Bank of England's Haldane blasts 'Chicken Licken' pessimism; US payroll growth swells – as it happened

Graeme Wearden

from on 2020-09-30 14:08 (#58NDY)

Rolling coverage of the latest economic and financial news

3.08pm BST

Time for a quick recap.

The Bank of England's top economist has warned that pessimism about the UK recovery could hurt growth.

If the economy were sat on a psychiatrist's sofa, the diagnosis would not be especially difficult. A propensity to dismiss good news and dwell on bad? To catastrophize about the future? The sense of events being beyond our control? These are the psychological symptoms of anxiety. And collective anxiety is as contagious, and could be as damaging to our well-being, as this terrible disease.

Averting an economic anxiety attack calls for a balanced and flexible approach to the words and actions of businesses and policymakers. Planning for the worst is important, but needs to be accompanied by hope for the best. Encouraging news about the present needs not to be drowned out by fears for the future. Now is not the time for the economics of Chicken Licken.

BOE Chief Economist Andy Haldane says Chicken Licken economics could be as dangerous as Covid itself https://t.co/wfRjIBz6S5 via @markets pic.twitter.com/PHLFVFCr1b

3.00pm BST

Growth in the Chicago region has also accelerated faster than expected, according to the latest survey of purchasing managers in the region:

Chicago PMI Surges in September https://t.co/VYUfWovVMY pic.twitter.com/n8e8nyJ1Sa

2.41pm BST

Wall Street has confounded expectations of a post-debate selloff.

Stocks have risen as the start of trading in New York, following the stronger-than-expected ADP payroll report.

With less than five-weeks left until the election, we are seeing a president that increasingly speaks of voter fraud which appears to show a candidate laying the groundwork for defeat.

From a market perspective, while Biden is likely to be more than willing to spend freely in a bid to reduce inequalities, there is also a worry that he will be significantly less business and investor friendly.

1.55pm BST

Reuters is reporting that Marathon Petroleum Corp, the largest U.S. oil refiner, began cutting jobs on Tuesday across the company.

This follows a slump in demand for motor fuels during the pandemic, and adds to today's job loss tally (which undermine the positive news on the ADP payroll report).

Layoff news, past 24 hours:

* Disney: 28,000 jobs cuts
* Shell: 9,000
* Dow: six percent of workforce
* Marathon Petroleum: https://t.co/B6mgCoMu8b

1.51pm BST

Andrew Hunter of Capital Economics is cautious about reading too much into today's ADP jobs report:

The 749,000 rise in the ADP measure of private employment in September supports our forecast that the official non-farm payrolls figures, due on Friday, will show an 800,000 gain. But, in truth, the ADP figures have been a particularly poor guide to the BLS data in recent months.

The ADP data suggest that employment growth actually strengthened this month, with the reported gain in September much stronger than the 481,000 rise in August. But the latter was well short of the 1.4m rise in the official BLS figures, so we are wary of reading too much into that apparent improvement. Otherwise, the details of the ADP report were a mixed bag, with a further slowdown in the pace of recovery in the leisure & hospitality and professional & business services sectors offset by a much stronger gain in manufacturing and construction payrolls.

1.41pm BST

Snap reaction to the ADP jobs report:

A modestly better-than exp gain of 749k jobs in Sep (per ADP) still leaves a massive hole vs. pre-virus levels with only 47% of the 19.7mm jobs losses recovered to date. pic.twitter.com/ygpfpBfYpk

749K private sector jobs added last month according to $ADP report. More than expected. Note that there isn't a perfect correlation between this report and the government's BLS numbers. But let's hope this is a good sign for Friday.

September @ADP payrolls better than expected at 749k vs. 649k est. & 481k in prior month; large firms +297k, midsized +259k & small +192k ... goods-producing +196k & services +552k...monthly pace of gains gradually stronger but still modest & overall level well below pre-COVID peak pic.twitter.com/O2xhp2h5OO

ADP reported that private sector #payrolls increased by a larger than expected 749K in September, up from 481K in August. Gains were across firm size and across all goods and services sectors except education. A good report on the #economy. pic.twitter.com/kJNKXmi0Hc

ADP's estimate for Sept job growth is higher than ADP's Aug estimate but much lower than BLS's official Aug estimate of 1.4 million. https://t.co/afGVQuOdod

1.29pm BST

Here's where the US economy added jobs this month, according to ADP's new payroll report:

1.23pm BST

Newsflash: US companies created nearly three quarters of a million jobs this month, as the labor market recovery continued.

That's according to ADP, the payroll operator. It reports that private sector employment in America rose by 749,000 during September, up from an 481,000 in August.

US September ADP Employment Report - ADPhttps://t.co/RSgNlIYSPx pic.twitter.com/vZ1wlFaC7o

Hey look ... actual economic data to talk about. ADP says the U.S. #economy added 749K jobs in September, topping the average estimate of 600K. Not much market reaction beyond a small uptick in stock futures #ES_F

US ADP National Employment* (Sep) 749k vs. Exp. 650.0k (Prev. 428.0k)

No guide for Friday's NFP whatsoever.

12.42pm BST

Economic anxiety has pushed the oil price down to a two-week low today.

Even before this crisis, conditions were incredibly tough for the big exploration firms, due to incessantly low oil prices. This pandemic has just magnified their problems.

The issue they have now - and it is a major one - is that the demand for their product is still desperately low. While there is more traffic on the roads now than there was a few months ago, the airline industry, a key market for oil producers, is still virtually grounded.

12.13pm BST

In another takeover development... Italian confectionery giant Ferrero Group is plotting a 250m takeover of Fox's Biscuits, according to Sky News.

They say:

Ferrero, the family-controlled dynasty behind Kinder chocolate and Nutella, is working with advisers on a bid for Fox's.

The biscuit-maker's current owner, 2 Sisters Food Group (2SFG), has asked for offers to be submitted this week, according to insiders.

Italian giant Ferrero in crunch talks to swallow Fox's Biscuits https://t.co/YRC9P5sNsS

12.09pm BST

Canadian security firm GardaWorld has launched a hostile 3bn takeover bid for its UK rival, G4S.

G4S is a deeply troubled business which needs a committed owner-operator team that understands the sector and has a definitive and comprehensive plan. Stakeholders can take no confidence in the promises of a senior management team that has been in place for seven years and has not delivered for shareholders, customers, employees or the public.

The G4S Board has behaved in a cavalier way by rejecting our potential offer out of hand. We look forward to meeting with investors to explain the challenges ahead and why this is a full and fair price for an asset which faces turbulent times and difficult operating conditions."

G4S has 533,000 employees across 85 countries, with its biggest business in North America. It runs cash handling services and security operations, and is also managing 21 Covid-19 test centres in the UK. It runs four prisons in the UK - in Liverpool, near Rugby, Wolverhampton and Wales - but the majority of its contracts are corporate. It provides security at the Hinkley Point C nuclear power station and at Thames Tideway, London's new super sewer that is still being built.

However, it was stripped of its contract to run HMP Birmingham after rioting forced the government to call in Tornado squads, officers specialising in quelling disturbances. It also lost the contract to run Medway secure training centre, after allegations of mistreatment of children, and the contract to run the Rainsbrook young offender facility. It pulled out of the immigration and asylum sector a year ago, after undercover footage from BBC's Panorama showed G4S officials mocking, abusing and assaulting detainees at the Brook House facility.

11.26am BST

Here's our news story on the sweeping job cuts at Shell:

10.58am BST

In contrast to Andy Haldane's upbeat outlook, high street bank TSB has just announced large job cuts -- adding to the 9,000 positions going at Shell.

Closing any of our branches is never an easy decision, but our customers are banking differently - with a marked shift to digital banking. We remain committed to our branch network and will retain one of the largest in the UK."

10.55am BST

Here's some reaction to Andy Haldane's speech on Avoiding Economic Anxiety (which you can read here)

Andy Haldane says now is not the time for the economics of Chicken Licken"

This raises the important question: when on earth would be the time for that sort of economics??

I think the @bankofengland chief economist should tell us pic.twitter.com/KwK08yL323

Only explanation for Haldane these days is that he seems to think the confidence channel of central bank guidance is more important than the credibility channel (and miraculously the former is unaffected by the latter...or indeed reality)

Bucking the trend of recent darkening economic sentiment is Andy Haldane fr @bankofengland, who says:

we need... to prevent healthy caution morphing into fear and fatalism..

Avoiding economic anxiety is crucial to support the on-going recovery"#COVID19 #CovidUK

10.52am BST

Andy Haldane justifies his attack on pessimism by arguing that the unholy trinity of risks" facing the UK economy aren't as serious as you might think.

They are....

Measures announced so far are nothing like as severe as earlier in the year. Even during that earlier period, we saw significant substitution between spending categories, partially insulating aggregate spending.

In this respect, it is notable how quickly spending in the worst Covid-affected US States bounced back recently following their second wave.

Existing surveys suggest many firms still have a distance to travel before they are fully prepared for leaving the customs union with the EU, understandably so given the disruption caused by Covid. But there is still time for this operational work to be done and it will be important businesses prioritise that in the weeks ahead to minimise disruption to their businesses and the economy.

I am confident UK companies will rise to this challenge, as they have to the challenge of Covid.

10.41am BST

Haldane has also taken a swipe at the press for being too negative.

According to the Bank of England's chief economist, we blundered last month by reporting that Britain had fallen into its worst ever recession.

A particularly revealing episode is associated with the notable spike in the pessimism ratio on the 12 August.

This was when the Office for National Statistics published second quarter GDP figures for the UK. These showed a huge fall of over 20% in GDP, the largest quarterly fall on record by far. This, understandably, was one of the top three new stories on the day. Here are some of the headlines that accompanied it:

Yet the irony is that the only news in this release was GDP growth for the month of June, the final month of the quarter. This saw an almost 9% rise in activity, by far the largest rise in any month ever and above market expectations. Yet negative media headlines outnumbered positives by many multiples.

Positive economic news was media-filtered into an extreme negative event

And if Haldane has criticisms of how economic data is presented to the public, he might want to start with @ONS who also focused on the Q2 fall in GDP rather than the June monthly rise when the numbers came out on August 12 pic.twitter.com/t4mc0QLhhY

10.30am BST

Andy Haldane also pours cold water on the suggestion that UK interest rates could be cut below zero.

He insists that the Bank's Monetary Policy Committee is not close to introducing negative rates, even though the BoE has begun conducting operational work on the issue.

Judgements on negative rates will depend on the economic outlook at the time and in particular on whether that necessitates further monetary stimulus. If that condition was satisfied, any decision on negative rates would then depend on whether the balance of costs and benefits from using this tool was positive and whether this cost/benefit balance favoured negative rates over other monetary tools.

All three of these conditions would need to be satisfied before negative rates became a reality. At present, none of those conditions is in my view satisfied

10.26am BST

Andy Haldane points out that consumer spending has been stronger than expected since the lockdown began - a sign that the economy sky isn't tumbling down.

The simplest explanation for the upside surprises to UK activity over recent months would be that lockdown measures have been released sooner and faster than expected. But the pace of release from lockdown in the UK has in fact been broadly in line with what the Bank had expected in May. The biggest surprise has been the robustness of peoples' spending behaviour in the face of lockdown constraints and other risks, not the evolution of these constraints and risks per se.

The behaviour of UK consumers has been most surprising. Based on our suite of fast indicators, UK consumption has been rising by, on average, around 2% per week since May.

10.03am BST

for anyone confused by this comment;

Chicken Licken is a European folk tale with a moral in the form of a cumulative tale about a chicken who believes that the world is coming to an end.

Via Wikipedia

https://t.co/XxEGd94nQ3 pic.twitter.com/ejSiolKCSZ

10.01am BST

The chief economist at the Bank of England has hit out at anxiety over the UK economy, saying that undue pessimism will intensify the damage caused by Covid-19.

We now expect GDP to be around 3-4% below its pre-Covid level by the end of the third quarter. In other words, the economy has already recovered just under 90% of its earlier losses.

9.53am BST

UK house prices hit a record high last month, over 266,000 for the first time, as the market picked up momentum.

As flagged earlier, prices have jumped by 5% over the last year, with most regions seeing an acceleration in prices over the last quarter.

UK house prices increased by 0.9% month-on-month in September, after taking account of seasonal effects, following a 2.0% rise in August. As a result, there was a further pick up in annual house price growth from 3.7% in August to 5.0% in September - the highest level since September 2016.

Housing market activity has recovered strongly in recent months. Mortgage approvals for house purchase rose from c66,000 in July to almost 85,000 in August - the highest since 2007, well above the monthly average of 66,000 prevailing in 2019.

9.43am BST

Over in Germany, the jobless rate has fallen as Europe's largest economy continues to recovery from the pandemic.

The German labour office reports that the number of people out of work fell by 8,000 in seasonally adjusted terms to 2.907 million. That pulled the unemployment rate down to 6.3%, from 6.4%.

Good news for German economy! Unemployment rate falls to 6.3% in Sep. from previous 6.4% (exp. 6.4%) and retail sales rise by +3.1% MoM in Aug., much more than exp. +0.4% @graemewearden

9.31am BST

The US casino operator Caesars Entertainment is claiming victory today in its pursuit of British bookmaker William Hill.

William Hill has agreed to be taken over by Caesars in a 2.9bn deal, just days after a bidding war broke out - with private equity firm Apollo also in the running.

The deal, which must be agreed by 75% of William Hill shareholders, was unanimously recommended by the UK company's directors. It came after two rival bids by the US private equity group Apollo were turned down.

The takeover will give Caesars, the operator of the Caesars Palace casino in Las Vegas, access to the burgeoning US sports betting market. Caesars also owns various casinos in the UK.

9.27am BST

European stock markets have dipped into the red this morning as anxiety over the US presidential election builds.

It's not a major selloff - the Europe-wide Stoxx 600 index is down around 0.5%, towards the three-month lows struck last week.

If last night's Presidential debate was supposed to inform and educate, all it did was merely confirm the credibility deficit in US politics, as President Trump, and Democrat nominee Joe Biden engaged in what can only be described as a fact free name calling contest.

Financial markets appear to have taken their cues from that, shrugging off some better than expected Chinese PMI data, which showed improvement in both manufacturing and services in September.

9.16am BST

Shell isn't the only major company announcing major job losses due to the pandemic.

Overnight, Walt Disney announced it was eliminating 28,000 jobs at its theme parks, which were forced to shut during the lockdown and have struggled since.

The entertainment company blamed limited attendance at the theme parks it has reopened and the continuing closure of others for the difficult decision".

For the last several months, our management team has worked tirelessly to avoid having to separate anyone from the company. We've cut expenses, suspended capital projects, furloughed our cast members while still paying benefits, and modified our operations to run as efficiently as possible, however, we simply cannot responsibly stay fully staffed while operating at such limited capacity."

8.59am BST

As well as slashing up to 9,000 jobs to reduce costs and complexity', Shell is also planning to restructure its oil and gas operations to help fund its move into renewables.

CEO Ben van Beurden says Shell's upstream arm (which finds oil and gas, and digs it out) will focus on generating strong cash flow' to fund spending on lower-carbon products.

We will keep only what is strategically essential to us and integrate those refineries with our chemicals business, which we plan to grow. We will keep sites in key locations which have the flexibility to adapt. It is also worth noting that, if we want to be a large player in biofuels, a lot of the biofuel capability will be built within our refining infrastructure.

We will end up with fewer than 10 refineries, compared to 55 around 15 years ago, but they will be set up to serve the changing needs of society.

8.13am BST

The FT's Anjli Raval says Shell is trying to streamline its business after the shock of Covid-19, writing:

Shell has in recent months reviewed its operations as it seeks not only to become more financially resilient, but better set up for a shift towards lower-carbon energy businesses.

Job reductions of between 7,000 and 9,000 are expected by the end of 2022, including 1,500 people that have chosen to take voluntary redundancy.

.@Shell is cutting up to 9,000 jobs by 2022 (out of 83,000) as part of an organisational restructuring to not only save $$$ but to prepare the company for a shift into cleaner businesses. CEO: "a large part of the cost saving for Shell will come from having fewer people" #OOTT

8.05am BST

Shell's job cuts mean that tens of thousands of positions are being lost across the energy industry - due to Covid-19 and the push towards less polluting sources of power.

Bloomberg has the details:

Royal Dutch Shell Plc will cut as many as 9,000 jobs as Covid-19 precipitates a companywide restructuring into low-carbon energy.

Job reductions of 7,000 to 9,000 are expected by the end of 2022, including around 1,500 people taking voluntary redundancy this year, Shell said Wednesday in a statement. The company sees sustainable annual cost savings of $2 billion to $2.5 billion by that time.

LATEST: Shell announces job reductions of 7,000-9,000 by the end of 2022 as #Covid19 spurs a companywide restructuring into low-carbon energy.

More @business: https://t.co/zVsS585slw pic.twitter.com/4sjKg4sNq5

7.52am BST

Shell chief Ben van Beurden is also pledging to push governments and regulators towards a low-carbon future.

In an article outlining his net-zero strategy, and the sweeping job cuts, van Beurden says:

We simply have to be better at making decarbonisation a reality in society and that means having a loud, clear voice. If we want to make hydrogen happen, for example, it is not going to be by just building the infrastructure and seeing what happens next. It is going to be by working with decision makers and policy makers so we can find ways forward: what legislation and standards need to be put in place, what bottlenecks need to be cleared.

We cannot just be quiet. If we stay quiet we risk ending up saying: Well, I am sorry, it didn't happen because we failed to speak up." We have to be proactive and help things happen.

7.22am BST

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

We start with some breaking news -- oil giant Royal Dutch Shell is cutting up to 9,000 jobs as it overhauls its operations towards greener energy sources.

It is very painful to know that you will end up saying goodbye to quite a few good people. I know I, and many others in Shell, will be saying goodbye to people we know well and really like and who have great loyalty to the company. But we are doing this because we have to, because it is the right thing to do for the future of the company.

We have to be a simpler, more streamlined, more competitive organisation that is more nimble and able to respond to customers.

COVID-19 has shown we can work very effectively in ways we did not think we were ready for yet. But a large part of the cost saving for Shell will come from having fewer people.

We do not have an exact figure because the details are still being worked out, and we have never had a target to reduce a particular number of jobs. But we can say that, because of the efficiencies we expect to gain, we will reduce between 7,000 and 9,000 jobs by the end of 2022.

Shell has warned of 7,000 to 9,000 job losses globally by the end of 2022
For more on this and other news visit https://t.co/8OWd2TvLrt

House prices rose by 0.9% in September according to #Nationwide, with annual HPI at 5.0% the highest since Sep 2016, good news for #homeowners and those who can secure a mortgage, but bad news for the deposit poor and first-time buyers pic.twitter.com/qo2hNvowo0

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