Headlines

* Wall Street sells off as investors eye futures rate cuts

* Dollar rebounds, modestly easing oversold conditions

* Gold pulls back on rising greenback and bond yields

* Fed officials argue for gradual pace of cuts starting soon

FX: USD bounced after a four day sell-off had taken the index into oversold territory. This looked like simple profit taking after strong bearish momentum, though we did have mixed Fedspeak with one official still wanting more data to support a rate cut. Weekly initial jobless claims ticked marginally higher than expected; this was the week that coincides with NFP.

EUR stalled after posting a new cycle high above 1.1170 with the prior December peak at 1.1139. The ECB reported easing wage growth from the first quarter, with gains of 3.6% down from 4.7%. Consumer confidence also unexpectedly dropped in August. That said, PMIs looked mostly positive with services and the composite advancing firmly.

GBP popped up to a new top at 1.3130, not far off last year’s high around 1.3140. PMI data was fairly solid with growth picking up and prices slowing. Manufacturing output reached the highest level in two years.

USD/JPY found some buyers and support just above 144.50. Rising Treasury yields also rebounded. Resistance is 149.34/39.

AUD rolled over after finding resistance at 0.6761, which remains beneath the July high at 0.6798. USD/CAD found support again at its 200-day SMA at 1.3597. The downbeat risk mood and profit taking ahead of Powell didn’t help the loonie. We note there is record net CAD short positioning.

US Stocks: US markets closed lower with tech suffering. The benchmark S&P 500 closed down 0.89% at 5,570. The tech-heavy Nasdaq 100 finished lower by 1.68% at 19,491. The Dow Jones settled 0.43% down at 40,712. Megacap tech, consumer discretionary, and communication services lagged with only energy, financials and real estate in the green. Nvidia sank 3.7% ahead of its earnings release next week, while Tesla dropped over 5.5%.

Asian stock futures are in the red. Asian stocks were modestly positive after gains Stateside. The FOMC minutes supported the case for a rate cut next month. The ASX 200 eked out gains with flash PMIs helping, though manufacturing remained in contraction. The Nikkei 225 rose above the 38,000 level. The Hang Seng outperformed after solid earnings from Xiaomi. But the Shanghai Composite remained muted amid trade frictions and growth concerns.

Gold sold off and closed below the psychological level of $2500 and a long-term upward trendline. Strength in the dollar and yields didn’t help bugs.

Day ahead highlight – Powell at Jackson Hole

It’s the symposium we’ve all been waiting for. Finally, we will get to hear from Fed Chair Powell as he speaks on the economic outlook at 14.00 GMT at the annual gathering of central bankers, academics and policymakers. The July FOMC minutes skewed rather dovish. “Several” policymakers saw a case for cutting rates at the July meeting and a “vast majority” saw a September ease as “likely appropriate”.

 The minutes sounded a little more dovish than the cautious “not quite there yet” comments from Powell after the July meeting and make a September cut all but a done deal. The key question is by how much so any hints from Powell on this be eagerly watched. Does he lean back against calls for a larger cut or does he appease those who say the Fed is behind the curve?

Money market pricing for the FOMC into this pivotal speech sees 31bps of rate cuts priced in at next month’s meeting. There are 97bps by year-end, in just three remaining meetings so traders expect one 50bps rate reduction. We note that the “hard reset” in speculative USD positioning of the past few weeks has placed the FX market in the condition to take on new structural positions. That means the prospect of Fed easing is likely to see USD shorts continuing to prevail, though there could be a natural retracement of the technical oversold conditions initially. Any data dependent stance by Powell will mean NFP in the first week of September will assume huge importance.