May’s poor U.S. employment report could trigger an interest rate cut, according to one contrarian investor—a move that would upend the Federal Reserve’s plans for policy normalization.
“I’m not convinced the Fed will hike at all; in fact their next move might be a rate cut rather than a hike,” Nicholas Ferres, investment director of global asset allocation at Eastspring Investments, told CNBC’s Asia Squawk Box on Monday.
Eastspring Investments is the Asian asset management business of Prudential and manages $89 billion of assets.
A cloud of uncertainty is hanging over the Federal Open Market Committee’s (FOMC) outlook after data last week showed the country added 38,000 jobs in May, significantly missing the 162,000 expected. The report also highlighted sharp downward revisions in job creation of previous months, with March sliding from 208,000 to 186,000 and April going from 160,000 to 123,000.
The bulk of market observers don’t expect any action when the FOMC ends a two-day review on Wednesday, but expectations for a rate hike are high in the coming months. Four-fifths of the 92 economists surveyed by Reuters anticipate an increase at either the July or September meetings. Ferres disagrees.
“I’m sympathetic to the view that you don’t want to focus on one data point but the downward revisions in employment, combined with the two quarters of negative profit growth were compelling for me,” he explained, referring to the 8.1 and 3.3 percent drops in company profits during the third and fourth quarter of 2015, respectively.