Well folks, happy Friday! It's a big day in the markets as Federal Reserve chairman Jerome Powell will speak at Jackson Hole on everything economics and interest rates at 10AM. The market is expecting a reaffirmation of their hawkish agenda, so anything outside of that will definitely lead to a repricing of equities - read on for your daily dose of market inspiration.
“Our obligation is to use our tools to support the economy, and that’s what we’ll continue to do”
- Jerome Powell
Since breaking the month+ long bull run and tumbling from highs reached earlier last week the market has been playing the technicals to a T - instead of falling lower to the 50-day moving average it bounced off support and is trending higher towards resistance at the 200-day MA. RSI is not fully exhausted yet in this rebound, only clocking in at the mid-50s on the day chart currently, meaning that if the market likes this speech further fuel will be added to the run; that said, its likely another catalyst will be needed to push the S&P above 4300 points.
Special Report: JPow's Decisive Speech at Jackson Hole
What’s the significance of JPow’s speech today? For starters, today’s speech is a chance for the FED to own up to their mistakes, and missed guidance for the economy. If you’ll remember last year’s event, Powell has since abandoned the term “transitory” and the idea that a true soft landing could be attained. Today we’ll hear more regarding the FED chair’s vision for how the tightening cycle will continue to unfold. There has been a mix of commentary from the FED panel, however the resounding message has been that they are willing to hike their way into a recession. Today's speech will help the street find out if they mean it. Some FED boards in the past have talked a strong game, however they faltered once the political pressure rose, and economic sentiment fell. This speech will likely determine whether chair Powell will be revered for years to come in a Volker-esque manner, or thrown into the pile of past FED chairs that couldn’t pull it off.
Panning to the affected consumer, the speech today is also going to be a bellwether for international commodity prices, and global growth. As the FED continues to hike interest rates, the US dollar has been dramatically strengthening against other currencies (in fact, since the first March 2022 hike, the DXY has surged over 15%); While this may appear good for the consumer, the global financial system is suffering - This suffering is caused by US dollar-denominated debt increasing in value relative to their own currencies, resulting in a debt spiral that results in the weakening of many global currencies. For commodities, this speech will also leave a sizeable impact on growth expectations for the international community, ergo sending prices into a steep rate of change. The market should be remembered that the FED’s QT measures are still yet to have a real impact on markets. This speech will be a signal to investors everywhere of what the next few weeks and months will look like for the global economy. Watch the live coverage here at 10 AM.
Chart of the Day: Inflation as a Leading Indicator for Unemployment