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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Markets rally after US jobs report; G7 ministers back Russian oil price cap; pound under pressure – as it happened

United States Euro Recession United Kingdom Inflation
The US Federal Reserve in Washington, DC.
The US Federal Reserve in Washington, DC. Photograph: Mandel Ngan/AFP/Getty Images

Closing post

Time to wrap up, after a volatile week which has ended with gas prices falling, stocks rising, and the pound battling to stay above its March 2020 lows.

Here’s today’s main stories:

Markets have rallied on both sides of the Atlantic after the US added another 315,000 jobs in August.

The data shows the jobs market remained strong amid signs of a worsening economy, while the unemployment rate rose as more Americans looked for work.

Finance ministers from the Group of Seven advanced economies have agreed to implement a price cap on Russian crude oil and petroleum products.

Chancellor Nadhim Zahawi says the move will hurt Russia’s ability to fund the Ukraine war:

“We will curtail (Russian President Vladimir) Putin’s capacity to fund his war from oil exports by banning services, such as insurance and the provision of finance, to vessels carrying Russian oil above an agreed price cap,”.

Treasury Secretary Janet Yellen said it will deliver a major blow for Russian finances.

We have already begun to see the impact of the price cap through Russia’s hurried attempts to negotiate bilateral oil trades at massive discounts.

I look forward to working with our G7 allies – as well as new coalition partners – as we move quickly to finalize the implementation of the price cap in the weeks to come.”

Here’s the full story, by my colleague Alex Lawson:

The pound is heading towards its third weekly fall in a row, hit by recession fears and political uncertainty….

…while gas prices have fallen on hopes that Russia will turn on the Nord Stream 1 pipeline tomorrow after planned maintenance.

And global bonds have slumped into a bear market, 20%off their record high, as investors are spooked by rising interest rates as inflation soars/

In other news…

Selfridges is aiming for almost half its interactions with customers to be based on resale, repair, rental or refills by 2030 as the upmarket department store responds to increasing demand for more sustainable shopping.

Shell’s long-serving chief executive, Ben van Beurden, is reportedly preparing to step down next year after almost a decade in the role.

One of the UK’s biggest chicken producers has warned food security could be under threat and shoppers exposed to a “price shock” after a more than threefold surge in the price of carbon dioxide (CO2).

Waitrose has admitted to signing deals with landlords halting other supermarkets from opening nearby for a decade, after an investigation by the UK competition watchdog.

Credit Suisse is considering 5,000 job cuts as part of a broader restructuring plan meant to solidify the bank’s pivot towards wealth management after a string of scandals at its investment ban

One of Britain’s major intercity train operators, Avanti West Coast, is expected to part company with its boss a month after the company admitted it was unable to run its timetabled services.

And Laxman Narasimhan has a lot on his plate after swapping the CEO’s seat at Reckitt Benckiser for the same role at Starbucks:

Have a lovely weekend, we’ll be back on Monday…..GW

Updated

Liverpool port workers to strike over pay

More than 560 dockworkers at the Port of Liverpool, one of Britain’s largest container ports, will hold a two-week strike in a pay dispute.

The walkout will begin on September 19th, and run until October 3rd, the Unite union says, after staff rejected a 7% pay rise.

Unite general secretary Sharon Graham says the port’s owner, MDHC, can ‘well afford’ to give staff a proper pay rise, not a real terms pay cut.

“Workers across the country are sick to death of being told to take a hit on their wages and living standards while employer after employer is guilty of rampant profiteering.

MDHC needs to think again, table a reasonable offer and fulfil its previous pay promises.”

This adds to the lengthy list of workers taking strike action, including bus and train drivers, barristers, university staff, BT engineers, call centre staff and refuse workers.

Britain’s next prime minister has just weeks to agree and implement a serious package of measures to protect the UK economy.

My colleague Richard Partington has visited striking workers in Felixstowe, and worried councillers and small businesses in Ipswitch, and reports that soaring energy bills are causing alarm:

A few miles up the River Orwell, councillors in Ipswich have talked openly about whether rising energy bills could force the council to choose between shutting down the local swimming pool or the gas-fired crematorium this winter.

“Unfortunately, it’s actually quite an easy choice,” says Bryony Rudkin, the deputy leader of the Labour-run borough council. Allowing bodies to pile high is not something any politician could ever sanction, Rudkin says, even if people might want to use the leisure centre to avoid the rising costs of showering at home.

Those conversations have not yet moved beyond the hypothetical stage. But they demonstrate the mess Britain is in; as the consequences of austerity meet catastrophic energy bill rises – leaving Ipswich and towns like it unable to cope.

The council is looking at which of its public buildings could be used as warm banks, providing places of refuge for families struggling to keep the boiler running at home. Talks are being held with local churches and food banks, in a task complicated by the loss of £10m of central government funding since 2010.

“This is really biting,” says Rudkin. “Ipswich, like any town, is absolutely feeling the pinch.”

Here’s the full piece:

Food producer warns of ‘price shock’ as carbon dioxide price quadruples

One of the UK’s biggest chicken producers has warned food security could be under threat and shoppers exposed to a “price shock” after a more than threefold surge in the price of carbon dioxide (CO2).

Pig farmers, soft drink producers, brewers and bakeries are also being hit by the increase in the cost of the gas, which is used to stun animals before slaughter, as well as in packaging and as an ingredient.

Ranjit Singh Boparan, who owns 2 Sisters Food Group and the turkey processor Bernard Matthews, called on the government to take rapid action and consider price capping the CO2 market to ensure supply as the price rise would add £1m a week to his businesses’ costs.

There’s nothing Goldilocks-like about the latest US manufacturing data, though.

Factory orders fell 1% in July, much worse than the 0.2% gain expected, led by a 1.9% drop orders for non-durable goods.

That’s suggests weakening demand for manufactured goods, as economic growth weakens. But that could also cool the pressure on the Fed to tighten policy.

ING: August employment report paints a very positive pictur

It’s a “Goldilocks US jobs report” says ING’s chief international economist James Knightley.

There are broad-based jobs gain despite the US falling into a technical recession, with payrolls up 315,000.

And the unemployment rate picked up because more people were seeking a jobs, due to the rising cost of living and higher wages, together with rapidly receding Covid caution.

Knightley says:

The August employment report paints a very positive picture regarding the current state of the US economy with solid jobs growth yet signs that supply strains are easing as workers return to the labour force.

With wage growth coming in lower than expected it points to a slower pace of rate hikes after September’s expected 75 basis point move.

Yellen: oil price cap help deliver major blow for Russian finances

Although G7 finance ministers have agreed to “finalize and implement” a cap on the price of Russian oil, we don’t yet know what the cap will be, or which other countries might support it.

US Treasury secretary Janet Yellen says it will be implemented ‘in the weeks to come’, and hurt Russia’s finances [the US itself banned Russian oil imports back in March].

“Today, the G7 took a critical step forward in achieving our dual goals of putting downward pressure on global energy prices while denying Putin revenue to fund his brutal war in Ukraine.

By committing to finalize and implement a price cap, the G7 will significantly reduce Russia’s main source of funding for its illegal war, while maintaining supplies to global energy markets by keeping Russian oil flowing at lower prices. While we’ve seen energy prices ease in the United States, energy costs remain a concern for Americans and continue to be elevated globally. This price cap is one of the most powerful tools we have to fight inflation and protect workers and businesses in the United States and globally from future price spikes caused by global disruptions.

Today’s action will help deliver a major blow for Russian finances and will both hinder Russia’s ability to fight its unprovoked war in Ukraine and hasten the deterioration of the Russian economy. We have already begun to see the impact of the price cap through Russia’s hurried attempts to negotiate bilateral oil trades at massive discounts.

I look forward to working with our G7 allies – as well as new coalition partners – as we move quickly to finalize the implementation of the price cap in the weeks to come.”

Markets rally after US jobs report

Stocks have pushed higher as investors welcome today’s US jobs report.

The slightly stronger-than-expected jobs growth may ease concerns that the US risks a recession, while the slowdown in wage growth and higher unemployment rate may indicate inflation will cool off.

The Dow Jones industirla average has gained 157 points, or 0.5%, to 31,813 points in early trading.

In London, the FTSE 100 index of blue-chip shares has jumped 90 points, or 1.3%, recovering more of Thursday’s losses.

Bond prices have rallied too, pulling down yields, as traders anticipate that US interest rates may not be ratcheted up as fast as feared.

US jobs report: what the experts say

The 315,000 increase in US payrolls last month is good news, says John Leiper, chief investment officer at Titan Asset Management:

Non-Farm Payrolls takes on greater importance this week in the wake of Jerome Powell’s Jackson Hole speech. 315k new jobs added during the month is good news and came in slightly above our expectations.

Further, more people have rejoined the workforce and as a result wage growth came in lower than expected with average hourly earnings at 0.3% versus 0.5% in July. That’s higher than policy makers will be comfortable with but is moving in the right direction and plays into an emerging narrative that labour-driven inflation may be peaking.

Bottom line, these are positive numbers but will do little to change the 75bp versus 50bps rate hike. All eyes now turn to the next US inflation print on September 13th.

Janet Mui head of market analysis at wealth manager Brewin Dolphin, says Job creation remains relatively robust:

“The US unemployment rate surprisingly rose from 3.5% to 3.7% which is an uncomfortable read at first sight. However, it remains at a near historic low and was driven by an increase in labour force participation (meaning more people were in the labour force working or looking for work) which is good news for policymakers.

“Job creation remains relatively robust and above economists’ expectations, while wage growth is a tad slower than expected. Overall, this is a good set of data and underpins a resilient and tight job market.

Today’s report does little to change the Fed’s hawkish resolve but is modestly supportive of the peak US inflation narrative”.

Simon Harvey, Head of FX Analysis at Monex Europe, predicts that wage growth could come slow…which could ease the pressure to raise interest rates.

With economic conditions likely forcing more economically inactive individuals back into the labour market, today’s report suggests that downward pressure may soon start to be exerted on historically high wage growth.

Should this occur in subsequent labour market reports, it will ease the emphasis on the Fed to aggressively tighten policy, as they currently wish to reduce labour demand to diminish its effects on wage growth in an historically tight labour market, and in turn, the persistence of inflation.

Japan’s finance minister Shunichi Suzuki has welcomed the G7 financial leaders’ agreement that a price cap should be set on Russian oil exports.

Suzuki has called for the scheme to be implemented quickly, and told reporters in Toyko that the cap should help temper surging energy prices and inflation (via Reuters).

G7 finance ministers agree to Russian oil price cap

Finance ministers from the Group of Seven advanced economies have agreed to implement a price cap on Russian crude oil and petroleum products.

G7 ministers have confirmed the decision in a joint statement.

The initial price cap will be based on range of technical inputs and the price level will be revisited as necessary, said the ministers, adding:

“We aim to align implementation with the timeline of related measures within the EU´s sixth sanctions package.

The moveis aimed at slashing revenues for Moscow’s war in Ukraine but keeping crude flowing to avoid price spikes.

UK chancellor Nadhim Zahawi has said the move will curtail Vladimir Putin’s ability to fund the Ukraine war, reports Sky News’s Tamara Cohen.

“We will curtail (Russian President Vladimir) Putin’s capacity to fund his war from oil exports by banning services, such as insurance and the provision of finance, to vessels carrying Russian oil above an agreed price cap,”.

Here’s some great snap reaction and analysis to the US jobs report:

Full story: The US added another 315,000 jobs in August

The US added another 315,000 jobs in August as the jobs market remained strong amid signs of a worsening economy.

The US jobs market lost 22m jobs in early 2020 at the start of the pandemic but roared back after the Covid lockdowns ended. It has remained strong despite four-decade high rates of inflation and slowing economic growth. In July, the US unexpectedly added 528,000 new jobs, restoring employment to pre-pandemic levels.

The unemployment rate ticked up to 3.7% in August from 3.5% in July but is still close to a 50-year low.

The remarkable strength of the jobs market has spurred the Federal Reserve to sharply increase interest rates in the hopes of cooling the economy and bringing down prices.

US wage growth slowed last month too.

Average average hourly earnings for all employees on private nonfarm payrolls rose by 0.3% in August, down from 0.5% in July.

That left annual earnings growth unchanged at 5.2%, meaning wages are still lagging behind inflation.

The 315,000 increase in nonfarm payroll employment means there are 240,000 more people in work than in February 2020, before the pandemic.

The BLS says:

Nonfarm employment has risen by 5.8 million over the past 12 months, as the labor market continued to recover from the job losses of the pandemic-induced recession.

More Americans returned to the labor market last month, either finding jobs or looking for them.

This lifted the labor force participation rate by 0.3 percentage points, to 62.4%.

It will also have pushed up the unemployment rate.

Updated

There were “notable job gains” in America’s professional and business services, health care, and retail trade last month, says the Bureau for Labour Statistics.

But, the BLS also reports that the unemployment rate rose by 0.2 percentage point to 3.7%, with the number of unemployed persons rising by 344,000 to 6.0 million.

Last month, the unemployment total has dropped back to its pre-pandemic lows.

Updated

Non-Farm Payroll: US job creation slows

Just in: Job creation across the US slowed last month.

August’s non-farm payroll rose by 315,000, a slowdown from July when there were 526,000 new hires.

But it is slightly more than expected, with economists expecting 300,000 new hires, as firms continued to take on staff despite signs of economic slowdown.

The US unemployment rate has risen, to 3.7% from 3.5% in July.

Updated

Back in the UK, Amazon workers at a Coventry warehouse have voted they are ready to take strike action over pay.

The GMB union reports that more than 300 workers voted in the consultative ballot at the fulfilment centre in the West Midlands, with 97 per cent saying they were ready to walk out.

There have been protests at several Amazon sites, after staff were offered pay rises of between 1% and 3%, which worked out at 35p per hour.

Russia is attempting, but failing, to by-pass Western sanctions on high-tech goods for military purposes and its energy sector, US State Department sanctions coordinator James O’Brien says.

On a visit to Brussels today, O’Brien told reporters that sanctions were working:

“We know Russia is trying to obtain equipment and finance. We don’t think it’s doing well.”

O’Brien added that Russia is substituting lower-quality items for high-end equipment, which won’t be as effective.

We see a lot of substitution of lower-quality items: consumer-grade electronics for military-grade targeting and communications equipment,”

If they want to try to use it for a purpose it’s not intended for, that’s great do-it-yourself, but not a way to run a modern armed conflict or an economy.”

Credit Suisse is considering 5,000 job cuts as part of a broader restructuring plan meant to solidify the bank’s pivot towards wealth management after a string of scandals at its investment bank.

Speculation over the scale of the job cuts has swirled since Credit Suisse unexpectedly replaced its chief executive Thomas Gottstein in July, after a tumultuous two-year tenure beset by financial losses, controversies and high-profile lawsuits. More here.

Pound heads for another weekly loss

The pound is heading for its third weekly loss in a row.

Despite modest gains this morning, sterling is down 1.5% against the US dollar this week, having hit a 29-month low of $1.15 yesterday.

Economic gloom and political uncertainty are both hitting sterling, with concerns that Liz Truss’s economic policies could drive up inflation if she succeeds Boris Johnson.

Chris Beauchamp, Chief Market Analyst at IG Group, explains:

Tory PM frontrunner Liz Truss faces the mother of all policy headaches next week if she becomes PM, as seems to be universally expected. Her hints of a wide-ranging programme of tax cuts and pauses in new green levies will help hard-pressed consumers in some ways, but also risk stoking inflation in a manner that threatens to force the BoE’s hand when it comes to rate rises.

And the falls in sterling have been steadily nullifying much of the effect on inflation produced by rate increases, leaving policymakers with a host of problems to overcome.

Updated

Gas prices falling back

European gas prices have continued to fall back, on signs that the Nord Stream 1 pipeline will resume operations tomorrow as planned.

Operator data on requests for gas on the Nord Stream 1 pipeline from Russia to Europe suggest flows should resume from Saturday morning, when Gazprom has said maintenance work will be completed.

That’s helped to push gas prices down today, adding to gains this week after Europe made faster progress than expected filling its gas reserves.

Gas prices are shrugging off the Kremlin’s warning that Nord Stream 1 is unreliable due to only having one working turbine (see earlier post), and the possiblity of disruption to supplies if Brussels agreed on a price cap for Russian gas.

The European benchmark Dutch wholesale gas contract for October is down 7.5%, while the December contract fell 10%.

UK gas prices remain lower too, with the day-ahead wholesale contract down 15% at 288p/therm, the lowest since 10th August.

Gas for delivery in October is down 13% at 420p/therm, down a quarter on last month’s peak.

But….those nomination figures for the Nord Stream 1 gas pipeline that suggest gas could flow again from Saturday should be viewed with caution, a German economy ministry spokesperson has said.

The nominated amount can still change, the spokesperson told a regular government news conference on Friday.

“Things will become clearer over the course of Saturday morning, we can only closely watch the situation.

Why global bonds are in a bear market

Soaring inflation around the world and renewed commitment from central bankers to control it – even if it leads to unemployment and a hit to economic growth – has caused investors to flee from bonds at a record rate, says Sam Benstead, fixed income specialist at Interactive Investor.

That pushed global bonds have fallen into a bear market, 20% off their record high.

Benstead explains:

The recent turning point was Fed chair Jerome’s Powell’s comments at the Jackson Hole central bankers’ summit two weeks ago.

Referencing stubborn inflation in the 1970s that was only stamped out in America by increasing interest rates to 20%, Powell said “we will keep at it until we are confident the job is done”.

His statements suggest that interest rates in the US will be higher for longer and a much anticipated “dovish” pivot is not imminent, which would have sparked a recovery in bond and stock markets.

This comes as some inflation forecasts in Britain have topped 20%, with the pound falling 16% versus the dollar over the past 12 months.

A new prime minister will be announced next week, with front-runner Liz Truss pledging to cut taxes and increase spending, all fuelled by borrowing.

This is adding to the negative sentiment among bond investors, who are already worried about the UK economy and are unwilling to lend to the UK government at rock-bottom rates.

Buyers of UK government bonds have been hammered this year, but the worst could still be to come as higher energy bills hit consumers and businesses, and a weak pound hurts importers, all leading to higher inflation.

Markets are now betting that interest rates will top 4% in Britain next year, from 1.75% today, in a bid to control inflation.

Updated

Russian ex-president Dmitry Medvedev has said Russia would turn off gas supply to Europe if Brussels pushes ahead with a price cap on Russian gas.

Responding to this morning’s comments by European Commission head Ursula von der Leyen about putting a ceiling on the price Europe pays for Russian gas, Medvedev wrote on the Telegram messaging app:

“There will simply be no Russian gas in Europe.”

Europe needs a price cap on Russian pipeline gas, says EU chief

The time has come to establish a price cap on Russian pipeline gas flowing to Europe, European Commission chief Ursula von der Leyen has said today, via Reuters.

Such a cap would help fight back against Russian President Vladimir Putin’s attempts to manipulate the European energy market, von der Leyen said.

Speakig on the sidelines of a meeting of German conservative lawmakers in the town of Murnau, von der Leyen said:

“I firmly believe that it is now time for a price cap on Russian pipeline gas to Europe.

Kremlin warning on Nord Stream 1 reliability

The Lakhta Centre business tower, the headquarters of Russian energy corporation Gazprom, in St. Petersburg.
The Lakhta Centre business tower, the headquarters of Russian energy corporation Gazprom, in St. Petersburg. Photograph: Anatoly Maltsev/EPA

Kremlin spokesman Dmitry Peskov has also warned that the reliability of the Russian Nord Stream 1 gas export pipeline is under threat.

Peskov says that one turbine is operational at the key compressor station, which is currently closed for a three-day maintenance outage.

Nord Stream 1, which connects Russia and Germany, was only operating at 20% capacity before Wednesday’s temporary shutdown, which Russia blamed on faulty or delayed equipment.

According to Bloomberg, Gazprom has said the only functioning turbine at Nord Stream’s entry point must undergo technical maintenance every 1,000 hours. That’s about every 42 days, with the next checks due in mid-October.

Updated

Russia says it will stop selling oil to countries that impose price cap

The Kremlin has hit back at the G7’s push for curbs on Russian oil prices (see earlier post).

Kremlin spokesman Dmitry Peskov told reporters in a conference call that Russia would stop selling oil to countries that impose price caps.

“Companies that impose a price cap will not be among the recipients of Russian oil.

“We simply will not cooperate with them on non-market principles.

Deputy Prime Minister Alexander Novak made a similar pledge yesterday.

Updated

The US Federal Reserve is set for several more rate rises before the year is over, predicts Mark Haefele, chief investment officer at UBS Global Wealth Management.

“We maintain our view that the Fed will raise rates by a further 100bps by year-end, with risks for more if inflation does not slow in line with our forecasts.

With rates likely to stay higher for longer, our base case is for further volatility, earnings downgrades, and higher-than-expected default rates over the course of next year.”

US rates are now in a target range of 2.25%-2.5%, after two large rises of 75bp (basis point) rises at the Fed’s last two meetings.

“This is the worst year in history by far for fixed income,” says Lawrence Gillum, fixed income strategist for LPL Financial.

“If that’s not a bear market in bonds I don’t know what is.”

[bonds are classed as ‘fixed income’, because bond-holders receive a regular fixed payment, or ‘coupon’, until the debt matures and the face value of the bond, or the ‘principal’, is repaid]

Updated

The changes in the US government debt market in the last year are quite dramatic, helping push global bonds into bear-market territory.

The yield on two-year Treasury bonds has hit its highest level since late 2007, at the start of the financial crisis. It’s jumped to 3.5%, up from just 0.2% a year ago.

The yield, or interest rate, on two-year US Treasury bills
The yield, or interest rate, on two-year US Treasury bills Photograph: Refinitiv

Bond yields rise when prices fall, and this year’s selloff came as the US Federal Reserve abandoned its hope that inflation would be ‘transitory’, and cracked on with a series of sharp interest rate increases.

That tightening isn’t over yet, with another hike expected this month.

Global bonds tumble into 'first bear market in a generation'

The selloff in government debt has driven the global bond market into its first bear market in over three decades, Bloomberg reports.

Bloomberg’s Global Aggregate Bond Index, which tracks government and investment-grade corporate bonds, has now fallen more than 20% from its 2021 peak, following the latest pressure from central bankers trying to grip inflation.

That’s the index’s biggest drawdown since its inception in 1990.

Bond prices have been weakening steadily this year, driving up the yield (or interest rate) on sovereign debt. Within inflation soaring, and interest rates rising, investors have been demanding a higher rate of return.

Last Friday’s hawkish speech by Federal Reserve Chair Jerome Powell at the Jackson Hole symposium, when he vowed to keep fighting inflation, has triggered fresh losses this week.

Bloomberg says:

“I suspect that the secular bull market in bonds that started in the mid-1980s is ending,” said Stephen Miller, who’s covered fixed income since then and now works as an investment consultant at GSFM, a unit of Canada’s CI Financial Corp. “Yields aren’t going to return to the historic lows seen both before and during the pandemic.”

The elevated inflation the world now faces means central banks won’t be prepared to re-introduce the sort of extreme stimulus that helped send Treasury yields below 1%, he said.

The selloff has undermined one of the main investing strategies, that investors seek out bonds when they’re nervous, and shares when they’re optimistic. That’s the basis of the classic 60/40 portfolio (60% of funds in equities for capital growth and dividends, and 40% in bonds which pay a fixed-income).

Both bonds and stocks have slumped this year – Bloomberg’s bond gauge is down 16% in 2022, while MSCI Inc.’s index of global stocks has lose 19%.

UK gilts certainly haven’t been immune. Benchmark 10-year UK government bonds had their worst month since the 1980s, with yields at the highest since 2014.

Updated

Shell boss Ben van Beurden prepares to stand down, reports say

Shell’s long-serving chief executive, Ben van Beurden, is preparing to step down next year after almost a decade in the role, according to Reuters.

The London-headquartered energy company has shortlisted four internal candidates to take his place after months of succession planning efforts that were accelerated once Sir Andrew Mackenzie became Shell’s chair in May 2021.

Van Beurden, who took over in 2014, would leave Shell in the middle of the most severe energy crisis of his tenure, which has subsequently pushed the oil and gas giant’s profits to record highs.

The energy boss, who was paid €7.4m (£6.1m) in 2021, warned earlier this week that gas shortages in Europe would probably last several years, raising the prospect of continued energy rationing.

Van Beurden could be replaced by the Canadian head of Shell’s integrated gas and renewables division, Wael Sawan, who is said to be the frontrunner in Shell’s search for a successor….

Here’s the full story:

World food prices fall as Ukraine grain shipments resume

World food price fell back in August for the fifth month in a row, helped by the resumption of grain exports from Ukrainian ports.

The United Nations food agency’s world price index fell further away from its record highs earlier this year, as commodity food price eased.

International wheat prices fell by 5.1%, which the UN says was:

….driven by improved production prospects, especially in Canada, the United States of America and the Russian Federation, and higher seasonal availability as harvests continued in the northern hemisphere as well as the resumption of exports from the Black Sea ports in Ukraine for the first time in over five months of interruption.

Vegetable oil prices fell 3.3%, due to lower world prices of palm, sunflower and rapeseed oils.

Dairy prices dropped 2%, with weak demand hitting butter and milk powders.

Meat fell 1.5%, driven by poultry and meat.

Sugar dropped 2.1%, following “an increase in the sugar export cap in India, and lower ethanol prices in Brazil, which raised expectations of a greater use of sugarcane to produce sugar”.

UN world food index
UN world food index Photograph: UN

Updated

Germany was hit by a decline in trade in July, as Europe’s largest economy continues to be buffeted by the energy crisis, and the wider disruption from the Ukraine war.

German exports were down by 2.1% month-on-month in July, while imports fell 1.5% compared with June, lowering Germany’s trade surplus.

Trade with Russia were hit by sanctions, with exports down 15% in the month, and 55% less than a year ago, while imports from Russia fell 17%.

This decline in trade adds to concerns that Germany could fall into recession, says Carsten Brzeski, ING’s global head of macro.

Trade is no longer a growth driver but has become a drag on German growth. Since the second quarter of 2021, the growth contribution of net exports has actually been negative.

Global supply chain frictions, geopolitical risks and rising production costs are the obvious drivers behind this new trend. Looking ahead, the outlook for German trade is mixed. There is some relief in supply chains and transportation costs.

However, at the same time, low water levels, high energy prices and the possible fundamental change in supply chains and production processes on the back of geopolitical uncertainty will be clear obstacles to growth.

UK and European gas prices have dropped in early trading, away from the highs in late August in the scramble to secure supplies before winter.

The Dutch wholesale contract for weekend delivery has fallen 21.5%, while the British equivalent is down 10%.

The UK month-ahead contract is down 5% at 455p per therm, but still over three-times higher than a year ago when it was around 130p.

BCC: UK going into recession now

The British Chambers of Commerce has forecast that the UK will enter into a recession before the end of 2022 (highlighting the pressures on the pound).

Baroness Ruby McGregor-Smith, president of the BCC, told BBC Radio 4’s Today programme that small firms, in particular, need more support.

We still believe, currently, that we are going into recession now.

“We’ve just put out an economic forecast today that talks about that. But all these measures will start to change that because the challenge for us is, we’re not just talking about big businesses, many of whom are going to really, really struggle.

“We’re talking about more and more and more SMEs, which are the lifeblood of our economy. So they need more support now, as they did during Covid. This for us is no different.”

Baroness McGregor-Smith also warned that two-thirds of pubs may have shut their doors this winter (as flagged earlier).

Updated

After four days of losses, the UK’s blue-chip share index has opened a little higher this morning.

The FTSE 100 index is up 35 points, or 0.5%, clawing back a little of Thursday’s 1.8% slide. Oil giants BP and Shell, and retailer JD Sports, are among the risers.

But UK housebuilders, a bellwether of domestic economic confidence, are falling, after HSBC slashed its share price targets. Berkeley Group (-4.7%), Barratt (-3.5%), Persimmon (-2.1%) and Taylor Wimpey (-1.6%) are the top fallers.

UK house prices are likely to stall next year as inflation continues to bite and mortgage rates rise.

But tenants will continue to be hit by rising rental prices, despite the squeeze on their finances.

That’s a prediction from estate and letting agent Hamptons; it forecasts prices to be unchanged in the fourth quarter of 2023 compared with the same period in 2022.

Sales are expected to be hit next year too, as rising interest rates deter first-time buyers, but 2024 could be a “year of recovery”.

Despite affordability issues for tenants, Hamptons said it expects rents will rise by 5% annually next year and in 2024, before slowing slightly to 4% in 2025.

The report said:

“Lower rental yields in London will make it harder for landlords to absorb rising costs than their counterparts in the North.

“This is why we think the supply of rental homes in the capital looks set to shrink further, pushing up rents.”

If so, that’s another blow to tenants. Last month, homeless charity Shelter warned that private tenants in London are facing “increasingly unaffordable” rents, due to high demand and a shortage of properties in the capital.

Celebrity chef Tom Kerridge has revealed that the annual energy bill at his pub has soared from £60,000 to £420,000 – as the hospitality sector faces a “terrifying landscape”.

He told The Telegraph that “at the minute it’s a hugely volatile marketspace”, adding:

“There’s no way that businesses are going to be able to absorb four, five, six hundred per cent price increases.”

Speaking to the BBC, Mr Kerridge said one of his pubs has a monthly electricity bill of £5,000 – but this is set to soar to £35,000 in December when a tied contract ends.

Kerridge certainly isn’t alone. Earlier this week, brewery bosses warned that thousands of pubs face closure without urgent government support to soften the blow from soaring energy bills.

One survey has found that more than 70% of pubs didn’t expect to survive the winter without help to ease energy costs.

Finance ministers from the Group of Seven are expected to firm up plans on Friday to impose a price cap on Russian oil aimed at slashing revenues for Moscow’s war in Ukraine, Reuters reports.

The ministers from the club of wealthy industrial democracies are due to meet virtually, and could issue a communique that lays out their implementation plans.

The aim, G7 officials say, is to keep crude flowing to avoid price spikes.

Here’s the details:

“A deal is likely,” a European G7 official said, adding that it was unclear how much detail would be revealed, such as the per-barrel level of the price cap, above which complying countries would refuse insurance and finance to Russian crude and oil product cargoes.

British Finance Minister Nadhim Zahawi said on Thursday in Washington that he was hopeful that G7 finance ministers will “have a statement that will mean that we can move forward at pace to deliver this.”

“We want to get this oil price cap over the line,” he told a think tank event in Washington a day after discussing the cap with U.S. Treasury Secretary Janet Yellen.

Yellen is also pushing for a price cap on Russian oil – she warned that failure to agree a deal would hurt the global economy.

Updated

Engie CEO: Energy markets are facing a turning point

Europe’s energy sector is going through an “exceptional crisis”, the chief executive of France’s leading gas importer Engie has warned.

“The world of energy as we have known it won’t ever be the same again,” Catherine MacGregor told RTL radio, explaining that curbs to Russian energy imports and the shift towards green energy were a ‘turning point’.

Tensions between France and Russia escalated this week when Gazprom said it would cut supplies to Engie, in a row over contracts.

Asked if Engie, France’s main gas supplier to households, may face a gas shortage this winter, MacGregor said she was “very confident that we will make it”, unless particularly severe weather conditions lead to an unusually high demand.

“This is why the message of energy sobriety remains extremely important”.

More here: Engie CEO: Energy markets are facing a turning point

The severety of winter is a key factor determing whether Europe can get through the next few months without gas rationing and blackouts – as it whether Russian gas supplies are stopped.

European wholesale gas price have dropped back from August’s record highs this week, but remain sharply higher than before the Ukraine war.

Gazprom’s Nord Stream 1 is due to reopen on Saturday, after three days of maintenance.

Introduction: Pound under pressure as recession looms

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

The pound is at risk of hitting its lowest level against the US dollar in 37 years, as a looming recession, rocketing inflation and political uncertainty hit the currency.

Last night, sterling sank to just $1.15 against the US dollar, making a weak start to September – after its worst month against the greenback since shortly after the Brexit referendum.

It is approaching the Covid crash low of just over $1.14 in March 2020, which was the worst level since 1985.

The pound vs the US dollar in the last five yers
The pound vs the US dollar in the last five yers Photograph: Refinitiv

Predictions that Britain is falling into recession as storm clouds gather over the economy have hit demand for UK assets.

Warnings that Britain faces a ‘frankly terrifying’ cost of living squeeze as inflation rises over 10%, also weighed. Real wages are expected to hit their lowest level since 2003, wiping out 20 years of growth.

A weak currency will push up the cost of importing goods, adding to the pressures on UK businesses – on top of soaring energy bills, raw material costs, and ongoing supply chain disruption.

The pound isn’t alone in struggling against the US dollar. The greenback hit a 20-year high against a basket of currencies yesterday, after economic data suggested America’s Federal Reserve would keep hiking interest rates into 2023.

As Jim Reid of Deutsche Bank points out:

The reverse picture was that the Euro fell back beneath parity against the dollar, and the Japanese yen fell to 140 per dollar for the first time since 1998.”

But, the pound has also lost ground against the euro in recent weeks, as soaring eurozone inflation is likely to prompt the European Central Bank to raise interest rate sharply.

Sterling is currently trading around €1.158, compared with almost €1.20 at the start of August.

The pound vs the euro over the last five years
The pound vs the euro over the last five years Photograph: Refinitiv

Kit Juckes, currency expert at Société Générale, says:

Sterling has been helped by rising short-term rates in recent weeks. However, with more and more ECB council members pushing the idea of a 75bp hike next week, sterling’s support is waning.

Meanwhile, higher Gilt yields aren’t so helpful when people see them as the price the UK pays to suck in huge amounts of money needed to balance the budget in the months/years ahead.

The UK economy is in recession, the balance of payments is catastrophic and more/faster rate hikes won’t do much to restore confidence.

Also coming up today

Investors are poised for the latest US jobs report, which could show a slowdown in hiring last month. The Non-Farm Payroll is expected to have risen by around 300,000 in August, after 528,000 in July.

We’ll also hear how UK construction firms fared last month, and how fast factory gate prices are rising in the eurozone.

The agenda

  • 7am BST: German trade balance for July

  • 9.30am BST: UK construction PMI report for August

  • 10am BST: Eurozone PPI measure of producer prices inflation

  • 1.30pm BST: US non-farm payroll employment report for August

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