FXStreet (Guatemala) - Analysts at Rabobank explained that today it’s all about one place – Jackson Hole – and two speeches. The first is from Fed Chair Janet Yellen, whose theme is “Re-evaluating labour market dynamics”.
“It’s widely expected that this will see her strike a dovish note, most probably underlining that there is still significant slack in the US labour market when looking at the broadest measures of unemployment, and underlined by the fact there still aren’t clear signs of any broad-based wage pressures despite brisk payroll growth. Importantly, the markets are arguably pricing in a clearly dovish speech. Should Yellen suggest that the more hawkish FOMC members are starting to influence her thinking then we could see significant volatility: most likely higher bond yields, lower equities (“Cancel the order for the ‘S&P 2,000’ caps!”), and a stronger USD”.
“The second speech of the day is from the ECB’s Mario Draghi. He has the even less pleasant task of trying to explain to the world why he is not behind the curve even as bond yields suggest Europe is risking a quasi-Japanese fate. In fact, there are suggestions that Euro yields are currently at their lowest since the 15th century (unsurprisingly, when I enter the maximum data range on Bloomberg they don’t go back that far); it is certainly true that Euro yields are already at, or are just above, the lowest they have been in modern history. Of course, that’s a genuine victory for the ECB given the blow-out in peripheral spreads a few years ago; but the Calgacus (often misattributed to Tacitus) quote “They made a wasteland and called it peace” does spring to mind too. This is not to say it’s the ECB’s fault, of course – it really isn’t entirely; nor that there is an easy policy solution, like QE, that would solve all these problems – arguably there isn’t. However, Draghi has to try to find a way to send a signal that he is still in control of what is happening”.
“To be fair, the BOE’s Broadbent is also speaking on Saturday, but that’s not top billing in this case as the markets are shut and everyone will be talking about the other two speeches. Overall, the tale of two speeches today is likely to be that monetary policy stimulus is still here for a while yet in the US, and a very long while in Europe”.