It’s been a relatively flat start to trading on Tuesday as it seems the Jackson Hole waiting game is underway.
Once again we’re in a situation whereby the week hangs on what Jerome Powell says about interest rates and whether he can live up to the huge expectations set by the market. Given his reluctance in the past and the current positioning, I feel the market has set itself up for disappointment but I guess we’ll see.
What’s interesting is that this huge void between Fed signals and market positioning stems from the fact that markets have had no time for remarks that indicate a gradual easing at best. Their response has been to fully price in rate cuts and assume the Fed will do as its told, like a naughty school child.
This makes Friday’s speech from Powell all the more important. The same approach won’t work and at the moment, the Fed looks like it’s being bullied, albeit by the markets rather than Trump. Powell needs to either strongly signal that markets are wrong, which will cause a jolt and have repercussions, or lay the foundations clearly. I fear he’ll do neither.
Gold prone for correction as momentum fades
Gold is back in the green today after spending a couple of days in unfamiliar negative territory. The yellow metal broke below $1,500 on Monday which could be viewed as weakness in the trend, and it may partially reflect that, but $1,480 is the more important level and we’re still comfortably above there.
That said, the trend has clearly weakened over the last couple of weeks as it’s losing momentum. That in itself doesn’t spell doom for the rally but it is a red flag in the near-term and may suggest it’s shaping up for a correction. If it breaks below $1,480, then $1,440-1,450 looks interesting, being the resistance barrier during the July consolidation.
Oil steady but recession talk going nowhere
Oil prices are steady, mimicking the moves we’re seeing in equity markets as global growth fears ease a little and provide some relief for risk assets. Oil is particularly exposed to the threat of recession so it’s no surprise to see prices so sensitive to these moves.
I would stress that the US 10-year yield may be back above the 2-year but recession talk has not and will not go away that easily. Oil prices will likely remain very volatile then, particularly in response to trade war headlines which represent the greatest risk to the economic outlook.