Fed decision: What the experts say
Many financial experts are concluding that the Federal Reserve is getting ready to raise interest rates in June, given the language in today’s statement.
Here’s Moody’s:
#Fed is looking through the weakness in first quarter GDP and will likely raise rates in June. #FOMC Analysis: https://t.co/G0hn5imKo8
— MoodysAnalytics ECON (@economics_ma) May 3, 2017
This is Bloomberg’s take:
BBG runs the best summary of today's #FOMC decision. pic.twitter.com/LcjWi1iQF0
— Holger Zschaepitz (@Schuldensuehner) May 3, 2017
Naeem Aslam of Think Markets writes:
The FOMC statement was hawkish and the Fed has clearly given a message to the markets that they think the weakness in the economic data is only temporary.
This means that the Fed is more than happy with their current strategy and more rate hikes are coming this year - at least for now.
Neil Wilson of ETX Capital predicts that Fed official will start dropping hints of a June rate rise soon - if they’re really getting ready, that is....
The Fed is in no rush to raise rates too quickly as it’s fully aware that rising inflation is less of a threat than tightening too fast, noting that it will stabilise around its 2% target. On the whole, today’s decision changes very little in the assessment for
monetary policy. All eyes now on the minutes from the meeting and jawboning from officials in the coming weeks.”
And Paul Ashworth of Capital Economics points out that the US jobs data (starting on Friday) will be crucial...
On balance, we still think that the Fed will hike again in June, although that assumes employment growth rebounds in April and May. The drop off in core inflation is a concern, but the global economic backdrop is much stronger than it was last year. Furthermore, although the Fed hiked rates twice since late last year, financial conditions have actually loosened, with the dollar and bond yields both falling, while stock markets have performed strongly.
Fed leaves US interest rates on hold
A late newsflash: America’s central bank has left interest rates on hold.
The Federal Reserve also predicted that the slowdown in the first quarter of 2017 was probably only temporary. That could be a sign that the Fed could raise interest rates in June.
The Fed’s statement looks quite hawkish, with US policymakers pointing out that the US jobs market looks solid, firms continue to invest, and inflation is close to its target.
Here’s the key section:
Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed. Job gains were solid, on average, in recent months, and the unemployment rate declined. Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid. Business fixed investment firmed. Inflation measured on a 12-month basis recently has been running close to the Committee’s 2 percent longer-run objective.
Traders on Wall Street like the look of the statement, sending shares up:
U.S. markets climb, Dow turns positive after Federal Reserve holds rates steady https://t.co/8v1fjKErO3 pic.twitter.com/BlpFj9nLcK
— CNBC Now (@CNBCnow) May 3, 2017
Positive day for most European markets
With better than expected eurozone GDP figures, markets managed to edge higher for the most part. Exceptions were France, ahead of the country’s presidential debate later, and the UK, with investors unsettled by the increasing testy relations between the country and the European Union. The final scores showed:
- The FTSE 100 finished down 15.52 points or 0.21% at 7234.53
- Germany’s Dax rose 0.16% to 12,527.84
- France’s Cac fell 0.06% to 5301.00
- Italy’s FTSE MIB edged up 0.13% to 20,759.31
- Spain’s Ibex ended up 0.15% at 10,837.0
- In Greece, the Athens market added 2% to 748.61
On Wall Street, the Dow Jones Industrial Average is currently 21 points or 0.1% lower.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Sterling has slipped back after Theresa May accused the EU of attempting to influence the outcome of the UK general election.
The pound, which had earlier climbed as high as $1.2949 against the dollar, is currently down 0.26% at $1.2902. Jameel Ahmad, vice president at FXTM, said:
While the British Pound has hardly tumbled as of writing, the comments from Theresa May on Wednesday afternoon do go some way towards disclosing how strained relations with the European Union have become after invoking Article 50, and the risk of them becoming worse are significant when you consider how tense the negotiations with the EU are likely to get over the next two years.
Follow the latest political developments in our live blog here:
Updated
US crude oil stocks fall less than expected
US crude inventories dropped last week, but not as much as analysts had been forecasting.
According to the Energy Information Administration, crude stocks fell by 930.000 barrels to 527.77m, but this was below forecasts of a 2.3m decline.
#UnitedStates EIA Crude Oil Stocks Change at -0.930M https://t.co/iEqHb9iXvN pic.twitter.com/EYJmTLxdPP
— Trading Economics (@tEconomics) May 3, 2017
But gasoline stocks rose by less than expected, up 191,000 barrels compared to an expected rise of 1.3m barrels.
US crude prices have reversed earlier gains following the EIA update, and are now down 0.7% at a day’s low of $47.32 a barrel, the lowest since the end of March.
Here’s what some of the respondents to the ISM report said:
- “Business level increasing. More project inquiries are being received.” (Construction)
- “Beginning of Q2, business is profitable, maybe a bit slower than anticipated. Opportunity still positive.” (Finance & Insurance)
- “Stable activity. Waiting on health care reform and its impact on our organization.” (Health Care & Social Assistance)
- “Ongoing rain in Northern California is degrading the quality and increasing the prices of some vegetables, such as iceberg lettuce, broccoli, napa cabbage, and some varieties of romaine.” (Accommodation & Food Services)
- “[Overall] positive outlook for Q2, Q3, and Q4 [in] 2017.” (Retail Trade)
- “Optimistic business outlook, but cautious in light of [the] geopolitical instability with North Korea.” (Management of Companies & Support Services)
- “First three months of 2017, sales have exceeded each of [the first] three months of 2016.” (Wholesale Trade)
ISM Non-Manufacturing Index increased to 57.5% in April https://t.co/0IAzCc7Bgy pic.twitter.com/qFQehs3daV
— Bill McBride (@calculatedrisk) May 3, 2017
Updated
US service sector shows bigger rise than expected in April
And the second of the day’s surveys of the US service sector shows a similar picture.
The ISM non-manufacturing PMI rose from 55.2 in March to 57.5 in April, better than the expected 55.8.
The new orders index jumped from 58.9 to 63.2, but the employment index was at its lowest level since August.
US Services PMI: 53.1 vs exp 52.5; prev 52.5
— Sigma Squawk (@SigmaSquawk) May 3, 2017
Weakest rise in US service sector employment since July 2010 pic.twitter.com/uJ17RLgkUL
The US service sector unexpectedly rose in April, according to the first of two sector surveys.
The Markit services PMI came in at 53.1, compared to the initial reading of 52.5 and the final March figure of 52.8. The composite reading - manufacturing and services - rose from 53 in March to 53.2.
Wall Street opens lower
US markets have fallen back in early trading, not helped by Apple’s latest update showing a surprise drop in iPhone sales.
The Dow Jones Industrial Average is down 35 points or 0.17% while the S&P 500 opened 0.27% lower and the Nasdaq Composite down 0.34%.
Apple itself is down around 1.6%, losing $12bn off its market capitalisation of $773bn.
Meanwhile, the latest service sector surveys from both Markit and ISM are due shortly.
Following the US private employment numbers, analysts are looking forward to the official non-farm payroll figures on Friday. And there could be a bounceback after last month’s disappointment, some believe. David Morrison, senior market strategist at Spreadco, said:
ADP for April showed the US added 177,000 private payroll jobs, pretty much as expected.
Last month the ADP number beat expectations by around 80,000 jobs. This led many analysts to upgrade their forecasts for the Bureau of Labor Statistics’ Non-Farm Payrolls. But these missed even the unrevised predictions by over 70,000 raising concerns about the outlook for this Friday’s number.
The expectation is that last month’s number was a seasonal aberration, so the hope is we get a strong bounce-back in the data in two days’ time. The current forecast is for a gain of around 200,000 after the 98,000 recorded in March.
Here’s Danske Bank on the US jobs numbers:
🇺🇸#US labour market continued tightening in April, according to #ADP jobs report pic.twitter.com/4VBcO8cPZw
— Danske Bank Research (@Danske_Research) May 3, 2017
Updated
US job creation hits six-month low
Newsflash: America’s companies created 177,000 new jobs last month.
That’s down on the 255,000 created in March, and the lowest private sector job creation figure since October. The figures come from payroll firm ADP.
*ADP RESEARCH INSTITUTE SAYS U.S. ADDED 177,000 JOBS IN APRIL
— Michael Hewson (@mhewson_CMC) May 3, 2017
This sets up Friday’s Non-Farm Payroll (NFP) report, the wider measure of the US labour market.
Economists predict that around 200,000 new jobs were created overall, after March’s disappointingly weak 98,000.
European stock markets are still in the red, with the FTSE 100 down 22 points, or 0.3%, at 7227.
Wall Street is expected to follow suit in 80 minutes time:
US Opening Calls:#DOW 20911 -0.15%#SPX 2385 -0.19%#NASDAQ 5627 -0.27%#IGOpeningCall
— IGSquawk (@IGSquawk) May 3, 2017
Eurozone recovery: What the experts say:
Economists are predicting that the eurozone will have a decent 2017, following the news that GDP grew by a healthy 0.5% in the first three months of this year.
Here’s some reaction....
Shilen Shah, Bond Strategist at Investec Wealth & Investment.
“Despite the political headwinds facing the Eurozone in 2017, it produced a decent GDP print for the first quarter at 0.5%. In contrast to the more tepid performance in the UK and US, the Eurozone’s performance does suggest that rest of the year is likely to be solid given the supportive PMI prints.
Despite some tightness in the German labour market, the relatively high level of unemployment for the Eurozone as a whole would indicate that there remains a significant amount of spare capacity, suggesting a period of above trend growth is possible.”
ING Bank are also upbeat:
ING Bank 1/2: Eurozone GDP growth came in at 0.5% QoQ in 1Q as the economy is proving to be resilient to uncertainty both abroad and at home
— Francesc Riverola (@Francesc_Forex) May 3, 2017
ING Bank 2/2: Bar a surprise at the French elections on Sunday, Eurozone growth is set for a strong 2017. #forex #fx
— Francesc Riverola (@Francesc_Forex) May 3, 2017
And here’s Shane Oliver, chief economist at AMP Capital.....
Eurozone March quarter GDP +0.5%qoq/1.7%yoy, Dec qtr revised up to +0.5% from +0.4%. Solid growth consistent with strengthening PMIs
— Shane Oliver (@ShaneOliverAMP) May 3, 2017
One UK construction firm isn’t doing too well today.
Shares in Galliford Try have slumped by over 9% today, after the company revealed it’s taking a one-off charge of around £98m on two large building projects.
CEO Peter Truscott says the loss is “regrettable”, adding that the company won’t undertake large infrastructure jobs on fixed price contracts anymore. Lesson learned....
Greek leftists criticise latest bailout deal
Over in Athens, a shot has been fired across the bows of the Greek government’s optimism following yesterday’s breakthrough agreement in talks with creditors.
Our Athens correspondent Helena Smith reports.
While the Greek prime minister Alexis Tsipras has called for a cabinet meeting on Thursday to discuss the government’s next moves, criticism is already mounting in the ruling Syriza party.
Senior leftists are emphasising that there is little to be joyful about following the leftist-led government’s latest cave-in to creditors.
Nikos Filis, the former education minister and highly regarded Syriza figure, has gone so far as to express doubt that “counter-measures” struck by the government to offset losses that pension cuts and tax rises will inevitably engender, will work at all.
“The preliminary agreement for the conclusion of the second review marks the country remaining in the suffocating memorandum,” he wrote, referring to the onerous bailout programme Athens has signed with lenders.
Describing the prospect of counter-measures being applied as “dubiously positive,” he said it was far from sure that poorer Greeks who will be most affected by pension reductions and bigger taxes would be relieved by any measures in the future.
“It is not sure that they are enough to heal the pain that will continue to exist for the weakest social strata,” he added in the article published in today’s Syntaktwn newspaper.
The government has said that by 2019, when pension cuts will be applied, a support programme will also be enforced for more vulnerable Greeks.
The criticism was echoed late Tuesday by the Parliament Budget Office which warned that in the uncertainty of the long-stalled second review, it was now far from certain that Greece would achieve a projected growth rate of 2.7% this year.
That would in turn expose the country to multiple risks, it said in its quarterly review. Following the concessions the government had been forced to make to close the review, the body quipped that Greece was in danger of falling into an “austerity trap” in which constant tax increases and shrinking expenditure ultimately chip away at gross domestic product and increase the country’s already massive debt load.
Updated
Anyone getting over-excited about the eurozone’s recovery should remember that it also started 2015 and 2016 strongly, but then faded over the summer.
Economist Rupert Seggins has the details:
Lots of excitement about #Euroboom2017. Before we get carried away, Eurozone has been here before. Past 2 yrs it outshone US & UK in Q1. pic.twitter.com/AtduBX3gJI
— Rupert Seggins (@Rupert_Seggins) May 3, 2017
Cathal Kennedy suspects that Germany outperformed the wider eurozone in the first quarter of 2017 (and also beat the UK).
Here’s his take on the GDP report:
If the large euro area economies, only France and Spain publish growth estimates in advance of today’s release. Taken alongside those, today’s aggregate euro area number suggests that next week’s German release will show expansion in the region of 0.7% q/q in Q1.
Early survey data for Q2 is consistent with the current pace of growth continuing into the second quarter. The April ‘flash’ PMIs are up on their, already elevated, Q1 average while the Economic Sentiment Indicator also rose from its Q1 average of 107.9 to 109.6 last month.
Disappointingly, we’ll have to wait until 12 May to find out how Germany, the eurozone’s largest member, fared in Q1.
But today’s solid-looking growth figures do suggest that the eurozone recovery is on track, raising the changes that the European Central Bank rethinks its current ultra-loose monetary policy stance.
Howard Archer of IHS Global Insight says:
Eurozone growth was a healthy 0.5% quarter-on-quarter in the first quarter of 2017, which matched the upwardly revised fourth-quarter 2016 performance.
No component breakdown was provided of the first-quarter Eurozone GDP, but we expect the healthy growth was very much domestic-demand led, with consumer spending and business investment playing a key role....
the healthy first-quarter Eurozone growth performance reinforces belief that the ECB will likely drop the reference to lower interest rates in its forward guidance at its June meeting.
Here’s more reaction:
Pressure on #ECB rises to exit stimulus as Eurozone grows way above potential. 1Q GDP +0.5% on Qtr; +1.7% on Year, as expected. #QExit pic.twitter.com/TFnABQUHxI
— Holger Zschaepitz (@Schuldensuehner) May 3, 2017
#Eurozone GDP strong at 0.5%, although not as strong as soft indicators had recently suggested. pic.twitter.com/a4YloPqko6
— Bert Colijn (@BertColijn) May 3, 2017
Eurozone beats UK with 0.5% growth
Breaking: The eurozone recovery continues!
GDP across the single currency grew by 0.5% in the first three months of 2017, new figures from Eurostat show.
That’s stronger than the UK, which only grew by 0.3%, and the US, which expanded by less than 0.2% in Q1.
And in another boost, the eurozone’s growth rate for the last three months of 2016 has also been revised up to 0.5%, from 0.4%.
This surely reinforces hops that the European economy has entered a period of stronger growth, as fears of political instability and debt crises receded.
I’ll pull together some reaction now....
UK construction sector: What the experts say
Experts are warning that British builders are worried about Brexit, even though construction output accelerated last month:
Here’s Max Jones, global corporates relationship director for construction at Lloyds Bank Commercial Banking:
“As these figures reflect, the sector is currently in relatively confident mood with the next few weeks of uncertainty leading up to the general election seen by many as a reasonable trade-off given it will result in a government in place until 2022.
“Instead, some of the nervousness is coming from contractors with a focus on infrastructure, where the pipeline remains strong. The success of Crossrail has shown that mega-projects can be delivered on time and on budget but there are concerns about how government decision-making on infrastructure may be affected given the focus on Brexit negotiations.
“A further worry is skills and the fears over future access to EU workers, on which the UK construction industry is so reliant. Here, firms are continuing to use joint ventures to spread risk, share labour resources and ensure the best possible teams are available for the job.”
And here’s Paul Trigg, construction specialist and assistant head of risk underwriting at trade credit insurer Euler Hermes:
“Despite recent robust performance across construction, we expect the sector to see anaemic growth in the short to mid-term as concerns about falling inward investment levels, thinning long-term order books and access to skills grow.
“The outcome of the Brexit negotiations will be particularly key for construction, given its reliance on migrant labour and raw materials from overseas. Further rises in input costs due to more expensive recruitment and import costs will squeeze margins that are already under pressure, pushing up the strain on prompt payments across the supply chain and potentially the number of business failures in the industry.”
The construction sector is looking resilient, says Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply:
“With the biggest rise in new orders since the beginning of the year, the sector is in a strong pre- election position buoyed up by a hardy UK economy and strong client confidence. The housing sector offered up the best news recovering from last month’s minor blip and building on its strongest performance since the end of last year.
“Employment growth rose to its highest since May 2016, though continued disquiet about the lack of highly-skilled labour availability persisted and which must be addressed if the future strength of the sector is to be assured. Combined with the vexatious conditions of rising commodity and labour costs, low stocks of essential materials and longer delivery times frustrated buyers and added drag to the completion of planned projects.
UK builders are also pretty upbeat about their prospects over the next year, suggesting little concern over Brexit.
Markit says:
Around five times as many survey respondents (49%) expect a rise in construction output over the year ahead as those that forecast a fall (10%). The degree of confidence was down fractionally since March, but still well above the post- referendum low seen in July 2016.
UK construction growth hits four-month high
Breaking! Britain’s building sector expanded at its fastest pace in four months in April, as the construction industry picks up steam.
Markit’s construction PMI, which measures activity across the sector, has jumped to 53.1 from 52.2 in March.
That beats forecasts of a small fall to 52.0 (any reading over 50 shows growth).
The pick-up was driven by “faster rises in civil engineering and residential building activity”, says Markit.
Builders reported that they took on more staff last month, as a “sustained improvement in client demand” meant they had more work to deal with.
Tim Moore, Senior Economist at IHS Markit, says construction growth picked up last month despite weaker demand for commercial construction.
“April’s survey reveals a positive start to the second quarter of 2017, with a robust upturn in civil engineering activity helping to boost the construction industry. There were also more encouraging signs from the house building sector, as growth recovered to its strongest so far this year. However, the performance of the commercial building sector remained subdued in the context of the past four years.
“UK construction companies noted that the resilient economic backdrop helped to drive up client spending in April. Greater workloads led to the fastest pace of job creation since May 2016 and a continued squeeze on sub-contractor availability
Updated
Pound hit by Brexit headlines
Sterling has been rather volatile this morning, as the latest shots in the Brexit battle trouble traders.
The pound lost half a cent in early trading, following a report in the Financial Times that Britain’s bill for leaving the EU could be €100bn.
It then recovered back over $1.29, after Brexit minister David Davis declared that “we’ll not be paying 100 billion”, and ruled out going into negotiations as a “supplicant”.
"In a walk away circumstance there is nothing to be paid", David Davis says if UK fails to reach a deal with EU, the UK has no leaving fee.
— Patrick Wintour (@patrickwintour) May 3, 2017
Kit Juckes of Societe Generale warns:
Renewed concerns about Brexit have put sterling on the back foot, at least for now.
Updated
After hitting 20-month highs on Tuesday, European stock markets have dipped in early trading.
Traders are holding fire until the eurozone growth figures flash up in an hour’s time.
Connor Campbell of SpreadEx explains:
That inertia is partly informed by investors waiting for the region’s first quarter GDP reading – which is forecast to rise to 0.5% from Q4’s 0.4% – before making any significant moves.
Sainsbury’s shares are also taking an early morning hit.
They’ve lost almost 3%, after the supermarket chain reported that profits fell to £503m in the last 12 months, down from £548m a year earlier.
CEO Mike Coupe says it was a “pivotal year”, which included the takeover of catalogue chain Argos. That deal already seems to be paying off. Argos’s like-for-like sales jumped by 4.1%, while Sainsbury’s fell slightly.
City analysts are worried that the core business looks sluggish
John Ibbotson, director of the retail consultancy Retail Vision, says Argos is turning into a ‘lifeboat’ for the rest of the group:
“Argos has so far proved an effective ‘get out of jail’ card for Sainsbury’s. But with inflation biting into consumer spending and the latest retail sales figures showing that the consumption boom is waning, Sainsbury’s must get its core business in order before it comes off its catalogue crutches.”
M&S swoops on Halfords boss
In other surprise corporate news, Marks & Spencer has snaffled Halford’s chief executive to revitalise its struggling clothing operation.
Jill McDonald will join M&S in the autumn as managing director for clothing, home and beauty. It’s the latest piece in CEO Steve Rowe’s turnaround plan.
Last year M&S suffered its worst fall in clothing sales in a decade, so there’s plenty for McDonald - who calls herself a longtime “M&S customer and professional fan” - to sort out....
Halford’s investors won’t be happy, though - shares are down almost 4% in early trading.
Updated
Adam Crozier leaves ITV
Big news in the City this morning: Adam Crozier, the boss of ITV, is leaving after a seven-year stint at the broadcaster.
He’s done a good job too, EBITA profits are up over 300% on his watch, and the shares have quadrupled thanks to the success of shows like Downton Abbey and X Factor.
He also bought Mammoth Screen, which created the hit television series Poldark that was broadcast on BBC.
Speculation has been swirling for some time that Crozier might be off; ITV reportedly hired headhunters in January to find a successor for the former head of the Football Association and Royal Mail.
But ITV haven’t yet announced his successor, and the company’s shares have just dropped by 2.2% at the start of trading.
My colleague Julia Kollewe explains:
Crozier, who led a turnaround at ITV after the post-credit crunch recession and successfully reduced the broadcaster’s reliance on advertising revenue by building up its production arm, said he planned to build a portfolio of roles in the next stage of his career.
The company’s finance director, Ian Griffiths, will step up to a new combined role of chief operating officer and finance chief and run the company for an interim period, while the chairman, Sir Peter Bazalgette, becomes executive chairman during that time.
That's a miss for ITV - chief executive Adam Crozier steps down - did a good turnaround job https://t.co/riqciFpAmr
— James Allen (@Jamesallenonf1) May 3, 2017
Updated
The agenda: Eurozone GDP and UK construction in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After years of slow growth, austerity and bailout drama, is Europe’s economy now rattling ahead? We find out at 10am BST when eurozone GDP figures for the first three months of this year are released.
Economists predict that the euro economy grew by a punchy 0.5% in January to March, which would outpace Britain which only expanded by 0.3%.
Last week we learned that France’s economy only grew by 0.3%, while Spain managed a healthy 0.8%. Today’s report should give a wider picture of the currency bloc
Recent ‘soft’ data from the eurozone has been impressive, with factory growth at a six-year high. So this is the moment when we scrutinise the ‘hard’ data to see if the eurozone has really turned a corner.
RBC Capital Markets explain:
Euro area survey data has been universally strong since the turn of the year; the average composite PMI for Q1 was the highest in six years and is pointing to GDP growth of 0.5–0.6%.
However, harder data has yet to reflect the improved sentiment; outside Germany, industrial production is likely to be a drag on growth despite stronger manufacturing PMIs.
We also get another healthcheck on the UK building sector, at 9.30am.
The City expects a small slowdown in growth, with the construction PMI tipped to fall to 52.0 from 52.2. We’ll be looking for signs that builders are facing any impact from Brexit; perhaps through weaker demand, or a shortage of workers from overseas....
We’ll also be monitoring any fallout from the latest Greek agreement. As we covered yesterday, Athens has accepted even more cuts in return for fresh loans - and the promise of debt relief.....
European markets are expected to be subdued, after some solid gains in recent days.
Our European opening calls:$FTSE 7239 -0.15%
— IGSquawk (@IGSquawk) May 3, 2017
$DAX 12513 +0.04%
$CAC 5304 0.00%$IBEX 10808 -0.12%$MIB 20742 +0.04%
Later, US Federal Reserve announces its decision on monetary policy at 7pm BST. But no change is expected, and there is isn’t a press conference scheduled.
On the corporate front, we’re getting results from supermarket chain Sainsbury’s, pub chain JD Wetherspoon’s, accountancy group Sage and insurance chain Direct Line.
Updated
