Article / 17 August 2016 at 5:01 GMT

3 Numbers: Brexit blowback may weigh on UK labour report

editor/analyst /
United States
  • Labour report will be widely read for new clues in evaluating Brexit blowback
  • The US inflation outlook to be subdued in business update from Atlanta Fed
  • Downside momentum for USDJPY remains strong

By James Picerno

A crucial report on Britain’s economy post Brexit arrives in today’s July update for the labour market. Later, we’ll see a new business survey report on US inflation from the Atlanta Federal Reserve. Meanwhile, keep your eye on the sliding USDJPY.

 Britain's claimant count data has been a concern for some months even before Brexit.

UK: Labour Market Report (0830 GMT) Today’s update will be closely examined as one of the first bits of hard data on Britain’s post-Brexit economic profile.

Economists are predicting a slowdown in growth and higher odds of a recession and today’s release may feed into that outlook. In particular, pay close attention to the claimant count data, which has already been wobbly for months.

Although unemployment has remained low and steady at 4.9%, the number of newly unemployed has been creeping higher for four months -- marking a break several years of decline.

Given the current gloomy projections for the British economy, it wouldn’t be surprising to see the claimant count in July rise for a fifth month in a row.

Survey data released last week strongly hints at no less. “The UK jobs market suffered a dramatic freefall in July, with permanent hiring dropping to levels not seen since the recession of 2009,” advised the chief executive of the Recruitment & Employment Confederation last week. The source of the slide: macro turbulence from June’s UK vote to leave the European Union.

US: Atlanta Fed Business Inflation Expectations (1400 GMT) Inflation remained soft in July, with the headline consumer price index rising 0.9% in annual terms (seasonally adjusted), the lowest since March.

Core US inflation still looks firmer, rising at just above 2%. This is encouraging in the battle for disinflation, since this measure of pricing pressure removes oil and food and is considered a relatively robust predictor of headline inflation. By this standard, inflation overall is expected to tick higher in coming months.

Note, however, that the Treasury market’s implied inflation forecast (based on the spread between nominal and inflation-indexed 10-year yields) shows little change at the moment.

As of August 12 this spread was 1.44%, which suggests inflationary pressure remains modest and stable (green bars in chart below).

If there’s a reason to argue otherwise, we may see a clue in today’s data from the Atlanta Fed. But here, too, the numbers have remained at a steady 1.7%-1.8% annual range in recent months.

“Inflation is very likely to remain tame at best,” observed a senior economist at Ameriprise Financial. “Other than housing and medical care, vast sectors of the economy are still seeing negative price pressures.

It softens the outlook for a Fed hike.” (For additional context on the outlook for monetary policy, stay tuned for today's release of Fed minutes at 1800 GMT.)

Given what we currently know about the weak inflation trend, it would be surprising if today’s numbers from the Atlanta Fed tell a different story.

USDJPY The US dollar traded below 100 Japanese yen on an intraday basis this week for the first time in nearly three years.

The ongoing slide of the greenback against the yen triggered a new round of forecasts for even lower levels of USDJPY.

On Monday, Barron’s reported that Credit Suisse is predicting USDJPY will touch 96 in three months and fall to 93 in 12 months.

The yen’s strength may be puzzling, given the renewed weakness in the Japanese economy. GDP in the second quarter was flat -- below expectations of a 0.2% quarterly advance, based on a Reuters poll of economists.

In any case, the yen’s strength shows no sign of reversing. The technical profile continues to imply a strong downside bias for USDJPY, which is still trading well below its 50-, 100-, and 200-day moving averages.

The latest surge in the yen will likely trigger a new wave of guesstimating about when or if the Bank of Japan will intervene to weaken its currency. In the meantime, downside momentum for USDJPY rolls on.

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– Edited by John Hampshire

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


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