FOMC Meeting Minutes
The Federal Reserve (Fed) communications will dominate this week. First, up will be minutes to the July 30th –31st meeting. In all likelihood, those minutes may well be stale upon arrival. Recall that the tone to the statement and Chair Powell’s press conference suggested this would not be the start of an easing cycle versus a “mid-cycle adjustment” that implied perhaps only minor further easing.
Trump Flip Flop
Less than twenty-four hours after the Fed cut, however, Trump made an announcement. The news pointed out that he would apply a 10% tariff on US$300 billion of Chinese imports. Having said that, doves like St. Louis Fed President Bullard have not indicated a higher easing bias in the wake of the tariffs than previously.
Last week markets cheered Trump’s decision to delay China tariffs to December. However, weaker German and Chinese data sparked renewed fears of slower global growth. This triggered a rally in global bonds as investors fled riskier assets in favour of perceived safe havens. The safe havens are the 2Y and 10Y US treasuries yield curve. These inverted briefly, its first time in 12 years, flagging recession risk. As a result, China threatened to take retaliatory moves against the US. Yet President Trump sounded positive in what appeared to be an attempt to recoup good relations with China. As usual, Trump used his Twitter account to slam the Fed for failing to cut rates at a faster pace.
Therefore, for fresher remarks from top Fed officials, markets will have their sights upon the annual Jackson Hole Symposium. The Fed’s event starts with arrivals on Thursday, August 22nd and lasts into the subsequent weekend. This year’s theme is “Challenges for Monetary Policy” which is pretty wide open these days.
Fed Chair will give the opening address, and a detailed agenda is offered by 8 pm ET on the 22nd. This teaser is all that’s available to go by in the meantime. A major focus is going to be upon international policy connections across central banks and implications for exchange rates, trade and economic activity. How to respond to trade tensions without inducing serious moral hazard problems by invigorating the protectionist instincts of Trump and Navarro should also be front and centre.
Managing expectations in light of how far beneath the Fed’s dots market pricing for future rate moves has moved represents a delicate matter by way of the risk of disappointing markets. The greater value in this year’s Symposium, however, could be the interviews from the sidelines by Fed and other global central bank officials with the attendance list pending.
The USD has continued to grind higher and looks poised to make a retest of current cycle highs above 98.50, however bulls may turn cautious on this retest as from a technical perspective there is the potential for this move to demonstrate momentum divergence which suggests a reticence to push prices much higher further contained by the ascending trendline resistance which has capped upside advances this year, a failure at or near prior highs would likely see a pull backtest bids at the 97.00 level a failure here would see bears targeting a test of the range pivot and ascending trendline support towards 96.00.