Good morning,

GBP: Jobs numbers due

Sterling offered little and got less yesterday in reaction to the latest jobs numbers. There are few bright spots economically in the UK at the moment but the employment and real wage picture is certainly one of them. Pay rose by 3.4% in nominal terms and unemployment remained below 4%.

Regardless of what is going on in Westminster, businesses still need people to perform roles and a lower supply of labour is allowing for a run of higher wages in the face of a relatively benign inflation picture. These sanguine numbers should continue to support the consumer-facing parts of the wider UK economy, but obvious political and wider economic risks remain from either a sub-optimal Brexit result or a continued pressure on global trade and growth.

While some within analyst circles will be looking for an interest rate hike from the Bank of England ratesetters in the near future, until the outcome of the Brexit negotiations are fully known then we think those on Threadneedle Street will be happy to sit on their hands.

The latest round of inflation figures are due this morning and given the quiet pound, a lack of corporate pricing power, a stable wage picture and moderate increases in the price of oil, the inflation picture should remain relatively stable.

The inflation release is due at 09.30.

AUD: Minutes knock recovering Aussie

Chinese GDP released overnight showed an unexpected resilience to the Chinese economy with both headline and internal numbers surprising to the high side. GDP rose 6.4% in the first quarter compared to the same quarter last year with factory output in March jumped 8.5%, retail sales 8.7% higher and investment up 6.3%.

How much this continues and how the yuan reacts moving forward will depend almost exclusively on whether the People’s Bank of China maintains its level of stimulus into the Chinese economy.  Much of that stimulus is cheap credit and that may present a problem later on down the line but for now, both for the yuan and for global equity markets that were looking for a good number, that is tomorrow’s problem and we have enough to focus on today.

The main beneficiary from the good news is never the Chinese yuan however, with the AUD up around 0.4% so far this session.

USD: Earnings season off to a mixed start

Kiwi dollar is trying to recover from a sharp fall overnight prompted by a fall in local inflation. CPI only rose by 1.5% in Q1 as opposed to 1.9% in Q4. Our expectations that the Reserve Bank of New Zealand will be the first G10 central bank to cut rates this year have hardened as a result of the release and the market expectation is now a 55% chance of a cut at the RBNZ’s May 8th meeting.

We expect that the kiwi dollar will remain under pressure as a result of these expectations with only the New Zealand jobs report on April 30th holding enough significance to change the market’s collective mind.

Have a great day.