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Last Updated : Feb 04, 2016 09:05 AM IST | Source: CNBC-TV18

Weak US data indicate trouble in energy sector: JP Morgan

Speaking to CNBC-TV18, James Glassman, Senior Economist at JP Morgan says the Federal Reserve will be in no hurry to raise rates post the weak data.

James Glassman, Senior Economist at JP Morgan believes that weak services data from the US is an indicator of trouble in the energy sector.

The ISM’s manufacturing index, released earlier this week, indicates contraction in US factory activity for a fourth successive month.

Speaking to CNBC-TV18, Glassman says that manufacturing sector is taking a hit
globally as well. The Federal Reserve will be in no hurry to raise rates post the weak data, he adds.

Discussing emerging markets (EMs), Glassman says rate hike expectation is already factored in and the next hike will not have turbulent impact on EMs.

He expects volatility in global markets to reverse in the coming time.

Below is the verbatim transcript of James Glassman's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: What did you make of the reaction to the Institute for Supply Management (ISM) numbers and the way in which dollar fell. Are we likely to see some bit of stability after this?

A: The ISM number is another variation probably that we are seeing in the energy sector but on the same day we get a report about employment gains in the month of January. To me, the employment story is the elephant in the room.

The information that we have been getting from manufacturers; this is about the service sector but it is probably very heavily concentrated in the manufacturing area because the oil prices are down so much, it is creating a lot of disruption in the manufacturing sector all around the world, but things are doing well in consumers are getting benefit, so that is why for me what we hear in the middle of the things cutting many ways, the broad job trend that we see for an economy, give you much better sense of what the net-net effect is.

So my guess is though that we could see a lot of volatility. I think people are a bit confused about how much damage is been done by the energy development. However, maybe a value for a couple of weeks now, up and down last couple of weeks, so maybe we are finding some stability but honestly we get more information from the US on the job market on Friday, so maybe that will help stabilise things because the message coming from the job market is that things are solid here.

Sonia: What is the expectation from Yellen's testimony that takes place next week? Do you get a sense that now because things are volatile world over, the Fed may back off and delay its rate hikes perhaps late this year?

A: They seem much cautious and a lot of people have backed off from saying that Fed will react in March. They have largely postponed this into June but volatility in the market can reverse quickly and there is a lot of information between now and the next couple of meetings and it's the labour market data that we hear in the US, continue to show steady, strong gains.

This is going to represent what happened in last fall when we had the equity market down, a lot of worries about things, we worry about China and the Fed at the end of the day stated the fact of raising interest rate. Therefore, it is early to figure out. Janet Yellen is going to be cautious just like the statement they came out from the most recent policy meeting.

I think when you see property bond, central bankers, when you see the market so turbulent and it makes you cautious unless you see Janet Yellen to move and that gives a lot of room to be cautious. However, I think it is to know what is going to happen. I think we don't really need this kind of turbulence to know that when inflation is very low, central bank anywhere in the world are going to be very cautious and that's already baked in the cake before this year's downtrend in the stock market.

Whatever the Fed is going to do it is going to be very gentle, very gradual. I think they will continue to try to move in this direction because you don't want to wake up a year from now and find out that you got to move very aggressively. So the more they can do slowly, gradually is better for everybody.

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First Published on Feb 4, 2016 08:36 am
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