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September 2017

Sterling rises on inflation – could do more on employment data

Published: Wednesday 13 September 2017

  • Sterling rises on inflation – could do more on employment data
  • Aussie consumers less confident on wage fears
  • US producer prices should be up on weaker USD
By David Johnson
UK inflation data was the big news yesterday. An improvement to 2.7% was enough to get the Pound rising and we saw a very healthy recovery for Sterling, which pushed above €1.11 and USD 1.33. Today’s challenge is the UK employment data. Most analysts believe the unemployment rate is likely to remain at 4.4%. That, to all intents and purposes, is full employment and it should now start fuelling wage growth. In today’s numbers, a push up to annualised 2.4% wage growth is likely and, although that is below the headline inflation number, the one-off aspects of the Consumer Price Inflation (CPI) data will most likely work their way out of the numbers over the next few months. That should lead to wage growth running above inflation by the latter part of this year or early next and that is the point at which the Bank of England (BoE) might start to tighten monetary policy. Tomorrow’s BoE meeting may shine some light on that. Either way, if today’s data is as positive as the analysts forecast, further Sterling strength cannot be ruled out.
Overnight we heard that, in line with a slide in business confidence, Australian consumers are less confident about their futures as wage concerns take their toll. A downturn in those preparing to make major purchases is weighing on the Australian Dollar, which caused the GBP-AUD exchange rate to rise to 1.65. We saw similar weakness in the AUD against other currencies.
Sterling’s rise against the Euro may be curtailed if today’s Eurozone industrial production data is as positive as forecasters would have us believe. A bounce back from last month’s slower figure to 3.3% or thereabouts would restore some faith in the Eurozone recovery and boost the Euro itself.
This afternoon brings US producer prices and the weaker US Dollar is likely to have pushed prices up by 2.5% or maybe more. That compares to last month’s 1.9% annualised growth figure. On its own, that isn’t enough to make the Federal Reserve hike the base rate, but it does add weight to the arguments for tighter monetary policy in the US.
We will get UK housing market data from the Royal Institution of Chartered Surveyors (RICS) overnight tonight and a further slowdown in the national market is likely but the South East may once again buck that trend.
And Storm Aileen blew through parts of the UK overnight. Compared to the devastation in Asia, Florida and the Caribbean, the effects were laughable, as highlighted by some of the Tweets doing the rounds this morning. Pictures of bins blown over, gardens chairs shifted and plant pots dislodged are accompanied by captions relating to ‘devastation’ and ‘havoc’. I love irony when it is done well.

When I was a kid, my dad used to help me put my pocket money in a special money box under the stairs to keep it safe.
I was 15 before I found out everyone else called it, ‘the electricity meter’.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Average Earnings Index 2.1% 2.3%
GBP 09:30 UK: Claimant Count Change -4.2k 0.8k
GBP 09:30 UK: Unemployment Rate 4.4% 4.4%
EUR 10:00 EU: Industrial Production -0.5% 0.1%
USD 13:30 US: Producer Price Index -0.1% 0.3%
USD 13:30 US: Core Producer Price Index -0.1% 0.2%
USD 15:30 US: Crude Oil Inventories 4.6m 4.1m
USD 19:00 Federal Reserve Budget Balance -42.9b -118.6b
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