Article / 08 June 2016 at 5:00 GMT

3 Numbers: All eyes on UK's GDP estimate as Brexit vote nears

editor/analyst /
United States
  • Today's NIESR GDP estimate will offer a big-picture macro profile of the UK
  • The data will give the last picture look at the UK economy before the Brexit vote
  • Subdued UK growth should prove temporary if the UK opts to stay in the EU
  • Will the bullish trend in US job openings last after the shockingly weak NFP data?
  • The 2-year Treasury yield is effectively forecasting no Fed rate hike any time soon

By James Picerno

Today’s monthly estimate of GDP growth for Britain via NIESR, a London-based consultancy, will be widely read with the June 23 Brexit vote approaching. Later, the crowd will look to the April update on US job openings for additional labour-market perspective after last Friday’s surprisingly weak employment report. 

Meanwhile, keep an eye on the 2-year Treasury yield, which is effectively pricing in no rate hike for the near term. Is that about to change? The ongoing rally in the US stockmarket suggests as much.

UK: NIESR GDP Estimate (1400 GMT) With Britain’s decision on European Union membership approaching on June 23, today’s monthly update on GDP growth will provide one of the last big-picture estimates of the economic trend ahead of the contentious Brexit vote.

Today’s NIESR report will reveal the macro trend in the UK on the eve of what may be Britain's most important political decision in a generation – the June 23 Brexit vote. Photo: iStock

Last month’s GDP projection for the three months through April points to a slowdown in output. The National Institute of Economic and Social Research estimated growth at 0.3% versus the previous three-month period. Relative to the official data from the Office for National Statistics, which is currently available through this year's Q1, that’s the slowest pace in more than three years.

“UK economic growth continues to be subdued compared with the rates we saw at the end of last year,” noted a research fellow at NIESR last month. “Some of this slowdown is undoubtedly a result of heightened uncertainty around the impending EU referendum, and so is likely to be temporary should the UK decide to remain in the EU after June 23.”

A number of economists, along with politicians, have warned that a vote to leave the EU would take a bite out of UK growth, perhaps triggering a recession. Some analysts beg to differ. The future, as always, is uncertain, and perhaps more so than usual in the days leading up to Brexit voting. Meantime, today’s report from NIESR will dispense a less-controversial but highly relevant review of the macro trend on the eve of what may be the UK’s most-important political decision in a generation.


 US: Job Openings and Labor Turnover Survey (1400 GMT) Employment data for May looks worrisome, but the US equity investors do not appear worried. At midday on Tuesday, the S&P 500 was trading within 1% of its record closing high of 2130.82, as of May 21, 2015. It remains to be seen if the ongoing buoyancy of the market is prescient or imprudent. Meantime, this much is clear: the final verdict will be determined by incoming data in general, and labour-market numbers in particular.

With that in mind, today’s update on job openings for April deserves close attention in the wake of the conspicuous deceleration in labour-market growth so far this year. As the chart below reminds, nonfarm payrolls and job openings have been trending in opposite directions in recent history. Indeed, looking at the labour market from the perspective of openings points to an acceleration for employment growth. Payrolls data proper, on the other hand, suggest the opposite.

One of these indicators is wrong. The stakes are high for learning which data set is misleading us. Unfortunately, a reliable answer on where the head fake number lies will take a few months, as revisions and new numbers are published. But perhaps today’s update on openings for April will offer a clue.

Meanwhile, St. Louis Fed President James Bullard on Monday downplayed the weak numbers for May payrolls. “There’s a lot of things you can look at in labour markets that would suggest that they’re pretty strong,” he told The Wall Street Journal.

The question du jour: Does that optimistic spin still include job openings?

US: 2-Year Yield The stock market may be pricing in an ongoing expansion for this year’s second half, but the Treasury market doesn’t appear willing just yet to dismiss the weak trend in employment growth as a warning sign.

The 2-year yield, which is said to be everyone’s favourite canary in the coalmine for rate expectations, fell sharply last Friday after the Labour Department reported that job growth in May slumped to the slowest pace in nearly six years. The 2-year settled on Friday at 0.78%, based on daily data via—the lowest since mid-May. So far this week (as of midday trading on Tuesday), this widely followed maturity has been sticking below the 0.80% mark, which suggests that the bond ghouls remain sceptical that the economy will be strong enough to support a rate hike any time soon.

Perhaps that’s the source of renewed optimism in the stock market – low rates as opposed to strong growth.

“Low volatility, easing financial conditions and early signs of improving sentiment are all contributing to the rotation into risk (assets),” noted the head of portfolio strategy at Evercore ISI via the FT.

Meantime, the odds for a rate hike at next week’s Fed meeting are again estimated at just above a zero probability – 2%, to be precise, based on CME data as of June 7. That’s down from around 21% from just before the arrival of last Friday’s weak employment report!

Squeezing monetary policy at the July Federal Open Market Committee meeting offers higher but still low odds. If and when the near-term outlook for a rate hike rises substantially, as the bullish trend of late in equities implies it will, we’ll see deeper support for hawkish expectations by way of a higher 2-year yield. For now, the Treasury market begs to differ with the equity market’s optimism on the subject of the macro data flow for this summer.

– Edited by Robert Ryan

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.
08 June
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