Weekly Market Update 2019 01 28

UK Employment Surges
UK employment increased by 141,000 in the three months to November, to a record high of 32.54m. However, the increase in the participation rate meant that the headline unemployment rate remained unchanged at 4.0%. Continued falls in the rate of part-time employment and increases in full-time employment also pointed to a tightening labour market. This appears to have fed into wages, which increased by 3.4% over the year to November. Encouragingly, the falling rate of inflation has also contributed to accelerating real wage growth, which ran at 1.2% over the same period, which has not been higher since November 2016. Higher take-home pay should give more flexibility to consumers who may use the surplus to pay down debts during this period of political uncertainty; however, it should ultimately lead to higher consumption in the medium term.

Sterling Rally
The Pound Sterling rallied 2.5% against the Dollar throughout last week, rising every trading day. Investors have been looking for signs that there is an increasing consensus in Westminster. Furthermore, there are a growing number of commentators who are suggesting that the Pound is undervalued on a fundamental basis and that if there is a well-received resolution to the Brexit process, there is scope for a significant recovery in the currency. Some banks have predicted that the Pound may trade in excess of $1.50 by the end of the year, representing a rise of over 13%. A stronger currency would lead to lower rates of inflation, although it would also weaken the UK competitiveness making goods and services more expensive to international buyers. Nevertheless, the removal of the significant political uncertainty is likely to more than offset any negatives.

Market Data

Index Open Close Change % Change
FTSE 100 6968 6809 -159 -2.3%
S&P 500 2670 2664 -6 -0.2%
Dax 11205 11281 76 0.7%
Cac 40 4875 4925 50 1.0%
Nikkei 225 20666 20773 107 0.5%
UK 10 Year Gilt Yield 1.31 1.31 0 0.0%