US Employment soft patch puts a damper on December lift-off

This was not a good week for US economic data. First, disappointing trade figures prompted economists to revise down their estimates of Q3 GDP by a full percentage point. Then the ISM report confirmed that the manufacturing sector is buckling under the weight of a stronger dollar and plunging commodity prices. Today, the employment figures were the straw that broke the camel's back. Although economists are struggling to reconcile the weakness in hiring with the much-healthier jobless claims and stellar job openings, today's report was undeniably weak and seriously dampens the probability of a December lift-off.

"We are inclined to view the current soft patch as transitory - similar to that experienced at the start of the year. However, it may take a few months to get confirmation thereof. Thus, we now see the probability of a December liftoff at just 40%. Although we now assume a March rate hike, we are concerned that seasonal weakness both in the US and China may represent another roadblock for the Fed. We thus peg the probability of a March move at just 55%, with 70% probability that the Fed will hike on or before June 2016",says Societe Generale.