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.”

About 25m people have been displaced in the workforce, he says.

There is a long road to an employment recovery but it is “starting earlier than we thought”, Powell says.

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.

The Fed expects unemployment to decline, Powell says, with a “significant amount” of jobs gains but “well short of where we were before”.

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.

Powell says he will “take away and think about” the idea of carrying out a study on the effects of monetary policy on racial disparities. He will discuss the idea and respond at a later point.

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.

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.

The Fed is committed to supporting the economy “until we are confident the economy has weathered these events”.

Quantitative easing bond purchases have helped to stabilise markets.

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

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

Beginning in mid-March economic activity fell at un unprecedented rate, and millions of jobs have been lost even though the latest jobs report was more positive, he says.

The downturn could worsen inequalities, Powell says.

Much of the uncertainty over the timing and strength of the disease pertains to the path of the disease, he says.

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.

A cheap steroid has become the first life-saving treatment in the Covid-19 pandemic, described by scientists as a major breakthrough and raising hopes for the survival of thousands of the most seriously ill.

Dexamethasone is cheap, available from any pharmacy, and easily obtainable anywhere in the world. Investigators said the drug was responsible for the survival of one in eight of the sickest patients – those who were on ventilators – in the Recovery trial, the biggest randomised, controlled trial of coronavirus treatments in the world.

Peter Horby, a professor of emerging infectious diseases in the Nuffield department of medicine, at the University of Oxford, and one of the chief investigators of the trial, said:

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

You can read the full report here:

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:

• The Fed on Monday said it would start buying corporate bonds through its secondary market corporate credit facility (SMCCF), sparking Tuesday’s equity market rally around the world.
• The Fed may also come under scrutiny over whether its Main Street lending programme, also launched on Monday, will be too late to help many companies affected by the crisis.
• The strength of comments on what fiscal stimulus measures are required will be watched closely.
  
• Powell may face scrutiny over the identity of the companies whose debt the central bank buys.
  
• The US central bank kept interest rates on hold last week and Powell indicated borrowing costs would remain near zero into 2022 at least.
• Will Powell reiterate his cautious view of the prospects for recovery? The US economy will shrink by 6.5% this year, the Federal Reserve said in forecasts last week.
• And will Powell comment on the big equity market rally over recent weeks?
  

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.

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

• S&P 500 UP 83.73 POINTS, OR 2.73 PERCENT, AT 3,150.32
  
• DOW JONES UP 828.41 POINTS, OR 3.22 PERCENT, AT 26,591.57
  
• NASDAQ UP 223.54 POINTS, OR 2.30 PERCENT, AT 9,949.56

Infrastructure stocks were among the biggest risers.

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.

However, against the US dollar the pound has retreated to a 0.2% gain. The dollar was helped by the strong retail data, aiding the case of bullish investors who think the US economy will undergo a “V-shaped” recovery.

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.

Nevertheles, the S&P 500 is set to gain 2.9% at the opening bell, according to futures prices. The Dow Jones is set to increase by 3.6%, while the Nasdaq is set for a 2.1% bump, futures suggest.

Neil Birrell, chief investment officer at Premier Miton, said:

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.

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%.

But as we noted, sales are still below levels seen a year ago, showing the real hit to activity caused by the virus.

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.

Via Reuters:

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.

His co-lead investigator, Peter Horby, said dexamethasone - a generic steroid widely used in other diseases to reduce inflammation - is “the only drug that’s so far shown to reduce mortality - and it reduces it significantly.”

“It is a major breakthrough,” he said.

*A previous post has been corrected. Refresh your page to update.

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.

Stock markets have been propped up by the promise of quantitative easing bond buying by major central banks. The Bank of England is expected to add more stimulus on Thursday, potentially to the tune of £150bn.

Quantitative easing is meant to work by buying government bonds, forcing investors to buy other assets and setting off a domino effect that should ripple out to the real economy.

However, there are concerns that it also inflates asset bubbles. It has been blamed for the rise of stock markets that in the case of the US are almost back where they were before the crisis, even though it is clear that economic activity has been severely affected.

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.

In a statement, Apple said:

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.

*This post has been corrected: Spotify is Swedish, not Danish as previously stated. Apologies for the error.

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.

Thus far, the true state of the UK labour market has been disguised by wage subsidies covering nearly 9 million jobs. A much more accurate picture will become available from August, when employers will have to start making a contribution.

You can read the full analysis here:

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.

Against the euro the pound is also up by 0.4% at €1.1168.

Despite the promise of $1tn (£797bn) in US infrastructure spending, the US dollar is only down by 0.1% when measured against a trade-weighted basket of currencies.

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.

“There is growing confidence that the economy will bottom out by summer 2020,” ZEW President Achim Wambach said in a statement.

Carsten Brzeski, chief economist for the Eurozone at ING, the investment bank, said:

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.

The Zew data correspond with another closely followed survey, the Ifo expectations index, in showing a positive direction (if not the same magnitude) of improvement in Germany. This graph from Pantheon Macroeconomics illustrates the bounce.

And there’s an interesting side note from Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, on surprising data showing that wages are still increasing in the eurozone:

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.

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.

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

The unemployment rate may not converge totally with the claimant count given the previous caveats, but it suggests a rise in joblessness is likely.

Kallum Pickering, senior economist at Berenberg, said:

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.

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.

Continued low unemployment is surprising, given the rise in the number of claimants for benefits, according to ING. The count of claimants for universal credit suggests that unemployment is closer to 7.8%, the investment bank’s economists said.

That would be an enormous rise in joblessness in just over two months, but at the same time the widening of the net for benefits (to cover some people who have reduced hours, for instance) has meant that the claimant count overstates actual unemployment.

James Smith, a developed markets economist at ING, an investment bank, said:

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.

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.

Matthew Percival, director of people and skills at the Confederation of British Industry (CBI), 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.

Debapratim De, senior economist at Deloitte, said:

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.

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.

Job vacancies also fell to their lowest level on record and inflation-adjusted pay fell in real terms for the first time in April since January 2018, according to the latest figures from the Office for National Statistics.

You can read the full report here:

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.

Experimental single-month estimates indicate a decrease of approximately 60% of vacancies for May 2020 compared with March 2020.

The fall in job vacancies is bad news, according to Gerwyn Davies, senior labour market adviser at the Chartered Institute of Personnel and Development (CIPD), said:

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.

And here is a chart from jobs site Indeed showing how far below normal the job vacancies are in the UK - although this might be expected to tick up as the economy reopens, it does not bode well for employment prospects.

Jack Kennedy, UK economist at Indeed, said:

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.

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%.

Digger rental company Ashtead is the top gainer, up 14% after it retained its dividend - there had been some doubt from investors after a slew of cancellations and cuts. That optimism on industrials has also helped CRH, the building materials company.

Many of the other top gainers (airlines, cruise ship liner Carnival, engineering groups Rolls-Royce and Melrose) have been hit hard during the crisis - so a risk-on move like the one today will help them.

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.

The SFO had been looking into “suspected corruption” in the embattled company’s dealings with South Sudan, after the world’s youngest country seceded in 2011. De La Rue designed and printed its new currency.

De La Rue had warned about its survival at the end of last year as it launched a turnaround plan to tackle a mounting debt pile and a loss.

The SFO said:

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 said:

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.

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.

Neil Carberry, CEO of the Recruitment and Employment Confederation, said:

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.