European markets end lower
A slide in the oil price following a bigger than expected rise in US crude inventories helped put European markets under pressure, although banking shares were boosted by a number of positive signs from the UK economy and talk of possible mergers following comments from the boss of Deutsche Bank.
Investors were also cautious thanks to the continuing uncertainty about whether - or when - the US Federal Reserve might raise interest rates. Friday’s non-farm payroll numbers will be the key figures ahead of the next Fed meeting. The final scores showed:
- The FTSE 100 fell 39.28 points or 0.58% to 6781.51 but still managed a 0.85% gain on the month
- Germany’s Dax dropped 0.61% to 10,592.69
- France’s Cac closed down 0.43% to 4438.22
- Italy’s FTSE MIB finished down 0.31% at 16,943.38
- But Spain’s Ibex ended up 0.36% at 8716.8
- In Greece, the Athens market added 2.31% to 577.39
On Wall Street, the Dow Jones Industrial Average is currently down 108 points or 0.59%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Another successful Bank of England bond buying programme today as part of its quantitative easing operations:
The Bank of England bought £1.17 billion of UK 2023-30 Gilts this afternoon as part of its QE program #BoE
— Shaun Richards (@notayesmansecon) August 31, 2016
It received offers worth 3.19 times the number of bonds it wanted to buy.
The slide in the oil price has dragged stock markets lower, with the commodity-heavy FTSE 100 now down around 30 points or 0.4%. Joshua Mahony, market analyst at IG, said:
Tumbling commodity prices have once more proven the undoing of the FTSE, with a late slide in crude prices adding to the woes of an index heavily weighted towards commodity companies. While some respite has been provided by the slowing rise of the US dollar, it is clearly not enough, with markets now looking towards the possibility of a 2016 rate hike which would drive the dollar sharply higher.
Yet again it has been the weekly EIA oil figures that have sparked this market back into life. This week’s rise of 2.3 million barrels was almost as large as the preceding week’s increase in stockpiles, putting fresh downward pressure on crude oil and taking stock markets with it.
The ghost of oversupply has not been laid to rest, indeed it seems to be returning with a vengeance. A rising US dollar and falling oil prices would potentially be a dangerous combination, threatening to unwind the gains made in equity markets over the summer. OPEC needs to do something, and quickly, but given their inability to reach a compromise, any action is still unlikely.
OPEC and other producers are due to meet next month, with continuing uncertainty over whether they will be able to agree on measures to support the falling crude price.
US crude stocks rise
Oil prices have come under renewed pressure on further signs of falling demand and increased production.
US crude stocks rose by more than expected last week according to the Energy Information Administration, up by 2.3m barrels compared with expectations of a 921,000 increase.
Distillates - diesel and heating oil - rose unexpectedly, up by 1.5m barrels rather than showing a 157,000 drop. But gasoline stocks fell by 691,000 barrels although analysts had forecast a 1.2m decline.
Meanwhile a Reuters survey shows that output from the OPEC oil producers rose by 40,000 barrels a day in August, with increases among Middle Eastern countries making up for losses from Africa.
So Brent crude is not far from its lows of the day, down 1.9% at $47.43 a barrel while West Texas Intermediate - the US benchmark - has fallen 1.7% at $45.52.
The Apple tax receipts could help Ireland cut its goverment debt to around 85% of GDP, according to ratings agency Standard & Poor’s.
But it said there was a danger the government’s policy approach could be destabilised by the ruling, and its business model could be put to a legal test.
But the US housing market is recovering to judge by the latest figures.
The National Association of Realtors said its pending home sales index rose 1.3% to 111.3 in July after two months of decline. This is the second highest reading in the last ten years. Lawrence Yun, the association’s chief economist said:
More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale. There’s little doubt there’d be more sales activity right now if there were more affordable listings on the market.
More US data, and disappointing data at that. The latest Chicago manufacturing purchasing managers index has come in below expectations in August, after a strong performance in the previous two months.
USA Chicago PMI announcement - Actual: 51.5, Expected: 54.0 pic.twitter.com/hByRHtYzZ7
— Spreadex (@spreadexfins) August 31, 2016
Updated
Back with the US jobs data, and economist James Smith at ING Bank says the ADP figures may not be much of a guide to Friday’s non-farm payroll numbers:
The latest ADP payrolls estimate came in a touch above consensus at 177,000. The key thing to know about ADP’s model is that is predominantly a function of last month’s official employment data, which means that ADP’s own up-to-date payrolls data plays only a minor role in generating the estimate. This means that the directional accuracy of ADP as a lead indicator of non-farm payrolls (ie higher or lower growth than last month) is around 50%. We are therefore none-the-wiser ahead of Friday’s number, even if at face value, it supports the consensus call of 180,000.
We expect job creation to fall short of expectations (ING forecast 150,000), following two months of remarkably strong non-farm payrolls. But... the FOMC would probably be content with such a figure, even if markets may view it as slightly disappointing. As the pool of available labour evaporates, job creation need only keep pace with increases in the overall size of the labour force. Some FOMC speakers have said that they would be comfortable with sub-150,000 non-farm payroll numbers, most notably Vice Chair Fischer who has indicated that 75-150 thousand would be acceptable.
Wall Street opens lower
US markets are down in early trading:
- Dow Jones: -0.1% at 18,431
- S&P 500: -0.2% at 2,172
- Nasdaq: -0.3% at 4,763
Ryanair's O'Leary: Ireland should tell EU to f**k off over Apple
The Guardian’s Rob Davies has been at a Ryanair press conference, where he found chief executive Michael O’Leary in typically talkative form.
O’Leary was announcing the budget airline’s new routes to Strasbourg and Faro, but commented on a number of subjects...
1. On Brexit, O’Leary said he expects UK passenger numbers to be five million lower in the next financial year than they would otherwise have been.
There’s an awful lot of rubbish being talked over here about how there’s been no effect. The effect is never going to be immediate.
The UK is going to suffer some significant economic damage when they get into the entrails of the Brexit decision. We hope the UK does well out of it but I’d be very concerned. The UK is going to end up looking pretty stupid.
2. On the EU’s state aid ruling on Apple’s tax affairs in Ireland:
The Irish government shouldn’t even appeal the decision. They should just write a letter to Europe and tell them politely to f**k off with themselves. Which is what they need to be told.
3. On new runways:
(O’Leary wants a new runway at Heathrow, Gatwick and Stansted.)
The way to finally deal with this is the government doing something intelligent for a change and saying you can all build a new runway, God speed. It’s not in my interest to advocate three runways but it’s what the UK needs to do.
4. On Theresa May:
EasyJet and BA were invited for tea and muffins at...what’s the country house? Chequers. We’re the biggest airline in the UK and weren’t invited. I’d love to be invited to Chequers. I’ve never been invited to Downing Street either.
I wouldn’t want to invite a peasant like me to either of those two august institutions. Being Irish, I’d be trying to nick the silver or something else...though we shouldn’t engage in national stereotypes, even if it is slagging off the Micks.
Updated
US markets are expected to open lower:
US Opening Calls:#DOW 18442 -0.07%#SPX 2175 -0.01%#NASDAQ 4775 -0.02%#IGOpeningCall
— IGSquawk (@IGSquawk) August 31, 2016
US job creation slows in August (but it's better than expected)
The private sector in the US created 177,000 jobs in August according to the monthly ADP report.
It was lower than the 194,000 jobs added in July, but better than the 175,000 predicted by economists.
The increase in August was largely driven by new jobs in the service industry:
The ADP report comes before Friday’s keenly awaited non-farm payrolls report. As the last report before the Fed’s September policy meeting, investors will be scanning it for clues as to whether the next rate hike will come in September or later.
Paul Ashworth, chief US economist at Capital Economics, says the ADP report suggests non-farm payrolls will show a gain of 188,000.
If the ADP turns out to be off the mark and non-farm payrolls increase by 250,000 or more, as they did in both June and July, then a September rate hike would become a real possibility.
It is more likely that payrolls will come in below 200,000, however, which would probably persuade the Fed to hold off on the next rate hike until December.
Updated
Florian Hense, economist at Berbenberg, says low eurozone inflation of 0.2% in August is concerning for the European Central Bank:
August, just like the first seven months, does not provide much evidence for a material shift in price dynamics. This remains an ongoing source of concern for the ECB.
But whether today’s numbers cause headache to the central bankers in Frankfurt remains to be seen. Whereas market-based gauges remained close to record lows, survey-based indicators had shown more resilience.
Next week’s governing council meeting (8 September) will unlikely bring big news. Mario Draghi will continue to stress that the ECB keeps all options open.
There is some chance that the ECB will already announce an extension of asset purchases beyond the end of March 2017, but that is more likely to come in December when the ECB knows more about the Brexit impact and political risks in the US and Europe.
Updated
Brent crude oil is now below $48 a barrel, down 1.3% at $47.76.
The FTSE 100 is lagging other European markets for a second day as a drop in commodity prices weighs on mining shares.
The biggest fallers:
Meanwhile the banks are topping the table:
European markets are mixed this afternoon, with the FTSE and the DAX lagging other major indices:
- FTSE 100: -0.03% at 6,819
- Germany’s DAX: -0.1% at 10,650
- France’s CAC: +0.6% at 4,485
- Italy’s FTSE MIB: +0.8% at 17,019
- Spain’s IBEX: +1.1% at 8,778
- Greece’s ATG: +2.5% at 578
- Europe’s STOXX 600: +0.3% at 346
Over in the US, and despite a growing expectation that the Federal Reserve may raise interest rates later this year, one member believes low rates may be here for the long term.
Chicago Federal Reserve president Charles Evans suggested in Beijing today that cheaper borrowing would remain because US economic growth had slowed so much it was almost a permanent expectation for business and investors, according to Reuters. However Evans is not a voting member this year, so here are the chances of a rise in the next few months:
Probabilities of a #Fed rate hike as priced in by futures, according to CME Fedwatch:
— RANsquawk (@RANsquawk) August 31, 2016
Sep = 24%
Nov = 27%
Dec = 44%
Feb = 44%
Mar = 44%
EU's tax swoop on Apple is 'economic war'
The EU has started “an economic war” with the US by ordering Apple to pay Ireland up to €13bn plus interest in back taxes.
That is the view of Jennifer McCloskey, the director of government affairs for the information technology industry council which lobbies on behalf of US tech industry.
Conceding there were broader issues around business taxes to be addressed, she told the BBC Radio 4 Today programme:
We would encourage that folks return to the multilateral conversation around these issues, that we work together to find reasonable solutions, and that we stay away from actions that lead to what we see now which looks like we’re starting some kind of economic war between the European Commission and the US government.
The business community needs certainty and established rule of law - rules of engagement that we can rely on. And the direction of this departs extremely from all of that. We are concerned about the implications of this and what it could mean for future investment for our member companies’ operations in Europe and around the globe.
A company thinking about where they’re going to invest the next dollar is going to think about things like this.
Strong case for more ECB action. The battle against low inflation is faltering. @angelamonaghan
— Marcus Wright (@MarcusEconomics) August 31, 2016
Oil prices fall on faded hopes of output freeze
The price of a barrel of Brent crude oil is down 0.7% at $48.02.
Oil analysts surveyed by Reuters revised down their price forecasts for the first time since February as an agreement to cut production among oil producing nations looked unlikely, and US stocks rose.
The 34 analysts and economists said Brent would average $45.44 a barrel in 2016, slightly lower than last month’s forecast of $45.51.
Brent crude has averaged at $42.59 a barrel this year, hitting a near 13-year low of $27.10 in January and a high of $52.86 in June.
Howard Archer at IHS Markit agrees that this morning’s eurozone data will be disappointing for ECB president Mario Draghi and his colleagues on the governing council:
Largely disappointing news for the ECB as eurozone consumer price inflation was disappointingly only stable at 0.2% in August.
Adding to ECB concerns, there are signs that the eurozone labour market is faltering in reaction to recent slower growth and uncertainties over the outlook being magnified by the UK’s vote to leave the EU.
It looks to be a very tight call as to whether or not the ECB acts on 8 September or decides to maintain a “wait and see” stance as to how the eurozone economy is performing – we marginally lean towards the “wait and see” view.
If the ECB does undertake any further stimulus at its 8 September meeting, we believe it is most likely to extend its quantitative easing programme, which is currently due to continue “until the end of March 2017, or beyond, if necessary.”
Stephen Brown, European economist at Capital Economics, says there a strong case for further action from the ECB following the weaker than expected inflation and unemployment data:
The unchanged headline inflation rate in August highlights the fact that price pressures in the eurozone remain weak and boosts the case for more monetary easing from the ECB.
The unemployment rate is well above its 1999 to 2007 average of 8.8%, indicating that there is a large amount of slack in the economy and suggesting that wage pressures will remain subdued.
With Tuesday’s survey data also pointing to a marked slowdown in growth ahead, there is a strong case for the ECB to announce further policy easing. This could come as soon as the Bank’s meeting next week.
Among the eurozone’s 19 members, the jobless rate is highest in Greece at 23.5%, followed by 19.6% in Spain.
The lowest rates were in Malta, at just 3.9%, and Germany at 4.2%.
Youth unemployment remains a big problem, at 21.1% or just under three million people.
In Greece, more than half of young people are out of work (50.3%), and the picture is also particularly bad in Spain (43.9%).
Eurozone unemployment stable at 10.1%
Eurostat has also published unemployment figures for July.
The jobless rate in the eurozone was unchanged at 10.1%, the lowest since July 2011. It had been expected to edge lower to 10%.
The number of people out of work fell by 43,000 to 16.3m in July.
Eurozone unemployment remains higher than in the wider European Union, where the jobless rate was unchanged at 8.6% in July.
A breakdown of the eurozone inflation data shows that the core rate - stripping out energy and food which tend to be volatile - was also weaker than expected at 0.8% (unchanged).
It was expected to pick up to 0.9%.
Food inflation and service inflation slowed in August, while energy remained in deflation according to Eurostat’s flash estimate.
Eurozone CPI remains at 0.2% (0.3% exp), while core CPI falls to 0.8% from 0.9%. Bad day at the office for Mario
— Joshua Mahony (@JMahony_IG) August 31, 2016
Breaking: eurozone inflation weaker than expected
The headline rate of inflation in the eurozone was unchanged at 0.2% in August.
Economists had expected it to edge up to 0.3%.
This is likely to strengthen speculation that the ECB could announce more stimulus for the sluggish eurozone economy when the governing council meets next week.
More to follow...
Surprise drop in French consumer spending
Consumer spending fell 0.2% in July, following a 0.8% fall in June.
It took economists by surprise, with those polled by Reuters forecasting a 0.3% increase, and weighs on the outlook for French economy in the third quarter.
Inflation in France was unchanged in August at 0.4%.
The flash eurozone inflation data for August is coming up at 10am.
German unemployment falls more than expected
More upbeat news from Germany. Unemployment in Europe’s largest economy fell more than expected in August according to figures from the Federal Labour Office.
The seasonally adjusted jobless total fell by 7,000 to 2.675 million. Economists polled by Reuters had expected a smaller fall of 5,000.
The unemployment rate was unchanged at 6.1%, the lowest since German reunification in 1990.
Frank-Juergen Weise, head of Germany’s labour office, said:
Demand for labour, measured by employment and registered vacancies, continues to be high.
Despite this morning’s better-than-expected German data (on unemployment and monthly retail sales), the DAX is lagging other European indices, down 0.1% at 10,650.
German retail sales jump in July
Over in Germany, consumers were more willing than expected to spend money in July.
Retail sales increased by 1.7% on the month, following a 0.6% fall in June. Economists had predicted a more modest rise of 0.3%.
But the data from the Federal Statistics Office was mixed, showing an unexpected fall in annual retail sales. The 1.5% drop in July followed a 2.3% increase in the annual rate in June. Economists had forecast a 0.3%.
German retail sales data are considered erratic and are frequently revised, but the disappointing annual number will dampen hopes that consumer spending will be a significant boost to growth.
Pound rises against dollar and euro
The stronger than expected consumer confidence and house prices data is helping to push the pound higher this morning.
Sterling is up 0.2% against the dollar at $1.3101. It is up 0.2% against the euro at €1.1765.
Ana Thaker, market economist at PhillipCapital UK, says the next big test for the pound against the dollar will come on Friday, when the US non-farm jobs report is published:
Sterling remains strong on the back of positive data from the economy. The next major change in direction we could see in GBPUSD may come ahead of non-farm payrolls on Friday with downside risk still strong for the pair as dollar strength persists.
UK house prices rise in August
House prices increased 0.6% in August according to the lender Nationwide. The average price of a home in the UK was £206,145.
The rise took economists by surprise, with the City forecasting a 0.3% drop in prices. It was the strongest rate of monthly growth in five months, and followed a 0.5% rise in July.
It drove the annual rate of growth in house prices to 5.6% in August from 5.2% in July.
Despite the rise in prices, Robert Gardner, Nationwide’s chief economist, said the housing market had weakened since the Brexit vote. Prices were being supported as weak supply matched weak demand, he said:
The pick up in price growth is somewhat at odds with signs that housing market activity has slowed in recent months. New buyer enquiries have softened as a result of the introduction of additional stamp duty on second homes in April and the uncertainty surrounding the EU referendum.
However, the decline in demand appears to have been matched by weakness on the supply side of the market. This helps to explain why the pace of house price growth has remained broadly stable.
What happens next on the demand side will be determined, to a large extent, by the outlook for the labour market and confidence amongst prospective buyers.
European markets dip in early trading
European markets are down this morning but there are no major moves. The biggest faller is the DAX in Germany, where retail sales data were mixed (more coming up).
Traders are a bit more subdued this morning after European equities hit a two-week high on Tuesday (the FTSE lagged).
This is how it’s looking:
- FTSE 100: -0.01% at 6,820
- Germany’s DAX: -0.3% at 10,625
- French CAC: -0.1% at 4,453
- Italy’s FTSE MIB: +0.1% at 16,915
- Spain’s IBEX: +0.2% at 8,702
- Europe’s STOXX 600: -0.03% at 345
Samuel Tombs, chief UK economist at Pantheon Macroeconomics is not convinced by the uptick in consumer confidence in August.
He says confidence remains low following the Brexit vote, and is likely to weaken further in the coming months.
The only partial recovery of GfK’s composite index in August, after the sharpest month-to-month fall in 26 years in July, shows that consumer sentiment has been dealt a lasting blow by the EU referendum.
The composite index remains much lower than its average of zero in the first six months of 2016.
The looming real income squeeze, as inflation picks up and job growth moderates, likely will weigh on consumer sentiment over the next six months and lead to a sharp slowdown in household spending growth.
UK consumer confidence rebounds in August
Consumer confidence rebounded in August, as the jitters apparent in the immediate aftermath of the Brexit vote appeared to fade away.
The headline index on the GfK consumer confidence index increased to -7 from -12 in July.
All measures, including the outlook for personal finances, the economic outlook, and appetite for making major purchases, picked up this month.
The survey of 2,000 individuals was slightly better than the -8 economists had expected.
It suggested a revival in spirits among UK consumers after a one-off poll following the 23 June EU referendum showed the biggest slide in consumer confidence for 21 years.
GfK’s Joe Staton explains why consumers are feeling more cheery this month:
We’re reporting some recovery in the index this month as consumers settle into the new wait-and-see reality of a post-Brexit, pre-exit UK.
The uptick in confidence is driven by good news from hard data, the combination of historic low interest rates matched with falling prices and high levels of employment.
Updated
European markets are expected to open down this morning:
Our European opening calls:$FTSE 6814 down 7
— IGSquawk (@IGSquawk) August 31, 2016
$DAX 10647 down 10
$CAC 4454 down 4$IBEX 8685 down 1$MIB 16867 down 25
The agenda: eurozone inflation and unemployment; latest on Apple
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The flash estimate of eurozone inflation for August will offer some clues on the challenges facing the region’s central bankers as they return from their summer break.
The European Central Bank will meet next week and speculation is building that its governing council led by Mario Draghi will announce more stimulus for the sluggish eurozone economy.
The headline annual inflation rate is expected to show a slight pick-up to 0.3% from 0.2% in July.
But a slight rise in inflation is unlikely to put a stop to talk of more stimulus. Price pressure in the single currency bloc remains weak, and consumer confidence has faltered following the Brexit vote.
Also coming up today we have eurozone unemployment data and the ADP employment report in the US.
We will also bring you more reaction to the EU’s demands that Apple repay Ireland up to €13bn in illegal state aid. Please keep the comments coming.
