I hesitate to say anything that might be construed as even remotely predictive vis-à-vis markets given the time of year (i.e., late August and all that implies for liquidity), the time of month (i.e., month-end) and the proximity of Nvidia’s earnings release, which has the potential to dictate the direction of travel for the “broad” market all by itself.

All that aside — and whatever happens over the next 10 or so sessions — the 30,000-foot macro-policy view says the game well and truly changed late last week with Jerome Powell’s Jackson Hole address.

As discussed here, the dollar told the story. Powell’s speech marked a tectonic shift, or a “Tetonic” shift, if you like bad mountain jokes.

For the week, the greenback fell 1.7%, the largest decline of 2024 and the fifth in a row.

In a Monday note, Nomura’s Charlie McElligott described the implications of Powell’s suggestion that the Fed’s now working on a highly asymmetric reaction function. “Powell told us that the price stability side of the mandate has been (largely) achieved and thus no longer the primary policy input, as they’ve instead turned their full attention to ensuring a soft landing,” he wrote. “Simply stated, this means the Fed’s focus is now a one-sided convex easing bias into any further labor market weakness.”

As I put it Friday, “it’d be too much to suggest the FOMC’s operating on a de facto single mandate vis-à-vis the NFP headline / jobless rate the same way the Committee was myopically (but justifiably) focused on CPI in 2022, but Powell made it clear that policymakers are far more concerned about jobs than they are inflation at this juncture.”

Charlie’s point about the convex nature of the Fed’s cutting bias is crucial. Recall that Powell said the Fed is now averse to any additional softening in the jobs market and intends to use its tools to that effect. That means that in the presence of additional increases in the jobless rate — to say nothing of a negative headline NFP print — the strength of the Fed’s dovish conviction will increase in non-linear fashion.

Remember that Polymarket pricing I mentioned a week ago? If you missed it, I pointed readers on August 20 to betting market odds which I suggested were mis-priced. Specifically, a binary “yes” bet on a 50bps move at the September FOMC meeting was at ¢16. As of Monday just before noon ET, you would’ve paid ¢27 to make that same bet.

The bid-ask there is wide, but the point is just that when STIRs — a huge, reasonably efficient, liquid market — had September odds at roughly one in three, and betting markets — a small and thereby inefficient place — had them at ~half that, the latter were surely “wrong.”

Whether you can get into (let alone out of) markets like that in any kind of size is another matter entirely. Just to play from the US, you’d need a VPN, a crypto wallet and enough familiarity with blockchains to move USDC from Ethereum to Polygon without losing it (where “it” can be your money, your mind or both), but the point is just that in theory, you could’ve been up 69% on screen, and more than 50% if you just took the highest bid from the order book on Monday. All in the space of six days, but with the caveat that you might’ve had a hard time exiting a position worth more than a few tens of thousands, not enough to be worth it for a hedge fund.

Coming quickly back to McElligott, he wrote Monday that “implicitly, and for the first time since the inflation crisis began, Powell re-struck the Fed put.” The zeitgeist now “effectively looks like the resumption of the QE trade of old,” Charlie went on. “Long USTs, long risk assets, long gold versus short USD, as the Fed signs-off on carry and sets to re-build the world’s largest ‘short vol’ position in order to create a positive wealth effect… to help absorb further cooling in the labor market.”