Interest Rate Futures Betting Against June Rate Hike

Daily Analysis - 09/05/2016

Interest Rate Futures Show Reduced Odds of a June Rate Hike


After a soft jobs report for April and with the previous month's job gains adjusted down by 19,000, interest rate futures measuring the probability of a rate hike in June fell to 6.0% on Friday from 13% previously with the end of year rate hike in December also falling to 48% from 57% previously.

Chinese Exports Continue to Shrink

Trade balance data from China for the month of April saw exports falling 1.80% on the month, down from March's 11.50% increase. Analysts were expecting to see no change for the month being reported. Imports fell 10.90%, more than the 4.0% decline analysts were expecting and that extended the decline of 7.60% from March. The US denominated trade balance posted a surplus of $45.6 billion as a result, data from the customs department showed on Sunday. The trade balance data suggested a soft month for Chinese exports. Between January and April, exports from China were down 7.60% on a year over year basis. Oil imports were soft, rising only 32.58 million tonnes compared to 32.61 million in March. Aluminum and copper imports were soft as well, rising 400k and 450k respectively, down from 420k and 570k tonnes in March


Reserve Bank of Australia Cuts Inflation Forecasts

On Friday, the Reserve Bank of Australia released its quarterly Statement on Monetary Policy where it cut its inflation forecasts for 2016. The RBA believes that the deflationary pressures in the global economy are likely to affect consumer prices in Australia. The central bank lowered its inflation forecasts for Australia and expects inflation to be between 1 and 2 percent in 2016 and rising to 1.50%-2.50% in 2018. This was a stark downward revision compared to the 2-3 percent forecasts in its previous quarterly report three months ago. The lower inflation forecasts hit the sentiment in the Australian dollar which fell sharply on the release as investors expect the RBA to shift from a neutral to a dovish stance on rates. Meanwhile, the RBA has announced the appointment of a new governor, Dr. Philip Lowe, who will replace the presiding Glenn Stevens on September 18th.


US Nonfarm Payrolls Show Drop in Job Growth in April

US job growth in April fell short of expectations, rising only 160k according to the US Labor Department's report on Friday. Analysts were expecting to see a 200k jobs print for the month. Previous monthly data was also revised down to 233k and 208k in February and March, which in total pointed to a net downward revision of 19k jobs. Jobs in the mining sector continued to be a drag but were offset by job gains in business services, health care and financial activities. The US unemployment rate remained unchanged at 5.0% for the second month in a row.


Canada Shed Jobs in April

Data from Statistics Canada on Friday showed that employment fell by 2,100 positions in April, compared with median forecasts of a 1k-2k job increase. The declines in the monthly jobs came following a robust increase of over 40k in March. However, despite the job losses, Canada's unemployment rate was unchanged at 7.10% for the month. Analysts were expecting the unemployment rate to increase to 7.20%.


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