FTSE falters, European markets edge higher
Most traders had their minds on other things than the markets after the horrific events in Manchester. So business was rather subdued throughout the day, with the FTSE 100 managing to stay in positive territory for most of the day, only to slip back after a late bounce in the pound. Meanwhile the FTSE 250 edged to a new closing high, while European markets also ended higher. The final scores showed:
- The FTSE 100 finished down 11.05 points or 0.15% at 7485.29
- Germany’s Dax rose 0.31% to 12,659.15
- France’s Cac closed up 0.47% at 5348.16
- Italy’s FTSE MIB climbed 0.46% to 21,415.74
- Spain’s Ibex ended up 1.14% at 10,916.3
- In Greece, the Athens market fell 0.7% to 783.03 following the overnight failure of the country to win a debt deal with creditors
On Wall Street, the Dow Jones Industrial Average is currently
Here are some new figures from the ONS showing a regional breakdown of the UK’s public finances. Larry Elliott writes:
London’s thriving economy generates a £26.5bn surplus that is recycled by the government to provide financial help to Britain’s less well-off regions, according to an official breakdown of the public finances.
The first attempt by the Office for National Statistics to break down the UK’s budget deficit by region has demonstrated the importance of the capital and highlighted how taxes and public spending are used to narrow the north-south divide.
Experimental data from the ONS showed that only three regions of the UK – London, the south-east and the east of England – ran a budget surplus in the 2015-16 financial year, the latest year for which figures are available.
The full story is here:
The markets are looking a little lacklustre at the moment. Connor Campbell, financial analyst at Spreadex, said:
The market became more subdued as Tuesday went on, with little to engender any significant movement.
As it was earlier in the day, the afternoon’s main data-focus was on the latest set of PMIs, this time from the US. They ended up cancelling each other out, however; the manufacturing reading unexpectedly dropped from 53.2 to 52.5 month-on-month, but with the services figure jumping to a higher than forecast 54.0. This did little for the Dow Jones, which started the session up 10 or so points, roughly a quarter of what was promised by the futures.
The Eurozone lost some of its lustre after lunch, the DAX and CAC seeing their growth shrink back to 0.1% and 0.3% respectively. Even the previously dominant euro slowed down; the currency now sits flat against the pound – having been up as much as 0.3% – and actually down 0.1% against the dollar.
As for the UK, investors’ minds were understandably elsewhere. The FTSE nudged 0.1% higher, maintaining a 7500-plus performance, while the pound fared a bit worse, clawing back its losses against the euro but dipping 0.2% against the greenback.
US new home sales disappoint
Still with the US, and a poor set of housing figures, albeit after a strong performance in the previous month.
New single family home sales dropped 11.4% in April to a seasonally adjusted rate of 569,000 units, down from a nine and a half year high in March. Analysts had been expecting a much smaller decline of 1.5%.
US economy boosted by service sector
And away again from the levity, and some data from the US showing the country’s economy continues to head in the right direction, helped by the service sector.
Markit’s initial composite purchasing manager’s index climbed from 53.2 in April to 53.9 in May. (A reading above 50 indicates expansion).
Within that, manufacturing fell from 52.8 in April to 52.5 in May, below expectations of a figure of 53.
But the services PMI rose from 53.1 to 54 in May, above forecasts of a flat reading at 53.1. Chris Williamson, chief business economist at IHS Markit said:
Growth of US business activity gained a little momentum for a second successive month in May, but the upturn still looks somewhat underwhelming.
Historical comparisons of the PMI against GDP indicates that the PMI is running at a level broadly consistent with the economy growing at a 0.4% quarterly rate (1.5% annualized). Actual second quarter GDP numbers are likely to be considerably stronger, in part reflecting seasonality in the official data and the weak first quarter.
May saw an encouraging upturn in service sector growth to the fastest so far this year, buoyed by rising domestic demand. Manufacturers, on the other hand, reported the smallest rise in production since last September amid lacklustre export sales.
There were mixed signals for the outlook. Optimism about the year ahead fell slightly, but hiring remained reassuringly solid, thanks to a step- up in service sector recruitment. The survey is indicative of non-farm payroll growth of approximately 160,000.
Average prices charged for goods and services meanwhile showed one of the largest rises in the past two years. The strengthening of business activity growth and rise in prices will add to expectations of the Fed hiking interest rates again in June.
It really isn’t a good day for levity, but Mark Carney, governor of the Bank of England, has fallen for an email prankster.
The governor was deceived by a hoaxer pretending to be Anthony Habgood, chair of the BoE’s court.
In the exchange, “Habgood” starts by tweeting about claims that the Bank’s new £10 note has an “airbrushed” picture of Jane Austen, before inviting the governor to a drinks party.
Carney appears to be initially taken in – joking about former deputy governor Eddie George’s appetite for drink. But he then slaps “Habgood” down, after the conversation took a sleazy turn with talk of “dashing bar ladies”.
Bank of England Governor, Mark Carney. Apparently is not up for the type of party I like to throw. pic.twitter.com/6Iam49A5rA
— EMAIL PRANKSTER. (@SINON_REBORN) May 23, 2017
Does it matter? Yes, as it shows that the Bank’s email security isn’t tight enough. That’s not terribly forgivable, as Barclays CEO Jes Staley fell to the same hoaxster last week.
Updated
Wall Street opens higher
Following in the steps of Europe, US markets have moved higher in early trading, ahead of President Trump’s first full budget plan.
The Dow Jones Industrial Average is currently up 29 points or 0.14%, while both the S&P 500 and Nasdaq Composite opened around 0.2% higher.
Over in Athens the government spokesman has challenged the German finance minister’s view, and suggested Berlin is responsible for the failure to reach a comprehensive deal that would also include debt relief.
From Athens, Helena Smith reports:
Without singling out Germany by name, Dimitris Tzanakopoulos told reporters: “Some cannot say ‘yes’ to reforms...but no to the restructuring of the debt.”
“The solution presented yesterday corresponded neither to the targets that had recently been set nor the sacrifices of the Greek people.”
That’s a reference to the extra creditor-mandated pension cuts and tax hikes the Greek government pushed through parliament last week.
Tzanakopoulos repeated that both the IMF and Berlin remained locked in disagreement over growth projections - regarded as vital to calculating debt relief - and its ability to achieve a high 3.5 % primary budget surplus in the years ahead.
“The main difference between the IMF and the German finance ministry has to do with the growth projections and primary surpluses after 2023.”
Updated
Germany’s finance minister, Wolfgang Schäuble, has just told reporters in Brussels that the IMF ‘proved to be difficult’ during last night’s Eurogroup meeting.
Speaking after a meeting with EU finance ministers, Schäuble insisted that Germany wasn’t blocking a deal to release fresh aid to Greece, and just ‘sticking to the rules’.
If everything goes well, he added, a deal could be reached in three weeks (at the next Eurogroup meeting).
Via Reuters.
Updated
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Greek finance minister: All sides must compromise
Greek finance minister Euclid Tsakolotos has tried to put a positive spin on Monday’s abortive attempt to find a solution to the country’s seemingly unstoppable debt saga.
In statements released by the finance ministry he said:
“I’m quite confident that if all sides are in a mood of compromise, it should not be beyond the wit of man to find that compromise within three weeks. It does mean that all sides will need to compromise a bit.”
Tsakalotos said progress had been made on the policy package Greece must adopt and on the fiscal front, with creditors agreeing that Athens should achieve a primary fiscal surplus of 3.5% for four years once the current bailout ends in late 2018.
But the main opposition party, the centre right New Democracy, slammed prime minister Alexis Tsipras and his lelftist-led government saying both were subjecting Greeks to “fairytales.”
ND spokesman Vasillis Kikillas told Skai channel:
“How many fairytales will Greeks be subjected to? Six Eurogroups have elapsed and Mr Tsipras keeps telling us that the second review and agreement has been concluded.
“Instead of getting the loan disbursement and closing the deal, he has got nothing and burdened Greeks with measures worth €14bn. Neither has the review closed, neither has he got the loan disbursement and of course there is not a word about the debt.”
Updated
Greek stocks hit by bailout deadlock
The Athens stock market has fallen amid disappointment that the eurogroup didn’t unlock Greece’s next bailout payment last night.
The benchmark ATG index is down 1% at 780 points, with bank shares leading the selloff.
Shares had rallied recently, hitting an 21-month high this month, on hopes that Greece would receive vital bailout loans. So there’s obvious anxiety that ministers are returning home from Brussels empty handed, with the bailout review still incomplete.
Greek bonds are also suffering, with yields (interest rates) jumping as investors sell the debt, pushing down prices.
Other European stock markets are having a better morning, with gains in France and Germany following today’s strong PMI reports.
It’s a rather subdued day in the City, though, with workers preoccupied by the awful attack in Manchester. The pound has dipped a little, to $1.2963, which helped to nudge the FTSE 100 a bit higher.
But I don’t think anyone’s heart is really in it today.
Marc Ostwald of ADM Investor Services sums up the mood on the trading floors.
Another barbaric terrorist attack UK will cast a very long shadow over the UK general election (for which campaigning has been understandably suspended), the public and financial markets, and renders all else rather moot.
Updated
Britain’s retailers became more anxious about trading conditions this month.
That’s according to the CBI’s monthly report on the sector, which found that sentiment fell at the fastest rate since 2012.
*U.K. CBI SAYS RETAIL SECTOR SENTIMENT AT LOWEST SINCE 2012
— World First (@World_First) May 23, 2017
John Hawksworth, PwC chief economist, says today’s UK public finances paint a mixed picture:
On the positive side, the estimate budget deficit for 2016/17 as a whole was revised down by more than £3 billion due to higher tax receipts and lower spending than initially estimated last month. The deficit last year was only around 2.5% of GDP, similar to pre-crisis levels and moving closer to levels that would be sustainable in the long run.
“On the other hand, public borrowing in April 2017 was £10.4 billion, around £1.2 billion higher than the same month last year. We should not read too much into a preliminary estimate for a single month, but it is consistent with the broader picture painted by the OBR in March when they predicted that the budget deficit could widen again this financial year as some favourable timing effects on both tax and spending in 2016/17 were reversed in 2017/18.
Hawksworth adds:
Whoever forms the next government will still need to make some tough choices on tax and spending in the longer term, as the recent debate on social care shows.”
Today’s public finance report also shows how Britain’s national debt has swelled since the financial crisis struck, both in cash terms (in blue) and as a share of national output (the red line)
Updated
Sam Tombs of Pantheon Economics has tweeted an interesting chart from today’s UK public finances.
It shows how growth in UK tax receipts has slowed in the last couple of months (one reason the deficit went up in April).
Growth in tax receipts slowed to 3.9%y/y in Apr from 6.2% Mar. Early days, but seems bus. surveys could be too upbeat on Q2 GDP growth again pic.twitter.com/bljksSOPKZ
— Samuel Tombs (@samueltombs) May 23, 2017
The jump in Britain’s budget deficit last month highlights the challenge facing the next government.
So warns Ross Campbell, public sector director at ICAEW (which represents chartered accountants), who calls April’s net borrowing “precariously high”.
Campbell adds:
The amount of interest Government pays because of its growing debt, projected to be £46 billion annually in 2017/2018, is £7 billion more than in the previous financial year.
Instead of loading up the UK’s credit card with no comprehensive strategy to pay off these financial obligations, this money could be used to tackle key issues across all party manifestos, such as social care, education, and intelligent infrastructure plans.”
UK budget deficit widens wider than expected
PUBLIC FINANCES: Britain borrowed more than expected to balance the nation’s books last month.
The UK budget deficit jumped to £10.4bn in April, new figures from the Office for National Statistics show, some £1.2bn more than a year ago.
That’s more than the most pessimistic City forecasts (the consensus was for a deficit of around £8.9bn).
It’s an unimpressive start to Britain’s 2017-18 financial year.
VAT receipts stalled in April, compared with a year ago, while stamp duty income fell.
But Britain brought in more money through income tax (up 1%), corporation tax (up 7%) and fuel duty.
In better news, Britain’s deficit in the previous financial year (2016-2017) has been revised down by £3.3bn, to £48.7bn.
But this still leaves Britain with a national debt of £1.7224 trillion, of 82.6% of GDP.
Updated
Eurozone PMIs: What the experts say
Alex Lydall, head of dealing at Foenix Partners, says this morning’s strong PMI report shows that Europe’s economy continues to impress.
Momentum for the single currency has been obvious with the euro peaking at 8-month highs against the US dollar at a time where political threats are quickly diminishing. Populist voting has been quashed in both the Netherlands and France, with the main conundrum for [ECB president] Mario Draghi, low inflation, seemingly also disappearing as levels are very close to the 2% target. At a time where Trump is continually sending shockwaves across US markets, and the UK in the midst of an election, things in the eurozone appear somewhat settled.
Julien Lafargue, European Equities Strategist at JP Morgan, believes the European Central Bank will resist pressure to start tightening monetary policy.
The Eurozone’s growth trajectory remains very supportive, fuelling expectations that the European Central Bank will have to adjust its stance soon, maybe as early as June. However, despite some green shoots, inflation dynamics remain relatively subdued and the recent appreciation of the Euro was cited by some survey respondents as a drag on new business.
A tightening of monetary policy would only reinforce that trend and as such, the ECB may have to wait before signalling that the end of its extremely accommodative policy is in sight.
Eurozone private sector growth at six-year high
It’s official: Europe’s economy continues to rattle along at its fastest rate since the debt crisis began.
Markit’s eurozone PMI, which tracks company growth across the eurozone, has just come in at 56.8 in May, matching April’s figure, which was a six-year high.
Any reading over 50 shows growth, so this report suggests that the European economy is enjoying its sunniest patch since 2011.
Markit reports that manufacturing firms led the way, while overall business optimism has hit a joint five-year high. And job creation is now running close to a 10-year high, boosting hopes that Europe is finally fixing its unemployment crisis.
This is only a ‘flash’ reading, so we only have details for Germany (here) and France (here)-- which both posted the best readings since 2011, of course.
Markit reports that growth eased across the rest of the single currency area but remained close to a ten-year high.
Chris Williamson, chief business economist at IHS Markit, says today’s PMI data suggests eurozone growth is ‘impressively strong’.
Business activity is expanding at its fastest rate for six years so far in the second quarter, consistent with 0.6- 0.7% GDP growth. The consensus forecast of 0.4% second quarter growth could well prove overly pessimistic if the PMI holds its elevated level in June.
Capacity is being strained by the strength of demand, with backlogs of work showing one of the largest increases in the past six years. Job creation has surged to the second-highest rate in nearly a decade as firms seek to expand capacity and meet rising demand.
The German PMI figures have also impressed economists.
Here’s ING’s Carsten Brzeski....
German PMI at six-year-high. Get out these Superman capes again...
— Carsten Brzeski (@carstenbrzeski) May 23, 2017
...Mike van Dulken of Accendo Markets...
Germany PMI Services disappoints, deteriorating; Manufacturing impresses, improving. Opposite of France
— Mike van Dulken (@Accendo_Mike) May 23, 2017
...and Pepijn Bergsen of the Economist Intelligence Unit.
#Euroboom2017 moving into ridiculous territory, Germany composite PMI at 6-year high in May, job creation continuing at rapid pace pic.twitter.com/w5eGLXP8Py
— Pepijn Bergsen (@pbergsen) May 23, 2017
Updated
German factory growth hits 73-month high
Germany’s private sector is also powering ahead, in another encouraging sign for the eurozone.
The German manufacturing PMI has jumped to 59.4 this month, up from 58.2 in April.
That’s a seriously solid number -- the highest in 73 months -- indicating that the sector grew at a faster rate.
Service sector growth dipped a little (the PMI slipped to 55.2 from 55.4), but the overall composite PMI jumped to its highest since 2011.
German companies reported that output and new business rose this month, with goods producers seeing the biggest rise in new export orders in seven years.
Trevor Balchin, senior economist at IHS Markit, explains:
“The flash PMI data for May signalled no let-up in German economic growth, with the headline output index reaching its highest level in over six years. The index has trended at 57.0 over April-May, pointing to the strongest quarterly expansion since Q2 2011. Manufacturing continued its impressive performance with output, new orders and backlogs all growing at the sharpest rates in over six years, and export expansion hitting a seven-year record. Cost pressures at manufacturers also eased noticeably in May, but remained strong overall.
“The only blot on Germany’s copybook in May was a further solid but unspectacular rise in service sector new business, reflected in another decline in the volume of outstanding work in the sector.
Economists are impressed by France’s strong private sector growth this month.
Bloomberg’s Maxime Sbaihi says it shows the economy strengthened this quarter (after growing by only 0.3% in Q1).
Aux armes #PMI! French survey confirms acceleration in Q2, though probably exaggerating the momentum a bit. My take: https://t.co/Bza8lCUscB pic.twitter.com/VgDhJ2ONb9
— Maxime Sbaihi (@MxSba) May 23, 2017
This is from Fred Ducrozet of Swiss bank Pictet:
En Marche to ~2.5% annualised GDP growth in Q2. Whether it can be sustained is less clear at this stage. https://t.co/VfQzqYAXAy
— Frederik Ducrozet (@fwred) May 23, 2017
French private sector growth hits six-year high
We have encouraging news from France this morning.
French companies are growing at their fastest pace in six years right now, according to the latest healthcheck from data firm Markit.
France’s services PMI, which measures activity across the sector, has jumped to 58.0, from 56.7 in April. That shows that growth accelerated during the month.
Companies took on more staff this month, at the fastest rate in 69 months, to help tackle a steady increase in new business.
Factory growth dipped slightly, but the overall ‘composite PMI’ still rose to its highest level since the eurozone debt crisis began in 2011.
It suggests that France’s recovery is continuing; a welcome boost to Emmanuel Macron as he gets to grips with the presidency.
Alex Gill, Economist at IHS Markit says there is “strong growth momentum” in the French private sector.
“The acceleration was driven by the dominant service sector, buoyed by strong client demand and the sharpest round of job creation since August 2011. Meanwhile, the rate of output growth in the manufacturing sector remained marked but eased from April amid a weaker rise in new business, linked, in part, to a strengthened euro.
“The numbers continue to paint a positive picture of the French private sector economy. Furthermore, with May’s conclusion to the presidential elections, the road looks set fair for future growth. However, eyes will now turn to June’s legislative elections as a next potential stumbling block.”
#France's economy is enjoying a post-election bounce & strong Q2: PMI at 6-year high of 57.6 in May (56.6 in Apr) https://t.co/e7u3s4VSCL pic.twitter.com/facYG37YRh
— Chris Williamson (@WilliamsonChris) May 23, 2017
Last night’s talks failed partly because the eurogroup and the IMF can’t agree how large a budget surplus Greece should run.
From Brussels, my colleague Jennifer Rankin explains:
At the heart of the dispute is a demand that Greece run a budget surplus equivalent to 3.5% of GDP. The European side thinks Greece can hit this target in 2018, but the IMF has long argued that any country with high unemployment, (currently 23% in Greece) would struggle to meet such demanding fiscal targets.
In a sign of a possible concession from both sides, Dijsselbloem said there had been “full agreement that the 3.5% primary surplus should remain for five years” and eventually fall, although he did not specify a figure.
Speaking about Greece’s debt sustainability, Dijsselbloem said there was a gap in expectations between the eurozone and the IMF. “We need to close that [gap] by looking at additional options or adjusting our expectations. Both are possible and both should be done.”
Here’s her report:
Greek bonds weaken after Eurogroup deadlock
Greek bonds are weakening in early trading as the City react to the lack of progress at yesterday’s eurogroup meeting.
The yield, or interest rate, on Greece’s benchmark 10-year bonds has jumped to 5.73%, up from 5.6% last night. That means traders are demanding an extra premium to hold the debt.
Greek yields spike higher as Greece's creditors failed to reach an agreement on Greek debt measures
— RANsquawk (@RANsquawk) May 23, 2017
However, it’s a fairly modest move -- and still below the 7% ‘danger zone’ that shows a country is in peril.
Also, as Greece is still in a bailout, it doesn’t actually need to borrow from the markets at these rates today.
The agenda: Greek disappointment, Eurozone PMIs
Welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Greece’s long-running debt drama is heating up again after the country’s creditors failed to reach a deal to unlock the next instalment of its bailout loans.
Despite talking until almost midnight in Brussels, eurozone finance ministers couldn’t agree on debt relief measures for Athens. The deadlock means Greece still hasn’t received the fresh loans it needs before July, when it faces large loan repayments.
Instead, the can has been kicked a little way down the road to June 15th, when the eurogroup meets again.
Eurogroup president Jeroen Dijsselbloem told reporters that, while Greece had made ‘huge progress’, it still hasn’t taken enough actions to qualify for its next aid tranche.
Striking an optimistic note, Dijsselbloem declared:
“I’m sure we can be successful if we take a little more time.”
However, there is concern that the International Monetary Fund still hasn’t agreed to support the bailout -- which was originally agreed in summer 2015.
Eurogroup presser: IMF welcomed progress on policy, impressed with Greece, still its intention to go to the board when more clarity on debt
— Katerina Sokou (@KaterinaSokou) May 22, 2017
Also coming up today
8am to 9am BST: Data firm Markit are releasing their latest PMI surveys, showing how Europe’s manufacturing and service sector companies are faring this morning.
9.30am: The UK’s public finances for April are published, showing how much Britain borrowed last month. Economists expect a deficit of between £7bn and £10bn
RBC Capital Markets say:
It will be difficult to make inferences about the state of the public finances from the first month of data in the new fiscal year. In the context of a full year target for the deficit of £58.3bn in 2017-18, we would expect the April borrowing requirement to have been around £10bn.
The general election is scheduled for 8 June, so this of course presents scope for subsequent changes to existing plans, even if they are modest ones in the event of a Conservative victory, as we explored in a recent publication. In any case, it will be more appropriate to make a more thorough assessment of the fiscal situation once the election is out of the way and we know the extent of any changes in economic strategy.
11am: The CBI releases its UK retail sales report for May
Updated
