By Geoffrey Smith
Investing.com — Jerome Powell will likely signal when the Federal Reserve intends to start tightening monetary policy by reducing its bond purchases. HP (NYSE:HPQ)’s warning about lengthening backlogs deepens the gloom for semiconductor users. Peloton slumps after cutting prices for its most popular bike. China issues yet more rules to curb the power of its Internet companies, and oil is up as Tropical Storm Ida starts to force operators in the Gulf of Mexico to shut down. Here’s what you need to know in financial markets on Friday, 27th August.
1. Powell’s Jackson Hole keynote speech
The most hotly-anticipated event of the week/month/year/millennium (delete as appropriate) is finally upon us.
Federal Reserve Chairman Jerome Powell will speak at the central bank’s annual research symposium at Jackson Hole at 10 AM ET (1400 GMT), and should give clear guidance as to the timeline for reducing the Fed’s bond purchases.
Running at $120 billion a month since the first wave of the pandemic, these have underpinned global demand for dollars during a time of extreme market stress, as well as enabling the financing of emergency federal government support to the economy. Three of Powell’s colleagues on Thursday suggested that the current degree of accommodation was no longer necessary, given how far the U.S. economy has recovered. None of the three has a vote on this year’s policy-setting committee, however.
2. HP warning casts gloom over PC industry
There was further evidence that the shortage of semiconductors will disrupt the production of hardware for some time to come, after HP warned in its quarterly results update that it won’t be able to meet all orders for its PCs and laptops in the current quarter.
HP’s news sent both its own stock and that of rival PC maker Dell down by over 5% in after-hours trading on Thursday.
The news came on the same day that Taiwan Semiconductor Manufacturing (NYSE:TSM), one of the world’s largest contract manufacturers of chips for other companies, said it would raise prices by between 10%-20%.
Most of the world’s major automakers have announced in recent weeks that they will have to reduce output in the current quarter due to shortages of chips and other components, a problem compounded by ongoing snarl-ups in the global shipping industry due to lockdowns in China.
3. Stocks set to open higher; Peloton slumps after price cut, wider loss
U.S. stock markets are set to open higher later, recovering some of Thursday’s losses, with their subsequent direction overwhelmingly dependent on the message sent by Powell from Jackson Hole.
Powell will deliver his comments with markets still close to all-time highs, supported by the unprecedented amounts of liquidity the central bank has created since last spring.
Aside from Dell and HP, stocks likely to be in focus later include Workday (NASDAQ:WDAY), which rounded off a stellar week for enterprise software companies with its earnings after the bell on Thursday, and Marvell (NASDAQ:MRVL), which also beat expectations. Peloton Interactive (NASDAQ:PTON) is likely to underperform after announcing late Thursday a big price cut to its most popular exercise bike and a wider loss than expected.
4. China smites the Internet sector again
China’s Cyberspace regulator issued a new set of draft regulations with potentially far-reaching impacts on the country’s Internet companies, the latest in a series of regulatory actions designed to crimp both their economic and their potential political power.
The new regulations would outlaw algorithms designed to encourage addiction, or what it called ‘excessive compulsion’, something likely to affect both social media and gaming companies. They also include provisions relating to national security and public order.
In related news, China’s Supreme Court issued a new set of ‘model’ cases that seeks to strengthen workers’ rights, as part of the government’s plans to reduce income inequalities.
Separately, The Wall Street Journal reported that Beijing is preparing to ban companies with sensitive data from listing in the U.S., in further evidence of the world’s two largest capital markets divorcing.
5. Oil rises as storm approaches; Libya to cut supply
Crude oil prices rose ahead of Jerome Powell’s speech, which is likely to influence prices later in the day through its effect on the price of the dollar. A higher dollar will likely weigh on prices, and vice versa.
Also supporting prices was the news that the biggest operating division of Libya’s National Oil Company will be forced to suspend production – currently running at over 200,000 barrels a day – due to government haggling over budget receipts, which have left it unable to pay for wages and other input costs.
By 6:30 AM ET, U.S. crude futures were up 1.6% at $68.50 a barrel, while Brent futures were up 1.4% at $71.18 a barrel. Baker Hughes rig count data and the Commodity Futures Trading Commission’s figures on net speculative positions round off the day, with the market also keeping an eye on updates on the progress of Tropical Storm Ida.
Powell in the Hole, PC Warnings, China Regulation – What’s Moving Markets