- Economists expect higher claims for jobless benefits in the UK in April
- Some UK firms are leaving investments on hold due to Brexit uncertainty
- Watch for mild deflation in revised data for Eurozone consumer prices in April
- Will today’s FOMC minutes alter the outlook for US rate-hike expectations in June?
Britain’s labour market is in focus with today’s monthly report on unemployment and the claimant count--numbers that will be closely read ahead of next month's Brexit vote. We’ll also see revised inflation data for the Eurozone and the release of Fed minutes for the last FOMC policy meeting.
UK: Labour Market Report (0830 GMT): The Confederation of British Industry on Monday warned that Brexit risk is a factor that could weigh on growth in the near term. “We expect the UK’s growth path to continue, but it is likely to be at a slower rate than previously thought,” the group advised. “A dark cloud of uncertainty is looming over global growth, particularly around weakening emerging markets and the outcome of the EU referendum, which is chilling some firms’ plans to invest.”
Today’s monthly update on the labour market for April will deliver a hard-data reality check on the outlook for headwinds in the coming months. In particular, keep an eye on the claimant count, which turned up in March for the first time since a fractional gain last August. The March increase, however, was substantial—the number of people claiming unemployment benefits rose by 6,700 in the first-quarter’s closing month—the most in over three years. Is this a sign of deeper trouble for the UK economy in the months ahead?
It’s too soon to say, but economists expect that a second month of rising claimants is on tap for today’s April data. Econoday.com’s consensus forecast sees the claimant count rising by 4,000 for last month. If so, sentiment about the near-term outlook for Britain’s economy will continue to suffer.
To be fair, even a rosy report would likely be viewed with a skeptical eye ahead of the Brexit vote. In any case, the numbers du jour will likely reinforce the case, if only on the margins, that the macro trend is slowing. The debate about why will rage on, but that’s going to remain a minor point until the Brexit question is resolved.
Eurozone: Consumer Price Index (0900 GMT): Inflation slipped back into negative territory last month, based on the preliminary estimate for the year-over-year change in consumer prices. That’s not expected to change in today’s revised data for April—Econoday.com’s consensus forecast anticipates that the 0.2% annual slide for the consumer price index through last month will hold.
That’s a worrisome sign, but the increase in a market-based measure of Eurozone inflation implies that pricing pressure may perk up in the months ahead. Reuters yesterday noted that the five-year breakeven forward rate moved above 1.50% at one point on Tuesday for the first time since March. This estimate of inflation is still below the European Central Bank’s target for the pricing trend—just below 2%. But combined with the recent rebound in crude oil prices, the modestly firmer expectations for inflation suggests that deflation risk may be lower than the negative CPI print for April implies.
But it’s also true that expectations of Eurozone reflation have come and gone in recent years with little if any impact. It’s unclear if this time will be different, but we may see a clue in today’s revised CPI data. As usual, look to the core data for additional perspective. Inflation in the euro area--after stripping out energy, food, alcohol and tobacco--increased 0.7% year-over-year in the initial release for April. But that’s at the low end of recent history and so there’s more than soft energy prices at work here. As a result, a revival in oil prices may not offer much relief from deflation risk.
The key issue for today is watching to see if the inflation print for April is weaker than initially estimated. That’s considered unlikely. But if the update on CPI shows inflation is even softer than previously thought, a rally in energy markets may matter less than the crowd assumes.
US: Federal Reserve FOMC Minutes (1800 GMT): A rate hike is considered unlikely for next month’s monetary policy meeting, but the crowd will be poring over today’s minutes for signs to the contrary.
Keep in mind that on Monday the Richmond Fed President Jeffrey Lacker said that there’s still “a pretty strong case” for a rate hike at the June FOMC meeting. His reasoning: the labour market is still firm and the outlook for growth is still encouraging overall.
But some analysts emphasize that the Fed is unlikely to squeeze policy at the June 14-15 meeting because the date is just a few days ahead of the June 23 vote in the UK on European Union membership. Several economists have warned that a vote to leave the EU would heighten economic uncertainty and so, the reasoning goes, the Fed will punt on any rate hike until the political dust clears.
“Domestically things are just sort of OK, and it certainly doesn’t feel like the domestic situation should be causing any urgency,” the chief US economist at Societe Generale) told Bloomberg. “I don’t think a June hike is on the table. The markets are just not priced for it.”
Let’s see if today’s FOMC agree.
Disclosure: Originally published at Saxo Bank TradingFloor.com