Market news today: Fed in focus at Jackson Hole

WE’RE in the thick of what journalists call ‘silly season’. It’s the time of year when editors (and investors) scrabble around for real news while many people are more concerned with enjoying their summer holidays. In the markets that can lead to unexpected movements and volatility, so it’s a good time to keep focused. 

Jackson Hole 

There’s no summer let up if you’re a central banker, though, because this is the week when you and your peers head to Wyoming for the annual Jackson Hole economic symposium. That might sound dry, but it’s become an important platform for the head of the Federal Reserve to provide the market with insight into where monetary policy might be heading. 

This time last year, markets had a bit of a wobble after Jerome Powell served up a short (nine minutes) but punchy speech in which he essentially told investors that high interest rates, a slowing economy and a weak labour market are the price to pay for getting inflation down. That statement of the obvious spooked markets and helped send shares down to their low point for the year in October. 

No-one knows what Mr Powell has up his sleeve for Friday’s speech. But, given last year’s precedent, all eyes will be on this obscure mountain fly-fishing resort that has its moment in the sun every August. 

Summer lull 

The market backdrop to Jackson Hole is a fairly typical summer pause for breath which has seen share prices fall back after an unusually strong rally from last autumn’s low. Having reset valuations to the relatively punchy level of about 20 times forecast earnings, the US market dropped back to a slightly less demanding 19 times profits.  

That means that for the market to regain its poise, earnings are going to have to carry the baton. This week sees a few high-profile names announcing results, including Nvidia, Zoom and BHP Group. But essentially the second quarter earnings season is over now. Just as happened in the first quarter, results have turned out a little better than expected. There’s been a 6% decline, year on year, compared with initial expectations for a 9% retreat at the start of the quarterly results round. 

Meanwhile in China 

While investors in the US and Europe are taking a fairly relaxed breather, over in China things feel a bit more tense. This week the authorities in Beijing added cautiously to their recent stimulus of an economy that looks to have stalled after an initial post-Covid rally. A 0.1 percentage point cut in the country’s one-year loan prime rate left investors unimpressed and both the renminbi and share prices have fallen further. 

There are multiple issues for the Chinese economy. Consumers have not really regained their mojo after the pandemic lockdowns; the property sector is in disarray with house prices falling and big-name developers defaulting on their loans; and exports are struggling in the face of weak demand in the rest of the world. 

That’s led to a big divergence since April between the CSI 300 index of shares traded in Shanghai and Shenzhen and the MSCI World index. £100 invested in China is worth £94 today while the same amount in the global market is worth £104. Please remember past performance is not a reliable indicator of future returns.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.