UK unemployment holds steady at 3.8% in May, as the job boom continues but wage growth stalls. GBP/USD rises and the FTSE falls.
· Growth concerns knock market sentiment after Goldman Sachs and Apple warn of staffing cuts.
· Eurozone inflation is expected to confirm the record high 8.6% YoY EUR/USD rises
· Netflix is due to report Q2 earnings. Will it lose 2 million subscribers as the company predicted a few months back?
Wall Street closed lower as investors digested more earnings from the big banks. Goldman Sachs beat forecasts thanks to solid bond market trading, which helped overcome a slump in dealmaking. Profits still fell by 47% YoY. Meanwhile, Bank of America saw earnings drop 32% to $0.73 per share after the lender set aside $523 million in bad loan provisions.
Perhaps more concerning was the very cautious tone from the banks despite beatings forecasts. Goldman Sachs warned that it plans to cut at least 5% of its staff this year to cut expenses. A similar warning came from Apple, as the tech giant said it intends to slow hiring plans and cut jobs, something that Apple historically hasn’t done, as inflation and rising costs bite. The news stoked growth worries, pulling stocks lower.
While the US jobs market has so far shown resilience in the face of soaring inflation and slowing growth, this looks set to change over the second half of the year.
After the lower close on Wall Street, Europe is set for a weaker open, paring some of the gains from Monday. The FTSE is set to open -0.4% lower, and the DAX is pointing to a 0.5% drop on the open. UK jobs data and eurozone inflation are the key data releases this morning. Looking ahead, Netflix is due to report after the US close.
UK jobs data
The UK jobs market continues to show resilience for now. The UK unemployment rate held steady at 3.8% in the three months to May, defying expectations of a rise to 3.9%. 296k jobs were added in April, significantly more than the 170k forecast, and the timelier claimant count fell by 20.1k after falling 34.1k in May. Average wage growth stalled at 4.3%, less than half the inflation rate, adding to the squeeze on household budgets.
GBP/USD rose following the release, pushing towards 1.20, as it extends its recovery from last week’s 2-year low.
Eurozone inflation
Eurozone inflation is expected to confirm the preliminary reading, the record high 8.6% YoY in June. This was up from 8.1% in May as food and energy prices accelerated. Hotter than expected inflation data could add pressure to the ECB to hike interest rates more aggressively, mainly as they appear to be so behind the curve. The ECB is set to announce the rate decision on Thursday and is widely expected to hike interest rates by 25 basis points. However, the risk of a larger hike is rising.
EUR/USD fell below parity last week. The pair has pushed back over 1.01, briefly touching 1.02 yesterday, thanks in part to USD weakness. Hotter than forecast inflation could help the pair back towards 1.02.
Netflix
The streaming giant is due to report Q2 earnings after the closing bell. The share price trades down 70% year to date after losing 200k subscribers in Q1 and warnings of losing a further 2 million in Q2. A combination of rising competition, sharing passwords, the end of the pandemic trade, and the cost of living crisis squeezing household budgets have contributed to the deteriorating picture and the 70% drop in the share price. Still, with a price hike under their belt, revenue is expected to rise just shy of 10% to over $8 billion. EPS is forecast to fall 1.3% to $2.93.
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