Markets Insights

Investors focused on interest rates after US jobs report

Weaker case for larger Fed cut in wake of robust payrolls growth

Share markets across the region have plenty on their plates to digest this week, with attention focused on two key fronts - United States interest rates and trade conflicts.

The prospect of a rate cut has become a little more uncertain after a better-than-expected US payrolls report last Friday. Non-farm payrolls rose by 224,000 jobs last month, beating expectations of an increase of 160,000 and the highest in five months.

The number suggests that the US economy is in better shape than people thought, which has led investors to now expect the Federal Reserve to cut rates by only 25 basis points later this month.

Wall Street stocks dipped in response last Friday after the S&P 500 wrapped up a three-session run to close at record levels.

But investors also reacted positively to White House economic adviser Larry Kudlow's disclosure that US-China trade talks will resume by phone this week after having stalled in May.

Vanguard Markets managing partner Stephen Innes noted that "trade friction will never leave the headlines, but markets will continue to gravitate and remain in a state of trade war risk neutrality".

 

  • 25 Investors expect the Federal Reserve to cut rates by this many basis points later this month. This follows the better-than-expected US payrolls report, which suggests that the US economy is in better shape than people thought.

On the local front, investors will be looking to Singapore's advance gross domestic product (GDP) estimates for the second quarter.

The Ministry of Trade and Industry will be releasing the data on Friday.

FXTM market analyst Han Tan said: "Singapore's advanced second-quarter GDP figures are likely to reveal the effects of heightened US-China tariffs imposed during the quarter.

"Given the city-state economy's exposure to external trade, the Singapore dollar could come under pressure should the GDP point to waning domestic growth momentum."

ING Asia economist Prakash Sakpal noted that the advance estimate, which is usually based on data for the first two months of the quarter, could be lower with export weakness intensified by declines in non-oil domestic exports in April and May.

He said: "This export weakness transmitted into weak GDP via manufacturing. The manufacturing PMI remained in contractionary territory in June, suggesting that the drag continued into the third month."

Mr Sakpal acknowledged that Monetary Authority of Singapore managing director Ravi Menon "flagged second-quarter GDP growth coming in weaker than the first quarter, hinting at the possibility of an intra-meeting policy adjustment to support growth".

"If true, will our forecast of 0.8 per cent year-on-year (-0.2 per cent quarter-on-quarter annualised) second-quarter GDP growth be enough to trigger central bank easing before October? It could quite well possibly be," he added.

May's retail sales figures will also be out on Friday.

Elsewhere in Asia, China will be releasing inflation data for last month on Wednesday.

However, Friday's trade data releases for last month will be more keenly looked at for the effects of the US-China trade war fallout since May.

Last month's unemployment figures will be out in South Korea on Wednesday.

A version of this article appeared in the print edition of The Straits Times on July 08, 2019, with the headline 'Investors focused on interest rates after US jobs report'. Print Edition | Subscribe