US jobless rate uptick, slowing wage growth boost hopes of rate cuts
An uptick in the US unemployment rate and slowing wage growth have boosted expectations that the US Federal Reserve could begin cutting interest rates sometime this summer.
The unemployment rate rose to 3.9%, the highest since January 2022, against expectations that it would stay at 3.7%, while average hourly earnings rose 0.1% in February from January, less than the 0.3% growth forecast by economists.
The data from the US Labor Department also showed the economy added 275,000 jobs last month, more than the expected 200,000.
However, that strong reading was partly offset by big downward revisions to December and January’s gains, with the latter now at only 229,000, a big reduction from the initial estimate of 353,000.
European stocks, government bonds and the euro rose after the data, with the exception of the FTSE 100 in London, which is trading 0.3% or 24 points lower.
Key events
Closing summary
The S&P 500 and the Nasdaq have hit new intra-day record highs, with the tech-heavy index rising 1%, after labour market data showed an unexpected rise in the unemployment rate to a two-year high and slowing wage growth, which bolstered expectations that the US Federal Reserve could start cutting interest rates by the middle of the year.
However, over here, the FTSE 100 index has dropped 0.5% and European stock indices are languishing.
In other news, Crispin Odey has been accused of rape in a civil lawsuit in the latest and most serious claim to be made against the prominent City financier.
The allegation came to light on Thursday when the high court in London heard an application to decide whether three women could join two others in a legal action alleging misconduct by the founder of Odey Asset Management.
Odey, who left OAM last year amid allegations that he sexually assaulted or harassed a number of women, has previously denied any misconduct.
the UK luxury clothing retailer Matchesfashion is cutting 273 jobs – more than half its workforce – after its new owner Mike Ashley’s Frasers Group called in administrators.
Matches was acquired by Frasers three months ago for £52m in cash from the private equity firm Apax Partners. Frasers said it was not willing to fund a turnaround after the business had “consistently missed its business plan targets” and made losses.
Specialising in luxury labels, from Gucci to Dr Martens, online and through three London stores, Matches generates most of its revenue internationally, delivering to 150 countries outside the UK. It employs 533 people at its head office and stores.
Here are our other main stories:
Thank you for reading. Have a fab weekend – we’ll be back on Monday. Bye! – JK
Duvel halts production after cyber attack
A cyber attack has forced the Belgian beer company Duvel to halt production at four breweries in Belgium and a site in Kansas City in Missouri.
The company said the suspected ransomware attack happened on Tuesday night.
Five of its production facilities were shut down initially but one is back up and running, in Puurs-Sint-Amands.
Duvel said it was currently unable to give further details
as the investigation into the cause of the cyber-attack is ongoing.”
The built-in command systems and alarms in the IT-system worked well, so our IT department was immediately informed of the attack.
The servers were immediately shut down, which also shut down production at the four Belgian production sites and the production site in Kansas City.
Beer drinkers need not fret, though. A spokesperson told local media:
We have more than enough beer in stock to cover this production stop.
The company brews the well-known Duvel in Breendonk, along with Vedett and Maredsous beers. Its other sites are in Oudenaarde (Liefmans), Antwerp (De Koninck) and Achouffe (La Chouffe).
In a ransomware attack, hackers threaten to block or leak files unless they are paid.
Labour market conditions are easing despite employment strength, said Andrew Hunter, deputy chief US economist at Capital Economics, said:
The 275,000 rise in non-farm payrolls in February may, at face value, add weight to the Fed’s view that there is no rush to start cutting interest rates, but the downward revisions to previous months’ gains leave recent growth looking less strong than previously thought. Alongside the rise in the unemployment rate to a two-year high and a much weaker rise in wages, there is less reason now to be concerned that renewed labour market strength will drive inflation higher again.
The headline gain wasn’t far from our above-consensus 250,000 forecast and partly reflects the unwinding of January’s weather-related distortion. Although payrolls weren’t obviously hit in January, the cold snap at the start of the month left an unusually high number of people unable to work because of the weather. The return of those workers in February helped boost the headline payrolls figure, and may explain the stronger gains in sectors like construction, retail and in particular food services.
In a further sign of weakness, the household measure of employment fell again, by 184,000, pushing the unemployment rate up from 3.7% to 3.9%, its highest since January 2022. The rise in the unemployment rate was also partly due to a solid 150,000 increase in the labour force, which should provide a bit more confidence to Fed officials that the supply-side’s strong performance over the past year continues.
Average weekly hours worked, which had been hit by the early-January cold, rebounded last month to 34.3. And because that January weakness was concentrated in low-wage sectors, that rebound also explains why average hourly earnings rose by a muted 0.1% m/m, in line with our own forecast. Although the annual growth rate only edged down to 4.3%, the decline in the job quits rate to below its pre-pandemic level suggests wage growth will slow a lot further over the coming months.
US jobless rate uptick, slowing wage growth boost hopes of rate cuts
An uptick in the US unemployment rate and slowing wage growth have boosted expectations that the US Federal Reserve could begin cutting interest rates sometime this summer.
The unemployment rate rose to 3.9%, the highest since January 2022, against expectations that it would stay at 3.7%, while average hourly earnings rose 0.1% in February from January, less than the 0.3% growth forecast by economists.
The data from the US Labor Department also showed the economy added 275,000 jobs last month, more than the expected 200,000.
However, that strong reading was partly offset by big downward revisions to December and January’s gains, with the latter now at only 229,000, a big reduction from the initial estimate of 353,000.
European stocks, government bonds and the euro rose after the data, with the exception of the FTSE 100 in London, which is trading 0.3% or 24 points lower.
HelloFresh shares plunge after profit warning
Shares in HelloFresh plunged more than 40% today after it warned that annual profits will fall short of expectations.
The German meal-kit company said it now expects to post earnings of between €350m (£298m) and €400m this year, down from the €568m analysts had forecast.
The share price fell 42% to €6.84.
Berlin-based HelloFresh also ditched its revenue and profit targets for next year because of higher costs in the development of its “ready to eat” division.
The warning comes after the recipe box firm was fined £140,000 by the UK’s Information Commissioner’s Office for sending millions of spam emails and texts to customers.
Along with rivals such as Gousto and Mindful Chef, the company benefited from booming demand during the Covid-19 pandemic when people were stuck at home. But customer numbers dropped off after restrictions were removed, and as the cost of living crisis forced many people to tighten their belts.
HelloFresh, which was founded in 2011 and inspired by a Swedish startup called Linas Matkasse, delivers boxes with recipe cards and ingredients for Instagram-worthy home-cooked meals, such as balsamic steak with red cabbage and potato wedges (“no shopping, no planning”).
IMF head Kristalina Georgieva to run for second term
The head of the International Monetary Fund, Kristalina Georgieva, has announced that she is running for a second term as fund’s managing director.
A Bulgarian economist, aged 70, she has run the fund since 2019, and has already received the backing of the French finance minister Bruno Le Maire for a second term.
The campaign has been kicked off by the Bulgarian central bank governor Dimitar Radev, who said:
Kristalina Georgieva has earned the great respect and trust of the IMF’s member countries during the years of her mandate as the fund’s managing director. Under her leadership, the IMF has supported the global economy with large scale financing nearly 100 member countries as they dealt with the COVID pandemic, the war in Ukraine and the cost-of-living crisis.
Many of my colleagues, the governors of the IMF, would like to see her continue as the managing director of the institution for a second mandate – a view also expressed by France’s finance minister Bruno Le Maire at the time of the of the recent G20 meeting in Sao Paolo.
Consultations will continue with our European partners on a common view about a potential nomination in accordance with the IMF’s process of selection of the MD of the institution.
Under Georgieva, the IMF has deployed $1 trillion in reserves and liquidity since the Covid-19 pandemic. It lent $35bn to 40 emerging market countries and presided over a five-fold increase in interest-free lending to 56 low-income countries. The fund also agreed $1bn in debt relief for the poorest countries after the pandemic.
The fund has adopted its first ever climate strategy, and has raised $42bn so far for the Resilience and Sustainability Trust, which helps vulnerable emerging and low-income countries cope with climate change and pandemics.
The UK’s High Pay Centre has described the £8m pay package for BP’s chief executive as “a damning indictment of an economic model which is failing consumers and the planet” – at a time when millions of households in the UK are in fuel poverty.
Andrew Speke, spokesperson for the think tank, which is focused on pay, corporate governance and responsible business, said:
This huge pay award for BP’s CEO is a damning indictment of an economic model which is failing both consumers and the planet. While households in the UK have faced rocketing bills, which have plunged millions in fuel poverty, BP somehow can afford to pay its CEO a figure close to 250 times the typical British worker.
Meanwhile at a global level we are already starting to see the damaging impact of climate change. In such a context governments need to accelerate the transition to clean energy, because the alternative is companies like BP enriching their executives and shareholders, while households and the planet pay the price.
BP paid its boss £8m last year; clawed back £1.8m from dismissed CEO Looney pay
BP paid its chief executive Murray Auchincloss £8m last year – and clawed back £1.8m from its former boss Bernard Looney’s pay package.
Looney was dismissed in December for failing to disclose to the board personal relationships with colleagues.
The pay details were disclosed in the oil giant’s annual report.
Auchincloss received a salary of £1m for 2023, as well as benefits worth £338,000, a cash allowance in lieu of pension of £190,000 and an annual share bonus of £1.8m, and performance shares worth £4.7m.
In January, the oil company appointed Auchincloss, its former chief financial officer, as its new chief executive after the shock departure of Bernard Looney last year. He had acted as interim CEO since September.
The campaign group Global Witness said Auchincloss’s £8m paycheck would take an average UK worker 230 years to earn.
Alice Harrison, fossil fuels campaign leader at Global Witness, said:
The millions paid out to BP’s CEO contrast with the millions of Brits in energy poverty, showing the sickening reality of our broken energy system. People everywhere, struggling to feed their families or heat their homes, have every right to be angry at BP’s huge profits and payouts.
BP and its CEO count among the biggest winners of Russia’s war in Ukraine. BP, which still owns a big chunk of the Russian oil company Rosneft, profiteered massively from the resulting turbulence in energy markets, and now the firm has decided to give its CEO a multi-million, fat cat pat on the back whilst most people are living paycheck to paycheck.
The government is missing the opportunity to introduce a serious windfall tax and CEO bonus tax.
Shares in Frasers Group fell nearly 2% this morning, after it announced that it was putting Matchesfashion into administration, less than three months after buying the luxury online retailer from the private equity firm Apax for around £50m.
Victoria Scholar, head of investment at interactive investor, said:
The financial woes facing Matchesfashion highlight the broader slowdown in the luxury goods market. High-end luxury demand has been waning amid a weak post-covid recovery in China as well as broader global macroeconomic pressures. While luxury brands typically raise prices without much of a problem for demand, perhaps now price hikes have gone too far as consumers’ propensity to spend wanes. In another worrying sign for the sector, Burberry issued a profit warning in January with its shares down by more than 50% over the past 12 months.
The speedy transition by Frasers from its purchase of Matchesfashion to its entry into administration suggests the financial woes facing the online fashion platform are clearly much worse than Frasers had thought, landing the brand in an unsalvageable situation. It also shows how even the e-commerce sector, which is relieved of many bricks and mortar retailers’ cost pressures, is still facing immense financial stress amid the weak global growth backdrop. Its rival Net A Porter similarly struggled with losses in the first half of last year. A lack of management continuity with a series of quick succession CEO changes in recent years haven’t helped Matchesfashion either.
Shares in Frasers Group are under pressure, trading down nearly 2%, bringing its year-to-date slide to more than 10% in a disappointing start to the year for its investors after a strong run since the pandemic.
European shares are drifting lower as traders await the non-farm payrolls jobs report at lunchtime.
The UK’s FTSE 100 is down some 10 points, or 0.14%, while the Dax has lost 0.2%. France’s CAC is unchanged and Italy’s FTSE MiB edged 0.1% higher.
More on the European Central Bank, which has hinted that its first interest rate cut could come in June.
Yesterday, the central bank cut its forecast for price growth this year from 2.7% to 2.3%. It now expects inflation to fall to 1.9% in the summer of 2025, and stay there until the end of 2026.
President Christine Lagarde struck a cautious tone, saying more evidence was needed before the ECB cuts rates.
There is a definite decline (in inflation) which is underway and we are making good progress towards our inflation target. We are more confident as a result, but we are not sufficiently confident.
Investors have pencilled in three, or possibly four, cuts this year to the rate the ECB pays on bank deposits, which would take it from the current 4% to 3.25% or 3.0% .
Here is our full story on Matchesfashion:
Richard Hunter, head of markets at interactive investor, has looked at the financial markets, and ahead to the US jobs report at lunchtime.
With little to upset the applecart, US markets powered to new record highs as peak optimism continued to drive buying interest.
Investors have been reassured over recent days following Federal Reserve chair Powell’s comments to lawmakers, which have contained no negative surprises. Most pertinently, the Fed stands prepared to reduce interest rates this year when circumstances dictate, and implied that such a move is not far away, even though there is no immediate rush to ease monetary policy in light of consistently favourable economic data.
Indeed, the relatively benign backdrop will be put to the test again today with the release of the non-farm payrolls report. Investors will be hoping to see employment beginning to slow, while remaining solid, while also keeping an eye on wage growth which itself is inflationary. The data is expected to show that 200,000 jobs were added in February, following the previous month’s blowout number of 353,000, while unemployment is likely to remain unchanged at 3.7%.
In the meantime, technology stocks continued to forge ahead in anticipation of the easier monetary conditions to follow and after what was a generally pleasing reporting season. The semiconductor index was a particular beneficiary of investor interest, as buyers sought to ride the current euphoric wave surrounding the potential for all things AI, with Nvidia enjoying further gains. In the year to date, the Nasdaq has now added 8.4%, closely followed by a gain of 8.1% for the S&P 500, while the Dow Jones is also in positive territory to the tune of 2.9%.
Turning to Asian stocks, he said:
Asian stocks largely joined the investment party, with most central banks increasingly agreed on the downward trajectory for interest rates, and with Japan’s Nikkei index continuing to attract overseas buying interest. This was despite the fact that the Bank of Japan could be heading in the opposite direction in exiting negative interest rates, which sent the yen higher after a recent spell of weakness, with wage growth rising to a level which could prompt the central bank to begin tightening policy.
China markets were mildly positive, although the disappointment of this week’s National People Congress is still dampening sentiment. The lack of any announcements regarding an aggressive stimulative stance in reviving the economy at a time of high unemployment, low consumer confidence and an embattled property sector remains a source of despair for investors. The authorities appear keen to let the economy recover at its own pace and will have taken some solace from the latest import and export growth numbers, which came in ahead of expectations.
Packaging firm Mondi buys DS Smith; wealth manager Mattioli Woods to be taken private
There has been a flurry of takeover deals (or offers) in recent days and weeks, and today is no different.
The packaging firm Mondi, based in Weybridge, has pounced on smaller rival DS Smith and agreed an all-share deal worth £5.14bn, which will create a paper and packaging group worth more than £10bn. Both companies said:
The combination is an exciting opportunity to create a pan-European industry leader in paper-based sustainable packaging solutions.
The London-listed company is to be bought out as wealth manager Mattioli Woods agreed to a £432m offer from the London-based private equity firm Pollen Street Capital.
Private equity firms and some industry firms have been snapping up British assets because they are considered cheap, as sterling remains weak following Brexit, the Covid pandemic and the disastrous mini-budget 1 1/2 years ago.
Yesterday, Nationwide building society agreed to buy its high-street rival Virgin Money for nearly £3bn in the largest UK banking deal since the 2008 financial crisis.
The two lenders have reached a preliminary agreement on the key terms of the takeover, which – if approved – would narrow competition with the big four banks. It would create a combined group with £366bn in total assets, nearly 700 branches and more than 23 million customers.
Buying Virgin Money, the UK’s sixth-largest retail bank, would also solidify Nationwide’s position as the second-largest mortgage lender behind Lloyds Banking Group, according to data gathered by the industry body UK Finance on outstanding home loans.
Matchesfashion was launched by a couple, Tom and Ruth Chapman, who opened their first store in Wimbledon in south London in 1987.
They banked £400m after selling their online designer empire Matchesfashion.com to private equity investors in 2017.
Funds advised by Apax Partners, a firm that owns Karl Lagerfeld and previously invested in Tommy Hilfiger, agreed to buy a majority stake in the business in a deal that valued Matches at £800m. The Chapmans, both in their 50s, cashed in the vast majority of their 67% stake, and stepped back from day-to-day involvement but retained an advisory role.
However, the firm has struggled recently amid a slowdown in the luxury sector, and made a loss of £33.5m last year.
Introduction: Matchesfashion to enter administration; stock markets rise on rate cut hopes
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Mike Ashley’s Frasers Group is putting Matchesfashion into administration, just weeks after buying the online luxury clothing retailer, putting hundreds of jobs in jeopardy.
Frasers bought the firm – which sells fashion brands including Balenciaga, Gucci, Prada, Stella McCartney and Valentino – for £52m from the private equity firm Apax in late December. According to reports, Teneo is being appointed as administrators.
In a statement to the stock exchange, Frasers said:
Since Frasers acquired Matches, the business has consistently missed its business plan targets and, notwithstanding support from the group, has continued to make material losses. Whilst Matchess’ management team has tried to try to find a way to stabilise the business, it has become clear that too much change would be required to restructure it, and the continued funding requirements would be far in excess of amounts that the group considers to be viable.
In light of this, Frasers has been informed that the directors of Matches have taken the decision to put the Matches group into administration. Frasers remains committed to the luxury market and its brand partners.
The news was first reported by Sky News.
Exclusive: Mike Ashley’s Frasers Group is putting Matchesfashion, the luxury online clothing platform it bought in December for £52m, into administration following weaker trading and the departure of a number of brands; a stock exchange announcement is likely tomorrow. More soon.
— Mark Kleinman (@MarkKleinmanSky) March 7, 2024
Asian shares have hit a seven-month high, after investors were cheered by hints for potential interest rate cuts in the summer, and ahead of a key US jobs report today.
They followed in the footsteps of higher US stocks, and the S&P 500 hit a record closing high of 5,157.34, up more than 1%, as the US Federal Reserve chief indicated rate cuts are likely to come this year.
MSCI’s broadest index of Asia-Pacific shares outside Japan peaked at 538.47 points, its highest level since August. Japan’s Nikkei rose 0.2% while Hong Kong’s Hang Seng gained 1.3% and the Shanghai Composite climbed 0.6%.
The European Central Bank kept interest rates unchanged yesterday and its president Christine Lagarde, who had been pushing back against the idea of early rate cuts, said at the press conference:
We did not discuss cuts for this meeting, but we are just beginning to discuss the dialling back of our restrictive stance.
She hinted strongly that this could happen at the ECB’s 6 June meeting, when wage data for the first quarter will have been published.
We will know a little more in April, but we will know a lot more in June
US Federal Reserve chair Jerome Powell struck a similar tone on the path of US rates. He said yesterday the US central bank was “not far” from gaining the confidence it needs in falling inflation to begin cutting borrowing costs. He told the Senate Banking Committee:
I think we are in the right place. We are waiting to become more confident that inflation is moving sustainably down to 2%. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.
In Germany, industrial production rose by 1% in January from the previous month, but December’s decline was revised to 2% from 1.6%.
Construction recovered alongside the chemical and food industries and machine maintenance and assembly, while carmakers posted a 7.6% slump, official data showed this morning.
The Agenda
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10am GMT: Eurozone fourth-quarter GDP third estimate (forecast: 0%)
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1.30pm GMT: US non-farm payrolls for February (forecast: 200,000)
