The British labor market comes front and center today ahead of the UK employment figures while the succession race to replace Theresa May is officially on. Sterling was trending lower at the start of the week with the 1.27 level giving way and a slower job and wage growth reading threatens to increase the pressure on the Pound today. Elsewhere, the Dollar was well bid on Monday with Treasury yields recovering above the 2.10% mark, allowing the US currency to gain ground versus its higher beta peers. Gold ended the day below $1,330 and Oil managed to recapture the $54 area.
Despite the race to replace Theresa May as PM dominating the British headlines, the domestic economy will be in focus today. The release of the employment data will be closely monitored by investors and speculators alike, especially after yesterday's strongly disappointing production reports. Both the industrial and manufacturing figures printed significantly lower compared to expectations, highlighting the toll this unending Brexit uncertainty is taking on the British economy. As such, job and wage growth could also come in below economists' predictions, which would extend the downbeat tone on the Pound. Currently, prices are trading around the 1.2680 area but a set of bearish data will likely trigger a break below yesterday's lows and send Sterling south towards 1.26.
The Euro was on a similar downwards trajectory during the first 24 hours of trading for this week. The shared currency pulled back slightly to test the 1.13 area and the important question now becomes whether we should expect more gains in the near term. As a bullish argument, Mario Draghi ruled out a rate cut from the ECB at this stage and it would actually make sense for him to let the Fed pull the trigger first in regards to easing. On the other hand though, growth in the Eurozone remains anemic and even if the Dollar is to see lower demand in the weeks ahead, we’re not sure that the Single currency will be the one to benefit. As such, even though we may see some short-term gains this week in case the US data pending for release misses, we’d rather remain defensive on the Euro at least until the 1.1350-70 area is breached.
Gold retreated yesterday to trade below the $1,330 mark as investors were looking for risk-on opportunities on the back of the improving risk sentiment. Moreover, given that the yellow metal has seen hefty gains since the start of the month, it actually made sense for speculators to take some profits off the table at this point. Looking ahead, it will be interesting to see how Gold will trade given that there’s little appetite for risk averse assets right now - barring a very nasty set of US data or a material deterioration in geopolitics. Unless any of these two catalysts emerge, we would expect Gold to trend further lower towards the $1,320 area.
On the equities’ side, Monday was a positive day for all major bourses around the world. Europe closed 0.25% higher on average, while the Dow Jones was up 0.3% and the S&P 500 gained close to 0.5%. This morning, equity futures on either side of the Atlantic are pointing slightly higher and with little news from any geopolitical or macroeconomic fronts, the bullish bias should remain in place.
MARKET EVENTS TO WATCH
- UK Unemployment Rate - 12.30pm
- UK Average Weekly Earnings - 12.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research