- Risk on pauses for breath
- Traders watching for smoke signals from the Fed
- German consumer confidence takes a knock
Risk takes a pause: Stock markets dropped in early trade on Thursday and the dollar rose a touch ahead of the Jackson Hole meeting, whilst wobbly German confidence knocked the wind out of this week’s rally in Europe. The major bourses were roughly 0.5 per cent in the red at the start of the session, coming off a decent rally so far this week and another set of records on Wall Street. In London, 7-1 decliners to advancers indicates the broad selling with just healthcare keeping in the green in the early part of the session with AstraZeneca doing all the work. Basic materials is the weakest sector with all the major miners in the red. Characterise today as risk talking a pause for breath after a solid run this week.
There’s a strong sense of anticipation ahead of Jackson Hole. Rates are on the move, with the German 10-yr bund at a month-high. All eyes are on Fed chair Jay Powell on Friday, though markets seem relatively comfortable that either course he takes will ultimately not create a taper tantrum – we will see. Minutes from the last FOMC meeting clearly stated that most participants expect to be tapering this year. This does not mean the Fed needs to send a clear message to the market this week . Powell can keep some dry powder and wait for the September FOMC meeting at least. The last couple of weeks have shown growth momentum fading and US covid cases spiking, but it’s also showing inflation is proving to be sticky. If anything what we are seeing is just how difficult it will be to exit such a huge policy response (to the pandemic) without serious repercussions – be they inflation scarring, financial stability, financial bubbles or whatever. South Korea lit the torch as the country’s central bank raised rates overnight from 0.5 per cent to 0.75 per cent.