Main currency pairs little changed
The euro and sterling are just marginally lower against the dollar relative to yesterday morning’s levels trading at around $1.1425 and $1.3440 respectively, while EURGBP is largely unchanged hovering just below the £0.85 level. Prime Minister Burnham’s pick as Chancellor – John Healey – was certainly a surprise but UK markets are unfazed judging by their (non) reaction this morning (he is being described as a “safe pair of hands”). UK labour market data published a short while ago were in line with expectations, hence leaving the pound unmoved.
US government bond yields edged up by 3-5bps, albeit finishing off the highs for the day as US stocks sold off into the close, while German yields were flat to marginally higher. UK bonds underperformed, with yields rising by 6-8bps, after comments by PM Burnham, that he would “use any flexibility” available within the fiscal rules, caused some concern in the gilts market. In equity markets, European and US stocks both ended slightly lower on the day. Asian markets had a positive session overnight though (Japan’s Nikkei index was up more than 3%), which should spill over into European indices at the open this morning.
UK labour market data released earlier this morning were in line with expectations. Employment rose by 0.4% in the three months to May (versus the three months to February) according to the Labour Force Survey, while the unemployment rate held steady over this period at 4.9%. Underlying weekly earnings growth (i.e. excluding bonuses) was unchanged at 3.4% year-on-year across the economy, though it did nudge down to 2.9% y-o-y in the private sector, which will be very much welcomed by the Bank of England. Separately, the new Chancellor, John Healey, has announced a temporary reduction in VAT on domestic electricity bills from 5% to 0%, effective from October, to be funded by the scrapping of the digital ID scheme.
It is very quiet for the rest of the day in terms of economic data, with the ZEW investor sentiment index in Germany/Euro area and the ADP weekly employment report in US the only releases scheduled.