European markets edge lower
Despite the positive German GDP data and a slight easing of concerns about the French presidential election, investors were in a more cautious mood all round. So most European markets slipped back, while US shares struggled for direction for a while before resuming their record breaking run. The final scores showed:
- The FTSE 100 finished down 30.88 points or 0.42% at 7271.37
- Germany’s Dax dipped 0.42% to 11,947.83
- France’s Cac closed down 0.09% at 4891.29
- Italy’s FTSE MIB fell 0.35% to 18,819.49
- But Spain’s Ibex ended up 0.17% at 9493.4
- And in Greece, the Athens market added 0.37% to 649.52
On Wall Street, the Dow Jones Industrial Average is currently up 54 points at 20,829 having earlier touched a new peak of 20,835.
On that note, it’s time to close up for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Over in Greece,. and finance minister Euclid Tsakalotos has said that new concessions the government has agreed to make in return for further bailout loans will not be without cost. The warning came as IMF chief Christine Lagarde also warned that Greece will have to reform before debt relief can be discussed. Our correspondent Helena Smith reports from Athens:
Making his first public intervention since Monday’s eurogroup meeting, Euclid Tsakalotos said it was inevitable that pre-legislation of further pension and income tax measures would bring pain for some and gain for others.
“Some may lose out but some will gain,” he told the Greek parliament this afternoon. “Some who we do not assist at present – and we should help them - will gain,” he said.
But he nsisted that the reforms would be “fiscally neutral” because they would have no “net” fiscal impact.
Low-income taxpayers who looked set to suffer once the reforms were enforced as of January 2019 would get something else in return, he said.
Tsakalotos had been roundly criticised for not addressing the public in the wake of the Monday’s eurogroup where the government, under mounting pressure to resume stalled bailout negotiations, was perceived to have caved in to demands for further measures.
Following talks with the German chancellor Angela Merkel in Berlin, the IMF’s Christine Lagarde said it was now incumbent on Athens to implement the reforms if the IMF was to sign up to the programme.
“Obviously, the second leg is going to be the level of debt that the country can carry out and that debt will have to be restructured appropriately and the volume of restructuring will clearly depend how much reform, how much progress, how strong the Greek economy is at the end of the program,” she said.
“What will be needed is not a haircut if the reforms are done but a significant extension of maturity, a significant interest rate capping and that will have to be discussed in greater details later on as progress is made on the reform front.”
Updated
Stock markets appear to be pausing for breath, with all the major indices - including the Dow - in negative territory.
The FTSE 100 was among the weaker markets, with a strong pound taking the shine off dollar earners and Barclays reversing earlier gains. Connor Campbell, financial analyst at Spreadex, said:
With the pound having a strong afternoon - ....gains against the dollar joined by a 0.6% rise against the euro – the FTSE completely lost its way as the session wrapped up, tumbling around half a percent. The index wasn’t helped by the reversal of Barclays’ earlier growth; the bank, which announced this morning that it had nearly trebled its annual profit year-on-year, shifted from a 3.5% rise to a 3% loss, investors displeased at the cautious tone and conduct charge-littered outlook outlined by the bank in its full year statement.
Chris Beauchamp, chief market analyst at IG, said:
It finally looks as if the downside is getting some traction across markets, with the FTSE 100 breaking lower and US markets posting small losses in the early part of the session. It is probably too early to announce the demise of the rally, but at some point something had to give, and in recent days it had become clear that the risk appetite that was so unstoppable a week ago had given way to nervous selling.
US crude stocks rose by less than expected last week, helping to support the rise in oil prices. Brent is currently up 2% at $57.02 a barrel.
US DoE US Crude Oil Inventory Change (WoW) 23 Feb: +564K (est +3250K; prev +9527K)
— Livesquawk (@Livesquawk) February 23, 2017
Mnuchin also talked about issuing long-term - up to 100 year - bonds.
Quick: There were some market speculation yesterday that you might today announce plans for a longer term Treasury bond, a 50-year and 100-year bond because of just that, interest rates being low right now. Have you given that serious thought, and is that something we should expect to see?
I’ve said this before. We’re in the going to make a formal -- we’re not ready to make any formal announcement on whether we’re going to have a 50-year or 100-year. I have said this before. I think it’s something that we should seriously look at. I’ve already begun to talk to the staff about looking at that. Again, we’ll reach out to the market, investors, different people, but I think it’s something that is a very serious issue of whether we should explore, whether we can raise 50 or 100-year money at a very slight premium. That’s something that makes sense for Treasury to look at.
Donald Trump of course said he would label China a currency manipulator, and Mnuchin is asked about this.
Quick: Is it fair to say you’re not going to be naming China a currency manipulator any time soon?
Again, what’s fair to say is, first of all, I’ve had a terrific conversation with my counterparts there. I look forward to meeting them. We have a process within Treasury where we go through and look at currency manipulation across the board. We’ll go through that process. We’ll do that as we have in the past. We’re not making any judgments until we continue that process.
Here’s some of the full quotes from Becky Quick CNBC’s interview with the new US Treasury Secretary Steve Mnuchin.
First, on the tax plan mentioned by Donald Trump ( the “phenomenal” tax plan at that). He said:
Let me first say that our economic agenda, the number one issue is growth and the first, most important thing that will impact growth is a tax plan. So we are committed to pass tax reform. It will be very significant. It’s going to be focused on middle income tax cuts, simplification, and making the business tax competitive with the rest of the world, which has been a big problem and a lot of reasons why companies are leaving and cash is sitting offshore. So that’s really our focus.
We want to get this done by the August recess. we’ve been working closely with the leadership in the house and the senate, and we’re working on a combined plan.
On getting US economic growth back to 3%:
I think it’s very achievable. If you look at long-term growth, we have underperformed where we need to be. We believe we can be competitive and get back to sustainable growth at 3% or more. There’s going to be a lot of things that will impact it. I think the first issue, as I mentioned, is going to be tax reform. I think the other issue is going to be regulatory relief. we need to cut back regulations that have prevented small and medium-sized businesses from being the engine of growth in this country. We’re also focused, as you know, on Dodd-Frank and looking at Dodd-Frank and making sure banks can lend. There’s an incredible amount of liquidity out there. We want to make sure that banks put it to work.
Quick: If we stick to your time frame and we see something passed before the August recess, do you think -- we’ve already seen regulatory reform start. Do you think we’d see 3% plus GDP by next year?
I think it’s going to take time to get there. So i think it would be, you know, more towards the end -- seeing the growth towards the end of next year. I think by the time we pass tax reform, you see the impact on the economy, you see the impact of regulation, it’s definitely going to take into next year to see an engine of growth.
Quick: Obviously a lot of people are looking at this, the Fed and the CDO, and their growth projections are closer to 1.8%. What are they missing? They don’t see any of this?
I don’t think they’re missing anything. I think they’re making those projections based on the status quo. That’s where the economy has been. It’s been actually lower than that under the Obama administration. And i think we’re looking at significant economic changes...We have a great economic team, and we’re going to put forth policies that are going to really create growth in this country.
Wall Street opens higher
It’s become a daily event, but US markets have opened at new peaks once more.
A rally in oil prices and continuing hopes of a increased spending and cuts in taxes from the Trump administration are keeping investors in an optimistic mood.
The Dow Jones Industrial Average has climbed 49 points to 20,824 while the S&P 500 opened up 0.2% and the Nasdaq Composite added 0.04%.
Updated
Growth in emerging markets and a reasonable performance from developed countries will see the global economy expand this year, according to a report from Moody’s.
The agency says the outlook could however be affected by US policy shifts under the new administration, notably on trade and immigration.
Overall Moody’s says the average rate of growth in G20 countries is expected to rise from 2.6% in 2016 to 3% this year and in 2018. Emerging markets are expected to grow by 4.8% this year and advanced economies by 1.9%.
The UK is the only G20 European country where Moody’s expects growth to slow significantly, from 1.8% in 2016 (as revealed this week) to around 1% in 2017, as the country negotiates its exit from the EU.
As for the eurozone, Moody’s has lifted its growth forecast for Germany to 1.6% in 2017 and 2018, up from 1.5% and 1.4% respectively. The risk for Europe is that anti-establishment parties make meaningful gains in elections this year, it said. Madhavi Bokil, a Vice President and Senior Analyst at Moody’s, said: “The big economic risk with such an outcome, is that it could lead to anyof these countries potentially leaving the euro area. That could result in a resurgence of the European crisis.”
The biggest risk to the global economy is that a protectionist shift in the US could damage global trade and the economic recovery.
Back in the UK, and shares in Barclays have lost all their early gains and are now down more than 3%, making them one of the biggest fallers in the FTSE 100.
The turnaround in sentiment comes as analysts re-assess the prospect of further fines for the bank, which has taken the shine off the news that it had tripled full year profits. Michael Hewson at CMC Markets said:
The bank has yet to settle with US authorities after rejecting an offer to settle a mis-selling claim for mortgage backed securities at the end of last year, which could provide a sting in the tail later this year. This is because Deutsche and Credit Suisse settled for $7.2bn and $5.3bn respectively, which might suggest that any potential future settlement is likely to be of a similarly high amount.
Some early reaction to the US jobless claims. Paul Sirani, chief market analyst at Xtrade, said:
Today’s slight uptick in initial jobless claims isn’t too drastic, especially as many were suggesting the number of people out of work for the first time would be much higher. Overall, the US labor market remains pretty tight.
Donald Trump won’t be too concerned by the slight rise, despite him placing jobs at the heart of his successful run for presidency. Anything around the 250,000 mark would suggest that the jobs market remains in good health.
America is enjoying a two-year spell under the 300,000 mark – the longest since 1970 – but the real test for Trump and the economy in general is delivering substantive wage growth and quickly.
Updated
Just in: The number of American signing on for unemployment benefit has risen, but remains low historically.
Some 244,000 people filed an ‘initial claim’ last week, up from 238,000. That’s 3,000 more than expected. Even so, these jobless claims figures suggests the US labour marker remains firm.
BREAKING: US weekly jobless claims total 244,000 vs 241,000 estimate https://t.co/8h35PmQ0jR
— CNBC Now (@CNBCnow) February 23, 2017
Germany’s ambassador to the UK, Peter Ammon, is tweeting about today’s growth report.
German economy was marked by strong and steady growth during 2016, with GDP increasing 1.9% - highest rate of GDP growth among G7 countries.
— Ambassador Ammon (@GermanAmbUK) February 23, 2017
US Treasury secretary promises tax reform by August
Donald Trump’s administration are aiming to pass a “very significant” tax reform plan by the summer.
That’s according to America’s new Treasury Secretary, Stephen Mnuchin. Speaking on CNBC a few minute ago, Mnuchin said.
We’re primarily focused on a middle income tax cut, and simplification for business.
He also promised that the administration will make sure that high-end earners don’t get a free ride. If they also benefit from tax cuts, this will be “offset with reduction of deductions” (ie, refunds).
Mnuchin also tried to play down the idea that the US might label China a currency manipulator, saying he’ll keep his council until the Treasury has made an official assessment.
I’ve had a terrific conversation with my counterparts there. I look forward to meeting them.
Treasury Secretary Mnuchin to CNBC: "We're primarily focused on a middle-income tax cut and simplification for business" pic.twitter.com/f6E9dmQjd5
— CNBC (@CNBC) February 23, 2017
https://twitter.com/nasoskook/status/834736369519976448
Here’s a killer line from Howard Archer, chief UK economist at IHS Global Insight, on today’s UK retail sales figures, illustrating the problem facing the UK as the post-referendum recovery peters out.
The squeeze on consumers looks set to deepen markedly over the coming months as inflation likely heads towards 3% and pay growth is limited.
There are many in the retail industry who believe that intense competition among supermarkets and the big high street chains will keep prices lower than expected as firms take the hit to profits rather than pass on input price rises.
But still, the higher costs of IT equipment, imported cars and domestic appliances will be hard to avoid.
The impact could be to encourage substitution, which means consumers buying cheaper alternatives, or not buying at all and delaying purchases until prices have settled again. Or it could mean they simply fork out the extra cost and cut back spending elsewhere. Either way, it will slow overall activity in the economy and depress GDP growth.
Economist Sam Tombs reckons Britain’s retailers are right to be pessimistic about prospects for 2017.
He writes:
The failure of the CBI’s reported sales balance to recover significantly after its plunge in January provides more evidence that a consumer slowdown is under way. February’s +9 reading is a clear margin below its +18 average in the previous four years when consumer spending boomed. The increase in sales volumes also was driven by the clothing sector, which perhaps benefited temporarily from unusually warm weather this month.
UK retail sales pick up....but retailers are gloomier
Just in: British retail sales have picked up this month....but shop owners are increasingly worried about the future
The CBI’s latest ‘distributive trades’ survey found that 40% of retailers enjoyed a rise in sales volumes this month, compared to February 2016, while 31% saw them fall.
That gives a balance of +9%, up from an 8% decline in January.
But the deeper picture is less encouraging. The CBI also found that a majority of retailers expect the business situation to deteriorate over the next three months -- the worst reading in four years.
Around 42% of retailers cited rising cost pressures as a factor driving the deterioration in the business situation, with 35% citing uncertainty over the Brexit/EU negotiations.
Retailers expect the business situation to deteriorate for the first time in four and a half years. #retail #CBI_DTS https://t.co/J94enyHJli pic.twitter.com/cP8N88tmIY
— CBI Economics (@CBI_Economics) February 23, 2017
This chart shows how rising costs are hitting most retailers:
84.7% of respondents to the CBI's Distributive Trades Survey said that costs were higher in Feb than the same time in 2016 #retail #CBI_DTS pic.twitter.com/0MR9VVus1i
— Charlotte Dendy (@DendyCharlotte) February 23, 2017
Ben Jones, CBI Principal Economist, says:
“The rebound in retail sales suggests that some of the recent gloom about a slump in consumer demand at the start of 2017 may be overdone.
“However, retailers remain cautious about their prospects, expecting fairly tepid growth in sales volumes next month against a backdrop of rising inflation that is likely to erode households’ purchasing power through the course of the year.
“As the impact of the weaker pound feeds through supply chains, retailers are trying to absorb some of the increase in their import costs through savings.”
Updated
Shares in Barclays have risen by over 3% this morning after the bank nearly tripled its profits last year.
The bank has admitted, though, that it still has some problems -- including legal battles over its conduct before, during and after the financial crisis.
City editor Jill Treanor explains:
The bank – which has been scrambling to repair its reputation since the 2012 Libor rate-fixing scandal – is fighting the US Department of Justice over a decade-old mortgage bond mis-selling scandal and awaiting the outcome of an investigation by the UK’s Serious Fraud Office into the way it raised funds during the height of the banking crisis.
Here’s Jill’s take:
Some City analysts are underwhelmed by the results too, as underlying profits in the UK fell. City AM has a round-up of reaction.
Barclays shares are up 3.8 per cent on today's results - here's the reaction from City analysts https://t.co/zpaJS6DLTv pic.twitter.com/AYDpoRwA7j
— Caitlin Morrison (@citycait) February 23, 2017
There’s an eerie calm in the financial markets today (quite at odds with the gusts blasting between the City skyscrapers as Doris passes through).
The FTSE 100 is up just 3 points, dragged down by budget airline easyJet (down 5% after going ‘ex-dividend’ this morning).
Other European markets are also dull; even Germany’s DAX only managed a 0.1% rise.
As Connor Campbell of SpreadEx says, it’s all rather muter....
The UK index lazed about under 7300 after the bell, once again failing to substantially break through that resistance level.
There wasn’t much excitement from the pound either, sterling sitting flat-ish at 1.245 against the dollar while flirting with 1.18 against the euro. After the mood-dampening, if superficially impressive, GDP reading yesterday the UK doesn’t have anything to deal with this morning, explaining the rather snooze-worthy start to the session.
Updated
RSA's Hester: Britain would be better off without Brexit
A year ago, Stephen Hester, the former boss of Royal Bank of Scotland who now runs insurance company RSA, was one of 36 CEOs who signed a letter warning about the impact of Brexit on the business and the wider UK economy.
So we reminded him about it today, as RSA reported its latest financial results.
Hester says....
“We didn’t think Brexit was the right economic course for the UK and we thought the UK would be poorer.
I think the UK will be fine but it won’t be as well off as it might otherwise have been.”
Turning to RSA, the owner of the More Than brand, Hester brushed off concerns. About 70% of profits are made outside the UK so they are boosted by the weaker pound once they are translated into sterling. He noted that the company’s European subsidiaries are separately run and locally regulated, and RSA does not rely on passporting rights which allow banks to operate freely across the EU, while having most of their operations in the UK.
RSA reported better than expected annual operating profits of £655m, up 25%, due to a record underwriting profit of £380m. Hester has spent the last three years selling off under-performing businesses, including in Latin America and Russia last year, and said RSA was now a “turned around company” focused on becoming “best in class for our markets”.
RSA shares were the second-biggest riser on the FTSE 100 in early trading, up more than 4% to 602p.
Over in the markets, French government bonds are recovering as worries over the presidential election abate. A little.
Traders are buying French debt after centrist politician Francois Bayrou threw his weight behind Emmanuel Macron yesterday, which could strengthen him in the battle against far-right leader Marine Le Pen.
This means the gap between French and German borrowing costs has narrowed, having hit its widest level since 2012 earlier this week.
Cannot believe my eyes. Bunds are DOWN and French sovs are UP. Never thought I'd live to see the day. pic.twitter.com/k1HGDdr0BE
— Mike Bird (@Birdyword) February 23, 2017
However.... the latest polls show Le Pen extending her lead.....
France, Harris poll:
— Europe Elects (@EuropeElects) February 23, 2017
Le Pen (FN-ENF): 25% ↑
Fillon (LR-EPP): 19% ↑
Macron (EM-NI): 20% ↓
Hamon (PS-S&D): 14%
Mélenchon (FG-LEFT): 13% ↑ pic.twitter.com/CiBEj84D4S
Updated
German surplus hits record high
Not only is Germany outpacing its rivals, it is also racking up a record budget surplus.
New figures show that Germany ran a net surplus of €23.7bn last year, which is the highest surplus achieved since reunification in 19990.
This is only going to fuel the debate over Germany’s impact on its neighbours, especially those eurozone countries struggling to bring their deficits down.
Eu Commission surveilance lacks symmetry and doesnt care if excessive German budget surplus damages also others: criteria must be updated!
— Riccardo Fiorito (@riccardofiorito) February 23, 2017
Just in: More munition for international critics. German state posted a budget surplus of 23,7 bn last year, highest ever since reunion.
— Martin Greive (@MartinGreive) February 23, 2017
Britain’s looming departure from the European Union doesn’t appear to have caused Germany’s economy any grief.
As in the UK, German consumers have taken geopolitical uncertainty in their stride.
Today’s report shows that household final consumption expenditure increased by 1.5%, in 2016 as a whole, and by 0.3% in the last quarter of the year.
Bloomberg’s Carolynn Look has a good take:
Germany’s performance in the fourth quarter suggests the economy is sturdy enough to cope with challenges that may arise from national elections, Brexit, and a more protectionist U.S. administration.
Unemployment is at a record low and business confidence is rising, and the Bundesbank has cited a “very dynamic” order intake as a factor driving future momentum.
The economic situation in Germany in 2016 was “characterised by solid and steady growth”, says statistics body DeStatis.
Economist Claus Vistesen of Pantheon Economics believes Germany probably grew faster than estimated in the last quarter.
He disputes the idea that imports surged much more than exports (3.1%, vs 1.8%)
Estimate that net trade shaved off 0.4pp from German q/q GDP growth in Q4 is completely at odds with the monthly data 1/2
— Claus Vistesen (@ClausVistesen) February 23, 2017
Today's GDP data from Germany will not be the final word of what happened in Q4. 2/2
— Claus Vistesen (@ClausVistesen) February 23, 2017
Germany beats Britain with 1.9% growth in 2016
It’s official: Germany was the fastest growing major economy last year.
Germany has wrestled the crown off Britain this morning, with new figures confirming that German GDP rose by 1.9% in 2016.
That beats Britain, which only grew by 1.8% over the same period (as we learned yesterday), and means Westminster politicians won’t be able to crow about beating the rest of the G7 last year.
It also means Germany outpaced the US (which expanded by 1.6% last year, according to preliminary data).
Germany ended the year in style as the world's fastest growing major advanced economy https://t.co/WTcMEy2imQ pic.twitter.com/kpBqAxD6Oo
— fastFT (@fastFT) February 23, 2017
In the final three months of the year, Germany grew by 0.4% - recovering from a slowdown to just +0.1% in July-September.
Detailed #grossdomesticproduct results for the 4th quarter of 2016 #GDP https://t.co/uonmime255 pic.twitter.com/TpmCOEbomW
— Destatis news (@destatis_news) February 23, 2017
German government spending drove the economy, rising by 0.8% in the last quarter. That’s partly the cost of housing and integrating refugees from have arrived in the country over the last couple of years.
Household spending also boosted growth, rising by 0.3% in the last quarter.
ING’s Carsten Brzeski fears that this means the growth isn’t sustainable...
4Q GDP data do little to hush recent criticism of #Germany. Main drivers are gov't consump and construction. Domestic, yes. Sustainable, no.
— Carsten Brzeski (@carstenbrzeski) February 23, 2017
Net trade had a negative effect on growth in the last quarter, though - as imports rose by 3.1% while exports increased by 1.8%.
Updated
The agenda: German GDP, UK retail sales
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Coming up today...
We’ll be looking at Germany this morning, as updated growth figures for Europe’s largest economy are released.
We’ll also have an eye on France, as its presidential election race unnerves the markets.
British bank Barclays are publishing their results for the last financial year; pre-tax profits have trebled to £1.74bn.
At 11am, the CBI publishes its latest ‘distributive trades’ survey of retail sales in Britain. Eyes will be peeled for signs that UK consumers are cutting back, as inflation picks up.
And later on, we get the weekly US jobless report (1.30pm GMT) and the latest oil inventory stats (4pm GMT).
