Closing summary
It appears that investors think the worst of the coronavirus outbreak is well and truly priced in on stock markets, with a new record high for the tech-focused Nasdaq in the US.
Strong US data has also added to a more positive mood, thanks in part to ADP jobs numbers beating expectations spectacularly.
IHS Markit’s services purchasing managers’ index (PMI) recorded the strongest expansion in 10 months. A revised reading of 53.4 in January up from 52.8 in Decembe, above the 50 expansion mark.
The oil price has surged, initially aided by a report of a coronavirus treatment that was played down by the World Health Organisation. Brent crude futures were up by almost $2 a barrel to $55.8 – a gain of 3.4% today. The US benchmark, West Texas Intermediate, saw similar gains.
In Europe markets have gained more than 1% in many of the major markets. Germany’s Dax, which is particularly export-sensitive, rose by 1.4%.
The UK’s FTSE 100 has gained 0.8% to reach 7,496 points with under two hours of trading left. The FTSE 250 has gained 0.6%.
Thanks for reading today, and join us tomorrow for more economics, business and markets. JJ
Nasdaq hits record high despite coronavirus fears
And it’s a record high for the Nasdaq, even amid a global public health emergency.
Investor sentiment was buoyed earlier in the day by a Chinese TV report that an effective treatment had been found. The World Health Organisation quickly played this down, but the gains in stock and oil prices were nevertheless sustained.
Confidence was also aided by the ADP jobs number, which suggested that the US private sector added twice as many jobs as expected.
The US dollar has now gained 0.5% against the British pound, which fell below $1.30.
Wall Street rises as investor sentiment on coronavirus improves
Confirmed: a strong open in New York.
The S&P 500 and Dow Jones both rose by 1%, while the Nasdaq increased by 1.1%.
US stock futures are pointing to a strong open on Wall Street.
S&P 500 futures suggest a 0.8% bump at the opening bell, while the Dow Jones industrial average will gain about the same.
Improved investor sentiment around the effects of the coronavirus (however warranted) appear to be one of the factors explaining the increase, while the ADP jobs numbers have added momentum for market bulls.
Notable trade figures from the US: the trade deficit has fallen for the first time in six years in 2019 as the White House’s trade war with China curbed the import bill.
The US Commerce Department said on Wednesday the trade deficit fell 1.7% to $616.8bn last year, the first drop since 2013.
The news does not quite fit the agenda of Trump, who also wants to make trading partners accept more “made in the USA” products, theoretically boosting the regions with a high concentration of manufacturing jobs that backed him in 2016.
Tariffs on hundreds of billions of dollars of goods imports from China (and the retaliation) appeared to weigh on trade. From Reuters:
Goods imports tumbled 1.7% last year, with exports decreasing 1.3%, showing that the Trump administration’s “America First” agenda decreased the flow of goods.
An interesting reading from the US ADP private payrolls number – it’s an absolute blowout, the highest since 2015.
The ADP number is often seen as a sneak preview of the crucial non-farm payrolls, the key US labour market indicator. That’s due on Friday.
ADP reported that the US private sector added 291,000 jobs in January – almost double the 156,000 expected by economists, and a big increase from the revised reading of 199,000 in December.
Stock futures and the US dollar have both risen in the aftermath of the data.
January @ADP payrolls 291k vs. 158k est. & 199k in December (revised down -3k); midsized businesses gained most at 128k, with small at 94k and large at 69k; natural resources & mining was only negative sector (-2k), while leisure & hospitality was strongest (96k)
— Liz Ann Sonders (@LizAnnSonders) February 5, 2020
Music streaming service Spotify has reported that it added a record number of subscribers at the end of 2019, but it made an operating loss as it spent on promotions.
The number of paying users rose by 11m in the final quarter of 2019 thanks to free trials. At the end of 2019 Spotify’s number of monthly active users, including free users, had grown to 271 million, a 31% increase from a year earlier
2020 will be an “investment year”, Spotify said.
*This post has been corrected: Spotify made an operating loss during the last quarter of 2019, not a loss.
Updated
Mike Lynch, the man once hailed as Britain’s Bill Gates, has submitted himself for arrest as he prepares to fight extradition to the US, where he faces fraud charges.
Lynch has been involved in a long-running civil trial in the UK, where he has been accused of fraudulently inflating the value of Autonomy, the tech firm he founded and sold to Hewlett-Packard in 2011. Lynch denied all of the allegations.
Representatives for the British businessman said the arrest is a formality, required as part of the extradition process initiated by the US Department of Justice. Lynch is contesting the extradition.
In a statement Lynch’s lawyers, Chris Morvillo and Reid Weingarten, said:
Since HP first raised these allegations more than seven years ago, Dr Lynch has steadfastly denied them and has worked hard to properly respond and set the record straight. The UK SFO previously investigated and did not pursue the allegations. Dr Lynch has now answered HP’s claims in the appropriate forum, the High Court in London, where he attended court every day of the 10-month trial.
During that trial, Dr Lynch testified about all of these allegations for more than 20 days. He has not hidden, nor has he shied away from defending his conduct. Having patiently and diligently defended the case in England for several years, he awaits the civil trial judgment. The US DOJ should not have commenced extradition proceedings prior to the judgment of the English High Court.
Dr Lynch vigorously rejects all the allegations against him and is determined to continue to fight these charges.
Just after midday the FTSE has retreated slightly, for a gain of 0.6%. Sterling is up by 0.2% against the US dollar at $1.3056, and by 0.4% against the euro at €1.1844.
Brent crude oil futures prices have also fallen back from the day’s highs, but are still up by 2.3% today.
Here’s some lunchtime reading (for GMT readers at least):
- FTSE 100 firms including Tui, British Airways owner IAG and the London Stock Exchange Group have been accused of dragging their feet on diversity targets ahead of a looming 2021 deadline.
- Amazon employees under pressure to work faster have called on retail giant to improve conditions – and take their complaints seriously.
- Boris Johnson should consider setting targets to level up the UK’s weakest regions to tackle widespread inequality, said a Bank of England official.
An aside in the still extraordinary tale of Tesla in the last few days: even one of the investors responsible for the “Big Short” has had his fingers burned.
Steve Eisman made a big bet against the housing sector before the financial crisis, earning him a portrayal by Steve Carell in the (excellent) Big Short film. But today he said that he has moved to cover his short (closing at least part of the position) in an interview with Bloomberg TV.
There’s only so far short sellers can hold on when shares surge, he acknowledged.
Steve Eisman said he covered his Tesla short "a while ago"
— Luke Kawa (@LJKawa) February 5, 2020
"Everyone has a pain threshold and when a stock becomes unmoored from valuation because it has certain dynamic growth aspects to it and cult-like aspects to it, you just have to walk away."
Short sellers’ potential losses are theoretically infinite as they must buy back the shares they have borrowed and sold on, even if the price has risen exponentially. In Tesla’s case that has happened, with prices doubling in the course of 2020.
WHO official: 'There are no known effective therapeutics'
Well let’s see what the market reaction is to this: a World Health Organisation spokesman says there is no known treatment for coronavirus.
The spokesman in Geneva said, via Reuters: “There are no known effective therapeutics.”
Markets have responded with extraordinary vigour to an unconfirmed report from Chinese television that an effective treatment had been found. So far oil prices and stock markets have sustained those gains.
Expectations of larger central bank stimulus efforts may also have played into the gains, which came after prices dipped at the start of London’s trading day.
World Health Organisation Spokesman: No Known Effective Therapeutics Against This Coronavirus
— LiveSquawk (@LiveSquawk) February 5, 2020
- To Hold Press Conference On Coronavirus 1500 GMT (1000 ET)
Vodafone is to remove Huawei equipment from the sensitive, core parts of its mobile networks across Europe at a cost of €200m (£169m) over the next five years.
The group, which has 111 million customers across Europe, has taken the decision after the UK government’s move last week to limit the use of Huawei equipment in the country’s 5G network, writes the Guardian’s Mark Sweney.
Read the full story here:
A quick stock market stock take: the FTSE 100 is up by 0.76%, flirting with the 7,500 point mark after the unconfirmed report of a coronavirus treatment buoyed investor sentiment.
The Euro Stoxx 600 index has gained 1%, with Germany’s export-sensitive Dax up by 1.2% and France’s Cac 40 up by 0.9%. Oil prices have held on to most of their gains, with Brent crude futures still up by 2.8%.
Some further reading on the implications of the coronavirus outbreak for you is here:
And you can follow all the latest news on the outbreak more generally here:
Protestors have blocked access to BP’s head office in London to mark the first day for its new chief executive, Bernard Looney.
More than 100 Greenpeace activists attempted to place 500 solar panels in front of the building in St James’ Square, blocking the entrances with oil barrels, the group said in a statement.
Police reportedly arrested nine activist, Reuters reported. Several activists chained themselves to the oil barrels. BP responded, via Reuters:
Looney, who was visiting staff in Germany on Wednesday, shares the “deep concerns” of the climate protesters, BP said in a statement. He will set out his vision for BP’s response to the low carbon energy transition in a speech next week.
BP said Looney “hopes that what he has to say then will give people a sense that we get it and are very serious about working to address the problem.”
Across the Channel, PMI readings suggest that the Eurozone economy also expanded faster than expected thanks to services – despite really weak retail sales.
The PMI composite reading for the Eurozone was also stronger than flash data, at 51.3 points in January versus an earlier 50.9 expansion, IHS Markit said. (50 is the expansion mark.)
Bert Colijn, senior Eurozone economist at ING, said:
The final services PMI in January were better than expected. This indicates that recent service sector activity has been decent, despite the sharp decline in retail sales in December.
December retail sales fell by 1.6%, bringing it down to its lowest reading since February 2019.
🇪🇺 Eurozone Composite Output PMI records its best reading since last August, ⬆️ to 51.3 (50.9 - Dec). Services activity grew solidly, but slightly weaker than previously, but manufacturing output fell at softest pace since June. More: https://t.co/Had57oZwkj pic.twitter.com/BdHjpJiUMb
— IHS Markit PMI™ (@IHSMarkitPMI) February 5, 2020
Some reactions on the services PMI data.
Pantheon Macroeconomics sugggests that the 16-month-high means the Bank of England’s growth forecasts for the first quarter may be too low. Samuel Tombs, chief UK economist at the consultancy, said that it was “another encouraging sign that the post-election recovery in the economy is gathering momentum”. He added
It’s clear responses received later in the month were much stronger than those at the start, consistent with the idea that the recovery is strengthening.
Simon French, chief economist at stockbroker Panmure Gordon, injects a note of caution about volatility in the data, but adds that it seems there was an election bounce:
Strong rebound in Jan UK PMIs strengthens our view that the post-election rebound is real - but whether it is sustained is an open question & will hinge on future decisions made by hhlds & businesses. Also big volatility in PMIs has been a reason for caution before - in July 2016 pic.twitter.com/iRIwxnbdiF
— Simon French (@shjfrench) February 5, 2020
Breaking off momentarily from coronavirus and PMI, new car sales in the UK fell by 7.3% in the first month of 2020, according to figures published today by the Society of Motor Manufacturers and Traders (SMMT).
The lobby group blamed continued confusion surrounding diesel and clean air zones and ongoing weak consumer and business confidence for the declines. The industry is under serious pressure from the government’s plans to bring forward a ban on all hybrid and other fossil fuelled cars to 2035.
Some 149,279 vehicles left showrooms in January, with diesel sales down by more than a third and petrol sales also falling by a tenth.
However, the rapid rise of battery electric sales continued, with sales tripling year-on-year.
Sterling has risen against the euro and the US dollar in the wake of the services PMI reading.
Against the euro the pound is up by 0.4% for the day at €1.1853, while it gained 0.25% against the US dollar to reach $1.3063.
Yields on UK government bonds, gilts, rose to the highest in almost two weeks as investor demand for safe-haven debt diminished slightly. The 10-year gilt yield rose by four basis points to 0.606%.
The election, and the consequent narrowing of Brexit possibilities, appeared to help UK business and consumer spending, IHS Markit said.
Tim Moore, economics associate director at IHS Markit, said:
January’s PMI surveys give a clear signal that the UK economy has picked up since the general election, as a diminishing headwind from political uncertainty translated into rising business and consumer spending.
Signs of greater willingness to spend and renewed positivity about the domestic economic outlook has helped lift service providers’ growth projections to the highest for just under five years.
The strongest reading for the UK services PMI in 16 months came because of increased confidence among businesses and consumers, according to IHS Markit.
The reading is consistent with UK GDP rising by approximately 0.2% in the first quarter of 2020, the data company said.
Survey respondents noted that the headwind from delayed decision-making had lifted since the general election and helped to deliver a return to business activity growth in January. This was also reflected in a robust improvement in order intakes, with the rate of new business expansion accelerating to its strongest since June 2018.
However, the data were compiled before 23 January, when the outlook on the coronavirus outbreak worsened.
UK services sector expanded at fastest since September 2018
The British services sector expanded faster than previously thought in January, according to IHS Markit’s purchasing managers’ index.
The final reading for the closely followed index was 53.3 points, representing a stronger expansion than the 52.9 indicated by early data.
Updated
That oil price reversal is gaining momentum: Brent crude futures prices are up by 3% at the time of writing at $55.60 per barrel – having started the day just above $54.
US stock market futures have gained as well after the unconfirmed reports of an effective treatment from Chinese media.
The price of futures tracking the S&P 500 index of major US stocks have risen by 0.55% today, while the equivalent futures for the Dow Jones industrial average point to a gain of 0.7% for the blue-chip index.
Oil prices jump 2% after unconfirmed reports of coronavirus treatment
Oil prices, weighed down by concerns on coronavirus’s impact on demand, have gained a dollar after the unconfirmed Chinese TV reports of a treatment.
Brent crude oil futures prices jumped from a low of $54.12 per barrel just after 8am to over $55.1 an hour later. They are now up by 2.2% for the day.
Stock markets jump after unconfirmed reports of virus treatment
Stock markets have staged a rapid reversal in the last few minutes, apparently after a report of an effective treatment for coronavirus. The reports remain unconfirmed.
The FTSE 100 is now up by 0.5% at about 7,477 points, having previously been down by 0.3%. The Euro Stoxx 600 index, which measures large companies across Europe, is now up by 0.5% for the day, having previously dipped.
Reuters reports that traders have cited a Chinese TV report that a research team at Zhejiang University has found an effective drug to treat people with the new coronavirus.
Here’s the FTSE 100 performance:
Updated
The biggest faller on the FTSE 100 is Imperial Brands, the tobacco maker, which fell by 9% after it warned that profits will be hit because of regulation on vaping products in the US.
The company, whose brands include Davidoff, Gauloises and Lambert and Butler, on Wednesday said profits in the first half of the year will fall by 10% and cautioned on full-year earnings because of the ban on some flavours of cartridge-based vapour devices and weaker consumer demand, Reuters reported.
Vaping was once hailed as the future for cigarette makers as users turned towards products they deem to be less likely to harm them, but they are suffering a backlash after a spate of deaths and lung injuries associated with their use. Imperial, whose main vaping brand is called Blu, said:
Regulatory uncertainty and adverse news flow continues to affect demand in the US and Europe.
European markets have dipped mildly at the open, with the FTSE 100 down by 0.3% and the FTSE 250 flat.
France’s Cac 40 index has fallen by 0.2%, while Germany’s Dax is down by 0.26% in the first half hour of trading.
It came after Asian markets rebounded again, following a delayed reaction on markets when investors returned from an extended lunar new year holiday.
Bethel Loh, a macro strategist at forex trading platform ThinkMarkets, said:
The truth of the matter is that [coronavirus’s] impact remains significant and unknown, and still demands immediate interest from most affected economies.
Airbus shuts Tianjin factory amid virus outbreak
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The coronavirus outbreak remains the dominant theme across the business world, with supply chains disrupted in a crucial manufacturing region, widespread travel issues, and market volatility as investors try to work out longer-term effects.
Airbus today became the latest company to warn of serious disruption. It said that its Tianjin final assembly line facility near Beijing is currently closed, and that travel restrictions inside China were causing logistical challenges.
The Tianjin facility manufactures some of the company’s A320 planes, which recently overtook Boeing’s 737 as the bestselling family of aircraft ever. In a statement on Wednesday morning the European manufacturing giant said:
Airbus is constantly evaluating the situation and monitoring any potential knock on effects to production and deliveries and will try to mitigate via alternative plans where necessary.
Hong Kong’s Cathay Pacific Airways has asked all its 27,000 employees to take three weeks of unpaid leave in coming months as it battles a fall in demand caused by the virus outbreak, the company said on Wednesday.
Cruise operator Royal Caribbean yesterday warned that the virus would knock its earnings as it cancelled holidays in China and said that passengers from the region would be denied boarding.
And US sportswear retailer Nike warned of a financial impact after it closed about half its own stores in China and cut operating hours at the rest. German rivals Adidas and Puma (founded by brothers) could also come under pressure, analysts warned.
However, Asian markets rose on Wednesday, after previously sustaining heavy losses. Analysts at Deutsche Bank led by Craig Nicol said it may be slightly more positive news on the virus epidemiology that has improved market sentiment.
The fact that there appears to be a slowing in independent incidents in countries outside of China and a slowing in the rate of transmission in cases outside of Wuhan province appear to be making investors more comfortable for now.
It all comes at a time when the Chinese economy appeared to be slowing, as data this morning appeared to illustrate. Growth in China’s services sector slowed for a second month in January, a traditionally busy sales season, hitting a three-month low as companies cut prices and new orders dipped, according to the Caixin purchasing managers’ index (PMI).
The reading, which is unlikely to have felt the main effects of the outbreak because of the survey’s timing, slowed to 51.8 last month, from 52.5 in December, but was still higher than an 8-month low hit in October, Reuters reported.
The agenda
- 9am GMT: Eurozone services purchasing managers’ index (PMI) (January)
- 9:30am GMT: UK services PMI (January)
- 10am GMT: Eurozone retail sales (December)
- 11:30am GMT: European Central Bank speech by Philip Lane, chief economist
- 12:15pm GMT: ECB speech by Christine Lagarde, president
- 1:30pm GMT: US balance of trade (December)
Updated
