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Euro stocks open flat, dollar drifts as markets prepare for Jackson Hole

Euro stocks open flat, dollar drifts as markets prepare for Jackson Hole

Investors braced themselves for three days worth of potentially market-moving information from the Federal Reserve annual symposium in Jackson Hole. The event begins later that day and will feature central bankers from all over the world. Traders are focusing on the Fed Chair Jerome Powell’s Friday speech to assess the likelihood of a rate cut in September.

At the opening, both the pan-European STOXX 600 and Germany's DAX indexes were little changed. The FTSE 100 in Britain rose by 0.1% while the CAC 40 in France fell by 0.1%.

Michael Brown, Senior Research Strategist at Pepperstone, said: "I am still an equity bull and I buy dips. This recent swoon is more an example of some of the froth that has been taken off the market's top."

"Strong earnings, a resilient economy and a calmer tone in trade should all keep the path to least resistance higher. Any potential Fed easing will probably also provide a help."

The underlying momentum of equities has been strong in recent months. Australia's benchmark index rose 0.9%, hitting a new record. Other Asian indexes have lost some ground, but are still close to recent highs.

The Nikkei, Japan's stock index, fell 0.6% after hitting a record intraday high on Tuesday. South Korea's KOSPI rose 0.7%. The KOSPI fell to a low of six weeks on Wednesday but is still not far from the four-year-high reached on July 31.

Nasdaq Futures were slightly higher after a 0.7% drop for the Nasdaq composite overnight. S&P futures were unchanged after the cash index fell 0.2%.

Fed Chair Powell said that he was reluctant to reduce rates due to the expected price pressures caused by tariffs this summer.

The traders increased their bets on a September reduction after a surprising weak payrolls report was released at the beginning of this month. They were also encouraged by consumer price data, which showed that tariffs had little impact on prices.

A higher-than-expected reading of producer prices last week, however, complicated the policy picture. The minutes of the Fed's July meeting, where policymakers voted for rates to remain unchanged, were released overnight. They suggested that Governor Christopher Waller and Fed Vice Chair for supervision Michelle Bowman were the only ones pushing for a cut.

This led traders to reduce odds for a Fed rate cut of a quarter point on September 17 to 80%, down from 84% just 24 hours before. They currently price in a total 53 basis points of easing for the remainder of the year.

Donald Trump has again put pressure on the central banks overnight. This pressure will remain a major focus for traders. Investors were alarmed by his push to gain more control over Fed earlier this year and the dollar fell. Trump continued his criticism of Powell for not cutting interest rates this year earlier in the week. On Wednesday, he targeted Fed Governor Lisa Cook and demanded her resignation amid allegations that she committed wrongdoing in connection with mortgages she owned in Georgia or Michigan.

Cook stated that she "had no intention" of being forced to step down.

Rodrigo Catril is a strategist with National Australia Bank. He said that Trump's effort to confirm Stephen Miran would add another vote in support of rate cuts for September. If he were to remove Cook from the Fed Board, four out of seven members could be on board to lower rates.

Trump nominated Council of Economic Advisers chair Miran to be a Fed Governor earlier this month following the resignation of Adriana Kulgler.

Toshinobu chiba, fund manager at Simplex Asset Management, says that the main focus of the Jackson Hole Conference will be on labour markets. This is a relief for some traders, who were worried policymakers would place a heavy emphasis on inflation, or the sensitive topic of central bank independence.

"A number of active managers including myself believed that there was a possibility central bankers would show a hawkish position at this meeting," stated Tokyo-based Chiba. "But now that I've thought about it, the likelihood of this scenario has diminished."

He added, "The U.S. labor market has been weakening recently as we've seen from the employment results in this month. So, like Powell mentioned, there is the possibility of a rate reduction."

The currency market has mostly taken the recent developments in stride. The dollar index held steady at 98.33, after reaching its highest level since August 12 a day before at 98.441.

The yields on U.S. Treasury two-year bonds, which are sensitive to expectations about monetary policy, increased 1.2 basis point to 3.756%, while yields on 10-year Treasury bonds rose 0.8 basis point to 4.304%. The yields on Japanese government bonds have been rising. For the first time in late 1999, the yield for 20 years has risen to 2.655% and the yield for 10 years to 1.610%. Investors are cautious about increased fiscal spending, amid pressure on the Japanese Prime Minister to resign.

The dollar rose 0.2% to 147.58 Japanese yen.

The Euro and Sterling were both flat at $1.1641 each and $1.3446 respectively.

Gold prices fell 0.3%, to $3338 an ounce.

The price of oil rose after the U.S. crude oil and fuel inventory declined more than expected. This supported expectations that demand would remain steady.

Brent crude futures rose 0.9% to $67.47 per barrel after rising 1.6% the previous session. U.S. West Texas Intermediate crude futures (WTI) rose by 1.1% to $63.37 after gaining 1.4% on Wednesday.

(source: Reuters)