Stock markets gain ahead of US rates speech by Federal Reserve’s Jerome Powell – business live | Business

Here is an interesting chart from Reuters. It shows that Jerome Powell’s speeches at Jackson Hole have for the most part reassured stock market investors – but twice they have prompted big declines.

The most notable decline came in 2022, when Powell warned that the fight againt inflation – at that time rising because of coronavirus pandemic disruption – would cause “pain” for Americans.

The big decline in 2022 drags down the average performance of the S&P 500 on the day of the speech to a decline of 0.6%.

Wall Street has opened, and with less than half an hour to go until the closely watched speech from Jerome Powell, US stock markets are apparently positioning for a dovish Fed that will support the economy.

Here are the opening snaps, via Reuters:

• S&P 500 UP 33.95 POINTS, OR 0.61 %, AT 5,604.59

• NASDAQ UP 153.60 POINTS, OR 0.87%, AT 17,772.95

• DOW JONES UP 180.12 POINTS, OR 0.44%, AT 40,892.90

The time in Jackson Hole is not yet 7:30am, but it appears that monetary policy fans are up with the lark.

The European Central Bank has already cut interest rates once, back in June, but it is lining up for another in September. Reuters reports that unnamed sources have indicated that a September cut is likely.

Reuters wrote that:

A growing number of European Central Bank policymakers are lining up behind another interest rate cut in September and only major data surprises in the coming weeks could delay the move, on and off record conversations with seven sources indicate.

… other sources, who declined to be named, said private, informal conversations are showing broad support for the move, even if most are still awaiting further data before finalising their views.

Investors have grown more sceptical in recent days of the prospects for a 0.5 percentage point cut from the Federal Reserve, according to Henry Allen, a strategist at Deutsche Bank.

He wrote:

For investors, the big question is to what extent Powell validates expectations for a September rate cut, and whether he offers any indication of how big any rate cut might be. Last year, Powell said that they intended “to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective”. But over the following 12 months, we’ve seen inflation experience a noticeable decline, along with an increase in unemployment. So from both sides of the Fed’s dual mandate, we’ve moved much closer to a point where the Fed have cut rates in previous cycles.

Our US economists’ view is that it will be difficult for Powell to pre-commit to a particular trajectory at Jackson Hole. But they do think his comments will imply that the Fed can begin dialling back the degree of restraint soon, opening the door to a rate cut next month.

Allen also highlighted several messages from Fed officials which suggest they are not on the warpath for a 0.5 percentage point cut:

Boston Fed President Collins said that she didn’t see any “big red flags”, and Philadelphia Fed President Harker said that “I think a slow, methodical approach down is the right way to go”. Meanwhile, Kansas City Fed President Schmid said that he wanted to see more data, saying that “Before we act — at least before I act, or recommend acting — I think we need to see a little bit more.”

What do we have in store later (3pm BST; 10am EDT) when Jerome Powell addresses the annual central bankers’ convention at Jackson Hole, a mountain resort in Wyoming? Economists are expecting that the Federal Reserve president will avoid rocking the boat.

The Jackson Hole summit is a chance for central bankers to deliver messages during the quietest month. But this summer the consensus is firmly that the Fed will deliver its first interest rate cut since the start of the coronavirus pandemic in March 2020.

Market transactions imply a 71.5% chance that the Federal Reserve cuts interest rates from the current range of 5.25% to 5.5% at the next meeting of its rate-setting Federal Open Markets Committee (FOMC), according to CME Group’s FedWatch tool.

The tool, based on financial derivatives, suggests that a September cut is a certainty, with a 28.5% chance of a 0.5 percentage point cut.

The key question now for investors will be the pace of the cutting in the months to come.

Bob Savage, head of markets strategy and insights at BNY Mellon, a US investment bank, said it was “Risk on as markets are prepared for a dovish Fed Powell”. Investors have bought up riskier stocks and are positioning for the carry trade (borrowing in lower-yielding dollars and investing in other, higher-yielding currencies), in the belief that Powell will seek to support the economy with looser monetary policy. Looser monetary policy tends to hit the value of the home currency. Savage said:

The risk for today rests on how markets interpret the FOMC Powell speech. The positioning into the event has been clear – shedding USD for EUR and GBP, buying carry trades in [foreign exchange], while owning more bonds and stocks.

James Knightley, an economist at ING, a Dutch investment bank, said that the Fed had firmly signalled that it will cut in September. He will be on the lookout for Powell giving any signs that he is considering cutting more firmly if economic data are weaker. He said:

Recent downward revisions to nonfarm payrolls and a dovish set of minutes to the July Federal Reserve FOMC meeting where “the vast majority” of members thought it “would likely be appropriate” to cut interest rates in September, have firmed up expectations that lower borrowing costs are on their way. We currently have a 50bp cut in our projections, but the Fed appears cautious on cutting rates aggressively and it would likely take a very soft jobs report on 6 September to generate such an outcome.

There has been another update in the sinking of the Bayesian yacht. Italy’s coastguard has found another body, presumed to be Hannah Lynch, the 18-year-old daughter of entrepreneur Mike Lynch and Angela Bacares.

The recovery of the body completes the first stage of the investigations, although Italian prosecutors are investigating manslaughter charges related to the tragedy, in which seven people died.

You can read the full story here:

We now have the other side of the readout from Keir Starmer’s call with Xi Jinping.

The relationship with China has not dominated the opening weeks of the new Labour government, but it will certainly be an important issue. The attitude towards Chinese electric cars could be particularly problematic, given the lead set by the EU and US in imposing steep tariffs on imports.

Economics and trade were not mentioned in a statement from Starmer’s office, however. It said:

As permanent members of the UN security council, the leaders agreed on the importance of close working in areas, such as climate change and global security.

The prime minister added that he hoped the leaders would be able to have open, frank and honest discussions to address and understand areas of disagreement when necessary, such as Hong Kong, Russia’s war in Ukraine and human rights.

The big economic news today will be a speech at 3pm BST by Jerome Powell, the Federal Reserve president. We will be doing a lot more on that in the next few hours, but in the meantime, here is an update on financial markets.

• European stock markets have gained, with the FTSE 100 in London up by 0.3%. Germany’s Dax is up 0.6%.

• There are no very notable gainers on the FTSE 100, although Melrose is the biggest faller, down 6% after investment bank UBS steeply cut its target price for the stock. UBS said that Melrose’s model of sharing in revenues from parts it makes is not as valuable as it has said.

• US stock market futures indicate that Wall Street will start Friday in a positive mood. The S&P 500 benchmark is set to gain 0.5%, the tech-focused Nasdaq is set to gain 0.8%, and the Dow Jones industrial average is on for a 0.4% rise.

• The US dollar has eased, down 0.1% against a trade-weighted basket of currencies.

• Sterling is up by 0.3% against the dollar, with one pound buying $1.31. It is the third consecutive day on which the pound has hit a one-year high, after economic data suggested the economy is running well. It is a whisker short of the highest point since April 2022.

• The euro has gained 0.04% to $1.11.

• US Treasury yields are flat for the day. We will be watching the movements on bond markets closely during and after the speech.

Some interesting news via China’s state broadcaster, CCTV: Keir Starmer, the UK prime minister, has had a first call with China’s president, Xi Jinping.

Here is the brief summary from Agence France-Presse:

Chinese president Xi Jinping said he hoped to achieve “common wins” with the United Kingdom during his first conversation with British prime minister Keir Starmer since he took office last month, state broadcaster CCTV reported Friday.

“China is willing to conduct equal dialogue with the UK side on the basis of mutual respect … and make mutual benefits and common wins the fundamental tone of China-UK relations,” Xi said, according to CCTV.

Time to take a break at Nestlé: the owner of brands ranging from KitKat to Nescafé has announced the departure of its chief executive.

Nestlé’s share price dropped by 2% on Friday in Switzerland after it said that Mark Schneider had departed after eight years at the helm.

The company has missed earnings expectations and its share price is down after regulatory issues and a weakening outlook.

Nestlé said that Schneider had focused on “high-growth categories like coffee, pet care and nutritional health products”, but gave no explicit reason for his departure.

Laurent Freixe, who leads the company’s Latin America business, will take over as chief executive on 1 September.

Schneider said:

Leading Nestlé for the past 8 years has been an honor for me. I am grateful for what we have achieved, having transformed Nestlé into a future-proofed, innovative and sustainable business. I would like to thank the entire Nestlé community for what we have accomplished together and wish Laurent all the best in his new role.

You would hardly envy Ofgem their job: almost everybody agrees that the UK energy market needs deep reforms. Yet there are deep differences, and different priorities that are tricky to tackle without worsening the other.

One thing that most people agree on is that heat pumps are the key part of the solution for residential property.

Heat pump manufacturers argue that the current energy price cap system gives a disincentive to upgrading home heating because it sets electricity prices based on wholesale gas markets.

Russell Dean, residential product group director for Mitsubishi Electric Europe, a heat pump manufacturer, said:

As the latest energy price cap is announced, electricity users, homes with heat pumps, and households that are decarbonising their home heating are continuing to be penalised by an energy market that favours carbon emitting fossil fuels.

The new government has a mandate to decarbonise Britain. De-coupling the price of electricity from gas will help achieve that. This will bring down the cost of electricity, decarbonise home heating and help meet Britain’s net zero target.

It’s important to put the energy price cap increase in the context of the last few years: by standards of the decade before 2019, the UK is still in crisis territory.

Jillian Ambrose, the Guardian’s energy correspondent, writes:

The new cap is broadly in line with the costs of energy last autumn and winter, when it rose to £1,834 between October and December and £1,928 from January to March. However, bills will remain well above the cap set before Russia’s war on Ukraine triggered a global energy market shock, when the winter price was £1,216.

Gillian Cooper, the director of energy at Citizens Advice, said:

Energy bills will now be around two-thirds higher than before the crisis, and with record levels of energy debt and the removal of previous support, people are in desperate need.

Our research shows people are so worried about price increases that one in four say they could be forced to turn off their heating and hot water this winter. We’re particularly concerned about households with children and young people and those on lower incomes, who are most likely to struggle with their heating costs.

You can read our full report here:

The withdrawal of universal winter fuel payments is shaping up to be a big cross-party issue in the lead-up to Rachel Reeves’s first budget on 30 October.

Rachael Maskell, the Labour MP for York Central and chair of the all parliamentary group on ageing and older people, called for a review of the policy this morning after the regulator, Ofgem, announced a 10% increase in the energy price cap this morning.

Reeves last month decided to limit winter fuel payments to pensioners on pension credit, a means-tested benefit. That will withdraw the payment the wealthiest households, but could mean that those just above the threshold struggle.

The Conservative party is licking its wounds after the heavy defeat at last month’s general election, but Tory politicians have criticised Labour over the policy, and the right-wing press has been running daily stories about the withdrawal of the benefit. The Conservatives’ leader in the Welsh Senedd, Andrew RT Davies, said the policy is unfair.

Liberal Democrat MP for Eastleigh Liz Jarvis said the government should rethink the decision.

Maskell said that 2.1m pensioners are in in poverty, and 4,950 people died last year because of cold homes. She called for a social tariff on energy, which would mean lower bills for poorer households. She told BBC Radio 4:

Being able to protect those individuals is absolutely crucial this winter. We know that this will create a public health emergency, that rise in fuel costs.

We’ve got to protect the most vulnerable in society. I’m deeply concerned that some of that protection is being removed.

Maskell said the support for pensioners was “insufficient for protecting those people just above the pension credit threshold”.

Insurer Hiscox has appointed its senior independent director, Colin Keogh, as interim chair after Jonathan Bloomer died this week in the Bayesian yacht tragedy.

Jonathan and his wife, Judy Bloomer, were among those who died after the yacht foundered during a storm after being hit by a waterspout. The Bloomers had joined tech entrepreneur Mike Lynch on the yacht to celebrate his acquittal on US fraud charges.

Jonathan Bloomer, a friend of Lynch who testified at his trial, was the executive chair of Morgan Stanley International as well as chair of Hiscox, the FTSE 250 insurer.

Of the 22 crew and passengers on board, 15 were rescued. Angela Bacares, Lynch’s wife and tech company shareholder, survived the disaster, but Lynch died and their 18-year-old daughter, Hannah, is missing, and presumed dead.

The others who died were Recaldo Thomas, who was the yacht’s chef, Neda Morvillo and her husband, Chris Morvillo, who was Lynch’s longtime lawyer.

Martin Lewis called for a bigger cut in standing charges – and urged the government and Ofgem to work together to sort out the issue.

Lewis has campaigned for several years for reform of standing charges. He said:

For many elderly pensioners they don’t turn their gas on in summer months, but they still pay 30p a day just to have a gas meter.

This move to drop standing charges … has to be done in concert with specific help to help vulnerable high users who have it for medical or disability conditions. The problem with our government is Ofgem is in charge of standing charges; government is in charge of support for vulnerable users. You have to join the two up.

You want to grab both heads and bang them together and say, you two have to work together to make this work.

Lewis said that standing charges are a “poll tax” – one levied at a fixed sum on every individual (or in this case, every household) – and a “moral hazard” because lower energy users do not get the benefit.