The last 72 hours have been another round of volatile events but this time one was positive and another negative with limited impact. The negative was the Israel and Hezbollah escalation that created short-term anxiety about what happens next. However, both parties mentioned no intention to start a full-scale war for now. The positive event was the Jackson Hole event speech by Fed Chair Powell.
At the beginning of the speech itself, he mentioned that the “time has come” to adjust the policy rates. During the speech the confidence in inflation's downward trajectory and concern about labour market softening were clear.
This resulted in the Fed rate swap market changing odds to a higher chance of a 50bps rate cut compared to before the speech. This impacted the dollar index more than bond yields for now. The cola index had declined which might have started its move towards recent lows. Due to this S&P 500 and other global equities saw a large rise.
As the economic surprise index continues to be at -38.6, the incoming data during the first two weeks of September will be crucial to deciding on the amount of cut. Higher pressure in employment as unemployment rate risks would be favouring 50bps cut as the next meeting will be post-elections
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