Investors see no speed bump in Fed's Jackson Hole event
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[August 26, 2021] By
Karen Pierog and Saqib Iqbal Ahmed
CHICAGO/NEW YORK (Reuters) -Despite weeks of anticipation,
investors have lowered their expectations for Friday's Jackson Hole
event https://www.reuters.com/world/us/feds-jackson-hole-shift-shows-delta-variants-ability-skew-plans-2021-08-23,
saying that U.S. Federal Reserve Chair Jerome Powell has little reason
to rock the boat.
Some market-watchers had seen the conference as a potentially key moment
when Powell could give hints about tapering https://www.reuters.com/world/us/fed-minutes-likely-detail-bond-buying-taper-talks-inflation-worries-2021-08-18
the Fed's $120 billion in monthly asset purchases that have propped up
the market after COVID-19 hit.
However, with a consensus still forming among Fed members on when to
taper, some see scant market-moving revelations by Powell in his speech,
contending the Fed will want to see upcoming jobs and inflation data and
more information on how the coronavirus Delta variant impacts the
economy.
"It does feel like the markets and investors are basically going into
this event with more of a neutral stance and not taking any big bets one
way or another," said Anders Persson, Nuveen's chief investment officer.
Amid many characterizations of the conference as a potential "yawner,"
U.S. stock indexes have hit record highs and derivatives markets are
shrugging it off, although bond markets have been a bit more volatile.
Meanwhile, tapering views may be evolving due to the Delta variant with
Dallas Federal Reserve President Robert Kaplan saying last week he may
need to adjust his call for reducing asset purchases this fall.
Even when tapering does start, some say the Fed is unlikely to generate
a "taper tantrum" https://www.reuters.com/business/post-fed-taper-tantrum-not-this-time-market-strategists-say-2021-07-08
similar to 2013 when Fed chief Ben Bernanke told lawmakers the central
bank could slow its pace of asset purchases, sending yields sharply
higher.
Goldman Sachs in a research note estimates the magnitude of moves versus
2013 "is likely to be smaller" given how well-telegraphed the policy
change is likely to be.
Powell in July edged closer to unveiling plans to taper, going so far as
to describe the Fed's July gathering as the "talking-about talking-about
meeting."
“We were always in the nothing-burger camp and at this point we think
that ... the Fed has talked about tapering for quite some time and so if
you aren't expecting it you live under a rock," said Jack Janasiewicz,
portfolio manager at Natixis Investment Managers Solutions.
'SNOOZER'
At a time when gyrations in the foreign exchange market are particularly
muted - the Deutsche Bank FX Volatility Index is near historical lows -
traders do not see Powell shattering the calm.
[to top of second column] |
Federal Reserve Chair Jerome Powell and New York Federal Reserve
President John Williams walk together, ahead of the Kansas City
Federal Reserve Bank’s annual conference on monetary policy, in
Jackson Hole, Wyoming, U.S., August 22, 2019. REUTERS/Ann Saphir
"Currency markets are overwhelmingly positioned for a snoozer," said Karl
Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
Activity in the U.S. equity options market is similarly nonchalant, with traders
largely looking past the Jackson Hole event, Susquehanna International Group’s
Chris Murphy said in a note. S&P 500 options are currently pricing in a one-day
move of about 0.6% on Friday, according to Matt Amberson of analytics firm ORATS,
about the same as the 0.63% move the S&P 500 has logged on average on the day
the Jackson Hole symposium heard from the Fed chief, a Reuters analysis showed.
In the bond market, the ICE BofA MOVE Index, which tracks traders' expectations
of swings in the Treasury market, was just a little higher than its 5-year
average. Yields moved higher on Wednesday, although that was partly ascribed to
low liquidity.
Jason England, a global bonds portfolio manager at Janus Henderson Investors,
sees thinly traded Treasuries remaining range-bound.
"Until you get some more of that data and get closer to any firm views on
tapering from the consensus on the (Federal Open Market Committee), you're not
going see much shocks in Treasuries," he said.
Still, there remains some caution.
Tim Murray, a capital market strategist at T. Rowe Price, said his positioning
of being slightly underweight in equities reflects concerns over elevated
valuations in most asset classes, slowing growth and waning stimulus.
"Within equities, we are tilted towards value ... if there's a negative surprise
and rates do go down you'll want to have fixed income in that case so we benefit
from a slight overweight there," he said.
Charlie McElligott, a cross-asset strategist at Nomura, cautioned in a note on
Wednesday that the Fed event also coincides with a large-scale expiration of
Treasury options on Friday, indicating the potential for heightened moves in the
Treasuries market.
“Powell will have to say something at Jackson Hole," said Thomas Costerg, senior
economist at Pictet Wealth Management. "We have heard the views of regional Fed
governors and people want to hear what Powell thinks."
(Reporting by Karen Pierog in Chicago and Saqib Ahmed in New YorkAdditional
reporting by Megan Davies in New York and Sujata Rao-Coverley in LondonEditing
by Megan Davies and Matthew Lewis)
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