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The Guardian - UK
The Guardian - UK
Business
Angela Monaghan (until 12pm) and Nick Fletcher

US jobs rebound strongly in October, while FTSE 100 reaches new record close - as it happened

Commuters cram onto a subway train at 42nd Street Station in New York City. The October non-farm payrolls report is expected to show a rebound in US jobs.
Commuters cram onto a subway train at 42nd Street Station in New York City. The October non-farm payrolls report is expected to show a rebound in US jobs. Photograph: Alamy Stock Photo

Another mixed day for European markets

The FTSE 100 may have hit a closing high after a day of dithering, but it was a more mixed picture elsewhere.

Germany’s Dax also hit a new closing peak, while France’s Cac also closed higher. But Spain’s Ibex fell back, on news that members of the deposed Catalan government were being jailed. US markets moved higher following the widely watched non-farm payroll figures and bumper results from Apple. The closing scores showed:

  • The FTSE 100 finished up 5.03 points or 0.07% at a new record close of 7560.35
  • Germany’s Dax rose 0.28% to 13,478.86
  • France’s Cac closed 0.14% higher at 5517.97
  • Italy’s FTSE MIB fell 0.14% to 23,014.13
  • Spain’s Ibex ended down 0.96% at 10,357.8
  • In Greece, the Athens market added 0.14% to 763.56

On Wall Street, the Dow Jones Industrial Average is currently up 38 points or 0.16%.

On that note it’s time to close for the day. Thanks for all your comments, and we’ll be back next week.

FTSE 100 edges to a new record close

The UK’s leading share index has hit a new closing high - just.

The FTSE 100 finished up 0.07% at 7560.35, beating the previous record of 7556.24 set on 12 October. But it is still well below the intra-day high of 7598.

In a day when the index drifted from positive to negative and back again, the rise has been driven by the pound losing much of its early gains against the dollar. A weak sterling helps the many overseas earners in the index.

It may be a quieter week on the corporate and economic front but markets could still press on to yet more record high, reckons Chris Beauchamp, chief market analyst at IG:

Although the [US] jobs report fell short of the lofty forecasts made earlier in the week, the solid rebound from last month’s number, plus strong revisions to previous two months, meant that the overall impression of a healthy US economy remains intact, and thus leaves us still expecting the Fed to raise rates once more this year.

After the relentless nature of the newsflow of the past few days, investors seem to have taken the afternoon off, with some judicious profit-taking to round off the week. Sterling valiantly tried to claw its way off the lows hit yesterday, after the swan-dive following the BoE news, but despite Ben Broadbent’s best efforts to say ‘no, we really do want to keep raising rates’, the deputy governor failed to dispel the impression that the MPC will now sit on its hands and await developments.

With over 80% of the S&P 500 having reported, and 77% of them having beaten estimates, we are now into the scrag-end of earnings season. Overall the period has been firmly supportive of equity prices, even at their current elevated levels.

With the coming week seeing a notable downturn in big-ticket corporate and economic events, equities will just have to get by on bullish momentum alone. On the evidence of the past year though, this should be enough to send them to new record highs.

It was a mixed day for US data, with the dollar finally deciding it was all broadly positive, says Connor Campbell, financial analyst at Spreadex:

While the headline non-farm figure rocketed higher from the hurricane-hit (but upwards revised) 18k in September to 261k in October, that was markedly lower than the blockbuster 312k expected by analysts. The (arguably more important) wage growth reading also came in worse than forecast, plunging from 0.5% to 0.0% month-on-month. Yet any disappointment was tempered by the unemployment rate, which fell to a 17 year low of 4.1%. Elsewhere an underperforming Markit services PMI, which arrived at 55.3 against the initial 55.9 estimate, was countered by a stellar ISM number, at 60.1 against the 59.8 forecast.

After a bit of a wobble post-jobs report that ISM services PMI seemed to swing things in favour of the dollar, which rose 0.4% against the euro and 0.3% against the yen. Only against the pound did the greenback struggle, and even then it held onto almost all of Thursday’s hefty gains. As for the Dow Jones, the index was pretty flat after the bell, though is still at a 23500-plus all-time high following Apple’s Q4-inspired rise.

Though the pound couldn’t make any great inroads against the dollar, rising just 0.1%, against the euro it had more successful, climbing half a percent to re-cross €1.125. This helped erase the FTSE’s early growth, meaning the UK index may struggle to close at the record high it was promising during the morning’s trading.

Updated

There was more US data this afternoon, with better than expected factory goods orders.

They rose by 1.4% in September, up from 1.2% in August and higher than the 1.3% increase forecast by economists.

On the prospect of another Fed rate hike:

On the Markit service sector survey, Chris Williamson, chief business economist at IHS Markit said:

The services PMI survey highlights the dilemma facing the Fed as it seeks to determine the right policy course amid signs of solid growth but soft inflation.

Together with the manufacturing PMI, which rose higher in October as hurricane-related supply chain disruptions eased, the latest services survey is consistent with underlying growth in the economy of approximately 3%, as well as buoyant jobs growth.

With the data for October setting the scene for another robust GDP increase in the fourth quarter, a December rate hike is very much on the cards.

However, a drop in inflationary pressures adds an element of uncertainty to the picture. Having been buoyed by supply chain disruptions in prior months, input cost pressures eased at the start of the fourth quarter, and the rate of increase of average prices charged for goods and services dropped markedly.

While the Fed may likely tilt towards hiking in December on the back of robust economic growth, much may depend on the data flow in coming weeks for signs that stronger growth is feeding through to higher prices.

markit3novUS

US service sector beats forecasts, hits best level for 12 years

If the US jobs data presented a rather mixed package, the latest surveys of the service sector are no more clear cut.

The ISM non-manufacturing index for October came in at a better than expected 60.1, up from 59.8 in the previous month and higher than the forecast figure of 58.5. This is the highest level since August 2005 and the 94th consecutive month of growth.

ismnove3

And here are some of the comments from the survey’s respondents:

  • “Increasing commodity pricing along with rising construction cost is a concern in [the] quarter ahead.” (Accommodation & Food Services)
  • “Business is strong, driven by large upticks in business from clients in the retail industry. Seasonal surge is starting out stronger than in a normal year.” (Management of Companies & Support Services)
  • “The current hurricane damage will result in a shortage of some building materials and draw labor forces away from our area.” (Construction)
  • “Positive trends continue. Business activity/results good. Revenue and net profit are above plan.” (Finance & Insurance)
  • “We continue to struggle with the ‘unknowns’ around Obamacare, and its impacts on our health care and insurance businesses.” (Health Care & Social Assistance)
  • “Business activity with oil companies remains flat. Oil field services, midstream, downstream and petrochemical sectors remain strong.” (Professional, Scientific & Technical Services)
  • “Business levels increased due to hurricane recovery efforts.” (Real Estate, Rental & Leasing)
  • “Outlook is favorable. Labor is in short supply and is constraining growth.” (Wholesale Trade)
  • “Uptick based on replacement vehicle activity in hurricane-impacted areas of Texas and Florida.” (Retail Trade)

But earlier, the rival Markit services PMI was a lower than expected 55.3, down from an initial estimate of 55.9 and the same level as in September.

Updated

Wall Street opens higher

US markets are off to a positive start. Investors took a positive view of the jobs numbers, while Apple also helped after its positive results and upbeat comments on the iPhone X.

The Dow Jones Industrial Average is currently up 23 points or 0.11% at a new record high, while the S&P 500 opened up 0.05% and the Nasdaq Composite added 0.29%.

As for Apple, its shares are up around 3% in early dealings.

The pound continues to hold onto its gains after the better than expected service sector data:

However the dollar continues its recovery against other currencies:

Here’s the view from Danske Bank on the non-farm numbers:

Updated

Here’s our report on the jobs figures:

The US economy bounced back in October from a dramatic slump in hiring in the wake of two devastating hurricanes, the labor department announced on Friday.

The US added 261,000 new jobs and the unemployment rate ticked down to 4.1%.

In September the US shed 30,000 jobs – the first loss in seven years – as hurricanes Harvey and Irma held back hiring in Texas and Florida. The leisure and hospitality industry was hardest hit by the hurricanes in September, shedding 111,000 jobs.

Employment in food services and drinking places rose sharply in October – up 89,000 – following a decrease of 98,000 in September.

October’s figure was still lower than analysts had expected, perhaps reflecting the continued impact of the storms. September was the second month of disappointing growth in the US jobs market. The labor department had calculated that the US had added 169,000 new positions in August, below the 180,000 that had been expected by economists.

But the figures from August and September have now been revised up, to 208,000 and 18,000 respectively. And at 4.1% the unemployment rate is now at lows unseen since December 2000.

Wage growth, which has been slow since the recession, stalled in October. Average hourly earnings fell by one cent in October to $26.53 an hour. Economists had expected a slight monthly gain.

More here:

The dollar has recovered from its initial falls in the wake of the jobs data, with traders coming round to the view that a December rate rise is still on the cards. Neil Wilson at ETX Capital:

The dollar fell and Treasuries rose after the monthly US jobs report missed expectations and wages failed to grow by as much as anticipated. The dollar index dropped half a percent before coming back to pare losses. Having sunk below 113.70 on the release from above 114.10, at send time USDJPY was steadying around 113.90. EURUSD’s gains have all but been erased and, at just below 1.1670, euro-dollar is almost flat for the day.

Bit of a kneejerk on the misses for jobs and wages but sentiment seems to be recovering pretty swiftly as it won’t stop the Fed hiking in December. Markets still see a greater than 90% chance the FOMC will raise rates at the next meeting. With tax reform now on the table we have to also assume that policymakers will start to factor that in to their projections – something they have pointedly refused to do so far – and that could lift expectations for hikes in 2018.

The strong US employment data but modest wage growth backs the idea of gradual Federal Reserve rate hikes, says economist James Knightley at ING Bank:

US employment has rebounded from hurricane related weakness, but wage growth is benign meaning the Fed trajectory on rate hikes remains on track.

The US labour report for October has reversed the hurricane related distortions of the September release. Payrolls rose 261,000 versus the 313,000 consensus, but there were a net 90,000 upward revisions so on balance it is a strong report and backs the case for a December rate hike.

If you remember, September’s payrolls fell 33,000 (now reported as an 18,000 rise) largely because a significant number of people in affected areas couldn’t get into work and therefore were not logged as being on the company payroll that day. This of course has unwound and on top of that we are seeing strong growth in the economy , which is creating jobs while post hurricane rebuilding and recovery work is likely to have added even more.

Hurricane damage at a Florida trailer park
Hurricane damage at a Florida trailer park Photograph: Saul Loeb/AFP/Getty Images

The unemployment rate has surprisingly dropped a tenth of a percentage point and is now 4.1% - the lowest rate since December 2000. Average earnings growth has softened though, coming in flat on the month after a 0.5%MoM gain last month. This leaves pay at 2.4% YoY, which is a little disappointing. However, the fact that underemployment is now just 7.9% (down from 8.3% last month) really underlines how strong the jobs market is, meaning that the balance of risks must lie to the upside on wage growth from here.

With the economy growing strongly and tax reform likely to add further fuel to the fire, the case for higher US interest rates continues to build. Barring an economically damaging government shutdown in early December we expect the Fed to hike rates on December 13 with at least two further rate rises probable under new Fed Chair Jerome Powell next year.

Here’s a link to the full jobs report:

And here’s the sector breakdown for the jobs data:

moreusnonfarm

Some of the hurricane related fall in September, notably in the leisure sector, seems to have been reversed in October. The Bureau of Labor Statistics says:

Employment in food services and drinking places increased sharply, mostly offsetting a decline in September that largely reflected the impact of Hurricanes Irma and Harvey. In October, job gains also occurred in professional and business services, manufacturing, and health care.

usjobsnov3

But Fidelity International’s Anna Stupnytska believes the jobs figures are troubling for the Fed:

The jobs news has sent both sterling and the euro to their highs of the day against the US dollar.

But slightly weaker than expected data is unlikely to deter the US Federal Reserve from raising interest rates in December, analysts believe. Kully Samra, UK managing director at Charles Schwab, said:

A rise in non-farm payroll numbers indicates that the labour market has largely brushed off hurricane-induced issues, paving the way for the Fed to hike rates in December. While some data points missed the mark, the ADP Employment Change Report showed private sector payrolls rose by 235,000 jobs in October, proving that the job market remains in fairly healthy shape with a strong bounce back in hiring from the previous disappointing month.

Alongside robust job growth, third quarter earnings have been solid so far and economic growth has picked up. Along with new records being set by stocks, investor sentiment measures are demonstrating widespread optimism and the US economy has received a boost from expectations that tax reform and earnings will continue to fuel an updraft in the markets.

Wage growth misses forecasts

On the earnings front, average hourly earnings were unchanged after expectations of a 0.2% rise month on month.

The year on year figure fell from 2.8% in September to 2.4%, lower than the forecast 2.7% rise.

Updated

The October US jobs number may have disappointed, but figures for the previous two months have been revised upwards.

September saw an 18,000 increase compared to the initial estimate of a fall of 33,000. The August number is up from 169,000 to 208,000.

US jobs growth rebounds but falls short of forecasts

Breaking News:

The US added 261,000 jobs in October, rebounding strongly from the surprise fall the previous month in the wake of Hurricanes Harvey and Irma.

This compares to expectations of a rise of around 310,000.

The jobless rate fell from 4.2% to 4.1%, slightly better than forecasts.

Meanwhile the pound is picking up after the strong service sector numbers gave more credence to further UK interest rate rises, despite the Bank of England playing this down on Thursday.

Sterling is currently up 0.26% at $1.3091 against the dollar and 0.36% better against the euro at €1.1239.

Conversely this has seen the FTSE 100 lose much of the day’s gains - the leading index is full of overseas earners which benefit from a weaker pound. The index is currently up just 0.02% at 7556.73 having earlier touched 7580. If it closes at this level it will still be a record high, but only just. The figure to beat is 7556.24.

Connor Campbell, financial analyst at Spreadex, said:

The headline payrolls figure could be huge; analysts have forecast a reading of 312k, a colossal step up from September’s hurricane-hit -33k, and potentially the best number since the start of 2015. Elsewhere the jobs report isn’t expected to be quite as strong, with an unchanged unemployment rate of 4.2% and a dip in wage growth from 0.5% to 0.2% month-on-month.

US non-farm payrolls expected to rebound

The non-farm payrolls report is due at 12.30pm and is expected to show a strong rebound in jobs in October after major hurricane disruption triggered a sharp fall in September.

Economists are expecting the report to show an additional 310,000 jobs were created, following a 33,000 drop a month earlier.

Annual pay growth is expected to slip however, to 2.7% from 2.9%, with a monthly increase of 0.2% pencilled in, following 0.5% in September.

The unemployment rate is expected to be unchanged at 4.2%.

Fitch: UK rate rise will have little impact on growth

Fitch has said there will be no major economic impact from Thursday’s rate rise, and are not expecting another one in the next 12 months.

Fitch has for some time been expecting the post-referendum interest rate cut to be reversed, although in our most recent global economic outlook (September 2017), we expected this to happen in early 2018. The MPC summary said that all members agreed that future increases “would be expected to be at a gradual pace and to a limited extent,” and that monetary policy “continues to provide significant support to jobs and activity.”

We think another increase is unlikely in the next 12 months, given the impact of Brexit uncertainty on the outlook for investment. The decision does not alter our UK growth forecasts , which see a net trade boost partially offsetting slower domestic demand this year, enabling real GDP to rise by 1.5%, before slowing to 1.3% next year. But it remains to be seen how firms and households adjust to a shift in the monetary policy stance after such a long period without a rate rise.

Alan Clarke, economist at Scotiabank, says the Bank of England might not wait a year before raising rates again, as many currently expect.

He says the PMIs suggest the economy is on track to grow 0.5% in the fourth quarter, which would be the strongest rate of quarterly growth this year.

Clarke adds:

I think yesterday taught us that the MPC and particularly the doves want to see concrete signs that wages are picking up before pulling the trigger again.

Nonetheless, if we get the fall in unemployment that I’m expecting, confirmation of 0.5% growth in Q4, and signs of faster wages early in the new year, it’s not going to be another year until the next hike.

Howard Archer, chief economic advisor to the forecasting group, the EY ITEM Club, says the stronger-than-expected headline services PMI number (55.6) boost prospects for growth in the fourth quarter overall.

The October services purchasing managers’ survey showed activity improving significantly to a six-month high, thereby boosting fourth quarter growth hopes. October’s rise marked the biggest monthly improvement in the index since August 2016.

Overall, the October PMIs [including manufacturing and construction] suggest that the economy continued to improve gradually at the start of the fourth quarter after GDP growth improved modestly to 0.4% q/q in the third quarter from 0.3% in both the second and first quarters.

Brexit uncertainty weighs on services sector jobs

Chinatown in Manchester, September 2017. Growth accelerated in October in the UK services sector, which includes restaurants and hotels
Chinatown in Manchester, September 2017. Growth accelerated in October in the UK services sector, which includes restaurants and hotels

Behind the headline number, the services PMI is a bit of a mixed bag.

New business growth was the fastest since May, helped by more orders from the domestic market and successful new product launches according to the survey’s respondents.

Orders were also boosted in some cases by firms absorbing higher costs, rather than fully passing them on to customers.

But jobs creation in the sector was the weakest in seven months, as companies became increasingly concerned about demand in the longer-term as a result of Brexit uncertainty.

The sector accounts for about three quarters of the UK economy and includes restaurants and hotels, hairdressing, legal and accounting services, among other things

Chris Williamson, chief business economist at IHS Markit, which compiles the survey, explains the mixed messages coming from the October PMI.

The latest PMI surveys bring mixed news on the economy. While an upturn in business activity growth adds some justification to the Bank of England’s decision to hike interest rates for the first time in a decade, a deeper dive into the numbers highlights the fragility of the economy and points to downside risks for the outlook.

A downturn in business optimism about the year ahead, fueled mainly by Brexit-related uncertainty, suggests that risks are tilted to the downside as far as future growth is concerned. Not surprisingly, employment growth slowed for a second successive month as the business mood grew more cautious and risk averse.

Overall he says the services PMI - combined with equivalent surveys for the manufacturing and construction sectors - suggests quarterly growth of 0.5%, marking a decent start to Q4. (The economy grew by 0.4% in the third quarter.)

UK services grows at fastest rate in six months in October

Britain’s services sector growth accelerated unexpectedly last month according to the IHS Markit/CIPS PMI survey.

The headline index combining output, orders and employment rose to a six-month high of 55.6 in October, from 53.6 in September. Any number above 50 signals expansion, and economists had predicted slightly weaker growth at 53.3.

This will be welcomed by Bank of England policymakers as a positive for the economy, strengthening their argument that the economy was ready for yesterday’s rate rise, despite falling real wages which is putting pressure on household finances.

Updated

FTSE 100 on track for new closing high

The FTSE 100 is up 23 points this morning at 7,578.50, putting it on course for a new closing high. The number to beat is 7,556.24.

The index is benefitting from a weaker pound, because so many of the companies listed have significant earnings abroad.

Spain’s Ibex is lagging the rest of Europe this morning, as political turmoil continues to weigh on investor sentiment.

The scores so far this morning:

  • FTSE 100: +0.3% at 7,578.50
  • Germany’s DAX: +0.4% at 13,497.87
  • France’s CAC: -0.01% at 5,509.95
  • Italy’s FTSE MIB: +0.2% at 23,080.45
  • Spain’s IBEX: -0.7% at 10,382.90
  • Europe’s STOXX 600: +0.1% at 395.5

Pound dips further against the dollar

Ben Broadbent’s comments that the UK economy could withstand “a couple more rate rises” has done nothing to lift the pound.

Having fallen 1.8 cents - or 1.3% - against the dollar on Thursday, to $1.3067, the pound has dipped further this morning to $1.3053.

The fall suggests that as well as having already priced in the well trailed hike, markets are not convinced another one is coming any time soon.

It has recovered some ground against the euro however, and is currently up 0.07% at €1.1207.

Broadbent: UK economy could withstand two more rate rises

Deputy Governor of the Bank of England Ben Broadbent speaks at a Reuters Newsmaker event at Canary Wharf in London, Britain, November 18, 2015. REUTERS/Neil Hall/File Photo
Ben Broadbent

Ben Broadbent, deputy governor for monetary policy at the Bank of England, has been elaborating this morning on Thursday’s decision to raise rates for the first time in a decade.

Commenting on the impact of the rise for UK households, he told BBC Radio 4’s Today programme:

There will be some [pain] and it’s one part of how monetary policy works. Equally one should keep this in context. Around a third of households have owner-occupied mortgages, interest payments on debt - in aggregate - for households, are lower than they’ve ever been, relative to income, and this is a moderate rise.

One should also bear in mind there are people who derive income from deposits so you’re right, but I think one should keep the scale of this in context.

He added the Bank’s current view is that two more rate hikes will be needed to bring inflation back to the 2% target:

Given our outlook currently, we anticipate we’ll need maybe a couple more rate rises to get inflation back on track, while at the same time supporting the economy. That is not a promise, and it never could be a promise.

The agenda: latest on UK rates, UK services, and US non-farm payrolls

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It was momentous day for the UK yesterday, with the first rise in interest rates in a decade. The benchmark cost of borrowing was increased to 0.5% from 0.25%, reversing the cut implemented by the Bank in August last year in response to the Brexit vote.

Ben Broadbent has admitted this morning that the hike will inflict pain on some households - those with standard variable rate mortgages - at time when real incomes are falling.

But he insisted the rise was “moderate” and said the economy could withstand a “couple more” hikes in order to bring inflation back to the Bank’s 2% target.

Also coming up:

  • 9.30am: The UK services PMI for October is expected to show growth in the sector (which accounts for about three-quarters of the economy) was broadly stable last month.
  • 12.30: US non-farm payrolls report for October will reveal how well the jobs market bounced after taking a mighty hit from hurricane disruption in September
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