Written Commentary
Focus still on US China trade talks and other political points of tension, as UK labour and BRC sales, Sweden GDP and Norway CPI are digested, Brazil inflation, US NFIB Small Business Optimism and ECB speakers ahead
U.K.: sharp slide in HMRC payrolls, drop in Vacancies signal significant drag from NI and minimum wage hikes, wage pressures continuing to ease
U.K.: May consumer spending surveys revert back to subdued trend after April distortions
EVENTS PREVIEW
The focus remains on the continuing US China trade talks, which remain focussed on export controls and other non-tariff barriers, though it should be remembered that the 40% tariff on China’s exports will likely result in a 2/3 drop in volumes from China to the US. The social unrest in California over immigration curb enforcement measures, and the stand-off between the federal and state governments remains the other national political focus, along with the protracted Senate negotiations on the passage of the tax and spending bill. The regular ‘macro’ calendar has UK BRC Retail Sales and monthly labour market indicators, Swedish monthly GDP and Norwegian inflation to digest, with Brazil’s IBGE Inflation IPCA and US NFIB Small Business Optimism ahead. The events schedule has various ECB speakers, and little else. Market sentiment and risk sentiment looks to be going through a period of paralysis, torn between a long-standing tendency to ‘nothing but blue skies’ interpretations, but now more than well aware that there is so much ambiguity in the US administration’s policy implementation, on top of the longer standing uncertainties about the global economic outlook, which can at any moment deliver shocks.
** U.K.: May BRC Sales, April/May labour data **
– The sharp setback in BRC Retail Sales and Barclaycard
Consumer Spending underlines that the bump higher in April owed everything to
Easter timing effects and the burst of warm weather, and that underlying
private consumption trends remain sluggish. Of much greater concern were the
labour market indicators, above all the sharp 109K drop in HRMC Payrolls (worst
since the pandemic – see chart) and 63K fall in Vacancies, with little doubt
that the rise in Employer National Insurance contributions and the Minimum Wage
were the key drivers of this more significant loosening in labour demand. The
fact that Average Weekly Earnings also came in below forecasts at 5.3% y/y
headline and 5.2% ex-Bonus suggests that the upward pressure on overall wages
from those increases looks to have been very modest, and per se behoves the
hawkish wing of the MPC to reconsider their concerns on wage inflation, which
other labour market surveys have long suggested is misplaced.
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