UK employment at record highs plateau, but salaries remain weak
|Fundamental Analysis
GBP
“Big picture remains a labour market with very strong employment plateauing at record highs ... combined with a pay disaster.”
- Torsten Bell, Resolution Foundation
Employment data released on Wednesday confirmed the view that pay growth in the United Kingdom slowed significantly following the country’s decision to leave the European Union, which boosted inflation across the country amid the sharp fall in the value of the Pound. The Office for National Statistics reported that wage growth adjusted for inflation climbed just 0.2% in the three-month period to February. Including bonuses, average hourly earnings advanced 2.3%, unchanged from the prior period, whereas analysts anticipated a 2.1% gain. Pay growth is closely followed by the Bank of England, as it is tied to consumer spending, which account for more than 60% of the UK economy. At its latest meeting, the BoE said that consumer inflation would average 2.7% this year. Meanwhile, the unemployment rate came in at a record low of 4.7%, unchanged from the three-month period to January and in line with analysts’ expectations. The number of Britons filing for unemployment aid rose 25,500 to 765,400 in March, the largest gain since July 2011, compared to the preceding month’s downwardly revised fall of 6,100, while markets held expectations for a decline of 10,200. The data also showed that job vacancies advanced 16,000 to a record high of 767,000.
CAD
“As the Federal Reserve starts to tighten interest rates, we're going to quite naturally import some of that rise and in fact we have seen that.”
- Carolyn Wilkins, Bank of Canada
As markets expected, the Bank of Canada left its monetary policy unchanged at its meeting on Wednesday amid strong economic performance. The BoC Governor Stephen Poloz said that the Bank would maintain its neutral stance despite an upward revision to economic growth forecasts for this year. However, Poloz sounded less dovish than at the January policy meeting, when policymakers discussed a possible rate cut. Nevertheless, the Bank stated that the economy continued to operate with material excess capacity and both business investment and pay growth remained subdued. Poloz pointed also to surging housing prices, adding that the sharp price rise was not driven by any fundamentals. Indeed, house prices in Toronto jumped more than 33% in March compared to a year ago. Later in the day, Poloz said that it would be wrong for the Bank to try to offset drivers that boost the Canadian Dollar but added that the weaker currency would be beneficial for some sectors and the country’s exports. Meanwhile, the BoC Senior Deputy Governor Carolyn Wilkins said that even though the Bank ignored the recent hikes by the Federal Reserve, higher interest rates in the US would have a significant impact on Canada. After the release, the Canadian Dollar hit its six-week high against its US counterpart.
USD
“U.S. oil production rose to the highest level in over a year, leaving oil prices weaker on the day after the U.S. EIA released its data.”
- ANZ
US crude oil inventories dropped more than expected last week, official figures revealed on Wednesday. The Energy Information Administration reported on Wednesday that US crude stocks fell 2.2M barrels in the week ended April 7, following the preceding week’s gain of 1.6M barrels. In the meantime, market analysts anticipated a slighter drop of 700,000 barrels during the reported period. The EIA reported also that refineries produced on average 9.9M barrels of gasoline per day and 5.1M barrels of distillate per day. Furthermore, gasoline inventories dropped 3M barrels last week, boosting market sentiment. Despite a bigger than expected drop in US crude oil inventories, oil prices fell from their five-week highs, reached last week after the United States launched a set of airstrikes against the Syrian government. However, oil prices managed to continue trading above $55. Earlier in the day, OPEC released promising reports that showed that production dropped more than initially expected last month. Nevertheless, OPEC revised up its forecast for supplies from non-member countries in 2017. OPEC and other oil producers agreed in November to cut output by 1.8M barrels per day during the first half of 2017 in order to stabilise the oil market.
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