European markets got off to a solid start to the week yesterday, in the absence of US markets, with the FTSE100 once again outperforming, as it closed at its highest level in almost 2 years.
The UK benchmark would have done even better had it not been the huge drag from Unilever shares which fell by nearly 7%, as investors reacted negatively to its intention to buy GlaxoSmithKline’s consumer healthcare unit for a price in excess of £50bn.
While the bid was rejected, there is a concern that management might decide not to take no for an answer, and come back with a higher bid, although after yesterday’s universal condemnation perhaps there might be a period of reflection.
This morning’s Asia session has seen the Nikkei 225 slip back, with the Bank of Japan leaving monetary policy unchanged in a move that was not surprising in the slightest, although there was some speculation last week that Japanese policymakers might start to think about how to transmit their intention to nudge rates higher, if the Federal Reserve were to start pursuing a policy of multiple rates rises this year.
Japanese policymakers did upgrade their median forecasts for inflation, to 1.1%, from 0.9% in response to the recent surge in energy prices, while the GDP forecast was raised from 2.9% to 3.8%
As we look ahead to today’s European open, which is expected to be a softer one, as Asia markets slip back the main focus is set to be on the latest UK unemployment and wages data for November.
Last month saw the ILO measure of UK unemployment fall to a 15-month low of 4.2% in October, with the number of people on payrolls rising by over 257k in November, and the number of vacancies rising to 1.22m.
This trend of payroll additions looks set to continue today with another 125k expected to be added in December.
Expectations for ILO unemployment for November are for it to remain unchanged at 4.2%, although there is a chance we could come in lower, given the over 1m vacancies that are still currently unfilled.
These vacancies could also have the effect of helping to underpin average weekly earnings which have fallen sharply since the summer months of 2021, when they were at 7.3%. As furlough measures have been slowly wound back, average wages followed suit, and in October fell back to 4.3% from 5% in September, as all furlough measures finally came to an end.
It’s predicted that we could well fall back further with today’s numbers for November expected to come in at 3.8%. If that’s the case it’s no wonder there are over 1m vacancies if employers are reluctant to pay more money to deal with the soaring cost of living.
Some employers have already realised that they need to compete for staff, with the likes of Next and Sainsbury’s already announcing wage rises in line with current inflation levels, in recent weeks. They are unlikely to be alone as their rivals look to match them in order to keep shelves stocked and hang onto their staff.
This is also an area which the Bank of England will be paying close attention to when it meets early next month and decides whether or not to raise rates again, with tomorrow’s CPI numbers also likely to be keenly watched.
In Germany the latest ZEW survey for January is expected to show a further deterioration in the current situation index, with a fall from -7.4 to -8.8, although forecasts for expectations could show an improvement from December’s 29.9.
Brent crude oil prices have moved to their highest levels since 2014, after Houthi rebels launched a drone strike against the United Arab Emirates, causing a fire on the outskirts of Abu Dhabi, near the airport, as tensions in the region ratcheted up.
EUR/USD – ran out of steam at the 1.1480 area last week and slipped back towards the previous resistance at the 1.1380 level. As long as we hold above 1.1370 the road towards the 1.1520 area remains intact. Below 1.1370 retargets the 1.1280 area.
GBP/USD – failure at the 200-day MA and 1.3750 area has seen the pound slip back, a move that could see a retest of the 1.3580 area. We need to break above 1.3750 to signal further gains towards 1.3830 initially, and on toward the 1.4000 area. We also have support at 1.3420 and this year’s lows.
EUR/GBP – continues to range between the support at the 0.8330 area, and resistance at the 0.8380 level, however we could see a squeeze higher towards 0.8430. The bias remains lower towards 0.8280 and the 2020 lows, while below 0.8380.
USD/JPY – rebounded from cloud support at 113.50, with the potential to move back towards the 114.70 area. We need to move back above the 114.80 area to retarget the 115.30 area.
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