The recent Non-Farm Payrolls (NFP) data in the United States showed a grim picture of the jobs market. Many investors consider the United States economy as a benchmark for the world’s developed economies, so this week’s UK unemployment and retail sales data will be key, for interpreting the COVID-19 damage.
Unemployment is on the rise around the world, and the United Kingdom is especially sensitive to external shocks due to the ongoing Brexit process – what looked like a liberating vote in June 2016, now feels like an additional burden on one of the world’s largest economies.
UK Data to Act as Bellwether
GBP traders already have a bias due to the news over the weekend, with the Bank of England (BOE) saying it is open to negative interest rates, should the crisis worsen.
On Tuesday, investors have the chance to compare the US and UK jobs data, with the Claimant Count Change due early London morning. The CPI report comes in on Wednesday, Flash PMI Services on Thursday, and Retail Sales on Friday will complete the economic picture in the UK.
As always, investors will focus on the unknown and will listen closely to BOE’s Governor Bailey’s speech on Wednesday. He is scheduled to testify, along with three Monetary Policy Committee (MPC) members on the economic impact of the coronavirus health crisis before the Treasury Select Committee in London.
Bailey should have a hard time minimizing the impact of the pandemic outbreak. Judging by the negative interest rate hint investors got over the weekend, BOE will most likely signal its willingness to do more.
This would be a remarkably interesting development as the BOE used to follow the Fed’s decisions closely. However the Fed announced last week that it is not considering negative interest rates “currently”, which makes Bailey’s speech on Wednesday extremely important for GBP traders.
According to a recent publication by the Bank of International Settlement (BIS), the employment risk index shows highly elevated levels across Europe. The study reveals Southern Europe’s high unemployment, with the UK defying the norm.
However, due to the lagging characteristic of employment data, the United Kingdom is likely to catch up with the rest of Europe and other developed nations.
The big question, now, is not if the United Kingdom’s economy will be affected, but how big the damage will be?