There is only one place to start this week, and that’s the jobs report. Given all the attention on last week’s stellar non-farm payroll report, however, many have overlooked the average earnings reading, despite it being far more important at this point in time.
It now looks likely that Janet Yellen will increase interest rates in December. I have to admit defeat: from the start, I believed that there was no need to raise rates early, and with so much attention on China, emerging markets and commodities, I was convinced we were looking at spring 2016 for the first hike.
However, a change in tack by the Fed and some stronger language mean that December is now odds on, and this puts the average earnings number to the top of the list on the calendar. The US must show sustained wage growth if the Fed is to raise rates and this month’s increase of 2.5 per cent year-on-year, followed by a strong number next month, could see the hawks take over.
One factor that has been somewhat ignored by a lot of investors is the strength of the dollar. With rates now expected to rise next month, the dollar is free to rally aggressively against some of its major counterparts. Euro-dollar is a clear example of this as the central banks are at completely opposite ends of the recovery spectrum.
A worrying factor will be if we get both equities and the US dollar rallying strongly towards the end of the year. Something will have to give, and if the Fed starts to feel that stock markets are at risk of collapse, we could well see a stumble in the decision. So before we fix our bayonets and fly over the top, let’s take a minute, and just brace ourselves for a correction that could see a bit of normality restored.
ETORO INVESTMENT ANALYST
Gold prices have been a key driver of many market moves this year, and have almost experienced a yoyo effect over the past 12 months. Investors have failed to focus on whether the big story for gold is coming rate hikes or the commodity slowdown, and have instead taken the negativity from both sides. Calls remain for $1,000 gold before the end of 2016, so with this in mind I thought it worth a look at how eToro clients are positioned. It’s a popular instrument for starters, with over 15,000 active investors following gold movements, but the majority still do not buy into the $1,000 calls, with 87 per cent of clients buyers of the precious metal. So it seems that the bulls are either looking for short-term buying to the upper resistance levels, or are long-term buyers reluctant to let go.