Closing summary
It has been a pretty glum day on European stock markets, in the wake of the 2% slide in Brent crude oil prices towards 11-year lows. IMF chief Christine Lagarde’s warning of disappointing global growth next year added to the sombre mood.
- The FTSE 100 index in London is down nearly 50 points, or 0.8%, at 6265.66
- The Dax in Frankfurt has slid almost 120 points, or 1.1%, to 10,743.01
- The CAC 40 in Paris has lost 23 points, or 0.5%, to 4678
On Wall Street,
- the Dow Jones is down 0.3% at 17,674.86
- the Nasdaq is down 0.4% at 5087.39
- the S&P 500 is down 0.3% at 2072.98
Away from the financial markets, Apple has agreed to pay £234m to settle an Italian tax dispute and UK house prices accelerated to an eight-month high in December, according to Nationwide building society, which is predicting further rises of 3-6% next year, even if interest rates go up as expected by the summer.
Thank you for all your great comments. We will be back tomorrow.
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Brent crude sliding towards 11-year lows again
Yesterday’s rally in oil prices (sparked by colder temperatures in Europe and north America) proved to be short-lived. Brent crude is sliding again towards 11-year lows after Saudi Arabia’s oil minister said the kingdom – the world’s top oil producer – had no plans to scale back production.
The comments from Ali al-Naimi, coupled with slowing global energy demand (partly due to China’s slowing economy) and record high inventories, put further pressure on oil prices. Brent crude, the world benchmark, is down 1.6% on the day at $37.19 a barrel while New York crude has lost 2% to $37.11.
Soaring output from the OPEC cartel, Russia and the US has created a global oil glut of between half a million and 2 million barrels a day, sending crude prices plummeting. They have lost two thirds since the middle of last year.
According to the Wall Street Journal, al-Naimi told reporters:
We will satisfy the demand of our customers. We no longer limit production. If there is demand, we will respond. We have the capacity to respond to demand.”
Low oil prices are becoming a problem for U.S. steelmakers https://t.co/MBUy6ZE7y7 pic.twitter.com/JAgkFtROOe
— Bloomberg Business (@business) December 30, 2015
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PricewaterhouseCoopers has issued its latest estimates for the cost of the winter floods across the UK, calculating a total economic cost of more than £3bn.
Meanwhile, accountants at KPMG have put the cost of the floods at over £5bn.
Mohammad Khan, general insurance leader at PwC, explained:
The effects of continuing torrential weather are set to hit parts of the UK even harder. Our latest estimates now suggest that economic losses due to Storms Eva and Desmond will be £1.6 billion - £2.3 billion, with insured losses of between £900m - £1.2bn.
However, these projections do not include any hovernment spend on flood defences which we understand may be between £2.3bn and £2.8bn. Also, these estimates do not currently include the impact of Storm Frank.
Based on the currently available information, our understanding is that Desmond and Eva combined had at least 11,500 houses flooded which combined with the commercial insurance losses we are expecting is the driver of our insured loss estimate. Given that Storm Frank is ongoing it is far too early to tell what the full impact will be. However, given 16,500 homes and businesses have already been left without power by Storm Frank in the Republic of Ireland, Northern Ireland and the North of Scotland, the total economic loss caused by the three Storms may well breach £3bn.”
PwC also noted that traditionally commercial insurance claims have made up about 10-30% of the total insured losses, but this time business claims will account for about half of the total. Many smaller businesses don’t even have insurance, because they simply can’t afford it after the financial crisis and recession and previous floods in 2009.
Barclaycard has also issued some figures on ‘touch and go’ spending, following data from the UK Cards Association earlier.
According to the credit card provider, contactless spending in service stations, pubs and bars has almost doubled since the limit rose from £20 to £30 in September. Spending in fast food outlets and supermarkets has shot up by 62%.
More than 8 in 10 consumers use less cash than they did a year ago, and 19% are annoyed if they can’t pay using contactless cards or devices.
Financial markets remain sluggish, with just one more trading day to go this year.
The FTSE 100 index is down 25 points, or 0.4% at 6289.04. The eurozone is a bit more mixed; the Dax is still in the red by 46 points, a 0.5% fall, whilst the CAC has made a bit of a comeback, with a 5 point increase.
Connor Campbell, financials analyst at Spreadex, says
With Brent Crude now even closer to falling back below the $37 per barrel mark (only needing to drop around 10 cents to break that barrier with the US crude inventories still to come) the FTSE had a battle on its hands this morning...
The index still has to deal with a sliding supermarket sector, however, with Ocado Group dropping another 5% after yesterday’s announcement from Amazon that the online giant would be expanding its UK grocery delivery service Pantry.
Things look unlikely to improve during the American session this afternoon. The Dow Jones is currently on track for a 20 point drop when the bell rings on Wall Street, with only pending home sales (expected at 0.6% against 0.2% last month) to distract investors from the generally gloomy atmosphere.”
Deflation eased in Spain in December, to 0.1% from 0.4% in November, suggesting inflation across the eurozone could inch higher in December, economists say.
.. and up from -0.9% y/y in October, a.substantial jump as base effects kick in, more important than "till negative" https://t.co/TF9oLltURV
— Marc Ostwald (@MOstwald1) December 30, 2015
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Spain receives record 64.6m tourists, most from UK
Spain received a record 64.6m foreign tourists in the eleven months to November, 4.8% more than in the same period in 2014, according to official data.
Most of them came from the UK (14.97m, up 4.1%), followed by France (10.9m, up 8.9%) and Germany (9.86m, down 0.8%).
This puts the country on track for a record 65m foreign tourists in 2015.
In November alone, 3.7m international tourists went to Spain, up 10.7% year-on-year.
Apple reaches €318m settlement with Italy's tax office
Apple has reached a €318m settlement with Italy’s tax office, Italian newspaper La Repubblica reported.
Italy’s tax office said it had reached a deal with the American tech giant in a dispute over taxes but declined to comment on details. La Repubblica reported hat Apple agreed to pay €318m.
An agency spokesman told Reuters:
Apple has agreed to our request.”
Italian prosecutors have been investigating allegations that Apple failed to pay corporate taxes totalling €879m. After months of negotiations, the tax authorities agreed to close the case in return for a cheque for €318m.
Other multinational companies have been using cross-border corporate structures to reduce their tax bills.
Apple Italia is part of the company’s European operation which is headquartered in Ireland, a country with one of the lowest levels of corporation tax in the European Union. Ireland taxes corporate earnings from normal business activities at a rate of 12.5%, which compares with a standard 27.5% rate in Italy, according to AFP.
Contactless card transactions now account for one in 10 card payments in Britain – the first time that milestone has been passed.
Figures from the UK Cards Association show there were 120.5m contactless card payments in October in the UK. This equates to 10.3% of all card transactions – up from 3.7% a year ago.
A total of £929.8m was spent using contactless cards in October. The average value of a contactless payment was £7.72, up from £7.35 in September when the limit for a single payment was raised to £30.
Overall spending on debit and credit cards rose by 0.9% in October to reach £53.2bn.
Richard Koch, Head of Policy at The UK Cards Association, said:
With one in 10 card payments now contactless, it’s clearly the preferred way to pay for millions of consumers. The rise in the contactless limit to £30 earlier this year means there are now even more opportunities to make a fast, easy and secure contactless payment.”
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RBS Economics have done this handy graphic showing regional variations in house prices this year.
How did house prices do this year? Depends where you live. London soared, Scotland fell. Latest figs from Nationwide pic.twitter.com/Noc8VFrlGY
— RBS Economics (@RBS_Economics) December 30, 2015
In London, shares in online grocer Ocado have fallen sharply for a second day, after a Guardian story sparked concerns over growing competition from a rival service at online giant Amazon.
Ocado shares fell nearly 8% in early trading and are now down 6.5% at 304.6p.
My colleague Graham Ruddick reported that Amazon is preparing to crank up the pressure on Britain’s struggling supermarkets by dramatically expanding the range of grocery products it sells. Christopher North, the UK boss of the online retailer, said it plans to expand its Pantry service rapidly in the new year.
Amazon Pantry, which launched in November, allows customers to buy from a range of 4,000 grocery and household products, from big brands such as Kellogg’s, Ariel, Colgate and Kronenbourg.
Ukraine to continue talks with Russia over $3bn debt in January
Ukraine plans to continue talks with Russia in January over a $3bn Eurobond which Kiev has threatened not to repay, Ukrainian finance minister Natalia Yaresko said today, Reuters reported.
Ukraine has included the two-year bond, which matured on 20 December, in external commercial debt it is restructuring to shore up its war-torn economy. But Russia has refused to accept these terms, arguing the bond is an official country-to-country loan, not commercial debt.
China to curb risks from abnormal cross-border capital flows
China’s foreign exchange regulator said that it would improve its policy reserves and contingency plans to curb risks from abnormal cross-border capital flows.
The country’s outstanding foreign debt totalled $1.53 trillion at the end of September, down from $1.68 trillion at the end of June, the State Administration of Foreign Exchange said.
China’s surprise moves to devalue the yuan in mid-August sparked a wave of capital outflows, as investors fretted that its economy might be slowing more sharply than previously thought.
Bloomberg is reporting that China has suspended at least two foreign banks from conducting some cross-border yuan operations until late March.
China understood to have suspended cross-border yuan operations of at least 2 foreign banks https://t.co/4dg3tXG6Ue pic.twitter.com/32QDivjkVS
— Bloomberg Business (@business) December 30, 2015
In the film Groundhog Day, Bill Murray plays a weatherman who finds himself in a time loop reliving the same events. Well anyone involved in the oil industry must think they’ve joined Bill in the film. The end of this year feels remarkably similar to the end of last year, with oil prices collapsing again, writes independent City analyst Louise Cooper.
Currently the price of a barrel of Brent crude is $37, a fall of 35% since the summer. A year ago, in December 2014, crude cost more - about $65 - but it had also fallen around 35% since the summer. And for both 2014 and 2015, the final collapse of the crude price was caused by a disorderly meeting of the oil producing cartel, OPEC, at the beginning of December, Cooper notes.
If this Oil Groundhog Year continues, then oil companies are likely to repeat last year’s reaction to cheaper crude: announcing large cost cutting, slashing investment and issuing profit warnings. The oil firms announced this at the same time as releasing their 2014 full year results in January, February and March. If the oil prices stays at $37, they may well be forced to do the same in the opening months of next year.
Last week Shell released the documentation for investors for its merger with BG Group. The most telling fact was that Shell is assuming an oil price of $50 in 2016 and $65 in 2017. The majority of city analysts are also as optimistic that oil prices will rise from current levels. According to Bloomberg the average Brent crude forecast is still $54 in 2016 and $61 in 2017.
However all these forecasts look extremely high in the context of a current oil price of just $37. The problem is that the crude price fall has been so quick, the oil industry has been slow to adjust, just like last year. And the city analysts that scrutinise the industry are also “behind the curve”. They are all playing catch up again.
There are some pessimists. Goldman Sachs warns there is a risk of crude falling to $20 next year and some traders are betting on crude as low as $15.
I am old enough to remember $9 oil (in December 1998) and during most my early career in the 1990s, Brent cost between $18 and $20. Adjusting for inflation would take Brent to about the current level. It may be that the high oil price of up to and over $100 of recent years that was the aberration and we are just returning to the longer term lower price.
Analysts at ExaneBNP Paribas warned recently that for global oil firms there is a “clear risk of dividend cuts which is far from fully priced into the shares”. Adding that the “European oil sector will be paying dividends out of debt until 2018 at the earliest”...
The bond (debt) markets are also suggesting that the risk of bankruptcies in the global oil industry is rising significantly as the oil price falls.”
There is a theory that all IPOs are priced between 10% and 20% below their intrinsic value and the latest performance statistics back up this thinking. We calculate the average share price gain for all IPOs [in London] in 2015 is 11.4%, writes Daniel Coatsworth at Shares magazine (£).
Average share price return from all IPOs on London market in 2015 was 11.4%. Read my analysis: https://t.co/Bjovy4GQ96
— Daniel Coatsworth (@SharesMagDan) December 30, 2015
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European shares slip as weak commodities weigh on markets
European stock markets are trading lower this morning, as weak commodity prices are weighing on miners and energy companies.
Yesterday stock markets around the world put in a strong performance, buoyed by a near-3% rise in the price of Brent crude.
- The FTSE 100 index in London is down 0.7%, or 41 points, at 6273.22.
- The CAC in Paris has lost 0.4%, or nearly 18 points, to 4683.51
- The Dax in Frankfurt has slid 0.5%, nearly 50 points, at 10,810.49.
- The Ibex in Madrid has slipped 0.3%, or 33 points, to 9637.5
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Veteran investor Warren Buffett is headed for his worst year relative to the rest of the US stock market since 2009, with shares in his conglomerate Berkshire Hathaway down 11% so far this year, the Financial Times reports. Berkshire has been hit by the commodities slump.
The underperformance comes in Mr Buffett’s Golden Anniversary year at the helm, when he told investors for the first time that they should judge his record based on Berkshire’s share price, rather than just the book value of the company, which had been his preferred yardstick for decades.
Mr Buffett urged them to make that judgment based on the long term, rather than on a single year, reflecting investing mentor Benjamin Graham’s view that the stock market may be a “weighing machine” in the long run, but in the short term it is a “voting machine”.
But in 2015, the market has been voting negatively on Berkshire’s prospects for weathering the decline in commodity prices, according to Jim Shanahan, analyst at Edward Jones.
Although Berkshire has no oil and gas subsidiaries, its railroad business transports oil, coal and agricultural products, and its manufacturing arm sells products to the shrinking oil industry. Weak results from Berkshire’s insurance divisions in the middle of the year may also be due to lower oil prices, Mr Shanahan said, since lower petrol prices mean drivers and truckers are on the road for longer and having more accidents.
“They are impacted by the weak resources sector and commodity prices in general,” he said.
You can read the full FT story here (£).
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Howard Archer, chief European and UK economist at IHS Global Insight, has looked at the Nationwide house price figures.
The stronger Nationwide data for December reinforce our belief that house prices are likely to see solid increases over the coming months. We expect house prices to rise by around 6% over 2016 amid healthy buyer interest (supported by largely decent fundamentals) and a shortage of properties.”
Nationwide said the gap between average house prices in the north of England and those in the south widened by £23,000 during 2015, as the south continued to outperform the rest of the country.
Returning to Lagarde’s comments, she wrote in a guest article for Handelsblatt:
In many countries the financial sector still has weaknesses and in emerging markets the financial risks are increasing. All that means global growth will be disappointing and uneven in 2016.”
She said that low productivity, ageing populations and the lingering effects of the global financial crisis were putting the brakes on growth.
She also warned that rising US interest rates (while necessary) and a stronger dollar could lead to firms defaulting on payments which would affect banks and the wider economy.
We have done a big piece on oil – “Recession, retrenchment, revolution? Impact of low crude prices on oil powers” from our correspondents around the world. Take a look.
A glut of oil, the demise of Opec and weakening global demand combined to make 2015 the year of crashing oil prices. The cost of crude fell to levels not seen for 11 years – and the decline may have further to go.
There have been four sharp increases in the price of oil in the past four decades – in 1973, 1979, 1990 and 2008 – and each has led to a global recession. By that measure, a lower oil price should be positive for the world economy, with lower fuel costs for consumers and businesses in those countries that import crude outweighing the losses to producing nations.
But the evidence since oil prices started falling from their peak of $115 a barrel in August 2014 has not supported that thesis – or not yet. Oil producers have certainly felt the impact of the lower prices on their growth rates, their trade figures and their public finances butthere has been no surge in consumer spending or business investment elsewhere.”
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UK house prices rose 4.5% year-on-year in December, up from November’s annual growth rate of 3.7%, according to Nationwide. It expects the housing market to strengthen further next year, even if the Bank of England starts hiking borrowing costs from next summer as expected.
Nationwide chief economist Robert Gardner said:
As we look ahead to 2016, the risks are skewed towards a modest acceleration in house price growth, at least at the national level, despite the likelihood of interest rate increases from the middle of next year.”
He predicted house prices would rise 3-6% over the next 12 months. London was again the fastest-growing region in 2015, with a house in the capital costing 12.2% more in the fourth quarter than a year earlier.
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UK house price growth hits 8-month high
Good morning and welcome back to our live blog covering financial markets and business and economics news from around the UK and the world.
Christine Lagarde, managing director of the International Monetary Fund, has warned that global growth will be disappointing next year. Writing in German newspaper Handelsblatt, she said the prospect of rising interest rates in the US and the economic slowdown in China are contributing to uncertainty.
She added that the normalisation of US monetary policy and China’s shift to a new growth model are necessary and healthy, but stressed that they needed to be done as efficiently and smoothly as possible.
In the UK, house price growth hit an eight-month high in December, according to mortgage lender Nationwide. It said house prices rose 0.8% this month, the biggest monthly increase since April. The average price of a house reached £196,999. In November prices edged up 0.1%.
Knightsbridge is central London's worst performing housing market of 2015, with 6% fall https://t.co/eqWuPeDEHU pic.twitter.com/JsQMwNghdn
— Bloomberg Business (@business) December 30, 2015
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