The Overnight Report: Jackson Hole

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By Chris Weston, Head of Research, Pepperstone

Good morning.

The elastic band had been sufficiently pulled back across markets and evidentially the snapback has partly played out, and we head into the Friday trading session with some of the heat coming out of recent moves.

Traders have massaged extended positioning ahead of Jay Powell’s speech today at Jackson Hole and have lightened up on USD shorts, as they have long positions in US tech and US 2-year Treasuries. The impact of this has spilt over into a small win for those in short gold exposures. Again, there’s little to read into the move lower other than a slight position adjustment after clear exhaustion in the price action.

US interest rate traders have massaged expectations for the September FOMC meeting, with US swaps now implying -26bp of cuts for the September FOMC meeting. Granted, yesterday’s July FOMC meeting minutes read dovish, and many felt they opened the door to a -50bp cut, but a -25bp cut to get the easing cycle cranking up is the correct pricing in my view. The data flow seen through US trade backs that call, with US existing home sales rising for the first time in 5 months, S&P Global services PMIs coming in at a strong 55.2 and the weekly jobless claims at 232k.

The Kansas City Fed president Jefferey Schmid also detailed that the BLS revisions to prior nonfarm payrolls don’t affect his thinking, and one can assume that is the case for all Fed members. Still, when the Fed are data-dependent it doesn’t fill market players with any confidence that they are setting policy to highly inaccurate data.

With rate cut expectations gently eased back we’ve seen the US 2-year Treasury rise 8bp to 4.00%. The USD has taken inspiration from the sell-off in Treasuries, with gains across the G10 and EM FX spectrum.

Gold has sold off in sympathy to the move in the USD and rates and closed -1.1%. 

Crude has also seen a solid technical counter rally off key support and has held the August range lows well. A 1.8% rise in gasoline would have offered inspiration to the crude buyers, but, in both crude and gasoline, it’s hard to believe that the move was anything more than technical. If the crude buyers really wanted to make a statement, we’d have seen price close above Wednesday’s highs of US$74.16 (WTI crude) and that wasn’t the case. Clearly, crude could kick further higher, but conversely if price does roll over and head back to test Wednesday’s low of US$71.46 then I see every chance it breaks down and crude could be targeting US$68/bbl.

US equity has provided Asia with a poor lead and our opening calls suggest the ASX200, HK50 and NKY225 head into the final day’s trade on a soggy note. The selling we’ve seen in the S&P500 has been centred on tech and discretionary names, with some punchy moves lower in Nvidia, Tesla, Amazon, and Microsoft and this has seen a more pronounced sell-off in the NAS100.

The sellers took this one home though, with the S&P500 cash index closing not far off session lows, although cash equity volumes were once again poor and some -20% below the 30-day average. Technically, we’ve seen S&P500 futures hold the 1 August swing highs, so it’s too early to offer a higher probability that this sell-off has lasting legs.

On the calendar today:

-New Zealand 2Q retail sales

-Japan July CPI

-US July new home sales

-Abacus Group ((ABG)) earnings report

-Alcidion Group ((ALC)) earnings report

-Amotiv ((AOV)) ex-div 22c (100%)

-Austal ((ASB)) earnings report

-Australian Vintage ((AVG)) earnings report

-Accent Group ((AX1)) earnings report

-IDP Education ((IEL)) earnings report

-Imugene ((IMU)) earnings report

-Jumbo Interactive ((JIN)) earnings report

-Paladin Energy ((PDN)) earnings report

-Regis Resources ((RRL)) earnings report

-TPG telecom ((TPG)) earnings report

FNArena’s Corporate Results Monitor: https://fnarena.com/index.php/reporting_season/

Corporate news in Australia:

-A troubled Bank of Queensland ((BOQ)) cuts -400 jobs

-IPH Ltd ((IPH)) to acquire Canada’s Bereskin & Parr for -$90m, funding it with a $100m placement and $25m share plan

-Australian Unity Office Property Fund ((AOF)) nears a delisting and windup, with a sale of its Canberra property imminent, leaving just one remaining asset

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

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