Be nimble. Be quick.

That’s the attitude traders are taking in U.S. equities, as the market oscillates on changing expectations as to whether zero, one or two Federal Reserve interest rate hikes are in the cards for the rest of the year.

The most recent market move was to the downside, as hawkish comments from Fed speakers pushed the probability for a September hike to as high as 30%. Earlier in the week, the implied probability according to Fed funds futures was as low as 10%.

U.S. markets fell about 2.5% on Friday, following what seemed like a long, late-summer malaise of little day-to-day volatility. As the path of interest rates remain the key driver of trading, many of this week’s economic data are expected to help guide the market ahead of the September FOMC meeting and official release from policymakers.

“The debate is whether or not the economy is on firm footing and able to withstand higher rates or if we have become dependent on central bank stimulus,” said Larry Peruzzi, managing director of international trading at the Mischler Financial Group. “Right now it is not so clear but this week’s data should help clarify the picture a bit. Keep in the next FOMC meeting is on September 21. Until then the order of the day is listen to the Fed speakers, watch the inflation indicators and be nimble.”

Volume on U.S. equity exchanges averaged 6.44 billion shares per day for the holiday-shortened week ended September 9, according to Bats Global Markets data. That’s up from 6.12 billion the previous week.

Another trader noted that last week’s lackluster trading activity, despite some optimism and renewed drive to test record highs after the weaker-than-expected August jobs report last Friday drove the notion that the Fed would remain quiet until it saw more aggressive economic growth or data.

“Volatility, which drives trading, really didn’t move much last week,” the trader said. The CBOE Volatility Index, a measure used to gauge volaitility, hovered around 12 – a two-year low.

“No one wants to trade here,” he added.

Mischler’s Peruzzi agreed. “One step forward and two steps back,” he said.

Also of note last week was the fact the most stock indexes headed lower as global central banks began to show signs that they are nearing the end of accommodating monetary policy. The European Central Bank last Thursday downplayed the need for more stimulus, sending 30-year German bund yields to the highest since June. Globally central banks in Peru, Korea, Poland, Sweden, Malaysia, Canada, Australia and the ECB all left rates unchanged.

Peruzzi added some market uncertainty was added last week by Boston Fed President Rosengren who warned that waiting too long to raise interest rates threatens to overheat the U.S. economy and could risk financial stability.

“Looking ahead, Fed Governor Lael Brainard is speaking Monday (Sept. 12), which could help to send the US 10-year yields to the highest level since June, so we’ll be watching him,” Peruzzi said. “Heavy economic data on the back end of this week with August retail sales, Industrial production and Producer price index on Thursday followed by August consumer price index and University of Michigan sentiment reading on Friday will have us watching.”

This Week’s U.S. Economic Indicators of Interest:

Monday	Fed Lael Brainard Speaks
Tuesday	Redbook Retail Sales
Wednesday	Import/Export Prices
Thursday	Weekly Jobless Claims Producer Price Index Retail Sales Philadelphia Fed Business Survey Industrial Production/Capacity Utilization
Friday	Consumer Price Index Univ Michigan Consumer Sentiment Index

 

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