Jackson Hole Preview: Market Reactions, And Why UBS Says “Don’t Skip Lunch”

Historically the annual Jackson Hole symposium has been a major market-moving event as it has traditionally been the venue where central banks make critical announcements such as Bernanke’s preview and hints of QE2 and QE3 in 2012, as well as Draghi’s suggestion of the ECB’s QE in 2014. As shown in the chart below, market reactions following these events have been material.

This year, however, while there was a sharp build-up in expectations after several media trial balloons suggested that Draghi would unveil the ECB’s taper, the fact that the market sent the EUR just shy of 1.20 in frontrunning of this announcement, prompted the ECB head to abort the entire affair, “leaking” that no material announcement would be made this week in Wyoming after all. Which is why, in previewing potential market moves, Barclays says that “the risk for the EUR around the event is biased to the downside, and that EUR bulls might be disappointed by a lack of meaningful hints on ECB monetary policy normalisation.”

ING is quick to take the fun out of this week’s annual meeting: “this year’s major speakers, Fed Chair Janet Yellen and the ECB President Mario Draghi, are likely to keep their cards close to their chest. Both speeches are likely to be fairly “high level” and lack any major hints about future policy.”

As Deutsche Bank’s Jim Reid echoes, “there might be a few less nerves about the next few days in markets than many felt a few weeks ago. Back then, Thursday’s commencement of the annual Jackson Hole Symposium seemed to be a natural place for Mr Draghi to signal that exit from QE was soon to be accelerated. However a combination of still soft global inflation data and the Euro’s recent ascent has made it unlikely that the event will be a watershed moment. Expect him to be upbeat on the economy but the hawkish/dovishness indicator might be swayed one way or the other on how much attention the Euro gets in his remarks.”

What about the Fed side of things? Here, according to UBS there will be nothing of market-moving either, and as the bank’s economist Seth Carpenter writes “Don’t expect news at Jackson Hole. Chair Yellen has told us what she wants to about normalization, for now. Financial stability matters, but it isn’t new” and as such it will be “nothing to skip lunch over.“Carpenter elaborates that “the annual Jackson Hole Symposium features Chair Yellen on Friday speaking on “Financial Stability.” The conference has in recent years been a venue for big news in monetary policy, but this time around it is likely to be undramatic. We expect the Chair’s speech to keep to well-trod financial stability topics—some excesses may exist, but the system is safe—and eschew discussion of potential near-term policy actions.”

Deutsche Bank is a little less sanguine:

Our Fixed Income Strategists now actually think that the Fed could be more important at Jackson Hole. The running theme of this year’s symposium is “Fostering a Dynamic Global Economy” and the full line up of speakers and presentations will be released at 4PM EST on Thursday. Mrs Yellen will be speaking Friday morning at 10AM EST on financial stability. Our strategists noted that in the US there is a tension between softer inflation and easy financial conditions and given the topic of Yellen’s speech is ‘financial stability’ she may lean towards prioritising one side or the other. Overall the market will probably be most sensitive as to whether a December hike is more or less likely after her comments. The imminent halting of reinvestment seems to be considered a fine deal.”