MPC Markets Morning Call — 31st August 2026: Warsh Rattles Markets With Hawkish Jackson Hole Debut

Wall Street’s main indices gave back gains on Friday after Fed Chair Kevin Warsh used his maiden Jackson Hole speech to make clear the central bank’s inflation fight is far from over. The S&P 500 lost 19.23 points, or 0.25%, to close at 7,711.76, the Nasdaq Composite fell 138.93 points (−0.52%) to 26,402.42, and the Dow Jones Industrial Average edged down 9.45 points (−0.02%) to 53,559.99. Despite the Friday pullback, all three benchmarks posted solid weekly gains: the S&P 500 rose 0.49%, the Nasdaq climbed 0.85%, and the Dow added 0.53%, supported by Nvidia’s blockbuster earnings earlier in the week.

Chip stocks bore the brunt of the sell-off. Nvidia slipped 4.6% on profit-taking after Thursday’s rally fuelled by its US$96.2 billion quarterly revenue (+106% year-on-year) and a roughly 70% growth guidance. Marvell Technology tumbled 10.3% on doubts over the timing of revenue from its AI chip agreement with Alphabet’s Google, despite lifting its 2027 forecast. PayPal fell 12.7% after Bloomberg reported that a consortium of Advent International and Stripe had abandoned their pursuit of the payments firm. On the bright side, Gap surged nearly 13% on the appointment of Michael Francis as Old Navy’s new CEO and a raised annual profit forecast, while Salesforce gained 1.6%, extending its post-earnings rally and supporting the Dow.

Breadth was firmly negative, with declining issues outnumbering advancers by a 1.77-to-1 ratio on the NYSE and 2.19-to-1 on the Nasdaq. Volume across U.S. exchanges came in at 15.68 billion shares, broadly in line with the 15.8 billion 20-day average. “Why the market is modestly reacting is he is very adamant that the 2% inflation target is going to remain,” said Mark Hackett, chief market strategist at Nationwide. “He is reiterating the hawkishness, but in a more consistent way than an incremental way.”

Global stock indices — weekly performance as at 29 August 2026.

Kevin Warsh’s first Jackson Hole speech as Fed Chair proved far more consequential than many had anticipated. He declared the 2% inflation target “firm and fixed,” said inflation at 3.7% has not shown signs of “meaningfully improved” underlying trends, and stated that the Fed would have “more work to do” without confidence that inflation is heading clearly back to target at “sufficient speed.” Two-year Treasury yields leapt 12 basis points to 4.35% — the largest Jackson Hole move since at least 2010 — and swap markets now show a greater than 50% probability of a quarter-point hike at the 16 September meeting.

The reaction rippled across asset classes. The dollar rallied, gold dropped roughly 3%, and 30-year yields were little changed — all signals that markets believe the Fed will act to cool inflation over time. “He came into this speech at Jackson Hole with the intention of rebuilding that credibility,” said Brian Quigley, head of U.S. Treasuries at Vanguard. “You look at the market reaction — I think that was very effective.” Economists at Barclays changed their call on Friday, now expecting a quarter-point hike in September followed by another increase in December, having previously forecast no increases this year.

The speech was a stark contrast to the confusion that followed the Fed’s July meeting, where Warsh’s decision to hold rates steady despite his hawkish rhetoric sent long-term bond yields sharply higher as traders questioned his credibility. “What Warsh is adding back is volatility,” said Byron Anderson, head of fixed income at Laffer Tengler Investments. “Markets are flip-flopping to every single meeting of his.” A Bloomberg strategist noted that an economy at full employment, with above-target inflation and a rising need for capital “arguably requires higher interest rates for the Fed to achieve its goal.”

U.S. forces struck two Iranian launchers on Larak Island in the Strait of Hormuz on Sunday after observing Islamic Revolutionary Guard Corps forces preparing to launch rockets fitted with sea mines into the waterway. Iran’s state media reported soldiers and civilians were killed and injured, while the IRGC vowed the attack would be met with “response and punishment.” The strike comes roughly six months into the broader U.S.–Iran conflict, with Tehran continuing to keep the Strait of Hormuz closed, maintaining pressure on global energy markets.

Iran’s Supreme Leader Mojtaba Khamenei — who has not appeared publicly since being injured in U.S.–Israeli airstrikes six months ago that killed his father and predecessor — issued a rare written message urging Gulf rulers to “identify your real enemy” and unite against what he called their adversaries. Iran’s Deputy Foreign Minister Kazem Gharibabadi said Tehran was “in no hurry” to reopen the strait. Separately, the UK Maritime Trade Operations reported a tanker was struck by an unknown projectile 12 nautical miles north of Khasab, Oman, while transiting the strait on Saturday, though no casualties were reported.

Diplomatic efforts remain stalled. Iraq has offered to act as a bridge between Tehran and Washington, but the Trump administration is stepping up economic pressure through “Operation Economic Outcast” sanctions. Meanwhile, Yemen’s National Resistance Forces intercepted a vessel in the Red Sea reportedly transporting Iranian military equipment — including attack drone components — to the Houthis. The Hormuz closure remains the conflict’s biggest risk to global oil supplies, underpinning a persistent risk premium in energy markets.

U.S. retail gasoline and diesel prices per gallon — Source: Reuters. The Iran war has pushed pump prices above US$4 per gallon from below US$3 in January.

The post-Warsh dollar rally sent gold tumbling roughly 3% to around US$4,455 per ounce, after the metal had been holding firm near all-time highs above US$4,500 on the back of haven demand and debasement fears. The sell-off came as traders unwound the “Debasement Trade” that had benefited both gold and Bitcoin, with the cryptocurrency sliding over 3% to the US$77,000–78,000 range. WTI crude eased into the weekend at around US$83 per barrel amid mixed Hormuz/Iran headlines and Trump’s Venezuela oil deal — framed as the “biggest oil deal in world history” — which would give the U.S. majority control of 65 billion+ barrels of reserves and aims to refill the Strategic Petroleum Reserve.

In the bond market, the two-year Treasury yield’s 12-basis-point jump to 4.35% was the standout move, while 10-year yields finished near 4.73%. The yield curve dynamics reflect a market now pricing at least one rate hike by year-end as virtually certain, with two hikes now seen as a strong possibility. Treasury Secretary Scott Bessent’s earlier intervention — announcing plans to buy back more bonds — fanned fears that Washington was looking to artificially cap longer-term rates without addressing the underlying inflation and budget deficit pressures.

The University of Michigan’s final consumer sentiment reading came in at 51.7, slightly above the 51.0 estimate, providing a small data bright spot in an otherwise hawkish session. The U.S.–Canada tariff escalation added another layer of uncertainty, with 50% U.S. tariffs on roughly US$20–27 billion of Canadian goods (dairy, autos, alcohol, steel and aluminium) taking effect after talks collapsed, and Canada announcing matching counter-tariffs from 8 September.

Commodities, energy & FX — daily performance as at 29 August 2026.

Australian futures are pointing to a weaker start to the week, with S&P/ASX 200 SPI futures down 36 points, or 0.39%, at 9,009. The local market faces headwinds from multiple directions: Warsh’s hawkish stance will be read through to the RBA’s own rate calculus, gold’s roughly 3% decline to US$4,455 per ounce threatens the local mining sector, and the broader risk-off tone in global tech stocks — particularly in chipmakers — will weigh on sentiment.

“He’s basically put a policy rate rise in the crosshairs,” said Stephen Miller, investment strategy consultant to GSFM. “They have got to beat the inflation target, and it’s not trivial, and he doesn’t think that policy is restrictive. It’s going to be very difficult for them not to raise rates when they meet in September.”

ASX market overview — 31 August 2026.