UK jobs report sees welcome decline in unemployment

Tentative gains in Europe reflect a cautious optimism that tomorrow's ceasefire deadline may be averted despite Trump’s claim that he doesn’t plan to extend the two-week pause. For European markets, the main area of weakness comes from the defence stocks, with Rolls-Royce, BAE Systems, Rheinmetall, Thales, and Leonardo all losing ground. That’s stands a potential signal that markets believe we are on the cusp of a deal that not only extends the ceasefire but enacts a lasting solution that draws a line under the conflict in the Middle East. 

In the UK, the latest jobs report made for welcome reading, with unemployment enjoying the biggest decline in over two-years (4.9% from 5.2%). Hot off the heels of the latest bumper 0.5% GDP figure, this is a welcome sign that the UK economy was faring relatively well prior to the Iran war. On the claimant count front, the headline figure did come in a little hotter than expected at 26.8k, although that was overshadowed by the sharp downward revision to the January figure. Elsewhere, the latest German ZEW economic sentiment survey highlighted rampant concerns for both the German economy and eurozone as a whole. With both figures collapsing to the lowest levels since 2022, there is a perception that this energy crisis will provide dour consequences for Europe.

Looking ahead, traders will understandably be focused on events in Pakistan, with talks expected to resume ahead of tomorrow’s deadline. Trump’s claim that he doesn’t plan to extend looks like a plan to push through a final solution, although it seems likely that in the absence of a deal he would extend. The Iranian desire to negotiate with JD Vance has been granted, with the VP expected to land into Islamabad later today. Notably, Trump’s Truth Social post talking up the deal in comparison to Obama’s does represent a shift in rhetoric that moves away from talk of further conflict to justification of the eventual deal.

Meanwhile, traders should keep a close eye out for commentary from the appearance of Fed Chair nominee Kevin Warsh who appears before the Senate in Washington. His opening remarks have been released ahead of time, with Warsh warning that price stability must be met "without excuse or equivocation." In the face of rising prices, this will concern Trump given his desire to see rates lowered. The comments signalled a prioritisation of price stability and thus traders will be watching very closely to see the remainder of the hearing when Senate members pose questions that further flesh out his views in the face of rising inflation expectations.