Author: Ye Zhen , Wall Street News
The man who dominates the fate of the global market is about to appear again!
From August 22 to 24, central bank governors and economists from around the world will gather for the annual Jackson Hole Global Central Bank Meeting. Federal Reserve Chairman Powell will deliver a keynote speech at 10:00 a.m. Eastern Time on August 23 (22:00 Friday Beijing Time).
The timing of this Jackson Hole Annual Meeting is quite special. On the one hand, the Federal Reserve is at a policy crossroads and is about to start cutting interest rates. On the other hand, the global market has just experienced a big rebound after a sharp drop.
Analysts believe that whether last week's rebound can continue depends on whether Powell can give a clear signal about the September rate cut. Global markets are waiting with bated breath, and some strategists call for caution before Powell speaks, "because the more the market rebounds in advance, the more vulnerable it may be."
01 The higher the expectations, the harder the fall?
After the unexpectedly disappointing July nonfarm payrolls report, fears of a recession in the United States surged and global markets experienced a "Black Monday." However, with the release of strong consumer data such as retail sales, fears of a recession quickly receded.
Last week, global markets rebounded sharply, with the S&P 500 index breaking its four-week losing streak and rising 3.9% in a week, its strongest performance since November last year. Japanese and European stocks rose 7.9% and 2.4% respectively this week.
The market's expectations for the Fed's rate cuts have also fluctuated wildly amid the market's ups and downs. The market currently expects a rate cut in September, but is still unsure about the extent of the cut, and is in urgent need of clear signals to provide further guidance. The next employment report will be released the day before the Fed's September meeting begins, so this meeting at the end of August is the only opportunity for the market and Powell to "positively communicate" before the September decision.
The market expects Powell to set the tone for a September rate cut in his Jackson Hole speech.
According to MarketWatch, James Knightley, chief international economist at ING, said Powell is likely to emphasize that inflation is moving in the right direction, which makes the Fed more confident in achieving its 2% target. Powell may also hint that slowing inflation allows the central bank to focus more on its other mission, which is to maximize employment:
"I suspect he'll say something like, given the deterioration in unemployment, we really should start cutting rates sooner rather than later."
However, the higher the expectations, the greater the risk. Bloomberg quoted Eric Beiley, executive managing director of wealth management at Steward Partners Global Advisory, as saying, "If traders hear that a rate cut is coming, the stock market will react positively... If we don't hear what we want, it will trigger a massive sell-off."
02 Is Powell the one who keeps his mouth shut?
Analysts warned investors not to expect too much clarity from the Fed chairman, as Powell's personality makes him likely to remain tight-lipped about the timing of a rate cut, let alone how much it might fall.
“Looking back at past Jackson Hole speeches, it’s unlikely we’ll get very instructive comments from Powell,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management.
Former New York Fed President William Dudley said the Fed chairman may signal that tight monetary policy is no longer necessary, but he does not expect Powell to hint at the size of the first rate cut, especially because there will be a jobs report on Sept. 6 for central bank officials to consider before their next policy decision on Sept. 18.
“I was urging caution ahead of Jackson Hole, especially because the more we rally ahead of time, the more vulnerable [stocks] could be,” said Steve Sosnick, chief strategist at Interactive Brokers.
Judging from the market reaction, the stock market's reaction to the Federal Reserve Chairman's speech at the Jackson Hole Economic Symposium has always been flat and mostly positive.
Over the past 20 years, the S&P 500 has returned an average of 0.4% during meetings, according to Dow Jones Market Data. The index has risen an average of 0.1% in the month following the meeting and 1.8% in the three months following the meeting.
But there are exceptions. On August 26, 2022, Powell said in his speech that the Federal Reserve needs to maintain monetary policy restrictions to fight inflation, which shattered investors' hopes that the Fed's interest rate hikes would end quickly. The S&P 500 index plummeted 3.4% that day.
Current options market pricing shows that the S&P 500 is expected to move more than 1% in either direction on the day of Powell's speech.
