United Kingdom Unemployment is expected to fall further; U.S. retail sales are also expected to weaken
EThe European and American markets set new records again yesterday, while managing to end the day in a mixed manner.
In Europe, the DAX and EuroStoxx 50 set new records, before retreating, with the DAX ending the day slightly lower, while in the US, the Nasdaq and S & P500 set new records, although the Dow and Russell 2000 ended lower.
As the Federal Reserve prepares to announce its latest decision tomorrow, markets appear to be embracing the line of least resistance, which is a slow, gradual upward movement with a ‘two steps forward and one step back’ approach. over the past week or so.
Today’s European Open is expected to unfold in a similar fashion with a modestly positive opening, with the focus, aside from the FOMC conclusion tomorrow, on today’s UK unemployment figures and US retail sales and PPI for May.
Yesterday, the FTSE100 also hit its best levels in over a year, despite weakness in travel and leisure stocks.
The pound has remained fairly well supported in recent weeks, despite renewed tensions over the Northern Irish protocol. The main focus of the markets seems to be less concerned with the hot air generated than with the overall reopening of the UK economy. The main focus should remain on the number of people still on leave and the pace of reduction as the economy moves forward in its process of reopening, with today’s April figures set to mark a further decline in the rate of leave. ILO unemployment in the UK at 4.7%.
In March, the UK ILO unemployment rate fell to 4.8%, after reaching 5.1% in December. It remains clear that the government leave scheme continues to mask the underlying effects of the pandemic, meaning that the very real effects on the UK labor market will only start to be felt until the third quarter at the earliest, while the leave scheme begins its process wind down.
For now, the outlook remains positive, despite the four-week extension of restrictions yesterday, a trend that should continue to show in the latest monthly jobless claims which fell again in April to 7.2%, and may well approach the 7% level today as more businesses reopen and the economy returns to a much higher level of economic activity.
While the outlook for unemployment looks more positive as the summer months approach, that doesn’t mean it can’t rise.
Many jobs that existed over a year ago may not return, and now that the June reopening date of next week has slipped, we could see more businesses could go.
The Bank of England has previously indicated that it expects unemployment to rise, but not as much as it thought in February when its projections called for a peak of 7.7%. This was adjusted downward in the last inflation report, to 5.2% for this year, and then to 4.7% in the second quarter of 2022.
After a weak year-end 2020, US consumer spending has seen a fairly stop-start rebound this year, with large amounts of fiscal stimulus helping to spur a rebound in consumption.
In January, we received the first down payment in the form of a new $ 900 billion stimulus package that was agreed at the end of last year, causing a significant rebound in January retail sales from 7 , 6%, to a seven-month high, and while the February figures saw a 2.7% drop, the new stimulus payments that were signed in March of $ 1.9 billion saw another large increase in consumer spending for March with the best performance since April of last year when the United States emerged from its first lockdown, up 10.7%.
Unsurprisingly, after such a strong March, April’s figures fell sharply to 0%, missing the consensus of a 1.1% increase.
After seeing the below-expected job gains in the monthly payroll figures, this looks roughly in line with expectations, and with inflationary pressures increasing, we might see another weak figure when the May figures today will be published.
While the United States is doing well on plans to roll out vaccines and reopen the economy, with theme and vacation parks reopening as well, there still seems to be an overarching sense of caution regarding travel habits. consumer spending that seems to temper retail sales. Higher fuel prices probably don’t help with an expectation of an expected -0.7% drop.
With inflation at multi-year highs, today’s PPI figures for May could also offer another glimpse into the inflationary surge in the US economy. Often a leading indicator of future CPI numbers, they have proven to be reasonably accurate so far. Today’s overall PPI is expected to remain at 6.2%, but base prices are expected to rise another 4.1% to 4.8%, which would be additional food for thought for FOMC members when ‘they will sit down and begin their deliberations later today.
EURUSD – the slight bearish bias persists after the failure last week in the 1.2200 zone. We seem to have found some support at the 50 day MA at 1.2090 with wider support at the 1.2050 level. A break below 1.2050 may well open a move towards 1.1850.
GBPUSD – managed to stay above the 1.4070 zone yesterday. Although above this support the bias for higher move through the 1.4200 area, with wider resistance at 1.4240, is maintained. A move into the 1.4240 area targets the 2018 peaks at 1.4375.
EURGBP – the failure in the 0.8640 zone last week maintains the downward bias. Although below this resistance level the bias remains on the downside and retest of the 0.8560 area. A break below 0.8550 opens recent lows at 0.8480.
USDJPY – after recovering above 110 yesterday we need to move up to 110.40 to target the 111.00 area. A move below the trendline support now at 109.50 opens a return to the 108.60 area on a break below 109.20.
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