Closing summary
The big event of the day, the US jobs data, turned into a disappointment.
After expectations that at least 180,000 jobs would be added in May the actual figure came out at 138,000. March and April’s figures were also revised downwards by 66,000.
But most analysts believe the poor data would not stop the US Federal Reserve from raising interest rates at its meeting later this month.
Earlier, a UK construction survey proved stronger than expected, lifted by a strong residential sector.
Greece saw its first quarter growth figures revised upwards, meaning it did not fall into recession and is outperforming the UK, Italy and the US.
On that note, it’s time to close. Thanks for all your comments, and we’ll be back next week.
Wall Street edges higher at open
The poor US jobs figures have certainly taken the shine off markets.
On Wall Street, the Dow Jones Industrial Average is currently just 9 points higher, well below the earlier expectations. The S&P 500 opened virtually unchanged while the Nasdaq Composite was up 0.24%.
European markets are also off their best levels, with the FTSE 100 now up just 0.15% although still on track - just - for a new closing high. Germany’s Dax is 1.3% better while France’s Cac has climbed 0.5%.
Still with the US jobs and here’s a breakdown of the job movements in various sectors:
It's starting to look like the retail sector is in real trouble. pic.twitter.com/yOnVkxc0gn
— Ben Casselman (@bencasselman) June 2, 2017
Neil Wilson, senior market analyst at ETX Capital, said:
As far as today’s NFP number matters, a June rate hike is pretty well nailed on and today’s relatively soft nonfarm payrolls number shouldn’t really affect the FOMC’s decision-making in the near-term. We know the Fed is more than happy to look through this kind of thing. Indeed Janet Yellen isn’t that fussed about one quarter of weaker growth, so she’s hardly going to be troubled by a soft-ish month or two of job creation.
The recent US data has been pretty solid too and projections for Q2 growth are very upbeat – the Atlanta Fed reckons 4%, which would make a soft month or two of job creation pretty irrelevant.
The big question is not really whether we get a hike in June now but the extent to which the market thinks the Fed is ready to do one or even two more hikes this year. Today’s jobs numbers arguably make the Fed a touch less likely to tighten as quickly as the most hawkish estimates suggest.
Here’s more from ING Bank. Economist James Smith said:
Today’s US jobs report would have had to be horrendous to worry the Fed, and the sub-consensus wage and jobs numbers won’t derail a June rate hike.
To us, the latest dip in non-farm payrolls to 138k looks like nothing more than a return closer to the underlying trend. As the US economy is close to, if not at, full employment, we should be seeing a gradual slowdown in jobs growth. Whilst 200k+ jobs growth sounds good at face value, consistently high readings would raise the possibility that there is more slack in the US economy than previously thought. This is a view that the Fed themselves broadly subscribe to, and they won’t be phased by today’s sub-consensus figure.
What they may find more irritating is wage growth, which marginally disappointed markets by coming in at 2.5% year on year. In reality, this is probably more of a statistical quirk rather than anything fundamental. May had three more workdays than April, and as the data doesn’t adjust for this, average hourly earnings will have been temporarily depressed.
The underlying story is still a positive one. Labour market tightness still appears to be pushing up pay, but the Fed really needs to see average hourly earnings growth push above 3% if they are to hike more aggressively. And that’s looking increasingly unlikely this year.
So what does this all mean for the Fed’s tightening cycle? Well in reality, it would have taken a horrendous report today to make the Fed think twice about a June rate hike. Other recent data has supported the notion that 1Q economic weakness was “transitory”.
But what comes next from the Fed is less assured. Core PCE has struggled to converge on 2%, wage growth has been disappointing and Trump’s fiscal plans are still very uncertain. That means we don’t expect fireworks from the Fed, but even so, we feel a third 2017 rate hike in September still looks more likely than markets are currently pricing.
But the poor data may not stop an imminent US rate rise:
As expected, a weaker #NFP report. But as the labour market tightens, massive job gains can't happen month after month... pic.twitter.com/gCRKqlBDAs
— ING Economics (@ING_Economics) June 2, 2017
(3/3) Markets expected a summer #Fed hike before #NFP =>more difficult for #FOMC not to deliver => hence markets/we still expect summer hike pic.twitter.com/EpDpV6avTD
— Danske Bank Research (@Danske_Research) June 2, 2017
Updated
The weaker than expected non-farm payroll numbers came as a particular surprise since on Thursday the ADP private sector jobs report beat forecasts, prompting analysts to expect a higher number if anything.
Good job ADP
— zerohedge (@zerohedge) June 2, 2017
Dennis de Jong, managing director at UFX.com, said:
The significant dip in nonfarm payrolls for May will be a concern for Donald Trump, particularly as the figure has slipped below the 150,000 generally considered as a marker of strong job creation.
The embattled president has been under attack from all sides in recent weeks, but had at least been able to point to the strong performance of the US economy since his inauguration. However, a failure to deliver on jobs will leave him vulnerable, particularly as he made it the cornerstone of his successful run to the White House.
The question now is how the Federal Reserve reacts, with many analysts expecting policy makers to hesitate on future rate hikes if wage growth does not pick up pace.
It was seen as a given that the US Federal Reserve would be raising interest rates at its meeting in the middle of the month.
But these poor jobs figures cast some doubt on that, and on any further moves by the Fed. So the dollar has weakened, dropping to a seven month low against the Swiss franc and the euro.
The pound has strengthened as a consequence, and is now up 0.07% at $1.2888 having earlier fallen as low as $1.2846.
The US futures have also come off their best, now indicating a smaller opening rise of around 49 points on the Dow Jones Industrial Average.
Updated
The unemployment rate dipped from 4.4% in April to 4.3% last month, according to the Bureau of Labor Statistics.
Meanwhile the US trade deficit widened by more than expected in April. It jumped 5.2% to $47.6bn, the highest level since January, with a surge in cellphone imports.
Average hourly earnings were up 0.2% in May, the same as the April figure which was itself revised down from 0.3%.
US BLS: Over the year, average hourly earnings have risen by 63 cents, or 2.5 percent. #NFP
— Shaun Richards (@notayesmansecon) June 2, 2017
#US #NFP: Overall weak report. Disappointing headline, neg. revisions, wage growth still low, particip rate falling (why unempl rate lower) pic.twitter.com/eWstHuMuYk
— Danske Bank Research (@Danske_Research) June 2, 2017
US jobs disappoint
Breaking news:
Bad news for Donald Trump. The US non-farm payroll numbers have come in well below expectations.
They fell from 174,000 in April to 138,000, compared to expectations of a figure of at least 180,000. And that April figure itself was revised down from 211,000.
March was revised down from 79,000 to 50,000, meaning in total, around 108,000 fewer jobs were created than expected.
Updated
Back with Greece, and following the news that the country has avoided recession, the Greek prime minister’s mentor and closest advisor Alekos Fambouraris has made a rare public statement. Helena Smith reports:
Fambouraris said the government’s goal now was to close the outstanding bailout review so that disbursement of the €7.5bn Athens owes in imminent maturing debt is made. “[It] will give a boost to the real economy because besides covering our obligations towards creditors the rest of the money will cover requirements of the real economy,” he said.
Senior sources in Tsipras’ leftist-led administration say they are bracing for a tough eurogroup meeting on June 15 amid growing signals from senior European officials that the prospect of any debt deal is now off the table.
Flambouraris insisted Athens was still holding out for an agreement. “Caught in the row between the IMF and German finance minister Wolfgang Schauble, the government is trying to achieve a solution for the debt that will make it viable,” he said in the statement. “We know very well that this clash does not help our country but despite that we are still trying and hoping.”
With just over an hour to go to the latest US non farm payroll figures, there is continuing talk the number could beat forecasts, especially in the light of Thursday’s private sector data from ADP. Mihir Kapadia, chief executive of Sun Global Investments, said:
The ADP data released yesterday (which only covers the (private sector) clients of payrolls processing firm ADP) came in at 253,000 jobs versus 180,000 expected) and this has set the stage for a strong number today. Economists expect the US to add 184,000 nonfarm jobs (211,000 in April) though the “whisper number” is somewhat higher.
The unemployment rate is forecast to hold steady at 4.4%, a level which is effectively full employment. The wage inflation number indicator will be highly watched as wage growth has been slower than expected despite labour market tightness. This has been reflected in recent Fed officials’ utterances about undershooting the inflation target of 2%. A strong number will only strengthen the already very strong conviction that the Federal Reserve will raise interest rates by 25 basis points at their mid-June meeting.
While European markets are soaring, the FTSE 100 has come off its best levels, with commodity companies coming under pressure as the oil price falls. Connor Campbell, financial analyst at Spreadex, said:
The FTSE lost its mojo as the morning went on, significantly trailing beyond its rampant Eurozone peers.
After striking [almost] 7600 for the first time in its history the UK index quickly fell back, and is now up just 15 points thanks to a series of sharp losses in its commodity sector. Following on from yesterday’s late drop – inspired by reports of increased oil output in Libya and the US – Brent Crude has fallen a further 2.5%, leaving the black stuff just above $49 per barrel. That’s because Trump’s decision to remove America from the Paris climate agreement has sparked concerns that the country will ramp up its drilling, negating any output cap implemented by OPEC. This in turn sent Shell and BP down 0.5% to 1%, with the miners also in the red thanks to copper’s 1.7% decline.
Free from such troubles the Eurozone soared this Friday, the CAC and DAX jumping 0.8% and 1.4% respectively.
The Dow Jones is set to break its own records when the bell rings on Wall Street, with the futures suggesting the index will cross the 21200 mark. That’s because investors are getting excited about this afternoon’s non-farm jobs report. A huge ADP non-farm figure means the current forecasts for a 181k change in the number of employed people may be conservative, while for the past 2 months in a row the unemployment rate has unexpectedly shrank. Wage growth is the only real laggard, with average hourly earnings set to fall from 0.3% to 0.2% month-on-month.
Germany’s Dax has joined the global rally and also reached a new peak.
It has added more than 1.4% to hit 12,850, beating the previous high set in the middle of May.
Greece growing faster than UK
The revision to Greece’s first quarter GDP figures not only means the country was not in recession, but it has also grown more than the UK, Italy and US.
The statistics service Elstat said the Greek economy grew by 0.4% in the three months to March, compared to an earlier estimate of a 0.1% fall. The previous quarter, GDP fell by 1.1%. Two months of negative GDP growth indicate recession, but Greece has now avoided that according to the revised data.
The country’s first quarter month on month growth compares to a figure of 0.2% for the UK, which was already at the bottom of the G7 league table.
Even Greece is now growing faster than the U.K: Greek Economy Expanded 0.4% in 1Q From Previous Quarter, revised @StatisticsGR reading shows
— Nikos Chrysoloras (@nchrysoloras) June 2, 2017
Updated
Brent dips below $50 a barrel after US withdraws from Paris climate deal
Oil is on the slide, partly thanks to Donald Trump’s decision to pull the US out of the Paris climate agreement.
There are concerns that the move could lead to more US drilling, which in turn would add to the supply glut that Opec and its allies have been trying to counter with their own agreement to cut output.
As a result West Texas Intermediate - the US benchmark - has fallen 2.9% to $46.96 a barrel, while Brent crude is down 2.8% at $49.21.
Over in Greece, and the country’s economy has grown unexpectedly in the first quarter despite all the uncertainties surrounding its bailout programme and the struggles to agree a deal with its creditors.
#Greece seasonally adjusted Q1 GDP +0.4% QoQ (from -0.1% in flash estimate) and +0.4% YoY (from -0.5%) - ELSTAT. #economy
— MacroPolis (@MacroPolis_gr) June 2, 2017
Seems that review uncertainty had less of an impact on #Greece economy than initially feared https://t.co/Os9QugtSn5
— Yiannis Mouzakis (@YiannisMouzakis) June 2, 2017
Eurozone producer prices have come in lower than expected.
They were flat in April compared to a 0.3% fall the previous month and forecasts of a 0.3% rise. Year on year they rose 4.3%, slightly lower than the expected 4.5%.
UK construction #PMI hit an impressive 56 in May. But there’s still the problem that the @ONS data hasn't agreed with the PMIs of late. pic.twitter.com/wGw206vp5L
— Rupert Seggins (@Rupert_Seggins) June 2, 2017
Tim Moore, senior economist at IHS Markit, said:
May’s survey data reveals that the UK construction sector has started to recover strongly from its slow start to 2017.
House building was the key growth driver, with work on residential projects rising at the fastest pace since December 2015. A sustained rebound in residential building provides an encouraging sign that the recent a soft patch for property values has not deterred new housing supply. Instead, strong labour market conditions, resilient demand and ultra-low mortgage rates appear to have helped boost work on residential development projects in May.
Civil engineering continued to flourish, helped by a strong pipeline of infrastructure projects. However, commercial building was trapped in the slow lane amid reports highlighting that heightened economic uncertainty is holding back client spending.
The forward-looking elements of the latest survey are reassuring for the construction sector, notably the acceleration in new business growth to its strongest so far this year.
On the price front, while construction costs have ratcheted up over the past six to nine months, the wave of inflation from imported materials now appears to have passed its peak.
Markit said residential work had replaced civil engineering as best performing category in its survey:
A sharp and accelerated rise in residential work was a key factor supporting overall construction activity in May. The housing sub-category has rebounded strongly following the seven-month low seen in March. Moreover, the latest increase in residential building was the fastest since December 2015. Survey respondents cited a strong pipeline of new development projects and resilient underlying demand conditions.
UK construction figures better than expected
Breaking news:
The latest UK construction figures show an increase in May rather than the expected decline.
The Markit/CIPS construction purchasing managers index climbed from 53.1 in April to 56, the highest level since December 2015, helped by a pickup in housebuilding.
Analysts had been forecasting a dip to 52.7.
B&M shareholders raise £450m
The Ahora family behind discount retailer B&M European are a bit richer this morning.
The family’s investment vehicle SSA and private equity group Clayton Dubilier have between them sold shares worth around £454m in a placing to investors. SSA retains 15% and CD 4.9% following the placing. It was done at 363p a share, and in the market B&M has lost 11.3p to 359p. Analyst Nick Bubb said:
The B&M share price has had a good run and after last week’s finals guess what: the private equity fund Clayton Dubilier and SSA Investments (the Arora family investment vehicle) have dumped a combined 125m shares (12.5% of B&M’s total issued share capital) at a price of 363.4p, raising aggregate gross sale proceeds of £454m... [Last week] Simon Arora, the CEO, gushed “B&M has never been in better shape” and, to be fair, the big share placing seems to have gone very well.
Neil Wilson, senior market analyst at ETX Capital, said:
The FTSE 100 took off on the open this morning, shooting up to hit 7,599 for another record intra-day high as the UK market took its cue from the US and a buoyant mood for equities. Investors are ignoring any worries about what Trump’s Paris climate deal shakeout might mean in the short term and instead focusing on renewed reflationary pressures. Whatever risk premium we have around the general election, it’s not bothering equity investors too greatly.
We have a sea of green in European indices with global stocks at record highs as June starts on a very upbeat note for riskier assets. After a slight pullback on the whole Trump reflation trade in May that saw defensives in favour, it’s risk-on again. The US market set the tone this morning in Europe with the S&P 500 closing on Thursday at a fresh record high.
A solid batch of PMI readings kicked off June in fine style, while we have a situation where central banks remain highly accommodative despite the growth pickup as inflation remains subdued. While we have this scenario it looks very favourable for equities.
On the FTSE, shares are rising as part of a global cyclical turnaround and sterling weakness is increasingly less important. The pound is still an important factor in the UK market in terms of overall valuations [but] the FTSE [is] no longer simply reacting to cable; going up with the pound falls and dropping when the pound rises. As has been noted, the more domestically-focused FTSE 250 is also notching record highs, so it’s not enough to explain away the FTSE’s continued strength by saying it’s down to sterling.
Business Today: sign up for a morning shot of financial news
Get set for the working day - we’ll guide you to the all the business stories you need to read in one really useful email. Click here to sign up.
FTSE 100 and FTSE 250 hit new highs
Boom!
Britain’s leading index has hit a new peak, touching 7598.99 and within a whisker of 7600. The weaker pound - down 0.17% at $1.2858 - is helping, but the signs of a buoyant global economy - in particular the US - is also providing support.
The FTSE 250 is also at a new record, reaching 20,071. Meanwhile the US futures are predicting a 73 point opening on the Dow Jones Industrial Average, which could also see it in unprecedented territory. Connor Campbell, financial analyst at Spreadex, said:
The markets are looking pretty buoyant this morning, boosted by the prospect of this afternoon’s non-farm jobs report.
The FTSE appears to be gunning for a new record this Friday, surging more than half a percent after the bell to sit just a handful of points below 7600. As for the pound, with no new polls – yet – to cause it to panic it got off to a rather dull start, dipping 0.1% to 0.2% against both the dollar and the euro. Sterling has tended to do better in the afternoon than the morning this week, once the early political news has been fully digested. Today, however, sees the latest US jobs report, and with the Fed looking to raise rates this month a strong non-farm figure could cause cable’s initial losses to widen.
The Eurozone was just as jubilant this Friday, with the DAX and CAC both rising around 1%. That’s pushed the German index back to 12800, and within 50 or so points of a new all-time high, while the CAC is at its best price for a week and a half. There isn’t actually much for the Eurozone to work with this morning, the indices seemingly surging on the prospect of a 21200-crossing open for the Dow Jones later today.
Updated
European markets open higher
Boosted by the gains on Wall Street and in Asia, European markets have made a good start to the day.
The FTSE 100 is currently up around 0.4% at 7580, within 6 points of the record high achieved earlier this week.
Meanwhile France’s Cac has climbed 0.6%, Germany’s Dax 0.7%, Italy’s FTSE MIB has risen 0.48% and the Euro Stoxx index is 0.2% better.
And the world stocks index has also hit a new high:
World stocks measured by MSCI All World Index hit a fresh record high as upbeat data boosts confidence. https://t.co/APNNlD9Jgj pic.twitter.com/0BIiIDhmCn
— Holger Zschaepitz (@Schuldensuehner) June 2, 2017
Updated
Markets appear to be shrugging off the controversial decision by Donald Trump to pull the US out of the Paris climate agreement, instead concentrating on the forthcoming US jobs figures. Jasper Lawler, senior market analyst at London Capital Group, said:
As global leaders decried Donald Trump’s decision to withdraw the US from the Paris Climate Accord, investors were quietly pumping funds into the stock market. Dumping the climate deal hasn’t really hurt of hindered investor’s appetite for risk...
Surprisingly good private payrolls data has increased confidence in the US economy ahead of today’s jobs report. The Fed looks set to raise rate this month irrespective of recent data, so investors are glad to see an economy that can withstand it. Expectations are for 185k US jobs to have been created in May, down slightly from the 211k in April with earnings growth of 0.2% m/m.
In Asia, Japan’s Nikkei index breached 20k for first time since 2015, matching similar gains in Hong Kong and Australia.
European investors look to be taking heart from optimism in Asia and the strong finish on Wall Street with all the major indices set for a higher open.
It’s a little quiet on the corporate and economic calendar so it may end up being a wait-and-see type day before the US jobs report.
Our live blog on the fallout from Trump’s climate decision can be found here:
Agenda: US jobs data and UK construction in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s a big day for the US economy with the latest monthly jobs and wages figures due later. Analysts are expecting another bumper outcome after April’s better than expected number, which would probably put the seal on a US rate rise this month.
Originally, forecasts were for an increase of around 180,000 in non-farm payroll jobs. But with Thursday’s forecast-beating private sector job numbers from payroll specialist ADP, that could easily prove conservative.
The jobs data helped push US markets sharply higher, with both the S&P 500 and Nasdaq Composite hitting new peaks. Meanwhile in Asia, the Nikkei 225 added 1.6%, closing above 20,000 for the first time since 2015.
Europe is also forecast to make a strong start, with the FTSE 100 on track for a new intra-day peak:
Our European opening calls:$FTSE 7593 +0.65%
— IGSquawk (@IGSquawk) June 2, 2017
$DAX 12740 +0.59%
$CAC 5352 +0.63%$IBEX 10963 +0.75%$MIB 21091 +0.74%
Michael Hewson, chief market analyst at CMC Markets UK, said:
European markets look set for a strong open this morning having started on the front foot yesterday, helped by a continuation of the recent theme of an improving economic environment, as further improvements in economic data fuelled a positive start to the month, which was carried on in the US, after Europe had closed.
This rise in US markets saw yet more record closes across the board, after a singularly upbeat ADP payrolls report showed that the US economy added 253k jobs in May, well above expectations of 177k. This bumper number more or less confirmed the prospect of a June rate rise, with the potential for further moves later in the year, maybe in September, if the economy holds up. Yesterday’s number also raises the bar for today’s official payrolls report which is expected to come in at around the 180k level, down from 211k in April.
This seems rather conservative given the decent ADP number, and the fairly close correlation between the two we’ve seen over the last few months, the March outlier notwithstanding. This would suggest that a number in excess of 200k for non-farm payrolls would be more in line with expectations...
Today’s average hourly earnings data for May is [also] likely to be closely scrutinised with a modest increase from 2.5% to 2.6% expected.
Before all that, come UK construction figures. In April the construction PMI was lifted by civil engineering and housebuilding and came in at 53.1. This time round it is expected to slip to around 52.7, but this is still a reasonable performance following Thursday’s positive manufacturing figures.
Here’s the agenda (all times BST):
9.30: Markit/CIPS UK construction PMI
10.00: Eurozone producer prices index
13.30: US non-farm payrolls data
We’ll be tracking all the main events throughout the day.
Updated
