What's coming next for global markets
Bonds are painting an ever-dour message on Fed policy, an end to globilsation and slower global growth. We look ahead to next week.
As I review in the 'Event risk playbook', the market will trade in anticipation of Friday's Jackson Hole Symposium, and what will be and what wont be said, and who will say it - this will be the only thing that matters. The title of the sympoeseum, and what is in effect a massive cental banker shindig, is "challenges to monetary policy". Consider that one of the reasons we have seen buyers of gold, global bonds and JPY is that the world is questioning the central bank put. But also because many just don't believe that monetary policy can save us if this downturn gets momentum.
I am inclined to agree. Therefore the emphasis of the symposium falls not only on the level of confidence bankers can instal in the belief they have the firepower to curb any economic fallout. But on how much of a role fiscal policy needs to play in the period ahead.
The question of who represents the Fed is critical ,and after NY presdient John Williams communication mishaps a couple of weeks ago, the market will be hoping to hear from the main man on the Fed, vice chair Richard Clarida. While he may be more dovish than others voting members, the market will listern to him above all others.
Aside from the Fed, we should hear from key represwentaitves from the ECB, BoJ and other DM and EM centrals banks. With trade tnessions, flatter curves and a belief that policy isnt working or going to work, this event is going to be a possible game-changer.
If we look at my weekly implied volatility (IV) report, the IV covers FX options that expire on Friday (NY cut), so doesn't account for the Monday open. If the Fed stay behind the curve, and continue to lack any urgency to get in front of the cruve, Mondays (26th) open could be pretty ugly. I will update this spreadsheet on Monday to account for the event risk.
If you have a spare hour (I know, who does these days?), I have put down the link for my recent webinar on using volatility as a framework to manage risk. It breaks down this spreadsheet and how you can apply/understand risk reversals, the weekly Commitment of Traders report and have a deeper perspective on implied and realised volatility - https://youtu.be/f_12P86jUfk
