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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK wages growth accelerates; US inflation jumps - as it happened

Pay continues to rise faster than inflation, new ONS report shows
Pay continues to rise faster than inflation, new ONS report shows Photograph: Dominic Lipinski/PA

Finally, the latest twist in the US-China trade war had pushed London’s stock market higher.

The FTSE 100 index has just closed, up 24 points at 7,250. A more modest move than in New York, but better than earlier in the day (when the Footsie was down 50 points).

David Madden of CMC Markets explains:

Last month, President Trump announced that tariffs will be imposed on $300 billion worth of Chinese imports come September, and now some of those tariffs will be delayed until December. In addition, the negotiations between the two sides will take place next month, and that has added to the bullish move. It seems that Mr Trump blinked first, and the bulls are taking full advantage of the news. With worries about a recession brewing in Germany, political uncertainty in Italy and violent scenes in Hong Kong, the easing up of hostilities between the US and China has been a welcome change to the doom and gloom of the past few days.

On that positive note, goodnight!

A late newsflash: America’s trade office has just announced it will delay tariffs on some Chinese imports until December.

The Trade Representative’s office says the planned 10% tariffs on some consumer goods including toys and mobile phones will not now kick in until mid-December.

This could spare Americans from price hikes in the run-up to Christmas, and perhaps signal that president Trump is having second thoughts about his tough stance on trade - which helped drive markets down in recent weeks.

Wall Street is certainly excited - the Dow has jumped by 436 points to 26,333, up 1.7% today.

Summary: Markets anxious; UK wages up

Time for a recap:

Updated

A trader on the floor at the New York Stock Exchange.
A trader on the floor at the New York Stock Exchange. Photograph: Don Emmert/AFP/Getty Images

Ding Ding! Wall Street has opened, with small losses on the main indices.

The Dow Jones industrial average has dipped by 33 points, or 0.13%, as traders remain cautious after Monday’s selloff.

The Nasdaq and the S&P 500 are both down around 0.1%.

Bank shares are among the fallers, extending August’s losses:

US stock market
US stock market

Uh-oh.... Argentina’s currency is weakening in early trading, having slumped by a third yesterday.

The markets are clearly still concerned that president Macri will be ousted in October, after losing heavily in last weekend’s presidential primary election.

Andrew Hunter of Capital Economics predicts that the rise in US inflation won’t prevent another cut in US interest rates, in September.

The stronger than expected 0.3% m/m rise in core consumer prices in July, which followed a similar gain in June, suggests that underlying inflationary pressures may not be as subdued as is widely assumed.

Provided that the incoming activity data continue to deteriorate, however, the Fed still looks likely to cut interest rates again next month.

President Trump has just repeated his claim that there’s “no inflation” in the US, just minutes after official figures showed prices rose last month.

Trump’s claim that tariffs are a “gift from China” is baffling, though, as the levy is actually paid by the US importers (or passed onto customers though higher prices).

Economics professor Julia Coronado says the tariffs imposed by president Trump on Chinese imports helped to push inflation up.

Here’s some snap reaction to the rise in US inflation last month:

US core inflation hits six month high

Just in: American consumer prices rose last month, despite Donald Trump’s claim that the US doesn’t have an inflation problem.

Gas prices and rental costs drove the cost of living up by 0.3% in July, new government figure show.

This pushed the annual US consumer prices index up to 1.8%, from 1.6% in June. Core inflation, which strips out volatile factors, jumped from 2.1% to 2.2% - a six-month high.

This isn’t a reason to panic -- inflation is pretty close to the official target of 2%. But it might make it a little harder for the Federal Reserve to justify another interest rate cut, following July’s reduction in borrowing costs.

The bond market continues to emit worrying noises.

The gap between the interest rate on two-year US bonds, and the longer-dated 10-year Treasuries, has narrowed again.

The two rates are almost identical (at 1.6% and 1.605% respectively), meaning there’s hardly any benefit in holding the longer-dated (and thus riskier) bonds.

That’s classically a sign of an impending recession (in which shorter-term bonds become riskier to hold).

The slump in German investor sentiment has helped to push European stock markets into the red today.

The main indices are all lower, led by Germany’s DAX index which is 1% lower.

Geopolitical fears, including the ongoing protests in Hong Kong and the surprise success of the left-wing in Argentina’s presidential primary, are also weighing on stocks.

European stock markets
European stock markets Photograph: Refinitiv

Here’s some reaction to the slump in German investor confidence this month.

ZEW chief Achim Wambach says the German economic outlook “significantly worsened” this month:

“Renewed escalation in the trade dispute between the US and China, the linked risk of a global race to depreciate currencies and the higher risk of a no-deal Brexit have mingled with economic growth that was already weaker.”

Naeem Aslam of Think Markets is alarmed by the tumble in Zew’s investor confidence index, to MINUS 44.1.

Te German ZEW data was completely rotten, it confirmed that the economic engine of the eurozone has some serious trouble.

This further strengthens the argument that it is time to park your assets in safe haven and this is reason that we are seeing the bond yields making all time lows and gold well above the $1,500/ounce mark and on its way to touch the 1550 target.

Nadia Gharbi of Pictet Asset Management blames Brexit fears, and the trade war between Washington and Beijing:

John Hardy of Saxo Bank points out that Germany’s factories have been struggling for months:

The broader economy has been held up by a modest consumption and housing boom as years of negative rates finally swung the German real estate sector into gear. The Germany export engine and manufacturing sector are in dire recession, meanwhile.

German investor confidence hits eight-year low

The latest survey of German investors has fuelled concerns that Europe’s largest economy could soon fall into recession.

The ZEW Institute’s survey of investor morale has slumped to an eight-year low, cratering from -24.5 to -44.1.

That’s even weaker than during much of the eurozone crisis, suggesting serious pessimism over Germany’s prospects. In recent months it has suffered sharp falls in exports and factory orders, as the US-China trade war has hit demand.

Here’s some reaction:

Full story: Wage growth accelerates despite Brexit fears

Here’s our news story on the UK jobs data:

It’s misleading to argue the strong rise in wages in the period April to June shows the jobs market “shines” (Reuters) or that the jobs market is “tight” (Financial Times), says my colleague Phillip Inman:

The private sector has cut vacancies and increased redundancies, pushing more workers on to zero hour contracts, indicating that employers are increasingly nervous about the future.

Employers also haven’t increased pay by much for the bulk of workers. The rise comes for those on the bottom pay scales and only then because the government increased the national Minimum wage this year for more than 2 million workers by 4.9%. Pay rises for public sector workers in the spring, which were largely absent in previous years, also stand out as a fresh impetus for the rise in average regular wages

As John Philpott, the director of the Jobs Economist consultancy argues:

‘The pick-up in pay growth should not therefore be interpreted as a sign that the labour market is tightening, which might signal mounting inflationary pressure. On the contrary, the jobs, vacancies and redundancies data suggest that demand for labour in cooling, albeit only slightly.

Back in the markets... Hong Kong’s stocks shed another 2% today, after pro-democracy demonstrators staged another rally at its airport, forcing flights to be suspended again.

The selloff reflects concerns that Hong Kong’s economy will suffer from the disruption, potentially dropping into recession.

It also reflects fears that Chinese authorities could use military force to crush the protests (armoured personnel carriers and tanks have been sighted close to the border with Hong Kong).

Mike Bird of the Wall Street Journal has written about the situation - here’s a flavour:

Property is a linchpin of the local economy, and demand could be hurt if investors are spooked by the protests. The city’s economy is lurching toward its first recession since the financial crisis, and retail and tourism are suffering.

To make things worse, the heightened tensions mean companies risk either offending China, which could seriously affect their ability to operate, or Hong Kong staff and customers—which could damage sales and morale.

The clearest example has been Cathay Pacific Airways Ltd. The flag carrier’s shares have tumbled more than 7% in just two trading days, hitting a 10-year low.

Laura Gardiner, research director at the Resolution Foundation, is also concerned by the rise in zero-hours contracts.

Here’s her take:

“The UK labour market looks like a sea of calm amid growing economic uncertainty both here and abroad. Employment remains at a record high, while earnings are growing at their fastest rate since mid-2008.

“The question is how long this calm can be sustained, with the economy contracting and productivity falling for the fourth consecutive quarter. Turning this around has to be a top priority for the new government.

“And while the labour market overall is in rude health, the significant rise in Zero-Hours Contracts shows that job quality remains a concern, particularly for young people.”

Resolution have also tweeted some key points from today’s jobs report:

UK productivity falls for fourth quarter running

The UK may be creating more jobs, but it’s not becoming any more productive.

Labour productivity shrank by 0.6% in April-June, which is the fourth consecutive quarterly contraction.

That means that the number of hours worked rose faster than the amount of extra output produced.

TUC: Worrying rise in zero-hours contracts

The ONS has also spotted that the number of UK workers on zero-hours contracts has jumped in the last quarter, to 896,000.

That’s up from 791,000 a year ago, and close to the record high recorded in 2016 -- before concerns grew that people were being exploited by not being promised guaranteed work.

Number of UK workers on zero-hours contracts

TUC General Secretary Frances O’Grady is concerned:

“It’s no surprise zero-hours contracts are rising when ministers have failed to crack down on unfair employment practices. The government must ban zero-hours contracts so that all workers can have solid jobs with full workers’ rights.”

Today’s jobs report could calm fears that Britain is heading into recession, having shrunk by 0.2% in April-June.

Ian Stewart, chief economist at Deloitte, says:

“The days of sharply falling unemployment are behind us, but a tight labour market points to further gains in wages and spending power. Despite a second quarter decline in growth, the UK economy still has momentum.”

Tej Parikh, chief economist at the Institute of Directors, fears that the UK jobs market could be peaking.

He cites the drop in vacancies, and the rise in unemployment in the last quarter, which take the shine off the strong wage growth.

While competition has pushed up salaries, thin margins and low productivity may set a ceiling for pay growth. Although vacancies remain high by historic standards, the number has been dropping since the start of the year.

“Impressive jobs market data should not lull policymakers into a false sense of confidence. As it becomes harder to find talent, businesses will need better access to training courses and a flexible immigration system to meet their skill needs.”

The government will be relieved to see wages growing and employment rising, as Brexit could be just 80 days away.

Amber Rudd, Secretary of State for Work and Pensions and Minister for Women and Equalities, says:

“More people in work than ever before means more households across the UK are earning a regular income, and millions more receiving a pay boost thanks to wages rising at their fastest in a decade – outstripping inflation for a 17th month in a row.

“Our workforce increasingly reflects our vibrant society, with a record number of women in employment while the number out of work falls to an all-time low.

“This week many young people will receive their A Level results and begin their career journey. They should know that they are entering a workforce that is flourishing and full of opportunity and I hope all young people, especially women, feel empowered to flourish in every role in every sector.”

The number of workers with non-UK nationality increased by 133,000 on the year to 3.66 million.

Here’s a breakdown from today’s jobs report:

  • Europe: +118,000
  • Africa: +28,000
  • Pakistan and Bangladesh: + 20,000.

But there were decreases in workers from some countries:

  • India -23,000,
  • the USA -14,000),
  • Romania and Bulgaria -12,000)
  • New Zealand and Australia -9,000).

In total, 2.49 million of those non-UK workers were from the rest of Europe and 1.17 million were from elsewhere in the world.

Updated

This chart shows clearly that UK wages are still below their pre-crisis levels (the blue line), despite jumping by 3.9% in the last year.

UK pay
UK pay Photograph: ONS

Here’s Matt Hughes, deputy head of labour market statistics at the ONS:

More women in work, more men out of work

Women drove the increase in employment in the last quarter.

The ONS reports that the number of women employees rose by 74,000 in the last quarter, while the number of men in work only increased by rose by 2,000.

The number of self-employed women increased by 51,000 over the same period, while the number of self-employed men dropped by 23,000.

This is partly because of changes to the State Pension age for women, resulting in fewer women retiring between the ages of 60 and 65 years.

On the other hand, men drove the 31,000 increase in unemployment last month.

Around 40,000 more men were classed as unemployed, while the number of unemployed women reduced by 9,000 on the quarter.

Updated

Worryingly, the number of vacancies at UK firms has fallen.

There are now around 820,000 unfilled vacancies, down from 861,000 at the start of 2019.

That’s still a substantial amount, suggesting firms are struggling to find staff with the right skills or qualifications. But the decrease could be a sign that firms are more cautious about hiring.

UK vacancies
UK vacancies Photograph: ONS

Pay increases for some NHS staff, and the new national minimum wage, helped to push UK wage growth up.

UK pay

But.... wages are still below their levels before the financial crisis, once you adjust for inflation.

The ONS says:

For June 2019, average regular pay, before tax and other deductions, for employees in Great Britain was estimated at:

1) £505 per week in nominal terms

2) £469 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£460 per week), but £4 (0.8%) lower than the pre-recession peak of £473 per week for April 2008.

Updated

Total pay, including bonuses, grew by 3.7% per annum in April-June -- again, the fastest growth since 2008.

Wage growth hits 11-year high as employment keeps rising

Newsflash: UK wages have risen at their fastest rate in over a decade, but the unemployment rate has also increased.

The latest labour force survey, just released, shows that basic pay (excluding bonuses) grew by 3.9% per year in the April-June period.

That’s up from 3.6% a month ago, and the biggest jump in wages since 2008 (although this doesn’t include inflation). That’s a relief for workers, as it suggests Brexit uncertainty isn’t hitting pay packets.

The Office for National Statistics also reports that the jobless rate rose to 3.9%, from 3.8% a month ago (that’s still very low in historic terms).

It also found that employment increased by 115,000 to reach a record high of 32.81 million, while unemployment increased by 31,000 to 1.33 million.

More to follow....

Silver is also rallying today:

Gold is continuing to rise, and is now up $15 per ounce at $1,526, the highest since April 2013.

Neil Wilson of Markets.com cites a list of worries:

Brexit, US-China trade, Argentina, Italy, Iran, Hong Kong - you can take your pick from the smorgasbord of risks facing the world right now. Risk assets are being hit as investors are rattled by civil strife in Hong Kong, the crash in the Argentine peso and mounting doubts about the global economy.

Equity indices have taken fright on a mix of factors, but chiefly I would say for the US at least it is the persistent damage being done to the global economy from trade disputes. Overnight Singapore cut its growth estimates for the year drastically because of US-China trade strife and a slowdown in the global electronics cycle, which has traders worried about the read across for other Asian economies.

FILE PHOTO: Passers-by hold their mobile phones as people take a selfie photo using a smartphone, with Singapore’s central business district skyline, in Singapore, May 10, 2019. REUTERS/Kevin Lam/File Photo GLOBAL BUSINESS WEEK AHEAD
Singapore’s central business district Photograph: Kevin Lam/Reuters

Overnight, Singapore has added to concerns that the global economy is slowing by cutting its growth forecasts.

Singapore now expects growth of between 0% and 1% this year, down from 1.5% to 2.5% previously.

Its trade ministry blamed “strong headwinds”, including the US-China trade war and a downturn in the global electronics cycle.

“The growth prospects of key emerging markets and developing economies... and China have worsened, partly due to the escalation of the US-China trade conflict in recent months.

Uncertainties and downside risks in the global economy have increased since three months ago.”

Singapore grew by 3.2% in 2018, but its exporters have suffered from rising trade tensions and weaker demand for its electronics and machinery exports.

Argentina's century bond tumbles

The market rout following Argentina’s presidential primary election was particularly bad news for those optimists who bought its latest 100-year bond.

The ‘century bond’ was issued two years ago, and proved remarkably popular with investors. Many were hopeful that President Macri would reform Argentina’s economy, tame inflation and deliver growth.

Instead, public anger has grown following a new IMF bailout, spending cuts and high interest rates - leading to Alberto Fernández’s victory over Macri last weekend.

The value of the century bond has now plunged to record lows, below 60% of its face value, as fears of a debt default rise.

Bond yields keep falling

Nervous investors are also piling into government bonds.

This flood of money is driving prices higher, pushing down the rate of return on the debt. This means more bonds are trading with a negative yield -- ie, you lose money if you hold them until they mature.

Germany’s 10-year bund has hit a new record high this morning, with a yield of minus 0.6%. In other words, investors will pay Berlin for the chance to lend it money for the next decade.

This is another sign of anxiety over global growth prospects.

Kit Juckes of Societe Generale says:

Last week, Monday started badly but Tuesday saw a marked improvement in sentiment. This week, it’s very much the other way around after protests in Hong Kong and political uncertainty in Argentina really worried markets and bond yields slide further.

Kit also flags up a new piece by John Authers on Bloomberg, arguing that the bond market meets Charles Kindleberger’s four criteria for a bubble: Created by cheap money, financed with debt, supported by excessive valuations and justified with a convincing narrative.

Asian markets fall

Stock markets across the Asia-Pacific region have fallen into the red today, as investors ditch shares.

Hong Kong’s Hang Seng fell 2% to its lowest level since January, as the ongoing clashes between protestors and police spooked markets.

Japan’s Nikkei fell 1.1%, closely followed by South Korea’s Kospi (-1%) and China’s CSI 300 (-1%).

Asian stock markets
Asian stock markets Photograph: Refinitiv

Stephen Innes of VM Markets in Singapore says the selloff was triggered by Beijing:

Chinese authorities suggested the Hong Kong protests are the “first signs of terrorism”.

Dropping the “T” word is particularly disturbing as it does suggest a more aggressive mainland response, which triggered a wave of risk aversion across global markets.

Introduction: Gold rallies as geopolitical risks rise

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

Investors have a lot to worry about today, with a currency crisis in Argentina, mass demonstrations in Hong Kong, and plenty of signs that the global economy is slowing.

These concerns are driving them into safe haven assets, and top of the list is gold. Bullion prices have soared to a new six-year high this morning, with gold changing hands for $1,523 per ounce - up 1% today.

This is the highest level since 2013; as this chart shows, gold has surged by almost 20% in the last three months.

The gold price
The gold price over last decade Photograph: Refinitiv

Ilya Spivak, senior currency strategist with DailyFx, says traders are increasingly concerned that an economic downturn is looming.

“It is a pretty straight forward case of risk aversion. Crisis in Argentina and political deterioration in Hong Kong; underlying all of this, global growth is slowing.

“Central banks can only do so much because a lot of them are at near record low interest rates. There is not a lot of ammunition to deploy as counter measures to the slowdown in global growth.”

Gold’s latest rally follows a bad day on Wall Street yesterday, where the Dow Jones industrial average lost 389 points, or almost 1.5%, back to 25,897 points.

That followed a shocking day in Argentina, where the Buenos Aires market plunged by 30% (!) after left-wing politician Alberto Fernández scored a stunning victory over Conservative President Mauricio Macri in Sunday’s primary elections.

Traders at the Buenos Aires Stock Exchange last night
Traders at the Buenos Aires Stock Exchange last night Photograph: Ricardo Ceppi/Getty Images

The peso also suffered a dramatic slump, to fresh record lows, as the markets faced the prospect of a new Argentinian debt crisis.

My colleague Richard Partington explains:

Argentina and several other developing nations have come under growing pressure over their high levels of foreign currency debt. The US dollar has appreciated in value as the US Federal Reserve has lifted interest rates, which has made it more expensive for these countries to repay their dollar-denominated debts.

Macri, the son of a self-made construction tycoon, had made “zero inflation” a campaign pledge before he came to power in 2015. In reality it has soared to more than 50% as the peso has weakened.

Considered a market-friendly leader, Macri has used austerity measures in an effort to stem the country’s currency crisis, provoking an angry public response.

Argentina relies on support from the International Monetary Fund through a $57bn (£47.2bn) loan intended to shore up the country’s ailing finances.

Anxiety over the protests in Hong Kong has also risen, following the shutdown of its airport yesterday. Several world leaders are pushing for calm, amid fears that China could resort to military action to crush the pro-democracy movement.

Also coming up today

The latest UK unemployment report, due this morning, could show that Britain’s labour market is still managing Brexit uncertainty.

Economists predict that basic wage growth picked up to 3.8% per year in the second quarter of 2019, up from 3.6% a month ago. The jobless rate is expected to stick at 3.8%, the lowest in over 40 years, even though the UK shrank during the last quarter.

The ZEW Institute’s survey of business confidence is due this morning, and could show that German investors are gloomier, due to trade war worries and the global slowdown.

Investors will also scrutinise the latest US inflation data. It could show that consumer prices rose by 0.3% last month, or 1.7% per year.

The agenda

  • 9.30am BST: UK unemployment report for April-June
  • 10am BST: German ZEW index of investor sentiment
  • 1.30pm BST: US inflation report for July

Updated

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