“Jackson Hole”
September 10,2024
Topic of the week:
Perhaps this August you have read in the press or heard on the radio about a meeting held in Jackson Hole in the United States. If not, it is also positive because it means that you have really disconnected during your vacation. So, what is this meeting about and who is invited to attend? The official name of this event is the Jackson Hole Economic Symposium, it usually lasts three days and is held annually in August. To know its origin we must go back to 1978, when the Federal Reserve Bank of Kansas City began to organize this meeting in Kansas City. We must remember that the Federal Reserve (central bank of the United States) is composed of 12 banks with their geographic districts, one of them being Kansas City, which encompasses the central part of the country.
The initial objective of this conference was to bring together bankers, economists and financial market professionals to examine and discuss the current economic situation. In the early years, the participation of central bankers was very low. Therefore, in order for the event to be recognized globally, the organizers believed that it was essential for the Chairman of the Federal Reserve to attend. To that end, in 1982 it was decided to move the meeting to Jackson Hole, a remote Wyoming valley within the Federal Reserve Bank of Kansas City’s district and known for fly fishing. Clearly it is no coincidence that the president at the time, Paul Volker, was a fan of the sport. Thus, in 1982, with the participation of the Federal Reserve Chairman and the breathtaking mountain scenery, the event became the most important annual gathering of central bankers from around the world.
The guest list is relatively small and can only be attended with an invitation provided by the organizer, the Federal Reserve Bank of Kansas City. In recent years it has averaged 115-120 attendees including top Federal Reserve officials, leading central bankers from around the world, finance ministers, economists and academics. Attendees, including journalists, must comply with the main rule of the event if they want to be invited again: they can talk and write about formal speeches, but are forbidden to divulge informal conversations held at meals or in the corridors.
During the more than 45 years that this meeting has been held, there have been many important moments. Some of the most memorable are:
– In 1999, Federal Reserve Chairman Alan Greenspan expressed his concern about the bursting of financial bubbles and their consequences. A few years later, the dotcom bubble burst.
– In 2005, there was a discussion about risk control in the markets. In 2007, as if it had been a prediction, the subprime mortgage crisis began.
– In 2012, Ben Bernanke, chairman of the Federal Reserve, declared that he would continue the monetary stimulus by announcing a new expansion of asset purchases.
– In 2015, this time the ECB President, Mario Draghi, took advantage of this event to advance the announcement of the following monetary policy stimulus that would be carried out by the institution.
At this 2024 meeting, it is worth highlighting the statements made by the Chairman of the Federal Reserve, Jerome Powell, where he implies that a first interest rate cut will be announced on September 18, after reducing inflation to levels below 3%.
The beacon of the markets:
Statistics point to September as the worst performing month of the year for U.S. stock markets, and indeed the start of this one could not have been more adverse. The market was warned throughout the week that the most important macroeconomic reference to be published would not meet analysts’ expectations. And so it happened, non-farm payrolls came in at 142,000 versus the estimated 164,000, a trend that had already been reflected in the JOLTs and ADP surveys, which anticipated that the dynamism of US employment was losing more strength than expected. On a positive note, the unemployment rate came in at 4.2%, as expected.
The impact on the world stock markets was quite severe: the S&P 500 lost 4.38%, very similar to the Euro Stoxx 50, which lost 4.43%, while the Ibex 35 surprised with its good performance, falling only 2.63%. The worst performing index was the Nasdaq 100, which lost practically 6% and is dragging the Asian stock markets at the beginning of the current week, with the technology sector being the most severely punished. Nvidia continues to adjust its value and the situation does not seem conducive to such a sudden recovery as that seen in August.
Fears of a slower-than-expected economy also had an impact on fixed income markets. Yields fell significantly in almost all geographies, but the US stood out among developed markets. The 10-year Treasury closed the week with a yield of 3.72%, down 19 bps from the previous Friday, and also set a new annual low at 3.64%, a level not seen since June 2023. In Europe, government bond yields also fell, but to a lesser extent, some 12 bps on the week, leaving the Bund at 2.17% and the Bono at 3%. The ECB meets next Thursday and everything indicates that it will lower rates for the second time this year by 0.25%, a reduction that has already been discounted in the financial markets, which has reduced the impact on yields.
The third major weekly impact was suffered by commodities, which corrected across the board, with the exception of gold, which, acting as a safe-haven asset in difficult times, barely changed, closing at 2,524.60 $/Oz. Brent dropped 10%, and the $71/barrel price at which it closed had not been seen since February last year. Fears of slower growth in the US and low demand from China continue to take their toll on crude, despite the fact that inventories fell much more than expected and that OPEC announced that it was delaying the production increase it had announced for October by two months.
For the rest of the week, we will be closely watching for surprises in macro data, including the US CPI and PPI for August, consumer confidence and inflation expectations from the University of Michigan. In Europe, the ECB will lower interest rates by 25 bps, but the subsequent message could give clues as to what will happen until the end of the year.
The sentence:
And we bid farewell with the following sentence by Adam Smith, Scottish Enlightenment economist and philosopher, considered one of the greatest exponents of classical economics and the philosophy of economics: “There can be no flourishing and happy society when the greater part of its members are poor and wretched.”
Summary of main financial assets performance (9/9/2024)
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