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What's wrong with the labor market

Аналитика финансовых и товарных рынков

Market Watch review. 19/05/2021

In today's release, we’ll cover the following topics:

  • Unemployment in the UK.
  • US labor shortage.
  • US Federal Reserve interest rate rise.

On Tuesday, the UK published a report on the change in the number of applications for unemployment benefits and a report on the unemployment rate. Both of these indicators fell more than expected, thereby supporting the pound. However, not everything is as good as it may seem at first glance. Let me remind you that the United Kingdom has significantly increased the amount of unemployment benefits, thus significantly reducing the need for the population to return to work. According to experts, the relatively slow recovery of the labor market in the foggy Albion is caused, among other things, by this factor.

The United States of America faced a similar situation. Let me remind you that the unemployment rate increased by 0.1% with a projected decline of 0.2% while the number of jobs created fell to the lowest level since January of this year, despite the fact that the growth of this indicator was predicted.

Of course, there are many reasons for this, and the main one is a lockdown with all the following consequences. But it is also important to consider a couple of very important factors, such as motivation and the ability of the population to go to the office.

If we talk about motivation, it is reduced in a certain part of the US population, which is satisfied with the amount of benefits. Let me remind you that until September, the US government will support the unemployed by paying benefits under the expanded program. Another factor is the need to take care of children in connection with online schooling. As a result, about 92% of applicants for existing jobs in the United States did not have sufficient qualifications. This situation may last until September, thereby putting pressure on the US dollar.

It is the problems in the labor market in the USA that remain one of the key fundamental factors putting pressure on the US dollar. Let me remind you that the rapid growth of inflation has increased the likelihood of a rate hike, thereby noticeably strengthening the dollar. But until the labor market returns to sustainable recovery, the Fed's monetary policy, as well as the volume of financial assistance to the population will remain unchanged, which is a strong bearish factor for the American currency.

And now let's move on to the oil market. The price of US WTI crude oil updated the highs of the last 9 weeks. There are enough reasons for that, starting from the sharp decrease in the probability of the US Federal Reserve's interest rate hike, which is positive for the stock and commodity markets. Also, the quarantine restrictions were eased in some states of the USA, UK, Spain, France, Portugal and the Netherlands, which will certainly increase the demand for fuel, including jet fuel. As a consequence, there is a risk of further growth of oil quotations.

Closely monitor the news background and be prepared for all the surprises of the market.


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