A downbeat tone in Europe today, coming off the back of a US session that saw the tech sector lead markets lower after initial gains.
Notably, this morning saw a concerning jobs report out of the UK, with unemployment rising to 5.1%, the claimant count hitting 20.1k, and average hourly earnings coming in hotter-than-expected.
Coming in the leadup to Thursday’s BoE rate decision, the weakness seen in today’s report should see traders double down on the notion that we will see a 25bp cut from Bailey & co. Notably, the 7.9% public sector wage growth figure stands in stark contrast to the 3.9% seen in the private sector, highlighting the inflationary impact of the government’s previous budgetary measures.
However, there has been some good news in the wake of the Chancellors latest efforts, with a resurgence in business activity in the wake of the budget seeing a composite PMI figure that is consistent with 0.2% GDP growth in December.
Nonetheless, she shouldn’t celebrate too much, with her pre-budget antics having damaged business activity as a whole range of prospective policy measures were thrown out to the public, forcing many to make investment and personal finance choices that would have ultimately proven unnecessary.
When looking at the latest UK PMI survey, one concern comes from the fact that the surge in new orders came alongside a sharp rise in input costs and prices charged, as producers passed their rising costs on to the consumer.
Things have been less convincing on the other side of the channel, with PMI surveys released throughout mainland Europe losing traction as we head into year-end. Crucially, forecasts of a rise back into expansion territory for eurozone manufacturing didn’t come to pass, with the concerning slump in the German manufacturing metric serving to drive the regional figure lower.
That German figure of 47.7 represented the sharpest contraction in ten months, in part driven by the fastest decline in new orders since January. This in turn was driven by a deeper fall in export sales. While there is a hope that the potential loosening of emission requirements under Donald Trump could help European carmakers, today’s figures make for concerning reading for eurozone manufacturers. However, sentiment doesn’t look too shabby according to the latest German ZEW economic sentiment survey, which rose to a five-month high of 45.8.
Today sees the release of the belated jobs data out of the US, with traders having to digest payrolls figures from both October and November. Coming hot off the heels of last week’s FOMC interest rate cut there are question marks over the impact today’s data will make on the next meeting.
Notably, in the absence of the headline jobs data, we have seen markets follow the ADP report which has shown precious few reasons to be optimistic. Forecasts for today’s payrolls data highlights a continuation of the stuttering jobs market, with figures around 25-50k expected.
Notably, while the payrolls data has highlighted a stuttering hiring environment, the unemployment rate does highlight the fact that once people obtain a job they often manage to keep it. While we have seen the odd jump in the challenger job cuts figure, much of the data seen since Trump entered the White House have been relatively normal by historical standards. Whether today’s release is enough to push the narrative around a need to swiftly ease again remains to be seen.
