European markets close higher
A recovery in the oil price following talk that Iran might back moves to support crude helped lift stock markets, although investors remained cautious ahead of the speech by US Federal Reserve chair Janet Yellen on Friday. In the UK housebuilding shares were boosted by a upbeat update from Persimmon, while mining companies were lifted by a positive report from analysts at Jefferies. The final scores showed:
- The FTSE 100 finished 39.97 points or 0.59% better at 6868.51
- Germany’s Dax rose 0.94% to 10592.88
- France’s Cac climbed 0.72% to 4421.45
- Italy’s FTSE MIB added 2.5% to 16778.05
- Spain’s Ibex ended up 1.33% at 8580.9
- In Greece, the Athens market edged up 0.33% to 567.90
On Wall Street, the Dow Jones Industrial Average is currently up 37 points or 0.2%.
Elsewhere Brent crude has climbed 1.34% to $49.82 a barrel, while the pound is up 0.4% against the dollar at $1.3190.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Back with oil, and in the run up to the producers’ meeting next month there are likely to be a number of conflicting headlines. Following Reuters’ report that Iran might back measures to support the price and that the country had confirmed it would attend the meeting, comes this:
DJ IRANIAN OIL-MINISTRY OFFICIAL WON'T CONFIRM IRAN'S ATTENDANCE AT UPCOMING MEETING
— FxMacro (@fxmacro) August 23, 2016
With the informal OPEC meeting in Algeria happening at the end of Sept I would be vigilant of further oil headlines in coming weeks #OOTT
— Anthony Cheung (@AWMCheung) August 23, 2016
Here’s more on the earlier US manufacturing PMI figures from Markit:
#PMI data show US #manufacturing enjoying its best quarter so far this year. Read more at https://t.co/EbKLVcBrVG pic.twitter.com/8YRh0B5nlh
— Chris Williamson (@WilliamsonChris) August 23, 2016
Brent crude is now up around 1% at $49.70. Jasper Lawler, market analyst at CMC Markets, said:
Oil markets were volatile on Tuesday amid speculation and rumours over an OPEC output freeze. Early on, oil extended its decline on Tuesday following a bearish note from Goldman Sachs but anonymous sources reportedly from inside OPEC suggesting Iran is sending “positive signals that it may support joint action“ triggered a an afternoon rebound.
While few really expect any agreement from OPEC when Iran is still increasing production, the mere prospect of one is enough to keep short-sellers at bay. The biggest build in net speculative positions in five years on Friday was in large part triggered by massive short-covering, which could easily come back into the market, should no deal be reached.
Of course, getting an agreement on measures to support the oil price will not be easy. Reuters again:
“The difficult question for all will be defining the freeze - at what level of production. Agreeing a number may be a challenge - unless they all agree to allow some form of flexibility?” the senior industry source said.
An OPEC source from a main Middle East oil producer agreed.
“Freezing output now is difficult, everyone is raising production. And even if, and I am saying ‘if’ ... we agreed to a freeze, no one will commit to stick to it,” the source said.
Oil recovers on talk Iran may support action to boost prices
Oil is recovering some ground after its recent weakness, following a Reuters report that Iran may back measures to help support the price at a producers meeting next month.
Crude prices had slipped back in recent days following a period of strength, as hopes that a deal on output began to fade. But Reuters said:
Iran is sending positive signals that it may support joint action to prop up the oil market, sources in OPEC and the oil industry said, potentially aiding efforts to revive a global deal on freezing production levels at talks next month.
OPEC’s third-largest producer has been boosting output after the lifting of Western sanctions in January. Tehran refused to join a previous attempt this year by OPEC plus non-members such as Russia to stabilise production, and talks collapsed in April.
Though Iran has not yet decided whether to join a new effort, Tehran appears to be more willing to reach an understanding with other oil producers, the sources said...
“Iran is reaching its pre-sanctions production level soon and after that it can cooperate with the others,” said a source familiar with Iranian thinking after del Pino’s visit to Tehran.
“In general, Iran prefers more actions from the OPEC side rather than just freezing at the maximum production level of all members. If this freezing issue helps prices to improve, Iran by positive words of support, will help”...
Iran confirmed its participation in the OPEC meeting in Algeria, an OPEC source said on Tuesday.
Brent is currently up 0.41% at $49.36 a barrel after earlier falling as low as $48.48.
Updated
The Bank of England’s weekly purchase of 15 year plus gilts could signal it will struggle to fulfil its QE target, said Mitul Patel, head of interest rates at Henderson Global Investors:
Today marked the third attempt by the Bank of England to buy long dated bonds as part of its new Quantitative Easing programme. Unfortunately, it proved to be a reversion back to the signals shown at the first buyback. Whilst the Bank attracted sufficient offers, they had to pay over a 5bps premium compared to the prevailing market yield level for some bonds.
Gilts have rallied sharply following the result, led by longer dated bonds and it again raises concerns over how easily they will be able to complete their asset purchases over the coming months.
Even so the ECB is likely to introduce further stimulus measures, according to ING senior economist Bert Colijn:
Consumers seem more concerned about the post-Brexit economy than businesses are as confidence declines for third month in a row.
Consumer confidence decreased by -0.6 points to -8.5 in the Eurozone, indicating that Europeans have lost quite some confidence this summer. While businesses are not yet signalling a weaker economic environment, consumers are clearly less confident after the Brexit-vote. This is the third decline in a row of confidence and it marks uncertainty over the current geopolitical and economic climate, but also about the personal economic situation as July’s decline in confidence indicated. With indications from this morning’s PMI that hiring might be slowing, that concern could be valid. If this were to be the case, that would likely slow down domestic demand in the Eurozone, which has been driving the recovery over recent quarters.
The picture remains that optimism post-Brexit is premature. Although the PMI reached a 7-month high this morning, consumer confidence declines indicate that uncertainty does linger and that growth is likely to be affected by Brexit uncertainty as the process of the British exit drags along. Because of that, we remain of the opinion that growth rates are likely to decline in the second half of the year and that the ECB will announce further stimulus to counter the weakening growth environment shortly.
The mixed signals from the eurozone should not trouble the European Central Bank too much, according to Dennis de Jong, managing director of UFX.com. He said:
ECB president Mario Draghi won’t be overly concerned about the poor consumer confidence results released today as the downbeat sentiment has been part and parcel of the economic picture for some time now.
The ECB will have been pleased to see strong data this morning from the two big beasts of the eurozone – Germany and France – in addition to the positive signals from the EU’s manufacturing and services industries.
However, Draghi will know that his plate is still full with events in Italy likely to be his most pressing concern. Ensuring the Italian economy remains resilient in the face of global uncertainty will be central to his wider eurozone plans, especially as the British government has no immediate plans to begin exit proceedings.
Eurozone consumer confidence falls again
In the wake of the Brexit vote, eurozone consumer confidence continued to fall.
The European Commission said confidence declined from -7.9 in July to -8.5 in August, compared to expectations of a rebound in morale.
The figures for the European Union as a whole saw a less dramatic fall, down from a revived -7.7 in July to -7.8.
Back with the US, and the Richmond Federal Reserve manufacturing data is also painting a downbeat picture.
The Fed’s composite manufacturing index came in at -11 compared to +10 in July.
Meanwhile new home sales are higher than expected:
US july new home sales +12.4% to 654K SAAR, well above the 580K rate expected and the strongest pace since october 2007
— Morris Cabrioli (@insidegame) August 23, 2016
Bank of England holds successful bond purchase
The Bank of England has successfully bought £1.17bn of long-dated UK government debt for the second week in a row.
After the failure of the first of the three auctions so far, the Bank received offers worth £1.799bn this time round, with investors willing to sell 1.54 times what the Bank wanted. However that was down on the 2.67 cover last week, leaving some analysts worried about slowing demand.
Updated
US manufacturing growth slows in August
As the Federal Reserve considers its options for interest rates, an initial estimate for US manufacturing for August has come in below expectations.
The Markit manufacturing PMI was 52.1 compared to 52.9 in July and expectations of a figure of 52.7. The output index edged up from 53.8 to 53.9 while the employment index dropped from 53.3 to 50.6 in August.
US Mfg. PMI takeaways: Employment slowest pace for 4 months, new orders slows, despite fastest increase in export sales in nearly 2-yrs
— RANsquawk (@RANsquawk) August 23, 2016
US markets open higher
As expected Wall Street is on the front foot in early trading, although investors are still cautious ahead of the Federal Reserve chair Janet Yellen appearing at the Jackson Hole symposium on Friday.
There are also some manufacturing and housing figures due shortly, which could give further clues to the Fed’s thinking on rate rises.
So the Dow Jones Industrial Average is up 91 points or 0.49%, while the S&P 500 and Nasdaq Composite have both opened around 0.3% higher.
Updated
Wall Street is expected to open higher for the first time in three days.
The focus is shifting to the big event of the week - the annual meeting of central bankers at Jackson Hole, Wyoming.
It kicks off on Thursday, but all eyes will be on the Federal Reserve chair Janet Yellen on Friday when she gives a speech. Investors will be looking for any clues on when the Fed might raise rates.
Steven Wieting, global chief investment strategist at Citi Private Bank, told Reuters:
There is strong evidence that investors are staying on the sidelines ahead of Yellen’s speech.
But, by no means will the Fed want to cut off the bait for the September or December meeting.
US Opening Calls:#DOW 18587 +0.30%#SPX 2188 +0.27%#NASDAQ 4825 +0.34%#IGOpeningCall
— IGSquawk (@IGSquawk) August 23, 2016
Former BHS owner Dominic Chappell gets driving ban
The Guardian’s Sean Farrell reports:
Dominic Chappell has been disqualified from driving for six months after an unsuccessful attempt by the former owner of BHS to argue he needed the use of his car to help employees of the stricken retailer.
Chappell was fined £665 and given six points on his licence for driving his green Range Rover at an average speed of almost 64mph in Andover, Hampshire, on 6 April. The speed limit on the road was 40mph.
The former racing car driver pleaded guilty to the offence at Aldershot magistrates court. He had 10 points on his licence for speeding offences in 2013, 2014 and 2015.
Chappell, 49, told the court it would be a stretch for him to employ a chauffeur or take taxis and that he was the subject of abuse and “strong language” when he took the train.
He said he spent four days a week attending meetings about the collapse of BHS, which went bust in April after little more than a year in Chappell’s ownership.
The court heard Chappell’s manor house in the village of Winterborne Clenston in Dorset is two miles from a bus stop and about 20 miles from the nearest train station. Chappell’s wife drives 100 miles a day taking his young son to a private boarding school, where his daughter is a weekly boarder, he said.
Magistrate Jenny Gove said Chappell’s speed was “really very excessive” and the withdrawal of his licence would not cause him exceptional hardship. She ordered him to pay £150 in costs.
Full story:
Updated
Back with Ireland and following its latest unemployment data, the country has announced its first year of net immigration since 2009.
Net immigration to Ireland peaked at more than 100,000 at the height of its housing boom in 2008. But during the subsequent EU and IMF bailout, the country lost around 30,000 people a year.
Now the figures from the Central Statistics Office show migration added 3,000 to the population in the year to this April, the first increase in seven years.
Updated
The Brexit vote has boosted sales of Swiss watches in the UK, as tourists take advantage of the weaker pound to snap up luxury goods.
Sales jumped 13% in July.
It makes the UK the fastest growing major market for the sale of watches brands such as Omega, Breitling and Rolex, with Italy the only other major market to see growth year on year.
Read the full story here:
In the corporate world, Asda is selling its loss-making photo business to Photo-Me International for about £5.4m in cash.
The photo booth operator will buy 191 Asda in-store photo centres and 172 self-service kiosks and operate the supermarket’s online photo-processing service. It is paying £3.35m for the business and will also buy about £2m of stock.
The deal is part of the supermarket chains attempts to offload some services and focus on its main grocery business where sales have fallen.
Updated
Ireland has revised up its July unemployment rate to 8.3% from an earlier estimate of 7.8%.
Irish unemployment peaked at 15.1% in early 2012.
Ireland revises up unemployment rate to 8.3 percent https://t.co/PlkscHMjhB
— 4-traders.com (@ForTraders) August 23, 2016
Howard Archer, chief UK economist at IHS Global Insight, says the better-than-expected CBI survey suggests the economy will grow in the third quarter.
Overall, the August CBI industrial trends survey supports hopes that the economy can keep growing in the third quarter, despite the heightened uncertainty after the Brexit vote.
Third quarter growth hopes have been lifted by robust retail sales in July and the CBI survey suggests that manufacturing output could hold up better than had been feared.
Alan Clarke, economist at Scotiabank, said it was “so far so good” for the UK manufacturing sector.
The fundamentals are supportive (low and falling bond yields, weaker pound etc) - all we need to fear is fear itself.
If sentiment for hiring and investment suffers, then there is a downside risk to growth. But a great case in point is that export orders [in the CBI survey] boomed - up to -6 from -22 and the highest for around 2 years.
So far so good...
The CBI’s industrial trends survey suggests manufacturers are preparing to pass on some of the higher prices they are having to pay for raw materials since the pound weakened.
Average prices are expected to increase over the next quarter, with 17% companies expecting to raise prices and 8% expecting to cut prices, giving a balance of +8% - the highest since February 2015.
Manufacturing output grew while total orders remained solid according to our latest monthly Industrial Trends Survey https://t.co/gkiggLYOgY
— The CBI (@CBItweets) August 23, 2016
CBI: manufacturing exports hit two-year high following Brexit vote
Export order books at UK manufacturing firms were the strongest in two years in August according to the CBI.
The business lobby group suggested it was down to the weakness of the pound, which makes British-made goods cheaper abroad.
Of the 505 firms surveyed for the CBI’s industrial trends survey, 21% said export orders were above normal, and 27% said they were below. That gave a -6% balance, which was the highest since August 2014.
The orders balance overall (combining exports and domestic orders) was -5%, just below July’s -4%.
Output growth slowed to a balance of +11% from +16% in July, but it was better than manufacturers had expected.
Anna Leach, the CBI’s head of economic analysis and surveys, said it was a positive picture but added the government would have to do more to support businesses in the pro-Brexit vote environment.
It’s good to see manufacturing output growth coming in stronger than expected, and some signs that the fall in sterling is helping to bolster export orders. But the pound’s weakness is a double-edged sword, as it benefits exporters but also pushes up costs and prices.
The most significant effects of the vote to leave the EU will flow over the medium to long-term. Therefore firms need to see ambitious decisions in the [chancellor’s] Autumn Statement that will secure the UK’s economic future as changes to trade, regulation and access to skills loom on the horizon.
Capital Economics has produced a useful table listing the upcoming UK data and whether it will tell us anything about economic activity since the Brexit vote:
Here's a table of the key upcoming UK economic indicators and what they will tell us about post-referendum activity. pic.twitter.com/zctr0MUdlo
— Capital Economics (@CapEconUK) August 23, 2016
Britain’s gender pay gap is a “national embarrassment” according to the Lib Dems.
Meral Hussein-Ece, the Lib Dems’ equalities spokesperson, said:
The continued existence of the gender pay gap is a national embarrassment. It is appalling that half the UK population are destined for lower pay simply for being female.
As a society we must fight to ensure everyone is given an equal chance in life yet every day that the gender pay gap remains we are failing to give that opportunity to millions.
Some legal reaction from Kate Hodgkiss, employment partner at DLA Piper:
The IFS report confirms that progress towards closing the gender pay gap remains glacial and verifies that a fundamental change in the way in which we address inequality of pay in the workplace is needed.
The government’s own affirmation that the draft Gender Pay Gap Regulations will come into effect by April 2017 is therefore welcomed as a first step in this process.
Whilst the Equal Pay Act continues to assist women to achieve parity of pay, the act has not been effective to reduce the pay differential during the same period of time, as the report demonstrates.
Furthermore, the impact of taking time out of the workplace for family reasons continues to have a significant impact upon a woman’s pay potential for the remainder of her working life.
Housebuilders boost FTSE 100
Britain’s quoted housebuilders are the FTSE’s biggest risers this morning.
The sector has been boosted by Persimmon, which has seen a jump in the number of people reserving new homes over the two months.
It appears those in the market to buy new homes have not been put off by Brexit uncertainty.
In the run-up to the 23 June referendum it was thought housebuilders would be among the worst hit by Brexit uncertainty.
The FTSE 100 is currently up 0.5% or 36 points at 6,865.
And at the other end of the table:
Updated
Oil prices fall below $49 a barrel
Oil prices are down again this morning. Brent crude is down 1.2% at $48.58 a barrel.
The price is under pressure amid signs that supply is rising and as hopes fade that oil producing countries will agree steps to try and halt the price falls.
In a note on Monday, Morgan Stanley said major decisions were unlikely to be reached at next month’s OPEC meeting. It followed earlier optimism among traders that an agreement to support crude prices could emerge.
Eurozone shrugs off Brexit uncertainty in August
The flash PMIs for the eurozone show a mixed picture for August.
Manufacturing growth slipped slightly lower, while growth in the services sector picked up.
Overall the composite PMI index combining both sectors pointed to a slight rise in activity in August, suggesting any uncertainty caused by the Brexit vote is having a limited impact so far.
The headline composite index edged up to 53.3 in August from 53.2 in July. Economists polled by Reuters had pencilled in 53.1.
Chris Williamson, chief business economist at IHS Markit said the August PMIs suggested the eurozone economy would grow by 0.3% in the third quarter.
The August flash PMI indicates that the eurozone remains on a steady growth path in the third quarter, with no signs of the recovery being derailed by Brexit uncertainty.
The survey data are consistent with the region’s GDP growing at a quarterly rate of 0.3% in the third quarter, or 1.2% annualised, which is similar to that seen on average over the first half of the year.
A solid 0.5% pace of expansion in Germany is being accompanied by a return to modest growth in France in the third quarter, while the rest of the region is also seeing growth pick up after slowing in the second quarter.
Updated
Growth in Germany's private sector slows
The flash PMIs for Germany show that private sector output continued to grow in August, but at a slower rate than July.
The composite index combining manufacturing and services slipped to 54.4 in August from 55.3 in July. Anything above 50 is growth territory. Economists were predicting 55.
The biggest drag on growth was Germany’s services sector, which dropped to 53.3 in August from 54.4 in July.
The flash manufacturing PMI dipped slightly to 53.6 from 53.8 last month.
Oliver Kolodseike, economist at IHS Markit said the surveys still pointed to solid - but slowing - growth in Europe’s largest economy:
Today’s survey results highlight that the German economy is continuing its uninterrupted upward trend in August. However, output, new orders and employment all rose at slightly weaker rates during the month, thereby signalling that business conditions have become a bit more challenging since the prior month.
Nonetheless, the long-standing theme of solid economic growth in Germany continued in August and based on the survey data available for the third quarter so far, we should expect further steady GDP growth. It is unlikely that the 0.7% pace from the beginning of the year will be repeated, however.
Pound hits three-week high against dollar
The pound is rising against the dollar this morning and is currently up 0.4% at $1.3186.
It hit a three-week high of $1.3195, apparently as speculators trim back their short positions.
The pound has also hit an 11-day high against the euro, with one euro worth 85.915p.
European markets open higher
Europe’s major markets are all up in early trading:
- FTSE 100: +0.5% at 6,859
- Germany’s DAX: +0.6% at 10,557
- France’s CAC: +0.6% at 4,415
- Spain’s IBEX: +0.8% at 8,535
- Italy’s FTSE MIB: +0.8% at 16,496
- Europe’s STOXX 600: +0.6% at 342
France fares better than expected in PMIs
The French flash PMIs have come in slightly better-than-expected overall.
The manufacturing sector shrank with the headline index coming in at 48.5 (where anything below 50 signals contraction). Economists polled by Reuters were predicting a slightly less weak 48.8.
But the services sector was in much better shape than expected, rising to 52 in August from 50.5 in July.
Taking the two Makit surveys together, that gave a composite headline index of 51.6 in August, better than July’s 50.1 and an indication that growth in the French private sector picked up modestly.
Jack Kennedy, senior economist at IHS Markit said the picture was still mixed in the eurozone’s second largest economy.
France’s private sector economy gathered some momentum in August, raising hopes of a pick-up in GDP growth after the stagnation seen in the second quarter.
A stronger contribution from the service sector bolstered overall output, while manufacturing held its ground to halt a recent slide.
That said, the trend in incoming new business remains muted while firms indicated a return to job shedding in the latest month, suggesting that the recovery remains stuck in the slow lane.
IFS: gender pay gap widens for mothers
A survey published overnight by the respected Institute for Fiscal Studies shows that pay inequality is still a major issue in the UK.
On average, women earn 18% less than men and it gets worse for women who have children.
The pay gap widens consistently for 12 years after a first child is born, by which point women receive 33% less pay an hour than men, according to the research funded by the Joseph Rowntree Foundation.
As the Guardian’s Katie Allen points out in the full story below, Theresa May faces a challenge to create “a country that works for everyone.”
Updated
The agenda: eurozone PMIs; Bank of England auction
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Flash PMIs for Germany, France, and the eurozone as a whole will provide the latest clues on how the private sector is performing in those economies.
The surveys for August, which cover the services and manufacturing sector, are expected to show diverging fortunes for Europe’s two largest economies, with Germany outperforming a more sluggish France.
They will provide some idea of how well the eurozone is faring in the face of continued Brexit uncertainty.
Also today, the Bank of England will attempt to buy more government bonds as it expands its quantitative easing programme.
The CBI will give a snapshot of how British industry has performed in August, and there will be the latest manufacturing PMI and new home sales data in the US.
European markets are expected to open higher this morning after sliding on Monday:
Our European opening calls:$FTSE 6846 up 17
— IGSquawk (@IGSquawk) August 23, 2016
$DAX 10521 up 26
$CAC 4409 up 19$IBEX 8496 up 28$MIB 16412 up 42
