- Eurozone faces mounting problems
- UK employment and wages data will point the way for Sterling
By David Johnson
The Reserve Bank of Australia (RBA) released the minutes from their last meeting last night. Whilst there was a hint that the next interest rate move was likely to be a hike, that doesn’t seem at all likely in the medium term. The Australian Dollar was largely unmoved by the vagueness of this message.
Eurozone prepares for bad news
There has been a bit of bad news (well, forecasts of bad news) for the Eurozone. According to one member of the European Central Bank (ECB), Germany needs to prepare itself for tough times ahead because the ECB has limited scope to step in; largely because interest rates and quantitative easing (QE) levels have not yet normalised since the 2007 crisis. Also, the International Monetary Fund (IMF) has downgraded its growth forecasts for the Eurozone for 2.18. Down from 2.4% to 2.2%, but the IMF doesn’t have a great record of forecasting anything, so maybe that is a red herring. There is really only Italian inflation data to follow from an EU perspective today, so the Euro is likely to slide a little but not a lot.
UK employment data today unlikely to boost Pound
UK data is a little more exciting though, as we get employment and earnings data today. With employment at virtually full capacity, the unemployment rate is still at 4.2%, but average earnings, although still in the high 2.0% area, have dropped a little from last month, to 2.5% from 2.6%. That is still ahead of inflation and therefore positive for economic growth, although today’s results are unlikely to provide much support for the Pound.
US industrial data expected but USD safe haven status is the more interesting measure
US data is also in full attendance today. Industrial production and manufacturing output data is expected to show a rebound from last month’s negative numbers and we expect there to be a small rise in capacity utilisation; a positive for wage and employment growth. What will be interesting is the level of inward flow of funds into the US treasury market. We have seen enormous increases in the amount of money pushing into the safety of the US bond market over the first few months of 2018 and May is likely to continue that trend. This says something about the safe haven status of Uncle Sam’s coffers but also about global investor nervousness. I guess with Trump on the rampage, that isn’t a surprise.
A royal by any other name…
And on this day in 1917, King George V changed the name of the royal family from Saxe-Coburg-Gotha to Windsor. I guess it was either that or we ended up with a Saxe-Coburg-Gotha-on-Thames in Berkshire. Good choice, Your Highness.