Markets Overview

  • ASX SPI 200 futures down 0.1% to 8,974.00
  • S&P 500 down 0.4% to 6,370.17
  • Dow Average down 0.3% to 44,785.50
  • Aussie down 0.2% to 0.6421 per US$
  • US 10-year yield rose 3.7bps to 4.3277%
  • Australia 3-year bond yield fell 0.6 bps to 3.39%
  • Australia 10-year bond yield fell 2 bps to 4.28%
  • Gold spot down 0.3% to $3,338.63
  • Brent futures up 1.2% to $67.62/bbl

Economic Events

  • 11:00: (AU) Australia to Sell A$300 Million 4.75% 2054 Bonds

Caution prevailed on Wall Street ahead of Jerome Powell’s speech, with stocks falling and bond yields rising as a key factory report raised concern that inflation pressures could dim the outlook for rate cuts.

The fastest growth in manufacturing since 2022 drove Treasuries lower, with 10-year yields up four basis points to 4.33%. Federal Reserve Bank of Cleveland chief Beth Hammack said she wouldn’t support easing if officials had to decide tomorrow. The S&P 500 slipped for a fifth straight day, its longest slide since January. Most big techs slid. Walmart Inc. sank 4.5% on a profit miss.

While data showed an increase in jobless claims — adding to signs of a slowing labor market — the solid factory purchasing managers index made traders trim their bets on rate cuts. Money markets saw a roughly 70% chance of a reduction in September. A week ago the odds were above 90%.

“The Fed is being put in a tough spot, with pressures to cut interest rates as inflation rises and the labor market decelerates — with both of those metrics moving in the opposite direction from the Fed’s dual mandate,” said Bret Kenwell, US investment analyst at eToro.

Central bankers and economists from around the world are gathering for the Fed’s economic symposium in Jackson Hole, Wyoming. The prestigious event in the Grand Teton mountains has been used as a venue for making key policy announcements. Powell is due to speak Friday at 10 a.m. New York time.

Meantime, the Justice Department signaled possible plans to investigate Fed Governor Lisa Cook, with a top official encouraging Powell to remove her from the board. President Donald Trump’s housing-finance chief, Bill Pulte, has called for a probe over mortgage agreements she allegedly made in 2021.

“The great PMI numbers have made it more difficult for Powell to pivot to employment weakness for tomorrow,” said Andrew Brenner at NatAlliance Securities.

The Fed chair’s annual speech in Jackson Hole can be an opportunity to flag policy shifts. Trouble is, the key economic indicators aren’t all pointing that way. With more economic numbers due before then, the Fed chief may prefer to keep his messaging carefully hedged.

“Key to the Jackson Hole symposium will be whether Fed Chair Powell updates his monetary policy reaction function,” said Calvin Tse at BNP Paribas. “In our base case, Powell sticks to his reaction function laid out in July. We think this would surprise markets hawkishly.”

Other Fed officials speaking Wednesday and Thursday struck a similarly hawkish tone as Cleveland’s Hammack.

Atlanta Fed President Raphael Bostic said he still sees just one rate cut this year as appropriate. Jeffrey Schmid, president of the Kansas City Fed, said inflation risk still outweighs risks to the labor market.

Those comments echoed minutes of the central bank’s latest policy meeting in July, which showed most officials held the same view.

“We knew that the upcoming speech by Jerome Powell on Friday would leave the market cautious,” said Louis Navellier at Navellier & Associates. “Fed meeting notes released yesterday revealed a higher concern over tariff-driven inflation risks, and the betting on Fed cuts continues to soften.”

“While we may see a market pullback if Powell throws cold water on the idea of a September rate cut, we believe rate cuts are on the horizon at some point in the next 12 months,” said Rick Gardner at RGA Investments.

While investors are focused on Jackson Hole, Gardner says he’d argue that the August jobs report, released in early September, will actually be more important for the Fed’s rate cut decision.

“It’s the last jobs report before the September meeting and the headline number and any revisions to the prior months will be scrutinized by central banks and investors alike,” he said.

In both messaging and execution, the Fed will need to tread carefully, according to Jim Baird at Plante Moran Financial Advisors.

Labor-market conditions may not be weak, but they are weakening, he noted. Coupled with sticky inflation that’s expected to edge higher in the near term, the growing risk of a potentially “stagflationary” outlook will create a challenge for policymakers, Baird said.

“Cut too early or too aggressively, and the Fed risks pushing inflation expectations even higher,” he added. “Move too slowly, and the potential for labor conditions to further deteriorate and the economy to stall increases.”