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The Fed Powell event risk

A mixture of concerns over softening global PMIs and the lack of central bank support dampens sentiment going into the end of the week as we await Fed chair Jerome Powell’s Jackson Hole address.

Fed members resistant towards further cuts

Equities traded in a cautious manner while the greenback largely flatlined, navigating the sea of central bank voices ahead of Fed chair Jerome Powell’s speech at the Jackson Hole symposium in the US session this Friday. While there had perhaps been little surprise seeing one of the July rates cut dissenters, Kansas City Fed President Esther George, being against more accommodation, other Fed members such as Fed Harker and Fed Kaplan joined the echo this week in suggesting keeping rate steady. And this was despite the significant rise in uncertainties since. This leads to a difficult stage set for Fed Powell’s appearance later in the US session. However the Fed chair positions, it does look likely to invite reactions across the market. One to watch.

Notably, this had also been set against the backdrop of a series of disappointing manufacturing PMI numbers, which continues to tell the deteriorating production picture across the advanced economies that reported yesterday. Zooming into the details, one would see the Markit manufacturing PMI in the US had unexpectedly fallen into contraction territory in the preliminary August reading at 49.9 against the consensus of an improvement to 50.5. The eurozone meanwhile sustained in contraction. While risk sentiment appears to have been dampened, hopes for further rate cuts were little changed with the CME FedWatch tool continuing to reflect a 93.5% conviction of a September cut by the market.

As the US dollar index keeps flat, US indices such as the S&P 500 index remain in a rangebound trade awaiting tonight’s Fed Powell speech for breakout. The series of Fed talk ones backing the bias that risks are tilted to the downside. Likewise, for Asia markets, caution may set in ahead of the Fed Powell speech following the on-going muted open across the region.

Source: IG Charts

Sterling touching a three-week high against dollar

Separately, it appears that the volatility had returned to the sterling with German Chancellor Angela Merkel raising hopes for a Brexit solution lifting GBP/USD to a three-week high. Seen trading around $1.2250 when last checked, the pound gained against the greenback, reacting towards the likelihood that the controversial Irish ‘backstop’ could be resolved prior to the Halloween deadline. As it is, there remains slightly over two months to go before the October 31 deadline and the fact is turbulence may still in the duration. In the short-term, however, this does look to have given the GBP some breathing space and likewise, watch EUR/GBP for reversal to the earlier consolidation zone.

Source: IG Charts

Yesterday: S&P 500 -0.05%; DJIA +0.19%; DAX -0.47%; FTSE -1.05%

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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