Calibrating the market’s reaction to major data releases in the age of COVD-19 has an increased difficulty.
The market might simply ignore the data in favor of the latest government measure. Or the data can have a bigger impact as traders latch on to any kind of information to guide their trades in a volatile market.
An argument can be made for both cases with tomorrow’s release of UK employment data.
On the one hand, we need to see the underlying impact on jobs, which is key for understanding the evolution of inflation. On the other, traders might dismiss last month’s figures as “old news” since it wasn’t until March that COVID-19 started to have a domestic impact in the UK.
Either way, it’s still important data to have in mind when analyzing the evolution of the economy.
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What We Are Looking For
Several bits of data are coming out at the same time, all of which could move the market.
Usually, however, the one that gets the most attention is the Claimant Count Change.
We can expect the UK’s employment situation to have deteriorated somewhat in February. That will already be ahead of any measures taken to stem the current pandemic.
Expectations are for Claimant Count to register 21.4K additions, up from the 5.5K additions in last month. Remember that the higher the number, the worse it is for the pound.
That said, projections indicate that the unemployment rate will tick up only one decimal to 3.9% from 3.8% in January. This would keep it broadly in line with where it’s been since May of last year, and not a concern for BOE policy, yet.
Finally, we can expect the Average Weekly Earnings to rise by 3.0% compared to 2.9% prior. Despite the marginal increase, it would still be in the overall downward trend since the middle of September.
The BOE is paying closer attention to this statistic because it’s more predictive of the inflation rate.
The Next Major Event
Over the weekend, there was a semi-coordinated effort by major world central banks to ease monetary policy.
The Fed slashed rates by 100 bps in a historic move, RBNZ cut rates by 75 points and the PBOC cut targeted RRR again.
The BOE already cut rates outside of a scheduled meeting. And, with the latest global moves, expectations are increasing that they might not wait until the next meeting to act. At the last meeting, the consensus was for another rate cut of 50 basis points at the next meeting.
With all the news on coronavirus, attention has moved away from Brexit negotiations. However, the talks continue, with both sides continuing to try to leverage brinkmanship in their favor. The UK has threatened to leave without a deal before June, which is another factor spooking markets.
Should either of the sides signal more directly that a deal is unlikely, with the media largely distracted, it might come as a surprise to the market.
The other pending issue is that, so far, neither the UK government nor the BOE has announced specific programs to support SMEs. That said, they have said discussions are ongoing. That is a potential measure that could support the market if announced soon.
Or, if it’s disappointing in scope, it could lead to further declines.
