UK jobs data drives GBP lower, as markets await US inflation reports

• UK jobs report drives GBP lower
• Anglo American falls as spin-off plans lessen the chance of a BHP takeover
• US inflation key, with no clear path back to 2% for now

Equity markets within Europe look to be following the theme set within yesterday’s US session, as risk assets continue to tread water ahead of the critical inflation data due today and tomorrow. However, European markets have also had to contend with the latest UK jobs report, with the Bank of England likely concerned at the combination of stubbornly high wages and the joint highest unemployment rate in over two years. Nonetheless, with UK inflation looking set to tumble next week, the declines seen for sterling this morning does highlight the ongoing confidence that the Bank of England will overlook the elevated wage data and instead seek to begin normalising rates as soon as next month.

The FTSE 100 provides one bright spot within an otherwise downbeat session in Europe, with Vodafone and Ocado the two dominant gainers in early trade. Recent speculation over a potential BHP takeover for UK-listed Anglo American has hit the buffers, with yesterday’s second bid rejection now followed up by news that the company could seek to sell off part of its business to ward off suitors. The decision to spin off their diamond, platinum, and coal mining operations will see a greater focus on Copper. With copper rising into a fresh two-year high this morning, there is a clear surge in demand for this key material as the world progressively moves towards increased electrification. For UK investors, the news that Anglo may manage to remain on the FTSE 100 comes as a welcome development, with recent gains in the index helping to slightly ease the perception that the UK market undervalues its businesses.

Looking ahead, US inflation comes into view, with the release of PPI factory input price data due later today. Unlike the UK, the US has no clear path back down to the 2% target in the near-future, raising the potential risks for equity markets given the current expectations around a September rate cut. The current optimism that we will see the Federal Reserve cut rates twice this year could come under pressure if inflation moves higher rather than lower after almost a year of mid 3% CPI. As such, traders will be keeping a close eye on the upcoming PPI and CPI reports, with the dollar looking primed for another push higher in the event of another lofty inflation metric this time around. That being said, the declines seen in crude oil last month do provide some optimism that we will see monthly inflation ease off after three elevated figures this year.