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Philadelphia Fed President Patrick Harker said he's "still supportive of moving the taper along", because he didn't think asset purchase is "doing a whole lot right now". He added that Fed should finish tapering before considering raising interest rates.

He said the Fed has achieved "substantial further progress on inflation" already. There is "some evidence that inflationary pressure "may not be so transitory". Meanwhile, the job market is changing the people's thinking about what a job is has changed too.

US personal income rose 1.1% or USD 225.9B in July, well above expectation of 0.2%. Spending rose 0.3% or USD 42.2B, slightly below expectation of 0.4%.

Headline PCE accelerated to 4.2% yoy, up from 4.0% yoy, above expectation of 3.5% yoy. Core PCE was unchanged at 3.6% yoy, matched expectations. Energy increased 23.6% yoy while food prices rose 2.4% yoy.

Full release here.

After a strong start to the week, the euro has been quiet. The lack of movement is continuing on Friday, as EUR/USD is trading at 1.1759, up 0.06% on the day.

Markets cautious ahead of Powell

The Jackson Hole Symposium is usually a hobnob of central bankers and other key officials, but the pandemic has rained on this year’s party. The event has been scaled down from two days to just one, and the meeting will be virtual in order to comply with health restrictions. Still, the star of the show, Fed Chair Jerome Powell, will deliver a speech to the markets, and his comments will be reviewed with a fine-tooth comb. Investors are cautious ahead of the speech, as US data has become softer and the Covid Delta variation is weighing on the market’s nerves.

Ahead of Powell’s speech, three Fed members urged the Fed to speed up its plans to taper its bond purchases. The three members, Robert Kaplan, James Bullard and Esther George, are non-voting members in 2021 and are known as hawks. Powell will likely be more cautious than the threesome were in their TV interviews this week and may lay low and not say very much today. This will give the Fed more time to analyse economic data ahead of the September policy meeting.

In Europe, the ECB minutes from the July policy meeting indicated that the ECB’s revised forward guidance was not unanimous. Most members supported the new guidance, which states that the ECB will not raise rates unless there is evidence that inflation will persist “durably” at the two percent target. Inflation has been well below this target for years but is expected to overshoot the two percent level this year. This means that the central bank policymakers are expected to discuss at the September meeting the timing of a taper of a pandemic emergency bond programme. Still, the ECB is lagging behind the Fed when it comes to tapering and is unlikely to announce any timelines for tapering before December at the earliest.

EUR/USD Technical

• With the euro showing limited movement, support and resistance levels remain unchanged this week
• There are resistance lines at 1.1779 and 1.1859
• On the downside, we find support lines at 1.1642 and 1.1585

The day we’ve all been waiting for has finally arrived and I just hope it will be worth all the hype that preceded it.

There’s been a lot of caution in the markets this week, investors perched on the fence and waiting patiently for the latest thoughts of Fed Chair Jerome Powell. Jackson Hole always gets a lot of attention, something we probably have former Fed Chairman Ben Bernanke to thank for, given his many mic drop moments in the aftermath of the global financial crisis.

The event always seems to land at an important time for monetary policy so the collection of central bankers and a keynote speech from the Chair naturally attracts a lot of attention. It’s a perfect opportunity to lay the groundwork for a big policy shift a few weeks later and at one stage, it appeared that Powell may use this platform for just that purpose.

But a lot has changed in the last few weeks. The data is showing softness, particularly in the surveys where delta nerves are weighing on expectations as cases surge and fatalities continue to rise at a worrying rate. The economy has bounced back strongly but the committee may not be as aligned on tapering as they seemed after the jobs report.

While we may have heard some very hawkish views from James Bullard, Robert Kaplan and Esther George on Thursday that triggered some risk aversion in the markets, there are two things all of these have in common. They all typically land towards the more hawkish end of the scale of Fed policymakers and none are voters on the FOMC this year.

So the comments from Jerome Powell today may not necessarily align with their views. Don’t get me wrong, tapering won’t be put off for long and a December start may well be on the cards. But Powell may well refrain from saying too much today and instead give the Fed a few more weeks to assess the data ahead of the September meeting.

Whether investors would welcome the Chair joining the rest of us on the fence and view it as a positive for the markets, we’ll see. It leaves plenty open to interpretation. The data over the next few weeks may improve, the Covid trend may reverse itself and provide more comfort for policymakers.

One thing looks clear, any suggestion that the Fed is happy to proceed with a taper in September may get a nasty reaction in the markets. The Fed could offset this with a commitment to reduce asset purchases at a more gradual pace in order to alleviate concerns. I’m just not sure if that would be enough to alleviate concerns and Powell may not view it as a risk worth taking.

Bitcoin steadies but correction may still be on the cards

Bitcoin has steadied itself after Thursday’s selling, with the crypto managing small gains today. It has continued to rally in recent weeks but momentum has been increasingly lacking. These kinds of divergences often precede corrective moves which is what we may be seeing play out in bitcoin.

A move below USD 46,000 could signal a broader correction in bitcoin, with USD 44,000 being the next big test below. A move back towards USD 40,000-41,000 would be very interesting, although there’s some way to go first.

Oil edges higher as Tropical Storm Ida moves towards the Gulf

Oil prices are rising after a brief dip on Thursday, up around 1.5% on the day. A 10% rebound earlier this week saw Brent break back above USD 70 and WTI may not be far behind. It’s run into some resistance around USD 69 already, with the USD 69-70 zone being a key pivot point for WTI in recent months.

Crude prices remain well off their summer highs so there’s still room to run, even accounting for the less promising outlook in the near term as a result of the delta surge across various countries.

We may also be seeing prices rising in anticipation of Tropical Storm Ida reaching the Gulf on Friday before making landfall as a category three hurricane. The risk of the intensity increasing ahead of making landfall may be supporting prices into the end of the week. Various companies have been removing workers from offshore facilities in anticipation of the storm.

The OPEC+ meeting next week will be one to watch, with prices once again elevated and following suggestions from the White House recently that the group should be increasing production faster. While the group won’t bow to pressure from the White House, some members may agree with the US which could make for interesting discussions.

Gold pares gains ahead of Powell

Gold failed to hold onto earlier gains but continues to trade close to USD 1,800 ahead of Powell’s Jackson Hole speech. Like most things this week, that’s what it all boils down to. Eagerly anticipating events to come and position accordingly. Softening data and rising delta risks have given gold a new lease of life.

Should Powell keep his cards close to his chest on tapering and even open the door to standing pat in September as a result of the Covid data, gold could break sustainably above USD 1,800 and even set its sights on the highs around USD 1,833, maybe even beyond.

A taper hint on the other hand could spell trouble for gold’s revival and see it once again fall out of favour, with USD 1,760 becoming the key level of interest in this scenario.

GBPJPY has been in recovery mode this week, partially erasing last week’s losses thanks to the bounce on the long-term dashed ascending trendline, which has been supporting the market since the 2020 freefall.

The 38.2% Fibonacci retracement of the latest down leg at 151.35 currently accompanied by the 20-day simple moving average (SMA) remains the main obstacle to upside movements for another week as the RSI and the MACD continue to fluctuate in the bearish area despite the recent improvement.

However, even if the price runs above 151.35, traders would like to see a sustainable extension above the short-term descending trendline and the 50% Fibonacci of 152.25 to express a bullish view on the pair. If that’s the case, the pair could gear up to the 61.8% Fibonacci of 153.64. Then, a close above the 154.43 – 155.14 restrictive region will be needed to secure access to the 156.06 peak.

On the downside, the 23.6% Fibonacci of 150.24 and the long-term supportive trendline could prevent any declines towards the 200-day SMA and July’s low of 148.45. Breaching the latter, the sell-off could sharpen towards the 147.35 handle.

In brief, GBPJPY is still lacking bullish signals despite this week’s rebound. A bounce above 152.25 is required to raise buying interest, while a step below 148.45 would put the market back on the bearish path.

The Euro started a recovery wave above the 1.1720 resistance zone against the US Dollar. The EUR/USD pair broke the key 1.1750 resistance zone to move into a short-term bullish zone.

The pair traded as high as 1.1778 before it faced sellers. It corrected lower below 1.1750 on FXOpen and the 50 hourly simple moving average. A low is formed near 1.1741 and the pair is now consolidating losses. An initial support on the downside is near the 1.1740 level.

There is also a key bullish trend line forming with support near 1.1740 on the hourly chart. Any more losses could lead the pair towards the 1.1700 support zone in the coming sessions.

On the upside, an initial resistance is near the 1.1755 level. A clear break above the 1.1755 and 1.1760 resistance levels could lead the pair towards the 1.1780 zone. The next major resistance sits near 1.1800.

Boston Fed President Raphael Bostic he's "comfortable with an October timeline" for starting tapering if August job growth could match the near 1m number as with the previous two months. Also, once the tapering starts, he was "definitely looking to get this done as quickly as possible", and put a full end to the asset purchases "toward the end of Q1" of 2022.

He also said that the spread of the Delta variant had not changed his economic outlook in any fundamental way. "What I have seen is some suggestion that things are slowing down, but they are still just slowing from extremely high levels. I have not seen big changes in the underlying dynamic," Bostic added.

The Australian dollar has posted slight gains in the Friday session. AUD/USD is currently trading at 0.7256, up 0.28% on the day. It has been a good week for the Aussie, has market sentiment has improved. AUD/USD has gained 1.57% this week and is well into 72-territory.

Australia Retail Sales slides

Retail sales are the primary gauge for measuring consumer spending, a key economic driver. The news in Q2 was worse than expected, as Retail Sales underperformed, with a reading of -2.7% (est. -2.3%). This was significantly weaker than the Q1 release of -1.8%. However, investors shrugged off the soft numbers, as the Aussie is in positive territory.

Australia, which once was viewed with envy as the “Covid paradise”, has seen an upswing in new cases of the Delta Covid variant. On Thursday, Australia reported over 1,000 new cases, the highest total since the pandemic began in 2020. There are growing concerns that the economy could fall into a recession if Covid numbers continue to rise.

Australia’s economy showed solid expansion in the first quarter, with a gain of 1.8% (QoQ). However, there are concerns that growth may have slowed to below 1 percent in Q2. Australia will release GDP for Q2 on Tuesday. A weak GDP reading could curb the Australian dollar’s upswing.

The market focus will be on today’s Jackson Hole symposium, with a highly anticipated speech from Fed Chair Jerome Powell. Ahead of the meeting, three of the Fed’s most hawkish members urged the central bank to taper its asset purchases sooner rather than later. The three members, Robert Kaplan, James Bullard and Esther George, are non-voting members, but their message is reflective of strong support in the Fed to begin a taper shortly before or after December. However, their position is by no means unanimous in the Fed, and the markets are expecting a more dovish stance from Powell, which could translate into a weaker US dollar.

AUD/USD Technical

• There is resistance at 0.7306, followed by 0.7473
• On the downside, 0.7225, a monthly line, is fluid. Below, there is support at 0.7103, protecting the round number of 0.7100

Notes/Observations

• Focus on Jackson Hole and Powell's speech as several Fed hawks urge early taper.
• Various EU confidence falls short of expectations (France, Italy and Finland miss).

Asia

• China July Industrial Profits Y/Y: 16.4% v 20.0% prior.
• Australia July Preliminary Retail Sales M/M: -2.7% v -2.5%e.
• Japan Aug Tokyo CPI Y/Y: -0.4% v -0.3%e; CPI (ex-fresh food) Y/Y: 0.0% v -0.1%e (First non-negative in 13 months).
• China Sec Journal Front Page Commentary stated that PBOC would likely to cut RRR and step up credit supply 'soon'.

Coronavirus

• New Zealand PM Ardern confirmed the national lockdown was extended until midnight Aug 31st. Auckland would likely to remain in Level 4 lockdown for a further 2 weeks; Could be seeing start of plateau in virus cases.
• New Zealand Health Chief Bloomfield noted that it would not need 0 cases in Auckland to lower coronavirus alert level.

Europe

• Ex-EU Brexit negotiator Barnier to run for the French presidency centre-right primary.

Americas

• President Biden said to make announcements on the US Fed later in the Fall; To reappoint Powell as Fed Chair and Brainard as Vice chair in effort to appease liberal democrats.
• US Supreme Court vacated the pandemic residential eviction moratorium.

Energy

• Hurricane watch has been issued because of tropical storm Ida which was currently on track to reach hurricane strength and travel through the gulf of Mexico to the Louisiana coast on Sunday evening.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 0.00% at 470.32, FTSE +0.02% at 7,126.25, DAX -0.06% at 15,784.70, CAC-40 -0.06% at 6,661.77, IBEX-35 -0.32% at 8,865.00, FTSE MIB +0.20% at 25,913.50, SMI +0.11% at 12,422.55, S&P 500 Futures +0.26%].
• Market Focal Points/Key Themes: European indices open modestly lower across the board but later recovered slightly to trade mixed; better performing sectors include technology and energy; sectors trending lower include consumer discretionary and financials; oil and gas subsector boosted on higher crude prices ahead of Tropical Storm Ida; focus on Jackson Hole Symposiom through the day; earnings expected during the US session include Big Lots and Hibbett.

Equities

• Consumer discretionary: TER Beke [TERB.BE] -2% (earnings).
• Healthcare: AlzeCure Pharma [ALZCUR.SE] +6% (trial results).
• Industrials: AF Gruppen [AFG.NO] +2% (earnings).
• Materials: Recticel [REC.BE] -2% (earnings).

Speakers

• China said to consider proposing rules in Q4 that bans certain foreign company listings if they have large amounts of sensitive consumer data. Rules would target companies seeking foreign listing via units incorporated outside the country. To set up Cross Ministry Committee that would grant approval to companies to list.

Currencies/Fixed income

• Focus on Jackson Hole where Powell could offer insights into when policy makers would start paring bond purchases. Dealers note that dovish tone from the Fed's chief could counter worries about economic damage from the Delta coronavirus variant.

Economic data

• (FI) Finland Aug Consumer Confidence: 4.0 v 4.4 prior; Business Confidence: 22 v 19 prior.
• (DE) Germany July Import Price Index M/M: 2.2% v 1.2%e; Y/Y: 15.0% v 13.8%e.
• (NO) Norway July Retail Sales (including fuel) M/M: -3.1% v -0.4%e.
• (FR) France Aug Consumer Confidence: 99 v 100e.
• (ES) Spain Jun Total Mortgage Lending Y/Y: 29.9% v 39.5% prior; House Mortgage Approvals Y/Y: 41.2% v 37.4% prior.
• (SE) Sweden Aug Consumer Confidence: 108.6 v 106.2 prior; Manufacturing Confidence: 129.2 v 128.6prior; Economic Tendency Survey: 121.1v 121.9 prior.
• (TR) Turkey Aug Economic Confidence: 100.8 v 100.1 prior.
• (HU) Hungary July Unemployment Rate: 3.9% v 4.0%e.
• (SE) Sweden Q2 GDP Q/Q: 0.9% v 0.9%e; Y/Y: 9.7% v 9.6%e.
• (SE) Sweden July Retail Sales M/M: -1.2% v +0.5%e; Y/Y: 5.4% v 8.5% prior.
• (SE) Sweden July Trade Balance (SEK): 7.1B v 9.5B prior.
• (CN) Weekly Shanghai copper inventories (SHFE): 82.4K v 85.6K tons prior.
• (AT) Austria Aug Manufacturing PMI: 61.8 v 63.9 prior (14th straight expansion).
• (IT) Italy Aug Consumer Confidence Index: # v 116.3e; Manufacturing Confidence: # v 115.0e; Economic Sentiment: # v 116.3 prior.
• (RU) Russia Narrow Money Supply w/e Aug20th (RUB): 14.34T v 14.33T prior.
• (TW) Taiwan July Monitoring Indicator: 38 v 40 prior.

Fixed income issuance

• (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month Bills; Avg Yield: -0.519% v -0.524% prior; Bid-to-cover: 1.28x v 1.29x prior.
• (IN) India sold total INR340.1B vs. INR310B indicated in 2026, 2034, 2035 and 2050 bonds.

Looking ahead

• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (ZA) South Africa to sell combined ZAR1.2B in I/L 2025, 2038 and 2050 Bonds.
• 06:00 (IE) Ireland July Retail Sales Volume M/M: No est v 3.3% prior; Y/Y: No est v 10.6% prior.
• 06:00 (UK) DMO to sell £3.0B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £1.5B respectively).
• 06:45 (US) Daily Libor Fixing.
• 07:00 (MX) Mexico July Trade Balance: $0.0Be v $0.8B prior.
• 07:00 (IN) India announces upcoming bill issuance (held on Wed).
• 07:30 (IN) India Weekly Forex Reserve w/e Aug 20th: No est v $619.4B prior.
• 08:00 (BR) Brazil July PPI Manufacturing M/M: No est v 0.8% prior; Y/Y: No est v 32.9% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance.
• 08:30 (US) July Advance Goods Trade Balance: -$90.9Be v -$91.2B prior.
• 08:30 (US) July Personal Income: 0.2%e v 0.1% prior; Personal Spending: 0.4%e v 1.0% prior; Real Personal Spending (PCE) : 0.0%e v 0.5% prior.
• 08:30 (US) July PCE Deflator M/M: 0.4%e v 0.5% prior; Y/Y: 4.1%e v 4.0% prior.
• 08:30 (US) July PCE Core Deflator M/M: 0.3%e v 0.4% prior; Y/Y: 3.6%e v 3.5% prior.
• 08:30 (US) July Preliminary Wholesale Inventories M/M: 1.0%e v 1.1% prior; Retail Inventories M/M: 0.3%e v 0.3% prior.
• 08:30 (CA) Canada July Industrial Product Price Index M/M: No est v 0.0% prior; Raw Materials Price Index M/M: No est v 3.9% prior.
• 08:30 (BR) Brazil July Total Outstanding Loans (BRL): 4.243Te v 4.214T prior; M/M: 0.8%e v 0.9% prior; Personal Loan Default Rate: No est v 4.0% prior.
• 08:30 (US) Fed’s Bostic.
• 09:00 (US) Fed’s Harker.
• 09:00 (US) Fed’s Mester.
• 09:30 (US) Fed’s Bullard.
• 10:00 (US) Aug Final University of Michigan Confidence: 70.8e v 70.2 prelim.
• 10:00 (US) Fed’s Annual Jackson Hole Policy Retreat.
• 11:00 (EU) Potential sovereign ratings after European close (Moody’s on France sovereign rating; S&P on Denmark sovereign rating; Fitch on Poland sovereign rating; Canadian rating agency DBRS on Portugal, Slovakia, Sweden sovereign ratings).
• 13:00 (US) Weekly Baker Hughes Rig Count.

• Three Fed officials call for start of tapering; Wall Street panics but futures bounce back
• Dollar also reverses earlier moves, edges lower ahead of Powell’s Jackson Hole speech
• Afghanistan and Delta worries also put investors on edge, gold climbs
• But China policy support soothes some nerves, stocks mixed

Fed hawks make their case; will Powell follow suit?

As all eyes turn to Jay Powell’s keynote address at the virtual Jackson Hole symposium later today, three Fed officials made clear where they stand on tapering in the last 24 hours. Kansas City Fed President Esther George, who’s hosting the event, was the first to break cover, with Bullard and Kaplan following in her footsteps to signal a “sooner rather than later” message on when the Fed should begin scaling back its emergency asset purchases.

Treasury yields extended their gains after the hawkish remarks as investors anticipate the Fed chief to also signal that the time to taper is near. But Powell is unlikely to commit to a specific timeframe, not just because of his dovish lean but also due to the fact that policymakers have not been able to meet in person to forge a consensus.

However, with a taper announcement at some point in the fall becoming more and more certain, the focus now is fast shifting from the start date to the end date. Bullard has indicated he wants QE to end in the first quarter of 2022. That may be viewed as too hasty by the markets, especially as the Delta variant continues to cause disruptions to economic activity around the world. Powell will have to strike the right note in terms of balancing the need to withdraw some stimulus with the persisting downside risks from the pandemic.

If investors don’t get enough reassurances that the process will be gradual, they may yet throw a taper tantrum.

Wall Street wobbles but no panic

Shares on Wall Street ended a five-day winning streak to end between 0.5% and 0.6% lower on Thursday amid some taper jitters. However, the losses were likely magnified by the added risk-off tone arising from the attacks outside Kabul airport in Afghanistan that killed 13 US troops. Although fears of instability in the region are growing, the market impact from headlines about Afghanistan has so far been limited and will probably stay that way.

US stock futures were rebounding on Friday, pointing to gains of 0.3% at the open. Shares in Europe were mixed but in Asia, only Chinese indices managed to close higher as virus woes continue to sap sentiment.

It’s not just in low vaccinated Asian countries, though, that the Delta variant is spreading uncontrollably. The number of people hospitalized in the United States is back above 100,000 and in Britain, there are fears that cases will soar once schools reopen.

As the global recovery comes under threat again, optimism is becoming increasingly reliant on hopes that monetary policy will remain accommodative for the foreseeable future even though many central banks have been moving in the opposite direction lately. South Korea’s central bank hiked rates for the first time during the pandemic on Thursday. But in China, policymakers have been trying to calm markets by ramping up cash injections into the banking system this week whilst signalling that the reserve requirement ratio for banks could be cut again very soon.

Dollar mostly down ahead of Powell

The rising uncertainty about the outlook and geopolitical tensions lifted gold yesterday. The precious metal briefly topped the $1,800/oz earlier today before pulling back slightly but was still last up 0.2%.

A firmer US dollar as European trading got underway is likely weighing on gold. But most majors held onto their earlier gains versus the greenback and it was mainly the underperforming pound that lifted the dollar index into positive territory, albeit very marginally.

Doubts about how long the UK will be able to go on without any social distancing measures to keep the virus in check could be what’s troubling sterling this week as the other risky currencies such as the aussie, loonie and kiwi have posted a much more impressive rebound.

Coming up later today, the core PCE price index as well as personal income & spending numbers will be watched out of the US alongside Powell’s Jackson Hole speech that's due at 14:00 GMT.