LIVE – Updated at 15:05
Dollar jumps and Wall Street futures fall after US economy adds over half a million jobs last month, more than expected.
The US dollar has now swung to a four-week high against the pound.
Sterling is down 1.2 cents at $1.2082, its lowest point since the first week of January.
Shares in London are climbing, as the pound falls against the resurgent dollar.
The FTSE 100 index has now gained 67 points today, or 0.86%, to 7887 points – a new four-year high, and close to its alltime high set in 2018.
Oil giant Shell (+3.3%), consumer goods maker Reckitt Benckiser (+3.2%) and pharmaceuticals firm AstraZeneca (+2.9%) are leading the risers.
Wall Street opens in the red
The US stock markets has dropped into the red at the start of trading.
The Dow Jones industrial average fell 143 points, or 0.4%, at the open to 33,910 points, while the broader S&P 500 index is down 1.1%.
The tech-focused Nasdaq has dropped by 2%, hit by the prospect of further interest rate rises and disappointing results from Amazon (-5.4%), Alphabet (-3.%) and Apple (-0.5%) last night.
Mike Bell, global market strategist at J.P. Morgan Asset Management, says January’s blowout jobs report is dampening hopes that interest rates may be cut this year.
“The much stronger than expected job gains took US equity futures lower, this is evidence that the big risk to markets this year is not a recession but a labour market that remains robust. This would mean the Fed cannot deliver the rate cuts that the market is pricing in.
“Ultimately, we still expect unemployment to rise this year and think that equity markets should deliver positive returns as they look ahead to the Fed cutting rates and potential economic recovery in 2024. But today’s data show the risks of being overweight growth stocks if the labour market remains strong.”
ING: Jobs surge is great news, which means a March rate hike
The US jobs surge has caught everyone off-guard, says James Knightley, chief international economist at ING.
The US added more than half a million jobs in January, way above what anyone expected given the softening economic newsflow and rising job lay-off announcements. Great news that ensures another 25bp hike in March, but we have to be wary of extrapolating from this one data point.
Knightley says the 517,000 increase in US employment last month is “a real surprise, which is difficult to explain”.
We have to just take that on the chin and say despite seven consecutive monthly falls in residential construction output, three consecutive falls in industrial production and consumer spending disappointing in November and December firms are still happy to hire.
Maybe the Fed will keep hiking for longer, but we will need to see the economy suddenly rebound to make this great job news continue.
Where were these 517,000 new jobs created last month?
Many were at restaurants and bars. Leisure and hospitality added 128,000 jobs in January, including 99,000 at food services and drinking places
Employment in professional and business services rose too – by 82,000, led by gains in professional, scientific, and technical services (+41,000).
Government employment increased by 74,000 in January. Employment in state government education increased by 35,000, reflecting the return of university workers after a strike.
Health care added 58,000 jobs in January.
In commerce, there were 16,000 new jobs at general merchandise retailers, plus 7,000 at furniture, home furnishings, electronics, and appliance retailers. But, health and personal care retailers cut 6,000 jobs.
Construction added 25,000 jobs in January, while manufacturing gained 19,000, and employment in social assistance increased by 21,000.
Overall, goods producing employment rose 46,000 with services adding 397,000 leaving private payrolls up 443,000.
January’s non-farm payroll is the strongest since last July:
John Kicklighter, chief strategist at DailyFX, has calculated that this is the biggest upside surprise to the US jobs report since the first wave of the pandemic:
It looks like the U.S. economy is doing absolutely fine, says Seema Shah, chief global strategist at Principal Asset Management, given the strong jobs growth last month.
“This is a labour market on heat. Nobody would have expected a number as monstrous as this!
With 517,000 new jobs added in December and the unemployment rate down to 3.4%, is Powell now wondering why he didn’t push back on the loosening in financial conditions?
It’s difficult to see how wage pressures can possibly soften sufficiently when jobs growth is as strong as this and it’s even more difficult to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in.
Today’s jobs report could enourage the Federal Reserve to keep raising interest rates, beyond market expectations, says John Leiper, chief investment officer at Titan Asset Management:
There is a huge disparity between market pricing and the commentary coming from central banks. Yes, you could make the case that Jerome Powell was a little more dovish than expected but he was very clear that his intention is to keep rates higher for longer until the job is done, and that simply isn’t the case yet.
Today’s employment data might catalyse a reversion in this apparent dichotomy. The January employment numbers came in way stronger than expected and y-o-y average hourly earnings and weekly hours worked also came in above expectations.
The stronger the economy the greater the likelihood the Fed continues to hike rates, beyond 5% and current market pricing. Bond yields are spiking and equity futures are selling off on the news, which follows weaker than expected earnings for big tech yesterday.
The dollar has jumped, and Wall Street futures have fallen, following the surge in job creation last month.
Traders are calculating that the strong employment market could encourage the US Federal Reserve to keep raising interest rates, and keep them high for an uncomfortably long time, to squeeze out inflation.
US Jobs Report smashes forecast with 517,000 increase
Newsflash: The US economy added many more jobs than expected last month.
The US non-farm payroll, just released, shows that America added 517,000 new jobs in January, smashing forecasts of a 185,000 increase.
December’s data has been revised higher too, to show that 260,000 new jobs were created (up from 223,000 originally).
The U.S. Bureau of Labor Statistics reports that “job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care.”
Employment also increased in government, partially reflecting the return of workers from a strike, they add.
The news that America added over half a million jobs last month suggests the US economy is avoiding dropping into recession, as Gary Black, managing partner at The Future Fund points out:
Although job creation jumped last month, average wage growth remained steady at 0.3%.
In January, average hourly earnings for all employees on private nonfarm payrolls rose by 10 cents, or 0.3%, to $33.03, today’s jobs report shows.
Over the past 12 months, average hourly earnings have increased by 4.4% – lagging behind inflation.
Traders are astonished by the surge in job creation across the US last month:
The US unemployment rate remained low in January, at 3.4%.
European stock markets have shaken of their earlier losses, as investors brace for the latest US jobs data in just a few minutes.
The UK’s FTSE 100 index is now up 33 points, or 0.4%, at 7853 points, only 50 points shy of its record high set in May 2018….
UK pay awards seen at new 30-year high of 6%
British employers’ pay award increases are on course to hit a median of 6% in January, the highest reading in over 30 years.
That’s according to provisional data from human resources information provider XpertHR today. provided to Reuters.
Based on 15 deals from major employers in January, XpertHR said the median whole economy pay award had risen to 6%, which would be the highest reading since September 1991. December and November both saw readings of 5%.
UK building society Nationwide continues to restrict card payments made to the cryptocurrency exchange Binance.
Nationwide says it has taken the step to protect customers, saying:
Our number one priority is, and always will be, keeping you and your money safe.
This is why we have taken the decision to restrict card payments made to the cryptocurrency firm Binance. This follows similar action from other providers, media coverage and regulatory uncertainty.
Customers can still withdraw money from Binance into their Nationwide account, though.
Crypto companies have been under more scrutiny since the collapse of FTX last autumn.
In December, Binance’s founder insisted it was ‘business as usual’ after customers withdrew $1bn in a day.
Related: Binance founder insists ‘business as usual’ after $1bn pulled out in a day
Food prices have fallen for the tenth month in a row, thanks to a drop in costs of vegetable oils, dairy and sugar.
The UN’s FAO Food Price Index dropped by 0.8% in January, which may indicate that food inflation in the shops may ease soon. The index is now almost 18% below its peak in March 2022 when the Ukraine war drove up commodity prices.
The index found that international wheat prices fell for a third consecutive month in January, as larger than previously estimated production in Australia and the Russian Federation boosted global supplies.
World prices of palm, soy, sunflowerseed and rapeseed oil dropped, as improved weather conditions in Argentina lately boosted production prospects.
UK regulator targets ‘fin-fluencers’ and social media in financial promotions crackdown
Britain’s financial watchdog has warned tech companies and social media influencers to clean up their act, and do more to prevent consumers from losing their money to scams.
The Financial Conduct Authority says it forced firms to amend or remove 8,582 promotions during 2022 – 14 times as many as in 2021.
Social media remains a major focus for the regulator’s work in combatting misleading promotions, it says today. It has worked with several Big Tech companies to change their advertising policies to only allow financial promotions that have been approved by FCA-authorised firms, but adds that “more needs to be done by tech companies to protect consumers”.
The regulator is also concerned about ‘Fin-fluencers’ – those with large social media followings who post about financial assets, and says it has aleady acted against several social media influencers over the past year.
Unauthorised individuals should not advise people on the merits of certain investments, as this will likely be subject to FCA regulations, so action could be taken against them, it warns.
Sarah Pritchard, executive director for markets at the FCA, says the regulator is concerned that people struggling with their finances may be more susceptible to scammers or adverts showing high risk, unregulated products.
‘Our expectations remain the same. Financial promotions must be fair, clear and not misleading. What has changed is the FCA’s approach. By drawing on better technology, we’re finding poor quality or misleading ads quicker. And where we find them, we’re stepping in to make firms improve them or remove them entirely.
‘This year, we will continue to put the pressure on people using social media to illegally promote investments, which put people’s hard-earned money at risk.’
Despite the drop in activity in January, there are “cautious signs of optimism on the horizon” for the UK’s services sector, according to Dr John Glen, chief economist of the Chartered Institute of Procurement and Supply (CIPS)
On the drop in the UK Services PMI to a two-year low of 48.7 in January, Glen says:
The lag in business activity is a result of cautious budget setting, recession risk, and a drop in consumer spending. Winter is still biting for UK service providers.
But supply chain managers in the sector are clearly putting growth in their new year resolutions thanks to rebounding supply chains. Stabilising energy costs, combined with a resurgence in demand from the US and Asia, hint that the worst may be behind us.
Business optimism is growing, shown by The Future Activity Index posting its highest monthly gain since November 2020, as businesses predict a return to growth and investment.”
UK services sector has worst month in two years
January was the worst month for the UK’s services sector in two years, with output falling as consumers and businesses cut back on spending.
The monthly survey of UK purchasing managers by S&P Global and CIPS found that strikes, worker shortages and higher interest rates were all hitting activiy.
The S&P Global / CIPS UK Services PMI fell to 48.7 in January, down from 49.9 in December.
This shows the fastest decline in business activity since January 2021, and is the fourth month running in which the PMI has been below 50, which shows a contraction.
This underlines the Bank of England’s concerns that the economy will contract during 2023.
Companies which reported a drop in business activity typically cited squeezed household incomes and cautious budget settling by corporate clients, due to high inflation and rising economic uncertainty.
Tim Moore, economics director at S&P Global Market Intelligence, says:
The latest survey illustrates that the UK economy risks falling into recession as labour shortages, industrial disputes and higher interest rates take their toll on activity.
“However, the downturn in service sector output remained relatively shallow at the start of 2023. Encouragingly, new order volumes moved closer to stabilisation and export sales picked up in January, which contributed to a marginal upturn in overall employment numbers.
There are signs that inflation is easing, with companies reporting that lower fuel bills lead to another slowdown in cost inflation. Business optimism rebounded to its highest since April 2022.
Eurozone economy grows for first time since June 2022
Business activity in the eurozone has returned to growth, according to a new survey that bolsters hopes that Europe can avoid a recession.
Data provider S&P Global reports that its final Eurozone Composite Output Index rose to 50.3 in January, up from December’s 49.3 and slightly above the preliminary reading.
This is the first time since June that the index has been above 50 points, indicating activity increased.
Companies reported higher levels of business activity and stronger jobs growth, while new orders fell at a slower rate than previously.
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
“A resumption of business output growth, even marginal, is welcome news and suggests that the eurozone could escape a recession. With price pressures down markedly in recent months, supply constraints easing and near-term energy market worries alleviated by subsidies, lower prices and a warm winter, business confidence has also lifted higher, adding to hopes that the upturn will gather steam in the coming months.
However, it remains too early to completely disregard recession risks. In particular, the impact of higher interest rates on economic growth has yet to be fully felt, and many companies are relying on backlogs of previously placed orders, accumulated during the pandemic, to sustain growth. Demand growth needs to accelerate to drive a more robust upturn, and it is worrying in that respect to see new orders continue to fall in January.
“It therefore remains to be seen whether the eurozone can build on the marginal expansion seen in January or whether we might see a repeat of 2012, when an encouraging return to growth at the start of the year proved fragile and gave way to a fresh downturn.”
Mick Whelan, general secretary of the Aslef union, has said train drivers might enter a second or even third year of striking, as industrial action by drivers hits services today.
He told LBC radio on Friday that train drivers have not had a pay rise in four years.
Asked how much longer union members can financially sustain striking, Mr Whelan said:
“I think we’re in this for the long haul. How long is a piece of string?
“If we don’t get a pay rise for four years will it be five, will it be six, will it be seven? Will it be stupid to stop this now then restart it some time in the future because you’d lose any impetus that you’ve gained?”
But Whelan also insisted that his members want to resolve the dispute over pay, jobs and conditions, saying:
“My people don’t want to be losing money, they don’t want to be standing out in the cold.”
Some train driver members of Aslef and the Rail, Maritime and Transport union have joined picket lines again today:
Turkish inflation drops, but still over 57%
Speaking of inflation…. the cost of living crisis in Turkey has eased slightly.
Turkish annual inflation dipped to 57.7% in January, official data showed on Friday, down from December’s 64.3% but higher than expected.
Month-on-month, consumer prices rose 6.65%, the Turkish Statistical Institute said, nearly twice a Reuters poll forecast of 3.8%.
The sharp monthly rise was due to a raft of new-year price hikes including for public transit, tobacco products and services, as well as rising food prices.
Turkey’s inflation rate hit a 24-year high in October, over 85%, after a series of interest rates cuts which hammered the value of the lira and pushed up import costs.
Related: Turkey hit with soaring prices as inflation nears 80%
UK faces ongoing recruitment crisis
UK employers are facing huge problems attracting staff, with more childcare and training needed to tackle the issue, a new survey has found.
Four out of five of 5,600 businesses polled by the British Chambers of Commerce (BCC) said they had problems recruiting workers in recent months.
Hospitality firms were most likely to face challenges when recruiting, followed by manufacturers and those in construction, although the public sector was also finding it difficult to take on staff, the BCC said.
Investment in training remains low, according to the report, with fewer than one in four firms surveyed having increased their investment plans over the last three months.
The BCC’s director of policy and public affairs, Alex Veitch, said the recruitment crisis is worsening.
“Today’s findings reveal that British businesses are facing the highest level of recruitment difficulties on record.
“Instead of seeing any easing of our extremely tight labour market, this issue only continues to head in the wrong direction.
The Bank of England is concerned that this struggle to find workers will keep pushing salaries up, creating inflationary pressures that could require higher interest rates.
Pound lowest since mid-January
The pound has weakened this morning, adding to yesterday’s losses, as traders weigh up whether the Bank of England could stop raising interest rates soon.
Sterling has lost a third of a cent this morning to $1.219, the lowest since 17 January.
Yesterday, the BoE dropped a pledge to keep increasing rates “forcefully”. And two of its nine policymakers voted against raising interest rates to 4%.
James Lynch, fixed income investment manager at Aegon Asset Management, predicts interest rates could now be at their peak – unless any nasty surprises hit the UK economy.
“The real story is that it looks like we are at the end of the rate hike cycle.
The BoE have dropped language for ‘forceful’ hikes in favour of saying that ‘if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.’
Which leads us onto what persistent pressures are: these appear to be wages and services inflation, also only if it is worse that they expect.
“The market will be sensitive now to incoming data around inflation and employment, but the impact on interest rates will be less given the step down we now expect in terms of rate increases. If the BoE feels it has the information that requires it to increase again, it will most likely be in 25bp moves not 50bps. However, it is looking likely that, if no more surprises, 4% could be the top in policy rates.”
European stock markets have opened a little lower, as last night’s disappointing results from Amazon, Apple and Alphabet weigh on the mood.
The UK’s FTSE 100 has dipped by 8 points, or 0.1%, while the pan-European Stoxx 600 has lost 0.5%.
Wall Street is on track to open lower, after solid gains yesterday, as Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
The S&P500 gained around 1.50% [on Thursday]. Nasdaq 100 jumped more than 3.5% and entered bull market as Meta jumped more than 23%.
But today will probably not be as fantastic as yesterday, as Apple, Amazon and Google announced earnings after the bell yesterday, and they all disappointed.
So it’s not surprising that the US futures are in the red this morning, and Nasdaq futures are leading losses.
The Nasdaq, which freshly stepped into the bull market yesterday, may not stay there long, at least in the very short run.
The tech stocks, at least the largest ones, have had a mixed quarter. In summary, Tesla, Netflix and Facebook did well, while Microsoft, Apple, Amazon and Google disappointed.
BoE chief economist: we mustn’t raise interest rates too high
Bank of England chief economist Huw Pill appears to have hinted that interest rates may be near their peak.
In an interview with Times Radio this morning, Pill said the Bank was reasonably confident that inflation will fall this year.
And he explained the importance of not raising interest rates too high, pointing out that the full impact of recent increases haven’t yet been felt in the economy.
Pill told Times Radio:
“It’s also important that we enguard against the possibility of doing too much.”
This chart shows just how quickly borrowing costs have shifted away from the historic lows after the financial crisis, the Brexit vote and the pandemic:
Pill also cautioned that we have to be prepared for shocks, and that Thursday’s interest rate rise was necessary and appropriate.
Introduction: BOE Governor warns UK has a ‘long way To go’ in inflation fight
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The Bank of England governor Andrew Bailey has warned UK households there was still a “long way to go” before the cost-of-living crunch is brought under control.
After lifting interest rates to 4% on Thursday, the highest level since 2008, Bailey warned that the UK had not won its battle against inflation.
In an interview on Bloomberg TV, Bailey warned:
“We have started to turn a corner, but there’s a long way to go and there’s a lot of risks.”
Bailey reiterated this point yesterday, in a video clip warning that inflation is “still much too high”. CPI did drop in December, but at 10.5% it’s five times higher than the Bank’s target.
This latest rise in interest rates – the 10th in a row – will drive up borrowing costs, adding to the strain on struggling household and businesses.
But Bailey insisted it’s the right decision:
We need to be absolutely sure we get inflation down. That’s why we’re raised rates.
The Bank predicted yesterday that the UK recession will be shorter and less severe than previously thought, and milder than recessions in the 1980s and 90s, and after the 2008 financial crisis.
The financial markets now expect just one more interest rate rise, to 4.25%, from the Bank in the next few months. Interest rates are expected to start falling at the end of 2023.
But Bailey told reporters yesterday that pay in the private sector has been rising faster than the Bank expected – as workers seek pay increases to protect them against inflation.
The pace of wage increases will determine what future action the Bank takes, he explained.
Also coming up today
Ofgem has asked suppliers to suspend the forced installation of prepayment meters.
The energy regulator acted after an investigation by The Times found that Arvato Financial Solutions, used by British Gas to pursue debts, had broken into homes of vulnerable customers.
Related: Ofgem warns suppliers over forcible installation of prepayment meters
UK rail passengers face fresh travel chaos on Friday as train drivers hold a fresh strike which will leave large parts of the country with no services all day.
Members of Aslef and the Rail, Maritime and Transport union (RMT) will walk out in a long-running dispute over pay and conditions.
Related: Almost no trains will run in England on Friday as drivers strike
Shares in Amazon, Apple and Alphabet (Google’s parent company) have all dropped in after-hours trading after their latest financial results underwhelmed investors.
Apple, whose iPhone production has been hit by strict Covid-19 lockdowns and protests, posted a disappointing first-quarter earnings report, including rare misses on revenue, profit and sales.
Amazon’s cloud computing division, AWS, reported a slowdown while Google’s advertising revenue fell in the last quarter, for only the second time in the company’s history,
Related: Apple posts first revenue drop in four years
Investors are now bracing for the latest US jobs report, which is expected to show that job creation slowed last month.
Economists predict America’s non-farm payroll rose by 185,000 people in January, down from 223,000 in December.
9am GMT: Eurozone services PMI for January
9.30am GMT: UK services PMI for January
10am GMT: Eurozone PPI report on producer price inflation
1.30pm GMT: US Non-Farm Payroll employment report
3pm GMT: 9.30am GMT: UK services PMI for January