Markets are acting as though Jackson Hole is the end-all and be-all of financial indicators

Outlook

Markets are acting as though Jackson Hole is the end-all and be-all of financial indicators, specifically what Mr. Powell says. Expert commentator Donnelly held a poll of some 450+ of his readers and got the outcome on this chart—well over 80% think he will be neutral to hawkish while less than 10% see a dovish slant.

Even the gung-ho CME Fed funds bettors are drawing in their horns. The probability of a cut has moved from 85.4% a week ago to 71.5% this morning. The 2-year, more sensitive to the environment than the 10-year, has been climbing higher by the day and now matches the yield on Aug 1.

Reuters points out that the US economy is looking muscular (PMI) and inflation is, of course, well over target, so that “some Fed officials - including Cleveland Fed boss Beth Hammack, Atlanta's Raphael Bostic and Kansas City's Jeffrey Schmid – expressed doubts about the wisdom of a September cut.”

Powell speaks at 10 am. If you have Bloomberg TV, you can see it. Powell may well mention the conflict between the two mandates. That doesn’t mean he will choose a favorite. It’s probably irrelevant that next week’s PCE inflation is likely little changed. Remember, Lag.  Of all the indicators, inflation lags the most, at least the way it’s measured. In any case, we stagflation is not appearing, but that doesn’t mean Powell believes a cut is appropriate.

Forecast

Uncertainty is running high ahead of Powell’s speech at Jackson Hole. Off on the side, it’s it’s crystal clear Trump achieved nothing—zip, nada—in talks with Russia about ending the war in Ukraine, which has now taken away some of the risk-on mood and ironically, favors the dollar. Inflation is above target and rising, if not frightening just yet. It would be astonishing if Mr. Powell does hint at a September rate cut. For rates to be expected to be kept on hold is actually a bit dollar-negative, because it implies the inflation premium being built into yields can be relaxed. To the extent the dollar depends on yields, we could see the dollar pushback come to a screeching halt today. Get out of Dodge.

Tidbit: When Trump was rampaging through the federal government last spring, it was popular to say foreigners would depart US markets in droves. Many point to the European equity indices outperforming the American, evidence of relative popularity. Foreigners may dislike Trump, but they still like America.

Reuters points out “Once U.S. investors' purchases of foreign assets are discounted, the net flow of long-term capital into U.S. securities in June was still a healthy $151 billion, taking the total for the second quarter to a record-matching $410 billion.

“Zooming out a little further, net inflows in the first half of this year stood at $643 billion, on course to match the record $1.3 trillion net inflow from 2022. And in the 12 months through June, a net $1.27 trillion was poured into U.S. stocks, Treasuries, agency and corporate debt.”

See the chart. The comment at the top says it all. It supports the point of view that the US economy is so robust and resilient that not even Trump can do it much harm.

Tidbit: As is their wont, financial markets are ignoring Trump’s dangerous forays into autocracy. The divide between markets and political commentary has never been so wide. The companies being extorted by Trump (CBS, Intel, Apple, Nvidia, law firms) are giving gifts, paying the shakedown money and keeping their traps shut, with no support from corporate organizations like the Business Roundtable.

Grabbing actual shares of companies is Marxist and vaguely Chinese, with no one in Congress uttering a peep. Protests against concentration camps are by smaller groups, not Congress. Trump told Texas to re-district to get more votes for his party, and it did. This gerrymandering is the government choosing the voters instead of the voters choosing the government, and even if it has been going on for centuries and by both parties, it stinks. Foreigners may not object to masked, armed federal government officers patrolling US city streets, but they are not arriving as tourists much anymore, ether. Only the big-shot business and finance types with bodyguards are showing up at the major airports. Funny, we are not seeing updated reports on the drop in tourism to the US, estimated last spring at costing some 225,000 jobs and $10-12 billion.

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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