US Futures are trading higher as investors will be scrutinizing the US NFP data on every angle as the Fed rate hike decision very much reside on this mandate. Given that we have a weakness in the manufacturing sector and yesterday’s ISM manufacturing PMI data have rubber stamped that, the Fed officials are as confused as traders are. The economic data are just very murky because yes, we have the auto sales number painting a bullish picture for the US, but the manufacturing sector makes that very dull. Moreover, we have not seen any improvement in prices as well and investors are raising the question how this will impact the inflation part of the Fed mandate. Because, the Fed has two important mandates, firstly; it is the job market and the focus is more on the wage growth. Finally the stability of the prices- inflation. The only possibility of inflation improving is only through the wage growth, because the commodity prices are still not stable and as long as we do not see any steadiness, it will impact the inflation.
The ADP number released earlier this week, which is taken somewhat as a direction point for the US NFP, has confirmed that the Fed are not that confident in their approach and even last night, the Fed officials were very vague. Unless we see more cohesiveness in their approach, it is very difficult to make any opinion for investors what the Fed are going to do.
We do think the chances of the Fed, raising the interest rates in October are still very slim and more odds are towards the December meeting. As for the US NFP data, the more focus will be if we get a strong rebound for the month of September as compared to August. An upward revision for August number will make an impact on the overall sentiment. Most importantly, the average hourly earnings will be the main focus and the forecast is that we could see this number surge to 2.4%. As for the US NFP, the forecast is for 200K and the unemployment number is expected to remain unchanged at 5.1%.
A positive number on Friday could push the dollar higher as investors will wrench up their bullish bets and we could see some sell off for the precious metal- gold. The equity market could shift on either side, because on one hand there will be a good news for the US economy due to the strength in the labor market, but on the flip side, there will be more concerns about the rate hike tantrum, which could heave the volatility in the market.