US economy adds far fewer jobs than expected; UK consumer groups warn on fuel poverty – as it happened
The US economy added just 194,000 jobs in September, far fewer than expected and the second month of disappointing growth, as the Delta variant and a tight labor market appeared to be holding back hiring.
The S&P 500 and the Nasdaq have risen slightly, while the Dow Jones is flat. Over here, the FTSE 100 is 0.36% ahead and Italy’s stock market is up 0.3%, while Germany’s Dax and France’s CAC have slipped slightly.
European gas prices have risen again today but only partially recouped yesterday’s losses. They are about a third below the record highs hit on Wednesday, but are up about 300% this year.
The Ofgem boss said that the energy price cap would rise sharply in April and said the regulator would review the way it is calculated, in light of soaring wholesale gas prices.
Our economics editor, Larry Elliott, has taken a look at how a resentful UK plc hit back at Boris Johnson’s conference business-bashing this week.
The transport secretary, Grant Shapps, has said he wants to scrap costly PCR tests for international travellers returning to England in time for the October half-term holiday, in a boost to airlines and the broader industry.
The pent-up public demand to seek out entertainment as Covid restrictions lifted has fuelled a boom in leisure pursuits, with cinemas and bowling alleys hitting pre-pandemic highs, while Brighton Pier has recorded the best week in its history.
A struggling household energy supplier switched thousands of unprofitable customers to rival companies without their express consent, in an apparent bid to avoid financial collapse.
Chinese officials have ordered more than 70 mines in Inner Mongolia to increase coal production by almost 100m tonnes, with the country battling its worst power crunch and coal shortages in years.
Thank you for reading. Have a great weekend! We’ll be back next week. Good-bye! - JK
Wall Street opened higher, but has just turned negative after the disappointing US job market data, with the Dow Jones down 0.2%.
Over here, the FTSE 100 index is 25 points, or 0.36%, ahead at 7,103. Germany’s Dax is flat while France’s CAC has slipped 0.16% and Italy’s FTSE MiB has eked out a 0.2% gain.
The US economy added just 194,000 jobs in September, far fewer than expected and the second month of disappointing growth, as the Delta variant and a tight labor market appeared to be holding back hiring, my colleague Dominic Rushe reports from the US.
Economists had expected the job market to rebound in September, adding 500,000 jobs – but the actual figure was lower than the revised figure of 366,000 new jobs added in August, and the smallest gain since December 2020.
The unemployment rate dipped again to 4.8% in September and the number of unemployed people fell by 710,000 to 7.7m. Both measures are down considerably from their highs at the end of the February-April 2020 recession but remain above their levels prior to the pandemic (3.5% and 5.7 million, respectively, in February 2020).
The latest snapshot of the US jobs market was compiled in mid-September, when the Delta variant was near its peak in the US. The Bureau of Labor Statistics said 1.6 million people were prevented from looking for work due to the pandemic, little changed from August.
October’s job report will now be very closely watched to see if the last two months are the start of a serious trend or an anomaly, as the US recovers from the worst of the pandemic.
Daniele Antonucci, chief economist & macro strategist at Quintet Private Bank, said:
The rate of US job creation disappointed for a second month in a row, increasing market doubts on whether the Fed could really be in a position to announce the tapering of its asset purchases as soon as next month.
Not all underlying details are so underwhelming, though, as the unemployment rate declined for the third consecutive month, to a level that may begin to approach the threshold below which underlying inflationary pressure could intensify further. What’s more, hourly earnings surprised to the upside and accelerated relative to the previous month.
Even though the latest jobs report may challenge the widely held view in the marketplace that a taper announcement is very likely at the November policy meeting, we suspect that the timing isn’t going to be altered just by one piece of data. Unless additional downside surprises were to materialise, we think a formal tapering signal before year-end is still seen by the Fed committee as the central scenario.
The key question, regardless of the precise QE path, is what happens to the policy rate. Our view is that the timing and pace of the taper aren’t a direct signal about future rate increases. While the Fed projections indicate that a growing number of policymakers believes a rate increase may be warranted at some point in 2022, we think it may be about one year away, if not longer.
US stock market futures have risen after the weak job market data, as it cast some doubt over the Fed’s plans to taper its stimulus programme.
They are suggesting that the S&P 500 will open 0.2% higher, the Nasdaq is set to gain 0.5% and the Dow Jones looks to be unchanged.
Simon Lister of the financial comparison website, InvestingReviews.co.uk, said:
This was a big miss for the world’s biggest economy and will prove a headache for Jerome Powell and the Federal Reserve.
The expected tapering in asset purchases has just gone from probable to possible in one print. The chance of a rate rise in November is now negligible.
The shadow cast over the US jobs market by the pandemic is proving longer than many thought. The not immaterial upward revision for August will take part of the sting out out this weak number but markets will still go into the weekend on a low.
The August and July numbers were revised higher, to 366,000 from 235,000, and to 1.09m from 1.053m.
John Leiper, chief investment officer at Titan Asset Management, said:
Today’s non-farm payroll number came in below expectations at 194k versus the consensus forecast for 500k. That’s potentially weak enough to push back taper although the unemployment rate continued to fall to 4.8% from 5.2% and the average hourly earnings rate picked up slightly from 4.3% to 4.6% year-on-year.
The initial market reaction was relatively muted although the 10-year Treasury yield is off the day’s high at 1.60%. Bottom line, whilst the US economy continues to reopen and recover, data is coming in below expectations. That delta effect is what matters to markets and without further stimulus we see downside risks to asset prices in general, particularly US equities which have recently broken through key areas of technical support.
The big question is whether this could alter the US Federal Reserve’s tapering plans.
Analysts have pointed to a huge decline in US government jobs.
Richard Flynn, managing director at Charles Schwab UK, said:
Investors will be disappointed by today’s data, particularly as there has been much more positive economic data issued recently: from key September manufacturing reports showing stronger-than-expected growth to, personal income and spending rising in August, and September consumer sentiment unexpectedly being revised higher.
However, as the implication of economies reopening are felt across the world, inflation is a key metric that investors are tracking. According to Bloomberg analytics, inflation has been a hot topic in world-wide earnings conference calls over the past year.
In monitoring transcripts of over 1,500 global stocks’ earnings calls, the word “inflation” has popped up more than 3,600 times, the highest level in over 20 years. Jerome Powell did say recently however that the current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy -- which is a process that will have a beginning, a middle and an end. Investors can gain some assurance from this.
US economy adds just 194,000 jobs in September
NEWSFLASH: The US non-farm payrolls figures are out. Yikes. The economy added just 194,000 jobs in September, far fewer than the 500,000 expected. The jobless rate fell, though, to 4.8% from 5.2%.
Routine supervision and regular stress testing are being used to monitor the risk-taking, but banks remain resilient, paying out £2.3bn in dividends in the first half of this year, the Bank of England added.
The FPC noted uncertainty over how Evergrande Group, one of China’s biggest property developers, can meet its financial obligations.
A disorderly failure could pose risks to the wider property sector in China with potential spillovers internationally.
But the Bank’s stress tests this year showed UK lenders would cope with a severe downturn in China and Hong Kong and sharp adjustments in global asset prices, it added.
BOE warns of potential sell-off in global markets
The Bank of England has warned that rising inflation could trigger a sell-off in global financial markets, with damaging consequences for the UK economy, reports our economics correspondent Richard Partington.
Against a backdrop of soaring energy prices and severe shortages of workers and materials, Threadneedle Street said inflationary pressures were rising as the pace of economic recovery from the pandemic slows.
In its regular financial health check, the Bank’s financial policy committee said risky asset prices in several markets had risen to historically high levels and could be primed for a sharp fall amid rapid growth in inflation.
“Asset valuations could correct sharply if, for example, market participants re-evaluate the prospects for growth, inflation or interest rates,” the FPC said.
Huw Pill, who replaced Andy Haldane at Threadneedle Street last month, said inflationary pressures were still likely to prove temporary and would fall back over time, as the economy adjusted after disruption caused by Covid and Brexit.
BOE: Companies at risk from Covid emergency loans
Many companies that took out emergency loans during the Covid-19 pandemic are now at risk of collapse because of those same loans, the Bank England has warned.
Companies across the UK which before Covid would have been turned down for loans were able to tap into government-backed schemes during pandemic times, reports PA.
Now, many of these are facing loan bills that they might be unable to pay off.
On Friday, the Bank warned that higher borrowing during the pandemic has likely put more businesses at risk.
The increase in debt - though moderate in aggregate - has likely led to increases in the number and scale of more vulnerable businesses.
As the economy recovers and government support, including restrictions on winding up orders, falls away, business insolvencies are expected to increase from historically low levels.
Around 1.7 million companies borrowed money under three emergency loan schemes that were launched last year. Many of them were tiny companies that had not borrowed before, and desperately indeed money to stave off immediate collapse.
Though the terms of the loans are generous - the interest on Bounce Back Loans, which were the most common, is only 2.5% - the businesses still have to pay back their banks. They have up to 10 years to do so and can request several periods of lower payments.
Neil Wilson, chief markets analyst at Markets.com, says a weak number could just dissuade the Fed from announcing its taper in November, but he see this as a low-risk outcome.
Non-farm payrolls are important and could be market moving later since the Fed has explicitly tied tapering + subsequent rates lift-off to the labour market.
More likely is steady progress on jobs (ADP was strong on Wed) and the November taper announcement to follow. The persistence of inflation and rising fuel costs in particular has changed the equation for the Fed entirely.
Benign inflation that we were used to is no longer to be counted on to provide cover for trying to juice the labour market. The problem is not demand side, it’s supply side. Central banks are seeing rising inflationary pressures that are proving more persistent than thought. Slowing economic growth and risks to the outlook stem from the supply side not the demand side – so pumping the demand side even further into a supply side crisis is not helping matters much.
In just over an hour, we’ll be getting the latest US non-farm payrolls figures. The monthly report is expected to show more than 500,000 jobs were added in September, following a 235,000 increase in August.
Victor Argonov, senior analyst at investment firm Exante, says the September jobs report is unlikely to ruin Fed’s tapering plans.
Today’s US non-farm payrolls report will be the last one before the Federal Reserve’s next policy meeting on November 3, when the central bank is expected to reveal the timing and pace of reduction of its vast asset purchases programme.
We reckon it would take a colossal miss to change the Fed’s tapering plans. Even if it misses the mark by a good few-hundred-thousand, we don’t think it would raise much doubt over the Fed’s plans to reduce its bond buying programme.
The headline jobs report will probably meet or beat the expected number given the fact we have seen mostly better-than-expected NFP indicators over the last couple of weeks.
The ADP private sector payrolls report, for example, beat expectations quite easily on Wednesday with a print of 568k compared to 425k expected. Jobless claims fell more than expected and the employment component of the ISM manufacturing PMI also topped expectations. So, most indications suggest we will get a good enough jobs number, one that will please the Fed before it gently applies the brakes on QE.
Here is an analysis of the energy crisis, entitled: Europe’s soaring gas prices: does Russia hold solution to crisis?
The natural gas market has entered uncharted territory. The movements in the price of gas on Wednesday had been, in the words of one analyst, “unprecedented since the year dot of gas liberalisation in Europe”. In record swings, Dutch wholesale gas, a European benchmark, soared by 30% within one period of three or four hours from an already eye-watering level.
These are chilling numbers for European governments with winter stretching ahead, and when the EU sneezes, the UK, heavily reliant on imports from across the Channel, also catches a cold.
The shortage was caused by a confluence of events around the world, as economies emerged power hungry from their pandemic slowdowns. At the centre of the storm is Russia. While it supplies only 1% of UK gas, Russia is the biggest supplier to Europe, accounting for roughly 40% of all EU gas. And a squeeze on European gas volumes leads to price hikes in the UK and beyond...
“While Russia has been technically fulfilling its contractual obligations with the west, it has not been interested in capitalising on the high demand to send additional gas to its European clients. It is the only country that could really ease the pressure on the prices and has decided not to,” said Maria Shagina, a postdoctoral fellow at the University of Zurich, who focuses on energy politics.
Shapps wants to scrap costly PCR tests for travellers by half term
In other (exciting) news, the transport secretary, Grant Shapps, said he wants to scrap costly PCR tests for international travellers returning to England in time for the October half-term holiday, in a boost to airlines and the broader industry, reports Mark Sweney.
The tests, which cost about £75 each on average, would be replaced by cheaper lateral flow tests. The move to make travel easier follows the government announcement on Thursday that the number of countries on the “red list”, which have the toughest restrictions, is to be cut to only seven.
Addressing plans for a shift in policy on testing, Shapps said, speaking on Sky News:
We want to get this done for half-term for people.
When it comes to the safety aspect, we are still requiring a test. But we are going to move that down from being a PCR one, an expensive one that you have to send away to a lab, to a lateral flow test, so that will help and enable us to monitor things. We anticipate having it ready for the half-term. What a difference it will make for people.
Gas prices rise again
Returning to earlier news that gas prices are rising again on expectations of higher demand for heating and amid supply concerns. They have partially recouped yesterday’s losses, but remain below the record highs reached on Wednesday.
* European gas prices are now around a third off peaks hit earlier this week, though they still are up some 300% this year.
* British gas for Q1 2022 delivery rose 17.9p to £2.7 per therm.
* The Dutch gas price for December delivery jumped €4.14 to €103.85 per megawatt hour.
* The November gas price at the Dutch TTF hub dipped by 50 cents to €101.50, having risen to €105.00 euros/MWh in earlier trade.
Refinitiv analysts said:
The signal from weather inputs is moderately bullish since wind output remains below normal and temperatures are expected to dip further, supporting thermal power generation and heating demand in Europe.
Gas heating demand is expected to ramp up sharply and weather will be the major driver of gas fundamentals.
Other energy news:
* The UK system was 10 million cubic metres over-supplied on Friday, National Grid data showed.
* In the UK, peak wind power output will drop from 5.1 GW on Friday to 3.8 GW on Saturday, Elexon data showed.
* Gazprom’s China-focused Amur gas processing plant in Russia’s Far East has halted operations after a fire early on Friday, a spokesman for the plant told Reuters. The broader implications were not immediately clear.
* The benchmark Dec-21 EU carbon contract was down 49 cents at €59.88 per tonne.
The risk of power cuts to factories and homes this winter has increased, the National Grid warned, as the business secretary prepared for a crunch meeting with industry bosses concerned the energy crisis may force them to scale back production, my colleague Rob Davies reported last night.
The price of gas and electricity has soared in recent weeks, leading to the collapse of multiple energy suppliers and prompting warnings of higher costs for consumers, factory shutdowns and increased pollution as plants switch to dirtier but cheaper fuels.
The unfolding energy crisis has coincided with the Grid’s annual assessment of Great Britain’s resilience to disruption to electricity supplies, with the key “margin” figure falling to its lowest in five years.
Yesterday, the energy regulator, Ofgem, admitted that it needs to pay more attention to the potentially risky business models of small suppliers, amid a wave of company failures caused by whipsawing gas prices.
Speaking at an annual conference held by the trade body Energy UK, Ofgem’s chief executive, Jonathan Brearley, said it was likely that more suppliers would fail, adding to the 12 that have gone under this year.
We will need to regulate the energy market differently. When gas prices hit, many suppliers simply couldn’t cope with such a sharp, sustained shock.
However, when quizzed on BBC radio 4’s Today programme this morning, he rejected criticism of the regulator, stressing that “every company is feeling the strain”.
Gas prices are rising again. Dutch wholesale gas for delivery in the first quarter of 2022 has jumped 6.4% to €101.2 per mega watt hour, according to a newsflash on Reuters.
UK gas for delivery in November is up 5.1% to 258.16p per therm. This is below the record of 407p reached on Wednesday.
China orders coal miners to boost output
Chinese officials have ordered more than 70 mines in Inner Mongolia to ramp up coal production by nearly 100m tonnes, as the country battles its worst power crunch and coal shortages in years, Reuters reports.
The authorities face record-high prices and shortages of electricity that have prompted power rationing across the country, crippling industrial output. The proposed increase would make up nearly 3% of China’s total thermal coal consumption.
In an urgent notice dated 7 October, the Inner Mongolia regional energy department asked the cities of Wuhai, Ordos and Hulunbuir, as well as Xilingol League, or prefecture, to notify 72 mines that they may operate at stipulated higher capacities immediately.
“This demonstrates the government is serious about raising local coal production to ease the shortage,” said a Beijing-based trader, who estimated the production boost may take up to two to three months to materialise.
The 72 mines listed by the Inner Mongolia energy bureau, most of which are open pits, previously had authorised annual capacity of 178.45 million tonnes.
Lara Dong, senior director with IHS Markit, said:
It will help alleviate the coal shortage but cannot eliminate the issue.
The government will still need to apply power rationing to ensure the balancing of the coal and power markets over the winter.
Inner Mongolia is China’s second-biggest coal-producing region, churning out just over 1bn tonnes in 2020 and accounting for more than a quarter of the national total, official data show.
However, that output was down 8% in 2020 and was falling every month from April through July this year, partly due to an anti-corruption probe initiated last year by Beijing targeting the coal sector, which led to lower production as miners were banned from producing above approved capacity.
Neighbouring Shanxi province, China’s biggest coal region, had to close 27 coal mines this week due to flooding.
Europe’s stock markets are mixed this morning. The UK’s FTSE 100 has edged 11 points, or 0.16%, higher to 7,089. Germany’s Dax and France’s CAC both slipped about 0.2%, while Italy’s FTSE MiB us 0.1% ahead.
Odeon cashes in on No Time To Die
Away from the energy crisis, Mark Sweney, our media business correspondent, has looked at how Odeon is doing following the premiere of the latest James Bond movie.
The James Bond juggernaut continues to break records with Odeon, the UK’s biggest cinema chain with 112 sites across the UK, selling more than one million tickets in the first week since No Time To Die’s premiere.
The chain said that the film, which became the most successful movie at the British box office since the pandemic began after just three days, has now notched up the highest attendance since Star Wars: Rise of Sky Walker in 2019.
A significant sign of encouragement for the movie industry, which has struggled to attract mass audiences when cinemas have been allowed to reopen during the pandemic, is that about half of those who have watched Daniel Craig’s last outing as 007 are visiting a cinema for the first time since the pandemic began.
The all-important movie snack business also appears to be back on track, an important source of profits for cinema owners, with Odeon so far selling Bond fans six tonnes of Pick ‘n’ Mix, popcorn weighing the same as 23 Aston Martin DB5s and enough soft drinks to fill the luxury car’s tank nearly 3,000 times.
Asked whether the regulator should mandate more storage of gas, the Ofgem boss said this “would require policy, which is a matter for government”. He also noted:
Italy has a lot more storage than us. Italy is facing huge price rises because the point is that all of us are part of a global market. So there may be a case for it ... but it wouldn’t be the solution to the problem we are facing right now.
Ofgem CEO: price cap to rise in April, promises review
Britain’s energy regulator Ofgem has no plans to increase the consumer price cap before April but is likely to introduce a significant rise then, reflecting soaring wholesale gas prices, according to its boss.
Jonathan Brearley, chief executive of the energy regulator, said prices are likely to go up “significantly” for households next April. He added that the watchdog will look at how the energy price cap is calculated, in light of soaring wholesale gas prices. He told BBC radio 4’s Today programme:
We can’t predict everything, and the wholesale market, as we’ve seen, has gone up and down extremely quickly so we can’t predict fully what that will be.
But, looking at the costs that are in the system, we are expecting a significant rise in April...
We do expect significant rises in prices.
This is an extraordinary event, this is an incredible change we’ve seen since August in the underlying price of energy. Naturally any regulator is going to look at that and think: well what does this mean for the systems and the processes and the formulae we need to calculate things like the price cap. We need to have a wider look across the regulatory framework to make sure the system is robust enough to manage this sort of thing in the future.
He also said other countries face similar challenges.
The root cause of this is an extraordinary change in the gas price. It isn’t just Britain that’s struggling with this. We talk to regulators across the world. Look at France, Spain, Germany, Japan, all systems are struggling to cope. with such an extraordinary change. We need to sit down with the industry, look forward and make sure we make a more resilient market that can manage shocks like this in the future.
Asked whether the energy price cap could be changed more frequently, he replied:
Too early for us to come out with solutions.
We have no plans to raise the price cap before April. We need to have a look at the formulae ... the calculations that underpin it.
He said “every [energy] company is feeling the strain”.
The UK’s petrol Retailers Association, which represents two-thirds of filling stations, has said that the fuel crisis was made worse by a change brought in by the government, forcing retailers to drain E5 petrol out of tanks to make way for E10 in September.
The transport secretary, Grant Shapps, denied this on BBC radio 4’s Today programme:
This is factually untrue. This has had absolutely no impact whatsoever on the process.
That changeover is all the way to November… That isn’t part of the story.
What happened here is as we know there is a global shortage of HGV drivers, it’s exacerbated because of coronavirus. We have plenty of fuel.
Another analyst, Mike Fulwood, senior research fellow at the Oxford Institute for Energy Studies, was also sceptical that Russia was able to supply more gas to Europe, noting that production was already at record levels.
“Russia’s been faced with the same demand pressures” as elsewhere, he noted. He told CNBC’s Squawk Box Europe:
It was a very cold winter in Russia last winter and Russian production is actually at record levels, it’s well up on last year of course when demand was down, but it’s also up on 2019 levels, and they’ve been having to refill their own storage as well which was depleted badly because of the cold weather.
So it’s extremely doubtful whether they could supply more gas, whatever the route.
Introduction: US warns Russia over energy crisis, UK consumer groups warn on fuel poverty
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the UK’s supply chain crisis and business.
The US has warned Russia not to exploit the current gas crisis. The US national security adviser Jake Sullivan has told the BBC that any attempts to exploit the crisis would backfire.
President Vladimir Putin has indicated that Russia might boost supplies, but some analysts doubt that this will ever happen. Russia appeared to use the crisis as leverage to get its controversial Nord Stream 2 pipeline approved.
Adeline Van Houtte, Europe analyst at the Economist Intelligence Unit, says:
Comments from Mr Putin appear to have provided some comfort to the market. However, whether these additional gas supplies depend on a quick approval of Nord Stream 2 or not may not be the main issue.
Currently, the Russian domestic gas market remains tight, with its inventories running low, output already near its peak and winter looming in Russia as well, limiting gas export capacity.
There is also little sign that Gazprom — the Russian gas export pipeline monopoly, which supplies 35% of European gas needs — is attempting to pump more gas to Europe’s spot buyers via existing routes, and overall given its small room for manoeuvre, it is unlikely that Gazprom could deliver more than around 190bcm (billion cubic meters) to Europe this year. European prices are unlikely to cool substantially in 2021.
More than a million extra British households won’t be able to afford to heat and power their homes next spring, as energy bills are expected to rise again in April, according to a charity.
National Energy Action says 1.2 million to 1.5 million additional households will be plunged into fuel poverty, the BBC reported. About 4 million are already in fuel poverty, so this would take the total to up to 5.5 million. Ofgem, the regulator, said the price cap would have to rise again next year if wholesale gas prices continue to go up.
Analysts are forecasting that this could push a typical annual bill by a further £400 to £600 next April, which would mean a 20% increase in households experiencing fuel poverty.
Clare Moriarty, chief executive of Citizens Advice, said fuel poverty definitions vary across the UK, but it’s essentially people facing a choice between heating and eating. She told BBC radio 4 Today programme that the government needs to plan ahead:
It’s really important the government thinks now about what may need to be put in place come next spring when we’re going to see even more problems with people’s energy bills.
She doesn’t think the energy price cap is “broken,” though, saying the situation would be even worse without it.
Those struggling can get some help: there’s the Warm Home Discount (£140 towards your fuel bill if you qualify); winter fuel payments for older people, schemes to make homes more energy efficient, and a £500m household support fund to help people who are in hardship, which runs out in March. But these are winter schemes, Moriarty said, and people will need more support next spring.
In the meantime, a key survey showed that China’s service sector returned to growth last month, as a major Covid-19 outbreak in the eastern province of Jiangsu receded, offering some support to a slowing economy.
Asian shares have risen, and are set to snap four weeks of losses, with Chinese markets coming back after a long holiday. Japan’s Nikkei is 1.3% ahead while China’s CSI 300 made a similar gain and the Shanghei Composite Index rose 0.5%.
- 11am BST: Ireland inflation for September
- 12.00pm BST: Bank of England quarterly bulletin
- 1.30pm BST: US Non-farm payrolls for September (forecast: 500,000)