Closing summary: Bumper US jobs report boosts stocks
A busy week for economic and business news has been capped off with brighter figures from the US, where a forecast-busting 255,000 jobs were added in July.
A pick-up in wage growth and jobs gains for June that were stronger previously thought helped raise hopes that the world’s biggest economy is strengthening, putting the prospect of a September interest rate rise from the US Federal Reserve back on the table.
Before we go, here’s a summary of today’s main news:
- The US economy added 255,000 jobs in July, beating economists’ expectations for growth of 180,000
- Wall Street has opened higher after those jobs numbers. The Nasdaq is up 1%, the Dow Jones industrial average is up 0.8% and the S&P 500 is up 0.7%
- The optimism has spread to Europe, where the FTSE 100 is up 0.7%, having briefly broken through the 6,800 mark and set a new high for this year. The FTSE 250 index of midcaps is similarly at new highs for 2016, up 1.3% to 17,462
- France’s CAC40 share index is up 1.4%, Germany’s Dax is up 1.1%
- The Bank of England’s deputy governor Ben Broadbent has defended a rate cut to 0.25% and other measures unveiled on Thursday to ward off a post referendum recession
- Commercial banks, told by the Bank of England governor Mark Carney they have no excuse not to pass on the base rate cut, appear to be acceding to his call. However, Lloyds, the country’s biggest mortgage lender, is still considering how to proceed
- Royal Bank of Scotland, the 73%-taxpayer-owned bank, has slumped to a £2bn half-year loss
- The chief executive of Nissan has warned that future investment decisions about the company’s car plant in the north-east of England will depend on the outcome of Brexit negotiations.
With that, we are closing the live blog for today. Thanks for reading and commenting. We’ll be back on Monday with more rolling coverage of business and economics news.
US rate hike debate heats up
The will-they-won’t-they debate over a September interest rate hike from the US Federal Reserve has hotted up in the wake of these stronger than expected payrolls numbers.
In stark contrast to the UK, where rates were cut to a new record low on Thursday and more cuts are expected, the US central bank could be raising as soon as next month. But some analysts see plenty of reasons for the rate-setting Federal Open Market Committee (FOMC) to hold off until after November’s presidential election.
Ken Odeluga, analyst at City Index says all eyes will now be on a speech from Fed chair Janet Yellen later this month:
“Headline U.S. payrolls which beat expectations by about 40%, and jobs market growth that’s showing signs of bursting at the seams, obviously swing the onus back on to Janet Yellen’s Federal Reserve... Federal funds futures had all but priced out another rate hike this year before Friday, but chances are rising that the latest data will encourage Yellen to signal a rate rise as early as September.
“With no Fed meeting this month, the Fed chair’s speech at this year’s Jackson Hole Economic Policy Symposium, between 25th-27th August, will be scrutinised closely.”
But markets should interpret anything she says with care. Ranko Berich, head of market analysis at Monex Europe, highlights the market’s uneasy relationship with the Fed after previous unrealised hints of action:
“FOMC watchers could be forgiven for thinking the committee has taken a “head in the sand” approach to the US labour market. After saying for years that rates would rise if the labour market continued to improve, the FOMC appears to be holding fire on rate hikes, and as a result markets are very sceptical about the prospects of even today’s strong figures leading to further tightening in the near future. However, complacency can lead to volatility and if the FOMC does finally act in September, the resulting correction in fixed income, commodities and currencies could make for an interesting autumn.”
David Page, senior economist at AXA Investment Managers expects a Fed move in December. He comments:
“Another solid payrolls continues to suggest a firmer underlying GDP expansion than recorded in Q2 GDP. This is consistent with the Federal Open Market Committee’s latest guidance that “near-term risks … diminished”. We expect Q3 GDP to record a solid rebound to Q2’s inventory-correction impacted growth. We think this will increase the Fed’s confidence to tighten policy. We consider this unlikely before November’s elections (although we expect the probability of a September hike to grow in market’s minds). We forecast a 0.25% December hike.”
One part of the US jobs report that confounded expectations to the downside was the unemployment rate. That held steady in July at 4.9%, missing expectations among economists for it to drop to 4.8%.
The unchanged unemployment rate, despite a pick up in new jobs, is explained by a rise in the number of people entering the labour market looking for work.
US stocks rally on jobs data
Wall Street has opened higher, as expected, after those stronger-than-expected US jobs numbers.
Following government data showing 255,000 jobs were added in July, the market feels the outlook for the US economy has brightened and stocks and the dollar are higher.
The Dow Jones industrial average is up 0.8%, the S&P 500 is up 0.3% and the Nasdaq is up around 0.5%.
In the UK, the effects of a weak pound against the dollar continue to be felt on the FTSE 100. The index, where a significant number of component companies earn revenues in dollars, has hit its highest level since July 2015. Adding to gains made on the back of Thursday’s UK interest rate cut, the bluechip index now stands at 6,799.9. That’s up around 60 points, or 0.9%, on the day.
Economists at S&P Global Ratings highlight the rise in the average work week in the US, the pick-up in average hourly earnings and the cumulative solid growth in new jobs in June and July. It’s a welcome boost after a “mixed bag” of corporate earnings these past several days, they say. But they do not see the US central bank acting before November’s presidential election.
Beth Ann Bovino and Satyam Panday continue:
“A steady pace of hiring, healthier consumer appetites and a bounce in producer sentiment paint a brighter US economic outlook amidst ongoing global woes. A solid August jobs report should allow Federal Reserve officials to breathe a little easier when they meet in September and keep them on track for an interest rate hike likely after the US elections in December.”
Wall Street set for gains, pound drops against euro after US jobs data
Wall Street futures are pointing to a strong open for US stocks after those much stronger-than-expected non-farm payrolls numbers.
The signs of strength in the US economy and prospect of a rate rise there as soon as next month have also boosted the dollar. That means the pound is down sharply against the US currency.
The pound had already weakened markedly on Thursday on the Bank of England’s interest cut and other stimulus measures. It recovered some ground on Friday morning only to now fall back. The pound is currently down 0.5% on the day against the dollar at $1.3045. It stood at $1.3160 before the payrolls data.
David Cheetham, analyst at the currency brokerage XTB.com comments:
“The immediate reaction in the markets has seen the GBP-USD drop sharply below yesterday’s low, gold and yields on US government debt both decline whilst US stock futures rallied. Taken together with yesterday’s strong stimulus measure from the BoE the macroeconomic backdrop is now far more rosy than it was immediately post-Brexit and fresh yearly highs for the S&P500 and FTSE could be just around the corner.”
Here is the key data on US wages in July.
The Bureau of Labor Statistics says:
In July, average hourly earnings for all employees on private nonfarm payrolls increased by 8 cents to $25.69. Over the year, average hourly earnings have risen by 2.6%.
That and the jobs growth has led some to pencil in a rate rise in the US in September.
But James Knightley, economist at ING, says there are still plenty of reasons why Janet Yellen and her Fed colleagues will hold off for a while. He highlights political uncertainty, mixed data and external risks:
“The outcome of today’s report is supportive of the view that we could see a rate hike before year-end - we have had a couple of Fed officials this week suggest that this is possible. It also backs up the assessment within the latest FOMC statement that “near-term risks to the economic outlook have diminished”. Nonetheless, we have our doubts it will happen given the mixed nature of the US data flow and political uncertainty relating to the election, while external risks remain a possible constraint.
“Additionally, with the RBA in Australia and the Bank of England providing more monetary stimulus and Japan boosting its fiscal stimulus we think a majority of Fed officials will be nervous about raising rates given the significant boost it could give the dollar. Instead, we think they will continue to tread cautiously with one rate hike in the first quarter of 2017 and a further one in the second half of next year.”
Fresh talk of September rate rise from the US Fed
Those payroll numbers were much better than forecast in the market and accompanying news of a pick up in wages will bolster expectations of an interest rate rise from the US Federal Reserve in the months ahead.
Reactions so far to the news that the US economy added 255,000 jobs in July and more jobs than previously thought in June:
There are 3 independent measures in a Jobs report:
— Justin Wolfers (@JustinWolfers) August 5, 2016
1. Payrolls: Amazeballs
2. Revisions: Upward
3. Household survey: Even better than that.
Job market showing great STRENGTH & STAMINA https://t.co/2x9HjWqZi4
— James Pethokoukis (@JimPethokoukis) August 5, 2016
Beat on jobs, beat on hours, beat on wages, beat on participation. Hello September.
— (((Duncan Weldon))) (@DuncanWeldon) August 5, 2016
My colleague Jana Kasperkevic in New York reports that the positive figures come after the labour market stumbled in May, adding only 11,000 jobs.
Hiring rebounded in June with a net gain of 287,000, but recent economic figures and a faltering European economy had suggested another slowdown.
Here is her full news story:
US economy adds 255,000 jobs in July
In a big upside surprise, the US economy has added 255,000 new jobs in July, according to government data.
The forecast was for a July gain of 180,000 jobs. The June rise in jobs was also revised higher today, now seen at 292,000 additional jobs compared with the previous estimate of 287,000.
The US unemployment rate was 4.9% in July.
With just a few minutes to go to this month’s jobs report from the US, here’s a quick reminder of what markets expect.
The government’s US non-farm payrolls figures for July are expected to show a gain of around 180,000, down from June’s bumper 287,000, but above the three-month average of 148,000. The jobless rate is forecast to fall to 4.8%. That’s according to a Reuters poll of economists.
And here’s what Twitter thinks:
Twitter's forecast for #NFPGuesses is exactly the same as the pro economists: 180K pic.twitter.com/rQ0E7AsS9f
— Joe Weisenthal (@TheStalwart) August 5, 2016
Ben Broadbent, who this morning defended the Bank’s four-pronged stimulus package, told Reuters that as well as cutting rates further the Bank still has more measures up its sleeve to support the economy.
He also discussed the Bank’s new Term Funding Scheme (TFS), which will provide loans to commercial banks at low rates to ensure they pass on this week’s base rate cut. The deputy governor rebuffed any suggestion the Bank of England would use the scheme as a a back-door way to introduce negative interest rates - something governor Mark Carney has opposed.
Broadbent told Reuters: “There are limits for us too. We would not want to offer that finance at hugely negative interest rates, because we would be making losses ourselves.”
He also echoed Carney and others in noting that monetary policy could not completely offset the likely blow from the decision to leave the EU.
“There are limits to what monetary policy - indeed any demand management policy - conventional fiscal policy as well, to offset what is a structural effect on the economy,” he said.
The full report from Reuters is here.
And if you want to know more about the ins and outs of the Bank’s new stimulus package, it’s broken out the key points here:
Our MPC has introduced a policy package to support the economy – read more here https://t.co/g1R6lyEXZx #InflationReport.
— Bank of England (@bankofengland) August 5, 2016
Broadbent says he would vote for more rate cuts
The Bank of England’s deputy governor Ben Broadbent has been back out talking to the press after yesterday’s kitchen sink package to avert a post-referendum recession.
In an interview with Reuters, Broadbent says he is likely to vote for another rate cut unless economic growth beats expectations. That echoes the tone of yesterday’s minutes from the latest Monetary Policy Meeting, where Broadbent and colleagues voted for a rate cut to 0.25%. The minutes said if economic news proved consistent with the Bank’s latest forecasts then “a majority of members” expected to support a further interest rate cut, potentially taking official borrowing costs as low as 0.1%.
Updated
Lunchtime summary
Ahead of the US non-farm payrolls data, out at 1.30pm BST, which are expected to show an above-average increase in employment of about 180,000, here’s a quick summary of today’s main developments.
- Bank of England deputy governor Ben Broadbent has rejected suggestions that the central bank’s bigger-than-expected stimulus package sent out a message of panic. He was “pretty confident” that it would work and provide some support to the economy soon. More here. Meanwhile, his boss, Mark Carney, insisted that the UK would avoid a repeat of the financial crisis.
- A new survey has shown a sharp deterioration in the UK job market. Carney warned yesterday that another quarter of a million people would lose their jobs in coming quarters following the Brexit vote.
- Stock markets have risen following the Bank of England’s Super Thursday and solid corporate earnings updates in Europe. The FTSE 100 index in London is up 0.3% at 6762.70, a gain of more than 20 points.
- The pound has recovered some ground after yesterday’s fall. It is trading 0.4% higher against the dollar at $1.3154.
There is further evidence that the luxury property market in London is slowing. The UK capital and New York have fallen behind Rome and Madrid, according to Knight Frank’s latest prime global cities index for the second quarter.
Prime house prices fell 0.6% in London in the year to June, and by 0.5% in New York, the upmarket estate agent’s survey showed. Vancouver came top of the list, with 36.4% growth, followed by Shanghai at 22.5%, Cape Town at 16.1% and Toronto at 12.6%. The top ten did not feature a single European city, with Dublin the highest-placed, in 13th place, with 4.9% house price growth.
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Here’s confirmation from HSBC.
An HSBC spokesperson said:
Following the Base Rate announcement yesterday we have passed on the full reduction to customers with tracker mortgages today. We will also be passing on the reduction to mortgage customers on our Standard Variable Rate, which is already one of the lowest in the market and will reduce from 3.94% to 3.69% with effect from 1st September.
HSBC to pass Bank of England rate cut on to SVR customers
Reuters flash: HSBC says it will pass the Bank of England’s rate cut on to all mortgage customers on standard variable rates from 1 September.
Nissan casts doubts on UK investment plans
Meanwhile, Japanese carmaker Nissan has cast doubt on its long-term investment plans in Britain, following the referendum.
The boss of Nissan, Carlos Ghosn, said future decisions about its Sunderland factory, which employs 6,700 people, would depend on the outcome of the Brexit negotiations. He said “most companies” would be waiting for further news on Britain’s trading status before making decisions about investments.
He was “reasonably optimistic” that common sense would prevail from both sides and that the UK would continue to be a key partner of the EU.
Well I don’t think today you can talk about any impact before we see what is the new status of the UK. The question of Sunderland - Sunderland is a plant which is a European plant based in the UK.
Most of the production out of Sunderland is exported to Europe. So obviously for us the relationship which is going to prevail between the UK and Europe is very important. So the future investment decisions are going to depend a lot into ... Okay, the UK is out of Europe. Fine. But what’s going to be the new status?
So you’re going to see a period where most companies are going to be waiting to see what’s going to be the new status.
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Survey shows UK job market in 'freefall'
A new UK jobs survey showed this morning that the labour market entered “freefall” after the Brexit vote. The Recruitment and Employment Confederation said the number of permanent jobs placed by recruitment firms last month fell at the fastest pace since May 2009.
Rupert Harrison, chief macro strategist for multi-asset at fund management giant BlackRock, who was chief of staff to ex-chancellor George Osborne, tweeted:
The Treasury pay attention to this survey - has a good record of predicting the labour market. They will be worried https://t.co/BlrEsmQhTS
— Rupert Harrison (@rbrharrison) August 5, 2016
Carney: no repeat of financial crisis
Bank of England governor Mark Carney has sought to reassure people that Britain won’t see a repeat of the financial crisis, after the central bank unveiled a big stimulus package yesterday.
He told LBC radio:
People should not worry about the supply of credit, this isn’t after the global financial crisis, this isn’t during the euro crisis – this is a modern financial sector that is working.
We’re not going through the same experience that the economy went through in 2008/9/10/11/12 when it was tough.
Turning our attention to the key US jobs figures out at 1:30pm BST, economists polled by Reuters are forecasting a chunky 180,000 gain in employment. In June, the number of jobs created went up by a massive 287,000. Markets will be scrutinising the data for further cues on potential Federal Reserve rate hikes.
First Friday of the month #NFPguesses
— Alastair McCaig (@Alastair_McCaig) August 5, 2016
June 120k below expectations
July 110k above expectations
So obviously this month is going to be....
Pound recovers some ground
The pound has clawed back some ground after the Bank of England’s new stimulus package triggered its biggest daily losses in a month.
Sterling gained 0.25% against the dollar to $1.3137. Against the euro, it is now flat at 84.85p, after gaining 0.2% earlier.
The Office for National Statistics has put out figures for profitability at UK companies in the first quarter. The profitability of private non-financial firms, as measured by their net rate of return, improved to 12.2% between January and March, up 0.2% from the fourth quarter of last year.
At manufacturers, the net rate of return rose to 12.7% from 10.3%, while service companies recorded a rate of 18.2%, a tad lower than the 18.3% in the fourth quarter.
The rate of return is calculated by expressing the economic gain, or profit, as a percentage of the capital used to produce it, the ONS explains helpfully.
The Bank of England’s actions lifted the FTSE 100 index to a one-year high this morning. The bluechip index rose 1.6% yesterday and a further 0.5% earlier this morning to its highest level since July 2015. It has fallen back a bit, and is now trading 0.2% higher at 6755.83.
A market gauge of UK firms’ borrowing costs has hit a record low after the Bank of England’s stimulus package, which includes a new corporate bond-buying scheme.
The yield on data provider Markit’s sterling-denominated corporate IBOXX index, which comprises 680 investment-grade bonds, closed at a record low of 2.53% yesterday, compared with 2.76% the day before, Reuters reported this morning.
The premium companies would pay over British government borrowing costs dropped to 154 basis points from 162 bps, the lowest level seen so far this year.
Updated
Interested in the US jobs report? Get our experimental mobile alerts
You can be a part of an experimental group of users as the Guardian Mobile Innovation Lab tests web notifications about the release of the July US jobs report today.
At 1.30pm BST / 8.30am EST on the day the jobs report is released each month, we’ll be sending a series of alerts about the report’s numbers and what they mean.
Web notifications are currently only available on Chrome, so if you have an Android mobile phone (Samsung, included!), we hope you’ll sign up.
Click here to sign up for the experiment.
Many analysts say the pound has further to fall.
Julius Baer economist David A. Meier said:
The decisive BoE response to the Brexit fallout allows for inflation overshoots ahead. While foreign exchange markets reacted rather unimpressed, today’s measures and the potential for additions down the road will push the GBP lower gradually. We see further support for our below-consensus 12-month EUR/GBP outlook at 0.95.
John Wraith, head of UK rates strategy at UBS, said:
The trends of weaker sterling and outperforming gilts have reasserted themselves and are expected to continue to dominate.
In equities, despite the deceleration in UK growth we do not see a significant drag to the FTSE-100 given 75% of revenues come from outside the UK.
In foreign exchange, we feel comfortable with year-end targets of 0.90 for EUR/GBP and 1.29 for GBP/USD. The path for sterling is also dependent on political considerations, including the timing of the triggering of Article 50, and the evolution of economic data, but the balance of risks is for further weakness.
UK house prices fall 1% in July – Halifax
The Bank predicted that house prices would fall over the next year, ending years of strong growth. Prices fell in July, according to the latest Halifax figures, out this morning.
The average value of a home fell 1% to £214,678 last month. The drop was the third this year and mostly offset June’s 1.2% increase. However figures for a single month can be erratic but the quarterly trend shows growth has slowed from earlier in the year.
RBS yet to decide whether to pass on Bank of England rate cut
Royal Bank of Scotland is yet to decide whether to pass on the Bank of England’s base rate cut to its borrowers, risking a row with its governor, Mark Carney, writes Jill Treanor, the Guardian’s City editor.
As the 73%-taxpayer owned bank slumped to a £2bn half-year loss, the bank admitted it was still reviewing the implications of the historic rate cut to 0.25% which is expected to impede its ability to generate profits as quickly as hoped.
Read the full story here.
Lloyds Banking Group has not announced a decision yet either, as we reported last night. Other lenders quickly took action after the Bank of England’s cut yesterday, however. Spanish-owned Santander and Nationwide Building Society said they would pass on the reduction in full on the standard variable rates from September.
Updated
Broadbent denies intention to devalue pound
More from Bank of England deputy governor Ben Broadbent, who was quizzed on Radio 4. Confronted with criticism from the Brexiteers that the central bank had acted too soon and risked talking down the economy, he strongly defended the stimulus package.
We felt we had ample evidence to act.
The referendum no doubt marked a profound change for the UK economy.
Responding to other criticism that the Bank’s measures would not work, Broadbent described it as a “substantial, coherent” package that “will provide support for the economy”.
I’m pretty confident it will have some effect.
Pressed whether it would have a real impact soon, the Bank’s deputy governor replied:
We’ve already seen many mortgage rates fall.
Broadbent also confirmed that there was a real prospect of another interest rate cut before the end of the year.
He rejected the suggestion that the Bank’s real intention was to devalue the pound. Compared to sterling’s tumble since the June referendum, yesterday’s move was “relatively small,” Broadbent noted.
The pound did fall very sharply immediately after the referendum and has since been relatively stable.
Certainly compared with that immediate move, the move yesterday on the announcement of these measures was relatively small.
Updated
US non-farm payrolls in focus after Super Thursday
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s the day after the Bank of England unveiled its bigger-than-expected package of measures designed to prevent a post-Brexit recession. Deputy governor Ben Broadbent has just been on Radio 4’s Today programme defending the package.
Pressed whether the measures didn’t send out a message of panic, he rejected that suggestion, and said there was no evidence to suggest that “easing monetary policy made things worse”.
I can’t think of one instance where monetary easing was bad for confidence.
The surprise package sent the pound down yesterday (it slumped 2 cents against the dollar) and shares soaring. Most Asian stock markets rose, with the Hang Seng in Hong Kong up 1.3%.
European stock markets have opened higher today, with London’s FTSE 100 index up 0.6%, to 6782.10 in early trading. France’s CAC is trading 0.7% higher, Spain’s Ibex is 0.9% ahead and Italy’s FTSE MiB up 1.4%, while Germany’s Dax is 0.3% higher.
On ‘Super Thursday,’ the Bank cut interest rates to a new record low of 0.25% from 0.5% and hinted they could fall further although governor Mark Carney insisted that rates would not go negative. He also unveiled additional funds for banks to help them pass on the base rate cut to households and businesses, along with more government and corporate bond purchases by the Bank for cash, again to stimulate lending and drive borrowing costs lower.
The Bank slashed its growth forecast for the UK for next year by an unprecedented amount. The economy is expected to come to a virtual standstill in coming months, although the Bank expects it to escape recession. It predicted job losses of 250,000 and slower wage growth, following the Brexit vote. Read our full story here.
Business organisations and many City economists applauded the surprise package but some people were critical. Kate Barker, a former Bank of England rate-setter, warned ahead of yesterday’s meeting, writing in the Times (£), that cutting interest rates would do more harm than good, and would fail to boost household or business spending.
Tory politician John Redwood, a leading eurosceptic and Brexit campaigner, asked “where is the evidence to justify the Bank’s action?”. He wrote on his blog:
I read their forecast carefully. It is rightly riddled with uncertainty.
Michael Hewson, chief market analyst at CMC Markets, was also critical, saying the measures gave the impression of “overkill,” and called on the government to do its bit.
The contrast between what the MPC did yesterday and what they did in July was quite stark and the fact that the additional QE measures found dissent from three policymakers does appear to suggest some division on the MPC.
If a company doesn’t feel compelled to borrow money to invest when base rates are at 0.5%, why would it feel compelled to do so when base rates are at 0.25%?
The problem in the UK isn’t availability or cheapness of credit but demand for it, and that demand is only likely to come when the UK government reacts to the slowdown in the economy when it delivers its Autumn Statement later this year.
We will be monitoring further reaction to the Bank of England measures as the day goes on.
Today, the US non-farm payrolls figures for July are the main event. The latest jobs data are expected to show a gain of around 175,000, down from June’s bumper 287,000, but above the three-month average of 148,000. The jobless rate is forecast to fall to 4.8%.
In Germany, factory orders unexpectedly declined in June, by 0.4%. Data from the Economy Ministry in Berlin showed demand for investment goods slumped.
But the Bundesbank has sought to reassure investors that Germany’s economy merely paused for breath in the second quarter and that the Brexit vote hadn’t changed the outlook for a pick-up in the current quarter. However, Siemens boss Joe Kaeser warned yesterday that political uncertainty in countries like the UK threatened to hold back orders and investment.
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