US OPEN: Market Cornered After Jackson Hole

US stocks open Monday’s session slightly lower, with pullbacks in the major indices limited to around 0.4%. Nasdaq 100 futures stand out on the upside, with losses of about 0.1%.

Moderate declines at the start of the week are mainly the aftermath of the Fed chair’s speech at the Jackson Hole symposium, where Kevin Warsh struck a very hawkish tone, pointing to inflation remaining above target over the long term. He also said that, in effect, the current stance of monetary policy “is not restrictive.” Based on interest rate pricing in futures, the odds of a hike at the September meeting have risen from about 41% a week ago to about 63% today.

Despite the notable rise in expectations, the market reaction remains moderate. This reflects the fact that monetary policy and the level of rates are not restrictive for equities, but more so for budgets and the bond market. Also important is a meaningful segment of the market that views the Fed chair’s actions and rhetoric as a kind of “bluff” or expectation management.

Another source of concern is the exchange of fire in the Middle East. The US struck Iranian missile positions on Larak Island, and Iran responded by attacking US bases in Jordan. A sudden jump in tensions is pushing oil and gas prices up by several percent. It is worth noting that oil and gas are only part of the price story, and diesel remains under the greatest pressure, with its spread versus WTI approaching peak levels seen in 2022.

Company news

• PG&E (PCG.US): The US power and gas distributor starts the week with a crushing drop of nearly 20%. The decline is driven by a recent reform of laws governing wildfire liability management which, contrary to analysts’ and market expectations, does not include any limited liability clauses for private companies. Edison International is also falling on the back of the new legislation.
• Science Applications (SAIC.US): The stock gains about 8% after publishing better-than-expected guidance for the fiscal year-end. The move is supported mainly by government IT contracts.
• Pinterest (PINS.US): The company’s CFO resigned, and the stock is down about 3%.
• Chevron (CVX.US): The oil major rises after an agreement regulating oil trade between the US and Venezuela took effect. Shares are up about 2%.
• MicroStrategy (MSTR.US): The treasury-type company continues to climb, up about 2% today, helped by Bitcoin strength and fiscal concerns.

Technical analysis of US100 (D1)

The market appears to be entering a narrow consolidation between roughly 30,100 and 28,900 points. The RSI is also normalized, at around 50. Price remains clearly suspended, awaiting a stronger impulse. EMA 25/50 are currently supporting price, benefiting buyers. However, a trendline drawn from recent highs shows a tightening of the downtrend constraint, which may force the market into a larger move in one direction or the other. Source: xStation5

Macroeconomic data

• The most important US macro release today will be the Chicago PMI. The market expects an increase to about 57.8 versus 57.6 a month ago.
• One hour after the open, the Dallas Fed manufacturing index will also be released. Recent months have remained within a relatively narrow range between -0.5 and 1.3 points.
• Data from China were also moderately important. August PMI showed an increase to 49.8 in manufacturing (above expectations), but services held at 49 (below expectations).