The economic agenda brings little to the table on Friday, leaving traders focused on the Jackson Hole symposium. Market participants will be especially keen to tune in when Fed Chairman Jerome Powell speaks at the conference at around 14:00 GMT. His comments on the growth outlook may stoke risk aversion and lead to a US Dollar rally that may also be buttressed by hints that the Fed is not as dovish as markets think.
At the most recent FOMC meeting, Mr. Powell stated that the rate cut was not the start of an easing cycle but more of an effort to maintain the economic expansion. Despite markets receiving a 25-basis point cut, equities fell because the nature of the comments were comparatively less-dovish than what they were expecting. We may see a similar reaction tomorrow where US Dollar strength will preview at the expense of equities.
Having said that, fundamental headwinds could make it more difficult to remain neutral. Weakening growth prospects out of the Eurozone and China is undermining demand for US exports against the backdrop of the ongoing US-Sino trade war. Markets are also still having to contend with the fear that a cross-Atlantic trade war between the EU and US could still happen and further dampen inflationary pressure.
Furthermore, the roughly $17 trillion market for negative-yielding bonds – meaning lenders pay the coupon rate to the borrower vs the other way around – suggests markets are bracing for what could be a dreary road ahead. This is compounded by concerns that hidden weaknesses in the financial system – like unstable collateralized loan obligations – could exacerbate a downturn and further pressure global growth prospects.
CHART OF THE DAY: Japan, German 10-Year Bond Yields Sink Deeper into Negative Territory
German Bund chart created using TradingView
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Disclaimer: DailyFX, the free news and research website of leading forex and CFD broker FXCM, delivers up-to-date analysis of the fundamental and technical influences driving the currency and commodity markets. With nine internationally-based analysts publishing over 30 articles and producing 5 video news updates daily, DailyFX offers in-depth coverage of price action, predictions of likely market moves, and exhaustive interpretations of salient economic and political developments. DailyFX is also home to one of the most powerful economic calendars available on the web, complete with advanced sorting capabilities, detailed descriptions of upcoming events on the economic docket, and projections of how economic report data will impact the markets. Combined with the free charts and live rate updates featured on DailyFX, the DailyFX economic calendar is an invaluable resource for traders who heavily rely on the news for their trading strategies. Additionally, DailyFX serves as a portal to one the most vibrant online discussion forums in the forex trading community. Avoiding market noise and the irrelevant personal commentary that plague many forex blogs and forums, the DailyFX Forum has established a reputation as being a place where real traders go to talk about serious trading.
Any opinions, news, research, analyses, prices, or other information contained on dailyfx.com are provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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