Eurozone unemployment hits joint record low; UK election could prompt bond turmoil – business live | Business

Eurozone unemployment dips to joint record low

Unemployment in the eurozone has fallen unexpectedly to a joint record low, suggesting Europe’s jobs market remains strong despite the weak growth in the region.

The jobless rate in the eurozone dipped to 6.4% last November, new data from Eurostat shows, down from 6.5% in October, matching the record low set in June.

A year earlier, the unemployment rate was 6.7%.

Economists had expected the eurozone unemployment rate to remain unchanged in November, after the economy shrank by 0.1% in the third quarter of last year.

During November, eurozone unemployment dropped by around 99,000 in the eurozone, to 10.97m.

In the wider European Union, the unemployment rate slipped to 5.9% in November 2023, from 6% in October.

📅 Eurozone Unemployment Rate beating the analyst’ expectations at 6.4% to 6.5% forecasted.

Monitoring unemployment rates closely as a key economic indicator, their decline signals potential growth, while a persistent rise may pose challenges to overall economic health; a…

— Nova Peak Capital (@NovaPeakCapital) January 9, 2024

Falling unemployment should help workers find jobs and negotiate pay rises, which may deter the European Central Bank from considering cuts to interest rates soon (especially as inflation rose in December, to 2.9%).

Key events

Bond trading giant PIMCO has published its latest economic outlook for the next six to 12 months today.

PIMCO warns that the economic resilience of 2023 will give way to stagnation in 2024, and that recession risks are elevated – even though central banks are trying to achieve a soft landing.

They warn that central banks could cut rates more aggressively than the markets expect, and point out that the UK and Europe are more interest-rate-sensitive than the US, and are also vulnerable to weak growth in China.

Here are the key points:

  • After major economies showed surprising resilience in 2023, we anticipate a downshift toward stagnation or mild contraction in 2024. The standout strength of the U.S. is likely to fade over our six- to 12-month cyclical horizon.

  • After a rally across many financial markets in late 2023, riskier assets appear priced for an economic soft landing and may be underestimating both upside and downside risks.

  • With attractive valuations and yields still near 15-year highs, fixed income markets can offer an array of opportunities with the potential to weather multiple macroeconomic scenarios.

  • In credit markets, we continue to favor U.S. agency mortgage-backed securities and other high quality assets backed by collateral, which offer both attractive yields and downside resiliency.

  • We expect to be broadly neutral on duration after the most recent bond-market rally, which has brought global yields back in line with our expected ranges, and amid the shifting balance of inflation and growth risks.

Dow Jones in red as Boeing falls again

Stocks are losing ground on Wall Street in early trading.

The Dow Jones industrial average has shed 269 points, or 0.7%, down to 37,413 points.

Boeing is the top faller, down 1.8%, as the crisis at the aeroplane-maker continues.

Overnight, both Alaska Airlines and United reported they had found loose parts on multiple Boeing 737 Max 9 aircraft, following the mid-air blowout of a door plug on one flight last Friday.

27 of the 30 stocks on the Dow are in the red, as investors continue to fret that interest rates may not be cut as quickly as hoped.

Fiona Cincotta, senior financial market analyst at City Index, explains:

Attention remains on inflation data, which is due later this week and will offer further clues about the Federal Reserve’s path for interest rates.

Federal Atlanta Fed president Raphael Bostic, a voting member this year, said he sees the first cut in the third quarter and leans towards keeping rates high while inflation is above 2%. His hawkish comments have weighed on stocks and boosted the US dollar.

World economy facing “weakest half-decade of growth in 30 years”

Larry Elliott

Newsflash: the World Bank has warned that the global economy is set to slow for a third successive year in 2024 and is now on course for its weakest half-decade of growth since the early 1990s.

The Washington-based organisation said poor countries were being especially hard hit by a series of setbacks since the arrival of the Covid pandemic and there was a risk that the 2020s would be a “wasted” decade.

The Bank’s half-yearly global economic prospects (GEP) – which concentrates primarily on the performance of developing and low-income countries – found an uneven picture in the recovery period since much of the world was shut down in 2020.

Indermit Gill, the World Bank’s chief economist, said by the end of 2024 all developed economies would have higher income per head than before the pandemic, as against two-thirds of low income countries and less than half of fragile or conflict countries.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” Gill said, adding:

“Near-term growth will remain weak, leaving many developing countries – especially the poorest – stuck in a trap: with paralysing levels of debt and tenuous access to food for nearly one out of every three people.

That would obstruct progress on many global priorities.”

More here.

UK bond sale sees record demand

There’s no immediate sign that bond vigilantes are shunning the UK, though.

In fact, a British government bond auction today has attracted the strongest demand since April 2020.

The sale of £2.25bn of UK 20-year bonds attracted bids for 3.62 times the volume of gilts on offer. Reuters says makes this the most over-subscribed auction since a sale of 20-year gilts early in the pandemic, when investors were very keen to buy safe assets.

High demand is good news for the government, as it can choose the most attractive bids on offer.

The 2043 gilt sold at an average yield of 4.391%.

Macron, Zelenskiy, Herzog, Qiang, Milei and von der Leyen to attend Davos, but no Sunak?

The list of top global leaders attending Davos next week for the World Economic Forum has just been released.

France’s Emmanuel Macron, Ukraine’s Volodymyr Zelenskiy, and Ireland’s Leo Varadkar will be rubbing shoulders at the ski resort with China’s premier Li Qiang, European Commission president Ursula von der Leyen and Argentina’s new leader Javier Milei.

However, Rishi Sunak is not on the list, suggesting the UK PM could be planning to swerve Davos again (as he did last year too).

The theme of this year’s Davos is “Rebuilding Trust”, but the event will be overshadowed by conflict in the Middle East, as well as in Ukraine.

Several Middle Eastern leaders will attend, including Israel’s president Isaac Herzog, Qatar’s PM Mohammed Bin Abdulrahman Al Thani, Jordan’s PM Bisher Hani Al Khasawneh, Iraq’s Mohammed Shyaa Al Sudani and Lebanon’s Najib Mikati.

The US delegation will include Antony Blinken, US Secretary of State; Jake Sullivan, US National Security Adviser, plus representatives from the Senate and House of Representatives.

WEF say that more than 60 heads of state and government are expected, including:

Li Qiang, Premier of the People’s Republic of China; Emmanuel Macron, President of France; Ursula von der Leyen, President of the European Commission; Javier Milei, President of Argentina; Han Duck-soo, Prime Minister of the Republic of Korea; Pedro Sánchez, Prime Minister of Spain; Viola Amherd, President of the Swiss Confederation 2024 and Federal Councillor of Defence, Civil Protection and Sports; Volodymyr Zelenskyy, President of Ukraine; Alexander De Croo, Prime Minister of Belgium; Gustavo Francisco Petro Urrego, President of Colombia; Kyriakos Mitsotakis, Prime Minister of Greece; Mohammed Shyaa Al Sudani, Prime Minister of Iraq; Leo Varadkar, Taoiseach of Ireland; Bisher Hani Al Khasawneh, Prime Minister of the Hashemite Kingdom of Jordan; William Samoei Ruto, President of Kenya; Najib Mikati, President of the Council of Ministers of Lebanon; Oyun-Erdene Luvsannamsrai, Prime Minister of Mongolia; Mark Rutte, Prime Minister of the Netherlands; Bola Ahmed Tinubu, President of Nigeria; Andrzej Duda, President of Poland; Mohammed Bin Abdulrahman Al Thani, Prime Minister and Minister of Foreign Affairs of the State of Qatar; Aleksandar Vučić, President of Serbia; Tharman Shanmugaratnam, President of Singapore; Ranil Wickremesinghe, President of Sri Lanka; Isaac Herzog, President of the State of Israel; Srettha Thavisin, Prime Minister of Thailand; Pham Minh Chinh, Prime Minister of Vietnam.

Sky News: Chancellor holds talks with City chiefs

Jeremy Hunt had reportedly held talks with some of the City’s top business leaders this morning, in a bid to inject fresh momentum into London’s stock market, and encourage more firms to float here.

According to Sky News, the chief executives of asset managers Abrdn and Schroders and their counterpart at HSBC Holdings were among those scheduled to attend a breakfast summit with the chancellor.

Sky says:

City sources said the objective of the meeting was to review existing initiatives aimed at boosting the competitiveness of UK equity capital markets following the Mansion House reforms unveiled last year by Mr Hunt.

Among the measures he announced last summer was a move to liberalise the rules governing the spectrum of assets in which pension funds can invest.

The London Stock Exchange has been hit by a number of prominent multinationals, including gaming group Flutter Entertainment, building materials company CRH and TUI, the tour operator, either cancelling their UK listings or drawing up plans to.

Revealed: The bosses of Abrdn, HSBC and Schroders met the chancellor this morning to discuss fledgling plans for a UK ISA aimed at bolstering investment in British companies amid concerns about the competitiveness of London’s public equity markets.

— Mark Kleinman (@MarkKleinmanSky) January 9, 2024

BlackRock warns of UK bond selloff risk in election year

There is a risk of a UK bond selloff this year, if political parties pledge giveaways in the run-up to the next general election, asset management giant BlackRock has warned.

Vivek Paul, BlackRock’s UK chief investment strategist, told Bloomberg that UK bonds could come under pressure if voters are promised looser fiscal policy – such as lower taxes.

Paul said:

“As inflation falls in the UK and we get closer to the general election date, major UK political parties may be more tempted to promise looser fiscal policy — the more this occurs, the greater the likelihood of the return of the bond vigilantes.”

“In the lead-up to this year’s UK election, we’re watching the fiscal policy stance.”

The Conservative party appear keen to fight the next election on the issue of tax; last weekend, Rishi Sunak said he wants to cut taxes for working people further this year, possibly cutting welfare payments to fund it.

Tax cuts could also be ‘funded’ by cutting investment, although that would be a short-sighted strategy.

Alternatively, lower taxes could lead to higher borrowing to cover the gap between the government’s income and spending.

Increased borrowing needs could push down bond prices, increasing the yield (or interest rate) on the debt, as investors demand a higher rate of return for buying UK debt.

The UK got a taste of this in September 2022, when the markets balked at the unfunded tax cuts in the mini-budget, sending bond yields soaring.

As BlackRock’s Paul points out:

“The shadow of the autumn 2022 UK gilt crisis still hangs over the pre-election debate so far.”

BlackRock is currently staying neutral on the UK’s government bonds, Bloomberg adds. More here.

Microsoft-OpenAI partnership could face EU merger investigation

Elsewhere in Europe, the European Commission could potentially launch a full-blown investigation into Microsoft’s $13bn investment in artificial intelligence developer OpenAI.

The EC says it is looking into some of the agreements that have been concluded between large digital market players and generative AI developers and providers, to examine the impact of these partnerships on market dynamics.

And Microsoft’s partnership with OpenAI is in its sights.

The EC says:

Finally, the European Commission is checking whether Microsoft’s investment in OpenAI might be reviewable under the EU Merger Regulation.

That investment was brought into the spotlight after the turmoil at OpenAI late last year, when founder Sam Altman was dramatically fired, and then reinstated a few days later after staff threatened to revolt.

Following the upheaval, Microsoft now has a non-voting observer seat on a newly assembled OpenAI board.

UK regulators are also concerned. Last month, the Competition and Markets Authority (CMA) began reviewing if the Microsoft-OpenAI partnership had resulted in “an acquisition of control”.

The EU says today it has launched two calls for contributions on competition in virtual worlds and generative artificial intelligence (‘AI’) and sent requests for information to several large digital players.

The calls for contributions on virtual worlds and generative AI are available here.

EU regulators join the UK in examining Microsoft’s OpenAI partnership. The European Commission is examining whether Microsoft’s $13 billion investment into OpenAI is reviewable under the EU merger regulation rules. Details 👇

— Tom Warren (@tomwarren) January 9, 2024

A significant increase in eurozone unemployment looks very unlikely over the coming quarters, says ING, given that employment expectations are rising again.

Peter Vanden Houte, ING’s chief economist for the eurozone, points out that the eurozone’s labour market remains historically tight.

Following this morning’s drop in eurozone unemployment to a joint record low, Vanden Houte explains:

Although the eurozone has been going through a soft patch with year-on-year GDP growth in the third quarter, and likely also in the fourth quarter, close to zero, this has not had any impact on the unemployment rate, which has fallen over the year. There have been several explanations for this.

The economic weakness has been predominantly in the manufacturing sector, while the more labour-intensive services sector has fared better. On top of that, there has been a preference for shorter work hours, negatively affecting productivity growth per employee and exacerbating the demographically-induced tightness in the labour market.

GMB: Workers at Amazon’s new Birmingham warehouse to strike

Back in the UK, the GMB union has announced that workers at Amazon’s new flagship warehouse in Birmingham have voted to join industrial action, just weeks after opening.

Workers at the Birmingham fulfillment centre will strike on Thursday 25 January, which is the anniversary of the first ever official strike action at a UK Amazon warehouse.

Amazon’s new £500m Birmingham fulfilment centre opened its doors at the end of 2023.

Amazon faced nearly 30 days of strike action in the last twelve months, the GMB says, with workers at its Coventry warehouse holding several days of industrial action in the last year.

However, it’s not clear that the Birmingham strike will involve many staff.

A source close to Amazon told Retail Week last month that “of the 2,000-plus employees at Sutton Coldfield, 34 are members and 19 have voted for strike action”.

The GMB are urging Amazon to recognise the union and end poverty pay.

Rachel Fagan, GMB Organiser, says:

“The industrial chaos Amazon faces isn’t going to disappear; it’s growing every day.

“We’re just weeks into the new year, but are already seeing the strike action spread to new Amazon workplaces.

Here’s Kamil Kovar, economist at Moody’s Analytics, on today’s eurozone jobless data:

#eurozone #unemployment rate ticked down in November on higher employment and lower number of unemployed.

Hard to see any ongoing or lingering collapse here, suggesting that the labor market (and economy) will continue on recent stagnant path, rather than drop in recession.

— Kamil Kovar (@CrisisStudent) January 9, 2024

That said, we don’t believe this is sign of strength: number of unemployed increase in 3 our of last 5 months, so even after decline in November it is no lower than in spring. Same for employment.

And this data is horribly noisy, so things can easily be revised upwards…

— Kamil Kovar (@CrisisStudent) January 9, 2024

Despite the drop in unemployment in November, the eurozone still has a youth unemployment problem.

There were 2.321 million young people (under the age of 25) unemployed across the euro area in November.

That follows a drop of 54,000 compared with October, which brought the eurozone unemployment rate down to 14.5% in November, from 14.8% a month before.

Compared with November 2022, youth unemployment actualy increased by 49,000 in the euro area.

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