Market Brief: huge non-farms, quiet markets ahead?

31 May 2020

Ian Wilson

Dealing team

Without a doubt, Friday’s big news was the much better than expected headline Non-farm payrolls figure.

Today's data releases
  Key levels
09.30 Euro area finance ministers meeting in Brussels
  Support Resistance
12.30 EU Commissioner Jyrki Katainen speaks
GBP/USD 1.3657 1.3930
23.45 NZ RBNZ Governor Grant Spencer speaks
GBP/EUR 1.1200 1.1279

Market overview

Without a doubt Friday’s big news was the much better than expected headline Non-farm payrolls figure. 313,000 jobs were added versus an estimate of 200,000. This was the biggest beat versus expectations since December 2009. The unemployment rate held steady at 4.1% for a 5th consecutive month, staying at the lowest level since December 2000. Besides the headline figure the market was also watching wage growth which was relatively muted with average hourly earnings up 2.6% y/y versus an estimate of 2.8%. The market seemed to take the report as confirmation that economic growth is quite strong and though jobs growth is very firm, these figures should help to soothe short-term market concerns about inflation prospects. In addition to this month’s release, the previous months’ revisions from 160,000 to 175,000 for December and 200,000 to 239,000 for January helped to tell the growth story.
 
In the UK the ONS’s monthly short-term indicators release suggests the UK economy got off to a slow start to the year and is likely to remain sluggish in the near-term due to the recent adverse weather conditions. Manufacturing output growth slowed to just 0.1% (mom) from 0.3% (mom) in December, falling short of both consensus and our own expectations for a 0.2% (mom) expansion. The uptick was narrow-based, with only 5 of the 13 sub-sectors experiencing growth over the month. It was a more positive picture for overall industrial production, with a 1.3% (mom) climb (consensus +1.5%, Investec +1.0%) mirroring the January decline. Meanwhile, construction output dropped 3.4% (mom) (consensus -0.5%) following a 1.6% (mom) rise in December, the sharpest in five-and-a-half years. With regards to February, heavy snowfall in the latter part of the month caused widespread disruption to UK factories and supply chains, which is almost certain to have weighed on manufacturing and construction output. Separately it is reported this morning that house prices in London fell last month, even as the rest of the UK continued to grow. According to Your Move, average Greater London house prices were down 0.8% on the month, a 2.6% drop in prices year over year.
 
Elsewhere in the world it is reported that North Korean leader Kim Jong Un wants to sign a peace treaty and establish diplomatic relations with the US. Another boost for risk appetite is the seeming narrowing in the breadth of countries the White House’s tariff plan looks set to apply to. Finally, though not something we consider day-to-day, the Bank for International Settlements has suggested that China, Canada and Hong Kong are among the economies most at risk of a banking crisis.

 

The week ahead

Domestically, there is not a single top-tier data release due this week. However two events to watch out for will be the Chancellor’s Spring Statement and the BoE’s FPC statement. We’re expecting the Spring Statement to be a fairly low-key affair although it is still worth watching for any surprises. It should be a combination of economic and public finance forecasts and announcements of areas for consultation with no tax or spending announcements. The Chancellor may well report that the Office for Budget Responsibility expects to see the 2017/18 deficit come out as the smallest in a decade. Elsewhere ECB President Draghi speaks on Wednesday and the SNB and Norges Bank give their latest policy decisions this week – both are expected to maintain steady policy. All in all it looks like a quiet week data and news-wise so it may be worthwhile taking stock of recent moves and considering current levels and your wider FX strategy.
 

Thought of the day

A huge week in the horse racing calendar takes place this week with four action packed race days at the Cheltenham festival. Most attention will likely be on the final day where the runners and riders will be competing for the prestigious gold cup. Whilst we all like a flutter now and then, some are not so convinced about the joys of placing a bet, including the late American playwright, Wilson Mizner who once said gambling is “the sure way of getting nothing from something”. He may have been on to something when it comes to currency a business. Many Euro buyers continue to feel the pinch of the pound’s torrid post-Brexit spell but those feeling the pain most are those that have not followed a hedging policy appropriate for their business. If you’re tired of rolling the dice when it comes to managing your currency and would like to put a robust currency strategy together, please call us on 0800 055 6339.

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