Europe lower but not Greece, US equities lower despite better jobs report, US dollar takes a breather, ASX futures down 40 points

As at Friday, US unemployment is at 5.6%, 0.1% better than expected and a far cry from the ~10% post GFC highs. However, month-on-month wage growth dropped 0.2% and year-on-year wage growth came in at 1.7% versus an expected 2.2%. This would be a much greater issue if there were higher inflation eroding the small increase in value of those earnings; nonetheless, inflation in the US still exists and for the majority of this year (bar the latest read) it has been 1.7% or higher on an annual basis, which wipes out the value of the +1.7% wage growth figure for employees and could be enough to warrant a more thorough look beyond the headline unemployment rate when it comes to the US Federal Reserve's written statement later this month.

One thing is for sure, irrespective of what the Fed does, the US is simply not ready for higher inflation with wage growth at that level. One of the backbones of capitalism, inflation helps grease the wheels of an economy by eroding the value of cash each year, forcing savers to invest (or face a leaking store of value) and urging employers to extend wage rises to employees to help them stay ahead of the rising cost of living. In the investment game one must be aware of these realities and in taking this into account--I'm of the belief that US interest rates will rise less/later than what the market expects in 2015--one must ask themselves whether the US Federal Reserve is better equipped to help wage growth by leaving rates lower for longer, or better equipped to help combat inflation by raising rates sooner than expected. I certainly believe that if all these years of zero interest rate policy can't create a trend of rising inflation, then they'll have a much better chance of stimulating wage growth by keeping interest rates as low as possible. So I remain of the belief that the US should not threaten its green shoots economic recovery with an unwanted rate rise, and I think the strength of the US dollar might have gotten a little hot for now due to speculation of when that rise might happen. I see that bets of retained zero interest rate policy in September 2015 actually increased according to the Fed Funds futures on Friday.

It will be important to read the 28 January Fed statement to see what the Fed's take on this is. Low wage growth will either be an excuse to slow down any big talk of raising rates, or it will be overlooked and we'll be told it's business as usual. Either way it'll be an important announcement and until then we probably have a window of subdued US dollar volatility before things heat up on that day.

With regard to other factors facing markets, traders in January face the same decision that they have for the last few weeks - go to cash and risk being out of the market when the oil price turns and/or the European Central Bank (ECB) fires up its asset purchase program, or remain invested and be exposed to a bit of panic over oil price volatility and/or disappointment at the lack of ECB action.

But I will emphasise once again, Australia remains in a good spot as far as GDP growth and debt is concerned, with the added kick of a potential strengthening of Chinese data, which is looking more positive of late. We have a lot less foreign interest in our stock market (and speculative froth) at the outset of 2015 than we did at this time 2014, which means a lot less potential savaging of the ASX and the AUDUSD after what will surely be a nasty May 2015 Federal Budget. The US acts as a nice buffer for Australian investors from European event risks, thus Rivkin was very confident in publishing its January 2015 Blue Chip Portfolio a couple of weeks ago.

A quick weekly chart below of the S&P500 (black) and the ASX/S&P 200 (orange) to get some perspective of where we're starting the year.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: Australian home loan and investment lending data out at 11:30am, Sydney time, in an otherwise quiet session for data.

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