UK wage growth slashed

Sterling’s woes were added to considerably yesterday as it weakened against all of its 16 major currency rivals – this as a result of poor data across the board. Despite UK unemployment nearing a 6 year low – dropping a further 132,000 to 2.08m, the data released yesterday along with Mark Carney’s comments during the BOE Inflation Report were far from inspiring for those backing the Pound.

Pre-data yesterday the Pound was a little firmer, however, that was short lived as of 9:30am we saw the results of the Claimant Count Change. Against a consensus of -30.0k the figure posted by the ONS actually showed that 33.6k MORE people are unemployed in the UK. These figures do seem slightly askew given that the Claimant Count Rate showed an improvement to 3% from 3.1% - this indicates a positive feel surrounding the UK labour market but that is not reflected in the rates.

Average Earnings both Including and Excluding Bonuses took a hit once again in the 3 months to June and in turn, during the BOE Inflation Report it was revealed that the Average Earnings forecast had been slashed from 2.5% to 1.25%.

Overall the tone to the Inflation Report was dovish and uninspiring. The interest rate “buzz” is now somewhat subdued as market participants forecasts once again go back to Q1 2015 as opposed to Q4 2014. Spare capacity in the labour market was highlighted as well as GDP and Inflation forecasts revised slightly higher – which points to this perhaps being a minor blip on what has otherwise been a very successful year for the UK economy. The Governor later went on to confirm that the Bank have drawn up contingency plans for whatever the outcome of the Scottish referendum may be.

The Euro once again came under some pressure yesterday – the ailing economy added more worrisome figures with the release of Eurozone Industrial Production. Factory output showed a decline of 0.3% in June and a drop in production of consumer goods and energy – this versus a consensus of 0.3% growth. As a result of the disappointing data the Euro was pushed down under the weight of the USD.

These figures come after we had already witnessed contraction in May and for the quarter as a whole, Industrial Production contracted by 0.4% - it will be interesting to see how this affects GDP figures which will be released today at 10am.

Unfortunately for the Euro, Spain were unable to prop the currency up with good news as figures showed the steepest decline in consumer prices/inflation for 5 years, adding to fears of deflation. Spain’s National Institute said consumer prices fell 0.4% in the year to July, the sharpest since October 2009. If Spain’s economy continues in this vein and other nations follow suit, ECB President Draghi’s hand will be forced to use some of the measures he has at his disposal. The likelihood is that he will wait until the full effect of the rate cut filters through before taking action.

Data this morning showed us that the German economy has contracted by 0.2% in the 3 months to June which is the first decline in output since the start of 2013. It also showed us that the Eurozone’s second largest economy, France, have become stagnant in their path to recovery with GDP figures revealing 0.0%.

At 9am we have the ECB Monthly Report which is likely to portray the same message as Draghi’s press conference last week, followed at 10am by Eurozone inflation and GDP.

US Retail Sales painted somewhat of an unattractive picture of the US economy yesterday following what has been a powerful surge of USD strength. With expectations so high after an impressive performance in the last 6 weeks the figures released yesterday put a spanner in the works. Retails Sales for July missed consensus coming in at 0.0% compared to a 0.2% target. Calls have been made now that the Greenback’s economic recovery is failing to gain traction – it shows us that despite the recent positivity, consumer spending still isn’t as robust as it needs to be. Following the Retail Sales figures Barclays were out with their latest round of forecast cuts, cutting Q2 tracking GDP to 4.0% from 4.1%.

All in all, the USD was the biggest winner on yesterday’s trading session as it pushed Sterling back from 1.6843 to 1.6685. This form is widely expected to continue as we begin we witness worrying cracks in the UK economy.

Later this afternoon we are due the release of Initial and Continuing Jobless Claims – following last week’s impressive figures market participants will be watching to see whether the US can continue to maintain the positive employment results seen this year.