All Eyes Turn To J-Pow At Jackson Hole

N.B – I’m off next week, publication of this note will resume on Mon 1st September; here's hoping markets behave themselves in my absence!

WHERE WE STAND – Boy, has the City of London changed.

A decade or so ago when a young MB first walked over London Bridge into the square mile it was the purview of navy suits and ‘no brown in town’. Nowadays, sartorial standards have slipped so far that I’m rarely not in jeans in the office, and yesterday I even spotted a chap outside the BoE doing a modelling shoot for his brand of hoodies!

I tell this tale for two reasons. One, because it’s far more interesting than anything that happened in markets yesterday; and, two, because the folk inside the BoE actually got a bit of good news on Thursday.

That news came in the form of the latest ‘flash’ PMI surveys, where both the services and composite output metrics rose to 12-month highs, at 53.6 and 53.0 respectively. That said, one solid PMI survey hardly signals ‘all clear’ for UK Plc, especially ahead of the aggressive fiscal tightening to come in the Budget later in the year, while the surveys themselves also contained some disappointing details, as total employment fell for the 11th month running, and input cost inflation hit its highest since May.

While that data was good for a modicum of upside in the quid, it was very much a ‘blink and you’ll miss it’ move, which makes a lot of sense given that risks to the UK outlook continue to tilt firmly to the downside, and when one considers that PMIs elsewhere also beat expectations yesterday.

Anyway, what vol we did get on Thursday wasn’t driven by those PMI figures, but was instead driven by a combination of positions being squared up ahead of Powell’s remarks in Jackson Hole today, and a reaction to some hawkish commentary from 2026 Fed voter Hammack, who went further than any other policymaker has thus far, in explicitly noting that, based on current data, she sees no case for a rate cut next month. On this, I agree entirely with Hammack, and barring another downside surprise in the August jobs report, retain my base case for the Fed to stand pat until December.

Given the above, price action leaned hawkish on the day – stocks slipped once more, with tech names again leading the way lower; Treasuries sold-off across a flatter curve, as the front-end lagged; while the dollar gained ground against all peers, most notably against the JPY, a function of the aforementioned Treasury move.

I’m reluctant to read too much into any of this, mind, after what was overall a very noisy and choppy day, where conviction was also understandably lacking. My core biases – long risk, short USD, steeper Treasury curve – remain unchanged.

LOOK AHEAD – Those waiting for clarity, though, are likely to end up disappointed today, with Fed Chair Powell set to keep his options as open as possible in remarks at the Jackson Hole Symposium.

With a month still to run until the September FOMC, during which time we’ll receive both the August jobs and CPI/PPI reports, as well as with uncertainty remaining elevated, and inflation risks biased to the upside, there is little-to-no benefit in Powell pre-committing to any action later on today.

As such, far from the explicit ‘the time has come for policy to adjust’ message that we got last year, I’d expect a much more nuanced stance this time around, as Powell again stresses that the current policy stance is ‘well-positioned’, and that risks to the dual mandate are still ‘two-sided’. Any reference to rate moves, if made, will stress that those moves depend on the evolution of incoming data, especially as most FOMC members still see risks to inflation as greater than risks to employment.

Consequently, I’d imagine that we end the day with odds on a September cut much closer to 50/50 than where we stand now (around a 75% probability), while the curve should probably also see the possibility of 2x 25bp cuts by year-end as a coin-flip by the end of the day too.

Elsewhere, the latest Canadian retail sales figures are due, and the ECB are set to provide their latest update on eurozone wage pressures, though neither should be market moving. On that note, ECB President Lagarde, as well as BoJ Governor Ueda and BoE Governor Bailey, are all due to speak over the weekend, perhaps presenting a modicum of gapping risk for the Sunday night re-open.

Once Powell’s remarks today are done, though, I think he will certainly have earned a cold beverage or two – and that’s a good enough excuse for me to imbibe as well, if one were needed!