By Scott Kanowsky
Investing.com — Investors weigh up comments from the Federal Reserve’s top policymaker and several other global central bankers, as they pledge to rein in soaring inflation – even if it slows economic growth. The U.S. gears up for another key monthly jobs report later this week and how that figure could play into the Fed’s monetary policy calculus. Oil prices move higher, Bitcoin’s most recent sub-$20,000 period marches on, and preliminary steps to list Porsche are reportedly in the works. Here’s what you need to know in financial markets on Monday, 29th August.
1. Tough Talk in Jackson Hole
Federal Reserve chair Jerome Powell delivered his long-awaited keynote address at the annual Jackson Hole central banking symposium on Friday and, at least according to ING analysts, he “did what he needed to do.” That task was, chiefly, to promise to keep pushing up interest rates to quell surging consumer prices, despite potential “pain” on households and businesses from a subsequent slump in growth. ING particularly lauded Powell for not pledging to treat markets “gently” in his bid to bring down inflation.
At the same time, European Central Bank officials warned that a “sacrifice” would be needed to stamp out price pressures. ECB executive board member Isabel Schnabel and Banque de France governor François Villeroy de Galhau both added that monetary policy in Eurozone would remain tight for the foreseeable future. Traders will get a glimpse into the impact of recent ECB borrowing cost hikes when the latest Eurozone inflation data comes out on Wednesday this week.
2. Key Data Ahead
The fallout from Powell’s comments carried into Monday, with Asian and European markets sliding into the red. In the U.S., S&P 500, Dow Jones and Nasdaq futures are all trading lower, adding on to a bruising Friday session that saw the three main Wall Street indices lose between 3% to 4%.
Meanwhile, the 2-year U.S. bond yield, which is highly sensitive to short-term interest rate expectations, rose to as high as 3.4890% – a level last seen in 2007. The yield on 10-year Treasuries also jumped to 3.114%.
The focus now shifts to U.S. payrolls data due out on Friday. The previous labor market report showed an unexpected acceleration in job growth in July, and any additional gains may give the Fed even more reason to maintain its current pace of monetary policy tightening.
3. Oil Prices Firmer
Despite the gloomy economic outlook out of Jackson Hole, oil prices added on to last week’s gains on Monday. London-traded Brent oil futures rose 0.59% to $99.49 a barrel, while U.S. West Texas Intermediate futures increased by 0.64% to $93.66 as of 06:17 ET (10:17 GMT).
Much of this is due to the Organization of Petroleum Exporting Countries and its allies – known as OPEC+ – who have pledged to slash supplies to help stabilize crude prices. Saudi Arabia, which in effect heads OPEC+, also said last week that it will cut its output.
The drawdown in supplies would also offset a potential lifting of U.S. sanctions on Iran, which would subsequently release a large amount of fresh crude into the market.
Meanwhile, recent data suggest that oil demand in some economies may be starting to recover. The U.S. exported oil at a record level earlier this month, while U.S. crude inventories have also fallen by a bigger-than-expected pace in the past two weeks.
European crude demand is also set to pick up this year as the bloc weans itself off Russian natural gas imports. Rising natural gas prices, as a result, are likely to spur more crude use for heating.
4. Bitcoin Under $20K
The reverberations from Powell’s speech were felt in cryptocurrencies, as the fears over a potential economic decline stymying interest in riskier assets. Bitcoin is now trading at below the $20,000 mark for the first time since mid-July, with the digital token falling by 0.89% on Monday to $19,818.8.
The $20,000 level is seen by many analysts as a potential support for Bitcoin, though some have warned that the actual floor could be even lower.
The slump also put an end to a short August rally that sent the price of Bitcoin to more than $25,000. That surge was cut short by rising expectations that the Federal Reserve and other central banks will enact big interest rate hikes.
Bitcoin has now lost around a fifth of its value since August 15th.
5. Porsche IPO Gearing Up?
The first steps in the long road ahead for Porsche’s hotly-anticipated initial public offering are expected in the coming days, according to a Reuters report citing six people familiar with the matter. The boards of parent group Volkswagen (ETR:VOWG_p) and Porsche’s biggest shareholder Porsche SE (F:PSHG_p) could soon make a recommendation on the floatation, the people said, which would then be sent to the boards of both companies for approval.
That would then reportedly lead to a formal announcement of the IPO as soon as the first week of September, although no decisions have been formally taken yet.
Executives may face a tough battle wooing would-be investors to back the luxury car brand. Only 12.5% of stock in Porsche AG will be made available on the open market, which would limit the impact a stake could have on boardroom decisions. Meanwhile, inflation fears and the less-than-rosy growth outlook – not to mention the impact of the war in Ukraine on European gas supplies this winter – have raised eyebrows about the future health of the entire VW group.
Indeed, Reuters reports that VW could scrap the listing altogether if they cannot cobble together enough demand.
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