GENEVA — Hurricane Laura could be the worst to hit the Texas-Louisiana border in the last 160 years, but the oil market remains surprisingly calm faced with a potentially meaningful supply disruption in the US south coast. If a hurricane cannot give a positive spin to oil prices, then the market may have peaked at the actual levels and a downside correction could soon be around the corner. The topside in WTI crude could be capped by the 50-week moving average ($44.70 per barrel). In the equity markets, it is just an ordinary day. The S&P500 (+1.02%) and Nasdaq (+1.73%) continue climbing through uncharted territories. The MSCI All-country world index is at an all-time high. Though the sentiment in Asia remains mixed, activity in European stock futures hints at another positive session despite concerns regarding the rising COVID cases and the possibility of new restriction measures to break the contamination chains as Europeans return home from summer holidays. Released yesterday, the US durable goods orders recorded a strong rise of 11.2% m-o-m in July, significantly better than 4.3% expected by analysts and 7.7% printed a month earlier. Today, the US GDP data is expected to confirm a 32.5% slump in the second quarter output. Though frightening, the data print will not be a shocker for investors as the extent of the COVID-led economic damage is already digested and priced in the market prices, even though the combination of the worst recession on record and all-time high equity markets make little sense if we filter out the huge central bank and government support, and the fact that only a handful of big caps is driving the most popular US indices higher. A more representative sample including small and medium-sized businesses do not tell the same story. This is why the Federal Reserve (Fed) cannot pull the rug from under the feet of the financial markets. Today's highlight is Fed Chair Jerome Powell's Jackson Hole speech. There is no doubt that the Fed president will maintain his dovish policy stance in the middle of an easing cycle. But his message could remain short of the very dovish market expectations. Given the rock-bottom interest rates and the promise of unlimited asset purchases, the Fed should consider new policy tools to increase its financial support to the market. And the latest Fed minutes suggested that the US policymakers are willing to wait and see the impact of the current policy before introducing new easing measures, which would send the inflation expectations through the roof and cause a serious medium to long term turbulence across all markets. Therefore, Powell is first expected to tweak the Fed's inflation target from 2%, to ‘an average of 2%' which would offer some flexibility for periods of moderately higher inflation. If this is the case, investors should be satisfied and eager to buy more risky assets. But if Powell's speech is interpreted as less dovish, we could see a downside correction across the US indices, where the overbought market conditions hint that a pullback would only be healthy at the current levels. The US dollar index slipped below the 93 mark ahead of the Jackson Hole meeting, and the US 10-year yield steadied a touch below the 0.70% mark. The greenback continues defining the trajectory of EURUSD and GBPUSD. Even though the actual levels are tempting for fresh short positions, a further weakness in the US dollar could unlock some more upside potential in both pairs. The medium-term outlook for both euro-dollar and sterling-dollar remains negative. Gold attracted dip buyers near the $1900 per oz on Wednesday and recovered a touch above the $1950. The yellow metal is expected to trade sideways in the absence of a meaningful shift in the market sentiment. A less dovish perception of the US monetary policy could temper the inflation expectations and pull the price of an ounce lower along with risky assets. Likewise, a more dovish Fed would boost the inflation expectations and encourage a further rush to gold. Elsewhere, the Australian private capital expenditure contracted less in the second quarter, the Japanese all-industry activity index rose a touch below the analyst expectations, and the Chinese industrial profits jumped 19.60% y-o-y in July, though the year-to-date profits fell 8.1% as a result of a heavy decline due to the pandemic-led slowdown earlier this year. — The writer is senior analyst at Swissquote Bank
