Dow, Nasdaq hit record highs after service sector rebound
US stocks have extended gains, driving the Dow Jones and the tech-heavy Nasdaq to fresh record highs, after the stronger-than-expected non-manufacturing survey from the Institute of Supply Management.
It showed activity in the US service sector picked up in December, with the main reading rising to 57.2 from 55.9, better than expected.
Wall Street opens higher
Wall Street has just opened, and US stocks are up!
- Dow Jones up 133 points, or 0.43%, at 30,962
- S&P 500 up 26 points, or 0.7%, at 3,774
- Nasdaq up 130 points, or 1%, at 12,871
Wall Street is expected to open higher as markets are hopeful that a Democrat-controlled Senate will pass more economic stimulus measures. US Congress certified Joe Biden’s election victory, hours after hundreds of Donald Trump’s supporters stormed the Capitol and halted the process.
Dow Jones futures are up 117 points, or 0.38%, while S&P futures are 21.5 points ahead, a 0.57% gain, and Nasdaq futures rose 104.5 points, or 0.83%.
In London, the FTSE 100 index has lost some 31 points or 0.46% to 6,8120 amid profit-taking on banking stocks. Germany’s Dax is 0.38% ahead while France’s CAC has gained 0.41% and Italy’s FTSE MiB is flat.
Separate US trade data show the country’s trade deficit rose more than expected to $68.1bn in November from $63.1bn in October. The deficit with China was little changed at $30.68bn.
US jobless claims fall
The number of Americans filing first-time claims for jobless benefits unexpectedly fell last week – but stayed very high as the coronavirus pandemic rages on. Initial claims for state unemployment benefits were 787,000 in the week to 2 January compared to 790,000 the previous week, the Labor Department said. Economists had forecast 800,000 applications in the latest week.
The figures come ahead of the closely watched non-farm payrolls data on Friday. Wall Street economists are forecasting the creation of 71,000 jobs (compared with 245,000 in November), which would be the smallest increase since the jobs recovery started in May, and mean the economy recouped 12.m of the 22.2m jobs lost in March and April.
Covid-19 cases in the US have risen to more than 21 million, and the death toll exceeds 352,000, according to the US Centers for Disease Control and Prevention.
National Express to suspend services
National Express is to suspend its entire network of coach services across the UK from Monday due to the latest Covid-19 travel restrictions, writes the Guardian’s transport correspondent Gwyn Topham.
The company, a major provider of timetabled coach routes, said it would be halting all services until March.
Chris Hardy, managing director of National Express UK Coach, said:
We have been providing an important service for essential travel needs. However, with tighter restrictions and passenger numbers falling, it is no longer appropriate to do this.
All journeys until Sunday night will run as planned to ensure that no passengers making essential journeys are stranded, National Express said, while customers whose travel has been cancelled will be contacted for free rebooking or full refunds.
And here is our full Ryanair story:
On the vaccine front: the rollout of coronavirus vaccines in Britain is being limited by the supply of jabs. The UK government it is working with the drugmakers Pfizer and AstraZeneca to increase supplies of their coronavirus vaccines, the health secretary Matt Hancock has said. He told broadcasters:
The rate limiting step is the supply of vaccine, and we’re working with the companies, both Pfizer and of course AstraZeneca, to increase the supply.
The manufacturers are doing a brilliant job, and they’re delivering to the schedule that’s agreed, but that schedule is the amount of vaccine that we have… we expect to see that amount of vaccine being delivered going up.
His comments came as doctor’s surgeries started administering the vaccine developed by Oxford University and AstraZeneca, as part of a herculean effort to vaccinate the most vulnerable within six weeks. More than 1.3m people in the UK have received one shot of the Pfizer/BioNTech or the AstraZeneca/Oxford University so far. They require two doses.
The government must ramp up its vaccination programme to 2m a week to hit its target.
Time for another look at the financial markets. The FTSE 100 index reversed early gains and is trading 0.6% lower at 6,801, a fall of 40 points. The bluechip index has been dragged lower by banking stocks, which had rallied in recent days amid expectations of a bigger US stimulus package, as investors took profits.
Rising Covid-19 infections in the UK which threaten to overwhelm hospitals are also weighing on the market. The Financial Conduct Authority said today that around 4,000 financial firms in Britain are at “heightened risk” of failing in the wake of the coronavirus pandemic – though many should recover “as and when economic conditions improve”.
Germany’s Dax and France’s CAC are holding on to their gains, trading 0.43% and 0.23% higher respectively. Italy’s FTSE MiB is down 0.31%.
Brent crude has slipped back, ending the rally seen in recent days, after Saudi Arabia agreed to cut its output by 1m barrels a day in February and March. Brent is 0.09% lower at $54.25 a barrel, while US crude is still 0.43% ahead at $50.85 a barrel.
The Hungarian low-cost airline Wizz Air has cancelled flights in January due to the UK’s new lockdown. Its chief executive Jozsef Varadi told Reuters that the number of flights it operates this month will fall to a quarter of 2020 levels, compared with 35% in December.
Ryanair said it expects to lose 95% of its traffic in the next two months, with few if any flights operating from the UK and Ireland, due to the latest Covid lockdowns and travel restrictions, writes our transport correspondent Gwyn Topham.
The Dublin-based carrier, which normally carries the most passengers in Europe, hit out at “brutal lockdowns” and called on the Irish goverrnment in particular to accelerate vaccinations.
Ireland has banned incoming travel from Britain until Friday, and from Saturday is expected to require all international arrivals to provide a negative Covid-19 test from within the previous 72 hours to enter the country. The UK is considering a similar testing measure.
Ryanair shares dropped 3.1%.
Mitchells & Butlers, the UK pub giant that owns the All Bar One, Harvester, O’Neill’s and Toby Carvery chains, has said that it may need to raise fresh funds after a collapse in sales over the Christmas and New Year period. Its pubs and bars are shut during England’s third national lockdown, until at least mid-February. Shares in the firm fell 6.7%.
Sales plunged 67.1% in the 14 weeks to 2 January because of Covid-19 restrictions. This week, takeaway sales of alcohol from pubs in England were banned, dealing a further blow to the hard-hit pubs sector which is struggling for survival.
The company, which runs 1,700 pubs across the UK, revealed in late November that it had laid off 1,300 people in the previous two months. During each month its pubs are closed, the business burns through up to £40m to pay rent and other bills, and it has to meet £50m debt costs each quarter. M&B said:
The directors believe it is prudent to explore an equity capital raise, to give the group increased financial and operational flexibility. No decision has yet been made with regards to the timing, size, or terms of any such equity capital raise.
One analyst said M&B may want to raise £215m.
The eurozone has released more economic data. Overall economic sentiment improved in December, the European Commission said, despite rising Covid-19 infections and fresh restrictions. This was outweighed by optimism over the new coronavirus vaccines.
Consumer confidence also improved but remained in negative territory, with a reading of -13.9, compared with -17.6 in November.
The inflation data brought no surprises. Headline inflation has been stable at -0.3% since September and that didn’t change in December. The same holds true for core inflation, which once again came in at 0.2%.
Bert Colijn, senior eurozone economist at ING says:
From here on, expect some downward pressure to reverse, which will push up inflation. The German VAT reduction ends, negative price effects from the oil price drop in early 2020 will fade out of the numbers, and services inflation later in the year is likely as social distancing becomes less of an issue.
Retail sales in the eurozone declined by 6.1% in November from the month before, which was the sharpest decline since April.
This was the result of France, Belgium and Austria closing non-essential retail, resulting in sales declining by 18%, 15.9% and 9.9%, respectively. Other countries didn’t see such large swings, as Germany and the Netherlands saw continued growth of 1.9% and 2.6%, causing a big underlying divergence between countries depending on the coronavirus situation.
Goldman Sachs upgrades US forecasts
At the same time, Goldman Sachs has upgraded its US forecasts to reflect the results of the Georgia elections. The US investment bank says:
With control of the Senate by a narrow margin, Democrats are likely to pass further fiscal stimulus in the first quarter that we expect to total about $750bn, including $300bn in stimulus checks. However, discouraging news on the virus front—including the slow pace of vaccination and the emergence of more infectious virus strains—suggests that the spending boost from stimulus will be more lagged than usual.
Goldman Sachs is now forecasting quarterly annualised GDP growth of 5%, 9%, 7.5% and 5% this year. This implies 2021 GDP growth of 6.4% (vs. 5.9% previously and 3.9% consensus). The upgrade implies a lower unemployment path. The bank now expects the US unemployment rate to reach 4.8% at the end of 2021, falling to 4.3% at the end of 2022, 3.9% at the end of 2023, and 3.6% at the end of 2024.
The bank’s chairman and chief executive David Solomon also released a statement in response to the violence in Washington, D.C. yesterday:
For years, our democracy has built a reservoir of goodwill around the world that brings important benefits for our citizens. Recently, we have squandered that goodwill at an alarming pace, and today’s attack on the US Capitol does further damage. It’s time for all Americans to come together and move forward with a peaceful transition of power. We have to begin reinvesting in our democracy and rebuilding the institutions that have made America an exceptional nation.
However, the broader picture for the UK economy is still grim. Goldman Sachs says given the return to nationwide lockdown, it expects a 1.5% contraction in GDP between January and March, putting the UK economy into a double-dip recession.
Our estimates suggest that the hit from the latest restrictions will be notably smaller than in April (as factories remain open and activity has become less sensitive to restrictions) but somewhat larger than in November (as schools are closed).
The uncertainty around near-term activity is large, with risks skewed towards a larger Q1 contraction in light of the unpredictability of the new virus strain. But we maintain our view that UK activity will pick up strongly from the spring, as services activity is very depressed relative to pre-covid levels, the UK remains well-placed to benefit from the vaccine (despite a slow start to the roll-out) and fiscal policy stays supportive in 2021.
Goldman Sachs is forecasting growth of 5.6% for 2021 (vs 7% before) and 6.4% for 2022 (vs 6.2%).
Tim Moore, economics director at IHS Markit, says:
A sustained improvement in construction order books resulted in a rise in employment numbers for the first time in nearly two years and the most optimistic growth expectations since April 2017.
Construction companies are hopeful that higher demand will broaden out beyond residential projects in the next 12 months, led by infrastructure spending and a potential rebound in new commercial work from the depressed levels seen during the pandemic.
Transport delays and a lack of stock among suppliers were the main difficulties reported by UK construction firms at the end of 2020, which contributed to the fastest rise in purchasing prices for nearly two years.
UK construction enjoys rebound at end of 2020
UK construction companies reported a further expansion in business activity in December, boosted by a sharp rise in housebuilding, according to the latest survey from IHS Markit/CIPS. They fared better than their counterparts in the eurozone, where construction activity declined for the tenth month running.
The UK headline construction activity index was 54.6 in December, little changed from November’s 54.7 and comfortably above the 50 mark that separates expansion from contraction.
Housebuilding was particularly strong, with a reading of 61.9 while commercial construction also expanded, but the rate of growth eased to its lowest since the recovery began in June, with the index at 51.2. Civil engineering declined for the fourth time in the past five months.
As Covid-19 infections continue to rise, London’s population is set to decline for the first time in more than 30 years. This is driven by the economic fallout from the coronavirus pandemic and people reassessing where they live during the crisis, according to a report from the accountancy firm PwC.
It said the number of people living in the capital could fall by more than 300,000 this year, from a record level of about 9 million in 2020, to as low as 8.7 million. This would end decades of growth with the first annual drop since 1988, writes our economics correspondent Richard Partington.