US Nonfarms Disappoint — Fed Rate Hike in June Unlikely

Weekly Report - 08/05/2016

US Nonfarms Disappoint — Fed Rate Hike in June Unlikely


The US dollar managed to regain some of its recent losses in the second half of last week after the ICE futures US dollar index fell to a 15-month on Tuesday. In other news, Friday's monthly nonfarm payrolls report from the US showed that a surprisingly low number of jobs were added in April which casts doubts on the prospects of a Fed rate hike in June. Precious metals which staged a strong rally this week finished the week modestly lower with gold prices closing at $1288.4 an ounce on Friday after posting a one-year high above $1303.50 on Monday, 2nd April.

Weekly Review

Last month saw economic sentiment in the UK sour even further with the collective PMI's falling sharply across the board. While the services and construction PMIs fell to 13-year lows, the manufacturing PMI contracted in April underlining the downturn in the UK's economy. In the first quarter, GDP growth was 0.40%, down from 0.60% in the previous quarter. With Brexit weighing heavily on investor sentiment, the economic outlook remains bleak.

In Australia, the RBA cut interest rates last week by 25bps to 1.75% after keeping interest rates steady at 2.0% for over a year. Economic data from Australia remains mixed. GDP remains moderately in expansion but inflation slumped. The rate cut from the RBA this week was followed by the quarterly forecasts which saw the central bank lower its inflation expectations from 2-3 percent to 1 - 2 percent. However, the RBA remained upbeat on GDP and employment prospects.

This week, the US nonfarm payrolls report for April released by the US Bureau of Labor statistics on Friday showed that the US economy added 160k jobs, below analysts’ consensus of 200k. The unemployment rate in the world's biggest economy remained unchanged at 5.0% while average hourly earnings increased at the same pace as last month of 0.30%. The soft print in the NFP for April is seen to significantly lower the chances of a June rate hike. The weak NFP print comes after ADP reported that the US economy added 156k jobs in April, missing forecasts of 205k.


The Week Ahead

The week ahead will start off with the release of the BoJ's monetary policy meeting minutes from April. The BoJ left its monetary policy unchanged contrary to market expectations prior to the meeting. The minutes will likely show the deliberations from the committee members on monetary policy.

China's monthly inflation numbers will be due this week where expectations are for the monthly consumer price index to remain unchanged at 2.30%, rising at the same pace as the previous month. China's PPI is expected to show further improvement falling 3.80%, less than the 4.30% drop previously.

It will be a data heavy week for the New Zealand dollar with RBNZ governor expected to speak followed by retail sales numbers coming out later in the week. Expectations are for the quarterly retail sales to have increased 1.0%, posting a slower pace of retail sales from 1.20% in the previous quarter.

In the Eurozone, flash GDP estimates for the first quarter are expected to show a 0.60% increase in GDP, the same as the initial estimates, with the GDP growth rate expected to stay unchanged at 1.60% on an annualized basis. Data will also include German flash CPI and GDP estimates for April and the first quarter of 2016.

From the US, retail sales and PPI data is due this week. Median estimates call for a 0.60% increase in retail sales, up from 0.20% in March, while PPI is expected to rise 0.30% in April following a 0.10% decline in March.


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