Jackson Hole Symposium will be the highlight of the week – BBH

Research Team at BBH, suggests that the Fed chair Yellen speaks at the annual Jackson Hole Symposium on Friday, and will be the highlight of the week.  

Key Quotes

“Over the weekend, Vice Chair Fischer said that the Fed is nearing its targets, which implied that tightening isn’t far off.  To the extent that Yellen shares their assessments of the economy, we would expect her to largely echo the broad sentiments expressed by both Dudley and Fischer.  If she delivers a somewhat hawkish message this week, that should give the dollar more traction.

Fed tightening expectations were buffeted last week first by hawkish Dudley comments, then by the more balanced FOMC minutes, and now by the Fischer comments.  On net, the markets have adjusted the odds for tightening this year higher, and now stand at the highest odds since the Brexit vote.  The US 2-year yield is above 0.75% and is the highest since June 23, while the while 10-year yield is approaching 1.60%.  Higher US rates should help the dollar maintain some traction ahead of this Friday's Yellen speech.

Yet despite the strong jobs data in June and July, odds of a move on September 21 or November 2 are still low, with the December 14 meeting seen as the most likely for the next hike.  The implied yield on the December Fed funds futures contract stands at 0.505%, the highest since June 9.  If the dovish Fed outlook is chipped away further by Yellen, the dollar may maintain its recent traction.    

Merkel has to protect both her flanks.  She will be meeting EU leaders ahead of the summit, saying she wants the broadest possible debate about the future of the European Union.  At the same time, many observers question whether she can be re-elected in a year's time.   The outcome of the state elections next month will be watched closely.  The first one is September 4 in Mecklenburg-Vorpommern.”