Jackson Hole Symposium: Markets Bracing for More Volatility

The annual Jackson Hole Economic Symposium rarely goes unnoticed as is an exclusive central bank conference which fosters open discussions about global policy matters. The economic event is sponsored by the Federal Reserve of Kansas City and is closely watched by market participants.

The Symposium has the potential to spark more volatility in the financial markets.

Challenges for Monetary Policy

The Federal Reserve Bank of Kansas City will convene its 44th annual Economic Policy Symposium virtually on Aug. 27 and Aug. 28. Ten years after the financial crisis, monetary policymakers were forced to look back and assessed the challenges of normalizing monetary policies. Over the years, central banks across the globe have used both conventional and unconventional monetary policies to support their domestic economy in the face of the financial crisis.

Just when central bankers were talking about rising interest rates, a global slowing economy and escalating trade tensions have forced them to seek refuge with more earning monetary policies.

Despite steady economic growth over the years, global interest rates have not been able to return to levels seen before the financial crisis.

The Unprecedented Pandemic

A pandemic has rattled the markets since the beginning of the year and the world was plunged in various forms of lockdowns. Given the unprecedented nature of the Great Lockdown, world leaders and policymakers were faced with tough decisions trying to manage an unparalleled health and economic crisis.

The government and central banks have absorbed nearly all the shocks of the virus on the financial markets by injecting massive liquidity in the economy, keeping credit flowing and supporting their economy with huge fiscal stimulus plan among many others unconventional plans.

Investors witnessed a turbulent start to a new decade shaken by the havoc caused by the coronavirus pandemic.

Navigating the Decade Ahead: Implications for Monetary Policy

Investors will, therefore, eye the Jackson Hole Symposium like never before for key updates and guidance on the interest rates path and monetary policies. This year’s topic is even more relevant as it will explore the issues policymakers have pre-pandemic period and address how the economic challenges arising from the pandemic will impact the decade ahead.

Slow growth, low-interest rates and low inflation will likely continue to persist, which will prompt investors to monitor central bankers’ comments to gauge expectations for the near-term and long-term outlook. Fed Chair Jerome Powell’s speech on Thursday will be under microscopic scrutiny as investors look for more clues on the interest rate cutting cycle and the inflation strategy.

Stock Market

Trillions of dollars of liquidity and credit have been injected in the global economy to combat the coronavirus crisis. On the reassurance of these intervention measures, global stocks have rallied from March lows. Despite the high level of economic uncertainty, we saw new highs in the stock market fuelled by expectations of more stimulus packages and positive vaccine updates.

Global equities index practically erased all its 2020 losses on a stimulus sugar rush!

Source: Bloomberg

A Dollar-Event

The US dollar has been on a clear downtrend in the last couple of months. Earlier this month, the US dollar index which tracks the performance of the greenback against a basket of currencies reached a low of 92.12 before pushing back to the 93 levels. The US dollar initially rose as a haven currency during the pandemic because the US economy was seen flaring better than its counterparts.

The momentum quickly reversed when the US failed to successfully contain the virus. The US economy is seen as lagging behind compared to the improvement seen over the months from the rest of the world. Also, while the US Congress is yet to reconcile their differences over the next coronavirus package relief, Europe has shown rare unity on the fiscal front. The symposium will probably be the most important event for the US dollar this week.

A dovish Fed’s speech at the symposium could further weaken the dollar.

Source: Bloomberg