The Overnight Report: Jackson Hold?

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The S&P500 finished its fifth session lower ahead of Fed Chair Powell's all important Jackson Hole speech tomorrow morning, US time. 

After a record day on the ASX yesterday, futures are pointing to a hesitant start to the final session of the week.

Good Morning,

Well, that was a pleasant surprise yesterday. The ASX200 surged to a fresh record high and breached 9000 for the first time, despite some bombshells exploding on individual result disappointments.

The index lifted 101pts or 1.1% to close out at 9019. All eleven sectors advanced led by industrials, consumer staples and consumer discretionary stocks.

For yesterday’s ASX winners and losers, see https://fnarena.com/index.php/2025/08/21/asx-winners-and-losers-of-today-21-08-25/

What happened overnight, NAB Markets Today Research extract

Strong PMIs in the US overshadowed a rise in jobless claims. Three Fed officials reiterated a lack of urgency to cut rates amid residual concern about inflation ahead of Powell tonight. Walmart missed profit expectations and led US equities lower. US yields are 3-4bp higher and the USD rose, though the AUD outperformed against the euro and yen.

The S&P500 fell for its fifth straight session, down -0.4%. Losses on the day were reasonably broad based, with energy and materials the only sectors in the green. Consumer staples led declines as Walmart shares dropped more than -4%. Walmart reported higher sales, but quarterly profit missed expectations, and its chief executive warned tariffs will hit second-half results. The Nasdaq was -0.3% lower, while in Europe the Eurostoxx50 lost -0.2% and the FTSE100 managed a 0.2% gain.

Ahead of Powell’s speech tonight, three Fed speakers demonstrated many on the FOMC are not yet comfortable with the prospect of a September rate cut. Hammack emphasised slowing in both supply and demand for labour and pointed to the steady unemployment rate, saying she wouldn’t support a cut to rates if the decision was tomorrow and that it is important to maintain moderately restrictive policy given too high inflation.

Atlanta Fed President Raphael Bostic said he still sees just one rate cut this year as appropriate and that he prefers the Fed to move in one direction once it starts moving. Kansas’ Jeffrey Schmid said inflation risk still outweighs risks to the labour market. In contrast, Fed chair contender James Bullard called for -100bps of cuts this year.

Fed pricing was pared. There are -18bp priced for September and -48bp by year end. That was -21bp and -53bp a day earlier. 2yr Treasury yields are 4bp higher at 3.79%, while the 10yr is 3bp higher at 4.32%. European yields were also higher, the German 10yr yield up 4bp to 2.76%.

In currency markets, the US dollar was broadly stronger, up 0.4% on the DXY. The AUD saw some relief on the crosses, down -0.2% at 0.6422 and trading a narrow 0.6415 to 0.6437 range. 

In other Fed news, the DoJ urged Powell to remove Lisa Cook from the Board and signalled possible plans to investigate the Federal Reserve Governor. Bloomberg reports President Trump has discussed firing Cook but that’s not under active consideration and that Powell does not have authority to remove Cook. 

US preliminary PMI data for August were stronger than expected. The composite index rose slightly to 55.4 in August. Expectations were for a small fall after the jump in July. This was driven by a 3.5pt lift in the manufacturing component to a three-year high of 53.3, while the services PMI nudged down to a still-robust 55.4. the services measure remains in stark contrast to the ISM, which was 50.1 in July. Output prices were elevated for both manufacturing and services.

The PMIs overshadowed a surprise jump in jobless claims. Initial claims jumped to 235k (consensus 225k), though auto retooling this time of year may be a culprit in week-to-week volatility. Continuing claims rose to 1972k, the highest since 2021. Existing home sales rose 2% mom in July, albeit off a low base and the Philadelphia Fed business outlook index fell -0.3pts.

The European PMI equivalents had little market impact. The Eurozone composite PMI rose to its highest in 15 months supported by recovering manufacturing. Manufacturing output was the highest in more than 3 years. New orders also showed growth, despite contracting foreign orders amid tariff impacts. While the PMIs show improvement, it is from a sluggish base. Separately, the German Bundesbank said in a monthly report that industrial production remains subdued and cautioned that the sector is “unlikely to provide any growth impetus” in the near term.

On trade, a joint statement provided more details on the EU-US tariff situation. The headline is that the US will keep the current 27.5% tariffs on automobiles from the EU for now, reducing them to 15% only when the EU “introduces the necessary legislative proposal” to reduce tariffs on a range of U.S. seafood and agricultural goods, which EU officials say could be as soon as this month.

Powell Steps Up, extract Chris Weston, Pepperstone

At the heart of the debate for the upcoming Jackson Hole meeting where Fed Chair Powell speaks at 10am (ET), the Fed has maintained that current policy is moderately restrictive and should only change if there are real concerns about the labour market.

Yet, despite three-month average in payrolls growth now at just 35k and the sizeable, consistent downward revisions, Fed voters – particularly those more concerned with core PCE moving further away from its 2% target – will want to see another poor NFP print on 5 September before supporting an insurance cut.

With the 2021 ‘transitory’ fiasco still fresh in many bond traders’ minds, the Fed’s credibility is firmly in focus. Cutting rates in September with core PCE set to push 100bps-plus above target would be a tough call in any environment. The Fed’s more hawkish members will worry that even if August NFP proves weak, there is always the risk of a rebound – and the word resilience returning to the fore.

A move to a neutral policy rate with core PCE heading towards 3.2%-plus in 4Q2025, alongside a possible rebound in jobs, fiscal expansion, and Trump doing all he can to juice up the economy ahead of the November 2026 Mid-term elections, could see the bond market send a strong message of discontent. Resulting in long-end yields moving higher and seeing foreign investors pull back on USD-denominated assets (ex-gold and crypto). 

What’s more, our ability to price inflation risk remains a real challenge. We don’t yet know if tariff pass-through will be gradual – a phased approach that takes time to filter into prices – or a series of step-ups in the price level. Walmart’s CFO noted in its earnings call that “tariffs have started to materialise in higher prices, which would become more significant later in the year” – a clear anecdotal signal to where the risk for inflation resides. 

In essence, the Fed is in a bind, at the mercy of data that may prove inaccurate or subject to sharp trend reversals in the coming months. The prospect of cutting in September only for hindsight to show it was a mistake is elevated. With three – possibly four – Fed governors already seen as Trump’s puppets, it is hard not to conclude that the Fed’s credibility is at risk of being burnt. In some ways, it already is, though few are currently expressing this in capital markets.

All roads therefore lead to Powell pushing for full optionality in September, offering a more dynamic stance where the incoming NFP and core CPI prints will determine which side of the dual mandate requires priority. One thing seems assured: unless Powell explicitly calls for a September cut – a very low probability – Trump will be quick to take to Truth Social to make his feelings known.

For now, market players continue to adjust portfolio exposures accordingly. US interest-rate swap traders have trimmed the implied pricing for a September Fed cut to 73%. US Treasury yields lifted 4bp across the curve – driven partly by CTAs who remain heavily long Treasury futures, as well as by a hotter S&P Global PMI report and hawkish commentary from Fed members Hammack and Schmid.

The USD moving higher in sympathy with US Treasury yields, where shorts have cut back, and this helped fuel net selling in both gold and crypto. In equity, traders have pared core long positions, rotated into value, and shown some appetite for buying volatility as a hedge against further drawdown.

The leads from Wall Street were hardly emphatic, so Asia – notably the ASX200 and HK/China – should act as a safe harbour while the Fed’s credibility is under the spotlight. 

Quote from Michael Howell, CrossBorder Capital 

Ahead of the Fed’s Annual Jamboree at Jackson Hole this week, we remain bullish.

Nonetheless, the current Global Liquidity cycle is not only getting mature (it’s now 34 months old), but it is also starting to look remarkably like the mid-1980s cycle that ended in the 1987 Crash in World stock markets. Don’t panic yet……

Corporate news in Australia 

-MA Financial ((MAF)) is increasing AI & technology spending to help with a flood of loan applications to its residential mortgage lending business.

-Pengana Capital Group is seeking to narrow the discount of its $318m international LIC by moving into private credit.

-RaptorTech has raised $8m valuing the company at $40m.

-WA based Plico Energy, a virtual power plant business, is for sale.

-Brambles ((BXB)) is removing -250 employee positions in mainly head office and admin roles as it prepares for more challenging economic conditions.

-Mirvac Group ((MGR)) is paying advisory and one-off fees for Hostplus and unitholders that are pushing to sack Lendlease Group ((LLC)) as the manager of its three flagship funds worth more than $10bn.

On the calendar today:

-JP July CPI

-UK July retail sales

-AMA GROUP LIMITED ((AMA)) earnings report

-EAGERS AUTOMOTIVE LIMITED ((APE)) earnings report

-ARB CORPORATION LIMITED ((ARB)) ex-div 50.00c (100%)

-ASX LIMITED ((ASX)) ex-div 112.10c (100%)

-ACCENT GROUP LIMITED ((AX1)) earnings report

-COBRAM ESTATE OLIVES LIMITED ((CBO)) earnings report

-CUSCAL LIMITED ((CCL)) earnings report

-CREDIT CLEAR LIMITED ((CCR)) earnings report

-COAST ENTERTAINMENT HOLDINGS LIMITED ((CEH)) earnings report

-DUG TECHNOLOGY LIMITED ((DUG)) earnings report

-GQG PARTNERS INC ((GQG)) earnings report

-GUZMAN Y GOMEZ LIMITED ((GYG)) earnings report

-HELIA GROUP LIMITED ((HLI)) earnings report

-HIPAGES GROUP HOLDINGS LIMITED ((HPG)) earnings report

-INGHAMS GROUP LIMITED ((ING)) earnings report

-IRESS LIMITED ((IRE)) ex-div 11c (50%)

-LASERBOND LIMITED ((LBL)) earnings report

-LATITUDE GROUP HOLDINGS LIMITED ((LFS)) earnings report

-LENDLEASE GROUP ((LLC)) ex-div 17.00c (61%)

-MONASH IVF GROUP LIMITED ((MVF)) earnings report

-QUALITAS LIMITED ((QAL)) earnings report

-VYSARN LIMITED ((VYS)) earnings report

-ZIP CO LIMITED ((ZIP)) earnings report

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

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.

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