The day we’ve all been waiting for has finally arrived and I just hope it will be worth all the hype that preceded it.
There’s been a lot of caution in the markets this week, investors perched on the fence and waiting patiently for the latest thoughts of Fed Chair Jerome Powell. Jackson Hole always gets a lot of attention, something we probably have former Fed Chairman Ben Bernanke to thank for, given his many mic drop moments in the aftermath of the global financial crisis.
The event always seems to land at an important time for monetary policy so the collection of central bankers and a keynote speech from the Chair naturally attracts a lot of attention. It’s a perfect opportunity to lay the groundwork for a big policy shift a few weeks later and at one stage, it appeared that Powell may use this platform for just that purpose.
But a lot has changed in the last few weeks. The data is showing softness, particularly in the surveys where delta nerves are weighing on expectations as cases surge and fatalities continue to rise at a worrying rate. The economy has bounced back strongly but the committee may not be as aligned on tapering as they seemed after the jobs report.
While we may have heard some very hawkish views from James Bullard, Robert Kaplan and Esther George on Thursday that triggered some risk aversion in the markets, there are two things all of these have in common. They all typically land towards the more hawkish end of the scale of Fed policymakers and none are voters on the FOMC this year.
So the comments from Jerome Powell today may not necessarily align with their views. Don’t get me wrong, tapering won’t be put off for long and a December start may well be on the cards. But Powell may well refrain from saying too much today and instead give the Fed a few more weeks to assess the data ahead of the September meeting.
Whether investors would welcome the Chair joining the rest of us on the fence and view it as a positive for the markets, we’ll see. It leaves plenty open to interpretation. The data over the next few weeks may improve, the Covid trend may reverse itself and provide more comfort for policymakers.
One thing looks clear, any suggestion that the Fed is happy to proceed with a taper in September may get a nasty reaction in the markets. The Fed could offset this with a commitment to reduce asset purchases at a more gradual pace in order to alleviate concerns. I’m just not sure if that would be enough to alleviate concerns and Powell may not view it as a risk worth taking.
Bitcoin steadies but correction may still be on the cards
Bitcoin has steadied itself after Thursday’s selling, with the crypto managing small gains today. It has continued to rally in recent weeks but momentum has been increasingly lacking. These kinds of divergences often precede corrective moves which is what we may be seeing play out in bitcoin.
A move below USD 46,000 could signal a broader correction in bitcoin, with USD 44,000 being the next big test below. A move back towards USD 40,000-41,000 would be very interesting, although there’s some way to go first.
Oil edges higher as Tropical Storm Ida moves towards the Gulf
Oil prices are rising after a brief dip on Thursday, up around 1.5% on the day. A 10% rebound earlier this week saw Brent break back above USD 70 and WTI may not be far behind. It’s run into some resistance around USD 69 already, with the USD 69-70 zone being a key pivot point for WTI in recent months.
Crude prices remain well off their summer highs so there’s still room to run, even accounting for the less promising outlook in the near term as a result of the delta surge across various countries.
We may also be seeing prices rising in anticipation of Tropical Storm Ida reaching the Gulf on Friday before making landfall as a category three hurricane. The risk of the intensity increasing ahead of making landfall may be supporting prices into the end of the week. Various companies have been removing workers from offshore facilities in anticipation of the storm.
The OPEC+ meeting next week will be one to watch, with prices once again elevated and following suggestions from the White House recently that the group should be increasing production faster. While the group won’t bow to pressure from the White House, some members may agree with the US which could make for interesting discussions.
Gold pares gains ahead of Powell
Gold failed to hold onto earlier gains but continues to trade close to USD 1,800 ahead of Powell’s Jackson Hole speech. Like most things this week, that’s what it all boils down to. Eagerly anticipating events to come and position accordingly. Softening data and rising delta risks have given gold a new lease of life.
Should Powell keep his cards close to his chest on tapering and even open the door to standing pat in September as a result of the Covid data, gold could break sustainably above USD 1,800 and even set its sights on the highs around USD 1,833, maybe even beyond.
A taper hint on the other hand could spell trouble for gold’s revival and see it once again fall out of favour, with USD 1,760 becoming the key level of interest in this scenario.
