US payroll data to impact Fed rate decision: Rabobank

The US non-farm payroll data is very important not just for this week but for next few weeks because in case it is strong then the Federal Reserve is likely to hike rates earlier than expected. However, in case it is weak then expectations will be reversed and market may think rate hikes would come later in the year, says Michael Every, Head of Markets Research, Asia-Pacific, Rabobank.With global markets stablising overnight and Asia too bouncing back Friday, Every says the sell off and recovery in global markets has nothing to do with any change in economical fundamental data as such but could be due to shift in market positioning. And that Indian market is just a spectator to global markets and there is nothing region specific, he feels.Talking about elections in UK, he says if David Cameron wins, then there would surely be as short-term bounce, which is already visible in sterling but is not sure of how long it would last.

Below is the transcript of Michael Every’s interview with CNBC-TV18's Anuj Singhal and Ekta BatraEkta: How crucial is the nonfarm payroll data which is expected from the US and secondly what sort of ramification could it have in terms of your base case assumption on the Fed and when it could hike rates according to you?A: Those two questions are very much interlinked. Payroll is absolutely the typical data point, not just of this week but probably for the next few weeks going forward because if we do see a strong number that is going to maintain or refresh the market’s belief in the view that the Federal Reserve will be raising interest rate and possibly sooner than the market had been starting to think would be the case. Of course if we get a weak number, a downside surprise all the expectation will be entirely reversed and the market will be thinking maybe we won’t see rate hikes until much later in the year. So, it is a very important number.Anuj: What about the UK elections and the result. We now believe that it is almost certain that David Cameron will be back as the Prime Minister. Do you think there will be quite a bit of cheer in the UK markets and in European markets in general today?A: I am sure we will get a short-term bounce in the UK and already we are seeing that in sterling. I wonder how long it will last given that if David Cameron is the Prime Minister one of the first things on his desk when he goes back will be the question of when do we have the in-out referendum on EU membership, which should of course immediately start a whole different set of speculation.Ekta: Just coming back to the US markets and in fact even the German Bunds what we have seen is that the US treasuries managed to come off yesterday but they are still hovering at those 2015 highs and similar for the German Bunds as well. Can you tell us why there is this hardening sort of taking place in the tenures across global markets and what that means for Indian market in terms of Foreign Institutional Investors (FII) or institutional interest in terms of bond markets here?A: Starting off with the first part of your question everyone has been scratching their heads and trying to work out why the market sold off quite so aggressively as it did when in reality the economic fundamentals haven’t actually shifted at all. We have hardly any data that has presented a new picture to us and oil prices have only edged higher. A lot of it had to do with relatively tense market and with a lot of positioning with people caught the wrong way and having to cover their positions very quickly. The fact that we saw a snapback so aggressively again without any data that changed the picture yesterday reinforces there was much more to do with market positioning pre payroll than it was to do with any kind of new perception of a change in global economic paradigm.In terms of India, it is very much a spectator in all this to be honest. This is a global panic one way and now being reversed by the other way again and I don’t think anyone is differentiating between India and any other markets at the moment. It is just a global trend.Anuj: What about the dollar and the relative strength of euro that we have seen over the last few weeks, do you think that should end now?A: You tell me what the payrolls number will be and I will tell you what the dollar will do.Ekta: What about Brent crude prices?A: The pressure towards prices has been to the upside. Suddenly, yesterday we had a four percent fall. So it is a very hard market to call any degree of accuracy at all. In fact I don’t think anyone ever does.