Cable Climbs on Better Labor Data

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Market Drivers for August 14, 2013
UK employment improves markedly boosting cable
EU GDP beats forecast – region out of recession
Nikkei 1.32% Europe 0.05%
Oil $106/bbl
Gold $1323/oz.

Europe and Asia:
AUD Westpac Consumer Confidence 3.5% vs. 0.1%
NZD Retail Sales ex Inflation 2.3% vs. 1.3%
CHF Producer & Import Prices 0.0% vs. 0.4%
CHF ZEW Survey (Expectations) 7.2 vs. 4.8
EUR German GDP 0.7% vs. 0.6%
EUR EZ GDP 0.3% vs. 0.2%
GBP BOE Minutes 8-1
GBP Claimant Count Rate -29.2K vs. -14.3K
GBP Jobless Claims Change
GBP ILO Unemployment Rate
GBP Employment Change 7.8% vs. 7.8%

North America:
USD PPI 8:30

UK employment data handily beat market expectations as jobless rolls shrank by nearly twice the forecast helping to boost the pound in early London trade today. UK claimant count saw a decline of -29.2K versus -14.3K forecast but the unemployment rate remained steady at 7.8%.
The prior months data was revised to -29.4K from -21.2k originally reported.

This was the best labor data reading since February of 2009 as the claimant count rate declined to 4.3% while the fall in claims was the biggest since May of 2010. Overall, this was a very solid report which demonstrated that the UK recovery continues to gather momentum in H2 of this year as job growth picks up. The one key factor that may hamper growth is the lack of progress in wage increases as average earnings rose at 2.1% expected rate.

In addition to the employment data the BOE also released the MPC minutes which showed that the committee was unanimous on both the rate policy and QE voting 9-0. However on the issue of forward guidance Martin Weale dissented, seeking a shorter term horizon for the 2.5% inflation target knockout. Although the minutes stated that he, “nevertheless intended to form his future judgements about the application of guidance and the knockout criteria in line with the framework adopted by the Committee.”

Overall there were no major surprises in the minutes, but their tone struck some market observers as more hawkish than dovish and that tempered some of cable’s rally. The pair initially spiked to a high of 1.5505 in the aftermath of the release, but then drifted lower to trade at 1.5460 by mid morning London dealing.

In Europe the GDP data also beat to the upside printing at 0.3% versus 0.2% eyed spurred primarily by the sharp rebound in German GDP which rose 0.7% versus 0.6% forecast. French GDP also showed a very strong improvement increasing by 0.5% versus 0.1% forecast. The EZ has finally come out of its longest recession in the post war period, but the data had little impact on the EUR/USD which actually moved lower on the news breaking below the 1.3250 level.

The recent weakness in the euro is not so much a function of any fundamental problem in the region but rather a reaction to the strengthening dollar as the market continues to price in the prospect of a taper in September. Yesterday’s decent US Retail Sales data did not pose any obstacles to that timeline and today the market may focus on the comments of the St. Louis Fed President James Bullard who will speaking about the low readings in inflation.

For now the dollar rally especially against the yen has stalled ahead of the 98.50 level but if the pair can clear that barrier over the next few days it could make another run at the key 100.00 barrier as long as US data remains supportive.

Boris Schlossberg
Managing Director

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