Today is the most important day for financial markets and traders have been waiting for this moment not only trough out this week but actually since the FOMC meeting last week. Just to recap, during the FOMC meeting, the emphasis was more on the job’s market and there wasn’t much attention paid towards the inflation part of the equation. Although, we all know that oil has made another 5 year low this week and has been under pressure since its mini rally. Therefore, we do think that going forward the Fed will pick up the inflation element once again and more importance will be given to it.
Nonetheless, the US GDP reading released last Friday and the comments from the FOMC committee members this week, have once again anchored the expectations that a rate hike is very likely during September. Like we said in the past, what really matters for now is the first rate hike by the U.S. and after that the market volatility could very much get used to the idea of borrowing rates climbing towards their norm.
The two upcoming job reports will attract a lot attention among investors and these are August and September. As September being the potential month for a rate hike and if the Fed does increase the rate in September, we could see the Bank of England finding their spine getting more stiff and thus enabling them to follow the same path.
As long as the headline number for the U.S. NFP remain above the mark of 215K for the two months and the unemployment rate also maintain or hold steady at 5.3%, we think that September remains a strong candidate. However, equally important are the underlying elements of this US NFP report, which is the average hourly earnings. If we do see an uptick in this number the odds will become more stronger for a rate lift off during September.
The forecast for the U.S. NFP is for 225K and for the unemployment rate it is 5.3%. The average hourly earnings number could increase by 0.2% after falling last month from 2.3% to 2%.