Jackson hole: Global markets are cautious ahead of Fed Chair Kevin Warsh's speech at the Jackson Hole Economic Policy Symposium, while persistent inflationary pressures in the US overshadowed the optimism fueled by chipmaker Nvidia's recent better-than-expected earnings.
According to Anadolu Agency, the US Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, rose 0.2% on a monthly basis, above estimates, fueling concerns over whether the upward trend in the general price level might continue in the coming period. The perception that inflation may persist even if it appears more moderate than before kept investors expecting a rate hike, limiting the positive impact of Nvidia's strong earnings.
The Fed is expected to maintain its policy rate next month with a 66% likelihood, while there is a 62% possibility that it will raise rates by 25 basis points in October. The US two-year Treasury yield rose by about three basis points on Thursday to 4.23% as it is particularly sensitive to policy expectations.
All eyes turned to Warsh's speech to be delivered on Friday at Jackson Hole in Wyoming. He was a participant in the economic symposium both during his time on the Fed's Board of Governors in 2006-2011 and as a Stanford University professor later on. Warsh's statements could calm the markets and drive down risk premiums by giving insight into what potential developments could lead to a rate hike, but analysts say that clear guidance on the trajectory and the timing of policy decisions could impact markets.
Warsh reiterated the bank's commitment to price stability and said the inflation target would not ease, following the bank's most recent monetary policy meeting, when its policy rate was maintained in the 3.5-3.75% range. Kansas City Fed President Jeffrey Schmid said inflation is following a trajectory that's stubborn and persistent. Cleveland Fed President Beth Hammack stated that the time has come to take action on inflation as it will be harder to bring it back down if it remains above the target any longer. Boston Fed President Susan Collins said she's open to supporting a rate hike if conditions do not show that inflation is continuing to decline.
Additionally, the US nonfarm payrolls data will be revised on Friday. Meanwhile, US President Donald Trump said in a social media post that Iran is 'a Failing Nation.' Trump accused Fox News chief correspondent Jonathan Hunt of 'inaccurate' reporting of the 'Failing Islamic Republic of Iran,' saying that he does not want to negotiate with Tehran, and in fact, it is Iran that is 'begging to make a deal' with Washington.
At the same time, the US' initial jobless claims fell by 4,000 to 203,000 in the week ending Aug. 22, below estimates. The US 10-Year Treasury yield rose to 4.68% on Thursday and extended its gains into Friday, trading at 4.69%. The US Dollar Index is trading up 0.1% at 99.2 as demand for the greenback continues to strengthen amid expectations about the Fed's future policy roadmap and the possibility that Warsh may reiterate his commitment to price stability at Jackson Hole.
Gold is trading down 0.5% at $4,580 per ounce due to a strong dollar and high bond yields that are increasing the opportunity cost of holding gold. October-delivery Brent crude is trading down 0.6% at $89.2 a barrel. The S and P 500 rose 0.72%, the Nasdaq increased 1.57% and the Dow Jones Industrial Average was up 0.2% on Thursday. American indexes opened Friday mixed.
European stock markets saw a selloff, except for Germany, while all eyes turned to the volatility in Brent crude oil prices and the possibility of renewed diplomatic dialogue between the US and Iran. The European Central Bank's (ECB) meeting minutes released on Thursday revealed that it is ready to hike rates once again in the near future if inflation does not decline. Some ECB Governing Council members said the data flow since the June meeting supported continued tightening.
The UK's FTSE 100 fell 0.79%, Italy's FTSE MIB 30 dropped 1.17%, and France's CAC 40 declined 1.68%, while Germany's DAX 40 rose 0.31% on Thursday. European indexes started Friday on a mixed course. Nvidia's strong earnings and positive forward signals supported risk appetite in Asian equity markets, with the exception of South Korea. Japan's Tokyo inflation rose 1.9% year-on-year in August, accelerating from the previous month. The Tokyo core consumer price index, excluding fresh food and energy, rose 2% at the same time. Japan's unemployment rate came in below estimates at 1.18% in July. Expectations that the Bank of Japan will hike rates next month have strengthened.
Near Friday's close, Japan's Nikkei 225 rose 0.3%, China's Shanghai Composite climbed 0.1%, and Hong Kong's Hang Seng was up 0.3%, while South Korea's Kospi fell 1.7%.