UK economy grows in May; Wall Street hits record high - business live
Stocks surge as US central bank chief hints at interest rate cuts, while UK economy remains weak
- Latest: Wall Street races to record high
- Fed chair Jerome Powell hints at rate cut
- Powell cites global weakness and trade tensions
Earlier:
9.51pm BST
Finally, Wall Street has ended the day higher, helped by the near-certainty of a US interest rate cut at the end of this month.
The Nasdaq closed up 0.75% at 8,202, a record closing high.
BREAKING: The Nasdaq closed at a record high today after testimony from the Fed Chairman indicated rate cuts are likely later this month. The Dow grew 0.29% and the Nasdaq rose 0.75%. The S&P broke 3,000 for the first time before closing at 2,993. https://t.co/K0pl3T0XnP pic.twitter.com/SD4oPJfON9
4.49pm BST
More caution from Powell:
And on the debate for a 25 vs. 50 bps cut:
"We'll be looking at a full range of data," Powell says. "Trade developments, global growth weighing on the outlook, performance of inflation -- all will go into our decision-making."
"Americans need to save more for retirement than they have. They're not oversaving; they're undersaving in the aggregate," Powell says.
4.43pm BST
While Wall Street rallies, the UK stock market had a quieter day.
The FTSE 100 has closed 5 points lower at 7,540.
"Stocks are mixed as Jerome Powell, the head of the Fed, testifies in Washington D.C.
So far the central banker hasn't give much away in terms of clues as to possible changes to monetary policy, although earlier in the day, he warned that uncertainties have continued. Some dealers are sitting on their hands until they get a clear view from Mr Powell. "
4.25pm BST
Donald Trump has forced the UK's ambassador in Washington to resign, but Powell is adamant that he won't be next.
Asked by California Democratic Representative Maxine Waters whether he would comply if he were to get a phone call from Trump saying he should pack his bags, Powell replied he would not.
4.10pm BST
Jerome Powell has also warned Facebook there are serious concerns over its Libra digital currency plan.
The Fed chair says a proper review is needed, telling the U.S. House of Representatives Financial Services Committee:
"Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability.
These are concerns that should be thoroughly and publicly addressed."
MORE: Powell says Facebook's Libra project cannot move forward unless concerns are addressed. Read more: https://t.co/sevz7zzrH2 $FB
3.56pm BST
Fed chair Jerome Powell is now delivering his testimony to the House.
He's outlining how the economic outlook has weakened, citing how businesses are reluctant to invest when they're uncertain how issues such as trade will play out.
BN 07/10 14:39 *POWELL: DATA SINCE JUNE MEETING HAS CONTINUED TO DISAPPOINT
BN 07/10 14:37 *POWELL: LIBRA MAY BE FINANCIAL STABILITY THREAT DUE BROAD USE
BN 07/10 14:35 *POWELL: FED IS FOCUSED ON DOING JOB ASSIGNED IT BY CONGRESS
BN 07/10 14:33 *POWELL: FED WILL LOOK AT ALL INCOMING DATA UNTIL NOW AND FOMC
BN 07/10 14:32 *POWELL REPEATS LAW GIVES HIM A 4-YEAR TERM AND HE WILL SERVE IT
BN 07/10 14:32 *POWELL SAYS HE WOULD NOT RESIGN IF ASKED BY TRUMP TO DO SO
3.02pm BST
Today's rally means the S&P 500 has gained almost 20% since the start of 2019.
S&P 3,000! $SPY $SPX pic.twitter.com/t833Cl5vEW
3.00pm BST
My colleague Dominic Rushe explains why Wall Street has hit record highs today.....
The US looks increasingly likely to cut interest rates for the first time in over a decade, the Federal Reserve chairman, Jerome Powell, hinted on Wednesday.
"Many" Fed officials now believe a weakening global economy and rising trade tensions have strengthened the case for a rate cut, Powell wrote in a report released ahead of his appearance before Congress later on Wednesday.
Related: Fed chairman hints at first interest rate cut in over a decade
2.57pm BST
We have a hat-trick! The Dow Jones industrial average has hit its own record high, at 26,971.
The S&P continues to hit new heights too, clambering over the 3,000 point mark, while the Nasdaq has ascended by over 1% into new heady heights.
2.48pm BST
The tech-focused Nasdaq index has also just hit a new record high, rising over 8,176 points for the first time.
2.44pm BST
Shares in technology stocks, miners and industrial companies are all rallying on Wall Street, on hopes that a rate cut will prop up the US economy and boost growth.
2.43pm BST
Boom! The S&P 500 index of US stocks has hit a new intraday record high.
The index is up 15.4 points, or 0.5%, at 2,995 points for the first time ever, thanks to the imminent prospect of a US interest rate cut.
2.38pm BST
Some traders are speculating that the Fed could wheel out the big bazooka, and cut US interest rates by 50 basis points (from 2.75% to 2.25%).
A quarter-point cut looks more likely, though.
The Fed Funds Futures probability of a rate cut on 7/31 remains 100%. However, after the release of Fed Chair Jay Powell's prepared remarks this morning, the odds of that cut being 50 bps instead of 25 bps has increased from 0% yesterday to 12.5% today. https://t.co/wyfH3UcCAS pic.twitter.com/Y7TCoTRgRR
2.34pm BST
Ding ding! Stocks are rising as the opening bell rings out on Wall Street, as investors welcome the prospect of a US rate cut.
The Dow Jones industrial average and the broader S&P 500 are both up around 0.4%, heading close to their record highs.
2.28pm BST
Paul Ashworth, chief US economist at Capital Economics, predicts Powell will cut US interest rates three times in the next nine months - starting in a couple of weeks.
Our expectations is that GDP growth will fall below 1% annualised in the second half of this year and, as a result, we expect the Fed to cut interest rates by an additional 25bp in both this December and March next year. That 75bp reduction is a little less than the 100bp currently priced in to futures markets.
2.09pm BST
Richard Flynn, Managing Director at Charles Schwab, says investors are hoping that the Federal Reserve will cut rates astutely, and protect America from recession.
Here's his take on Powell's testimony:
"Recession risk is rising, but markets are hoping that even a small rate cut later this month will keep a downturn at bay. Against a backdrop of looser monetary policy globally, declining US business confidence and stagnant capex, plus no end in sight to the US-China trade dispute, lower rates-which tend to spur borrowing and business investment-could help balance out the negative effects of slowing growth and an ongoing trade war.
"However, the market's response to rate cuts may depend on how close we are to a recession. If the economy holds up and the rate cuts are simply "insurance," stock markets could rally strongly. However, if the economy weakens, the market's rate-cut optimism could turn negative. With fed funds futures now discounting more than 100 basis points of easing by the end of next year, equities may be at risk if the economy's deterioration supports that much easing-but also at risk if the Fed under-delivers."
2.08pm BST
Wall Street has got the message....
US futures flying -
Revised opening Calls:#DOW 26893 +0.40%#SPX 2992 +0.41%#NASDAQ 7886 +0.75%#RUSSELL 1571 +0.58%#IGOpeningCall
1.57pm BST
Bad News is Good News again, it seems.
Stocks, bonds and commodities have all risen, since Jay Powell's downbeat assessment of the US economy hit the wires.
#Futures climbing on #Powell's dovish remarks $SPY $SPX $ES_F pic.twitter.com/4i3RxLr8M1
Powell Statement:
Gold ai
Stocks ai
Bonds ai
Yen ai
USD
1.56pm BST
It doesn't take much reading between the lines to conclude that Fed chair Powell expects to cut interest rates at the next FOMC meeting, at the end of this month.
Dovish remarks from #JeromePowell. A 25 bp cut is still in the cards. $USD pic.twitter.com/dnupwOM8eO
Jerome Powell wants to cut rates 25 basis points this month. Confirmed.
1.46pm BST
Jerome Powell is also concerned that Brexit could hurt the US economy.
America's top central banker tells lawmakers on Capitol Hill:
Uncertainties about the outlook have increased in recent months. In particular, economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy.
Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit.
1.41pm BST
Jerome Powell also warns that US businesses are cutting investment, factories are slowing, and the US housing market is weakening.
He tells Congress:
While growth in consumer spending was weak in the first quarter, incoming data show that it has bounced back and is now running at a solid pace. However, growth in business investment seems to have slowed notably, and overall growth in the second quarter appears to have moderated.
The slowdown in business fixed investment may reflect concerns about trade tensions and slower growth in the global economy. In addition, housing investment and manufacturing output declined in the first quarter and appear to have decreased again in the second quarter.
1.37pm BST
Newsflash: America's top central banker has warned that the US economic outlook continues to be hurt by the weak global economy, and trade disputes.
In closely watched testimony to Congress, Jerome Powell appears to be signalling that the Federal Reserve will cut interest rates later this month.
In our June meeting statement, we indicated that, in light of increased uncertainties about the economic outlook and muted inflation pressures, we would closely monitor the implications of incoming information for the economic outlook and would act as appropriate to sustain the expansion.
Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted.
Futures rising nicely after Powell's testimony released. A July rate cut looks like a done deal https://t.co/6XUimUBGFD pic.twitter.com/Y497IUjjFT
1.29pm BST
Nearly time to hear from Fed chair Jerome Powell:
Powell testimony text out in 5 mins. Eyes on assessment of global risk and inflation expectation. Market pricing is for a 25bbp in July, but traders need further details on the reaction function going forward after July.
1.02pm BST
Economists at the National Institute of Economic and Social Research believe the UK economy will avoid a recession this year, despite the impact of Brexit uncertainty.
After analysing May's GDP report, NIESR has concluded that the UK will probably contract by 0.1% in the April-June quarter (we get the data on August 9th).
"Our latest estimate implies that the economy will narrowly avoid a technical recession in the middle quarters of this year. That said, the latest ONS data and recent surveys suggest that the economy has lost considerable momentum since the first quarter.
This reflects the impact of Brexit-related uncertainty and slower growth in the global economy outside of the United States. The near-term outlook for the UK economy continues to depend on the outcome of the Brexit negotiations.".
It's gloom, but not yet doom for the UK #economy as it narrowly avoids #recession - check out our #NIESRGDP Tracker out now: https://t.co/rXUxS4qMMh pic.twitter.com/vnbVJhrbrU
12.42pm BST
Strip out the pre-Brexit stockpiling/scheduled car production shutdowns & the economy has basically shuffled along at a lacklustre pace in the first five months of the year, with sentiment dented by uncertainty
12.13pm BST
The UK isn't the only economy finding conditions tough.... Europe is also looking weak.
The European Commission has just cut its eurozone growth forecast for 2020 to 1.4%, from 1.5% previously.
Growth forecast in 2019:
5.3
4.4
4.4
4.0
4.0
3.6
3.3
3.2
3.1
3.1
3.0
2.9
2.9
2.6
2.4
2.3
2.1
1.7
1.7
1.7
1.6
1.5
1.5
1.4
1.3
1.3
1.2
0.5
0.1#ECForecast https://t.co/mGOHfCZNjw
Growth forecast for 2020:
4.8
3.7
3.6
3.4
3.4
3.3
2.8
2.8
2.8
2.7
2.6
2.6
2.5
2.4
2.3
2.2
1.9
1.7
1.6
1.6
1.5
1.5
1.5
1.4
1.4
1.3
1.2
1.2
0.7#ECForecast https://t.co/mGOHfCZNjw
11.23am BST
Here's our news story on the UK GDP report for May:
Related: UK economy returns to growth as carmakers end Brexit shutdown
11.04am BST
Encouragingly, PwC's chief economist John Hawksworth believes Britain is fending off the risk of a recession.... but agrees that Brexit is hurting the economy.
Looking through the noise in the monthly data, underlying growth in the economy continues at an annualised rate of around 1-1.5%.
This is below its long-term historical average rate of around 2%, but there are no signs yet that Brexit-related uncertainty has pushed the economy as a whole into recession, although it has clearly dampened business investment and the housing market."
10.58am BST
Professor Costas Milas of Liverpool University has dug into today's GDP report.... and concluded that the economy has slowed to a standstill.
He tells me:
Today's GDP reading is the type of statistic that will satisfy both supporters and opponents of Brexit. Brexit supporters will point out that it shows a 3-month rolling growth of 0.3% which is better than what experts expected.
A closer look at the data, however, suggests zero 3-month growth rates for both April and May (inferred from this ONS dataset). Therefore, Brexit opponents will point out that the economy has come to a standstill.
10.51am BST
Here's the British Chambers Of Commerce's take:
Head of Economics and Trade @Suren_Thiru gives his take on the latest GDP and trade figures https://t.co/7rhpevWdfu pic.twitter.com/qnFsVImBUy
10.45am BST
UK car production surged by nearly 25% in May, as factories returned to life after shutting down in April.
That's a record-breaking surge, but unfortunately it still leaves the sector smaller than in March.
10.35am BST
TUC chief economist Geoff Tily is also concerned that Britain's service sector is weak:
Latest @ons monthly GDP figures still point to zero GDP growth in 2019Q2. The manufacturing rebound (yellow) was far short of the previous decline. And the third month of near zero service industry growth (purple) must be a big concern. (1/3) pic.twitter.com/HATlttr6Dt
Motor vehicle production bounced back, but is still way below recent figures. (2/3) pic.twitter.com/XEyqaBvE9x
Industries within the dominant 'business services and finance' category look particularly weak. (3/3) pic.twitter.com/nF0CgcWjzk
10.28am BST
Yael Selfin, chief economist at KPMG UK, is worried that Britain's services sector stagnated in May:
"The deteriorating picture across the UK's service industries is of particular concern. Services provide us with a better indication of the economy's direction at this juncture, because they were less affected by stockpiling movements earlier in the year. The current statistics point to the UK economy grinding to a halt in Q2.
"Financial services output has now been contracting for 15 consecutive months, with Brexit likely to inflict permanent damage on the sector's growth prospects. Weakness in retail and wholesale trade confirms recent surveys' prognosis that households are rethinking their spending plans.
10.15am BST
Ben Brettell, senior economist at Hargreaves Lansdown, says 'storm clouds' are gathering over the UK economy:
Consumers and business remain hamstrung by Brexit uncertainty.
For example yesterday the British Retail Consortium's report showed average sales growth weakened to 0.6% in the 12 months to June, which is the slowest increase since it began calculating growth in 1995.
Related: Consumer spending at weakest since mid-90s amid Brexit chaos - BRC
10.14am BST
Sam Tombs of Pantheon Economics predicts that the economy stagnated in April-June, based on today's data covering the period up to May.
Quarter-on-quarter GDP growth now looks set to slow only to zero in Q2, from 0.5% in Q1, following latest monthly data. (Consensus currently is for -0.1% for Q2) Volatility concentrated in industry. Services growth slowing a bit, but stronger than business surveys have implied: pic.twitter.com/PCOjzCdAsN
10.08am BST
Paul Dales, chief UK economist at Capital Economics, thinks Britain will avoid a full-blown recession this year.
However, he also believes the economy contracted in April-June, because some economic activity was dragged into January-March as firms prepared for Brexit.
Despite the 0.3% m/m rebound in monthly GDP in May, it looks as though the economy contracted by around 0.1% q/q in Q2.
That would be the first contraction since Q4 2012, although before today's release we had expected a 0.2% q/q fall.
Despite the 0.3% m/m rebound in monthly GDP in May, it looks as though the economy contracted by around 0.1% q/q in Q2. That would be the first contraction since Q4 2012. But we don't think we're heading for a recession as GDP will probably rise in Q3. pic.twitter.com/1Cp57FcTDW
9.59am BST
Economists are still concerned that the UK could have contracted in the last quarter, despite the pick-up in growth during May.
James Knightley of ING fears that June's GDP report, due in a month's time, will be weak.
May's UK GDP growth data has recovered (+0.3%MoM) after the massive Brexit related inventory unwind and auto plant shutdowns seen in April (-0.4%MoM). But with business surveys suggesting June will be very weak 2Q in aggregate could see negative growth.
(Any) Growth will continue to be choppy through the rest of the year with inventories likely to be built up again ahead of a possible no deal Oct 31st EU exit, before being unwound as the can is likely kicked down the road yet again. Bad news for business & consumer confidence.
#UK #GDP rises 0.3% month-on-month in May after 0.4% drop in April, led by #manufacturing output rebounding 1.4% after plunging 4.2% in April. #Services activity remained muted with output flat m/m. #Construction up 0.6% m/m in May after 0.5% drop in April
First 5 months of the year, UK GDP growth running at annualised 1.7. But only because Q1 was OK. Construction and services are both slowing, manufacturing flat year over year. We're either going to have to cancel Brexit or win the cricket World Cup.
ONS: GDP down to 0.3% growth in the three months to May, from 0.5%. Economy slowing down over Brexit uncertainty, after stockpiling added boost in 1st quarter. Economists predict negative growth by August - the first quarterly figures on the new PM's watch. Bad timing.
GDP rise almost all thanks to manufacturing bounce back +1.4% in May after massive (-4.2%) decline in April after car factories re-opened after Brexit shutdown #ukgdp
9.49am BST
Although today's GDP figures are better than feared, the broad picture is that Britain's economy is only growing slowly.
As this chart shows, the quarterly grow rate has dropped to 0.3% in March-May, down from 0.5% in the first quarter of this year.
9.41am BST
This table shows how British industry bounced back in May, growing by 1.4% after a grim April.
But... the UK's so-called dominant service sector stagnated in May. That's a concern, as services companies make up around three-quarters of the economy
9.39am BST
The ONS has also revised up its estimate of growth in March. It now thinks GDP rose by 0.1%, not shrinking by 0.1% as previously thought.
9.37am BST
The UK economy picked up in May, as carmakers returned to work after shutting down in April.
Rob Kent-Smith, head of GDP at the ONS, explains:
"GDP grew moderately in the latest three months, with IT, communications and retail showing strength. Despite this, there has been a longer-term slowdown in the often-dominant services sector since summer 2018.
The economy returned to growth in the month of May, following the fall seen in April. This was mainly due to the partial recovery in car production."
9.32am BST
BREAKING: The UK economy grew by 0.3% in the three months to May.
At first glance, that's better than expected -- the economy may have picked up once the threat of a disorderly Brexit.
9.29am BST
Just time for a reminder that GDP is an imperfect measure, from Robert F Kennedy half a century ago:
9.26am BST
Tension is building in the City as investors await the UK GDP report, in just a few minutes....
UK monthly #GDP, manufacturing production and construction output coming up at the bottom of the hour. Expectations are low, so potential for surprise is there but disappointment could push the #GBPUSD over the edge ^FR #FX https://t.co/JUTbc1K6nZ
Risk for GBP looking skewed distinctly to downside heading into UK monthly GDP at 09:30. If it's on expectation who cares, it's May GDP and we know from PMIs June was probably a shocker. If it's a miss pretty much confirms Q2 was a disaster for UK economy.
9.18am BST
Recruitment firm PageGroup has blamed Brexit uncertainty for a slump in UK income in the last quarter.
The UK, now 16% of the Group, declined 2.4%, with continued Brexit related uncertainty impacting candidate and client confidence....
Michael Page, which is focused on more senior opportunities and continued to be impacted to a greater extent by the uncertainty, declined 6%.
9.04am BST
Today's monthly GDP report is particularly significant as it covers the period around Britain's original Brexit deadline.
March was dominated by Theresa May's failed attempt pass her Withdrawal Agreement, followed by MPs failure to agree an alternative plan. The can was then nudged into April, before being kicked Lucy Bronze-style into the autumn.
April data were very weak, June PMIs were weak as well, so there's some room a bounce in the May numbers. But a small bounce will confirm that Q2 overall was very weak, with GDP probably falling.
Blame Brexit uncertainty, which reached a level that is too heavy for the economy to carry.
8.38am BST
The pound has just hit a new six-month low against the euro, in a blow to Britons heading over the channel on holiday this summer.
Sterling has dipped to a1.1096, its lowest level since 11 January. That means one euro is worth 90.1p, making European imports (and ice-creams on a Mediterranean beach) more expensive in pound terms.
Sterling continues to find itself in a bad way, with last night's televised Tory-off failing to lift the currency's spirits.
Cable [the /$ rate] is trapped at $1.245 for the first time in more than 2 years, while after a week or so of treading water against the euro, the pound is now at a fresh 6-month nadir, barely keeping its head above a1.11.
8.25am BST
My colleague Aditya Chakrabortty has written a piercing analysis of the state of the UK economy, and it's not cheerful reading.
Here's a flavour:
The most watched surveys of British businesses, released in the past few days, suggest the private sector is already shrinking. In the construction sector, which has just had its worst month since the immediate aftermath of the financial crisis, they now talk of "quicksand". Manufacturing has been pole-axed, while out in the much larger service sector things look utterly moribund. Last week, it was briefly cheaper for the British government to borrow over five years than for two - the first time that has happened since just before the death in 2008 of Lehman Brothers. Even in a world turned upside-down by central banks pumping hundreds of billions of dollars into money markets, that is usually taken as indicating that a sharp slowdown lies around the corner. This one will be nowhere near as disastrous as the crash of 2008-9; but it will underline how far the world remains lodged in the shadow of that crisis.
"The early evidence suggests the UK is already in a recession and that we're just waiting for more data to prove it," says David Blanchflower. As a rate-setter at the Bank of England in 2008, he was one of the few policymakers to spot that crash coming; but when central bankers and government ministers did finally wake up, at least they had plenty of firepower to draw on.
Related: While Westminster bluffs and blusters, a UK recession looms | Aditya Chakrabortty
8.09am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
This morning's monthly GDP release for May is important after pronounced weakness in April and given growing expectations that the economy as a whole contracted in Q2.
Expectations are for most of April's decline to reverse in May (0.3% m/m after -0.4%) and RBC economists are slightly above the consensus. Nonetheless, the arithmetic is such that a further monthly increase of 0.5% or more would be needed in June to avoid a negative reading for the quarterly average.....
Related: Pound continues slide as traders fear impact of no-deal Brexit
Set to be a busy day for #markets:
- #UK GDP (May) set to show modest monthly expansion
- #BoC to leave rates on hold, but likely with an upbeat tone
- #Fed Chair Powell testimony, mkts seeking confirmation of July cut
- #FOMC June meeting minutes for further clarity on outlook