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Morning Bid: Greenback in the red as Jackson Hole looms

[August 19, 2024] A look at the day ahead in U.S. and global markets from Samuel Indyk

The volatility that rocked markets in early August appears to be back under control, and with the Kansas City Fed's Jackson Hole Symposium set to kick off on Thursday, things could stay that way until later in the week.

U.S. Federal Reserve Chair Jerome Powell is set to headline the event when he delivers remarks on the first full day on Friday, and it will be a good chance for him to give an updated assessment of the monetary policy outlook, halfway between the July and September meetings.

Futures are fully pricing a quarter-point rate cut next month, while a larger 50 basis point move is given almost a 30% chance. The size of the move will likely be determined by the evolution of data in the coming weeks.

The calendar looks light over the next five days, with only weekly jobless claims data and flash PMIs for August on the docket, so Fed speakers could get more attention.

In comments over the weekend, U.S. policymakers Mary Daly and Austan Goolsbee both left the door open for easing as soon as September.

Daly told the Financial Times that it was time to consider adjusting borrowing costs from the current 5.25%-5.5% range that rates have been held at for a year, saying it was important to prevent the labor market from tipping into a downturn.

That's helped push the dollar lower across the board.

The dollar index, which measures the currency against six others, was last down 0.3%, hitting its lowest level since Jan. 5. Against the yen, it was down around 1%.

In a possible indication that the unwinding of yen-funded carry trades could be further along than previously thought, speculators have done some hefty repositioning in the currency in the last few weeks.

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U.S. dollar banknote in front of stock graph is seen in this illustration taken, June 12, 2022. REUTERS/Dado Ruvic/Illustration

The latest weekly data from the U.S. CFTC showed speculators have now turned net long for the first time since 2021, having been almost record short the yen just five weeks ago.

The Bank of Japan's July rate hike and soft U.S. jobs and inflation data have completely flipped the script for Japan's currency, which hit its weakest level in 38 years last month.

Meanwhile, global equities, coming off their biggest weekly jump this year, are eking out a 0.1% gain, while U.S. futures are little changed. Europe's STOXX 600 is flat.

The VIX index, Wall Street's closely-watched gauge of investor worries, is up slightly on Monday but is still below 16, having jumped to over 65 on Aug. 5, its highest level since the COVID-19 spike in March 2020.

Key developments that should provide more direction to U.S. markets later on Monday:

* Federal Reserve Governor Christopher Waller set to speak

* U.S. to sell 13-, 26-week bills

* U.S. corporate earnings: Estee Lauder, Palo Alto Networks

(Reporting by Samuel Indyk, editing by Sharon Singleton)

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