Cable smashes through R2 as the UK’s unemployment rate falls to 7.1% putting self-imposed pressure on the BoE to raise base interest rates

Jan 22 • Mind The Gap • 2507 Views • 1 Comment on Cable smashes through R2 as the UK’s unemployment rate falls to 7.1% putting self-imposed pressure on the BoE to raise base interest rates

shutterstock_131519528The UK published its latest unemployment data this morning revealing that the rate has fallen to 7.1%. Despite this fall there were some disappointing stats contained therein as the participation rate has fallen to 72.1% of adults of working age in the workforce, whilst the claimant count fell by 24K, below the expectation of a fall of 33K. The effect on cable was significant; at release price crashed up through R1 and R2 as investors and analysts are reminded of the BoE’s governor Mark Carney’s commitment to raise interest rates should the 7% unemployment rate be breached to the downside.

In other UK BoE related news it was revealed that the central bank decided by a unanimous decision to keep interest rates at their record low of 0.5% and their asset purchase scheme unmoved at the level of £375 billion.

In China overnight the CSI 300 rose sharply as the central bank lowered the money market rates and provided increased liquidity to smaller banks, therefore stimulating businesses desperate for cash to thrive and expand.

The BOJ (bank of Japan) published its monetary policy statement overnight in which it reaffirmed its commitment to the monetary easing programme evidenced throughout 2013. The monetary base will increase by circa 60-70 trillion yen per year, whilst the bond purchases will increase at approx. 50 trillion yen.

In Australia the man indices fell slightly on the basis of a poorer than expected inflation number causing analysts to doubt that the RBA will have the room to cut interest rates, therefore the Aussie rose. Australians’ confidence has taken a slight knock according to the Westpac consumer confidence survey as the index fell to 103.3, from 105 the previous month. The shock job loss of circa 22,500 jobs in the month of December caused a real evaluation of the economic health of the country. Australia’s govt. will be hoping that the job losses were an outlier result and not the beginning of a pattern to be repeated in the first two quarters of 2014.

UK Labour Market Statistics, January 2014

The percentage of people aged from 16 to 64 who were in work (the employment rate) was 72.1%. The employment rate is up 0.5 percentage points from June to August 2013 and up 0.7 from a year earlier. There were 30.15 million people in employment aged 16 and over, up 280,000 from June to August 2013 and up 450,000 from a year earlier. The percentage of the economically active population aged 16 and over who were unemployed (the unemployment rate) was 7.1%. The unemployment rate is down 0.5 percentage points from June to August 2013 and down 0.6 from a year earlier. There were 2.32 million unemployed.

BOJ Statement on Monetary Policy

At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the inter-meeting period: The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen. With regard to the asset purchases, the Bank will continue with the following guidelines; The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 50 trillion yen.

Australia Consumer Price Index

Inflation rose 0.8% in the December quarter 2013, compared with a rise of 1.2% in the September quarter 2013. It rose 2.7% through the year to the December quarter 2013, compared with a rise of 2.2% through the year to the September quarter 2013. The most significant price rises this quarter were for domestic holiday travel and accommodation (+6.9%), fruit (+8.1%), vegetables (+7.1%), new dwelling purchase by owner-occupiers (+1.0%), international holiday travel and accommodation (+2.6%) and tobacco (+2.2%).

Rising unemployment hits Aussie confidence

Australia’s rising jobless rate is hitting consumer confidence. Confidence fell by 1.7 per cent from 105.0 points in December to 103.3 in January, according to the Westpac Melbourne Institute Index of Consumer Sentiment. Although optimists still outweigh the number of pessimists, the index is at its lowest level since July 2013.

Westpac chief economist Bill Evans said.

To the extent that respondents were aware of the announcements, the most important economic event was the release of the December jobs report which showed a shock loss of 22,600 jobs in the month. Higher readings mean more consumers expect unemployment to rise in the year ahead. The Index shows no signs that respondents are feeling any relief for job prospects despite the Reserve Bank’s rate cuts and the recent fall in the Australian dollar. There is also some evidence of a cooling in optimism around housing and house prices.

Market overview at 10:00 am UK time

The Australian ASX 200 fell by 0.22% in the overnight/early morning session, Aussie inflation rose faster than anticipated reducing the RBA’s scope to rescue interest rates. China’s CSI 300 closed up a significant 2.58%, due to falling money market rates in China as the central bank made more cash available for smaller lenders. The Hang Seng closed up 0.21%, whilst the Nikkei closed up 0.16%.

In Europe the STOXX has risen 0.34%, CAC by 0.25%, DAX by 0.19% and the UK FTSE is up 0.32%. Looking towards the New York open the DJIA equity index future is down 0.05%, the SPX future is up 0.06% and the NASDAQ future is up 0.25%.

NYMEX WTI oil is up 0.67% at $95.60 per barrel, whilst NYMEX nat gas is up 0.65% at $4.46 per therm following yesterday’s steep rise due to cold weather once again enveloping the USA. COMEX gold is down 0.20% at $1240.60 per ounce, with silver down 0.15% at $29.84 per ounce.

Forex focus

The yen was little changed at 104.33 per dollar early in London, headed for a 0.9 percent gain this year. It traded at 141.42 per euro from 141.43 yesterday, after touching 140.33 on Jan. 20th, the strongest since Dec. 6th. The 18-nation currency bought $1.3556 from $1.3561 yesterday. The yen weakened versus most major peers, reversing earlier gains, as Japanese shares rose after the Bank of Japan stuck to a pledge to maintain its record stimulus.

The pound was at 82.30 pence against Europe’s single currency from 82.29 yesterday, when it touched 82.15, the strongest since January last year. The Aussie jumped 0.8 percent to 88.75 U.S. cents due to increasing inflation (ahead of analysts’ forecasts) after falling as low as 87.57 on Jan. 20th, the weakest since July 2010.

Bonds briefing

The U.S. 10-year yield added 2 basis points to 2.85 percent early in London after touching 2.82 percent on Jan. 17th, the lowest since Dec. 11th. The price of the 2.75 percent note due November 2023 fell 1/8, or $1.25 per $1,000 face amount, to 99 6/32. Treasuries fell, pushing 10-year yields up from near the lowest in almost six weeks, as signs of a sustained economic recovery dimmed the allure of U.S. government debt.

Germany’s 10-year yield increased one basis point, or 0.01 percentage point, to 1.75 percent early London time after falling to 1.73 percent on Jan. 20th, the lowest since Dec. 3rd. The 2 percent bund due in August 2023 dropped 0.085, or 85 euro cents per 1,000-euro face amount, to 102.195. The two-year rate was little changed at 0.16 percent. Germany last sold two-year notes on Dec. 11th at an average yield of 0.21 percent, compared with 0.1 percent at a previous auction on Nov. 13th.
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