Stock markets are treading water on Tuesday, with jobs number from the UK not inspiring and Chinese data also highlighting weakness in the recovery.
Some positives for the BoE to cling to
UK jobs data was a mixed bag this morning as wages accelerated again to 6.7%, excluding bonuses, while unemployment also ticked higher as inactivity fell. The Bank of England will no doubt be concerned about the pace of wage growth, with it not being consistent with inflation returning to 2%, but there are signs of slack emerging which is encouraging.
If inflation does halve as expected this year, that in itself should have a dampening effect on wage growth alongside a less tight labour market. There’s still a long way to go but there are promising signs. Sterling declined after the data amid signs that the numbers may soon be enough for the MPC to pause its tightening cycle. Markets are pricing in only one more hike this year before reversing course from the start of next.
An unbalanced recovery in China
Chinese data overnight disappointed, highlighting the likely need for further monetary support from the PBOC over the coming months. The consumer has been the engine of growth for the economy in the opening months of the year but that, as we’ve seen elsewhere post-pandemic, is primarily services based.
The recovery in China is simply not broad-based and there remain many pockets of weakness that targeted stimulus could provide a boost to. Industrial production and fixed asset investment were both well short of expectations last month and there’s little sign of that improving without additional support.
A deeper correction for Bitcoin?
Bitcoin appears to be consolidating around $27,000 in the short term but there remains downside risk after breaking this notable support level last week. It found support around $26,000 but may struggle to generate significant momentum higher. It’s been a phenomenal run this year so a correction would make sense. If it does break below $26,000 then $25,000 would be the next potential support level.
