UK employment data raises hopes of end to Bank of England hikes
12 September 2023 - 12:22
byTom Westbrook and Alun John
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Global stocks held firm on Tuesday and the dollar regained some of its overnight losses a day before US inflation data that could influence when or whether the Federal Reserve raises rates further.
Traders still had plenty to watch on Tuesday ahead of the US numbers and Thursday’s European Central Bank meeting. Britain reported a rise in its unemployment rate, which means the Bank of England’s expected rate rise next week might be its last.
Europe’s Stoxx 600 index edged up 0.27%, while London’s FTSE 100 gained 0.67%, helped by expectations that the jobs data will lead to a softer pound and make UK stocks more attractive to investors overseas.
Britain’s labour market showed more signs of cooling in the three months through July, according to data published on Tuesday, suggesting a weaker economy leading to slowing inflation, which would ease pressure on the Bank of England to raise rates much further.
“I think [the data] underscores the likelihood of just one more and then done for the Bank of England and more of a bull steepening in the gilt (UK government bond) market while we have had bear flattening elsewhere, where higher oil prices have dominated the narrative,” said Chris Scicluna, head of research at Daiwa Capital Markets.
Bond yields move inversely to prices and bull steepening refers to shorter-dated rates falling faster than longer-dated ones.
The two-year gilt yield was down almost 6 basis points to 5.02%, falling more sharply than the 10-year gilt yield which was at 4.42%.
The 10-year German bund yield, the regional benchmark, held steady at 2.62% after recent gains, while the US 10-year yield was steady at 4.278%.
Sterling was last 0.25% weaker at $1.2477, while the euro eased a similar amount to $1.0719 as the dollar resumed its rise after a blip a day earlier on moves in Asian currencies.
On Monday the yen recorded its best day against the dollar in two months, after Bank of Japan Governor Kazuo Ueda said policymakers might have enough economic information by the year-end to determine that short-term rates will need to rise.
China’s yuan also had its best day in six months on Monday after authorities vowed to correct one-way moves and a report that the central bank had stepped up scrutiny of dollar buying.
Still, both currencies remain near their weakest levels of the year.
Investors in China drew some comfort from news that Country Garden, the country’s biggest private property developer, gained approval from creditors to extend repayments on six onshore bonds by three years.
That lifted Hong Kong-listed Chinese developers, though MSCI’s broadest index of Asia-Pacific shares excluding Japan was down 0.15%.
Fed and ECB meeting
Markets are expecting US data, due on Wednesday, to show annualised core inflation falling to 4.3% in August, though the headline number is seen ticking up to 3.6%.
“A lower-than-expected print may slow the dollar’s rise while a higher print could potentially unnerve risk sentiment because it would reinforce market expectations for further rate hikes, and this could fuel dollar strength,” said OCBC strategist Christopher Wong.
Interest-rate futures markets are pricing about a 45% chance of another US rate hike by year’s end.
Investors’ appetite for risk is also to be tested this week when UK chip designer Arm Holdings lists in New York with a goal of raising almost $5bn.
The European Central Bank meets on Thursday, and markets think it is more likely the central bank will keep rates steady than hike by 25 basis points, though the latter remains a possibility.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Global equities firm ahead of US rates decision
UK employment data raises hopes of end to Bank of England hikes
Global stocks held firm on Tuesday and the dollar regained some of its overnight losses a day before US inflation data that could influence when or whether the Federal Reserve raises rates further.
Traders still had plenty to watch on Tuesday ahead of the US numbers and Thursday’s European Central Bank meeting. Britain reported a rise in its unemployment rate, which means the Bank of England’s expected rate rise next week might be its last.
Europe’s Stoxx 600 index edged up 0.27%, while London’s FTSE 100 gained 0.67%, helped by expectations that the jobs data will lead to a softer pound and make UK stocks more attractive to investors overseas.
Britain’s labour market showed more signs of cooling in the three months through July, according to data published on Tuesday, suggesting a weaker economy leading to slowing inflation, which would ease pressure on the Bank of England to raise rates much further.
“I think [the data] underscores the likelihood of just one more and then done for the Bank of England and more of a bull steepening in the gilt (UK government bond) market while we have had bear flattening elsewhere, where higher oil prices have dominated the narrative,” said Chris Scicluna, head of research at Daiwa Capital Markets.
Bond yields move inversely to prices and bull steepening refers to shorter-dated rates falling faster than longer-dated ones.
The two-year gilt yield was down almost 6 basis points to 5.02%, falling more sharply than the 10-year gilt yield which was at 4.42%.
The 10-year German bund yield, the regional benchmark, held steady at 2.62% after recent gains, while the US 10-year yield was steady at 4.278%.
Sterling was last 0.25% weaker at $1.2477, while the euro eased a similar amount to $1.0719 as the dollar resumed its rise after a blip a day earlier on moves in Asian currencies.
On Monday the yen recorded its best day against the dollar in two months, after Bank of Japan Governor Kazuo Ueda said policymakers might have enough economic information by the year-end to determine that short-term rates will need to rise.
China’s yuan also had its best day in six months on Monday after authorities vowed to correct one-way moves and a report that the central bank had stepped up scrutiny of dollar buying.
Still, both currencies remain near their weakest levels of the year.
Investors in China drew some comfort from news that Country Garden, the country’s biggest private property developer, gained approval from creditors to extend repayments on six onshore bonds by three years.
That lifted Hong Kong-listed Chinese developers, though MSCI’s broadest index of Asia-Pacific shares excluding Japan was down 0.15%.
Fed and ECB meeting
Markets are expecting US data, due on Wednesday, to show annualised core inflation falling to 4.3% in August, though the headline number is seen ticking up to 3.6%.
“A lower-than-expected print may slow the dollar’s rise while a higher print could potentially unnerve risk sentiment because it would reinforce market expectations for further rate hikes, and this could fuel dollar strength,” said OCBC strategist Christopher Wong.
Interest-rate futures markets are pricing about a 45% chance of another US rate hike by year’s end.
Investors’ appetite for risk is also to be tested this week when UK chip designer Arm Holdings lists in New York with a goal of raising almost $5bn.
The European Central Bank meets on Thursday, and markets think it is more likely the central bank will keep rates steady than hike by 25 basis points, though the latter remains a possibility.
Gold was trading at $1,920 an ounce.
Reuters
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