a positive note that could provide the markets with further momentum to take equities higher and also rally the dollar which has been battered on relative growth concerns.

If on the other hand, Mr. Powel continues to be very guarded in his assessment of US economic prospects his pessimism may provide the catalyst for a deeper profit-taking move after a near-vertical rise over the past few weeks.

Boris Schlossberg
Managing Director

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