Last week’s glowing employment data has everyone wondering if December will see a possible rate hike from the Federal Reserve. Nonfarm payrolls for October came in at 271,000, well above the consensus of 190,000. That was the highest level since December 2014, and it arrived with revisions for September (5,000 lower) and August (17,000 higher) showing a net gain of 12,000. Unemployment ticked down to 5.0%, giving us the lowest level since April 2008.

The question now in most observers’ minds is, is it enough? The fed has been telling us for double digit months that they will rely on the data heavily in regards to a rate hike. The Fed has also told us that inflation is also just as important as any jobs data. At the last FOMC on October 28th, they reminded us that inflation was still under their 2% target.  The recent strong jobs data seems supportive of a hike, but the lower than need rate of inflation takes away the 100% chance of action.

I have changed my tune a bit. For quite a while, I did not see the Fed taking action at the December meeting. I now think that they may use last week’s jobs data as the reason to take action. They have given the appearance that they want to make a move, but have been handcuffed by their own parameters. They now have something substantial they can point too as reason for getting away from a near zero interest rate environment.

The equity markets were shaken up a bit after the numbers hit last week. But they were able to weather the storm and stabilize. I think the index markets could trend lower, but I also think a pending rate hike has already been priced in. I think we are going to be a bit range bound as we head into December. I think the market is going to make another push up ahead of the next FOMC meeting on December 16th.

I like buying the December E-Mini S&P 500 Week 2 2120 call at 9 points ($450.00) or better. This option will expire on 12/11/15 prior to the FOMC. I am setting an initial target exit of 20 points. Risk is limited to the cost of entry plus fees and commissions.

For those interested Walsh Trading is holding our weekly grain webinar Friday November 13th, at 2:00 pm Central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.

 

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.