Tuesday’s employment data showed that UK earnings have at last recovered to their pre-financial-crisis levels. At least, basic wages have done that. Total earnings, including bonuses, are still lower than they were 12 years ago. Investors looked on the bright side.
Rather than focus on the slowdown in wages growth, investors looked instead at the 180k jobs added in the fourth quarter of 2019 and the record high 76.5% employment rate. They preferred the 3.8% unemployment rate to the 0.5% quarterly fall in labour productivity (output per worker). The government hailed the news as a triumph for Brexit “as we embark on a new chapter as an independent nation outside the EU”.
Sterling reacted positively, picking up half a US cent which it spent the rest of the day gradually handing back. It is net unchanged against the US, Canadian and Australian dollar, and shares with them an average gain of 0.3% against the other major currencies. For the third time in four days the Swedish krona took last place, hurt this time by a jump in unemployment.
ZEW’s surveys of institutional investors in Germany and pan-Euroland found them less confident in February than a month earlier. In Germany, economic sentiment “decreased sharply in February, falling 18.0 points to 8.7”. For the euro zone as a whole the reading fell 15 points to 10.4.
The ZEW measures were the only ecostats of any consequence from Europe and they made investors disinclined to embrace the euro. It lost ground on almost every front, giving up a third of a US cent and falling nearly half a cent against sterling.
Across the Atlantic, confidence was mixed. US manufacturers were more positive, according to the New York Federal Reserve’s survey, with the new orders index 16 points higher at 22.1. Canadian manufacturers were presumably less so, given the fourth consecutive month of declining sales. The US NAHB housing market index, which is “designed to take the pulse of the single-family housing market”, dropped one point to 74 in February but “optimism is still high”. New Zealand’s GDT index of milk prices fell to a five-month low and “analysts say the prices could see further downward pressure due to the impact on exports from the spread of the coronavirus in China”.
Inflation and immigration
Today began with a widening of Japan’s trade deficit and a further fall in machinery orders. It continues with inflation readings from South Africa, Sweden, Britain and Canada and ends with the minutes of last month’s Federal Open Market Committee meeting.
Given the recent pressure on the Swedish krona, it is probably fair to assume that an inflation figure below the forecast 1.7% would mean further damage. UK consumer prices are forecast to have risen 1.6% in the year to January, with the retail price index up 2.6% on the year. Canadian inflation is pencilled in at 2.3%, an incremental increase from December.
The US data cover producer prices, building permits and housing starts. The real excitement comes tonight with the Australian employment data. Analysts predict the addition of 10k jobs in January but they almost never get it right.