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2 Apr 2015
Soft US data shifts June rate hike expectations – Danske
FXStreet (Barcelona) - Chief Analyst at Danske Bank, Kasper Kirkegaard, argues that the soft ADP numbers reflect the weaker picture for the US economy, and put downside risks to the NFP release, which has also affected the rate hike expectations in the market.
Key Quotes
“ADP employment fell to 189,000, which, even when assuming a small gain in government jobs, points to downside risk on tomorrow’s non-farm payrolls report.”
“ADP numbers tend to be more stable than non-farm payrolls, and the recent decline also fits better with a picture of weak US GDP growth in Q1 (currently tracking 1- 1.5%). It is not unusual that periods of non-farm numbers overshooting ADP numbers are followed by an undershoot afterwards – again pointing to downside risk tomorrow.”
“The US ISM index fell more than expected to 51.5 with both new orders and employment lower. The US Markit PMI manufacturing index on the other hand was revised up to 55.7 – indicating that Q2 is shaping up better than Q1. The market tends to focus on the ISM, however, which is a little strange given that the PMI in recent years has proven a more stable and reliable indicator.”
“The market is highly driven by US economic data at the moment given that this will determine whether the Fed will hike rates this year.”
“Following yesterday’s weaker data, the market is pricing a higher probability that the first hike will be postponed. The futures market is pricing less than a 20% probability of a June hike and only about a 70% probability of a hike by September.”
Key Quotes
“ADP employment fell to 189,000, which, even when assuming a small gain in government jobs, points to downside risk on tomorrow’s non-farm payrolls report.”
“ADP numbers tend to be more stable than non-farm payrolls, and the recent decline also fits better with a picture of weak US GDP growth in Q1 (currently tracking 1- 1.5%). It is not unusual that periods of non-farm numbers overshooting ADP numbers are followed by an undershoot afterwards – again pointing to downside risk tomorrow.”
“The US ISM index fell more than expected to 51.5 with both new orders and employment lower. The US Markit PMI manufacturing index on the other hand was revised up to 55.7 – indicating that Q2 is shaping up better than Q1. The market tends to focus on the ISM, however, which is a little strange given that the PMI in recent years has proven a more stable and reliable indicator.”
“The market is highly driven by US economic data at the moment given that this will determine whether the Fed will hike rates this year.”
“Following yesterday’s weaker data, the market is pricing a higher probability that the first hike will be postponed. The futures market is pricing less than a 20% probability of a June hike and only about a 70% probability of a hike by September.”