Market jitters ahead of Jackson Hole

Market movers today

The main event today will be the US Fed's Jackson Hole Symposium where Powell will deliver his speech 16:05 CET. This is an opportunity the chairman has previously used to correct market views, for example last year. ECB president Largarde will speak at 21:00 CET.

In Germany, we get the August IFO business survey and it will be interesting to see if it confirms the gloomy picture painted by the PMIs yesterday. We also get revised GDP and other national accounts data for Q2, but that is mostly of historical interest since the indicators for July and August have been so negative.

The 60 second overview

Anxiety ahead of Jackson Hole: Bond yields moved back up again yesterday and equities moved lower ahead of key speeches at the Jackson Hole by Fed governor Jerome Powell and ECB President Lagarde later today. Markets are again pricing a more than 50% probability that the Fed and ECB will both hike again by November.

ECB's Nagel says much too early to consider rate hike pause: Bundesbank President Joachim Nagel said in an interview at the Jackson Hole that it is "much too early to think about a pause" saying that he would wait for additional data before making a decision. He pointed to still high inflation and strong labour market data. His more dovish colleague at the ECB, Portuguese Mario Centeno on the other hand urged officials to be cautious with the next policy move saying risks are materialising.

BRICS expansion: At the BRICS Summit in Johannesburg the group yesterday invited six new members into the club: Argentina, Saudi Arabia, Egypt, UAE, Iran and Ethiopia. The BRICS now represent close to half the world's population and more than 1/3 of global GDP and will likely become a stronger force representing the Global South. While it is a very diverse group their common interest is to create a stronger voice to what they see as a too Western-dominated world order with too little representation of the Global South in organisations such as the IMF, World Bank and the UN. They have also expressed a wish to create an alternative global financial infrastructure less reliant on the USD and SWIFT.

Equities: Global equities reversed yesterday after the optimism on Wednesday. Market more or less flipped around, the reason being renewed yield, inflation and central banks fear. A couple of solid macro data and a hawkish leaning Fed was enough to ruin the fragile inflation optimism built on Wednesday. Hence, Powell's speech this afternoon will be followed closely. Growth underperforming together with cyclicals while VIX ticking back north of 17. In US Dow -1.1%, S&P 500 -1.4%), Nasdaq -1.9% and Russell 2000 -1.3%. The negative sentiment drags on to Asia this morning with Japanese stocks being down almost 2%. US and European futures close to unchanged while waiting for the afternoon speech from Mr. Powell.     

FI: The initial yield drop from the market open was gradually reversed through the day amid little significant news flow as we await Powell and Lagarde today at Jackson Hole. The yields in the 10y point were broadly unchanged on the day. After Wednesday's PMIs markets are pricing only 9bp at the ECB September meeting in three weeks' time.

FX: Risk sentiment remains shaky and equities dropped as for the first time the US money market sees an above 50% probability of a November hike. This translated into USD strength, with EUR/USD taking out new 3M lows below 1.08. As per usual, the sour risk sentiment hurt the NOK but surprisingly the SEK showed more resilience. Slightly lower-than-expected Japanese inflation over night adds to the upside in USD/JPY.

Credit: Though CDS indices opened sharply tighter, sentiment turned around during the afternoon, which led iTraxx Xover to widen 2.2bp and Main to close more or less unchanged. Primary market activity was muted, with the only new deals brought to the EUR market being in covered bond format.

Nordic macro

In Sweden unemployment and PPI data is released today.