The FTSE 100 is trading higher once more this morning with the benchmark up by just over 20 points. The leading stock index in London is looking to post its first weekly gain of the month after some notable recent weakness. The pound is on course to post another weekly decline with only the New Zealand dollar faring worse in the G10 space.
Traders await Jackson Hole
The annual gathering of central bankers from around the world in Jackson Hole, Wyoming, will begin in earnest for market participants this afternoon with Fed chair Yellen and ECB president Draghi set to deliver speeches. After a flurry of activity in recent weeks with more political drama in Washington a sense of calm has returned to the markets, but that could change later today. Ever since Yellen’s predecessor, Ben Bernanke, chose this event in 2010 to essentially reveal a second round of bond buying (QE2) was imminent, traders have paid extra close attention in the hope that a key central banker will reveal an upcoming policy shift.
Time running out for Yellen?
Whereas Bernanke announced a major expansion to monetary policy some seven years ago, today’s speeches will be closely scrutinised for signs of tightening from the Fed or ECB. The US central bank is an outlier amongst its global peers in that it is already some way along a path of rate hikes, but don’t expect too much comment on further rate hikes. Instead, traders will be more focused on the finer details of the Fed’s balance sheet reduction, such as a clearly defined start time as Yellen looks to unwind some of the asset purchases conducted under her predecessor’s watch which halted almost at the exact time that she assumed the role. Yellen herself is now coming into the final months of her four-year term and her role as the head of monetary policy in the US is far from certain to be extended. Wary of this, and with limited future opportunities to announce further information on the balance sheet reduction will begin, Yellen may well choose this afternoon as a perfect opportunity to secure her legacy.
Draghi to try and talk down the Euro
Even though Jackson Hole is held in the US, it is very much an international event, and the biggest news could well come from the ECB president Mario Draghi. The Italian has been at pains to stress the market misinterpreted his speech in Sintra, Portugal, which sent the single currency soaring on expectations that the ECB will soon be reigning in their own QE programme. Draghi has previous when it comes to major unexpected announcements - the “whatever it takes” speech back in 2012 immediately springs to mind - and there is a growing sense that he will use the stage later to attempt to talk down the Euro. Unfortunately, dovish rhetoric is unlikely to be enough, and given the impressive economic performance seen in the bloc this year alongside the avoidance of a major political shock in France the case for extremely loose policy has dwindled. The most bullish outcome for the Euro would in fact be a dovish Draghi which is rejected by the market and sees the single currency rise further.