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    US: Bounce in Non-Manufacturing ISM survey suggests the gloom is overdone - ING

    Rob Carnell, Chief International Economist at ING, suggests that post-Brexit, markets chopped their expectations for Fed rate hikes to virtually nothing until the end of 2017, and have pretty gloomy expectations for Friday's jobs report too - there is a good chance they are too gloomy.Key Quotes“Judging by the recent run of US data including the latest non-manufacturing ISM report, markets are too gloomy about both the Fed and Friday's jobs report. We could see short rates push higher in coming weeks if we are right and markets stage a re-think.The latest survey of non-manufacturing firms from the ISM institute is in line with much of the US data in the second quarter of 2016 - not at all bad. In fact, at 56.5, the headline index is stronger than it has been since November 2016, and is a big bounce from the 52.9 reading in May.New orders were particularly strong at 59.9, totally reversing the May dip, and despite the uncertain global picture, export orders staged a healthy pick up too from 49.0 to growth territory, with a reading of 53.0.With only a few days to go until the jobs report on Friday, the employment index is also worth a look, and it too has bounced back above the no-growth / growth threshold of 50, coming in at 52.7 in June from 49.7 in May. Although this is not a reliable monthly index, it is slightly better than a tossed coin and we retain our above-consensus expectation for the payrolls element of Friday's jobs report. The overall report could also indicate retail sales will put in a reasonable response too.Consequently, although we recently took out any expectation for the Fed to hike this year, we think market pricing of the next hike at end 2017 is too gloomy, and feel recent data vindicates our 1Q17 hike forecast.”


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