A look at the day ahead in U.S. and global markets from Mike

Dolan

Jerome Powell takes centre stage at the Federal Reserve's

Jackson Hole jamboree on Friday but the Fed chair would have to

sound super hawkish to stop the dollar recording one of

its worst weeks of the year.

Powell's colleagues have already done a fine job tamping

down expectations that the Fed's first interest rate cut next

month will be as much as 50 basis points - and futures markets

are squarely priced for little more than a quarter-point move.

Boston Federal Reserve President Susan Collins on Thursday

said the timing "seems appropriate" to begin easing but added

that she favored a "gradual methodical approach to revisiting

our policy stance over time".

The latest U.S. business surveys for August underlined that

lack of urgency as they beat forecasts, due largely to robust

responses from service sector firms. Home sales in July were

also above expectations.

But it wasn't all sweetness and light, with manufacturing

still stuck in contraction mode and weekly jobless claims

ticking higher. What's more, the aggregate global economic

surprise index compiled by Citi is now clocking its most

negative reading since the depths of 2020's pandemic lockdowns.

And so the direction of travel for "restrictive" U.S.

interest rates remains down, almost 100bp of Fed cuts this year

remain in futures prices and the dollar will likely struggle to

reverse this month's sharp retreat in that environment.

That's especially so against the yen, where Bank of Japan

governor Kazuo Ueda told parliament the central bank will push

ahead with further rate rises there as long as the incoming

economic data pans out as now assumed. And on that score, the

latest Japanese inflation numbers were bang in line, with annual

core consumer price gains for July as expected at 2.7%.

Although he acknowledged policy caution following recent

market turbulence, Ueda told parliament: "Japan's short-term

rates are very low. If the economy is in good shape, they will

move up to levels deemed neutral."

Dollar/yen slipped back below 146 after the testimony

and the Nikkei stock benchmark closed 0.4% higher.

Two-year Treasury yields barely clung on to 4%

ahead of Powell's keynote speech at 10am New York time, albeit

up more than 10bps from the week's low.

And Wall Street stock futures clawed back much of

Thursday's swoon ahead of Friday's bell, with the S&P500

still eyeing the record high it came within half a percent of

hitting intraday yesterday. The VIX volatility gauge fell

back to just above 17 - a fraction below its long-term median.

Perhaps as big as Powell's speech for stock market megacaps

is the approach of Wednesday's quarterly earnings report from

artificial intelligence bellwether Nvidia ( NVDA ).

In politics, Vice President and Democratic candidate in

November's White House race Kamala Harris delivered her key

address to the Democratic convention in Chicago late on Thursday

- saying she will aim to pass a middle-class tax cut as one of

her plans.

Although the gap in betting markets has narrowed over the

past week, PredictIt's site shows Harris remains favourite to

win the election over challenger Donald Trump.

In overseas corporate news, Swiss food group Nestle

lost 1.5% after announcing it would replace CEO Mark Schneider

with company veteran Laurent Freixe.

Key developments that should provide more direction to U.S.

markets later on Friday:

* US July new home sales; Mexico Q2 current account

* Federal Reserve Chair Jerome Powell speaks in Jackson Hole;

Bank of England Governor Andrew Bailey and Norway's central bank

governor Ida Wolden Bache also speak at the symposium

(By Mike Dolan, editing by Timothy Heritage

[email protected])