Jackson Hole, US recession, DNC - what's moving markets

Investing.com -- The main Wall Street indices look set to start the new week in a consolidatory mood after the previous week's strong gains, as investors await the release of the minutes from the last Federal Reserve meeting as well as the widely-anticipated Jackson Hole symposium. The four-day Democratic National Convention also starts this week.

1. Jackson Hole meeting in focus

The week’s key event will be the Federal Reserve’s annual economic symposium in Jackson Hole, Wyoming, starting on Friday, with investors seeking more clues about the pace and timing of rate cuts over the coming months.

Markets just recorded their best week of the year, on expectations of a very soft landing for the U.S. economy, as recent positive data relieved worries over the prospect of a recession.

Most market participants believe the Fed will cut rates at its upcoming September meeting, with the main debate being over the size of the cut - a quarter percentage point or a half point.

Fed chief Jerome Powell’s speech will be the highlight of the gathering, and markets are clearly priced for a dovish outlook, especially after Fed members Mary Daly and Austan Goolsbee flagged the possibility of easing in September over the weekend.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July, after hiking its policy rate by 525 basis points since 2022.

2. Futures consolidate after winning week

U.S. stock futures traded with small losses Monday, consolidating after the previous week’s strong gains amid growing optimism over the underlying strength of the world’s largest economy. 

By 04:05 ET (08:05 GMT), the Dow futures contract was 10 points, or 0.1%, lower, S&P 500 futures dropped 3 points, or 0.1%, and Nasdaq 100 futures fell by 28 points, or 0.2%.

The benchmark Wall Street indices are coming off a winning week, with the  broad-based S&P 500 gaining 3.9% for its best week since 2023. The tech-heavy Nasdaq Composite added 5.2% and the blue chip Dow Jones Industrial Average rose 2.9%.

Investors will focus this week on the minutes from the Federal Reserve’s most recent meeting, which are due on Wednesday, ahead of Friday’s Fed Chair Jerome Powell’s Jackson Hole speech on Friday.

The earnings season continues this week, results due Monday from Palo Alto Networks (NASDAQ:PANW) and Estee Lauder (NYSE:EL).

3. Democratic National Convention set to start

Monday sees the start of the four-day Democratic National Convention, with Vice President Kamala Harris set to formally accept the party’s nomination to run for president on Thursday night with a highly anticipated speech.

President Joe Biden abandoned his reelection bid after his poorly-received debate against the Republican candidate Donald Trump in late June prompted many within the party to demand he step aside.

Harris is heading into the convention enjoying a significant shift in momentum, with opinion polls having turned in her favor in some battleground states.

"Recent polls suggest that Harris is better positioned in a head-to-head contest against Donald Trump," UBS said, citing recent polls, after gaining more than 6 points in national polls, improving on Biden’s position by a "similar margin in some of the critical swing states."

"The abbreviated campaign probably helps Harris as it allows less time for Republican critiques of her policy positions to alter perceptions," UBS said, though added that Harris still has to introduce herself and expand on her policies to win over uncommitted voters.

But this week’s Democratic National Convention "will give her an opportunity to do so, as will next month’s scheduled debate with Donald Trump," it added. 

4. Goldman cuts likelihood of US recession

Goldman Sachs has lowered the odds of the United States slipping into a recession in the next 12 months to 20% from 25% following the release of recent healthy economic data.

Earlier this month, the brokerage raised the odds of a U.S. recession from 15% after the unemployment rate jumped to a three-year high in July, sparking fears of a downturn.

"We have now shaved our probability from 25% to 20%, mainly because the data for July and early August released since August 2 shows no sign of recession," Goldman Sachs chief U.S. economist Jan Hatzius said in a note on Saturday.

Thursday's jobless claims report showed the number of Americans filing for unemployment benefits dropped to a one-month low in the previous week, while separate data revealed on the day that retail sales increased by the most in 1-1/2 years in July.

Hatzius said if the August jobs report, due in early September, seems "reasonably good", he would cut back the U.S. recession probability to 15%.

He maintains the Federal Reserve will cut interest rates by 25 basis points at its September meeting, but did not rule out a 50 bps cut if the jobs report falls short of expectations.

5. Crude slips as Gaza ceasefire talks continue

Crude prices fell Monday on concerns of weaker demand in top oil importer China, with the ceasefire talks in the Middle East remaining in focus. 

By 04:05 ET, the U.S. crude futures (WTI) dropped 0.9% to $74.83 a barrel, while the Brent contract fell 0.9% to $78.98 a barrel.

Both benchmarks fell nearly 2% at the end of last week after data from China showed its economy lost momentum in July, with new home prices falling at the fastest pace in nine years, industrial output slowing and unemployment rising.

Attention turns now to Gaza ceasefire talks, which are set to continue this week in Cairo, following a two-day meeting in Doha last week.

U.S. Secretary of State Antony Blinken on Monday called the latest diplomatic push by Washington to achieve a ceasefire deal in Gaza "probably the best, maybe the last opportunity" and urged all parties to get the agreement over the finish line.

There has been increased urgency to reach a ceasefire deal amid fears of escalation across the wider region, an upsurge that could impact supply from this oil-rich region.