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Week Ahead: Jackson Hole, Delta Variant, and China to Move Markets Next Week

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 quart