Overnight – Stocks slip as Investors opt for caution ahead of Jackson Hole

Equities drifted lower overnight as rising bond yields forced investors to opt for caution a day ahead of Federal Reserve chairman Jerome Powell’s speech at Jackson Hole.  

Losses in Wall Street were driven by rising Treasury yields as investors looked ahead to an address by Fed Chair Jerome Powell, at the Jackson Hole Symposium on Friday. Markets widely expect Powell to reiterate the central bank’s dovish stance, setting the stage for a September rate cut, although it remained unclear whether the Fed Chair will explicitly telegraph a September cut. It’s expected that he will say that a lot of progress has been made on inflation, and the FOMC is confident that continued progress is likely in the coming year, anything less could see stocks slip further.

Ahead of Powell’s speech, Kansas City Fed President Jeffrey Schmid said he needed to see more economic data before supporting any decision to begin reducing interest rates.

Data released overnight showed signs of softening in employment and manufacturing with the number of Americans filing new applications for unemployment benefits rose 4,000 to a seasonally adjusted 232,000 in the latest week, adding to concerns of a cooling of the U.S. labour market. This followed Wednesday’s payrolls revision, as the U.S. economy created 818,000 fewer jobs than originally reported in the 12-month period through March 2024. The actual growth was nearly 30% less than the initially reported, with the revision to the total payrolls level being the largest since 2009. Adding to concerns about the economy, manufacturing activity slipped more than expected.

The minutes of the Fed’s late-July meeting, released on Wednesday, also showed an increasing number of policymakers supported lowering interest rates amid progress in bringing down inflation. Some analysts see a 50 bps reduction as their base case for September, especially after Wednesday’s minutes showed more officials leaning towards lower rates. At MPC we are of the view that 25bps and a hawkish outlook is the sensible option