UK Labour Market, BoE Minutes, Gold Prices

The market will be eager to learn in today's update if the UK labour market was still leaning toward growth in March. Also, today’s minutes from the Bank of England may tell us how policymakers are interpreting the central bank’s new flexibility for managing monetary policy. Meantime, keep an eye on gold prices for clues on how the market sees the competing threats of inflation versus disinflation/deflation.

UK Labour Market Report (08:30 GMT)
A widespread worry in Britain among the policy elite is that the one-two punch of rising inflation and sluggish growth continues to lurk. But if stagflation is a risk, it looked fairly muted in yesterday’s monthly consumer price report relative to the recent trend. Consumer inflation remained unchanged at a 2.8 percent annual rate in March for the second month running. That’s still above the central bank’s two percent target, but the fact that inflation remains stable is encouraging. All the more so if the labour market can show another round of modest healing.

No one thinks the pace of jobs creation in Britain is healthy at this point, but the modest dip in the jobless late in recent months at least hints at improvement at the margins. The falling claimant count in each of the last four months is also a plus, although the dip slowed to a crawl in the February update. That leaves us to ponder what will arrive in today’s March report. Analysts think the three-month average jobless rate will remain at 7.8 percent and the claimant count will inch down for the fifth consecutive month, albeit just barely relative to recent standards. If the consensus forecast is correct, there’ll be enough good news in the numbers to keep hope alive, but not enough to banish worries about what comes next. But beware: a negative surprise in the labour data would be like a lead balloon at a time when there’s little confidence that even modest growth will persist.

Bank Of England Monetary Policy Committee Minutes (08:30 GMT) Analysts think that the votes for keeping monetary policy unchanged will continue to dominate for the near term, but today's release of minutes will be of great interest nonetheless. The update will bring news of the first round of discussions under the BoE’s new remit to consider growth (or the lack thereof) as well as inflation. The question is whether the shift to a more flexible policy target has any influence in how the committee acts and thinks? We’ll have to wait until May 9 to assess the first question, but today’s minutes may shed light on the chatter behind closed doors.

For now, the general view is that the change of remit isn’t likely to usher in much if any change for the immediate future. "The question is whether they see it (the remit change) as a tidying up exercise ... or a substantial change," Barclays’ chief UK economist mused earlier this week via MNI. "I very much expect it to be the former."

If we learn otherwise in today’s minutes, the odds for a cut in interest rates may rise in the weeks ahead. Of course, there are several factors that will influence next month’s BoE decision, starting with today’s labour market report (see above). Short of an unexpectedly sharp rise in the jobless rate, which is unlikely, it’s probably wise to see the remit change as a “tidying up exercise” until the macro data tells us to think differently. The Old Lady of Threadneedle Street can, in theory, act more like the Federal Reserve and ramp up its use of quantitative easing. But culture evolves at a glacial pace in central banking until there’s dramatic macro news to shock the status quo. Today’s news, however, isn’t likely to oblige.

Gold Prices
No one’s really sure what sparked the big gold selloff on Monday, but the biggest daily plunge in decades has everyone rethinking macro assumptions and the pricing outlook on everything from currencies to stocks to bonds. One theory that resonates is that the gold bugs finally recognised that the threat of inflation isn’t nearly as imminent, or as pressing, as some have frantically claimed. Disinflation and its darker cousin deflation remain the bigger challenge for much of the developed world, the Eurozone in particular. Even in the U.S., inflation is trending down again, as yesterday's CPI report shows. Overall, most analysts still think the downside risks in the developed world outweigh the upside potential when it comes to modeling the outlook for GDP.

Whatever the reason for the collapse in gold prices, it’s spawned an unusual rally in the euro versus the dollar. Unusual in the sense that the dollar often moves inversely to gold. Not this time, or at least not yet. The dollar's weakness is all the more surprising after yesterday's relatively upbeat reports on industrial production and housing construction in the U.S.

The potential for inflation troubles down the road are still with us, of course, although much depends on how central banks unwind their extraordinary liquidity injections. It could all go wrong, of course, but there’s no reason it has to. That nuance seemed to be lost amid the virtually non-stop bullish momentum in gold in recent years. It turns out that the macro outlook is more complicated than the gold enthusiasts allowed. The prediction that we’re all doomed makes for intriguing cocktail chatter, but in the real world the all-or-nothing analysis may have run out of willing participants.
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