- Markets found respite from recent falls ahead of Jerome Powell’s speech on Friday
- The market is flipped on what the result of the September Federal Open Market Committee could be
The recent market slump saw some relief on Wednesday, as stock and crypto traders speculate on what central bankers might pull out after this week’s Jackson Hole symposium.
Stocks managed to stay in the green during Wednesday’s trading session, with the S&P 500 advancing as much as 0.8% and the Nasdaq gaining 1%. After three days of decline, it was a welcome, albeit minor, reprieve.
Top crypto assets bitcoin and ether also edged higher, gaining 1.2% and 0.8% respectively as of 2 p.m. ET, with Fed Chairman Jerome Powell due to report to Jackson Hole in two days.
“We are at an inflection point for mega-cap trading as hedge funds position themselves for further bond weakness and a much weaker consumer as the economy slows,” said analyst Edward Moya. senior market at Oanda.
“Today’s rebound is weak and on light volume, which means most traders are playing the waiting game until Fed Chairman Powell’s speech at the Jackson Hole symposium.”
The Economic Policy Symposium, hosted by the Kansas City Federal Reserve, kicks off Thursday. Powell is expected to speak on Friday, and markets could be caught off guard, analysts say.
“Fed Funds Futures and Treasuries say [Powell’s] The Jackson Hole rhetoric will be rather hawkish, with a commitment to several more rate hikes and no discernible hint of a ‘pivot’ in the first half of 2023,” said Nicholas Colas, co-founder of DataTrek Research.
“With the VIX at 24, US equities may not have fully embraced this eventuality yet.”
Futures markets are showing a 58.5% probability of a 75 basis point rate hike at the next policy meeting in September, according to Data of the CME group. There is a 41.5% chance of a 50 basis point increase.
Even though the markets are fairly evenly split between 50 and 75 basis points, economists do not expect the rate hike to stop in September.
Dan Morehead, CEO and chief investment officer at Pantera Capital, sees fed funds rates hitting at least 4% or 5% before the central bank changes strategy.
“You can’t control runaway inflation with fed funds 600 basis points below inflation,” Morehead wrote in a note Wednesday. “The Fed will be forced to tighten much more than markets currently expect.”
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