With this, we are closing the blog. Thank you for all your comments and have a great weekend. We will be back on Monday.
European stock markets are still trading lower.
- FTSE 100 index down 0.7% at 6706.72, a fall of nearly 100 points
- Germany’s Dax down 0.7% at 10,460.76
- France’s CAC down 1.16% at 4507.55
- Spain’s Ibex down 0.76% at 8602.90
- Itay’s FTSE Mib down 0.57% at 16,999.99
Brent crude rises above $54 a barrel
Brent crude oil has reversed earlier declines and risen above $54. It is now trading at $54.04 a barrel, up 0.1% on the day.
Updated
And over in Greece, scores of disabled protestors have been taking to the streets as the governing coalition rushes to complete reforms ahead of Monday’s crucial meeting of euro zone finance ministers.
Our correspondent Helena Smith reports from Athens:
Once again the eurozone’s weakest link is in a race-against-the clock to complete reforms demanded by creditors keeping the debt-stricken country afloat. Hopes had been high that passage of the ‘prior actions” – contingent for the conclusion of a second review of the bailed out Greek economy – would have been concluded in time for Monday’s meeting, the last gathering of euro zone finance ministers this year. For prime minister Alexis Tsipras’ government, December 5th has been marked as the date debt relief talks could finally start.
Instead, the leftist-led coalition has been faced with the daunting task of endorsing yet more austerity, the price of participation of the International Monetary Fund in Greece’s third, 86 bn euro rescue programme. Today’s protestors, rallying outside the prime ministers offices, are among the thousands who will be hit by cuts expected to apply as of the New Year.
But in a move interpreted as an olive branch, the German finance ministry announced today that the euro group would also discuss possible short-term debt measures for Greece at Monday’s meeting. The IMF has long said that euro zone countries must give Greece “upfront, unconditional” debt relief to make it debt burden sustainable and allow the Washington-based organisation to take part in its bailout programme. At over 300 bn euro or 180 percent of GDP, Athens has by far the highest debt load in the EU. The IMF would consider 120 percent to be manageable.
And Ian Kernohan, economist at Royal London Asset Management, said:
With a December hike in the Fed Funds rate fully priced into markets, the latest set of payrolls would have to have been extremely weak to impact expectations.
We expect the Fed to hike rates on December 14th and the market will move on to speculating on the timing and direction of the next move. With rising treasury yields impacting mortgage rates, other central banks still easing policy, and uncertainty over the scale and timing of any Trumpflation stimulus, we expect the Fed to remain cautious with the pace of rate hikes next year.”
Paul Ashworth, chief US economist at Capital Economics, said:
The decline in the unemployment rate to a new cyclical low of 4.6% last month, from 4.9% was due to a combination of a 160,000 increase in the household survey measure of employment together with a 226,000 decline in the labour force. The number of involuntary part-time workers fell by 220,000. As a result, the U6 unemployment dropped to an eight-year low of 9.3%, from 9.5%. The upshot is that the labour market appears to be approaching full employment.
That said, the 0.1% m/m decline in average hourly earnings, which pushed the annual growth rate back down to 2.5%, from 2.8%, suggests that there is still a little slack left for the Fed to play with.
A December rate hike is coming and, assuming that we see a major fiscal stimulus passed in the first half of next year, we expect an additional 100 basis points of tightening from the Fed next year, taking the fed funds target range to between 1.50% and 1.75% by end-2017.”
Returning to the US economy, Alex Lydall, head of dealing at Foenix Partners, has a slightly different take on the labour market data.
A rate hike in December is unlikely to be derailed from the afternoon’s jobs report, but a poor wages number does give Janet Yellen food for thought. The headline figure of 178k was solid - along with a significant decrease in the Unemployment rate to 4.6% - but the premise of extra fiscal stimulus in a Trump era and letting wages naturally increase as the Fed have reiterated, could leave Yellen pondering future hikes if wages stutter.
We are still likely to see a 0.25 hike this month, but the speed of next year’s recovery could be impacted if wages and participation rates continue to cause a headache. With risk appetite bullish from the OPEC agreement this week, the greenback could likely see some short-term weakness against the majors, with the notable exception of the risk associated this weekend with the Italian Referendum.”
Meanwhile, my colleague Katie Allen writes:
The Bank of England should be wary of rushing into interest rate rises to curb inflation, according to its chief economist, in a warning that the UK economy is vulnerable to a sharper slowdown next year than current forecasts would suggest.
Andy Haldane said he was comfortable with the Bank’s current wait-and-see stance on borrowing costs as it weighs up the conflicting forces of a lower pound stoking inflation and the Brexit vote denting business confidence.
Agreed. FOMC happy with overall trend https://t.co/pnN7aFvhPj
— Mike van Dulken (@Accendo_Mike) December 2, 2016
Here is an interesting point
Americans Not In The Labor Force Soar To Record 95.1 Million, Surge By 446,000 In One Month https://t.co/yl29tw6j73
— zerohedge (@zerohedge) December 2, 2016
Here is some instant reaction to the US jobs data. Nancy Curtin, chief investment officer at Close Brothers Asset Management, said:
Today’s positive US job figures, coming on the back of good economic numbers across the board, will further increase the odds of a rate rise at the next Fed meeting in mid-December. The healthy labour market mirrors the momentum we’ve seen in the economy since the summer, which has enjoyed strong PMI figures in both services and manufacturing. However, crucially, the participation rate has not risen, which may take some of the shine off these figures for the Fed.
With the US presidential election suspense now behind us, it is Yellen’s rhetoric which will be of most interest to investors as they look ahead at what to expect in the new Trump era next year. If as expected, we see a swing towards fiscal stimulus, this may give the Fed greater scope to hike rates further in 2017. Fed decision making will no longer be solely data dependent, but policy dependent also.”
Looking at a breakdown by sector, manufacturing jobs fell by 4,000 last month, the fourth monthly decline. Construction rose by 19,000 jobs following a 14,000 gain in October, and retail jobs fell for the second month in a row, by 8,300.
As the US economy approaches full employment, monthly job gains have slowed from an average of 229,000 in 2015 to an average of 180,000 this year.
The 178,000 increase in new jobs was slightly better than expected. Economists had pencilled in 175,000 jobs and an unchanged jobless rate of 4.9%.
However, wage growth has slowed. Average hourly earnings fell 3 cents, or 0.1%, after rising 0.4% in October. This lowered the year-on-year growth rate to 2.5% in November from 2.8% in October, which was the biggest increase in nearly 7 1/2 years.
2.5%y/y growth in earnings, down from 2.8%. Wage growth just isn't properly igniting despite apparent labour market tightening.
— Marcus Wright (@MarcusEconomics) December 2, 2016
Updated
The jobless rate hit 4.6%, the lowest in more than nine years, making it a near certainty that the Federal Reserve will raise interest rates at its meeting on 14 December. The jobs report comes after a run of strong economic data.
Updated
US non-farm payrolls rise 178,000, jobless rate at 9-year low
Breaking news: nonfarm payrolls show 178,000 new jobs were created in the US economy last month, compared with 142,000 in October (revised lower from 161,000).
My colleague Sean Farrell has found out more. The owners have sold the property in Whitechapel to an undisclosed buyer, will leave in May 2017 and are in talks about what will happen to the business. It looks like it could be sold – so it is likely to continue as a business.
Britain's oldest bell foundry to close
Britain’s oldest bell foundry which made Big Ben and the Liberty Bell in Philadelphia, is closing. Whitechapel Bell Foundry, which traces itself back to Elizabethan times and says it is the UK’s oldest manufacturing company, said the decision was “in response to the changing realities of running a business of this kind”.
The firm was set up in 1570 during the reign of Queen Elizabeth I and is one of two remaining bell foundries in the UK. It has changed ownership several times and moved sites. The foundry says it is listed in the Guinness Book of Records as the UK’s oldest manufacturing company in continuous operation.
Owners Alan and Kathryn Hughes said, according to the Daily Telegraph:
We have made this decision with a heavy heart, but in response to the changing realities of running a business of this kind. The Bell Foundry in Whitechapel has changed hands many times, but it has always been a family business.
My own family has owned the foundry since 1904, but other families have run the firm through its history, which stretches back to 1570.”
A statement posted on the firm’s website suggests that perhaps the company will reopen somewhere else.
Whitechapel Bell Foundry Ltd announces, with regret, that by May 2017 it will cease its activities at the Whitechapel Road site that it has occupied since its move there in 1738.
The company intends to complete work on all projects presently in hand during the coming months. It will not be entering into new contracts for the time being whilst discussions with the company’s staff and other interested parties regarding the future direction, ownership, and location of the company are ongoing.”
The dollar, measured against a basket of currencies, has dipped before the US jobs data. The dollar index has slipped 0.1% to 100.92 and is down 0.6% this week – its first weekly fall in a month.
The US currency is also on course for its first weekly decline in four weeks against the euro.
Updated
The head of watchdog Ofcom has said that British regulators should be given wider powers to block mergers following the Brexit vote – in particular if a company is strategically important.
In a speech to the Institute for Government, Sharon White said Britain should use the opportunity provided by the referendum to beef up the capacities of its regulators.
We have the opportunity to introduce a wider set of considerations in merger decisions, including policy or public-interest concerns where a company is deemed to have particular strategic significance for the UK.”
But she added this should not lead to “regulatory creep” or “new powers for the sake of it”.
She also called for the introduction of new protections for consumers.
The US non-farm payrolls report is expected to show steady job growth, with a small pick-up to 175,000 new jobs forecast for November, from 161,000 in October.
Chris Beauchamp, chief market analyst at IG, has looked at the markets:
More losses for stock markets indicate the nervousness that is taking hold ahead of the Italian referendum. The slow pullback in US markets is also an indication that we are in the traditionally weak period of early December. Berkeley Group’s numbers this morning gained the approval of shareholders, with the shares moving higher in early trading. Housebuilders remain one of the more interesting dynamics, with valuations still remarkably low, even if concerns remain about potential drop offs in demand.
Non-farm payrolls are not expected to disrupt the steady procession towards a Fed rate hike in December, although wage growth is still not as strong as the Fed would like. We also have the Baker Hughes rig count at the end of the day, at a time when most London traders will either be well on their way home or in the pub. Still, it will be a number worth watching as questions remain over how US producers will act in the wake of the OPEC cut.”
Morning round-up
Time for a morning round-up.
Key US jobs data are out at 1.30pm. Non-farm payrolls are expected to show 175,000 new jobs were created in November, up from 161,000 in October.
European stocks are falling ahead of this weekend’s Italian constitutional referendum and Austrian presidential election. The pan-European Stoxx 600 index fell as much as 1.2% and is now 1.1% lower at 337.
Wall Street has fared better, where US stocks have hit record highs buoyed by expectations of fiscal stimulus by president-elect Donald Trump’s administration.
City of London Markets trader Markus Huber said:
Many are of the opinion that traders will continue to favour US over European stocks.”
Brent crude oil has been slipping all morning, and is now down 1% at $53.36 a barrel. It has eased from the one-year high hit yesterday following the Opec oil cartel’s agreement to cut production on Wednesday, the first such deal in eight years.
The UK construction sector has strengthened, but firms’ costs have also picked up on the back of the weaker pound, hitting a 5 1/2 year high.
Here is our full take on the pick-up in UK construction activity.
In other news today, train fares in the UK will go up by an average of 2.3% next year, the rail industry has announced. This was quickly condemned as “another kick in the teeth for British passengers” by the Rail, Maritime and Transport union. The union said travellers already pay some of the highest fares in Europe to “travel on rammed out and unreliable trains”.
You can read the full story here.
Returning to the UK’s construction figures, here’s some reaction.
Mike Chappell, global corporates managing director for construction at Lloyds Bank commercial banking, said:
As this survey shows, many construction firms, and particularly those at the top end of the supply chain, retain a cautiously optimistic outlook.
Their mood has been helped by what was widely seen as a construction-friendly Autumn Statement, which included a new commitment from the chancellor to spend an increased proportion of GDP on infrastructure. This appears to amount to a Keynesian-style recognition that investment in infrastructure can itself help to stimulate the economy.
On the flip side there remains some concern about the London market, which is seen as particularly exposed to a post-EU referendum slowdown. Our own research* shows that business confidence across the UK dropped slightly in November after a relatively high reading in October.”
Paul Trigg, construction specialist and assistant head of risk underwriting at credit insurance firm Euler Hermes, said:
Performance across the construction sector is clearly polarising as housebuilders report healthy profits and a number of high-profile contractors bring in the administrators. We expect the number of insolvencies in the sector to climb through next year. Low margin contracts continue to put serious pressure on company cash flows, with businesses unable to pass on further rises in input costs resulting from inflation.
Pressure on cashflow will inevitably impact firms’ ability to pay on time throughout the supply chain and construction companies will need to be extra careful when managing their credit books.
The Autumn Statement provided some welcome news on both housing and infrastructure, but the industry needs clarity quickly on whether all of this is new money or just a repackaging of previous announcements.”
Eurozone factory-gate prices hit 4-year peak
Producer prices in the eurozone have jumped to their highest in more than four years in October as energy prices increased. The European Union’s statistics office said prices at the factory gate in the 19-member currency bloc climbed 0.8% in October, much more than expected. Compared with a year earlier, prices fell 0.4%.
The figures will be welcomed by the European Central Bank in its battle against ultra-low inflation. Consumer price inflation has picked up recently and hit a 31-month high of 0.6% in November. But it’s still far below the ECB’s 2% target.
Capital Economics have sent us their thoughts on the Swiss GDP numbers. Stephen Brown, European economist at the consultancy, said:
The stagnation of Swiss GDP in Q3 demonstrates the negative impact that deflation and the strong franc have had on the economy. With a plethora of political risks in the euro-zone set to keep the franc strong, exporters are unlikely to get a respite soon... It was the weakest quarter for growth since Q2 2015 and a sharp slowdown from the 0.6% rise recorded in Q2.
After stagnating in Q2, consumer spending growth eked out an expansion of 0.1% in Q3. Nevertheless, consumer spending growth has clearly been weak in recent quarters, possibly as a result of consumers responding to Switzerland’s deflationary environment by delaying purchases. More encouragingly, investment rebounded by 0.5%. Meanwhile, government consumption edged down slightly, by 0.1%.
In addition to the current strong level of the franc, next year exporters will also have to contend with a slowdown in growth and a plethora of political risks in the euro-zone, Switzerland’s main trading partner. If just one of those risks were to materialise, it could act as a double-whammy for Switzerland by both exacerbating the euro-zone’s economic slowdown and by prompting a renewed appreciation of the franc due to the currency’s safe-haven status. In all, then, we expect Swiss GDP growth to slow from about 1.5% this year to 1% in both 2017 and 2018.”
Italian 10-year bond yields are heading for their biggest weekly fall since July, amid referendum jitters.
Construction was better than expected. Housebuilding remained the best performer, even though its expansion slipped to a three-month low. Commercial activity bounced back after five months of decline, while civil engineering remained the weakest area.
Overall, incoming new construction work was the strongest since March, after declining through the summer in the wake of the EU referendum. Some construction firms noted that their workloads had been boosted by a resumption of projects that were delayed after the Brexit vote. However, there were also reports that the stronger inflation backdrop had led to intense competitive pressures and squeezed margins.
UK construction activity and input costs pick up
The bounceback in the UK’s construction industry has continued in November, with the sector expanding at the fastest rate since March, according to a survey. Commercial work picked up for the first time in six months. However, cost inflation also picked up and is now the strongest for 5 1/2 years.
The purchasing managers’ index from Markit/CIPS rose to 52.8 in November from 52.6 in October.
Also on Sunday, Austria holds a presidential election that could see Norbert Hofer of the Freedom Party become the first far-right head of state elected in western Europe since World War II.
In Italy, prime minister Matteo Renzi has said he will stand down if voters reject a constitutional reform. But this does not necessarily mean fresh elections. Italian president Sergio Mattarella could ask Renzi to stay, ask another centre-leftist politician to form a new government or try to persuade Silvio Berlusconi’s centre-right party to join or support a caretaker government, as Reuters reports.
Jaisal Pstakia, investment manager at Heartwood Investment Management, says:
In all probability the Italian electorate is likely to reject Prime Minister Renzi’s proposals for constitutional reform. Essentially, Renzi wants to reduce the power of the Senate - the upper chamber of parliament, allowing for smoother implementation of legislation and potentially a more stable political system. However, the referendum has turned into a vote on Renzi himself, whose popularity has taken a sharp dip since his election in September 2014.
We expect the political fallout to be contained. Even if Renzi resigns, recent history suggests that there is more probability of a technocrat government being installed. If a general election were to happen, the likelihood is that it would result in a fragmented coalition government that would find it difficult to pass legislation, owing to the very parliamentary system that Renzi is trying to reform.”
But there would be a negative impact on the already struggling economy.
A ‘no’ vote will reduce hopes of advancing the structural reform agenda, resulting in weaker growth for an already struggling economy. Italy’s growth rate in 2016 has been one of the weakest among its euro peers, weighed down by high unemployment rates and a stalling credit cycle. Loan growth has fallen back into negative territory and demand is expected to be further constrained by tighter credit standards for both mortgages and corporates.”
Updated
European stocks fall ahead of weekend referendum in Italy
European stocks are falling as investors nervously await this weekend’s Italian constitutional referendum. Commodity stocks are among the biggest fallers, with oil prices sliding today, and financial shares are also down.
Europe’s pan-European Stoxx 600 index is down 1.2%, the lowest in more than three weeks.
Simon Smith, chief economist at FX Pro, said:
We have the Italian constitutional referendum over the weekend. This has the potential to induce some volatility in the early part of next week. There are still a lot of undecided voters, so although the no side is ahead, the result is not a given. And even if this does come to fruition, a rejection of the reforms would lead to political instability in Italy and quite possibly to early elections.”
Updated
We are going to spend less on Christmas this year, PricewaterhouseCoopers reckons. Its survey shows the average UK adult expects to spend around £280 on gifts. It’s the first time the consultancy firm has done this survey, but it says other reports suggest spending was around £300-£400 last year, so this would indicate a dip in Christmas spending.
Around 4% of people said they wouldn’t buy any presents. A quarter expect the effects of the UK’s vote to leave the European Union to have an impact on how much they spend this Christmas. However, the majority (67%) expect no impact at all.
More than half (53) said they would make their purchases online this Christmas, compared to 43% in store.
In the UK, Berkeley Group, which builds luxury homes in London and the south east, has taken a hit from Brexit uncertainty and rising stamp duty.
But the company still made a pretax profit of £392.7m in the six months to October, up 34% from a year earlier. It sold fewer homes but at a higher price – the average selling price rose to £655,000 from £506,000 last year.
However, chief executive Rob Perrins said reservations had fallen 20% in the housebuilder’s first half, similar to guidance given in June.
This fall in volume is due to higher stamp duty, the extraordinary attack on buy-to-let landlords – such an important part of sustaining the London market and increasing the supply of new homes – and the uncertainty caused by Brexit.”
You can read the full story here.
Meanwhile, the Finnish economy expanded 0.4% in the third quarter. The country’s statistics office revised down an earlier estimate of 0.5%. GDP rose 1.6% from a year earlier.
Finland’s economy is slowly recovering following years of stagnation caused by the decline of Nokia’s former phone business and the impact of the recession in neighbouring Russia.
The Swiss economy has stalled: Swiss GDP figures came out earlier this morning, and showed the economy was flat in the third quarter compared to the second. It grew by 1.3% year-on-year.
The figures were worse than expected and the weakest in more than a year, as Switzerland’s export-led economy struggled with the strong franc. Economists had pencilled in 0.3% growth. The Swiss National Bank ditched a cap on the franc’s value against the euro almost two years ago.
Updated
European stocks open lower
European stocks have opened lower, as expected.
- FTSE 100 index in London down more than 50 points at 6701.22, 0.77% fall
- Germany’s Dax down 0.9%
- France’s CAC down 0.7%
- Spain’s Ibex down 0.6%
- Italy’s FTSE Mib down 0.6%
- Portugal’s PSI20 down 0.4%
It emerged earlier this week that the UK’s new plastic £5 note contains animal fat, which caused a storm on Twitter and the launch of a petition on behalf of vegans, vegetarians and some religious groups. It has been signed by more than 121,000 people.
A day later, the Bank of England bowed to the pressure and issued a statement saying that it had asked its polymer supplier, Innovia, to find an alternative.
The central bank said that “an extremely small amount of tallow is used in an early stage of the production process of polymer pellets, which are then used to create the base substrate for the five pound note”.
The Australian pioneer of the polymer bank note has now waded into the row, saying it’s “stupid” that vegetarian and vegans are protesting in the UK about the five pound polymer note containing tallow.
Professor David Solomon told the Australian radio station 2GB:
It’s stupid. It’s absolutely stupid.
There’s trivial amounts of it in there.”
Solomon said polymer notes were extremely hard to forge and had a lot more benefits for the consumer than previous paper notes.
It picks up less drugs than paper notes and you don’t chop down trees. It’s more hygienic than a paper note by a long way.”
The agenda: US jobs report, UK construction and oil
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s US non-farm payrolls day, always a big event for the US dollar. Analysts are forecasting that 175,000 jobs were created in November, up from 161,000 in October.
The Federal Reserve is already widely expected to raise interest rates in December as recent economic data have mostly been strong. Yesterday surveys showed manufacturing grew faster than expected in November.
Here in the UK, we will get a monthly industry survey on construction at 9:30am GMT.
Oil is drifting lower this morning, after hitting a one-year high following the Saudi-led Opec cartel’s announcement to cut output on Wednesday – the first such agreement in eight years. Russia, the biggest non-Opec oil producer, also agreed to reduce its output gradually. Brent crude is trading at $53.37, down 1%.
European stocks are expected to open lower.
Updated
