StanChart sees better US job data, weak non-farm payrolls

Global markets are awaiting two key data from the US to be released this week. While a weak non-farm payrolls number, at around 155000,  is being factored in by markets, the unemployment data is likley to show some improvement,  says Sarah Hewin, Senior Economist, Standard Chartered.

According to her, there will be weaker non-farm payrolls number for June than for May, but there may be a fall in unemployment rate – moving down to 7.5 percent compared with 7.6 percent. Hewin says markets will be eagerly awaiting tomorrow’s ADP report on private sector employment, non-manufacturing ISM and initial jobless claims.

Hewin expects somewhat softer US data over the coming weeks, allowing Fed to maintain its quantitative easing (QE) position unchanged over the next few months.

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Below is the verbatim transcript of Sarah Hewin’s interview on CNBC-TV18

Q: Can you just detail what your expectations or what the markets are factoring in, in terms of non-farm payrolls (NFP) data and if in case it’s a good number where exactly would you expect a movement in terms of which asset class and how?

A: I think the markets are factoring in relatively weak non-farm payrolls number. We are looking for 155000 and if you compare that with the consensus, I think it will be pretty close.

The data to look out for is going to be the unemployment rate. That is something that the Fed is focusing on. Even though we think there will be a weaker non-farm payrolls number for June than for May, we do think that we will see the unemployment rate falling – unemployment rate moving down to 7.5 percent compared with 7.6 percent.

Surprise for the markets would be if you get a substantially stronger number than markets are factoring in. The signs so far are that it will be on the weak side.

We had yesterday the ISM manufacturing. All the components there were stronger apart from employment and that really dipped well below the 50 mark. So, there is a bit of a warning sign that manufacturing employment could be softer for June.

Tomorrow we will get a whole load of indicators – the ADP report on private sector employment, we will get the non-manufacturing ISM and we will look at the employment component there. Also, we will get the initial jobless claims, so, plenty of information ahead of that Friday NFP number.

Q: So, if that is true that the market is gearing up for a slightly weaker payrolls number, would you say that we have seen the worst in terms of badgering of risk assets that we perhaps will see a continuation of the recovery in emerging markets and other risk assets that got beaten up?

A: A lot does depend on the data. We have seen a very volatile period for the markets over the past six weeks or so and a couple of months now I suppose since early in May. I think that markets are still vulnerable if we get some surprises on the data side.

Our view is that we will see somewhat softer US data over the coming weeks and that will allow the Fed to maintain its quantitative easing (QE) position unchanged over the next few months.

While that happens risk assets will start to look attractive again. We do have to be prepared in the event that there are some stronger than expected numbers or may be Fed comments that indicate that tapering could be sooner rather than later, that might once again cause some sort of volatility in the riskier side of the asset market.