- The claimant count in the UK labour market update should show a solid decline
- The lift in jobs would be welcome news in the context of Brexit uncertainty
- Today’s US existing home sales data should deliver some upbeat news
- The bullish momentum of the EURUSD appears to be strengthening
Wednesday’s a moderately busy day for economic reports, including the monthly update on the UK labour market. We’ll also see fresh data on existing home sales for the US in March, which will be closely read after yesterday's surprisingly soft report on residential housing construction. Meantime, keep an eye on the bullish trend in the EUR/USD.
UK: Labour Market Report (0830 GMT): Britain faces numerous layers of economic uncertainty if voters decide to leave the European Union—a decision that comes to a head in the June poll. Whatever happens, recent history looks encouraging via the labour market trend, providing a degree of comfort ahead of the black hole of Brexit voting.
It’s anyone’s guess how payrolls might fare on the other side of a decision to break with the EU. The rear view mirror for jobs, however, still looks solid and today’s numbers are on track to reaffirm the upbeat profile.
Consider the trend for the claimant count. New filings for unemployment benefits have resumed a healthy decline in recent months after a run of largely flat readings through most of last year. By contrast, the December through February updates point to a sharp drop in the claimant count, marking what looks like a new bullish phase for this leading indicator.
Today’s update for March is expected to provide more support for macro optimism. Econoday.com’s consensus forecast calls for a 10,000 decline in claimants. That’s softer than the sharp slide of 18,000 in the previous report, but it’s still a solid drop with enough punch to convince the crowd that Britain’s labour market is still poised to expand at a healthy rate in the near future.
US: Existing Homes Sales (1400 GMT): New residential housing construction fell in March, surprising analysts with a hefty drop to 1.089 million units (seasonally adjusted annual rate)—a five-month low. Economists expected a modest increase.
The optimistic spin is that the seasonal adjustment is distorting the trend. By this reasoning, the upbeat data for February “stole” some of March’s thunder due to a warm winter. In raw terms, starts climbed last month to the highest level since November. But raw numbers are only valid in terms of a year-over-year lens. By that standard the unadjusted figures tell the same story as the adjusted numbers: growth is middling at best at the end of the first quarter.
The optimists have another shot at making their case with today’s report on existing home sales for March. The stakes are bit higher this time, however. Existing sales suffered a dramatic drop in the previously released February report--sales crumbled to 5.08 million units (seasonally adjusted annual rate)--the second-lowest print in a year.
The crowd’s looking for a rebound in today’s March update. Econoday.com’s consensus view sees existing sales posting a moderate bounce to 5.28 million units. But if another round of disappointment turns up, which would be for the second time with regards to existing sales, then even the permanent optimists on housing would have a tough time spinning the news.
EUR/USD: Is the euro set to resume its bullish trend against the dollar? Recent market action suggests as much.
After backing and filling in recent weeks, EURUSD has been climbing again. As of midday on Tuesday, New York time (Tuesday 1600 GMT) the euro was higher against the US dollar at just below $1.137. Looking further out, breaking above the $1.14 level—the ceiling, give or take, in early April—would mark another step in arguing that the single currency has resumed the uptrend that began in late-2015 before taking a respite in the first half of April.
Note the bullish pattern in the daily data for EURUSD, which has made a decisive run above several moving averages in recent weeks (see the chart below). Also, the 100-day moving average has climbed above its 200-day counterpart recently, implying that the bullish momentum may still have room to run.
Driving the euro’s upside revival is the growing recognition that the Federal Reserve will likely punt on raising interest rates at next week’s monetary meeting. Although US payrolls have remained firm, surprisingly soft data for retail sales, industrial production, and housing starts in March will likely keep the Fed on hold until the economic news improves.
Nonetheless, there are probably limits to the European Central Bank’s tolerance for euro strength. As I noted last week (in 3 Numbers: Italy’s industrial output rebound set to roll on), reports have circulated that the 1.15 mark is the ECB’s topside limit for EURUSD these days. Perhaps so, but taking the number at face value still leaves a fair amount of room for another leg up.
Disclosure: Originally published at Saxo Bank TradingFloor.com