Quite a week! While most traders were away trying to have nice remaining days of summer by the beach, this week kicked off by a major market panic amid low liquidity eventually being labeled as “Black Monday.” It then continued creating news by game changing economic events and great trading opportunities. As we head into a new month, let’s review the global market economy and point out what could be expected next.
1- US Preliminary Q2 GDP Brings Sexy Back
After some people (cough, China) created chaos in the global market, an impressive 3.7% growth in the year’s second Gross Domestic Product (GDP) release brought hope back to Ms. USA as she dances against her forex partners and allowed her to kick some butt on the forex dance floor. So within a week, her ranking on the forex dance floor went from “loser” to “safe haven hopeful.”
2- September Rate Hike Back on the Table?
The GDP reading was good alright, and jobless claims were down this week as well. But do these make the economy ready for the first rate hike in 9 years?
Many investors have assumed that the recent selloffs in markets from Shanghai to New York meant that Janet Yellen and her gang definitely won’t pull the trigger on a rate hike at its Sept. 16-17 meeting. Many prominent talking heads – from Suze Orman to Jim Cramer – are explicitly begging the Fed to hold off on higher interest rates as a way to protect stock prices.
However an interesting article on MarketWatch argues the market selloff has made a September rate hike even more compelling than it was before, because it gives the Fed the opportunity they need to kill the “Greenspan put” once and for all.
3- Yellen & Draghi not Attending Jackson Hole Summit
Finance ministers from around the world are gather at this very important hole in Jackson [wink, wink] as we speak, to discuss important global economic issues. This is an annual event and normally leads to some announcements from the heads.
It is also an opportunity for economic decision-makers to coordinate their plans for monetary and fiscal policies. It was during this event that former Fed head Bernanke dropped hints about QE2 back in 2010 and gave more details on their taper plans a couple of years ago. ECB head Mario Draghi has previously shared his ideas on boosting liquidity in the euro zone during Jackson Hole meetings as well.
But boy, oh boy, Ms. Yellen decided to be a no-show at this party and instead Fed Vice Chairman Stanley Fischer will be present and forex market participants are counting on him to shed more light on the U.S. central bank’s rate hike timeline.
The event will continue until Saturday and the outcome could affect the Monday market open prices, so get your stop loss orders in place, people!