That’s right. The employment report made a lot of noise, however, all is not over. In fact, employment data are only flowers. Berries – report on inflation on Friday.
The dollar is stable in early hours in Europe on Monday, after last week’s positive employment data. According to the Ministry of Labor, 209,000 jobs were created in July, which is higher than the initial forecast of 183,000.
And that’s not all. The unemployment rate fell from the previous 4.4%, signaling investors (and the Federal Reserve) that the country is on the right track to raise rates in the coming months.
As we have repeatedly said in these articles, labor market conditions and inflation are key indicators for the Open Market Committee to revise the monetary normalization policy.
The Federal Reserve has raised interest rates twice this year, leaving room for a third time later in 2017. This time, short-term rates are between 1.00% and 1.25%.
We see an increase of 25 basis points in December. According to the Federal Reserve, obtained from the CME Group’s FedWatch tool, traders estimate the probability of this event at 42.5%.
US stock indexes ended Friday on a positive note, while investors were inspired by optimism from labor market data, which are increasingly approaching what can be called full-time.
Another important point in the report was an increase in average hourly earnings of 0.2%, this was the largest increase since October 2016. Higher earnings could mean more money in the pockets of Americans and, thus, higher consumption.
Now, market participants are waiting for a key report on inflation on Friday. CPI for July will be published at 12:30 GMT, with an expectation of growth of 0.2% compared with the previous month.
If the inflation report supports the third rate increase this year, we offer to monitor the US dollar, the safe haven – gold and large stock indexes. In this scenario, the dollar will rise, and the yellow metal and indices are likely to fall.