Markets treading water ahead of Powell

The main currency pairs remain in relatively tight ranges as they continue to tread water ahead of Fed Chair Powell’s eagerly awaited Jackson Hole speech tomorrow. The euro is trading at around $1.1650 against the dollar this morning, in the lower half of this week’s range of $1.1620 to $1.1720, while sterling has given up most of yesterday’s early morning gains against the US currency to trade back below $1.3450. EURGBP is marginally firmer this morning, hovering just above £0.8650.

UK bonds outperformed yesterday, despite slightly stronger than expected UK inflation data, with yields falling by 5-7bps across the curve, though this still erased only a small portion of the increase that followed the BoE meeting a couple of weeks ago. Elsewhere in bond markets, German yields were 2-3bps lower on the day while US yields ended largely unchanged.

In equity markets, the Nasdaq fell for a second day running (-0.7%) and is now off around 2.5% from last week’s record high, while the S&P 500 ended around 0.3% lower and is down a little more than 1% from its recent high. European stocks also closed in the red albeit marginally so.

The minutes of the Fed’s end-July monetary policy meeting noted that there were “upside risk to inflation and downside risk to employment (but) “a majority…judged the upside risk to inflation as the greater of these two risks”. However subsequently published employment data showed the pace of jobs growth slowed sharply over the three months to July. This might change the judgement regarding the balance of risks, with implications for interest rates, hence why it will be particularly interesting to hear from Powell tomorrow.

Looking to the day ahead, economic data due include flash PMIs for August in the Euro area, UK and US, plus consumer confidence and construction output in the Euro area and weekly jobless claims and existing homes sales in the US.