European and US equity gauges are trading cautiously in seasonally thin markets as investors wait to see if a highly-anticipated speech from Federal Reserve chair Janet Yellen contains further clues about the trajectory of US monetary policy.
An outsize mover is Japan, where stocks fell notably as the yen hovered near ¥100 per dollar following news the country remains mired in deflation, writes Jamie Chisholm.
“The looming speech by Fed chairwoman Janet Yellen at the Jackson Hole symposium is casting a long shadow over the market, “ said analysts at Citi.
Stocks are “trading nervously ahead of the event risk”, Citi added. “Turnover is low and currencies trade in narrow ranges”.
The pan-European Stoxx 600 equity index is easing 0.2 per cent as energy stocks struggle in the face of soft oil prices.
Brent crude is down 0.3 per cent at $49.53 a barrel, giving back some of the previous session’s 1.3 per cent bounce which came after Iran confirmed it would attend a meeting of Opec ministers in Algeria next month, spurring hopes major producers could reach an agreement to freeze supply.
US index futures suggest the S&P 500 will add 3.5 points to 2,176 when the opening bell rings later in New York. The dollar index is down 0.2 per cent to 94.56 as the euro, yen and sterling all meander less than 0.2 per cent from overnight levels.
US 10-year Treasury yields are dipping 1 basis point to 1.56 per cent and equivalent maturity German Bunds are steady at minus 0.07 per cent. Gold, which is especially sensitive to dollar moves and monetary policy expectations, is up $3 at $1,324 an ounce.
But all this could change once Fed chair Yellen starts her speech — scheduled for 15:00 BST.
Recent comments from other Fed members have suggested many are minded to consider raising borrowing costs in coming months, given improvements in the US economy. If Ms Yellen’s speech is deemed to compliment those views then the market may shorten the odds on another 25 basis point hike in interest rates this year.
There is now a 32 per cent probability that the Fed will raise interest rates in September, according to market pricing tracked by Bloomberg — up from 20 per cent a week ago. The odds of a December rise have risen from 47.3 last week to 57.4 per cent.
Analysts at DBS said that when central bankers meet on Friday and over the weekend at Jackson Hole, they will devote much time to discussing “big picture” issues, but believe that “it’s time for the chairwoman to sing” and drop hints about the pace of tightening US monetary policy.
But some commentators are sceptical that Ms Yellen’s comments will be worthy of investors’ anticipation.
“She may choose to avoid giving any hints on the immediate monetary policy outlook, so it could well turn into a non-event for markets,” warned Ian Williams at Peel Hunt.
Earlier in Asia, Tokyo’s Nikkei 225 stock average took the wooden spoon among major benchmarks as it dropped 1.2 per cent after data showed Japan sinking further into deflationary territory .
The core consumer price index shrank 0.5 per cent year-on-year in July — down from June’s 0.4 per cent contraction and missing consensus expectations it would hold steady at that level.
“Today’s inflation figures confirmed that the recent weakening in price pressures can no longer be blamed on cheaper energy. While economic activity is on the mend, the slump in import prices suggests that underlying inflation will fall further,” said Marcel Thieliant at Capital Economics.
He added that CapEco expects the Bank of Japan to introduce additional stimulus measures next month, but the yen is shrugging off that idea, firming 0.1 per cent to ¥100.40 per dollar.
Action elsewhere in the region was mixed, with Australia’s S&P/ASX 200 down 0.5 per cent following some poorly-received corporate results, Hong Kong’s Hang Seng adding 0.4 per cent and the Shanghai Composite slipping 0.1 per cent.
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