European Open: US inflation and Powell’s Jackson Hole Speech in focus

Asian Indices:

• Australia's ASX 200 index rose by 72.6 points (1.03%) and currently trades at 7,120.70
• Japan's Nikkei 225 index has risen by 197.15 points (0.69%) and currently trades at 28,676.16
• Hong Kong's Hang Seng index has risen by 140.37 points (0.7%) and currently trades at 20,108.75
• China's A50 Index has fallen by -1.86 points (-0.01%) and currently trades at 13,592.97

UK and Europe:

• UK's FTSE 100 futures are currently up 20 points (0.27%), the cash market is currently estimated to open at 7,499.74
• Euro STOXX 50 futures are currently up 20 points (0.54%), the cash market is currently estimated to open at 3,694.54
• Germany's DAX futures are currently up 62 points (0.47%), the cash market is currently estimated to open at 13,333.96

US Futures:

• DJI futures are currently down -29 points (-0.09%)
• S&P 500 futures are currently down -12.5 points (-0.1%)
• Nasdaq 100 futures are currently down -4.75 points (-0.11%)

Asian equities mimicked the sentiment of Wall Street higher, which rallied after US Q2 GDP was upwardly revised from -0.9% to -0.6% q/q. The ASX 200 was the clear winner as it tracked Chinese iron ore and oil prices higher, with materials and energy stocks doing the heavy lifting. The Index has also erased all of this week’s losses these past three days - and on track to close above 7100. The question for ASX traders heading into next week is if it can clear this month’s highs and finally break above its 200-day average.

There’s two basic expectations for how Jerome Powell’s speech will play out. He will either come out swinging with his hawkish bat or hint towards a pause in rate hikes. Given several Fed members have been reading from the same hawkish script – which is usually a good sign they’re on the same page – I’m leaning towards a 75bp hike in September, before tailing back to 50 or even 25bp hikes. But then to some that would be a form of ‘Fed pivot’, as it strongly suggests the most aggressive phase of the hikes are well and truly behind us. If he is to announce a pause after September – which is not an impossible scenario – that will likely be a green light to catapult stocks, commodities and commodity FX higher. And as his speech is late tonight in Asia, could make for some exciting moves on Monday. But do remember to mind the gap.

But we also have Core PCE data ahead of his speech. It’s also the Fed’s preferred gauge of inflation, and it is expected to soften to 0.3% m/m from 0.6%, and 4.7% y/y from 4.8% y/y. Given this key inflation metric is released 90 mins before Powell’s speech, he’ll likely be hoping to avoid any last minute edits if inflation rips higher.

USD/JPY 4-hour chart:

With US inflation and Powell’s speech all related to US (and global) monetary policy, USD/JPY is one of the purer FX pairs to monitor for a reaction. The more hawkish (or less dovish than expected) that Powell’s speech is deemed to be, the higher USD/JPY could potentially go. Conversely, any disappointment on the hawkish front or hints of said ‘pause’ in hikes could weigh heavily on the dollar.

USD/JPY is trading within a symmetrical triangle on the 4-hour chart but within a bullish trend from the 131.38 low. A break above the 131.71 high assumes bullish continuation towards 139 and 140, although a break of the triangle could also be of interest to lower timeframe traders for a move to the highs.

FTSE 350 – Market Internals:

FTSE 350: 4139.86 (0.11%) 25 August 2022

• 133 (38.00%) stocks advanced and 199 (56.86%) declined
• 5 stocks rose to a new 52-week high, 28 fell to new lows
• 28.86% of stocks closed above their 200-day average
• 46.57% of stocks closed above their 50-day average
• 1.43% of stocks closed above their 20-day average

Outperformers:

• +9.43% - Harbour Energy PLC (HBR.L)
• +3.96% - Ibstock PLC (IBST.L)
• +3.05% - CRH PLC (CRH.L)

Underperformers:

• ·-15.04% - John Wood Group PLC (WG.L)
• ·-8.64% - RHI Magnesita NV (RHIM.L)
• ·-5.62% - Marks and Spencer Group PLC (MKS.L)

Economic events up next (Times in BST)

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