Stocks gain on US stimulus hopes as 600,000 UK workers lose jobs in Covid-19 crisis – as it happened

Jasper Jolly

from on 2020-06-16 14:56 (#54N8H)

Live rolling coverage of business, economics and financial markets as stocks rise strongly in Europe and futures point to Wall Street gains

3.56pm BST

Federal Reserve chairman Jerome Powell has given another bearish message to investors, but it does not appear to have done much to prevent a steep rally in stock markets around the world.

The FTSE 100 is up by 3.5%, or 212 points, to reach 6,276 points (although that is a level that was last hit only last week.

Recently, some indicators have pointed to a stabilisation, and in some areas a modest rebound in economic activity. That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.

3.48pm BST

Local government financial pressures can weigh on the economy", Powell says. It was a drag on growth after the financial crisis in 2008.

The May jobs report was one of the biggest economic data surprises any economists could remember, Powell says. But it was definitely, definitely good news."

3.41pm BST

There is a tremendous amount of volatily in the labour market reports, Powell says, asked about the unexpected strong May jobs reading.

It is particularly difficult to carry out the survey when it can't be done in person.

3.38pm BST

The Fed can do better on racial issues, Powell says.

There is no doubt more than all of us can do, Powell says. The Fed must do more.

3.35pm BST

Asked about disparities in income between black workers and white workers, Powell says the economics discipline has a troubled history" with racism.

There's a lot of work left to do in the economics profession on these issues, he says.

3.31pm BST

The Fed's (quite weak) forecasts rely on the virus remaining under control, Powell says.

The US economy will remain well short of where we were in February" for some time, Powell says. There are parts of the economy that will struggle to get back to their old ways of doing things."

It's all quite uncertain but we appear to be entering that second phase of the economy reopening and spending increasing.

3.21pm BST

Smaller businesses are particularly at risk from a longer downturn, Powell says.

We are committed to using the our full range of tools," he says.

3.19pm BST

The US continues to face a difficult and challenging time, Powell says.

The most important response has come from health workers, he says.

3.07pm BST

Federal Reserve chairman Jerome Powell has said that significant uncertainty remains about the timing and strength of the US economic recovery.

2.58pm BST

Here's more detail on the potential major breakthrough" in treating Covid-19 that has helped to boost stock markets, from the Guardian's health editor, Sarah Boseley.

It is the only drug so far shown to reduce mortality and it reduces it significantly. It is a major breakthrough, I think.

2.53pm BST

Federal Reserve chairman Jerome Powell is about to begin two gruelling days of testimony to US Congress. But then they have a lot to discuss.

Among the points of interest:

2.40pm BST

US President Donald Trump is getting involved on the US sales data.

He has pinned his re-election hopes on the US economy bouncing back quickly from the virus as he eases lockdown restrictions.

Wow! May retail sales show biggest one-month increase of ALL TIME, up 17.7%. Far bigger than projected. Looks like a BIG DAY FOR THE STOCK MARKET, AND JOBS!

2.32pm BST

Wall Street has rallied as expected. Here are the opening snaps:

2.17pm BST

Sterling has pushed higher against the euro, up by 0.7% against the euro at 1.1208, with a dose of Brexit optimism apparently behind the strength.

After meeting with EU leaders Monday, Prime Minister Boris Johnson said that with a bit of oomph", a Brexit deal was feasible in July.

1.58pm BST

The 17.7% gain in US retail sales was the largest increase on record - but only because it was such a deep decline in the months before.

Apparel sales almost tripled during the month as shoppers returned to non-essential stores.

Retail sales in the US came roaring back in May, by much more than expected, as lockdown was eased and people returned to work. The evidence continues to show that the US economy is recovering quickly. A combination of improving data and Fed policy will keep investors happy, with the obvious overhanging worry of a pick-up in the virus cases providing the dampener to that enthusiasm.

1.51pm BST

The strong retail sales data have added to the positive momentum on stock markets, with US futures prices extending earlier gains with less than 40 minutes to go until the Wall Street opening bell.

The FTSE 100 is now up by 3.6%, as is Germany's Dax index. Italian stocks have gained 4.5%.

Another perspective on the US Retail Sales data

"Total sales for the March 2020 through May 2020 period were down 10.5 percent ( 0.5 percent) from the same
period a year ago. "

1.39pm BST

US retail sales rose by 17.7% in May, more than double the average bounceback expected by economists.

Sales had slumped in April by 14.7%, according to a revised reading from the US Census Bureau, but Americans increased spending by more than $70bn in May.

BREAKING! US retail sales rose 17.7% in May, more than double the number expected. pic.twitter.com/KCQtBy6g7s

1.27pm BST

The stock market rally is picking up pace. The FTSE 100 is now up by 3.3% - almost 200 points - to 6,262 points.

Markets may have been helped by claims of a major breakthrough" in treating patients with the most severe Covid-19 cases. It came from scientists leading the UK-led clinical trial known as RECOVERY.

Giving low doses of the generic steroid drug dexamethasone to patients admitted to hospital with COVID-19 reduced death rates by around a third among those with the most severe cases of infection, trial data showed on Tuesday.

This is a result that shows that if patients who have COVID-19 and are on ventilators or are on oxygen are given dexamethasone, it will save lives, and it will do so at a remarkably low cost," said Martin Landray, an Oxford University professor who is co-leading the trial.

It is a major breakthrough," he said.

12.29pm BST

Chancellor Rishi Sunak has appointed a hedge fund manager and former Goldman Sachs partner to the Bank of England's financial policy committee, a key regulatory role.

The role of the FPC in enhancing and protecting the stability of the UK's financial system has never been more important, and having highly qualified people on the committee is key. That's why I'm very pleased to welcome Jonathan to the role. His wide-ranging expertise and experience built up over years working in financial markets will be hugely beneficial as we work to open up the economy following the Coronavirus pandemic, underpinned and supported by our world-leading financial system.

Jonathan has a wealth of experience and I look forward to welcoming him to the FPC. As a committee, more than ever as we address the economic challenges of the pandemic, we need to protect and enhance the resilience of the UK financial system. I am certain that Jonathan's insights from financial markets will prove invaluable to our financial policymaking decisions.

11.55am BST

The FTSE 100 is back up by 2.5%, or almost 150 points at 6,212 points.

This might be an apposite time to mention this survey of investment managers from Bank of America. There is a clear belief that equity markets are over-valued - more than at any time since the survey began in 1998.

Fund managers know the Fed has created the biggest asset bubble yet pic.twitter.com/Z0xwSfl7rE

11.34am BST

An Apple spokesperson has accused the complainants in the EU competition case of wanting a free ride", Reuters has reported.

Swedish* music streaming service Spotify is one of the companies who complained to the EU, with Japanese conglomerate Rakuten adding its weight over Apple's treatment of ebooks sold through its Kobo app, according to the Financial Times.

It's disappointing the European commission is advancing baseless complaints from a handful of companies who simply want a free ride, and don't want to play by the same rules as everyone else.

11.19am BST

The European commission has opened a formal antitrust investigation to assess whether Apple's conduct in connection with Apple Pay violates EU competition rules.

#EUAntitrust Commission opens investigation into Apple practices regarding Apple Payhttps://t.co/iggSq0adrk pic.twitter.com/kiKIUL4yzl

Mobile payment solutions are rapidly gaining acceptance among users of mobile devices, facilitating payments both online and in physical stores. This growth is accelerated by the coronavirus crisis, with increasing online payments and contactless payments in stores. It appears that Apple sets the conditions on how Apple Pay should be used in merchants' apps and websites. It also reserves the tap and go" functionality of iPhones to Apple Pay.

It is important that Apple's measures do not deny consumers the benefits of new payment technologies, including better choice, quality, innovation and competitive prices. I have therefore decided to take a close look at Apple's practices regarding Apple Pay and their impact on competition."

11.06am BST

Unemployment data are grim, but bound to get a lot grimmer, writes the Guardian's economics editor.

Unemployment is nudging 3 million, vacancies have plummeted and pay packets are shrinking. All this while the government is paying the wages of millions of workers through its furlough scheme.

11.01am BST

Currency markets have been fairly quiet this morning, but the pound has bumped up a bit as traders watch the Brexit talks - and also potentially some support from the UK unemployment data, where the headline rate did not move.

Sterling has gained 0.45% against the US dollar to trade at $1.2657, after hitting two-week lows on Monday.

10.49am BST

German investor sentiment rose more than expected in June, according to a closely followed indicator, thanks to hopes that the coronavirus recessions hurtling down the track will not be long-lasting.

The ZEW research institute said its monthly survey showed economic sentiment among investors rose to 63.4 from 51.0 in May. Economists had expected a reading of 60.0.

Given that traditionally, the ZEW index has a better track record in predicting turning points in the economy, rather than predicting exact outcomes for GDP growth, it is interesting to look at the difference between current assessment and expectations. This difference is currently larger than was seen in 2008 and has stabilised in May and June, suggesting investors' increasing optimism that the worst might be behind us.

Indeed, we would agree that the worst could be over. The dreadful macro data should have marked the trough of the crisis. More real-time data, such as Google mobility data, shows that activity already accelerated by mid-May.

It's very odd that EZ labour costs and wages should be rising through the Covid-19 crisis, but it's also very normal, due to the construction of the index, and the nature of EZ wages. Eurostat's headline index captures labour costs per hour, which is key. In cyclical downturns, hours worked fall much quicker than nominal wages and employers' social contributions, both of which tend to be very sticky.

This is particularly the case in the current environment where workers are furloughed-working zero hours in many cases-with governments temporarily covering wages.

10.40am BST

The FTSE 100 buying spree has eased slightly as we pass mid-morning of the London trading day - but it's still looking like a strong day for UK stocks, up 2.1% or 127 points to 6,191 points.

The positive mood is spread across Europe - look at the green on the below graphic from Refinitiv. Shares are up by more than 2% in every large market barring Switzerland.

10.31am BST

More than 9m British workers have been furloughed, adding up to a cost of 20.8bn up to 14 June, according to data from HM Revenue and Customs.

That represents only another 200,000 extra workers from the previous week as the coronavirus job retention scheme closed to new applicants on 10 June - but illustrates the mounting cost to the Exchequer.

The Job Retention Scheme launched on 20 April.

By midnight on 14 June there were a total of:

9.1m jobs furloughed *
1.1m employers furloughing **
Total claimed 20.8bn

Apply for a grant to cover the wages of your furloughed staff now: https://t.co/txF4TJcCLZ pic.twitter.com/LovJoGt4Z8

9.48am BST

There is another factor driving the stock market that we had missed: a report earlier this morning that the Trump administrations is preparing a nearly $1 trillion infrastructure proposal as part of its recovery plans.

News that the White House is considering a $1tn infrastructure proposal has seemingly also given risk assets a boost. The prospect of further stimulus was already known however the size and timing was more up in the air.

The current infrastructure funding law is due for renewal by the end of September and the House Democrats have already proposed their own $500bn proposal over five years. For now there is no detail on how long the administration's draft would authorize spending.

Just as markets were starting to weigh up the prospect of another prolonged sell-off amid coronavirus second wave fears, talk of a $1tn infrastructure plan being considered by the Trump administration has put a rocket under stocks again. Also driving sentiment was the start of the Federal Reserve's corporate bond buying programme.

9.30am BST

This chart from Berenberg, the investment bank, shows what might be ahead for unemployment.

With a lot of help from the government employment subsidy scheme, the core of the labour market remains protected from short-term acute shock from the pandemic. In time, the headline unemployment and employment data could deteriorate materially. Such indicators often lag trends in general economic activity. The risk of a massive wave of layoffs when the CJRS comes to an end in October.

9.24am BST

There is a fairly broad consensus that the unemployment picture in the UK will get significantly worse before it gets better.

Nye Cominetti, senior economist at the Resolution Foundation, said:

While the pace of the labour market decline eased in May, the depth of the crisis is still deteriorating hugely. Unemployment will get worse before it gets better, particularly once furloughing is ended for nine million employees by the end of October.

The government will need a bold package of support measures in place to help them before this second wave of unemployment arrives.

The stability in the unemployment rate masks some broader weakness in other parts of the jobs report. Job vacancies have plunged, almost back to levels seen in the financial crisis. Meanwhile some experimental statistics, based on payroll data, showed around a 600,000 fall in the number of people being paid since March.

There is also growing concern about where unemployment is headed over the summer months. The government's job retention scheme is set to be adjusted over the summer, with firms required to make a greater contribution to the wage costs of those workers who are furloughed. With social distancing rules likely to make it difficult for some firms to operate profitably during the reopening phase, there is a risk that some companies begin to make more permanent changes to their operations, and are forced to resort to redundancies.

9.07am BST

Today's labour markets statistics show more than twice as many young people are now claiming unemployment benefits than in March, according to analysis of the Office for National Statistics data by Impetus, a charity focused on young people.

Every single day, 4,000 young people's jobs have been lost to the pandemic, Impetus said.

We can now clearly see the significant impact the virus is having on the labour market already. Over 600,000 people were taken off payroll between March and May, vacancies fell by the largest amount on record on the quarter, and hours worked fell at the fastest pace on record over the year.

Unemployment falls unevenly across society and leaves scars that last generations. The urgent priority must be creating inclusive jobs today, by turbo charging the sustainable industries of tomorrow. This should be backed by a revolution in retraining, with business, government and education providers stepping up to reskill communities for the future.

The headline unemployment data suggests that the furlough scheme has cushioned the initial blow to the labour market, despite the sharp contraction in activity in April. However, a well-above-average rise in jobless benefit claims in May and the downward trend in employment observed in the last two weeks of April point to a future uptick in unemployment.

8.50am BST

The number of people out of work and claiming work-related benefits in the UK jumped 23% to 2.8 million last month as the coronavirus crisis forced thousands of businesses to close, writes the Guardian's Phillip Inman.

Highlighting the impact of the pandemic on the the workforce, the latest benefit figures for May found that the number of jobcentre claimants increased from 1.24 million in March, representing a 126% increase since the beginning of the lockdown.

8.45am BST

Back on the UK's labour market data, economists and analysts are picking out more important indicators.

From the Office for National Statistics release: There were an estimated 476,000 vacancies in the UK in March to May 2020. That was 342,000 fewer than the previous quarter and 365,000 fewer than a year earlier.

The UK is clearly entering a major employment crisis. While the rise in the claimant count is set to grab most attention, the most worrying feature of these latest job figures is the record fall in the number of vacancies in the UK economy. The private sector is unable to create enough jobs due to a lack of demand for products and services, which bodes ill for the remainder of the year as the job retention scheme (JRS) unwinds, unless business conditions improve very significantly over the rest of the summer.

Jobseekers will therefore face an increasingly uphill task in finding work, which points to the need for more policy interventions that are targeted at both helping young unemployed people into work and supporting individuals to upskill and re-skill.

While hiring in other other countries like France, Germany and Italy has started to tick back up slightly in the UK job opportunities are at rock bottom compared to last year. Overall, job postings on Indeed are -61% down year on year but as the economy slowly starts to reopen we are seeing signs of where there is demand.

Childcare saw the strongest weekly rise in postings with the trend improving by 6.2% while other industries that added jobs were loading & stocking, customer service and beauty & wellness.

8.34am BST

Only two companies on the FTSE 100 has fallen in the first half hour of trading (insurer Admiral Group and pharma group Hikma).

And the risk-on move spurred by the Federal Reserve's bond purchase plans has now pushed the FTSE up by 2.6%.

8.24am BST

Greggs will reopen 800 shops for takeaway purchases on Thursday, but the bakery chain will push for rent reductions amid expectations of lower sales.

We are not able to predict the impact of social distancing on our ability to trade or on customer demand. However, our capacity to operate will be restricted by size of shop and we must anticipate that sales may be lower than normal for some time.

8.17am BST

There has been some good news for bank note printer De La Rue this morning: the Serious Fraud Office (SFO) has dropped an investigation without taking action.

Following extensive investigation and a thorough and detailed review of the available evidence, the SFO has concluded that this case did not meet the relevant test for prosecution as defined in the Code for Crown Prosecutors.

De La Rue is pleased that the SFO has closed its investigation and that the SFO is taking no further action in respect of this matter.

8.05am BST

Today is a good exemplar of the disconnect between dire economic data and financial markets, with the promise of corporate bond purchases from the US Federal Reserve pushing stock markets to strong gains this morning.

The FTSE 100 is up by 1.8% in early trading, while the FTSE 250 has gained 2%.

8.01am BST

The total number of weekly hours worked in the three months to April 2020 was 959.9m, down a record 94.2m hours on the previous year - an 8.9% decrease.

The drop in the number of hours worked is telling, because it shows the drop in activity that is masked by the furlough scheme. Workers on the government scheme, which pays 80% of wages up to 2,500 per month, are classed as employed but are not allowed to work. Many of them will return to work, but equally many will not.

It was abundantly clear in every other indicator [apart from the unemployment rate] that the labour market has weakened dramatically. Since furloughed employees weren't working, the total number of hours worked slumped by 8% 3m/3m. And the 20% pay cuts for workers that have been furloughed meant that the headline (three-month average of the annual) growth rate of regular average weekly earnings slumped from 2.7% in March to 1.7%, a five-year low.

Overall, then, despite the apparent stability of the actual unemployment rate, the labour market data were still pretty awful. And some of this will surely start to filter through into the actual unemployment figures as the government's job furlough scheme is wound down from August.

7.53am BST

The headline unemployment figure of 3.9% means the number of people out of work remains at a historically low level - if that number is to be believed.

In fact, it is clear that there is more going on below the main unemployment rate, the experts suggest.

The headline figures may not show it, but a lot has changed since April - with the claimant count rising to 2.8m , the unemployment rate is likely to be much higher than 3.9% now.

But with the lockdown being eased and the economy opening up, hiring should grow. The scale of the growth in unemployment through the rest of the year will depend on consumer confidence and how employers react to the winding down of the furlough scheme.

7.43am BST

Good morning, and welcome to our live coverage of business, economics and financial markets.

The number of people on UK payrolls dropped by 612,000 between March and May, according to early data from the Office for National Statistics and HM Revenue and Customs that is starting to show the depth of the hit to the economy from the pandemic.

Early estimates for May 2020 from Pay As You Earn Real Time Information (PAYE RTI) indicate that the number of payroll employees fell by 2.1% (612,000) compared with March 2020.

UK jobless claims remained over 500,000 in April which was higher than expected but lower than March's number which was revised up to a whopping 1.32 million from 856,000. It's important for the UK economy that these numbers start falling quickly as shops open and lockdown eases or else the UK will be in bad shape.

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