London View

Solid UK Jobs Data Boosts Sterling; Better China GDP Lifts Global Markets

UK unemployment data just hit the tape; the jobless rate fell to 6.9%, better than the 7.1% forecast and down from 7.2% in the previous quarter. The jobless rate is now below the Bank of England’s 7% threshold so a bit a blowout in the sense that this will now push the MPC to update forward guidance which has remained the same since the Inflation Report earlier this year. Average three month earnings rose to 1.7% which is above UK inflation for the first time in four years.

 

That was always the big concern – labour market may be improving but average earnings were still below inflation but that has changed this week with inflation easing and jobs growth accelerating. So, a solid showing on the whole, clearly indicating the UK labour market has regained its health – sterling gets a nice lift, trading at its high for the days of around $1.6815 up from the $1.67 mark.

 

So the BOE will now have to update forward guidance and introduce fresh thresholds to unemployment – it’s very unlikely we will see any trigger of monetary tightening as the Bank continue to say that below 7% is not a trigger for an automatic hike in rates but the market will certainly now expect the BOE to offer further hints to when the Bank will consider monetary tightening. Add to the, with inflation below 2%, the BOE are less inclined to act any time soon – expect no change to the status quo for now.

 

Earlier, growth figures out of China a little better than expected, in at 7.4% for the Q1 versus expectations of around 7.3% - that’s still below 7.5% target set by policymakers in the country and down from 7.7% in Q4 – on the whole, a mixed number; sure, it suggests the economy there hasn’t slowed down as aggressively as some had thought but it’s still in a downward trend. 

 

The upshot is that activity in China picked up in March; fixed asset investments and industrial output both advanced during the month. If we continue to see improvement in Chinese economic data, then markets may be more confident about the country’s outlook. For the moment though, there’s no reason for Chinese policymakers to step in and prop up the economy. 

 

Asian markets reacted well to the China GDP figures, feeding into European market price-action this Wednesday morning; FTSE100 up 30 points, the DAX higher by 92 points and the EuroStoxx50 index up 34 points. Risk-currencies advance while gold regains composure after getting hammered in the previous session, currently up around 3 bucks. Core government bonds in that case are falling out of favour with investors with both UK gilts and German bunds falling. 

 

The return of risk appetite comes in spite of the persistent worries about the escalating situation in the Ukraine where the country’s acting President Turchynov launched special ops programme to force out pro-Russian rebels from two cities eastern Ukraine. This morning, the situation in Ukraine, although worrying as its fluid, is being put aside by financial markets who are now focused on the better China data for inspiration to snap up assets at lower levels.

 

Overnight in the US, the S&P500 closed up 0.7%, paring session losses thanks to better numbers out of Coca Cola and Johnson & Johnson. After the closing bell in the US, Yahoo and Intel both reported better figures for Q1 which should go some way later in the session to help support US tech shares. Looking ahead, eyes US housing starts as well as earnings from Bank of America, Amex, Capital One and IBM.