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US job creation slows
Just in: Job creation across the US slowed last month.
August’s non-farm payroll rose by 315,000, a slowdown from July when there were 526,000 new hires.
But it is slightly more than expected, with economists expecting 300,000 new hires, as firms continued to take on staff despite signs of economic slowdown.
The US unemployment rate has risen, to 3.7% from 3.5% in July.
Back in the UK, Amazon workers at a Coventry warehouse have voted they are ready to take strike action over pay.
The GMB union reports that more than 300 workers voted in the consultative ballot at the fulfilment centre in the West Midlands, with 97 per cent saying they were ready to walk out.
There have been protests at several Amazon sites, after staff were offered pay rises of between 1% and 3%, which worked out at 35p per hour.
Russia is attempting, but failing, to by-pass Western sanctions on high-tech goods for military purposes and its energy sector, US State Department sanctions coordinator James O’Brien says.
On a visit to Brussels today, O’Brien told reporters that sanctions were working:
“We know Russia is trying to obtain equipment and finance. We don’t think it’s doing well.”
O’Brien added that Russia is substituting lower-quality items for high-end equipment, which won’t be as effective.
We see a lot of substitution of lower-quality items: consumer-grade electronics for military-grade targeting and communications equipment,”
If they want to try to use it for a purpose it’s not intended for, that’s great do-it-yourself, but not a way to run a modern armed conflict or an economy.”
Kalyeena Makortoff
Credit Suisse is considering 5,000 job cuts as part of a broader restructuring plan meant to solidify the bank’s pivot towards wealth management after a string of scandals at its investment bank.
Speculation over the scale of the job cuts has swirled since Credit Suisse unexpectedly replaced its chief executive Thomas Gottstein in July, after a tumultuous two-year tenure beset by financial losses, controversies and high-profile lawsuits. More here.
Pound heads for another weekly loss
The pound is heading for its third weekly loss in a row.
Despite modest gains this morning, sterling is down 1.5% against the US dollar this week, having hit a 29-month low of $1.15 yesterday.
Economic gloom and political uncertainty are both hitting sterling, with concerns that Liz Truss’s economic policies could drive up inflation if she succeeds Boris Johnson.
Chris Beauchamp, Chief Market Analyst at IG Group, explains:
Tory PM frontrunner Liz Truss faces the mother of all policy headaches next week if she becomes PM, as seems to be universally expected. Her hints of a wide-ranging programme of tax cuts and pauses in new green levies will help hard-pressed consumers in some ways, but also risk stoking inflation in a manner that threatens to force the BoE’s hand when it comes to rate rises.
And the falls in sterling have been steadily nullifying much of the effect on inflation produced by rate increases, leaving policymakers with a host of problems to overcome.
Gas prices falling back
European gas prices have continued to fall back, on signs that the Nord Stream 1 pipeline will resume operations tomorrow as planned.
Operator data on requests for gas on the Nord Stream 1 pipeline from Russia to Europe suggest flows should resume from Saturday morning, when Gazprom has said maintenance work will be completed.
That’s helped to push gas prices down today, adding to gains this week after Europe made faster progress than expected filling its gas reserves.
Gas prices are shrugging off the Kremlin’s warning that Nord Stream 1 is unreliable due to only having one working turbine (see earlier post), and the possiblity of disruption to supplies if Brussels agreed on a price cap for Russian gas.
The European benchmark Dutch wholesale gas contract for October is down 7.5%, while the December contract fell 10%.
UK gas prices remain lower too, with the day-ahead wholesale contract down 15% at 288p/therm, the lowest since 10th August.
Gas for delivery in October is down 13% at 420p/therm, down a quarter on last month’s peak.
But….those nomination figures for the Nord Stream 1 gas pipeline that suggest gas could flow again from Saturday should be viewed with caution, a German economy ministry spokesperson has said.
The nominated amount can still change, the spokesperson told a regular government news conference on Friday.
“Things will become clearer over the course of Saturday morning, we can only closely watch the situation.
Why global bonds are in a bear market
Soaring inflation around the world and renewed commitment from central bankers to control it – even if it leads to unemployment and a hit to economic growth – has caused investors to flee from bonds at a record rate, says Sam Benstead, fixed income specialist at Interactive Investor.
That pushed global bonds have fallen into a bear market, 20% off their record high.
Benstead explains:
The recent turning point was Fed chair Jerome’s Powell’s comments at the Jackson Hole central bankers’ summit two weeks ago.
Referencing stubborn inflation in the 1970s that was only stamped out in America by increasing interest rates to 20%, Powell said “we will keep at it until we are confident the job is done”.
His statements suggest that interest rates in the US will be higher for longer and a much anticipated “dovish” pivot is not imminent, which would have sparked a recovery in bond and stock markets.
This comes as some inflation forecasts in Britain have topped 20%, with the pound falling 16% versus the dollar over the past 12 months.
A new prime minister will be announced next week, with front-runner Liz Truss pledging to cut taxes and increase spending, all fuelled by borrowing.
This is adding to the negative sentiment among bond investors, who are already worried about the UK economy and are unwilling to lend to the UK government at rock-bottom rates.
Buyers of UK government bonds have been hammered this year, but the worst could still be to come as higher energy bills hit consumers and businesses, and a weak pound hurts importers, all leading to higher inflation.
Markets are now betting that interest rates will top 4% in Britain next year, from 1.75% today, in a bid to control inflation.
Russian ex-president Dmitry Medvedev has said Russia would turn off gas supply to Europe if Brussels pushes ahead with a price cap on Russian gas.
Responding to this morning’s comments by European Commission head Ursula von der Leyen about putting a ceiling on the price Europe pays for Russian gas, Medvedev wrote on the Telegram messaging app:
“There will simply be no Russian gas in Europe.”
Europe needs a price cap on Russian pipeline gas, says EU chief
The time has come to establish a price cap on Russian pipeline gas flowing to Europe, European Commission chief Ursula von der Leyen has said today, via Reuters.
Such a cap would help fight back against Russian President Vladimir Putin’s attempts to manipulate the European energy market, von der Leyen said.
Speakig on the sidelines of a meeting of German conservative lawmakers in the town of Murnau, von der Leyen said:
“I firmly believe that it is now time for a price cap on Russian pipeline gas to Europe.
Kremlin warning on Nord Stream 1 reliability
Kremlin spokesman Dmitry Peskov has also warned that the reliability of the Russian Nord Stream 1 gas export pipeline is under threat.
Peskov says that one turbine is operational at the key compressor station, which is currently closed for a three-day maintenance outage.
Nord Stream 1, which connects Russia and Germany, was only operating at 20% capacity before Wednesday’s temporary shutdown, which Russia blamed on faulty or delayed equipment.
According to Bloomberg, Gazprom has said the only functioning turbine at Nord Stream’s entry point must undergo technical maintenance every 1,000 hours. That’s about every 42 days, with the next checks due in mid-October.
Russia says it will stop selling oil to countries that impose price cap
The Kremlin has hit back at the G7’s push for curbs on Russian oil prices (see earlier post).
Kremlin spokesman Dmitry Peskov told reporters in a conference call that Russia would stop selling oil to countries that impose price caps.
“Companies that impose a price cap will not be among the recipients of Russian oil.
“We simply will not cooperate with them on non-market principles.
Deputy Prime Minister Alexander Novak made a similar pledge yesterday.
The US Federal Reserve is set for several more rate rises before the year is over, predicts Mark Haefele, chief investment officer at UBS Global Wealth Management.
“We maintain our view that the Fed will raise rates by a further 100bps by year-end, with risks for more if inflation does not slow in line with our forecasts.
With rates likely to stay higher for longer, our base case is for further volatility, earnings downgrades, and higher-than-expected default rates over the course of next year.”
US rates are now in a target range of 2.25%-2.5%, after two large rises of 75bp (basis point) rises at the Fed’s last two meetings.
“This is the worst year in history by far for fixed income,” says Lawrence Gillum, fixed income strategist for LPL Financial.
“If that’s not a bear market in bonds I don’t know what is.”
[bonds are classed as ‘fixed income’, because bond-holders receive a regular fixed payment, or ‘coupon’, until the debt matures and the face value of the bond, or the ‘principal’, is repaid]
The changes in the US government debt market in the last year are quite dramatic, helping push global bonds into bear-market territory.
The yield on two-year Treasury bonds has hit its highest level since late 2007, at the start of the financial crisis. It’s jumped to 3.5%, up from just 0.2% a year ago.
Bond yields rise when prices fall, and this year’s selloff came as the US Federal Reserve abandoned its hope that inflation would be ‘transitory’, and cracked on with a series of sharp interest rate increases.
That tightening isn’t over yet, with another hike expected this month.
Global bonds tumble into ‘first bear market in a generation’
The selloff in government debt has driven the global bond market into its first bear market in over three decades, Bloomberg reports.
Bloomberg’s Global Aggregate Bond Index, which tracks government and investment-grade corporate bonds, has now fallen more than 20% from its 2021 peak, following the latest pressure from central bankers trying to grip inflation.
That’s the index’s biggest drawdown since its inception in 1990.
Bond prices have been weakening steadily this year, driving up the yield (or interest rate) on sovereign debt. Within inflation soaring, and interest rates rising, investors have been demanding a higher rate of return.
Last Friday’s hawkish speech by Federal Reserve Chair Jerome Powell at the Jackson Hole symposium, when he vowed to keep fighting inflation, has triggered fresh losses this week.
Bloomberg says:
“I suspect that the secular bull market in bonds that started in the mid-1980s is ending,” said Stephen Miller, who’s covered fixed income since then and now works as an investment consultant at GSFM, a unit of Canada’s CI Financial Corp. “Yields aren’t going to return to the historic lows seen both before and during the pandemic.”
The elevated inflation the world now faces means central banks won’t be prepared to re-introduce the sort of extreme stimulus that helped send Treasury yields below 1%, he said.
The selloff has undermined one of the main investing strategies, that investors seek out bonds when they’re nervous, and shares when they’re optimistic. That’s the basis of the classic 60/40 portfolio (60% of funds in equities for capital growth and dividends, and 40% in bonds which pay a fixed-income).
Both bonds and stocks have slumped this year – Bloomberg’s bond gauge is down 16% in 2022, while MSCI Inc.’s index of global stocks has lose 19%.
UK gilts certainly haven’t been immune. Benchmark 10-year UK government bonds had their worst month since the 1980s, with yields at the highest since 2014.
Shell boss Ben van Beurden prepares to stand down, reports say
Kalyeena Makortoff
Shell’s long-serving chief executive, Ben van Beurden, is preparing to step down next year after almost a decade in the role, according to Reuters.
The London-headquartered energy company has shortlisted four internal candidates to take his place after months of succession planning efforts that were accelerated once Sir Andrew Mackenzie became Shell’s chair in May 2021.
Van Beurden, who took over in 2014, would leave Shell in the middle of the most severe energy crisis of his tenure, which has subsequently pushed the oil and gas giant’s profits to record highs.
The energy boss, who was paid €7.4m (£6.1m) in 2021, warned earlier this week that gas shortages in Europe would probably last several years, raising the prospect of continued energy rationing.
Van Beurden could be replaced by the Canadian head of Shell’s integrated gas and renewables division, Wael Sawan, who is said to be the frontrunner in Shell’s search for a successor….
Here’s the full story:
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