The Dollar is BAAAAACK! What to Expect at Jackson Hole

24 August, 2018, 07:13 | Author: Kevin Carter
  • Comex Gold

Powell doesn't have to say a lot, or mention Trump by name.

Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo, said the euro "was already regrouping from its recent rout and Trump's comments gave extra incentive for short positions to be covered in the market".

Equity investors appeared less concerned about Trump as Wall Street marked what is widely considered a bull market that started in the midst of the global financial crisis a decade ago, which wiped out more than half of the USA stock market's value.

Trade remains in the spotlight after the USA and China levied more duties, while Mexico appears close to an agreement on Nafta.

Neither the Standard & Poor's 500 Index nor the ten-year Treasury yield moved much in the aftermath of speeches by Fed Chairs Ben Bernanke and Janet Yellen, they found.

Futures on Japan's Nikkei 225 added 0.2 percent. Its relentless rise highlights the divergence in fortunes between USA stocks - turbo-charged by tax cuts and share buybacks - and the rest of the world.

Many expect this will be a pivotal moment for the US Dollar, from which the greenback will either find impetus for continued gains, or be left reeling.

MSCI's gauge of stocks across the globe .MIWD00000PUS gained 0.26 percent and emerging market stocks .MSCIEF rose 0.72 percent. But that's not Trump's argument, and it's not his to make in the first place.

"The key point is these are mid-level officials", said Donough Kilmurray, managing director and head of the Investment Strategy Group for EMEA at Goldman Sachs.

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The speech comes as Mr Powell, appointed earlier this year by President Trump, is increasingly criticised by the president for the two interest rate hikes so far this year. However, some market observers believe other global central banks are out of ammunition for easy monetary policy, meaning dollar rivals, such as the euro and yen, could be due for some upside as well.

The dollar index fell 0.3 percent to 94.98, while the euro hit a two-week high against the greenback, at $1.1605.

"If you look at the transmission from economic growth to earnings growth to shareholder returns, it's strongest in the US, it's ok in Europe and pretty weak in EM", said Goldman's Kilmurray, who has been underweight emerging markets for five years. "China is probably going to wait and kick the can down the road until we get there and then see what happens".

A new threat of further sanctions on Russia from US lawmakers hit the rouble and backed the market's view that Russian sanctions would increase in severity regardless of the Trump administration.

The Bloomberg Dollar Spot Index gained 0.7 percent, the biggest rise since June 14.

German 10-year Bunds bucked the trend set by Treasuries. "Beyond any one-day reaction coming out of Jackson Hole, there's much more room for overseas central banks to surprise markets with a slightly earlier timing for starting to raise rates or unwind QE, so the medium terms leaves more room for USA dollar weakness against the euro (in the next two quarters) or the yen (in the latter half of 2019)".

Oil prices rose more than 2 percent, with Brent hitting a two-week high, after US government data showed a larger-than-expected draw in domestic crude inventories and as Washington's sanctions on Iran signaled tightening supplies.

The dollar rose for the first time in six days, pressuring commodity prices on products from copper to soybeans.

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