August 25 - Stocks are mixed at midday, with the tech sector under modest pressure following hawkish comments from Federal Reserve Chair Jerome Powell this morning. Yet, the VIX remains just above 16 at midday, with the dollar index trading near 104.2, after setting a fresh 12-week high above 104.4 earlier this morning. Yields on 10-year Treasuries are trading near 4.25%, while yields on 2-year Treasuries are trading near 5.07%. Crude oil prices are 1% higher, while the grain and oilseed sector is mostly higher as well. Soybeans find strength from the ongoing heat and drought plaguing the Midwest as the crop moves through the final stages of the growing season, while corn and wheat largely are positioning ahead of the weekend incase supportive headlines emerge from the Black Sea Region over the next couple of days when the markets are closed. Traders are also waiting for Pro Farmer's corn and soybean production estimates to be released later today that may be a market factor going into next week.
The Federal Reserve may need to raise rates further, according to Fed Chair Jerome Powell in his comments at the central bank's Jackson Hole, Wyoming symposium this morning. Powell stated that more interest rate hikes may be needed to ensure that inflation is contained. Powell stated that the Fed has not yet concluded that its benchmark rate is high enough to ensure that inflation returns to the 2% mandated level. "It is the Fed's job to bring inflation down to our 2% goal, and we will do so," stated Powell. "We have tightened policy significantly over the past year. Although inflation has moved down from its peak - a welcome development - it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective." Powell went on to point out that consumer spending remains "especially robust" and that the housing sector may be rebounding. The economy is still growing above the trend rate, which could further complicate efforts to bring inflation down to the target. Powell also stated that it will likely require an economic slowdown to bring inflation down to the 2% mandate, considering the scope of the broader services sector in the inflation equation. The service sector is heavily dependent on labor, which continues to see rising wages. Powell emphasized that "two percent is and will remain our inflation target," which is the key line of his speech in my opinion.
Consumer sentiment slipped lower in August, after rising sharply the past several months, according to the initial read of surveys coming in. The Federal Reserve is expected to take notice of that change in trend as it considers its future policy direction. The preliminary consumer sentiment index fell to 69.5 this month, down from 71.6 the previous month, but up from 58.2 a year ago. The current economic conditions index slipped to 75.7, down from 76.6 the previous month, but up from 58.6 the previous year. The index of consumer expectations that looks ahead dropped a bit more to 65.5, down from 68.3 in July, but up from 58.0 a year ago. Buying conditions for durable goods and expectations over living conditions both improved, but the long-run economic outlook dropped this month. The University of Michigan, who conducts the survey, noted that consumers perceive that the rapid improvements of the past several months have moderated, particularly with inflation. In fact, year-ahead inflation expectations edged higher to 3.5%, which is still well above the Fed's mandated 2% level.
Yields on 10-year Treasuries hit 15-year highs this week as longer-term rates rally. SOURCE: Reuters Eikon
