Wall Street opened relatively calmly after the bell on Friday as traders digested news that the US economy added fewer jobs than expected last month, according to newly-released official figures.
US firms added 142,000 jobs during August, up from a downwardly revised 89,000 the previous month and below expectations that 165,000 workers would be added to non-farms payrolls, the Labour Department said.
The figure raises bets that the US Federal Reserve will cut interest rates by half a percentage point later this month. Wall Street investors now believe that the US Federal Reserve will slash US interest rates by half a percentage point at its next meeting, on 17 and 18 September.
CME Group’s FedWatch Tool, which uses pricing data from the futures market to predict interest rates, is now indicating there’s a 51% chance of a 50 basis point cut later this month.
Before Friday’s non-farm payroll was released, a 50bp cut in September was only a 41% prospect, with a smaller, quarter-point cut seen as more likely.
Separately, the US unemployment rate dipped to 4.2%, down from July’s 4.3%. The number of unemployed people stood at 7.1 million, which was little changed from August.
The FTSE 100 (^FTSE) and European stocks were higher on the day, paring back deeper losses earlier in the session.
It came as UK house prices rose at the fastest pace in nearly two years. Average property values were up 4.3% to £292,505 in the year to August, according to the Halifax house price index, as a sign of optimism that interest rate cuts are filtering through to the property market.
It was the sharpest jump since November 2022, and follows an increase in prices of 0.3% in August, and a 0.9% rise in July. The average house price is now just £1,000 shy of the record high set in June 2022.
Amanda Bryden, head of mortgages at Halifax, said: “Recent price rises build on a largely positive summer for the UK housing market.
“Prospective homebuyers are feeling more confident thanks to easing interest rates. That optimism is reflected in the latest mortgage approval figures, now at their highest level in almost two years.”
London’s benchmark index was 0.1% higher in afternoon trade, recovering from earlier losses
Germany’s DAX (^GDAXI) dipped 0.1% and the CAC (^FCHI) in Paris headed 0.2% into the green
The pan-European STOXX 600 (^STOXX) was 0.2% higher
Wall Street opened higher with tech stocks lower once again
The pound was 0.1% up against the US dollar (GBPUSD=X) at 1.3196
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Bets on 50bps US rate cut rise
Money markets are betting that the US Federal Reserve will slash US interest rates by half a percentage point at its September meeting.
CME Group’s FedWatch Tool now predicts a 51% chance of a 50 basis point cut later this month. Before today’s non-farm payroll was released, a cut of this size was a 41% chance, with a quarter-point cut seen as more likely.
Those odds have now narrowed to a coin-toss. Guess we will have to wait and see!
Dollar plunges and gold spikes on US jobs data
The weaker-than-anticipated job growth paired with the downward revision to last month’s numbers adds weight to the argument that the US economy may be edging closer to a recession.
With the labour market showing signs of cooling, this could bolster the case for a more significant Fed rate cut in September. The probability of a 25bps cut in September, already priced in by markets, may shift to a 50bps cut.
Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments, said:
“For gold, this could be a catalyst for higher prices, with the weaker employment figures prompting investors to seek refuge in the precious metal, and the resulting lower real yields could further boost gold’s appeal.
“In currency markets, the GBP/USD pair may see significant movement, with the softer dollar providing an opportunity for sterling to gain ground.
“Although reaching a 5-year high of $1.42 by year-end remains an ambitious target, it now seems more achievable than before this report. While it’s premature to sound the alarm based on a single data point, the softening labour market could be an early indicator of broader economic challenges ahead.”
First Fed rate cut all but guaranteed
Washington, USA. 31st July, 2024. U.S. Federal Reserve Chair Jerome Powell speaks to media during a press conference after a meeting of the Federal Open Markets Committee, at the Federal Reserve, in Washington, DC, on Wednesday, July 31, 2024. (Graeme Sloan/Sipa USA) Credit: Sipa US/Alamy Live News (Sipa US, Sipa US)
Richard Carter, head of fixed interest research at Quilter Cheviot, said:
“Today’s US jobs data is expected to determine the size and pace of the highly anticipated Federal Reserve rate cuts, and with the increase in nonfarm payrolls coming in worse than feared at 142,000, we will no doubt see increased speculation that the Fed will take decisive action with a 50bps cut on the 18th of September.
“Alongside this disappointing August figure, July’s nonfarm payrolls number was also revised down from 114,000 to just 89,000. Meanwhile, the unemployment rate fell slightly to 4.2% following a rise to 4.3% in July, and wage growth came in at 3.8% on an annual basis, up 0.2% compared to 3.6% reported last month.
“Markets have been pricing in significant cuts before year end, with many economists touting more than 1%, and today’s labour market print could exacerbate this further. As was the case last month, this data release has proven notably weaker than had been hoped, suggesting the economy may be weakening more than is consistent with the Fed’s aim of a soft landing.
“When considered alongside signs of softening elsewhere in the economy, today’s worse than expected jobs data will all but guarantee a shift in the Federal Reserve’s stance. The Fed’s decision making is highly data sensitive, and with many datapoints continuously suggesting a slowing economy, it seems inevitable that we will see the first cut confirmed this month.”
US unemployment falls to 4.2%
Sticking with all the latest news out of the US….
The unemployment rate has dipped to 4.2%, down from July’s 4.3%.
The number of unemployed people stood at 7.1 million, which was little changed from August. This news may calm worries that the US was sliding into recession.
US economy adds 142,000 new jobs, fewer than expected
The US economy added fewer jobs than expected last month, according to official figures released this afternoon.
American firms added 142,000 jobs during August, up from a downwardly revised 89,000 the previous month and below expectations that 165,000 workers would be added to non-farms payrolls, according to the Labour Department.
The figure raises bets that the US Federal Reserve will cut interest rates by half a percentage point later this month in an effort to avoid plunging the American economy into recession under the weight of high borrowing costs.
Pound higher on Friday
The pound edged higher on Friday as markets await the crucial US jobs figures out later today.
Sterling was up 0.2% against the dollar to $1.3218 and was also flat versus the euro, which is worth 84.4p.
Matthew Ryan, head of market strategy at Ebury, said:
“As things stand, markets see very little chance that the Bank of England cuts rates in September, and we don’t expect that to change, even if data takes a turn for the worse in the interim.
“MPC member speeches have been relatively few and far between since the last meeting, when the committee voted 5-4 in favour of a cut, so the voting pattern this month is almost anyone’s guess.
“A dovish split, with a near equal balance between the hawks and the doves, could signal a more aggressive pace of cuts ahead, which may be bearish for the pound, particularly given its recent strong performance.”
Global food prices eased in August thanks to cheaper sugar, meat and cereal.
The UN’s world food price index dipped to 120.7 points last month from 121 points in July.
Wheat export prices fell month-on-month due to “sluggish international demand” and strong competition among exporters, especially from “competitively priced Black Sea supplies”.
Higher than expected wheat production in Argentina and the US also pushed down prices.
The sugar price index fell by 4.7% compared with July while meat prices fell by 0.7%. World pig prices also dropped, due to a slowdown in import purchases, especially by China.
The UN’s Food and Agriculture Association says:
“The decline in August was mainly driven by the improving production outlook for the 2024/25 season in Thailand and India, following favourable rainfall that benefited sugarcane crops. In addition, lower international crude oil prices exerted further downward pressure on sugar prices.”
However, vegetable oil prices rose by 0.8% month-on-month, due to higher world palm oil prices, and dairy prices rose by 2.2%, driven by whole milk powder, skimmed milk powder and butter.
Eurozone growth revised down to 0.2% from 0.3%
Eurozone growth has been revised down to 0.2% from 0.3% in the second quarter, in a blow to Europe’s recovery.
Statistics body Eurostat revised down its estimate for gross domestic product (GDP) growth in the euro area on Friday.
Poland (+1.5%) recorded the highest increase of GDP compared to the previous quarter, followed by Greece (+1.1%) and the Netherlands (+1.0%).
The highest decreases were observed in Ireland (-1.0%), Latvia (-0.9%) and Austria (‑0.4%).
Meanwhile, household final consumption expenditure decreased by 0.1% in the euro area and increased by 0.1% in the EU.
This was after a 0.3% rise in the euro area and 0.4% increased in the EU in the previous quarter.
It also revealed that government final consumption expenditure increased by 0.6% in the euro area and by 0.7% in the EU (after +0.1% in both zones in the previous quarter),
Gross fixed capital formation decreased by 2.2% in the euro area and by 1.8% the EU (after -1.8% and -1.7% respectively), and exports increased by 1.4% both in the euro area and in the EU.
Berkeley Group climbs 2%
Housebuilder Berkeley slips 2% on Friday morning despite the company saying it was on track to meet its earnings target for the year.
Berkeley said trading had been “stable” over the first four months of its fiscal year and reiterated that it was course to meet it pre-tax earnings forecast of £525m for the year ending 30 April 2025, adding that 90% of this had already been secured through exchanged sales contracts.
The housebuilder also said that due to the fact pre-tax profits are expected to be weighted towards the first half of its fiscal year, operating margins for this period would be slightly ahead of its long-term range of 17.5% to 19.5%.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said that with a “new government in power, there’s fresh optimism that a reform to the planning rules is on its way”.
“All of this is likely to bring an uplift in activity, and Berkeley says it’s fully committed to boosting output and helping the country plug its housing shortfall,” he added.
German industrial output falls
Factory output in Germany has fallen more sharply than expected, statistics body Destatis reported on Friday.
Industrial production in Europe’s largest economy dropped 2.4% in July, much worse than the 0.3% fall predicted by economists.
Production dropped by 8.1% in the automotive industry, following a 7.9% rise in June.
The declines in the manufacture of electrical equipment (-7.0%) and the manufacture of metal products (-3.8%) also had a significantly negative impact, Destatis added.
Super Typhoon Yagi came ashore on Hainan Island in southern China packing destructive winds and torrential rain after skirting Hong Kong and shutting the city’s stock market, Bloomberg reports…
The storm hit the Philippines earlier in the week, killing people and forcing thousands to flee before moving into the South China Sea. The typhoon then tracked toward southern China, dumping rain across Hong Kong.
Hong Kong scrapped trading of its $4.9 trillion stock market on Friday after the weather bureau prolonged a storm warning, which is likely be the final time a typhoon forces a halt.
The financial hub is ending its decades-long practice of shutting markets during severe storms from 23 September.
House prices to rise around 5% next year
Economists are predicting that the housing market will enjoy “renewed impetus next year”, following the rise in house prices revealed by Halifax this morning.
Ashley Webb, UK Economist at Capital Economics, said:
“Overall, today’s data release supports our view that the housing market isn’t on the precipice of a new downturn.
“Admittedly, we don’t expect house prices to rise much further this year either.
“But if we’re right to think that Bank Rate will eventually fall from 5% now to 3%, the resulting drop in mortgage rates should boost demand and give house prices renewed impetus next year.
“That may mean house prices rise by around 5% in 2025.”
Darktrace boss Poppy Gustafsson steps down
Konskie, Poland – May 12, 2024: Darktrace company logo displayed on mobile phone (Piotr Swat)
Poppy Gustafsson, the co-founder and chief executive of Darktrace (DARK.L) is set to step down from the helm following its $5.3bn (£4.2bn) sale to US private equity business Thoma Bravo.
Gustafsson is to step down with immediate effect and will be replaced by Jill Popelka, Darktrace’s current chief operating officer.
Darktrace was founded in Cambridge in 2013 with the backing from the late billionaire tycoon Mike Lynch’s Invoke Capital.
In April, Thoma Bravo struck a deal for the London-listed British cybersecurity firm which had been considered by analysts to be undervalued by investors.
Gustafsson said on Friday:
“Darktrace has been a huge part of my life and my identity for over a decade and I am immensely proud of everything we have achieved in that time.
“Now is the right time to hand over the reins so Jill can lead Darktrace through its transition into private ownership and beyond. I remain Darktrace’s number one fan.”
Lynch and his wife Angela Bacares held a 6.8% stake in Darktrace which was worth £300m at the time of the sale. He died last month when his superyacht sunk off the coast of Italy in a storm.
Traders await another US job report
Global investors are bracing for the latest US jobs report due this afternoon, which will influence how quickly the US Federal Reserve may cut interest rates this month.
Economists are hoping for a pick-up in hiring; expectations are for a 160,000 increase in payrolls in August, up from the disappointing 114,000 in July. The US unemployment rate is forecast to drop back to 4.2%, from 4.3%.
Jim Reid, strategist at Deutsche Bank, said:
“After much anticipation, we have finally arrived at the latest US jobs report day, which is of crucial importance as the Fed decides how much to cut rates this month.
“It was only five weeks ago that the last jobs report underwhelmed, with payrolls growth down to just +114k alongside negative revision to the previous couple of months. So the big question today is whether that disappointing report was just a blip, or was it the start of a more serious deterioration.”
Where are house prices growing the most?
Northern Ireland recorded the strongest annual house price growth, Halifax revealed, rising by 9.8% on an annual basis in August. The average price of a property in the region is now £201,043.
House prices in Wales also recorded strong growth, up 5.5%, compared to the previous year, with properties now costing an average of £224,433.
Scotland saw a more modest rise in house prices, where a typical property now costs £205,144, a 1.7% rise on the the year before.
The North West once again recorded the strongest house price growth of any region in England, up 4.0% over the last year, to sit at £232,917.
Meanwhile, London continued to have the most expensive property prices in the UK, now averaging £536,056, up 1.5% compared to last year.
UK house prices hit two-year high
File photo dated 19/08/14 of a view of houses in north London. Average UK house prices increased by 2.2%, to £285,000 in the 12 months to May 2024, according to the Office for National Statistics (ONS). Issue date: Monday June 17, 2024. (Yui Mok, PA Images)
UK house prices have risen at the fastest pace in nearly two years. Average property values were up 4.3% in the year to August to £292,505, according to the Halifax house price index.
It comes as a sign of optimism that interest rate cuts are filtering through to the property market. It was the sharpest jump since November 2022.
It follows an increase in prices of 0.3% in August, and a 0.9% rise in July, with the average house price just £1,000 shy of the record high set in June 2022.
Amanda Bryden, head of mortgages at Halifax, said:
“Recent price rises build on a largely positive summer for the UK housing market.
“Prospective homebuyers are feeling more confident thanks to easing interest rates. That optimism is reflected in the latest mortgage approval figures, now at their highest level in almost two years.”
Asia and US stocks
Asian shares were lower overnight ahead of a highly anticipated US jobs report that is expected to influence how the Federal Reserve will move on interest rates.
The Nikkei (^N225) fell 0.7% on the day in Japan, while the Shanghai Composite (000001.SS) was 0.8% down by the end of the session.
The Hang Seng (^HSI) was halted in Hong Kong due to an approaching typhoon.
It comes as the nonfarm payrolls report, due for release later this afternoon, will indicate how big of a cut to interest rates the Fed will deliver at its next meeting later this month.
After keeping its main interest rate at a two-decade high to stifle inflation, the Fed has hinted it is about to begin cutting rates to keep the economy from sliding into a recession.
Across the pond on Wall Street, the Dow Jones (^DJI) fell 0.5%, closing at 40,755.75, the S&P 500 (^GSPC) lost 0.3% ending at 5,503.41, and the Nasdaq Composite (^IXIC) managed to eke out a gain of 0.3% to 17,127.66.
In the bond market, the yield on benchmark US 10-year Treasury notes fell 3.729%, from 3.768% late on Wednesday.
Coming up…
Good morning, and welcome back to our final markets live blog of the week. Stay tuned to keep to-up-date with all the latest markets news and all that’s happening across the global economy.
Here’s a quick look at what’s on the agenda for today:
7am: Trading updates: Berkeley Group
7am: Halifax house price index for August
7am: German industrial output for July
9am: UN food price index
10am: Eurozone final GDP Q2 report
1.30pm: US non-farm payroll report for August
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