Labour market figures this morning have kicked off a big week of economic data for the UK in a promising way, with wage growth a particular highlight from the report.
For a long time now, central banks have indicated that a significant amount of pressure from higher interest rates will need to be applied to cool the labour market – in turn, lifting unemployment and slowing wage growth – to return inflation sustainably to target. But recent evidence suggests that may not necessarily be the case.
Instead, inflation has been falling faster than anticipated, and now so is wage growth which has slowed significantly since the last peak four months ago. Average earnings growth including bonuses in the three months to November was 6.5% compared with 7.2% a month earlier and 8.5% four months ago.
Don’t get me wrong, that’s still far too high but it’s a lot of progress in a very short period, and with inflation now running much lower, there’s every chance we see much more over the coming months that enables the Bank of England to pivot towards cutting interest rates. ​
The pound did fall in the aftermath of the release but perhaps not quite as much as you’d expect from such an undershoot. That said, market positioning on rate cuts from the BoE was already far more aggressive than what many, especially at the central bank, have indicated is likely. Markets still see 125 basis points of cuts this year but there’s a growing chance of 150 which is more in line with the US and euro area.
We’ll hear from BoE Governor Andrew Bailey later in the day who may offer his views on the recent data and perhaps hint at a change in tone when the central bank meets in a couple of weeks. It’s probably a little early to expect too big a pivot but it could lay the groundwork for a May cut as long as the data continues to comply.
Oil prices remain very choppy
Oil prices remain very choppy amid the uncertainty in the Middle East following the US and UK attacks on Houthi targets. We haven’t seen a significant increase in the price of oil on the back of the attacks but the brief spikes we’ve seen have highlighted the sensitivity in the market to events around the Red Sea.
Gold struggling near previous record high
Gold is trading a little lower this morning after bouncing higher once again in recent sessions. The yellow metal remains buoyed by very aggressive rate-cutting expectations, ​ particularly in the US, but at the same time, it is struggling to generate fresh momentum around the prior record highs, near $2,070. We obviously saw a spike in early December well above this but the timing of the move and the speed with which it reversed it suggests the market was never fully behind it, so the prior highs continue to look like a significant psychological threshold.
Could Bitcoin dip below $40,000 after ETF announcement?
Bitcoin is trading quite flat today but has come well off its highs since last Thursday. It’s down around 13% in that time with some heat potentially coming out of the market in the aftermath of the spot bitcoin ETF announcement. We may be seeing another example of “buy the rumour, sell the fact” considering how highly anticipated the announcement was, it’s just not clear whether that’s now played out. A dip below $40,000 would be a big test.
