Closing summary
Time for a recap.
A flurry of manufacturing reports have shown that the global factory sector is in decent health.
The eurozone began 2018 strongly, according to data firm Markit. Its Purchasing Managers Index showed that output growth and new orders were strong in January, led by the Netherlands, Austria and Italy.
China also seems to have turned a corner, with growth at a 13-month high.
But the UK saw a slowdown, as companies wrestled with higher raw material costs. It could be a sign that Britain’s inflation rate will be higher than hoped this year.
The government has held talks with Capita over its financial problems, after yesterday’s profit warning. Minister insist that the company is in better shape than Carillion. Shares in outsourcing firms have fallen sharply again, though.
European stock markets have lost ground today, while the US market is also in the red ahead of results from tech giants Apple, Amazon and Alphabet (Google) tonight.
There has been a slight recovery in many global markets in choppy conditions at 4.00pm - CORE SPREADS - DOW -86 at 26100, S&P -55 at 2890, NASDAQ +38 at 6960 (futures) - investors expecting bellwether results from Apple, Amazon and Alphabet after the bell!
— David Buik (@truemagic68) February 1, 2018
Goodnight! GW
Updated
Britain’s FTSE 100 is sliding towards its lowest level of 2018.
The blue-chip index is down 37 points at 7496, a drop of 0.5% - a level last seen on 18th December 2017.
And finally.... the latest report on America’s factory sector shows that growth remained strong last month.
The US manufacturing PMI, from the Institute for Supply Management (ISM), came in at 59.1. That’s slightly below December’s 59.3, but it still shows solid growth.
US firms reported that export orders were strong, leading to a backlog of work. However, new orders and production growth slowed, but remained pretty strong.
Manufacturing ISM remains in lofty territory in January, down just 0.2 to a 59.1 reading. December construction spending topped expectations but this was after downward revisions to October and November data. Outlook for construction is very bright
— Joseph A. LaVorgna (@Lavorgnanomics) February 1, 2018
Updated
It’s turning into another rough day for Britain’s outsourcers.
Capita’s shares are now down almost 15%, having shed almost half their value yesterday after the firm announced a profit warning. This takes its value down to almost £1bn -- not far from the £700m it is hoping to raise in a rights issue.
Mitie, another outsourcing firm, are down almost 8% while Serco have lost 5%.
DING DING goes the opening bell of the New York stock exchange, setting off a little burst of selling on Wall Street.
The Dow Jones industrial average has dropped by 115 points, 0r 0.44%, to 26,034 points. The broader S&P 500 is down 0.2%.
After a strong January, markets seem to have entered February in a more nervous mooed.
Neil Wilson of ETC Capital reckons that rising government bond yields are causing nervousness in the equity markets. The prospect of US interest rate rises are another factor, he adds:
The Fed’s marginally hawkish tilt is undoubtedly a factor. They’ve given markets the greenlight for a March hike, raising prospects for 4 hikes this year, and are sounding more upbeat on inflation.
European stock markets are mostly in the red today, despite the strong performance by eurozone factories last month.
Germany’s DAX has shed 1%, and there are smaller losses in France and London too:
Wall Street is expected to open lower too. Yesterday it rallied, after two days of losses.
US productivity misses forecasts
Newsflash from America: US productivity shrank by 0.1% in the last quarter.
That’s the first drop in hourly output per worker since early 2016, and may undermine hopes that America’s growth rate can be pushed higher.
Economists had expected productivity to rise, by 1%.
US #productivity growth turns negative again! pic.twitter.com/BrU9Py6AYq
— jeroen blokland (@jsblokland) February 1, 2018
Andy Bruce of Reuters points out that the rise in factory goods prices will probably push UK inflation higher:
BoE won't like sharp pickup in UK consumer goods manufacturers' selling price index from latest IHS Markit/CIPS #PMI
— Andy Bruce (@BruceReuters) February 1, 2018
Links well with official "all goods" series (ie. 52.5% of CPI basket, 42% of CPIH) pic.twitter.com/BFqd1MtQkT
There are ructions in the UK jobs market today.
Morrisons is axing 1,500 roles as it cuts middle-management roles across its supermarkets. It is also creating 1,700 junior positions, in an attempt to improve customer service.
It’s a bad morning for fans of burger chain Byron too. It is closing 20 stores, or nearly a third of its estate, as part of a rescue deal with creditors.
Updated
And here’s our latest Capita story, by Rob Davies:
Government officials met executives from the outsourcing firm Capita to discuss its financial problems, it has emerged, as Labour accused ministers of being complacent and warned of similarities between the company and its collapsed rival Carillion.
In response to an urgent question from Labour’s business select committee chair, Rachel Reeves, the Cabinet Office minister Oliver Dowden said a crown representative had been appointed to monitor Capita.
The move, which came after Capita halved in value following a shock profit downgrade on Wednesday, is part of a procedure designed to help officials monitor the finances of struggling companies that provide public services.
Full story: UK manufacturing shows signs of a slowdown
Here’s my colleague Richard Partington on today’s UK manufacturing report:
Britain’s manufacturers showed signs of a slowdown at the start of the year amid rising costs for raw materials, sending factory output to a seven-month low.
The Markit/Cips UK manufacturing PMI index showed activity fell to 55.3 last month from 56.2 in December, missing City forecasts of a further acceleration in growth. However, the PMI remained well above its long-run average of 51.7 and above the 50 mark which separates expansion from contraction.
Britain’s manufacturers have experienced growing demand for orders from China, Japan, the Middle East and North America in recent months. There has also been an upturn in sales in Europe as the continent returns to economic growth after years in the doldrums. The readings come as ministers enter critical talks over trade with Brussels.
However, the upswing in demand for goods has prompted rising global demand for raw materials, pushing up the cost of oil, metals, food and chemicals, and further pressuring manufacturers’ profit margins. The PMI survey showed purchase prices rose at the fastest rate in 11 months in January, and to one of the greatest extents in its history.
More here:
Today’s manufacturing survey also shows that UK factories are being hit by rising prices.
Companies reported that chemicals, food products, metals, oil, paper and plastics are all becoming pricier.
Many factories are passing those costs onto their clients -- at the fastest pace since last April. That could be a blow to consumers, as inflation is already rising faster than wages.
Duncan Brock, of the Chartered Institute of Procurement & Supply, says:
“Purchasers reported that global demand impacted on their costs, with another sharp inflationary rise. Respondents mentioned forward buying as a way of controlling prices and securing supply to remain competitive, but firms also attempted to claw back some of their margins by raising their own prices to clients at a level not seen for nine months.
As this charts shows, raw material costs also jumped after the UK referendum (due to the slump in the pound)
Elsewhere in the markets, the pound has shrugged off the slowdown in UK factory growth last month.
Sterling is up 0.3 of a cent against the US dollar, at $1.422 - close to last month’s 18-month high.
Connor Campbell of SpreadEx says:
The pound was nonplussed by the decline [in the UK manufacturing PMI], focusing on the positives to hold onto a half a percent climb against the dollar – it’s basically now recovered all of last week’s losses – and 0.3% increase against the euro.
Updated
There wasn’t much cheer for Capita in that urgent parliamentary question, with the government insisting it wouldn’t be bailed out and Labour MPs calling for public services to be taken back into public control.
There’s not much relief in the City either. Capita’s shares have shed another 6.8% today to just 170p. That looks like their lowest level since October 2002.
Labour’s Diana Johnson suggests the government sounds like Corporal Jones over Capita (don’t panic! don’t panic!).
Q: If everything’s so rosy, why did Barnet council, a flagship Tory council, put contingency plans into place in case Capita’s problems worsen?
Dowden denies that the government is complacent. He points out that the government’s contingency plans worked after Carillion collapsed.
Alan Brown, SNP MP, asks about Capita’s pension deficit. How big is it, and what will the government do to help?
Oliver Dowden says it’s a matter for Capita; suspending its dividend will help it to put extra funds into the pension pot.
Labour MP Thelma Walker says that outsourcing public services has failed. Instead of expensive bailouts, they should be brought into public ownership.
Oliver Dowden repeats that the government isn’t bailing any companies out.
Oliver Dowden insists that the state is not bailing Capita out. Instead, shareholders are paying the price of its problems....
Liberal Democrat leader Vince Cable nails the problem.
If Capita’s own CEO thinks the company is too complex, how can the government monitor the stability and performance of these outsourcing giants?
Oliver Dowden replies that the government uses third-parties to assess their performance, and also engages closely with them through the Cabinet Office.
Vince Cable asks Oliver Dowden: "The Capita chief executive said his organisation was 'far too complex'. If the chief executive finds it difficult to understand how his organisation works, how does the government monitor the performance of these very large outsourcing companies?"
— Jim Pickard (@PickardJE) February 1, 2018
Cabinet Office minister Oliver Dowden saying outsourcing firms have specialities, so can deliver services more cheaply. That's all well and good unless the business model of the sector incentivises them to underbid, rendering contracts unprofitable.
— Rob Davies (@ByRobDavies) February 1, 2018
Conservative MP Bim Afolami argues that it would be wrong to cancel contracts with Capita just because it issued a profit warning yesterday.
Minister Oliver Dowden agrees. He says there would be “very few companies” the government could deal with if it shunned every company who issued a profits warning.
SNP MP Dierdre Brock, though, argues that Capita’s problems shows we should wind back the privatisation of public services.
Cabinet minister Oliver Dowden even quotes former Labour PM Gordon Brown, who said that PFI contracts had been necessary to improve Britain’s public services.
But shadow cabinet office minister John Trickett criticises the government, accusing it of “indifference to corporate mismanagement”, and complacency in the face of a crisis in the UK outsourcing sector.
Capita down another 4.5% today (after 47.5% fall yesterday). In the House of Commons, Labour's Jon Trickett says it's in "deep trouble" as Cabinet Office minister Oliver Dowden insists it's far healthier than Carillion was.
— Rob Davies (@ByRobDavies) February 1, 2018
Government challenged over Capita
Over in parliament, Rachel Reeves MP has asked an urgent question about Capita, following the servicing group’s profit warning yesterday.
Q: Is Capita a threat to the public finances?
Oliver Dowden MP, cabinet office minister, insists that Capita is in a very different situation than Carillion (which collapsed earlier this month).
Yesterday’s announcement from Capita was a “balance strengthening move”, not just a profits warning, Dowden says (Capita is looking to raise £700m).
We do not believe that Capita is in any way a comparable position to Carillion.
Dowden says that government officials met with Capita yesterday, and will work closely with the company to ensure continued delivery of public services.
Reeves is unimpressed, saying the government sounds “muddled and complacent”.
She also disputes that Capita and Carillion aren’t comparable.
Both have debts of £1bn, and pension deficits running into the hundreds of millions, Reeves says. Both paid out large shareholder dividends. Both rely on the public purse. Both were audited by KPMG. Both grew through acquisitions, rather than organic growth.
Reeves warns:
It seems there are more similarities than differences.
Updated
UK manufacturing slows: What the experts say
The slowdown in Britain’s factory growth last month should concern the government, says Dennis de Jong, managing director at UFX.com,
He says:
“After a clean sweep of strong manufacturing growth results reported across Europe this morning, Britain are the exception – bad timing for Prime Minister Theresa May after Brexit-impact documents were leaked earlier this week.
“Those papers claimed there is no post-Brexit deal that benefits the UK economically, and while the UK’s factory sector grew in January, it wasn’t anywhere near the level of Britain’s continental cousins, some of whom saw record highs.
“Still, growth is growth – and the optimists will point to UK firms seeing a rise in export orders. However, the seven-month low couldn’t come at a worse time for May, who still faces huge internal Conservative party pressure to keep her job.
But Lee Hopley, chief economist at EEF, the manufacturers’ organisation, is more optimistic:
She says:
“The first PMI reading for 2018 points to a good enough start to the year for manufacturers. The index has come off the boil since the end of 2017, but activity across the sector is still expanding at a healthy clip and certainly running ahead of the long-run average.
Positive global factors underpinning growth, evident through much of last year, are still very much in play with export demand continuing to put in a strong showing. No ill effects from Sterling’s recent rally are yet apparent.
Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, says UK firms are being supported by solid order books:
“While the PMI has dropped for a second consecutive month, it remains above the long term average.
It is also higher than the most recent construction and services PMI readings, suggesting manufacturing remains the star pupil in the wider UK economy.
UK factories suffered a double-whammy of slowing growth and rising prices last month, says Rob Dobson, Director at IHS Markit.
Dobson, who helped compile today’s survey, says:
Encouragingly, despite the slowdown, the latest survey is consistent with production rising at a solid quarterly rate of around 0.6% in January, with jobs also being added at a faster pace. However, output growth has slowed sharply since last November’s high, and the more forward-looking new orders index has slipped to a seven-month low.
The trend in demand will need to strengthen in the near-term to prevent further growth momentum being lost in the coming months.
“The biggest advance during the latest survey came on the prices front, with the recent easing in inflationary pressure seeing a sudden sharp reversal. Cost inflation surged to an 11-month high and to one of its highest levels in the series history, as oil prices surged higher and demand for many inputs outpaced supply.
UK factory growth hits seven month low
Breaking: British factory growth hit a seven-month low last month, as Britain failed to keep pace with the eurozone.
Data firm Markit’s monthly PMI index of UK manufacturing dropped to 55.3 in January, down from December’s 56.5.
That shows that growth slowed, but it’s still above the long-term average.
UK factories say that output growth, and new order growth, both weakened last month. Raw material costs spiked -- pushing input costs up, and forcing UK firms to raise their prices.
But more optimistically, UK firms did see a rise in export orders.
Markit says:
Foreign demand improved at one of the quickest rates over the past four years. There were reports of increased sales to clients in North America, China, mainland Europe, the Middle East and Japan.
More to follow...
Is the worst really over for Greece?
Greek manufacturing output growth hit a ten-year high in January, according to today’s PMI survey.
Job creation hit a record high, suggesting Greece’s factories are dusting themselves down after the debt crisis.
Manufacturing sector growth in #Greece most marked in over 10 years. Employment expands at joint-sharpest pace on record. https://t.co/5Xilq9aR0c pic.twitter.com/AaeCGSCEfe
— Markit Economics (@MarkitEconomics) February 1, 2018
Eurozone factories report strong growth
The eurozone boom continues!
Factories across the eurozone grew strongly on January, according to data firm Markit’s healthcheck on the sector.
Companies reported strong growth in output and new orders - although not quite as rapidly as in December. Italy, Austria, the Netherlands and Germany led the way, and there are also signs of a recovery in Greece.
This means the IHS Markit Eurozone manufacturing PMI came in at 59.6 -- showing strong growth, but down slightly on December’s record high of 60.6.
Markit’s data shows that the eurozone’s factories have now been expanding for 55 months in a row.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The eurozone’s manufacturing boom continued in full swing in January. Output grew at one of the fastest rates recorded over the survey’s 20-year history, matched by a further near-record surge in new orders.
“Employment likewise showed one of the largest gains yet recorded by the survey as firms expanded capacity in line with rising demand.
Europe’s two largest economies also posted strong factory growth last month.
Germany Manufacturing PMI (Jan) comes in at 61.1, Prelim: 61.2
— Michael Hewson 🇬🇧 (@mhewson_CMC) February 1, 2018
*FRANCE JAN. MANUFACTURING PMI FALLS TO 58.4; PRELIM. 58.1
— Naeem Aslam (@NaeemAslam23) February 1, 2018
Boom! Italy’s factory sector has posted its strongest growth in seven years.
Markit’s Italian manufacturing PMI has jumped to 59.0, from 57.4, thanks to a surge in production, strong order book growth, and rising employment.
*ITALY JAN. MANUFACTURING PMI RISES TO 59; FORECAST 57.4
— WorldFirst (@World_First) February 1, 2018
Spain's recovery contines
Spain’s factory sector started the new year where it ended the old one, with strong manufacturing growth.
Markit reports that business conditions in the Spanish manufacturing sector “continued to improve markedly at the start of 2018”.
Spanish firms reported that output rose sharply, amid a jump in new orders. They hired more staff -- good news for Spanish unemployment.
Encouragingly, Spanish bosses are optimistic about their prospects this year.
Andrew Harker, associate director at IHS Markit, says the recovery means firms will be forced to hike prices, as they scramble to get their hands on raw materials.
“A jump in business confidence suggests that firms see little reason to doubt the sustainability of the current upturn.
“Strong demand conditions are bringing with them increased inflationary pressures amid shortages of raw materials, while higher oil prices were also mentioned. Both input costs and output prices rose at sharper rates in January.”
We’re getting some strong manufacturing figures from eurozone companies this morning.
The Netherland’s factory PMI has hit a record high for January, at a stratospheric 62.5 (anything over 50 shows growth).
Ireland’s factory PMI remained close to December’s record high, at 57.6.
Over in the markets, the bond selloff is continuing.
The interest rate on 10-year German government debt has hit its highest level since 2015 (yields, or interest rates, rise when bond prices fall).
It’s still just 0.7% - a really cheap rate, but this means anyone who bought the bonds recently is sitting on a loss.
Global bond rout deepens w/ 10y German Bund yield jumps >0.7% to highest level since 2015. pic.twitter.com/kScWi6rF9q
— Holger Zschaepitz (@Schuldensuehner) February 1, 2018
Earlier this week, the five-year German bond yield turned positive for the first time since 2015 -- meaning Berlin actually has to pay to borrow....
Russia’s factories made a good start to 2018, according to Markit.
The Russian manufacturing PMI rose to 52.1 in January, from 52.0 in December.
Japanese manufacturing growth hits four-year high
Japan’s factories are roaring ahead, at the fastest pace in four years.
The Japanese manufacturing PMI has jumped to 54.8 in January, up from 54.0 in December, a level that signals a strong expansion.
Firms reported that output and new order growth rates accelerated last month. This led to rising backlogs of work, even though firms took on more staff - and passed rising costs onto customers.
Joe Hayes, Economist at IHS Markit, which compiles the survey, says the picture looks bright.
New business opportunities increased at the sharpest rate in four years, supporting the quickest rise in output since February 2014.
“Businesses appeared to derive confidence from the robust economic backdrop that official data has depicted, with optimism strengthening to a four- month high. In turn, this supported an accelerated rate of job creation.
Updated
The agenda: Manufacturing in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we discover how the world’s manufacturing sector fared last month, as data firm IHS Markit releases its monthly PMI reports.
These surveys are based on interviews with purchasing managers across the globe, and give an insight into how factories are performing.
And the early signs are encouraging! China’s factory sector grew at its fastest pace in 13 months, according to the Caixin/Markit manufacturing PMI. It hit 51.5 for January - matching December’s reading - which means the sector has strengthened for eight months in a row.
Chinese firms reported a rise in new work and new orders, leading to an increase in output. But they also kept cutting jobs, as companies looked to downsize in the face of pressure from Beijing to cut pollution.
Dr. Zhengsheng Zhong of CEBM Group says:
“The manufacturing industry had a good start to 2018. Going forward, we should keep a close eye on the stability of the demand side.”
Investors will be keen to see Markit’s data from across the eurozone, and the UK, to see how Europe’s economy began 2018.
European markets are expected to open higher, after dropping earlier this week.
European Opening Calls:#FTSE 7557 +0.32%#DAX 13229 +0.30%#CAC 5497 +0.27%#MIB 23578 +0.30%#IBEX 10467 +0.14%
— IGSquawk (@IGSquawk) February 1, 2018
Here’s the agenda
- 9am GMT: Eurozone factory PMI for January
- 9.30am GMT: UK factory PMI for January
- 1.30pm GMT: US weekly jobless figures
- 3pm GMT: US manufacturing PMI reports
Updated
