US oil rig numbers rise for second week
The number of US oil rigs rose for the second week in a row after the recent rise in the crude price to above $50, according to the regular Baker Hughes report.
The weekly count showed a total rise of 6 rigs to 414, as the increase in oil prices to an 11 month high encouraged drillers back to the wells.
The rise was split between three oil rigs and three gas.
BAKER HUGHES U.S. rig count rose +6 to 414 (2nd consecutive weekly increase) (oil +3 to 328, gas +3 to 85) pic.twitter.com/hmZIulRZwZ
— John Kemp (@JKempEnergy) June 10, 2016
On that note, it’s time to close for the day and the week. Thanks for all your comments, and we’ll be back next week.
Updated
Italian prime minister Matteo Renzi has said it would be a disaster for Britain if it voted to leave the EU, and would also hurt Europe and cause short term market instability.
[To be fair short term market instability is already with us]
According to Reuters, Renzi said at a conference in Genoa in northern Italy that Brexit would be “a dreadful mistake for both Britain and Europe.”
Moving from fears of the UK leaving Europe to the England football team leaving the Euros, Zoe Wood has been looking at the winners and losers from the feast of football which begins this evening.
Read her report here:
German 10y Bund yields closed at 0.02%, briefly dropped below 1bp. But see you on Monday for ZERO? pic.twitter.com/53NwgsjR6Q
— Holger Zschaepitz (@Schuldensuehner) June 10, 2016
European markets slump on Brexit fears
It was a bad end to the week as investors took fright, with Brexit fears dominating the markets but a fall in oil prices and nervousness ahead of next week’s US Federal Reserve meeting adding to the uncertainty.
Bond yields fell sharply and gold rose as investors took a safety first approach. In the UK, leading shares suffered their sharpest one day percentage fall since 11 February, while European markets also recorded major losses. Joshua Mahony, market analyst at IG, said:
Markets have come full circle this week, with the gains seen in the early part of the week giving way to substantial losses towards the end. It is particularly notable that whilst European indices have seen substantial losses, the US markets are have managed to claw back some early losses, highlighting proximity of the link between todays selling and the fear of a Brexit.
Banks came under particular pressure on concerns about the impact of negative bond yields while commodity companies suffered as metal and oil prices fell. The final scores showed:
- The FTSE 100 finished down 116.13 points or 1.86% at 6115.76
- Germany’s Dax dropped 2.52% to 9834.62
- France’s Cac closed 2.24% lower at 4306.72
- Italy’s FTSE MIB fell 3.62% to 17,120.16
- Spain’s Ibex ended 3.18% down at 8490.5
- In Greece, the Athens market lost 4.18% to 618.67
On Wall Street, the Dow Jones Industrial Average is currently down 0.43% or 78 points.
And Brent crude has slid 2.18% to $50.82 a barrel.
Worries about the global economy could be one factor pushing bond yields lower but it may not be the real story, says Andrew Kenningham of Capital Economics:
One possible explanation for the latest decline in global bond yields is that concerns about global growth have surfaced again. Certainly, some of the recent data have been disappointing. US non-farm payrolls for May were the weakest since 2010 and the ISM non-manufacturing PMI fell to its lowest level since early 2014...
However, in our view these worries about the global economy look over-stated. Most importantly, we suspect that abrupt slowdown in US payrolls growth is not the start of a new recession...
The upshot is that a downturn in prospects for global growth cannot explain the slump in global yields. Instead, falling yields probably reflect the reduced expectations for US interest rate hikes. As we think the Fed will resume its tightening cycle before the end of this year, and fears of Brexit should fade whatever the outcome of the referendum, we anticipate that bond yields will rebound.
Updated
The pound hit a six week low of $1.4315, down 1% on the day, before recovering slightly to $1.4332 as Brexit worries persist.
The US consumer confidence figures come ahead of next week’s Federal Reserve meeting but are unlikely to prompt a rate rise, says James Knightly at ING Bank:
[The confidence report] gives us some confidence in the view that last week’s payrolls disappointment is not the start of a new trend seeing as confidence remains close to cycle highs, suggesting no distress about the state of the jobs market. Moreover, with the consumer expectations component looking healthy at 83.2, it suggests consumer spending should perform well in the coming months. With job openings at cycle highs, businesses are still recruiting so we would expect a decent rebound in the June jobs report.
However, the Fed will probably want to see at least two decent jobs figures before pulling the trigger on higher rates. This means we continue to favour the September Federal Open Market Committee meeting for the next rate rise.
UnivMich sentiment remains a picture of contrasts - people are feeling very good about their personal finances, but are wary on the macro
— econhedge (@econhedge) June 10, 2016
The consumer confidence survey’s chief economist Richard Curtin said:
Consumers were a bit less optimistic in early June due to increased concerns about future economic prospects. The recent data magnified the growing gap between the most favorable assessments of Current Economic Conditions since July 2005, and renewed downward drift of the Expectations Index, which fell by a rather modest 8.6% from the January 2015 peak.
The strength recorded in early June was in personal finances, and the weaknesses were in expectations for continued growth in the national economy.
Consumers rated their current financial situation at the best levels since the 2007 cyclical peak largely due to wage gains. Prospects for gains in inflation-adjusted incomes in the year ahead were also the most favorable since the 2007 peak, enabled by record low inflation expectations.
On the negative side of the ledger, consumers do not think the economy is as strong as it was last year nor do they anticipate the economy will enjoy the same financial health in the year ahead as they anticipated a year ago. A sustained reduction in the pace of job creation could prompt consumers to hold down spending to increase their precautionary savings. Overall, the data still indicate that real consumer expenditures can be expected to rise by 2.5% in 2016 and 2.7% in 2017.
US consumer confidence slips
In the US, consumer confidence slipped back in the preliminary June reading, but not as much as expected.
The University of Michigan consumer sentiment index fell from 94.7 in May to 94.3, but this was better than the forecast figure of 94.
The current conditions index of 111.7, up from 109.9, was the highest since July 2005.
Updated
With stock markets under pressure amid a cocktail of concerns - including Brexit, falling oil prices, next week’s Federal Reserve meeting on US interest rates - gold is one of the havens being sought by investors.
At the moment the metal is up around $5 an ounce at $1274. And here’s how it has been tracking the uncertainty surrounding the Brexit debate:
#gold price appears to be tracking odds of #Brexit. We expect jump to at least $1,400 if UK votes to leave EU. pic.twitter.com/oDfYh59ZQp
— Capital Economics (@CapEconComms) June 10, 2016
Here’s the state of bond yields, many in negative territory:
German 10-yr hits new historic low of 0.018%, Japan 10-yr at new historic lows (via @CNBC)
— Sally Shin (@sallyshin) June 10, 2016
Don't forget:
— Dominic Chu (@TheDomino) June 10, 2016
Belgian 3-Yr -0.47%
Danish 2-Yr -0.48%
French 3-Yr -0.45%
Swedish 2-Yr -0.56%
Swiss 3-Yr -0.95%
Etc... https://t.co/KJ9lzy5nfp
Updated
US markets open lower
Wall Street has opened lower:
- Dow Jones: -0.5% at 17,896
- S&P 500: -0.6% at 2,104
- Nasdaq: -0.8% at 4,917
Holger Schmieding, chief economist at Berenberg, has written a note on the likelihood of a domino effect across Europe, should Britain vote to leave the EU on 23 June.
He describes the possibility of a domino effect as “the main risk to watch for global markets and the global economy”.
However, Schmieding and his colleagues at Berenberg suggest the likelihood is low, and place the likelihood of Brexit at just 30%.
Italy would be the country to watch, Schmieding concludes:
First, Italy matters because of its size (the fourth-largest in the EU) and its debt (133% of GDP). Second, since the demise of Silvio Berlusconi, Italy lacks a strong centre-right that could take over from Matteo Renzi’s centre-left.
Third, if Renzi’s government were to fall, unlikely but not impossible if he loses the referendum on constitutional reform this October, parties with more than 50% support in current opinion polls may campaign in hypothetical early elections with a promise to hold a referendum on euro membership.
That could rattle markets. But Renzi remains in the pole position. That Italy could be governed by an anti-euro coalition still looks unlikely.
US markets are expected to open lower:
US Opening Calls:#DOW 17885 -0.55%#SPX 2102 -0.63%#NASDAQ 4479 -0.76%#IGOpeningCall
— IGSquawk (@IGSquawk) June 10, 2016
Brexit would have no direct effect on Russian economy - central bank
Earlier Russia’s central bank cut interest rates for the first time in nearly a year, citing an imminent economic recovery and more stable inflation.
After reducing its main lending rate by 50 basis points to 10.5%, Russia’s central bank governor Elvira Nabiullina said there was unlikely to be any direct influence on the country’s economy in the event of the UK voting to leave the EU, according to Reuters. But there could be indirect risks through reaction in the currency markets, she told a news conference.
If things stay as they are the FTSE 100’s fall - now 1.86% - will be the biggest daily decline in percentage terms since the middle of February. With US futures suggesting a 95 point fall on the Dow Jones Industrial Average when Wall Street opens, the chances of a big recovery are not huge.
The FTSE 100 is now down 114 points or 1.8% at 6,118.
Spreadex’s Connor Campbell gives this update on European markets:
Things got far, far worse in Europe, an alarming drop pushing the region’s indices to a series of 2 and a half week lows.
With Brent Crude dipping below $51.50 per barrel, and the commodity sector rapidly losing the gains seen at the start of the week, the FTSE plunged over 100 points this Friday.
Finding a clear, concrete reason for this violent investor reaction is difficult; rather it seems that the commodity reversal, alongside a sharp decline from the financial sector, has joined the pre-referendum jitters to produce a bearish weight the markets are unable to handle.
He says the Brexit jitters are now spreading beyond the FTSE to other European markets.
The eurozone indices bested the FTSE in the poor performance stakes this morning, the DAX and CAC dropping a whopping 2.1% and 1.8% respectively. Like the UK index that leaves both at their worst price since May 24th, fears of a Brexit taking hold of the eurozone indices in a way that hasn’t previously been seen.
Updated
Gurria: British voters are being misled by Brexit camp
Rewinding to slightly earlier in the day, the OECD’s secretary general Angel Gurria gave an impassioned speech when asked about Brexit by a journalist.
Speaking in Paris at the launch of the organisation’s economic survey of the EU and eurozone, he said the British voters were being purposely misled by members of the leave camp, some of whom were motivated by their own political motivations...
The message is not permeating easily because there is a lot of emotion and frankly there is a lot of very misleading messaging that is going on.
I give you one example. It is often mentioned by the people who are promoting Brexit that ‘there is stifling regulation of the UK economy and we will now be able to deregulate’.
That is absolutely false. The UK is one of the least regulated, most flexible, open economies ... so much so that if they were on their own the improvement on regulation would be relatively modest. So you would not gain very much there.
People do not have the elements to know whether that is true or not.
He said that all the key institutions and groups - the London School of Economics, the CBI, the OECD, the IMF, the WTO, the trade unions - had provided evidence of the likely impact of Brexit. But the leave campaign had not.
The people promoting Brexit are speaking emotionally and they fail to provide any evidence to the contrary.
For Gurria, Brexit is personal as well as professional.
This is an intergenerational decision that has to be taken. I say that with the authority of being the father of a British citizen, married to a British citizen, and with two British children.
I would like them to have a better future. And I would like them to have a European future. And not in an isolated society, an isolated economy.
Gurria said there were too many voices, leaving the voting public confused.
It is a cacophony of voices and in many cases the voices of those who are promoting their own political [ambitions] even if it is at the expense of future generations.
It is our duty and obligation to continue with the message, mostly to the British people. It’s the British people who would suffer this drop in wellbeing and revenue. The Europeans are going to recover pretty fast, but the UK is going to take a much greater hit.
Updated
Wolfgang Schäuble is not the only one warning Brexit could prompt other countries to leave the EU.
Billionaire George Soros warned on Thursday it could lead to a collapse of the EU, and ratings agency Fitch said last week:
If the UK were to thrive outside of the EU, it might encourage other countries to follow suit.
No wonder investors are feeling anxious.
Germany's Schaeuble latest to warn on Brexit domino effect in EU - echoes Soros and Fitch https://t.co/7DeF1493Os pic.twitter.com/BDwdrhhYI1
— Katie Allen (@KatieAllenGdn) June 10, 2016
It’s not all terrible from Schäuble though, he would take us back, eventually:
At some point, the British will realise they have taken the wrong decision. And then we will accept them back one day, if that’s what they want.
Updated
Schäuble has also warned Brexit could lead to other countries leaving the EU, Reuters is reporting.
You can’t rule it out. How would the Netherlands, which has traditionally been very closely allied with Britain, react, for example?
If need be, Europe would work without Britain.
It would be a miracle if Britain quitting did not have any economic disadvantages [for the UK].
Germany’s finance minister added that in the event of Brexit, a call for more integration among remaining EU members would not be the appropriate response.
Even in the event that only a small majority of the British voters reject a withdrawal, we would have to see it as a wake-up call and a warning not to continue with business as usual.
Either way, we have to take a serious look at reducing bureaucracy in Europe.
Updated
Germany fires warning shot on Brexit
Wolfgang Schäuble, Germany’s combative and influential finance minister has waded into the Brexit debate.
In a characteristically frank interview with German magazine Der Spiegel (to be published over the weekend), Schäuble says the door to the single market would be slammed in Britain’s face should it vote to leave the EU on 23 June.
The Guardian’s Philip Oltermann reports from Berlin:
Germany’s finance minister, Wolfgang Schäuble, has slammed the door on Britain retaining access to the single market if it votes to the leave the European Union.
In an interview in a Brexit-themed issue of German weekly Der Spiegel, the influential veteran politician ruled out the possibility of the UK following a Swiss or Norwegian model where it could enjoy the benefits of the single market without being an EU member.
“That won’t work,” Schäuble told Der Spiegel. “It would require the country to abide by the rules of a club from which it currently wants to withdraw.
“If the majority in Britain opts for Brexit, that would be a decision against the single market. In is in. Out is out. One has to respect the sovereignty of the British people.”
Reuters is reporting that Schäuble has also warned Brexit could lead to referendums in other EU countries, therefore destabilising the whole region.
Updated
Shares in all FTSE 100 companies are lower.
The top performers are down...
The bottom performers are down...
European markets fall sharply
Equity losses are gathering pace. Major European markets are down more than 1%.
The FTSE 100 is down 1.5% or 96 points at 6,136.
- Germany’s DAX: -1.7% at 9,921
- France’s CAC: -1.2% at 4,352
- Italy’s FTSE MIB: -2.1% at 17,396
- Spain’s IBEX: -1.6% at 8,632
The OECD says the European economy is slowly improving, but new challenges are emerging, including the prospect of Brexit.
European #economy slowly recovering but legacies of crisis remain & new challenges emerging https://t.co/Wf1KATRl5r pic.twitter.com/Jhf65aYSIv
— OECD (@OECD) June 10, 2016
OECD: Britain would suffer most from Brexit, not EU
Gurria turns to the risk of Brexit:
It would hurt British growth, FDI inflows, trade. GDP could be 3% lower than if you did not have Brexit, if you go for remain.
He says the biggest negative impact will be on Britain. The EU will suffer less, because it is a big unit, able to withstand Brexit.
Gurria repeats the OECD’s claim that UK workers would lose the equivalent of a month’s wages every year outside the EU.
We are strongly saying remain. This is best for the UK, the EU and the world. The last thing we need is uncertainty, we have enough of that already.
Updated
The OECD’s secretary general, Angel Gurria, says tensions in European financial markets have receded.
Why? Gurria lists the reasons.
The key has been better European policies. New rules. Monetary policy from the ECB has obviously been supportive.
It looks like we are moving to a better fiscal position without having to do much heavy lifting. The building blocks to banking union are underway.
But, Gurria says, unemployment is still high, and investment has been weak. We are still below pre-crisis levels, he says. UK, Germany and the US are the only three countries where this is not the case.
The OECD press conference on Europe is starting. Watch live here.
OECD: EU must drop barriers to immigration
The European Union must drop barriers to immigration to boost growth, according to the Organisation of Economic Cooperation and Development, in clear opposition to arguments put forward by the leave camp in the EU referendum that the UK would prosper despite restrictions on migrant workers.
The Paris-based thinktank, which is funded by the world’s richest nations, said the EU needed to encourage workers to move to where they can find a job by forcing countries to recognise professional qualifications and allow workers to transfer their pensions.
In its latest survey of the EU and the eurozone, the OECD said obstacles to labour mobility remained one of the three significant barriers to growth, alongside a failure to break the banking sector’s monopoly on lending to businesses and Brussels’ inability to tackle restrictions that remain in the single market.
“Barriers to intra-EU labour mobility, including recognition of professional qualifications and supplementary pension portability, remain significant and need to be reduced. Labour market requirements for non-EU migrants should be further standardised,” the OECD said.
It also said the inflow of refugees was “a major and pressing challenge” that must be met collectively by the EU countries.
UK construction output rises in April
Construction output jumped 2.5% in April, beating expectations of a 1.7% rise.
It was the largest monthly increase since January 2014.
It followed a 3.6% drop in March according to the Office for National Statistics data. New building work was up 2.9%, while repair and maintenance increase by 1.9%.
Despite the better-than-expected number, construction output was still lower in April than it was in the same month last year, by 3.7%. But again, this wasn’t as bad as the 4.8% annual drop forecast by economists.
Bill Gross: negative bond yields are a 'supernova that will explode'
Not everyone thinks piling into bonds at any cost is a good idea. Janus Capital’s Bill Gross is one of them.
The bond market sage thinks there is a disaster brewing.
Specifically, he took to Twitter to describe the negative yields on $10trn of sovereign debt as “a supernova that will explode one day”.
Gross: Global yields lowest in 500 years of recorded history. $10 trillion of neg. rate bonds. This is a supernova that will explode one day
— Janus Capital (@JanusCapital) June 9, 2016
Updated
German bond yields hit new record low
Benchmark 10-year German bund yields have hit a fresh record low, as investors rush to the relative safety of bonds versus equities.
The low was 0.0021%, meaning it is getting cheaper and cheaper for the German government to borrow money.
If bund yields venture into negative, investors will be paying the government to buy its debt...
10y German Bund yields hit fresh life-time low at 0.023% as growth concerns revive and long-dated Bunds are scarce. pic.twitter.com/AzcGaEpNQo
— Holger Zschaepitz (@Schuldensuehner) June 9, 2016
European markets open lower
The flight from equities continues this morning, with European markets down in early trading.
As part of the same story, German bund yields have hit fresh record lows this morning , edging closer to negative territory (more on this soon).
Oil prices are lower, with Brent Crude down 0.8% at $51.53 a barrel.
Connor Campbell, analyst at Spreadex, has this take:
Europe’s second half of the week slump continued to gather pace this Friday, the session starting with another sharp slide.
With nothing on offer the FTSE had little choice but to focus on Brent Crude’s retreat (the black stuff back down to $51.50 per barrel) and the increasing uncertainty surrounding the EU referendum at the end of the month (the pound dropping another 0.4% against the dollar).
The eurozone indices have seen an even more dramatic drop this week. The DAX, which had briefly pushed beyond 10,300 on Tuesday, plunged below 10000 as the morning got underway, while the CAC is now nearing 4,350, a price not seen since May 24th.
German annual inflation has been confirmed at zero in May, unchanged from earlier estimates according to the Federal Statistics Office. (This is the harmonised rate, to compare with other European countries.)
Also coming up today...
We have UK construction output data for April at 9.30. Economists are forecasting a 1.7% increase over the month, following a 3.6% drop in March.
Industrial production data and trade data earlier in the week were both better than expected, so it will be interesting to see whether construction had a decent April, and what that might mean for growth in the second quarter overall.
At 10am (UK time) the OECD is launching its economic survey of the EU and the eurozone.
A press conference hosted by secretary general Angel Gurría will be available to watch here and we will be bringing you all the key points.
Investors pile into gold and bonds
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Gold is in focus, nearing a three-week high and on track for a second weekly rise as investors seek save have assets in an uncertain world.
The precious metal has been rising since last Friday, when US payrolls data came in shockingly weak, with just 38,000 jobs added compared with the 164,000 forecast by economists.
It is part of a fresh wave of jitters among investors, who have plenty of uncertainty to contend with.
On Thursday this week, Mario Draghi, President of the European Central Bank, warned of the risk of lasting damage to the eurozone economy if leaders did not urgently introduce structural reforms.
And as Britain’s referendum on EU membership draws ever closer, the outcome of the 23 June poll is too close to call. Brexit, and all the uncertainty that comes with it, is a real prospect.
Investors are piling out of equities, with Asian markets falling on Friday following losses on Wall Street and European markets on Thursday.
Bonds as well as gold and silver are appealing to investors seeking less risky assets. Gilt yields on German and UK 10-year bonds fell to record lows yesterday, meaning investors had to pay more to hold government debt in those countries.
As Michael Hewson comments, German bunds were “within touching distance of negative territory”. He adds:
A move into negative territory for German bunds in the coming days would mean that investors would be paying to lend money to the German government all the way out to ten years, in the same way they currently are for Japan now.
Who would have thought that even possible even a year ago, investors paying governments to own their debt?
Spot gold was trading at $1,267 an ounce, while bullion touched its highest since May 18 at $1,271.31.
