Sterling has taken a leg lower this morning after the latest UK employment data showed a smaller than expected rise in average earnings. The drop has boosted the FTSE 100, with the index rising by 30 points on the day.
Inflation case weakens further
In recent weeks there has been a growing feeling that rising inflation will shortly begin to impact the Bank of England’s future policy decisions, with some using this line of thought as a reason to suggest an imminent appreciation in the pound. However today’s rise of 2.6% in the average earnings index was both below the consensus forecast for a 2.8% print and the 2.8% seen previously. This is the third event - after the BoE inflation report and CPI data - that has been touted as possibly showing rising inflationary pressures but ultimately failed to do so.
Claimant count falls the most since 2009
At the same time as the earnings release the change in the number of people claiming unemployment benefits in January dropped by 42.2k, marking the biggest decline in this economic indicator since May 2009. This is obviously a strong signal of health for the labour market, but the immediate reaction in the pound, which fell across the board in the minutes following the release, suggests that the earnings figure is the bigger market mover.
Financials lead the surge higher
The FTSE 100 was already up on the day before the fall in sterling provided a further boon for the benchmark which is continuing its recent upwards trajectory in pursuit of a new all-time high. Several of the best performing stocks on leading UK index come from the financial sector with RBS (LON:RBS), Barclays (LON:BARC) and Standard Chartered (LON:STAN) all on course for a day of strong gains. Rolls Royce (LON:RR) shares are under pressure once more after yesterday’s strong declines, with the stock lower by a little over 1% and testing the 700 level.
US data to support recovery in the buck?
Janet Yellen stole the headlines yesterday with some uncharacteristically hawkish rhetoric seeing the US dollar appreciate whilst all three major stock indices across the Atlantic posted record highs. Declaring that delaying the removal of the Fed’s monetary accommodation could lead to rapid rate hikes in the future is about as strong a hint as Chair Yellen could give that the central bank are looking to raise rates soon and the market-implied probability for a hike at the next meeting in March duly jumped up. Whilst this stole the limelight another development yesterday slipped under the radar as the producer price index (PPI) for January surged higher by 0.6% m/m - the highest reading for this inflation indicator since in more than two and a half years. This afternoon sees the more widely viewed consumer price index (CPI) data released at 1:30pm (GMT) and a further beat could apply more upward pressure for the Fed to raise next month.