U.S. traded higher Monday, while the dollar added to gains against its global peers and Treasury bond yields slipped lower, as markets looked to a key series of jobs data over the coming week following Friday's surprisingly hawkish Jackson Hole speech from Federal Reserve Chairman Jerome Powell.
Powell, delivering the keynote address to the central bank's annual symposium in the western Wyoming resort, suggested that further rate hikes will likely be required in order to keep inflation in check amid a resurgent U.S. economy that is expanding at a 5.8% clip, according to current Atlanta Fed projections.
"Two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal," Powell said. "Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy."
Although traders expect no change in rates from the Fed in September, the CME Group's FedWatch is now pricing in a near 50-50 chance of a quarter point Fed rate hike in November in a move that would take its benchmark lending rate to between 5.5% and 5.75%.
That's lifted the U.S. dollar to a near-three month high of 104.109 against its global peers in overnight trading, with benchmark 2-year Treasury note yields rose to 5.065% following a solid $45 billion auction of new paper late in the morning session.
Jobs and wages may prove crucial pieces to the Fed's inflation puzzle, particularly in the wake of a pay deal agreed between package delivery giant United Parcel Service (UPS) -) and its unionize workers and the threat of a strike by the United Autoworkers Union following a Friday vote by its 'Big Three' membership.
Economists are looking for a net gain of 186,000 new jobs over the month of August, with average hourly earnings rising 0.3% on the month and the headline unemployment rate holding at a five-decade low of 3.5%.
Prior to Friday's jobs data, payroll processing group ADP will publish its National Employment report at 8:15 am on Wednesday, with the Labor Department following-up with weekly jobless claims data at 8:30 am Eastern time on Thursday.
The Bureau of Labor Statistics will publish its job job openings and labor turnover survey, also called the JOLTS report, for the month of July at 10:00 am Eastern time Tuesday.
Overnight in Asia, a series of moves by authorities in Beijing, including slashing the stamp duty on retail trading and rules on new IPOS and share sales, aimed at stabilizing financial markets supported regional stocks in overnight trading, with the MSCI ex-Japan index rising 0.68% into the close.
On Wall Street, investors are bracing for a series of job market data points this week, including the July JOLTS report on Tuesday, ADP's National Employment Report on Wednesday, weekly jobless claims Thursday and Friday's non-farm payroll report at 8:30 am Eastern time.
Housing, consumer confidence and manufacturing activity data are also on tap as investors look for clues as to both the strength of the current U.S. growth surge and the underlying inflation pressures it might accelerate.
Markets will likely need the extra growth support heading into the month of September, in fact, as CFRA data suggests it has been the toughest for stocks on record, falling an average of 0.7% in every year since 1945.
Heading into the start of the trading day, the S&P 500, which is up 14.75% for the year but down nearly 4% over the month of August, was marked 12.5 points higher by mid-afternoon trading.
The Dow Jones Industrial Average, meanwhile, gained 120 points while those linked to the tech-focused Nasdaq was up 56 points.
"The stock market's pullback in August is a healthy realignment, as sentiment had previously been overly optimistic about Fed policy and earnings," said Rod von Lipsey, managing director, for UBS Private Wealth Management in Washington. "While markets may have seemed volatile throughout August, which is historically a volatile month for stocks, the Volatility Index or VIX, has been trading below its 2022 levels so far in August, suggesting that volatility is still much lower than it was during last year's bear market."
"Our base case is that most of the stock market's gains look to be in the books for the year and we expect muted returns for the remainder of the year," he added. "Because of this, bonds are our preferred asset class, since slower economic growth and higher-for-longer rates should be favorable for bond yields, which are currently at very attractive levels."
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