Unemployment rise concerns BoE MPC member

The initial boost to activity as the economy began to open up has proved something of a false dawn as the true picture of job losses begins to emerge.

So far this week more than 12k jobs have been lost, mostly among large high street employers and some major retailers like John Lewis confirmed yesterday that some of their stores, that are prominent on several High Streets, won’t reopen.

Jonathan Haskell, a member of the Band of England’s Monetary Policy Committee, expressed his worries over rising unemployment yesterday. He said that he feels that the Bank’s current policy stance is about right but is concerned about job losses.

Several commentators have been fooled into predicting a V or U-shaped recovery due to the initial rise in activity as lockdown has been eased. Footfall in the retail sector has been encouraging but remains well below the figures for the same period a year ago. Consumers appear to still feel that it is not worth the effort or risk to make a trip to their local high street when they can shop comfortably online.

There was more encouraging news yesterday for the UK’s manufacturing sector. Although this area of the economy is now dwarfed by the services sector, there was a degree of comfort to be gained from data which showed that activity expanded on a monthly basis between May and June. The expansion was minimal, but it showed that there is a degree of light at the end of the tunnel.

Yesterday, the pound rose to a high of 1.2490 versus the dollar and recovered to touch 1.1096 against the euro. It closed close to its highs versus both.

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Powell praises early bounce back, but…

As has been seen in the UK, after an initial burst in activity following the lifting of lockdown across a number of employment sectors activity is failing to maintain the momentum and concerns over a recovery in employment remain.

Despite encouraging data over recent weeks and months, the ADP report on private sector employment that was released yesterday revealed that, although it was positive, not as many jobs were created as were expected by the market. Close to 2.4 million jobs were created, but this was a 25% drop from May.

Today, the full employment report will be released. This is a day earlier than normal with Independence weekend celebrations starting tomorrow.

The headline NFP number is expected to be around 3 million following last month’s report which showed a little over 2.5 million jobs created. If this turns out to be correct it will be almost the exact opposite of ADP.

The unemployment rate is expected to be around 12.5% although several officials from the Administration had predicted that it would be below 10% by now. Should the jobless rate remain stubbornly high, the decision to be made by mid-month over the Federal Pandemic Relief Fund will become even more critical as the number of those who have been out of work three months or more grows.

While it is clear the Federal Government cannot go on topping up unemployment relief indefinitely, it is considered vital that the current plan remains in place for a further two months at least. This is certainly the view of Fed Chairman Jerome Powell who disagreed with Treasury Secretary Steve Mnuchin earlier in the week over the positivity being felt over a significant recovery during the second half of the year.

Yesterday, the dollar index fell back a little as a poor week continued. It reached a low of 97.02, closing at 97.15., Volatility levels in the currency market have fallen back somewhat but it is hard to predict if or when there will be a summer lull this year as, for many, it may be difficult to differentiate between furlough and vacation.

Market mood turns sour

As was mentioned earlier in the week, the market remains fickle and hard to predict. Yesterday’s data for economic activity in the Eurozone was reasonably encouraging in that despite manufacturing remaining in contraction and employment failing to live up to previous results, the data did not necessarily demand the slew of downward predictions for the overall recovery.

At least, predictions of a larger than previously seen contraction for the economy this year were no more warranted than an unexpected upturn in the mood earlier.

The facts are that in keeping with other G7 nations, it remains impossible to predict just how deep a recession the region will see, particularly since the current environment is totally uncharted territory in which tried and tested models are no longer valid.

The unemployment data for Germany showed that far fewer jobs were created than had been expected and the unemployment rate rose from 6.3% to 6.4%. Manufacturing output for the entire Eurozone rose from 46.9 to 47.4 as had been expected by analysts. Despite being in line with expectations, this news was attributed to being the reason that sentiment is turning weaker.

The pan-Eurozone employment data will be released later this morning. Although it is not usually anywhere close to rivalling the NFP for impact, with jobless numbers a hot topic, it may grab more attention than normal. The unemployment rate is expected to rise from 7.3% in May to 7.7% in June.

It is obvious that any agreement, or otherwise, over the Pandemic Relief Fund that will make or break sentiment for the single currency, but silence will probably be just as damaging.

Yesterday the euro remained in the shadow of the dollar. It rose to a high of 1.1275, closing at 1.1251 as it managed to rise above resistance at 1.1220.