Article Highlights

  • U.K. jobless rate: steady at 4.8% as expected
  • Claimant count change in the U.K.: -42.4K vs. +0.5K expected, -20.5K previous
  • U.K. average earning index (no bonus): 2.6% vs. 2.7% expected, same as previous
  • U.K. average earning index (w/ bonus): 2.6% vs. 2.8% expected, same as previous
  • Euro Zone trade balance: €24.5B vs. €22.0B expected, €22.2B previous
  • U.S. retail sales and CPI reports coming up
  • Fed Head Yellen scheduled to testify again later
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Today’s morning London session was another choppy session. The European currencies all took hits, though, with the pound getting another smack-down, thanks to disappointing wage growth. The euro and the Swissy, meanwhile, were also steadily in retreat during the course of the session.

Major Events/Reports:

Wage growth in the U.K. disappoints – The U.K. Office for National Statistics (ONS) released the latest jobs report earlier. And it was revealed that the jobless rate held steady at 4.8% in the three months to December (Q4 essentially). This is great because that is the lowest reading since the July-September 2005 reporting period. The employment rate, meanwhile, edged higher to 74.6%, the highest reading since comparable records began in 1971. In addition, the number of people claiming unemployment benefits fell by 42.4K in January.

Unfortunately, the readings for wage growth were rather disappointing. To begin with, nominal average weekly earnings (bonuses included) grew by 1.9% year-on-year in December, with a three-month average of 2.6%. This is the weakest year-on-year increase since February. Moreover, the three-month average was expected to maintain the previous three-month average by coming in at +2.8%. However, the reading dipped instead.

The slower wage growth was due to bonuses contracting by 5.5% after surging by 11.8% previously. Although the deceleration in regular earnings growth (bonuses excluded) also was also a factor for the slowdown in wage growth. Nominal average weekly earnings that have been stripped of bonuses only grew by 2.4% in December. This is slower than November’s +2.7% and is the reason why the three-month average dipped to +2.6% from +2.7%, the best reading since August 2015.

This disappointing wage growth is even more glaringly obvious in real terms (inflation is taken into account). Real average weekly earnings (including bonuses) only increased by 0.2% year-on-year in December (+1.9% previous), with a three-month average of 1.4%. This is the poorest annual reading since August 2014 while the three-month average is the poorest since February 2015. And also for reference, the average annual increase of real average weekly earnings in 2016 is 1.7%. This means that the purchasing power of the average Brit suddenly nosedived, which will likely hurt consumer spending somewhere down the line.

Front National’s Le Pen gains ground – According to the updated poll results from opinionway, Marine Le Pen of the anti-EU Front National is still expected to win the first round of the french elections. Nothing new there, though. In addition, Le Pen is still expected to lose to former French Economy Minister Emmanuel Macron in the second round of the elections.

What’s new, however, is that Le Pen is steadily clawing her way higher against her rival, with the spread now at 62-38 still in favor of Macron. This is tighter compared to the 65-35 from last Friday.

Living standards in the U.K. fall – The Joseph Rowntree Foundation (JRF), an independent think-tank, released a report on how households in the U.K. measured up against the Minimum Income Standard (MIS). And according to official statistics highlighted by the think-tank, the following happened between 2008/9 – 2014/5:

  • “The number of individuals below MIS rose by four million, from 15 million to 19 million (from 25 to 30 per cent of the population).”
  • “There are 11 million people living far short of MIS, up from 9.1 million, who have incomes below 75% of the standard and are at high risk of being in poverty.”
  • “The remaining eight million fall short of the minimum, by a smaller amount, and despite having a more modest risk of poverty, are just about managing at best.”

Risk appetite strikes back – Risk aversion made some headway into European markets yesterday. Today, however, those feelings of gloom and doom were dispelled, since the major European equity indices were back in the green.

  • The pan-European FTSEurofirst 300 was up by 0.40% to 1,464.83
  • The blue chip Euro Stoxx 50 was up by 0.49% to 3,325.50
  • Germany’s DAX was also up by 0.22% to 11,798.00
  • The U.K.’s FTSE 100 was up by 0.47% to 7,303.00

Market analysts attributed the returning risk-on vibes to positive earnings reports, as well as U.S. Fed Head Yellen’s hawkish rhetoric from her testimony yesterday, which gave banking shares a boost.

Major Market Movers:

GBP – The pound got slapped lower when the U.K.’s disappointing wage growth was revealed, since that, together with yesterday’s CPI miss, reinforce the BOE’s neutral monetary policy stance, market analysts say. This is especially true because the BOE thinks that the main driver for the recent increase in inflation was the pound’s weakness in the wake of the Brexit referendum, rather than actual inflationary pressure from stronger domestic demand. And the lower wage growth is a sign that this may indeed be the case. The rapid rise in inflation is therefore only expected to be temporary, which means that a rate hike may not be justified for now and would only hurt the economy more.

GBP/USD was down by 39 pips (-0.32%) to 1.2415, GBP/JPY was down by 48 pips (-0.34%) to 142.11, GBP/NZD was down by 62 pips (-0.36%) to 1.7294

CHF – The Swissy was broadly weak during the session. In the fact, the Swissy was the second weakest currency after the pound. There were no apparent catalysts, but it’s possible that demand for the safe-haven Swissy got dampened because of the returning risk-on vibes.

USD/CHF was up by 21 pips (+0.21%) to 1.0092, AUD/CHF was up by 16 pips (+0.21%) to 0.7741, NZD/CHF was up by 18 pips (+0.25%) to 0.7243

EUR – The lower-yielding euro was also on the back foot during the session. It’s not clear whether the euro was reeling from the risk-on vibes or the disappointing poll results for the French elections, though (probably both).

EUR/USD was down by 21 pips (-0.20%) to 1.0552, EUR/JPY was down by 26 pips (-0.21%) to 120.79, EUR/NZD was down by 31 pips (-0.21%) to 1.4700

Watch Out For:

  • 1:30 pm GMT: Headline (0.1% expected, 0.6% previous) and core (0.4% expected, 0.2% previous) readings for U.S. retail sales will be released
  • 1:30 pm GMT: Canadian manufacturing sales (0.3% expected, 1.5% previous)
  • 1:30 pm GMT: Headline (0.3% expected, same as previous) and core (0.2% expected, same as previous) readings for U.S. CPI will be revealed
  • 1:30 pm GMT: Empire State manufacturing survey (7.0 expected, 6.5 previous)
  • 2:15 pm GMT: U.S. industrial production (0.0% expected, 0.8% previous) and capacity utilization (75.4% expected, 75.5% previous)
  • 2:30 pm GMT: CB’s U.S. leading index (0.0% previous)
  • 3:00 pm GMT: Fed Head Yellen will testify before the House Financial Services Committee
  • 3:00 pm GMT: U.S. business inventories (0.4% expected, 0.7% previous)
  • 3:00 pm GMT: U.S. NAHB builders survey (unchanged at 67 index points expected)
  • 3:30 pm GMT: U.S. crude oil inventories (3.7M expected, 13.8M previous)
  • 5:45 pm GMT: Philadelphia Fed President Patrick Harker will speak

See also:

Asian Session Recap 
U.S. Session Recap

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