Naomi Rovnick and Hudson Lockett
Leading central bankers hold their annual gathering — usually held at the Rocky Mountain resort of Jackson Hole but online this year — over the next two days.
After presiding over huge stimulus packages to soothe the economic damage wrought by the coronavirus pandemic, they have a dwindling arsenal of monetary tools to use, although investors expect Federal Reserve chairman Jay Powell to signal that US policy, which sets the tone for much of the rest of the world, should remain supportive to holders of financial assets. He is due to speak at 9.10am New York time (2.10pm London).
“While we expect the Fed to shy away from more radical easing measures, such as explicit controls on government bond yields, we believe Powell will probably outline other dovish measures,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
After Wall Street’s S&P 500 rose another 1 per cent to a fresh record high in the previous session, these gains did not look set to be repeated on Thursday. Futures contracts signalled the S&P 500 could fall 0.2 per cent in opening trades.
The Europe Stoxx 600 lost 0.3 per cent and London’s FTSE 100 shed 0.4 per cent, as currencies also exhibited few signs of decisive trading. The dollar, as measured against a basket of trading partners’ currencies, hovered near a one-week low, having shed almost 6 per cent of its value so far this year. The euro remained flat against the dollar, buying $1.1828.
Investors remain concerned over the widening gap between equities and the performance of many global economies, as Covid-19 cases have risen and earlier signs of recovery have petered out.
At the Jackson Hole meeting, the Fed’s Mr Powell is expected to provide details on the central bank’s review of monetary policy and offer some guidance over future inflation targeting. Economists mostly believe that the US economy cannot attain a healthy level of price rises by itself, leading to speculation that the Fed may unveil policies designed to stimulate inflation.
Achieving a moderate level of price rises, perhaps by nudging consumer and business expectations for them higher, may not be negative for equity markets, Vanguard investment strategist Andrew Patterson said.
“The equity market is looking for some sort of higher inflation policy,” he said. “Not the high single or even double digits of the 1970s and 1980s,” set to inflict pain on investors, “but a moderate level that is normally linked to a reasonably healthy economy.”
Despite mounting speculation the Fed chairman could signal a move into average inflation targeting in his Friday speech, US government debt prices traded steadily. The yield on the 10-year US Treasury note, which moves inversely to prices, was flat at 0.69 per cent, having touched 0.721 per cent in the previous session. But bond investors also inched into European government debt, with the yield on Germany’s 10-year Bund falling 0.03 percentage points to minus 0.44 per cent.
Japan’s Topix index dropped 0.5 per cent while Hong Kong’s benchmark Hang Seng fell 1 per cent. China’s CSI 300 index of Shanghai and Shenzhen-listed stocks slipped 0.4 per cent.
Commodities prices did not react strongly to the prospect of Hurricane Laura, a category four storm that is approaching Texas and Louisiana, racing into the heart of the US oil industry. Brent crude, the international oil benchmark, traded 0.2 per cent higher at $45.72 a barrel.