- UK workers receiving jobless benefits on track to rise again in April
- Japan expected to report a fifth straight quarter of growth in today’s Q1 GDP data
- Economics and politics have ignited a rally in EUR/USD
- Donald Trump's troubles could pose a threat to his pro-growth legislative agenda
The jobless rate in the UK is expected to hold steady today at a low 4.7%, but the claimant count is on track to rise for a second month in April. Meanwhile, economists forecast that Japan will report a fifth straight quarter of growth in today’s first look at Q1 GDP from the government. In forex, EUR/USD continues to dominate the headlines as politics and economics converge to give the euro a lift at the expense of the US dollar.
UK: Labour Market Report (0830 GMT): Stronger-than-expected inflation in yesterday’s April update raises new questions about the monetary policy outlook. But if faster increases in consumer prices imply that the Bank of England may be forced to raise interest rates sooner than predicted, today’s April release on the labour market may provide the doves with a respite from any hawkish influence.
Economists see the claimant count rising for a second month, albeit at a lesser pace. Econoday.com’s consensus forecast calls for an increase of 10,000 in the ranks of newly unemployed, down from the March surge of nearly 26,000.
A softer labour market will give the BoE an excuse to keep low interest rates intact. Note, however, that the crowd’s also looking for a pick-up in wages growth. Average earnings are set to rise 2.4% for the year through last month, up slightly from 2.3% in March.
But a new report from the EY Item Club anticipates that employment growth will moderate this year, and so any uptick in wages growth will be temporary. “The UK labour market is set to face a rockier period over the next few years with unemployment rising as the consequences of a slowdown in economic growth bite and pay growth remaining subdued,” the consultancy advised on Tuesday.
Today’s figures on the claimant count are on track to support that forecast, providing BoE with some macro cover for keeping rates unchanged for the near term.
Japan: GDP Report (2350 GMT): The economy is expected to grow for a fifth consecutive quarter in today’s first preliminary Q1 GDP update, based on economic projections from several sources. If the forecasts are right, the news will fortify the view that the country is on a sustainable path of moderate growth.
A recent Reuters survey and the consensus forecast via TradingEconomics.com point to a 0.4% rise in GDP in the first three months of the year. That's up fractionally from a 0.3% rise in the previous quarter. Econoday.com’s consensus forecast is a bit higher, projecting a 0.5% gain.
“The economy in fiscal 2017 is expected to continue to pick up with a tailwind of such as the global economic recovery and a weak yen,” said a senior economist at Mizuho Research Institute.
The latest survey data for Japan’s service and manufacturing sectors paint an upbeat profile too. An upswing in new export orders is boosting sentiment for manufacturing while moderate growth for service companies rolls on through April.
“April’s survey data indicated a slightly softer rate of service sector expansion, although with manufacturers indicating faster growth over the month, overall economic output is rising at a similar pace to that seen over the first three months of the year,” an economist at IHS Markit said earlier this month.
Today’s GDP release is widely expected to reinforce a cautiously optimistic outlook for Japan’s economy.
EUR/USD: The euro’s latest rally carried it above the $1.10 mark on Tuesday for the first time since last November. Some analysts remain sceptical that the single currency will continue to rise. The technical profile for EUR/USD, however, is looking increasingly bullish while various concerns about US President Donald Trump offer traders a new excuse to sell the dollar.
The 50-day average for EUR/USD has been above the 100-day average in recent weeks and the 200-day average may soon be breached, based on analysis of daily data. The recovery follows a string of encouraging economic reports for the Eurozone.
Politics in Europe is cooperating too. Notably, the recent election of Emmanuel Macron as president of France cheered markets on the basis of his pro-EU platform that’s also focused on economic reform for Europe’s second-largest economy.
Meanwhile, German Chancellor Angela Merkel’s re-election prospects in September brightened in the wake of Sunday’s victory for her party in regional elections. The triumph dealt a setback for her main challenger, suggesting that political continuity is likely for Europe’s biggest economy in the upcoming national parliamentary elections.
Another boost for the euro is linked to the latest turmoil surrounding President Trump, who faces new questions about his leadership. Reports surfaced earlier this week that he revealed sensitive classified information to the Russian foreign minister and ambassador during a White House meeting last week.
The latest twist on the Trump-Russia story is fuelling concerns that the president's troubles threaten to derail his pro-growth legislative agenda. Far-fetched? Maybe, but at the moment the case looks compelling for buying the euro and selling the dollar and the Trump headlines are fanning these flames.
Considering the big picture has inspired traders to wonder if EUR/USD will soon top the previous peak from last November at just above $1.11. At midday (New York time) on Tuesday, that barrier looks set to fall soon.
Disclosure: Originally published at Saxo Bank TradingFloor.com