The oil price has taken a tumble today, with US crude down 4.2% at $61.85 per barrel and Brent crude 4% lower at $65.33.

That’s partly because the dollar is strengthening today, but also reflects worries about a third wave of Covid-19 hitting Europe’s economy, especially with the AstraZeneca vaccine rollouts suspended in some EU countries earlier this week.

A report yesterday showing a rose in crude inventories isn’t helping either, pulling oil down from the 14-month highs earlier this month.

Edward Moya of OANDA explains:

Crude prices are declining for a fifth consecutive day as concerns grow that Europe won’t have a regular summer. The crude demand outlook for the US appears to be the complete opposite for the eurozone. Europe is seeing a third straight week of rising of COVID cases and with vaccination hurdles remaining in place, the outlook does not seem it will be getting better anytime soon.

A strong dollar is emerging post-Fed decision as short-end rates appear anchored, while the long-end of the curve is free to rise. A strong dollar is accelerating the weakness in oil prices.

WTI crude could soften some more, but should start to see buyers emerge around the $60 level. Significant weakness from here seems unlikely since the short-term hit to demand outlook should be temporary and OPEC+ production could stay steady for another month.

Tech stocks are suffering from the bond selloff.

Over in New York, the Nasdaq has fallen by over 1.5% in the first hour of trading, shedding 213 points to 13,311 points. Video conferencing firm Zoom (-3.4%) and payment company PayPal (-3%) are among the fallers.

Rising bond yields weakens technology company share prices, as a higher inflation environment makes their future earnings less valuable today.

The S&P 500 index has dropped by 0.5%.

The Dow Jones Industrial Average, which has a greater concentration of ‘old economy’ stocks, has crept up by 0.2%, though. The jump in bond yields is helping financial stocks, with JPMorgan Chase up 3.8% and Goldman Sachs up 2.8%

But the Dow’s tech contingent are down, with Apple off 2.1%. Salesforce.com losing 1.9%, Microsoft off 1.8% and Intel losing 1.5%.

Back in the markets, the selloff in government bonds is continuing as investors continue to price in rising inflation.

The yield (or effective interest rate) on US 10-year Treasuries has jumped to 1.75% today, a 14-month high, as prices keep falling.

Other sovereign bonds are also weakening. The UK 10-year gilt yield touched 0.9% today, its highest level since the pandemic began.

Bloomberg explains that traders are anticipating that the Federal Reserve will allow inflation to overshoot amid an economic rebound.

The moves came after Fed Chair Jerome Powell indicated he wasn’t concerned over the recent surge in long-term yields -- with his focus still on whether financial conditions remained accommodative. Rates have surged this year on expectations that stimulus spending and vaccine rollouts will fuel a sharper economic recovery and a pickup in inflation.

“Powell has given the green light to higher 10- and 30-year yields as progress out of the pandemic accelerates,” said BMO Capital Markets’ Ian Lyngen. “Underlying inflation expectations remain elevated and will remain a bedrock of the bearish trend in Treasuries until those assumptions are challenged. For now, it doesn’t pay to fight the cheaper and steeper yield curve.”

Over in America, the number of people filing new jobless claims has jumped unexpectedly.

The weekly ‘initial jobless claims’ total rose to 770,000 last week (on a seasonally-adjusted basis), jolting economists who had expected a drop to 700,000.

That’s an increase of 45,000 on the previous week.

And if you include freelancers and self-employed workers who seek help through the Pandemic Unemployment scheme, there were more than a million new unemployment claims.

This weekly data can be volatile, especially as states recover from February’s bad weather.

But the big picture is that US unemployment claims have been running at historically high levels for a year, as Daniel Zhao of Glassdoor tweets:

The Bank of England has become less gloomy about unemployment amid signs that budget measures and a more resilient than expected economy will improve the UK’s jobs’ outlook, my colleague Larry Elliott writes.

More here:

Daniele Antonucci, chief economist & macro strategist at Quintet Private Bank, says the Bank of England is walking the same tightrope as the Federal Reserve (which raised its growth forecasts last night, while sounding cautious).

On the one hand, it wants to project confidence in the economic recovery, casting the recent rise in yields as a reflection of improving growth expectations.

On the other hand, the Bank is still conscious of the significant uncertainties surrounding the recovery – despite a June target for lifting all restrictions – and as such is wary of any unwarranted tightening in financial conditions.

Both central bank meetings happened in the context of rising yields, which have prompted markets to price in earlier than expected rate hikes in the US and the UK.

Absent market stress, and given ongoing uncertainty, we would expect the Bank of England to taper its QE purchases at a pace of around half its current weekly pace, once reopening is advanced further and the strength of the rebound clear.

We then expect a hiking signal as spare capacity closes and inflation is running close to target at some point next year, but no rate hike just yet. We would think that a first hike may become more probable in 2023, likely after the Fed.”

Hugh Gimber, global market strategist at J.P. Morgan Asset Management, says the UK economic outlook has improved a little since the Bank’s last meeting:

“Central bankers often like to highlight that the outlook is “unusually uncertain”, but the Monetary Policy Committee is feeling a little more comfortable about the prospects for the economy than at its last meeting six weeks ago.

“The latest budget confirmed that government lifelines for the labour market will continue, the vaccine rollout is progressing at pace, and a gargantuan stimulus package across the Atlantic should have positive spillover effects across the globe. Against this backdrop, the UK economy is poised for a strong rebound this year.

But Silvia Dall’Angelo, Senior Economist at the International Business of Federated Hermes, points out the high uncertainty and downside risks:

“The tone of the meeting has remained cautious, in line with the stance adopted by the other major central banks over the last week. The Bank of England is facing the same cross-currents: since its previous meeting in February, most developments – notably fresh rounds of fiscal stimulus domestically and abroad – have had positive implications for the economic outlook, but downside risks and uncertainty concerning the evolution of the pandemic are still prominent.

“The Bank of England is cautiously monitoring developments for now. An accommodative policy setting is still needed to support the incipient recovery. But there is uncertainty surrounding the existing degree of spare capacity and about relative dynamics in supply and demand going forward. Which means that the Bank of England should be equally ready for its next move being further easing or the beginning of a tightening course.”

Gurpreet Gill, macro strategist for Global Fixed Income at Goldman Sachs Asset Management, says the Bank sounded ‘cautiously upbeat’:

Looking ahead, the most interesting debate with regard to UK policy will be around the sequencing of policy normalization.

Under former Governor Carney, it was understood that the balance sheet would not be unwound until the policy rate reached 1.5%, whereas Governor Andrew Bailey has hinted that the balance sheet could be normalized prior to rate hikes – which could lead to a steeper UK gilt curve.

More broadly, we think fiscal policy normalization will occur prior to rate hikes and we see limited prospects of rate hikes through 2023.”

Although the Bank of England’s MPC voted 9-0 to leave interest rates and QE unchanged, the committee have a range of views about the economic outlook.

The minutes point out that there are signs of recovery in the economy:

Since the MPC’s previous meeting, the news on near-term economic activity had been positive, although the extent to which that news changed the medium-term outlook was less clear.

But...different MPC members placed “different weights on the balance of risks around the outlook”, the minutes continue.

The crux of the issue is whether companies and households will embark on a spending spree when the lockdown ends (as chief economist Andy Haldane expects), or whether they’ll be cautious... and indeed, whether the pandemic could flare up again.

The minutes sum up the two sides:

On the upside, for example, receding fears of infection, further progress in the vaccination programme, the extension of government support schemes, and less voluntary social distancing could allow households to resume more normal spending behaviour and start to run down a greater proportion of their accumulated savings than had previously been anticipated, boosting jobs and investment.

On the downside, households and businesses could continue to exercise caution in their consumption and investment decisions, while delays in vaccination programmes globally or the emergence of vaccine-resistant variants of the virus could trigger a renewed rise in infections and further periods of restrictions on economic activity in the future

It’s possible that the restrictions on the UK economy could be lifted ‘somewhat more rapidly’ than forecast back in early February, the Bank of England states:

In a statement explaining today’s interest rate decision, the BoE says:

The rates of Covid infections and hospitalisations have fallen markedly across the United Kingdom and the vaccination programme is proceeding at a rapid pace. Plans for the easing of restrictions on activity have been announced and envisage that restrictions could be lifted somewhat more rapidly than was assumed in the February Report.

Budget 2021, published in March, contained a number of significant new policy announcements, including the extension of the Coronavirus Job Retention Scheme and other measures to support the economy in the near term which had not been reflected in the February Report.

The Bank of England has voted unanimously to leave UK interest rates unchanged at 0.1%, as expected.

The Bank’s monetary policy committee has also left its £895bn quantitative easing programme unchanged, meaning it will continue to buy up to £875bn of UK government bonds (and hold £20bn of corporate debt).

More to follow...

The UK government has cut grants for electric car buyers, to the horror of the automotive industry as it tries to rapidly shift away from fossil fuels.

The maximum grant for electric cars has been reduced to £2,500 with immediate effect on Thursday, from £3,000. The government has also lowered the price cap for cars eligible for the subsidy from £50,000 to £35,000.

The cut is likely to be controversial, only a fortnight after the chancellor, Rishi Sunak, extended a generous implicit subsidy for petrol and diesel car drivers by freezing fuel duty.

Online job adverts in the UK have hit their highest level since the first lockdown a year ago.

It’s a sign that the employment market is picking up, as firms plan for the end of the Covid-19 lockdown restrictions.

The Office for National Statistics reports that on 12 March 2021, the volume of online job adverts listed on Adzuna was at 93% of its average level in February 2020.

That’s the highest level observed since 12 March 2020, driven by rises across all UK countries and regions, the ONS says.

There was a big surge in orders for “transport, logistics and warehouse” roles, the ONS says:

Excluding the “unknown” category, compared with 5 March 2021 the volume of online job adverts increased in all Adzuna categories except “legal”, which fell by 8 percentage points. On 12 March 2021 “legal” job adverts on Adzuna stood at 72% of their average level in February 2020.

The “transport, logistics and warehouse” category saw the largest week-on-week increase in weekly online job adverts of 23 percentage points to 159% of its average level in February 2020. This was followed by the “domestic help” and “energy, oil and gas” categories, which both saw week-on-week increases of 10 percentage points.

Here’s more from the ONS’s weekly report on the impact of the pandemic:

More central bank action: Turkey’s central bank has raised its policy interest rate to 19%, a higher move than expected.

Reuters has the details:

Turkey’s central bank hiked its policy rate by a more than expected 200 basis points to 19% on Thursday to address a sliding lira and rising prices, in what was seen as a credibility test given President Tayyip Erdogan’s opposition to tight policy.

In a Reuters poll, almost all of the 21 economists expected a 100-point rate hike. The lira responded with a 2.0% jump against the dollar.

The key one-week repo rate had stood at 17% since December after aggressive monetary tightening last year. It is the highest of any advanced economy and back to levels last touched in mid-2019.

Consumer campaigners are urging the government and the City regulator to intervene in a rescue scheme proposed by the sub-prime lender Amigo, saying it could enrich the firm’s directors while some of Britain’s poorest borrowers miss out on up to £1bn in compensation.

They have called on the Financial Conduct Authority (FCA) to block plans to limit redress payments to nearly a million current and former customers who were potentially mis-sold unaffordable loans by Amigo, which is the most complained about financial lender in the UK.

Consumers who lodge successful complaints to the financial ombudsman typically receive payouts that leave them in the same financial position as if they had not received the loan.

That usually means a 100% refund of the interest on the loan, plus an additional rate of interest on those charges.

Amigo, however, has asked the courts to approve a so-called “scheme of arrangement” that would cap the amount it paid out to consumers. Its own examples suggest payouts could be worth anywhere between 10 and 23% of the total value of the loan, but refunds could be much lower depending on how many customers lodge successful claims.

The company argues it will collapse into administration if the scheme is blocked.

Here’s the full story, by my colleagues Phillip Inman and Kalyeena Makortoff:

Over in Oslo, Norway’s central bank has left interest rates at record lows of zero, but warned that they may rise in the second half of this year.

Norges Bank says that the economy may grow faster than previous projected, due to vaccine rollout and the improving global economy.

The Covid-19 pandemic has led to a sharp downturn in the Norwegian economy. Activity has picked up since spring 2020, but the recovery is being held back by higher infection rates and strict containment measures. On the other hand, information from the health authorities suggests that a large portion of the adult population in Norway will be vaccinated before the end of summer.

At the same time, global economic developments are better than expected. This may result in a faster pick-up in economic activity than previously projected.

As a result, Norges Bank’s new policy rate forecast implies a gradual rise from the latter half of 2021.

“This implies a somewhat faster rate rise than projected in December”, the Bank explains.

In the bond markets, the yield on America’s 10-year Treasury bonds has jumped in early trading, as investors digest last night’s Federal Reserve meeting.

The 10-year Treasury yield has risen over 1.7% for the first time since January 2020 (meaning that the price of the bond has fallen).

It’s currently trading at 1.74%, up from 1.64% last night, when bond prices had recovered after the Fed signalled that it expects to keep interest rates close to zero until beyond the end of 2023.

John Leiper, Chief Investment Officer at Tavistock Wealth, says the Fed’s lack of alarm over rising bond yields is pushing them higher.

Powell remains laser-focused on the lacklustre job market, which will “take some time [to recover], no matter how well the economy performs”, and continues to play down the risk of inflation, even as inflation expectations reach multi-year highs.

The most interesting part of his speech came in the question-and-answer session where he indicated that he was not worried about the recent run-up in Treasury yields. The more dovish Powell is, the higher bond yields go, and his comments will do nothing little to deter the bond vigilantes from pushing yields ever higher.

We retain our forecast for the 10-year Treasury yield at 2% and believe a steepening curve will continue to catalyse the ongoing US equity market rotation from growth to value

Germany’s main stock index has hit a new record high in early trading, led by its auto sector.

The DAX has opened 0.65% higher at 14,692 points, extending its rally despite concerns that a third wave of Covid-19 infections could force new restrictions.

Carmaker Volkswagen has jumped 5%, as investors continue to cheer its ambitious electric car ambitions. It is aiming to sell one million electric or hybrid cars this year.

Tire maker Continental (+2.9%) and BMW (3.1%) are in the top risers too. Yesterday, BMW said it expects zero emission vehicles to make up at least half of its sales by 2030.

Asia-Pacific stock markets mostly pushed higher today after the Federal Reserve raised its US growth forecasts and pledged to maintain its accommodative monetary policy.

Japan’s Nikkei gained 1%, Hong Kong’s Hang Seng rose 1.2%, and South Korea’s KOSPI picked up 0.8%.

Teresa Kong, head of fixed income and portfolio manager at Matthews Asia, said the Fed’s reluctance to slow its asset purchase stimulus programme lifted stocks:

“If the Fed isn’t going to induce tightening, it’s very bullish for risky assets.

“We should be seeing a mild rally in Asian assets and currencies.”

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

After a dovish performance from the US Federal Reserve last night, investors are looking to hear the Bank of England’s views on the state of the UK economy.

The Bank’s Monetary Policy Committee isn’t expected to change interest rates or its stimulus programme at today’s meeting. It could express a more optimistic view on the UK economy, though, given the vaccine rollout programme, the latest extension of the furlough scheme, and a smaller-than-expected fall in GDP in January.

Jim Reid, Deutsche Bank strategist, says the BoE is expected to “walk a tightrope between talking up the recovery whilst avoiding too hawkish a message that would see an unwarranted tightening in financial conditions.”

Naeem Aslam, chief market analyst at Avatrade, identifies three targets for the bank:

Firstly, the bank needs to set the record straight that there will be no need for negative interest and the market players need to eradicate those expectations.

Secondly, the bank will need to embrace the remarkable progress on the vaccine front, and how that has improved the economic health.

Finally, the governor will also likely to show his appreciation in terms of support from the fiscal side, and its influence on economic recovery.

The Fed gave a reassuring message to markets last night. It hiked its forecast for US growth in 2021 to 6.5% (from 4.2%), and lowered its unemployment projections, while also dampening talk that it could slow its stimulus programme soon.

A majority of policymakers still expect US interest rates to remain on hold beyond 2023, despite hopes of a rapid recovery this year thanks to vaccine rollouts and fiscal spending.

Fed chair Jerome Powell insisted that the US economy hadn’t yet made the substantial progress on inflation and unemployment which policymakers are looking for. With a chuckle, he batted away the suggestion it was time to start “talking about talking about” tapering.

Basically, the Fed wants to see improving data, not simply forecast it. As Powell put it:

“When we see actual data coming in that suggests that we’re on track to perhaps achieve substantial further progress, then we’ll say so.

And we’ll say so well in advance of any decision to actually taper.”

Powell did predict some supply chain disruption and rising prices this year as the US economy reopened and people headed back to restaurants and theatres. But he rebuffed the idea that getting employment up would be inflationary.

Wall Street got the message, sending the Dow Jones industrial average and the S&P 500 to record highs last night.

US Treasury bond yields dipped back a little, having hit 13-month highs ahead of the Fed decision, as inflation worries faded.

The agenda

• 8am GMT: ECB president Christine Lagarde appears before the European Parliament committee on Economic and Monetary Affairs (ECON).
• 10am GMT; Eurozone trade balance
• Noon: Bank of England decision on UK interest rates
• 12.30pm GMT: US weekly jobless figures