Markets slump, while UK unemployment rise highlights growing pressure on the BoE

• European markets slump after tech-led US declines
• UK unemployment on the rise ahead of tomorrow’s inflation report
• Powell and Bailey comments due later today

European markets have collapsed in early trade today, as they follow their US counterparts lower. Yesterday’s tech-led slump saw the Nasdaq lose 1.8% over the session, with Tesla in particular losing 5% despite radical cost-cutting plans that sees the company slash the global workforce by 10%. Nonetheless, sentiment is shaky at best right now with heightened geopolitical tensions in the Middle East coming alongside increased concerns that the Federal Reserve may opt to maintain interest rates at the current levels for some time yet. Overnight data out of China saw the surprisingly strong GDP reading of 5.3% provide the one saving grace amid sharp declines in retail sales and industrial production.

The UK economy comes into full focus this week with today’s jobs report serving as a clear reminder of the difficulties faced by the Bank of England. While tomorrow’s inflation report will undoubtedly provide financial markets with a greater understanding of the timing around the first Bank of England rate cut, today’s saw a sharp jump in UK unemployment that highlighted the negative implications of keeping interest rates elevated for an extended period. Unfortunately, wages remain well above the levels that the BoE would have desired, although that gap between the 5.6% average earnings figure, and 3.4% consumer price inflation does at least ensure that the standard of living should be improving. All eyes now turn to tomorrows UK inflation report, with big questions over whether the recent rise in energy prices will stifle the journey back down to 2% inflation.

Looking ahead, central bankers will play a particularly key role is driving market sentiment, with appearances from Jerome Powell and Andrew Bailey bringing the potential for USD and GBP volatility. Markets have grown increasingly concerned that the events in the Middle East could spark a fresh bout of inflation, thus setting back the expected pathway for interest rates. Today’s appearances should help better gauge how the central bankers currently perceive this predicament, with energy inflation posing a significant risk given the data dependent nature of monetary policy.