Time to wrap up:
The US stock market has suffered another day of big losses, as investors worry about the state of the economy, trade wars, and possible interest rate rises.
Analysts warned that further losses are possible, as fear grips the markets.
Manufacturers warned that Donald Trump’s trade wars are pushing up their costs. Tariffs are making raw materials and imports more expensive, eating into profits.
However two companies - Boeing and Tesla - bucked the trend with forecast-beating results.
European companies have suffered a worrying slowdown in growth this month. Trade wars may be to blame here too, with manufacturers suffering a drop in orders.
Brexit angst is weighing on the pound. Sterling fell to a seven week low, below $1.29, as Theresa May struggles to reach an agreement on Britain’s transition deal.
Goodnight!
Tesla has addressed a lot of criticism with its results tonight, says Alan Boyle of Geekwire.
Tesla shares jumped more than 10 percent in after-hours trading today after the controversial electric-car company posted a surprisingly positive quarterly report, including a profit rather than a loss.
Adjusted net income for the third quarter amounted to $312 million, which translated into earnings of $2.90 a share. Analysts had expected a loss of around 19 cents per share.
Total revenue hit $6.8 billion, exceeding expectations of $6.3 billion. And Tesla’s cash on hand increased by $731 million, even though Tesla repaid $82.5 million in bonds during the quarter.
That cash position could take some of the pressure off Tesla, which had been burning through its reserves by the billions during what CEO Elon Musk called “production hell” for the company’s Model 3 electric car.
Analysts had worried that Tesla would have to borrow more money to stay afloat. But Tesla said “our cash position should remain at least flat in spite of our plan to repay $230 million of convertible notes in cash” during the current quarter.
After all the drama, @Tesla posts "truly historic" quarterly report with profit and positive cash flow: https://t.co/BDqstJL1eh pic.twitter.com/hEeD4v8YFH
— Alan Boyle (@b0yle) October 24, 2018
Updated
Shares in Tesla have surged 12% in after-hours trading.
Investors are scrambling to grab a stake in the company following its surprise move to profitability.
Tesla surprises Wall Street with strong results
Amid the gloom tonight, electric car company Tesla has stunned the markets with much better results than expected.
Elon Musk’s company made a profit of $312m in the last quarter, surprising analysts who expected another loss.
That’s its first profit in two years.
Revenues hit a record, at $6.82 billion, beating expectations of $6.33bn.
Tesla posts profit with Model 3 surge, shares jump https://t.co/U0PMn8Upk2 pic.twitter.com/2Rg9obGBhM
— Reuters UK (@ReutersUK) October 24, 2018
After a long struggle to meet production targets for its Model 3, and Musk’s well-known run-ins with regulators, has Tesla finally turned the corner?
Nicholas Hyett, equity analyst at Hargreaves Lansdown, believes it has.
He writes:
“Production numbers earlier this month meant we already knew Tesla could churn out the cars, the question was whether it could it do it profitably, and even more importantly, could Musk wean the company off a constant flow of cash from investors.
To say Tesla’s answer is emphatic is an understatement. Gross margins on the Model 3 are above even the company’s own lofty expectations and its position as the 5th most popular car by volume in the US suggests it’s drawing in a wide range of customers despite its comparatively high price point. Drivers will pay more for Musk it would seem. That’s important because the premium end alone won’t deliver the impressive growth Tesla needs in the coming years to justify its premium valuation.
Normally we’d tell investors to avoid reading too deeply into a single quarter’s numbers, but this quarter really counted at Tesla. Reading deeply is something of pleasure today.”
Updated
Analyst: Panic and fear is driving selling
There’s a scent of fear in the air in the markets tonight, according to Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
Zaccarelli says (via Reuters) that there may be more turmoil ahead:
“At this point it seems selling is begetting selling.
The VIX [volatility index] has doubled in the last couple of weeks. There’s a bit more fear in the air and you’re seeing the acceleration of growth to value.
“It looks like more panic and fear as the selling has continued to roll.”
Here’s now Marketwatch sums up today’s Wall Street wobble:
Stocks ended sharply lower Wednesday, as losses accelerated into the close and put both the Dow and the S&P 500 into the red for the year, and the Nasdaq into correction territory.
Upbeat results from Boeing Co. were credited with briefly pushing the Dow higher in early morning trading, before investors took an increasingly defensive stance, fleeing for the relative safety of utilities and consumer nondurable shares.
Dow sheds 600 points as Wall Street falls again
Another day, another big loss on Wall Street!
The Dow Jones industrial average managed to lose 608 points by the close, meaning it has lost all its gains for 2018.
It closed 2.4% lower at 24,583.
Technology shares, such as Microsoft (-5%) and Intel (-4.6%), fell sharply, while construction equipment group Caterpillar shed another 5.8%.
In another blow, the Nasdaq index slumped by over 4%, putting it into correction territory (more than 10% off its recent high).
Investors seem to again be gripped by worries about global trade, geopolitical tensions, and the state of the US economy -- with new home sales slowing, and manufacturers warning that cost pressure are going up.
Donald Trump’s row with the Federal Reserve over future interest rate rises, and the ongoing Brexit deadlock, can’t have helped the mood either.
Paul Zemsky, chief investment officer of multi-asset strategies and solutions at Voya Investment Management in New York, explained:
“It’s a big global risk-off trade.
“We’ve had some headwinds, higher interest rates affecting housing, tariffs causing input costs for manufacturers to go up, which makes earnings look not as stellar ... but that doesn’t mean the whole economy is rolling over,”
Those weak home sales figures haven’t helped the mood in New York.
The Dow is having another down day, currently off 221 points (-0.9%) at 24,969.
Fiona Cincotta of City Index sees nervousness on the trading floors:
Despite clawing back heavy losses on turnaround Tuesday, Wall Street has once again opened on the back foot. With a long list of risk factors, including Italy’s growing tensions with Brussels, Saudi Arabia’s increased isolation over Jamal Khashoggi’s killing, global growth worries and some earnings disappointments investors are struggling to find reasons to buy in.
US home sales shocker
The Federal Reserve may ignore Donald Trump’s complaints, but they should heed the latest US housing data.
New home sales fell to an annual rate of just 553,000 in September, 13.2% less than a year ago, and the weakest rate since December 2016.
That could suggest the housing market is cooling - perhaps in response to recent Fed rate hikes which have made borrowing more expensive.
A late sell-off has sent most European markets into the red tonight.
At the close of trading, Germany’s DAX was down 0.7% while the French CAC shed 0.3%. This morning’s weaker than expected PMI reports rather dampened the mood (and the Euro!)
Italy’s FTSE MIB had yet another bad day, losing 1.7% as the clash with Brussels over its 2019 budget rages.
Markets had been higher this morning, but it seems that investors didn’t trust the recovery - especially with so many risks (Italy, Brexit, Saudi Arabia) to think about.
In London, the FTSE 100 has closed 7 points higher, as the weaker pound propped up shares.
Some snap reaction:
Bank of Canada (#BoC) hikes rates 25bps as expected. #Loonie rises but traders await the press conference to see what Governor #Poloz has to say. The removal of "gradual" from the language could be interpreted in many ways. #USDCAD https://t.co/t3BZFZYKD0
— Alfonso Esparza (@alfonsoesparza) October 24, 2018
Hawkish hike by Bank of Canada sends the US dollar form CAD1.31 to CAD1.30. BoC drops reference to "gradual" hikes, upgrades investment and exports, and commits to raising rates to neutral setting.
— Marc Chandler (@marcmakingsense) October 24, 2018
Canada raises interest rates
The Bank of Canada has hiked borrowing costs, taking its benchmark interest rate up to 1.75%, from 1.5%.
That’s largely as expected, but shows that the Federal Reserve isn’t the only central bank moving away from crisis-era policies.
#BoC increases overnight rate at 1.75% from 1.5%
— Mauro 📈 (@Trader_Mauro) October 24, 2018
US growth picks up, but tariffs are hurting
America’s companies are still growing, but they’re also facing tough price pressures.
That’s according to the latest healthcheck from data firm Markit, just released. It shows US output growth hitting a three-month high, encouraging firms to take on more staff.
However, they’re also having to pay more for raw materials, and imports, as Donald Trump’s trade wars kick in.
Chris Williamson of Markit explains:
“The domestic economy remained the main driver of demand, with exports stagnating amid growing signs of trade being subdued by tariffs.
Tariffs also drove a further marked rise in prices, exacerbating an upward trend in price pressures borne out of robust domestic demand.
Flash U.S. Composite Output Index picks up to three-month high of 54.8 (53.9 in Sep). Output growth driven by the service sector and stronger domestic client demand. Intense price pressures persist in both the manufacturing and service sectors. More here: https://t.co/MSlJUNJnVC pic.twitter.com/BJHFMs2E9g
— IHS Markit PMI™ (@IHSMarkitPMI) October 24, 2018
Just in: Europe’s steel industry has been hit by a surge in imports from overseas.
The steel tariffs imposed by Donald Trump seem to have had a knock-on effect, with metals that was destined for America ending up in Europe instead.
According to European steel association Euroferi, imports from Turkey have increased by 57% this year, while those from Russia are up 56%.
Trump impose a 50% tariff on Turkish steel, as part of a diplomatic row with Ankara, making it very uncompetitive. That had a knock-on effect on Russia, which sells a chunk of its steel to Turkey (which is now swimming in the stuff).
Ding ding goes the opening bell in New York....and the markets aren’t doing very much.
The Dow has risen by 0.3%, or 71 points, to 25,262 in early trading, with Boeing gaining 3%.
We could be looking at a mixed day for U.S. markets. The Dow opened slightly up, while the S&P 500 and Nasdaq were down. https://t.co/c4hOx80D9L
— CNBC (@CNBC) October 24, 2018
European stock markets are pushing higher, as Boeing’s decent results brings some cheer to the trading floors.
Britain’s FTSE 100 is up 80-odd points, recovering yesterday’s losses, and the other indices are also looking healthier.
By hiking its profit forecasts, Boeing has brought some confidence that corporate earnings - and economic growth - is holding up well.
European multinational companies are also getting a currency boost. With the euro and pound dropping against the dollar today, their overseas earnings are more valuable.
Abi Oladimeji, Chief Investment Officer at Thomas Miller Investment, thinks investors should be cautious, though:
“The current double-digit pace of earnings growth (expected to be circa 20% in Q3) is clearly unsustainable and this will create a headwind in the months ahead.
For this reason, as well as the ongoing elevated levels of political and policy uncertainty in key regions of the world, we retain a cautious outlook on equities for now and await better opportunities to add to holdings.
Here’s Reuters’ take on Boeing’s strong results today.
Boeing topped analysts’ forecasts for quarterly profit on Wednesday and raised its forecasts for annual profit as it continued to benefit from a boom in global air travel and demand for airplanes.
Shares of the world’s biggest planemaker were up 3.1 percent at $361 in premarket trading, helping brighten the mood on Wall Street after a handful of shaky results outlooks on Tuesday from U.S. manufacturers hurt by concerns over global trade.
Soaring demand from commercial airlines has driven another surge in revenues for Boeing over the past year, pushing shares in the company up by roughly a third over the past 12 months.
Those moves have been dented somewhat by a combination of the trade worries, this year’s greater market volatility and a series of recurring charges for its KC-46 tanker program.
Boeing cheers Wall Street by smashing forecasts
(Sonic) Boom! Aircraft maker Boeing has posted strong results and raised its forecast for earnings this year.
In a boost to morale on Wall Street, Boeing posted earnings of $3.58 per share, beating forecasts of $3.47 per share.
With plane sales looking robust, the company now expects to make $14.90-$15.10 per share this financial year, up from $14.30-$14.50 per share.
This optimism has sent Boeing shares up by 4% in pre-market trading. That might be enough to push the Dow higher at the open, in an hour’s time.
RELEASE: #Boeing reports solid third quarter; reaffirms cash and raises revenue and EPS guidance. $BA
— The Boeing Company (@Boeing) October 24, 2018
Learn more: https://t.co/6wOPzSpSRh pic.twitter.com/wh8fizIqHL
Updated
Dollar hits nine-week high
The pound’s weakness today is partly because the dollar is strengthening against a basket of currencies.
The dollar index has hit a nine-week high today, as the greenback rallied across the board.
I can’t spot a particular reason why. But it may suggest investors expect the Federal Reserve will ignore Trump’s latest attack on Jay Powell, and raise interest rates in December.
[RTRS] - DOLLAR EXTENDS GAINS, INDEX AT NINE-WEEK HIGH OF 96.437 .DXY
— Alastair Williamson (@StockBoardAsset) October 24, 2018
Pound hits six week low
Newsflash: The pound has hit a new six-week low, as Brexit anxiety swirls to new heights.
Sterling has fallen by three quarters of a cent today to $1.291, its weakest point since 10th September.
The sell-off comes as Theresa May struggles to reach an agreement on Britain’s transition deal. Yesterday, she couldn’t get the whole cabinet onside, making traders wonder how she will get an agreement through parliament.
My colleague Dan Sabbagh explains:
No 10 sources conceded that the discussion, which came a day before the prime minister was due to plead for support from Tory MPs at a meeting of the party’s 1922 Committee, was “impassioned”. Others characterised it as a row.
A group of ministers, including Jeremy Hunt, the foreign secretary; Liz Truss, the chief secretary to the Treasury; and Michael Gove, the agriculture secretary, were among half a dozen who emphasised their concern over imposing a time limit on any backstop, which is designed to avoid a hard border in Northern Ireland.
Later today, the PM will meet with Conservative MPs to plead for their support. That could be another stormy session, after some anonymous MPs unpleasantly told the Sunday papers that she should “bring her own noose” to the 1922 committee meeting.
Britain’s National Audit Office (the government watchdog) has piled more pressure on, saying a no-deal Brexit could undermine security at the UK border and increase delays.
Donald Trump’s latest attack on Fed chair Jerome Powell hasn’t cheered Wall Street.
The New York stock exchange is expected to open lower in a few hours, with the Dow called down 0.8%.
Dow futures drop 220 points as stock market extends rout https://t.co/92nnHuCPVA
— Chase (@chasecrump8) October 24, 2018
European stock markets are actually up this morning, with the FTSE 100 gaining 50 points or 0.7%.
Craig Erlam of foreign exchange firm OANDA says there is “a huge amount of anxiety in the markets” today, partly due to anxiety over US interest rate hikes.
The US has been late to the game when it comes to the stock market sell-off, having been sheltered by last year’s tax cuts but they’re wasting no time in playing catch-up, with the S&P and Dow both fast closing in on 10% declines from the peak in a matter of weeks, while the Nasdaq has already ticked that box.
Trump has been quick to point the finger of blame at the Fed, with the President desperately not wanting to be associated with a stock market sell-off in the run up to the mid-term elections. Especially when he’s spent the last two years taking credit for the colossal gains. Rising interest rates has clearly been a factor in the loss of confidence in the stock market in recent weeks, with trade wars, Brexit, Italy’s budget issues and the Khashoggi murder also being important contributing factors.
Some good jobs news amid the gloom: car rental chain Enterprise are taking on 800 new graduate trainees.
The roles are scattered across Enterprise’s 470 branches across the UK. Do well, and you could be assistant manager within a year, they say. More details here.
Back in the UK, new mortgage approvals have fallen to a six-month low.
Industry figures show that 38,505 home loans were approved in September, down from 39,241 in August, and 6.7% less than a year ago.
This may show that the Bank of England’s interest rate rise, in August, has chilled the housing market.
UK Finance’s managing director of personal finance, Eric Leenders, suggests people raced to get new mortgages before the BoE rate hike:
“The mortgage market softened slightly in September, following strong remortgaging activity in the months preceding the recent base rate rise.”
Brexit uncertainty may be another factor, of course.
As Stephen Pegge, UK Finance’s managing director for commercial finance, puts it:
“Economic uncertainty continues to impact on businesses’ appetite for finance as overall lending remains slightly below the same period last year.
This morning’s weak eurozone PMI report has hurt the euro.
The euro has fallen by half a cent against the US dollar, to $1.141, as investors fear that the eurozone is weakening.
If so, it could make it harder for the European Central Bank to normalise monetary policy and raise interest rates above their record low of zero (a level Donald Trump can only dream of....)
Will the ECB shift the balance of risks to growth to the downside tomorrow? They should wait and see for another six weeks, but it's a closer call after today's PMIs. France not enough to compensate for other countries. pic.twitter.com/xDbDlh1Tui
— Frederik Ducrozet (@fwred) October 24, 2018
Eurozone slowdown: What the experts say
Mike Dolan of Reuters shows how German firms are particularly downbeat, according to today’s PMI report.
Eurozone business sentiment falls to weakest in almost 4 years, with German index lowest in more than 3 years https://t.co/LKpHkeSa4A pic.twitter.com/U5NoCiLQ3d
— Mike Dolan (@reutersMikeD) October 24, 2018
Oops! Eurozone growth outlook continoes to deteriorate. #Germany's Manufacturing #PMI falls more than expected, now at lowest since May 2016. pic.twitter.com/TKFsPgdhwZ
— jeroen blokland (@jsblokland) October 24, 2018
Oliver Rakau of Oxford Economics says European carmakers are struggling to meet new tougher emissions rules (which has also hurt car sales recently).
Weak German & French manuf. PMIs in Oct. are in part due to a transitory hit to car makers & their supply chain (from WLPT), but also reflect weaker global trade. The real worry is the tumbling German services PMI, that may question the ECB's conviction in domestic resilience.
— Oliver Rakau (@OliverRakau) October 24, 2018
Markit’s Chris Williamson fears the eurozone economy could be heading for choppier waters:
The last three times the official euro area #manufacturing data moved into decline, the downturn proved short-lived. With the caveat that some of the recent weakness is auto related, the drop in the October flash #PMI output index suggests the next decline could be more worrying pic.twitter.com/2XuU0Rh4ix
— Chris Williamson (@WilliamsonChris) October 24, 2018
Updated
Eurozone growth slows as trade wars bite
Newsflash: Eurozone corporate growth is stumbling this month, as tariffs and trade wars hit economic demand.
Data firm Markit reports that business growth is the slowest for over two years, while optimism has hit a four-year low in October.
Firms reported a slowdown in exports, particularly in manufacturing, where new export orders for goods decreased for the first time since June 2013.
This has pulled Markit’s Flash Eurozone PMI Composite Output Index down to 52.7, a 25 month low, down from 54.1 in September. Any reading over 50 shows growth.
Germany, the eurozone’s largest economy, was hit particularly hard. Factory output rose by the smallest in almost four years, while service sector growth was the slowest since May.
Chris Williamson, chief business economist at IHS Markit, says the eurozone appears to be slowing as the economic outlook darkens.
“The pace of Eurozone economic growth slipped markedly lower in October, with the PMI setting the scene for a disappointing end to the year. The survey is indicative of GDP growth waning to 0.3% in the fourth quarter, and forward-looking indicators, such as measures of future expectations and new business inflows, suggest further momentum could be lost in coming months.
The slowdown is being led by a drop in exports, linked in turn by many survey respondents to trade wars and tariffs, which appears to have darkened the global economic environment and led to increased risk aversion. It is therefore not surprising to see the slowdown broadening out across the economy, hitting the service sector.
Paul Donovan of UBS isn’t impressed by this latest attack on the Federal Reserve.
He told clients that the real risk comes from trade wars or excessive tax cuts, not monetary policy.
US President Trump has suggested the Fed is the greatest threat to the US economy. An economist would suggest recessions arise from overheating (caused by deficit financed tax cuts, perhaps), or policy error (disrupting supply chains on which an economy depends, perhaps).
Zero real rates with full employment are probably not a (restrictive) policy error.
The big question is whether Donald Trump could reprise his days on The Apprentice, and tell Jerome Powell that “you’re fired”.
And the answer? Probably not. The Federal Reserve Act only permits the President to remove a Governor “for cause”, and no chairman has ever been fired.
But we live in interesting times.
Elsa Lignos of Royal Bank of Canada says you can hardly sack a Fed chair for raising borrowing costs.
Overnight Trump stepped up criticism of Powell, saying “every time we do something great, he raises the interest rates” and that it is the “biggest risk” to the US economy, despite this being the slowest ever Fed tightening cycle.
He didn’t answer what would make him try and replace the Fed chair.
By law he can only fire governors “for cause” and raising interest rates can hardly be considered a cause – whether Congress would stop him perhaps depends on whether Democrats manage to take the house.
David Madden of CMC Markets points out that Donald Trump’s recent tax cuts are also putting pressure on the Fed to raise interest rates:
President Trump attacked Jerome Powell, the head of the Federal Reserve, for hiking interest rates. Mr Trump is ignoring the fact that his tax cuts helped spur on US economic growth, which warrant higher rates.
I fear Donald Trump is on shaky ground when he complains that the Fed blessed president Obama with record low interest rates, but hiked on his watch.
When Obama took office, America had fallen into a deep recession as the financial crisis raged. This forced the Fed to slash borrowing costs to stimulate growth.
Today, the US economy is running at its fastest pace since 2014 - something Trump isn’t bashful about taking credit for. US inflation hit 2.7% in August, over the Fed’s target, and policymakers fear that rising prices could get out of hand, unless borrowing costs rise.
As CNN puts it:
Obama took office after the Great Recession began in December 2007. The Federal Reserve at that time put historically low interest rates in place, and took other measures besides, in an effort to inject money into the faltering economy.
Introduction: Trump blasts Powell again
Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business.
Donald Trump may want to Make America Great Again, but he’s also showing a talent for making the markets nervous.
Overnight, the president has launched a new barrage at America’s central bank, accusing it of being too trigger-happy when raising US interest rates.
In an interview with the Wall Street Journal, Trump intensified his criticism of the Federal Reserve and its chairman Jerome Powell, for hiking borrowing costs.
It’s all terribly unfair, the president griped, saying:
I’m just saying this: I’m very unhappy with the Fed because Obama had zero interest rates.
Every time we do something great, he raises the interest rates.”
In an interview with the WSJ, President Trump blamed Fed Chairman Jerome Powell for threatening U.S. economic growth, saying it "almost looks like he's happy raising interest rates" https://t.co/1Q6ju9y7Y8
— The Wall Street Journal (@WSJ) October 23, 2018
In another jibe, the president added that Powell “almost looks like he’s happy raising interest rates”, even though it could threaten EU economic growth.
And when asked if he regretted making Powell America’s top central banker last year, Trump replied:
Too early to tell, but maybe.”
These comments are totally at odds with the principle of central bank independence. The Fed is meant to be free to change monetary policy to manage inflation and employment without worrying about a blast from the White House.
So far this year the Fed has raised interest rates three times; Trump’s attacks sound like an attempt to ward off a fourth hike in December.
Reaction to follow...
Also coming up today
Stocks may be volatile again today, as October continues to be a testing time for investors.
Asia-Pacific markets have risen today after Tuesday’s sell-off, and we’re expecting Europe to open higher - after the FTSE 100 hit a seven-month low last night.
Italy will be in focus, after being given three weeks to resubmit its 2019 budget for EU approval. Rome insists there is no Plan B, though, so further clashes seem inevitable.
Traders will also be watching for a new healthcheck on the eurozone economy, the latest UK mortgage figures, plus a likely interest rate hike by the Bank of Canada.
The agenda
- 9am: Eurozone ‘flash’ PMIs for manufacturing and services for October
- 9.30am BST: UK mortgage approvals figures for September
- 3pm BST: Bank of Canada interest rate decision
Updated
