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The recent slide in markets saw some relief Wednesday, as both stock and crypto traders speculate about what central bankers may come away with after this week’s Jackson Hole symposium.
Equities managed to stay in the green during Wednesday’s trading session, with the S&P 500 ticking as much as 0.8% higher and the Nasdaq gaining 1%. After three days of declines, it was a welcome, albeit minor, reprieve.
Leading crypto assets bitcoin and ether also edged higher, respectively gaining 1.2% and 0.8% as of 2 pm, ET, with Fed Chair Jerome Powell due to present at Jackson Hole in two days.
“We are at an inflection point for the mega-cap trade as hedge funds position themselves for further weakness in bonds and a much weaker consumer as the economy slows,” Edward Moya, senior market analyst at Oanda, said.
“Today’s rebound is small and on light volume, which means most traders are playing the waiting game until Fed Chair Powell’s Jackson Hole symposium speech.”
The Economic Policy Symposium, hosted by the Kansas City Federal Reserve, will kick off Thursday. Powell is slated to speak Friday, and markets might be caught off guard, analysts say.
“Fed Funds Futures and Treasuries say [Powell’s] Jackson Hole speech will lean hawkish, with a commitment to several more rate hikes and no discernible hint of a ‘pivot’ in the first half of 2023,” Nicholas Colas, co-founder of DataTrek Research said.
“With the VIX at 24, US stocks may not yet have fully embraced this eventuality.”
Futures markets are showing a 58.5% chance of a 75 basis point rate hike at the next policy meeting in September, according to data from CME Group. There is a 41.5% chance of a 50 basis point increase.
Even as markets are fairly evenly split between 50 and 75 basis points, economists are not expecting rising rates to stop in September.
Dan Morehead, CEO and chief investment officer at Pantera Capital, sees Fed Funds rates hitting at least 4% or 5% before the central bank switches strategy.
“You can’t tame runaway inflation with Fed Funds 600 basis points lower than inflation,” Morehead wrote in a note Wednesday. “The Fed will be forced to tighten much more than the markets currently forecast.”