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The US employment report, above expectations, leaves the door open for a rate hike this year

09 August 2016

Key events this week were the meeting of the Bank of England and the release of the US July employment report.

Key events this week were the meeting of the Bank of England and the release of the US July employment report.Yesterday, the Bank of England has announced a strong stimulus package including a 25bp rate cut, extended Quantitative Easing program and corporate bonds purchase. Moreover, the British institution is ready to act again if needed and a further rate cut before the end of the year is likely. With this stimulus, the Bank of England wants to support the UK economy after the Brexit shock. This package was bigger than expected and the market reaction was logical:

  • Sterling weakened against its major peers
  • 10Y British bonds (Gilts) extended decline
  • Stocks rose across the world

In the US, the employment report surprised by its robustness. Payrolls climbed by 225K last month, exceeding all forecasts. The jobless rate held at 4.9 percent. Wage growth begins to show some signs of acceleration, with average hourly earnings rising a more-than-forecast 0.3 percent from a month earlier. After the weak GDP report of last week, it’s clearly a positive signal. The labor market is firming up as wages are starting to pick up. Short term yields increased today. We continue to think that the market is too pessimistic if the look at the pricing for the next rate hike before the end of 2016. We remain short on the US 2Y yield.

La Française’s Essentiel Markets brings you an insightful analysis of the latest financial news by François Rimeu, Head of Total Return at La Française Asset Management.

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