Strong Employment Data Reignites Rate Hike Expectations Amid Inflation Concerns

The U.S. and Canadian markets are closed for Labor Day, but the impact of strong employment data is still being felt. The non-farm payrolls added 162,000 jobs in August, exceeding market expectations and pushing the probability of a Fed rate hike in September from 49% to 58%. This has put pressure on tech giants, with all three major U.S. stock indices closing lower last Friday.

As markets begin to repricing 'rate hikes,' traders are closely monitoring inflation trends, particularly rising oil prices and their potential impact on the broader economy. The Federal Reserve Governor Waller has hinted that if core CPI month-over-month does not exceed 0.2%, he would lean against raising rates; if it reaches above 0.3%, he would consider a rate hike.

Bank of America forecasts core CPI at 0.22% month-over-month, suggesting sufficient data to justify a September rate hike, while Citigroup expects only 0.184%, implying most officials may keep rates unchanged. The situation in the Middle East has escalated again, with the U.S. striking three Iranian tankers and Iran threatening to establish a 'no-go zone' near the Strait of Hormuz.