Markets are fairly quiet with a slight retracement of the risk rally we have seen this week. Four days of gains in most risky assets, from fresh record highs in US stock markets to the commodity/risk related currencies are showing signs of slowing this morning. How sustainable this rally is should be answered by Fed Chair Powell’s speech tomorrow, expected at 15.00 GMT. Will the Delta variant spread upend and delay tapering plans? Or are those risks manageable and tapering is on track to happen before year end?

The full agenda of speakers is set to be released today, after the Kansas City Fed, who organise the event, decided to condense the two-day programme to Friday only.

Low vols

The dollar is sat near one-week lows with FX volatility muted.

The Deutsche Bank FX Volatility Index is near historical lows with traders not expecting to see Powell offer markets any new information. Activity in the US equity options market is similarly relaxed with investors looking past the Jackson Hole event. S&P options are currently pricing in a one-day move of about 0.6% tomorrow.

Measures of trader’s expectations in bond markets and US Treasuries are also subdued. A widely watched index devised by the Bank of America and the futures exchange, ICE, is just a little higher than its five-year average.

Fed speakers today

Ahead of Chair Powell’s speech tomorrow, we do get to hear from two other central bankers from the Federal Reserve who are speaking today. Bullard and Kaplan are known Fed hawks so any substantial pull back from their usual stance positioned around an October start to tapering asset purchases could further lower expectations for Jackson Hole.

Remember that Kaplan has been one of the Fed’s most forceful supporters for starting to reduce support for the economy. But he raised eyebrows recently by saying he may need to adjust his hawkish stance if the Delta variant slows economic growth materially.

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