By Craig Erlam
The Bank of England may have little option but to raise rates again next week, despite comments recently indicating the debate will be fairly balanced.
The UK labour market figures offer something for everyone on the face of it, but under the circumstances, BoE hawks will likely be more emboldened by the figures than the doves.
Employment figures fell for a second month as unemployment stayed at 4.3%, which may be viewed as mildly encouraging to policymakers hoping to see more slack in the labour market. But much more progress will be needed if we’re going to see the vote swing in favour of a hold.
Especially when wage growth is continuing to rise, with average earnings not only rising to 8.5%, including bonuses, but the June figure also being revised higher to 8.4%.
It’s hard to see how the MPC can see that and even consider pausing on the whole. Markets seem to agree, with a 25 basis point hike almost 80% priced in.
What comes after that is harder to judge at this stage and will depend on how the data performs over the next two months.
Oil rally slows, Brent remains above $90
Oil prices are creeping higher again on Tuesday, with Brent trading around $91 despite there being a mixed view on the economic outlook.
As we heard from the European Commission on Monday, growth in the euro area is going to be relatively minor, with Germany struggling to avoid another recession.
The UK has shown a lot more resilience than anticipated, but still faces recession risks and marginal growth at best.
People are feeling a little more optimistic about the US, with last week’s services PMI backing that up, but even here there are significant downside risks.
While China is a big unknown with efforts to stimulate the economy being targeted and far from guaranteed to boost growth substantially.
That said, one thing we’re guaranteed is supply to continue to be restricted until the end of the year, at least following the recent announcement by Saudi Arabia and Russia.
The rally has stalled a little over the last week, but there are few signs of a corrective move lower at this stage and I suspect we’ll hear a lot more $100 oil chat before long.
Gold remains soft ahead of US inflation
Gold rallies over the last couple of days have been far from encouraging, with gains being quickly unwound to end the session far from the highs.
That’s despite the dollar easing on Monday which appeared to support gold prices, but clearly not for that long which could be a bearish signal.
The greenback is slightly higher Tuesday which is weighing on the yellow metal a little.
While you could read more into price action over the last couple of sessions, I’m inclined not to with the US inflation data due Wednesday. That will likely drive the next move and could heavily influence what the Fed does next week.
Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA
Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.