UK Jobs data to stay buoyant in September – Forex News Preview
November 12, 2018 5:26 pm
While Brexit uncertainty dampens investment sentiment in Britain, business leaders continue to offer higher wages to attract new workers as skills shortages seem to restrict the availability of candidates. In August, the unemployment rate held at the lowest in 43 years and average earnings picked up steam for another month, with forecasts suggesting that September’s employment report will not tell a different story.
On Tuesday at 0930 GMT, the Office for National Statistics is expected to say that the unemployment rate stuck at 4.0% in the three months to September for the fourth consecutive month, at the lowest since 1975, whilst the three-month average earnings excluding bonuses are anticipated to hold steady at 3.1% y/y, at the fastest pace recorded since the year after the 2008 financial crisis. Yet the measure which includes bonuses, is said to have accelerated from 2.7% y/y to 3.0%, a sign the labor market is operating under full-employment conditions and hence firms are offering more benefits to the workforce in order to attract the right skilled workers.
Indeed, digging up evidence, big recruiters such as Ryanair and the pub chain JD Wetherspoons have already complained that labour shortages are forcing them to offer higher compensation to attract qualified workers, and as a result their profit margins are turning smaller. A monthly survey by the Recruitment and Employment Confederation (REC) showed that demand for staff was around record highs at the start of the fourth quarter, whereas supply of both permanent and temporary workers decreased sharply. The data also found that even starting wages at British companies had the largest increase in recent years, reflecting a heating labor market.
While the above should generate higher consumption, growth in retail sales eased for the third consecutive month in September and confidence among consumers deteriorated even further in October, with Britons pointing to Brexit insecurity for their weak shopping appetite. That evidence in combination with a subdued business sentiment could be a good reason for the Bank of England to stand pat on interest rates in December as markets are currently highly pricing in. Recall that the Bank of England signalled limited and gradual interest rate increases to keep in check inflation over the next few years, though the latest disappointing headlines around Brexit and the BoE’s dependence on the outcome of the EU-UK negotiations raised speculation that the timing of a rate hike might stretch further into the horizon if the UK Prime Minister fails to achieve support from her Cabinet over her exit plans. Still, policymakers are optimistic that a deal will eventually be reached and in case of a smoother transition, borrowing costs might rise slightly faster.
In FX markets, the pound is suffering mostly on the back of Brexit worries and unless the EU-UK divorce problem especially on the Irish front gets solved, any gains in the market might be temporary. Should the jobs report beat estimates, the pound could run above 1.2934, the 50% Fibonacci of the upleg from 1.2694 to 1.3174, to test the 38.2% Fibonacci of 1.2991. A bigger positive surprise in the data may also push the pair above 1.3000 and towards the 23.6% fibo of 1.3061 before the 1.3174 peak comes under the radar.
Alternatively, a miss in the data may reinforce additional bearish actions in the market and send the pair under Friday’s bottom of 1.2825. Below that the 1.2775 trough marked on October 26, may act as a barrier, while the 1.2694 bottom could be a bigger challenge.
While Brexit uncertainty dampens investment sentiment in Britain, business leaders continue to offer higher wages to attract new workers as skills shortages seem to restrict the availability of candidates. In August, the unemployment rate held at the lowest in 43 years and average earnings picked up steam for another month, with forecasts suggesting that September’s employment report will not tell a different story.
On Tuesday at 0930 GMT, the Office for National Statistics is expected to say that the unemployment rate stuck at 4.0% in the three months to September for the fourth consecutive month, at the lowest since 1975, whilst the three-month average earnings excluding bonuses are anticipated to hold steady at 3.1% y/y, at the fastest pace recorded since the year after the 2008 financial crisis. Yet the measure which includes bonuses, is said to have accelerated from 2.7% y/y to 3.0%, a sign the labor market is operating under full-employment conditions and hence firms are offering more benefits to the workforce in order to attract the right skilled workers.
Indeed, digging up evidence, big recruiters such as Ryanair and the pub chain JD Wetherspoons have already complained that labour shortages are forcing them to offer higher compensation to attract qualified workers, and as a result their profit margins are turning smaller. A monthly survey by the Recruitment and Employment Confederation (REC) showed that demand for staff was around record highs at the start of the fourth quarter, whereas supply of both permanent and temporary workers decreased sharply. The data also found that even starting wages at British companies had the largest increase in recent years, reflecting a heating labor market.
While the above should generate higher consumption, growth in retail sales eased for the third consecutive month in September and confidence among consumers deteriorated even further in October, with Britons pointing to Brexit insecurity for their weak shopping appetite. That evidence in combination with a subdued business sentiment could be a good reason for the Bank of England to stand pat on interest rates in December as markets are currently highly pricing in. Recall that the Bank of England signalled limited and gradual interest rate increases to keep in check inflation over the next few years, though the latest disappointing headlines around Brexit and the BoE’s dependence on the outcome of the EU-UK negotiations raised speculation that the timing of a rate hike might stretch further into the horizon if the UK Prime Minister fails to achieve support from her Cabinet over her exit plans. Still, policymakers are optimistic that a deal will eventually be reached and in case of a smoother transition, borrowing costs might rise slightly faster.
In FX markets, the pound is suffering mostly on the back of Brexit worries and unless the EU-UK divorce problem especially on the Irish front gets solved, any gains in the market might be temporary. Should the jobs report beat estimates, the pound could run above 1.2934, the 50% Fibonacci of the upleg from 1.2694 to 1.3174, to test the 38.2% Fibonacci of 1.2991. A bigger positive surprise in the data may also push the pair above 1.3000 and towards the 23.6% fibo of 1.3061 before the 1.3174 peak comes under the radar.
Alternatively, a miss in the data may reinforce additional bearish actions in the market and send the pair under Friday’s bottom of 1.2825. Below that the 1.2775 trough marked on October 26, may act as a barrier, while the 1.2694 bottom could be a bigger challenge.
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