It's equity markets, rather than US economic data, which will now have a stronger hand in determining whether officials at the US Federal Reserve raise the central bank's key interest rate next month.
That's the interesting take from economists at Royal Bank of Canada who are sticking to their forecast that Janet Yellen, the chair of the Fed, and her colleagues will raise the Fed funds rate at their September 16-17 meeting.
With the US economy already in good enough shape to withstand a rise in short-term interest rates, the economists argue it's how US equity markets behave that will now determine whether they move next month.
From a note RBC put out on Monday afternoon:
Monetary policy decisions are not a one variable equation based only on economic data. Financial conditions are also included.
Think of it this way, if the first Friday of September rolls around and job growth clocks in at a frothy +300k, but the equity market remains volatile over that period and in a downward trend, the Fed will not raise rates.
So perhaps it is obvious but at this point making a call on a September hike is completely dependent on where one sees global equity markets (with an emphasis on the US) heading over the course of the next few weeks.
Interest rate futures suggest that traders and investors believe it's unlikely the Fed will now raise rates in September.