Dow Jones sheds 312 points
Hello again. It was a bad day on Wall Street too, as fears over the global economy and the usual fretting about a US interest rate hike sent shares sliding.
The Dow Jones industrial average has closed down 1.9%, or around 312 points lower at 16002.
And a rout in the biotech sector helped to sent the Nasdaq index down 3%.
S&P below 1900; Nasdaq off 3% as biotech weighs » http://t.co/DK0ZfxBGWg pic.twitter.com/ZhDPfzEK4g
— CNBC (@CNBC) September 28, 2015
The Dow ended down more than 300 points: http://t.co/Xrd7i3ruLH pic.twitter.com/gBvZWCjJgb
— MarketWatch (@MarketWatch) September 28, 2015
And with October - often a lively month in the markets - around the corner, we could be entering an exciting period. Come back tomorrow so see whether European indices recover, or take another bath.... G’night. GW
Afternoon summary: Glencore thumped, Volkswagen crisis rumbles on
It’s been a surprisingly busy Monday here in Europe, so let’s recap the main points.
- Shares in commodity miner and trader Glencore have plunged by 29% today.
- The cost of insuring Glencore’s debt has also spiked, as speculation swirled over its ability to ride out the downturn in the resources sector.
- The Glencore out was triggered by City firm Investec, which warned that the company’s shareholders could be wiped out unless commodity prices recover. Founder Ivan Glasenberg’s stake is now worth rather less than £1bn.
- Europe’s financial markets are all deep in the red, with the FTSE 100 losing 150 points.
- Over in America, the Dow Jones industrial average has shed 1.5%; the broader S&P 500 is down 2%.
- Traders were alarmed after Chinese factories reported the biggest drop in profits in at least four years.
- The Volkswagen emissions crisis continues, with a German minister warning that the country’s economy could suffer from the turmoil.
- Martin Winterkorn, the former CEO, is now being investigated by prosecutors. They want to know how 11 million cars were sold containing ‘defeat devices’.
- Audi has admitted that 2.1m of its cars used the software, while fellow VW brand Skoda sold 1.2m.
- Green campaigners are delighted that oil giant Royal Dutch Shell is pulling out of the Arctic.
- But there is dismay in Redcar where the local steelworks is to be mothballed.
- And in Spain, Catalan independence parties are celebrating a partial success in yesterday’s elections, where they won a majority of seats but not votes. It could mean more political upheaval in the eurozone.
There were chunky losses across the Big 5 European stock markets tonight.
Spain actually outperformed the rest, with investors relieved that Catalan separatists didn’t win a majority of votes in Sunday’s election (they won a majority of seats, though).
Volkswagen shares slide 7.5%
Volkswagen shares have been hit hard again, closing down 7.5% in Frankfurt tonight.
BMW have shed 2.9%, and Daimler are down 3.2%. In Paris, Peugeot has lost 4.5%, with Renault off 4.3%.
The scandal of faked emissions tests is continuing to dog the car industry, as prosecutors continue to probe and consumers lose faith.
Jasper Lawler of CMC Markets reckons the City isn’t impressed with the new Volkswagen boss either:
The emissions scandal is starting to look like a real albatross around the neck of the automotive sector.
The choice of Matthias Müller as new VW chief is a positive first step to address the emissions scandal but the concern is that the selection of the Porsche CEO is too insular and won’t provide the kind of culture change needed.
Glencore shares lose almost 30% in rout
Wow. After a traumatic session, Glencore shares have closed for the day down a staggering 29% at around 69p, a new alltime low.
Those fears that the company’s shareholders could be wiped out, unless commodity prices recover, have sparked a remarkable rout today.
That means Glencore shares have almost halved since the company tapped shareholders for fresh capital just two weeks ago (!), at 125p per share.
Other miners slumped too, with Anglo American shedding 10% and BHP Billiton down 6% .
Tony Cross, market analyst at Trustnet Direct, explains that:
Downbeat [industrial profit] numbers out of China overnight plus the prospect of US rate hikes making dollar denominated commodities even more expensive once again took the shine off the situation.
And that wiped 150 points off the FTSE 100, which ended 2.4% lower at 5958 points.
Every major Western stock market is in the red right now:
The FTSE 100 has now shed 2.1%, today as the mining sector rout continues.
This has wiped 127 points off the blue-chip index, which has currently just 5980.
Conner Campbell of SpreadEX explains:
Widening losses for the FTSE saw the index fall below the 6000 level it has struggled with all month, spurred on by a truly dismal showing from its commodity stocks. Sharp declines for Brent Crude and copper (as the metal barely kept its head above the 6 year lows seen in August) had serious ramifications for the oil and mining sectors, with the latter having an astonishingly bad day.
Anglo American approached its lowest price since its IPO in 1999, whilst Rio Tinto shed 100 points and KAZ Minerals plunged by 20%. Of course, the worst performer remained Glencore, which spent the day dipping its toes in fresh all-time lows as investors began (or rather, continued) to run out of patience with the stock.
The German DAX is also down 2% (Volkswagen is partly to blame) while the French CAC has slid 3%, led by carmakers and banks.
Another Volkswagen shoe has dropped, with Skoda announcing that it sold 1.2m cars containing the devices used to trick emissions testers.
The New York stock market has opened in the red, echoing the falls in Europe today.
The Dow is down by around 0.7%, or 116 points, in early trading.
And the week starts with a whimper http://t.co/fMo7VfraL9 pic.twitter.com/uJuOkvgPOw
— MarketWatch (@MarketWatch) September 28, 2015
Sir Richard Branson has found a silver lining in the dark cloud enveloping Volkswagen.
The Virgin Group chief told CNBC that the emission test revelations should encourage manufacturers to develop clean energy, and move away from diesel cars.
Branson argued:
“What’s happened to Volkswagen is actually positive news in that hopefully the car manufacturers will do the right thing and will invest in the future.”
Branson isn’t planning to buy a VW-made car, though, as he’d want to operate a “clean” vehicle. Or a spaceship, of course.
The VW cheating scandal may be 'positive news,' @richardbranson says » http://t.co/E68L7V146M pic.twitter.com/r0Dn91q1NM
— CNBC (@CNBC) September 28, 2015
Updated
Currency Wars can work wonders for exports.
That’s according to new research from the International Monetary Fund, which found that a 10% fall in the value of a nation’s currency can boost exports by an average 1.5%.
Timely stuff; suggesting American firms will suffer from the recent strength of the US dollar.
A Glencore director just told us: "we are under hedge fund attack but don't know why"
— Gianclaudio Torlizzi (@TCommodity) September 28, 2015
Another new low for Glencore.... shares just slumped to 66.67p, down 31% today.
*GLENCORE EXTENDS LOSSES; FALLS 30% IN LONDON TRADING
— lemasabachthani (@lemasabachthani) September 28, 2015
Glencore isn’t the only mining company having a bad day. Shares in Anglo American are down 8.6%, on track for a record low.
#COMMODITIES MELTDOWN: #Mining company @AngloAmerican heading to its lowest since London IPO in 1999 pic.twitter.com/LGr1axXzGr
— Javier Blas (@JavierBlas2) September 28, 2015
Germany’s deputy finance minister, Jens Spahn, has admitted what we already suspected -- the Volkswagen emissions scandal could hurt the country’s economy.
Spahn told a conference today that:
“The car industry is crucial for the German economy. It [the emissions scandal] can have a big impact on the German economy. This should worry us a little.”
(quote via Reuters)
Shell’s decision to abandon drilling in the Arctic (see earlier post) has been welcomed by the Green Party.
Their leader, Natalie Bennett, told the party’s conference that oil giants need to be kept out of the region.
“Campaigners against dirty energy will breathe a sigh of relief today. The decision was clearly a reaction to low oil prices and reflected the growing importance of renewable energy sources.
“Shell and other oil and gas companies do not have a good track record when it comes to environmental safety. As we head to the Paris climate change talks later this year, global leaders must make a commitment to ensuring that fossil fuel reserves are kept in the ground, as the science dictates. We cannot allow Shell and others to return to the Arctic.”
Updated
#Glencore -30% and into another volatility auction. $GLEN printed low so far 69p, where will the sell-off end? RO
— IGSquawk (@IGSquawk) September 28, 2015
As the gloom deepens over Glencore, the cost of insuring its debt against default has jumped sharply to a record high.
A credit-default swap that would pay out if Glencore defaulted has jumped from 554 basis points on Friday to 708 basis points today. That means it would cost £700,000 per year to insure £10m of five-year Glencore bonds.
Volkswagen ex-CEO 'under investigation' by German prosecutors
The VW story is rattling along fast today; with German prosecutors announcing they have started an investigation against former Volkswagen CEO Martin Winterkorn.
Braunschweig-based prosecutor’s office said that they will examine:
“allegations of fraud in the sale of cars with manipulated emissions data”.
They are trying to discover who was responsible for using secret devices to evade US emissions tests. The move comes five days after Winterkorn resigned, insisting he was not aware of any wrongdoing on his part.
Updated
It’s a bleak morning for workers in Redcar, in the North East of England.
The town’s iron and steel making plant is to close, with the loss of 1,700 jobs, following the slide in steel prices.
Redcar steel plant to close with 1,700 job losses http://t.co/J2y2ZiPjma
— The Guardian (@guardian) September 28, 2015
Local MP Anna Turley has criticised the plant’s owner, SSI, and the government for not keeping the plant going.
She said:
“Redcar was built on steelmaking, Teesside was built on steelmaking.
It’s about generations of people that have worked in that blast furnace and fought so hard, not just in the last few days but in the last few weeks, months, years, to keep steelmaking alive. It’s just been allowed to fizzle out.”
So @annaturley says Redcar steel closure "devastating" and "a massive hammer blow to our community".."Mothballing needs to be done properly"
— Faisal Islam (@faisalislam) September 28, 2015
The slump in Glencore’s share price has hit founder Ivan Glasenberg in the pocket.
He owns over 8% of the company, which was worth £6bn when Glencore floated in 2011. The crumbling share price means its now worth under £1bn, by our calculations.
Obviously Glasenberg has other assets too, but there’s a risk he could be downgraded from ‘billionaire’ to ‘ex-billionaire’.
Ivan Glasenberg down to his last £1bn in Glencore shares (was £6bn-ish once upon a time). http://t.co/L77oMYwj52
— Nils Pratley (@NilsPratley) September 28, 2015
The word ‘rout’ doesn’t really do justice to Glencore’s share price today:
-27% #GlencoreWatch pic.twitter.com/IWJk0J4fNJ
— Jonathan Ferro (@FerroTV) September 28, 2015
When you know a stock is screwed = a 27% move lower on the day on no real news.
— Jonathan Ferro (@FerroTV) September 28, 2015
We have another development in the Volkswagen scandal -- Audi has revealed that 2.1 million of its cars worldwide were fitted with software to cheat emissions tests.
This covers 577,000 cars in Germany, 1.42 million in other Western European countries, and 13,000 in the US. Audi added that its A1, A3, A4, A5, A6, TT, Q3 and Q5 models are affected.
This is a portion of the 11 million cars from across VW’s stable of brands, including Audi.
#BREAKING VW Scandal: Audi says 2.1 million cars worldwide fitted with emission-cheating software.
— Agence France-Presse (@AFP) September 28, 2015
Updated
Back in Frankfurt, Volkswagen shares have slumped by 6% as the emission scandal casts a fog over Germany.
Other carmakers are leading the DAX fallers too:
Over the weekend, it emerged that the European Central Bank had suspended purchases of Volkswagen bonds through its quantitative easing programme.
If other purchases follow suit, it could be harder for VW to finance its operations....
How bad are things for Glencore? Here's its share performance compared with VW since Sept 16. pic.twitter.com/thDy46BzXc
— Lorcan Roche Kelly (@LorcanRK) September 28, 2015
Updated
Investec: Glencore's shareholders could be wiped out
Here’s the key slide from today’s Investec report, showing how Glencore investors could be flattened unless commodity prices scramble back.
Investec: if commodity prices stay where they are, the equity value in Glencore will be wiped out vs its debt. pic.twitter.com/Q3tzCUatvT
— Joseph Cotterill (@jsphctrl) September 28, 2015
Glencore, though, argues that its debt pile is less alarming than it appears, because it holds large reserves of copper and iron ore which can be sold if needed.
Assumes a) valuation for the stock of 15x earnings b) not netting off Glencore's trade inventory from its debt (as the company wants you to)
— Joseph Cotterill (@jsphctrl) September 28, 2015
Updated
Glencore is turning into one of the greatest destructions of shareholder value in recent years.
Its shares have fallen steadily since floating just four years ago - today’s selloff means they’ve lost 84%.
Glencore getting battered. - off 17% pic.twitter.com/Ej2NZJEZXx
— Neil Hume (@humenm) September 28, 2015
Volkswagen "suspends R&D chiefs"
The Volkswagen emissions scandal has taken another twist.
There are reports that the heads of research and developments at its VW, Porsche and Audi divisions have just been suspended:
Reuters: Volkswagen's board has suspended R&D officials of VW passenger cars, Audi and Porsche in the emissions scandal
— Sky News Newsdesk (@SkyNewsBreak) September 28, 2015
The news came as Angela Merkel’s chief of staff, Peter Altmaier, told Bloomberg TV that Volkswagen must explain how illicit software was installed on 11 million cars to evade emission tests.
This is a serious matter. Volkswagen must clarity what went wrong, how it went wrong, and how it can be repaired.
City firm Investec appears to have triggered the rout in Glencore’s shares today, with a very bearish analyst note.
Investec warned that Glencore’s equity value could be wiped out unless the prices of key commodities (such as iron ore and copper) pick up.
It wrote:
“The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve.”
Glencore has just raised $2.5bn in a new equity issue -- at 125p per shares, and is also cutting its dividend to help cut $10bn from its $30bn debt pile.
But with the Chinese economic slowdown continuing, and commodities prices slumping, will this be enough? This morning’s share price reaction suggests not....
Yikes - Glencore shares are now down by 10%, as analysts speculate that investors could be wiped out.
Another bad day at the office for Glencore (-10.4%) - Investec warned there's little value for shareholders if low commodity prices persist
— RANsquawk (@RANsquawk) September 28, 2015
Investec:"If major commodity prices remain at current levels (...) nearly all the equity value of both Glencore and Anglo could evaporate"
— Carolin Roth (@CarolinCNBC) September 28, 2015
Updated
Glencore shares hit record lows
Shares in commodity trading firm Glencore are slumping to fresh record lows today.
Fears over the Chinese slowdown, and debt-laden Glencore’s ability to ride it out, have dragged its shares down 8% this morning to 89p.
They’ve now lost 70% of their value this year alone, and over 80% since floating at 530p in 2011.
Glencore launched a debt restructuring last month, to cut its borrowings from $30bn to $20bn. Analysts fret that the company’s debt pile could become increasingly hard to manage, unless commodity prices rally.
Updated
Back in the UK, German discount supermarket chain Aldi has announced it will start selling goods over the internet.
Aldi is starting with life’s essentials - shipping wine by the case early next year, followed by special offers of non-food products. The move comes after Aldi posted record sales for 2014, as its no-frills approach proves a winner with UK consumers.
In the oil sector, Royal Dutch Shell has abandoned its plans to drill off the coast of Alaska.
The company admitted this morning that its “Burger J” exploration well, located in Alaska’s Chukchi Sea, had proved disappointing.
It told shareholders:
For an area equivalent to half the size of the Gulf of Mexico, this basin remains substantially under-explored.
Shell has found indications of oil and gas in the Burger J well, but these are not sufficient to warrant further exploration in the Burger prospect.
The move will cost Shell $4.1bn in writedowns and contractual commitments, but will be welcomed by environmental groups.
Shell halting Arctic drilling. Oil prices and technical challenges doing what Greenpeace couldn't. http://t.co/Hhb0XXPfmZ
— Matthew Campbell (@MattCampbel) September 28, 2015
Shares in mobile giant Vodafone have fallen by 3% this morning, after talks with rival Liberty Global over asset swaps floundered.
China and Catalonia drag European markets down
European stock markets are all as red as the moon this morning:
Traders are blaming the 8.8% fall in Chinese industrial profits in August, which is the biggest decline since at least 2011.
Mike van Dulken of Accendo Markets explains:
The negative opening comes after August Chinese Industrial Profits declined at their fastest annual pace since records began four years ago, with growth hurt by currency devaluation and financial market volatility, which just adds to the growing slowdown worries overshadowing the world’s #2 economy and impacting the commodities space.
The partial victory secured by separatist parties in Catalonia last night is also a factor, he adds:
A pro-independence win for the Catalonia electorate also adds to Eurozone political risk, showing desire for the key state to break away from Spain and means the likelihood of an official Scottish like ‘Yes or No’ vote in the next 18-months.
A majority of seats will see #Catalan separatists become more assertive. Minority of vote share will constrain their pace and tactics.
— The EIU Europe (@TheEIU_Europe) September 28, 2015
Catalan bond yields rise
Catalonian debt is falling in value this morning after separatists took control of Catalonia’s regional government last night, possibly heralding another chapter in the eurozone crisis.
The yield on Catalan 10-year bonds has jumped to 4.23%, from 3.99%, meaning the debt is seen as riskier.
As Ashifa Kassam reports from Barcelona, the election result could plunge Spain into one of its deepest political crises of recent years - even though it wasn’t a formal vote on independence.
“We won,” said Catalan leader Artur Mas i Gavarró, as a jubilant crowd waved estelada flags at a rally in Barcelona. “Today was a double victory – the yes side won, as did democracy.”
After attempts by Catalan leaders to hold a referendum on independence were blocked by the central government in Madrid, Mas sought to turn the elections into a de facto referendum, pledging to begin the process of breaking away from Spain if Junts pel Sí won a majority of seats.
His party fell six seats short of a majority on Sunday. But Mas vowed to push forward with independence. “We ask that the world recognise the victory of Catalonia and the victory of the yes,” he said. “We have won and that gives us an enormous strength to push this project forward.”
Investors aren’t panicking too much, though. Spanish sovereign debt remains calm this morning:
#Spain's govt bonds start a tad higher as Catalan Separatists fail to get outright majority. 10y yields drop to 2.02% pic.twitter.com/xJwaoQ42S7
— Holger Zschaepitz (@Schuldensuehner) September 28, 2015
Introduction: Catalan vote and Chinese growth fears
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A new week begins with another bout of worries over the global economy, and a new political headache for Europe’s leaders after Sunday’s Catalan election.
A sharp drop in profits at China’s factories, down almost 9%, has sparked more concern that its economy is slowing fast.
From Melbourne, Angus Nicholson of IG reports:
Chinese industrial profits data came in below consensus expectations and immediately spurred selling in Chinese and Japanese markets....
Chinese industrial profits prompted further concerns about the economy as they declined 8.8% from a year earlier. Mining, coal, oil & natural gas all continued to see profit declines between 40-68%.
And this leaves investors fretting that the world economy isn’t able to support a rise in US interest rates, which could still come this year.
As Michael Hewson of CMC Markets explains:
With Fed officials seemingly intent on raising rates this year come what may, there is a fear that the Fed might be on the cusp of making a big mistake.
It still remains far from clear how weak or otherwise economic conditions in China are, with Nike’s quarterly results showing some decent numbers in the China region, however concerns remain about the weakness of the manufacturing sector.
China stocks fall to one-week low as industrial profits slump http://t.co/kluXy8u31P pic.twitter.com/hDvmTcSaxD
— Bloomberg Business (@business) September 28, 2015
And in Spain, parties that support Catalonia’s separation from the rest of Spain won control of the regional parliament at last night’s election.
That’s going to put more pressure on Madrid to consider a proper referendum on the issue, even though separatists didn’t quite win a majority of the votes.
And there’s no escape from the emissions scandal gripping Volkswagen. Over the weekend, German media claimed that the carmaker was warned in 2011 that it was cheating on emissions tests.
We’ll be tracking all the main events through the day....
Updated
