UK and US services firms cut jobs; gold at record high - as it happened

Graeme Wearden

from Economics | The Guardian on 2020-08-05 15:48 (#56J1J)

Rolling coverage of the latest economic and financial news

Earlier:

4.47pm BST

And finally, European stock markets have ended the day with solid gains.

The news the eurozone and UK service sector companies returned to growth last month helped the market, as did the latest drop in US oil inventories.

European stock markets are set to finish the session in positive territory as dealers are still optimistic that politicians in the US will reach an agreement in relation to the coronavirus relief package.

The negotiations between Republicans and Democrats are still dragging on, and there isn't much hope that things will be resolved quickly, but ultimately there is a sense that a deal will be reached in the end.

4.10pm BST

Shares in entertainment giant Disney have surged by nearly 10% today, after it reported strong growth at its new streaming services.

The firm reported last night that its Disney+ service has signed up more then 60m subscribers in its first nine months. That beat forecasts - perhaps a sign that people have been looking for more media to consume during the lockdown.

Disney: We lost 3.5 Billion Dollars
Market: That's worth an extra $13 per share pic.twitter.com/Rlqfq94rjA

3.36pm BST

The latest official US oil inventory figures are out, and they show a bigger drop in crude reserves than expected.

Oil inventories fell by 7.3m barrels last week - much more than expected -- according to the EIA's new figures.

US oil inventories: -7.3 million barrels vs -3 million barrels expected, prior -10.6 million barrels

US gasoline inventories: 419,000 barrels vs -170,000 barrels expected, prior 654,000 barrels

#OIL update: #WTI clings to gains after #EIA data showed U.S. crude stockpiles declined 7.37m bbl to the lowest since April #OOTT

3.07pm BST

Just in: The US service sector grew at a faster rate last month. But, as in the UK, companies also cut jobs more rapidly.

July's Services PMI, compiled by the Institute for Supply Management (ISM) has jumped to 58.1 from 57.1 in June. That's the highest reading since early 2019, and shows that activity expanded at a faster rate.

#UnitedStates ISM Non-Manufacturing PMI at 58.1 https://t.co/a95p4p5fJQ pic.twitter.com/8PuK5HRXk2

US July ISM Services Index: 58.1 v 55.0e, Employment Index: 42.1 v 43.1 prior... Labor situation looking weaker following this report and ADP

2.44pm BST

The oil market's leap above $45 a barrel today for the first time since the coronavirus outbreak forced much of Europe into lockdown may prove to be short-lived, according to oil market analysts.

Brent crude has now climbed to $46 a barrel, a fresh five-month high, after official US data revealed that its stores of crude - which were filled to the brim in April - are beginning to empty as demand for energy returns in line with the easing of lockdown restrictions.

It is interesting to see how Opec+ itself will assess the new reality and if any new amendments of the production curtailment deal will be suggested later this month in its coming meeting."

Oil price pushing ahead of consensus estimates for 2020 average price, should provide a tailwind for E&P sector EPS. YTD average brent price is USD42.5/bbl vs consensus USD41.2/bbl #Oil #EPS pic.twitter.com/FLvaqa3wSA

2.37pm BST

Wall Street has shrugged off the weak/confusing ADP Payroll report, with stocks rising at the start of trading in New York.

2.24pm BST

France's wine producers have suffered badly from the pandemic.

Contexte international, crise sanitaire, baisse des exportations : notre filiere viticole est confrontee a d'importantes difficultes.
La mobilisation de l'Etat doit se poursuivre et s'intensifier.
Avec @J_Denormandie, j'echange dans le Cher avec les professionnels du secteur. pic.twitter.com/G6qIEojyMw

1.50pm BST

Today's ADP payroll report has alarmed Diane Swonk, chief economist at Grant Thornton.

She fears that the US government's own jobs report, due in 48 hours, could be weaker than hoped.

ADP shows an insignificant rise in employment in July - big revisions to June but the trend is in the wrong direction. Feeling sick about the official report on Friday; worse about August. https://t.co/BeUdQEsqUc

The details suggest the slowdown was driven by the leisure and hospitality sector which, after adding close to 2 million jobs in June, added just 38,000 in July, which would make sense given the renewed restrictions on bars and restaurants in many states. But most other sectors also saw a sharp slowdown.

That said, it is worth reiterating that the ADP has never been a great guide to the official payrolls figures and has actually been particularly poor in recent months, with the ADP's initially published estimates for May and June (which have since been miraculously revised up to better match the official data) proving far too pessimistic.

Per this @markets chart:

Among the signals from an #ADP labor market report whose headline number (+167,000 #jobs) came below the range of expectations of economists and #WallStreet analysts (0.2-2.6 million), the worrisome indication that the pace of hiring moderated in July. pic.twitter.com/pHta39nKcr

In light of today's ADP report, one real-time indicator shows the renewed struggle small biz's are experiencing: Revenue, which after flat-ling in June, has more recently been declining. https://t.co/M5nBTe4mYO pic.twitter.com/uxhuK6zPzl

Signs of struggle were evident in the ADP payroll report. Inadequate and expiring stimulus is a glaring problem for small businesses - let's hope Congress is watching. pic.twitter.com/RLCQYaoTbx

1.40pm BST

ADP reckon that medium-sized US companies actually cut staff in July:

ADP Non-Farm Employment pic.twitter.com/Ji6BaU656x

1.27pm BST

I'm afraid the ADP Payroll report doesn't paint a very heartening picture of the US jobs market.

ADP have just reported that US companies added 167,000 new workers in July, a long way below the 1.5 million increase which Wall Street had expected.

ADP a big mix. Up only 167K for current month but big upward revision to last month. Smooth it out and you get continued improvement with huge uncertainty. No clear signal.

The ADP jobs report disappoints but please keep in mind it is not the best indicator in the world (first estimate for June was +2.4million vs +4.8million according to NFP)

That said, it fits nicely with other indicators showing the recovery took a breather in July pic.twitter.com/rQg6NHKH1b

Footage of ADP coming up with their employment report pic.twitter.com/Fub7htIfsb

1.03pm BST

US president Donald Trump has hinted that the next US employment report, due on Friday, will be decent.

Trump says there will be "another big job number on Friday."

Pres Trump predicts "another big jobs number" on Friday, when the Government posts jobs numbers for July.
"Much of the country's in very good shape," he says. "We're set to rock 'n' roll." Charges @joebiden "will drive the market into a depression."

The July Non-Farm Payrolls report comes out Friday. Economists are looking for the unemployment rate to fall to 10.5% from 11.1% and the creation of 1.5 million new jobs.

Major economic data point this Friday with the release of July's US non-farm payrolls report (1.30pm UK time).

Here experts expect a net 1.3m positions created in the month, leaving the economy with about 13m fewer jobs vs February. pic.twitter.com/qm3Ygmh5hd

12.37pm BST

It's been a decent morning for European equities.

The main indices are all positive, led by companies which have suffered badly from the pandemic.

12.24pm BST

Staff at Metro Bank won't be returning to their desk for some time, as the firm tries to avoid getting caught up in a wave of winter illness.

My colleague Kalyeena Makortoff explains:

Metro Bank will not urge staff to return to the office until the winter flu season is over but it is ramping up hiring to handle a surge in defaults linked to the Covid-19 crisis.

The chief executive, Daniel Frumkin, said he would not ask its 1,400 head office and back-office employees to return to their desks before 2021, given the potential for a rise in coronavirus cases during the winter months.

British workers lagging well behind the rest of Europe in returning to their offices. Survey by @MorganStanley. pic.twitter.com/sMKAe3KtDR

12.03pm BST

The oil price has jumped by 2.5% today, with Brent crude hitting a five-month high of $45.50 per barrel.

Data released yesterday showed that US oil inventories have fallen, suggesting stronger demand (or weaker supply) than expected.

11.39am BST

Precious Metals update:#Gold 2040 +1.03%#Silver 2680 +3.07%#Platinum 959 +1.84%#XAUUSD #Commodities

11.38am BST

Back in the commodities market, gold has just hit a new record high, extending this morning's gains.

Gold is changing hands at $2,040 per ounce, up from $1,975 at the start of the week (and $1,500 at the start of the year).

The price of gold has surged by more than 30% year to date and has passed through the significant psychological threshold of $2,000 as investors illustrate a lack of confidence in other instruments and favour bullion as a store of value.

Continued Covid19 uncertainty, combined with central banks and governments flooding their economies with stimulus and aid, has led to increased demand for the precious metal and we could see the rally push on further if current market conditions persist.

11.29am BST

Sweden's economy suffered a very sharp contraction in the last quarter - although not quite as severe as European neighbours.

Swedish GDP shrank by 8.6% in the April-to-June period, the worst slump in at least 40 years.

The downturn in GDP is the largest for a single quarter for the period of 1980 and forward."

Flash-estimate suggests that Swedish GDP contracted by 8.2% y/y and 8.6% q/q in Q2. pic.twitter.com/TAEnDV4gsA

Despite no lockdown Sweden GDP contracted by 8.6% in the second quarter of the year. pic.twitter.com/dI32j2PYmr

10.39am BST

Bookmaker William Hill is planning not to reopen 119 branches closed during the coronavirus lockdown - another example of how the pandemic has changed business patterns.

Fortunately, though, few job cuts are expected - as my colleague Jasper Jolly explains:

The group said it had redeployed the majority of staff at the branches that are closing and only 16 redundancies were expected. The latest closures, representing about 8% of stores, leave William Hill with 1,414 branches.

It plans to repay the government 24.5m in funds claimed to support furloughed workers' wages, after revealing profits of 141m in the first six months of 2020, thanks to a 200m VAT refund.

10.31am BST

The BBC's Douglas Fraser reports that jobs are also being cut at clothing retailer M&Co:

Breaking: 327 jobs to go at Renfrewshire- based clothing retail chain M&Co (formerly Mackays), as it goes into administration and is bought back in a pre-pack deal, retaining its family ownership.
Closing 47 shops and retaining 215 outlets with c2600 staff

correction: 381 jobs are to go, including 54 non-retail staff.

10.20am BST

In another blow, retail chain WH Smiths is planning to cut up to 1,500 jobs.

Covid-19 continues to have a significant impact on the WH Smith Group. Throughout the pandemic, we have responded quickly and taken decisive actions to protect the business including substantially strengthening our financial position. We have also welcomed support from Government where available.

In our Travel business, while we are beginning to see early signs of recovery in some of our markets, the speed of recovery continues to be slow. At the same time, while there has been some progress in our High Street business, it does continue to be adversely affected by low levels of footfall. As a result, we now need to take further action to reduce costs across our businesses. I regret that this will have an impact on a significant number of colleagues whose roles will be affected by these necessary actions, and we will do everything we can to support them at this challenging time.

9.53am BST

Here's Jeremy Thomson-Cook, chief economist at money management firm Equals, on this morning's Services PMI figures:

The headline sentiment number is indeed positive with activity in the UK's crucial services sector expanding at the fastest rate since July 2015 supported by a surge in new orders.

The issue remains the sustainability of this recovery given the increase in sectoral redundancies and a likely cessation of wider investment until the horizon is seen more clearly, with anything from further lockdowns to Brexit confusion likely to keep businesses in a state of caution."

9.48am BST

UK service sector companies cut jobs at a sharper pace in July, because they are worried that the Covid-19 recovery will be slow.

So says Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply. He warns that there are still serious underlying problems' in the economy, even though activity grew last month.

Employment fell even more quickly in July as some firms made redundancies in response to worries about the length of the recovery. Although in a small minority, other service providers found new opportunities to hire talent and had the pick of the bunch to fill vacancies from growing numbers of applications.

Consumer choices also still remained cautious with pre-covid spending a distant memory in some categories. As the sector returns to work, increased competition between firms meant that increasing raw materials costs could not be passed on to customers. As the threat of further pandemic lockdown threatens to derail continuing progress, business will have to continue to absorb any additional costs coming their way or face the prospect of having to close their doors permanently.

9.40am BST

Newsflash: The UK's service sector has recorded its strongest increase in business activity in five years, as the Covid-19 lockdown eased.

Data firm Markit's UK Services PMI, which tracks activity across the sector, jumped to 56.5 in July from 47.1 in June.

UK service providers reported a strong increase in business activity during July, with the rate of growth the sharpest recorded for five years. New orders also rebounded during the latest survey period, reflecting an improvement in corporate and household spending. Growth was mainly linked to the phased reopening of business operations across the UK economy.

Employment was a weak point in July, with staffing numbers falling at a steep and accelerated pace amid concerns of only a partial recovery in longer-term demand from the levels seen prior to the coronavirus disease 2019 (COVID-19) pandemic.

9.21am BST

The UK's car industry has also benefited from the relaxing of lockdown rules.

New car registrations jumped by 11.3% in July, new figures from industry group SMMT show.

More than 13,000 jobs have now been lost by UK Automotive across retail and manufacturing as a result of the pandemic, with more likely to follow given the scale of the challenges facing the sector, including shifts in technology, Brexit uncertainty and a depressed market.

9.16am BST

The increase in private sector activity in July may show that the eurozone is emerging from recession.

But growth could be subdued until a Covid-19 vaccine comes to market, allowing governments to relax social distancing rules and let the economy return to normal.

Eurozone service sector business activity rebounded in July to grow at a rate not exceeded for over two years. France and Germany enjoyed especially strong gains though renewed growth was also recorded in Spain and Italy as COVID-19 containment measures continued to be relaxed.

Combined with a surge in manufacturing production, the renewed expansion of the service sector bodes well for the economy to rebound in the third quarter after the unprecedented slump seen in the second quarter.

9.12am BST

Newsflash: After months of pain and disruption, the eurozone's private sector is growing again.

Data firm Markit's latest survey of purchasing managers shows that eurozone service sector companies recorded their fastest growth in two years in July. This lifted its service sector PMI to 54.7, up from 48.3.

Latest PMI data pointed to a marked rebound in business activity at German service providers during July. The result marked the first expansion since February following the coronavirus-induced downturn. Read more: https://t.co/mlJMDLs17H pic.twitter.com/VA171JCR1w

Italy's service sector saw a return to growth in business activity in July. Headline #PMI index rose to 51.6 (46.4 in June) to signal just a modest recovery after the COVID-19 downturn. Read more: https://t.co/l3TyIipF2V pic.twitter.com/sq7Sb8ygc0

Spain's service sector saw modest gains in activity in July, but receipts of new business disappointed and job losses were again recorded. Business Activity #PMI Index rose to 51.9 (50.2 in June), its highest in 5 months. Read more: https://t.co/QmVECXaLFk pic.twitter.com/WCywHpqWKO

8.59am BST

Fears that the coronavirus pandemic will intensify are pushing gold prices higher, says Giles Coghlan, chief currency analyst at trading firm HYCM.

We know that investors rally to gold in times of uncertainty. The reason for this is simple - gold is a safe haven asset that is able to maintain, and indeed increase, its value during volatile periods.

To me, 2020 will be known as the year of the gold rush. Its spot price has increased by 32% since the beginning of the year. and finally broken $2,000. This an astounding performance, and naturally has people questioning just how high the price of gold will go. Momentum and confidence is high, and I get the impression that people are keen to see how how the price of gold can go.

8.52am BST

Gold is also being driven higher by speculators, who have been piling into exchange traded funds (ETFs) which hold the precious metal.

ETFs give investors exposure to an asset without the hassle of actually having to buy it themselves --- particularly handy for an expensive commodity such as gold.

Investors continue to pile into gold ETFs, with holdings having increased by more than 820koz over the last week, leaving them at a record 108.51moz.

Given that low rates and a weaker US Dollar are likely to persist, we believe that there is still further upside for gold prices.

GLD ETF bigger than most central banks gold hoarding https://t.co/s8eT1tQDUu pic.twitter.com/2tlwJysoiF

SPDR Gold Shares, an ETF that owns physical bullion rather than just financial derivatives, has hoovered up gold this year as investors seeking price gains or a haven asset channel more money into the fund. The size of the fund's holdings - which are held in HSBC's London vaults - has climbed to 1,258 tonnes.

On Monday and Tuesday alone it added another 15 tonnes, roughly five times as much as Michael Caine's bank robbers lifted in The Italian Job, based on the $4m value of the gold taken in the 1969 film.

8.24am BST

Gold is also profiting from the surge in government bond prices since the pandemic started.

Government bond yields (or interest rates) are at record lows, thanks to the huge quantitative easing (bond-buying) programmes undertaken by central banks.

Gold's scorching rally gathered more force, with prices driven higher into record territory above $2,000 an ounce as investors assessed prospects of more stimulus to combat the coronavirus pandemic's fallout, another slide in U.S. real yields and increased geopolitical risks.

Bullion is up more than 30% this year, and could extend gains as governments and central banks respond to slowing growth with vast amounts of stimulus. Federal Reserve Bank of San Francisco President Mary Daly said Tuesday the U.S. economy needs more support than originally thought.

#Gold barrels past $2,000 w/stage set for prices to rally more. Investors flock to haven on sinking real yields, weaker dollar. Bullion is up >30% ytd, & could extend gains as govts & central banks respond to slowing growth with vast amounts of stimulus. https://t.co/wOTaDRY7Yw pic.twitter.com/2eLpodI9Xj

8.15am BST

European stock markets have opened higher, with the FTSE 100 jumping by 50 points to 6089 points.

That's its highest level in nearly a week.

FRANCE'S CAC 40 UP 0.6%

EUROPE'S STOXX 600 UP 0.4%

BRITAIN'S FTSE 100 UP 0.7%

SPAIN'S IBEX UP 0.8%

GERMANY'S DAX UP 0.6%

8.12am BST

City experts believe gold will hit new heights in the coming weeks as the Covid-19 pandemic continues.

Gold is on fire. The precious metal's scorching rally has continued with prices pushing through the key psychological level $2000 to a record high of $2030 per ounce, as bond yields hit new lows and the US Dollar experiences another steep sell off.

With Congress promising to work round the clock to reach a deal on a new rescue package by the end of the week and comments from the President of the Federal Reserve Bank of San Francisco that the US economy will need more support than initially thought- the stimulus taps are firmly switched on with no signs of them being turned off anytime soon.

Gold futures continue to point north for prices. For the precious gold metal with limited means of valuation, the break above the $2000/oz level opens up further room on the upside in this run fuelled by the safe haven buying that is not expected to dry up anytime soon.

Gold moves steadily higher overnight:#Gold 2026 +0.3% pic.twitter.com/mR4DWYIDaC

The path of the least resistance for gold is still skewed to the upside and there is enough momentum that can push the gold price toward the $2,500.

7.35am BST

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

The gold price has surged to new record highs this morning, amid anxiety over the Covid-19 pandemic, geopolitical jitters, and predictions that money-printing policies will drive inflation up.

Concerns remain around a second wave in Europe as daily case growth has started to accelerate from shallow levels in most countries. However, the levels are nowhere near that seen in the US, which is now on a downward trajectory.

Still, markets fear a second Covid-19 surge into winter (northern hemisphere), and the associated rise in volatility still favors gold as a defensive strategy.

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