Warsh Speech Looms as Market Awaits Clarity on Fed Reaction Function

The market is bracing for Fed Chair Warsh's speech at Jackson Hole, where he will have to provide clarity on the central bank's reaction function. The uncertainty surrounding this topic has been unusually high, with July's FOMC leaving it undescribed and September hike pricing still a minority view. Treasury yields have also been a point of contention, with some interpreting them as a sign that the authorities are leaning against higher yields or merely smoothing them.

Meanwhile, Nvidia has paused its AI Compute Partnership due to antitrust concerns. The company's financing program guarantees credit for smaller AI cloud providers buying its GPUs while taking roughly 50% of any revenue generated above a negotiated hourly threshold. Internal staff flagged the structure's exposure and Nvidia's attempts to dictate customer behavior, prompting the freeze last week.

European data has been mixed, with prices firmer than activity in some countries but weaker in others. France saw its Q2 growth revised down to a standstill from a modest expansion, while Spain's inflation beat marginally. Sovereign supply has been doing the tightening that central banks are still debating, with Japan lifting its annual cap on newly issued JGBs and Germany finding extra room through 2035.