Hi YXI friends,

We round up the week with a quick assessment of Powell’s Jackson Hole speech today. We also review the yield curve, Treasury ETFs (TLT, TLH), Equity ETFs, Mag-7 stocks performance and valuation, Bitcoin, Gold, and Silver.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Jackson Hole: Powell confirms a September cut

In his Jackson Hole speech today, Powell finally confirmed that the Fed is ready to cut rates, as “the time has come for policy to adjust”.

Powell has also highlighted the Fed’s concern for the labour market. Instead of insisting that the labour market is “normalising”, Powell firmly announced that the Fed does not “seek or welcome further cooling in labour market conditions”

Powell did not hint whether the Fed will do a 25bp cut or 50bp, but suggested there was ample room for the Fed to respond to any risks they face.

My read: the 25bp vs 50bp cut now almost entirely rests on the next Nonfarm Payrolls report. Currently at 4.3%, if unemployment rate rises again (to 4.4%), the Fed should be cutting 50bp. If it stays flat or somehow retraces (e.g. due to lower participation rate, or rising part-time jobs), the Fed likely sticks with 25bp.

The other, although less likely, scenario is if CPI next month significantly undershoots expectation. This can push the 3-month annualised headline and services ex-shelter CPI into deflationary territory, which could suggest a potential recession right around the corner.

2. Yield Curves

Yields fell by 6-7bp across the curve. However, we are not too different from a couple of days ago.

Subscribe to YX Premium to read the rest.