EUROPEAN DATA WRAP: Hot wages cements BoE September hike

Analysis details (13:52)

UK Labour Market Report:

• ILO Unemployment Rate (Jun) 4.2% vs. Exp. 4.0% (Prev. 4.0%)


• Avg Wk Earnings 3M YY (Jun) 8.2% vs. Exp. 7.3% (Prev. 6.9%, Rev. 7.2%)


• Avg Earnings (Ex-Bonus) (Jun) 7.8% vs. Exp. 7.4% (Prev. 7.3%, Rev. 7.5%)


• HMRC Payrolls Change (Jul) 97k (Prev. -9k, Rev. 47k)


• The unemployment rate saw an unexpected uptick in the 3M period to June to 4.2%; a level which Pantheon Macroeconomics notes essentially matches the MPC’s estimate of its equilibrium rate, at 4.25%. PM adds that such an outcome would be four quarters earlier than the Committee expected, according to the August MPR. Digging deeper into the data, PM observes that the single-month rate leapt to 4.6% in July, up from 4.0% in March. Note, the headline rate of 4.2% is 0.2ppts above pre-COVID levels.


• Furthermore, when looking at the tightness of the labour market, ING highlights that the "the ratio of unfilled job vacancies to unemployed workers now stands at 0.73, down from a peak of almost 1.1 and very nearly back to the pre-pandemic high of 0.64".


• That said, the unemployment data was overshadowed by the accompanying earnings metrics, which saw firmer than expected prints for both the headline and ex-bonus readings, albeit the former boosted by "the NHS one-off bonus payments made in June 2023", according to the ONS. PM notes the pace of wage growth ex-bonuses is still inconsistent with CPI returning to 2% on a sustained basis.


• Despite hopes that the loosening in the labour market will eventually act as a drag on wage growth, it will not come soon enough for the MPC. Granted, there is another labour market report due before the September 21st meeting and two more inflation releases (the first of which is tomorrow), however, markets are clear in their view that the MPC cannot take its foot off the hiking cycle at this juncture and accordingly raised odds for a September hike from 85% to 100% in the aftermath of the release with a November adjustment also seen as more likely than not.

German ZEW Survey 

• ZEW Economic Sentiment (Aug) -12.3 vs. Exp. -14.7 (Prev. -14.7)


• ZEW Current Conditions (Aug) -71.3 vs. Exp. -63.0 (Prev. -59.5)


• Overall, the data showed an unexpected uptick in the sentiment metric, but clearly remaining at subdued levels.


• The accompanying commentary from ZEW states that financial market experts anticipate a slight uptick in the economic situation by year-end. However, it caveated that judgement by noting that these expectations need to be viewed in the "context of a significantly worsened assessment of the current economic situation in Germany".


• Oxford Economics adds that "Even though sentiment may have halted its descent, it is still subdued and incoming data continue showing growth in the eurozone is losing traction". As such, it expects "downbeat growth in the next quarters, as the delayed impact of monetary policy weighs on the economy and manufacturing output declines".


• It's also worth noting that the survey revealed that respondents "by and large do not expect further rate hikes in the EZ and US" a judgement which is likely to be tested when it comes to the Eurozone with money markets increasingly leaning in favour of a September hike by the ECB.

15 Aug 2023 - 15:00- EquitiesData- Source: Newsquawk