Jackson Hole - Underestimating one offs
As trading rooms thin out every summer, Macro Thoughts reminds how every year Volatility and risks in August are always underestimated, and while this may not be reflected in higher Options pricing, Skews and Ratios can become extreme. This August has been no exception and the month has already been eventful.
But rather than consider August as a one off, those attending Jackson Hole this week should be considering the overall changes since their last meeting.
Pinning their economic expectations on lower Unemployment, the Fed set out on its path of rate increases, with each event that didn’t fit within their scenario treated as a one off. But the change in the trend of the Dollar since April is not a one off, and has not been controlled by the Fed, as it was a marked change in policy from the Chinese authorities that generated the change, resulting in the currency moving by the equivalent of one rate increase.
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