(Bloomberg) — Stocks ticked higher in the run-up to Jerome Powell’s Jackson Hole speech, with traders speculating over whether the Federal Reserve Chair will open the door for interest rate cuts.
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Futures on the S&P 500 rose 0.4% and Europe’s main equities benchmark edged higher. The 10-year Treasury yield was steady at 3.84% while the dollar retreated. The yen strengthened after hawkish comments from Bank of Japan Governor Kazuo Ueda.
Powell’s address later Friday at the annual symposium in Wyoming has hung over markets all week. Stocks and bonds took a hit on Thursday on concern he would use the speech to throw cold water on market expectations for aggressive interest-rate cuts.
“For investors, the big question is to what extent Powell validates expectations for a September rate cut, and whether he offers any indication of how big any rate cut might be,” said Jim Reid, a strategist at Deutsche Bank AG.
The latest US economic data was mixed. American jobless claims data showed the labor market is cooling only gradually — rather than rapidly slowing amid elevated rates. US manufacturing activity shrank at the fastest pace this year. And existing-home sales increased for the first time in five months.
Heading into the Jackson Hole meeting, “it can be a very high bar for Powell to out-dove markets,” said Christopher Wong, FX strategist at Oversea-Chinese Banking Corp. “But at the same time, I doubt many are expecting him to do that — so as long as there is no hawkish surprise from his speech, markets are happy to continue trading the Goldilocks thematic, i.e. fading rallies in the dollar.”
Swaps traders are broadly pricing almost 100 basis points of cuts through December.
Yen’s Gains
Meanwhile, the Japanese currency rose as much as 0.7% versus the dollar. In replies to lawmakers, BOJ Governor Ueda signaled the central bank is still on the path to raise interest rates, provided inflation and economic data continue in line with its forecasts.
Ueda’s comments in parliament “put an end to speculation that the BOJ could back…
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