Markets stayed pessimistic last week as traders decided to stay cautious during a four-day Chinese holiday and ahead of the U.S. Labor Day market holiday. This week is packed with more economic data out of China that may shed more light on the current situation. China's central bank governor hinted at possible stimulus measures designed to help boost economic activity, suggesting that Chinese leaders are ready to get aggressive about their economic woes.
On the domestic side, the August jobs report showed that the economy added 173,000 new jobs last month, pushing the unemployment rate to 5.1%. While the job creation number is lower than expected, the silver lining is that wage growth is increasing. After posting tepid gains earlier this year, wages increased by 2.4% in August, suggesting that employers are nudging paychecks higher to attract workers. If the trend persists, it could indicate that the labor market recovery is on track.
The big question everyone is asking is: Will the Fed make a move on interest rates when markets are so uncertain? Even with all the recent volatility, a recent survey of economists shows that the vast majority think the Fed will hike rates at next week's meeting. While the news media has made a huge deal out of this potential 0.25% increase in rates the reality is it does not matter whether or not the Fed raises rates. They almost need to in order to have some ammunition in the event there is another downturn in the economy. Otherwise QE will become the rule not the exception.
Right now, markets are in turmoil because of uncertainty. Investors hate uncertainty and tend to react by selling first and asking questions later. Hopefully, once the dust around China settles, investors will see that the U.S. economy has legs. However, it's likely that markets could be in for more turbulence. As always, we'll be keeping a very close watch on market movements.
Monday: U.S. Markets Closed for Labor Day Holiday
Thursday: Jobless Claims, Import and Export Prices, EIA Petroleum Status Report
Friday: PPI-FD, Consumer Sentiment, Treasury Budget