The UK construction PMI index strengthened to a 7-month high of 56.3 for January from 54.3 previously and compared with expectations of an unchanged reading. A slowdown in the residential sector was offset by stronger growth in the commercial sector. Employment increased at a faster rate while cost and supply-side pressures eased slightly with the lowest rate of price increases for 10 months. Bank of England Governor Bailey again called for restraint on wage increases or there would be an increased risk of inflation moving out of control. Chief Economist Pill reiterated that further gradual rate increases were likely and that more aggressive action should not be anticipated, although the risks would increase if pay pressures persist. Sterling overall was unable to make any headway with doubts whether the Bank of England would push ahead with sustained rate increases and there were also important reservations over the growth outlook. Political developments had little impact as the immediate temperature cooled marginally, although underlying tensions remained high. CFTC data recorded a further increase in Sterling shorts to near 24,000 contracts in the latest week from below 8,000 previously, increasing the potential for short covering.
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The Euro held a firm tone into Friday’s New York open with further support from the more hawkish ECB rhetoric and expectations of higher yields. The Euro edged lower on Monday with a limited correction with a slight recovery in commodity currencies. There remains an expectation of higher yields with the Eurozone though. Elsewhere, French President Emmanuel Macron has claimed a deal to avoid war with Russia is possible which will leave everyone happy.
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US non-farm payrolls increased 467,000 for January, substantially above consensus forecasts of 150,000 and there was a large upward revision to 510,000 for December compared with the original figure of 199,000. There was a small increase in manufacturing jobs for the month while there was a reported increase in leisure and hospitality jobs of over 150,000 compared with expectations that the Omicron variant would lead to a decline on the month. The unemployment rate edged higher to 4.0% from 3.9% and marginally above expectations, although this was due to a significant increase in the participation rate and the household survey recorded an employment increase of over 1.0 million on the month which continued to indicate a tight labour market. Average hourly earnings increased 0.7% on the month compared with expectations of a 0.5% gain with a year-on-year increase of 5.7% from 5.0% and well above forecasts of 5.2% which reinforced expectations of upward pressure on wages. The data overall was strong with markets taking particular note of the wages data. Futures markets continued to price in a 100% chance of rate increases for March and May with over a 50% chance of five rate hikes by November.
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