The house estimates the non-farm payroll number to come in around 160,000, which would increase the possibility of a rate hike, said Chidu Narayanan, Economist-Asia, Standard Chartered.
With the non-farm payrolls in the US to be announced today, the market is keenly watching for the number. The number is likely to decide US Fed’s decision on rate hikes going forward, especially post Janet Yellen commentary in Jackson Hole meeting.
Chidu Narayanan, Economist-Asia, Standard Chartered says the house is estimating the number to come in around 160,000 and that is sure to increase the possibility for a rate hike. However, Yellen won’t be in a hurry to hike, he says.
The last three strong non-farm payroll data has surely brought back the rake hike possibility on the table, says Narayanana.
However, Fed has been skeptical of global growth and the data too is not sufficient to justify a rate hike, so the hikes will no doubt be gradual, says Narayanan.
When asked if the number was strong to the tune of 180,000 jobs as Reuters poll suggests, would it impact the inflow into emerging markets, Narayanan does not think it would impact the domestic INR because it is well supported. In fact, expects the dollar-INR to head down.
Below is the transcript of Chidu Narayan’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Latha: How serious is the non-farm payroll number? We saw a couple of large markets over the last couple of days in a bit of a limbo, in a bit of a range. Can this upset the apple cart at all?
A: The non-farm payroll has been quite awaited for a while and this is monthly most key data for the US and the Jackson Hole speeches from particularly from Yellen did not really throw too much light on what exactly the Fed would possibly do. Probably, they were a bit more hawkish with bringing back the possibility of a rate hike on the table in the next few months. So, this number would be very looked out for. We do expect that non-farm payroll would be around 1,60,000 for the month of August which is still a very strong print after the 2,55,000 in July, slightly lower than what the market is expecting for this month though.
Good strong numbers should bring back the possibility of rate hikes on the table although we do not think that the Fed will be in any hurry to hike rates at the earliest.
Sonia: So, when you say at the earliest, what do you reckon? If it does come at 1,60,000 jobs for August, could there be a rate hike perhaps in December?
A: It certainly brings it back on the table, especially given that the last 2-3 months have been quite strong. A weak May print had eased concerns of immediate Fed rate hike, but three strong prints would bring the three month moving average back above the threshold and the May print might be written off as a one-off. So certainly yes, it does bring it back on the table.
Anuj: The ingredients are in place. In fact, a lot of people believe we should have already had a rate hike by Fed. What do you think is keeping the Fed on hold? And do you think they will find some other excuse this time as well because that is what the market wants of course, the Fed on hold.
A: Certainly. The Fed has been a little sceptical particularly about global growth. There has been quite a bit of increased volatility globally. June was covered by the Brexit turmoil and data has not been sufficiently strong to justify another hike. Those speeches from the chair in Jackson Hole were a bit hawkish in the near-term, but longer term they were fairly dovish as she re-emphasised the rate hiking cycle would be gradual particularly stressing the uncertain economic outlooks. So, even if there is a rate hiking cycle, that should be fairly gradual, fairly plateau’ed and we do not think there will be anything very steep on that front.
Latha: Your number, Standard Chartered number is 1,60,000, but Reuters’ poll is saying 1,80,000. Now, the question for us here in India is what happens if it is 1,80,000? Do you see a substantial receding of emerging market flows? What is really the world going to look like on Monday if the number is 1,80,000? Will we see big give aways and meltdowns in equity markets?
A: As you see now the markets are pricing in not too much of a hike. It has been a case of crying bulls. September is pricing in just about a 20-25 percent chance of a hike and December is pricing in about 65 percent. And a 1,80,000 print would probably bring both of that higher up, September certainly higher up from 25 percent and December as well. So, that should lead to dollar strengthening in the near-term. Over the medium-term though, particularly for India, we do think that INR will be well supported and we do not really see too much of weakness there. The dollar-INR should be heading lower down.
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .