Saxo Bank Head of FX Strategy John Hardy reports that the euro continues its ascent despite Italian yields continuing to rise with key EURUSD flashpoints at 118.25, 119.25, and of course 1.20.
Article / 20 July 2016 at 5:00 GMT

3 Numbers: Labour report to frame post-Brexit outlook

editor/analyst /
United States
  • Today’s UK labour market update looks at the job market prior to the Brexit vote 
  • Will Eurozone consumer confidence continue to fade in July?
  • Gold’s bullish technical pattern points to even higher prices for the near term

By James Picerno

The UK labour market is in focus today, featuring employment data for June – the last release before the Brexit blowback kicks in. We’ll also see an early clue on consumer confidence in the Eurozone for July. Meanwhile, this year’s bull market for gold shows few signs of ending anytime soon.

 Today's Labour Market Report from the UK will frame the outlook for the
post-Brexit analysis. Photo: iStock

UK: Labour Market Report (0830 GMT) The June update on Britain’s labour market will be widely read in the wake of recession forecasts following last month’s Brexit vote.

An economic analysis consultancy, the EY Item Club, this week advised that it projects a “short, shallow recession” for the UK by the end of the year. “While Brexit may deliver some silver linings for the consumer sector in the form of lower interest rates and a delay to fiscal austerity, heightened uncertainty, higher inflation and a weaker jobs market point to a gloomier overall outlook,” the group explained in its summer forecast.

If you’re looking for a smoking gun in today’s report, however, the numbers du jour will probably disappoint. That’s not to say that the news will be encouraging. The claimant count in recent months suggests that job growth has been slowing – even before the UK voted to leave the European Union. 

The number of new filings for unemployment benefits rose sharply in March and April – the first back-to-back increases in nearly four years. The filings reversed in May, but fell only slightly.

Today’s release may not offer much insight into the future, which is unusually cloudy at the moment. But the number will offer a final look at how the figures stack up in the last month before Brexit reordered the macro outlook.

Whatever the numbers reveal, the results will frame the outlook for the post-Brexit analysis that begins with the release of July economic reports in the weeks ahead.

Eurozone: Consumer Confidence Indicator (1400 GMT) Today’s release from the European Commission offers an early clue on the initial reaction in the consumer sector to last month’s Brexit vote.

The June profile ticked lower for the first time since March, perhaps due to pre-Brexit jitters, and today’s preliminary data for July is expected to register another dip. projects that the Consumer Confidence Indicator will slide to minus 8, down modestly from minus 7 in June. If so, sentiment will ease to the lowest level since April.

A more cautious view on economic conditions for Europe is certainly reasonable, given the potential for blowback from Brexit on both sides of the English Channel. Indeed, yesterday’s ZEW data for Germany’s financial community reflected a substantial retreat in confidence in July.

“The Brexit vote has surprised the majority of financial market experts," ZEW’s president said in a statement. "Uncertainty about the vote’s consequences for the German economy is largely responsible for the substantial decline in economic sentiment. In particular, concerns about the export prospects and the stability of the European banking and financial system are likely to be a burden on the economic outlook.”

It would be surprising if today’s release for the euro area doesn’t reflect those concerns.

Gold The world’s favourite precious metal continues to show bullish form this year. Part of the explanation is the rebound in commodities prices generally, although Brexit-related uncertainty has only strengthened the case for gold.

From a US perspective, the recent improvement in economic data has been a factor too, including a surprisingly strong employment report for June. Government figures also show that the annual growth rate for the median weekly earnings of workers is rising faster than inflation – 2.9% vs. 1.1% for the consumer price index in the second quarter, according to the Labor Department.

Although it’s still debatable if inflation’s poised to accelerate, as I discussed yesterday, the hard money crowd is convinced that the stars are aligning for an extended rise in gold prices. But keep in mind that some of drivers that are pushing gold higher at the moment are a double-edged sword. Political and economic uncertainty linked to Brexit have encouraged the view that gold is the mother of all safe havens. But those same forces could weigh on gold at some point if they lead to lower growth and softer inflation.

The technical pattern, however, certainly looks encouraging for anticipating higher prices. Indeed, the price of gold in US dollars continues to trade well above its 50-day moving average, which is far above the 200-day average. Weak economic data and renewed signs of disinflationary pressure could derail the rally. But until or if the macro outlook turns darker, upside momentum for gold still looks strong.

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– Edited by Caroline Shone and Gayle Bryant

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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