Impact of Jackson Hole Symposium on Currencies

02 Sep 2022

The Jackson Hole Symposium is an annual economic symposium held in Jackson Hole, Wyoming since 1981 by the Federal Reserve Bank. The 3-day event gathers around 120 prominent figures in the financial world including central bankers, finance ministers, academics and key financial market players from around the world. The symposium’s objective is to foster open discussion concerning economic issues, implications, policies and more importantly, what to expect moving ahead. Each year, a specific topic is selected that guides the discussion. Past symposium topics include Macroeconomic Policy in an Uneven Economy (2021), Implications for Monetary Policy (2020) and Challenges for Monetary Policy (2019).

Significance and Impact of Jackson Hole Symposium

The proceedings are followed closely by market participants as global equities and currencies are potentially affected, especially if there is any deviation in expectations from policy makers. This year would be the first in-person symposium held since the Covid-19 pandemic. On the back of the Jackson Hole Symposium came many seismic shifts in the macroeconomic environment including the post-Covid recovery world, runaway inflation, rising recessionary fears, and the Fed performing four rate hikes up to 225bp within a year. The focus this year is on “Reassessing Constraints on the Economy and Policy”.

US Fed Chair Jerome Powell’s tone is hawkish, he stated that the Fed is bent on fulfilling their mandate to restore inflation down to 2%.

What can we expect moving ahead?

  • Stronger US Dollar
    With clear signals that further tightening will occur, the greenback will continue its reign.
  • Further divergence for JPY
    Despite the alignment across many central banks in the attempt to reign in inflation, Japan continues to remain as an outlier as Governor Kuroda maintains the BOJ stance to continue monetary easing and projects for inflation to approach the 2-3% band by end of the year.
  • Eurozone at risk
    Even with a recession looming ahead, ECB will stay the course and is expected to maintain elevated rates for a period. When the situation becomes untenable for investors, funds will flow out of the equity and currency markets in the Eurozone, accelerating the devaluation of the Euro.

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An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

 

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