Futures Climb Tentatively Ahead Of Powell's J-Hole Speech

Futures are slightly higher ahead of today's Jackson Hole main event, with tech flat following yesterday’s violent Nvidia "sell the news" dump even as yields ticked modestly higher again. At 8:00 am, S&P futures were higher by 0.3% on the day, trading just around 4,400 and paring a portion of Thursday’s session losses while Nasdaq 100 futures are flat after the index sank more than 2% yesterday. Europe's Stoxx 50 rises 0.6%, extending its first weekly advance in four as commodity shares led gains as oil and iron ore prices climbed; Asian equities slumped Friday, paring their first weekly gain since July, as Chinese stocks slid and technology shares were sold off. Quality is leading, Growth is lagging; Cyclicals flat vs. Defensives.

Powell kicks off 10:05 am ET and this year’s theme “structural changes in the global economy” appears to have roiled bond markets with some thinking >5% Fed Funds is the new normal or perhaps a higher inflation target. The bond market reaction may result in lower yields as we turn the page to Sept as JPM does not think Powell tips his hand on future policy at this event. Treasury yields ticked higher, with two-year notes holding above 5%. The dollar was little changed; commodities are mixed with Energy leading and metals lagging.

In premarket trading, Digital World Acquisition Corp. the special-purpose acquisition company that’s seeking to take Donald Trump’s media company public, falls 4.4% after the former President posted his own mug shot in a return to Elon Musk’s X. Affirm Holdings jumped 7.5% after fourth-quarter revenue at the financial technology company beat expectations, helped by an increase in transactions on its platforms. Here are some other notable premarket movers:

Ardelyx rises 2.8% after the biotech was upgraded to overweight from neutral at Cantor Fitzgerald, saying that the Street is underappreciating the peak sales potential of Xphozah, Ardelyx’s flagship drug.
Clarivate Plc dips 1.8% after RBC Capital Markets downgraded the information services company to sector perform from outperform.
Domo (DOMO) tumbles 33% after the application software company cut its full-year forecast. Cowen cut its rating on the firm in the wake of the report, citing the significantly lower guidance.
Hawaiian Electric (HE) sinks 21% as the utility’s woes deepened following the wildfires in Maui, suspending its dividend while S&P cut its credit rating.
Marvell Technology (MRVL) falls 3.1% after the semiconductor company gave a forecast for the current quarter that was largely line with Wall Street estimates. Analysts noted that its AI business was continuing to grow while KeyBanc said its networking and consumer segments were still weak.
Olaplex (OLPX) drops 5.0% as Piper Sandler cuts its recommendation on the hair-care company to underweight from neutral, citing margin pressures.

Equities have struggled for direction this week, gaining strongly one day only to wipe out the advance the next, as the focus swung from Nvidia earnings to the trajectory of interest rates. As previewed yesterday, Powell, who is scheduled to deliver a speech at 10:05 a.m. Washington time, will likely outline how officials will assess whether rates should go higher and determine when it’s time to start cutting them.

“There could be another phase of uncertainty and a broad-based selloff is possible depending on the magnitude of the hawkishness” at Jackson Hole, said Carlos von Hardenberg, portfolio manager at Mobius Capital Partners. “But the market is differentiating relatively radically between companies that are in the pole position to show very strong earnings growth in the near and medium term.”

The effects of higher-for-longer interest rates will overshadow the buzz around artificial intelligence, spelling trouble for tech stocks, according to Bank of America Corp. strategists. On Thursday, even a blowout sales forecast from Nvidia wasn’t enough to stem the Nasdaq 100’s slump amid a rise in bond yields.

Elsewhere, China eased its mortgage policies further in a push to support its economy, although the boost to stocks on the mainland from the news proved to last just a few minutes.

Europe's Stoxx 600 is up 0.3% and set to log its first weekly rise in four. Mining, retail and energy stocks are leading gains while health care creates a drag. Here are the biggest European movers:

Tesco shares gain as much as 1.9%, among the top performers in the FTSE 100 Index, after Barclays lifted its price target on the UK grocer and said there’s scope for a guidance boost.
JCDecaux shares gain as much as 4.5%, the most since May, after Deutsche Bank raises the advertising company to buy from hold, saying risks related to the firm’s China exposure may have been priced in.
Aston Martin shares rise as much as 5.7% after Jefferies raised its recommendation on the luxury sports carmaker to buy from hold, saying it sees scope for the company to build on the re-positioning begun by Chairman Lawrence Stroll.
European tech stocks miss out on any artificial intelligence buzz generated by Nvidia’s blowout sales forecasts, as they languish on the fringes of the global AI race.
Watches of Switzerland plunges as much as 29%, the most on record, after Rolex said it plans to buy luxury retailer Bucherer.
CMC Markets shares drop as much as 20% at the open to their lowest level in nearly four years after the online trading platform said in a trading update that its annual net operating income would be lower than last year due to “subdued” market conditions.

Earlier in the session, Asian equities slumped paring their first weekly gain since July, as Chinese stocks slid and technology shares were sold off on risk aversion ahead of a speech from Federal Reserve Chair Jerome Powell. The MSCI Asia Pacific Index declined as much as 1.2%, trimming its advance for the week to 0.6%, with chipmakers TSMC and Samsung among the biggest drags. A gauge off Chinese technology stocks in Hong Kong slumped more than 2% after Meituan warned of slower orders, while NetEase dropped on a revenue miss as the widespread tech selling clouded over their earnings results, while losses in the mainland were limited following a firm liquidity injection by the PBoC and after the securities regulator met with financial industry firms and urged longer-term funds to help steady the stock market.

Japan's Nikkei 225 fell by as much as 2% after it gapped below 32,000 with tech stocks hit by the broad sector recoil.
ASX 200 was pressured by heavy losses in tech and the commodity sectors, while consumer stocks showed some resilience after stronger earnings from Wesfarmers.
Indian markets closed at their lowest level since June 30 on Friday, marking their fifth straight week of losses, on broad risk aversion ahead of Federal Reserve Chair Jerome Powell’s speech. The S&P BSE Sensex fell 0.6% to 64,886.51 in Mumbai, while the NSE Nifty 50 Index declined by the same magnitude.

Risk appetite in Asia remains fragile amid concerns on China’s economy and expectations of higher-for-longer US interest rates. After a tech-led rally Thursday on Nvidia’s strong results, investor attention has shifted to the Jackson Hole Symposium where Powell’s speech may provide clues on the Fed’s policy path.

In FX, the greenback is supported with the Dollar Index rising 0.2% to its highest since the start of June.

The euro extends recent losses and heads for its sixth weekly decline. EUR/USD drops as much as 0.4% to 1.0766, breaches 200-DMA support on an intraday basis; technically, there is little support until 1.0635, the May lows
USD/JPY pares a 0.3% advance to trade 0.1% higher on the day at 146.04; the pair heads for its fourth weekly advance for the first time since Feb.
GBP/USD down 0.3% to 1.2560, lowest since June 13; the pound was sold for dollars by momentum funds as concerns of a hawkish Powell spurred broad greenback strength, according to traders

In rates, treasuries were slightly cheaper across the curve, following losses seen in core European rates over the early London session. 10-year TSY yields are around 4.245%, cheaper by 1bp on the day with bunds and gilts lagging by additional 3bp and 1.5bp in the sector; belly slightly lags on the Treasuries curve, flattening 5s30s spread by 1.2bp vs. Thursday close. Treasury futures are near lows of the day, adding to losses seen Thursday although price action broadly remains within Wednesday’s session range. US session focus is on Jackson Hole economic policy symposium, where Fed Chair Powell is expected to speak at 10:05am New York. Investors will be focused on Fed speakers at Jackson Hole and the FOMC’s view on the long-term neutral interest rate, which has been in focus extensively this week

In commodities, iron ore was set for its biggest weekly gain since June ahead of China’s traditional peak season for construction activity from next month. Oil trimmed a weekly loss.

Bitcoin is contained in narrow parameters with specific catalysts light as we await Central Bank impetus from the ECB and Fed. JPM sees limited downside for crypto markets in the near term, via CoinDesk.

To the day ahead now, and there are several central bank speakers today, including Fed Chair Powell, the Fed’s Harker, Mester and Goolsbee, along with ECB President Lagarde. Data releases include the Germany’s Ifo business climate indicator for August, and in the US we’ll get the University of Michigan’s final consumer sentiment index for August.

Market Snapshot

S&P 500 futures up 0.2% to 4,396.25
STOXX Europe 600 up 0.3% to 452.93
German 10Y yield little changed at 2.55%
Euro down 0.3% to $1.0782
MXAP down 1.3% to 158.38
MXAPJ down 1.2% to 498.03
Nikkei down 2.1% to 31,624.28
Topix down 0.9% to 2,266.40
Hang Seng Index down 1.4% to 17,956.38
Shanghai Composite down 0.6% to 3,064.08
Sensex down 0.4% to 64,978.04
Australia S&P/ASX 200 down 0.9% to 7,115.18
Kospi down 0.7% to 2,519.14
Brent Futures up 1.1% to $84.27/bbl
Gold spot down 0.2% to $1,913.99
U.S. Dollar Index up 0.20% to 104.20

Top Overnight News from Bloomberg

An abstract interest-rate metric is dominating discussions across trading desks ahead of the Jackson Hole symposium, with investors wondering if Federal Reserve Chair Jerome Powell will weigh in, and bracing for further declines in US Treasuries if he does.
European Central Bank Governing Council member Joachim Nagel said that he’s not convinced inflation is under control enough for a halt in interest rate hikes, with his decision hinging on additional data in the coming weeks.
Business confidence in Germany took another hit in August, despite the economy just exiting a recession in the second quarter.
The yen has eclipsed bond market liquidity as a potential catalyst for a further adjustment to the Bank of Japan’s monetary policy.
American politicians are keener than ever to juice the economy with government cash, a shift that’s already helping to drive up borrowing costs and looks likely to keep them high long after the inflation emergency is over.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded lower following the weak handover from global counterparts after the Nvidia-related euphoria wore off and with markets bracing for Fed Chair Powell's speech at Jackson Hole. ASX 200 was pressured by heavy losses in tech and the commodity sectors, while consumer stocks showed some resilience after stronger earnings from Wesfarmers. Nikkei 225 fell by as much as 2% after it gapped below 32,000 with tech stocks hit by the broad sector recoil. Hang Seng and Shanghai Comp declined with NetEase and Meituan among the worst performers in Hong Kong as the widespread tech selling clouded over their earnings results, while losses in the mainland were limited following a firm liquidity injection by the PBoC and after the securities regulator met with financial industry firms and urged longer-term funds to help steady the stock market.

Top Asian News

PBoC was said to ask some banks to limit southbound bond connect investments with the guidance said to be aimed at outflows and limiting yuan offshore supply, according to Reuters sources.
China reportedly plans to cut stamp duty on domestic stock trading by up to 50%, via Reuters citing sources; could be announced as soon as Friday.
China is issuing nationwide guidance on the easing of mortgage rules; issuing detailed rules for conditions to qualify for first-home mortgage rates.
Reuters polls shows 55% of economists say the BoJ will not start unwinding ultra-easy policy until at least July 2024, while 73% of economists think BoJ will end YCC control in 2024 (prev. 50%) and 41% expect BoJ to end NIRP in 2024 (prev. 54%)

European bourses are modestly firmer, Euro Stoxx 50 +0.4%, with the overall tone a tentative one ahead of Jackson Hole. Limited equity reaction was seen to German Ifo, GDP revisions or an ECB sources piece that had a dovish headline message. Sectors are primarily in the green with outperformance in Energy and Basic Resources while Health Care languishes in the red. Stateside, futures are more contained than their above peers but retain a similar positive skew, ES +0.2% as attention turns to Chair Powell.

Top European News

ECB's Nagel it is much too early to think about a rate-hike pause, while he stated they have to be stubborn on policy and more stubborn than inflation, according to an interview with Bloomberg TV.
ECB's Vujcic said the Eurozone economy is basically stagnating and inflation has most likely peaked, while he added that it is to be seen whether rates are restrictive enough, according to an interview on Bloomberg TV.
Momentum is growing for a pause in ECB rate hikes as recession fears increase, debate still open, via Reuters citing sources; Policymakers agree that any decision to pause would need to make clear the job is not done and future hikes could still be needed. Several of the sources said they saw chances evenly split between hike/pause, smaller number saw a pause as more likely. Re. August Flash PMIs, several policymakers cautioned against reading too much into such surveys as there is a growing gap between hard data and sentiment readings. All sources agreed that even in the scenario of a pause, ECB would need to make clear its job was not done and more policy tightening could still be needed. Those arguing for tightening want solid evidence that inflation is heading back to target without the risk of getting stuck above 2%, say a meaningful decline in underlying inflation would be needed for a pause.
UK Ofgem Energy Price Cap (GBP): 1923 (prev. 2074), -7.3% for dual-fuel households, for the October-December. The first time the average energy bill has gone below 2k since April 2022.

Greenback elevated before Fed Chair Powell emerges from Jackson Hole with the DXY holding above 104.000.
Euro lags after losing 200 DMA and 1.0800+ status vs Dollar even before dovish-leaning ECB sources and downbeat German Ifo survey.
Yen back below 146.00 as yields remain lofty and Tokyo CPI metrics come in mostly softer than expected.
Kiwi faces stronger AUD/NZD headwinds as Aussie derives support from base metals.
NZD/USD towards the bottom of the 0.5928-0.5895 range and AUD/USD vice-versa between 0.6427-03 parameters.
Pound flounders sub-1.2600 against Buck irrespective of improvement in UK consumer confidence per GfK.
PBoC set USD/CNY mid-point at 7.1883 vs exp. 7.2923 (prev. 7.1886)

Fixed Income

Deeper retreat in debt before Fed Chair Powell and ECB President Lagarde deliver remarks at the JH symposium.
Bunds back down towards 132.20 low from 132.57 peak set post-ECB sources and Ifo survey.
Gilts and T-note both depressed within 94.48-24 and 109-20/12+ respective ranges.
BTPs remain under par and sub-115.00 in the wake of a mixed 2-year Italian auction.

Commodities

Crude benchmarks are trending higher despite the modest USD upside and tentative tone overall, action which comes in relatively limited specific fundamentals as we await developments around Australian LNG.
Currently, the benchmarks are towards session highs with WTI Oct'23 above USD 80.00/bbl and Brent Oct'23 around USD 84.50/bbl.
Spot gold is little changed given the incrementally firmer USD and tentative tone overall while spot silver has resumed its advance with technicals assisting.
Base metals benefit from the latest support measures out of China, targeting the property sector.
Offshore Alliance members at Woodside Energy (WDS AT) endorsed the in-principle agreement.
Chevron (CVX) says it has not received any notice of intent to strike from Australian LNG unions.
China's Industry Ministry said it aims to increase the output of 10 non-ferrous metals by 5% in 2023-2024 and will promote companies cooperating in overseas iron ore exploration, especially in neighbouring countries.
Trader sources cited by Reuters suggest rising prices of a popular Russian crude sold in China are set to peak soon as independent refiners are likely to switch to cheaper Iranian crude as Iran boosts exports to four-and-a-half-year highs.

Geopolitics

White House said US President Biden and Ukrainian President Zelensky discussed the start of training Ukrainian fighter pilots and the expedited approval of other nations to transfer their F-16s, according to Reuters.
Russian military said it intercepted a Ukrainian S-200 missile over Russian territory, while the Russian Defence Ministry said a Ukrainian attack on Crimea involving 42 drones was thwarted, according to Reuters and AFP.
Taiwan Defence Ministry said 13 Chinese military aircraft entered Taiwan's 'response zone' and 5 Chinese naval ships engaged in combat readiness patrols on Friday morning, according to Reuters.

US Event Calendar

10:00: Aug. U. of Mich. Sentiment, est. 71.2, prior 71.2
- Current Conditions, prior 77.4
- Expectations, prior 67.3
- 1 Yr Inflation, est. 3.3%, prior 3.3%
- 5-10 Yr Inflation, est. 2.9%, prior 2.9%
11:00: Aug. Kansas City Fed Services Activ, prior -1

Central Banks

10:05: Fed’s Powell Speaks at Jackson Hole Economic Policy Symposium
11:00: Fed’s Harker Interview With Bloomberg TV
11:30: Fed’s Mester Speaks on CNBC
11:30: Fed’s Harker Interview With Yahoo Finance Live
12:30: Fed’s Goolsbee Speaks on CNBC
14:00: Fed’s Goolsbee Speaks on Bloomberg TV
14:30: Fed’s Mester Speaks on Bloomberg TV

DB's Henry Allen concludes the overnight wrap

Markets lost significant ground over the last 24 hours, with equities and bonds paring back Wednesday’s gains after strong data and comments from central bankers saw investors price in more rate hikes. That left the S&P 500 down -1.35%, whilst the NASDAQ fell by an even-larger -1.87%, despite the positive earnings release from Nvidia after the previous day’s close. One of the main catalysts for this were the US weekly jobless claims, which fell to 230k (vs. 240k expected) in the week ending August 19. That was beneath every economist’s expectation on Bloomberg, and the fact it hit a 3-week low created some optimism that the economy might not be as weak as the flash PMIs had suggested earlier in the week.

With the data still pointing in different directions, all attention today will now be on the gathering of central bankers at Jackson Hole for the annual economic symposium. This year’s theme is focusing on “Structural Shifts in the Global Economy”, and the big highlight today will be Fed Chair Powell’s speech at 15:05 London time, where we simply have the title “Economic Outlook”.

Recent years have seen Chair Powell use the conference to address important themes. Last year we had a fairly short and direct message on the importance of price stability, which left little doubt about the Fed’s resolve to get inflation back down. And back in 2021, there was a much more dovish message that leaned into the view that above-target inflation would prove temporary. According to our US economists, they don’t expect Powell to send strong signals this year about the near-term policy path. Their view is that the data dependence message at the last FOMC meeting was clear, and it’s too early to abandon that approach. But it’ll be interesting to see if we get any more insight into Powell’s inflation views, and whether he sticks to the view that getting inflation back to target will require economic weakness, including via a higher unemployment rate.

Ahead of Powell’s speech, there were some interesting developments in market pricing yesterday. In particular, futures now suggest that another Fed rate hike to the 5.5-5.75% range is more likely than not for the first time since SVB’s collapse, with the chance of another hike by the November meeting at 53% by the close, and up again to 55% this morning. Clearly we’ve got another jobs report and CPI print ahead of the next meeting, but the moves suggest that markets are coming round to the Fed’s most recent dot plot from June, which suggested there’d still be one more rate hike from here.

The prospect of another hike meant that Treasuries sold off again, and the 3m T-bill yield (+2.8bps) hit a fresh post-2001 high of 5.464%. There was also an increase in yields further out the curve, with the 2yr yield up +5.6bps to 5.02%, and the 10yr yield up +4.5bps to 4.24%. Not all officials seemed to agree with that, with Philadelphia Fed President Harker (a voter this year) saying that “I think that we’ve probably done enough”, and that “I’m in the camp of, let the restrictive stance work for a while, let’s just let this play out for a while, and that should bring inflation down”. On other hand, Boston Fed President Collins sounded more open to further hikes, commenting that “We may need additional increments, and we may be very near a place where we can hold for a substantial amount of time”.

That fresh rise in bond yields meant that the initial equity rally quickly petered out yesterday, and the S&P 500 was down -1.35% by the close, marking its worst day in over 3 weeks. Tech stocks led the moves lower, as the FANG+ Index fell by -3.04%. Nvidia had traded as much as +6.7% higher at the open after reporting very strong results after the previous day’s close, but gave up these gains to close up by a mere +0.10%. Earlier in the day, European equities saw more moderate losses, and the STOXX 600 (-0.41%) fell back after a run of 3 successive gains.

Speaking of Europe, market attention will also be on Jackson Hole this evening, since ECB President Lagarde is due to give a speech there at 20:00 London time. Since the flash PMIs on Wednesday, investors have become more sceptical that the ECB will keep hiking rates, with just a 32.5% chance of a September hike currently priced. The PMIs pointed to growing economic weakness, with the composite PMI for the Euro Area at its lowest level since November 2020, but Euro Area inflation still remains at more than double the ECB’s target, so there’s lots of points for all sides of the debate.

Similar to Powell in the US, our European economists do not expect Lagarde to give any strong near term signal, but are watchful of hints on how the ECB’s reaction function may evolve as it finds itself at or close to the terminal rate but seeks to avoid an easing in financial conditions. Ahead of Lagarde’s speech today, we heard from Centeno, one of the ECB doves, who said that “we have to be cautious (at the September meeting) because downside risks… have materialized”. This is one of the most dovish ECB comments of the summer though he added that “it was probably too soon to call it a done deal” when it comes to a September pause. On the other hand, Bundesbank President Nagel said that for him it was “much too early to think about a pause” European sovereign bonds were mostly steady yesterday, with yields on 10yr bunds (-0.5bps), OATs (-0.3bps) and BTPs (+0.7bps) seeing little movement in either direction.

Overnight in Asia, the equity declines have continued across the entire region. The Nikkei (-1.84%) is leading the moves, bringing an end to its run of 4 consecutive gains, while the Hang Seng (-1.03%), the KOSPI (-0.72%), the CSI (-0.49%) and Shanghai Composite (-0.45%) have also lost ground. Looking forward, US equity futures have stabilised overnight, with those on the S&P 500 (+0.06%) marginally higher after the previous day’s losses. Otherwise, the US Dollar has continued to strengthen ahead of Chair Powell’s speech, and the dollar index is now on track to close at its highest level since May 31, having risen for 6 consecutive weeks now.

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