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UK Jobs Data Could Revive Rate Rise Hopes

Wall Street charged higher in early trade on improving prospects of a China - US trade deal. Yet with no follow through news to keep optimism elevated, the US indices eased back to close off sessions highs. The S&P ended the session just 0.08% higher, the Nasdaq 0.1% higher, whilst the Dow booked its 8th straight winning session following Trump’s offer of an olive branch to China and a lifeline to China’s ZTE Corp.


Whilst US stocks managed to keep their head above water thanks to an apparent easing in US – Chinese trade tensions, Asian stocks were experiencing a mixed session, whilst Europe looks set to open lower. After a quiet start to the week on the economic calendar on Monday, releases ramp up a gear on Tuesday. Today sees the release of high impacting data from the UK by way of the labour report, the eurozone GDP report and retail sales from the US and that’s not mentioning the German GDP and ZEW confidence survey.


GBP/USD back to $1.37 on UK jobs report?

Heading into the UK jobs report the pound is languishing around $1.3560, just close to 90 points off its recent 4 month low and some 900 points lower than where it had been little over one month earlier. The pound has been hammered over the last month after a streak of weak economic data and a dovish BoE quarterly inflation report, resulting in the central bank opting to sit on the side-lines and wait for more data to see whether the UK’s recent soft patch was temporary or a more concerning structural problem.


The UK jobs report come against a back drop of weak data and a dovish BoE. Whilst the report is expected to show unemployment remained at multi decade lows of 4.2%, the main focus will be on wages growth with mixed results expected. Wages excluding bonuses, the key number for the BoE, is forecast to show a tick higher to 2.9% in the three months to March, up from 2.8% in February. Given that inflation in March was 2.5%, wages growth of 2.9% or higher would be an encouraging sign that domestic inflation will slowly start to pick up, potentially reviving the possibility of a BoE rate rise later in the year and pushing sterling back towards $1.37.


US Retail sales to tick lower

US retails sales will grab the spotlight in the afternoon. After a slightly weak CPI read last week, investors will be hoping that retail sales have performed better. Expectations are for an increase of 0.3%, down from 0.6% in March. Whilst weaker inflation dampened hopes of four rate rises across the year, investors will be keen to see that US citizens were out spending their tax cuts in the shops, although judging by forecast this could be a little optimistic. A weaker print could see dollar weakness extend as it pauses for breath after its recent, hard rally.


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