US stocks rise with all eyes on Jackson Hole summit

US stocks rose on Thursday as investors braced themselves for developments from the Jackson Hole central bankers’ summit.

The S&P 500 index rose for the second day in a row, gaining 1.4 per cent, while the technology-heavy Nasdaq Composite added 1.7 per cent. The increases, together with solid gains in Asian markets, helped the FTSE All-World index to a 1.2 per cent rise. Europe’s Stoxx 600 rose by a more modest 0.3 per cent.

Those moves came on the first day of the annual conference in Jackson Hole, Wyoming, where central bankers, including US Federal Reserve chair Jay Powell, have gathered to discuss the challenges ahead for the global economy.

The event, hosted by the Kansas City arm of the Fed, is closely watched by investors for signals on the future direction and pace of monetary policy.

Kansas City Fed president Esther George told CNBC on Thursday that the US still had “high . . . broad-based inflation” but it was “too soon” to say if the central bank would raise interest rates by 0.75 percentage points for the third consecutive meeting in September.

Market pricing indicates that investors are expecting the Fed to lift borrowing costs to 3.7 per cent by February 2023, up from expectations of 3.3 per cent at the start of August. The central bank’s target range stands at 2.25 per cent to 2.50 per cent.

At Jackson Hole, Powell would “acknowledge the weakening of the growth cycle and . . . the narrowing pathway toward a soft landing”, said Joseph Little, global chief strategist at HSBC Asset Management. The emphasis on controlling inflation “means that the market is right to price out an early Fed pivot and move short-term interest rate expectations towards a ‘hike and see’” approach.

But others anticipated a softer approach. “We believe that the Fed’s tone is beginning to change,” said Thomas Costerg, senior US economist at Pictet Wealth Management. “Powell is likely to remain vague about the next steps, but we still expect him to indicate that the bias is for a down shift in the pace of hiking rates.”

European bond markets recouped losses ahead of central bankers’ speeches on monetary policy, with the Bank of England governor Andrew Bailey and the European Central Bank executive board member Isabel Schnabel also set to speak at Jackson Hole.

The yield on UK two-year debt, which is sensitive to changes in short-term interest rate expectations, fell by 0.12 percentage points to 2.78 per cent and the German two-year debt yield lost 0.06 percentage points to 0.75 per cent. Bond yields fall when prices rise.

This came after the short-dated instruments sold off on Wednesday, as investors grew concerned about the BoE and the ECB raising interest rates more aggressively to curb inflation.

The yield on the benchmark 10-year US Treasury note slipped 0.08 per cent to trade at 3.03 per cent.

The recent bond volatility comes at a time of weaker liquidity in European fixed-income markets because of summer holidays and increased economic uncertainty.

Earlier on Thursday, Asian equity markets made gains, with Hong Kong’s Hang Seng closing up 3.6 per cent and mainland China’s CSI 300 gauge rising 0.8 per cent after China announced a stimulus package.

China’s state council, its cabinet, on Wednesday announced the addition of Rmb300bn ($44bn) in credit support by its policy banks, the state-controlled institutions used by Beijing to spur economic growth.

In currency markets, the dollar index, which tracks the US currency against a basket of six peers, slipped 0.2 per cent. The euro briefly rose above parity with the greenback before slipping back to $0.998, up 0.1 per cent for the day.

Megaw, N. (2022, August 25). US stocks rise with all eyes on Jackson Hole summit. Financial Times. https://www.ft.com/content/ae2d3ffa-8f38-423d-9cef-b50b5b185bbd