With anticipation building in markets ahead of Jerome Powell’s speech in Jackson Hole on Friday, the dollar is trading near a five-week high, short term Treasury yields are up, and equity futures are tumbling. Investors expect the Federal Reserve chair to tilt against the recent loosening in financial conditions, emphasizing the central bank’s willingness to hit the economic brakes as it works to bring inflation under control.

But “there is no terror in the bang,” as Alfred Hitchcock put it, “only in the anticipation of it”. Mr. Powell will almost certainly acknowledge signs of slowing economic momentum and is unlikely to deliver specific guidance ahead of the September meeting – meaning that his message could prove insufficiently shocking for well-prepared markets, making a dovish correction increasingly likely.

Raw materials prices are up and the Australian dollar is climbing after China’s biggest commercial banks cut benchmark interest rates. The move to lower household and business borrowing costs was widely anticipated – the People’s Bank of China last week led in slashing two of its key rates – but a 15 basis-point drop in the five-year loan prime rate was more than expected. Policymakers are trying to ease a cash crunch and revive moribund credit demand, but broader economic uncertainties are mounting.

Oil benchmarks are oscillating between gains and losses as talks on an Iranian nuclear deal progress. US President Joe Biden “discussed ongoing negotiations over Iran’s nuclear program, the need to strengthen support for partners in the Middle East region, and joint efforts to deter and constrain Iran’s destabilizing regional activities,” with European leaders according to a White House readout on the weekend. If a deal is agreed, Iran is expected to ramp up production and help ease global energy shortages.

Today’s data calendar is light. Tomorrow’s new home sales and Wednesday’s durable goods orders are likely to point in opposing directions, with the housing market slowing even as underlying consumer demand remains strong.

Another US inflation measure is expected to show signs of cooling on Friday, with the July personal consumption expenditures report likely to bring evidence of an easing in headline and core measures. Personal income is seen growing at the same pace as in the prior month, and real spending probably climbed slightly.

Karl Schamotta, Chief Market Strategist