Wall Street Lower on Hawkish Fed Talk, Peloton at a Discount

A combination of events saw Wall Street trade lower yesterday ahead of Jerome Powell’s speech at Jackson Hole later today. It’s only natural to expect traders to square up their positions ahead of such large events, but concerns that China’s growth is slowing, along side hawkish comments from Fed members and decent US economic data (which justifies tapering) took their toll on US equities.

Major benchmarks such as the S&P 500 (US500), Dow Jones (US30) and Nasdaq 100 (USTEC) all fell around -0.6%. And there’s potential for further losses should the Fed’s tapering be deemed as fast enough.

Hawkish Fed members hit the wires ahead of Jackson Hole

Fed hawks were beating their chests ahead of Jerome Powell’s speech today at midnight. Economic data provided little reason for the Fed to make any last-minute changes, and market consensus remains for tapering to be confirmed. Whilst this resulted in a higher dollar we would have expected more of a bullish reaction if known doves had also made hawkish comments.

Kaplan wants to start tapering soon and have it completed in 8-monhs. Bullard wants to have completed tapering by end of Q1 2022 and remains sceptical that inflation will moderate (not be transitory).

The US dollar index (USX) rose 0.25% which suggests a swing low has formed around 92.80. EUR/USD respected resistance at 1.1780 and fell to a 3-day low, however we expect this to remain a pivotal level around Jerome Powell’s speech at midnight AEST, or 10:00 EST. AUD/USD also moved lower from resistance around 0.7300. Should the dollar rally if Powell confirms tapering, then we expect AUD to remain under pressure heading into next week.

Peloton discounts… itself

Peloton Interactive (PTON), the US based company which has thrived during lockdowns by bringing the professional gym experience to the home is falling during after-hours trade.

Despite revenue rising 54.3% from a year ago to US $936.60 million, they also reported a quarterly adjusted loss of 71 cents​​ per share compared with analyst’s expectations of 45 cents per share. After bumper growth in 2020 due to lockdowns, they now expect “normal seasonal patterns” to return and subscriptions falls as economies reopen. The court case they lost earlier this year, which resulted in a global recall of their treadmills didn’t help either.

And despite bringing forward their Australian launch, they have now discounted their entry level bike by around -20% just weeks after their launch in Oz. Share prices fell around -15% after market close.

PBOC to provide more stimulus

The People’s Bank of China (PBOC) said they will provide further stimulus to aid the economy. Financial support will be provided for rural development and lower the reserve requirements ratio (RRR) to help banks. This week they have already injected net Y120 billion of liquidity into the banking system, making it the largest weekly injection in 6-months.

Chinese equity markets traded higher on the day with H-Shares (HSHARE) rising 1.8%, the CSI300 rose 0.76% and the A50 index rallied around 1%.

Dozens injured and over 70 killed at Kabul airport

The US withdrawal from Afghanistan was never expected to be slick. Yet chaotic scenes have continued to rise and tensions have escalated further following deadly scenes at Kabul airport.

ISIS attacked people trying to leave Afghanistan at Kabul airport which has left 60 civilians dead. And at least 13 US troops have also been killed who were trying to help with the evacuation.

The US is trying to complete their withdrawal from Afghanistan by 31^st August, a date set by US President Joe Biden, who stated their mission of preventing another September 11 style attack and root out al Qaeda militants has been long complete. Yet recent events strongly suggest this is not the end of the story.

Biden has since said during a live broadcast from the Whitehouse that “”We will not forgive. We will not forget. We will hunt you down and make you pay“.