A much better than forecast look at October US jobs data has strengthened the chances for a December Federal Reserve interest rate hike.
We think that a September US rate hike is off the table because of a lack of definitive forward progression in the US jobs sector. The unending Greek saga combined with a rising Dollar has created enough headwinds to keep the Fed on the sidelines until later in the year.
Macroeconomic conditions are improving, and the Fed Chairman feels confident enough to weigh in with her own “irrational exuberance” moment with respect to equity valuations.
With a number of longer-term moving averages signaling reversals in several currencies, fresh record highs in a number of global equity market measures and crude oil prices managing to hold $10 to $12 a barrel above their 2015 lows, global macroeconomic prospects are improving.
Economic skies continue to brighten as some of the most troubled areas of the world (the Euro zone and Japan) are beginning to show some improvement and the only major nations that appear to be degrading are Brazil and Russia.
An impressive January rally in gold, a shift from a spec and fund net short position to a net long in US Treasury Bonds and a dramatic downside extension in the Canadian Dollar on its monthly charts suggests that global economic sentiment is factoring in a fall back towards recession.
While the US economy is improving, the improvement probably isn’t definitive enough to satisfy US equities, which have recently carved out fresh new all-time highs.