Monex Financial has warned institutional clients that the next move in US interest rates could be downwards if the pace of deterioration in economic data matches that of the sudden decline in the country’s jobs recovery.

May's poor nonfarm payrolls report could eventually prompt an interest rate cut, according to the Tokyo-based broker-dealer’s quarterly investor bulletin. Such an event would clearly scupper the Fed’s plans for policy normalization.

"The rate hike the Federal Reserve has been threatening to implement since the start of the year has failed to materialize because, ultimately, they know that the economy is moribund. Worsening of the employment recovery would very well trigger a cut," writes Nick Cavendish, chief economist at Monex Financial.

“All the rhetoric we’ve been getting from various Fed Presidents in recent months has been aimed at managing expectations and effectively getting the effect of a rate hike without actually doing it. I think markets have finally begun to see through the smoke and mirrors,” Cavendish adds in the bulletin’s foreword.

Monex Financial which oversees the investment of over $8 billion of institutional client capital says Cavendish’s views are very much his own. “Nick’s opinion carries a lot of weight at Monex Financial and while, on this issue, it’s not one I would readily agree with, it is this clash of ideas that tends to make our market calls so accurate,” said Monica Freeman the firm’s chief markets strategist.

Freeman said that while she didn’t think the Fed was likely to raise more than once in 2016, it was not beyond the realms of possibility for the US central bank to restart its quantitative easing program in 2017 if economic growth tailed off.

About Monex Financial
Monex Financial is a privately held, fully independent investment and wealth management leader, with retail operations based in Toronto, Canada and corporate trading division headquartered in Tokyo, Japan.

From our offices in Toronto the capital city of the province of Ontario and financial and business capital of Canada, we serve private individuals and families from N. America to Europe and with our corporate trading division strategically located in Tokyo, Japan, we have unrivalled access to Asia’s high yielding emerging markets, access to corporate resources, private equity and global mergers and acquisitions.