European markets edge higher
It was not as turbulent a day as Monday’s rout, but stock markets still suffered another volatile session. Weak Chinese data and a halt in share trading sent investors running for cover on the first trading day of the year, and while a subsequent attempt by the Chinese central bank to stablise shares did manage to calm things for a while, the mood was still skittish. Commodity companies - hit hard on Monday by concerns about slowing growth in China - recovered some ground and gave support to markets, the FTSE 100 in particular. But an uncertain opening on Wall Street took off some of the shine.
Oil prices were weak again, as fears of falling demand outweighed supply concerns in the wake of growing Middle East tensions. Brent crude is currently 2% lower at $36.47 a barrel.
More Chinese news due overnight could set the tone for Wednesday’s markets. Tony Cross, market analyst at Trustnet Direct said:
There is more PMI data [for the service sector] out of China overnight that could again unsettle sentiment, whilst the US ADP payroll number tomorrow will start to offer some clues ahead of Friday’s non farm payrolls. Although the US has made that first step up the interest rate ladder, the question now is the pace of change and again anything that looks too hasty could see the bears back in play.
Overall the final scores in Europe showed:
- The FTSE 100 finished up 43.81 points or 0.72% at 6137.24, having risen as high as 6166 and fallen as low as 6079.
- Germany’s Dax edged up 0.26% to 10,310.10
- France’s Cac closed up 0.34% to 4537.63
- Italy’s FTSE MIB added 1.2% to 20,983.24
- Spain’s Ibex ended up 0.24% at 9335.2
- But in Greece, the Athens market lost 0.57% to 617.59
On Wall Street, the Dow Jones Industrial Average is currently down 89 points or 0.5%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow for the latest services PMI data and other financial developments.
Sterling fell to a nine month low against the dollar, down half a percent as the US currency continued to gain ground. But the pound edged up a similar amount against the euro following eurozone inflation figures which suggested no rush for the European Central Bank to sanction further stimulus measures.
Strong UK construction figures vied with the uncertainty of a possible Brexit from Europe to influence the direction of the pound during the day.
Here’s something from Bloomberg showing that - despite this week’s falls - the Chinese market is still expensive:
China battles to shore up the world's priciest stock market https://t.co/X6ZFxEAVYq pic.twitter.com/Z9x0gU3yXi
— Bloomberg Business (@business) January 5, 2016
Given the backdrop of disappointing Chinese data and growing tensions in the Middle East, this week’s US main economic events - the minutes of the Federal Reserve’s rate-rising meeting and Friday’s non-farm payroll figures - will be closely watched. Christopher Vecchio, currency analyst at DailyFX, said:
Weak economic data from across the globe - particularly China and the Euro-Zone - has the US dollar on stronger footing ahead of key event risk this week. Despite some alarming signs coming from the US economy (soft consumption figures, mixed housing data, and recession-level industrial production), investors and traders alike remain focused on ‘the big picture’: how fast will the Federal Reserve tighten policy this year?
With the December Federal Open Market Committee minutes due on Wednesday and the December US non-farm payrolls report due on Friday, market participants - short- or long-term in nature alike - will have a fresh look at where the Fed stands...
Parsing the FOMC minutes and reviewing the details of the December labor reports should help provide enough clarity for judgement to be made on “who is wrong”: either the market, currently pricing in two rates hikes for this year (via Fed funds futures); or the Fed, currently suggesting it will hike rates four times this year.
In the event that the FOMC meeting and the US non-farm payrolls prove to be supportive of the US dollar, it will likely come at the detriment of higher yielding currencies and risk-correlated assets. Any signs that the Fed could tighten policy faster than currently expected, against a backdrop of rising tensions between Iran and Saudi Arabia as well as Chinese/emerging market growth concerns, would seem like a caustic mix of influences for the commodity currency bloc in particular.
US markets edge higher
Wall Street has followed other global markets in attempting to stage a rebound after Monday’s China-induced rout. But as in Europe, the rally is rather tentative.
The Dow Jones Industrial Average is up 42 points or 0.2% in early trading, while the S&P 500 has opened 0.16% better and Nasdaq is 0.3% higher.
In Europe, the FTSE 100 is currently up 0.79% while Germany’s Dax has added 0.33% and France’s Cac has climbed 0.48%.
Oil prices remain under pressure, on fears of falling demand in the wake of the poor Chinese data seen over the past few days. A stronger US dollar is not helping matters, since it makes holding dollar-denominated commodities more expensive. These factors are outweighing the growing tensions in the Middle East - especially between Saudi Arabia and Iran - which could hinder supply.
So Brent crude is currently down 1.2% at $36.77 a barrel, while WTI is nearly 1% lower at $36.40.
Accountancy group ICAEW reckons that British businesses are actually more worried about the domestic situation, rather than problems in China.
A survey of its members found that the the UK economy is the number one concern for 2016.
However, they’re less concerned about the eurozone economy, geopolitics, or the looming referendum on Britain’s membership of the European Union.
Here’s the details:
- 41% of businesses feel that the growing uncertainty around the UK’s position in the EU could have a negative impact, compared with 50% a year ago
- Businesses are less concerned about the negative impact of low economic growth in the Eurozone than they were two years ago (44% v 56% in 2014). Although exporters are displaying the same concern than they did last year, with 60% expecting a negative impact.
- Low UK inflation is expected to have a positive impact on over a third of companies (36%) but over half (52%) would be negatively impacted by any interest rate rise in 2016
- Instability in the Middle East and Ukraine is much less of a concern to business with 29% of respondents expecting a negative impact (down from 41%).
Midday summary: Markets remain nervous
Time for a quick recap.
European stock markets remain fragile today, after an early attempt to rally back from Monday’s slump floundered.
The main bourses are mixed as traders snatch lunch in the City. The German and French markets are down around 0.5%, while Britain’s FTSE 100 is managing a slight recovery, up 18 point, having been 70 points higher in early trading.
Investors are bruised following yesterday’s slump, which was the worst start to a trading year since the dot-com crash.
China remains a big worry today.
Overnight, Chinese authorities intervened to prevent another slump on the Shanghai market. State-backed authorities bought up shares, in a bid to prop up values.
This helped the Chinese market to end the day roughly where it started. However, the intervention may also shows that Beijing is worried about future problems, given its slowing economy and the build-up of bad debts since the financial crisis began.
Chris Beauchamp of IG sums up the morning:
Early optimism on the London market has faded as investors continue to fret about the situation in Chinese markets. As in August, state-directed buying of stocks is competing with individual selling of equities, but China’s latest attempt to ‘buck the market’ is likely to end as well as its efforts last year.
The butterfly effect has been felt in Europe again this morning, with an initial bounce giving way to more selling, while in London the FTSE is fighting hard to hold on to small gains.
While Mike van Dulken of Accendo Markets warns:
...the prospect of another Summer-style Chinese rout (the one which made the Fed hold off from hiking) remains a real possibility.
There is disappointment that eurozone inflation remains at just 0.2%, despite the ECB’s stimulus measures.
And there’s also drama in the City. with Sainsbury’s threatening to pounce on Home Retail, the firm behind Argos and Homebase....
Hedge funds taking a battering on Sainsburys/Home Retail deal - Home Retail one of the most shorted stocks in FTSE and shares now up 30%
— Graham Ruddick (@GrahamtRuddick) January 5, 2016
....while the unusually warm weather has hurt sales at high street chain Next:
Updated
If Sainsbury takes over Home Retail, it will reunite the company with the homes-and-gardens chain Homebase after a 15-year break.
If Sainsburys and Home Retail deal goes ahead it will obviously reunite Homebase with Sainsburys after more than 15 years
— Graham Ruddick (@GrahamtRuddick) January 5, 2016
Ironically Sainsbury's sold Homebase to GUS, the former incarnation of Home Retail Group in 2000 for £969m...
— Sarah Butler (@whatbutlersaw) January 5, 2016
Sainsbury’s reveals rejected takeover offer for Home Retail
Big news in the City..... supermarket chain Sainsbury’s has revealed that it made a takeover approach to Home Retail (which owns Argos and Homebase).
The offer was made, and rejected, in November, Sainsbury says. It is now considering its position, and has until February 2 to make a new bid.
Rumours have been swirling for weeks that Home Retail could be a takeover target. Sainsbury’s decision to out itself as a possible bidder has send Home Retail shares soaring, up 30%.
More here:
William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London, sums up the situation well -- it’s “really messy” in the markets right now.
He told Bloomberg that investors around the globe are on edge today, and fearing trouble ahead.
“Not much is expected of the world in terms of growth, risk appetite is biased to the downside and weak data from China to the U.S. hasn’t helped at all.
Plenty of people out there believe that the next global recession is imminent.”
“It’s a really messy start to the year" for markets. https://t.co/FVsLcpo7yJ pic.twitter.com/hvEX8D4ltW
— Lucy Meakin (@lucy_meakin) January 5, 2016
US stock markets are expected to post fresh losses today, when they open in three hours time.
The Dow Jones industrial average is tipped to fall by around 100 points, adding to Monday’s 276 point slide.
There's no relief for fragile markets after yesterday's plunge https://t.co/OIrik7CoWd pic.twitter.com/o71ymbEyfJ
— CNBC International (@CNBCi) January 5, 2016
The euro has lost ground against the US dollar since December’s inflation figures came out. It’s down over half a cent at $1.076.
#Euro trades below $1.08 after worrying weakening of #Eurozone inflation in Dec. pic.twitter.com/OJdewa83U8
— Holger Zschaepitz (@Schuldensuehner) January 5, 2016
Although eurozone inflation is clearly weak, it may not be bad enough to force more stimulus out of the European Central Bank, argues Teunis Brosens of ING.
While headline inflation was stuck at 0.2%, core inflation (stripping out energy and food) was also unchanged at 0.9% in December.
Brosens says:
Hawks may argue that weak core inflation is unsurprising given the still high unemployment in many Eurozone countries. Moreover, despite this month’s weakening of core inflation, the presence of second-round effects is not yet convincing.
We think that the ECB will hold its fire for now: it will take more convincing evidence of second round effects or other really disappointing economic news to stir the ECB into further action.
And that’s why shares have fallen back this morning:
Fair to say that the new year has not started with a bang for equities... pic.twitter.com/cILcwNTMKC
— RANsquawk (@RANsquawk) January 5, 2016
So much for the bounce-back. European stock markets couldn’t even stay in the green until London’s pubs opened for the day.
The weak eurozone inflation reading has helped to pull the major indices into the red for the second day running.
The German Dax has shed another 1%, on top of Monday’s 4% slump. The Paris CAC is down another 0.8%, and London’s FTSE 100 is off eight points.
Ipek Ozkardeskaya of City firm London Capital Group says China is still worrying investors, even though Beijing’s central bank, the People’s Bank of China, stepped in overnight to prop up its stock market.
She writes that market sentiment is “very much fragile”:
The apocalyptic Chinese story keeps the headlines busy. The intervention from the PBoC eased tensions at the heart of the storm, yet the chaotic start to 2016 warned of a challenging year ahead of us. The first trading day of the year has clearly wiped away some of the optimism and the risk-off flows dominate.
Shanghai’s Composite opened the day 3.1% lower yet managed to recover later in the session. State-controlled funds bought equities to halt the $590bn worth of sell-off suffered on Monday, and a selling ban for investors would extend beyond a week according to several sources.
So, about that pick-up in European stocks... Now back in the red: https://t.co/OjUjUOlOhk pic.twitter.com/jHzEJRQiqL
— fastFT (@fastFT) January 5, 2016
Updated
The European Central Bank will be concerned that inflation remained so low last month, says Howard Archer of IHS Global Insight:
Good news for Eurozone consumers but a headache for the ECB as consumer price inflation remained down at 0.2% in December, thereby defying expectations of a small uptick.
The failure of Eurozone inflation to pick up in December is good news for consumers’ purchasing power; but it will maintain ECB concern that prolonged very low inflation could lead to a renewed weakening in inflation expectations thereby making it harder still to get Eurozone consumer price inflation up to its target rate of close to 2%.
December’s unexpectedly weak inflation report is hurting the euro.
The single currency has hit its lowest level against the yen since April 2015. One euro is now worth ¥128.03, down from ¥129.33 earlier.
Eurozone inflation weaker than expected
Breaking: inflation across the eurozone remained uncomfortably weak last month.
Prices across the single currency region rose by just 0.2% annually in December, Eurostat has just reported.
That matches November’s reading, and dashes hopes of a rise to 0.3% or 0.4%.
Cheaper energy costs are partly to blame..... but food and service price inflation did also slow last month:
Eurostat says:
Food, alcohol & tobacco is expected to have the highest annual rate in December (1.2%, compared with 1.5% in November), followed by services (1.1%, compared with 1.2% in November), non-energy industrial goods (0.5%, stable compared with November) and energy (-5.9%, compared with -7.3% in November).
The European Central Bank is meant to maintain inflation close to, but below, 2% -- but we’re a long way from that despite the ECB’s quantitative easing stimulus measures....
The new normal? Eurozone inflation stuck at "close to but above zero..."..0.2% YoY in December.
— Carsten Brzeski (@carstenbrzeski) January 5, 2016
Updated
UK building firms post stronger growth
Britain’s builders didn’t get much rest over Christmas, judging by the latest healthcheck from the sector.
Data firm Markit reports that output jumped last month, pushing its PMI index up to 57.8 in December, up from a seven-month low of 55.3. That suggests the sector grew at a faster pace last month.
Markit cited “favourable demand conditions”, with builders reporting that clients were more willing to commit to new projects.
Commercial construction had a particularly good month, with growth hitting its fastest rate since October 2014.
The unusually warm weather in December may also be a factor, as Britain didn’t suffer the kind of heavy snowfalls that can scupper construction work this time of year.
Firms who can build flood defences could be busy in 2016 too, as communities across the country try to shore themselves up.
Warm weather may have helped keep construction sites open through the month, and widespread flooding should stoke demand as areas dry out
— World First (@World_First) January 5, 2016
Updated
This morning’s rally is looking a little fragile, after less than 90 minutes.
European stock markets have shed much of their early gains, and are now broadly flat.
Invesotrs
German unemployment beats expectations
Here comes the latest measure of German unemployment..... and it’s better than expected.
The number of people out of work across Germany fell by 14,000 last month, on a seasonally-adjusted basis. That smashes expectations of a 6,000 drop, and shows Germany is still outperforming many neighbours.
This leaves its unemployment rate unchanged at 6.3%, compared to a eurozone average of 10.7%.
Spain has also reported that its jobless total shrank by 8% last year:
Spanish govt says unemployment fell by nearly 8% in 2015. Number of jobless fell by 354,000 - largest annual decline#Spain
— Gavin Hewitt (@BBCGavinHewitt) January 5, 2016
Updated
Mining stocks are leading this morning’s rally in London.
Commodity giant Glencore is up over 4%, as fears over China ease a little (for the moment....)
Tony Cross of Trustnext Direct says traders are taking their cue from Asia:
London’s FTSE-100 has recovered some of yesterday’s losses at the open, thanks in no small part to the fact that Asian equity markets appear to have stabilised overnight – at least for now.
The vast majority of blue chips are trading in positive territory although the handful of losing stocks are being dominated by clothing retailers with that trading update from Next this morning providing little reason to get excited about the sector.
Updated
High street chain Debenhams’ shares have fallen by 2% in early trading.
That reflects concerns that Next’s weak sales over Christmas could be mirrored across the sector. Marks & Spencer are down 0.5%.
Seeing calls for Next shares to fall 4-5% on open as sales disappoint, M&S & Debenhams also likely to fall as paints dismal picture #retail
— Caroline Hyde (@CarolineHydeTV) January 5, 2016
Shares in Next are out of fashion this morning.
They’re down by 3% at the start of trading, leading the FTSE fallers, as the City digests this morning’s disappointing Christmas trading.
Here’s some reaction:
Next 0.5% fall in retail store sales for the two months to Dec 24. Warning full-year profits set to come in at bottom end of City forecasts.
— Rachel Kennedy (@rachelkennedy84) January 5, 2016
Interesting Next not just blaming the weather but also their own stock problems and rivals' catching up with their online capabilities
— Alex Lawson (@MrAlexLawson) January 5, 2016
#Next kicks off UK retail Xmas reporting season. And it doesn't bode well for what's to come
— Paul Jarvis (@pajemiki) January 5, 2016
Updated
Market open: European shares bounce back
Shares are rallying across Europe at the start of trading, as investors recover their nerve after Monday’s heavy selloff.
In London, the FTSE 100 has jumped by 72 points, or 1.2%, to 6165 points. That claws back almost half of yesterday’s rout, when the blue-chip index shed 148 points.
The French CAC, German DAX, Spanish IBEX and Italian FTSE MIB are all up around 1.1%.
Yesterday, the DAX slumped by over 4%, so today’s rally is only a partial recovery.
Traders are encouraged by the news that Chinese authorities took action overnight to prevent their stock market tumbling again.
Jasper Lawler, market analyst at CMC Markets, explains:
In the aftermath of a global sell-off over China growth fears, UK and European stock index futures are taking their cues from the Chinese stock market on Tuesday.
After an initial wobble, shares in Shanghai and Shenzhen turned positive on Tuesday thanks to an injection of liquidity from the People’s Bank of China.
Next blames warm weather for weak Christmas
High street retailer Next has sent a shiver through the sector this morning, after posting weaker than expected results for the crucial Christmas period.
Full price sales rose by just +0.4% from 26 October to 24 December. That’s a serious slowdown, as Next sales grew by 6% between July and September.
And as Next is the first major European retailer to report Christmas trading figures, this may mean more trouble ahead...
Next pinned much of the blame on the unusually warm weather this autumn. This is a classic excuse for British retailers, who can often point to the skies to explain away a poor performance.
But to give Next credit, it also released a graph showing how sales did indeed shrink in weeks where the temperature was hotter than in 2014:
And the weather isn’t the only culprit. The firm also admits that its catalogue shopping arm, NEXT Directory’s, suffered poor stock availability from October onward.
Updated
Spread-betting firm IG is predicting that European markets will bounce back when trading begins in a few minutes, clawing back some of Monday’s losses.
IG is calling the main markets up around 1%:
Our European opening calls: $FTSE 6146 up 52 $DAX 10377 up 93 $CAC 4572 up 50 $IBEX 9412 up 99 $MIB 20939 up 205
— IGSquawk (@IGSquawk) January 5, 2016
Chinese authorities intervene to prop up markets
It’s been a wild day in China, as Beijing tries to prevent a repeat of Monday’s rout.
Chinese authorities intervened in the markets today, buying up stocks to give investors confidence.
And it appears to have worked. The Shanghai composite index has closed for the day, down just 0.28%, having shed 3% at one stage today.
That’s rather better than Monday’s 7% slump, which forced trading to be halted.
That doesn’t address the underlying problems in China, such as the build-up of bad debts and its slowing economy. And it suggests Beijing isn’t prepared to allow market forces to take their natural course....
Updated
Introduction: Markets could stabilise after Monday's rout
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s day two of the trading year, and investors around the globe will be hoping for a better performance than on day one.
There’s a nervous air in the markets today, after yesterday’s selloff wiped hundreds of billions of dollars off bourses worldwide. Britain’s FTSE 100 lost £38bn in a blink of an eye:
Watching a raccoon accidentally dissolve his candyfloss in a puddle has really put my troubles in perspective. https://t.co/fmoRaxTAlV
— Ryan Nelson (@RyanJohnNelson) January 4, 2016
But unlike vanishing candyfloss, market value can reappear.
And European stock markets are expected to recover some ground today. But it could be another volatile session, with concerns over China’s economy looming over markets.
Also on the agenda today, we get the first estimate of eurozone inflation for December. Economists predict it will rise to an annual rate of 0.4%, from 0.2% in November.
We also get the latest German unemployment data for December, and an estimate of how UK builders fared last month.
- 8.55am GMT: German unemployment report
- 9.30am GMT: UK construction PMI
- 10am: Eurozone inflation for December
And high street retailer Next is reporting its financial results for the last quarter. That will give us an insight into how the crucial Christmas trading season went.....
