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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden and Nick Fletcher

Dow slides as US stock market suffers worst week in two years - as it happened

Trader Peter Tuchman on the floor of the New York Stock Exchange today.
Trader Peter Tuchman on the floor of the New York Stock Exchange today. Photograph: Richard Drew/AP

Closing post

A trader on the floor of the New York Stock Exchange today.
A trader on the floor of the New York Stock Exchange today. Photograph: Lucas Jackson/Reuters

New York traders will be catching their breath and counting their losses after this week’s declines.

So, here’s our updated news story on the markets today:

Wall Street ended its worst week in two years on Friday with another sharp fall as markets in Europe also continued to tumble from the record-high levels reached less than a month ago.

Investors headed for the exits amid growing fears over a bond market rout, triggered by early signs of inflation in the US as economic growth accelerates and wages appear to finally be rising after years of stagnation. US government bond yields, which rise as prices fall, hit the highest level since January 2014.

The Dow Jones Industrial Average fell 665 points to end the day down more than 2.5% and falling below 26,000, the record level it hit on 17 January.

The sell-off came after the US labor department released a better than expected monthly jobs report, sparking fears of a sharper rise in interest rates. It was the first time since June 2016 that the Dow had fallen more than 500 points.

Here’s the full story:

That’s probably all from us for this week. Thanks for reading and commenting. Goodnight!

Bitcoin, incidentally, is still off its earlier lows. It’s down 5% today at $8,556.

The Dow finished 665.75 points lower. So it you round it down.....

Each of the 30 companies on the Dow fell today.

The worst performers were Chevron (-5.5%), Exxon (-5.1%) and Goldman Sachs (-4.5%).

Tech stocks also had a bad day, with Apple down 4.3%.

Over on the Nasdaq (which lost 2%), Alphabet slid by 5% after Google’s parent company missed expectations with its financial results last night.

What caused the selloff?

There are several factors, but the most significant may be today’s jobs report - showing wages rose by 2.9% over the last year. That increase in earnings could push up inflation, forcing US interest rates higher.

It was a poor week for the S&P 500 (a broader stock market index than the Dow)

Traders on Wall Street will be nursing bruises; the Dow has lost 1,095 point this week.

This looks like the third-biggest one-day points decline on the Dow ever!

It also looks like the biggest points decline since the aftermath of Lehman Brothers collapse.

However, it’s not that historic. In percentage terms, today’s falls are much less dramatic - but still a concern...

Updated

Market close: Dow plunges 2.5%

NEWSFLASH: The US stock market has recorded its worst week in two years, after a wave of selling hit Wall Street.

The Dow Jones Industrial Average has tumbled by almost 670 points, or 2.5%.

That’s the biggest percentage fall since June 2016, the day after the Brexit vote, and means the Dow has shed over 1,000 points this week.

The closing bell of the New York stock market
The closing bell of the New York stock market Photograph: Thomson Reuters

Updated

One important point - a 600-point plunge isn’t what it used to be, due to the strong market rally over the last 15 month.

Wall Street is staggering towards the finishing line.... with five minutes to go, the Dow is down 675 points or 2,5%.

Inflation fears, worries about the bond market, and rising political tensions are all hitting the markets today, according to CNN’s latest market report.

Ken Odeluga, market analyst with City Index in London says:

“We’ve got a smorgasbord of negativity...It’s been pretty nervous all week.”

Earlier today, president Trump approved the release of a memo alleging that the FBI had been biased against Trump over their investigations into possible Russian interference in the US elections.

That move is weighing on investors, according to Ian Winer, head of equities at Wedbush Securities. He warns:

There looks like a breakdown of the institutions in our country.

“No matter what side you’re on, that’s not good.”

The Dow is now at a three-week low:

The DJIA over the last 12 months

Make that a 624-point fall...!

Heading into the last hour of trading, the Dow is now down 576 points, or 2.2%.

This could be the US stock market’s worst day since the aftermath of the Brexit vote....

DOW SHEDS 500 POINTS

The selloff is gathering speed!

The Dow Jones industrial average is now down by 500 points, or almost 2%.

Oil giant Exxon is still the biggest faller, down 5.5%, followed by Chevron (-4.1%) and Apple (-3.4%).

The US stock markets

Investors seem to be increasingly spooked by the prospect of US interest rate rises, following today’s decent US jobs report - which showed a pick-up in hiring and wages.

Kristina Hooper, chief global market strategist at Invesco, explains:

A big wage growth number is the biggest risk to the stock market rally, because it means the Fed may get more aggressive in raising interest rates.

Here are a few photos from Wall Street, as traders try to keep pace with today’s selloff:

Traders Ryan Falvey, left, Neil Catania, center, and William Lawrence work on the floor of the New York Stock Exchange, Friday, Feb. 2, 2018.
Traders Ryan Falvey, left, Neil Catania, center, and William Lawrence work on the floor of the New York Stock Exchange today. Photograph: Richard Drew/AP
Trader George Ettinger works on the floor of the New York Stock Exchange, Friday, Feb. 2, 2018.
Trader George Ettinger. Photograph: Richard Drew/AP
Traders Robert Moran, left, and Andrew Silverman.
Traders Robert Moran, left, and Andrew Silverman. Photograph: Richard Drew/AP

Here’s our colleague Richard Partington on the stock market losses today:

Wall Street was heading for its worst week in two years on Friday as markets in Europe also continued to tumble from record-high levels reached less than a month ago.

Investors headed for the exits amid growing fears over a bond market rout, triggered by early signs of inflation in the US as economic growth accelerates. US government bond yields, which rise as prices fall, hit the highest level since January 2014.

The Dow Jones Industrial Average fell almost 400 points in early trading in New York, hitting a low of 25,787. Amid a widespread sell-off, the biggest fallers were Apple, Visa and oil firms Exxon and Chevron.

In Europe, the FTSE 100 recorded its worst week since April last year when Theresa May called the snap election, dropping by 47 points to 7,443, while Germany’s Dax fell 1.7%.

The worst week for stocks under Donald Trump comes after one of the best years in history for shares in 2017 and just a week after the Dow hit a record high of 26,617.

More here:

With two and a half hours trading to go, Wall Street is solidly in the red.

The Dow is down 1.5%, or almost 400 points, at 25,789 points. The wider S&P 500 is off 1.1%, while the Nasdaq has lost almost 1%.

Given the losses earlier this week, Marketwatch agrees that we’re on track for the worst weekly losses in two years.

The markets in Mexico, Brazil and Canada are also having a bad day....

The US, Canadian, Mexican and Brazilian stock markets

Updated

US wages may be growing, but so is inequality, says Dominic Rushe

It’s been a long, slow recovery for US workers but wages finally appear to be growing again, according to the latest jobs report released on Friday. But behind the headline rate the figures show – once more – that inequality is on the rise.

On Friday the labor department released its latest monthly jobs update. The US added 200,000 new positions in January, higher than expected, but the real surprise was in wage growth. Hourly earnings rose 0.3% in January, enough to lift the annual rate up to 2.9%.

“This may be the start of a welcome trend in wage gains, and marks the highest percentage increase in average hourly earnings since 2009,” said US secretary of labour Alexander Acosta.

A tightening labour market and unemployment at 4.1% (a 17-year low) appears finally to be making its way into people’s pockets as employers are forced to raise wages in order to attract talent.

But the big numbers hide an ominous trend. For many Americans, slow wage growth isn’t just a hangover of the post-2008 “great recession”. For those without a college degree the sluggish rate of growth can be traced back to the 1970s, and the more recent slump deepened that inequality.

The full report is here:

European markets end lower

It was a bad day all round for global markets. The FTSE 100, as we mentioned earlier, has suffered its worst week since last April

With poor results from Deutsche Bank to add to those of Daimler earlier this week, Germany’s Dax has also dropped sharply, recording its biggest weekly fall since February 2016.

And Wall Street continues to come under the cosh, as the better than expected jobs and confidence numbers add to the belief that interest rises are on the way. Investors have begun to take seriously the fact that central banks are removing the financial punchbowl which has powered markets for the past few years, and perhaps at a faster pace than had been expected. The final scores in Europe showed:

  • The FTSE 100 fell 46.96 points or 0.63% to 7443.43
  • Germany’s Dax dropped 1.68% to 12,785.16
  • France’s Cac closed 1.64% lower at 5364.98
  • Italy’s FTSE MIB finished down 1.44% at 23,202.66
  • Spain’s Ibex ended 1.81% lower at 10,211.2

On Wall Street the Dow Jones Industrial Average is currently down 358 points or 1.37%.

Wall Street’s slide continues. The Dow Jones Industrial Average is now down 384 points.

FTSE 100 suffers worst weekly performance since May called snap election

The FTSE 100 has closed down 0.63% at 7443.43, as part of the day’s global market sell 0ff.

The UK’s leading index is down 2.9%, making it the worst weekly performance since 21 April last year when it lost....2.91%.

That incidentally was the week Theresa May decided to call a snap UK general election. Happy days.

Updated

A quick summary of how bad it has been this week for US markets:

Back with bitcoin, and it has been through the classic rollercoaster ride today.

Having fallen as low as $7625 it is now actually in positive territory for the day, up 0.12% at $9010.

More on the disparities in the US wage growth data:

Connor Campbell, financial analyst at Spreadex, said”

The US open made a miserable day all the worse for the European markets, while Bitcoin managed to pull back from the brink.

Following Wednesday’s hawkish hold from the Federal Reserve, there was arguably more interest in this non-farm Friday than there has been for a while. And, luckily for the ailing dollar, the numbers didn’t disappoint: the headline figure came in at 200k, far higher than both the 181k expected and the 160k posted in January, with wage growth also outperforming forecasts to remain unchanged at 0.3%.

This, alongside a better than expected consumer sentiment reading from the University of Michigan, allowed the dollar to regain some ground lost this week. Against the pound the greenback rose 1%, sending cable back below $1.413, while against the euro the dollar jumped 0.7%, taking the currency away from yesterday’s $1.25-crossing 3 and a bit year peak.

All this hawkishness was toxic for the Dow Jones, which plunged 300 points once the bell rang on Wall Street to hit 25900 for the first time in over a fortnight. This Dow drop only exacerbated the losses in Europe; the DAX and CAC both fell 1.3%, with the former on track for its worst close since September last year, while the FTSE slipped 0.7% to strike a sub-7450, near 8 week nadir.

As for Bitcoin, while things are still bad, they are nowhere near as disastrous as they were at lunchtime. It had at one point found itself trading at $7750, a price not seen since the end of November, only for a wave of buyers to rescue it from those lows and send it back above $8650. Still, it’s certainly been a week to forget for the cryptocurrency, with a hat-trick of bad news – a shift in regulations in South Korea, a Facebook ban on ads for the product, and an investigation by the US CFTC – causing it to shed around $3000 per Bitcoin.

With the dollar recovering in the expectation of an imminent US interest rate rise, the pound has lost some of its recent gains.

Sterling is down more than 1% on the day against the dollar to $1.4119, its biggest daily fall since November last year.

The university of Michigan’ survey may have come in better than expected but it did show the consumer sentiment index at its lowest level since September. However chief economist Richard Curtin was positive about the overall picture:

Consumer sentiment has remained largely unchanged for more than a year at very favorable levels. The January Sentiment figure was just 0.2 Index-points below December’s, and just 1.1 points below the 2017 average of 96.8--which was the highest yearly average since 2000. Stock price increases and the passage of tax reforms were mentioned by all-time record numbers of consumers. To be sure, there were small offsetting declines among lower income households and residents of the Northeast.

Consumers continued to expect growth in jobs and incomes, but anticipated a slightly higher inflation rate. Importantly, the motivating force behind purchase decisions has shifted from discounts on prices and interest rates to increased confidence in future job security and growth in wages as well as financial assets. This renewed sense of confidence was responsible for the recent declines in savings rates.

he tax cuts will increase discretionary spending once higher energy bills due to the unusually cold weather are paid. Monetary policy will need to tighten in the year ahead, but given consumers’ decade long experience with record low interest rates, only modest increases in interest rates will be sufficient to curb any excesses. Overall, the data signal an expected gain of 2.8% in real personal consumption expenditures during 2018.

umichconf

Updated

The upbeat consumer confidence figures have sent Wall Street even lower, with the Dow Jones Industrial Average now down 300 points or more than 1.1%.

Updated

US consumer confidence remains strong

More positive news for the US economy, adding to the belief that the Federal Reserve will be ready to raise interest rates next month.

The University of Michigan consumer sentiment index came in at 95.7 in January, up from an initial reading of 94.4 and better than the expected figure of 95. It was however slightly lower than December’s final reading of 95.9.

Jasper Lawler, head of research at London Capital Group, suggests the slump in bitcoin could be one of the reasons for the current weakness in global stock markets:

Markets participants found themselves in the rare position of witnessing falling prices this week. It has naturally sparked questions of whether a larger correction is in store. The Dow Jones has pulled back 3% while the FTSE 100 has dropped nearly 4.5%. These are relatively small moves and based on recent experience, the mostly likely scenario is dip-buyers step in to send markets back up again. However, maybe this time will be different. The market has reached some new extremes in sentiment during January and certain risk-factors, notably the rise in bond yields, could point to further stock market declines.

It’s conceivable that the Bitcoin bubble bursting has meant retail equity investors were meeting less margin calls.

Rising bond yields have put stock markets on high alert. 2.6% was the first ‘worry level’ in 10-year US treasuries. A 3% 10-year treasury yield is the big kahuna for a larger stock market correction. After many stops and starts in US interest rate rises, investors increasingly seem to be feeling like this tightening cycle could be here to stay. The phenomenon is global though. The UK gilt yield has hit its highest since May 2016. India’s 10-year bond yield hit a fresh 22-month high. Rising interest rates mean the ‘goldilocks’ scenario for markets is warming up to ‘daddy bear’.

Wall Street opens lower

As expected US markets are in negative territory after the better than expected jobs figures gave a boost to the flagging dollar.

The Dow Jones Industrial Average is currently down 217 points or 0.8%, on track for its worst weekly performance since January 2016..The S&P 500 opened down 0.6% while the Nasdaq Composite was 0.55% lower.

The rise in average earnings is not spread across the board:

Here are the jobs data charts:

nonfarmsfeb2

Updated

Pantheon economist Ian Shepherdson reckons the jobs data should be good for shares.

Wall Street futures have improved as we approach the opening of the US market.

The Dow Jones Industrial Average is now forecast to open around 200 points lower, better than the 250 loss predicted in the immediate aftermath of the better than expected jobs figures.

Kully Samra, UK managing director at Charles Schwab expects US rate rises this year. And increased market volatility:

The US economy started 2018 on a positive note as the labour market continues to tighten. This latest set of job numbers supports the view that that some of the weakness in December’s service-providing industries would revert in January.

Tightening labour market conditions and indications of a pickup in wage growth will be welcomed by the Fed which has expressed concern over benign inflation. While the Fed held interest rates steady on Wednesday, we expect a hike in March as Jerome Powell is expected to continue down the familiar path of keeping inflation under control without raising rates so far or so fast as to stifle the improvement in growth expected this year.

We continue to believe the Fed will hike rates at least three times this year and that, along with the paring of its balance sheet, historically-low financial conditions may start to tighten. However, with the outlook for inflation continuing to be carefully monitored, we do expect a higher level of volatility in the stock market this year relative to 2017.

The big picture is that America’s economy has been creating jobs each month since early into Barack Obama’s first term, and it’s held steady under Donald Trump too.

The upbeat US jobs figures makes it likely there will be an interest rate rise in March barring unforeseen circumstances, according to ING Bank. Economist James Knightley says:

The US jobs report is very strong with payrolls rising 200,000 versus expectations of 180,000. There were some chunky upward revisions too, but the big story is wage growth which looks much, much better. Wages are now growing 2.9% year on year (the fastest rate of growth since 2009) with last month’s figure revised up to 2.7% from 2.5%. Unemployment stays at 4.1%, but given the strength of this report it is hard to argue against a March Fed rate hike now.

Wage growth has been the missing link in the strong economic growth, tight jobs market story. We have been hoping for some time to see a turnaround and it does finally look as though something is happening. It backs up evidence from yesterday’s National Federation of Independent Businesses small business survey, which showed the net proportion of businesses raising worker compensation is at its highest since 2000. The report also showed you have to go all the way back to 1989 to find when the index indicating the net proportion of businesses that plan to raise worker pay was higher.

Given companies such as WalMart have credited Trump’s tax cuts as a way for them to afford higher worker pay we suspect we will see the wage numbers pick-up further. Rising wages and robust economic growth is also supportive for our 3% headline CPI call for this summer.

Consequently, it will need a big shock to prevent the Fed from hiking in March, but it could happen in the form of a damaging government shutdown should politicians fail to resolve their differences – next deadline is February 8. Nonetheless, it looks more and more likely that we will have to revise up our call for three Fed rate hikes this year to four.

US firms are facing a real scramble to find staff to hire, reckons Joseph Brusuelas, chief economist of RSM.

President Trump will probably enjoy today’s jobs report, says Dennis de Jong, managing director at UFX.com:

“While criticism of Donald Trump’s embattled White House continues to mount, job growth continues to go through the gears, with the latest nonfarm payroll figures proving job creation remains a competence within the president’s capabilities.

“Buoyant domestic and global demand, particularly for the manufacturing sector, appear the drivers in higher-than-anticipated numbers, and Trump’s fiscal stimulus package is clearly a shot in the arm for economic growth.

“However, with the economy close to full employment, increased pressure on wages looks an inevitable consequence. So higher inflation is surely on the cards, with taller interest rates set to arrive over the coming months.”

A good jobs report = falling shares and bonds.

That’s because traders suspect it means US interest rates will rise faster than expected, as inflation worries encourage central bankers to empty the ‘punch bowl’ of loose monetary policy.

Jobs report: instant reation

Financial experts like the look of today’s US labor market report.

This is from Christopher Vecchio of DailyFX.com:

Jeremy Cook of World First and Ian Shepherdson of Pantheon Economics are both impressed by the wage growth:

Bloomberg’s Jeanna Smialek suggests that the Phillips curve may not be dead after all (the idea that inflation rises when unemployment falls).

Economist Shaun Richards has spotted that bars and restaurants hired more staff last month:

Updated

The dollar has climbed and US bond yields have risen following the better then expected jobs and wages figures.

But the expected opening losses on Wall Street have increased according to the future market, with the Dow Jones Industrial Average forecast to open down around 250 points. Before the jobs data it was around 220 points lower.

The dollar index has risen 0.3% to 88.95 while 10 year Treasury yields have hit a near four year high at 2.818%.

And the price of 30 year bonds has fallen more than a point with yields at their highest level since March 2017.

Updated

US JOBS REPORT: WAGES GROWTH AND JOB CREATION UP

BREAKING: The US economy created 200,000 new jobs last month, a little more than Wall Street had expected.

December’s figure have been revised up too, to 160,000 new jobs (from 146,000).

The US jobless rate remains at 4.1%, a 17-year low.

Wages rose too, by 0.3% during the month and a healthy 2.9% year-on-year (that’s average hourly earnings)

It looks like a pretty decent jobs report, at first glance.

Updated

Well, this rather sums up the crypto bubble.

Long Blockchain Corp -- formally known as Long Island Iced Tea -- has announced that it has abandoned plans to buy bitcoin mining equipment.

Long Island rebranded itself as a ‘blockchain’ company late last year, a move that caused its share price to quadruple.

It is pressing on with its proposed merger with technology companyStater Blockchain Limited, but has ditched plans to buy “1,000 Antminer S9 mining rigs” to mine new bitcoins. More here....

Tension is building in the markets as investors brace for America’s jobs report, due at 8.30am East Coast time (1.30pm in the UK).

As usual, Wall Street experts have a range of predictions. The consensus is that 180,000 new jobs were created in January.

But it’s the wage growth figures that could move the markets; a (welcome) rise in earnings would make US interest rate rises more likely -- potentially bad news for bond prices and shares too.

Here’s our news story on bitcoin’s slide, and Nouriel Roubini’s concerns::

Hold onto your hats. Bitcoin is clambering off the mat, and bouncing back to $8,500.

That’s still a 5% loss today, though...

This is turning into a rather bad day for digital currencies.

Ethereum, Ripple, Litecoin et al are all suffering double-digit losses.

Despite the recent plunge, bitcoin is still worth rather more than a year ago....

Why bitcoin is sliding

Bitcoin is being hit by two different issues (as explained earlier).

Firstly, you have the growing threat of regulation, with India’s finance minister pledging yesterday to ‘eliminate’ the use of digital currencies by criminals. That follows similar similar warnings from politicians in the UK, US and South Korea.

Secondly, you have the investigation into Bitfinex (a leading digital currency exchange), and crypto firm tether. Regulators are questioning whether tether, whose coins are used to trade digital currency, are actually fully backed by US dollars as it claims.

As Bloomberg explains:

Tether’s coins have become a popular substitute for dollars on cryptocurrency exchanges worldwide, with about $2.3 billion of the tokens outstanding as of Tuesday. While Tether has said all of its coins are backed by U.S. dollars held in reserve, the company has yet to provide conclusive evidence of its holdings to the public or have its accounts audited.

Skeptics have questioned whether the money is really there.

This double-dose of bad news is sparking a rout across the sector, sending bitcoin sliding through $8,000 (it’s $7,888 right now).

Neil Wilson of ETX Capital reckons that “the wheels are coming off the bitcoin bandwagon”.

The regulatory crunch appears closer than ever and sooner or later this market could be headed back down to earth. Selling pressure at the moment is intense as there has been nothing but bad news for bitcoin bulls of late.

The key concern facing the bulls is the CFTC investigation into Tether and the Bitfinex exchange. Claims of full dollar convertibility are under scrutiny. Given there are about 2bn tether coins in existence, there should be a $2bn account somewhere but Tether has yet to prove it or have accounts audited.

The idea that Tether is creating coins to buy bitcoin is straight out of satire. If bitcoin is a Ponzi scheme, then this is Ponzi squared; printing fake money to buy a different type of fake money in order to ramp up the price of the latter. If it weren’t likely to cause real world losses for many investors it would be hilarious.

Meanwhile, we see the jaws of the regulatory crunch closing on other fronts with moves to ban or greatly restrict trading on bitcoin gaining traction worldwide. Ultimately if the CFTC decides bitcoin prices have been manipulated it casts a huge shadow of bitcoin and entire crypto market.

At Davos last week, a series of experts cast doubt over bitcoin -- those predictions seem to be being born out today....

Bitcoin tumbles through $8,000

Ouch! Bitcoin has just tumbled through the $8,000 mark.

It’s now trading at $7985 on the Bitstamp exchange, down over 11% this morning as volatile trading continues to rock the digital currency sector.

This inflicts further losses on those who bought into bitcoin late last year.

Bitcoin
Bitcoin Photograph: Thomson Reuters

Bitcoin has now lost around 40% of its value this year (bitcoin started the New Year at $13,880), and 60% since its all-time peak in December.

Market selloff deepens

The US stock market is heading for another bath.

The Dow Jones is being called down around 220 points, or 0.8%, amid nervousness ahead of today’s non-farm payroll jobs report.

In Europe, the Stoxx 600 index is now down 1.1% - and facing its biggest weekly loss since the US presidential election in November 2016.

In London, the FTSE 100 is extending its recent losses. It’s down another 28 points, or 0.3%, at 7461, its lowest level since 15 December.

Investors are ignoring last night’s strong results from Amazon, in favour of fretting about the bond market again.

Bond yields (which rise when prices fall) are climbing, on the back of concerns that Donald Trump’s tax cuts will drive up US borrowing.

Craig Erlam of City firm OANDA says trading is “rocky” in Europe today. He points to the volatility in the bond market, where UK and German government debt has weakened:

Gilt yields are at their highest since May 2015 and Bunds at their highest since September 2015. This may well be contributing to the declines we’ve seen recently across Europe – along with the corresponding appreciation of the euro and pound – and could now be taking its toll on US stocks.

That doesn’t necessarily mean we’ve entered a risk-off period or that stocks are headed for a correction but a sharp rise in yields, as we’ve seen, can also weigh on equity markets.

The FT has a good take on the anxiety in the bond markets:

The US is heading into some of its biggest budget deficits outside of wars and recessions as Congress debates increasing ceilings on federal spending on top of December’s trillion-dollar tax cuts.

Lawmakers are contemplating lifting caps on defence and non-defence spending as they seek a funding deal in coming weeks. The Bipartisan Policy Center, a non-partisan think-tank, predicts that Congress will settle on plans that drive the deficit to 5.7 per cent of US gross domestic product in 2019 as annual borrowing exceeds $1.1tn.

That would be well short of deficits as a share of GDP reached after the Great Recession or the second world war. But it would be comparable to the shortfall after the recession of the early 1980s under Ronald Reagan, even though the US is now at or beyond full employment and the global economy is in its strongest upswing in a decade.

More here: Economists warn of Trump deficit’s ‘dark trajectory’

Germany’s Dax index has now shed all 2018’s gains, dragged down partly by Deutsche Bank after its disappointing results.

Nouriel Roubini
Nouriel Roubini Photograph: Bloomberg TV

Economics professor Nouriel Roubini has just been on Bloomberg TV, blasting bitcoin as the “biggest Ponzi scheme in human history”.

Roubini claims that “charlatans and swindlers” drove digital currencies to record levels last year, before cashing their profits.

Ordinary punters, who bought bitcoin when it was trading around $20,000, have lost 60% of their shirts since, says Roubini.

Updated

Here’s Rob Davies on the job losses at Carillion:

There’s a good piece in the New Statesman today about the problems in Britain’s outsourcing sector, and the lessons to be learned.

In it, Grace Blakeley argues that the demise of Carillion, and Capita’s financial problems, show that the outsourcing market is failing, and must change.

Blakeley says:

Firstly, rather than granting contracts to a small number of huge multinationals which then commission other, smaller specialist firms to do the work, the government should get rid of the middle man and deal with suppliers directly. This would boost small businesses, and tackle the uncompetitive nature of the current outsourcing market. It would also protect the government from another Carillion crisis.

Secondly, public contracts should not be awarded solely on the basis of “value for money”. Government contracts should be seen as an opportunity to create public value – where value is understood in holistic rather than narrow economistic terms. The government should account for the wider economic and social impact of its suppliers when determining which supplier should be awarded a particular contract. The Labour party’s proposals to account for the quantity and quality of employment created by a supplier, the nature of its corporate governance, its environmental impact and its attitude towards tax suggests how this could be done.

Thirdly, we need to call time on private financing. If the government wants to build a major infrastructure project it should do so through historically cheap public borrowing, on the public balance sheet, justifying the investment based on the economic, social, or environmental impact. Good public investment done well more than pays for itself in the long run. It should also expand its definition of investment to include investment in human as well as physical capital – spending on healthcare and education is just as much of an investment in the long-run economic capacity of this country as investments in roads and bridges.

More here: The problem with outsourcing is not Carillion but the market itself

Carillion: 377 staff made redundant

NEWSFLASH: Nearly 400 Carillion staff have just been made redundant, following its fall into liquidation last month.

The Official Receiver says it has managed to save more than 900 jobs, but 377 more have lost their jobs. They’re now being told to contact the JobCentre.

The employees whose jobs have been saved work on “infrastructure, central and local government, and construction contracts”. They are now being transferred to new employees who have taken on these contracts.

Carillion employed almost 20,000 staff in the UK, so thousands more Carillion workers still face an uncertain future.

A spokesperson for the Official Receiver says:

“As part of the ongoing liquidation of the Carillion group I am pleased we have been able to safeguard the jobs of 919 employees today. Most staff are transferring on existing or similar terms and I will continue to facilitate this wherever possible as we work to find new providers for Carillion’s other contracts.

“Despite best efforts it has not been possible to secure the jobs of 377 staff, who will be made redundant. Those affected will be entitled to make a claim for statutory redundancy payments. The Jobcentre Plus’ Rapid Response Service stands ready to support any of these employees by providing advice and information so people can move into a new job as quickly as possible.

“I recognise that this will be a worrying time for all those affected, their families and local communities. I would like to thank all staff for their professionalism throughout the liquidation.

“I am expecting many employees working on other Carillion contracts to transfer in the coming weeks and we are continuing to keep the workforce updated as these are arrangements are finalised.”

Noble Francis, economics director at the Construction Products Association, fears that we haven’t seen the full impact of Carillion’s collapse yet.

Duncan Brock of the Chartered Institute of Procurement & Supply says political and economic uncertainty is hitting the UK construction sector, pushing it towards stagnation.

“The blocks to progress included a sharp rise in costs and a shortage of key materials, which contributed to longer lead times as supplier capabilities were stretched to their limits.

“Against this challenging backdrop, though larger orders from cautious clients also failed to materialise, firms retained a sunny disposition with optimism at a seven-month high and a slight rise in employment continued.

“With construction teetering on the edge of contraction, this surprise outcome will serve as a jolt to policymakers, that the impact of political and economic uncertainty remains large at the beginning of 2018.”

Sam Teague, Economist at IHS Markit, says there wasn’t much New Year cheer in the building sector:

“January’s PMI data indicated a difficult start to 2018 for the UK’s construction sector, underlined by business activity growth slumping to a four-month low and new orders sliding back into decline.

“A contraction in house building added to lacklustre commercial building and civil engineering markets, and reduced inflows of new work suggest overall activity could slip into decline in February. Furthermore, cost pressures remained intense, fuelled by shortages of input materials and high costs for imported products.

Max Jones, global corporates relationship director for construction at Lloyds Bank Commercial Banking, says the collapse of Carillion has hit the construction sector.

Jones explains:

“It has clearly been a month like no other for the sector, so this drop in the PMI reading comes as no major surprise.

“The impact of Carillion’s liquidation has rippled down the supply chain and shaken confidence across the industry. There have inevitably been fears for the sub-contractors with exposure to the collapse, though some have drawn down on emergency support from banks, including the £50m Lloyds fund.

Tens of thousands of small construction companies, and other suppliers, across the UK were hit by Carillion’s shock liquidation in early January. Work was halted at two major hospitals, while other firms were forced to lay off staff as they’re unlikely to be paid for work carried out for Carillion.

UK construction on brink of stagnation

NEWSFLASH: Britain’s construction industry has slowed to near stagnation, and housebuilding is in decline.

Data firm Markit reports that UK building companies experienced a “subdued start to 2018”, with total industry activity barely rising.

Its monthly construction PMI, which measures activity, dropped to just 50.2 for January from 52.2 in December. That’s worryingly closed to the 50-point mark that separates expansion from contraction.

In another blow, housebuilding activity shrank - while civil engineering work picked up.

Job creation across the construction industry also slowed, to an 18-month low. That’s a fresh hit to apprentices already reeling from the collapse of Carillion last month.

Markit says:

A return to contraction in residential building activity was accompanied by near-stagnant commercial and civil engineering activity. New orders declined, linked by many companies to market uncertainty.

On a more positive note, confidence towards future growth prospects improved, with many firms anticipating an increase in new project wins later in the year.

UK construction PMI

More to follow...

Updated

This is turning into bitcoin’s worst week since 2013....

Of course, bitcoin has always bounced back from its previous slumps (five years ago it was worth just $20). But is this time different?....

BT shares hit five-year low

Telecoms group BT is also having a bad morning.

Shares have fallen over 5% to 241.3p, a five-year low, after some underwhelming results this morning.

Profits over the last nine months are down 9%, and the company has also reported a fall in TV customers - despite splashing out on live Ashes coverage (given England’s performance, perhaps they should have spared us....)

My colleague Mark Sweney points out that BT’s consumer division seems to be slowing, while its IT services division continues to struggle....

At the risk of labouring the point.....

Economics professor Nouriel Roubini says the ‘mother of all bubbles’ is now deflating fast:

European stock markets are on the back foot again this morning, with losses across the board.

Germany’s DAX is the worst performer. It’s being dragged down by Deutsche Bank, which has lost almost 6% after reporting a €497m loss for 2017 (alongside that $70m fine)

European stock markets this morning
The main European stock markets today Photograph: Thomson Reuters

Here’s Naeem Aslam of Think Markets on bitcoin’s decline:

Bitcoin below 10K tells you only one message which is the upward momentum has died out and the odds are that we would continue to consolidate or grind lower.

Connor Campbell of SpreadEx agrees that bitcoin is firmly on the back foot.

The biggest story this Friday didn’t belong to the traditional markets, however, but Bitcoin. Opening Monday at $11700 – remember at its 2017 it hit $20000 – it is now struggling to keep its head above $8400, following a week that dealt blow after blow to the cryptocurrency.

First there was the introduction of new regulations on anonymous trading accounts in South Korea, one of Bitcoin’s biggest markets, followed by reports that Facebook would be banning cryptocurrency adverts on its site. Now comes the news that Bitcoin’s pre-Christmas rise is being investigated by the US Commodity Futures Trading Commission for market manipulation, closing out a horrible few days for the previously ascendant product.

Deutsche fined over derivatives rigging

Germany’s Deutsche Bank in Frankfurt.
Germany’s Deutsche Bank in Frankfurt. Photograph: Kai Pfaffenbach / Reuters/Reuters

Deutsche Bank has been fined $70m (£49m) by US regulators for attempting to rig a benchmark for interest-rate derivatives and other financial instruments.

The bank agreed the settlement with the Commodity Futures Trading Commission after investigators found traders sought to manipulate rates from 2007 until May 2012.

It is alleged the bank’s staff knew they were breaking the law, with one trader telling a broker that “a lot of people would actually do jail time” if practices were exposed.

James McDonald, the CFTC’s director of enforcement, said:

“There is no room in our markets for manipulation. We will continue to work hard to stamp it out, wherever we find it.”

A spokesperson for Deutsche Bank said it had co-operated with the investigation and had “undertaken significant efforts to remediate benchmark-related activities”.

Mike van Dulken of Accendo Markets reckons bitcoin is following a familiar pattern:

Miles Eakers, chief market analyst at Centtrip, says Bitcoin has made a “woeful” start to the new year.

“The drop followed comments made by India’s Minister of Finance, Arun Jaitley, that the Indian government ‘does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system’.

“We anticipate there will be more of such protectionist regulation. This is likely to put Bitcoin under more strain, causing it to drop to the $8000 a coin level.”

Bitcoin over the last two years
Bitcoin over the last two years Photograph: Thomson Reuters

The Bitcoin selloff continues

January was a cruel month for digital currency fans, and February isn’t turning out much better.

Bitcoin has fallen by 5% this morning to $8,521, its lowest level since late November. That means it’s lost more than half its value since peaking near $20,000 in the week before Christmas.

The selloff follows reports that American regulators are investigating whether last autumn’s price surge had been caused by market manipulation.

According to Bloomberg, the US Commodity Futures Trading Commission has been investigating the Bitfinex exchange and a cryptocurrency company called Tether.

Fortune Magazine has a good explanation:

Specifically, regulators are curious about Bitfinex’s relationship with virtual currency Tether, which the exchange claims is pegged to the dollar. So in theory, one dollar equals one Tether.

Tether has become a popular way for some investors to buy Bitcoin on exchanges. But the CFTC’s probe feeds into worries that Tether may not be actually backed by the dollar, as Bitfinex has provided little proof of the relationship, critics say. That hazy relationship has fueled concerns that Bitfinex may be simply creating Tether coins out of thin air and using Tether to buy Bitcoin—thereby propping up the price of the latter asset.

Digital currencies have also been hit by the news that Facebook is banning all adverts for cryptocurrencies. India’s finance minister added to their woes, by saying his country doesn’t accept cryptocurrencies as legal tender and pledging to fight their use for “illegitimate activities”.

The agenda: US jobs report, UK construction figures

The US Capitol in Washington DC.
The US Capitol in Washington DC. Photograph: Michael Reynolds/EPA

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

Today we discover how America’s labour market is faring, when January’s non-farm payroll is released.

Economists predict that around 180,000 new jobs were created last month, up from December’s disappointing 148,000 (which might get revised today). That should leave the jobless rate at just 4.1%, which is a 17-year low, although it could possibly drop to just 4.0%. If so, expect some gleeful tweeting from President Trump......

The key issue, though, is whether wage growth picked up. It could rise to 2.6% from last month’s 2.5%, which could fuel expectations of higher inflation in America.

Andrew Hunter of Capital Economics says:

The tightening labour market is yet to put much upward pressure on wage growth, but with core inflation now starting to rebound we suspect that average hourly earnings will not be far behind.

Signs of inflationary pressures have already been hitting the bond market in recent days, sending prices down and yields to their highest level in several years. So we could see more action there today.

Meanwhile in the UK, we get a new health check on Britain’s building sector. Markit’s Construction PMI report is expected to show that growth slowed a little in January.

We’ve also got financial results from BT and Germany’s Deutsche Bank (more shortly....)

European stock markets are expected to open a little lower, led by Germany’s Dax.

Here’s the agenda.

  • 9.30am GMT: UK Construction PMI for January
  • 1.30pm GMT: US non-farm payroll jobs report
  • 3pm GMT: University of Michigan’s survey of US consumer sentiment

Updated

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