Stocks Struggle in Cautious Trading Before Powell: Markets Wrap

European stocks and US futures struggled for direction as a cautious tone dominated markets before a speech from Federal Reserve Chairman Jerome Powell that will be studied for clues on the interest-rate outlook.

(Bloomberg) — European stocks and US futures struggled for direction as a cautious tone dominated markets before a speech from Federal Reserve Chairman Jerome Powell that will be studied for clues on the interest-rate outlook.

Energy and mining shares outperformed a flat Stoxx 600 Europe index as crude oil and iron ore prices climbed. US contracts were steady after tech stocks led declines on Wall Street on Thursday, wilting in the face of rising Treasury yields. The Nasdaq 100 dropped 2.2%, its worst day in three weeks. 

Declines were deeper in Asia Friday, where a gauge of the region’s equities dropped more than 1%. A boost to mainland China stocks from news that the country would ease mortgage rules — the latest in a string of measures to support the economy — proved short-lived.

Treasury yields ticked higher, with those on two-year notes, which are more sensitive to imminent policy moves, holding above 5%.

Investors are keeping a close eye on the annual gathering of top central bankers in Jackson Hole, Wyoming — where Powell is scheduled to deliver a speech at 10:05 a.m. Washington time. The Fed chief will likely use his platform to outline how officials will assess whether rates should go higher and determine when it’s time to start cutting them.

“The Fed is close to the end of its cycle,” Brad Gibson, head of APAC fixed income for AllianceBernstein said on Bloomberg Television. “Investors will be rewarded by owning bond yields at these levels over the medium term.”

The greenback advanced toward a three-month high as traders assessed the possibility of higher-for-longer rates ahead of Powell’s speech. The the yen weakened beyond 146 per dollar for the first time since Tuesday after inflation data for Tokyo came in slightly below forecasts.

In the run-up to Powell’s address, Fed Bank of Boston President Susan Collins told Yahoo! Finance that rate increases may be necessary, adding that she wasn’t prepared to signal the peak point. Meantime, her Philadelphia counterpart Patrick Harker sees interest rates on hold for the rest of this year, and thinks policymakers have likely undertaken sufficient tightening, telling CNBC that “we’ve probably done enough.” 

Read more: Fed Officials See Rates Close to Peak, Differ on How Close

A survey conducted by 22V Research shows that 78% of investors expect Powell to focus on data dependency. The next most-popular choice was financial conditions, which received 12% of votes. Only 21% of investors expect the market reaction to be “risk-off”, while 43% bet it will be mixed or negligible and 37% predict a “risk-on” response.

“If Powell focuses on data dependency, that ought to help 10-year yields stabilize,” said Dennis DeBusschere, founder of the New York-based research firm. That would also provide a “tailwind” to the growth-versus-value trade, he noted.

‘Goldilocks’ Rate

Another topic that has surfaced on Wall Street over the past few days is whether Powell will address the abstract, almost elusive number that many refer to as r-star. That’s a sort of “Goldilocks” rate that neither stimulates nor restricts economic growth.

Former Treasury Secretary Larry Summers and Bill Dudley, previously the New York Fed chief, are among those who have said markets are still underestimating the so-called neutral interest-rate. Any hint at an upward revision would likely ripple across global markets, forcing a reevaluation on where the fair value for Treasury yields is likely to land.

Yet Krishna Guha at Evercore ISI said Powell will likely focus on the short-to-medium-term outlook — and avoid making a call on the r-star.

“Expect a balanced assessment with no abrupt hawkishness, but no ‘Mission Accomplished,’” Guha added. “The Fed has not come this far to let inflation slip out of its grasp.”

In commodities, global benchmark Brent crude climbed 0.5%. Meanwhile, iron ore was headed for a third weekly advance amid increasing speculation Chinese steel mills will ramp up output.

European natural gas headed for its first weekly drop this month amid hopes that Australian exporters will soon end labor disputes, easing fears about potential supply disruptions in already volatile market. 

Key events this week:

  • US University of Michigan consumer sentiment, Friday
  • Fed Chair Jerome Powell, ECB President Christine Lagarde to address Jackson Hole conference, Friday

Some of the main moves in markets:


  • The Stoxx Europe 600 was little changed as of 8:14 a.m. London time
  • S&P 500 futures rose 0.1%
  • Nasdaq 100 futures fell 0.1%
  • Futures on the Dow Jones Industrial Average rose 0.2%
  • The MSCI Asia Pacific Index fell 1.2%
  • The MSCI Emerging Markets Index fell 1%


  • The Bloomberg Dollar Spot Index was little changed
  • The euro fell 0.2% to $1.0790
  • The Japanese yen fell 0.1% to 145.99 per dollar
  • The offshore yuan fell 0.1% to 7.2915 per dollar
  • The British pound fell 0.1% to $1.2584


  • Bitcoin was little changed at $26,031.14
  • Ether rose 0.1% to $1,651.37


  • The yield on 10-year Treasuries was little changed at 4.25%
  • Germany’s 10-year yield advanced three basis points to 2.54%
  • Britain’s 10-year yield advanced three basis points to 4.46%


  • Brent crude rose 0.5% to $83.77 a barrel
  • Spot gold fell 0.1% to $1,914.49 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck.

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