Summertime madness!
There was drama in financial markets yesterday afternoon with US stocks, long-dated bonds, and the dollar all falling after White House sources said Donald Trump would fire Fed Chair Powell “soon”, though they recovered again after Trump denied he was planning to do so (albeit he said he had thought about it and had spoken to Republican party members about whether he should). In FX, the euro – which had been drifting lower against the dollar over the course of the day – jumped by about 1.5 cents to $1.17, but it has since come almost all the way back to trade just below $1.16 this morning. Sterling also jumped by the best part of 1.5 cents to almost $1.35, but it too has given up almost all these gains to trade a touch under $1.34. All of this leaves EURGBP hovering just above £0.8650, not much changed really from this time yesterday morning.
In government bond markets, US 10-year yields reversed their Powell-related spike higher to close slightly lower on the day, though they have nudged up again in overnight trading in Asia with German and UK yields following suit this morning. US stocks also reversed early losses to end modestly higher, while European stocks – which closed yesterday down around 1% – have opened in positive territory this morning (up more than 1%).
UK labour market data published earlier this morning were something of a mixed bag. Employment measured by the Labour Force Survey (LFS) rose in March-May (versus December- February), but HM Revenue data show a fall in employee numbers over the same period. The unemployment rate nudged up to 4.7% in the three months to May from 4.4% in the three months to February, while the y-o-y pace of growth in whole-economy and private-sector earnings (ex-bonuses) eased to 5.0% and 4.9% respectively (from 5.3% and 5.2%). The increasing slack in the labour market (as the unemployment rate rises) and moderating earnings growth keeps the Bank of England on track to cut interest rates at next month’s meeting.
Fed member Williams says “although we are only seeing relatively modest effects of tariffs in the (inflation) data so far, I expect those effects to increase in coming months,” adding that “maintaining the current modestly restrictive stance of monetary policy is therefore entirely appropriate.”
Looking to the day ahead, there’s plenty of US economic data scheduled for release including retail sales, import prices, and the regular weekly jobless claims, while we also get a final estimate of Euro area inflation in June.