BREAKING IT DOWN - ADP was solid, GDP was great and the Fed moved further away from current policy. Overall, the market reacted accordingly, although there was some risk buying off of the lows following a Fed statement that was perceived to be less hawkish than the doves were worried about. Still, there is no denying today's data only inched us closer to higher rates. Perhaps the most important takeaway for hawks was the noted mitigated concern over low inflation, something the Fed had been very concerned about up until this latest decision (moving away from "well anchored" language). It looks like we will now see the first rate hike in H1 2015, and I suspect the market will start to price this in more seriously than it has until this point. This should translate into more downside pressure in risk currencies and a liquidation in US equities. I will say that we have already seen a good deal of buying of US Dollars over the past several days, so there is risk for a short term USD sell-off before we see a resumption of Dollar gains.
WAGE GROWTH - And so now the focus shifts to Friday's monthly jobs report out of the US. But it won't be the unemployment rate or the NFP print that analysts will be prioritizing this time round. The key stat to watch will be wage growth and whether there has been an uptick on this front. The Fed has made it clear there is still a good deal of slack in the labor market and an improvement in wage growth would be a welcome development to help confirm the recovery in other areas of the labor market. Fed guidance hasn't been the greatest over the past couple of years, and we have clearly moved away from prioritizing inflation and the unemployment rate as the catalysts for higher rates. The Fed is now watching this indicator closely and this is where the focus will be (until it improves and the Fed picks another sluggish indicator to buy more time). But overall, the economy has been moving in a direction that would suggest rates moving higher sooner than later, while technicals confirm the likelihood for more medium-term USD strength, weakness in currencies, and a correction in US equities. I already covered the divergence between USD/JPY and US equities early Wednesday so feel free to check that out here. I break it down.