US jobless claims rise; FTSE 100 dips; rising dollar hits commodity prices – as it happened

Back on Wall Street, there’s a clear split between the fast-growing technology companies, and ‘old economy’ stocks, a day after the Federal Reserve gave markets a jolt.

The Dow Jones industrial average is down 200 points, or 0.6%, at 33,833 points, while the tech-focused Nasdaq has climbed 0.95% or 132 points to 14,172 points.

Apple (+1.3%), Microsoft (+1.3%), Amazon (+2%) and Alphabet/Google (+1.1%) are all higher -- suggesting investors are more relaxed about the long-term prospects for interest rates and growth.

But construction equipment maker Caterpillar (-3.6%), chemicals firm Dow Inc (-3.5%), and oil company Chevron (-1.8%) are all lower -- hit by the slump in commodity prices.

Danni Hewson, AJ Bell financial analyst, says today’s rise in US unemployment claims have reminded investors that the recovery will be bumpy.

Overall London markets were pulled down, not only by lingering concerns about inflation following yesterday’s comments by Fed Chair Jerome Powell but also by a fall in mining stocks. Investors are mulling over China’s announcement that it intends to release some of its metal reserves in a bid to curtail the sharp rise in global metal prices which is having a considerable impact on its manufacturing base.

“Miners also weighed down the S&P 500 which hasn’t had quite the same bounce back as the Nasdaq. While the Dow built on yesterday’s losses, tech stocks have simply soared. Investors seem to have quickly made peace with the prospect of rising rates at some point next year if the intervening recovery continues apace, most betting that the recovery will only fuel consumer demand and offset any downside from hikes.

The fact the unemployment claims took an unexpected bounce won’t have hurt either; recovery won’t be a straight line and rate rises, when they come, will be gradual.”

Edward Moya of OANDA says investors are trying to price in the end of US monetary stimulus in the months ahead...

Despite yesterday’s pivot, the Fed is still at risk of moving too slow. The latest update to their forecasts shows that they have no clue where inflation is going and that has some traders nervous. In three months time, the Fed has bumped up their 2021 inflation forecast from 2.4% to 3.4%. While the argument for transitory inflation is strong, the Fed’s reliance on actual data and not forecasts is raising the risk that they will move too slowly.

US stocks were mixed as big-tech makes a comeback as longer-term Treasury yields plunge, while a commodity selloff is dragging down some of the Dow’s key components (Dow, Chevron, and Caterpillar).

On that note, goodnight! GW

The dollar is continuing to climb, sending the pound down nearly a cent today to a near-six week low around $1.39.

But, the pound’s still higher against the euro, which has tumbled to a nine-week low vs the dollar.

John Hardy, Head of FX Strategy at Saxo Bank, says the US Federal Reserve kicked off a tightening cycle last night - surprising the markets.

While the signals from the FOMC meeting last night were in some way mild, the strong market reaction suggests that the market was overinvested in the Fed position that inflation would prove transitory.

That suggests that we could get a larger repositioning that continues to take the US dollar higher for now.

And on the dot-plots showing Fed officials expect two interest rate rises in 2023, Hardy says:

The clearest outcome was the surprisingly large shift forward in when the median fed forecaster sees the Fed achieving lift-off, with the median now suggesting two hikes by the end of 2023, a shift from March, when the median forecast was still for no lift-off until 2024.

There is some risk of over-interpretation (especially as Fed Chair Powell clearly disdains the dot plot), as the dots don’t differentiate where the Board of Governors voted versus regional Fed members, etc. Still, a generally higher set of policy forecasts despite very modest longer term inflation forecast adjustments (more on that below) suggests a general weakening of the Fed’s confidence in is belief that inflation will prove transitory. It’s a signal.

Stocks in London have closed lower, as the rising dollar and jitters about potential central bank tightening weighed on the market.

The UK’s FTSE 100 index ended 31.5 points lower at 7153 points, down 0.44% from last night’s 15-month closing high.

Mining companies were among the fallers, such as Glencore (-3.6%) and Anglo American (-3.4%), as raw material prices continue to slide today - partly due to the stronger dollar.

But travel firms finished higher, with BA parent company IAG up 1.8% on reports that the UK could relax ‘amber list’ quarantine rules for fully vaccinated holidaymakers.

Rolls-Royce, whose jet engine servicing business would benefit from more flights, gained 1.75%

Hotel group Whitbread also rallied, up 1.9% after seeing strong demand at UK tourist spots as Britons holiday domestically.

London’s hopes of attracting more technology companies looking to float on the stock market have received a shot in the arm after the fintech firm Wise chose the City for a rare direct listing expected to value the company at up to £9bn.

The international money-wiring company, formerly known as TransferWise, claims to have revolutionised cross-border transactions by cutting out exchange rate markups charged by banks.

The business, created by two Estonians set to become billionaires in the float, plans to deploy an unusual method to come to market, listing shares for public trading on the London Stock Exchange without issuing new equity.

The float, likely to be seen as a victory for the chancellor’s planned stock market changes, will also break new ground for the City of London.

Rishi Sunak last year commissioned the Tory peer Lord Hill to examine ways to lure fast-growing tech companies away from centres such as New York, the traditional stage for their stock market debuts.

The review is widely expected to permit companies with “dual class” share structures to obtain a premium listing on indices such as the FTSE 100.

Dual-class structures are popular with Silicon Valley startups because they allow founders to retain significant control, even after selling chunks of equity to major investors and the public.

Deliveroo’s float was supposed to be the poster child for Sunak’s overhaul earlier this year but flopped on debut, with its share structure cited as off-putting by some investors. The debacle raised concerns that other tech firms could avoid London.

But Wise will also press ahead with a dual-class system, with existing investors including institutional backers Baillie Gifford and Fidelity getting enhanced voting rights for a set period of time.

Here’s the full story:

And here’s the tale of how Wise’s chief executive, Kristo Käärmann and business partner, Taavet Hinrikus, were inspired to create the company to avoid cross-border transfer charges themselves.

Benjamin Ensor, director of research, at fintech consultancy 11:FS says raising capital will help Wise grow faster into adjacent markets.

It could also help the company build relations with customers who choose to invest (they’ll get perks including Wise “swag” and trips to company conferences).

Ensor adds:

“Being listed and having shareholders was the last bastion for big banks as a defence against the fintechs disrupting them… now what?”

The number of Americans filing fresh claims for jobless support rose last week, for the first time since April.

A total of 412,000 initial claims for unemployment insurance were filed last week, dashing expectations of another fall to around 359k.

That’s an increase of 37,000 from the previous week’s 375,000 (the lowest since the start of the pandemic), following a six-week run of falling jobless claims.

It highlights that the economic damage of the pandemic isn’t fully fixed, and that the US labor market is not yet back to its pre-Covid levels (when initial claims were in the low 200,000s per week).

If you ignore seasonal adjustments, there were 402,352 initial claims, a rise of 37,174 week-on-week.

Whisky makers are raising a glass after the UK and US agreed to suspend retaliatory tariffs on goods including Scottish malts for five years, in the de-escalation of a transatlantic trade dispute stretching back almost two decades.

Liz Truss, the UK international trade secretary, said a “historic deal” had been reached with Washington to ensure tariffs, which affected UK exports to the US worth £550m, remain suspended.

It comes after the Biden administration agreed a similar settlement with the EU on Tuesday, as governments on both sides of the Atlantic take greater steps to resolve tensions over subsidies for the aircraft manufacturers Airbus and Boeing.

The 17-year dispute, the longest-running in the history of the World Trade Organization, had led to damaging tit-for-tat tariffs levied on products on both sides due to disagreements over support for large civil aircraft production.

British goods that had been targeted by tariffs – border taxes paid by the buyers of goods from another country – had included cashmere, machinery and single malt Scotch whisky.

Sterling has dropped to its lowest level against the US dollar in nearly six weeks.

The pound has lost almost half a cent this morning, adding to last night’s losses against the greenback.

That takes sterling below $1.395 for the first time since May 7th, as markets react to the news that America’s central bank may raise rates earlier than expected.

The Federal Reserve officials’ new forecast of two interest rate rises in 2023 are lifting the dollar, as is the fact that policymakers began “talking about talking about” slowing (or tapering) its asset purchase scheme.

Investec economist Ryan Djajasaputra explains:

Perhaps most notable of the materials released last night was the so-called ‘dot plot’, i.e. individual FOMC participants’ forecasts for the Federal Funds target rate.

Here there was a clear forward shift in expectations, with seven participants now of the view that the first move up in rates would come in 2022, up from four previously. However, the headline change was that the median view was now for two hikes in 2023; the previous projections published in March envisaged no hikes at all through 2023 in the median projections.

The market reaction to this was a sell-off in US Treasuries, the 10-year yield moving up 8bps to 1.58%. However, during the press conference Fed Chair Powell did attempt to temper expectations over tightening, arguing that the forecasts should be treated with a “big grain of salt” given continued risks from the Covid pandemic.

And on tapering, Djajasaputra adds....

The minutes to the last meeting in April revealed that a number of participants argued that discussions over asset purchases should be on the table at “upcoming meetings”.

Whilst there was no mention of tapering in the FOMC statement, Chair Powell did reveal in his press conference that yesterday’s meeting had been one that could be described as the “talking about talking” meeting, but added that the Fed is monitoring economic data and that it had not made any decisions about ending asset purchases.

If Norway follows through on today’s forecast of a September rate rise, it would be another milestone in the economic recovery from the pandemic.

The Financial Times says:

Norway’s central bank is likely to raise interest rates in September, it said on Thursday, a move which would make it the first large western nation to increase the official cost of borrowing after the Covid-19 pandemic.

Norges Bank held its benchmark interest rate at zero per cent on Thursday, but governor Oystein Olsen said “the policy rate will most likely be raised in September” and hinted that a second increase was set for December.

The announcement came a day after the US Federal Reserve signalled that its first rate rises would come in 2023; some economists expect other central banks will only begin to tighten policy after that. Canada’s central bank began to scale back its monthly bond-buying in April, making it the first leading central bank to begin to reduce pandemic-related stimulus measures.

Bloomberg says Norway is sending a hawkish signal, amid signs the richest Nordic economy is recovering faster than its peers.

Norway’s central bank is preparing for a series of quarterly interest-rate increases after the summer, in a move that puts it ahead of most of the rich world in unwinding the crisis policies triggered by the pandemic.

Norges Bank will “most likely” raise rates in September, Governor Oystein Olsen said in a statement on Thursday. At a press conference later in the morning, he suggested the bank will deliver 25 basis-point hikes each quarter over the coming year

Reuters also reports that Norges Bank’s governor has flagged the possibility of several interest rate rises in the coming quarters:

Norway’s central bank could hike its key policy interest rate twice in the second half of this year and also twice during the first half of 2022, central bank Governor Oeystein Olsen told a news conference.

Norges Bank kept rates on hold at a record low 0.0% on Thursday and said a first hike is likely to come in September.

Dane Cekov, macro economist at Nordea Markets, tweets:

Iceland has already taken the plunge, raising its key interest rate back in May.

Inflation across the eurozone was slightly above the European Central Bank’s target last month, new data confirms.

Eurozone consumer prices rose by 2% year-on-year in May, Eurostat reports, up from 1.6% in April and just 0.1% in May 2020.

That matches the initial ‘flash’ reading. The ECB’s inflation target is just below 2%.

Energy prices were partly responsible, rising by 13.1% year-on-year (having slumped early in the pandemic). Service sector prices rose 1.1% over the year.

Core inflation (stripping out energy, food, alcohol and tobacco) rose by around 1%.

UK inflation rose by 2.1% year-on-year in March, while US consumer price inflation hit a 13-year high of 5%.

London and Washington have agreed a truce over the long-running dispute over Airbus and Boeing subsidies.

The two sides have agreed a new cooperative framework for Large Civil Aircraft, following a similar deal between the US and EU earlier this week, over state subsidies given to the European and US aerospace rivals.

Under today’s plan, the UK and US will work together to overcome any disagreements in the sector and counter unfair trade practices. They’ve also agreed not impose tariffs related to this dispute for five years.

Bloomberg explains:

Products such as Scotch whisky, biscuits and clotted cream had been hit by additional duties of 25% because of the spat, and the agreement between the U.S. and Britain suspends the tariffs until 2026 while talks take place, U.S. Trade Representative Katherine Tai’s office said in a statement on Thursday.

Last December, the UK dropped its side of the tariffs (which were part of an EU-wide move), to improve relations with the incoming Biden administration.

The US later agreed, in March, to suspend retaliatory 25% US tariffs on UK exports including scotch whisky, cashmere, pork products and cheese.

Earlier this week, the US and EU also agreed a five-year ceasefire in the long-running US-EU trade war over subsidies to aircraft makers, during Joe Biden’s visit to Brussels.

My colleague Daniel Boffey explained:

The European Commission president, Ursula von der Leyen, described the announcement of a suspension of tariffs between the EU and the US as a “breakthrough”.

“This really opens a new chapter in our relationship because we move from litigation to cooperation on aircraft – after 17 years of dispute,” she said.

The tariffs applied by both sides had been temporarily suspended since 11 March. The new agreement will officially go into effect on 11 July.

About $11.5bn (£8.2bn) of tariffs had been applied on goods ranging from EU wine to US tobacco and spirits over the issue of state subsidies for aircraft manufacturers Boeing and Airbus. The row had become the longest running dispute in the history of the World Trade Organization. Both sides said the disagreement had been a serious drain on economic growth.

The owner of Premier Inn hotels has reported strong demand at UK tourist spots as Britons holiday domestically, but hotels at airports and in central London continue to struggle.

Whitbread, which also owns restaurant brands including Beefeater and Brewers Fayre, has suffered a torrid year of enforced closures, but said on Thursday that it had seen “encouraging trends” since 17 May, when Covid rules in England were eased to allow hotels to reopen.

UK hotel sales were 73% of their pre-pandemic level between reopening and 14 June as domestic tourism boomed after months of lockdown. Holiday locations with Premier Inn hotels include Skegness, Scarborough, Brighton, Cornwall, south Wales, the Lake District and the Highlands.

That gave glimmers of hope after what the chain had previously described as “one of the most challenging years” in its 279-year history. The company lost £1bn in the year to the end of February. It announced up to 6,000 redundancies in September.

Whitbread said:

“We expect leisure demand in coastal and other tourist locations to remain very strong throughout the summer, while the full recovery of leisure demand is dependent on the final release of lockdown, and the return of unrestricted events.”

Whitbread’s shares are up over 3%, near the top on the FTSE 100.

More people in the UK own crypto assets, according to new data from the Financial Conduct Authority.

The UK’s financial regulator estimates that 2.3 million adults now hold crypto assets, compared with 1.9m last year. Awareness has risen too, with 78% now having heard of them - up from 73% a year ago.

The research also suggests that more people are seeing crypto (such as bitcoin or ether) as an investment.

It also found:

• The median holding has risen from £260 to £300.
• The profile of crypto users is broadly unchanged from what we outlined in 2020 – largely male, over 35, and at AB social grade.

The FCA says:

The consumer research shows that as holding cryptoassets has become more common attitudes to them have changed. 38% of crypto users regard them as a gamble (down from 47% last year), while increasing numbers see them as either a complement or alternative to mainstream investments.

By contrast, the level of overall understanding of cryptocurrencies is declining, suggesting that some people who have heard of crypto may not fully understand, with only 71% correctly identified the definition of cryptocurrency from a list of statements.

The research was conducted in January - when bitcoin was in the midst of a very strong rally having surged over its previous record high and quadrupled during 2020.

Sheldon Mills, the FCA’s Executive Director for Consumers and Competition, also warns that crypto assets are largely unregulated in the UK. People need to be aware that they’re not protected by the Financial Services Compensation Scheme or the Financial Ombudsman Service, he says.

Mills adds:

If consumers invest in these types of products, they should be prepared to lose all their money.

Norway’s central bank has left interest rates on hold at record lows, and signaled that the first rate rise since the pandemic is likely to come in September.

At its latest meeting, Norges Bank’s Monetary Policy and Financial Stability Committee decided unanimously to keep the policy rate unchanged at zero percent.

Norges Bank governor Øystein Olsen says:

In the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in September.

Norges Bank also says that activity in the Norwegian economy has picked up after the sharp fall in spring 2020, and that a pick-up in vaccinations this spring has helped society to gradually reopen.

Unemployment has fallen but remains high, and economic activity now seems to be rebounding “sharply and somewhat faster than projected earlier”, it adds.

Shares in travel stocks are rising following reports that Britain is considering easing the restrictions on foreign holidays for people who are fully vaccinated.

The move, if introduced, would mean people who have received both Covid jabs would avoid having to quarantine when returning to England from amber list countries -- which includes many major holiday destinations.

My colleague Aubrey Allegretti explains:

British travellers who have had two Covid vaccines could be allowed quarantine-free entry into England under plans being considered by ministers, the Guardian understands.

As the government grapples with allowing more trips abroad while trying to prevent the importation of new variants, changes are being considered to the traffic light system under which places are graded according to their Covid case and jab rate, determining whether and how people coming from them must isolate.

Only a handful of countries feature on the isolation-free green list, with 50 territories on the red list – meaning arrivals must stay in a quarantine hotel for 14 days.

The amber list, which features the vast majority of countries and to which Portugal was recently added, has prompted much more confusion. Official government advice urges people not to travel to these places, but there are no laws in place to stop people arriving from them and quarantining at home for up to 10 days, or using the test-to-release system to leave the house from day five.

Currently, travellers leaving the UK are allowed to use the NHS app to prove their vaccine status and cut quarantine in some countries.

But in a move that will be seen as further encouraging people to get both jabs, the Guardian has been told that ministers are contemplating loosening travel restrictions for the amber list to let anyone who has had two Covid vaccines escape quarantine. Those who have not been fully inoculated would still face the same restrictions currently in force for amber list countries.

Shares in British Airways parent company IAG are up 3%, with budget airlines easyJet (+3.9%) and Wizz Air (+2.9%) rising. Package holiday firm TUI (+2.6%) are also higher, on anticipation that the move could lift demand for holidays abroad this summer.

As the Telegraph points out:

The change would effectively turn amber countries green for the vaccinated, opening up the possibility of quarantine-free travel to most major holiday destinations in Europe and the US.

But, a decision hasn’t been reached yet, the Telegraph adds:

It is still at an early stage and it is not clear whether it will be worked out in time for the end of the month. There is an awful lot to do. The devil is in the detail,” said a source.

Stocks have opened lower in London too, where the FTSE 100 index is down 34 points or 0.5% at 7150 points.

Mining giants are among the fallers, with Glencore, Anglo American and Antofagasta down around 2.2%. Commodity prices have fallen today, as the dollar strengthens.

Also, tighter US monetary policy could slow the global economy, potentially meaning less demand for iron ore, copper, zinc and coal.

Safety equipment maker Halma (-4.1%), precious metal miner Polymetal (-2.4%) and investment group 3i (-2.6%) are also lower.

Banks are rallying, though, with Natwest (+1.6%), Barclays (+1%) Lloyds (+1%) and HSBC (+1%) in the risers column - as a rise in interest rates from record lows would help their profitability.

Yesterday the FTSE 100 had risen to a new pandemic high.

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

The markets are edgy this morning after the US Federal Reserve surprised investors by indicating that interest rates will rise from record lows sooner than expected, as the US recovery gather speed.

The Fed’s new projections, released after its latest policy meeting yesterday, indicate at least two rate increases are expected in 2023 - previously a majority of officials had seen them on hold near zero until 2024.

The Fed also began the process of “talking-about-talking-about” how it might end its bond-buying programme, a sign it is moving a little closer towards exiting its crisis-era stimulus measures.

This unexpectedly hawkish move knocked stocks on Wall Street last night, where the S&P 500 finished 0.5% lower.

The prospect of earlier interest rate rises has also driven the dollar up to a two-month high, and pushing the pound below $1.40 for the first time in over five weeks.

European markets are heading for a lower open too.

The Fed also raised its forecasts for growth this year to a blistering 7%, from 6.5% previously, but also expects higher inflation -- 3.4%, up from 2.4% eyed back in March.

As we blogged last night, Fed chair Powell insisted that the central bank wouldn’t change course until it sees “substantial further progress” on employment and inflation.

“Lift-off is well into the future.

“We’re very far from maximum employment, for example, it’s a consideration for the future.”

He also argued that the jump in inflation in the US will be temporary, and expressed confidence about the prospects for growth, and job creation.

The Fed chair also highlighted that the pace of recovery in the labor market has been uneven, saying:

The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit.

But... he did also flag that inflation could turn out to be “higher and more persistent” than expected, saying the Fed would use its tools if necessary.

And Powell was also clear that the Fed will slow (or taper) its asset purchase stimulus package when the moment is right.

We will do what we can to avoid a market reaction, but ultimately when we achieve our macroeconomic goal we will taper, as appropriate.

Currently, the FOMC is buying $120bn per month of bonds with newly minted money.

Powell also tried to cool interest in the Fed’s rate predictions, or dot-plots, insisting that they weren’t a great forecaster (each official says where they think interest rates will be over the coming years)

Investors see last night’s meeting, and press conference, as a significant moment.

As Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors, explains:

“This time there was no denying it, the Federal Reserve took its first tentative steps on a more hawkish path. It was instantly felt in markets. While there was no immediate change in policy, the median projections for interest rates saw two hikes leap into the forecast for the end of 2023. Additionally, the talking about tapering finally began. However, Chair Powell suggested a start to tapering still remained a “ways off” as the FOMC continues to look for further progress in the economy.

The Fed’s economic forecasts shifted higher as it recognized that growth this year is going to be even stronger that it had already forecast. The 7% growth rate expected is now above economists’ consensus expectations, although forecasters are more optimistic about growth in 2022 than the US central bank. Elsewhere, the Fed’s forecasts now show a clear bias to above target inflation in the coming years. PCE inflation is forecast to be above target over the next 3 years.

The agenda

• 7am BST: Eurozone new car registrations for May
• 9.30am BST: ONS survey on business insights and the impact of the pandemic on the UK economy
• 10am BST: Eurozone inflation for May (final reading)
• 1.30pm BST: US weekly jobless figures