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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Wall Street posts biggest gains in seven months as markets roar back - as it happened

Traders work on the floor of the NYSE in New York today
Smiles on the floor of the New York stock exchange today, as shares rally Photograph: Brendan Mcdermid/Reuters

US stock market posts biggest jump in seven months

Boom! Wall Street has surged more than 2%, racking up its biggest one-day gains since March.

The Dow Jones industrial average jumped by 547 points to end the day at 25,798, a gain of 2.17%.

The S&P 500 gained 2.16%, while a solid tech stock rally swept the Nasdaq 2.9% higher.

As covered earlier, optimism in New York was boosted by strong results by Goldman Sachs and Morgan Stanley, and Johnson & Johnson.

New of a record number of vacancies across US firms, and a jump in industrial production, also calmed some of the anxiety that has been building in the markets.

And no sooner had Wall Street closed, than Netflix was reporting results -- and impressing traders.

That’s probably all for today...

Updated

Wall Street may also be taking heart from the latest US employment data.

Today’s JOLTS report shows that the number of job openings in the U.S. reached another all-time high of 7.1 million in August.

The Labor Department also reported that American workers voluntarily quit their jobs at a rate of 2.4% in August, matching July’s 17-year high.

No lack of optimism on Wall Street right now.

The Dow is up 471 points, which would be its best day since late March if we blew the final whistle now.

Amid the optimism today, a note of caution rings out.

Investors are their least optimistic about global economic prospects since the financial crisis broke out.

Bank of America Merrill Lynch’s latest global fund manager survey found that 38% of investors think that global economic growth will decelerate in the next 12 months, the highest percentage since November 2008.

That may explain why last week’s sell-off caught hold (it doesn’t explain why stocks are back up today, though!)

European stock markets also ended the day strongly, with the main indices all sharply higher.

Italy led the way, despite hints that Brussels will reject its 2019 budget, teeing up a deeper row with the new government in Rome.

European stock markets at the close, 16 October 2018
European stock markets at the close Photograph: Thomson Reuters

Traders work on the floor of the NYSE in New York.

Wall Street is rallying because investors are focusing on “upbeat earnings”, says Marketwatch.

We covered earlier that Goldman Sachs and Morgan Stanley had outperformed expectations. That has boosted confidence in America’s corporate sector

Johnson & Johnson, the pharmaceuticals group, also did well in the last quarter, partly thank to strong sales of cancer drugs and a pick-up at its baby care business.

Here’s the details:

  • Earnings per share: $2.05, adjusted, vs. $2.03 expected
  • Revenue: $20.3 billion vs. $20.05 billion expected

This all boost confidence in corporate earnings, and suggests that economic demand is still robust.

Traders work on the floor of the NYSE in New York today.
Traders working on the floor of the NYSE in New York today. Photograph: Brendan Mcdermid/Reuters

Today’s rally is showing some stamina.

The Dow is now up by 408 points, or 1.6%, at 25,661 points, and on track for its best day in several months.

Connor Campbell of City firm SpreadEx sums up the day:

With confidence lifted by a pair of strong earnings updates from Goldman Sachs and Morgan Stanley, the Dow Jones showed signs of getting its mojo back after the bell. The US index surged 280 points as the session got underway, rocketing above 25500 having neared 25100 on Monday.

These gains helped feed into the European markets, with the DAX and CAC both shooting up 1%. This despite the unresolved budget issues between Italy and the EU. Not content with sparring with Theresa May and her Brexit negotiators, Jean-Claude Juncker has suggested that the Italian government have a slim chance of getting their controversial budget approved, with the President of the European Commission claiming the EU would ‘revolt’ it Italy got its own way.

While its peers raced off into the distance, the FTSE was left panting behind, only able to add 20 or so points as the day went on. That’s because the pound, ignoring the ongoing Brexit uncertainty, rose around half a percent against both the dollar and the euro, boosted by a better than forecast, 9 year high wage growth reading. There are plenty more chances for the FTSE to get its revenge, however, not only with Wednesday’s inflation and Thursday’s retail sales data, but the impending, hugely important mid-week summit between EU leaders.

Britain’s FTSE 100 index has closed 30 points higher at 7059, as today’s wave of optimism sends shares up.

However, the rally was held back by currency effects - the strengthening pound pulls down the value of multinational companies’ earnings.

US stocks are pushing higher too!

The S&P 500 and the Dow have both gained 1.5%, as Wall Street tries to recover some of last week’s 4% slide.

European stocks are romping higher in late trading, sending the Stoxx 600 index of the region’s largest companies up 1.5%.

Goldman and Morgan Stanley are giving the markets a lift, agrees Michael Hewson of CMC Markets.

He reckons recent US interest rate hikes are helping the banks, but also making life tougher for retailers:

Morgan Stanley posted Q3 profits of $1.17c a share, well above estimates of $1.03c, while Goldman Sachs also blew past expectations coming in at $6.28c a share, $0.90c above consensus. There was some weak spots on the fixed income side, however by and large the numbers painted a fairly positive outlook.

These sorts of numbers should be expected given the higher interest rate environment and higher fees from M&A, however we also need to see similar sorts of activity in areas that reflect consumer discretionary spending, which could be impacted by higher rates.

On the retail front things are a little more concerning, given this week’s news from Sears, while this morning’s announcement from Wal-Mart could also be a cause for concern. The company downgraded its earnings outlook for 2019 citing the impact of higher costs in absorbing its acquisition of India’s Flipkart for $16bn. It also warned that sales growth in its e-commerce division would be 5% lower in 2019 than this year, with growth of 35% expected, below this years expected 40% rise.

Dow jumps 200 points

The rally is back on!

Shares have opened higher on Wall Street, as investors try to put last week’s turmoil behind them.

The Dow has jumped by 233 points, or 0.9%, with the Nasdaq streaking 1.2% higher.

Today’s decent results from Morgan Stanley and Goldman Sachs seem to be shoring up confidence in New York.

European markets are pushing higher too, as traders regain their risk appetite (for the moment, anyway...)

Let’s not get carried away, though.... oh too late!

In another boost to confidence, America’s factories have expanded their output for the fourth month in a row.

US industrial production rose by 0.3% in September, boosted by gains in manufacturing and mining, beating forecasts of 0.2% growth. That’s down on August’s 0.4%.

The Federal Reserve also said manufacturing output increased 0.2% in September after rising 0.3% in August.

Updated

Should Attlee, Seacole, Inayat Khan or Thatcher grace the new £50?

Britain is getting a new £50 note, but the big question is who should be on it?

Speculation is bubbling away today about which famous Brit should appear on the back of the note, which will be made out of flexible plastic polymer [the Queen has a monopoly on the front].

Ladbrokes have issued odds, putting former Labour PM Clement Attlee and Crimean war heroine Mary Seacole as joint favourites:

Noor Inayat Khan is another strong candidate. She served in Britain’s Special Operations Executive as a wireless operator in occupied France in the second world war, before being captured, shackled for months, and later killed at Dachau concentration camp.

As the Mirror reported back in August:

She had become the first female radio operator to infiltrate occupied Paris, posthumously awarded the Croix de Guerre and the George Cross.

But Noor’s story has been largely overlooked, becoming a footnote in history.

It wasn’t until 2012 that a memorial bust of Noor went up in London’s Gordon Square – not only the first statue to an Indian woman in Britain, but the first to any Muslim.

She was one of only three women in Winston Churchill’s secret army, the Special Operations Executive (SOE), to be awarded the George Cross, and the other two – Violette Szabo and Odette Hallowes – have had films made about their lives.

A petition has been set up to promote Inayat Khan’s case, and it’s got Conservative MP Tom Tugendhat’s backing too:

Writer Emily Poole has some other good suggestions for the Bank of England to consider:

Updated

Markets rally after Goldman and MS results

Those results from Goldman Sachs and Morgan Stanley are giving the markets a much-needed boost.

Wall Street is now expected to open higher, with the Dow Jones industrial average called 150 points or 0.6% higher.

Europe is already catching a bid, with almost all the main indices pushing higher. The only laggard is Britain’s FTSE 100, which is being pulled down by the stronger pound.

European stock markets

Goldman hit by falling FICC revenues

The logo for Goldman Sachs.

Also just in: one of Goldman Sachs key trading divisions has just suffered a chunky drop in takings.

Net revenues at Goldman’s Fixed Income, Currency and Commodities (FICC) operation shrank by 10% year-on-year to $1.31bn in the last quarter, its latest financial results show.

Goldman pins the blame on “an environment characterised by low client activity amid low levels of volatility.”

Investment banking did better, with net revenues rising by 10% year-on-year to $1.98bn.

So overall, profits beat forecasts. David Solomon, Goldman’s new CEO (and a career investment banker) says:

“We delivered solid results in the third quarter driven by contributions from across our diversified client franchise. Year-to-date earnings per share is the highest in our history and year-to-date return on equity is the highest in nine years, notwithstanding our continued investment in growth opportunities.

We remain well positioned to continue delivering for our clients and shareholders.”

Here’s some early reaction:

Updated

The Morgan Stanley headquarters in New York.

Just in: Profits at Wall Street bank Morgan Stanley have jumped by 19%.

MS posted earnings of $2.11bn in the last quarter, or $1.17 per share. That’s up from 93 cents per share last year, and up from forecasts of $1.01 per share.

The company’s equity trading desk, bond traders, and investment banking division all posted higher-than-expected earnings, despite market jitteriness.

Chief executive James Gorman says:

“We produced strong results across the franchise. Despite the seasonal summer slowdown in the third quarter, we reported solid revenue and earnings growth.”

Here’s some early reaction:

Updated

Pound up after wage growth accelerates

Sterling has jumped by half a cent this morning, following today’s unexpectedly strong wage growth.

This has pushed the pound up to $1.321, recovering last week’s Brexit-induced losses.

Neil Birrell, chief investment officer at Premier Asset Management, explains why:

“Wages in the UK are growing at a rate not seen since January 2009. Average earnings, excluding bonuses, rose 3.1% in the three months to August. Unsurprisingly unemployment stayed at its low of 4%. It’s interesting that productivity, however, remains less robust and any pick up could lead to some concerns about inflation.

“This is all a continuation of the current trend, but it does reinforce the fact that there are bright spots in the UK economy. It’s unlikely that interest rate expectations will change as a result of the data, particularly with the overhang of Brexit. Markets are unlikely to be significantly impacted by this, given broader concerns, but sterling will gain some support.”

Faster earnings growth might encourage the Bank of England to raise interest rates sooner, to prevent inflation being pushed up. Higher interest rates make it more profitable to hold sterling, thus the pound goes up.

However, it’s hard to see the BoE tightening policy quickly, at least until Brexit is resolved:

Pay is STILL below the pre-crisis peak

While the jump in nominal pay growth to 3.1% is encouraging, what really matters is real pay -- how much workers take home after adjusting for inflation.

And on that measure, earnings are rising at the fastest since 2016. Good news, but less dramatic than the headline number.

Also, one month’s pay rise doesn’t make up for 10 years of weak earnings growth. British workers are still earning less than before the 2008 financial crisis, once you adjust for inflation.

The Resolution Foundation have the details:

Updated

Pawel Adrjan, chief economist at jobs site Indeed.com, reports that the number of job vacancies is still rising.

That suggests firms need to keep paying workers more, to attract them.

The pick-up in wage growth to 3.1% per annum with unemployment holding at 4% are extremely good news, say Costas Milas and Mike Ellington of the University of Liverpool.

They believe it shows Britain’s economy is growing faster than official data suggest:

Notice that the pickup in wage growth has not put upward pressure on the unemployment rate. This is consistent with our view that the UK economy can afford paying higher wages because it is growing better than currently thought. Indeed, our latest LSE blog suggests that since the EU Referendum vote the UK economy has over-performed by 0.5% per annum based on monthly GDP evidence compared to what the traditional quarterly GDP data suggests.

Consequently, we are taking the view that the ONS will revise upwards its quarterly GDP growth sooner than later. This could happen as early as the 9th of November when the ONS will report its first GDP estimate for 2018 Q3.

Government: Wages are on the up

Alok Sharma, minister of state for employment, has welcomed the jump in pay growth, saying:

“I am particularly encouraged that wages continue to be on the up, outpacing inflation for the seventh month in a row and regular pay is up 3.1% on the year.

“And with unemployment at its lowest since the 1970s, since 2010 there are more people with the security of a job, more people with a regular salary, and more people able to support their families - and that is thanks to action this Government has taken to build an economy that works for everyone.”

Updated

Mike Jakeman, senior economist at PwC, agrees that workers have the upper hand in pay negotiations:

Employers are having to offer better financial packages to workers to retain their staff. Employees remain in short supply: unemployment remained at the very low level of 4%, as low as it has been since the mid-1970s.

It is still a little too soon to be sure that worker scarcity will continue to drive wage growth upwards over a longer period, but initial signs are encouraging.

The British Chambers of Commerce has struck a cautious note, warning that pay rises depend on rising productivity:

Expert: Firms struggle to find workers

Dr. Howard Archer, chief economic advisor for EY ITEM Club, believes UK earnings are back on an “upward track”.

However, he’s concerned that the number of people in work has dipped -- perhaps a sign that Brexit is hitting the jobs market.

Here’s his take:

  • The labour market showed signs of losing momentum as employment fell 5,000 in the three months to August. Nevertheless, unemployment dropped by 47,000 as the inactivity rate rose. This kept the unemployment rate down at a 43-year low of 4.0%.
  • Employment fell marginally despite the economy picking up over the summer. GDP was up 0.7% on a three-month/three-month basis in August
  • The loss of momentum in the labour market may well be at least partly caused by employers finding it harder to find suitable candidates – in some cases significantly influenced by fewer workers coming from the EU. There is certainly evidence of this in a number of surveys (including from the Bank of England’s regional agents and the purchasing managers). Indeed, it is notable that despite reduced employment growth, the number of vacancies was an elevated 832,000 in the three months to August
  • Pay growth is looking perkier, buoying hopes that jobs market tightness may finally be feeding through to a pick-up in pay
  • Regular earnings growth climbed to 3.1% in the three months to August, the best for nearly a decade. It held up relatively well at 3.1% in August after spiking to 3.2% in July. Growth in private sector regular pay was stable at 3.3% in August itself. Total earnings growth rose to 2.7% in the 3 months to August

Geraint Johnes, professor of economics at Lancaster University Management School, has crunched through today’s data.

He encouraged that real pay (nominal pay minus inflation) is growing, and has also spotted that more people are getting full-time jobs.

“The latest labour market statistics provide mixed news. Employment has fallen slightly in the latest 3 month period, but unemployment has also fallen – by some 47000 and the unemployment rate now stands at 4.0%. The numbers of economically inactive people rose by some 103000.

Large falls in employment are recorded amongst part-time employees (55000) and full-time self-employed workers (35000). At the same time, the number of full-time employees rose by some 87000. Taken together, these statistics reflect the continuing restoration of normality to the labour market, with more workers now employed in secure full-time jobs, and fewer in less secure part-time jobs and self-employment.

“Total pay (on the preferred 3 month measure) rose by some 2.7% in August, while regular pay (again on the preferred 3 month measure) rose by 3.1%. This is the first increase of more than 3% in this indicator in ten years. With CPI inflation [including housing costs] at 2.4% in August, these data indicate some long overdue growth in real pay.”

Updated

Employment rate has dipped

Although wages are up, Britain’s employment rate has dropped a little. That may show that the jobs boom is fading, after a strong run.

In June-August, there were 32.39 million people in work. That’s 289,000 more than a year ago, but around 5,000 fewer than in March to May 2018.

The number of people classed as unemployment dropped again, though.

The Office for National Statistics explains:

The employment rate (the proportion of people aged from 16 to 64 years who were in work) was 75.5%, lower than for March to May 2018 (75.7%) but higher than for a year earlier (75.1%).

There were 1.36 million unemployed people (people not in work but seeking and available to work), 47,000 fewer than for March to May 2018 and 79,000 fewer than for a year earlier.

Updated

It appears that British workers are finally benefitting from the scarcity of labour and demanding more for their services.

Philip Smeaton, chief investment officer at wealth management firm Sanlam UK, explains:

Wages keep on going from strength to strength, as competition for workers is finally feeding through to pay. The Bank of England will be keeping a watchful eye on any upwards pressure this puts on inflation, but it should also help support the consumer and their ability to handle higher interest rates should bank need to increase interest rates.

However, until the outcome of Brexit becomes clearer, rates are likely to be placed on hold.”

The bad news is that CPI inflation was 2.7% in August, taking a chunk out of workers’ pay packets.

That was up from 2.5% in July (the mid-point for today’s jobs data), suggesting price pressure are building.

But still, at least real wages are growing.

Updated

UK wage growth hits nine-year high

BREAKING: Britain is finally getting a pay rise.

Basic pay jumped by 3.1% per year in the three months to August, the fastest rate since the depths of the financial crisis in 2009. That’s up from 2.9% a month ago.

Total pay (including bonuses) rose by 2.7% during the quarter, up from 2.6%. That’s the fastest growth since February.

In another boost, Britain’s unemployment rate has stuck at 4.0%, the joint lowest since December 1974 to February 1975, according to the Office for National Statistics.

More to follow!

Merlin hit by rising pay pressures

A scene created at LEGOLAND’s Windsor resort depicting the wedding of Prince Harry and Meghan Markle.
A scene created at LEGOLAND’s Windsor resort depicting the wedding of Prince Harry and Meghan Markle. Photograph: Steve Parsons/PA

Merlin Entertainment, the firm behind Legoland and Alton knows all about roller coasters.

Unfortunately, its investors are getting a stomach-churning ride this morning. Shares in the company have slid by 8%, after its latest financial results failed to impress the City.

On the upside, Merlin’s like-for-like revenue have grown by 1.4% this year, and it opened two new parks -- Peppa Pig World of Play in Shanghai, and The Bear Grylls Adventure in Birmingham.

But shareholders aren’t pleased to hear that like-for-like growth at Legoland was flat.

Merlin also slipped in a warning that cost pressures are building, partly due to “tighter labour markets in a number of regions’. In other words, it’s having to pay its staff more to recruit and retain them. Good news for the workers!

Russ Mould, investment director at AJ Bell, says:

The market may be concerned by the caveat that the cost environment remains challenging amid tighter global labour markets.

“A growing number of governments with more restrictive policies on immigration and, in the UK, the Brexit process are limiting freedom of movement and this issue could continue to affect large-scale employers of lower wage workers such as Merlin.”

Updated

Global investors are a little less anxious than yesterday, reports Kit Juckes of Société Générale.

Risk sentiment is slightly stronger this morning,

Asian equities mixed rather than a sea of red, bond yields generally a bit higher.

The Italian budget has been sent to Brussels for consideration, which is positive, while Mi Barnier has headed to Brussels to report on the lack of Brexit progress, which isn’t positive but isn’t new news.

The Saudi stock market is down 2% this morning, as Riyadh comes under growing pressure over the disappearance and apparent murder of journalist Jamal Khashoggi.

According to CNN, Saudi Arabia is preparing to say that Khashoggi was killed during “an interrogation that went wrong”, after he entered the Saudi consulate in Ankara two weeks ago.

Donald Trump has dispatched U.S. Secretary of State Mike Pompeo to meet with the Saudi royal family to discuss the situation.

Analysts suggest that the international outcry over Khashoggi, a Washington Post journalist, could hit international investment into the country, especially as several top bosses are now shunning its ‘Davos in the desert’ investment conference.

Hussein Sayed, chief market strategist at FXTM, says trading is confused and cautious this week.

Asian equity markets fell on Monday and continued to be dragged lower on Tuesday, despite at a slower pace. European stocks recovered slightly but appetite to risk remained limited as a cautious mood continued to dominate U.S. markets flipping between gains and losses throughout most of Monday’s session to end the day in red as Technology selloffs dominated the overnight trading session.

There still seems to be lot of uncertainty in global financial markets after last week’s steep selling. The S&P 500 closed below its 200-days moving average on Monday, a signal that won’t be liked by trend-following investors. A failure to return above this average today may encourage further bears to join the crowd.

The Asian markets today
The Asian markets today Photograph: Marketwatch

European stock markets have opened cautiously, as City traders await today’s UK jobs data.

European stock markets in early trading
European stock markets in early trading Photograph: Thomson Reuters

2018 is turning into a year to forget for Chinese investors:

The agenda: UK unemployment report

People queue to enter a job centre in east London.
People queue to enter a job centre in east London. Photograph: Daniel Leal-Olivas/AFP/Getty Images

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

Today we discover whether Britain’s labour market is holding up, in the face of Brexit deadlock and global trade war.

New unemployment figures are expected to show that the jobless rate remained at just 4%, the lowest in around 43 years.

But crucially, economist want to see wages outpacing inflation again. Last month, basic pay growth jumped to 2.9% per year - the fastest in over three years, while total pay growth was 2.6% higher. Similar figures are expected today (for the three months to August).

Strong pay growth would suggest that workers were finally getting the upper hand over bosses, and taking advantage of the tight labour market.

Jasper Lawler of London Capital Group says the unemployment report will give the City a welcome distraction from the UK government’s negotiations with the EU (and itself).

Brexit developments are expected to remain the key driver of the pound; however, for a few fleeting minutes traders will turn their attention to UK jobs data.

Unemployment is forecast to remain constant in August at 4%. Weekly earnings are expected to remain steady at 2.9% in the 3 months to August. It will take a significant beat to the upside to inject some optimism into the pound. On the other hand, any weakness in the figures could drag on the pound given the downside risks of Brexit already making the pound sensitive.

Also coming up today

The financial markets remain edgy following last week’s losses. Over in Asia, Chinas Shanghai composite index has dropped by almost 1%, but Australia has gained 0.5% while Japan’s Nikkei is up 1.2%.

Traders are still anxious that we could see further losses, after Wall Street endured its biggest fall since March last week. Fears over US interest rate moves, trade, the oil price and the health of the global economy all abound.

Stephen Innes of trading firm OANDA explains:

Regional markets are trading more positively this morning as overall regional volatilities are falling. A weaker US dollar profile is helping to cool depreciation pressure on the Yuan as overextended shorts are getting pared.

Don’t confuse this recovery with anything other than consolidation amidst a protracted downtrend in Asia equities. Traders are looking to sell upticks given that intraday volatility can ignite on the drop of a dime.

Italy’s government has submitted its 2019 budget plans to the European Union, teeing up a likely clash over its spending plans.

The budget includes running a deficit of 2.4% of GDP - higher than the EU target - plus lowering the retirement age and giving more help to poorer families.

Plus, Goldman Sachs and Morgan Stanley will be reporting financial results.

The agenda:

  • 9.30am BST: UK unemployment data
  • 10am BST: ZEW survey of German business confidence
  • 2.15pm BST: US industrial production figures
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