This week our investigation into the financial markets leads us to the small town of Jackson Hole, Wyoming. An odd choice, one might think. Known for its breathtaking landscapes of beautiful nature, the town in the heart of one of America’s most popular national parks might not seem related to finance at all – except for the fact it hosts one of the most important events in the year. Representatives of key financial institutions and central banks such as the ECB, the Bank of England, and the Federal Reserve gather annually in Jackson Hole to discuss their intentions for monetary policy, inflation rates, and other such important issues. This conference began yesterday and is still on-going.
There are a number of important people at this year’s conference. Investors are looking forward particularly to Federal Reserve chief Janet Yellen’s speech later today. Two years ago the Fed seemed very confident in beginning a new series of interest rate increases. However, even since Trump’s election as President of the United States, this policy has been shaky: we have seen a few small increases, but many more were expected which have not happened yet. Analysts will be curious to see what Yellen’s speech indicates for American monetary policy.
Equally awaited is also the speech by Mario Draghi, the current leader of the European Central Bank. The ECB has been decidedly dovish in the past few years, embarking on a long-term stimulus program in the eurozone. Nevertheless, as the European economy is showing fantastic results this year, many speculate that the stimulus program will end sooner than expected and the ECB would become more hawkish. So far Draghi has not given any indication for this, though investors continue to believe in it. Many are hoping that today will be the day we get a hint as to what the ECB is planning.
Needless to say, while this event is ongoing the American stock market has been rather sluggish in anticipation. In contrast, Asian stocks have been quite active and noting gains.
The American financial markets are also under pressure due to the tense political climate in the United States right now. The American government is getting dangerously close to a key September deadline for raising the debt ceiling. President Trump appears to be at odds with Congress, which means there may be serious budgetary problems in the US unless the debt issue is addressed soon.
Despite this, the dollar was able to gain a bit in value against the yen. It is unlikely that we would see another rate hike soon. The EUR/USD is still bullish, and the euro is slowly but surely overtaking the dollar, even without a hawkish indication by the ECB.
