Pound rises, UK labour market recovery continues

The UK unemployment rate has fallen back to almost where it was pre-pandemic. The thriving job market sets the scene for another BoE rate hike.

• GBP/USD picks up off weekly lows as UK unemployment falls
• BoJ shifts inflation outlook for first time in 6 years
• Goldman Sachs to report Q4 earnings

UK unemployment drops

The pound has picked up off one-week lows versus the US dollar (GBP/USD) and is trading higher against the Euro (EUR/GBP lower), as the UK labour market recovery continues.

The unemployment rate unexpectedly ticked lower to 4.1% in the three months to November, down from a 15-month low of 4.2%. Meanwhile, the timelier claimant count revealed that the number of people claiming unemployment benefit fell by a further 43.3k in December, after dropping by a downwardly revised 95.1k in November. The data suggests that the UK labour market recovery is very much on track.

The BoE has previously cited concerns over the ability of the jobs market to absorb those on the furlough scheme as the government support programme came to an end. Today’s data is likely to further calm those fears paving the way for another possible rate hike in February.

BoJ raises inflation outlook

The yen is trading lower after the BoJ, as expected, stayed pat on monetary policy but changed its long-standing view on inflation.

The central bank voted to keep interest rates negative and its asset purchases programme as well as its yield curve control untouched. However, for the first time since 2014, the BoJ shifted its view on inflation. After years of deflation risk, Japan faces rising price pressures, amid increasing food and energy prices.

The BoJ revised its inflation outlook higher to 1.1%, up from 0.9%, and changed the risk assessment to “generally balanced” from “skewed to the downside”. The well-telegraphed move sent the yen lower (USD/JPY higher) in a ‘sell the news’ reaction. Let’s not forget that even with this adjustment to the inflation outlook, a rate hike is still a distant possibility, as inflation remains well below the BoJ’s 2% target.

Oil rises to 7-year high

After gaining over 6% across the previous week, oil prices continue to scale higher this week. Today the black gold has jumped a further 1% higher, taking Brent to a 7-year high, on the back of rising tensions in the Middle East.
Concerns over production disruptions, amid rising hostilities, after Yemen’s Houthi group attacked, the UAE are adding to pre-existing concerns over tight supply.

After exploding fuel trucks, the Houthi have warned that they could target more facilities. Whilst the UAE have activated business continuity plans, the geopolitical tensions are making the oil market nervous, at a time when oil supply is already failing to keep up with rising demand. Given the current climate, Brent crude oil at $100 doesn’t look so far-fetched.

US banks earnings continue

After a very mixed bag for US banks earnings on Friday, which saw Wells Fargo impress, but JP Morgan and Citigroup disappoint, Goldman Sachs is under the spotlight today.

The investment bank has had a solid run, beating on both top and bottom lines since Q2 2020. Goldman Sachs has also topped the tables for IPO and M&A activity across 2021 which bodes well for today’s numbers. Expectations are for EPS of $11.73 on revenue of $12 billion.

The share price dropped to a three-week low on Friday, at $375, before closing on the 200-day moving average (DMA) at $381. The 200 DMA provides the big test for today. Upbeat numbers could see the share price retake this key resistance and head back up towards the $390, Thursday’s low.