There were no significant domestic developments, especially with UK markets closed for holidays on Friday and Monday. Overall risk conditions were less confident during the day with reservations over global monetary policy amid expectations that the Federal Reserve would raise interest rates in May. At this stage, there are expectations that the Federal Reserve and Bank of England would both increase rates at the May policy meetings. BRC data recorded a 4.9% like-for-like annual increase in retail sales, unchanged from the previous month and slightly below consensus forecasts.
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Expectations remain strong that the European Central Bank will increase interest rates at the May policy meetings. There was no major impact from global risk conditions with equities little changed.
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10.00 Retail Sales (YoY) (Mar) Exp. -3.5% Prev. -2.3%
The US employment report recorded an increase in non-farm payrolls of 236,000 for March and close to market expectations while the February increase was revised higher to 326,000 from the original reading of 311,000. There was another strong increase in the number of government jobs of close to 50,000 but the increase in private payrolls was below expectations at 189,000. There were job losses in more interest rate sensitive areas such as manufacturing and construction which suggests underlying strength is fading with retail jobs also declining on the month. According to the household survey, there was a stronger increase of 577,000 in the number of people reported as employed and the unemployment rate edged lower to 3.5% from 3.6% and slightly below expectations of 3.6% which still suggested a tight labour market. Average hourly earnings increased 0.3% on the month which was in line with consensus forecasts with the annual increase slowing to 4.2% from 4.6% which suggested that overall wages growth was moderating slightly, but markets were still wary over underlying pressures. Following the data, there was a net shift in expectations surrounding the Federal Reserve policy with markets pricing in just over a 70% chance that there would be a further 25 basis-point rate hike to 5.25% at the May policy meeting. There are, however, still expectations that rates will be cut before the end of 2023.
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