Saturday 26 May 2018

Daily Market Update: UK Labour Market Disappoints

Big Ben, the Houses of Parliament and Westminster Bridge in London
Big Ben, the Houses of Parliament and Westminster Bridge in London

Darren Thornberry

The UK labour market report for February was published yesterday and it came in a little weaker than expected.

As many analysts predicted before the release, the market didn’t overly react to the data because of Brexit related uncertainty which is dominating the headlines at present but the data is worth noting.

The unemployment rate did hold at 5.1% but employment was up by just 20k in the 3 months to February against analyst’s forecasts of 60k. The figure was 116k last month and 206k in Q4 2015 so there is a feeling that the data is normalising to a more sustainable pace of job growth but there is also a feeling that there is a slight loss in momentum probably relating to Brexit. Headline earnings fell to 1.8% versus 2.3% expected but earnings excluding bonuses held at 2.2% in line with last month. It is estimated that the BoE need to see circa. 4% earnings growth being sustained to be confident the 2% inflation target will be reached and maintained.

Staying with the UK, one of the Bank of England’s more hawkish members, Ian McCafferty, was speaking yesterday. He was hawkish about weak wage growth saying that he felt this was temporary but he did say that low inflation is having a material impact and Brexit risks may weigh on the economy. Nothing new here but the comments do confirm that even the more hawkish members of the BoE are not voting for rate hikes any time soon.

There was very little data out of the U.S. yesterday but we did have existing home sales for March and they came in a lot stronger than expected. They soared to 5.1% month on month against an expected 4% and a decline of 7.1% last month.

There was little impact on the FX majors yesterday with most range trading. EUR/GBP traded between 0.7861 & 0.7915, EUR/USD between 1.1289 & 1.1386 and GBP/USD between 1.4331 & 1.4409.

In terms of today we have plenty of economic data to digest. We have retail figures out of the UK at 09.30 together with public finance figures. In the eurozone at 12.45 we have the ECB rate decision where no change is expected but it’s followed up at 13.30 by Draghi’s press conference which usually gets a lot of attention. Within the press conference markets will be looking for any signs that the committee’s views on the lower bound in interest rates or a tiered deposit rate scheme has changed since March. In the afternoon we get the Philly Fed business index and initial jobless claims out of the U.S. 

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