Photograph: Robert Harding World Imagery / A/Alamy
US oil rig count falls again
The number of oil rigs in use in the US has dropped for the eighth week in a row.
Total rig numbers dropped by 9 to 406, according to the weekly Baker Hughes rig count. Of this, 10 oil rigs were cut, but one gas rig was added. This was the lowest level since October 2009, as companies concentrated on completing existing wells rather than drilling new ones.
The oil price, which was already in negative territory, was little changed after the figures, with Brent crude now down 0.79% at $47.7.
On that note, it’s time to close for the day and indeed the week. Thanks for all your comments, and we’ll be back next week.
European shares end higher
Despite a mixed bag of economic data, European shares have ended the week on a positive note. There were some poor UK construction figures, while European growth figures were revised down, albeit by less than feared. The news from the US was better, with positive retail sales and confidence figures providing some support for markets.
Investors even took the latest warnings on Brexit - this time from the IMF - in their stride. The final scores showed:
- The FTSE 100 finished up 34.31 points or 0.56% at 6138.5, just avoiding its fourth weekly fall in succession
- Germany’s Dax added 0.92% to 9952.90
- France’s Cac climbed 0.62% to 4319.99
- Italy’s FTSE MIB rose 0.44% to 17,729.45
- Spain’s Ibex ended up 0.67% at 8721.5
- But in Greece, the Athens market fell 1.59% to 622.71
On Wall Street the Dow Jones Industrial Average is currently down 47 points or 0.27%.
Standard & Poor’s has confirmed its ratings on Italy with a stable outlook. The agency said:
We project that Italy’s economic recovery will stay on track, despite having revised downward our forecast for real GDP growth to 1.1% in 2016 and 1.3% in 2017 (from 1.3% and 1.4% in our previous review).
We view as positive, recent initiatives to support Italian banks and reduce the high level of nonperforming loans in the banking sector, although we believe they alone may not be sufficient to fully address the related challenges.
We are affirming our long- and short-term sovereign credit ratings on the Republic of Italy at ‘BBB-/A-3’.
The stable outlook reflects our expectation that the Italian government will continue to implement comprehensive and potentially growth-enhancing structural and budgetary reforms that will stabilise, and start reducing, the very high public debt ratio.
The dollar has continued to strengthen following the better than expected US data, despite analysts still not convinced the country’s economy is strong enough for the Federal Reserve to raise interest rates at its June meeting.
Against the pound, the US currency is currently at a three week high of $1.4343, up around 0.8% on the day. Brexit worries are also weakening sterling, with the IMF’s statements the latest in a serious of dire warnings about the impact of the UK leaving the EU.
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Despite the strong US data today, the Federal Reserve may still decide not to hike rates in Junes, says James Knightley at ING Bank:
[The sentiment data] bodes well for consumer spending in 2Q16, particularly after the stronger than expected April retail sales report. While many at the Fed are keen to tighten monetary policy further we still feel that June is perhaps a little too early given the softness in data seen earlier in the year. We instead continue to favour a 3Q rate hike.
US consumer confidence jumps
Following the better than expected US retail sales figures comes news that consumer confidence is higher than forecast so far this month.
The University of Michigan survey of consumer sentiment rose from 89 in April to 95.8 in a preliminary reading for May. Analysts had expected a rise to 90.
This is the highest reading since June 2015.
The survey compilers said:
Consumer sentiment rebounded in early May due to more frequent income gains, an improved jobs outlook, and the expectation of lower inflation and interest rates. The largest gains were recorded among lower income and younger households, although the gains were recorded among all income and age subgroups as well as across all regions.
Nearly all of the gains were in the Expectations Index, which rose to its highest level in nearly a year. To be sure, the data still indicated the negative impact of uncertainty about future economic policies associated with the Presidential election, but its overall impact was overwhelmed by favourable economic developments. It is too early to judge the potential impact of the election on consumers’ expectations, and one month’s rebound in consumer confidence is insufficient to increase the current forecast for inflation-adjusted consumer expenditures from 2.5% during 2016.
And the Slovak finance minister has called for a swift agreement, with or without the IMF:
We would like to see a swift agreement unlocking a needed tranche for #Greece, with or without the #IMF consent if necessary. #eurozone
— Peter Kažimír (@KazimirPeter) May 13, 2016
Greece and its creditors are close to agreeing a basic package of measures worth €5.4bn, paving the way for a loan tranche of some €10bn to be released, according to the Athens-Macedonia-News Agency.
Clues emerge on size next payments to Greece: could be €9bln-€11bln with support to clear growth-sapping arrears. #Eurogroup still to decide
— James Kanter (@jameskanter) May 13, 2016
Three hurdles before Greece can get next bailout payment: pass laws on 1% savings, EU verification, eurozone approval... all by 24 May.
— Jennifer Rankin (@JenniferMerode) May 13, 2016
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Here are the percentage changes in retail sales from the previous month:
More on the US retail sales.
The better than expected figures have eased some concerns about the state of the US economy, says David Morrison, senior market strategist at Spreadco:
The number comes as a real relief for investors as it rounds off a week which has brought a lot of pain for US retailers. Department store operators Macy’s and Nordstrom posted weak earnings and slashed their forward guidance for the rest of the year. This comes on top of a number of high profile retail bankruptcies including American Apparel, Quicksilver and Aeropostale.
All of this goes to demonstrate the US consumer’s unwillingness (or inability) to spend money, particularly on clothes and accessories. This is particularly worrying as consumer spending is widely accepted as accounting for over 70% of all US economic activity. If the recent disappointing news on payrolls and jobless claims proves to be the start of a trend rather than a blip, then there could be worse to come. But today’s retail sales numbers go some way to offsetting these concerns.
April department store sales -2.9% y/y. Non-store retailers +8.5% y/y. Structural change, in two numbers.
— Ian Shepherdson (@IanShepherdson) May 13, 2016
Steve Murphy, US economist at Capital Economics, said:
The retail sales report shows that recent claims of the demise of the US consumer have been greatly exaggerated. Thanks to a massive 0.9% month on month gain in control sales in April and a sizeable rebound in motor vehicle sales, it now appears that second-quarter GDP growth will be close to 3.0% annualised...
At this stage, a June rate hike is a toss-up. The activity data certainly warrants a hike, but separately we are becoming worried that May’s employment figures could be pulled down by a couple of big temporary factors. Given how cautious the Yellen-led Fed has shown itself to be, the decision next month could go either way.
US markets open slightly down
US markets have opened roughly flat, just a touch into the red:
- Dow Jones: -0.1% at 17,703
- S&P 500: -0.1% at 2,062
- Nasdaq: -0.1% at 4,731
Most major European markets are up this afternoon, but the FTSE 100 is off slightly.
Christine Lagarde’s warning this morning that Brexit would send shockwaves through the UK economy - prompting the stock market and house prices to crash - is not helping sentiment.
James Knightley, economist at ING, says that the jump in US retail sales won’t be enough to convince the Federal Reserve it’s time to raise interest rates just yet.
This report is likely to generate some encouraging headlines suggesting a bounceback in consumer activity, and it certainly is good news.
However, the Federal Reserve will want to make sure it isn’t just a one-off. With other activity indicators suggesting that there has been something of a loss of momentum over the past twelve months we still favour just one-rate rise this year, which will most likely come in the third quarter of 2016.
We continue to doubt that the Fed will hike in June. This partly reflect the need for a better run of data, but also external risks. One of those is Brexit – should the UK vote to leave the EU on June 23rd this could see both the euro and sterling tumble against the dollar, which will lead to a tightening of financial conditions that may deter the Fed from tightening policy.
The monthly 1.3% jump in April retail sales was the biggest increase in more than a year.
The number for March was also revised up, to show a 0.3% rise and not the 0.4% drop previously estimated.
The increase was broad-based across different kinds of goods, but car sales were particularly strong.
US retail sales rise more than expected
Breaking: US retail sales jumped 1.3% in April, beating expectations of a 0.8% increase.
Excluding cars, sales were up 0.8%, again beating expectations of a 0.5% increase.
The figures will bring relief to worried investors...
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US stock index futures are lower as investors await April retail sales data from the world’s largest economy.
Economists are expecting to see a 0.8% rise in US retail sales over the month, and will be closely watching when the figures are published at 13.30 UK time.
Weak earnings from retailers - including department store Macy’s - have put investors on edge, not least because consumer spending accounts for more than two thirds of the US economy.
John McDonnell has had a word to say about the weak UK construction numbers.
Labour’s shadow chancellor said:
It is deeply disappointing that despite George Osborne’s rhetoric on construction the industry shrank by 1.1 per cent in the first quarter of the year.
Output in the construction industry has fallen since Osborne claimed at last year’s Tory party conference that ‘we are the builders’, and comes on the back of ONS figures earlier this week showing UK industrial production in recession. This is further evidence that Osborne’s recovery is one built on sand.
Most international business would like the UK to stay in the EU, according to an Ipsos Mori poll.
Most companies - 78% - from seven countries including Germany and China said Brexit would be negative and lead them to cut investment.
Only 5% felt it would be positive for their business, and the rest said the impact would be neutral or they didn’t know.
The countries involved were France, Canada, Spain, Italy, Sweden, Germany and China.
Michael O’Leary, Ryanair’s chief executive, has also been speaking about Brexit and the potential impact.
He says fares would probably drop in the shorter term, comparing the impact in terms of air travel to other crises, including 9/11.
Reuters quotes O’Leary:
After 9/11, after every crisis Ryanair is selling cheaper fares, we keep people flying.
So the fact is we would have a downward effect on our pricing for 6 to 12 months, but we will keep people flying.
O’Leary said that over the longer term, Brexit would prompt Ryanair to move investments out of the UK.
The longer term effect is we will invest less in the UK.
We will certainly switch some of our existing UK investment into other European countries because we want to continue to invest in the European Union and it will bad for air travel and British tourism.
Lagarde has also been making the point today that Brexit is not purely a domestic issue.
I know it is a big domestic issue for many of you, but it’s an international issue.
I don’t think that in the last six months, I have visited a country anywhere in the world where I have not been asked: ‘what will be the economic consequences of Brexit.
And in addition to Greece, Ukraine and a few others, what will be the outcome if the UK was to leave the European Union.
You will appreciate the level of anxiety there is around the world as a result of that particular potential decision.
IMF Managing Director @Lagarde says the EU referendum is "not just a domestic issue" https://t.co/J6m2KlD5PZ
— Sky News (@SkyNews) May 13, 2016
Chancellor: IMF makes it clear Brexit would cost us money
George Osborne has been speaking following the IMF’s damning report on the potential impact of Brexit.
He said the Fund makes it clear a UK exit from EU would “cost us money”.
That’s less to spend on public services like schools and the NHS.
Chancellor says IMF has "put to rest the fallacy" that leaving EU will make more money available for public services https://t.co/SMpvk9J6iH
— Sky News (@SkyNews) May 13, 2016
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Lagarde insists the IMF’s view on Brexit is completely independent.
Christine Lagarde: "We are not into politics. It is our duty to lay out the facts. #IMF #EUref pic.twitter.com/4Ro6cUWQPo
— Kamal Ahmed (@bbckamal) May 13, 2016
IMF boss Christine Lagarde says IMF will complete a more comprehensive report on the impact of Brexit in time for the Fund’s next board meeting on 15 June. This will include more detailed numbers.
“If there are no leaks, the papers should get it on the 16th, 17th”, she says.
IMF's Christine Lagarde at speaking at Treasury says outcomes of Brexit range from "pretty bad to very bad"
— Ben Chu (@BenChu_) May 13, 2016
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Different location, same story. On Thursday it was Mark Carney sitting in Threadneedle Street issuing a warning from the Bank of England about the perils of Brexit. Less than 24 hours later it was Christine Lagarde, the managing director of the International Monetary Fund delivering the same message.
The approach being taken by the Government to the referendum appears to be similar to the tactics adopted by the British high command on the Western Front during the Great War: soften up the enemy with a constant and ferocious pounding.
Opinion polls suggest that the pounding is having only a limited effect, with the Brexiteers snug in their positions and largely oblivious to the ordnance being rained down on them.
The Government’s hope is that eventually the war of attrition will pay off, as perhaps it might. Lagarde certainly went for what she sees as a soft spot in the enemy’s defences - the risk that a no vote on June 23 could lead to a crash in house prices.
This is a cunning tactic. While there is scant evidence that the British public is moved by the difference between the Swiss model, the Norwegian model or the WTO model when it comes to Britain’s post-EU trading arrangements, the threat to house prices is a different matter altogether.
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Christine Lagarde is now addressing journalists at the Treasury.
The IMF appears to have considerably stepped up its warning on the impact of Brexit.
Phillip Inman, the Guardian’s economics correspondent, reports:
A stock market crash and steep fall in house prices could follow a vote to leave the EU, the International Monetary Fund warned on Friday.
A panic among investors about the future path of the UK economy would trigger shockwaves throughout the economy, it warned, sending shares and property prices into a spin.
In a report that is clearly helpful to campaigners for Britian to remain in the EU, the IMF said that over the longer term, growth would be depressed.
The stark warning was coupled with analysis that found a vote to remain in the EU would spur a rebound in growth in the second half of the year, bringing to an end more than a year of stagnant output and falling business confidence.
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Eurozone growth revised down
Eurozone growth for the first quarter has been revised down slightly, to 0.5% from an initial estimate of 0.6%.
It followed 0.3% growth in the final quarter of 2015.
Annual growth slowed slightly, to 1.5% from 1.6% in the previous quarter.
IMF: Brexit impact would be 'negative and substantial'
The International Monetary Fund is wading back in to the Brexit debate.
In it’s annual health check of the UK economy, the IMF says that the British public are facing “a momentous decision” over the country’s membership of the EU. Brexit, it says, is the biggest risk to the UK economy.
The IMF had already put its boot firmly in the Remain camp, and strengthens its warning today.
A vote to leave, the IMF says, would hit growth, lower living standards, and prompt market volatility. Britain would be adversely affected in the short-term, but in the longer term too.
Extracts from the report:
The largest risks and uncertainties relate to the upcoming EU referendum. A vote to leave the EU would create uncertainty about the nature of the UK’s long-term economic relationship with the EU and the rest of the world.
A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output.
The long-run effects on UK output and incomes would also likely be negative and substantial.
London’s status as a global financial center could also be eroded, as UK-based firms may lose their “passporting” rights to provide financial services to the rest of the EU and much euro- denominated business may over time move to the continent.
IMF head Christine Lagarde is due to speak shortly.
The sharp fall in construction output in March means that the sector contracted by 1.1% in the first quarter overall.
Last month, when the ONS published its first estimate of Q1 growth (0.4%), it pencilled in a smaller drop in construction output of 0.9%. That was before it had the data for March.
In the first quarter, all new building work fell by 0.6%, while repair and maintenance dropped 1.9%.
House building was the bright spot, growing by 4.8% in the first quarter. Infrastructure fell 5.6%.
UK construction output fell -1.1% in Q1. House building was up, but a big fall in factory & warehouse building. pic.twitter.com/2d1YZc5FHH
— RBS Economics (@RBS_Economics) May 13, 2016
Weak UK data continues, construction showing largest drop since Dec 2012... how long can we keep blaming Brexit?! pic.twitter.com/JtHdK6qvdX
— Anthony Cheung (@AWMCheung) May 13, 2016
UK construction falls sharply in March
Breaking news: A shocking number for UK construction output - down 3.6%.
It was a much sharper fall than the 2.5% drop forecast by economists, and followed a 0.3% drop in February according to the Office for National Statistics.
One way of looking at it:
Shorter UK Construction numbers pic.twitter.com/bwTB690r1L
— World First (@World_First) May 13, 2016
Tesco boss handed £4.6m pay
Dave Lewis, the chief executive of Tesco, was paid £4.6m including a £3m bonus after the crisis-hit supermarket returned to profit.
The payout was revealed in Tesco’s annual report. The UK’s biggest supermarket chain made a pre-tax profit of £167m in the year to 27 February, after making the biggest ever high street loss the years before - £6.4bn. Read our full story on the payout here.
As Tesco’s new boss in 2014, Lewis has had to deal with Tesco’s £263m accounting scandal, which came to light just weeks after he took over from ousted boss Philip Clarke.
Hear from the man himself:
Dave Lewis, Tesco CEO, presents the Annual Report and explains how the business has made unprecedented changeshttps://t.co/eFhvQWkZyq
— Tesco News (@tesconews) May 13, 2016
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Oil prices fall
Oil is down on a stronger dollar and a warning from Russia that a global oversupply of crude could last into next year.
The dollar has recovered by about 2.5% from its May lows against a basket of leading currencies. Oil is traded in dollars so the stronger the currency, the more expensive fuel imports are for countries using other currencies.
Brent crude is down 0.7% at $47.76 a barrel. US West Texas Intermediate crude futures were down 54 cents or 1.2% at $4616 a barrel.
European markets open lower
Will there be any horror stories for markets on Friday 13th?
Germany’s better than expected growth has failed to cheer investors this morning.
General fears of a potential global slowdown and an empty central bank tool box to deal with it appear to be weighing on investor sentiment.
Mark Carney’s comments on Brexit at the inflation report press conference on Thursday will not have helped.
Europe’s major markets are all down this morning. The FTSE 100 is down 29 points or 0.5% at 6,075.
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Carsten Brzeski, economist at ING, describes Germany’s economic performance over recent months as “very impressive”.
Brzeski believes the makeup of Europe’s largest economy is changing. Is Germany losing its industrial might?
During this lucky streak, the growth drivers have changed. Initially boosted by strong industrial production and exports, the economy is currently much more driven by private consumption, construction and a bit of exports.
The industrial backbone has weakened significantly. Looking ahead, at least in the near term, this new growth mix should further support growth.
Brzeski also believes Germany might be getting a little complacent about its growth credentials:
Today’s data are another sign of Germany’s economic strength. At least at first glance. The economy defied the financial market turmoil at the start of the year as well as the Chinese slowdown.
Even if many Germans don’t want to hear it, strong domestic activity is also the result of the ECB’s loose monetary policy. At second glance, however, the strong growth performance also shows what currently is the biggest risk for the German economy: complacency.
The agenda: eurozone growth and IMF's verdict on the UK
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Some upbeat news to kickstart the day. The German economy grew by 0.7% in the first quarter, more than double the 0.3% growth rate in the previous quarter.
Economists polled by Reuters were expecting a 0.6% increase in GDP in the first three months of the year.
Destatis, the German statistics office, said growth was driven by domestic demand, with households and the government both spending more over the period.
Foreign trade on the other hand was a drag on growth, with imports rising more sharply than exports. The construction sector was boosted by the mild winter weather.
Destatis said:
The quarter-on-quarter comparison – following price, seasonal and calendar adjustment – shows that positive contributions mainly came from domestic demand, according to provisional calculations.
The final consumption expenditure of both households and general government increased at the beginning of the year.
Capital formation was higher, too. Due to the continued mild weather, fixed capital formation in construction as well as machinery and equipment was markedly up compared with the fourth quarter of 2015.
Later this morning Eurostat will give a second take on eurozone growth in the first quarter, following an initial estimate of 0.6% growth.
Investors will be relieved that Germany, it’s largest economy, did not deliver any nasty shocks to the downside.
As UK stutters, Germany's GDP grows 0.7% for the first three months of the year. Now likely to be fastest growing economy in G7
— Kamal Ahmed (@bbckamal) May 13, 2016
Also this morning, the head of the IMF Christine Lagarde will deliver the IMF’s latest verdict on the UK at a press conference at the Treasury.
We will keep you updated on events throughout the day.
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