No chance for a rate hike this month as US jobs data disappoints

Last week, most of the focus was on the US jobs data which disappointed the market. Investors were particularly interested in the number to firm-up expectation of a rate hike in 2015.  The headline figure was expected to be around 200k with an impressive revision to August’s number. The actual numbers soured appetite as the headline number posted a figure of 142k whilst last month’s reading was downgraded. Friday’s employment report has most likely removed even the last small chance for a rate hike as early as this month. Given the level of volatility we have seen in the market of late the reaction was fairly subdued. This could be down to Fed members down playing the reading. On Thursday, San Francisco Fed President John Williams said that the decision to not raise rates in September was “a very close call”. He went on to say that job gains of “above 100,000 or 150,000 would be good to me”, as the slower pace of job gains was “just a sign that the labor market was closer to being completely healed.”

Meanwhile some key manufacturing and service sector numbers from China were released. The official Chinese manufacturing figures remained in contraction scrapping a better than expected 49.8 vs 49.7, whilst the Caixin reading (A.K.A the new HSBC) registered an atrocious 47.2, its lowest reading since March 2009. The two figures combined confirm that the economy remains in contraction as the world’s second largest economy’s biggest sector continues to struggle.

It will be interesting to see how the outlook for China combined with the disappointing job numbers will affect the Fed’s view on a potential “lift off” in rates this year. We maintain that rates will be increased in December but the data will be under increased scrutiny moving forward.

Looking to the week ahead. 

Monday 5th October 2015

In focus today will be service sector data from Europe, the UK and the US. In particular interest will be the UK PMI service sector data which account for roughly 75% of economic activity. Following on from the disappointing data from the US the ISM Non-Manufacturing will be closely watched.

  • UK PMI Services
  • EZ PMI Services
  • US ISM Non-Manufacturing

Tuesday 6th October 2015

A relatively quiet day today as the Economic and Financial Affairs Council (ECOFIN) meeting kicks off in Brussels. Given the economic backdrop and the fall out of the latest VW scandal it is likely there will be a host of economic related topics on the agenda. German factory orders will be hitting the wires before the UK opens but the main focus will be on ECB President Mario Draghi who is speaking in Frankfurt. In the US, the trade balance is set for release.

  • German Factory Orders
  • ECOFIN Meeting
  • US Trade Balance

Wednesday 7th October 2015

A light day in terms of data with the only high tier release scheduled at 09:30am from the UK. UK manufacturing production is forecast to bounce back from last month’s bearish -0.8% and expand by 0.5%. After last week’s poor manufacturing PMI this figure will be under the spotlight to see if the UK’s secondary sector can buck the trend.

  • UK Manufacturing Production

Thursday 8th October 2015

Arguably the biggest day of the week in terms of data as the markets gain an insight into both the UK and US interest rate plans. Firstly, the Bank of England voted 8-1 in favour of keeping rates at record lows last month. The MPC despite the slowdown in China and emerging economies remain upbeat about the UK economy and the bank is expected to raise rates starting from the first half of 2016.

The FOMC September minutes are forecast Thursday evening. Fed Chair Yellen and her colleagues refrained from hiking in September and now we will gain further insight into their rate rise plans, especially the expectations towards the December decision. 

  • BoE Official Bank Rate
  • BoE Rate Votes
  • FOMC Meeting Minutes

Friday 9th October 2015

Markets will be digesting Thursdays Central Bank statements with little on the economic docket. FOMC member Lockhart is scheduled to speak at 14:10 this afternoon at the University of New York’s Graduate School of Journalism, however his tone probably will not differ from yesterday’s FOMC minutes.

  • FOMC Member Lockhart Speaks