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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

US jobless claims back over 1m, as recovery doubts hit markets - as it happened

A closed barber shop in Los Angeles, California.
A closed barber shop in Los Angeles, California. Photograph: Apu Gomes/AFP/Getty Images

FTSE 100 closes at August low after Fed gloom

After a rough day’s trading, the UK stock market has closed at its lowest level in three weeks.

The FTSE 100 has ended the day down 98 points or 1.6% at 6,013 points, its weakest close since 31 July. Miners and financial stocks were among the major fallers, along with airline group IAG (-5%)

European markets also had a bad day, with the German DAX losing 1.1% ,the French CAC down 1.3% and Spain’s IBEX off 0.8%.

The recent rise in Covid-19 cases in some European countries, and further afield such as South Korea and India, weighed on stocks, reigniting worries about fresh lockdown restrictions in the months ahead.

Last night’s downbeat minutes from the Federal Reserve cast a pall over the City through the session, with the rise in US jobless claims not helping.

David Madden of CMC Markets sums up the day:

European equity markets are deep in the red on the back of the Fed minutes last night. The update warned the US economy could face a ‘considerable’ negative impact over the medium term on account of the pandemic. The Fed also repeated the need for fiscal stimulus, as they feel they can’t tackle the crisis alone. The absence of a coronavirus relief package is playing on traders’ minds even more so in light of the Fed’s comments. It seems a bit strange that traders are all of a sudden worked up about the Fed’s bearish outlook, when it has been known for a while now. The US unemployment benefit scheme ended in late July, so it’s a surprise that dealers are now running scared. Nonetheless, the mood is bearish and in terms of index points, the biggest fallers on the FTSE 100 are mining and energy stocks.

AO World, the online electrical goods retailer, posted a short and sweet trading update for the four months until the end of July. On a yearly basis, UK revenue jumped by 58.9% to £401.3 million, and the German unit saw revenue surge by over 90% to €74.3 million. The group confirmed that demand has remained robust even when competitors’ stores have reopened, and that adds to AO’s view that there is a change in the way that consumers buy electrical goods.

Frasers Group shares are in demand on the back of a well-received full year numbers. Group revenue rose by 6.9% to £3.95 billion, and underlying EBITDA ticked up by 5% to £302.1 million. The premium lifestyle division outperformed as revenue jumped by almost 35%. When you strip out acquisitions, the premium lifestyles unit posted an 18.6% jump in revenue. It is possible the Premium division performed well as a big percentage of higher income earners worked remotely during the lockdown, so their consumer appetite was not dented. Frasers issued an optimistic outlook too as the group expects full year EBITDA to grow between 10% and 30%. The stock hit its highest level since early June.

Goodnight. GW

America has now suffered 22 weeks of jobless claims that exceed anything recorded before Covid-19:

Demand for petrol in the UK appears to have flattened out.

New government figures show that fuel sales stabilised last week, having been rising steadily since the height of the lockdown.

Reuters has more details:

Britain’s average weekly fuel sales were at 87% of typical pre-lockdown week levels but the growth trend has stalled, the Department for Business, Energy & Industrial Strategy said on Thursday.

Average fuel sales per filling station in the week to Aug. 16 rose by 0.1% from the previous week, according to the BEIS data.

“The upward trend since mid-April has stalled,” it said in a statement.

Stocks are creeping back on Wall Street, with the S&P 500 now flat for the day.

There’s no recovery in London, though, where the FTSE 100 is still down 85 points (-1.4%). Miners are among the fallers, with Antofagasta down 5% after reporting that earnings fell by a fifth this year due to weaker demand for its copper.

Here’s a chart showing how the number of Americans on jobless support is at historic highs:

And a reminder of just how many people lost this jobs each week under the pandemic:

US stocks open lower

After hitting record highs this week, the US stock market has opened in the red.

The Federal Reserve’s anxiety over the strength of the recovery, and the jump in jobless claims, are both weighing on the markets.

But it’s not a major move, partly because markets dipped last night when the Fed’s minutes were released.

  • The S&P 500 has dipped by 11 points, or 0.33%, to 3,363.
  • The Dow Jones industrial average is down 97 points, or 0.35%, at 27,595
  • The Nasdaq has dipped by 11 points, or 0.1%, to 11,134

In another blow to the US jobs market, American Airlines has announced it is cutting its service to 15 small U.S. cities with low demand.

The reductions begin in October, once American won’t need to keep running the flights to comply with federal aid received at the height of the pandemic, according to CNBC.

More here.

The jump in Americans claiming jobless support should jolt Congress into action, says Ronald Temple, head of US equity at Lazard Asset Management:

“While the stock market surges to new highs, over 28 million Americans continue to rely on unemployment benefits to make ends meet.

Even amidst the worst labor market in modern history, Congress has not agreed to extend emergency unemployment benefits or the moratorium on evictions. Politicians should focus on Main Street.

The absence of $17 billion per week of jobless benefits as well as protection from eviction is likely to cause negative repercussions for the broader economy if not corrected.”

US jobless claims jump back above 1 million in face of virus

Here’s Associated Press’s take:

The number of laid-off workers seeking U.S. unemployment benefits rose to 1.1 million last week after two weeks of declines, evidence that many employers are still slashing jobs as the coronavirus bedevils the U.S. economy.

The latest figures suggest that more than five months after the viral outbreak erupted the economy is still weak, despite recent gains as some businesses reopen and some sectors like housing and manufacturing have rebounded. A rising number of people who have lost jobs say they consider their loss to be permanent.

The total number of people receiving unemployment aid declined last week from 15.5 million to 14.8 million, the government said Thursday. Those recipients are now receiving far less aid because a $600-a-week federal benefit has expired, which means the unemployed must now get by solely on much smaller aid from their states. The loss of the federal benefit has deepened the struggles for many, including a higher risk of eviction from their homes.

Glassdoor senior economist Daniel Zhao says the US labor market took a step backwards last week, with more people losing their jobs and seeking government help.

“Initial claims rebounded above the 1 million threshold, taking a step backward on the path to recovery. The modest jump is a stark reminder that claims will likely encounter some turbulence as they fall rather than gliding in for a soft landing.

It’s been four weeks without the $600/week CARES Act benefits for tens of millions of unemployed Americans. While a handful of states are approved to disburse the new $300/week benefits, it remains unclear how quickly the benefits will be able to flow to unemployed Americans already facing an unsteady recovery.”

Richard Flynn, UK managing director at Charles Schwab, says today’s rise in initial US jobless claims back over 1 million people will disappoint the market.

Investors had hoped that the jobless claims total would keep falling after last week’s “promising data”, but instead the improvement has reversed.

While hard-hit industries brought workers back in July, the level of weakness remains unprecedented, and the impact of virus-related rolling shutdowns could continue to reverse some of that improvement.

“Current market conditions suggest that we are in the early stages of a secular shift in the drivers of the U.S. economy; from heavily-consumer spending/services oriented, to more investment-driven (technology, health care, housing and infrastructure). The good news is those areas represent a larger share of employment than the aforementioned areas under most pressure. Secular transitions are more ocean liner than speed boat with regard to how quickly they occur—and they’re not without labour market destruction along the way, but we believe the long-term outlook is positive.”

Updated

Some US companies are cutting staff because the stimulus provided by the federal government is running dry, warns Dan Alpert of Westwood Capital.

He also points out that unemployment went up last week, even though the $600 a week Federal jobless aid payments have ended.

US unemployment claims rise: Snap reaction

James Picerno of Capital Spectator says the jump in US jobless claims is worrying, as the economy struggles to recover from the Covid-19 pandemic.

The Washington Post’s Heather Long says it’s a ‘red flag’:

Adam Ozimek of Upwork points out that US unemployment is at historic high levels

But.. Marketwatch’s Jeffry Bartash points out that the figures are less bad if you don’t make seasonal adjustments:

And here’s all the details:

US jobless claims rise to 1.1m

Newsflash: the number of Americans filing new claims for unemployment benefit has risen, back over a million.

A total of 1.106m new initial claims were filed last week, dashing hopes that the total would fall to 925,000.

Last week’s figures have been revised a little higher too, to 971k from 963k.

This will add to fears that the US economic recovery is losing steam (as the Fed flagged up last night).

The number of continued claims (people on unemployment support for at least two weeks) has fallen, but still worryingly high at 14.8m.

Reaction to follow...

Estée Lauder to cut 2,000 jobs and close stores

An Estee Lauder cosmetics counter is seen in Los Angeles, California

Estée Lauder is planning to cut up to 2,000 staff and shut stores, after suffering a slump in sales during the pandemic.

The makeup, skincare & fragrance company has reported that net earnings more than halved in the year to June, to $680m, down from $1.79 billion last year.

Although online sales surged, this didn’t fully make up for the temporary closure of retail outlets.

Estée Lauder is now planning to cut its store portfolio, announcing:

In connection with the Post-COVID Business Acceleration Program, at this time the Company estimates a net reduction in the range of approximately 1,500 to 2,000 positions globally, primarily point of sale employees and related support staff in the areas that were the most disrupted, which is about 3% of its current workforce including temporary and part-time employees. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees, and investment in new positions in key areas like online.

The Company also estimates the closure of between 10-15% of its freestanding stores globally, as well as certain less productive department store counters that the Company elects to close.

European Central Bank policymakers are concerned that the stock market rally this summer may have got ahead of itself.

In the minutes of last month’s meeting, just released, the ECB cites the “strong recovery in global stock markets” but cautioned:

Optimism in financial markets had, however, gone hand in hand with surging coronavirus (COVID-19) cases in the United States and many emerging market economies, raising fears of a broader relapse in containing the spread of the virus.

This divergence between the evolution of the pandemic and developments in financial markets, together with high uncertainty about the ultimate shape and pace of the economic recovery and the resurgence of global trade tensions, raised questions regarding the robustness and resilience of current investor sentiment.

The ECB also warned that “any premature tightening of financial conditions could put the ongoing recovery at risk”, adding that it has “the tools and policy space to take further action if needed”.

Lunchtime summary

A quick recap.

Stock markets have fallen in Asia and Europe after America’s central bank warned about the economic damage of the pandemic, and global cases kept rising.

After a choppy morning, the FTSE 100 index is currently down 72 points or 1.2% at 6039, on track for its lowest close in almost two weeks.

The Europe-wide Stoxx 600 index is down 0.75%, with mining stocks, banks, and consumer goods and services providers leading the fallers.

The selloff came after Asia-Pacific markets suffered their worst day this month, with South Korea losing almost 4% amid fears over a jump in Covid-19 cases.

Investors were disappointed that the US Federal Reserve reported last night that its staff are less optimistic about the pace of the recovery, and the prospects for employment gains.

The Fed is also concerned that the economic outlook remains very uncertain. But, policymakers seem reluctant to consider new unorthodox measures such as targeting the yield curve on US government bonds.

China’s Alibaba has become the latest tech giant to post a surge in revenues and profits during the pandemic.

In the UK, retail group Frasers has reported that profits fell by almost 20% during the pandemic, and threatened to shut stores unless retailers cut rent.

Australia’s Qantas has suffered its worst loss since being founded in 1920.

One in ten UK firms fears there’s a moderate risk of collapsing into insolvency due to the pandemic.

The recovery at eurozone construction firms has slowed.

But car sales are booming, as people try to avoid catching Covid-19 on public transport.

Oh and apologies, I mistakenly thought the latest CBI industrial trends report was due today, but it’s actually scheduled for tomorrow.

Alibaba beats forecasts with 34% revenue growth

Just in: China’s e-commerce giant Alibaba has report that revenues surged by a third in the last quarter.

Revenue rose to 153.75 billion yuan (£16.6bn) in the quarter to June 30, up from 114.92 billion yuan a year ago, stronger growth than expected.

Earnings per share more than doubled, in another sign that technology companies have profited from the pandemic and global lockdowns.

Updated

UK car dealerships have reported a jump in new and used vehicle sales in July as buyers rushed to secure alternatives to public transport following the easing of coronavirus lockdowns.
The struggling Lookers chain said sales across new and used cars were up 17% for the usually quiet month compared with 2019, after revenues fell by £1bn in the first half of the year – a 38% slump. Vertu, the UK’s fifth largest dealership, said that new car sales rose by 18% year on year in July, while secondhand sales were up 14%. Vertu said it had made an adjusted profit before tax of £7.4m in July, more than making up for the £5.2m loss during the lockdown months from March to June.

Updated

The slow unwinding of Neil Woodford’s collapsed Equity Income Fund continues.

Fund administrator Link has said it will hand another £183m to investors, following recent asset sales. But it also warned that the remaining assets are less liquid, so could take longer to shift.

Back in December, Woodford investors were warned that they’d lost a fifth of their money, as the process of shifting the one-time star manager’s investments ground on.

Laura Suter, personal finance analyst at investment platform AJ Bell, says today’s news is another blow to investors, 14 months after the fund failed.

“Investors in the shuttered Woodford Equity Income fund will get their next tranche of money before the end of this month. Link has revealed that it will pay out just over £183m of cash to investors next week, following the sale of a number of assets. This payout adds to the £142m distribution made in March and the £2.1bn paid out in January and means investors have received about £2.4bn of their money back.

“However, there’s no sign of Link and the asset managers shifting the remaining illiquid assets in the fund. There’s no mention of a timeline or any progress having been made on the sale of the assets, with Link just saying the sale ‘may take some time’. This means the process will drag on for even longer for investors, who just want to get as much of their money back as possible and move on from the sorry saga.

Economists: Britain's economy won't reach pre-pandemic size for two years

Britain’s economy will not fully recover from its current historic downturn for at least two year, a new Reuters poll of City economists has found.

That suggests that many experts are more pessimistic than the Bank of England about the pace of the recovery.

Here’s the details:

Earlier this month the BoE said the economy would not recover to its pre-pandemic size until the end of 2021, but 20 of 23 economists who responded to an extra question said it would be at least two years before that happened. Only three said within two years.

After contracting 9.7% this year - more than most of its peers and more than the 9.1% forecast last month - the economy will expand 6.2% in 2021, the poll of nearly 70 economists predicted. In a worst case scenario, it will contract 14.2% this year.

One in ten UK firms says it has a “moderate”, or worse, risk of going bust due to the pandemic.

That’s according to the latest healthcheck on the UK economy from the Office for National Statistics. It also found that job vacancies has fallen again,with visits to the high street are still sharply lower.

Here’s some of the findings:

  • Of businesses paused or currently trading, 10% said that their risk of insolvency was “moderate” and 1% said it was “severe”, according to the latest Business Impact of Coronavirus (COVID-19) Survey (BICS).
  • Between 7 and 14 August 2020, the total volume of online job adverts decreased from 62% to 58% of its 2019 average, partially offsetting the large increase of the previous week.
  • The index for all food items within the high-demand product (HDP) basket increased by 0.3%, although the all items index remained static.
  • Footfall across all retail locations continued to rise slightly in the latest week, with overall footfall at 68% of its level the same day a year ago, the highest since the week beginning 16 March 2020.
  • Road traffic across all motor vehicles has been gradually returning to pre-lockdown levels following a low point around the end of March 2020, using road traffic data from the Department for Transport (DfT).
  • Between 10 and 16 August 2020, the average volume of daily total ship visits and cargo ship visits both remained unchanged from the previous week.
ONS survey of UK firms’ risk of insolvency
ONS survey of UK firms’ risk of insolvency Photograph: ONS

Updated

Hotel rooms’ lights form the shape of a heart at the Novotel Paris Centre Tour Eiffel belonging to the Accor hotel group back in April.
Hotel rooms’ lights form the shape of a heart at the Novotel Paris Centre Tour Eiffel belonging to the Accor hotel group back in April. Photograph: Stephane Cardinale - Corbis/Corbis via Getty Images

The hotel industry is one of the sectors worst hit by Covid-19, given the slump in tourism and business travel.... and there are reports today that two major players could combine forces.

My colleague Jasper Jolly explains:

France’s Accor is reportedly considering a merger with UK rival InterContinental Hotels Group (IHG) that would create the biggest hotel group in the world.

Accor chief executive Sébastian Bazin put together a team at the start of June to discuss a potential approach for IHG, Le Figaro newspaper reported on Thursday. The investment banks Centerview and Rothschild were also approached to help, Le Figaro said. The global hotels business has been hit hard by the coronavirus pandemic amid widespread lockdowns and travel bans.

Both Accor and IHG have seen revenues plummet, and IHG is considering cutting 650 jobs on its corporate side to save costs. However, a deal would create a group with more than 11,000 hotels, propelling them past Marriott, the largest group after its $13bn acquisition of Starwood in 2016.

Accor and IHG both declined to comment.

A seagull flies in front of an oil platform.

Shares in Premier Oil plummeted by a quarter within minutes this morning as the company laid bare a first half financial loss and tough new terms from its lenders to extend the indebted company’s repayment deadlines.

Premier’s banks called on the company to raise $325m in equity in exchange for an extension of its debt maturity from May next year to 2025, on top of its existing equity raise plans, to reduce its $2.9bn debtpile ahead of a deal to buy some of BP’s older North Sea oil and gas fields for $625m.

The FTSE 250 oil producer has struggled under the weight of a multi-billion dollar debt pile since the last oil market crash in 2015 which led to one of the most complex debt restructurings in North Sea history. Following the news of its latest refinancing its shares, worth almost 350p in late 2014, fell by almost 25% to lows of 25.57p before recovering slightly to around 28.50p.

The company unveiled the new debt management plan alongside its half year financial results which showed a pre-tax loss of £255m, down from profits of £90m in the same period last year.

Tony Durrant, Premier’s chief executive, said the company has “taken decisive action” to safeguard the Premier from the collapse in global commodity prices in the wake of the coronavirus pandemic.

“The BP acquisitions and our proposed long-term refinancing will position Premier to benefit from materially rising near-term production, additional free cash flow generation and a strengthening balance sheet, against a backdrop of a recovering oil price.”

Just in: the recovery across the eurozone construction sector has slowed.

New data from Eurostat shows that production rose by 4% during June - a slowdown from May’s bounceback. This leaves the sector around 6% smaller than a year ago.

They say:

In June 2020, a month marked by some relaxation of COVID-19 containment measures in many Member States, the seasonally adjusted production in the construction sector rose by 4.0% in the euro area and by 2.9% in the EU, compared with May 2020.

In May 2020, production in construction increased by 29.4% in the euro area and by 22.3% in the EU. In June 2020 compared with June 2019, production in construction decreased by 5.9% in the euro area and by 5.8% in the EU.

Eurozone construction to June 2020

Frasers urges help on rent and business rates

Back in the UK, Mike Ashley’s Frasers Group has threatened to close stores if landlords will not agree to move to rents based on sales figures.

Askley is demanding rent changes after Brexit and the coronavirus pandemic led to “the most challenging year in the history of the company”.

He wants rents to be pegged to turnover, to recognise the challenges on the high street, saying:

“Long-term leases will be signed with collaborative landlords and those willing to co-invest in the elevated store model. However, it is possible further store closures will occur over the coming year where such terms cannot be agreed.

Frasers is holding a press conference now, but most journalists haven’t been allowed in!

The FT’s Jonathan Eley is there, though, and kindly tweeting the details - including a plea from Ashley for help on business rates.

South Korea market slides amid pandemic worries

A South Korean dealer at the Hana Bank in Seoul, South Korea, today
A South Korean dealer at the Hana Bank in Seoul, South Korea, today Photograph: Jeon Heon-Kyun/EPA

South Korea’s stock market had a particularly rough day, with the Kospi 200 index sliding by 3.8% by the close.

Shares slid after South Korea reported 288 new confirmed cases of the coronavirus — its third straight day of over 200 cases. Government ministers have warned it could lead to a national pandemic.

Health authorities are scrambling to slow an outbreak in the region around the capital, Seoul.

Many cases are linked to the cluster at the Sarang Jeil church in northern Seoul, which has grown to more than 600. Some worshippers have also attended anti-government protests in central Seoul in recent weeks, which has helped the virus to spread.

Vice health minister, Kim Gang-lip, told reporters that there is now a risk of transmission at over 100 sites, including workplaces:

“This is a grave situation that could possibly lead to a nationwide pandemic.”

The European selloff is gathering pace, as the latest jump in Covid-19 cases also worries investors.

The FTSE 100 has now shed 99 points, or 1.6%, this morning to 6014 points, its lowest in nearly two weeks. The French, German, Italian and Spanish markets are all down around 1.6%.

This follows the news that Germany has recorded 1,707 new cases of coronavirus in the past 24 hours, the highest daily toll since April. India and Ukraine also posted record daily case numbers today (our main Covid-19 liveblog has the details).

Connor Campbell of SpreadEx explains that this, and the Fed’s reluctance to launch new unconventional stimulus measures, are hurting markets.

With hopes dashed of a Fed intervention in the short term, the latest Covid-19 headlines carried an extra sting

Germany has just posted its highest number of new cases since April, Croatia may be the next country to be removed from the UK’s travel corridor, Australia’s Qantas airline has warned travel to the US is likely not possible until there is a vaccine, and South Korea is in danger of seeing a return to a nationwide outbreak after recording more than 1500 cases in the last week.

That’s a lot of bad news for investors to deal with, and they reacted as you’d expected.

Updated

Today’s selloff is driven by disappointment that the US Federal Reserve isn’t pledging fresh measures to stimulate the American economy (and prop up the markets)

Some investors had hoped the Fed would start actively targeting long-term interest rates, by long-term government bonds. This unconventional move, called yield curve control, would give policymakers another tool if they couldn’t use short-term interest rates (because they’re at record lows).

Last night’s minute showed that Fed policymakers aren’t convinced that yield curve control is needed yet.

John J Hardy, Head of FX Strategy at Saxo Bank, explains:

Equities dropped late yesterday and overnight in the wake of the FOMC minutes, which seemed to show a rather lukewarm view of yield-curve control and a less aggressive intent to provide guidance on the path of interest rates that had been signalled in an earlier meeting.

Today’s losses mean European stock markets are down 12% on average this year, due to the slump triggered by the Covid-19 pandemic.

The FTSE 100 is one of the worst performers, down nearly 20% since January 1st.

European stock markets,August 20 2020

FTSE 250 falls, but AO World and Frasers rally

The FTSE 250 index, which tracks smaller UK companies, has also fallen - but just down 0.65% at 17,469.

It’s being cushioned by two UK retailers - Sports Direct owner Frasers, and online electricals group AO World.

Frasers told the City it expects to grow underlying earnings by 10%-30% this financial year, despite posting a 19.9% plunge in pre-tax profits due to the lockdown.

Chairman Mike Ashley says Frasers will expand its web operations:

The Group now intends to invest in excess of £100 million in its digital elevation strategy. With a particular focus on Flannels and an enhanced customer experience, this investment will be integral in supporting the continued growth of our online channels.

Shares have jumped 9.5%.

AO World, which sells fridges and TVs online, is up nearly 5% after reporting a surge in sales during the pandemic. It reckons people are now happier to buy white goods online:

The demand for AO’s products and services has been sustained since competitor stores started to re-open at the beginning of July. This reaffirms our belief that this is a structural shift in demand where customers have found a better way to shop the electricals category.

All the main European bourses have dropped at the open.

France’s CAC lost 1.3% and Germany’s DAX is down 1.1% after America’s central bank flagged worries over the US recovery.

Updated

FTSE falls back towards 6,000 points

The UK’s FTSE 100 index of blue-chip companies has fallen 79 points at the start of trading, a drop of 1.3%.

That takes the Footsie down to 6032 points, its lowest level since 10 August.

Nearly every share is down, led by companies who are particularly vulnerable to the pandemic.

That includes mining firms Evraz (-6%) and Antofagasta (-4.3%), asset managers Standard Life (-4.5%) and M&G (-4.8%), and airline operator IAG (-4%).

The FTSE 100
The FTSE 100 in the last two months Photograph: Refinitiv

Australian airline Qantas has highlighted the economic damage of Covid-19, by posting the worst results in its hundred-year history.

My colleague Ben Butler explains:

The coronavirus pandemic has driven Australia’s flagship carrier, Qantas, to declare its worst financial result for a century – a $2bn loss – amid widespread devastation in the travel and tourism industries.

Despite concerns in the market that the airline is bleeding cash as much of its fleet remains grounded, the company declared on Thursday that it remains a going concern and its chief executive, Alan Joyce, took a swipe at stricken rival Virgin Australia by declaring that after the crisis Qantas would be “the only Australian airline that can fly long haul”.

Fed growth forecasts cut

Worryingly, the Federal Reserve’s staff have more pessimistic about the prospects for the US economy, given the spread of Covid-19.

Last night’s minutes show that the Fed’s economists have cut their forecasts for growth and employment gains:

The projected rate of recovery in real GDP, and the pace of declines in the unemployment rate, over the second half of this year were expected to be somewhat less robust than in the previous forecast.

Fed staff are worried that the resurgence of coronavirus infections this summer will knock the recovery -- even if Congress does (eventually) agree a new stimulus package.

Although the staff assumed that additional fiscal stimulus measures would be enacted beyond those anticipated in the June forecast, the positive effect on the economic outlook was outweighed somewhat by the staff’s assessment of the likely effects of several other factors.

Those factors included the increasing spread of the coronavirus in the United States since mid-June; the reactions of many states and localities in slowing or scaling back the reopening of their economies, especially for businesses, such as restaurants and bars, providing services that entail personal interactions; and some high-frequency indicators that pointed to a deceleration in economic activity.

Updated

You can read the Federal Reserve’s views on the US economy here --> Minutes of the Federal Open Market Committee.

Stephen Innes of AxiCorp suggests you might want a strong coffee first...

While the FOMC minutes never make for the best of reads, this one certainly doesn’t go down in the annals as the Next Great American Novel.

It may not be a riveting read, but last night’s “central bank policy linguistics” have left traders more anxious - and less confident that the Fed will keep printing money to support prices.

Innes adds:

Looking across a swath of assets, my take is the market has gone from ‘don’t fight the Fed’ mode, to now keeping an eye on the Fed mode, after the minutes expressed some concerns about the rapidly rising balance sheet.

Indeed this doesn’t sound like the same Fed where the market had assumed an incomprehensibly far fetched policy principle that the FOMC would continue to monetize all debt.

Updated

The new that the United States will demand today that all United Nations sanctions be reimposed against Iran is also worrying investors.

Jim Reid of Deutsche Bank tells clients:

This morning in Asia markets are following Wall Street’s lead with the Nikkei, Hang Seng, Shanghai Composite, Kospi and ASX all in the red.

The move for the Kospi hasn’t been helped by the latest virus data in South Korea, with a reported 288 cases in the past 24 hours. Meanwhile, reports that the US has suspended its extradition treaty with Hong Kong and ended reciprocal tax treatment on shipping also isn’t helping broad sentiment this morning, as is the news that President Trump is calling on the UN to renew all nuclear-related sanctions on Iran

Asia-Pacific stock markets have just had their worst day in a month, Reuters reports:

The Fed’s concern about the US economy was one factor, along with the latest jump in Covid-19 cases and tensions between China and Australia:

MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1.79%, the biggest daily decline in five weeks. U.S. stock futures were down 0.55%.

Australian stocks dropped 0.77% due to concern that ties with China will worsen further after a report that Australian regulators will reject acquisitions by a Chinese company.

Shares in China fell 1.28% due to dwindling expectations for additional monetary easing after the People’s Bank of China kept a benchmark lending rate unchanged on Thursday.

Japanese stocks slid 1.06%. South Korean stocks tumbled 3.5%, the biggest daily decline since June 15, amid a spike in coronavirus cases in Seoul.

Introduction: Fed warns coronavirus will ‘weigh heavily’ on the economy

The Federal Reserve Board building on Constitution Avenue.
The Federal Reserve Board building on Constitution Avenue. Photograph: Leah Millis/Reuters

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

Stock markets have had a reality check.

America’s central bank has unnerved investors by expressing significant concern about the impact of Covid-19 on the US economy.

In the minutes of its last meeting, the Federal Reserve warned that the pandemic is creating extremely high uncertainty over growth prospects, after a historic slump in GDP in April-June.

Uncertainty surrounding the economic outlook remained very elevated, with the path of the economy highly dependent on the course of the virus and the public sector’s response to it

The Fed also warned that the recent pick-up in employment appears to have slowed since mid-June, with growth and job creation heavily dependent on tackling the virus.

As the Fed put it:

Participants generally agreed that prospects for further substantial improvement in the labor market would depend on a broad and sustained reopening of businesses. In turn, such a reopening would depend in large part on the efficacy of health measures taken to limit the spread of the virus....

Members stated that the path of the economy would depend significantly on the course of the virus. In addition, members agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.

No argument there! But the Fed minute’s also revealed that many policymakers felt that new stimulus measures, such as caps on bond yields, were “not warranted in the current environment”.

That’s dampened hopes that central bankers will always do whatever it takes to support asset prices.

There’s also renewed anxiety over the spread of Covid-19, after Germany reported its biggest daily case numbers since April and South Korea warning that it risks a “nationwide pandemic”

In response, Asia-Pacific markets have slid into the red, with Japan’s Nikkei and China’s CSI 300 both down 1% and South Korea’s Kospi shedding 3.8%.

European markets are heading for falls too

Also coming up today

The European Central Bank will give its view on the pandemic today, with the minutes of its latest meeting. We also get a new healthcheck on building firms across the eurozone (corrected).

Plus, the latest US weekly unemployment figures are out - they’ll show whether the Federal Reserve is right that job creation has slowed....

The agenda

  • 10am BST: Eurozone construction output for June
  • 12.30pm BST: European Central Bank releases its Monetary Policy Meeting Accounts
  • 1.30pm BST: US weekly jobless claims figures

Updated

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