3 Numbers: UK Labour Market Report May Reveal More Brexit Blowback

Britain’s economy remains in focus today with the monthly update on the labour market for September. We’ll also see new numbers on US residential housing construction for last month. Meanwhile, forex traders will be watching USD/MXN to see if Donald Trump’s suffering presidential campaign will continue to coincide with a strengthening Mexican peso relative to the greenback.

UK: Labour Market Report (0830 GMT): The sharp rise in inflation in yesterday’s update on consumer prices sends another warning shot across the bow of the UK economy. Will today’s numbers for the labour market in September also deliver a cautious message about the macro outlook?

Consumer prices in September increased at the fastest pace in nearly two years, a shift that’s widely seen as the result of a sharply weaker pound in the wake of June's vote in favour of Brexit. The tumble in sterling is translating into substantially higher prices for foreign-made products. That’s a concern for an economy where imported goods and services account for roughly 30% of GDP, according to World Bank figures for 2015.

Economists are projecting that UK inflation will continue to rise in the near term. The prospect of higher prices raises the possibility of negative real wage growth and higher interest rates.

Today’s monthly report on the labour market may continue to give the pessimists more fuel to argue that the price tag for Britain's decision to leave the European Union will be steep. Although the jobless rate is projected to remain steady at a low 4.9%, Econoday.com’s consensus forecast sees the claimant count rising for a second month, albeit modestly.

If the forecast for an increase of 3,000 in the ranks of newly unemployed holds, the advance will push the count up to its highest level since last November. In the current state of heightened anxiety about what’s waiting in a post-Brexit world, another rise in the claimant count – even a small one – will further stoke fears that the path ahead could get ugly for the UK.

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US: Housing Starts (1230 GMT): Confidence in the home-building industry remained strong in October, according to yesterday’s update from the National Association of Home Builders (NAHB). The firm sentiment reading implies that residential housing construction will trend higher in the months ahead after a stretch of lacklustre activity for much of 2016 to date.

Although NAHB’s Housing Market Index (HMI) fell two points to 63 this month, that’s still a solid reading. “Even with this month’s drop, builder confidence stands at its second-highest level in 2016, a sign that the housing recovery continues to make solid progress,” said NAHB’s chairman.

Meanwhile, today’s hard-data update on housing starts for September is on track to tick higher, according to Econoday.com’s consensus forecast. Analysts are looking for a modest rise to 1.180 million units (seasonally adjusted annualised rate). That’s still a middling number vs. recent history, although the recent rise in HMI suggests that construction activity will at least hold steady and perhaps pick up in the months ahead.

USD/MXN: As the odds of triumph slide for Donald Trump’s presidential campaign, the prospects strengthen for a rebound in the Mexican peso.

Forex analysts have been watching the two events lately on the assumption that Trump’s recent fade in the polls represent a dose of good news for Mexico's currency. Why? Because the real-estate-mogul-turned-presidential-candidate has repeatedly promised to build a wall between the US and Mexico to end the flow of illegal immigration and take a harder line on economic policy with the neighbour to the south.

When Trump’s polling numbers were higher, the peso was softer vs. the US dollar. But in recent weeks, Trump’s campaign has faltered after a number of salacious revelations about the Republican candidate's commentary with regards to women. Meanwhile, the peso’s bulls have cheered.

Indeed, USD/MXN has dipped roughly 4% since peaking on September 26 (falling values for USD/MXN equate with a stronger peso), based on daily midpoint quotes. Traders will be watching closely to see if USD/MXN can build on its strength in the final days of the US presidential campaign. RealClearPolitics.com's aggregated polls show Hillary Clinton with a seven-point lead over Trump as of Tuesday.

Although economics will be the true arbiter of the peso’s value in the months ahead, politics may still play an outsized role until the political uncertainty in the US gives way to clarity on Election Day, November 8.

Meanwhile, USD/MXN may soon dip below its 100-day moving average for the first time in more than a month (based on daily data). That’s a plausible forecast given the increasing odds that the American electorate looks poised to deliver a historic rebuke to Trump’s White House ambitions.

Disclosure: Originally published at Saxo Bank TradingFloor.com