August 13, 2024

“This morning’s UK labour market report added little clarity to the picture for the Bank of England’s cutting cycle, but a raft of inflation data in the US and UK over the next few days will set the tone for the rest of August.”

Tim Hallinan – Trading Director

Main Headlines

The FBI announced yesterday that it had launched an investigation in June into the alleged hacking of Donald Trump’s presidential campaign by the Iranian government, after Microsoft had told the campaign about a breach on one of its websites.

Speaking about Ukraine’s incursion into Russia that began last week, President Zelenskiy said yesterday that the efforts are aimed at forcing Putin to make peace by bring war to Moscow. The assault into the Kursk region of Russia took the world by surprise and represented a new phase in the two-year war.

GBP

A thoroughly mixed UK jobs report included a surprise drop in the unemployment rate that has put the pound on the front foot this morning. Ex bonus wage growth decelerated to 5.4% and the number of new claimants rose a huge 135K, and while that bodes well for further interest rate cuts towards the end of the year, it was a dramatic undershoot in unemployment that caught the market’s attention. It was expected to tick up to 4.5% and instead fell to 4.2%, leading the ONS to drop the line in the report about the labour market continuing to cool gradually. The well-telegraphed issue here, however, is that the Labour Force Survey that underpins the unemployment figure has suffered from very low response rates and unusually high volatility – it’s not a signal you can wholeheartedly rely on. The report likely raises more questions than answers for the Bank of England, and they will be looking for clarity from tomorrow’s services inflation figure.

EUR

Today’s ZEW investor survey is the euro’s biggest domestic catalyst for this week, and it is expected to be ultimately a reminder of the eurozone’s growth woes. The consensus is looking for another sharp drop in sentiment both for Germany and for the wider eurozone, after last month saw the first weakening in future expectations for a year, largely owing to uncertainty about the political situation in France and about the speed of monetary policy support at the ECB. The euro has been inching up over the past few days, but fuel for a rebound towards the 1.10 level today would rely on a soft US PPI report.

USD

PPI this afternoon is the first check on the US inflationary outlook in this month’s round of data, ahead of tomorrow’s CPI release. Markets tend to pay close attention to the clues for future consumer inflation, and to the components of PPI that feed into the Fed-favoured core PCE gauge released later in the month. The consensus is for another 0.2% headline month-on-month print and a cooling in the core figure from 0.4% to 0.2%. The near-term focus for the dollar boils down to whether the Federal Reserve delivers a 25bps or a 50bps cut at next month’s meeting, and whether that’s down to cooling inflation or slowing growth. The NFIB Small Business Index is another critical report for that assessment today, with the hiring plans subindex typically a good leading predictor of hiring and the labour market across the economy.

Markets

Global stock markets inched higher yesterday on a calmer volatility backdrop, after positioning data signalled that last week’s carry trade unwind had mostly been flushed out. This gave investors the confidence to drag Japanese stocks 2% higher this morning – back to where they were before last week’s meltdown – and to put European equity indices all into the green this morning.

Main Economic Events (All Times CET)

3:30am: Australian Wage Price Index
8:00am: UK Claimant Count Change, Wage Growth, & Unemployment
11:00am: Eurozone ZEW Economic Sentiment
12:00pm: US NFIB Small Business Index
2:30pm: US PPI Inflation
7:15pm: Fed’s Bostic speaks

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