Get all your news in one place.
100's of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Business
Graeme Wearden, Angela Monaghan and Katie Allen

UK trade deficit swells and industrial output falls, but US creates 222,000 new jobs - as it happened

The City of London
The City of London Photograph: Bloomberg/Bloomberg via Getty Images

PS: Here’s Katie’s story about today’s weak UK data, and what it means for interest rates....

Liam Fox: only politics stands in way of smooth Brexit trade deals

Liam Fox
Liam Fox

Liam Fox, Britain’s international trade secretary, has said there is no reason why the UK can’t replicate the current smooth trading agreements it enjoys with the EU after Brexit, unless politics gets in the way.

He told Reuters during a visit to Paris:

We’re going into an arrangement with the EU already with zero tariffs , we’re going there with complete regulatory equivalence and with customs systems that already work.

The only reason we wouldn’t replicate them would be if politics got in the way of good economics.

Fox made the comments a day after the EU’s chief Brexit negotiator, Michel Barnier, said London’s “red lines” for a future trading relationship meant the UK was definitely leaving the single market and customs union, with consequences.

On that note, we’re closing up for the day. Thank you for all your comments and please join us again on Monday. Have a great weekend.

Wall Street higher after strong payrolls report

US markets are up in early trading, with those strong non-farm payrolls numbers giving investors a boost.

  • Dow Jones: +0.2% at 21,361
  • S&P 500: +0.3% at 2,417
  • Nasdaq: +0.4% at 5,623

The FTSE 100 is also edging higher, up 0.1% or seven points at 7,345. Main markets in the rest of Europe are in the red.

Analysts at Nomura said the stronger-than-expected payrolls number is good for riskier assets.

Equities, EM and high yielders should like it. Higher job creation indicates growth, but weak wages indicates firms are not yet allowing the labour force to reduce margins = higher profitability.

It shouldn’t bear too much of an impact on the Fed timing of balance sheet reduction as this is an overall good number.

So it shouldn’t lead to fresh impetus on USD selling in USD/JPY. But given this is good for growth and the ECB normalisation is a far more potent animal at these levels, the markets initial reaction to buy EUR/USD on the dip is something we would agree with.

The US jobs market in graphics:

Non-farm payrolls were stronger than expected in June, with 222,000 jobs added
Non-farm payrolls were stronger than expected in June, with 222,000 jobs added
The US jobless rose unexpectedly in June
The US jobless rose unexpectedly in June

Paul Ashworth, chief US economist at Capital Economics, says the jobs reports is more evidence that the real economy is in “good health”.

The only disappointment is that wage growth still shows few signs of accelerating. Average hourly earnings increased by 0.2% m/m in June, but the annual growth rate only edged back up to 2.5%, from 2.4%. That means there has been no pick-up in wage growth whatsoever over the past 18 months.

We will find out what Fed Chair Janet Yellen thinks of this next week, during her semi-annual congressional testimony. Our view is that, despite the lack of a pick-up in wage growth and core inflation, the Fed will nevertheless push ahead with hiking interest rates. The unemployment rate is already unusually low and is likely to fall further over the coming months.

My colleague Dominic Rushe has the full details on the US jobs report in the context of Donald Trumps big jobs promises. He writes:

The US economy added 222,000 new jobs in June, reversing a worrying slowdown in growth for president Donald Trump who campaigned on a promise of massive job creation.

Economists had been expecting the US to add around 178,000 over them month but the latest numbers from the bureau of labor statistics comfortably beat those estimates as healthcare and food services showed big monthly gains.

The unemployment rate moved up marginally to 4.4% but remains at lows unseen since 2001.

This month’s numbers came as economists have worried that the US economy is struggling to create large numbers of new jobs despite president Donald Trump’s pledge to create “JOBS! JOBS! JOBS!”

US employers added just 138,000 jobs in May, the third month of relatively soft growth in the jobs market, and March and April’s figures were revised down by 66,000.

His full story:

And here’s the full data from the US labor department:

Assessing what that non-farm payrolls update means for US interest rates, James Knightley, chief international economist at ING says the report is “good enough” to keep the Federal Reserve on a gradual policy tightening path.

Strong jobs growth should eventually translate into higher wages, but it is taking time to do so. The Fed remains confident it will come, suggesting gradual hikes will continue, but the market continues to have doubts.

...In any case, the Fed has repeatedly used the term “transitory” to describe the slowdown in activity and subdued inflation backdrop and believe that it is only a matter of time before the tightness in the labour market translates into rising wage pressures. We agree.

Some market reaction now to that news of stronger-than-expected growth in jobs but weaker-than-forecast wage growth in the US last month.

US stock futures have extended gains but the dollar has lost ground as traders focus on the wage growth undershoot - something that will temper expectations of further rate rises from the US Federal Reserve this year.

Elsewhere, there are some interesting patterns in where the new jobs are coming from in President Donald Trump’s America. (Of course, his pledges to revive manufacturing were always going to take time to show in the jobs numbers but it shows the challenge ahead)

More details now on that US jobs report:

More jobs were added than expected but wage growth missed forecasts. The report from the Labor Department shows average earnings rose by 0.2% month-on-month in June, and were up 2.5% over the last year. Forecasts were for average hourly earnings to increase 0.3% in June and for the year-on-year growth rate to stand at 2.7%.

The Labor Department said the unemployment rate was 4.4%. Economists had forecast it would hold at a 16-year low of 4.3%.

US jobs report beats forecasts with payrolls up 222,000 in June

BREAKING: The US economy added 222,000 jobs in June, according to the latest non-farm payrolls report.

That was higher than the 179,000 forecast by economists in a Reuters poll.

May’s gain was revised to 152,000 from the 138,000 figure previously reported.

More to follow...

Newsflash: The NIESR thinktank has estimated that Britain’s economy only grew by 0.3% in the second quarter of this year.

That would be an improvement on the 0.2% growth recorded in January-March, but below the 0.6% trend growth rate.

Rebecca Piggott, Research Fellow at NIESR, says:

Growth in services has offset a contraction in industrial output, yet remains subdued when compared with last year.

The saving ratio reached an historic low of 1.7 per cent in the first quarter of this year, implying that, so far, households have reduced their saving to cushion the effect of falling real incomes on consumption as inflation rises”.

Philip Coggan of the Economist points out that the drop in the pound after the EU referendum hasn’t helped the trade gap:

The key charts

If you’re just tuning in, here are some charts that show today’s data.

First, the widening of the UK trade gap to £3.1bn, from £2bn, as a jump in imports drove the ‘trade in goods’ deficit to over £11bn:

Britain’s trade deficit
Britain’s trade deficit Photograph: CEBR

Second, the disappointing 0.1% drop in UK industrial output in May.

UK industrial production, the details
UK industrial production, the details Photograph: Pantheon Economics

Sustained selling pressure has just pushed the pound down through $1.29, a drop of 0.7 of a cent today.

Bloomberg explains:

The pound fell for the first time in three days versus the dollar after data showed U.K. factories and construction companies’ output unexpectedly declined in May, adding to a spate of recent data that pointed to an economic slowdown.

Sterling was on course for weekly declines against all but two of its Group-of-10 peers, as manufacturing, industrial and construction output all dropped and undercut analysts’ forecasts.

Updated

This morning’s data paint a rather bleak picture for the UK economy and underline the challenges lying ahead, says Kay Daniel Neufeld of the CEBR.

He fears that growth is going to be subdued this year, and next:

So far, the depreciation in Sterling has not led to a significant reduction in the trade deficit – at Cebr we have repeatedly stressed that the UK’s high-value added exports are less price sensitive and that any rebalancing in the make-up of exports will take time to manifest itself.

In the meantime the lack of clarity about future trading relationship with the EU – further exacerbated by the result of the general election – weighs on activity in the manufacturing sector.

As a result, Cebr expects GDP growth of only 1.3% in 2017 and 1.2% in 2018.

Britain’s export performance remains “underwhelming”, says Sam Tombs of Pantheon Economics.

He blames manufacturers for hiking their prices since the pound fell, rather than trying to grow their market share.

The main problem remains that exporters have hiked their prices, blunting the boost to competitiveness from the weak pound. Foreign-currency prices for U.K. goods exports in May were just 5% lower than in Q4 2015.

Exports are earning healthy profits, but few are willing to invest and ramp up production due to Brexit risk. Markit’s survey of export orders also has weakened over the last few months, casting further doubt over the likelihood of a sustained trade boost going forwards.

This chart shows how exports have been lagging behind imports for more than a year

UK exports/imports

Today’s data suggest that Britain’s economy has only grown by 0.3% in the second quarter of the year, says Howard Archer, Chief Economic Advisor to the EY ITEM Club.

That would only be slightly better than the 0.2% growth posted in Q1 - the weakest of any G7 nation.

Archer says:

“Based on today’s data and the business survey results for June, we now think that industrial production is likely to have contracted by 0.5% in Q2, with construction output down 1.8%.

And though an improved performance from the services sector will provide some support, GDP is likely to have grown by just 0.3% with the risks to that projection skewed to the downside.

Updated

Sign up to our email

Guardian Business has launched a daily email.

Besides the key news headlines that you’d expect, there’s an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day.

For your morning shot of financial news, sign up here:

Sterling has also hit a nine day low against the euro.

The pound has dropped by almost half a eurocent to €1.1311.

That means one euro is now worth 88.4p.

UK data disappoints: snap reaction

Today’s trade data provides little evidence that Britain’s economy is rebalancing away from consumer spending and towards exports.

My colleague Katie Allen points out that the weak pound doesn’t seem to be providing much support.

Mike Bird of the Wall Street Journal highlights that the goods deficit has been widening for a long time:

Claus Vistesen of Pantheon Economics wins the prize for pithy analysis:

Fast FT show that UK industrial production has been disappointing for several months:

Updated

ONS senior statistician Kate Davies sums up today’s flurry of disappointing UK data:

“Activity in the production sector was broadly unchanged in May, though the underlying position is weaker with both total output and manufacturing falling in the three months to May compared with the previous three months.

Construction output also fell on a three-monthly basis, though this is after several years of growth.

“Meanwhile the total trade deficit widened by £2 billion in the most recent three months, primarily due to high imports especially from outside the European Union.”

Actually, it’s a triple-dose of bad news -- UK construction output fell by 1.2% in May.

It also shrank by 1.2% in the March-to-May quarter, compared to the previous three months. That’s the biggest drop since September 2012.

The ONS blames “falls in both repair and maintenance, and all new work.”

Updated

The 0.2% drop in UK manufacturing output in May was triggered by a drop in car production.

The ONS says:

Transport equipment provided the largest downward contribution, falling by 2.3%; within this, motor vehicles, trailers and semi trailers fell by 4.4%, the largest fall since February 2016, when it fell by 5.8%.

Pound takes a tumble

That double-dose of disappointing UK economic data has hit the pound.

Sterling has slumped to $1.2917, down half a cent, as traders digest the news that Britain’s trade deficit has widened and industrial output fell in May.

The pound vs the US dollar today
The pound vs the US dollar today Photograph: Thomson Reuters

Updated

UK trade deficit widens

More bad news! Britain’s trade deficit has widened, due to a surge of imports.

The total trade deficit jumped by £1bn in May, to £3.1bn - a worse reading than the City expected.

Here are the key points from the Office for National Statistics:

  • Between the 3 months to February 2017 and the 3 months to May 2017, the total UK trade (goods and services) deficit widened from £6.9 billion to £8.9 billion.
  • The widening of the trade deficit in the 3 months to May 2017 reflects a higher rise in imports than the rise in exports of goods, in particular transport equipment (cars, aircraft and ships), oil and electrical machinery from non-EU countries; a decrease in exports of services also contributed.
  • Between the 3 months to February 2017 and the 3 months to May 2017, the total UK trade (goods and services) excluding erratics deficit widened from £8.6 billion to £9.3 billion.
  • The total UK trade (goods and services) deficit widened by £1.0 billion between April and May 2017 to £3.1 billion, following a narrowing in April 2017; this reflects an increase in imports of goods on the month following a decrease in April 2017.

UK industrial production weaker than expected

Newsflash! Britain’s industrial production fell by 0.1% in May.

That’s a weaker performance that expected, and reinforces fears that the UK economy is faltering.

It’s also much weaker than France and Germany, which both reported strong growth earlier today (details here).

Manufacturing output shrank by 0.2% during the month, dashing hopes that the weak pound is proving a tonic for the sector. Energy output fell by 0.8%.

The Office for National Statistics says:

In May 2017, total production was estimated to have decreased by 0.1% compared with April 2017, due to falls of 0.2% in manufacturing and 0.8% in energy supply; transport equipment provided the largest contribution to the manufacturing decrease, followed by food products, beverages and tobacco.

UK industrial production

Updated

Here’s Martin Ellis, Halifax housing economist, on the 1% drop in house prices last month.

“House prices have flattened over the past three months. Overall, prices in the three months to June were marginally lower than in the preceding three months. The annual rate of growth has fallen, to 2.6%; the lowest rate since May 2013.

“Although employment levels continue to rise, household finances face increasing pressure as consumer prices grow faster than wages. This, combined the new stamp duty on buy to let and second homes in 2016, appears to have weakened housing demand in recent months.

“A continued low mortgage rate environment, combined with an ongoing acute shortage of properties for sale should help continue to underpin house prices over the coming months.”

Halifax house prices

Factories in the eurozone’s Big Two economies powered on in May, new figure show.

German industrial output jumped by 1.2% month-on-month. That’s the fifth monthly rise in a row, marking the best run since 2010.

France did even better, expanding their output by 1.9% after a 0.6% decline in April.

In classical market theory, bonds and shares are supposed to move in opposite directions.

The idea is that investors pour money into equities when they’re feeling optimistic, or dump their shares and scurry into fixed-income (bonds) in times of anxiety.

It doesn’t always hold true - especially in a world where central bankers have driven bond prices to record highs. But it’s a decent yardstick.

So, we now have bonds and stock both falling as the markets anticipate higher interest rates.

Naeem Aslam of Think Markets fears that this could mean a correction is on the way....

Halifax: House price fell in June

Newsflash: UK house prices fell by 1% in June, according to the Halifax’s monthly survey.

That’s rather weaker than the 0.2% rise which the City expected, and could be another sign that higher inflation and falling real wages are hitting the economy.

Over the last three months, prices rose by 2.6% year-on-year -- the weakest rate in more than four years.

However, Nationwide’s figures have shown that house prices rose in June, so this monthly data needs to be treated a little cautiously.

Updated

Bonds are also suffering from the prospect that central bankers might have finally tired of topping up the punchbowl of monetary policy.

The interest rate on German 10-year bunds is hovering at an 18-month high this morning, while Italian bond yields are at a two-month high.

It shows how nervous investors are about the prospect of an end to monetary stimulus, after seeing umpteen billions of new pounds, dollars and euros pumped into the system over many years.

As Kit Juckes of Societe Generale puts it:

At the risk of a circular argument, if the ECB signalling a teeney-weeny shift in the direction of travel for monetary policy prompts a big reaction, that does pose the question of how, when or if central bankers can actually escape the gravitational pull downwards from the ZIRP/QE world.

That’s a question we asked a lot when we entered this mad world. Is the right image one of a man caught in quicksand, or one of a rocket floating aimlessly in space?

Updated

European stock markets have dipped in early trading.

European markets

David Madden of CMC Markets says traders are pondering whether the European Central Bank might tighten monetary policy, as they wait for the US jobs report.

The very aggressive easing policy [by the ECB] certainly assisted the economic health of the region, but it also pushed up equity markets. Now central bankers are thinking about moving away from an easing bias, it prompted traders to cash in their positions.....

The non-farm payroll report at 1.30pm will be the highlight of the trading session, and the consensus is for a 179,000 jobs to have been added in June. The unemployment rate is tipped to remain at 4.3%, and average earnings is anticipated to rise from 0.2% to 0.3% on a month on month basis.

You can keep tabs on all the G20 action here:

Asian markets hit by central bank worries

An indicator board at the Australian Stock Exchange.
An indicator board at the Australian Stock Exchange. Photograph: Mick Tsikas/AAP

Shares have fallen across Asia today, as traders hunkered down ahead of the US jobs report.

In Japan, the Nikkei hit a three-week low – but then recovered some ground after the Bank Of Japan boosted its government bondbuying programme.

Australia’s S&P/ASX 200 index shed almost 1%, and there were losses in Hong Kong, South Korea and China too.

Asian stock markets today
Asian stock markets today Photograph: Bloomberg

Despite the BoJ’s move, the big concern in the markets right now is that central banks are moving towards unwinding their stimulus programme.

Yesterday, minutes from the European Central Bank showed that policymakers had discussed dropping its pledge to boost its own bond-buying efforts, if needed.

Mike van Dulken of Accendo Markets explains:

Investors are digesting hawkish ECB minutes and prepping for further withdrawal of global easy money policy; tapering of ECB QE, unwind of Fed’s balance sheet. Maybe even a UK rate hike.

The agenda: US jobs data

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

Investors are edgy today as they brace for a splurge of economic data from both sides of the Atlantic. Bonds and equities are both under some pressure.

It’s Non-Farm Payroll day in the US, when we learn how many Americans joined the labour market last month. The consensus forecast is that the NFP rose by around 179,000 in June, which would show that the economy continues to create jobs at a healthy rate.

Average earnings are expected to have picked up last month, pushing the annual rate to 2.6% from 2.5%, while the jobless rate could remain at just 4.3%

A weak report might fuel worries that the US economy is slowing; conversely, a really strong report would create more pressure to keep raising interest rates. So there could be some drama when the figures hit the wires at 1.30pm BST.

In the UK, we find out how the industrial sector fared in May, and how Britain traded with the rest of the world.

Economists predict that UK industrial output rose by 0.5% during the month, up from 0.2%

They also expect that Britain ran a trade deficit of around £2.5bn with the rest of the world, despite the supposed benefits of a weaker pound.

City investors will also be watching developments in Hamberg as the G20 leaders meeting gets underway.

The key event of the day could be Donald Trump’s first meeting with Vladimir Putin.

Protectionism and climate change are high on the agenda, after Hamburg police broke up protests last night.

Analysts at RBC Capital Markets say:

Though unlikely to move markets, the G20 meeting is expected to have a major focus on trade after the removal of standard language about resisting trade protectionism at the previous finance ministers meeting in March.

Here’s the agenda:

  • 8.30am: Halifax UK house price survey for June
  • 9.30am: UK industrial production for May
  • 9.30am: UK trade balance for May
  • 1.30pm: US non-farm payroll for June
Sign up to read this article
Read news from 100's of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
A flesh-eating fly is advancing towards the US border – can it be stopped?
A flesh eating parasitic fly has spread north through Mexico to within a few hundred miles of the US southern border.
The Conversation
The Conversation
Matthieu Blazy’s hit Chanel look is heading for the high street
Prepare for bouclé jackets, quilted chain-link bags galore and an outfit formula that is proving to be consumer catnip
The Guardian - UK
The Guardian - UK
What Went Wrong With Kelly Osbourne And Sid Wilson's Relationship? Cheating Claims Untrue
Kelly Osbourne has hinted at the reasons behind her split from Slipknot's Sid Wilson, sharing a pointed 'forgiveness' message on Instagram after reports their engagement was quietly called off. Friends say grief over Ozzy Osbourne's death has taken a heavy toll, though neither Kelly nor Sid has formally confirmed the…
International Business Times UK
International Business Times UK
Super Mario Galaxy Movie stars Chris Pratt and Charlie Day refuse to confirm or deny whether Wario and Waluigi will show up
Charlie Day and Chris Pratt are staying silent on whether Wario and Waluigi are in The Super Mario Galaxy Movie, and it's only fueling the rumors
Total Film
Total Film
Pizza and bread products sold in 10 states under recall for possible metal shards
Trader Joe’s Focaccia Bread with Roasted Tomato & Parmesan is part of the recall
The Independent UK
The Independent UK
Sony didn't "cancel" Spider-Man: here's what's really happening
Don't panic, it's not the end of the Spider-Verse.
Creative Bloq
Creative Bloq
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.
Download on the AppStore Get it on Google Play