Payrolls Back Case for Fed September Tapering, ANZ’s Hogan Says

U.S. payroll numbers in June back the case for the Federal Reserve to start tapering stimulus in September, according to Warren Hogan, the Sydney-based chief economist at ANZ Banking Group Ltd. He spoke in an interview with Susan Li on Bloomberg Television.

Payrolls rose by 195,000 workers in June, exceeding the 165,000 median forecast of economists in a Bloomberg News survey.

On the U.S. jobs report :

“I think it does ensure tapering will begin in September and I think even some of the market will ask whether or not it starts earlier. And then the next question will be whether it happens more quickly. The payrolls report was very, very strong in the sense that not only did we beat expectations in the month but the previous revisions mean that what we saw was a bit of a loss of momentum in payrolls growth in the last three or four months for a good start to the year is actually not there.

‘‘As you mentioned we’re now looking at that 200,000 mark and that really did signal that the Fed can start to remove QE3. They said themselves they went to some lengths, that it’s data-dependent not time-dependent, so this data is fair and square on QE removal.”

On U.S. bond market:

“The bond market’s in full-blown bear market territory, it’s reminiscent of the start of 1994. I don’t think it’s going to go that way and the Fed actually won’t start tapering if it looks like the long end of the U.S. bond curve is continuing to sell off.”

On Fed’s tapering plan:

“The bond market bears will be out there talking it up but I think they’ll stick to their time line, they’ll stay with September and they’ll want to see another employment report, but I think that’s where the discussion will be in the market, particularly if the bond market remains weak.”

On central banks in Asia, Indonesia:

“The general proposition in Asia is that there’s been a huge capital outflow, this so-called reversification, the trend to diversify away from the core markets in recent years has suddenly gone into reverse this year and it’s continuing, and I think for most of these central banks they’re looking at cutting rates across Asia, but I don’t think in this market instability, weak currencies, that they should be cutting rates. The one economy that’s doing pretty well and looking at hikes is in Indonesia and we think the Bank of Indonesia will hike both the Fasbi rate and the deposit rate this week.”

On China:

“If China slows a bit further than the current consensus of around seven and a half percent down to say seven and a quarter, that’s fine, the leadership won’t like it but that’s fine -- it’s whether China goes sub-seven and that’s what we’ve got to watch, that’s what’s not priced into markets yet.”

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