Economy

Fed minutes, Jackson Hole and Harris speech – what’s moving markets

Investing.com — Wall Street is seen trading in tight ranges Thursday ahead of more labor macro data, a speech by Vice President Kamala Harris and, perhaps more importantly, the start of the Jackson Hole symposium on Friday.

1. Jackson Hole in focus

Central bankers are starting to gather in Jackson Hole, Wyoming, ahead of the start of the annual symposium.

Fed Chair Jerome Powell’s speech, on Friday, will be the highlight as investors look for clues over the central bank’s intentions next month regarding monetary policy.

Fresh signs of weakness in the U.S. job market have backed the case for interest rate cuts, particularly as a number of Fed officials last month appeared to have even been willing to reduce borrowing costs at the last meeting at the end of July.

“The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have,” Minneapolis Fed President Neel Kashkari said in a recent WSJ interview.

Traders now price in a 38% probability of a 50 basis point cut at the Fed’s Sept. 17-18 meeting, up from 33% a day earlier, and a 62% chance of a 25 bp reduction, according to the CME Group’s (NASDAQ:CME) FedWatch Tool.

“With the Fed’s decision on the pace of rate cuts data dependent, it will be difficult for Powell to pre-commit to a particular trajectory at Jackson Hole,” according to analysts at Deutsche Bank, in a note.

“Nonetheless, his comments could point to a few themes. First, there is a strong base case for a September cut. Second, with downside risks to the labor market, rate cuts are likely to be faster than a quarterly pace. Third, with rate cuts framed as dialing back restraint, it is unclear if rates will fall well below neutral. Fourth, with … policy risks evident following the election, rate cuts beyond the first 75-125 bps are more uncertain.”

2. Futures calm ahead labor data, Jackson Hole

U.S. stock futures traded largely unchanged Thursday, with investors wary ahead of more labor market data and Fed Chair Jerome Powell’s key speech at the Jackson Hole symposium on Friday.

By 04:47 ET (08:47 GMT), the Dow futures contract was 46 points, or 0.11%, higher, while S&P 500 futures and Nasdaq 100 futures were flat.

The benchmark Wall Street indices closed with more gains on Wednesday, adding to the recent rebound rally, with the broad-market S&P 500 index rising 0.4%, the tech-heavy Nasdaq Composite gaining 0.6% and the Dow Jones Industrial Average adding 55 points, or 0.1%.

Wednesday’s tone was helped by the release of the minutes from the Fed’s July meeting which indicated “the vast majority” of participants at the central bank’s meeting said it would “likely” be appropriate to lower the key interest rate mid-September, if data continues to come in as expected.

In the corporate sector, Intuit (NASDAQ:INTU) and Ross Stores (NASDAQ:ROST) are set to release quarterly earnings, while software company Snowflake (NYSE:SNOW) will be in focus after a sharp drop in shares following the close, as did retailer Urban Outfitters (NASDAQ:URBN) following disappointing results.

3. Payrolls data the next port of call

There is more economic data for investors to digest Thursday, as confidence grows that the Federal Reserve will agree to an interest rate cut at its next meeting in September.

The weekly jobless claims are due later in the session, and are expected to show that the number of people claiming unemployment benefits for the first time grew marginally last week to 232,000, from 227,000 the previous week.

This follows the Labor Department detailing on Wednesday that the U.S. economy created 818,000 fewer jobs than originally reported in the 12-month period through March 2024.

The actual growth was nearly 30% less than the initially reported, with the revision to the total payrolls level being the largest since 2009, prompting fears that the labor market will suffer substantially due to the high level of interest rates in the coming months.

Economic activity data in the form of S&P Global PMIs are also due for the month of August, and are expected to show that the U.S. manufacturing sector remained in contraction territory even if services showed strength.

While the Fed is widely expected to cut by 25 basis points next month, the fear of a sharp economic slowdown is keeping the possibility of a larger cut in the market’s view.

In fact, analysts at Citi stated, in a note Wednesday, that a 50 basis points rate cut in September remains their base case scenario.

The July FOMC minutes provided the clearest indication yet that the Federal Reserve is leaning towards policy easing, with a “vast majority” of officials viewing such a move as appropriate.

Citi analysts noted that this sentiment existed before the release of weaker inflation and employment data, which likely strengthened the case for a rate cut.

“Several officials would have supported a cut in July, with more noting risks of a more significant labor market deterioration,” the analysts said.

4. Harris to look more favorably on crypto?

Kamala Harris is set to take the stage at the Democratic National convention later Thursday to deliver a speech accepting her party’s presidential nomination.

She has had to formulate a campaign in short time following the exit of President Joe Biden from the race, given there is less than three months left until Election Day.

An area that she is likely to have to address is the cryptocurrency sector, given a number of crypto investors have rallied behind former President Donald Trump’s campaign, after the Republican nominee has said he favored decreasing government regulation on the industry.

Harris will back measures to help grow digital assets, a policy adviser to her campaign said, highlighting efforts to court an emerging cryptocurrency industry expanding its political influence.

The cryptocurrency industry has bristled under what it sees as a burdensome regulatory scheme under President Joe Biden’s administration and this year is likely to flex its financial clout.

“She’s going to support policies that ensure that emerging technologies and that sort of industry can continue to grow,” Brian Nelson, senior campaign adviser for policy to the campaign, said on Wednesday.
Harris’ team is signaling they’re still interested in implementing safeguards on the industry, which has seen the collapse of numerous high-profile companies.

5. Demand worries continue to weigh on crude

Crude prices edged lower Thursday, continuing to slide with global demand worries weighing heavily.

By 04:47 ET, the U.S. crude futures (WTI) dipped 0.3% to $71.69 a barrel, while the Brent contract was 0.1% lower at $75.94 a barrel.

Both contracts have fallen over 6% over the course of the last week, firstly due to weak economic data from China, the world’s second-largest economy and largest oil importer, and then after the sharp revision to U.S. employment data.

These worries have tended to overshadow the lack of significant progress towards a ceasefire deal in Gaza, which leaves open the possibility of a major disruption to supplies from this oil-rich region if the conflict was to spread.

The Energy Information Administration reported a sharp decline in U.S. fuel inventories on Wednesday for last week, suggesting demand remains healthy in the world’s largest economy, but this has done little to alleviate the gloom surrounding the crude market.

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