Closing summary
The FTSE100 is still pretty much flat, due to the hammering that retail stocks are taking on the back of Next’s disappointing update. The blue-chip index needs to finish above 7177.89 to set a new record.
Over on Wall Street, there’s a slim chance the Dow Jones could smash through the 20,000 barrier for the first time.
The oil price was 0.27% higher at $55.62 by mid afternoon and the pound is doing a bit better against the dollar, up around 0.4% at $1.228.
The main economic news of the day is that the UK construction industry enjoyed the fastest growth in new orders in almost a year in December, according to the latest PMI survey.
And the Bank of England said consumer credit staged its fastest monthly rise since March 2005 in November.
With that, we are closing the blog for the day. Thank you for all your great comments. Shall we do it again tomorrow? Why not.
Can the Dow Jones reach 20,000 at last?
The Dow Jones has flirted shamelessly with the magic 20,000 mark in recent weeks, edging tantalisingly close before falling away again, the big tease.
Over on Wall Street, the Dow is up 23 points in early trading at 19,905. Someone needs to get their wallet out if the long-awaited watermark is going to be breached today.
One last piece on retailer Next’s gloomy 2017 forecast now and it’s our financial editor Nils Pratley, who is always a must-read.
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Next boss Lord Wolfson calls for Brexit clarity
A trading update and pessimistic 2017 forecast from Next has made grim reading for retail investors today, dragging shares in high street chains down across the board.
The firm laid the blame in part at the weakness of sterling since the EU referendum vote in June.
Now the chain’s chief executive Simon Wolfson, one of the most prominent Brexiteers in the business world, has asked for greater clarity from the government.
He wants the government to flesh out some of the core principles that will underpin negotiations with the remaining EU members, particularly on immigration.
It would be helpful to understand the principles and objectives of the government with which they are going to enter negotiations.
Here’s more detail on Lord Wolfson’s call to arms.
Trigger-happy tweeting may have helped Donald Trump win the US presidency but how will it affect his relationship with some of the big-hitters on the US business scene?
The Guardian business desk’s very own US expert Rupert Neate takes a look at how Trump’s industrial strategy could unfold, if his social media strategy is anything to go by.
Dollar Libor, the interest rate at which banks lend each other dollars, has risen above 1% for the first time since May 2009.
The rise has been fuelled by last month’s signal from the Federal Reserve that it could raise interest rates three times in 2017, with employment and inflation both on the up.
Businesses are also hoping to benefit if Donald Trump, backed by a Republican Congress, embarks on a series of corporate tax cuts, infrastructure spending and dismantling regulation.
The Libor rate for three-month dollars hit 1.00511%, for those who were wondering about the figure to five decimal places.
Libor, better known for its role in the Libor scandal that has seen bankers imprisoned and lenders forced to pay billions in fines, is used to calculate around $350tn of financial transactions worldwide.
Borrowing binge sparks debt warnings
It seems our economics editor Larry Elliott isn’t the only one sounding a warning about Britons embarking on a credit binge.
Debt charity StepChange says Theresa May’s government should be concerned by a lending boom unparalleled since the years leading up to the 2008 financial crisis.
Here’s what the charity’s head of policy Peter Tutton has to say.
Lenders, regulators and the government need to ensure that the mistakes made in the lead-up to the financial crisis are not repeated and that there are better policies in place to protect those who fall into financial difficulty.
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Our economics editor Larry Elliott warns shoppers may be storing up trouble for the future by embarking on a borrowing binge.
It follows the release of lending figures from the Bank of England, which showed that consumer credit has staged its fastest monthly rise since March 2005.
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After Next posted a grim trading update earlier, retailers have taken a knock on the FTSE100, with Marks & Spencer, Primark owner Associated British Foods, Burberry and Debenhams all out of favour among traders.
To the untrained eye, sales figures for the last week of 2016 at department store chain John Lewis will only add to the gloom.
Sales for the week to 31 December were down 9.4% on last year to £138.5m at John Lewis and fell 12.5% to £110m at the firm’s grocery store business Waitrose.
However, the timing of Christmas means John Lewis has undersold its true performance. There was one fewer trading day in the final week of 2016 than in 2015, so the numbers are not nearly as bad as they seem.
Indeed, including all 22 weeks to the end of the year, Waitrose sales grew by 3.3% and John Lewis was up by 4.2%.
Let’s catch up with Eurozone inflation data from earlier, which showed inflation in December hitting 1.1%, the highest level for three years and a sharp jump on the 0.6% reported in November.
Price rises are largely down to increases in the cost of energy, food, alcohol and tobacco, according to EU statistics agency Eurostat.
The European Central Bank (ECB) set a target for inflation of just below 2%, a level ECB president Mario Draghi has said could be reached as soon as late 2018.
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A quick update on the FTSE100, which strayed into negative territory earlier but is back up, albeit marginally. The blue-chip index closed at an all-time high of 7177.89 and is presently up nearly seven points at 7185, putting it on course to post another record.
That’s despite a bleak trading session for retailers, most of which have tanked after Next issued a dismal trading update.
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It’s coming up to noon, which means that the average FTSE100 boss has already earned £28,200 so far in 2017, matching what the average person will earn for the entire year.
The unofficial title of this momentous occasion is Fat Cat Wednesday. Every penny richly deserved, of course.
Some more reaction to the Bank of England consumer credit update for November has arrived.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, has been digging into the numbers.
Such rapid growth in unsecured credit is unsustainable over the medium-term, and the recent fall back in consumer confidence suggests that households will borrow more cautiously in 2017, subduing growth in consumption.
Meanwhile, the negligible rise in mortgage approvals shows that the boost to activity from the recent fall in mortgage rates has been modest. Approvals still are 3% below the average level of the first half of 2016, and they likely will struggle to recover further over coming months.
The rise in market interest rates since October suggests that lenders soon will increase mortgage rates slightly, while the outlook for stagnation in households’ real incomes this year, as job growth slows and inflation rebounds, will mean that affordability constraints start to bite.
Here’s a handy graph showing growth rates in consumer credit, going back to the start of the 21st century.
Here’s our story on the results of the PMI survey of UK construction for December. Coming hot on the heels of a strong manufacturing PMI yesterday, the latest update offers a better-than-expected picture of the state of the economy as we move into 2017.
Next’s trading update was a gloomy way to kick off the year for retailers, but Scunthorpe-based convenience store specialist Nisa Retail is ticking along nicely.
Christmas trading in the 10 weeks to the 1st January 2017 showed sales up 2.7% to £235.6m, delivering underlying profit for the period of £718,000 compared to £520,000 for the same period of 2015.
Nisa was boosted by growth in fresh produce, which it put down to leading the way on “festive vegetable pricing”. More detailed information on Nisa’s trading update can be found here.
Bank of England says credit growth fastest since 2005
Consumer credit staged its fastest monthly rise since March 2005, according to the Bank of England.
Net lending in November jumped by £1.9bn, up from £1.68bn in October and ahead of expectations.
Mortgage approvals hit 67,505 compared to 67,731 in October, the highest rate since March 2016.
Mark Dyason of Edinburgh Mortgage Advice reckons the increase in mortgage approvals is partly down to people borrowing now in the expectation that rates will rise, making home loans more expensive.
The sense that time is running out on the best rates, coupled with a general softening in prices, especially in prime areas of the country, has kept the market ticking over.
Ironically, the ongoing uncertainty around the full impact of Brexit has spurred many people into action. The philosophy many people have adopted appears to be one of take action now while conditions are at least in their favour.
While the number of approvals looks strong, the actual amount undershot expectations.
The Bank of England recorded £3.15bn of net mortgage lending in November, below expectations of £3.5bn and the lowest level since August last year.
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Some more reaction to the UK construction PMI survey data now, this time from Mike Chappell, of Lloyds Bank’s construction team.
As this data reflects, the construction firms we speak to are still relatively upbeat. Yet there is some uncertainty as we begin the first quarter of the year given the likelihood of Article 50 being triggered.
To try and create stability many contractors are focussing on managing risks, for example through joint ventures. These suit both construction businesses and client by sharing risk and minimising the impact of one firm being unable to fulfil a contract.
In terms of pipelines, the current political focus on infrastructure is welcomed by contractors but while they are optimistic about the potential of mega-projects like Heathrow, Hinkley Point and HS2, they are hard-wired not to pin their hopes on any schemes until shovels hit the ground.
Here is the assessment of Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS construction PMI, which showed strong growth for the UK construction industry in December.
December’s survey data confirmed a solid rebound in UK construction output during the final quarter of 2016.
All three main areas of construction activity have started to recover from last summer’s soft patch, but in each case growth remains much weaker than the cyclical peaks seen in 2014.
Housebuilding remains a key engine of growth for the construction sector, with the latest upturn the fastest for almost one year. Meanwhile, commercial activity was the weakest performing category in December, reflecting an ongoing drag from subdued investment spending and heightened economic uncertainty.
So what’s the bad news, Tim?
The main negative development in December was a sustained acceleration in input cost inflation to its strongest since 2011.
UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials, while some also reported that forward purchasing of inputs had led to depleted stocks among suppliers.
UK construction sector grows but costs rising
The UK construction sector PMI survey result came in at 54.2 for December, a decent increase on the 52.8 registered in November. IHS Markit/CIPS, who release the survey numbers each month, call it a “robust and accelerated expansion” of the sector.
However, there is a note of caution here, as the price that suppliers charge construction firms for imported raw materials has increased due to the weakness of sterling. IHS Markit/CIPS warn this is putting “intense cost pressures” on construction firms.
The rise in input costs was the steepest for just over five and a half years.
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Just time for a quick check on what analysts are saying about Next’s pessimistic outlook, while we wait for the PMI survey of how UK construction is doing.
The folk at ETX Capital thinks Next’s woes may signal problems may tell us more about problems specific to the company than the state of play on the rest of the high street.
This is a worry for all retailers but the simple problem is that Next is underperforming the market. UK retail sales have held up in the months following the Brexit vote but Next has suffered. It’s been suffering for a while and needs a turnaround plan.
Indeed, driven by a surge in clothing sales, the October figures from the Office for National Statistics showed retail sales growth at a 14-year high. Today’s BRC-Nielsen shop price index also shows that deflation eased in December.
The brand is struggling for relevancy and risks going the way of Marks & Spencer on the clothing front, appealing to an ever-narrower customer base.
Compare it to H&M or Zara, which continue to notch up strong sales growth year-over-year, and you can see its place on the high street is being squeezed.
That’s a fairly bruising assessment for poor old Next.
However, George Salmon, equity analyst at Hargreaves Lansdown, thinks other high street names will be feeling the pinch too. That’s a view shared by many in the market, given this morning’s bloodbath among retail stocks.
Despite hopes of a more positive Christmas for the retailers, Next’s results have set the tone for what is likely to be a difficult reporting season.
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Eurozone services sector enjoys strong growth
Results from the keenly-watched PMI survey of the services sector shows decent growth for the Eurozone as a whole. The the index came in at 53.7 for December, ahead of a predicted 53.1, where anything above 50 means bosses in the industry think activity has increased.
Wrapping the services result into what we already know about other sectors of the Eurozone economy gives us an index of 54.4, the best result since May 2011.
Final Dec PMI shows #Eurozone manufacturing & services output up in Dec at fastest rate since May 2011. Output prices highest since Jul 2011
— Howard Archer (@HowardArcherUK) January 4, 2017
And now to Germany, where activity in the services sector is purring along at a very decent clip indeed.
Europe’s largest economy registered a PMI index of 54.3 in the service sector, ahead of a forecast of 53.8.
That means a composite figure for the wider German economy of 55.2, beating a forecast that the index would remain flat at 54.8. Wunderbar!
A reminder that PMI surveys are an indicator of how bosses in key sectors think business activity is shaping up, rather than hard data on actual transactions.
France’s services sector is doing slightly better than its Italian counterpart, according to PMI survey data. The index hit 52.9, beating forecasts of 52.6. Now that we’ve got data from the services sector, we can put together a composite picture of sentiment in the wider French economy.
The composite figure reached 53.1, above a prediction of 52.8. Pas mal.
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Here comes the first batch of PMI survey results from Europe’s services sector and Italy is first out of the blocks with figures for December.
It’s underwhelming news. The Italian services sector PMI came in at 52.3, compared to expectations of 52.6. That means the index of the overall Italian economy stands at 52.9, below a forecast of 53.
Remember, anything above 50 indicates growth but performance relative to forecasts is crucial for market sentiment.
Slightly disappointing news for #Italian #economy as Dec PMI shows #services activity losing momentum in Dec although still clearly growing
— Howard Archer (@HowardArcherUK) January 4, 2017
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Here’s the full story on Next, as Julia Kollewe digs into the retailer’s disappointing numbers.
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Here’s what retail analysts at RBC Capital Markets have to say about that dismal statement from Next.
We think Next retail sales growth is continuing to be affected by a tough UK clothing sector, a shift to online and its very high margins versus peers. Next has also guided to inflation pressures on its cost base including higher labour, business rates and energy taxes. In addition it intends to add around £10m to its cost base in order to improve its website systems and online marketing.
Although we see potential for further cost savings in warehouse and labour costs, we think Next remains exposed to potential volume disappointments next year owing to price rises and as the competition has largely caught up online, plus we see a risk of further margin pressure owing to higher discounting.
Meanwhile, a slew of other retailers are feeling the heat as stock-pickers take a look at Next’s numbers and assume we’ll be seeing similar from its rivals.
Half an hour into the day’s trading and Marks & Spencer is the second-biggest FTSE faller, off 4.5%, with Primark owner Associated British Foods down 3.7% and Tesco losing 1.5%.
On the FTSE250, Debenhams is the worst off, some 4% lower. All in all, not a good day to be a High Street clothing store, or someone with shares in one.
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Next shares tumble as it warns on profits
Often billed as the bellwether of the UK fashion industry, Next has cut its profit forecast for 2016 and warns of tough times in 2017 to boot. It says the weak pound will contribute to rising prices for clothes, eating into consumers’ spending power.
The gloomy assessment has triggered a fall of more than 13% in Next’s shares during early FTSE trading. The High Street chain is being followed into the doldrums by fellow retailers Tesco and Marks & Spencer.
Here is what Next had to say about the reason for its travails:-
The fact that sales continued to decline in quarter four, beyond the anniversary of the start of the slowdown in November 2015, means that we expect the cyclical slow-down in spending on clothing and footwear to continue into next year.
In addition to this effect, there are two further factors which may depress sales: We may see a further squeeze in general spending as inflation begins to erode real earnings growth.
As previously indicated, following the devaluation of the pound, we expect prices on like-for-like garments to rise, but by no more than 5%. We expect that this will depress sales revenue by around 0.5%.
The fashion chain’s chief executive Lord Wolfson is among the most prominent business figures to back the Leave campaign in the Brexit referendum, which triggered a steep fall in the value of sterling.
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FTSE100 struggles to improve on all-time high
In the first few minutes of trading, the FTSE100 edged up from yesterday’s all-time record close of 7177.89 but it has taken a bit of a knock due to a fairly dismal update on sales and profit forecasts from fashion retailer Next, which is down an eye-watering 11% in early trading.
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This is what the folks at trading firm IG Index think we’ll see as European stock markets open. It looks like smiles all round at trading desks in London, Frankfurt, Paris, Madrid and Milan.
Our European opening calls:$FTSE 7194 +0.22%
— IGSquawk (@IGSquawk) January 4, 2017
$DAX 11610 +0.22%
$CAC 4910 +0.22%$IBEX 9528 +0.35%$MIB 19653 +0.41%
The agenda: UK construction health-check
Good morning and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Another all-time record could be on the cards for the FTSE100 today and its chances of hitting new highs would be boosted by some heartening news on the construction sector.
Closely-watched construction PMI survey results for December are due at 9.30am, offering an insight into how decision-makers in the industry think things are going.
November’s result beat expectations, with the index showing a figure of 52.8, up from 52.6 the previous month, where anything above 50 represents growth. Yesterday’s manufacturing PMI came in at a 30-month high, so another good result could catapult the FTSE past yesterday’s all-time high of 7177.89.
Markets are also watching out for the latest Eurozone PMI survey of the services sector, released at 9am.
On the High Street, a trading update from Next makes for grim reading for fashionistas. The firm sounded a warning that clothes prices will be higher due to the weak pound and sales forecasts have been reined in as a result.
We’ll bring you all the latest as it emerges.
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