Trump ‘considering national economic emergency declaration’ to allow new tariffs; UK borrowing costs rise again – business live

Just in: US companies added fewer employees to their payrolls than expected last month, new data shows.

Payrolls operator ADP has reported that US firms added 122,000 new workers in December, below the 140,000 which Wall Street economists predicted.

Services companies added 112,000 jobs – half in education and health services – while goods producers added 10,000 employees.

It’s a slowdown on November, when payrolls rose by 146,000, but hardly an economic emergency.

Nela Richardson, chief economist at ADP, says:

“The labor market downshifted to a more modest pace of growth in the final month of 2024, with a slowdown in both hiring and pay gains.

“Health care stood out in the second half of the year, creating more jobs than any other sector.”

CNN are reporting that President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries.

Citing four sources, CNN say this would allow Trump to impose new tariffs on imports into the US.

CNN say:

The declaration would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as “IEEPA,” which unilaterally authorizes a president to manage imports during a national emergency.

Trump, one of the sources noted, has a fondness for the law, since it grants wide-ranging jurisdiction over how tariffs are implemented without strict requirements to prove the tariffs are needed on national security grounds.

“Nothing is off the table,” said a second source familiar with the matter, acknowledging the robust discussion over declaring a national emergency that has taken place.

No fina decision has been taken, though.

The news gave Wall Street a jolt, knocking prices lower in the futures market:

The yield on 10-year UK government debt has hit its highest level since 2008, when the world was toppling into the great financial crisis.

Reuters’ David Milliken explains:

British government bond prices fell sharply on Wednesday, pushing 10-year yields to their highest since October 2008, above a level that had held since October 2023, while 30-year yields hit a new 26-year high.

Thirty-year gilt yields – which leapt on Tuesday – rose by 11 basis points to strike their highest since August 1998 at 5.359% at 11:30 GMT. Benchmark 10-year yields rose as high as 4.784%, up 10 bps on the day.

Gilts heavily underperformed against U.S. and German bonds.

Newsflash: UK government borrowing costs are rising at a faster rate, as the pressures on the Treasury intensify.

This is extending the bond sell-off yesterday, that drove up Britain’s long-term borrowing costs to the highest since 1998.

The yield, or interest rate, on UK 30-year bonds has jumped by nine basis points (or 0.09 percentage points) to 5.333%, a new 26-year high.

Ten-year gilts are also weakening, pushing up their yield by 9bps to 4.766%

This will continue to squeeze the amount of fiscal headroom available to chancellor Rachel Reeves to meet her fiscal rules, adding to the pressure to potentially cut public spending (or consider tax rises) to keep debt down.

Professor Costas Milas, of the management school at University of Liverpool, tells us the rise in 10-year bond yields will hurt UK companies:

There is a lot of talk about the 30-year UK cost of borrowing, but at the same time, the 10-year yield has also risen significantly. The 10-year government yield sets the tone for borrowing costs of all firms in the UK and as such, suggests much tighter monetary conditions than only a month ago when the Bank of England kept interest rates on hold.

My latest LSE blog piece examines all alternative monetary policy scenarios in light of (a) very weak economic growth momentum and (b) the uncertainty due to Trump’s possible trade wars to conclude that the first UK interest rate cut of the year should come in the beginning of February to hedge against a possible recession.

The pound is falling against the US dollar for the second day in a row, hitting a nine-month low.

Sterling has lost over 1% so far today, to $1.233, its lowest level since April 2024, as it continues to lose ground against the generally stronger dollar.

Matthew Ryan, head of market strategy at global financial services firm Ebury, reports that anxiety over the UK economy is causing some “jittery trading”:

“Sterling dipped below the 1.25 level on the dollar yesterday, a move driven almost entirely by broad dollar strength following Tuesday’s US PMI numbers. Concerns over the outlook for the UK economy continue to linger in the background, however, and that is partly keeping a lid on the pound, which has been among the worst performers in the G10 in the past week.

“We’ve not really yet had any hard data that takes into account the impact of Labour’s Autumn Budget, but reports that major retailers are expecting to either raise prices or reduce hiring as a result of the employer NI tax hike is leading to some jittery trading.

“This has been most prominently reflected in the bond market, with fears over the chancellor’s borrowing plans sending the 30-year gilt year to its highest level since 1998 this week.

“While the speed and extent of the move higher in bond yields has not been anywhere near as violent as that witnessed following the Truss budget in 2022, the impact of higher rates on the economy, particularly via higher mortgage rates, is not to be underestimated.”

The Bank of England plans to slash the “reporting burden” on UK banks, and wants to give insurers a free pass to invest in riskier assets without initial regulatory approval.

But the CEO of its regulatory arm, the Prudential Regulation Authority, insists he does not want to see a regulatory “race to the bottom”.

Sam Woods, who heads up the Bank’s Prudential Regulation Authority (PRA) made the comments during a hearing with the Lords financial services regulation committee this morning, looking at the ways that the PRA has been implementing new government objectives to boost competitiveness and growth of the City.

He said reforms were in train for the insurance sector, which could allow them to potentially invest in riskier assets quickier:

“We’re going to bring forward a proposal which we haven’t yet spoken about in public…that we call a matching adjustment investment accelerator …essentially deal with the issue that sometimes insurance companies need to invest very rapidly.

They do need authorisation for types of investment…So the idea is like a sandbox They should be able to go ahead, come to us later for approval.”

As for banks, Woods says:

“We’ve already cut reporting on the insurance side by a third as part of our sovereign UK reforms. We do want to look at what scope there is to reduce the reporting burden on the banks. And that’s something again, we’ll come forward on this year.”

However, he said that this was not about attracting business to the UK through weak regulation, explaining:

“I do think that we should avoid a race to the bottom so I don’t think that that is what parliament has asked us to do.”

Instead, Woods said it was an opportune time to stand back and review regulation that came into force in the wake of the 2008 financial crisis:

“We’ve built up all of this machinery over the last 10 or 15 years. Are there some places where it’s a bit overcooked? Are there some places where it’s a bit overlapping, some places where it’s a bit complex, where, if we were making that again with our new objective, we’d do it differently?

And in many cases, the answer that question will be ‘yes’. And that’s what we’re focused on.”

Just in: the UK has successfully sold over £4bn of government debt, despite the jitters in the bond market which drove up borrowing costs yesterday.

Britain’s Debt Management Office sold £4.25bn of five-year bonds, which mature in 2030, at an auction this morning.

The auction, which Bloomberg says is the biggest sale of that maturity in more than a decade, was comfortably over-subscribed.

The DMO received bids worth £12.75bn, three times as much as it wanted to sell, allowing it to cherry-pick the best offers for the debt.

The debt was sold at an average yield, or interest rate, of 4.490%.

That’s slightly higher than the yields on existing UK five-year gilts trading in the markets (which is 4.45% this morning, and peaked at 4.488% late last month).

These five-year bonds are used to price the interest rates charged on fixed-term mortgages, so the pricing is very relevant to the economy.

You can read the details of the auction here.