Wall Street falls in early trading
US markets have followed Europe into the red in early trading, as weaker than expected jobs numbers dampen investor enthusiasm.
- Dow Jones: -0.5% at 21,365
- S&P 500: -0.6% at 2,419
- Nasdaq: -1% at 5,595
On that note, we’re closing up for the day. Thanks for all the comments and please join us again tomorrow. AM
Greek shopkeepers to strike over Sunday trading rules
Over in Greece, shop keepers and small retailers have announced a 24-hour strike later this month in opposition to government moves to liberalise Sunday trade.
Helena Smith reports from Athens:
On Thursday it was far from clear how Greece’s leftist-led government would deal with mounting opposition to the liberalisation of Sunday trade – something that its creditors have demanded before releasing €8.5bn of bailout funds.
Hundreds of small retailers took to the streets of central Athens today to protest the measure as unionists called for a strike on 16 July.
“Sunday should be a day of rest … small shops can’t compete with the big monopolies which stand to gain from such opening hours,” said one store owner named Lina.
Stores attempting to trade on Sundays have recently been at the centre of protest with irate demonstrators often daubing them with cans of paint. Although finance minister Euclid Tskalotos insisted the issue had been resolved, the Hellenic Confederation of Commerce and Entrepreneurship (ESEE) - the body representing opponents - has threatened to take the case to the country’s highest administrative court.
Protestors have won the backing of Greece’s powerful Orthodox church which has emerged as one of the strongest defenders of the “never on Sunday” campaign. With the exception of tourist areas, shops across Greece (in stark contrast to other EU states) remain firmly shuttered on the seventh day of the week. The Greek government has, at the behest of lenders, until tomorrow to stipulate areas outside central Athens where shops will stay open on Sunday.
Updated
US trade gap narrows
The US trade deficit with the rest of the world fell to $46.5bn in May from $47.6bn in April, the Commerce Department said.
When adjusted for inflation, the trade gap narrowed to $62.8bn from $63.8bn.
The shrinking deficit was driven by record high goods exports, boosted by petroleum sales.
Exports of consumer goods such as mobile phones and other household goods also rose, as did exports of cars and car parts. Food exports fell however amid a decline in soybean shipments.
Michael Pearce, US economist at Capital Economics, said export growth was likely to strengthen further in the world’s largest economy.
The survey evidence suggests that annual export growth will accelerate from here, reflecting the strength of the global economy and the slight depreciation of the US dollar since the beginning of the year.
That is a big change from the situation just a few years ago, when the sharp appreciation of the dollar caused the trade deficit to rise. Net trade subtracted 0.7 percentage points from growth in 2015 and 0.1 points in 2016.
US jobs data weaker than expected
We’ve had two separate US jobs reports, both weaker than expected.
First the ADP employment report, which showed the private sector created 158,000 jobs in June. It was a drop from the 230,000 jobs created in May, and fewer than the 185,000 predicted by economists polled by Reuters.
Meanwhile, there were 248,000 new claims for jobless benefits last week according to the US Labor Department. That was 4,000 more than the previous week and 5,000 more than expected.
Treasury says UK government is already helping households
A spokesman for the Treasury has responded to the news that household disposable income per head fell by 2% in the first three months of 2017.
He said the government was already helping households, including through the introduction last year of a higher minimum wage for workers over-25s, known as the national living wage.
We are taking real action to help families increase their incomes and take home more of what they earn. A basic rate taxpayer now pays £1,000 less income tax than in 2010 and thanks to the national living wage the poorest households have seen their wages rise more than in any other G7 economy.
Markets in the red
It’s not been a great morning for the financial markets.
Shares are down across Europe, with Britain’s FTSE 100 shedding 51 points, or 0.75%. Bonds are also falling, as the rise in German bond yields triggers a wider selloff.
Chris Beauchamp, Chief Market Analyst at IG, says geopolitical anxiety is swirling through the City.
Geopolitical tensions, oil volatility and Brexit negotiations are all conspiring to keep markets on the back foot this morning. The G20 meeting and Donald Trump’s visit to Poland flag up the many problems besetting global leaders, from Russia via Saudi Arabia/Qatar, Syria and finally on to North Korea.
The world seems to be at loggerheads, and this flow of negativity means that bullish sentiment is being held firmly in check.
Global bond rout deepens as an outbreak of 10y bund yields above 0.5% has sparked a fixed income sell-off. pic.twitter.com/Utk98ZFFm9
— Holger Zschaepitz (@Schuldensuehner) July 6, 2017
Over in Frankfurt, the European Central Bank has just released the minutes of last month’s governing council meeting.
They show that the ECB was worried about spooking the markets, as it inches towards unwinding its stimulus package.
The minutes state that:
“it was necessary to avoid signals that could trigger a premature tightening of financial conditions”.
Even ‘small and incremental changes’ could be misinterpreted, the minutes continue (you can almost hear an exasperated sigh from the ECB’s top brass).
*ECB CONCERNED SMALL COMMUNICATION CHANGES CAN BE MISPERCEIVED
— World First (@World_First) July 6, 2017
We see you EURUSD
That’s ironic, though, as the markets did *indeed* overreact to an upbeat speech by Mario Draghi last week, sending the euro soaring....
Jamie McGeever of Reuters tweets:
UK economy 9 years from pre-crisis peak - slow & weak recovery. People getting poorer now too, as real household disposable incomes fall 2%. pic.twitter.com/luTOmBICTi
— Jamie McGeever (@ReutersJamie) July 6, 2017
Laith Khalaf, senior analyst at Hargreaves Lansdown, is concerned that the ONS report shows that people feel more confident about their financial situation, even though incomes are falling.
He fears that some households simply aren’t aware how badly they’re being squeezed.
The pressure is ratcheting up on UK households, but consumers don’t seem to be fully aware of the crunch that is underway. They have clocked rising prices, but as yet don’t see this has significantly dented their finances.
They may well be right, inflation takes time to really bite into household budgets, but the risk is by the time it’s happened, it could be too late to do much about it.
Peter Dowd MP, Labour’s Shadow Chief Secretary to the Treasury, agrees with the TUC that the 1% public sector pay cap must go:
“Falling household incomes are just the latest example of the economic failures of this government.
“The largest fall in household income per head in six years is deeply concerning as it further suggests that wages are not keeping up with prices, and the government have no answers to this serious problem.
“Along with stagnant GDP per person, it’s more bad news for working families. And it further exposes the economic record of the Tories, who have overseen falling living standards since coming to power in 2010.
“It’s clear we need investment to create the high skill, high wage economy of the future. The Tories could start to help ease the burden on hard working people by lifting their public sector pay cap, and end the cuts to in-work benefits.”
Following a somewhat disastrous general election, Theresa May’s cabinet appears to be split over this issue.
“Sources” have suggested that foreign secretary Boris Johnson thinks the cap could be lifted in a “responsible way”, but chancellor Philip Hammond is pushing back, muttering darkly about the importance of “sound money”....
Earlier today, the Joseph Rowntree Foundation warned that more families were struggling to achieve a decent standard of living.
Here’s a flavour:
Rising inflation and less generous state benefits have made it harder over the past year for families on tight budgets to enjoy what the public considers a decent standard of living, according to one of Britain’s leading thinktanks.
The Joseph Rowntree Foundation (JRF) said that despite an above-inflation increase in the “national living wage”, low-income families were falling further behind a minimum income standard.
TUC: Britain can't afford another income squeeze
TUC General Secretary Frances O’Grady is urging the government to respond to the squeeze on household incomes.
With real incomes slumping by 2%, O’Grady argues that the 1% cap on public sector pay rises must be abolished.
She says:
“Having just lived through the longest wage squeeze since Victorian times, their living standards are in freefall again.
“The government cannot sit on its hands and watch this crisis unfold. It needs to help create better-paid jobs in the parts of Britain that need them most.
And it must lift the unfair pay restrictions on public sector workers.”
The pay cap is turning into a real hot potato for the government, as public workers workers count the cost of almost a decade of austerity.
We learned this week that teachers and police officers have suffered significant pay cuts, in real terms, while the nation’s nurses have seen their pay stagnate.
UK families get poorer as inflation hits disposable incomes
It’s official: British families have become poorer this year, as rising inflation hits people in the pocket.
Real household disposable income per head fell by 2% in the first three months of 2017, according to a new report into Economic Wellbeing.
It’s the biggest squeeze on household incomes since 2011, says the Office for National Statistics, which blames “increasing prices of goods and services”.
Dominic Webber, head of economic well-being at the ONS, explains:
“With prices rising and wage growth still modest, real household disposable income per head has now fallen at its fastest rate in over five years.
This chart shows how real disposable incomes have fallen since last summer, when the pound tumbled after the Brexit vote.
Sterling’s decline has driven up inflation. It hit 2.9% in May and is rising faster than wages, meaning people’s earnings are simply worth less.
The FT’s Sarah O’Connor sums it up:
It's official. We're getting poorer again. https://t.co/xeWzWjKSDO
— Sarah O'Connor (@sarahoconnor_) July 6, 2017
The ONS found that various sources of income have slowed or fallen in recent quarters, including property, welfare benefits.
This is the largest fall in household income per head since 2011- driven by increasing prices of goods & services https://t.co/0QtnIM2XDA pic.twitter.com/u0jgQDCyd4
— Richard Tonkin (@richt2) July 6, 2017
The report also shows that GDP per head was flat in the first three months of 2017, even though GDP increased by 0.2%.
But despite these challenges, consumers reported an improvement in their perception of their own financial situation and the general economic situation over the last year, the ONS adds.
Here’s the ONS’s latest economic wellbeing dashboard:
Updated
There’s drama in the bond market, as Germany’s benchmark 10-year bond hits its lowest level since January 2016.
This has driven the yield (or interest rate) on the 10-year bund up to 0.5% [yields rise when prices fall]
That’s still a very low level in historic terms, but it suggests that investors are adjusting to the prospect that central bankers are moving towards unwinding their huge stimulus programmes.
Boom
— MARK GILBERT (@ScouseView) July 6, 2017
(well, in context, anyways) pic.twitter.com/g4VOhEkt4v
HOT summer for the Bund. 10-year yield has doubled within 2 weeks. pic.twitter.com/oTN1q60MEQ
— Maxime Sbaihi (@MxSba) July 6, 2017
Updated
FCA chief calls for Brexit transition
Back in London, the head of the UK’s financial watchdog is calling for a transition period to help the City cope with Brexit.
Andrew Bailey, chief executive of the Financial Conduct Authority, argues that this would avoid serious market disruption.
Otherwise, firms might have to push the button on their contingency plans in case Britain exits the EU without a deal.
Bailey told an event organised by Reuters that
“What it looks like is to be able to continue with current arrangements while whatever comes next is put into effect.
It needs to be a sensible period.”
Andrew Bailey - we will need clarity on transitional period and final destination THIS YEAR to stop banks triggering contingencies.
— Simon Jack (@BBCSimonJack) July 6, 2017
During his speech, Bailey argues that Britain needs to keep “close regulatory and supervisory links with the EU”, or risk undermining the progress made since the financial crisis.
Bailey also hinted at the disruption that Brexit has caused to the FSA’s plans:
Quite simply, our job at the FCA is to get on with it, to roll our sleeves up and play our part in implementing the decision made by the people of this country to leave the European Union (EU), and what goes with it.
I can’t deny that Brexit is a lot of work, and it did not feature in our business planning as a reality until a year or so ago, so a lot of sleeves have had to be rolled up.
Analysts at Investec believe that Reckitt’s profit margins and turnover will both be hit by the Petya attack.
They warn:
“We expect an impact both on top line, through disruption to production, order handling and logistics, and margin, through the need to upgrade systems and recover data.”
Rainer Sartoris, economist at HSBC, isn’t too impressed by the 1% rise in German factory orders in May.
He’s concerned that domestic orders declined (taking the shine off a rise in foreign orders).
In May, industrial orders rose by 1.0% month-on-month after falling by 2.2% m-o-m, undershooting consensus expectations of a 1.9% rebound.
Domestic orders were particularly weak, which raises questions about the strength of the recovery of investment in machinery and equipment. Despite the disappointing reading in May, orders are still heading for an increase in Q2 but the official data continues to underperform the high optimism in the leading indicators.
Charlie Huggins, fund manager at Hargreaves Lansdown, believes Reckitt Benckiser will recovery from the Petya attack.
He says:
The effects of the cyber-attack should prove temporary, while some of the other headwinds holding back sales in the first and second quarter should abate in the second half. As a result, we expect sales to recover relatively quickly.
Other businesses need to learn the lessons of Petya, Huggins adds:
Cyber crime is fast becoming the number one risk for companies which is absorbing greater resources and management time. But the reputational cost of getting this wrong can be significant so its vital businesses commit the appropriate resources to reassure investors.
Although Petya and WannaCry have stolen the headlines recently, companies have been facing a daily battle against cybercrime.
Beaming, an internet service provider for businesses, reports that the number of cyber attacks targeting UK-based businesses increased by more than 50% in April-to-June.
That includes a steep jump in attempts to hack company databases:
Sonia Blizzard, managing director of Beaming, explains:
“Major organisations have been brought to their knees to by global cyber attacks and our research shows the likes of Wannacry are just the tip of the iceberg.
UK businesses were targeted more than 700 times each on a daily basis by hackers over the last three months, who focused on hijacking connected devices and databases.”
Reckitt wasn’t the only major company bitten by the Petya ransomware attack, and today’s statement sheds new light on the damage it has caused.
Advertising giant WPP, shipping magnate Maersk and food company Mondelez all fell victim to Petya, which encrypted key files and demanded $300 to release them.
Some 76 of Maersk’s ports were affected, and on Tuesday it revealed that the repair job was ongoing.
“We’re bringing applications online according to priority and to restore critical business functions.
Before we can say that we are totally up and running we really need more systems to be up, such as back-up systems for employees here.”
Security experts believe that Petya was actually intended to cause destruction, rather than to elicit money form victims.
Shares in Reckitt Benckiser have hit a seven-week low in early trading, and are the biggest faller on the FTSE 100.
Reckitt shares are down 2% at £75.28, as City investors react to the news that its sales have been hit by the Petya cyber attack.
Reckitt Benckiser cuts revenue forecasts after cyber-attack blow
Now this is interesting.
Reckitt Benckiser, the consumer goods giant, has warned that its sales have been hit by last month’s global cyber-attack, forcing it to cut its sales forecasts.
The company, which makes Dettol disinfectant, Nurofen painkillers and the wackily named Cillit Bang cleaning products, was caught up in the Petya cyber attack on 27 June.
Reckitt reveals that the attack had a serious impact - leaving it unable to satisfy orders or even make some products.
It says:
The attack did disrupt the company’s ability to manufacture and distribute products to customers in multiple markets across the RB Group.
Consequently, we were unable to ship and invoice some orders to customers prior to the close of the quarter. Some of our factories are currently still not operating normally but plans are in place to return to full operation
Nine days later, it says that it has made “good progress” in getting key systems back online so it can start trading normally again.
But the cost is significant; Reckitt admits that the attack will knock 2% off its like-for-like revenue growth this quarter.
And some revenue will be lost permanently.
This means that Reckitt now only expects to achieve full year like-for-like net revenue growth of around +2%, down from +3% previously.
The company made net revenues of £9,891m last year; so by my back-of-the-envelope calculations, this attack could cost Reckitt around £100m of revenue*.
[* - currency fluctuations mean it’s hard to be too precise]
Dirk Schlotboeller, an economist at Germany’s Chambers of Commerce (DIHK), has cheered the 1% rise in German factory orders in May.
He says (via Reuters):
“The German industrial sector is back in form and the decline in April was likely a one-off.
Although increasing protectionism around the world is dampening the mood, business is going extremely well in Europe, Asia and also in the USA.
German factory orders rebound
Germany has got the day off to a decent start, by reporting a rise in manufacturing orders.
Factory orders rose by 1% in May, reversing April’s 2.2% decline, and indicating that there’s still demand for goods from the eurozone’s largest economy.
The recovery was driven by foreign orders, which jumped by 3%, including a 1.7% rise in orders from other eurozone countries.
That made up for a 1.7% drop in domestic demand.
Economists had actually expected a bigger bounce-back after the April lull. But these factory figures are pretty volatile, and Germany’s economy ministry are confident that its industrial base remains strong.
It says:
“The solid development in orders, as well as the excellent business climate, signal further moderate upward momentum in manufacturing.”
#Manufacturing in May 2017: New orders +1.0% seasonally adjusted on the previous month https://t.co/1RoF4UGqjN pic.twitter.com/Dt35qLisrr
— Destatis news (@destatis_news) July 6, 2017
German Factory Orders growth weaker than expected #eur
— Mike van Dulken (@Accendo_Mike) July 6, 2017
The agenda: G20 worries; US jobs data
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s an edgy feel in the markets today, as investors anticipate a bruising G20 meeting in Hamburg tomorrow.
Trade and climate change will be high on the agenda, which means Donald Trump’s “America First” mantra is likely to clash with other leaders.
Steen Jakobsen, chief economist at Saxo Bank, says the G20 meeting is a geopolitical risk, as:
Trump could end up totally isolated versus the rest of the ‘G19’.
Theresa May, the UK PM, is expected to tell Trump that Britain still backs the Paris climate change agreement. The two leaders could also discuss North Korea’s latest missile test – another potential geopolitical risk.
And with police bracing for riots on the streets, it could be a difficult few days in Germany’s second-largest city.
Traders are also digesting the minutes of the US Federal Reserve’s June meeting, released last night. They showed that Fed policymakers were split over how to interpret the latest inflation figures, and how that affects interest rate rises.
The minutes say that:
“Most participants viewed the recent softness in these price data as largely reflecting idiosyncratic factors...however, several participants expressed concern that progress...might have slowed and that the recent softness in inflation might persist.”
Fed minutes suggest increasing tensions on inflation shortfall https://t.co/D0kvr5cQno via @Reuters pic.twitter.com/WoxJ4fKy3o
— Dan Popescu (@PopescuCo) July 5, 2017
The European Central Bank releases its own minutes latest today; they’ll be scrutinised for signs of dissent between its hawkish and dovish wings.
We also get the weekly US jobless figures, and the estimate of private sector employment for June. They could move the markets, as tomorrow is Non-Farm Payroll Day, when the full US labour report for June is released.
The agenda
- 11am BST: European Central Bank chief economist Peter Praet speaks in Paris
- 12.30pm BST: ECB publishes report on last month’s monetary policy meeting
- 1.15pm BST: ADP’s private sector payrolls report for June
- 1.30pm BST: US weekly jobless figures
- 1.30pm BTS: US trade balance for May
Updated
