Talk From The Trenches: We're Not In Kansas Anymore

By Bill Sokolis, Edward Hardy

     We're not in Kansas anymore, Kansas City that is, as KC Federal Reserve

hosts the annual economic symposium in Jackson Hole Wyoming the next two days.

Esther George, President and Chief Executive Officer Federal Reserve Bank of

Kansas City kicked off the symposium hosting a open reception and dinner

Thursday night while Fed Chairman Jerome Powell is scheduled to speak at 1000ET

Friday.

No ECB executive board members are listed as attending.

US: 

Late summer torpor remained in effect this week, markets apparently inured to

the political headlines dogging U.S. President Trump (ex-lawyer Cohen guilty

plea, Manafort conviction) and taking it in stride.

The real focus was on the minutes from the July 31-August 1 FOMC meeting

Wednesday and the annual economic symposium hosted by the Kansas City Fed in

Jackson Hole, Wyoming.

     Treasuries rallied after the minutes deemed dovish side of balanced, but

just as quickly receded back to pre-release levels as participants said it would

"likely soon be appropriate to take another step in removing policy

accommodation."

Flat yield curve warrants attention but should only be considered along with

other economic data while prolonged trade disagreements will have adverse

effects on the economy.

Nevertheless, rate hike probability remains mid-90%s for the September FOMC

meeting while the December meeting has moderated slightly to low 60%.

     Attention now on Fed Chair Powell at the Jackson Hole eco-symposium Friday

morning (1000ET) while some headlines from the sidelines may create some vol at

symposium mixer Thursday night. 

     It's unlikely that Fed Chair Powell's speech "Monetary Policy in a Changing

Economy" will touch upon major policy changes ahead the next FOMC meeting on

September 25-26 (includes Summary of Economic Projections and a press conference

by the Chairman).

     Markets will be listening closely for news on timing and/or pace of balance

sheet run-off.

ASIA/PACIFIC:

The return of political risk will have shaken financial journalists from their

summer silly season slumber this week, as stories rapidly develop in Australia,

UK, South Africa and, of course, the US.

     In Sydney, AUD is tumbling as markets up their belief that PM Turnbull's

not out of the woods yet. Traders await a majority-signed petition signaling a

vote of no confidence in the leader, with bookies tipping Home Affairs Minister

Peter Dutton as the likely replacement. 

Options traders have clearly taken notice: AUD/USD put options have become very

popular over the past week (with the put/call ratio of trades reaching a lofty

2.5 on Aug15) as traders protect against a further decline in the currency. 

You can't blame them: implied volatility markets remain well within recent

ranges, suggesting premium costs aren't prohibitive just yet. Year-to-date lows

of $0.7203 are well within range and markets are betting on it: August has seen

the CFTC net AUD position grow to the biggest short since 2013.

     Talk From the Trenches is a compendium of chatter from trading rooms, and

is offered as a gauge of the mood in the financial markets. It is not

necessarily hard, verified news.

--MNI Chicago Bureau; tel: +1 312-431-0089; email: bill.sokolis@marketnews.com