Markets cautious ahead of Jackson Hole speeches

Thursday 18.20 BST

What you need to know

  • S&P 500 down 0.2 per cent, Euro Stoxx 600 gains 0.2 per cent
  • Dollar index inches higher
  • All eyes on Yellen and Draghi speeches
  • Oil prices down sharply, gold slips


Global markets adopted a cautious tone as the focus switched from Washington’s latest political drama to the Jackson Hole speeches due from Janet Yellen and Mario Draghi on Friday.

Hot Topic 1

Market participants will closely watch comments from the Federal Reserve chair and the president of the European Central Bank for any hints on the monetary policy outlook for the US and eurozone.

However, few appear to be expecting much in the way of fireworks from the gathering of central bankers in Wyoming. “Investors in US Treasuries appear to be very relaxed about Janet Yellen’s speech at Jackson Hole,” said John Higgins at Capital Economics.

“This may be because the Fed chair is unlikely to spring any major surprises about the outlook for monetary policy in her talk on financial stability.”

Because the US central bank had already indicated that it would begin to “normalise” its balance sheet soon, he added, “any extra clarity on this topic may not elicit much reaction”.

Ms Yellen would probably “refrain from giving a clear steer on the timing of the next rate hike”, said Mr Higgins.

The yield on the 10-year US Treasury note was up 1 basis point at 2.18 per cent, while that on the 10-year German Bund was flat at 0.38 per cent

Hot Topic 2

But US bill rates were showing signs of increased angst over the question of the US debt limit.

Tuesday’s threat by Donald Trump, US president, to shut down the government if it did not include funding for a wall along the Mexican border continued to cast a shadow.

Divyang Shah, global strategist at IFR Markets, noted that Mr Trump was saying Congressional leaders could have avoided a legislative “mess” if they had heeded his advice on raising the US debt ceiling.

“What kind of ‘mess’ we get is a ‘known unknown’, but our favourite measure of market concern continues to widen,” Mr Shah said.

He highlighted that the spread between US three-month T-bills maturing on September 28 and on October 5 had gone from almost flat at the beginning of July to 18.5bp.

Action Economics pointed out that all T-bills with October maturities were trading with “1-handles”, as opposed to sub-1 per cent rates in September, November and December. The rate on the October 5 bill has shot up to 1.169 per cent, with October 12 at 1.193 per cent, against 0.972 per cent for the September 28 maturity.

The US Treasury’s refunding statement noted that the government’s borrowing authority would run out at the end of September.

“While the Fed and ECB are looking not to spook the markets, the same

cannot be said for politicians,” said Mr Shah. “Serious negotiations between Republicans and Democrats on the debt ceiling have not yet happened.”


As the wait for Ms Yellen and Mr Draghi dragged on, US and European equities put in contrasting performances. By midday in New York the

S&P 500 was down 0.2 per cent at 2,438, led by weakness for technology stocks. The benchmark index had shed 0.4 per cent on Wednesday. The Nasdaq Composite index was 0.3 per cent lower.

But across the Atlantic the pan-European Stoxx 600 rose 0.2 per cent, with the FTSE 100 in London gaining 0.3 per cent.


The dollar was up less than 0.1 per cent against a weighted basket of peers, as the euro traded flat at $1.1804.

Against the yen the US currency gained 0.2 per cent to ¥109.27.

Scotiabank argued that the euro looked particularly vulnerable against the yen ahead of today’s speeches. “Speculative bullish euro/yen positioning is extended, and technicals are turning increasingly bearish, following a near-15 per cent rally from mid-April to early August,” analysts warned.

“Fundamentals support medium-term gains in euro/yen as the ECB makes continued progress toward policy normalisation and as the Bank of Japan maintains an exceptional degree of accommodation. However, near-term risks are elevated.”

The single currency was up 0.2 per cent against the yen at ¥128.97.


Oil prices retreated as the markets watched the progress of Tropical Storm Harvey as it headed towards Texas.

Brent, the international crude benchmark, was down 1.3 per cent at $51.89, while West Texas Intermediate, the main US contract, was 2.4 per cent lower at $47.24.

Base metals remained strong, however, with copper holding in sight of this week’s three-year high in London and aluminium approaching a six-year peak.

Gold was down $2 at $1,287 an ounce.

Additional reporting by Kate Allen in London and Alice Woodhouse in Hong Kong

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