Good morning,

GBP: High employment, low pay

UK unemployment has fallen to another record low of 4.3% in the past month, however the story of the labour market remains the same: more people earning but weaker wages. While average weekly earnings only slipped by 0.1% this does nothing to change our belief that a lack of real wage gains will continue to hamper consumers who to remain the driving force of UK growth.

While Tuesday may have shown a near-term high in the pace of price increases, we think that the next few months may also mark the peak of employment. UK businesses, particularly those who import from abroad or are part of global supply chains, have laboured under a slowing economy and have seen margins compressed violently this year courtesy of the weaker pound. If these companies fail to have a strong Christmas, particularly in the retail sector, then we would expect to see the ‘good’ news of falling unemployment start to reverse as businesses react to lost margins.
Sterling initially rallied as markets focused on higher than expected wage numbers but the overall negative narrative around UK assets was not going to be changed by one wage number.

Brexit news will focus on Michel Barnier’s update to the European Commission this morning as well as Theresa May’s second trip to Brussels in a week. I don’t believe that there is much hope in the sterling price that a concession on trade talks will be made today so the denial of such is unlikely to send sterling too much lower.

We also receive the latest run of retail sales data; is it too early to see consumers hold off on purchases while saving for Christmas? Has the talk of interest rate rises checked spending as well?

EUR: Decision day in Catalonia

The time for talking is seemingly over in Catalonia with action expected from the Spanish government this morning. Prime Minister Rajoy gave Catalonian President Carles Puidgemont a deadline of 9am BST this morning to renounce claims for independence. Should that not be forthcoming then the central government is expected to announce and impose Article 155 of the Spanish constitution that allows the Madrid to begin to take control of the region’s administrative arms.

We have been dragging ourselves down this road for weeks now and EUR performance in the coming sessions will depend on the reaction on the streets.

NZD: All reds

The Labour Party, out of power for 9 years and led by a 37 year old, will form a government in New Zealand having formed a coalition with the Green party and the nationalist NZ First party overnight. The kiwi dollar has reacted badly to this and flown lower by over a per cent. How much further the currency falls will depend on the new government’s policies on central bank independence and immigration affected growth.

USD: A meeting of minds

Janet Yellen will meet President Trump this afternoon to interview for keeping her job as Chair of the Federal Reserve. Given Trump’s driving force in all matters is to undo policies, appointments and executive orders that were made by President Obama, Ivanka Trump probably has a better chance of taking over the stewardship of US monetary policy than Ms Yellen. We expect a decision one way or the other in the coming days.

The Beige Book of regional economic performance noted that economic activity grew at a measured pace across the US in September and October, despite sector-wide disruptions caused by recent hurricanes. It is called the Beige Book for a reason; it’s duller than a week’s ironing.

Have a great day

Jeremy Cook, Chief Economist