US labour market strengthens after jobs surge, oil prices hit 14-month high – as it happened

Ireland is a different story altogether. The Irish economy grew by 3.4% last year, as its large multinational sector cushioned the impact of coronavirus lockdowns, which left one in four people temporarily or permanently out of work.

A number of large pharmaceutical and technology companies have based their European headquarters in Ireland due to its low corporation rate. Modified domestic demand, a measure that strips out some of the ways multinationals can distort Irish GDP, was 5.4% lower in 2020. Reuters reports:

Finance Minister Paschal Donohoe described the rise in GDP as “remarkable” both in an international context and compared with expectations. But he said it was entirely because of a 6.2% year-on-year gain in exports driven by the multinational sector.

“While 2020 was a challenging year for indigenous exports, the pharma and ICT (information and communications technology) sectors recorded extraordinary export growth, driven by blockbuster immunological drugs, Covid-related products, and the shift to home-working,” Donohoe said in a statement.

“However, as I have said many times, GDP is not the most accurate measure of what is going on in the economy.”

Donohoe also pointed to a 9% fall in household consumption to get a better sense “of what is happening on the ground.”

Ireland returned to a strict lockdown from late December, which is set to be only gradually unwound in the coming months. The unemployment rate, including those receiving temporary COVID-19 jobless benefits, stood at 24.8% last month.

As the restrictions on hospitality, construction and retail have disproportionately hit lower income workers, the impact on Ireland’s public finances has also not be as severe as initially feared, again helped by multinational employers.

View image in fullscreen

Greece’s economy shrank by 8.2% last year because of the coronavirus crisis, according to data from the country’s statistics service (Elstat).

This was not as bad as expected – both the European Commission and the Bank of Greece had forecast a 10% contraction. In the fourth quarter, the economy grew by 2.7%, down from 3.1% in the third quarter.

However, many areas of the country are in lockdown and the government extended Covid-19 restrictions this week after a surge in infections. Last month the European Commission cut its forecast for GDP growth in Greece this year to 3.5%, from 5%, arguing that the restrictions will hold back economic recovery.

View image in fullscreen

Gold has slumped to a near nine-month low, with higher bond yields and a stronger dollar denting its appeal. Spot gold dipped 0.15% to $1,694 an ounce, after falling as low as $1,686.40, the lowest since 8 June. it has lost about 2% this week.

Jerome Powell, chair of the US Federal Reserve, reiterated yesterday that the central bank would keep policy loose, and even though he described the rise in bond yields as “notable,” he did not think that the Fed would need to step in to push them down.

View image in fullscreen

In Italy, retail sales volumes fell sharply, by 3.9%, in January from the previous month. By value, sales fell 3%, despite a surge in online sales, according to official figures released by Istat.

Non-food sales, by value, plunged 15.5% from a year earlier while food sales increased 4.5%. Electric household appliances and audio-video equipment (+11.7%) and computers and telecommunications equipment (+9.9%) were the only areas to record growth. The largest annual falls were reported for shoes, leather goods and travel items (-36.4%) and clothing (-33.0%).

Online sales continued their rise in January, with sales up 38% year-on-year.

Oliver Rakau has looked at this morning’s data from eurozone countries.

• German factory orders rose further above their pre-pandemic levels in January, driven by broad-based strength across regions and sectors. This suggests that the likely fall in industrial production in January will be made up by gains later in Q1. In turn, this should help soften the drag from services weakness on GDP.

• A similar message emerged from French trade data. Exports and imports saw strong sequential gains as they inch closer to their pre-pandemic levels. With lingering containment measures weighing on domestic demand, imports remain soft, so rising exports due to global trade strength should prop up Q1 GDP.

• Italian retail sales fell sharply in January and regional restrictions due to high case numbers will continue to weigh on household spending in the near-term.

Rakau adds:

Eurozone countries have remained in various stages of lockdown this quarter as elevated case numbers and the patchy progress on vaccinations are still a big risk to public health. The associated hit to services activity will be a drag on Q1 GDP, but just like at the end of last year it appears that buoyant industrial activity can offset a big chunk of that weakness.

Stock markets are sliding again, as a global rise in bond yields sparked fears of higher inflation. The London market has just turned positive, trading 0.2% higher, while Germany’s Dax is still down 0.78%, France’s CAC has slid 0.56% and Italy’s FTSE MiB is little changed.

Russ Mould, investment director at the stockbroker AJ Bell, says:

Seemingly the chair of the US Federal Reserve Jay Powell wasn’t sufficiently soothing to calm those concerns in his latest missive to the markets and this helped skittle Asian and US stocks overnight as US Treasury yields hit new highs.

The surge in oil prices following the surprise decision of producers’ cartel OPEC and its partners not to increase supply will have done little to stem the mounting alarm over rising prices.

We might be in a situation where the market is hoping for a weak US jobs number later as this would help make the case for a loose monetary policy to be retained and perhaps calm fears of the world’s largest economy overheating.

A similar survey from Nationwide building society, out earlier this week, painted a slightly different picture. It showed UK house prices bounced back in February, rising 0.7% and more than reversing January’s 0.2% drop.

Andrew Wishart, property economist at Capital Economics, says:

The easing off in Halifax house price inflation in February marks a contrast with Nationwide’s more upbeat figure. Nonetheless, house prices appeared to be holding onto their 2020 gains even when buyers could no longer expect to benefit from the stamp duty holiday. And we think that the raft of policy support announced by the Chancellor this week will ensure that house prices don’t fall this year.

The Halifax house price index is out, and suggests that the UK housing market is slowing from its boom last year, which was fuelled by people moving to bigger homes in greener locations amid a shift to home working, and the stamp duty holiday (which was due to expire at the end of March but has been extended to 30 June).

Halifax, one of the UK’s biggest mortgage lenders, said house prices across the country dipped 0.1% in February from January, and rose 5.2% from a year earlier. The drop marks the third month the market has slowed, after a 0.4% fall in January and no change in December.

In the latest quarter, December to February, property values were 0.5% higher than in the September to November quarter. The average price of a home was £251,697 last month.

Russell Galley, managing director, Halifax, says:

The housing market has been at something of a crossroads at the start of this year... The government’s decision to extend the stamp duty holiday – one of the main drivers of demand from homemovers during the pandemic – has removed a great deal of uncertainty for buyers with transactions yet to complete.

The new mortgage guarantee scheme is another welcome development from this week’s Budget. Whilst mortgage approvals have reached record highs in recent months, hitting levels not seen since before the financial crisis of 2008, raising a deposit continues to be the single biggest hurdle for first-time buyers to overcome.

In the longer-term, the performance of the housing market remains inextricably linked to the health of the wider economy. The pace and extent of recovery are still highly uncertain, and much will depend on the ongoing success of the UK’s vaccination roll out.

Though there is the likelihood of an economic ‘bounceback’ from lockdown, with households not unduly impacted by the pandemic deploying the significant reserves of savings that they have built-up, higher unemployment is likely to limit new buyer demand. Therefore, we would not expect the level of growth seen in house prices over the past year to be sustained throughout 2021.

View image in fullscreen

Carsten Brzeski, global head of macro at ING, has looked more closely at the 1.4% rise in German industrial orders in January. Excluding bulk orders, it was even bigger, up 2.8%. While domestic orders fell 2.6%, orders from abroad were strong, up 4.2%.

German industrial orders data for January confirms the divergence between the manufacturing and services sector will continue in 2021.

German industry had remained almost unharmed by the November lockdown. In fact, the industrial revival since the summer, though coming from very low levels, is the reason why the German economy weathered the fourth quarter much better than most eurozone peers.

Today’s data suggest that the industrial-strength will continue in 2021. Soft indicators had already pointed in that direction and now hard data confirm this divergence. While retail sales took a sharp hit in January, industrial orders improved.

It looks as if at least the industry seems to benefit from the fact that some countries are faster and more advanced with the vaccination strategy and re-openings than Germany.

European stock markets have started trading, and have fallen at the open.

• UK’s FTSE 100 down 43 points, or 0.65%, at 6,610
• Germany’s Dax down 0.7%
• France’s CAC down 0.6%
• Italy’s FTSE MiB down 0.6%
• Spain’s Ibex down 0.38%
• Euro Stoxx index down 0.6%

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

Oil prices have climbed to the highest levels in nearly 14 months after the Opec oil cartel and its allies surprised the market yesterday by sticking to their output cuts for April, as they wait for demand to recover from the Covid-19 pandemic. Brent crude is up $1.311 at $67.85 a barrel while US crude is 95 cents higher at $64.8 a barrel. Brent hit $68 earlier, a level not seen since 8 January 2020.

Investors were surprised that Saudi Arabia decided to maintain its voluntary cut of 1m barrels per day through April, despite the rally in oil prices in the past two months.

This prompted analysts to raise their predictions for oil prices. Goldman Sachs has raised its forecast for Brent crude by $5 to $75 per barrel in the second quarter and $80 in the third quarter.

It’s non-farm payrolls day! The closely-watched jobs report from the US (out at 1:30pm GMT) is expected to show that the economy added 182,000 jobs in February, which would be a big increase on the 49,000 jobs gain in January.

The unemployment rate is set to hold steady at 6.3%, and annual average earnings growth is forecast to cool from 5.4% to 5.3%. This could be a sign that lower-income workers are returning to the labour market. The participation rate, which measures how many people are actively looking for work, will also be in focus.

Michael Hewson, chief market analyst at CMC Markets UK, says:

Should the participation rate increase and the unemployment rate fall that would suggest the labour market is strengthening.

Given that stocks have sold off due to fears about higher inflation being in the pipeline, a healthy jobs report might prompt dealers to trim their equity positions. On the other hand, a disappointing update could be interpreted as a sign the recovery is running out of steam, so the Fed will need to maintain its extremely loose monetary policy and that could assist sentiment.

Ray Attrill, head of currency strategy at National Australia Bank, says:

We suspect the market will be inclined to look through a weaker number, with investors looking ahead to the big fiscal stimulus planned in the US and the eventual removal of Covid-related restrictions later this year.

Orders for German industrial goods rose twice as much as expected in January thanks to stronger foreign demand, according to official data released this morning. The Federal Statistics Office said orders rose 1.4% in January from the month before, compared with analysts’ forecasts of a 0.7% rise.

Foreign orders increased by 4.2%. New orders from the eurozone went up 3.9%, and new orders from other countries increased by 4.4% compared with December However, December’s drop in overall goods orders was revised lower, to -2.2%.

Wall Street suffered big losses yesterday due to rising government bond yields, with higher inflation on the horizon. The tech-heavy Nasdaq lost 2.1% while the Dow Jones and the S&P 500 slid more than 1%. The selloff accelerated as Federal Reserve chair Jerome Powell insisted that the US central bank would continue to keep monetary policy loose to help Americans back to work. He disappointed some investors by not indicating that the Fed might step up purchases of long-term bonds to keep longer-term interest rates down.

Stock markets in Europe were more mixed, with the FTSE 100 index in London closing 0.37% lower and the Dax down 0.17%, while France’s CAC was unchanged and Italy’s FTSE MiB posted a 0.2% gain.

In Asia, markets are also mixed. Japan’s Nikkei has closed 0.23% lower, while Hong Kong’s Hang Seng is little changed and the Australian market slid 0.82%. Futures for Europe are pointing to a lower open.

The Agenda

• 8:30am GMT: UK Halifax house price index for February
• 9:00am GMT: Italy Retail sales for January
• 1:30pm GMT: US Non-farm payrolls for February (forecast: 182,000, previous: 49,000)