The soon to arrive July employment report has a lot riding on it. The job report is one of the last pieces of data the Fed has left to consider before its rates meeting begins in September. This job report and the next one for August will be some of the primary pieces of consideration, along with retail sales and consumer price inflation data. June’s retail sales report showed sales were down, so an improved July job report would make the decision a difficult one.
Jen Nordvig, head of G10 currency strategy at Nomura said, “I think we’ve moved into this environment where we’re super, super data dependent. The markets can’t figure out whether the Fed wants to go in September. We have to figure it out soon because we’re running out of data. There’s payrolls, and then retail sales, and I think after those two, the market will come to a conclusion one way or the other.”
Economists project 225,000 nonfarm payrolls, an unchanged unemployment rate of 5.3% and an increase in average hourly wages of 0.2 percent, according to Thomson Reuters. More data is expected this week, including auto sales, personal income and spending, and ISM manufacturing data. There are dozens of earnings from sectors like health care, insurance, media, and consumer staples. Shifting rate hike expectations is deeply affecting the stock market. During the week of July 27th, stocks were higher, but still moderately subdued when compared to the action in currencies, fixed income and commodities markets. When Friday, July 31st’s second-quarter employment cost index was surprisingly weak, the dollar index plunged more than a percent point before recovering. However, short-end rates were lower, reversing the gains made by the two-year Treasury yields on hotter inflation print the day before. The two-year was yielding 0.66 percent late Friday, and had been as high as 0.75.
If there’s a moderate surprise in the job report, the dollar move would likely change the current changes are a reflection about whether the Fed will be able to go in September, or if they will go later. The odds of a September rate hike fell with the last weak wage report, which displayed the smallest gains since 1982. Earlier in the week, the Fed had assured markets it still wanted to boost rates this year, but was watching the data closely to make its decision. At the very least, the Fed is reinforcing the idea that they are data dependent.
If you’re unsure about how the Fed’s decision could impact your wealth, contact an advisor at Apex Financial Advisors today to discuss your financial planning and investments.