US drilling companies cut number of oil rigs
For only the second week in seven months, US companies have cut the number of oil rigs on stream.
According to the Baker Hughes survey, they cut 7 oil rigs and added one gas rig last week, but this is only expected to be a temporary pause as shale producers begin to boost spending.
Oil prices were already lower before the figures, on concerns about a slowdown in China after worse than expected export figures and worries about whether Opec will be able to fulfil its recent agreement to cut production.
Brent is currently down 0.54% at $55.71 a barrel while West Texas Intermediate is 0.77% lower at $52.60.
On that note it’s time to close for the evening. Thanks for all your comments, and we’ll be back next week when..... Davos.
European markets end higher
As the FTSE 100 hit yet new highs, European markets also ended the week on a high note.
Positive updates from JP Morgan and Bank of America helped the European banking sector, including the beleaguered Italian banks. So the final scores in Europe showed:
- Germany’s Dax jumped 0.94% to 11,629.18
- France’s Cac closed up 1.2% at 4922.49
- Italy’s FTSE MIB finished up 1.87% at 19,514.54
- Spain’s Ibex ended 1.11% better at 9511.6
- But in Greece, the Athens market dropped 2.03% to 651.70
In the US the Dow Jones Industrial Average - which came within a whisker of breaching the 20,000 barrier a week ago - is currently down around 10 points 19,881 after losing its early gains.
Not everyone is convinced the market’s record breaking run can be sustained.
Top fund manager Neil Woodford has just compared the current market euphoria with the dotcom bubble, with share prices rises out of sync with proper valuations.
More here:
On the continuing rise in the UK market, Connor Campbell, financial analyst at Spreadex, said:
Some decent data out of the US helped lift the dollar this afternoon, in the process clearing the way for the FTSE to hit a fresh high.
Though both the retail sales and consumer sentiment figures, at 0.6% and 98.1 respectively, were a tad lower than expected, they still provided enough fuel for the dollar to overturn its earlier losses. Against the pound it went from half a percent down to 0.1% up, pushing sterling back under $1.22 in the process, while taking another 0.2% off the euro. The Dow Jones also reacted positively to the figures, rising around 15 points after the bell; that only just put the index over 19900, however, a level it has repeatedly struggled to escape since before Christmas.
FTSE 100 closes at another record high
For the 12th consecutive day the FTSE 100 has closed at another record high.
After drifting for the early part of the day, the leading index was boosted during the afternoon as US retail sales and confidence figures lifted the dollar and weakening the pound. As has been the case since June’s Brexit vote, the fall in sterling gave a lift the to overseas earners which make up a large part of the FTSE 100.
So the index finished up 45.44 points at 7337.81.
This is the fourteenth day of rises, and also marks the sixth week of gains, the first time this has happened since June/July 2012.
Updated
Heading into the close, the FTSE 100 is well on course for another record closing high. The fall in the pound is one factor in the gains, as it has been since the Brexit vote, but there are others. Jasper Lawler, senior market analyst at London Capital Group, said:
There was a strong rebound in the pharmaceutical shares which sold-off in the wake of Donald Trump’s press conference. Markets have pared bets the President-elect’s hostile attitude to drug pricing would spill over to international markets.
Homebuilder Barratt Developments and Kingfisher were top risers whilst disappointing economic data from China and a downturn in the price of gold hurt mining company shares including Randgold Resources.
Bank of America reported earnings per share ahead of estimates in results that bode well for other money-centre banks....Shares of UK-listed banks including Barclays, RBS and HSBC responded positively to the US results.
On the pound, he said:
This week the pound dropped to a three-month low against the dollar and a two-month low versus the euro. Next Tuesday Theresa May will set out the long-awaited approach the government will take before triggering article 50. The PM has difficult balancing act of trying to offer some more clarity to the British public, parliament and financial markets without losing the upper hand in negotiations with the EU.
If the Prime Minister confirms the UK will leave the single market in a “Hard Brexit”, the British pound could drop below 1.20 against the dollar, and quite possibly into “flash crash” territory soon thereafter. More likely the PM will be a little coyer. The uncertainty of being unspecific is not good for Sterling either, but leaving the door open to staying in the single market should support the pound.
There is a lot of UK economic data on tap next week too, but it will likely play second fiddle to politics. On Tuesday there is inflation data, Wednesday unemployment data and Friday sees the release of retail sales data.
Updated
Back with the situation in Greece, and German finance minister Wolfgang Schäuble has suggested the EU might take over the country’s bailout if the International Monetary Fund decided not to get involved. Here is the report from EurActiv via Reuters:
Berlin is weighing up the possibility of the EU taking over theGreek bailout in the event that the International Monetary Fund decides to end its role in it, German Minister of Finance Wolfgang Schäuble said on Friday.
In an interview with Süddeutsche Zeitung , Schäuble floated the idea that if the IMF decides to pull out, Europe could figure out its “own solution” within the eurozone. He added, though, that such a solution must guarantee a strict implementation of the bailout’s terms.
“If we continue solely then we will have to better guarantee the agreements ... This role could be assigned to the ESM,” he emphasised, saying that if the absence of the IMF brings major changes [to the agreement] then the new conditions will need the approval of the German parliament - which is preparing for elections next autumn.
However, Schäuble warned that if the Greek side does not deliver on its commitments, it will be the end of the current programme, and new negotiations will be required.
It is the first time that the Merkel government has proposed a solution to the Greek crisis without the IMF. In Athens, this change of heart is described as unprecedented, because ever since the first bailout, Germany has insisted that the IMF must take part, on account of the European Commission’s supervisory mechanism.
#US consumer confidence remains high - has surged since Trump's victory. Consumers trust #Trump can in fact "make America great again" pic.twitter.com/wrIFff4BN9
— Danske Bank Research (@Danske_Research) January 13, 2017
Unsurprisingly, US consumer sentiment was dominated by the political situation given the election of Donald Trump as president. The survey’s chief economist Richard Curtin said:
The post-election surge in optimism was accompanied by an unprecedented degree of both positive and negative concerns about the incoming administration spontaneously mentioned when asked about economic news. The importance of government policies and partisanship has sharply risen over the past half century. From 1960 to 2000, the combined average of positive and negative references to government policies was just 6%; during the past six years, this proportion averaged 20%, and rose to new peaks in early January, with positive and negative references totaling 44%.
This extraordinary level of partisanship has had a dramatic impact on economic expectations. In early January, the partisan divide on the Expectations Index was a stunning 42.7 points (108.9 among those who favorably mentioned government policies, and 66.2 among those who made unfavorable references).
Needless to say, these extreme differences would imply either strong growth or a recession. Since neither is likely, one would anticipate that both extreme views will be tempered in the months ahead. Nonetheless, it should be noted that among the majority of consumers who referred to neither positive nor negative views on government, the Expectations Index was a strong 90.9, supporting a real consumption growth of 2.7% in 2017.
US consumer confidence marginally disappoints but still high
After slightly disappointing US retail sales figures come some slightly disappointing confidence figures, although the figures remain high.
The preliminary University of Michigan survey of consumer sentiment came in at 98.1 in January, down from 98.2 in December and below expections of a figure of 98.5.
Updated
Pound falls and helps push FTSE 100 higher
Continuing worries about Brexit, reinforced after Thursday’s news that UK prime minister Theresa May will make a speech on the subject on Tuesday, have put more pressure on the pound.
It it on course for its fifth week of falls in the last six against the dollar, and is currently down 0.21% at $1.2137.
Against the euro it has fallen 0.16% to €1.1437. If it closes at this level it will be the lowest since 9 November.
The weak pound of course has boosted the prospects for the overseas earners which make up a large proportion of the FTSE 100, lifting the index 0.46% to 7325 and on course for yet another record closing high.
Meanwhile the Dow Jones Industrial Average is edging closer to the elusive 20,000 barrier, up 0.14% to 19,918.
In case you missed it, there is more controversy in the confectionary world following the decision by the makers of Toblerone to cut costs by widening the gaps between the chocolate peaks.
US food manufacturing giant Mondelēz, which makes Toblerone, has further angered consumers by announcing plans to hike the price of its Cadbury’s Freddo bars from 25p to 30p in the spring.
Mondelēz said it was selectively increasing prices as a “last resort”. Read our full story:
US markets open higher
US markets are up a touch, with decent US retail sales and strong quarterly earnings from Bank of America and JP Morgan Chase providing some cheer.
- Dow Jones: +0.1% at 19,919
- S&P 500: +0.1% at 2,274
- Nasdaq: +0.2% at 5,558
Here is our full story on the investigation into the “flash crash” in the pound last October, which stunned traders and policymakers:
IG expects US markets to open modestly higher:
US Opening Calls:#DOW 19904 +0.07%#SPX 2272 +0.07%#NASDAQ 5046 +0.11%#IGOpeningCall
— IGSquawk (@IGSquawk) January 13, 2017
Reaction is coming in to those US retail sales figures, which showed growth of 0.6% in December. It was a touch below expectations of a 0.7% rise.
Rob Carnell, chief international economist at ING, said the figures were good enough to justify a March hike in US interest rates:
US December retail sales were not as good as had been expected. But having said that, the consensus was aggressively optimistic, and sales were not particularly weak in an absolute sense, with both main measures showing gains over the previous month.
There is therefore no good reason why this data should deter the Fed from hiking rates again at their March meeting if they want to do so, which we think they do.
Markets are still anticipating a very cautious Fed, with only about a 30% chance of a March hike, in contrast to our own forecast that the Fed does hike by another 25 basis points at the March meeting.
Paul Ashworth, chief US economist at Capital Economics, said there was nothing to suggest consumer spending would weaken in the first half of 2017:
With consumer confidence surging to multi-year highs after the election and employment / wage growth still solid, there is no reason to suspect that consumption growth is going to weaken in the first half of this year.
Particularly not when households will be anticipating a potentially big decline in tax rates at some point this year.
Sticking with the US, the reporting season for banks is underway.
Bank of America and JP Morgan Chase have both reported a sharp rise in quarterly earnings, boosted by a surge in activity following Donald Trump’s victory in the US presidential election.
Jamie Dimon, chief executive of JP Morgan Chase, said America’s largest bank by assets had grown market share in virtually all of its businesses in the three months to 31 December.
He added:
The US economy may be building momentum. Looking ahead there is opportunity for good, rational and thoughtful policy decisions to be implemented, which would spur growth, create jobs for Americans across the income spectrum and help communities.
US retail sales rise 0.6% in December
US retail sales grew by 0.6% in December according to figures just in from the Commerce Department.
It was a touch below expectations of a 0.7% increase, but November’s growth figure was revised up to 0.2% from 0.1%.
Growth in December was fuelled by higher demand for cars, with sales up 2.4%. When cars were taken out of the equation, retail sales were up 0.2%.
Overall, the figures are likely to be taken as sign that the world’s largest economy was in decent shape at the end of 2016.
More pay, greater confidence lifts December retail sales https://t.co/ADIzq8xt5o
— CNBC (@CNBC) January 13, 2017
Over in the US, figures are expected to show US retail sales rose 0.7% in December, following a 0.1% rise in November. The data lands at 13.30 UK time.
Oil prices continue to slide and are on course for the first weekly fall since late December.
Crude has been hit by concerns about whether the production cuts agreed by Opec in November will stick, and the fall in Chinese exports reported earlier had added to the negative sentiment, since it casts doubt on the strength of the world’s second largest economy.
So Brent is currently down 1% at $55.43 a barrel, while West Texas Intermediate has fallen a similar amount to $52.44.
The FTSE 100 is on course to close at a record high for the 12th straight day.
Here’s an update of trading across Europe’s main markets:
- FTSE 100: +0.4% at 7,318
- Germany’s DAX: +0.6% at 11,591
- French CAC: +0.9% at 4,907
- Italy’s FTSE MIB: +1.6% at 19,456
- Spain’s IBEX: +0.9% at 9,489
- Europe’s STOXX 600: +0.6% at 365
BIS: no single factor caused flash crash in pound
The Bank for International Settlements has published its report on the “flash crash” in the pound in October.
The Guardian’s Jill Treanor reports:
October’s flash crash in the pound - when the currency nose dived 9% against the dollar in Asian trading hours - was caused by a combination of inexperienced traders, algorithmic trading and complex trading positions, according to an official report.
The flash crash sparked a range of theories about why the pound fell so fast in just a few seconds after midnight.After an investigation by the Bank for International Settlements it is far from clear what caused the slide in the pound, which nose dived from $1.26 to$1.1491, before recovering again.
While it says it cannot rule out “fat fingers” - mistaken trading - or attempts at market abuse, the BIS concludes there is little evidence to substantiate the claims. Instead it points to a combination of inexperienced traders, algorithmic trading and complex trading positions being implemented at a time of day when the pound would not usually be trading.
No big losses were suffered by the big players in the markets and some of the trades which took place as sterling plunged were cancelled, the report said.
Whatever the cause of the initial selling in sterling, the market was likely to be vulnerable at that time of day to sharp moves and an associated withdrawal of liquidity.
Updated
Gold has been hitting seven-week highs above $1,200 an ounce this week and is hovering just below that level this morning.
The World Gold Council believes gold will continue to shine this year, despite some concerns that the strength of the US dollar could limit its appeal.
In its outlook for 2017, the organisation argues that demand for gold will be underpinned by a number of factors including heightened geopolitical risks, currency depreciation (euro and pound) and growing inflation expectations.
Looking back at 2016, it says:
“The gold price had a strong performance in 2016, rising close to 10% in US dollar terms making it one of the best performing assets last year, despite a post-US election pullback. And the price has gained more than 5% since the Federal Reserve increased rates in mid-December.”
Gold always thrives on uncertainty and there is plenty of that at present. The unknowns presented by US president-elect Donald Trump, who will be inaugurated on 20 January, Britain’s exit negotiations with the EU, and elections in the Netherlands, France and Germany should all boost demand for bullion, seen as a safe haven in times of trouble.
Berenberg’s chart of the week features the global manufacturing sector.
The German bank says purchasing managers indices for major regions suggest an upturn is underway.
Holger Schmieding, chief economist, says:
All major regions, manufacturing is picking up. While turning at different times, purchasing managers indexes in the US, China, Germany and the UK are rising. Along with stable gains in employment, the pick-up in export-orientated manufacturing reflects growing optimism and willingness to spend by businesses and households. More investment in long-lived capital could generate the productivity gains that have been woefully weak recently.
He asks, will the upswing continue? Answer:
US households are the global consumer of last resort; their spending patterns shape global trends, for better, and for worse. Done right, pro-growth policies should boost US demand growth over the coming years, supporting gains in global goods demand and manufacturing output.
Of course, the downside risks linked to the new administration’s potential policies are profound. International trade remains a significant wildcard. Trump has proposed to impose tariffs and erect other barriers to imports, which could trigger tit-for-tat responses for trade partners, thus inhibiting international trade and cross border flows of goods. On balance, we do not expect Congress to approve such proposals and are optimistic the upturn will continue.
Germany poised for Brexit negotiations
German Chancellor Angela Merkel will chair a cabinet meeting on Brexit next week, a government spokesman has said.
The ministerial committee on Brexit will meet for the first time on Wednesday to discuss organisational and structural issues as it prepares for formal negotiations with Britain to begin.
Finance minister Wolfgang Schäuble, economy minister Sigmar Gabriel, foreign minister Frank-Walter Steinmeier and Merkel’s chief of staff Peter Altmaier will be among those to attend the meeting.
Government spokesman Steffen Seibert, said:
The committee will deal with preparations for negotiations on Britain’s exit from the European Union, preparations within the federal government as well as by the European institutions.”
Updated
Arnaud Masset, market analyst at the internet bank Swissquote, considers the dollar’s prospects:
The dollar index rose almost 1% ahead of [Trump’s press] conference but quickly reversed gains, sliding as much as 2% since then, down to 100.72 before stabilising at around 101.30.
The market does not expect much from Trump’s investiture next week as it will most likely be in the same vein. Against this backdrop, we expect the market will pay increasing attention to US fundamentals and to the Federal Reserve. Obviously this will not happen overnight as investors still expect a lot from the Trump presidency; however, they have also started to realised that they were somewhat overoptimistic.
We remain bearish on the US dollar and expect high quality commodity and emerging market currencies to continue rallying. However, in the short-term, the Trump story will remain the main driver in the foreign exchange market, meaning that event risk is definitely something to monitor, especially the President-elect’s Twitter feed.
Dollar weakens on Trump uncertainty
The US dollar is heading for its worst week in two months when measured against a basket of six major currencies.
The dollar index was down slightly for a third day and 1% lower over the week.
Currency traders were left disappointed by lack of policy detail from Donald Trump when he gave a press conference on Wednesday. The US president-elect talked about his plans to build a wall on the border with Mexico, but there was no detail on potential fiscal stimulus.
Nomura’s Jordan Rochester has a view:
It opens up the possibility for the market that he could go down the more toxic route which is becoming more protective on trade. Therefore it’s quite prudent for investors that the dollar is a bit softer.
Updated
Saunders in one line:
BoE policymaker Saunders saying unemployment will probably stay low this year but we shouldn't expect that to mean wage growth picks up much
— Katie Allen (@KatieAllenGdn) January 13, 2017
The BoE’s Michael Saunders is also highlighting the shift in recent years in Britain’s labour market to a gig economy and more self-employment.
In the last five years, the numbers of people that are self-employed has risen by 14%, the number of agency workers is up by about 30%, and the number of businesses registered in the UK is up by 40%.
There has been also been the expansion of zero hours contracts and the “gig economy”. Among people in work, the proportion that are full-time employees (ie not self-employed, not part-time, not in a temporary job) remains well below pre-recession levels.
Of course, some people may prefer flexible work structures or seek to reinvent their career through self-employment. But, given that on average these less secure forms of work are also less well-paid, the expansion of contingent work probably also reflects the erosion of secure and well-paid jobs from technological gains and greater emphasis on cost control.
Updated
Saunders suggests the prospects for wage rises in the UK are not great:
BoE's Michael Saunders speech asking why wage growth slow despite low unemployment https://t.co/4OqvuUXxJ9 pic.twitter.com/6h7IUVYkta
— Katie Allen (@KatieAllenGdn) January 13, 2017
Bank of England’s Saunders: rise in unemployment will be limited
Michael Saunders, external member of the Bank of England’s Monetary Policy Committee, is speaking at a Resolution Foundation in London.
Saunders said the jobless rate may not rise as high this year as the Bank was forecasting in the November inflation report. Policymakers predicted the jobless rate would rise to 5.4% by the end of 2017 from a current 11-year low of 4.8%,
Economic growth has recently been stronger than expected.
Rather than the rise in unemployment forecast in the November inflation report, it seems quite possible to me that the jobless rate will stay below 5% this year.
Conor Campbell, financial analyst at Spreadex, points out that the weak trade data from China is limiting the FTSE’s gains this morning:
After squeaking to a fresh peak last night, making it a record 11 consecutive sessions of closing highs, the FTSE quickly began to build above 7300 this Friday.
The FTSE likely could have managed something a bit more robust this morning if it weren’t for weak data from China weighing on the miners. With Chinese exports seeing their biggest yearly drop since 2009, down 7.7% across 2016, and imports falling a troublesome 5.5%, the likes of Rio Tinto and Antofagasta found themselves in the red as Friday got underway.
Over in the Eurozone there wasn’t really much to work with, though this didn’t stop the DAX and CAC rising by 0.4% and 0.5% respectively.
Mitchells and Butler and Fortnum & Mason have a merry Christmas
On the corporate front it’s a bit calmer this morning following Retail Super Thursday yesterday. (You can read a handy round-up of how the various retailers performed over Christmas here.)
There have been a few updates this morning:
- Pub group Mitchells and Butler had a merry Christmas, with like-for-like sales growth of 4.7% in the four weeks to 7 January 2017. In the first quarter overall (covering the 15 weeks to 7 Jan), like-for-like sales were up 1.7%. More here.
- Fortnum & Mason were another Christmas winner, as shoppers flocked to the upmarket department store for hampers, caviar and white truffles. Like-for-like sales rose 16% in the five weeks to 1 January.
- Things appear less rosy at Countrywide. The estate agent said it expected to report a 6% fall in transactions for 2016 and predicted a further slowdown in 2017.
Updated
FTSE hits new record high
The FTSE 100 has hit a new record high and is on course to extend its longest ever winning streak. The index is currently up 27 points or 0.4% at 7,320.
Europe’s major markets are all higher this morning:
- FTSE 100: +0.4% at 7,320
- Germany’s DAX: +0.4% at 11,570
- France’s CAC: +0.5% at 4,887
- Italy’s FTSE MIB: +1.2% at 19,387
- Spain’s IBEX: +0.3% at 9,439
Over in the currency markets, one-week sterling volatility jumped to the highest since early November as Theresa May prepares to give a speech on Brexit on Tuesday, hitting 14.275 according to Reuters.
It is expected to be a major speech from the prime minister outlining her plans for Britain’s exit from the European Union. As economists at Investec note, the speech “will almost certainly have implications for sterling”.
The pound is currently up 0.2% against the dollar at $1.2181.
Also coming up....
Michael Saunders, an external member of the Bank of England’s Monetary Policy Committee, will be giving a speech later this morning at the Resolution Foundation in London. Economists and investors will be looking for any clues on the latest thinking at Threadneedle Street.
Traders and economists will also be looking out for US retail sales (13.30 UK time), for signs of how the broader economy was performing at the end of 2016.
And of course we’ll be monitoring the markets to see whether the FTSE 100 can extend its record run of rises...the indication from early trading is yes, with the index up 29 points at 7,321.
Updated
Biggest drop in Chinese exports since 2009
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Trade data from China has disappointed, with exports falling 7.7% in 2016, the biggest drop since 2009. Imports fell 5.5%.
The weaker-than-expected performance will raise fears that global demand is slowing, in Europe and elsewhere.
Another major concern is the prospect of a trade war between China and the US, once Donald Trump is in the White House. The president-elect has already signalled he will take a tough stance against China.
Julian Evans-Pritchard, China economist at Capital Economics, says it is difficult to see any improvement in China’s trade position any time soon:
Looking ahead, it’s hard to see conditions becoming much more favourable to Chinese trade than they already are. Further upside to economic activity, both in China and abroad, is probably now limited given declines in trend growth.
Instead, the risks to trade lie to the downside – the likelihood of a damaging trade spat between China and the US has risen in recent weeks following Trump’s appointment of hardliners to lead US trade policy.
Updated
