UK employment report was stronger than expected - BBH

Research Team at BBH, suggests that although sterling and interest rates have not fully recovered from the Brexit decision, equity markets have, and fear of contagion has died down. 

Key Quotes                               

“Indeed, it appears the UK may not be in the back of the queue from trade deals after all, and the IMF's more pessimistic scenario about the contagious impact has been significantly revised away. 

Today's news seems consistent with this Brexit-ain't-so-bad meme.  The UK employment report was stronger than expected.  Furthermore, the BOE "agents summary of business conditions," which is a bit like the Fed's Beige Book, if a little more formal, found little impact from the referendum on hiring and investment plans.  Two-thirds did not anticipate a negative impact over the next 12 months.  There was little evidence of impact on consumer spending or bank lending in the survey.  The decline in sterling is seen to benefit exporters, while perhaps also some import substitution. 

The UK unemployment rate slipped to 4.9% from 5.0% in the three months through May.  It is the lowest rate in a little more than a decade.  The number of people working increased by 176k, the most this year.  The number of jobless fell 54k.  The claimant count increased by 400, a tenth of what was expected, but this was negated by the upward revision to the May claimant count to 12.2k from - 400.  Overall weekly earnings rose to 2.3% from 2.0%, but this was a function of bonuses, which, if excluded, slows earnings growth to 2.2% from 2.3%. 

Sterling had fallen to $1.3065 before the data, a six-day low.  It rallied a cent to new session highs, just below $1.3170.  The market may need more incentive to take sterling much above $1.3230.  The jobs data is nice to know, but it was all collected before the referendum.  The BOE survey may be timelier, but it may still be too anecdotal, which means that it is unlikely to alter expectation for the BOE to cut rates and initiate a new asset purchase program as early as next month. 

Also, even if the immediate impact is less negative than it may have first appeared, it is too early to draw hard conclusions.  Investors have already seen pressure in the commercial real estate market.  Many new securities give the impression of allowing investors to get exposure to an illiquid asset in some kind of liquid form.  Reports suggest that in the dozen days after the referendum, there was a surge of cuts in asking prices on London residential properties while sales collapsed by nearly 20%.”