All eyes are on Federal Reserve Chair Jerome Powell as he prepares to address the annual Jackson Hole symposium in Wyoming on Friday, an event that could provide pivotal insights into the central bank’s policy trajectory. As traders await his remarks, the 10-year Treasury yield remained steady at 3.85%, while the two-year yield, which is more sensitive to policy changes, dipped by one basis point to 3.99%, marking a six-basis-point decline for the week. The Dollar Strength Index slipped slightly after a Thursday uptick, reflecting cautious sentiment among investors.
Market analyst at SARACEN MARKETS suggest that while Powell faces a high bar to deliver a dovish surprise, few expect him to out-dove the markets. As long as his speech avoids any hawkish tones, the prevailing “Goldilocks” theme marked by a delicate balance of economic moderation should continue to guide market behavior, particularly with traders fading rallies in the U.S. dollar.
Despite some recalibration, swaps traders still anticipate nearly 100 basis points of rate cuts by the Federal Reserve by the end of the year, although expectations for cuts this year have been slightly dialed back.
Meanwhile, comments from U.S. policymakers added to the nuanced market outlook. Kansas City Fed President Jeffrey Schmid emphasized the need for more economic data before endorsing rate cuts, underscoring the cautious stance among some Fed officials. The consensus is clear: the Fed is likely to ease in September, but a 50-basis-point cut appears off the table for now.
On the economic front, the latest data painted a mixed picture. U.S. jobless claims indicated a gradual cooling of the labor market rather than a sharp slowdown, even as manufacturing activity contracted at the fastest pace this year. Additionally, existing-home sales saw their first increase in five months, offering a glimmer of resilience in the housing market.
In the commodities sector, oil prices are on track for a weekly loss, weighed down by a challenging demand outlook, declining product prices, and ongoing U.S. efforts to broker a cease-fire in Gaza. The decline in oil prices marks a continuation of the bearish trend that saw crude hit its lowest close since January earlier this week.