Mixed day for European markets
The FTSE 250 may have edged up to a new closing high, but there was little else to get investors excited during the day’s trading. European elections in France and Germany, the renewed emergence of Greece and its debt problems as a headline maker, and the continuing attempts to deal with Donald Trump’s unprecedented presidency all combined to make for a cautious day on the markets. The final scores in Europe showed:
- The FTSE 100 finished up 2.6 points or 0.04% at 7188.82 as a rise in housebuilding shares helped offset falls in commodity companies.
- Germany’s Dax dipped 0.05% to 11,543.38
- France’s Cac closed up 0.26% at 4766.60
- Italy’s FTSE MIB rose 0.58% to 18,771.78
- Spain’s Ibex ended down 0.02% at 9329.7
- In Greece, the Athens market dropped 2.01% to 610.86 as worries about the country’s bailout programme re-emerged
On Wall Street, the Dow Jones Industrial Average is currently down 48 points or 0.24%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
And on Greece, it is the summer which will prove crucial (again):
What's Greek for déjà vu? As often seems to be the case, talks with Greece may come to a head in the summer due to a large debt repayment pic.twitter.com/5Qf57GzYp9
— Capital Economics (@CapEconEurope) February 8, 2017
Has Germany been pushing for the G20 to halt the current loose monetary policy - low interest rates and a QE programme of bond buying - adopted by the European Central Bank?
It has been known that Germany is unhappy with low - and even negative interest rates - since they disadvantage the country’s millions of savers. Ironically last week Donald Trump’s trade advisor accused Germany of being a currency manipulator, when it is the ECB which sets rates and implements the very programmes the country is unhappy about.
Now a Bloomberg report says that Germany tried and failed to get the G20 to intervene in the current situation. It said:
Germany has abandoned a renewed effort to push the Group of 20 to rein in monetary stimulus, according to people familiar with the matter.
German officials failed to convince counterparts that the G-20 should support language backing tighter monetary policy to promote global financial resilience, the people said, asking not to be named because the discussions are private. Germany had drafted it in a document as part of its presidency of the group this year, and will host finance chiefs next month in the spa town of Baden-Baden.
The country’s monetary policy initiative was thwarted even before a transatlantic spat erupted last week after the White House’s top trade adviser criticized Germany’s alleged currency policy. That episode hints at the challenges for its G-20 presidency in a politically volatile year as U.S. President Donald Trump hits out against global finance and trade rules, the U.K. plans its departure from the European Union, and Germany and France face elections.
...Officials have tried in vain for years to convince counterparts to include language in their statements that would hint at a preference for tighter monetary policy, citing low interest rates as an impediment to growth by hurting savers and bank balance sheets, according to a person involved in past discussions.
But Reuters is quoting a German finance ministry spokeswoman denying that the country had pushed for tighter monetary policy and repeated that it “respected the independence of central banks.”
Stock markets are struggling for direction as investors try to take in the various global risks souring sentiment. Chris Beauchamp, chief market analyst at IG, reckons worse could be on the way for share prices. He said:
It is a clear sign that things are not well within markets when Rio Tinto announces excellent numbers and a tasty dividend, but the shares fall.
Risk appetite, despite the best efforts of investors earlier in the week, has been on the wane, and from the reaction to Rio it seems that we could be on the cusp of a bigger drop.
While the Dow continues to hold 20,000, its position above this looks increasingly tenuous. The ominous quiet in US markets, where moves greater than 1% continue to be rarer than hens’ teeth, is a signal that something big is on its way. The current flows into gold and treasuries and away from the S&P 500 is another indication that the equity rally is looking exhausted.
On the US oil stock numbers, David Morrison, senior market strategist at Spread Co, said:
The latest update from the Energy Information Administration (EIA) showed an inventory build of 13.83 million barrels – well above the 2.7 million expected.
This confirms the enormous crude inventory rise reported by the American Petroleum Institute after last night’s close. This showed a build of 14.27 million barrels – well above the 2.5 million build expected. However, there was little market reaction to the EIA update as it also reported a drawdown in gasoline stocks which helped offset the crude build.
Nevertheless, the news is helping to keep a lid on crude prices. At the beginning of the week Brent and WTI were testing resistance at $57 and $54 respectively. Now there’s a danger that support around $54 and $51 could be broken. If so, this could see speculative longs rush to cover their positions and drive prices back below $50. Then investors will worry that crude is heading back to $40 rather than the $60 target that they had in mind just two weeks ago. If so, then this could knock the wind out of the equity market rally and spark a rash of profit-taking.
Michael Hewson at CMC Markets said:
Oil prices have slid quite sharply over the past couple of days. A huge 14.2m build in API inventories would appear to suggest that the potential for further significant gains in the oil price appear limited at this time. US EIA inventories also posted a huge build coming in at 13.83m barrels, well above expectations of 2.5m barrels, however a surprise draw on gasoline inventories, may well limit the downside in the short term.
While the antics of OPEC may well have succeeded in driving prices higher they have also given US shale producers the opportunity to ramp up production again, as they bring rigs back on line. The big question now is whether the WTI/Brent spread starts to widen out as US prices look to retest the recent range lows near $50 a barrel. The jump in US rig counts since the beginning of last year has seen a jump from 658 to 729 now, an increase of over 10%.
Updated
US oil stocks surge
US weekly crude stocks jumped by 13.8m barrels to 508.59m, a huge rise compared to the expected 2.5m gain.
But gasoline stocks fell by 869,000 barrels compared to forecasts of a 1.1m barrel increase.
Updated
Global markets are in a negative mood, with little impetus to drive them higher. Connor Campbell, financial analyst at Spreadex, said:
The respective weaknesses of the dollar, pound and euro cancelled each other out this afternoon, leading to a flat forex market and a splash of red across the Western indices.
After a positive start, a lurch into loss-filled territory for the miners, a widening fall for BP and Shell, and a sector-wide slide for the banks helped drag the FTSE lower this afternoon. The UK index dropped by 15 points as the day went on, keeping it trapped below 7200. Things were similar in the Eurozone, where the DAX and CAC’s earlier gains were replaced with a rouged-flatness; the French index saw the most significant change, losing all of the 0.7% growth it had posted during the morning to slip into the red by 0.1%.
The change in tone this Wednesday can be in part attributed to the negative start from the Dow Jones. The Dow fell around 40 points after the bell, its financial sector providing most of the downwards drag.
British tourism to Spain hits record
The number of Britons seeking Spanish sun jumped the most in a decade to hit a record in 2016.
UK tourists visiting Spain jumped by more than 12% to 17.8 million, as security worries put people off from travelling to other destinations such as Tunisia, Turkey and Egypt.
The trend looks set to continue according to analysts at GfK, with early bookings for 2017 summer holidays in Spain up 16% compared with last year.
The rise comes despite the sharp fall in the value of the pound against the euro since the Brexit vote, which means spending money won’t go as far on the Continent.
Cristobal de la Rosa, vice-councillor of tourism in the Canary Islands, said:
We have been very happy with the figures - instead of a fall there’s been a sharp rise.
Updated
Wall Street opens lower
US markets are down in early trading:
- Dow Jones: -0.3% at 20,038
- S&P 500: -0.2% at 2,288
- Nasdaq: -0.2% at 5,662
That chart on Greece and the Great Depression again:
Greece's depression is now far greater than the Great Depression...what a disgrace https://t.co/3xiChtUqNy
— Ben Chu (@BenChu_) February 8, 2017
#Greece vs. the Great Depression
— The Greek Analyst (@GreekAnalyst) February 7, 2017
(From #IMF's Staff Report for the 2016 Article IV Consultation) pic.twitter.com/pHGhuQn9cA
Updated
Is the dollar’s fall from 14-year highs temporary or has the greenback peaked? https://t.co/7qIAKlHjS5 #currency pic.twitter.com/mi9ngQrQ8f
— PIMCO (@PIMCO) February 8, 2017
Joachim Fels, a managing director at Pimco, the global bond investor, believes we have entered a new “cold currency war”:
It can be argued that in this cold currency war there is no balance of power now that the Trump administration has taken office and appears to be much more willing to use the nuclear weapon: protectionism.
With the U.S. running a large trade deficit and Europe, China and Japan having large bilateral surpluses with the US, the US stands to lose much less from a trade war, and the public pronouncements by Trump and Navarro suggest that protectionist action is a very credible threat.
If so, the rational response by Europe, Japan, China and other exporters would be to not overdo the cold currency war and, at least temporarily, allow some appreciation of their currencies versus the dollar in order not to provoke the US further.
The pound is (slightly) up against both the dollar and the euro.
It is up 0.1% against both currencies, at $1.2531 and €1.172.
BoE's Cunliffe: business investment to remain weak
Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, has been speaking at the Greater Birmingham Chamber of Commerce.
Phillip Inman, the Guardian’s economics correspondent, gives this analysis:
Sir Jon Cunliffe refuses to draw a conclusion from the Bank of England survey of businesses and how they invest. But it appears to show that firms remain reluctant to boost spending while the outlook remains uncertain.
Companies are continuing to demand a 12% rate of return on investments, which is an average rate going back 100 years, and traditionally gave a return over interest rates of 7%.Now that interest rates are virtually zero, the headline rate of return remains 12, giving them a 12% return over interest rates. This 5 percentage point gap indicates that firms are wary of the risks and demand a higher real return on their investments.
Also, looking at the survey in more detail, two thirds of firms said they had invested appropriately since the financial crash and a third of firms said they had under-invested. Most of the under-investors blamed a lack of bank finance. But they also said they prioritised payments to shareholders over investment, which shows that returning cash to the firm’s owners takes priority over securing the business’s future.
In Cunliffe’s words:
In the near term, in the Bank’s latest economic forecasts published last week, business investment is expected to remain very weak before picking up. This weakness is consistent with survey indicators of investment intentions which remain subdued and elevated uncertainty, as detailed in the February 2017 Inflation Report.
Ultimately, the outlook for business investment, like the outlook for the economy more generally over the forecast period, depends largely on how households and businesses react to Brexit and on the process that accompanies it.
Traders over at spread betting firm IG are predicting a slow start when US markets open:
US Opening Calls:#DOW 20063 0.00%#SPX 2290 -0.08%#NASDAQ 5181 -0.06%#IGOpeningCall
— IGSquawk (@IGSquawk) February 8, 2017
Europe’s main markets are slightly down this afternoon, with the exception of the CAC in France:
- FTSE 100: -0.1% at 7,177
- Germany’s DAX: -0.1% at 11,540
- France’s CAC: +0.3% at 4,768
- Italy’s FTSE MIB: -0.4% at 18,581
- Spain’s IBEX: -0.04% at 9,328
Michel Barnier, the man who will lead Brexit negotiations for the EU, has reassured Ireland that he will seek to address the country’s concerns:
EU27 consultations. Meeting w. a cross-party delegation of Irish MPs #JCEUA. Fully aware of Irish concerns, determined to find solutions. pic.twitter.com/nmEPXOwDZs
— Michel Barnier (@MichelBarnier) February 8, 2017
The FTSE 250 has hit a new record high, currently up 0.4% at 18,632.
Here is how the index of UK-focused firms has performed over the last 20 years:
Shares in Athens are down 1.6%, with banks among the biggest fallers.
Jennifer McKeown, the chief European economist at Capital Economics, says the risk of Grexit has risen again.
The IMF’s latest Greek debt sustainability analysis reveals that the fund now sees debt rising even more sharply than it had assumed last year. This further reduces the likelihood that it will contribute to the bailout, increasing the risk that payments will stop and Greece will be forced to default.
The IMF has not yet ruled out participating in the bailout, but there is a growing risk that it will do so. Since Greece is reliant on bailout payments to cover its debt redemptions, the risk of default and possible Grexit has risen yet again. A flashpoint will come this summer, when large repayments are due to be made to the ECB and private investors.
Updated
Ted Malloch: Greece will ask to leave the eurozone
Ted Malloch, President Trump’s proposed US ambassador to the EU, has been ruffling feathers again, predicting that Greece will ask to leave the eurozone.
Speaking late last night on Greek chat show Istories, Malloch said it would have probably been better for Greece if it had initiated the process of exiting the EU four years ago, when doing so would have been “easier and simpler”.
Eight years of punishing austerity had been so bad that it was questionable whether “what comes next” could be worse, he told the show’s chief anchor, Alexis Papahelas, reminding viewers that Trump had tweeted that Greeks were “wasting their time” in the eurozone.
I think we have to face some facts. The first one is that the harsh austerity programs have been a complete failure. I have traveled to Greece, met lots of Greek people, I have academic friends in Greece, and they say that these austerity plans are really deeply hurting the Greek people and that the situation is simply unsustainable. So you might have to ask the question if what comes next could possibly be worse than what’s happening now.”
Malloch said the eurozone’s future would be determined over the next 18 months.
Certainly there will be a Europe, whether the eurozone survives, I think it’s very much a question that is on the agenda. We have had the exit of the UK, there are elections in other European countries, so I think it’s something that will be determined over the course of the next year, year-and-a-half.
I think it is interesting from the perspective of Greece. Why is Greece again on the brink: it seems like a deja vu, will it ever end? I think this time I would have to say that the odds are higher that Greece itself will break out of the euro.
Updated
Tom Rogers from Oxford Economics is warning that consumers from around the world will have to tighten their belts after “a few years of plenty”.
The combination of higher inflation, rising debt servicing costs and a slowdown in job creation across the globe is curbing global spending power, which will grow at the weakest rate in eight years in 2017, our index of household resources shows.
The good news is that spending power at the global level will rebound in 2018, with growth in line with the average from 2014 to 2016.
Updated
Here is a summary of some of the other main points from the Bank of England agents’ report:
- Consumer spending growth has been resilient, but is expected to ease this year as prices rise
- Companies are facing greater price pressures following the drop in the value of the pound (which makes imports more expensive)
- So far, consumers have only really been affected by higher food and fuel prices, but rises are expected on a wider range of goods over the coming year
We've just published our Agents' Summary of Business Conditions, February 2017 update. https://t.co/zQXL71SOqB pic.twitter.com/Py3CanbkNm
— Bank of England (@bankofengland) February 8, 2017
Updated
Bank of England agents: pay growth will fall in 2017
Sticking with the UK, the Bank of England has published its latest ‘agents summary of business conditions’ report.
The Bank has 12 regional agents who visit about 700 businesses across the UK and report back to Threadneedle Street on the latest conditions.
In a blow to UK workers, agents reported that companies are expecting to hand out smaller pay rises this year.
Labour costs are expected to rise, partly because of increases in pension contributions, and the apprenticeship levy.
Some of the factors expected to push up total labour costs growth would be unlikely to be reflected in higher pay settlements.
The average pay settlement was expected to ease in 2017 to 2.2% from 2.7% in 2016, with the number of pay awards between 3% and 4% expected to fall significantly.
Settlements were expected to moderate in all sectors, with the largest decline anticipated in consumer services, where some companies had made pay awards in 2016 that were beyond those strictly necessary to meet the National Living Wage at that time.
Updated
Brexit: MPs to vote on article 50 bill
Today is the final day of Commons debate on the article 50 bill.
Here is the rough timetable, taken from our politics live blog with Andrew Sparrow.
MPs begin the final day of debate on the article 50 bill. At around 5.40pm there will be the final set of votes on amendments, including on the call for EU nationals living in the UK to have their right to stay guaranteed now. Then the bill will get its third reading, with the vote by about 8.15pm.
Follow all the latest developments here:
Spinal Tap creators aim to 'go to 11' with $400m lawsuit
Now for some Spinal Tap news. It’s not another tour sadly, but a lawsuit.
As the Guardian’s Rob Davies reports:
The band members from cult rock mockumentary This Is Spinal Tap have agreed to reunite in a bid they claim will ensure a $400m (£321m) lawsuit against media firm Vivendi “goes to 11”.
Three of the film’s co-creators and stars have agreed to get back together to join co-star Harry Shearer in a suit against the French firm, the parent company of Universal Music.
Shearer – who also voices characters from The Simpsons such as Ned Flanders and Mr Burns – was suing Vivendi for $125m, claiming it has not properly shared profits since buying the rights to the film in 1989.
The addition of the rest of the “band members” – famed for their pretentious musical posturing and catty infighting – has boosted the size of the claim to $400m.
The off-screen reunion brings together the characters of bassist Derek Smalls (played by Shearer), lead guitarist Nigel Tufnel (Christopher Guest), lead vocalist and guitarist David St Hubbins (Michael McKean), as well as director and narrator Rob Reiner.
Reiner said: “Such anti-competitive practices need to be exposed. I am hoping this lawsuit goes to 11.”
Germany says trade with Britain is already dwindling following the Brexit vote.
The country’s DIHK Chambers of Commerce said Britain’s decision to leave the EU had hit business and that trade between the UK and Europe’s largest economy fell 3% last year.
“Trade with the United Kingdom has already suffered a significant blow,” DIHK managing director Martin Wansleben told a press conference.
Updated
Back in Athens, a prominent Greek politician is warning that a compromise needs to be reached if a fresh crisis is to be avoided. Our correspondent, Helena Smith, reports:
The European parlaiment’s vice president and Syriza party MEP, Dimitris Papadimoulis, has said that all sides need to step back and compromise so that a repeat of the summer of 2015 is avoided. In an interview that also addressed Greece’s increasingly strained ties with Turkey, he told the Turkish news agency Anadolu:
All sides need to make the necessary compromises in order to find a compromise solution. It is not good for the European Union to relive the summer of 2015.
Papadimoulis ruled out early elections - long seen as the default position of a government under pressure to implement reforms to which it is wholly ideologically opposed.
I give absolutely no possibility to the scenario of early elections.
Bank of France predicts slowing growth
The French economy will grow by 0.3% in the first quarter of 2017, the Bank of France is forecasting.
That would be a slight slowdown compared with the 0.4% growth rate achieved in the final quarter of 2016.
Bank of #France Jan monthly survey of business activity points to Q1 #GDP growth of 0.3% q/q (0.4% q/q in Q4 2016)https://t.co/QpcrGk3G0D
— Howard Archer (@HowardArcherUK) February 8, 2017
FTSE 100 edges lower
European markets have got off to a mixed start this morning. In the UK, the FTSE 100 is down 18 points or 0.3% at 7,167.
The FTSE 250 is up a fraction at 18,564 after closing at a new high on Tuesday.
This is how it looks elsewhere:
- Germany’s DAX: flat at 11,550
- France’s CAC: +0.2% at 4,766
- Italy’s FTSE MIB: -0.6% at 18,553
- Spain’s IBEX: +0.1% at 9,344
- Europe’s STOXX 600: +0.3% at 364
Political tensions weigh on European markets
Away from Greece, bond markets are also looking tricky in France and Italy as political tensions mount.
The prospect of a far-right win in France’s presidential election this spring has further widened the gap between French borrowing costs and those in ‘save haven’ Germany.
The gap between France’s 10-year government borrowing yield and Germany’s 10-year bond yields rose to 78.8 basis points, the highest since November 2012.
Meanwhile the gap between Italy’s borrowing costs and Germany’s borrowing costs also widened, to 201.8 basis points - the most in three years.
Citi analysts don’t see the trend changing any time soon:
The ongoing elevated political headline risk is governing much of the spread tone in widening spreads.
With the French presidential first round elections still over two months away, ongoing headline risks are likely to continue to weigh on the broader tone.
Greek borrowing costs are rising as a fresh funding crisis looms.
Yields on 10-year government bonds are above 7.6% this morning, while the yield on two-year bonds are above 10%, the highest since last summer.
The IMF’s latest report on Greece contained a few startling graphics, including this one:
Greece has not managed to return to sustainable growth, with output having contracted by more than 25% since 2008, investment down by more than 60%, and unemployment at the highest level in the eurozone.
Michael Hewson, chief market analyst at CMC Markets, says a fresh crisis in Greece would be bad timing politically across Europe:
Fresh splits between the EU and IMF threaten to open a massive rift after the head of Eurogroup Jeroen Dijsselbloem criticised the IMF for being overly pessimistic about Greece’s prospects, saying that Greece was making good progress.
The IMF on the other hand disagrees and appears unwilling to throw more money at a problem with no end unless EU creditors look at debt forgiveness, given the unsustainability of the current debt trajectory.
A fresh flare up in the Greek crisis is particularly difficult timing given the proximity of elections in Holland, France and Germany, and a €7bn debt repayment due in July.
The agenda: Investors fear fresh debt crisis looms in Greece
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Greece is back in the headlines this morning following the fresh impasse that has emerged between its European creditors and the International Monetary Fund.
In broad terms, the IMF believes Greek debts are unsustainable and on an “explosive path”, raising doubts about the Fund’s participation in the funding programme.
The IMF wants to see Greek offered debt relief from its European creditors, who have so far ruled that out.
#Greece’s debt unsustainable without substantial relief from its European partners https://t.co/4S9R17CGiG
— IMF (@IMFNews) February 8, 2017
Responding to the IMF’s latest assessment, the eurogroup’s president Jeroen Dijsselbloem said there would be no such debt forgiveness, adding:
It’s surprising because Greece is already doing better than that report describes.
We will be bringing you all the latest updates and commentary.
