Short Note Ahead Of The Double Feature From Jackson Hole

There is one focus today, and it is Yellen and Draghi's speeches at Jackson Hole. Ahead of it, the markets lack fresh inspiration. The US dollar has been confined to about a third of a big figure against the major currencies.

Asian equities managed to close marginally firmer, with the MSCI Asia Pacific Index gaining about 0.35%. European bourses have found little succor in the new record high for the S&P 500, or the lower bond yields. The Dow Jones Stoxx 600 is off about a 0.25%, led by utilities and energy, but all sectors are lower. Benchmark 10-year yields are 1-3 bp lower across the board today, which means that US Treasuries are slipping back below the 2.40% mark.

The hawkish read of the FOMC minutes and comments by hawks yesterday at Jackson Hole, but also in the media are not representative of the FOMC that identified significant under-utilization of the labor market. Plosser, who dissented at the July meeting, over forward guidance rather than advocating an immediate rate hike, expressed concern that the Fed is falling behind the curve. Hawkish members of the FOMC have been saying things like this for some time but have been unable to sway others.

The Wall Street Journal reports that before the last Fed meeting, primary dealers had told officials that the general consensus was for the first hike in Q3 2015. We suspect there is a little fluidity here, depending on the data, of course, a couple months one way or the other. The composition of the voting members of the FOMC may be slightly more dovish and Dallas Fed Fisher, a noted hawk, has indicated he will likely step down. Speculation suggestion he may become Chancellor for the University of Texas.

Outside of her one gaffe, when Yellen tried to quantify a "considerable period," the Fed chair has stayed on message, and we expect the same today. She is likely to provide her rational for believing there is "significant" slack in the labor market, and that cyclical component can still be improved by ongoing support for the economy. This may sound dovish in the context of the recent hawkish spin, but this is essentially a call to stay the course that Bernanke had put the Fed on prior to the end of his term/

Yellen is scheduled to speak at 10:00 EST. Draghi's turn is at 2:30 pm EST. He is unlikely to break new ground. Draghi can be expected to discuss the challenges the euro area faces and the need for structural labor market reforms throughout EMU. The transmission mechanism of monetary policy is working better now than before, there is still room for improvement. This will lead him into a discussion of ECB's policy and next month's launch of the TLTROs. On Saturday, the Jackson Hole confab continues with the UK's Broadbent, BOJ's Kuroda and Brazil's Tombini among the highlights. Note that Monday is a bank holiday in the UK.


The only data of consequence in North America today comes in the form of retail sales and CPI from Canada. The latter may be more important for investors. In June, the headline CPI rose to 2.4%, the highest level since February 2012. It is expected to ease back to 2.2%. However, if it does not, a firm figure could see the Canadian dollar advance. Under this scenario, the US dollar could slip back toward CAD1.0920.

Separately, June retail sales are expected to have risen by 0.3% after a 0.7% increase in May and a 1.3% increase in April. The consensus reading would be sufficient to ensure one of the strongest quarters for retail sales since Q1 10. Note that Q2 GDP will be reported on August 29, and the consensus expects a strong recovery to 2.6% from 1.2% in Q1.