Closer to another rate hike

Federal Reserve Chair Janet Yellen speaking from Jackson Hole indicated that the U.S. central bank was nearing the point of raising the short-term Fed Funds rate once again, possibly at their September meeting. She did reiterate that the decision would remain “data dependent”. Pointing to the strong performance in the labor market, as well as the outlook for inflation and economic activity she seemed to be setting the table for investors to be ready. Interest sensitive issues responded accordingly with utilities and dividend paying issues falling while banks and financial companies who would benefit from higher interest rates rallying.

If Janet wants data, this week Janet will get data! The first Friday of each month the Department of Labor releases their Employment numbers. Non-farm payrolls are expected to show an increase of 180,000 jobs created in August lower than the 255,000 number in July, but well over the 150,000 level which is considered a healthy and growing jobs market. The actual unemployment percent which is also released is of secondary importance. It is expected to fall 0.1% to 4.8 percent and can be referred to as “full employment” but the unemployment numbers are a lagging indicator, skewed lower given that in order to be counted as unemployed you have to be actively seeking employment. If economic conditions actually improve it would be typical that the unemployment percent actually ticks higher as more folks actually begin to seek employment.

The Federal Open Market Committee 2 day meeting will conclude on September 21st so Janet will have more than just employment numbers to consider but traders will be ultra-sensitive to what this Friday’s numbers indicate.

Last week both actual and implied volatility ticked higher in the markets.  Friday we had a roller coaster ride in the DJIA from up over a hundred to down over 100 points as traders digested comments coming from the Jackson Hole conference.

Dow Jones Industrial Average Index

Source: OptionsHouse

Also the VIX index (13.65%) ticked slightly higher last week trading above 14% Friday, indicating that investors were once again increasing their bids for option premiums.

CBOE Market Volatility Index

Source: OptionsHouse

Also the VIX index (13.65%) ticked slightly higher last week trading above 14% Friday, indicating that investors were once again increasing their bids for option premiums.

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