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Market Awaits Fed Tapering Timing

STOCK INDEX FUTURES

Global equity markets overnight were mostly higher with gains ranging between mere fractions and +0.84% in the Hang Seng. The highlight for global markets will come during mid-morning US trading hours with the start of the Kansas City Fed’s Jackson Hole Economic Symposium which will feature a speech by Fed Chair Powell which is widely expected to provide insight on upcoming tapering and other Fed policy measures. As indicated in several other financial market coverages this morning, there is already a measure of Fed tapering timing news factored into prices, but seeing the Fed give specifics on timing goes against their widely touted requirements for removing support.

S&P 500: With a high to low correction in the September S&P this week of 36 points, the markets have factored in a very minimal hint of tapering timing from the Fed speech today. On the other hand, the Delta variant infections, the attacks at the Kabul airport and the Chinese ban on overseas tech sector IPOs (with data security risks) provide several classic non-Fed related bearish fundamental storylines. While uptrend channel support is situated below 4400.00, to test that level requires some form of specific taper timing news. However, equity markets tend to be unnerved by uncertainty and the Fed speech today is likely to provide investors with a major decision on the charts and the potential for anxiety.

CURRENCY FUTURES

Not surprisingly, the dollar has marked time on the charts this week ahead of today’s key event. In retrospect, the dollar seems to have priced in a decline of flight to quality interest with the early August rally but has extracted a moderate amount of that premium at this week’s consolidation range lows. However, uncertainty from Covid infections, the terrorist incident in Afghanistan and disappointing US data will remain in place after today’s Fed musings. As indicated in other financial market coverage today, fundamental evidence favors no tapering timing guidance, with specific Fed tapering a definitive shift from Fed promises over the last 8-months! However, we expect the dollar index to respect this week’s consolidation low support at 92.82 but the failure of that level would be very significant and could result in a near term spike down to 92.50.

INTEREST RATES

As indicated in other market coverage this morning, if the Fed is true to its word offered throughout the crisis, they should not offer up specific timing for tapering today. However, the markets are likely to embrace the slightest hint of tapering but given the most recent US daily infection count of 164,000, reports that emergency rooms in Florida and Texas have become overwhelmed and given disappointing data over the last month, a hawkish Fed would signal surprising concern for inflation. Certainly, inflation concerns were fanned by comments from the Fed’s Bullard yesterday, but concern for inflation is certainly not “new”. While the Fed may have early guidance on next Friday’s nonfarm payroll report, they also promised not to begin tapering until after “several” blockbuster monthly nonfarm payroll gains. In retrospect, this week’s treasury supply maintained recent patterns of interest in short maturities and demand in the longest maturity soft. In our opinion, today’s scheduled data will have limited influence as it precedes the Fed Chairman speech and expectations for the data are for insignificant or slightly supportive results for treasury prices. The North American session will start out with July personal income which is expected to have a minimal uptick from June’s 0.1% reading. July personal spending is forecast to have a moderate downtick from June’s 1.0% reading. The July goods trade balance is expected to have a moderate downtick from June’s monthly deficit. July wholesale inventories are forecast to have a moderate downtick from June’s 1.1% reading. The July Canadian industrial product price index (IPPI) is expected to have a minimal uptick from June’s unchanged reading. A private monthly survey of August consumer sentiment is forecast to have a modest uptick from the previous 70.2 reading.

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