By Geoffrey Smith
Investing.com -- Jerome Powell lays out the Fed's strategy for the future, amid expectations of lower-for-longer interest rates. Weekly jobless claims and a revision to quarterly GDP figures will give a reality check on the economy's health. Stocks are in a holding pattern, while oil is still well supported as Hurricane Laura hits Louisiana and East Texas. Here's what you need to know in financial markets on Thursday, August 27th.
1. Powell's big reveal
U.S. Federal Reserve Chairman Jerome Powell will deliver a keynote speech that’s expected to lay the groundwork for a fundamentally looser monetary policy for the foreseeable future.
Powell is expected to detail the conclusions of a long review into the Fed’s policy framework, and most analysts expect him to announce a shift to Average Inflation Targeting, under which the Fed would let inflation run above its current 2% inflation target to make up for years of undershooting it. That means keeping interest rates lower for longer. Bloomberg reported on Wednesday that it could mean no rate hikes for as much as five years.
Market speculation on the shift has contributed both to the dollar’s recent weakness and the strength of stocks, which typically enjoy the prospect of free money forever. Kansas City Fed President Esther George on Wednesday downplayed any threat to financial stability, saying it was more important to focus on the near-term health of the economy
2. Jobless claims, GDP revision due
The health of the economy will be on parade again at 8:30 AM ET (1230 GMT) – before Powell speaks at 9:10 AM ET – with the weekly jobless claims numbers and a revision to the second-quarter data for Gross Domestic Product.
Initial jobless claims are expected at around 1 million again, down from 1.11 million last week, while continuing jobless claims are expected to have edged down by around 400,000 to 14.45 million. As always, the fuller picture will be in the number that also includes those claiming Pandemic Unemployment Assistance.
GDP is expected to be revised up slightly to a mere -32.5% in annualized terms from an initial reading of -32.9%. As UBS Global Wealth Management chief economist Paul Donovan argued in a morning note, the practise of annualizing such figures “is a silly thing to do at the best of times and borderline madness in the midst of a pandemic.”
3. Stocks set to open a tad lower, in holding pattern
U.S. stock markets are set to open lower ahead of Powell’s speech. Having bought the rumor of a shift to easier monetary policy, the temptation will be accordingly to sell the fact when it happens.
By 6:30 AM ET (1030 GMT), the Dow 30 futures contract was down 89 points or 0.3%, while S&P 500 futures were down 0.2% and Nasdaq 100 futures were also down 0.2%. All three are likely to remain in a holding pattern at least until the economic data releases.
It’s a quiet day for corporate earnings, although Abbott Labs (NYSE:ABT) stock may garner attention after its rapid Covid-19 test became the latest beneficiary of fast-tracking by the Food and Drug Administration.
For those refusing to ignore the smaller details, there will also be the Kansas City Fed’s regional business survey at 9 AM ET and pending home sales data at 8AM ET.
4. Back to normal on U.S.-China relations
Having got over the need to say nice words in public about their trade relations, the U.S. and China got back to the daily tussle of riling and provoking each other. The U.S. announced a raft of sanctions on Chinese companies that have helped Beijing build military installations on disputed islands in the South China Sea.
That came on the same day that China tested its latest ‘aircraft-killer’ long-range missiles, in a show of force intended to keep U.S. warships out of waters that it claims.
Elsewhere, U.S. pressure on the Chinese owner of video-streaming service TikTok led to the resignation of TikTok’s chief executive Kevin Mayer, who had joined only a few months ago from Walt Disney (NYSE:DIS).
5. Oil prices well bid as Hurricane Laura hits Louisiana
Oil prices remained well supported as Hurricane Laura made landfall in Cameron, Louisiana, with life-threatening storm surges and winds.
By 6:30 AM ET, U.S. crude futures were down less than 0.1% at $43.37 a barrel, only a few cents off the post-pandemic high they posted on Wednesday. Brent crude was down 0.1% at $46.11.
Gasoline futures were off by 1.5% at $1.3405 a gallon, amid relief that refineries further west in Texas should be able to continue working.
While crude and product stocks are still historically high, Wednesday’s report from the U.S. government showed them still coming down a little faster than expected.