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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Markets drop despite French GDP upgrade and strong Eurozone data -- as it happened

The Trocadero foutains, in front of the Eiffel tower in Paris.
The Trocadero foutains, in front of the Eiffel tower in Paris. Photograph: Ludovic Marin/AFP/Getty Images

Closing summary

That’s all for today, and this week

A quick reminder of the key points.

France’s growth rate in the first quarter of the year has been revised up to 0.5%. It’s the latest sign that the eurozone recovery continues.

European companies have posted their fastest quarterly growth since the debt crisis began six years ago. But growth dipped this month, suggesting a slight slowdown.

A similar survey showed that America’s economic growth may have slowed this month too. US manufacturing output expanded at the slowest rate in nine months.

European stock markets closed lower, with the FTSE posting its third weekly decline in a row. Worries over Brexit, and deflation, loomed over the City after a week of oil price falls.

The decline in the oil price helped to push Canada’s inflation rate down. The annual CPI rate fell by more than expected last month, to just 1.3% last month.

The British pound has marked the first anniversary of the Brexit vote with a small rally, up 0.35% to $1.2725. City experts, though, have shown that sterling has had a pretty awful year.

The European Central Bank has launched a bid to wrestle control of London’s euro-clearing market.

In Greece, unions are vowing to step up their protests unless the government grants better rights to thousands of short-term workers. The tensions come as rubbish piles up in Athens, as a refuse workers’ strike continues.

The Greek government, though, is trying to rally investor confidence now it has secured its latest bailout funds.

That’s all from us until next week. Thanks for reading and commenting. GW

The FTSE 100 has now fallen for three weeks in a row; that’s the worst run since the Brexit vote, points out Tara Cunningham in the Daily Telegraph tonight.

David Madden of CMC Markets says growth fears weighed on the markets today, despite French GDP being revised up early this morning:

Stock markets have fallen yet again as the disinflation fear is still doing the rounds. Oil may have recouped some of its losses today but the commodity has dropped a considerable amount since the start of the year and dealers are worried take it will put downward pressure on inflation. The cost of living in the eurozone and the US is softening already, and when you factor the recent losses in the oil market its points to a continuation of weaker inflation.

Traders are anxious it could turn into weaker growth rates, and the high hopes that they had for 2017 may not be met.

European stocks close

After another subdued day, the FTSE 100 has closed down 15.16 points at 7424.

Worries over disinflation, following the oil price slump this week, weighed on shares.

European issues also cast a shadow, as EU leaders in Brussels seemed unimpressed with Theresa May’s offer to EU citizens after Brexit.

Other markets also fell:

Here’s proof that the London stock market has underperformed since the Brexit vote, when measured in US dollars:

Back in Greece, protests are set to intensify over the weekend as unions step up calls on Athens’ leftist-led government to grant better employment rights – not least extension of short term contracts that could say protestors put up to 10,000 out of work.

Announcing that walkouts by rubbish collectors and other municipal workers would continue until Monday, Nikos Trakas, who heads the union representing municipal employees, said the government couldn’t hide behind legal argument in its refusal to put contract workers, now facing joblessness, in permanent positions.

“A government … can’t come back two and a half years later and say there is a problem with constitutionality,” he said.

“‘We are talking about ten thousand people and if they leave, local government in its entirety will dissolve.”

Piles of refuse have collected across Athens and with temperatures set to climb to 36 degrees Celsius by Sunday the strike is causing mounting concerns at a time of rising tourism.

Constantine Michalos, president of the Athens chamber of commerce, which represents over 100,000 businesses, issued an urgent appeal this afternoon for both workers and the government to return to the negotiating table.

“Everyone has to try to limit the obstacles that diminish the growth prospects of the country by limiting claims to rights,” he said adding that it made no sense that “vested interests” should prevail at such a critical time.

Updated

US manufacturing growth hits nine-month low

Just in: America’s private sector is slowing this month.

Factory activity across the US rose at its slowest rate in nine months, according to data firm Markit.

Companies reported that output and new business growth both slowed compared to May.

This dragged Markit’s ‘composite PMI’, which measures activity across the private sector, down to a three month low of 53.0, from 53.6. That shows slower growth.

But on the upside, job creation picked up and new orders hit a five-month high.

Businesses also restocked their inventories, suggesting more optimism about the future.

Chris Williamson, chief business economist at IHS Markit, says America’s economy is ending the current quarter on “a softer note”. That may mean that growth isn’t as strong as hoped, after a weak start to 2017.

“The average expansion seen in the second quarter is down on that seen in the first three months of the year, indicating a slowing in the underlying pace of economic growth.

While official GDP data are expected to turn higher in the second quarter after an especially weak start to the year (our recent GDP tracker based on various official and survey data points to 3.0% growth), the relatively subdued PMI readings suggest there are some downside risks to the extent to which GDP will rebound.

Updated

SFO closes probe into Bank of England

Back in the UK, the Serious Fraud Office has closed a probe into whether the Bank of England broke the law during the financial crisis.

After a two-year investigation, the SFO has concluded there is “no evidence of criminality” related to the emerging lending measures that the BoE took, to prevent the financial markets seizing up.

This all relates to the liquidity auctions which the BoE ran in 2007 and 2008, which gave UK banks access to desperately needed capital following the credit crunch, and the subsequent collapse of Lehman Brothers.

The SFO had been looking into whether any assistance was given to certain financial institutions to enable them to bid successfully for the available funding, to the possible detriment of other institutions.

Canadian inflation falls faster than expected

The flag of Canada.

Surprise inflation data from Canada have sent the Canadian dollar sliding.

Consumer prices across Canada fell by 0.2% during May (on a seasonally adjusted basis0) due to falling goods and energy prices.

That dragged the annual inflation rate down to just 1.3%, down from 1.6% in April (and much weaker than Britain’s 2.9% inflation rate). Economists had expected a smaller fall, to 1.5%.

The Canadian dollar promptly fell to 75.23 cents against the US dollar, from 75.6, as traders concluded that this creates less pressure to raise interest rates.

Updated

“Taking back control” was a key message for the campaign to leave the EU last year.

And today, the European Central Bank has launched a new bid to take control of the euro clearing market, currently centred in London.

The clearing market is the point in the system where derivatives contracts are settled. It is meant to reduce financial risk, by using central counterparties who can prevent one default triggering a wave of forced sales and margin calls.

The ECB has proposed adjusting its statute, to give it authority to oversee the clearing of euro-demominated securities. That could be the prelude to moving the market into the eurozone, or more control over activities in London.

My colleague Jill Treanor explains:

London is facing renewed pressure over its dominance of the €1tn (£880bn) a day euro clearing market after the European Central Bank set out proposals aimed at giving it more oversight of the lucrative business.

The move by the Frankfurt-based ECB - the central bank for the 19 countries using the euro - follows a report by the European commission which called for the EU to have more powers over clearing of financial products denominated in euros after Brexit.

The City dominates the market of clearing, a process which is supposed to reduce the risks of complex financial transactions by matching buyers and sellers as well as reduce the cost of trading, through so-called central counterparties (CCPs).....

Greece launches investment drive

Greek Finance Minister Euclid Tsakalotos.
Greek Finance Minister Euclid Tsakalotos. Photograph: Costas Baltas/Reuters

Meanwhile, the Greek government has dispatched two top ministers abroad on an investment drive.

It’s an attempt to capitalise on the momentum of last week’s euro group decision to throw the country a fresh financial credit line.

Helena Smith reports from Athens

Both the Greek finance minister Euclid Tsakalotos and the economics and development minister Dimitris Papadimitriou have flown to London and the US respectively in a bid to attract investors.

Tsakalotos, who was raised in Britain, is, say officials, on a mission to persuade interlocutors that Greece is now on a path of recovery, with a clear stretch ahead of it, following last week’s crucial decision to disburse a further €8.5bn euro in rescue funds to avert default.

Papadimitiou, long-time economics professor at Bard College, has been in New York with leading businessmen and Geoffrey Pyatt, the US ambassador to Greece, attending the sixth Greek investment programme whose working title is “Greece at a turning point.”

It is hoped that both visits will increase appetite for bonds now that yields have dropped markedly since the euro group decision.

Foreign investment, though once a dirty word for prime minister Alexis Tsipras’ leftist-led government, is seen as imperative for kick-starting the economy – and tackling an unemployment rate of 23%. Economists say that budget cut savings are simply not enough after eight years of gruelling austerity to spur growth.

Updated

Just in: the UK public’s inflation expectations have risen slightly, as the Bank of England argues over whether to raise interest rates or not.

The public now expect inflation to average 3.1% in the long term, up from 3.0% a month ago.

Expectations for the year ahead have inched a little higher too, to 2.62%.

Inflation actually hit 2.9% last month, and some economists see it heading higher.

But Christian Schulz, economist at Citi, says the survey doesn’t suggest the BoE should aggressively hike interest rates:

“Expectations are close to long-run averages, but strong upward momentum that would call for urgent monetary tightening is absent in our view”

Outgoing BoE policymaker Kristin Forbes may not agree. Last night, she gave a speech arguing that the Bank is ‘behind the curve’ and suggesting that some policymakers were too hesitant to raise borrowing costs.

Copper boosted by factory growth

The price of copper has jumped to a two-month high, helped by this morning’s strong eurozone data.

One tonne of copper jumped by 1.5% to $5,827, the highest level since early April.

Banske Bank analyst Jens Pedersen says (via Reuters):

“Positive sentiment around China and a rise in manufacturing PMIs out of Europe are supporting base metals prices.”

Attention, eurozone crisis watchers. The BBC World Service covering the Greek debt crisis, looking at this month’s bailout and the long-term cost of austerity

It includes contributions from our Athens correspondent Helena Smith, and is being streamed here:

Greece: a Long Road to Recovery

Here’s the pitch:

Greece has been through dark economic times over the past decade. Last week a European Union loan of 8.5bn Euros enabled Greece to meet its latest debt payments. The IMF says this deal will help Greece stand on its own feet again over the course of the next year. But after the years of austerity and hardship, do the Greek people believe this will do anything to improve their lives?

For Newshour Extra this week, Owen Bennett Jones is in Athens to discuss the consequences of living with long-term austerity and the prognosis for economic recovery.

Updated

Back on the Brexit anniversary....analysts are pointing out that there’s a notable shift between the fortunes of UK-focused companies, and those with an international outlook.

Those multinational firms have enjoyed a real surge in their value, up 28% in the last year, as the weak pound boosts the value of their overseas earning.

But UK-centric firms have actually fallen in value, by 5% in sterling terms, due to worries over the UK economy

Yael Selfin, chief economist at KPMG in the UK, has crunched the numbers:

“The KPMG Non-UK 50, which represents the largest companies with more than 70% of their market outside the UK, is up a remarkable 28% since the EU referendum - significantly outperforming the world’s largest indices, while the FTSE 100 climbed 17% over the same period.

In contrast, the KPMG UK50, which represents the largest FTSE companies with over 70% of their market in the UK, is down 5%. Put in pounds and pence, this equates to a £330 billion rise in the value of the KPMG Non-UK50 and a £19 billion loss for their domestic equivalent.

Neil Wilson of ETX Capital has shown how mining companies (Glencore and Antofagasta), consumer giants (Unilever and Diageo) and banks (HSBC) have driven the rally.

Jacob Rees-Mogg MP
Jacob Rees-Mogg MP Photograph: Sundog Pictures

Over in parliament, a delicious battle is brewing over the top job on the Treasury select committee, one of the most powerful oversight roles in Westminster.

Several MPs have a burning desire to succeed Andrew Tyrie, the former chair, who stepped down as an MP at the general election.

Jacob Rees-Mogg, the eurosceptic, old-school Tory, is keen, and had been seen as a front-runner.

But he’s now facing a challenge from former minister Nicky Morgan, a fellow Conservative, who has thrown her hat into the ring this morning:

Rees-Mogg is one of those politicians who divides opinions, and there are signs that some MPs are determined to thwart him.

The Financial Times reports this morning that a Stop Mogg campaign is underway.

Some Labour MPs are organising to thwart Mr Rees-Mogg, although they have not yet decided who to support. “The idea is to simply stop Mogg,” said one Labour MP. “It almost doesn’t matter who the candidate is, we just don’t want him.”

They argue that his role at Somerset Capital Management could pose a conflict of interests. Many also believe that as an ardent supporter of the UK leaving the EU he may not pursue sufficient scrutiny of the government’s Brexit plans.

Wes Streeting, who has served on the TSC for the last couple of years (alongside Rees-Mogg), says he’s backing Morgan..

Pound rises on Brexit anniversary

Sterling is marking the first anniversary of the EU referendum with a small rally.

The pound is up half a cent against the US dollar at $1.2728. That means it’s still worth 14% less than before the Brexit vote, after a year of heightened volatility.

And with Brexit talks getting underway in Brussels, the pound still looks exposed to further twists and turns.

Graham Bishop, Investment Director at Heartwood Investment Management explains:

“Sterling’s devaluation in response to the shock UK referendum result has been the most significant market event in recent years.

It has yet to materially recover from its post-referendum low and now remains vulnerable to even more political and economic uncertainty.

Paul McNamara of asset management firm GAM shows how the UK has been the worst-performing major currency over the last year:

Katie Martin of the FT has dug deep into the Bloomberg terminal, and found a couple of currencies who did even worst than the pound (the Congolese franc and the Uzbekistan soum)

Tara Cunningham of the Telegraph shows how the FTSE has benefitted from the pound’s weakness:

Eurozone stock markets are all down this morning, as the PMIs fail to spark much enthusiasm in the City.

The FTSE 100 has shed 30 points, or 0.4%, to 7410.

That means the Footsie is on track for its third weekly loss in a row for the first time this year, after energy stocks and mining stocks slipped.

Europe’s stock markets this morning
Europe’s stock markets this morning Photograph: Thomson Reuters
The FTSE, week by week.
The FTSE, week by week. Photograph: Thomson Reuters

Connor Campbell of SpreadEx says:

It’s been a pretty bleak week for the UK index, shedding around 150 points from Tuesday’s intraday peak as the latest oil crisis drew focus from the sterling-sapping/FTSE-boosting political uncertainty that was the main market driver in the previous fortnight.

Here’s Julien Lafargue, european equities strategist at the J.P. Morgan Private Bank, on today’s eurozone PMI report:

The macroeconomic momentum appears to have eased somewhat in June, in particular in the Services sector. In light of the sharp improvement we have witnessed in the past 9 months, this pause is not really a surprise and, in our opinion, should not be interpreted as an indication that the economy is about to roll over.

Activity in the Eurozone remains at very healthy levels and consumer confidence is at its highest level in 16 years. In addition, despite the recent drop in commodity prices, inflation dynamics remain supported by a large backlog and supplier delivery delays worsening to the greatest extent for just over six years.

As such, we believe the ECB could adopt a relatively more hawkish stance in the coming months.

Eurozone private sector posts best quarter in six years

The eurozone’s private sector has recorded its strongest quarterly growth since the debt crisis began, although growth has slowed a little this month.

That’s the upshot from Markit’s monthly healthcheck on factories and service sector firms across the euro area.

Markit’s ‘flash’ eurozone PMI for June has dropped to 55.7, down from 56.8 in May, and weaker than the City had expected.

But still, the average PMI over the last three months is the strongest quarter since 2011 [this includes this morning’s figures from Germany and France]

Markit says:

Although the rate of growth waned to a five-month low, high order book inflows and elevated levels of business confidence meant job creation remained one of the strongest recorded over the past decade as firms continued to expand capacity to meet rising demand.

Price pressures eased, however, largely reflecting lower global commodity prices.

Markit’s Chris Williamson says the figures suggest eurozone growth has accelerated to a robust 0.7% in the current quarter, up from 0.6% in Q1.

He adds:

The upturn is also broad-based, with the surveys signalling an acceleration of GDP growth in both France and Germany in the second quarter, as well as across the rest of the region as a whole, albeit with some loss of momentum seen across the board in June.

“Job creation continued to run at one of the highest rates seen over the past decade as firms expanded capacity to meet demand. Factory jobs growth remained particularly buoyant, thanks in part to production requirements surging higher on the back of rising exports.

Updated

German business growth slows, but stays strong.

Germany ‘flash PMI’ is just out, and it shows that private sector growth in the eurozone’s largest economy is slowing a little.

The German composite PMI has dropped to a four-month low of 56.1 this month.

That’s down from 57.4 in May, but it still signals solid growth (the 50-point mark separates expansion from contraction).

German PMI

Firms reported that output grew sharply, but new export orders slowed to the slowest growth rate since February.

German PMI details

Trevor Balchin, senior economist at IHS Markit, says the figures suggest Germany is still enjoying “strong economic growth”, although the service sector is falling behind manufacturing.

“The latest data signalled a growing performance gap between manufacturing and services, however.

The goods-producing sector continued to outperform, with the headline PMI little-changed from May’s 73-month record. Although growth of manufacturing output, exports and jobs all eased slightly since May, expansions in backlogs and total new orders gathered pace and supply bottlenecks intensified.

Updated

French job creation hits 10-year high

Another boost for France! French companies are creating jobs at the fastest rate since the financial crisis.

That’s according to data firm Markit, whose ‘flash’ purchasing managers report for June, just released, shows that private sector employment has jumped at the fastest rate in almost 10 years.

french employment PMI

Markit says:

Buoyed by strong client demand, private sector firms in France raised their staffing numbers for an eighth successive month in June. Furthermore, the rate of job creation was the most marked in just under ten years.

The increase was broad-based across both the manufacturing and service sectors.

The PMI report shows that French factories picked up this month, pushing the Manufacturing PMI up to 55.0 from 53.8 in May.

But services sector growth slowed, pulling the Services PMI down to 55.3 from 57.2 in May. That’s a five-month low, but still shows steady growth.

Alex Gill, economist at IHS Markit says:

“A particularly upbeat talking point highlighted in the latest data was the sharpest rise in employment for almost ten years.

This is welcome news for the newly elected government which has made reducing unemployment one of the main aims of its administration. The slowdown in the rate of accumulation in unfinished work poses a slight concern however, and may slow employment growth in the short-term.

Howard Archer of EY Item Club is also impressed by France’s GDP:

Bloomberg economist Maxime Sbaihi is encouraged by the upgraded French growth figures:

French Q1 GDP revised up to 0.5%

flag

Newsflash: France’s economy grew faster than previously thought in the first three months of this year.

French Q1 GDP has just been revised, to show that the eurozone’s second-largest economy expanded by 0.5% in the quarter.

That’s up from a previous estimate of 0.4%, and means France comfortably outpaced Britain (which grew by 0.2%) and wasn’t far behind Germany ( which posted 0.6% growth).

France’s growth was driven by business investment - or gross fixed capital formation - which jumped by 1.2% in the quarter.

Inventory changes also added 0.7% to growth, as companies restocked their warehouses.

But net trade was a drag, though, as exports fell 0.7% during the quarter while imports rose by 1.2%. And household consumption was flat.

French GDP, the details

But still, it shows that this spring’s presidential election didn’t spook the economy, and it gives Emmanuel Macron a decent starting point to build on.

Reaction to follow...

The agenda: Eurozone PMIs and Canadian inflation

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we’ll learn whether European companies are enjoying a blistering June, as data firm Markit releases its latest ‘flash’ purchasing managers indexes.

These PMIs track activity, output and job creation among private companies, and are expected to show another month of decent growth as Europe’s recovery continues.

The overall eurozone composite PMI is expected to come in at 56.6, down a little on May’s 56.8, but still a strong number -- anything over 50 shows growth.

Inflation is also on everyone’s mind; this afternoon, Canada will release its consumer prices index. Economists expect it to drop to 1.5%, from 1.6%, as the recent oil price falls feed through to the real economy.

We’ll also be tracking reaction to a damning official report into the Hinkley Point nuclear power plant.

It warns that Britain will be locked into subsidising the “risky and expensive” project for decades

My colleague Adam Vaughan explains:

The National Audit Office said the contract sealed by ministers last September with EDF to construct the country’s first new atomic reactors in two decades would provide “uncertain strategic and economic benefits”.

Further, Brexit and Theresa May’s decision to quit an EU nuclear treaty could make the situation even worse, by triggering taxpayer compensation for EDF or a more generous deal for the French state-controlled company.

It’s not been the most thrilling week in the markets, and I fear that the European bourses may be rather quiet again today.

Britain’s FTSE is expected to dip by around 0.1% in early trading.

Here’s the agenda:

  • 7.45am BST: French GDP for Q1 2017, second estimate
  • 8am BST: French ‘flash’ manufacturing and services PMI for June
  • 8.30am BST: German ‘flash’ PMIs
  • 9am BST: Eurozone ‘flash’ PMIs
  • 1.30pm BST: Canadian inflation for May
  • 2.45pm BST: US ‘flash’ PMIs
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