UK employment falls and wage growth slows

Summary:

• More soft data from the UK

• Employment change drops; Wage growth falls

• GBPNZD looking to push higher ahead of RBNZ

Even though the unemployment rate ticked back down to its lowest level in several decades the latest employment report from the UK has delivered bad news on the whole for workers. One concerning aspect is the fall in wages with average weekly earnings coming in worse than expected and the prior month’s number also revised down to boot. Employment also fell with the drop in this area over the last 3 months the biggest fall since May 2015. For the second day running we’ve had disappointing figures from the UK and while the adverse reaction in the markets has been minimal, it does look worryingly like the possible start of a downwards trend.

While UK wages in both nominal and real terms remain near their best levels in several years they have pulled back a little of late. Source: XTB Macrobond    

Politics remains main GBP driver

The latest employment figures come just a day after Monday’s GDP data and we’re not done yet with inflation measures due out tomorrow before Thursday sees the most recent look at consumer spending with the retail sales data for October. While it’s a busy week of economic data with several top tier releases, the markets remain not too sensitive to developments on this front with politics still the primary driver. 

BXP not to contest Tory seats

The market reaction to the news that the Brexit party will not contest seats won by the Conservatives in the last election is a case in point, with the sharp move higher in the pound somewhere in the region of 5-6 times larger than the swings seen following the GDP release or jobs data. Even though this is clearly good news for the Conservatives, it is still not clear whether it will be a real game changed. Of the 317 seats won by the party in the 2017 they will surely lose 20-30 with MPs in Scotland and remain constituencies in the south most at threat. 

Therefore the prospects for a Tory majority will likely rely on their gains made elsewhere, particularly in the midlands and the north where there is still a longstanding and deep rooted dislike of the party amongst many. These are the seats that could well be the most as risk of splitting the vote between the Tories and Brexit party as “leavers” who can’t bring themselves to vote for the former could well end up backing the latter and boost the chances of Labour sneaking in. 

Tory prospects overstated?

Bookmakers are now pricing in a roughly two-in-three chance of a Tory majority with those offering a spread on the number of seats seeing over 340 being won. There is little doubt that an outcome in keeping with this is perfectly feasible but there is also a suggestion that people are overstating the position of the Conservatives. The party are consistently polling as the clear front runner with around 40% support but this is likely a fairly poor proxy for how the number of seats won will play out with Labour for instance receiving 40% of the 2017 election vote and only winning 262 seats. Put another way, there’s a large margin of error in these forecasts and due to the unpredictable nature of politics in recent years it wouldn’t be at all surprising if the final outcome differs significantly from the current projections.

The GBPNZD rate is looking to push higher again with the prior resistance around 2.0020 and the 21 EMA (yellow line) attracting buyers on recent dips. With the New Zealand central bank set to announce the outcome of their latest policy overnight and there being a fair chance that they cut rates there is likely to be heightened volatility in this pair over the next 24 hours. Source: xStation          

Sterling dropped

While the pound reacted positively to the announcement from Nigel Farage, the gains have since been pared back somewhat and elsewhere the big news in the football world is that Raheem Sterling has been dropped from the England side for the Euro 2020 qualifier against Montenegro. An altercation with teammate Joe Gomez the day after the two battled it out in the Man City vs Liverpool game has led to the disciplinary action with social media quick to pounce on the events, with several barbs directed at Sterling’s (perhaps unfair) reputation as a greedy footballer with reports that he went down in installments after taking a cheap shot likely wide of the mark.