UK Labor Data Beats – Will BOE be the First G-7 To Hike?

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Market Drivers for March 19 2014

UK Employment beats sending cable above 1.6600

Market awaits FOMC

Nikkei 0.35% Europe -.18%

Oil $99/bbl

Gold $1353/oz.

Europe and Asia:

NZD BOP -1.4B vs. -1.5B

JPY Trade -1.13T vs. -0.89T

GBP UK Claimant Count -33.9K vs. -27.6K

North America:

CAD Wholesale Sales 8:30 AM

USD Current Account 8:30 AM


UK labor data once again beat expectations sending pound to session highs above the 1.6600 level in morning London dealing. The UK claimant count printed at -34.6K much better than the -25K eyed as unemployment rolls were reduced further. The prior reading was upgraded as well to -33.9K from -27.6K initially reported. The unemployment rate remained steady at 7.2%.

Overall, this was another very impressive report made more so by the rise in average wage earnings which increased by 1.4% versus 1.3%. The rise in wages continues to lag the rise in inflation but both gauges are moving in the right direction with wages increasing while inflation continues to decline. That dynamic should prove supportive to cable bulls who are betting that the BoE will be the first G-7 central bank to hike rates in more than 5 years.

Today’s BoE minutes revealed little fresh information with central bank noting that the latest GDP revisions suggest more balanced growth. However, policymakers remained concerned about the impact of strengthening pound on the UK economy. Some MPC members were worried that it may have a disinflationary impact on prices obviating the need for near term rate hikes.

Indeed the discussion of pound strength cooled speculative sentiment post the release of the MPC minutes and the pair stalled at the 1.6630 level as short term traders took quick profits on the move. The BoE officials clearly do not want to see a strengthening currency, but like their counterparts in New Zealand they may have to act on rates sooner rather than later if the economy continues to perform at the current pace. Delaying tightening too long could provide the foundation for another housing bubble with much graver consequences.

Meanwhile in North America today attention will turn to the Fed as the new chairwoman Janet Yellen holds her first FOMC conference. Ms. Yellen is a known dove, but so far she has adhered to a very steady line of continuity in her policy actions indicating that the Fed taper program will proceed on schedule.

Given the relatively strong US labor data readings there is no reason to think that she will change her tone at today’s presser. Even the recent geo-political tensions are unlikely to have much impact on Fed policy since they are not creating any meaningful economic drag. The one question for the market is whether Ms. Yellen will choose to do a “Mark Carney” and suggest that when the Fed decides to begin raising rates, the tightening cycle is likely to top out at much lower levels than historical norms. Such dovish slant could prove to be mildly dollar bearish, but overall today’s press conference is unlikely to create much volatility.

Boris Schlossberg
Managing Director

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