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U.S. equity futures moved firmly higher in early Friday trading, while Treasury yields and the dollar were largely unchanged, as investors braced for a key speech from Federal Reserve Chairman Jerome Powell that could clarify the central bank’s plans for autumn rate cuts.
Markets have been keying on Powell’s speech, the keynote address to the Fed’s annual central banking retreat in Jackson Hole, Wyoming, for much of the past month, and gave back gains late yesterday amid concerns that he may deliver a neutral or even hawkish message when he speaks at 10:00 am Eastern time.
Traders have locked-in bets that the Fed will start easing its benchmark lending rate, which sits at a two-decade high of 5.375%, next month in Washington, but are still uncertain as to the pace of scale of the expected cuts.
Part of that comes from a resilient domestic economy, which continues to defy recession forecasts, with another aspect tied to the slow pace of inflation easing.
Fed Chairman Jerome Powell will keep markets on edge ahead of his keynote address to the central bank’s Jackson Hole symposium later this morning.
With global investors on edge, and U.S. stocks within touching distance of their July all-time highs, Powell’s speech is expected to be crucial for market direction, alongside next week’s earnings from tech giant Nivdia NVDA, heading into the final months of the year.
“Powell is expected to lay the groundwork for the Fed’s first rate cut in over four years,” said Adam Turnquist, chief technical strategist at LPL Financial. “Signs of reduced pricing pressures and cooling economic growth will likely be enough for policymakers to start reducing the target rate.”
Related: Fed Chair Powell’s Jackson Hole speech might disappoint markets
The CME Group’s FedWatch continues to put the chances of a 50 basis point cut next month at around 26.5%, odds that will surely move quickly when Powell begins to speak, and suggests investors are betting on at least a full percentage point of reductions between now and the end of the year.
The market’s key VIX volatility gauge is also on the move, rising 4.4% to $16.98 in overnight trading as markets brace for action in the wake of Powell’s address.
On Wall Street, stock futures tied to the S&P 500 suggest an opening bell gain of around 29 points, with the Dow Jones Industrial Average called 145 points higher. The tech-heavy Nasdaq, meanwhile, is priced for a 150 point opening bell advance.
In the bond market, benchmark 10-year Treasury note yields were holding at 3.861% heading into the New York trading session, with rate-sensitive 2-year notes pegged at 4.008%.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.1% lower at 101.404, the lowest since late December
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In overseas markets, Europe’s Stoxx 600 was marked 0.27% higher in Frankfurt, while Britain’s FTSE 100 added 0.26% in London.
Overnight in Asia, the Nikkei 225 closed 0.4% higher in Tokyo following hawkish comments on rates from Bank of Japan Governor Kazuo Ueda, while the regional MSCI ex-Japan benchmarked edged 0.08% lower into the close of trading.
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