The asset classes are always talking to each other, and here's what they might be telling stocks

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It was the bond market's soothing communication - in the shape of falling yields - that gave equity investors the confidence to deliver the sharp summer rally.

What Federal Reserve chairman Jay Powell says later on Friday in his speech at the Jackson Hole symposium should swiftly ripple across the markets. From interest rate sensitive short-duration fixed income assets through to stocks, the dollar and thus commodities.

The problem for stock market bulls is that some of the bond chatter may soon prove less supportive as it passes on a worrying message from the energy sector. And there’s the rub. Benchmark Treasury yields have moved back above 3% and observers of a technical mindset are pointing out that the head and shoulders pattern that may have suggested further downside for yields has morphed into something more dangerous for bond prices.

And Ole Hansen head of commodity strategy at Saxo Bank notes that speculative positioning leaves that market vulnerable to a pop higher. Quite a big batch of U.S. economic data on Friday, including the July PCE price index, an important inflation gauge, due at 8:30 am Eastern. The July personal income and consumer spending numbers are published at the same time, while the University of Michigan consumer sentiment survey comes out at 10 am Eastern.

 

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