After 374-point tumble in the Dow, U.S. stock futures steady ahead of key Powell speech

What’s driving markets

The bottom fell out of stocks on Thursday, though the S&P 500 is still higher on the week. Even Nvidia stock struggled to remain higher on the day after the chipmaker reported results and an outlook miles ahead of Wall Street estimates.

According to Bespoke Investment Group, the Nasdaq Composite has now failed to get back above its 50-day moving average four times since breaking that level two weeks ago.

Besides the technical struggles, stocks have suffered as bonds have sold off. The 10-year yield
BX:TMUBMUSD10Y
on Thursday reached its sixth highest level of the year. As data shows the economy’s strong resilience, bonds also have suffered as the Federal Reserve, Japan and China have stopped buying, for various reasons.

Now comes the big event, Federal Reserve Chair Jerome Powell’s speech at Jackson Hole, Wyo., at 10:05 a.m. Eastern. Last year Powell clobbered markets with talk of the need to raise interest rates further, but now he’s expected to be more balanced in his remarks.

“I don’t think the Fed was committed to an Oct/Nov rate hike at the July FOMC meeting, but that’s because it had a very pessimistic outlook for growth at that time. And I think participants were very confident in that outlook, but incoming data has shaken that confidence,” said Timothy Duy, chief U.S. economist at SGH Macro Advisors. The message of more work to do was articulated by Boston Fed President Susan Collins in interviews, including with MarketWatch’s Greg Robb.

She said she would need to see some slowing of the economy to be convinced that inflation is on the path back to its long-term 2% target. She had expected to see more of a slowdown in the economy, she conceded.

Near the end of the trading day, European Central Bank President Christine Lagarde also will speak at Jackson Hole. At the last meeting, Lagarde left it open whether the ECB would hike or pause in September. Markets were pricing in about a two-in-five chance of a hike in September, as of Friday morning. This week’s purchasing managers indexes disappointed to the downside, and Germany on Friday confirmed its economy was stagnant in the second quarter.

Francesco Pesole, FX strategist at ING, says Lagarde has a harder task than Powell. “The latest PMIs confirmed the eurozone economy is heading towards a period of sluggish growth, which now makes any hawkish statement a harder sell,” he said. “At the same time, Lagarde and her ECB colleagues are probably aware that the window for one last hike to curb the still non-negligible service inflation is closing fast.”