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Week Ahead: Jackson Hole Fallout and the Importance of Non-Farm Payrolls this Week

Traders waited months for Jerome Powell’s speech at the Jackson Hole Symposium on Friday.  Would he announce the Fed will begin tapering?  The answer was a resounding no, and with no mention of a  timeline, except that it could happen this year. This week will be telling, as traders try and position themselves for the Fed’s next move. Powell mentioned that there is still much ground to cover to maximize employment. On Friday, the US will release Non-Farm Payrolls.  This will be the last look at NFP before the Fed’s September FOMC meeting.  Will this number be large enough for the Fed to announce tapering at the next meeting?  The coronavirus is still making its way around the world.  Will cases pick up this week? Also watch for headlines from Afghanistan, which could move markets this week!

Jackson Hole disappointment

After the July FOMC meeting, many expected Powell to kick the can down the road at the Jackson Hole Symposium while they wait for the September FOMC meeting.  However, since then, it seemed as if  Fed member after Fed member commented on “how inflation was more than they had anticipated”, or “tapering should be done sooner than later”.  During the preceding 24 hours leading up to Powell’s speech, no less than 4 hawkish Fed speakers hit the wires in what seemly was to set Powell up for an easy lay-up:  To announce when the tapering of bond buying would begin.

However, Powell stuck to the script, much to the dismay of US Dollar bulls.  Although Powell mentioned that is could be appropriate to start tapering this year, his dovish comments carried the weight of his speech.  Phrases such as “Premature policy tightening now could be particularly harmful”  and “Much ground to cover to reach maximum employment” brought traders back down to earth. They realized Powell’s speech was exactly what they had been expecting after the July FOMC meeting.  For Powell, this has always been the script.

Non-Farm Payrolls

However, there is one thing that can help Powell change his tune a bit: Non-Farm Payrolls.  At the last FOMC meeting, the statement had mentioned that there had been “progress” towards the goals of maximizing employment.  Not “further substantial progress” as noted in March, just “progress”.  After the July meeting, Fed’s Waller said that 2 more reports of strong employment data may be enough for the Fed to announce tapering at the September meeting.  Since then, the July Non-Farm Payroll print was +943,000. On Friday, we will get August’s NFP print.  Expectations for are for +665,000.  The Unemployment Rate is expected to drop to 5.2% from 5.4%.  If the print is as expected or better, will this be enough for the Fed to announce tapering at the September meeting (as Waller has suggested)?

Afghanistan

It’s been awhile since we have seen stock markets pullback on an attack.  However, that is precisely what happened last week as an ISIS suicide bomber killed over 200 Afghans and 13 US Service members at Kabul’s Hamid Karazi International Airport.  As the US quickly pulled out of the country 2 weeks ago, it was overrun by Taliban and chaos ensued.  US President Joe Biden has indicted that he will not back down to other G7 nations by extending the August 31st deadline to have the US out of the country. Some countries, such as the UK, Canada, and Australia have ended their evacuation operations as a result of the chaos. Pentagon officials have warned Biden that there could be more attacks.  If so, will stocks markets pull back again?  Will the Japanese Yen become a safe haven currency once again?  There will be a lot of questions regarding the August 31st deadline, as well as, more possible attacks that the markets may have to sort out.

Coronavirus

It may sound like a broken record, but new daily cases of the coronavirus continue to set record highs in southern US states.  In Asia, cities, states, and countries are extending lockdowns which were already in place.  Europe has removed the US from its list of countries allowed to travel around the EU without add