ES in China rose during Friday’s Asian session as the resilience of the US economy once again impressed investors. US economic growth for the second quarter was revised up to an annualised 3.7 per cent, much more than the expected 2.3 per cent. The GDP print showed that, despite continued weakness out of China and negativity about the state of emerging markets, the US is still powering ahead and is still on track for a shift in monetary policy.
With the major indices in the US soaring for a second day, traders will be looking to get back into these markets and seamlessly carry on with the bull market that has been in place for so many years.
However, there has to be a degree of caution in trading the major equity markets. With outside risk from China and the threat of a rate hike still happening in September, there is the chance of more big swings. In the next couple of weeks, volume will pick up as the summer draws to an end. So with the higher volume, the swings may well be a lot less aggressive. But with more weight behind them, markets will be more likely to take notice of them.
Next week will be telling for financial markets, as we will also get the all-important September payroll number. With the GDP reading so strong and it being likely that we’ll see a strong number from the jobs report, the Fed will have the ammunition it needs to be able to raise rates if it wants to at the September meeting. Not a lot will depend on what happens with China and the reaction in equity markets as we run up to the announcement.
James Hughes is chief market analyst at eToro.
The Jackson Hole Symposium has given us no clearer guide as to whether we will see a rate hike by the end of the year, but the PCE data out of the US did. It pointed to the fact that the oil price wasn’t the only factor driving down prices and the threat of ultra-low inflation or deflation could be one of the things that spooks the Fed when it comes to monetary policy.
At Jackson Hole, Fed officials also said that they were still looking at gradual rate increases and stated that last week’s big market moves had not changed the Fed’s mind on rates. They were still data dependent. If this is the case, then the PCE reading will have given us one issue, but it also means that all eyes will be firmly focused on the upcoming non-farm payrolls for further evidence in either direction.