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

—

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.

Headlines:

• Preview: What to expect from Powell at Jackson Hole
• From angst to relief for US equities?
• GBP/USD lingers near the 2023 high as buyers hope for a breakout to end the week
• France August business confidence 97 vs 94 prior
• BOJ governor Ueda reaffirms closely watching market moves with high sense of urgency
• BOJ governor Ueda: Markets remain unstable, moves have been volatile
• BOJ governor Ueda plays down any differing policy stance with deputy governor Uchida
• Japan finance minister says FX intervention in July was effective
• ECB’s Kazāks: No reason now not to follow through on projection for rate cuts

Markets:

• AUD leads, USD and CHF lag on the day
• European equities higher; S&P 500 futures up 0.5%
• US 10-year yields down 1.4 bps to 3.848%
• Gold up 0.6% to $2,498.53
• WTI crude up 1.3% to $73.96
• Bitcoin up 0.2% to $60,781

It was a quieter session with little in terms of market news flowing through. All eyes are on Fed chair Powell’s appearance later in Jackson Hole and that is captivating the attention of market players for now.

The dollar is somewhat sluggish again today, after having recovered a little in trading yesterday. On the week itself, it remains vulnerable to further declines across the board.

USD/JPY was an active pair in Asia amid remarks from BOJ governor Ueda in a parliamentary hearing. But the pair stuck around 145.60-10 in European morning trade, now down just 0.1% at 146.05.

Besides that, the dollar is leaning on the softer side against the higher beta currencies. GBP/USD is up 0.3% to 1.3125 and eyeing its 2023 high while AUD/USD is up 0.4% to 0.6730 on the day.

That comes as equities are in a more cheerful mood, after getting checked back a little in trading yesterday. S&P 500 futures are up 0.5% as investors are turning angst to relief ahead of Powell’s remarks later.

If you’ll be in Sydney next week, do drop by and give a hello as Eamonn and myself will be at the Finance Magnates Pacific Summit from 27 to 29 August. The attendance is free and I’ll be presenting on how one can approach trading just as you would picking up a sport. Have a great weekend, everyone!

This article was written by Justin Low at www.forexlive.com.

It’s been fairly one way traffic for equities since Asia trading. S&P 500 futures were lightly changed earlier in the day but are now up by roughly 0.5% ahead of US trading. Wall Street opened higher yesterday but surrendered gains during the session to close modestly lower. It can be argued that there was some pre-Powell angst perhaps but that looks to be clearing up now.

So, what exactly can we expect from the Fed chair later?

I won’t expect him to rock the boat amid fears of stirring up another volatility bout in markets. As such, it is likely that Powell should just reaffirm that they are looking to cut rates next month. But whether it be 25 bps or 50 bps, that is something that he won’t pre-commit to surely.

In other words, Powell will try to play it safe. The question is, will markets sense some relief for that? Or are they going to kick and scream again to force a 50 bps move? The current pricing shows that the odds of a 50 bps rate cut are priced at ~26%. So, there is some backpedaling to do there if the Fed doesn’t deliver.

That being said, there was no issue for risk trades when we went back from six rate cuts at the end of last year to just one by May. So, what’s a quarter pricing extra of 25 bps eh?

This article was written by Justin Low at www.forexlive.com.

The pound has quietly been an outperformer among the major currencies in trading this year. Amid a more resilient economy and stickier inflation, the BOE has seen their rate cut plans pushed back. And that has helped to underpin the currency as most other major central banks are on track to cut rates further.

The latest to fall in that domino is the dollar, having endured a rather punishing last two weeks. In turn, GBP/USD has made significant progress in a push from 1.2800 to now above 1.3100.

And as we look to close out the week, buyers are taking aim at the 2023 high of 1.3142 currently.

Another notable development in August is that we are seeing price push above its 100-month moving average of 1.2926. GBP/USD has had a long history of struggle against its key monthly moving averages, stretching all the way back to 2008. And so, a firm break here could very well open up scope for a stronger upside push alongside the other technical levels highlighted above.

At the end of the day, it all comes down to the divergence between the BOE and Fed. And of course how quickly things will narrow once inflation pressures in the UK begins to come under control.

But with the dollar stumbling across multiple charts, it’s tough to argue against a softer backdrop for the US currency – at least for now.

All eyes will be on Fed chair Powell next to see if he will deliver another blow to the greenback before the weekend.

This article was written by Justin Low at www.forexlive.com.

As the dollar bounced back a little, gold fell by 1% and more importantly back under the $2,500 mark. Price is still keeping above the previous triple top pattern around $2,480 but buyers will be hoping to clinch a more convincing push above the figure level to solidify the breakout status.

Instead, price action focus now turns towards the near-term chart as seen above.

The drop under $2,500 sees gold move back to test its 200-hour moving average (blue line) and buyers are holding for now. Keep above that and buyers will still be in it with a shout as we look to close out the week. But break below and sellers will start to resume near-term control for the first time since the start of August.

Fed chair Powell’s appearance is the key risk event to watch in the day ahead. That will matter for both dollar and bond market sentiment.

As such, gold will have to work with the reaction to that to wrap things up this week. For now, price action is sitting in a more neutral spot in the near-term. That considering we are seeing price trade back in between its 100 (red line) and 200-hour moving averages. And also with the $2,500 level in focus too.

This article was written by Justin Low at www.forexlive.com.

• Eurostoxx +0.2%
• Germany DAX +0.2%
• France CAC 40 +0.3%
• UK FTSE +0.3%
• Spain IBEX +0.6%
• Italy FTSE MIB +0.6%

S&P 500 futures are up 0.4% as risk sentiment holds steadier to start the session. All eyes are on Fed chair Powell’s appearance later today to set the mood before the weekend. It is anticipated that he will confirm expectations of a rate cut in September. I wouldn’t expect him to be too explicit about it though. But we’ll see.

This article was written by Justin Low at www.forexlive.com.