Volatility returned last week as traders prepared for the Jackson Hole Symposium at the end of this week. The primary focus will be US Fed Chairman Jerome Powell’s speech on Friday at 10:00am ET. The topic is simply, “Economic Outlook”. Traders will be looking for Powell to either signal intentions to taper or provide clues as to when that signal will come. In addition, the Delta variant of the coronavirus is picking up steam as more lockdowns in the Asian area are implemented. The variant is slowly making its way around the US as well. Also, China seems to be getting more aggressive with regulations just as economic data appears to be showing a slowdown. Traders are becoming leery of investing in China due to possible government intervention.
Jackson Hole
Traders have been waiting since the June FOMC meeting for the Jackson Hole Symposium! They are hoping that this will be the event in which the Fed Chairman will signal the Fed’s intent to begin tapering extraordinary monetary conditions by reducing the amount bonds they are purchasing. Currently, the Fed is buying $120 trillion worth of MBS and Treasuries. At July’s FOMC meeting, Powell said that the economy has made “progress” towards its goals to taper. However, he’s stated previously that the committee needs “substantial further progress” in order to taper. With July’s Non-Farm payroll reading of 943,000 jobs added to the economy, everyone is guessing if this will be enough jobs to meet the Fed’s criteria to taper. Right now, it seems to be a tossup.
Some Fed officials after the July meeting, said that the Fed wants to see a “couple stronger months of jobs data before tapering (July’s NFP print was the first). Others have said the Fed should taper sooner than later. And just Friday, the Fed’s Kaplan said that “if Delta is having a more negative effect on GDP growth, it could cause me to adjust my view (and he’s a hawk!). To make matters more confusing, the minutes of the July meeting released last week showed that a majority of members favored tapering by the end of the year. Therefore, don’t be surprised if Powell waits until the September FOMC meeting to announce tapering. This would give the FOMC a look at one more NFP print and to see if Delta variant cases are declining. The key takeaway will be to see if Powell suggests that tapering will happen by the end of the year. The market is currently pricing in a rate hike for September 2022.
Delta variant
The Delta variant of the coronavirus continues to plague Asia. The newest entrant into the lockdown is New Zealand, who has gone relatively unscathed up to this point. As of Thursday, the country is up to 31 cases. However, Prime Minister Arden isn’t taking any changes, immediately pulling Auckland into a 3-day lockdown after the first case. However, the virus has now spread to Wellington, which was also put in a 3-day lockdown. In Australia, Sydney and Melbourne continue to be under lockdown, and other large cities have been placed in “snap lockdowns” for days as well. And in Japan, much of the country is under State of Emergency. Other Asian countries, such as Vietnam and South Korea are implementing similar measures. As a result of the spread, AUD/USD and NZD/USD made new 2021 lows this week at 0.7106 and 0.6851, respectively. In the US, new cases, hospitalizations, deaths are increasing again in many states, including such large states as Texas and Florida. If these numbers continue to climb, they may weigh on the Fed’s decision as to when to announce tapering. Watch this week to see if cases continue to rise ahead of the Jackson Hole Symposium.
China
Last week, China posted poor data. Industrial Production, Retail Sales, and the Unemployment Rate were all worse than June’s prints. With increased regulation in tech, gaming, private education, and now Real Estate, investors are concerned that the government may take control of these sectors. The government even went as far as taking board seats on two of China’s biggest tech companies: ByteDance (owner of TikTok) and Weibo (China’s twitter). With increased regulation and poorer economic data, China’s expected demand is taking a hit. As a result, Iron Ore and Copper are down by nearly 33% and 15%, respectively, since late July. In addition, stock indices have also been taking a hit, with China’s A50 down nearly 29% from its highs this year and Hong Kong’s Heng Seng down 21% from its most recent highs. Watch to see if the Chinese government tries to regulate and invest in other industries in order to gain more control.
Earnings
Earnings are all but finished for the quarter, however there are a few stragglers this week. Some of the more notable ones are as follows: JD, BBY, JWN, PDD, TOL, CRM, SNOW, DELL, PTON, WDAY
Economic Data
The highlight of the week will be the Jackson Hole Symposium, however just 1 ½ hours before Powell speaks, the US will release the Fed’s favorite measure of inflation, Core PCE. We will also get our first look at Global Manufacturing and Services PMIs, US housing data, German sentiment data, and Australia Retail Sales. Other important economic data is as follows:
Monday
- Global: Manufacturing and Services PMI Flash (AUG)
- UK: CBI Industrial Trends Orders (AUG)
- EU: Consumer Confidence Flash (AUG)
- US: Existing Home Sales (JUL)
Tuesday
- New Zealand: Retail Sales (Q2)
- Germany: GDP Growth Rate Final (Q2)
- US: New Home Sales (JUL)
- US: Richmond Fed Manufacturing Index (AUG)
- US: 2-year Auction
Wednesday
- New Zealand: Trade Balance (JUL)
- Germany: Ifo Business Climate (AUG)
- US: Durable Goods Orders (JUL)
- US: 5-Year Auction
- Crude Inventories
Thursday
- Germany: GfK Consumer Confidence (SEP)
- UK: ECB Monetary Policy Meeting Accounts
- US: GDP Growth Rate 2nd Est (Q2)
- US: 7-Year Auction
- US: Jackson Hole Symposium
Friday
- Australia: Retail Sales Prel (JUL)
- Canada: PPI Final (JUL)
- US: Personal Income (JUL)
- US: Personal Spending (JUL)
- US: Core PCE Price Index
- US: Michigan Consumer Sentiment Final (AUG)
- US: Powell speech at Jackson Hole
- US: Jackson Hole Symposium
Chart of the Week: US OIL (Daily)
Source: Tradingview, StoneX
For the week, US OIL is down nearly -8.65%. We showed this chart earlier in the week, in reference to its strong negative correlation to USD/CAD (+2.65% this week) and USD/NOK (+2.67 this week). In July, the CFD on WTI Crude Oil tested highs from October 2018 and failed, breaking lower from an upward sloping wedge. Price retested the bottom trendline of the wedge, failed, and has moved 14% lower since then. However, oil has paused at a zone of support, between 60.39 and 61.90. This support consists the 38.2% Fibonacci retracement from the November 2020 lows to the recent July highs (60.39), the 200 Day Moving Average (60.66), and horizontal support (61.90). Buyers will be looking at taking a shot to get long within this support zone. Also notice that the RSI has recently moved into oversold territory to 28.38 (below 30 is considered oversold), indicating a stronger possibility for a bounce. First resistance on the daily timeframe is at the recent spike lows near 65.11, then the recent highs at the bottom trendline of the ascending wedge near 74.21. Above there, price can retest the previous highs at 76.88.
The Jackson Hole Symposium is the highlight of the week for the markets. However, traders won’t be sitting around waiting until Friday to participate in the markets. Watch for more news regarding the delta variant of the coronavirus (and how it may lead to changes in monetary policy) and more news from regulations and government involvement in Chinese companies. Economic data could also help to keep the markets volatile next week.
Have a great weekend!
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