UK labour market eases

The noise

• The UK worker supply rose for the first time in two years, according to a survey compiled by S&P Global. Easing one of the tightest labour markets in over a generation, it is hoped this will reduce inflationary pressures that have originated from the labour market. Changes to the pension allowance may be playing a part in this, encouraging previously retired workers back to work.

• US core CPI, which excludes food and energy rose 0.4% in March from February, up 5.6% from a year ago and in line with economists’ estimates. The inflation figures have shown hints of moderating in March, and markets initially reacted positively to the report. However, it is unlikely to be enough to dissuade the Federal Reserve from raising rates in May, as traders are still largely expecting a 25 basis point rise.

• Chinese exports unexpectedly rose in March, climbing 14.8% in US dollar terms from a year earlier, as demand improved from most Asian countries and Europe. This being the first rise in six months, it can likely be attributed to easing supply disruptions. Some economists believe this strong performance could reflect catch up in production, and that weaking global demand will start to take effect on the Chinese economy in the coming months. 

​The numbers

The nuance

Equity markets have performed well for the year-to-date, and some of that can be attributed to strong support from net equity withdrawals by corporates. Equity withdrawal activities, which can take the form of buybacks and Leveraged Buyouts, picked up to $463bn in Q1 of 2023 vs $315bn in Q4 and $221bn in Q3 of 2022. Buybacks will drive share prices up as the number of shares outstanding reduces, increasing the value of the remaining shares. Fundamental equity analysis is indicating an overvalued equity market at present though, as earnings expectations do not yet seem to price in the risks to growth of higher interest rates for longer. Markets have historically seen extended periods of overvaluation according to fundamentals, and during those periods continued to go up. A cautious approach will therefore be necessary.

Elsewhere, investors have flocked to UK bonds, with bids for 10-year notes outnumbering the £3.25 billion offer by more than three times on Thursday. Such a disparity has not been seen since October 2020, and indicates strengthening confidence that central banks are close to stopping raising rates. Many investors are therefore looking to profit from possible signs of peak interest rates and an attractive yield.





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