IMF chief economist Pierre-Olivier Gourinchas spoke in an interview with Reuters at the Jackson Hole annual economic symposium on Friday. Saud the BoJ can continue to raise rates gradually, a ‚data dependent‘ pace:

• inflation is higher than the Bank’s 2% target
• inflation expectations have started to move „maybe even a little bit above“ that target
• BOJ’s beginning to normalise monetary policy is „certainly something that we think is a good development for Japan“

Gourinchas also weighed in with his two cents on the market volatility:

• „I think the market overreacted,“
• „… we could see other episodes of market volatility“ due to rate cuts from many central banks while the BOJ begins to raise rates

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I don’t know how much attention the Bank of Japan will give his opinions. I suspect not much.

He’s right about more volatility to come at least. With Federal Reserve Chair Powell confirming a September rate cut:

• Forexlive Americas FX news wrap: USD falls as Powell pleges „everything we can“ for jobs

And the BoJ hiking, plenty more to come.

This article was written by Eamonn Sheridan at www.forexlive.com.

• Powell at Jackson Hole: The time has come for policy to adjust
• BOE’s Bailey: Market events like two weeks ago will happen, test is whether more triggered
• Fed’s Goolsbee: We want to be careful about the employment side of the mandate
• Goolsbee: The size of Fed cuts isn’t important, it’s the path
• ECB’s Rehn: European growth outlook is looking somewhat weaker than the US
• Canada June retail sales –0.3% vs -0.3% expected
• US new home sales for July 0.739M vs 0.625M expected
• Fed’s Bostic estimates long-run Fed rate at 3%
• Fed’s Bostic: We want a calm, orderly return to normalization
• ECB sources: Broad support starting to form over Sept rate cut

Markets:

• NZD leads, USD lags
• WTI crude up $1.91 to $74.92
• US 10-year yields down 6.5 bps to 3.79%
• Gold up $28 to $2510
• S&P 500 up 1.1%

Powell’s Jackson Hole speech had plenty of hype and often that leads to a let-down but that certainly wasn’t the case this time. Most expected him to at least hint at a rate cut but he laid it out explicitly and then layered on a comment saying the Fed „will do everything we can to support a strong labor market.“

Also notable was what that speech didn’t include and that was a nod to moving gradually or anything along those lines. That means Powell wants to keep his options open around 50 bps either now or later.

In short, he managed to out-dove himself despite a high bar and the market reaction was strong. The US dollar fell hard across the board in a move that sustained itself throughout the day with few pullbacks.

There was some angst about Powell yesterday and that led to USD buying but those moves were wiped out in the initial round of USD moves followed by an extension later.

It was all orderly but I’m going to be carefully watching USD/JPY in Asia-Pac trading at the open. That pair fell nearly 200 pips and finished with the lowest close since January. There’s still 270 pips until the intraday squeeze low from August but those left in the carry trade could be feeling the pinch and there could be another rush to the exits.

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

Powell offered a lift to US stock markets but there was some mid-day angst along with signs of sector rotation into pro-cyclical small caps.

Closing changes on the day:

• S&P 500 +1.2%
• Nasdaq Comp +1.5%
• DJIA +1.2%
• Russell 2000 +3.1%
• Toronto TSX Comp +1.1% (record high)

On the week:

• S&P 500 +1.4%
• Nasdaq Comp +1.4%
• DJIA +1.3%
• Russell 2000 +3.4%
• Toronto TSX Comp +4.1%

The S&P 500 is now just 0.6% away from the all-time high.

This article was written by Adam Button at www.forexlive.com.

Bitcoin has been lagging in the recovery from the broad market rout in the start of August, in part because of worries about the sale of Mt. Gox bitcoin. But it’s making up for lost time today, rallying nearly 5% and trading at a session high.

The daily chart has a nice look as it breaks out of two weeks of consolidation to the upside with not much standing in the way of $68,000.

This article was written by Adam Button at www.forexlive.com.

The great stock market turnaround in August was impressive in many ways but when I take a step back, there was one big question being asked and answered: Is the Fed behind the curve?

Within that question is a set of assumptions about the US economy and if you look at the economic data, there was cause for concern. The ISM services index in June fell to the lowest since 2020, global commodity prices have been falling and US unemployment has been rising.

A big boost for US stocks came on strong retail sales data but when I survey the picture of US data over the past two months, there’s no clear trend. What was clear though was corporate America.

Scotia here highlights how rarely ‚recession‘ was mentioned on earnings calls:

„So far we aren’t experiencing a weaker consumer
overall,“ said Walmart’s CEO. That was backed up by Target and many others.

For sure, there were some pockets of weakness like McDonald’s an anything housing-related but those are looking like outliers. McDonald’s has been getting pushback on pricing (and did say there was a strong response to $5 meals) and housing is very rate-sensitive.

What emerges is a picture of a consumer that’s picky about pricing but not in a recessionary mindset, at least not yet.

On earnings overall, it was a positive picture, according to Scotia:

The U.S. Q2 reporting season is essentially over
with 95% of companies having reported. S&P 500 Q2 EPS is coming in at US$59.86, which is better
than the US$58.64 expected at the start of the reporting season. See Exhibit 3. The beat propelled
the earnings growth rate up to 11% y/y vs. expectations of 9% when the reporting season started.
At the company level, the median earnings beat was 4.4%, which is only slightly below the last two-
year average of 4.6%, but above the five-year pre-pandemic average of 3.8%. Harder to manipulate,
the top line also exceeded expectations, rising +5.7% y/y, the best reading since the final quarter of
2022, as 60% of companies topped Wall Street forecasts. Lastly, the percentage of sectors reporting
a y/y earnings decline was stable at 27% (three reported an EPS decline), but well below levels
registered in 2022 when more than half of sectors suffered earnings contraction.

On top of that:

• Wall Street hasn’t trimmed earnings more than usual going forward
• Revenue forecasts today are slighly above June levels for both 2024 and 2025
• Few one-time charges, impairments or no-cash expenses, which points to earnings quality

Scotia sums it up nicely: „If a steep US macro downturn has indeed started, it’s not yet showing up in
earnings numbers (actual or expected).“

This article was written by Adam Button at www.forexlive.com.