Published Date: 2021-08-25 | Source: INCE|Community | Author: The Finance Ghost
When I mentioned this article to Mrs Ghost, she misheard the title as "all eyes on Jackson's Hole", which clearly isn't what InceConnect is all about.
Jackson Hole may sound like a place where a villain makes his final stand in a superhero movie, but in reality it's a ski resort in the US. The name is relevant in the markets because every year, there is an annual symposium at the resort that is organised by the Kansas City Fed.
Once again it will be a virtual conference, just like it was in 2020. Concerns over the Delta variant in the state of Wyoming caused a last-minute change of plans.
Jerome Powell, the Chief Printer of all Money, will be assisted by this backdrop if he continues to fly the flag for economic stimulus. There will be several academic research papers presented at the symposium, but all eyes will be on Powell's speech on Friday.
The jobs recovery in the US has been quite extraordinary, not least of all when compared to the unemployment crisis we are facing in our country. This is one of the data points that drives a call for a tapering of stimulus.
This would mean a tightening of monetary policy - simply, less money being pumped into the market. The US Treasury has been buying $120bn per month in Treasury bonds and mortgage-backed securities.
This is in addition to the stimulus payments made to Americans over the past year, which drove unprecedented liquidity in the market and contributed to the success of trading apps like Robinhood.
Inflation in the US is running at over 5%, which is extremely high by usual standards in the US. If jobs numbers are strong once more in August, the calls for tapering will get louder.
This may cause a "taper tantrum" characterised by a spike in 10-year Treasury Yields and a sharp drop in equity markets. This is especially true for so-called "long duration" equities, which derive most of their value from the promise of great things to come far in the future.
To understand this impact with charts, here is the 10-Year Treasury yield chart from CNBC:
Take note of the spike from February to March, which was accompanied by a sell-off in the market.
A stark example of this sell-off is the ARK Innovation ETF, which is full of frothy tech stocks that are full of promises of cash flows to come ten years from now:
Everyone will be watching Jackson Hole carefully. If tapering is still not on the cards because of concerns around the Delta variant, equity markets will celebrate. If tapering happens sooner, there could be some sell-downs in growth stocks in particular.