The street is looking for a 380k gain in payrolls (Ignis Signal Provider +400k) and a drop in the unemployment rate to 3.5%. The “whisper” number in the Bloomberg survey is 317k, suggesting markets are bracing for a weaker number. Just how much impact the data have after this week’s erratic swings in the majors remains to be seen. There are also a number of Fed speakers due over the next few days but most of today’s appearances either come late in the day or are appearing at events where the monetary policy outlook may not figure (see calendar for details).
Monthly Forecast For May: 4.2% Click here to learn more (Goal exceeded!)
The one-two punch of a dovish hike from the BoE and a broad sell-off in markets that only benefitted the USD resulted in the sharpest one-day decline in the GBP since the peak Covid-19 hysteria in spring 2020. The BoE met expectations with a 25bps hike, and the 6-3 vote split with three policymakers voting for a 50bps hike initially caught markets off-guard as seemingly more hawkish than expected. But the MPR showing a contraction in GDP in Q4 (in both a steady 1% bank rate scenario and a market-implied rates scenario) and the cautious tone from Gov Bailey, as well as a sign that a pause in the hiking cycle is nearing, pulled the GBP below the 1.24 mark yesterday (and under 1.23 overnight). Losses after the BoE hit extended on broad gains for the dollar. UK 2-yr yields ended the day down by ~10bps, or only about half of the drop from the BoE’s decision as a broad selloff in fixed income markets followed, but are down an additional 3bps today compared to a +3bps move in USTs. We think that based on market pricing of BoE rates that remains elevated (by about 75bps at least by year-end), and the UK’s macroeconomic backdrop there’s room for additional GBP losses towards at least 1.2250 in the coming days—though its collapse since late-Feb is starting to look significantly stretched from a technical perspective. UK local election results released overnight in the UK have delivered a less severe than expected loss for the Conservative party, but losses nonetheless—giving up three key London councils to Labour. With Johnson at risk, add political uncertainty to GBP headwinds over the coming weeks. The BoE’s chief economist Pill (neutral) and Tenreyro (dove) speak today at 7.15ET and 11ET, respectively.