Time to recap…

Hiring in the US slowed in April with the workforce adding another 175,000 jobs and wage growth slowing.

The news cheered investors hoping that a cooling labor market will prompt the Federal Reserve to cut interest rates – which have been driven to a 20-year high as the US fights stubbornly high inflation. All the major US markets rose in early trading.

Last month, the labor department reported the US added a revised 315,000 jobs in March, far higher than the 192,000 jobs economists had forecast. April’s figure was lower than forecast and the unemployment rate ticked up from 3.8% to 3.9% over the month but the figures underlined the continuing strength of the jobs market.

It was the 40th straight month of job gains in the US and the 27th consecutive month with the unemployment rate below 4% – the longest such streak since 1953.

But the slowdown in job creation is fuelling expectations that US interest rates could be cut sooner than expected, with a September cut looking more likely.

Here’s the full story:

With stock markets rallying across Europe and in the US, the UK’s FTSE 100 share index is on track for a new closing high tonight. With less than an hour’s trading to go, the Footsie is up 41 poinst at 8212, having surged over 8,200 points for the first time today.

Here’s the rest of today’s stories so far:

Federal Reserve Governor Michelle Bowman has slightly dampened the mood in the markets, by predicting that US inflation will likely remain elevated for “some time”.

In remarks prepared for the Massachusetts Bankers Association Annual Convention in Key Biscayne, Florida, Bowman says:

“I expect inflation to remain elevated for some time.

“My baseline outlook continues to be that inflation will decline further with the policy rate held steady, but I still see a number of upside inflation risks that affect my outlook.”

Stocks have surged at the start of trading in New York, after traders learned that hiring across America slowed last month.

News that the US non-farm payroll only rose by 175,000 in April, weaker than the average monthly gain of 242,000 over the last year, has driven investors into a frenzy of of stock buying.

They are excited by the prospect that US interest rates may fall quicker than expected – and putting aside concerns that slowing job creation may show the economy is weakening.

The Dow Jones industrial average, of 30 large US companies, has rallied by 1.4%, gaining 543 points at the open to 38,769 points.

The broader S&P 500 index has gained 1.2%.

And the tech-focused Nasdaq has surged by 1.9% (interest rate cuts being good for the share price of technology companies).

Today’s jobs report has opened to door to a cut to US interest rates in September, says Kathleen Brooks, research director at brokerage XTB.

She report that there has been “a huge movement in US interest rate expectations”, helped by the slowdown in job creation in April.

There is now a 50% chance of a rate hike in September, up from 31% in April. Earlier this week there was only 1 rate cut priced in from the Fed for 2024, as we end the week, there are now nearly two cuts priced in.

Overall, risk sentiment has been given a boost this week from a less hawkish Fed and payrolls data that is moving in the direction needed for interest rate cuts in the US. The combination of payrolls and the Fed have helped to increase rate cut expectations for 2024, with no chance of a rate hike for this year expected. What a difference a week makes.

Reaction to the slowdown in US job creation is flooding in.

Richard Flynn, managing director at Charles Schwab UK, says:

“Investors will interpret today’s weak jobs report as a sign that demand is slowing in the labour market.

Both markets and central bankers have been looking for evidence that disinflation may be ahead, and today’s figures could indicate that the economy is slowing down. In recent months, it has become clear that the Fed is happy to move slowly in the cutting part of the rate cycle, but unwanted and unexpected weakness in the economy, as we are seeing today, may cause a shift in this approach.

A dive in the labour market may be what it takes to push the Fed from a stroll to a sprint.”

Mahmoud Alkudsi, senior market analyst at ADSS, says:

“This is a rare miss for the US jobs market which could potentially spell the end of the ‘higher for longer’ rhetoric we have become accustomed to. This will have surprised the Fed following Wednesday’s decision to hold interest rates further.”

“Though the Fed will see this as a step towards getting comfortable with a cut in interest rates, the relative strength of the jobs market remains too high for them to consider a cut before late Q2.”

And here’s Neil Birrell, chief investment officer at Premier Miton Investors:

“What will the Fed make of this? At last there is evidence of some weakness in the US jobs market. Rate cuts will move back up the agenda as a result and there is little doubt that markets will take this as good news. While we shouldn’t make too much of single data prints, this could be the start of a positive trend for the Fed.”

Wage growth across America has slowed – a blow to workers, but just what central bankers want to see.

Average hourly earnings growth slowed to +0.2% in April, down from 0.3% in March.

On an annual basis, earnings rose by 3.9%, down from 4%.

That means real wages (adjusted for inflation) are still rising (as US inflation was 3.5% in March).

In London, the FTSE 100 share index has jumped to a new alltime high.

The blue-chip share index has rocketed to 8248 points, a new intraday high, mirroring the jump in Wall Street futures.

Ocado, the grocery technology business, is up 7%.

Takeover speculation continues to push up Anglo American by over 3% too.

Newsflash: job creation across the US economy has slowed, news that has weakened the US dollar and driven up share prices.

April’s non-farm payroll shows that US employment increased by 175,000 in April, less than the 243,000 expected.

That’s a sharp slowdown on March, when an upwardly revised 315,000 jobs were created, while February’s NFP was revised down from +270,000 to +236,000.

The report says that job gains occurred in health care, in social assistance, and in transportation and warehousing.

The US unemployment rate has risen to 3.9%, from 3.8%.

The report has knocked the dollar, while shares are higher in pre-market trading in New York.

HSBC are hearing the anger of former employees who argue the bank is simply wrong to have clawed back part of their pensions.

The Midland Clawback Campaign group have proposed a resolution at today’s AGM to end the practice, and are unhappy that chair Mark Tucker is advising shareholders to oppose it.

The clawback was introduced in the 1940s and allows workers to pay lower contributions into their occupational pension plans, and for employers to deduct some - or all - of the basic state pension amount from their pension payments.

One campaigner, Nancy Ball, tells the AGM of examples of HSBC pensioners who have lost over 20% of their pensions due to the clawback.

In contrast, she points out, CEO Noel Quinn’s pay almost doubled last year.

Quinn, who announced his retirement this week, should reflect on whether he could, and should, have supported his Midland Bank colleagues in their retirement [Midland was taken over by HSBC in 1992].

Ball also points to the irony that HSBC is refusing to end the clawback, while also asking shareholders to remove the cap on its bankers’ bonuses.

Ball insists that it is “balderdash” to say that the clawback was clearly explained to staff, calling the situation “a shambles”.

Chairman Mark Tucker tells the AGM that the clawback was lawful, not discriminationary, and was properly communicated.

Midland Clawback Campaigners don’t agree, and shout back at Tucker from the floor.

The Clawback campaign explain here that the policy is unfair because pensioners lose the same monetary amount, regardless on whether they’re on a large or small pension.

The chair of HSBC has predicted that the Bank of England will cut interest rates in June, for the first time since early in the pandemic in 2020.

Speaking at HSBC’s annual general meeting in London today, Mark Tucker explains that inflation data is “key” to the global interest rate outlook.

He predicts that the BoE will lower interest rates by one and a half percentage points by the end of next year. That would lower Bank Rate to 3.75%, from 5.25% today.

Tucker says:

Central banks are closely and carefully watching the data and need to be confident that inflation will continue to head down to target on a sustainable basis before lowering rates.

Our economists continue to anticipate a gradual reduction in inflation with our global inflation forecasts at 5.8% in 2024 and 3.8% in 2025.

We expect the ECB and Bank of England to cut rates in June, cutting by 150bps by year-end 2025. We expect the Fed to cut in September, cutting by 100bps by year-end 2025.

The City money markets do not expect the BoE to cut as early as June, though – today, the first cut is only fully priced in for September, although there’s a 66% chance it could come in August.

Tucker adds that it is hard to achieve “relative certainty in the central banks’ decision-making process”, given that both growth and employment numbers are holding up and inflationary pressures are lingering.

As he puts it:

It may not be a steady path.

New experimental statistics show that UK public sector productivity dropped in the final quarter of last year, and is almost 7% below its pre-pandemic levels.

The Offiec for National Statistics has reported that public service productivity fell by 1% in October-December 2023 compared with July-September, the third quarterly decline in a row.

This left public sector productivity 2.3% lower than in the fourth quarter of 2022.

Annual estimates suggest that public service productivity showed no growth (0.0%) in 2023, following a partial “bounce-back” of 6.5% in 2021 and 3.0% in 2022 following the pandemic in 2020, the ONS reports.

Productivity rises if output increases faster than inputs, and vice versa.

The ONS reports that inputs (such as wages) rose by 1.2% in the quarter, while output only rise by 0.1%

Inputs increased on the quarter for all service areas, however, output fell for healthcare and education, the two largest areas by expenditure share, the ONS adds.

Paul Johnson, director of the IFS, says the “huge drop” in productivity since the pandemic is “pretty worrying”, and shows public services are struggling.

Newsflash: The UK’s services sector has posted the fastest business activity growth in almost a year, reinforcing hopes that the recession is over.

Data firm S&P Global has reported that its UK Services PMI, which tracks activity in the sector, has jumped to 55.0 in April, up from 53.1 in March.

That’s the highest reading since May 2023, and shows growth accelerated in a sector that makes up around three-quarters of the UK economy.

Services firms reported that activity and new work rose at the fastest rates for 11 months, with reports that optimism about the economic recovery boosted companies.

However, staff hiring remained subdued, with some companies reporting difficulties finding suitable candidates to fill vacancies. Others cited wage pressures, given last month’s near 10% annual rise in the National Living Wage.

Input cost inflation was the highest since August 2023

Tim Moore, economics director at S&P Global Market Intelligence, explains:

“Service providers benefited from improving business and consumer spending in April as more favourable demand conditions underpinned the greatest improvement in activity since May 2023.

The latest survey results are consistent with the UK economy growing at a quarterly rate of 0.4% and therefore pulling further out of last year’s shallow recession.

“Relief at a turnaround in the economic outlook was commonly cited as a factor supporting sales pipelines in April. However, there were also reports that clients remained somewhat risk averse and under pressure from elevated inflation.

Next Friday we will learn if the UK recession is over, when GDP data for the first three months of this year is released. Economists predict a return to growth in January-March, of around 0.4%.

Today’s Services PMI suggests that the second quarter of the year got off to a good start too.

Moore adds that business activity expectations for the year ahead were upbeat:

Election uncertainty and fading prospects for interest rate cuts were cited as headwinds on the horizon, but survey respondents still mostly reported positive sentiment towards their business investment plans and longer-term growth opportunities.”

Boom! Britain’s FTSE 100 share index has hit a new alltime high in early trading, as its rally continues.

The Footsie has risen over 8,200 points for the first time, touching 8205 points, above Tuesday’s intraday high of 8199.95 points.

This extends the FTSE 100’s recent rally, which has seen it gain 6% so far this year.

And as covered earlier, analysts believe it has further to rise.

Mining company Anglo American remains the top riser in London, up over 3% on bidding war hopes – after Reuters reported that Glencore was considering a takeover approach.

The FTSE 100 has benefited this year from traders switching out of tech stocks and into commodities. Hopes of easing tensions in the Middle East also lifted stocks last month, as have signs that the UK economy is pulling out of recession.

Global food prices inched up in April, due to rising meat prices and small increases in the cost of vegetable oils and cereals.

The United Nations food agency’s world price index rose in April, for the second month in a row, to 119.1 points, up from 118.8 points in March.

That still leaves prices 9.6% lower than a year ago, though.

Cereal prices rose by 0.3%, amid concerns about unfavorable crop conditions in parts of the European Union, the Russian Federation and the United States of America.

Vegetable oil prices rose by 0.3%, driven by costlier sunflower and rapeseed oil.

Meat prices increased by 1.6% last month, with international poultry, bovine and ovine meat prices all rising.

But there were some price falls too – among sugar and dairy products.

Sugar prices fell by 4.4%, due to larger-than-previously-anticipated outputs in India and Thailand and improved weather conditions in Brazil.

Dairy prices dipped by 0.3%, ending six consecutive months of increases. This was due to “sluggish spot import demand for skim milk powder”, and lower world cheese prices. Butter prices rose, though.

UK supermarket chain Asda has successfully refinanced over £3bn of debt.

Asda reports that it saw “strong demand from investors” for new debt sold yesterday, which has pushed out the majority of its maturities into the next decade.

The sals, it says, included the biggest sterling high-yield bond this year and the second-largest sterling bond in the European leveraged finance market.

Michael Gleeson, Asda’s chief financial officer, says:

“The positive reaction followed Asda’s strong FY23 results – and Moody’s upgrade of its corporate rating to B1 from B2 last week citing a material reduction in leverage and growth in underlying free cashflow.

The takeover of Asda by private equity firm TDR Capital and billionaire brothers Moshin and Zuber Issa added billions of pounds of debt to Asda – with refinancing costs jumping as interest rates have risen.

The Evening Standard reports that Asda is now paying higher interest rates on its new debts, saying:

The firm said it successfully raised £1.75 billion of senior secured notes and refinanced its £900 million Term Loan B. The Term Loan B was secured at a EURIBOR+4.25% interest rate, an increase on the previous loan of EURIBOR+2.75%

In the City, the blue-chip share index has nearly hit a new alltime high at the start of trading.

The FTSE 100 index has jumped by 24 points, or 0.3%, to 8197 points – only slightly below the intraday high of 8199.95 points set on Tuesday.

Anglo American is the top riser riser, up 3.3%, after Reuters reported last night that commodities group Glencore was studying an approach for Anglo.

Such an approach could spark a bidding war for Anglo American, which rebuffed an approach from fellow miner BHP Group last month.

Glencore is the top FTSE 100 faller, down 1.7%.

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

The oil price is on track for its biggest weekly losses in three months, bringing relief to consumers and central bankers alike.

Crude oil prices have fallen by over 6% so far this week, helped by easing tensions in the Middle East and uncertainty about demand for energy. That would be its worst week since the start of February.

After hefty losses early this week, Brent crude is trading around its weakest level since mid-March, at below $84 per barrel, having ended last week near $90 per barrel.

Hopes for a deal to bring about a ceasefire in Gaza, and free the remaining hostages held there since the October 7 attacks, have risen this week. US secretary of state, Antony Blinken, told Israel and Hamas that “the time is now” for a deal, during his seventh visit to the Middle East since last October.

A ceasefire, if agreed, would cut risks to oil supplies from the region.

The oil price also weakened after US stocks of crude oil climbed unexpectedly this week. The US Energy Information Administration (EIA) reported that energy firms added a surprise 7.3 million barrels of crude into stockpiles during the week to April 26.

The EIA also reported a surprise 0.3-million barrel build in gasoline inventories; analysts had expected gasoline stocks would decline by 1.1 million barrels.

David Morrison, senior market analyst at Trade Nation, says:

Added together, the data show that the US market has plenty of supply, and crude prices fell to reflect this.

Oil has also been hit by fading hopes for early cuts in US interest rates. Lower borrowing costs should boost oil demand, but that seems less likely given the stickiness of US inflation.

Also coming up today

Financial markets are bracing for the latest US Non-Farm Payroll – the monthly healthcheck on America’s jobs market, due at 1.30pm UK time.

Economists expect a slowdown in job creation; the NFP is expected to rise by 238,000, down on the 303,000 gain in March. The jobless rate is tipped to remain at 3.8%.

Attention will also focus on wage growth, which is expected to slow slightly to 4%, from 4.1% in March.

The agenda

• 7.45am BST: French industrial production for March

• 9am BST: Norges bank interest rate decision

• 9.30am BST: UK services PMI report for April

• 1.30pm BST: US non-farm payroll for April

• 3pm BST: US services PMI report for April