US oil rig count steady
The number of oil rigs in use in the US was unchanged last week after eight weeks of falls.
Total rig numbers dropped by 2 to 404, according to the weekly Baker Hughes rig count. The two rigs cut were for gas.
On that note it’s time to close for the week. Thanks for all your comments, and we’ll be back next week.
#Greece PM Tsipras and #France president Hollande hold phone call, talk Greek debt relief & #EgyptAir MS804 ~official
— Yannis Koutsomitis (@YanniKouts) May 20, 2016
European markets soar
After Thursday’s market falls on fears of a US interest rate rise in June, investors ended the week in a more positive mood as they decided those fears may have been overdone. Much of the previous day’s declines were regained, with banks and mining shares among the main risers. Tony Cross, market analyst at Trustnet Direct, said:
After charging higher at the open, London’s FTSE-100 has done a sterling effort of holding onto those gains through the session despite the abject lack of fresh fundamental data to work on. The concerns of a US rate hike that were largely responsible for driving yesterday’s sell-off have been side lined, although the market still seems to be thinking that the chance of monetary policy tightening in June remains well below 50%.
The final scores showed:
- The FTSE 100 finished up 102.97 points or 1.7% at 6156.32, its best one day performance since the middle of April
- Germany’s Dax jumped 1.23% to 9916.02
- France’s Cac climbed 1.67% to 4353.90
- Italy’s FTSE MIB put on 1.52% to 17,812.35
- Spain’s Ibex ended up 1.11% at 8771.2
- In Greece, the Athens market added 2.76% to 639.48
On Wall Street, the Dow Jones Industrial Average is currently up 98 points or 0.56%.
As for oil, Brent crude is unchanged at the moment at $48.81 a barrel.
Speaking of next week’s agenda:
#Economics next week: flash #PMI, revised #GDP numbers in UK + US, #EZ consumer confidence https://t.co/AkIml0QfPH pic.twitter.com/wcuzP7E9Ha
— Markit Economics (@MarkitEconomics) May 20, 2016
Wall Street continues to recover, with the Dow Jones Industrial Average now up 104 points or 0.6%. Connor Campbell, financial analysts at Spreadex, said:
A strong open from the Dow Jones ensured Europe brought its gains into the afternoon, though there was little actual reason for Friday’s chunky growth beyond cooler heads prevailing after two days of rate-hike fearing losses.
[But] the Dow Jones is still on track for one of its worst weeks (and months) in a while. Monday and Tuesday saw the index pushing 17800 thanks to the Goldman Sachs-inspired surge from Brent Crude. Yet since then the Dow has suffered, with first the best US inflation figure since February 2013, and then that surprisingly hawkish set of Fed meeting minutes from April, spooking the index’s rate-hike adverse investors.
It will be interesting to see where the Dow is this time next week. By then the second estimate first quarter GDP reading will have been released, and without any upwards revisions to that woeful 0.5% (at the annualised rate) the central bank’s hawks may find their cause undermined by the seriously weak US growth, something that could work in the Dow’s favour.
US home sales rise by more than expected
More signs of a strong US housing market.
Existing home sales rose by 1.7% in April to an annual rate of 5.45m, better than the 5.4m expected by economists. March’s figure was revised up from 5.33m to 5.36m.
Lawrence Yun, chief economist at the National Association of Realtors, said the increase signalled slowly building momentum for the housing market this spring:
Primarily driven by a convincing jump in the Midwest, where home prices are most affordable, sales activity overall was at a healthy pace last month as very low mortgage rates and modest seasonal inventory gains encouraged more households to search for and close on a home. Except for in the West — where supply shortages and stark price growth are hampering buyers the most — sales are meaningfully higher than a year ago in much of the country.
Now here’s something.
Tesco Bank boss Benny Higgins spent more than £18,000 on taxis in eight months despite a clampdown in costs at all the supermarket’s operations. Sarah Butler’s full story is here:
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Wall Street opens higher
The rebound in global markets continues as Wall Street opens.
As investors came to terms with all the talk of a US rate rise next month, the Dow Jones Industrial Average has recovered 78 points or 0.45% in early trading. The S&P 500 opened 0.25% higher and Nasdaq climbed 0.39%.
A number of members of the US Federal Reserve have spent the week suggesting a rate rise in June was not off the table, which the minutes of the last meeting released on Wednesday were more hawkish than expected. Michael Hewson of CMC Markets said:
William Dudley of the New York Fed [gave] the game away somewhat...when he said that market pricing of Fed hike odds was way too low prior to the minutes, which would suggest that the events of the past week or so have been predominantly a process of expectations realignment. He also suggested that a move in July was probably more likely given the proximity of the UK vote.
Consumer confidence in Belgium stabilised in May after falling for four consecutive months, according to the latest survey from the National Bank of Belgium.
The index stood at -8, the same as April and the Bank said:
On the one hand, consumers’ forecasts for macroeconomic developments in Belgium have got gloomier. Fears of a rise in the unemployment rate over the next twelve months have grown considerably, while expectations about the general economic situation have been revised downwards slightly.
On the other hand, households have become more optimistic about their own personal situation. They are now expecting their finances to improve a little over the coming year, and, notably, to save more money.
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Back with Brexit and European Commission president Jean-Claude Juncker has said the UK will not get friendly treatment from the EU if it votes to leave. He told Le Monde that “Deserters will not be welcomed with open arms.”
My colleague Andrew Sparrow has the details in the politics live blog:
EU making good progress on Greece - Moscovici
European Union commissioner Pierre Moscovici - who warned there was no Plan B in the event of Brexit - has also been talking about Greece, ahead of the country’s vote on reforms this weekend and Tuesday’s Eurogroup meeting.
He said the EU was making good progress on Greece and said he hoped to reach a global deal on Greek debt soon. Ensuring the sustainability of Greek debt was fundamental, he added.
But Finnish finance minister Alexander Stubb has said the eurozone and International Monetary Fund are still far apart on Greek debt relief, and a decision on the issue on Tuesday is in doubt, Reuters is reporting.
Meanwhile a Greek parliamentary committee has approved the reform measures which will be voted on on Sunday. Kathimerini reports:
A multi-bill bundling together a series of reforms that Greece must legislate to unlock further rescue loans was approved by a parliamentary committee on Friday ahead of a plenary session vote on Sunday.
The bill, which details a slew of new tax increases, a new privatization fund, and a contingency mechanism that would automatically cut state spending if Greece misses budget targets, was backed by leftist SYRIZA and rightwing Independent Greeks who form the governing coalition.
It was opposed by opposition New Democracy as well as PASOK, the Communist Party, Potami, Union of Centrists and Golden Dawn.
On Saturday the bill is to go to Parliament’s plenary session ahead of a vote scheduled for Sunday.
But four Greek unions have issued a statement criticising the tax measures in the bill, according to the Athens Macedonian news agency.
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Meanwhile, in China health authorities have slashed the prices of three expensive drugs made by Britain’s GlaxoSmithKline and AstraZeneca, and China’s Betta Pharmaceuticals. Reuters reports:
The National Health and Family Planning Commission said the cost of GSK’s hepatitis B drug Viread would fall to 490 yuan ($75) a month from 1,500, while AstraZeneca’s lung cancer pill Iressa drops to 7,000 yuan from 15,000. Icotinib, another lung cancer drug made by Betta Pharmaceuticals, will come down to 5,500 from 12,000 yuan a month.
The Commission said in March it would cut prices of some medicines used to treat serious diseases, including cancer, but had not named the drugs involved.
GSK, which has struggled to rebuild sales in China following a damaging bribery scandal that landed it with a record fine in 2014, said it expected the lower price to stimulate increased volume sales.
At the reduced price, its hepatitis drug will now be covered by Chinese reimbursement policies, which means patients will no longer have to pay the entire price out of pocket.
The high cost of healthcare is a major point of contention in China, where low levels of state health insurance coverage means patients and their families often burn through savings to buy drugs to treat chronic disease.
At the G7 summit in Japan, US Treasury Secretary Jack Lew said the G7 finance leaders need to find ways to use all the “policy levers” they have to ward off a global economic slowdown.
Finance ministers and heads of central banks spent Friday discussing ways to use monetary policy, government spending and longer-term reforms to help support growth.
The common view among the G7 industrialised financial leaders was that while there is no one-size-fits-all approach, all economies are facing a stifling lack of demand, and the private sector must play a key role in kickstarting growth.
Lew told reporters:
The G-7 is meeting at a significant time not because it’s a time of crisis, but it’s a time when there’s a lot of uncertainty in the global economy and there a need for us to talk to each other about what we’re seeing and what tools we have to use to promote the most balanced use of all the policy levers that we have.
The Group of 20 meeting in Shanghai in February was successful because there was a renewed commitment to refrain from competitive currency devaluation to communicate closely with each other other “so we won’t surprise each other,” he said, expressing hope that the current G7 summit would be equally effective. It carries on tomorrow.
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The Brexit impact is still tough to quantify, says Allan Monks at JPMorgan Chase, following comments by Bank of England policy maker Kristin Forbes this morning.
While signs of an EU referendum-related impact on the UK growth data have become clearer in recent weeks – a story that so many had been waiting to tell – we have argued that there could still be other factors at work too, including a fragile global backdrop.
These sentiments were echoed in comments by MPC member Kristin Forbes in an interview with the Belfast Telegraph today. Another member, Jan Vlieghe, yesterday also highlighted that policy easing cannot be dismissed even under a vote to remain – if, for example, growth failed to recover from its current soft patch.
While the relative influence of Brexit on UK growth cannot be known for sure, the extent to which the activity data are weakening ahead of the referendum will be an important factor for BoE policy decisions, whatever the outcome of the vote.
Moscovici: no 'plan B' on Brexit, wants UK inside united Europe
European Union commissioner Pierre Moscovici has said that policymakers “have no plan B” if Britain voted to leave the EU in June.
He told reporters on the sidelines of the G7 finance ministers’ summit in Sendai in northern Japan:
We have no plan B for Brexit. Our only plan is for Britain to remain in a united Europe.
Looks like something was lost in translation. A Japanese finance ministry official has clarified, again according to Reuters, that Asō meant to say that some European ministers thought it would be good for the UK to stay in the EU.
Updated
Some snaps from the G7 meeting in Japan on Reuters.
The EU commissioner Pierre Moscovici said the general mood among G7 countries suggested that they wanted Britain to stay in the EU. But according to the Japanese finance minister Tarō Asō, some European countries thought Brexit would be good in the long run.
We will report more details as soon as we get them.
UK factory output rises at fastest pace since August
British factory output is rising at the strongest pace since August, according to a survey from the Confederation of British Industry. Order books also improved, although they continued to decline.
The survey of 489 manufacturers found that a rebound in the food and drink sector, following flooding in parts of the country earlier this year, drove an increase in overall output in the three months to May. Excluding food and drink, the output balance was stable, with the other 17 manufacturing sectors showing minimal movement.
Rain Newton-Smith, the CBI’s director of economics, said:
Conditions in the manufacturing sector seem to be a little better overall, with improving order books compared with a couple of months ago. But domestic and global uncertainty remains high, alongside lacklustre export demand.
Despite recent choppiness in emerging markets, China and India remain significant sources of potential demand. An exports commission would enable exporters to better exploit the growth opportunities provided by these and other growth markets.
Manufacturers need to work in partnership with the Government to embrace long-term opportunities and trends, particularly in digital. A greater focus is also required on developing the right skills in the sector, managing energy costs, and encouraging further R&D investment.
Several ECB policymakers urge patience
Several European Central Bank policymakers have backed president Mario Draghi’s wait-and-see stance today. The ECB unveiled a big stimulus package in March but several key elements, such as like corporate debt purchases and new ultra-cheap loans to banks, have yet to be implemented.
Draghi called for patience last month, dampening market expectations for more stimulus.
Estonian central bank chief Ardo Hansson told a conference this morning, according to Reuters:
The monetary policy stance should remain broadly accommodative at this point ... [and we need] to maintain a degree of patience. A lot of accommodation that has been decided already is still in the pipeline and it will work its way through.
Slovak central bank chief Jozef Makuch also saw no need for further measures.
Interest rates can still be lower still and we are now testing how low they can go. But if this tool must continue to be used, then I must urge caution so [we do not] bring about a totally counterproductive threat to financial stability.
The scope for deploying standard instruments is almost exhausted.
As reported earlier, Benoit Coeuré, a member of the ECB’s executive board, told a Japanese newspaper that there were no plans to further reduce the deposit rate – which is in negative territory, at -0.4% – for the time being.
Eurostar has said that passenger numbers have fallen in the wake of the Paris and Brussels terror attacks, as people from the US and Asia have been afraid to travel to Europe. You can read more here.
And here is our full story about France’s fears over the planned £21bn merger between the London Stock Exchange and Deutsche Börse.
Oil prices are pushing higher today, getting close to six-month highs, as the global oil glut eased due to a series of production outages in Nigeria, Canada and Libya.
Brent crude, the global benchmark, is now trading at $48.86 after rising to $49.26 earlier, close to the six-month high of $49.85 reached a couple of days ago.
In Japan, finance ministers and central bankers from the G7 industrialised nations are gathering to discuss what to do about flagging global growth.
George Osborne is there –
Getting bullet train to #G7 in #Sendai -beautiful part of Japan that suffered terribly from tsunami but rebuilding pic.twitter.com/xPRgNpsqIY
— George Osborne (@George_Osborne) May 19, 2016
Pound heads for best week since mid-2015
The pound is having a good week. It has retreated somewhat after hitting a 3 1/2 month high against a trade-weighted basket of currencies yesterday, but remains on track for its best weekly performance in nearly 10 months – up 2% this week.
Sterling has been boosted by strong retail sales numbers for April and an opinion poll suggesting that the “remain” camp had extended its lead ahead of the 23 June referendum on EU membership. An Ipsos-Mori poll found 55% of those surveyed supported staying in the EU, while just 37% wanted to leave.
An open letter by 250 British celebrities including Benedict Cumberbatch and Helena Bonham Carter appears to have had little impact on markets. The actors, musicians, writers and artists warned that if Britain were to leave the European Union it would become “an outsider shouting from the wings”.
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French finance minister: LSE-Deutsche Börse merger raises competition concerns
The planned £21bn merger between the London Stock Exchange and Deutsche Börse raises competition concerns, the French finance minister, Michel Sapin, has said.
His comments echoed those made by economy minister Emmanuel Macron in February, but Sapin’s comments carry more weight as he is in charge of banking and financial industry issues in France.
The proposed merger would create a group similar in scale to ICE, which owns the New York stock exchange and has taken a big slice of Europe’s derivatives markets, and would leave smaller European rivals such as Euronext Paris far behind. ICE, which initially said it was considering a bid for the LSE, ruled itself out earlier this month.
Sapin told Reuters:
I want to express the concern of the French government on this tie-up. We have doubts about the consequences this could have for the financing of the real economy in France and Europe.”
The merger of these two entities will result in a large group which could hold within it a majority of the tools that make our markets function efficiently. That poses a competition problem, and we want to make sure the European Commission gets involved to avoid a situation where a dominant position arises.
European stock markets have opened higher, as expected.
- FTSE 100 index in London up 85 points, or 1.4%, at 6138.36
- CAC 40 in Paris up 56 points, or 1.4%, at 4343.15
- Dax in Frankfurt up nearly 118 points, or 1.2%, at 9913.57
Here in Britain, Ladbrokes and Coral could be forced to sell up to 400 betting shops if the £2.3bn merger of the two bookmakers is to go ahead, the competition regulator has said.
The Competition and Markets Authority said the proposed merger between Britain’s second and third largest betting shop chains would reduce choice for customers in “a large number of local areas”.
You can read the full story here.
Deutsche Bank suffers damaging investor revolt
Turning to corporate news...
Deutsche Bank suffered a damaging investor revolt over executive pay last night. Germany’s biggest lender held its annual meeting in Frankfurt yesterday, where more than half of shareholders (51.9%) voted against a new pay scheme for its top executives, and just 48.1% backed it. The vote was non-binding, however.
Under the pay plan, in addition to bonuses linked to the bank’s and their own performance, divisional heads will also get a bonus linked to their division’s performance.
Chairman Paul Achleitner suggested that the bank would take the vote into account when implementing the pay plan.
A shareholder proposal for a special audit of whether top managers breached their obligations in how they handled the bank’s litigation issues was narrowly rejected – 46.4% of investors voted in favour, and 53.6% against.
You can view the voting results here, and listen to the speeches made at the AGM.
The company’s chief executive John Cryan said the bank expected further big legal costs this year related to a series of scandals (such as Libor) that have damaged its reputation and hurt profits – but is getting closer to the end of its litigation nightmare.
I am cautiously confident that we are gradually approaching the home straight as far as our litigation is concerned.
The bank has set aside €5.4bn to settle pending litigation this year.
Cryan, a Brit, spoke in German – which went down well with shareholders, according to Frankfurter Allgemeine Zeitung.
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A Bank of England policymaker, Kristin Forbes, has said that the central bank had no concrete evidence that recent weaker UK economic data was all related to uncertainty surrounding the outcome of the 23 June referendum on EU membership.
She told the Belfast Telegraph during a visit to Northern Ireland that she believed the uncertainty was weighing on businesses and their investment plans, and that any doubts could be lifted quite quickly if there is a “remain” vote.
But she added:
We don’t have concrete evidence that some of the softening we are seeing now is all referendum-related and uncertainty related, and there is a chance other things are going on.
Meanwhile, a senior International Monetary Fund official said last night that negotiations on a new bailout programme for Greece should focus on a long grace period and maturity extensions along with “very low interest rates”.
IMF chief spokesman Gerry Rice also said that the fund’s board won’t approve a new bailout unless it contains debt relief measures from European lenders along with policies to boost Greece’s fiscal savings.
He declined for confirm reports that the IMF is pushing for a pause in Greek debt repayments until 2020.
He said at a regular weekly briefing:
We have exchanged preliminary views with our partners on general principles regarding debt relief. We believe that it is possible to restore debt sustainability without upfront haircuts, although this would involve providing very concessional loan terms, including long grace and maturity periods and very low interest rates.
Eurozone finance ministers are due to meet next Tuesday to try to hammer out a deal with Greece on a package of steps to ensure Athens meets future fiscal targets, with hopes for a political agreement on future debt relief for Greece.
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ECB official: no plans to cut deposit rate
A European Central Bank policymaker has poured cold water on hopes that the central bank could cut interest rates further. Benoit Coeuré, member of the ECB’s executive board, said there are no plans to reduce the deposit rate – which is in negative territory, at -0.4% – for the time being.
The negative deposit rate, effectively a charge on banks for hoarding cash, has been criticised by banks and investors for squeezing their profits and distorting financial markets.
Coeuré said that banks had largely benefited from the ECB’s loose monetary policy and that markets continued to work smoothly. He told Japanese newspaper The Yomiuri Shimbun:
It is in principle possible to cut this rate further, but there is currently no plan to do so.
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The Agenda: G7 meeting to start today in Japan
Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.
Signs of hawkishness among US Federal Reserve members sent global markets tumbling yesterday, marking another disappointing week for stocks. US markets finished lower but recovered from the lows hit earlier in the day.
Asian stock markets rose overnight, with Hong Kong’s Hang Seng up 1.2% and Japan’s Nikkei closing 0.5% higher. European markets are expected to take their cue from Asia and open higher.
The meeting of G7 finance ministers and central bankers kicks off in Sendai in Japan today, where will be discussing ways of breathing life into the sluggish global economy as well as risks from a potential “Brexit”.
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