Closing summary
Strong US jobs figures have dented hopes for early interest rate cuts. Employers added 199,000 jobs last month, more than expected and up from October’s increase of 150,000 jobs. Stocks on Wall Street fell after the data was released.
However, employment growth has been fading this year after the Federal Reserve launched an aggressive campaign to pull back inflation from its highest levels in a generation. Official data has bolstered hopes that the central bank will manage to guide the US economy to a so-called “soft landing”, where price growth normalises and recession is avoided.
Over here, the average cost of a two-year fixed-rate mortgage in the UK has fallen below 6% for the first time in almost six months, figures showed on Friday.
In news that will be welcome to homebuyers and remortgagors, data from Moneyfacts showed that the cost of borrowing is still falling from the peaks reached in the summer.
Our other main stories:
The UK’s competition watchdog has paved the way for a formal investigation into the partnership between Microsoft and ChatGPT developer OpenAI by asking for comments on the arrangement.
The Competition and Markets Authority made the announcement on Friday after a bout of leadership and boardroom turmoil at OpenAI, which is based in San Francisco.
The company was established as a non-profit entity whose board controls a commercial unit, in which Microsoft is the biggest investor.
Nationwide Building Society has told nearly 500 staff they are at risk of redundancy, just weeks before the Christmas holidays.
The cuts are part of a sweeping restructuring programme, launched under its chief executive, the former TSB boss Debbie Crosbie, which is meant to “streamline” head office operations by changing reporting lines or slashing jobs. The exercise will ultimately affect 1,000 staff.
Britain’s largest recruiters have warned the Bank of England that demand for permanent hiring among UK businesses has plunged at the second fastest rate since the pandemic, amid worsening headwinds for the UK economy.
In more bad news for UK workers, ministers are cutting holiday allocations and pay for irregular and part-time workers, at a cost to staff of up to £248m a year.
The government is changing how holiday days and pay are calculated for people who do not work full-time throughout the year, such as shift-workers, school employees and those on zero-hours contracts.
EU countries may soon be able to halt their last remaining Russian gas imports under plans to ban Russian energy companies from their pipelines and terminals. Brussels is reportedly on the cusp of drafting new rules which could empower the EU’s member states to crack down on companies from Russia and Belarus that have continued to import Russian gas into Europe since Moscow’s full-scale invasion of Ukraine by buying import capacity at key EU import terminals and pipelines.
Spotify has announced that the chief financial officer, Paul Vogel, is to leave, days after cashing in $9.3m (£7.4m) in shares in the wake of the music streaming service announcing it is to cut almost a fifth of its global workforce.
The betting firm Flutter has said it is working towards 29 January as the date for its listing on the New York stock exchange, but it will keep its premium listing in London.
The company, formerly known as Paddy Power Betfair, is proceeding with a secondary listing in the US but it may “pursue a primary listing in the US in due course”.
Elon Musk has said the Disney chief executive, Bob Iger, should be “fired immediately” after the world’s biggest entertainment company joined an advertising boycott of his X platform.
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Elon Musk says Disney boss should be ‘fired immediately’ amid X ad boycott
Elon Musk has said the Disney chief executive, Bob Iger, should be “fired immediately” after the world’s biggest entertainment company joined an advertising boycott of his X platform.
Musk, the world’s richest man, has embarked on a series of outbursts against companies halting their ad campaigns on the site, formerly known as Twitter, after he endorsed an antisemitic tweet last month.
“Walt Disney is turning in his grave over what Bob has done to his company,” Musk said in a series of tweets. “He should be fired immediately.”
EU poised to enable member countries to end all gas imports from Russia
EU countries may soon be able to halt their last remaining Russian gas imports under plans to ban Russian energy companies from their pipelines and terminals.
Brussels is reportedly on the cusp of drafting new rules which could empower the EU’s member states to crack down on companies from Russia and Belarus that have continued to import Russian gas into Europe since Moscow’s full-scale invasion of Ukraine by buying import capacity at key EU import terminals and pipelines.
Negotiators from member states and the European parliament are expected to approve the draft text on Friday, according to the Financial Times. The final version would still formally need to be approved by the parliament and member states before taking effect.
Wall Street has opened lower, as rate cut hopes have been dented by the strong labour market figures. The Dow Jones lost more than 30 points while the S&P 500 opened 10 points lower and the Nasdaq fell 60 points.
Within the headline US jobs figure, healthcare was a key contributor to November’s surprise, adding 77,000 jobs, notably higher than the 12-month average of 54,000.
Government employment increased by 49,000, roughly in line with the average monthly gain of the last year. Manufacturing employment rose by 28,000, as striking motor vehicles and parts workers returned to work.
Updated
However, Nathaniel Casey, investment strategist at wealth manager Evelyn Partners, said optimism around rate cuts won’t be dented by the “slight overshoot” in the non-farm payrolls number.
If the labour market can continue to soften and inflation decelerates further, this could prompt the start of rates cuts, which money markets are currently anticipating could begin occurring as early as March.
Over recent months there have been three key macro factors that, in our view, have reduced the likelihood of a hard landing for the US economy.
First, the labour market has softened without a notable step up in the unemployment rate. Second, wage growth is moderating towards levels that would be consistent with the Fed’s 2% inflation target. Third, inflation is decelerating faster than forecasters had expected.
He noted that the employment gain last month was still below the three-month moving average of 215,000.
Average hourly earnings rose by 0.4% month on month, while the annual rate slowed to 4% from 4.1% in October.
Fed governor Christopher Waller, who had been a hawkish member of the committee, has said that he is “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%”. He also noted that he could see interest rates being cut if inflation continues to decelerate over the next three to five months.
Updated
US economy adds 199,000 jobs, pointing to strong labour market
US employers added 199,000 jobs last month, more than expected, in another sign of a strong labour market.
The data will add to expectations that the US Federal Reserve will keep interest rates high for some time.
The figure was up from 150,000 in October, and the unemployment rate fell to 3.7% from 3.9%, according to the Bureau of Labor Statistics. Economists had expected an increase of 180,000 jobs last month.
Officials have insisted that rate cuts aren’t on the agenda yet, while markets are betting that the Fed will start cutting rates from their current target range of 5.25% to 5.5% before the middle of next year.
Updated
Part-time/shift workers to lose up to £248m holiday pay in UK rule change
In other bad news for workers in Britain…
Ministers are cutting holiday allocations and pay for irregular and part-time workers, at a cost to staff of up to £248m a year.
The government is changing how holiday days and pay are calculated for people who do not work full-time throughout the year, such as shift-workers, school employees and those on zero-hours contracts.
This will mean that instead of receiving full holiday rights at the beginning of the year in the same way as full-time workers, 5 million British workers on temporary or irregular contracts will have to gradually gain them during the year.
Experts say the change is one of the most significant erosions of employment protections since the UK left the EU working time directive.
Nationwide Building Society puts 470 staff on redundancy notice
Nationwide Building Society has told nearly 500 staff they are at risk of redundancy, just weeks before the Christmas holidays.
The cuts are part of a sweeping restructuring programme, launched under its chief executive, the former TSB boss Debbie Crosbie, which is meant to “streamline” head office operations by changing reporting lines or slashing jobs. The exercise will ultimately affect 1,000 staff.
The overhaul will mostly affect employees across the lender’s chief operating office, retail operations and its mortgages and financial wellbeing division, with about 470 people expected to be at risk of being made redundant.
News of the cuts comes days after it emerged that Crosbie was forcing Nationwide’s 13,000 staff – particularly those who do not work in branches – to return to the office, rescinding a “work anywhere policy” launched under her predecessor, Joe Garner, during the pandemic. It will require most staff to be in an office for at least 40% of their contract, or two days a week for a full-time employee, from early next year.
Microsoft, which has committed to invest more than $10bn into OpenAI, owns 49% of the company. OpenAI has a non-profit parent company which owns 2%.
The CMA’s move comes after Microsoft announced in November that it would take a non-voting position on the OpenAI board, following a tumultuous boardroom battle which resulted in the ousting and return of OpenAI’s founder and chief executive Sam Altman.
The observer position allows Microsoft’s representative to attend OpenAI’s board meetings and to access confidential information, but without the right to vote on matters such as electing directors.
The regulator explained why competition between AI developers is important:
The speed at which artificial intelligence (AI) is scaling across use cases and markets is unrivalled in economic history, while advances in powerful foundation models (FMs) mean that this is a pivotal moment in the development of this transformative technology.
The CMA’s recent report into the rapidly evolving market for FMs noted both opportunities and risks for competition and consumer protection, which were captured in a set of proposed principles to guide the development of the market toward positive outcomes for people and businesses.
Critical among these is the need for sustained competition between AI developers which will help to deliver innovation, growth and responsible practices across the sector, as well as the need for open and effective competition in the deployment of FMs across a range of downstream activities.
You can read more here.
Sorcha O’Carroll, senior director for mergers at the CMA, explains:
The invitation to comment is the first part of the CMA’s information gathering process and comes in advance of launching any phase 1 investigation, which would only happen once the CMA has received the information it needs from the partnership parties.
The “information gathering process” announced by the CMA today is “a necessary precursor” to any potential investigation into Microsoft’s investment of up to $13bn in OpenAI, explains the Financial Times.
Microsoft denies taking control of OpenAI
Microsoft has denied that it has taken control of OpenAI, after the UK’s CMA announced it was investigating their partnership.
Brad Smith, Microsoft’s president, insists that OpenAI remains independent – and reminds regulators that fellow tech giant Google was allowed to buy London-based AI firm DeepMind back in 2014.
Smith says:
“Since 2019, we’ve forged a partnership with OpenAI that has fostered more AI innovation and competition, while preserving independence for both companies,”
“The only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI’s Board, which is very different from an acquisition such as Google’s purchase of DeepMind in the UK.”
UK competition regulator reviewing Microsoft's partnership with OpenAI
Britain’s competition watchdog has announced it is investigating the partnership between Microsoft and OpenAI, following the shake-up at the artificial intelligence pioneer.
The Competition and Markets Authority is considering whether Microsoft’s partnership with OpenAI is effectively a merger, and whether the situation could result in a substantial lessening of competition within the UK.
The CMA says:
There have recently been a number of developments in the governance of OpenAI, some of which involved Microsoft. In light of these developments, the CMA is now issuing an ITC to determine whether the Microsoft / OpenAI partnership, including recent developments, has resulted in a relevant merger situation and, if so, the potential impact on competition.
Last month, there was turmoil at OpenAI – which develops the ChatGPT AI system. Founder Sam Altman was dramatically fired from OpenAI, then joined Microsoft – which owns 49% of the company.
OpenAI staff then staged a revolt, demanding Altman’s return – which swiftly took place, with Microsoft taking a non-voting, observer position on OpenAI’s board.
The CMA is now inviting views on whether the partnership between Microsoft and OpenAI, including recent developments, results in the creation of a relevant merger situation – there are more details here.
CMA seeks views on Microsoft’s partnership with OpenAI.
— Competition & Markets Authority (@CMAgovUK) December 8, 2023
Read more: https://t.co/lAh8eAdHsx
The CMA has already tangled with Microsoft once this year, when it blocked its takeover of Activision Blizzard until Microsoft offered to change the deal and agreed to sell cloud gaming rights outside Europe to the French rival Ubisoft.
Updated
Average two-year mortgage rate dips below 6% for first time since June
The average two-year fixed-rate UK homeowner mortgage has dropped below 6% for the first time in nearly six months.
In a boost to borrowers, data provider Moneyfacts has reported that the average two-year fixed residential mortgage rate today is 5.99%, down from an average rate of 6.01% on Thursday.
Longer-term mortgages also got cheaper, with the average 5-year fixed residential mortgage rate today is 5.60%, down from 5.61% yesterday.
James Hyde, spokesperson at moneyfactscompare.co.uk, said:
The average two-year fixed rate has dipped below 6%, for the first time since mid-June this year.
Having peaked at 6.86% in late July, rates have been gently falling since early August due a combination of factors including falling inflation, base rate pauses, and reductions in swap rates.
In recent weeks, a number of lenders have again begun to offer sub-5% two-year fixed deals; with lowest rates available UK-wide sitting around 4.75% at present.
It remains to be seen if the recent rate reductions will continue, as any further rises in inflation, base rate, or swap rates may lead to a reversal.
NEW
— Ed Conway (@EdConwaySky) December 8, 2023
The average two year fixed rate mortgage has dropped below 6% for the first time since June.
Avg 2yr rate: 5.99%.
Avg 5yr rate: 5.6%.
Data from Moneyfacts
This drop in mortgage rates follows falls in the yields on UK government bonds. Those yields, which are used to price mortgage rates, have been falling as financial traders have anticipated that the Bank of England will cut interest rates several times in 2024.
The news should be welcomed by housebuilders such as Berkeley, which reported this morning that higher interest rates were hitting demand (see 8.26am).
Developer Berkeley INTERIM RESULTS show future sales have taken a tumble:
— Emma Fildes (@emmafildes) December 8, 2023
“The value of net reservations during the period is one 3rd lower than the comparative financial year, reflecting the sharp inc in interest rates and the ongoing elevated political and macro volatility.” pic.twitter.com/jaDtHdxZyB
Yesterday, Halifax reported that house prices rose last month as the slight easing in mortgage rates helped coax more buyers into the market.
Back in July, two-year fixed mortgage rates hit their highest levels since the financial crisis 15 years ago, putting more pressure on households, but rates began to drop as UK inflation fell.
Updated
UK public short-term inflation expectations drop
The UK public’s expectations for inflation in the coming 12 months has dropped to their lowest level for two years, new data shows, although longer-term expectations have risen.
A Bank of England survey showed on Friday that median expectations of the rate of inflation over the coming year were 3.3%, down from 3.6% in August.
But when asked about expectations of inflation in the longer term (such as in five years’ time), people expect inflation to average 3.2%, up from 2.9% in August.
Notably, people also believe inflation is higher than the official data. Asked to give the current rate of inflation, respondents gave a median answer of 7.5%, down from 8.6% in August 2023. According to the Office for National Statistics, inflation was 4.6% in October.
Dissatisfaction with the Bank of England has also fallen.
The central bank says:
Respondents were asked to assess the way the Bank of England is ‘doing its job to set interest rates to control inflation’. The net satisfaction balance, the proportion satisfied minus the proportion dissatisfied, was -14%, up from -21% in August 2023.
Bank of England/Ipsos Inflation Attitudes Survey - November 2023
— Adam Linton (@Adamlinton1) December 8, 2023
- Median expectations of the rate of inflation over the coming year were 3.3% vs. 3.6% in August
Of greater concern...
- 3% of respondents thought that interest rates had fallen over the past 12 months!!!…
The financial markets may react poorly if today’s US jobs report is either stronger, or weaker, than expected, warns Julien Lafargue, chief market strategist at Barclays Private Bank.
Lafargue explains:
“Recent data suggests that the US labour market is softening. As such, expectations going into today’s nonfarm payrolls release are skewed to the downside. A significant positive surprise would challenge the market’s consensus that interest rate cuts will materialise around the beginning of Q2 2024.”
“On the other hand, a significant disappointment could force the market to reassess its soft landing scenario. A number broadly in line with expectations would, in our view, probably be the most supportive outcome for stocks.”
Market expectations are for a 180,000 increase in jobs last month, stronger than October’s 150,000.
Another shareholder in e-commerce company THG is calling for the firm to be broken up.
Ophorst van Marwijk Kooy Vermogensbeheer (OVMK), which owns 2% of THG’s shares, says it is “disappointed” that the company is (it says) undervalued on the London stock exchange.
OVMK says:
We admire the way THG Plc has evolved since the company was founded. All three underlying divisions are high-quality players in their individual niche markets and excellently positioned for further growth.
We are, however, disappointed by the significant structural undervaluation of the company’s shares on the stock exchange, despite the improvements made to both the structure of the three separate entities and corporate governance.
We therefore agree that this is the right time to unlock value by examining the strategic options for each of the company’s three business units to maximize value for all shareholders.
THG’s shares are trading at 80p (+3.5%) today, and are up 85% this year. But they are languishing a long way below the 500p at which the company floated in September 2020, before briefly peaking over 800p in early 2021.
THG operates a beauty business, a nutrition business, and an e-commerce services platform called Ingenuity.
Earlier this week, activist investor Kelso Group urged THG to announce plans to break up its business and release value.
Spotify CEO departing after mass layoffs
Spotify is parting company with its chief financial officer, Paul Vogel, as it pushes to cut costs and lift profitability.
The music streaming company announed last night that Vogel will leave at the end of March, with an external search underway for a replacement.
The news comes just a few days after Vogel cashed in over $9m (£7.2m) of shares, after Spotify’s share price jumped as investors welcomed plans to cut its headcount by a sixth, as it announced on Monday.
Spotify’s founder, Daniel Ek, revealed that Vogel’s departure comes after “a lot” of discussion about how to grow the business while hitting spending targets, saying:
“Spotify has embarked on an evolution over the last two years to bring our spending more in line with market expectations while also funding the significant growth opportunities we continue to identify.
I’ve talked a lot with Paul about the need to balance these two objectives carefully. Over time, we’ve come to the conclusion that Spotify is entering a new phase and needs a CFO with a different mix of experiences. As a result, we’ve decided to part ways, but I am very appreciative of the steady hand Paul has provided in supporting the expansion of our business through a global pandemic and unprecedented economic uncertainty,”
Ek adds that Spotify hopes to hire “a strong financial leader as our next CFO”.
European stock markets have opened a little higher, as investors await the US non-farm payroll at 1.30pm UK time.
In London, the FTSE 100 is up 0.2% or 14 points to 7,527, led by grocery technology group Ocado (+3.6) and supermarket chain Sainsbury (3.1%).
Germany’s DAX is 0.2% higher, while France’s CAC has gained 0.6%.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, says:
“The FTSE 100 has recouped some losses as the market holds its breath ahead of the US non-farm payroll report.
The data will help set the tone for next week’s Federal Reserve meeting, with growing hope that the US is ready to keep the pause button pressed on interest rate increases. A slowing jobs market would help cement this enthusiasm.”
Oil on track for 7th weekly fall in a row
In the energy market, the oil price is on track to post its seventh weekly fall in a row, despite a pick-up today.
Yesterday, Brent crude fell below $74 per barrel to the lowest since the end of June, pulled down by concerns that the global economy is weakening.
But it’s gained around 2% this morning, back to $75.50 per barrel, after Saudi Arabia and Russia urged other Opec+ members to join their agreement to cut output.
At the end of November, several Opec+ countries announced additional voluntary cuts to production, but that did not prevent oil continuing to drop in December.
Oil rebounded after a torrid run but remained on course for the longest weekly losing streak since 2018 on concerns about a global glut, with traders doubtful that supply cuts by OPEC+ will be effective.#EnergyConnects #news #OOTT #oilandgas #OPEC https://t.co/jSrF2JKUqX
— Energy Connects (@energyconnects_) December 8, 2023
Housebuilder flags subdued demand as reservations fall
UK housebuilder Berkeley Group has flagged that conditions in the UK property market remain subdued.
Reservations for private sales at Berkeley in the first half its financial year are running around one third lower than the levels secured throughout the 2022/23 financial year, it told shareholders this morning.
Berkeley blames the “sharp increase in interest rates from September last year”, following the mini-budget, and the ongoing elevated political and macro volatility.
It says the market should pick up, once it is clear that interest rates are heading lower:
During the last six months, macro volatility has increased, domestically and abroad, with the prospect of UK interest rates remaining higher for longer and weak economic growth projections.
Against this backdrop, the sales market lacks urgency and Berkeley’s net reservations for the six months to 31 October 2023 have been around a third lower than the average rate throughout FY23. We anticipate the sales market will remain subdued before inflecting in its normal cyclical manner once there is greater confidence in a downward trajectory for interest rates and economic stability returns.
Berkeley also reported a 4.6% rise in pretax profits for the six months to 31 October, to £298m.
But it build fewer houses – delivering 1,785 homes delivered, plus 204 in joint ventures, down from 2022’s 2,080 homes, plus 251 JVs.
There is a great deal of variability in hiring activity across UK regions and sectors, reports Neil Carberry, REC chief executive.
Carberry explains:
The Midlands and the North both saw strong performances for temporary and permanent roles, in sharp contrast with London and the South, with permanent hiring in London especially slow.
The ongoing stronger performance of the private sector on new vacancies is also a notable positive signal.
Carberry also warns that if there is a pick-up in hiring, it will add to the strains on the jobs market due to embedded labour shortages, adding:
…this week’s pro-election rather than pro-economy decision on immigration will exacerbate that.
Any return to growth could drive domestically-generated inflation unless we adopt a proper plan for workforce capacity, embracing better welfare-to-work support, finally reforming the Apprenticeship Levy, funding Further Education properly and the kind of support for school leavers suggested by today’s Broken Ladders report from EDSK and REED on the school-to-work transition.”
Introduction: UK starting salaries rise at slowest pace in nearly 3 years
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK salary growth is cooling as cautious employers cut back on their hiring plans.
Starting salaries paid to new staff rose at the slowest pace in 32 months in November, the latest poll of recruitment firms from KPMG and REC has shown.
Although there was still competition for candidates with sought after skills, recruitment firms reported that clients were under greater budgetary pressures.
This led to the slowest rise in permanent starters’ pay since March 2021, with starting salary inflation easing in all four monitored English regions, except the Midlands.
REC and KPMG also report that pay for temporary workers rose at the lowest rate in 33 months. Temporary wages actually fell in the North of England, but rose at the fastest pace in London.
That implies the UK labour market is weakening, a blow to workers, but it should cheer the Bank of England as it assesses whether interest rates are restrictive enough to bring down inflation to its 2% target.
Claire Warnes, a partner at KPMG, explains:
“Businesses want to plan for the year ahead, but the prospect of faltering UK economic growth means the certainty they need isn’t there. This is now impacting starting salaries.
Even temp staff billings - which have given much needed flexibility to employers in key sectors such as health & care and IT - are facing some contraction. And with the Bank of England looking like it will be keeping interest rates high for now, businesses will need to stay resilient to manage this period of flux.”
The report also found that hiring slowed again in November, while the number of vacancies dropped for only the second time since February 2021.
This led to the largest rise in available candidates for almost three years. Here’s the full story:
Also coming up today
The US jobs market will also be focus as investors await the final non-farm payroll report of the year. November’s NFP is expected to show a pick-up in hiring, after a lull earlier in the autumn.
US payrolls are expected to have risen by 180,000 jobs, ahead of the 150,000 increase in October.
But wage growth could slow, with average earnings growth tipped to slow to 4% from 4.1%.
The NFP will be closely watched in the markets, as a gauge as to whether America’s central bank has lifted interest rates high enough to cool US inflation and pull off a ‘soft landing’.
The agenda
9am GMT: UN food inflation index for December
1.30pm GMT: US non-farm payroll report for November
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