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Jackson Hole In Focus


26 August 2021

Futures in the United States and Europe are lower today as investors await the outcome of the Jackson Hole Symposium. Comments due to be made by central bank officials and global financial experts are critical for investors to hear, because they may provide clues as to how and when the Fed may begin to taper its massive stimulus. Any unexpected remarks could spark volatility in the stock market.

Stock Market

Stock markets have performed well over the last three days, with all major indices consistently rising and even closing at record highs. The Dow Jones Industrial Average rose 0.11% yesterday, while the S&P 500 index went up 0.22%. The Nasdaq, a tech-savvy index, expanded 0.15%, while the Russell 2000, a small-cap index, jumped 0.37%.

One reason behind the positive sentiment may be narrowing fears regarding the wide spread of coronavirus cases caused by the Delta variant. The change in perspective is evident from the rise in treasury yields in the U.S. On Wednesday, the yield on the 10-year Treasury bond increased to as much as 1.352%. This is the highest level reached since earlier in the month, when the yield rose as high as 1.364%.

It is clear from the boom in treasury yields that Americans believe that the Delta variant is likely to hit the ceiling in the U.S. This improvement would quickly transform into an enhancement in confidence, a resumption of economic reopening, and an injection of investment into cyclical and small-cap companies.

Jackson Hole Symposium

The meeting, to be held virtually today and carry on until Friday, is the most important event of the week. Investors will be looking for clues about central bank’s withdrawal of monetary stimulus. Since the start of the coronavirus pandemic, the Fed has been pouring $120 billion into the US economy each month through its bond-purchasing programme. This strategy’s liquidity has facilitated economic growth and helped to keep long-term policy rates low.

Despite the fact that many are anticipating remarks by Federal Reserve Chair Jerome Powell on the subject, it is very unlikely that he will make any market-moving declarations at this meeting. Because of the recent softening in economic growth, the Fed has already indicated that it may begin tapering before the end of 2021. Having said that, investors should anticipate a cautious tone from policymakers at this meeting.

Economic Reports

Investors should remember that last week’s unemployment claims number and preliminary GDP data, quarter-over-quarter, are due today. This data would provide stock traders with a better understanding of how the U.S. economy is holding ground against the dynamic coronavirus situation.

It is forecasted that 350,000 Americans filed for jobless benefits last week, compared to 348,000 the week before.

On the other hand, despite rising GDP over the last two quarters, the figures have fallen short of expectations. Any underperformance of GDP would only add fuel to the Fed’s decision to begin tapering in the coming months.

Bitcoin

Citigroup has become the latest entrant into the blockchain arena and is considering trading crypto futures on the Chicago Mercantile Exchange. As per reports, the bank has been cornered into being involved in the digital sector because of surging interest by investors. The international bank is interested in products such as futures because such products are governed by strict regulations. The involvement of Citigroup is significant because it operates on a large scale, operating in nearly 160 countries with more than 200 million customer accounts.

Citigroup is following in the footsteps of Goldman Sachs and Morgan Stanley, both of which have expressed interest in the cryptocurrency sector. In June, Goldman Sachs announced that it, too, would offer Bitcoin derivatives to its clients and would establish an exclusive trading desk for digital assets. Similarly, Morgan Stanley announced in April that it would offer its clients access to cryptocurrencies via two crypto funds.

Gold

On Wednesday, gold prices retraced, falling below $1,800 with the dollar index rising and investors awaiting a potential timeline for the Federal Reserve’s tapering of asset purchases. Traders are unsure whether the central bank will soften its hawkish stance or accelerate the winding down of its stimulus. The Jackson Hole meeting today could provide additional clarity for investors.

Asian Markets

Following South Korea’s central bank’s reduction in interest rates, Asian Pacific stock markets are trading lower. South Korea is the first developed country to embark on the unavoidable tightening of monetary policy. The Bank of Korea’s policy rate has risen by 25 basis points to 0.75%. The likely cause of the hawks taking control is the worsening of the economy as a result of a ramp-up in coronavirus cases.

As of 11:28 p.m. EST, the Nikkei fell 0.11% while the Shanghai Composite Index was down 0.69%. The ASX 200 index dropped 0.33% and Seoul’s Kospi fell 0.54%. The Hang Seng index, in Hong Kong, declined 1.27%.

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