(Bloomberg) — U.S. stocks rose ahead of Jerome Powell’s speech in Jackson Hole, as traders speculated about whether the Federal Reserve chairman would open the door to cutting interest rates.
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S&P 500 futures rose 0.4%, while Europe’s main stock index rose 0.2%. The yield on 10-year U.S. Treasuries was steady at 3.85%, while the dollar retreated. The yen rose after hawkish comments from Bank of Japan Governor Kazuo Ueda.
Powell’s speech, scheduled for 10 a.m. New York time, has been the main focus of traders’ attention all week, and markets took a hit Thursday on concerns he could send a hawkish message. Meanwhile, strategists at JPMorgan Chase and Deutsche Bank AG say they expect moderate moves in bonds during the conference, while options traders are betting on small swings in stocks in the coming days.
“For investors, the big question is how much of a buy-in Powell is to the extent that he believes in expectations of a September rate cut, and whether he gives any indication of how big any rate cut might be,” said Jim Reed, a strategist at Deutsche Bank AG.
The Fed’s Jackson Hole Conference Is Now Underway: Here’s What to Expect
The annual gathering of policymakers and academics in Wyoming may ultimately prove to be a non-event. Over the past decade, yields on two- and 10-year notes have moved less than 4 basis points on average, according to data compiled by Bloomberg. The S&P 500 has been more reactive, fluctuating around 1.3% on average.
But an aftershock is not out of the question. Two years ago, Powell surprised the market with a hawkish speech that sent the S&P 500 down 3.4%, while the yield on 10-year notes saw daily swings of 8 basis points.
Jackson Hole history suggests Powell avoided market shocks
Investors are pricing in a quarter-point rate cut at the Fed’s Sept. 17-18 meeting, but expect a full-point cut by the end of the year, according to futures markets.
“It may be very difficult for Powell to outdo the markets,” said Christopher Wong, a foreign exchange strategist at Overseas China Banking Corp. “But at the same time, I doubt many expect him to do so — so as long as there is no hawkish surprise from his speech, markets are happy to continue trading the Goldilocks theme, i.e. fading dollar gains.”
Yen gains
Meanwhile, the Japanese currency rose about 0.7% against the dollar before paring gains. In his response to lawmakers, Bank of Japan Governor Ueda indicated that the central bank remains on track to raise interest rates, provided inflation rates and economic data continue to match its expectations.
Asked about the market turmoil earlier this month, Ueda downplayed the significance of the Bank of Japan’s interest rate hike in July amid the market turmoil. At the same time, he indicated that he does not plan to rush to raise rates again, saying the BOJ needs to carefully monitor the impact of financial market instability on inflation expectations.
Main events this week:
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US New Home Sales, Friday
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Jerome Powell speaks in Jackson Hole on Friday
Some key movements in the markets:
Stocks
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The Stoxx Europe 600 index was up 0.2% by 10:31 a.m. London time.
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S&P 500 futures rose 0.4%.
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Nasdaq 100 futures rose 0.6%.
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Dow Jones Industrial Average futures rose 0.3%.
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MSCI Asia Pacific Index rose 0.2%
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The MSCI Emerging Markets Index fell 0.2%.
Currencies
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The Bloomberg Dollar Index fell 0.2%.
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The euro rose 0.1% to $1.1125.
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The Japanese yen rose 0.2% to 146.01 yen per dollar.
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The offshore yuan rose 0.1% to 7.1381 against the dollar.
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The pound rose 0.3% to $1.3133.
Cryptocurrencies
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Bitcoin rose 1% to $61,298.94
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Ether price rose 2% to $2,677.46
Bonds
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The yield on the 10-year US Treasury note was little changed at 3.85%.
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The yield on the 10-year German bond was little changed at 2.25%.
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The yield on the 10-year British bond fell one basis point to 3.95%.
Goods
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Brent crude rose 1% to $77.98 a barrel.
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Spot gold rose 0.6 percent to $2,500.32 an ounce.
This story was produced with the help of Bloomberg Automation.
–With assistance from Winnie Hsu, Richard Henderson, and Divya Patel.
(An earlier version was corrected to show that markets were expecting about 100 basis points of cuts by the Fed this year.)
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