Markets Take June Rate Hike Off the Table

Daily Analysis - 06/06/2016

Markets Take June Rate Hike Off the Table

Friday’s terrible US jobs report is more likely to put a dent into the Fed’s plans of hiking rates when it meets on June 14 – 15. At the same time, expectations for a rate hike in July continue to build up. Fed Chair Janet Yellen is due to speak later this evening followed by another Fed voting member, Rosengren. In light of the weak jobs data, both the speeches are likely to garner a lot of attention.

China Caixin Services PMI Weakens in May

Private sector activity in China expanded at a slower pace in May, with the services sector growth slowing from April's 51.8 to 51.2. This marked the weakest pace of expansion in three months. New businesses rose only marginally in May with new orders in the services sector climbing at a weaker than expected pace. New orders for goods producers fell for the first time in three months as well. Employment in the services sector however showed an expansion while the manufacturing sector cut jobs steeply.

Bank of France Cuts French Inflation Outlook and GDP Forecasts

The Bank of France on Friday trimmed its outlook on inflation and GDP for 2017. French GDP in 2017 is expected to be around 1.50%, down from previous projections of 1.60%, noting that weak trade would be a drag on the economy. For this year, the Bank of France maintained its subdued outlook, expecting growth to average near 1.40%.The central bank expects the Harmonized Index of Consumer Prices to average 0.20% in 2016 and 1.10% in 2017; this was down from 1% and 1.5% projections taken in December. The central bank said that soft forecasts are due to oil prices and uncertainty on global outlook.

UK Services PMI Stronger than Expected

Markit’s services PMI climbed to 53.5 in May after previously falling to 52.3 in April, marking a 38-month low in the UIK. The statistics agency said that activity in the services sector continued to rise at a steady pace since January 2013 but that the latest measurement was the slowest in the past three years. Services sector businesses were optimistic but said that their views were contingent on the outcome of the Brexit referendum on June 23. Employment in the services sector continued to rise but the rate of workers added to the work force slowed precipitously, with some businesses reporting that the introduction of the National Living Wage had an impact on hiring.

US Nonfarm Payrolls Disappoint

In a negative surprise, the US economy added only 38,000 jobs in May, posting one of the slowest pace of jobs since 2010. The jobs growth came against market expectations of 160k. Previous months jobs reports were also revised lower with March and April losing 59k jobs combined. US unemployment was better however, falling to 4.70% in May. Average hourly earnings did not change much, rising 0.20% on the month while staying at 2.50% on a year over year basis. Broadly, the US jobs report in May now puts to question the Federal Reserve’s ability to hike interest rates when it meets on June 14.