Fischer Plants Hawkish Seed Ahead of Jackson Hole

It’s been an interesting, albeit quiet, start to trading this week, with commodity and bond markets coming under early pressure, the yen taking a welcome hit and equity markets creeping mostly higher in the background.

Commodity markets took quite a substantial hit at the start of the Asian session, probably not helped by the illiquid nature of the markets at this time of day. The triggering of stop losses more than likely exacerbated the move and while losses have been pared to an extent, everything from Gold and Silver to Brent and WTI remain deep in the red as we await the arrival of US traders.

Rising Yields Melt Silver in Asia

The yen is experiencing a little reprieve at the start of the week having opened almost 7% higher against the dollar compared to where it was a month earlier. It seems for now at least Japanese officials are determined to try and keep the yen above the 100 handle against the dollar with promises of a bottomless pit of monetary stimulus, as Haruhiko Kuroda claimed there is a “sufficient chance” of more easing at the next meeting in September. The BoJ’s efforts at the last meeting failed to blow anyone away so they’ll have to do a much better job next time if they truly want to cap the gains in the yen.

Another policy maker who’s been vocal has been Stanley Fischer, vice Chair of the Federal Reserve. While Fischer wouldn’t offer any direct insight into when the next rate hike will come, he did suggest that it is close to reaching its targets for full employment and 2% inflation, potentially planting the hawkish seed ahead of Janet Yellen’s speech on Friday. This is probably largely responsible for the dollar gains early in the week and US Treasury yields edging higher.

Markets Fish For Fed Clues

Yellen’s speech will be the headline event in what will otherwise be quite a low key week in the markets. The Jackson Hole event that she will be speaking at has previously been the platform for the Fed Chair to warn of upcoming loosening or tightening of monetary policy, especially if the market is believed to be incorrectly positioned. That is certainly the case this time if the Fed does intend to tighten this year and Yellen will have to be careful to deliver a very blunt warning of such an event to the markets. Markets have previously pounced on any uncertainty in the statements of the Fed when hinting at rate hikes and Yellen needs to be careful not to make the same mistake again, assuming of course that this is the message she wants to get across. Given some of the comments we’ve had over the last week and the limited impact of Brexit, we have to assume it is.

Economic Calendar

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.