Not even NVIDIA could solve it: Were markets looking for a signal that wasn't at Jackson Hole?

NVIDIA, the flagship of the artificial intelligence revolution, took the stage with a balance sheet that once again exceeded expectations, data center revenues that more than doubled, and a strong growth forecast for the upcoming fiscal year. Under normal circumstances, this picture, which was expected to single-handedly carry global risk appetite and push stock markets to record highs, was not enough to break the cautious stance in the markets throughout the week. While supply constraints, memory costs, and question marks regarding the Chinese market remained, the real braking factor was not the internal dynamics of the technology sector; it was the Jackson Hole Symposium in the mountains of Wyoming, where all eyes were locked.

Throughout the day yesterday, markets were locked onto every word that would come out of the mouth of FED Chair Kevin Warsh, who took the podium at 17:00 Turkish time. However, the picture that became clear after the speech confirmed the fundamental question we have been asking for weeks: Were global financial markets actually chasing a signal that wasn't there?

15 Years of Illusion and the "Warsh" Reality

Jackson Hole is a platform upon which financial media and market participants place massive expectations every year. Yet, historical facts tell us a completely different story. Looking back at the last 15 years or so, the number of instances where truly game-changing messages for monetary policy emerged from this symposium has been extremely limited: Ben Bernanke's 2012 speech where he signaled the third round of quantitative easing (QE3), and that stern text in 2022 where Jerome Powell emphasized determination in the fight against inflation…

Except for these two exceptions, Jackson Hole has never been an authority that distributes clear interest rate instructions regarding the FED's next FOMC meeting. Indeed, the presentation Kevin Warsh gave today did not break this rule.

Preferring to reduce forward guidance and avoid making prior commitments to the market since taking office, Warsh, as expected, did not draw a binding interest rate path directly for September. With critical inflation and employment data to be traversed before the September 16 FOMC meeting, it is not surprising that Warsh did not adopt a tone that would narrow the committee's room for maneuver. Before the Warsh speech, the probability of interest rates being kept constant in September was priced at around 65% in the markets. This balance is expected to be retested after the speech. The fact that the recently released PCE data points to stickiness in inflation justifies the FED's cautious stance.

The Signal Came Not from Rates, but from the "Architecture"

Warsh preferred to devote this historic podium to the FED's long-term policy architecture rather than responding to interest rate speculations. Touching on structural topics such as balance sheet size, more effective use of economic projections, and simplification of communication strategy, Warsh gave the message of how the existing institutional framework could be improved rather than announcing a radical change. In other words, while the market was looking for the codes of the September interest rate decision, Warsh was content to present an institutional vision.

Tailwinds and Domestic Closing Balances

When we look at the picture on a global scale, oil prices, which fell by nearly 5% during the week, and US bond yields moving away from last week's peaks continue to offer a suitable ground for risk appetite. The expectation that diplomatic contacts on the Iran, Oman, and Qatar line could ease energy flow in the Strait of Hormuz is positive in terms of energy costs and inflationary pressure. However, the fact that a concrete and permanent agreement on Hormuz has not yet been reached has not completely lifted the shadow over the optimism.

In domestic markets, according to the July foreign trade data released today, the deficit was realized at a level close to expectations—approximately 7.4 billion dollars—while exports were recorded at around 25.6 billion dollars and imports at 33 billion dollars. This picture shows once again that import and energy items maintain their importance in terms of the current account deficit outlook.

On the technical side, the pressure above the 14,650-point resistance in the BIST-100 index continued throughout the day. The index completed the week below this critical level, struggling to gain momentum. If closes above 14,650 occur, room for movement towards the 14,880 level could open up. However, global dollar strengthening after Warsh and the pressure of outflows from emerging markets could force the index downward; in this case, the 14,500 and 14,390 supports could come back onto the agenda.

In summary; that wait-and-see mode, which even NVIDIA's massive balance sheet could not break, consisted solely of markets expecting an unrealistic "interest rate good news" from Jackson Hole. With the completion of the speech, the fog has lifted; the market is now left alone with data-driven realities and the FED's new communication strategy, leaving headline interest rate speculations aside.