US small-business confidence improved last month, as bosses welcomed the de-escalation in trade tensions between Washington and China. The National Federation of Independent Business has reported that its Small Business Optimism Index increased three points to 98.8 last month, rising for the first time since December. The improvement was driven by a pick-up in business conditions and sales expectations. NFIB chief economist Bill Dunkelberg says: Although optimism recovered slightly in May, uncertainty is still high among small business owners. While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth. The commerce ministers of the US and China have both arrived for day two of their trade talks: US commerce secretary Howard Lutnick has told reporters that trade talks with China that are taking place in London were going well, Reuters reports. Lutnick also indicated that the meeting at Lancaster House is expected to last all day today. Reminder: the two sides talked for over six hours yesterday, with Monday’s deliberations fuelled by a supper from one of Yotam Ottolenghi’s restaurants: Back in the City, Marks & Spencer is helping to push the FTSE 100 share index towards a new record high. M&S shares are among the top risers this morning, up 3.7%, after it resumed online orders after its recent cyberattack. But rival Next is pulling the index the other way! Next’s shares are down 2%, making it the top faller – traders may be concluding that its short-term sales boost from M&S’s disruption is now over… Chinese and US leaders have resumed talks at London’s historic Lancaster House for a second day to try and resolve the trade dispute triggered by Donald Trump’s imposition of tariffs on all imports from the country. Select outlets including Fox News, Chinese TV, the BBC and Bloomberg but not the Guardian, Sky News or LBC, have been allowed inside the security perimeter, to record any press briefing that may take place later today. There are expectations there may be some sort of truce in relation to China’s export restrictions on rare earths and the US’s restrictions on the export of semi-conductors from the US to China, but not an overall deal on the 145% tariffs imposed by the US [currently lowered to 10% under the temporary truce agreed last month]. China, like 60 other countries, is currently in “negotiations” on tariff deals but rare earths and critical raw materials crucial for military, auto and medical sectors across the world are just one of Trump’s challenges. He is also seeking to control the import of cheap Chinese steel and aluminium products with critics warning the reduction in supply is already hitting manufacturing in the US. Most European markets have edged high this morning as investors patiently waited for news on US/China trade talks,” says Russ Mould, investment director at AJ Bell. “Where there is still a sense of cautiousness around how to position portfolios for the longer term, there were enough corporate news flow to spur trading in a range of stocks. “UK housebuilders were at the top of the wish list for many investors after Bellway reported ‘robust’ spring trading. It was enough to drive a rally in the sector, putting the likes of Persimmon, Barratt Redrow and Taylor Wimpey at the top of the FTSE 100 risers’ list. “The blue-chip UK index moved 0.4% higher to 8,868, helped by strength in energy producers Shell and BP amid oil price resilience, and Rolls-Royce moving up on success with its nuclear operations.” The UK stock market rally is also being driven by bargain-hunting investors. “UK stocks are among the cheapest in Europe,” said Georges Debbas, head of European equity derivatives strategy at BNP Paribas Markets 360 (via Bloomberg). Debbas added: “The country is also the most friendly to the US, as it’s the only one to have a firm trade agreement in place. That allows you to have a more constructive view on the market.” US-China trade talks are the main focus for investors as they continue in London after a “fruitful” session on Monday, reports Neil Wilson,UK investor strategist at Saxo Markets: It’s hoped that the deal with see the US ease export restrictions of chips while China will release its rare earth minerals. A good outcome could send Wall Street to a fresh record high, with the S&P 500 finishing marginally higher on Monday a few points above the 6k level. Apparent concessions for Western automakers last week suggest a deal is in the offing. In the City, the London stock market is heading back towards its alltime high. The FTSE 100 share index has gained 41 points, or nearly 0.5%, in early trading to 8874 points – slightly above its previous record closing high. The Footsie’s record intraday high, 8,908.8 points, was set in early March, before trade war fears send shares tumbling. Shares have recovered since slumping in early April (when the index fell as low as 7544 points), as Donald Trump cheered traders by pausing or reversing aspects of his trade war. Housebuilders are leading the risers this morning, after Bellway reported “robust trading through the spring selling season” this morning. Bellway raised its outlook for volume output and average selling price this year Jason Honeyman, Bellway’s chief executive, says: “Bellway has delivered a solid trading performance, and we are on track to deliver strong growth in volume output and profits in the full financial year. We have a healthy forward order book and outlet opening programme, which will serve as a platform for further growth in FY26. I remain confident that, supported by the Group’s operational strengths, land bank depth and an increased focus on cash generation and capital efficiency, Bellway can capitalise on the positive fundamentals of our industry and deliver volume growth, improved returns and ongoing value creation for shareholders.” In other trade news, China has extended a high-profile investigation into imported pork from the European Union by six months. The extension comes just days before the probe, which began a year earlier, was due to wrap up. China has decided to extend the investigation period to December 16 due to the “complexity” of the case, the country’s commerce ministry said in a statement on its website. The probe began last summer, after the EU imposed provisional tariffs on Chinese EV imports coming into the bloc. Minister for employment Alison McGovern has insisted that the government is making progress in helping people into work: “Six months after we launched Get Britain Working, we are already seeing the benefits with economic activity at a record high, with 500,000 more people in employment since we entered office and real wages growing more since July than in the decade after 2010. “People all over the country are benefiting from increased training opportunities and the newly launched Jobs and Careers Service will allow us to test new and innovative approaches to personalise employment support.” But, shadow business secretary Andrew Griffith blamed the increase in companies’ national insurance payments for the rise in joblessness: “It is disappointing but no surprise that unemployment is up again. “Businesses are still absorbing a £25 billion jobs tax but things are about to get even worse as Labour’s £5 billion unemployment bill hits businesses with higher regulation.” Liberal Democrat treasury spokeswoman Daisy Cooper also criticised the rise in employers’ NICs payments: “These figures could not be a clearer signal to the Chancellor ahead of the spending review that the Government must change course. “The Chancellor’s pig’s ear of a jobs tax is crushing the growth potential of our high streets and small businesses, pushing people out of work, and ramping up the benefits bill. “This week, instead of pursuing another round of devastating departmental cuts, the Government needs to take the handbrake off our economy and go for growth.” Elsewhere in UK retail, Mark Ashley’s Frasers Group has confirmed that it is in the race to buy Revolution Beauty and is considering a cash-only offer for the struggling beauty firm, which put itself up for sale last month. Revolution Beauty said on Monday that Frasers is “one of a number of parties conducting due diligence as part of the formal sale process announced on 21 May”. Frasers put out a statement today, confirming its participation in the sale process, but adding that there can be no certainty that an offer will be made. In mid-May, Revolution Beauty warned that it was reviewing funding options before its £32m credit facility runs out in October, pushing shares to a record low. Sales have been weaker than expected in March and April amid worsening consumer confidence affecting its performance in the US. Revolution was set up in 2014 to launch a vast affordable makeup range aimed at young people and priced from £1. It has struggled on the AIM junior market since floating in July 2021 with valuation of almost £500m. Frasers, which owns Sports Direct, has snapped up stakes in several retailers in recent years, including THP, Boohoo, Asos and Mulberry. Government borrowing costs are also dipping as bond prices rise, with traders calculating that today’s weak jobs report makes UK interest rate cuts more likely. Sterling is weakening on the foreign exchange markets, as investors digest the rise in UK unemployment and the drop in payrolls. The pound has dropped by almost a cent against a generally stronger US dollar, to $1.346, its lowest level since the end of May. The drop in the number of payrolled employees in the UK will help to “cement” an interest rate cut in August, argues ING Bank. James Smith, ING’s developed markets economist, told clients this morning: The cooling in the UK jobs market is gathering pace. Wage growth is slowing, too. While the bar for the Bank of England to speed up rate cuts seems to be set fairly high, this data helps cement cuts in August and November. The UK jobs market might be turning a corner – and not in a good way. What stands out from the latest hiring numbers is a sharp 109,000 fall in payrolled employees in May. That is the largest monthly fall outside of the Covid-19 pandemic, since the data began in 2014. However, there’s a fairly significant caveat, which is that this data has a habit of being revised up later on. Back in March, we saw a 78,000 fall, which was later revised up to a drop of 35,000. We’ll have to reserve full judgment until next month. Marks & Spencer has reopened its website to shoppers, six weeks after it was forced to halt online orders after a cyber-attack. The retailer said on its website that customers “can now place online orders with standard delivery to England, Scotland and Wales”. Deliveries to Northern Ireland “will resume in the coming weeks”. “We will resume click and collect, next-day delivery, nominated-day delivery and international ordering in the coming weeks,” it said. Wage growth slowed over the last quarter – which could be another sign of a weakening UK jobs market. Average regular pay rose by 5.2%, in the February-April quarter, compared with a year earlier. That’s down from 5.8% in the previous quarter. Annual growth in total pay (including bonuses), slowed to 5.3%, down from 5.7% in November-January. Once you adjust for CPI inflation, regular pay growth slowed to 2.1% while total pay was up 2.3%. Monica George Michail, associate economist at the NIESR economic research body, explains: Annual regular wage growth remains strong at 5.2% in the three months to April 2025 amidst the rise in national minimum/living wage, according to today’s ONS figures. High service sector earnings growth is contributing to persistent core inflation, which continues to exceed 3%. Unemployment continues to rise, which is expected to ease wage pressures moving forward. However, if wage inflation remains elevated in the coming months, there would be even less room for interest rate cuts by the Bank of England”. The number of vacancies across the UK has fallen, again, making it harder for unemployed people to find a new job. Vacancies fell by 63,000 in the March-May quarter, to 736,000 – the 35th consecutive quarterly decline in a row. There are now 150,000 fewer vacancies than a year ago – lifting the ratio of unemployed people per vacancy to 2.2 in February to April, up from 1.9 in the previous quarter. Unemployment across the UK rose in the last quarter, today’s labour market data shows. The UK unemployment rate rose to 4.6% in the February to April quarter, which is the highest rate recorded since the summer of 2021. That’s a rise from 4.5% in January-March, and also up from 4.4% in the previous quarter. But…. the employment rate has also risen, up 0.1 percentage point over the quarter to 75.1%. How can employment and unemployment both go up? Because the number of people classed as economically inactive (neither in work, nor looking for a job) has dropped – pulling the UK economic inactivity rate down by 0.2 percentage points over the quarter to 21.3%. Newsflash: The number of people on payrolls across the UK has fallen notably, in a sign that the jobs market is weakening. The latest labour force statistics, just released, show that payrolled employment decreased by 109,000 employees (0.4%) in May, compared with April. On an annual basis, there were 274,000 fewer employees last month, compared with May 2024, pulling total payrolls down to 30.2 million. The Office for National Statistics does caution that these estimates are more uncertain than usual; if they’re accurate, though, it indicates that demand for workers at British firms is cooling. The largest decrease was in the accommodation and food service activities sector, a fall of 124,000 employees in the last year, while health and social work added 62,000 employees. ONS director of economic statistics Liz McKeown says: “There continues to be weakening in the labour market, with the number of people on payroll falling notably. Feedback from our vacancies survey suggests some firms may be holding back from recruiting new workers or replacing people when they move on. Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy. Trade talks between the US and China are set to resume in London today, as officials push for a breakthrough over shipments of technology and rare earth elements. After more than six hours of talks on Monday, negotations will resume at Lancaster House later this morning. Investors are hopeful of a breakthrough that could continue to ease tensions between the two economic superpowers. President Donald Trump has indicated that the first day of talks were encouraging. He told reporters that “We are doing well with China. China’s not easy….I’m only getting good reports.” The US are unhappy that China has not released crucial rare earth minerals, and magnets, as rapidly as hoped since the two countries agreed an initial trade pact in Geneva a month ago. Treasury secretary Scott Bessent told reporters in London they had a “good meeting”, Bloomberg reports, while commerce secretary Howard Lutnick called the discussions “fruitful.” The agenda 7am BST: UK labour market report 10.15am BST: FCA CEO Nikhil Rathi and FCA chair Ashley Adler testify to Treasury Committee 2.30pm BST: World Bank to release latest economic forecasts
Author: Graeme Wearden