There is a “serious risk” that a US Federal Reserve rate rise is off the table following job figures released on Friday.
The addition of 38,000 jobs in May was “much below market expectations”, says Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers.
Ahmed says Lombard Odier considers a rate hike in June is “firmly off the table”.
“Post the non-farm payroll release, there is now a serious risk to a July rate hike if job creation continues to decrease,” Ahmed says.
However, AJ Bell investment director Russ Mould warns of “getting overly excited by one number”.
“There’s more than enough in it for bulls and bears, but given the doubts I already didn’t think they’d raise rates this year and I’ll stick to that,” he says.
“The US economy is okay, it’s hanging in there, but it’s not robust, it’s not accelerating. When the Fed did raise rates the dollar promptly rocketed 20 per cent and that definitely put the clamps on.”
Head of investing for Axa Investment Management Adrian Lowcock says the market seems to have lost conviction in a June or July rate rise, but adds that the April figures “weren’t particularly great either”.
“But what came between the two payroll figures was some good inflation numbers, really good economic growth figures, and consumer spending figures that were quite positive and industrial activity was also quite good.”
Regardless of the figures, Lowcock says the Fed may wait to see whether the UK votes for a Brexit in the EU referendum before it takes any action on rates. He therefore believes July is most likely for an increase.
“If it is in July then there’s still the opportunity for plenty of other economic activity to come through which could swing it the other way.”
Lowcock adds that the Fed may be reluctant to make a move on rates too close to the presidential elections in November. The next opportunity to rise rates after July would therefore be in March 2017.
Ahmed says caution around hiking the interest rate would be good for bonds but “somewhat negative” for equities and the US dollar.