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Hawkish Expectations for UK Jobs Report

Markets Keen to Look Forward to Today’s UK Jobless Numbers and Average Earnings Index

employment-reports

The British Pound posted strong declines yesterday after inflation printed in negative territory. Today’s monthly jobs report from the UK is likely to set the tone for the GBP with hawkish expectations on the average earnings index while the unemployment rate is expected to stay put at 5.50%.

Gold Rally Continues

Gold futures continue to post gains with the short-term resistance at $1160 being broken. The next destination for gold prices is likely to be a retest of the 1200 pivot level. The commodity markets have managed to post a strong week of gains. Gold has been the major beneficiary as economic data from the US continued to disappoint expectations with weakness in the US Dollar further increased by dovish FOMC meeting minutes and concerns about the inflation outlook. The Federal Reserve held back from hiking rates in September and the latest Fed member to join the dovish camp was Fed's Tarullo who said that the Fed should not be hiking rates this year. Tarullo's comments come after Fed member Brainard said on Monday that the Fed should hold off rate hikes until there was more clarity from China and the risks of contagion.

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China Inflation Falls

Inflation data from China released earlier today saw the annualized CPI falling back to August levels of 1.60% after missing estimates of 1.80%, down from 2.00% growth seen in September following the surge in pork prices. The producer price index declined -5.90% matching estimates in another sign that persistent commodity deflation is impacting producer purchasing, corroborating the slowdown in imports disclosed yesterday. The decline in the CPI saw the Aussie dollar weaken and is down for the second consecutive day after posting a near 8-day winning streak. The markets are however cautious at the moment. The weak CPI data is raising speculation of further accomodative monetary support from the PBoC with the Central Bank moving overnight to devalue the Yuan by the largest amount in two months. The Japanese Yen is currently weak across the board as USDJPY is staging a recovery after declining to the lows of 119.53.

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UK Jobs to Influence GBP

Weaker than expected inflation data from the UK yesterday saw the British Pound nose dive off the session highs posted above 1.5380 to close the day at 1.5246, losing nearly -0.65% for the session. Inflation in the UK was down -0.10% in September after staying flat the month before while core annualized inflation remained at 1.00%. The Pound came under pressure after the Bank of England's newest MPC member Gertjan Vlieghe asserted his dovish outlook, noting that the BoE could look to cutting rates if need be. Estimates are hawkish into today's jobs release and while the UK's unemployment rate is expected to stay put at 5.5%, average earnings are expected to rise 3.10%, up from 2.90% last month. A beat of estimates could potentially see GBPUSD look to notch further gains ahead of the US retail sales data later in the afternoon.

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US Retail Sales Weakness Forecast

US retail sales numbers have remained largely weak in recent months with falling fuel prices weighing on the measure. Over the year, headline retail sales in the US improved 2.20% as of August while core retail sales which excludes the volatile components of automobile sales and gas is up 4.40% for the year over the same period. The estimates for today's retail sales numbers are soft with expectations of the core figure to decline -0.10% while headline sales are anticipated to rise 0.20% for the month. The US Dollar will be looking to the data today after posting strong declines since last week. A beat of estimates could see a short-term recovery in the Greenback which could see the rally in risk assets fizzle. A disappointing print however could see markets move into an aggressive risk-on mode, paving the way for AUD, NZD and CAD to continue edging higher.

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