This weekend’s Jackson Hole speeches, and subsequent commentary, outlined the guideposts for a Fed rate hike, potentially in September. The explosion in crude, if it holds for two more weeks, will pressure the Fed to hike. The Fed clearly highlighted the USD, employment, and oil, as drivers of inflation. The fast 10-point in rally in oil, from sub-$40, to near-$50, unwinds 2-months worth of decline. With the Fed keying off energy price declines as “temporary”, the failure to hike, in the face of the above mentioned factors swinging more inflationary, risks a credibility issue. With stronger crude (again if it holds), the August Employment Report looms very large, and will likely be the final determinant of a September rate-hike, aside from a potential market crash.
On the topic of market crashes… funny how the China PMI was exactly in-line with consensus expectations (49.7), yet stocks around the world tanked overnight. This was the weakest reading for the China PMI since August 2012. China PMI chart since the financial crisis (note the downward trend):
China stocks were supposed to hold up until a parade, on September 3rd, commemorating WWII. CJF is particularly concerned with what price action will look like after the parade.