Despite upbeat NFP, we stick to our call of no rate hike in 2016 -  Danske

Analysts from Danske Bank, stick to their call despite the strong jobs report for July, that the Federal Reserve will stay on hold for the rest of the year but warn that employment numbers make a hike later this year more likely.

Key Quotes:

“We have now had two strong jobs reports in a row following the two very weak reports in April and May.”

“The weak part of the report was that the underemployment rate, which is a broad unemployment measure the Fed uses to analyse how much slack remains in the labour market, rose from 9.6% to 9.7%. The declining trend in both the headline unemployment rate and the underemployment rate have both slowed over the past year.”

“The strong report reduces some of the concerns about the current economic situation in the US but we still need further data to confirm that both GDP growth and employment growth are still on track.”

“Despite the strong jobs report for July, we stick to our call that the Fed will stay on hold for the rest of the year, although it makes a hike later this year more likely. Our scepticism is due to a combination of weak GDP growth rates over the past three quarters and slower employment growth this year compared with 2014 and 2015 and because it is still too early to conclude whether the Brexit slowdown in the UK will spread to the rest of Europe and thus potentially also the US.”

“As we have argued for some time, most voting FOMC members have a dovish-to-neutral stance on monetary policy and would rather postpone the second hike than hike prematurely. The Fed can afford to stay patient as PCE core inflation is still below 2%, inflation expectations (both survey based and market based) have fallen and wage inflation is still subdued.”