August 27, 2020

Dow Jones Futures: All Eyes On Jackson Hole

Dow Jones Futures: All Eyes On Jackson Hole

European and U.S. futures are trading lower as investors are concerned about the economic damage that Hurricane Laura will cause. Hurricane Laura has now hit the land in Louisiana as a category 4 hurricane. So far, the economic damage is estimated to be in several billion, and the sad fact is that Americans are facing another natural tragedy in addition to the first one, the pandemic. 

All of this is likely to have an adverse influence on consumer confidence and consumer spending. The economic health of the country is already weak, and this is just another blow at the wrong time.

Taking A Pause 

Dow Jones and S&P 500 futures also want to take a breather after the stellar rally that we have seen so far this year. The technology sector has been leading the gains, and once again, it was the U.S. tech giants like Facebook and Netflix that scored most of the gains yesterday. 

Element of Caution 

There is also an element of caution among investors, as the Fed chairman, Jerome Powell will deliver a speech on a monetary policy framework later today. Dow Jones and the S&P 500 futures are likely to experience higher volatility on the back of this, and the future of the coronavirus stock market rally is highly dependent on the Fed’s monetary policy stance.

Jackson Hole Expectations 

Generally speaking, the Fed is expected to acknowledge that recovery in the U.S. is taking place, but the Fed’s monetary policy needs to remain accommodative. Yes, there has been a decent improvement in U.S. durable goods, new homes sales, and the labor market, but overall the economic health of the country is still fragile, as millions of Americans are out of work and small businesses are on the brink of bankruptcy. If the Fed starts to withdraw their support, it could turn out to be a massive disaster for the U.S. economy.

Having A Balance 

The Fed’s chairman is also likely to retain a more cautious tone today. This means that the Fed doesn’t want to sound too dovish, and they also do not want to send the wrong message. That’s because one of the Fed’s task is to tackle inflation. A lot of conversation is likely to take place around this topic because consumer prices have been undershooting the bank’s target over the past ten years. 

Moves For The Dollar Index 

The Fed chairman is likely to highlight a plan that could drive consumer prices higher. The conversation on the inflation topic may bring some serious moves for the dollar index, which is already under tremendous selling pressure. If the Fed allows its accommodative monetary policy to run for longer, then it means more weakness for the mighty dollar. 

Initial Jobless Claims Expected To Fall 

In terms of economic data, all eyes will be on the Initial Jobless Claims and Continuing Jobless data. Last week, we saw another uptick in the Initial Jobless Claims number, but the forecast for today’s number is for one million. 

There are some rumors that this number can actually fall below the one million mark as the U.S. jobs market is experiencing a slow recovery. If the Jobless Claims number does fall below one million, the market participants are likely to take this as positive news and the Fed may also refer to this improvement during their review of the monetary policy framework.