Wall Street rebounds as US jobless claims fall to pandemic low – as it happened

The prices charged by US producers surged last month, in another signal that inflationary pressures are building.

The US producer price index jumped by 0.6% in April alone, following a 1.0% jump in March.

That lifts the annual PPI index up to 6.2% for April, higher than expected, and the biggest increase since the agency started tracking the data in 2010.

Manufacturing prices jumped 0.6% during April, driven by steel prices, along with natural gas, meat and dairy food products.

The Bureau of Labor Statistic says:

A major factor in the April increase in prices for final demand goods was the index for steel mill products, which jumped 18.4%. Prices for beef and veal, pork, residential natural gas, plastic resins and materials, and dairy products also moved higher.

Services prices also rose by 0.6% in the month, with the BLS saying:

Within the index for final demand services in April, prices for portfolio management rose 1.5%. The indexes for airline passenger services; food retailing; fuels and lubricants retailing; physician care; and hardware, building materials, and supplies retailing also moved higher.

It underlines that firms are putting up prices, following the surge in commodity prices and rising demand as pandemic restrictions are eased (as we saw with yesterday’s jump in Consumer Price inflation).

But the sharp annual increase in the PPI also follows the slump in demand in April 2020 during the first wave of the pandemic.

Core PPI inflation, which strips out volatile factors like food and energy, jumped by 0.7% in April and was 4.6% higher than a year ago – the largest advance since 12-month data were first calculated in August 2014.

The drop in new US unemployment claims last week indicates that the labour market is improving, despite the disappointing slowdown in hiring in April (when there were just 266,000 new hires).

So says Daniel Zhao of Glassdoor, on Twitter:

Zhao is also concerned about the impact of some US states withdrawing from expanded unemployment benefits programs early (these states are arguing that the economic emergency is over, and its time to return to work).

CNBC explained yesterday:

The moves, made by officials in Republican-led states, would cut off benefits as early as 12 June.

The aid includes an extra $300 a week paid on top of typical state benefits. The long-term unemployed, as well as self-employed and gig workers, would lose their entitlement to benefits outright.

If you strip out seasonal adjustments, new US jobless claims fell to 487,436 last week, which is also a pandemic low.

AnnElizabeth Konkel of Indeed explains:

But, there were also around 3.7 million people still receiving “continuing claims” (so for at least two weeks).

And overall, nearly 16.9 million Americans were receiving unemployment support at the end of April, the Department of Labor shows:

The 34,000 drop in US jobless claims last week (to 473k, seasonally adjusted) is another sign that fewer companies are laying off staff, as consumer spending strengthens and more firms reopen.

Heidi Shierholz of the Economic Policy Institute says unemployment claims are moving in the right direction, although still too high (especially once you add claims to the PUA, or pandemic unemployment assistance, programme, for self-employed and gig economy workers).

The number of Americans filing new unemployment claims has fallen to a fresh pandemic low.

Around 473,000 ‘initial claims’ for jobless support were filed last week (to Saturday 8 May), on a seasonally adjusted basis.

That’s the lowest reading since jobless claims surged back in mid-March 2020, in the first wave of Covid-19.

It’s down from 507,000 in the previous week (which has been revised up), showing that US companies are laying off fewer staff as the economy strengthens.

But, it’s still more than double the levels of jobless claims before the pandemic:

The number of people on furlough in the UK has dropped, after lockdown restrictions were eased.

The Office for National Statistics reported this morning that 11% of the workforce were furloughed, in the two weeks to 2 May, down from 13%. That follows the easing of curbs on hospitality and non-essential shops last month.

There was also a notable rise ‘social spending’ last week, suggesting that more people were travelling eating out since pubs and restaurants were allowed to serve outside.

Hospitality firms have also been looking to hiring more staff, ahead of the next easing in England next Monday which will allow people to meet indoors again.

Data from Adzuna shows that on 7 May, UK online job adverts for “catering and hospitality” were at 103% of their average in February 2020. That’s an increase of 46 percentage points since 9 April 2021, the ONS adds, suggesting that hiring is ramping up.

After a tough morning, the London stock market is on track for its second hefty fall this week.

The FTSE 100 index is currently down 1.6% today, or 114 points lower at 6890. That would be lowest close in around three weeks (it earlier hit a five-week low, before rebounding somewhat).

Luxury fashion group Burberry (-7.5%) still leading the fallers after reporting this morning that operating margins will be hit by increased investment, while cutting out discounts in favour of full-price sales will weigh on sales growth.

BT is also in the fallers (-6%) after it reported a 23% drop in annual profits and a fibre-rollout boost. Hargreaves Lansdown are also lower (-5.2%) after flagging that trading volumes have started to fall as pandemic curbs ease.

Mining and energy stocks are also continuing to drop, with Anglo American now down 5.3%, BHP Group down 4.3% and Rio Tinto off 4.5%, following the drop in commodity prices today.

Investors are clearly worried that central banks will take action to cool inflation (even though at least some of the recent prices rises appear transitory).

Sophie Griffiths, market analyst at OANDA, says:

US inflation jumping to its highest level in 13 years has spooked the market, whilst a sell off in commodities is giving the bears more room to run.

Inflation fears have been stalking the market all week and are showing few signs of easing. Whilst some inflation is good for companies and the market, the latest US consumer price data points to the balance moving too far in one direction. US CP1 jumped to 4.2% in April, the highest level since 2008. The data confirmed investors fears of overheating and prompted bets that the Fed could move on rates earlier.

The prospect of tighter monetary policy boosted the US Dollar, which has acted as a drag on commodities. Base metals, which have surged in recent weeks are trading lower, pulling down the heavy weight miners. Falling oil prices are dragging on the oil majors.

After booming in the pandemic, the surge in share trading may be slowing as lockdown restrictions ease.

Hargreaves Lansdown, the investment firm, flagged today that it is starting to see a drop in dealing volumes, saying:

Where daily share dealing volumes settle, as we ease out of lockdown and life returns to more normal, is difficult to say.

Similar to when previous lockdowns have been lifted, we have begun to see a reduction in share dealing volumes in both UK and overseas trades.

Hargreaves Lansdown is still confident of seeing a higher base level of dealing volumes than before Covid-19, though. So far this year, total revenues are up 19% to £532.7m, amid record dealing volumes and client growth.

Like other brokers, Hargreaves Lansdown benefited from the jump in retail trading under lockdown. More younger clients turned to share dealing, with groups such as WallStreetBets driving interest in “meme stocks”, while rising markets delivered strong gains if you managed to buy during last year’s lows.

Shares in Canadian chip designer Alphawave IP have slumped by a fifth this morning, after it floated on the London Stock Exchange.

Alphawave, whose semiconductor technology is used in high-speed data networks, sold shares at 410p each, valuing the Toronto-based firm at around £3.1bn.

But they swiftly fell, dropping by around 20% to 326p at present, leaving investors with hefty paper losses.

Alphawave designs high-speed connectivity technology for chips used in areas such as data centres, artificial intelligence, 5G, data networking and self-driving cars.

It licenses this intellectual property to major tech firms – a major growth area, given the demand for faster wireless and the growth of the Internet of Things.

Alphawave chose to float in London rather than New York, despite concerns that Deliveroo’s disastrous IPO could have hurt the City’s appeal to tech firms.

It’s a tricky week to be floating, of course, given the market volatility and the recent move away from tech stocks.

But such a tumble suggests the float may have been priced rather too richly, as Russ Mould, investment director at AJ Bell, says:

The 410p offer price put a £3.1bn price tag on the company – hardly a knock-down sum for a firm which, according to the prospectus, generated $44m in sales, $24m of operating profit and generated $15m in cash from operations.

Granted, Alphawave IP is growing very quickly, but such a valuation prices in a lot of future growth already and does so at a time, again, when investors may be able to buy plenty of cyclical, immediate growth cheaply if we do get a strong, post-pandemic upturn, with the result that they may not feel such a need to pay premium valuations for long-term secular growth well out into the future.

Here’s some more reaction, from Ben Martin of The Times:

And Abhinav Ramnarayan of Reuters:

Andy Haldane, the outgoing Bank of England chief economist, has predicted that UK growth and inflation will both accelerate this year... meaning that policymakers need to start “tightening the tap” on their stimulus.

Writing in the Daily Mail today, Haldane reiterates his earlier optimism for a strong recovery – saying Britain could bounce back like a tennis ball.

He argues that the UK could outpace international rivals:

In its latest forecasts, the Bank revised down its estimate of peak unemployment from 7.75% to less than 5.5%. It is currently around 5%.

A year from now, it is realistic to expect UK growth to be in double-digits, activity to be comfortably above pre-Covid levels and unemployment to be falling.

Such a tennis ball bounce in the UK economy would put it at the top of the G7 growth league table.

But... Haldane also warns that the Bank of England needs to ensure that this boom does not turn to bust with an unwanted bout of inflation.

Last week, Haldane was a lone voice on the Bank’s MPC committee voting to reduce the size of its bond-buying QE programme.

And today, ahead of his departure next month to run the Royal Society of Arts, he warns:

Inflation inflicts collateral damage on our finances, squeezing the purchasing power of our pay and causing rises in the cost of borrowing.

And experience during the 1970s and 1980s demonstrates that, once out of the bottle, the inflation genie is notoriously difficult to get back in.

By the end of this year, inflation is likely to be above its 2% target, largely due to the temporary effects of higher energy prices.

At that point, the UK economy is likely to be growing rapidly above its potential. This momentum in the economy, if sustained, will put persistent upward pressure on prices, risking a more protracted – and damaging – period of above-target inflation. This is not a risk that can be left to linger if the inflation genie is not, once again, to escape us.

That is why, at last week’s meeting of the Bank’s Monetary Policy Committee, I voted to begin throttling back the degree of support provided to the economy.

To be clear, this is not a case of slamming on the brakes, but rather gently taking our foot off the accelerator.

Other Bank of England policymakers sound less concerned; yesterday, Jonathan Haskel said he was “not that worried about inflation”.