- There wasn’t much hawkish tone in the Fed minute
- Fed only see the current escalation as a tactic to negotiate deals
- Tariffs on Chinese goods would kick off today
US futures are trading higher as the world awaits a retaliation action from China on the trade war. For now, traders are firmly focused on the US NFP and it would make or break the day for them. But let’s focus on the Fed minutes first before we talk about US NFP- the main event of the day.
The Fed minutes failed to produce the kind of colour that most dollar bulls wanted to see, simply put, there wasn’t too much of surprise. The most volatile move only takes place when the markets get something when it wasn’t expecting. Market participants were expecting that the Fed would show some sort of hawkishness in their minutes but there wasn’t much hawkish tone in the minutes. Having said this, the minutes did make one element clear that the Fed’s appetite in terms of inflation running too hot is limited and they are keeping a close eye on the economic picture of the country.
The trade war is certainly an issue for the monetary policy and the Fed would have to be prepared if the situation gets out of control. By looking at the Fed minutes, it becomes clear that the Fed only see the current escalation as a tactic to negotiate deals. For us, there was nothing in the minutes which jumped out which showed that the Fed is wary of the trade war.
This is why we think that the Fed may catch a surprise. $34 billion worth of tariffs on Chinese goods would kick off today and the Chinese government isn’t going to turn the other cheek for the US to slap again. They wnt be reticent about this. This would begin the trade war. Time for the tit-for-tat reaction is now. There is no victory when it comes to the trade war, it is only a fool’s paradise. Two biggest economies of the world have started a trade war, it is going to have consequences on the global growth.
But enough about the trade war and Fed minutes, the only event which matters the most today is the US NFP. Dollar bulls only hope is to see a strong reading today and this would employ fresh capital.
The ADP number has set a tone for a weaker number yesterday. The headline number- unemployment rate dropped to multi-year low during the last month. It printed the reading of 3.8% but we have not seen the wage number blasting any new boundaries. Thus, the focus would remain on wages. Are employers ready to increase them to employ more people? This is the major question for today.
Inflation has come a long way from its low and the rising oil price is only adding pressure for consumers. It is about time that we see the wage number showing some serious strength. Last month we have seen the reading of 2.7% and if today’s number prints anything bigger than 2.8%, that would seriously move the needle for the dollar index.
The S&P500 index is testing its 100 and 200-day moving averages. The price is also about to break out of its sideway channel which is a bullish signal. The relative strength index is confirming a bullish divergence and this supports the above argument.
