EUROPEAN DATA WRAP: Hawkish near-term UK wage metrics while German ZEW provides another bleak indicator

Analysis details (15:30)

UK Unemployment/Earnings

• Overall, hot wage metrics mean another 50bp hike is a real option for the BoE on August 3rd. Further out, the unexpected increase in the unemployment rate and the jump in the claimant count point to a loosening of labour conditions and could serve to stem wage pressures in the medium-term.


• UK Average Week Earnings 3M YY (May) 6.9% vs. Exp. 6.8% (Prev. 6.5%); Ex-Bonus 7.3% vs. Exp. 7.1% (Prev. 7.2%)


• UK ILO Unemployment Rate (May) 4.0% vs. Exp. 3.8% (Prev. 3.8%); Claimant Count Unemployment Change (Jun) 25.7k (Prev. -13.6k)


• As above, the wage metrics were hotter than expected with the ex-bonus figure unexpectedly lifting from the prior, in addition both components were subject to upward revisions. Findings which continue the trend of hawkish impulses to the BoE’s inflation calculus after the internals of the June Flash PMIs, the latest Citi/YouGov survey – to name a few. Next, we look to the UK CPI print for June which will be released on July 19th prior to the August BoE. On the figures, and an argument against 50bp, is that desks generally look for wage growth to ease in H2 and indeed the reports accompanying unemployment and claimant metrics support this argument; though, forecasts have been notoriously inaccurate recently from both the BoE and markets broadly. Reminder, leading-dove Tenreyro has now stepped down from the BoE and given only herself and Dhingra dissented the 50bp move in June this leaves the balance of the MPC decidedly on the hawkish-side.

German & EZ ZEW

• Overall, the release shows a further deterioration in Europe’s largest economy with the EZ-wide figure falling and accompanying commentary bleak, but not too surprising given the tone of recent releases.


• Economic Sentiment (Jul) -14.7 vs. Exp. -10.5 (Prev. -8.5); Current Conditions (Jul) -59.5 vs. Exp. -60.0 (Prev. -56.5)


• EU ZEW Survey Expectations (Jul) -12.2 (Prev. -10.0)


• Metrics which seemingly add to the likelihood for a return to contraction in Germany during Q3, as the region is according to most surveys on track to just about end the recessionary run which commenced in Q4-2022. While we won’t get hard data for a while, the findings of the July EZ Sentix were particularly bleak for Germany and have been echoed by the ZEW writing that “Market experts predicts a further deterioration in the economic situation by year-end; driven by expectations of rising short-term interest rates in the EZ and US”. In short, while the release was bleak it is not too much of a surprise given the trend of recent releases and as such is perhaps best described as further evidence that the bloc’s economic performance remains tentative for the remainder of the year.

11 Jul 2023 - 15:05- Fixed IncomeData- Source: Newsquawk