Will Powell Pop Bubbles Tonight, Explosions in Kabul

27 Agu 2021

Yesterday, the optimism on the financial markets somewhat diminished. There were at least two serious reasons for this. The main one is the approach of Powell's speech at the Jackson Hole symposium, which could potentially radically change the balance of power in the financial markets. Another reason for the growth of fear is the bombings in Kabul. Several Americans were killed and several were wounded. In general, Afghanistan promised to become a new point of tension, and it has become one. In the meantime, everyone is waiting for the US reaction, let's talk about Jackson Hole.

The main event of today, as, indeed, of the week in general, is Powell's speech at a symposium in Jackson Hole. Based on yesterday's data on US GDP (revised upward), figures for jobless claims (repeated claims continued to decline, and primary ones are in the area of ​​lows since the start of the pandemic), there is reason to expect the announcement of the start of curtailing the quantitative easing program.

This is also supported by the latest comments from FRS officials. For example, Esther George, President of the Federal Reserve Bank of Kansas City, said that it is necessary to start "narrowing" the program of buying the assets of the Fed at the next FOMC meeting on September 22. Dallas Federal Reserve President Robert Kaplan, who told CNBC that he would like to see a cut in bond purchases announced in September, expressed a similar thought.

As you can see, the question is not whether it is necessary to cut the quantitative easing program. He is in the plane when it is worth doing. And many believe that this should be done in the near future.

So Powell can draw the line today and say that the Fed is starting to tighten monetary policy. The most interesting, as usual, will be in the details. Reduce everything at once or in parts and gradually? When to start cutting? What about the rates? Raising them will be the next inevitable step, or will one not be connected with the other? The responses of the markets will depend on the questions to these and other questions.

Most likely, Powell's aggression will be enough to announce the start of the reduction of the quantitative easing program, and gradual rather than one-time. At the same time, he will declare that we are not talking about rates at all, because they are now at an adequate level and no one is going to touch them yet.

So it is likely that the bubbles will not collapse for now. But in any case, this will be the reason for the start of the correction, which is long overdue. This means that selling risky assets today is an extremely promising trading idea. Therefore, today we sell in the US stock market, as well as in the commodity and crypto currency markets.