Friday 6 December 2019

Daily Market Update: UK Wage growth slows as unemployment rate falls to 5.1%, the lowest level since 2006.

Southampton Container Terminal / Andrew Matthews/PA Wire
Southampton Container Terminal / Andrew Matthews/PA Wire

John Barry

Wage growth in the UK for the three months to November was its slowest since February last year, according to data released yesterday.

The data also showed that the UK unemployment rate unexpectedly fell to 5.1 per cent, the lowest rate since 2006. The Office for National Statistics (ONS) said that the number of people in employment increased by 267,000, the third biggest increase since records began in 1971. The Governor of the Bank of England, Mark Carney, noted on Tuesday that he was looking for underlying price pressures, mainly wage growth (he had previously noted above 3%), along with above trend economic growth with core inflation heading towards the inflation target before considering an interest rate hike.

Global equity markets resumed their recent sell off yesterday and overnight amid renewed concerns about global growth resurfaced. Perceived safe havens such as gold, Japanese Yen and US Treasuries were the beneficiaries. European shares reached their lowest levels since October 2014, while the FTSE closed 3.46% lower on the day. In the US, the Dow Jones fell by 1.56%. At one point during the session the Dow was down 566 points (more than 3%). The major US averages are now down more than 9 percent for the year.

Oil continued its bearish trend, falling to a 13‐year low yesterday, and trading below $27 a barrel. The commodity has now fallen more than 25 percent this year. A report from the American Petroleum Institute published on Wednesday showed that US crude stocks rose more than expected last week. Crude inventories increased by 4.6 million barrels in the week to Jan 15 to 485 million barrels, well above market expectations.

Data from the US showed that US consumer prices fell unexpectedly in December, primarily due to a reduction in the cost of energy goods. The US Labour Department reported that the CPI index fell 0.1 percent after being unchanged in November. For the 12 months to December 2015, CPI rose 0.7 percent.

The European Central Bank meets later today with a lot to consider for Mario Draghi. The turmoil in China is weighing heavily on world equity markets and economic sentiment generally. The volatility that this unease is creating coupled with the fall in the price of oil, is likely to put more pressure on the ECB’s inflation target.

Some of the tools available to Mr Draghi include lowering the deposit rate further into negative territory (currently minus 0.3%), increasing the volume of the asset purchase program, or extending the tenor of this program again (after extending it by 6 months in December). Many market participants believe that the Bank is not ready to announce new easing measures this month, but it they don’t, it will be interesting to see if they signal their readiness to act in the coming months.

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