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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (until 12pm) and Nick Fletcher

Oil slides as US crude stocks rise, taking shine off markets – as it happened

A cargo ship at a port in Lianyungang, Jiangsu province, China.
A cargo ship at a port in Lianyungang, Jiangsu province, China. Photograph: China Daily/Reuters

European markets close mixed but Dow falls

Better than expected Chinese trade data gave stock markets an early lift, but they came off their best levels thanks to a slide in oil prices after US figures showed a rise in crude inventories. Brent is now down 1.3% at $30.46 a barrel having earlier climbed to $31.92. Most European markets managed to end the day higher, but Germany was an exception and finished slightly lower, while Wall Street has now turned negative. The final scores in Europe showed:

  • The FTSE 100 rose 31.73 points or 0.54% to 5960.97 after earlier climbing as high as 6011
  • Germany’s Dax dipped 0.25% to 9960.96
  • France’s Cac closed up 0.3% at 4391.94
  • Italy’s FTSE MIB added 0.85% to 20,139.87
  • Spain’s Ibex ended 0.21% higher at 8934.5
  • In Greece, the Athens market edged 0.83% lower to 589.35

On Wall Street the Dow Jones Industrial Average is now down 135 points or 0.84%.

On that note, we’ll close for the evening. Thanks for all your comments, and we’ll be back tomorrow for the Bank of England interest rate decision, a host of trading statements and all the other major financial developments.

Ahead of Thursday’s Bank of England interest rate announcement - when no change is pretty much nailed on - sterling dropped to a new five and a half year low of $1.4380 before recovering to $1.4455.

Recent week data has suggested that an interest rate rise is now not likely until towards the end of the year, in contrast to the US Federal Reserve which has already made its first increase. Sterling has now lost around 6% in just a month, on concerns about the strength of the UK economy.

Updated

Joshua Mahony, market analyst at IG, said:

In yet another reflection of the fragility of financial markets, what was expected to be a rare green day for the FTSE is becoming increasingly likely to turn red once more, as oil prices tumble in the wake of the US crude inventory number. A mix of strong Chinese trade data overnight, and an indication that Russian crude output could be cut in the coming months, managed to provide a lift with US crude prices rising relatively calmly and consistently.

However, much like a house of cards, something that took the whole day to build has been blown down in the space of five minutes. The fact that a lower than expected US crude inventories figure would typically be supportive for oil prices goes to show that for now the oil market is finding buyers hard to come by in the face of such intense selling.

The US figures also show that weekly gasoline stocks have jumped 8.4m barrels to 240.43m, compared to forecasts of a 2.7m increase. This is reportedly the biggest two week rise on record, and points to continuing weak demand. Another reason for the fall in crude prices once the figures were released.

The EIA said:

Total motor gasoline inventories increased by 8.4 million barrels last week, and are above the upper limit of the average range.

Updated

Brent crude, which had earlier jumped as high as $31.92, has now slipped back 0.8% to $30.60 a barrel. US oil has dipped to as low as $30.31.

Updated

US crude stocks rise

Oil prices have slipped back after US crude stocks showed a weekly rise to levels not seen at this time of year for 80 years.

The increase of 0.2m barrels was less than the forecast rise of 2.5m barrels but the Energy Information Administration figures contrast with those of the American Petroleum Institute, which said on Tuesday that crude stocks had unexpectedly fallen.

In its report the EIA said:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.2 million barrels from the previous week. At 482.6 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years.

Updated

Wall Street edges higher

The US has followed other global markets by recording an opening rise, although it is not a particularly convincing one.

The Dow Jones Industrial Average is up around 53 points or 0.3%, while the S&P 500 has climbed by a similar amount.

Meanwhile former US Treasury Secretary Lawrence Summers has told Bloomberg TV that he would be surprised if the world economy could comfortably withstand four hikes. He said:

And I think that basically markets agree with me. And that’s why despite the statements that are being made, markets aren’t expecting four hikes.

If you ask if there are risk that we’re going to find ourselves in a situation within the next two years where policy is going to have to reverse, yes. I think that is a significant risk.

Summers.
Summers. Photograph: Jonathan Ernst/REUTERS

Rosengren also said (as reported by Reuters) that US central bankers faced challenges by hiking rates when other central banks were still easing (eg the ECB).

He said this divergence of policy could make foreign exchange trading “more volatile.”

Following December’s interest rate rise by the US Federal Reserve, attention turned almost immediately to when the next one would be, and how many there could be in 2016 in total.

The Fed indicated when it sanctioned dearer borrowing costs that there could be four quarter-point rises over the course of 2016. But since its December meeting things have changed somewhat, especially in China, and worries about a slowdown in global growth have increased.

So Eric Rosengren, Boston Federal Reserve president, is now saying there may be a more gradual path for rate rises than is currently expected. The market rout in China and the falling oil price have added to concerns that global growth has slowed significantly, he told the Greater Boston Chamber of Commerce. He said the Fed may now have to slow the rate of rate rises:

I hope the economy continues to improve, so that further normalization is appropriate. It is important, however, to carefully manage risks to the economy, including those emanating from abroad. Further increases in rates are in my view likely to be gradual.

While monetary policy should not overreact to short-term temporary fluctuations in financial markets, policy makers should take seriously the potential downside risk to their economic forecasts and manage those risks as we think about the appropriate path...

Further tightening will require data continuing to be strong enough that growth will be at or above potential, so that Federal Reserve policymakers can be confident that inflation will reach our 2% target.

On Monday Atlanta Fed president Dennis Lockhart said he did not think there would be enough new data to be able to decide on another rate hike until at least April.

The Federal Reserve in Washington.
The Federal Reserve in Washington. Photograph: Kevin Lamarque/Reuters

Updated

Here’s a chart from Bloomberg showing the best and worst stock markets so far this year (yes, all 13 days of it):

We had figures earlier showing that Greek inflation was rising faster than the eurozone average, and now Barclays had reduced its eurozone forecasts:

Updated

City experts have been falling over themselves to predict how fall the oil price will fall, with Standard Chartered’s $10 a barrel the outlier at the moment.

But the latest odds from Ladbrokes suggest that may be a step too far.

The bookie is offering 4/1 on a fall below $25, 20/1 on below $20 and 100/1 on below $10.

Ladbrokes Alex Donohue said: “Bearish oil speculators can cash in at an attractive fixed-odds price if the index plummets below $10 this year. The betting markets suggest such a fall is highly unlikely to happen however, with the odds favouring stability or even a rise from current prices.”

More scepticism over the Chinese trade data. Sanjiv Shah, chief investment officer at Sun Global Investments, said:

The higher export data may in part reflect past false transactions designed to overcome restrictions on transfers of currency outside the country. Recent data has shown sharp declines in foreign exchange reserves and independent estimates indicate a sharp increase in capital outflows in October and November. This means the level of exports in October and November may have been understated and the increase in exports in December is more apparent than real.

However, if there has been a true and sustainable recovery in exports, this may relieve some of the pressure on yuan to weaken. It is too early to say that the decline in the yuan has led to a sustainable increase in China’s competitiveness and therefore a healthier path for Chinese exports.

But given current weak trends on global growth and demand, there are still many grounds for scepticism on this point.

Over to Greece, and the European Central Bank will only start buying the country’s debt as part of its asset purchase scheme if Greece shows a strong commitment to its bailout programme.

That comes from ECB president Mario Draghi ahead of a first review of the Greek programme due to start later this month. Reuters reports:

Draghi added that even if the ECB waived the minimum credit rating requirement for Greek debt, the timing of possible asset purchases also depended on a set of additional factors linked to the program reviews and would be subject to various purchase limits.

The Greek central bank earlier said that reinstating the waiver was on the agenda, raising hopes that Greece could soon be included in the ECB’s quantitative easing program.

But sources close to the bank earlier said that the waiver is unlikely until it becomes clear that the first review, due to start later this month, is heading for success.

Draghi.
Draghi. Photograph: Francois Lenoir/Reuters

European markets gain ground

The better than expected Chinese trade data has lifted European markets, with commodity companies leading the way.

Oil has moved higher after briefly falling below $30 a barrel on Tuesday, with Brent crude now up nearly 2% at $31.46.

Copper rose from a six and a half month low, up almost 1% after the Chinese figures, giving some respite to beleaguered mining company shares.

European markets on the rise
European markets on the rise Photograph: Reuters

Greece emerges from deflation

Greece’s long deflationary spiral is over.

Greek consumer prices rose by 0.4% annually in December (on a harmonised basis) which is the first upward move since February 2013.

As this chart shows, Greek inflation (light grey) is rising faster than the eurozone average (dark blue).

Greek deflation

Updated

GE to cut 6,600 European jobs

Thousands of jobs are being axed across Europe by General Electric, including in Germany, the UK and France.

The US engineering giant is cutting staff following its acquisition of French firm Alstom’s energy division.

The cuts include 765 positions in France and 1,700 in Germany, according to GE spokesman Renaud Petitjean.

However, the French workforce should be protected by GE’s pledge to create one thousands extra jobs (a promise it made during the takeover).

Petitjean told Bloomberg that:

“Any potential job that will be impacted in France will have to be replaced at the end of the period.

“These positions, if we cancel them, will have to be recreated in addition to the 1,000 we promised to create.”

That guarantee doesn’t stretch to Britain, though, where Sky News says 660 jobs will go.

Eurozone factory output declines

Oh dear. Eurozone factories suffered falling output last November, according to the latest data from the region.

Industrial output contracted by 0.7% during the month, reversing a recovery in October.

It’s partly due to weaker demand for energy, but manufacturers also reported that they made less heavy-duty machinery and long-lasting consumer products.

Stats body Eurostat explains:

Production of energy fell by 4.3%, capital goods by 1.9% and durable consumer goods by 1.0%, while production of non-durable consumer goods rose by 0.1% and intermediate goods by 0.7%.

Sainsbury’s results<br>Undated handout photo issued by Sainsbury’s of a still from their Mog’s Christmas Calamity advert, which has been hailed as a “huge success” by the supermarket after the sales performance marked a significant improvement on the 1.1% sales drop in the previous three months. PRESS ASSOCIATION Photo.

Fictional cat Mog should be lapping up a saucer of gold top milk this morning, after helping Sainsbury’s beat City forecasts over Christmas.

The clueless charming feline fronted up Sainsbury’s festive adverts, and the move appears to have paid off.

Sainsbury’s posted total sales growth of 0.8% in the last 15 weeks. If you strip out new stores, like-for-like sales dipped by 0.4% - better than the 2% which had been expected.

Good news for Britain’s second largest supermarket chain, as it tries to pull off a merger with Home Retail. And it’s also a boost for Save The Children, as my colleague Sean Farrell explains:

The advert was viewed almost 37m times online and sales of a book and soft toy raised more than £1.5m for Save the Children, Sainsbury’s said.

Updated

Commodities are rallying this morning, pushing up the price of oil, copper, platinum and copper.

Only gold is lagging, having benefitted from recent anxiety.

Today’s China trade data should reassure some nervous investors, says Tom Rafferty of the Economist Intelligence Unit, despite question marks over their accuracy.

The data is in line with other indicators that suggest China’s economy is stabilising on the back of sustained stimulus measures, some of which have been targeted at the external sector.

There will be some qualms expressed about the reliability of the data, given the weaker performance in December of other major Asian exporters. However, China has consistently outperformed the region in what was a difficult year for global trade.

Rafferty also reckons China will avoid economic meltdown this year:

Although cautious about trade prospects for 2016, but we expect a modest pick-up in global demand and a weaker renminbi to help lift China’s export value growth to 2%, folllowing the contraction last year. We forecast import value growth of 4% as domestic demand stabilises and distortions caused by the oil price fall in late 2014 drop out of the base comparison.

Now this is important..... investors are anticipating that oil will remain low for several years.

That’s via Bloomberg’s oil expert, Javier Blas:

Troubled mining company Anglo American is the top riser in London, as the Footsie clambers back over the 6,000 point mark for the first time this week.

Anglo is benefitting from China’s improved trade figures, which might suggest improved demand for commodities this year.

Last year, its share price plunged by around 80% as the price of iron ore, copper and coal weakened.

Other natural resource companies are also leading the rally, followed by oil giants BP and Royal Dutch Shell. They are getting a lift from this morning’s rising oil price (see here)

Here’s the FTSE 100 top risers this morning.

FTSE 100 top risers

The surprise 2.4% jump in Chinese exports last month suggests that the manufacturers are benefitting from a cheaper currency.

And that might lead Beijing to conclude that they shouldn’t worry about the yuan weakening:

Société Générale’s currency strategist Kit Juckes says:

I can’t help wondering if the positive response to a bounce in yuan-denominated export growth that is a reward for the Yuan depreciation strategy, won’t just encourage more of the same.

If a weaker currency pays dividends for China, as it did for others, then chances are, we’ll see more competitive devaluation in the months ahead across Asia.

Updated

Oil is staging a recovery this morning too, having hit 12-year lows yesterday.

US crude oil has gained almost 2% to $30.97 per barrel, having plunged below the thirty dollar mark last night.

Brent crude is hovering around $31.35 per barrel.

Updated

European stock markets are rallying in early trading, as relief over China’s trade figures ripples through the City.

In London, the FTSE 100 has gained 64 points, or 1%, to 5992. Mining companies are among the risers.

European stock markets

Mike van Dulken of Accendo Markets says the Chinese data, and a rally on Wall Street overnight, are boosting confidence, if only temporarily.

This gives hope to the bulls that a bottom has been found and a short-term reversal is on the cards.

About those Chinese export figures....

Cynical City types often question whether China’s economic data can really be trusted, given the sheer challenge of assessing its economy (and the fear that officials could massage the figures to avoid causing ructions).

And today’s trade report does include one curious element - a 10% surge in exports to Hong Kong.

That means Hong Kong imported more from mainland China than the United States (!), and make the total exports data look much better.

Some of this trade will certainly be genuine, with goods moving on from Hong Kong through the global economy.

But this may also show that some companies have been fiddling the figures, and disguising speculative capital flows as routine trade.

That would be bad for two reasons. a) Chinese trade would be less healthy, b) capital flight could be a bigger problem.

Bloomberg has more details:

Economists said the surprise gains may harken back to past instances of phony invoicing and other rules skirted to escape currency rules. China’s government said in 2013 said some data on trade with Hong Kong were inflated by arbitrage transactions intended to avoid rules, an acknowledgment that export and import figures were overstated.

The increase in exports to Hong Kong and China’s imports from the city probably indicate “fake invoicing,” said Iris Pang, a senior economist for Greater China at Natixis SA in Hong Kong. Invoicing of China trade should be larger in December because of the wider gap between the onshore yuan and the offshore yuan traded in Hong Kong, she said.

Surging China Trade With Hong Kong Raises Doubts Over Recovery

Other Asian markets have performed well today, with Japan’s Nikkei jumping by almost 3%.

It does appear that investors are a little less anxious about the state of the world economy today, after such a rough start to 2016.

Shanghai market falls again

Investors look at screens showing stock market movements at a securities company in Beijing on January 13, 2016. Shanghai stocks gave up early gains on January 13 to end the morning flat despite a better-than-expected trade report out of China, but Hong Kong rallied. AFP PHOTO / FRED DUFOURFRED DUFOUR/AFP/Getty Images
Investors look at screens showing stock market movements at a securities company in Beijing today. Photograph: Fred Dufour/AFP/Getty Images

The Chinese stock market has suffered fresh losses today, despite today’s forecast-beating trade figures.

After an encouraging start, the Shanghai stock market suffered one of its traditional late selloffs.

This wiped another 2.4% off the benchmark index, taking its losses in 2016 to a chunky 16.6%. We’re now close to the depths plumped in last summer’s rout:

Introduction: Chinese trade data beats forecasts

Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.

While Europe was sleeping, China has wrong-footed analysts by reporting better-than-expected trade figures.

There was a lot of anticipation that December’s trade figures would be an absolute shocker. And it’s true that there are signs of weakness, with imports dropping by 4% year-on-year.....

....But exports surprisingly rose, by 2.3% in yuan-denominated terms.

It may be a sign that China’s economy is coping better than feared.

But Beijing remains cautious about the prospects for 2016:

Customs spokesman Huang Songping warned at a news conference that China’s trade faced “many challenges” in 2016 due to weak external demand, Reuters reported.

One of the main reasons for China’s lower exports in 2015 was weak external demand, he added. The 5% fall in the value of the yuan since last August had helped support exports but the impact would begin to fade, he said.

Here’s the full story: China sees ‘many challenges’ in 2016 as trade slumps on weak external demand

That’s pushed shares up across Asia, and is expected to put Europe on the front-foot:

Whether this is enough to prevent another day of turmoil in the commodity markets, though, remains to be seen. Oil is bobbing above the $30 per barrel mark this morning.

Also coming up today, supermarket chain Sainsbury is updating the City on its financial results over Christmas. At first glance, they show that like-for-like sales fell 0.4% - better than analysts had feared.

We’ll be tracking all the main events through the day....

Updated

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