Inflation Bites Real Wages
Salaries are growing in the UK, but real wages are shrinking as a result of high inflation. A report published by the Office for National Statistics (ONS) showed that average weekly earnings rose, during the July-September quarter, by 2.2%. With inflation standing at 3% in October, this means that the purchasing power of British consumers is still declining as the Christmas period is just around the corner. According to the ONS, the UK’s unemployment rate remained stable at 4.3%, which is the lowest figure in the last forty-two years.
In the US, the release of data regarding October’s inflation and retail sales is going to catch the attention of investors and traders. In the Eurozone, a report by Eurostat said that the Eurozone’s trade surplus, in September, increased much more than expected, sending the Euro higher.
Pound Sterling – UK Markets
Today, the Pound inched higher against the US Dollar with the exchange rate set just under the $1.32 mark. On the contrary, Sterling dropped, close to a four-week low, against the Euro with the exchange rate set at €1.11. The major releases for today were data regarding UK’s unemployment rate and average earnings.
The ONS survey showed that wages in the UK rose slightly during the period between July and September. Average weekly earnings, including bonuses, increased by 2.2%, 0.1% more than anticipated. Data showed that salaries, excluding bonuses, rose by 2.2% which means that wages are shrinking as UK inflation currently stands at 3.0%. Real wages, including and excluding bonuses, have fallen by 0.4% and 0.5%, respectively, when compared to 2016. The Bank of England’s (BoE) forecast at the beginning of the year said that wages would rise by 3% in 2017 and 3.75% in 2018.
According to ONS analysts, UK unemployment rate in September stood unchanged at 4.3%, as it had been anticipated. The 4.3% figure is the lowest since 1975. The survey showed that the number of people working fell by 14,000 in the July-September quarter, which is the first recorded decline in the last thirteen months. The participation rate came in at 75%, which is 0.6% more than the previous year’s reading. In October, the number of people claiming unemployment benefits rose by 1,100, much less than the anticipated 2,300 figure.
US Dollar – US Markets
The US Dollar fell against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, fell under the 94.00 mark coming in at 93.64. The reason for the DXY’s fall was the surge of the Euro, based on data that showed a robust German economic growth.
In the afternoon, the US Bureau of Labour Statistics will publish the US inflation data for October. Market consensus is that US inflation stood at 2.0% in the previous month, lower than the 2.2% September reading. Economists at Nomura suggest that September’s sharp increase didn’t continue since retail gasoline prices fell in October, making the energy price index decline. They also forecast that core inflation will come in at 1.8%, 0.1% above the market consensus because, as they note, inflationary pressures on core goods prices arising from various factors have been recorded.
Inflation data isn’t the only major release today from the US since the US Census Bureau will publish data regarding retail sales in October. Market experts expect that core retail sales increased by 0.4% when compared to September’s figure as a result of rising wages and labour market’s strengthening. A slight decline in auto sales is anticipated as consumers have already replaced cars which were damaged from hurricanes.
Euro – European Markets
The Euro edged up against the US Dollar with the exchange rate set at $1.18. The single market currency is enjoying its second day of considerable strengthening after data showed that the German GDP expanded more than anticipated in the third quarter of 2017.
A Eurostat report revealed that the Eurozone’s trade surplus increased, more than expected, to €25bn. The result indicates the increasing strength of the Euro-bloc’s exporting sector. Ardo Hannson, one of the members of the European Central Bank’s (ECB) Governing Council, said that the ECB board feel more confident that Eurozone inflation will reach the desired levels. Hansson also mentioned that inflation is rising because of the implementation of monetary policy measures.
Inflation in France during October stood at 1.2%, on a year-to-year basis, in line with expectations. The French Budget Minister, Gerald Darmanin, said that the official GDP forecast for 2017 remains at 1.7%. He said that the ministry didn’t increase the forecast to 1.8% because it wanted to be cautious. Darmanin noted that his target is to bring the budget deficit under the 3% threshold. The French minister commented that the planned exceptional tax on large companies to balance the budget is preferred than increasing taxes in general.
Other Currencies – Highlights
Sterling rallied against the Australian Dollar, trading at 1.73 AUD. The Australian Bureau of Statistics (ABS) published data which showed that hourly wage growth, excluding bonuses, grew by 0.48% in the third quarter of the year. Analysts had been expecting a 0.7% rise. Economists noted that the result makes it difficult for the Reserve Bank of Australia (RBA) to consider hiking its interest rates. They also believe that wages will increase only after a year or two as the labour market is still strengthening.
The Pound fell against the New Zealand Dollar, trading at 1.90 NZD. Stuart Nash, the Revenue Minister, said that the government will introduce 15% Goods and Services Tax (GST) on all purchases from international websites. New Zealand’s retailers hailed the decision as the added tax, nicknamed “Amazon tax”, will enable them to compete with overseas rivals.
Sterling lost ground against the Swiss Franc, trading at 1.29 CHF. An Organisation for Economic Co-Operation and Development (OECD) invited the Swiss government to implement a series of reforms that would restore productivity growth.