A late update: The S&P 500 failed to hit that all-time high, as doubts emerged over whether Congress will actually pass a stimulus package.

The three US indices all closed in the red, led by a sell-off in tech stocks. Chipmaker AMD fell 6.5% while Apple lost almost 3%.

Shares turned south after Senate Majority Leader Mitch McConnell attacked his Democrat opponents, saying stimulus talks were currently stalemated.

Here’s the damage as the Wall Street closing bell rang:

• S&P 500: closed down 26 points or 0.8% at 3,333.69
• Dow Jones industrial average: closed down 104 points or 0.38% at 27,686
• Nasdaq: down 185 points or 1.69% at 10,782

Finally, European stock markets have ended the day with solid gains.

In London, the FTSE 100 finished at its highest level in over two weeks, up 103 points or 1.7% at 6154. Betting firm GVC finished top of the pile (+9.6%), along with airline group IAG (+8.4%), and broadcaster ITV (+5.8%).

But precious metals producers, pharmaceuticals firms, utilities and consumer goods makers dipped. Silver and gold producers Fresnillo (-6.6%) and Polymetal (-4%) led the fallers, along with pest control firm Rentokil (-2.2%) and water network operator Pennon (-1.7%).

Investors were moving money out of these more defensive stocks today and into riskier companies which might recover if the Covid-19 crisis eases.

Hopes of a working vaccine and a new US stimulus package seem to be driving this rotation, along with predictions of persistent low interest rates and vigorous money-printing.

European markets had an even stronger day, with Germany’s DAX up 2%, France’s CAC gaining 2.3% and Italy’s FTSE MIB jumping 2.8%.

It’s the same story in New York, where the Dow is up 1% and the S&P 500 is 0.5% higher and close to a record high, while the tech-focused Nasdaq is flat.

And... that’s probably all for today. Our summary of the UK jobs data is here.

Here’s a reminder of the main stories:

Goodnight. GW

Why are markets rallying when the coronavirus pandemic is still raging, debt levels are rising, profits have been hammered and many jobs have already been lost?

Peter Garnry, head of equity strategy at Saxo Bank, says investors are pricing in a ‘new world’ of low interest rates, low growth and very loose monetary policy.

In that world, equities (particularly companies with good free cash flow growth, like tech firms) are more valuable.

Garnry told clients today:

If investors are looking through a terrible Q2 earnings season and take the dividend futures curve at face value, what then are investors pricing? In our view, investors are pricing a new future which means stronger focus on fiscal impulse via monetization (“the magic money tree”), technology eating more of the world’s value, lower growth rates and lower yields for longer.

As we have talked about in recent research notes this creates an environment where large stable technology companies with high ROIC and predictable growth and free cash flow generation will be bid up in value to be bond proxies. This will accelerate equity market concentration to levels not seen since the 1970s with IBM in the lead.

All roads from here leads to inflation and one of the only asset classes that can protect investors is equities which have historically absorbed inflation well up to around 3.5% in inflation over a sustained period. As we have argued lately, the policy actions and the pricing of bonds leave investors with little choice than to race after equities, gold, real estate and other long duration assets.

Over in New York, stocks are heading closer to their record highs.

The S&P 500 index, which covers a broad swathe of America’s listed companies, has risen by 11.4 points or 0.34% to 3,371.89.

That’s its highest level since mid-February, when the index hit record highs just before the Covid-19 pandemic caused markets to crash.

The Dow Jones industrial average, which tracks 30 big-name companies, has also rallied - up 343 points or 1.2% to 28,134 points, its highest in nearly six months.

But tech stocks are dipping, pulling the Nasdaq down by 0.5%.

Just in: Prices for finished goods at the factory gate in America jumped last month, and by more than expected.

The US producer prices index rose by 0.6% month-on-month in July, more than reversing a 0.2% drop in June.

Economists had expected a rise of 0.3%, so this suggests inflationary pressures may be building faster than thought. It could lead to higher consumer prices, if retailers pass these increased costs on.

The Bureau of Labor Statistics reports that the July increase is the largest monthly rise since a 0.7% advance in October 2018. It was led by higher prices for both services (+0.5%) and goods (+0.8%).

On an annual basis, though, prices were still 0.4% lower than a year ago, following heavy cuts earlier this year.

Time for a quick recap of the main events.

The UK has suffered its biggest drop in employment since the last recession after the financial crisis. New figures from the Office for National Statistics show that the number of employees in the UK on payrolls is down around 730,000 compared with March 2020.

The ONS’s latest labour market survey found that employment is weakening, but officially unemployment is largely unchanged because more people are out of work but not currently looking for a job.

The ONS warned that older workers, self-employed staff and part-time employees are suffering most from the Covid-19 slump.

The decrease in employment on the quarter was the largest quarterly decrease since May to July 2009 with both men and women seeing decreases on the quarter. The quarterly decrease in employment was also driven by workers aged 65 years and over, the self-employed and part-time workers.

Meanwhile full-time employees largely offset the decrease.

The ONS also found that:

• The number of people in employment in April-June fell by 220,000, to 32.92m
• Average earnings are falling, with basic pay shrinking for the first time since at least 2001
  
• Vacancies have risen...
• ....but so have redundancies
• Hours worked has continued to fall, reaching record lows both on the year and on the quarter.
• Around 7.5m workers were furloughed as of June 2020, having their wages largely subsidised by the government
• There were also around 300,000 people away from work because of the pandemic and receiving no pay in June 2020.

Economists warned that the unemployment rate will rise sharply this autumn, while unions urged the government to extend its jobs retention programme.

Department chain Debenhams added to the gloom, by outlining plans to cut 2,500 jobs.

But global stock markets are rallying, lifted by optimism for an economic recovery and hopes of a new US stimulus package.

In London, the FTSE 100 is currently up 2.2% or 133 points at 6183, while Americ’as S&P 500 could hit a new record high when trading begins in a couple of hours.

Prudential, the UK’s biggest insurance firm, has said it will split off its US arm Jackson Life to focus on Asia and Africa, a year after spinning off M&G, its UK business.

The move will complete the company’s break-up, after pressure from the activist investor Third Point. It plans to either float Jackson on the stock market in the first half of next year (a minority IPO, with ‘full divestment over time’), or demerge it if the market conditions aren’t right.

In June, Prudential sold an 11% stake in Jackson for $500m to Athene Holdings in a deal that valued the whole business at $4.5bn.

But the company will keep its London headquarters, said Mike Wells, the Pru’s boss, referring to London’s great talent pool.

“We are not going to lose the talented people who are doing a great job for us in London. There’s lots of good reasons for us to be based in London.”

Prudential is listed in London, where shares are up 3.5% today, and Hong Kong.

Debenhams is to cut a further 2,500 jobs in its department stores in the latest blow to hit the high street, my colleague Sarah Butler writes:

The beleaguered retailer is reducing the number of shop assistants in its stores as trading remains slow despite the reopening of 124 of its stores after lockdown. It is understood to be scrapping the roles of sales manager, visual merchandise manager and selling support manager as part of the restructure.

The 242-year-old retailer said the reopened stores were trading ahead of management expectations but it still needed to cut costs.

In a statement, it says:

“The trading environment is clearly a long way from returning to normal and we have to ensure our store costs are aligned with realistic expectations.”

The UK labour market is in very bad shape, and going to get worse, warns our economics editor Larry Elliott.

He writes that no-one should be fooled by the fact the unemployment is officially just 3.9%. In reality, many more people are out of work, or working much less than they’d like:

The true state of the labour market has been veiled by two things. First, and most obviously, Rishi Sunak’s job retention scheme has meant millions of workers have been furloughed since March. In the absence of 80% wage subsidies, many of them would have been laid off.

Second, the way the figures are compiled means that someone is counted as unemployed only if they are both out of work and seeking employment. There hasn’t been much point in looking for a job while the economy has been locked down, so people have been classified as inactive rather than jobless. The government’s alternative measure of unemployment – the claimant count – provides a better guide to what has been happening. It has doubled since the start of the Covid-19 crisis and rose by 94,000 in July to stand at 2.7 million.

There’s more. The number of hours worked fell by a record 18% in the second quarter to 849m – the lowest level since 1994. On average, a worker put in 25.8 hours a week – falling by an unprecedented 5.6 hours on the quarter. Vacancies have more than halved over the same period.

So, the true picture looks like this. Since the early months of the year, about 730,000 workers have been removed from company payrolls in the UK, a figure that would have been much higher were it not for furloughing. The labour market pain is being felt most keenly among the young, the elderly and the unskilled, groups that will struggle to find new job opportunities. The use of zero-hours contracts is rising fast.

Here’s Larry’s full analysis:

Here’s my colleague Phillip Inman on today’s UK unemployment report:

Almost three quarters of a million jobs have been lost from company payrolls since the start of the coronavirus pandemic in March, with the youngest and oldest workers bearing the brunt of the employment crisis.

Paid employment dropped for the fourth successive month in July, though the number of employees losing their jobs since the coronavirus outbreak began to slow, according to official figures.

The number of workers on company payrolls fell by 730,000 between March and July as another 81,000 jobs were lost since June, in large part due to cutbacks by employers hit hard by the Covid-19 pandemic.

There were also drops in pay with levels including bonuses down 1.2% and regular pay down 0.2%, the first negative reading since records began in 2001.

Young people were the worst affected by the loss of employment and most likely by a loss of hours after the Office for National Statistics said it had recorded a rise in zero-hour contracts to its highest level on record.

The number of people on zero-hours contracts increased by 156,000, or 17.4%, to 1.05 million.

More here:

In another worrying sign, the number of people made redundant has hit a seven-year high.

Redundancies increased by 30,000 on the year and 27,000 on the quarter to 134,000, today’s labour market report shows.

That’s the highest level since February to April 2013, although still below the peak seen during the 2008 downturn.

Stock market traders haven’t been daunted by news of the biggest quarterly fall in UK employment in over a decade.

Shares have jumped in London, with the blue-chip FTSE 100 index rising by 1.7% or 105 points to 6156.

Betting group GVC Holdings is the top riser, up 6.4%, followed by airline operator IAG (+4.6%), exhibitions group Informa (+4.5%), jet engine maker Rolls-Royce (+3.8%) and oil giant BP (+3.5%).

European markets are also rallying hard, with car makers, travel firms and energy providers among the gainers. It all suggests rising optimism that the global economy will recover from the Covid-19 slump.

Minister for Employment Mims Davies MP insists the government is taking steps to support the jobs market through the pandemic.

Responding to this morning’s drop in employment, she says:

“Today’s figures show more of the impact the virus is having on both our economy and labour market meaning many people will be understandably concerned about the future – which is why we’ve set out our Plan for Jobs, to protect, create and support jobs as we build back our economy.

“We’ve already protected more than 9.5 million jobs throughout this period with the furlough scheme, supported more than two million self-employed people and paid out billions in loans and grants to thousands of businesses. Our Eat Out to Help Out scheme is supporting thousands of jobs in the hospitality sector and helping boost confidence, and the key cut to stamp duty has led to a surge in house sales and a welcome boost to the economy.

“Looking to the future, next month we’re launching the £2bn Kickstart scheme to create thousands of new high quality jobs for young people, increasing access to tailored job support by doubling the number of work coaches across the UK and we are boosting the DWP Flexible Support Fund by £150m to provide vital localised employment support. We are determined to build back stronger and support people as we move into recovery.”

The half-price meal offer certainly does seem to be a success. According to the Sun, more than 10.5 million Eat Out To Help Out meals were wolfed down last week, with over 80,000 venues taking part.

As I was saying..... here’s TUC General Secretary Frances O’Grady demanding that Rishi Sunak changes course, and extends the furlough scheme.

“The alarm bells couldn’t be ringing any louder. Ministers must act now to protect and create jobs.

“That means extending the job retention scheme for businesses with a viable future who can’t operate because of virus restrictions. It means investing in the jobs we need for the future in green industries, social care and across the public sector. And it means ensuring a decent safety net is in place to help those who lose their jobs get back on their feet.

“The more people in work the faster our economy will recover from this crisis.”

The slump in employment highlights the need for effective test-and-trace systems, says Matthew Percival, CBI Director for People and Skills:

“This data shows the devastating mark left on the labour market by the coronavirus crisis. With the UK under stringent lockdown measures to contain the virus in the quarter to June, fall in jobs and hours worked is to be expected.

“More positively, there is a small rise in vacancies, particularly in the hospitality sector as restrictions were relaxed.

“As local lockdowns become more common, the nature of support for businesses and people will need to evolve. Stepping up test and trace efforts will also be essential to minimise disruption in affected areas.”

Economics professor Jonathan Portes is very concerned that total hours worked in the UK economy plunged at a record rate:

Yael Selfin, chief economist at KPMG UK, predicts that the unemployment rate will rise sharply this autumn:

“Figures for June highlight the effectiveness of the Job Retention Scheme in shielding workers during the lockdown months. But they mask the true state of the labour market, as 730,000 employees lost their jobs in the second quarter.

“As the Job Retention Scheme unwinds, we expect unemployment to rise quickly in the fourth quarter. That could see unemployment average over 6% this year compared to only 3.9% at present.

“Government needs to step in and help those who are likely to lose their job retrain for new openings in different sectors. It is an opportunity to upskill a large section of the UK labour market, providing better prospects for the future.”

Ruth Gregory of Capital Economics agrees that more firms will cut staff once the furlough scheme ends:

The cracks evident in the latest batch of labour market data are likely to soon turn into a chasm with the unemployment rate rising from 3.9% to around 7% by mid-2021. The 220,000 q/q fall in employment in Q2 (consensus 288,000) was nowhere near as big as the 23% q/q drop in GDP due to the success of the job furlough scheme. And the 300,000 rise in inactivity means that the ILO unemployment rate stood at 3.9% in June, no higher than in February.

Nonetheless, every other labour market indicator was pretty awful.

Today’s jobs report also shows the scale of the economic shutdown in the last quarter, as firms suspended work and furloughed staff.

The amount of work conducted across the UK economy plunged by over 18% in April-June, a record fall, the ONS reports.

Between January to March 2020 and April to June 2020, total actual weekly hours worked in the UK decreased by a record 191.3 million, or 18.4%, to 849.3 million hours.

This was the largest quarterly decrease since estimates began in 1971, with total hours dropping to its lowest level since September to November 1994. Average actual weekly hours fell by a record 5.6 hours on the quarter to a record low of 25.8 hours

BCC Head of Economics Suren Thiru fears that more workers will lose their jobs as the government’s job retention scheme winds up in October:

“While the headline data continues to lag behind the reality on the ground, the decline in the number of employees on payrolls and hours worked is further evidence of the damage being done to the UK labour market by the Coronavirus pandemic.

“The furlough scheme has been successful in preserving millions of jobs. However, with firms continuing to face a perfect storm of increased costs, reduced demand, and diminished cash reserves, unemployment is likely to surge as the government support schemes wind down, unless action is taken.

These charts, from today’s jobs report, show how the Covid-19 pandemic has hurt the UK labour market:

Here’s ONS deputy national statistician for economic statistics Jonathan Athow on today’s jobs report:

“The labour market continues recent trends, with a fall in employment and significantly reduced hours of work as many people are furloughed.

Figures from our main survey show there has been a rise in people without a job and not looking for one, though wanting to work. In addition, there are still a large number of people who say they are working no hours and getting zero pay.

The falls in employment are greatest among the youngest and oldest workers, along with those in lower-skilled jobs.

Vacancies numbers began to recover in July, especially in small businesses and sectors such as hospitality, but demand for workers remains depressed.”

Average wages have fallen across the UK economy, due to a slump in bonuses and the impact of the government’s furlough scheme.

The ONS reports that regular pay (excluding bonuses) shrank by 0.2% in the April-June quarter, while total pay (including bonuses) fell by 1.2%.

But once you include inflation, real basic wages fell by 1% and real total pay shrank by 2%.

The ONS explains:

Employee pay growth declined further in June following falls in April and May; growth has been affected by lower pay for furloughed employees since March, and reduced bonuses; nominal regular pay growth for April to June 2020 is negative for the first time since records began in 2001.

The fall in pay accelerated in June, the ONS adds, even though some furloughed workers returned to their jobs:

Single-month growth in average weekly earnings for June 2020 was negative 1.5% for total pay and negative 0.3% for regular pay.

For the sectors of wholesaling, retailing, hotels and restaurants, and construction, where the highest percentage of employees returned to work from furlough, there is a slight improvement in pay growth for June 2020 compared with April and May; weaker pay growth in some higher-paying sectors negates this at whole economy level.

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

The number of people in employment in Britain has fallen again, as the coronavirus pandemic forces companies to cut jobs.

Figures just released by the Office for National Statistics show that there were 730,000 fewer people on company payrolls in July compared to March, before the Covid-19 lockdown.

That’s up from nearly 650,000 a month ago, and shows that the jobs market continues to weaken even though the economy continues to reopen.

The ONS reports that the UK’s labour market has suffered its worst quarter for the labour market since the aftermath of the financial crisis.

It says:

Survey data show employment is weakening and unemployment is largely unchanged because of increases in economic inactivity, with people out of work but not currently looking for work.

The decrease in employment on the quarter was the largest quarterly decrease since May to July 2009 with both men and women seeing decreases on the quarter. The quarterly decrease in employment was also driven by workers aged 65 years and over, the self-employed and part-time workers. Meanwhile full-time employees largely offset the decrease.

Here are the key points from the latest labour market report (online here):

• The number of paid employees in the UK in June 2020 fell by 1.8%, compared with the same period of the previous year.
• Early estimates for July 2020 indicate that the number of paid employees fell by 2.2% compared with July 2019.
• In July 2020, 114,000 fewer people were in paid employment when compared with June 2020 and 730,000 fewer people were in paid employment when compared with March 2020.

But... the headline unemployment rate remained low, as 3.9%. That suggests that many people who have lost their jobs are not actively looking for work.

More details and reaction to follow....

Also coming up today

European stock markets are expected to rally today, adding to Monday’s gains, as optimism grows that a new US stimulus package will be agreed. The FTSE 100 is being called up 40 points, or 0.6%, to 6090 points.

Donald Trump’s surprise pledge last weekend to suspend payroll tax and extend unemployment benefits has raised hopes that Congress will agree a fresh deal, as Stephen Innes of AxiCorp explains:

The clouds of uncertainly are starting to part, and a ray of optimism is breaking through that additions to the US stimulus package are looking more promising as both sides are set to rejoin the negotiating table.

It seems that Trump’s executive orders have indeed put pressure on Congress to agree to a broader fiscal package and to at all cost to avoid the political backlash and get the deal done before executive order deadlines around the end of the month expire. I suspect the last thing Congress wants to do is deal with another cliff-edge scenario during an election year as many votes are probably riding on this package.

Last night the Dow Jones industrial average hit its highest level since February, even though the pandemic continues to rage across the globe. The total number of recorded cases has now hit 20m, with the death toll approaching 750,000

On the economic front, Russia will become the latest country to report a slump in activity during the pandemic. Economists predict its GDP shrank by 9% in April-June.

We also find out whether investors in Germany are any more optimistic, and whether US factories are hiking their prices:

The agenda

• 7am BST: UK unemployment report
• 10am BST: ZEW survey of economic sentiment in Germany and the eurozone
• 1.30pm BST: US producer price inflation (PPI) for July
• 2pm BST: Russian GDP for Q2 2020