Week Ahead: Jackson Hole To Drive Sentiment

Get ready, folks!

It’s that time of year again with the annual Jackson Hole Economic Symposium around the corner…

This is a major event where central bankers and financial heavyweights come together to tackle pressing economic issues that impact the entire world. When considering how such a gathering could provide investors with critical insights into the Fed’s stance on rates, financial markets are in for a rollercoaster ride.

But before we unpack the key details of Jackson Hole, let’s take a quick look at the economic data releases and events scheduled for the upcoming week:

Monday, 21 August

• CNH: China loan prime rates
• NZD: New Zealand trade

Tuesday, 22 August

• USD: US existing home sales

Wednesday, 23 August

• CAD: Canada retail sales
• EUR: Eurozone/Germany S&P Global PMI, Eurozone consumer confidence
• GBP: UK S&P Global/CIPS UK Manufacturing PMI
• USD: US new home sales, S&P Global Manufacturing PMI

Thursday, 24 August

• Jackson Hole Economic Policy Symposium, Wyoming
• USD: US initial jobless claims

Friday, 25 August

• JPY: Tokyo CPI
• EUR: Germany IFO business climate, GDP
• USD: US University of Michigan consumer sentiment
• Fed Chair Jerome Powell Speech at Jackson Hole

Mark your calendars – Federal Reserve Chair Jerome Powell’s highly anticipated speech at Jackson Hole on Friday, August 25th is the main event everyone’s talking about.

As we dive deeper into the second half of 2023, the burning question on everyone’s mind is whether the Fed will raise interest rates again before the year is out. The July Fed minutes show that policymakers are still seeing significant risks to inflation, which might lead to more rate hikes in the future. Adding fuel to the fire, the recent US retail sales figures surpassed expectations, further supporting the case for higher rates.

But here’s the thing – traders are currently pricing in only an 11% probability of a 25-basis point hike at September’s FOMC meeting, with that number rising to 38% in November. So, the uncertainty is real.

The Jackson Hole event could have a lasting impact on global markets, especially on Friday when Powell takes the stage. Powell is expected to re-affirm the data-dependent approach and emphasize the need to keep rates higher for a longer period to tame inflation. However, investors will be listening closely to his overall tone, as it has the power to influence Fed hike expectations.

There are a handful of assets that could be significantly influenced by Powell’s speech, but two have caught our attention:

1. Gold

Gold has had a tough August so far, shedding nearly 4% and closing below the 200-day SMA for the first time since December 2022! Bears are clearly in the building and could dominate the scene further given the right fundamentals forces.

• Gold prices could sink towards $1870 if Powell strikes a firmly hawkish tone during his speech, fuelling bets around US rates remaining higher for longer.
• However, if Powell conveys a more cautious and dovish stance, we could see a rebound in gold that pushes prices back above the 200-day SMA, reaching towards $1920.

2. SPX500_m

The SPX500_m has taken a real beating over the last few days with prices back below the 50-day SMA for the first time since March 2023.

Bears are capitalising on China’s woes and fears surrounding a hawkish Federal Reserve. The SPX500_m looks to be in the early stages of a downtrend on the daily charts, with the potential for further losses if key support is breached.

• The SPX500_m could break below the 100-day SMA if Powell strikes a firmly hawkish tone during his speech, boosting bets for higher US interest rates.
• If Powell strikes a cautious and marginally dovish tone, this could push prices back towards the 50-day SMA at 4463 and beyond.