Jackson Hole: what’s at stake?

00:00:00: Hi and welcome to SwissCodes daily market talk.

00:00:03: It's Friday, August the twenty-eighth of August.

00:00:06: Jackson Hole takes center stage today with Kevin Walsh due to talk in a few hours from now.

00:00:11: Sticky inflation and renewed energy price pressures are fueling hawkish expectations globally.

00:00:17: while U.S.

00:00:18: treasuries push to tame long term yields in the US complicates federal reserves.

00:00:23: jobs bring inflation near two percent target.

00:00:29: Gentlemen, Marcus won't direction.

00:00:31: Treasury wants lower yields and Warsh was somehow keep this balance together and save his credibility as well.

00:00:37: So we will talk about all that And what it means for Marcus and cross asset prices.

00:00:42: But before we do and as always please keep in mind That opinions are my own This is not financial advice.

00:00:57: So yesterday was marked by clear divergence between technology and the rest.

00:01:02: After NVIDIA, sales force and crowds strike earnings boosted gains across AI enablers and other technology stocks in the sense that Zaghanret gained one point forty three percent in yesterday's trading session while the rest of the industry is grapple with a fresh rebound on oil prices this time due to news that Russia will intensify its attacks on Ukraine Meanwhile certain as well.

00:01:28: Even though the latest headlines suggest that seven to eight million barrels per day is now getting through the Strait of Hormuz, plus several million barrels a day living via Saudi Arabia and United Arab Emirates bypass infrastructure.

00:01:43: That's much better than four million barrels by mid-July that transited this Hormız but supply from the region remains still below twenty to twenty one million barrels Hormuz before the war in Iran started and that's keeping their refined product prices from pulling back on.

00:02:01: The contrary, these L prices are still spiking higher in the US.

00:02:05: hence the positive pressure.

00:02:07: energy prices keep inflation tensions well alive globally especially after several reports this week confirm that Inflation around world keeps climbing.

00:02:18: That's normal because energy prices echo through many industries, goods and services.

00:02:24: And the latter reinforces the hawkish central bank expectations around the globe, but not with the same intensity and confidence levels.

00:02:32: The European Central Bank for example or the Reserve Bank of Australia or the reserve bank in New Zealand signaled that they could tighten more to tame price pressures.

00:02:40: The Bank Of Japan is obliged to normalise sooner rather than later to slow the Yen's plating while the Bank Of England is somewhere in the middle walking fine line between fragile economic outlooks in the UK and disturbing cost-of living crisis As per the Fed.

00:02:55: we don't know.

00:02:55: We've never known this little.

00:02:57: So today, all eyes are turning to the Jackson Hole meeting where the annual economic policy symposium brings together some of the world's most influential central bankers policy makers and economists.

00:03:12: The Fed Chair, this time Kevin Walsh will deliver the traditional keynote addressed in the morning And history tells us that these speeches can matter.

00:03:19: Jackson Hole indeed has at times been the stage for major shifts of communication and policy guidance.

00:03:26: Ben Bernanke, for example uses his two thousand and ten speech to signal That the Fed was prepared To provide additional monetary stimulus.

00:03:35: Well, Joan Powell's famously short and forceful two thousand twenty-two address made it crystal clear that the Fed would keep tightening its monetary policy even at.

00:03:46: So yes, Jackson Hole speeches can be pivotal.

00:03:52: They can be game-changing and this one could be particularly important And that's because... One It will be Kevin Walsh' first Jackson Hole speech as Fetche at a time when inflation remains stubbornly above tiger and long term yields have been pushing higher.

00:04:07: Two, Kevin Morse is trying to change the way the Federal Reserve functions and it communicates its monetary policy to demarket or whether it communicate at all.

00:04:17: And three, investors are questioning since Treasury announced Last week, to increase its longer-term bond buybacks using Treasury general account at the Federal Reserve to tame the barbing cost on the long end of yield curve.

00:04:31: How will Fed respond to the Treasury's intervention in the bond market?

00:04:35: That if successful could interfere with the Federal reserve policy path and transmission office policies.

00:04:44: Kevin Walsh must say something and what he says or doesn't say will probably move the market, potentially in a considerable way.

00:04:52: So if we do scenario analysis where Kevin plays to regain his credibility as to his willingness to pursue his deal mandate of keeping inflation under control and unemployment at a sweet balance and retraces determination bring inflation back into the Fed's two percent target then the hawkish Fed expectations would increase again.

00:05:17: That will push to short end of U.S.

00:05:20: yield curve and US dollar higher, it'll have a negative impact on equity valuation.

00:05:25: so that's not cool for investors obviously.

00:05:28: but the bright side is that a firm stance on inflation could limit upside in longer term yields by anchoring inflation expectation even as the front end of the yield curve moves higher.

00:05:40: and it wouldn't be that bad at the end with today for equity valuations in a longer run where long term buying costs actually do matter more to companies, hands-to-investors than their very short ends.

00:05:52: And opposite scenario if Wars chooses to remain mysterious and keep his road map to himself or worse stay silent on the face of Treasury's strategy which interferes with its own plan while credibility issues around Fed would rise further and the latter would trigger a renewed selling pressure both on U.S.

00:06:13: dollar and longer majority US bonds.

00:06:16: We may see short-term yields fall though, on softening Federal Reserve expectations…and the latter could support equity valuations.

00:06:22: but be careful!

00:06:23: Treasury's action plan of announcing higher ten to thirty year bond buybacks partially worked actually by pulling the ten lower.

00:06:34: Traders reckon that there will be a big, big buyer in the market and they don't necessarily want to swim against the tide.

00:06:41: so The US third year yield has retreated before retracing some of their action.

00:06:46: given the fiscal situation off the U S I can say that the yields Will finally come over but treasuries intervention will certainly help ease the selling pressure on us bonds.

00:06:56: That in turn could help tame the upside pressure in u.s Heels.

00:07:00: again i'm not saying that it's will reverse the pressure but it could tame the positive pressure.

00:07:05: But on the other hand, by doing so It will also maintain pressure on inflation.

00:07:09: because yes, loser monetary policy conditions Also mean higher pressure on prices and that's a big problem You see?

00:07:16: Because when stock prices rise along with inflation A point of return only covers value.

00:07:22: loss due to inflation is not real return.

00:07:25: So rising stock prices don't guarantee a positive and interesting real return anymore.

00:07:31: If you add to that the debasement trade, which weighs on the US dollar outlook in the longer run while all of us stock markets may become much less interesting for foreign investors when filtering out the inflation and the U S depreciation effects from what we earn I did them.

00:07:47: math is quite simple.

00:07:48: last year this MP five hundred gain around eighteen percent sounds great but for an investor who sits in Europe However, the dollar's seventeen percent depreciation against Europe pulled that return down to less than four percent.

00:08:01: take out inflation and that spectacular eighteen percent return shrinks to around two percent in real year terms.

00:08:09: That versus a nearly seventeen percent return in stock.

00:08:12: six hundred over the same period adjusted for inflation, that makes it returned past fourteen percent in your terms as pretty much same thing for Swiss investors.

00:08:21: dollars thirteen percent depreciation against the Frank wiped out almost all of the gains living their turn at just around three percent annual US dollar terms.

00:08:30: takeout inflation and the return falls slightly further as well.

00:08:34: it's around two in something percent.

00:08:35: Meanwhile, you're boring as in my game more than fourteen percent in frank terms.

00:08:40: So now it's not that simple.

00:08:42: You cannot just intervene in the market to make things look beautiful for you and Just don't care about the rest because otherwise everyone could become a treasury secretary or a central banker.

00:08:52: Alas financial markets are more complicated than that And our walking your fine balance break the equilibrium and you're in trouble.

00:09:00: so That's all from my side For today.

00:09:02: let see what more says about it?

00:09:05: So I will comment on that on Monday, but this is all for the week.

00:09:16: This episode of Market Talk has been helpful and it's been insightful to you, so please do not hesitate to leave your comments, reactions or questions below as usual.

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00:09:45: So I will meet you again next week and until then, good day

00:10:06: trading.