US oil rig
American drillers added oil rigs for the seventh week in a row last week.
The Baker Hughes rig survey showed 12 oil rigs and one gas were added, as the crude price recovery encouraged further drilling activity. Oil rigs have been added in 26 of the past 29 weeks.
US Oil Rig Count Surges As Crude Production Reaches 7-Month Highs https://t.co/JS8KQkB8Ib
— zerohedge (@zerohedge) December 16, 2016
So far the rig news has had little impact on the oil price, with Brent crude still up around 1.7% at $54.95 a barrel.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back on Monday.
European markets end higher
Despite US markets coming off their best levels - perhaps following a report China seized an underwater US drone in the South China Sea - European shares have ended the week on a fairly positive note. The final scores showed:
- The FTSE 100 finished up 12.63 points or 0.18% to 7011.64, the first time it has closed above 7000 since 25 October
- Germany’s Dax rose 0.33% to 11,404.01
- France’s Cac climbed 0.29% to 4833.27
- Italy’s FTSE MIB edged up 0.11% to 19,014.75
- Spain’s Ibex ended up 0.77% to 9412.8
- In Greece, the Athens market added 4.22% to 639.64
On Wall Street, the Dow Jones Industrial Average is currently up 27 points at 19879 having earlier reached 19,923.
Meanwhile the pound is up 0.46% to $1.2471 but is still trading close to a three week low after the Federal Reserve raised interest rates on Wednesday and thus boosted the US currency.
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More on S&P maintaining its Triple A rating on Germany. The agency said:
We think Germany’s highly diversified and competitive economy will continue to sustain its current growth momentum, backed by strong domestic demand and resilient exports against an increasingly challenging international backdrop.
Germany’s surpluses on its external and fiscal balance sheet will enable the country to weather external shocks, while ultralow interest rates and strong tax revenue growth continue to benefit its public-sector balance sheet.
We are affirming our ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on Germany.
The stable outlook reflects our view that over the next two years Germany’s public finances and strong external balance sheet will continue to withstand potential financial and economic shocks.
S&P affirms Germany AAA, Outlook Stable
— Livesquawk (@Livesquawk) December 16, 2016
Markets remain in positive territory, although they are off their best levels. But the recent rally could continue next week, analysts believe. Chris Beauchamp, chief market analyst at IG, said:
The week ends with gains across the board, although the Dow Jones remains tantalisingly short of the 20,000 target. Still, a good performance from the Russell 2000 this afternoon bodes well for the week ahead. Santa definitely arrived early this year, but perhaps we’ll get another rally next week. The FTSE seems happy enough to move above 7000, and it is entirely plausible that the index will touch new all-time highs before everyone sets off for Christmas. It will just require a little sprinkling of festive spirit, and hopefully a good performance from miners, which have been a little under pressure since the Fed announced its plan to raise rates three times next year.
The coming week is not exactly busy, as might be expected, but one area of interest will be the Bank of Japan. The yen has taken a hammering since the election, which has done wonders for the Japanese stock market, but we should not rule out a statement that gives the currency a breathing space. Everyone seems to be long the US dollar, so it wouldn’t take much of a change to spark some interesting moves in the week ahead.
Oil is moving higher on hopes that producers will stick to their deal to cut output.
Ahead of the latest Baker Hughes survey of US rigs, Brent crude has climbed 1.7% to $54.94 a barrel and West Texas Intermediate is up 1.57% to $51.70 as Russia said all of its oil companies had agreed to reduce output.
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Back with Greece, and ahead of the Merkel-Tsipras meeting, the German finance ministry has said an assessment report on Tsipras’ surprise relief package is not going to make for rosy reading, reports Helena Smith:
Athens’ lender institutions have assembled a report into whether the Greek prime minister’s unilateral measures violate his country’s bailout obligations and while preliminary “it is quite critical,” a German finance ministry announced today.
The report, requested by Berlin, will be evaluated in full next week. Particular focus will be paid to Tsipras’ surprise bonanza for low-income pensioners in the form of a pre-Christmas bonus, in effect a 13th payment.
Germany’s hardline stance – at least from it’s uncompromising finance minister Wolfgang Schäuble - has triggered mounting speculation that the politician is now bent on ousting the leftist leader and replacing him with the head of the main opposition centre right New Democracy party, Kyriakos Mitsotakis.
“It is obvious that [he] wants to overturn the government and replace it with one that has New Democracy at its core,” said Stelios Kouloglou, a Euro MP representing Greece’s governing Syriza party. “After [French president] Hollande … and [Italian PM] Renzi he wants to be done with whatever trace of the left has remained in Europe.”
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Wall Street opens higher
US markets are heading higher as the expectation of stimulus measures from the new President continues to provide support.
The three main indices are on track for weekly rises and are all near record highs, even as the Federal Reserve raised interest rates and hinted at three more to come in 2017. The Dow Jones Industrial Average, currently up 42 points at 19,894, is close to breaching the 20,000 barrier for the first time. Meanwhile the S&P 500 has opened up 0.2% while the Nasdaq Composite is 0.26% higher. Michael Hewson, chief market analyst at CMC Markets UK, said:
The big question on most people’s lips at the moment is whether the Dow can manage to nibble away at the 20,000 level that it has been flirting with this week. Thus far it has fallen short and the likelihood is that the opportunity to do it this week has passed.
Even if we fall short we’ve still seen a decent week for US equities, trading as they continue to do at record levels. The big question is how a strong US dollar and a strong US equity market can co-exist at a time when all we have had at the moment is promises of fiscal action, and higher rates.
Since the 8th November the Dow has rallied 9%, the S&P 00 over 6% and the Russell 2000 has gained over 14%; how much of market expectations of what President elect Trump can deliver are now priced in?
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The typical UK household spends more than £2,000 a month, but in December - in the run-up to Christmas - it spends an extra £500, according to the Bank of England.
And the biggest increase is not, as you might expect, on alcohol but on books, the Bank says.
And over the past three years, the value of online shopping has doubled, and now accounts for £1 in every £8 spent.
How much more do we spend at #Christmas? https://t.co/M57brEOCzf #BoEknowledgebank pic.twitter.com/yLlYHMQWJl
— Bank of England (@bankofengland) December 16, 2016
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Weak US housing figures
US housing starts fell by more than expected in November, falling from a nine year high.
They dropped 18.7% to a seasonally adjusted annual rate of 1.09m units, below expectations of a figure of 1.23m. October’s number was revised up from 1.32m to 1.34m, the highest since July 2007.
More on Greece, and some comments from Greek prime minister Alexis Tsipras and German chancellor Angela Merkel ahead of their talks.
Tsipras has said he would tell the chancellor about the positive momentum in the Greek economy and the “spectacular overachievement of revenue targets.”
Greek PM Tsipras: Growth in Greece must heal wounds from previous austerity, we can't allow Greece to go back to uncertainty -Rtrs
— Livesquawk (@Livesquawk) December 16, 2016
Merkel expects no decisions on Greek bailout at talks with Tsipras https://t.co/ReeNpl2dnv
— Berkley Bear (@BerkleyBearNews) December 16, 2016
Meanwhile, another possible hurdle for Greece to overcome:
Der Spiegel reporting that #IMF wll delay #Greece bailout decision til spring, allowing time for Trump to get lay of the land. ~@AlexRPigman
— Yannis Koutsomitis (@YanniKouts) December 16, 2016
Heavy bombshell from #IMF, if @DerSpiegel report true. Will create major repercussions both on economic and political level for #Greece.
— Yannis Koutsomitis (@YanniKouts) December 16, 2016
European markets are at 11-month highs, partly on the back of a weaker euro and expectations for stronger growth in the US next year.
Reuters quotes Markus Huber, trader at City of London Markets:
Stocks are continuing to get a boost from a weaker euro and the notion that the United States, the world’s largest economy, will experience an uptick in growth once President-elect Donald Trump has started implementing his new policies.
Europe’s main markets are up across the board:
- FTSE 100: +0.3% at 7,019
- Germany’s DAX: +0.6% at 11,437
- France’s CAC: +0.6% at 4,850
- Italy’s FTSE MIB: +0.4% at 19,064
- Spain’s IBEX: +0.4% at 9,377
- Europe’s STOXX 600: +0.3% at 360
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Bank of Greece calls for an end to the standoff with creditors
Greece’s central bank has appealed for an end to the standoff between the government and the country’s creditors.
If follows the decision by prime minister Alexis Tsipras to award low income pensioners with a pre-Christmas bonus - a move which angered Greece’s international lenders.
The Guardian’s Helena Smith reports from Athens:
Hours after the Greek parliament approved Tsipras’ package of relief measures, the country’s central bank has stepped in, urging an end to the dispute and appealing for differences to be “worked out at the negotiations table in a genuine spirit of co-operation with the institutions and our partners.”
Predicting the economy will expand by 2.5% next year – a jump from just 0.1 % this year - the Bank of Greece called for “pragmatism and flexibility” in its interim monetary policy report released today.
This emerging positive momentum in the economy needs to be supported and consolidated through adherence to the programme targets and an accelerated implementation of the reforms and privatisations agreed on.
Specifically, the Bank of Greece expects GDP to grow by a marginal 0.1% in 2016, before picking up to 2.5 % in 2017 and further to 3% in 2018 and 2019, supported by investment, consumption and exports.
But an ongoing review of the debt-stricken country’s creditor-mandated reforms would have to be wrapped up quickly, the bank said, so that Greece could take the next step towards inclusion in the European Central Bank’s QE bond-buying programme.
There is not much time left, in the light of upcoming national elections in a number of euro area countries.
Progress, it added, would be easier if lenders also agreed to lower expectations of Athens achieving a primary budget surplus of 3.5 % by 2018.
Tsipras is expected to raise this issue – and the decision by the euro zone’s bailout agency, or ESM, to put short-term debt relief measures for Athens on hold - when he holds talks with German chancellor Angela Merkel in Berlin this evening.
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Paul Hollingsworth, UK economist at Capital Economics, says the CBI surveys suggests the weaker official manufacturing data for October will prove to be a blip.
[It] suggests that the 1% monthly fall in manufacturing output in October, as revealed by the ONS figures earlier this month, was just a temporary blip. Accordingly, we continue to think that GDP growth will become better balanced over the coming quarters.
Howard Archer, chief UK economist at IHS Markit, says 2017 could be a tougher year for manufacturers.
Despite the decent December CBI industrial trends survey, there are significant potential problems for the manufacturing sector that look likely to build up in 2017.
In particular, business confidence is likely to be hampered by mounting uncertainty over the Brexit process, constraining investment plans and limiting demand for capital goods.
It also looks inevitable that consumers will become markedly less able (due to diminishing purchasing power) and likely more reluctant to buy big ticket consumer durable items over the coming months.
While output and orders were up, the CBI survey also suggested the sharp fall in the drop of the pound since the Brexit vote is starting to push up manufacturers’ costs.
A weaker pound makes imports from abroad more expensive, and the CBI said factory gate inflation is heading higher as manufacturers pass on to customers some of the price increases they are facing.
Expectations for output price inflation - the prices charged by manufacturers for their goods - in the three months to March rose to their highest level since June 2011.
Rain Newton-Smith, the CBI’s chief economist, says:
It’s good to see our manufacturers ending the year on a high note with growth in production the strongest since summer 2014 and total orders still robust.
But the weakness of sterling is pushing up the cost of imports, and our survey shows strong signs of this feeding through to higher factory gate prices.
After a challenging 2016, UK manufacturers will want to build on the positive momentum going into the new year, with the Government’s recent commitments on a modern industrial strategy and innovation investment a welcome tonic.”
Updated
CBI manufacturing: orders hit 20-month high
The CBI’s industrial trends survey paints a better than expected picture of the UK manufacturing sector in December.
The orders balance was 0, as 21% of businesses reported orders were above normal and 21% said they were below. That was better than the -5% predicted by economists, and the highest level in 20 months.
Growth in output was the strongest since mid-2014, the business lobby groups said. Production fell in just four out of 18 sectors.
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Teva Group, parent company of Actavis, has responded to criticism from the competition watchdog over steep price hikes.
The Competition and Markets Authority says the UK-based Actavis company increased the price of life-saving hydrocortisone tablets by over 12,000% (full story here).
Teva responds:
Generic medicines continue to be an affordable alternative to branded therapies. Teva is proud of our track record in bringing cost savings to the NHS as the UK’s largest generic medicines manufacturer.
Competition from generic medicines saves the NHS in England and Wales £13.5bn per year overall, and Teva medicines account for approximately £3.2bn of this saving. Although the pricing of the acquired Actavis product (Hydrocortisone) under investigation was never under Teva’s effective control, Teva believes that intervention by the CMA in prices for generic medicines raises serious policy concerns regarding the roles of both the CMA and the Department of Health.
Eurozone inflation rises to 0.6% in November
The annual rate of inflation climbed to a 31-month high of 0.6% in November from 0.5% in October, the Eurostat statistics office has confirmed.
The biggest drivers of the rise came from restaurants and cafes, rents and tobacco, while the price of gas, heating oil and package holidays fell and held the inflation rate back.
Olivier Vigna, economist at HSBC, said the French Insee survey was the latest indication that growth in the fourth quarter will pick-up to 0.4% from 0.2% in the third.
Recent surveys on France largely confirm the rebound in the economic activity we expect for Q4 and other forward-looking indicators also point to a higher momentum.
Of course, it would be naive to read too much into the positive signals coming from surveys as they are not always reflected in hard data.
Nevertheless, the upwards trend witnessed in surveys bodes well for the increase we anticipate for GDP over the last quarter of 2016: we forecast +0.4% q-o-q after two consecutive weak quarters (-0.1% in Q2, then +0.2% in Q3).
So although it is too early to have a comprehensive view on the full set of Q4 data, such an encouraging move, if durable and converted into better hard data, would also be positive for the entry into 2017.
French business confidence rises in December
Over in France, firms were feeling more confident than expected in December according to the National Institute of Statistics and Economic Studies (Insee).
The headline index rose to 105 from 102. It was the highest level since the summer of 2011. Confidence grew among manufacturing, services and retail firms, but dipped in construction.
Insee:
After being almost stable since August 2015, equal or slightly above its long term average (100), the climate has improved markedly in December 2016.
Ifo: German economy likely to be stronger than expected in Q4
Germany’s economy will be stronger than expected in the fourth quarter according to the Munich-based Ifo Institute.
Positive growth momentum in Europe’s largest economy will be carried into 2017, it added.
As Ifo issued updated forecasts, the institute’s president Clemens Fuest, commented:
All signs point to a fourth quarter that is stronger than had been expected until now. We’ll take this impetus into the new year.
Ifo left its forecast for growth in 2016 unchanged at 1.9%, which would be the strongest in five years. It nudged up forecasts for both 2017 and 2018 by 0.1% percentage points to 1.5% and 1.7% respectively.
Fuest:
The change of growth pace from 2016 to 2017 is only due to a lower number of workdays.
For context, here are the International Monetary Fund’s growth predictions for the G7 in 2017 :
- US: 2.2%
- Germany: 1.4%
- France: 1.3%
- Italy: 0.9%
- Japan: 0.6%
- UK: 1.1%
- Canada: 1.9%
Drugs company Actavis scrutinised over price hikes
The UK’s Actavis is the latest pharmaceutical company to come under criticism from the competition regulator over sharply hiking the price of tablets.
Specifically, the Competition and Markets Authority says Actavis increased the price of life-saving hydrocortisone tablets by over 12,000%. It pushed up the annual cost to the NHS from £522,000 before to 2008 to £70m by 2015.
The tablets are used by people whose adrenal glands do not produce enough steroid hormones, such as those suffering from Addison’s disease.
At the this stage, the CMA’s findings are provisional and no fine has been issued.
It follows the watchdog’s decision last week to impose a record £84.2m fine on Pfizer, after the price charged to the NHS for an anti-epilepsy drug was increased by up to 2,600%.
Read our full story on Actavis here:
FTSE climbs back above 7,000
The FTSE 100 is up five points in early trading.
So it’s a modest gain but takes the UK’s leading index of shares back above the 7,000 mark at 7,002.
Following the excitement of the Fed rate rise and Bank of England policy meeting earlier in the week, markets across Europe are fairly steady.
- FTSE 100: +0.1% at 7,004
- Germany’s DAX: +0.02% at 11,368
- French CAC: -0.1% at 4,815
- Italy’s FTSE MIB: +0.2% at 19,033
- Spain’s IBEX: -0.2% at 9,319
- Europe’s STOXX 600: +0.03% at 359
Updated
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Close attention will be paid to the CBI’s December industrial trends survey at 11am today as it will provide a timely health check on the UK economy as 2016 draws to a close.
Business surveys capture a more recent picture of economic activity than official data, but rely on a smaller sample size and tend to be more anecdotal.
That said, economists and policymakers look to surveys for clues of where the official data might be heading.
The CBI’s manufacturing survey is expected to show a balance of -5% of firms reported a rise in orders in December, worse than November when it was -3%.
One of the issues in recent weeks however is that the official data has painted a weaker picture of the economy than business surveys.
Adam Cole, currency strategist at RBC Capital Markets, says:
Today’s CBI manufacturing survey is worth watching in the light of the very weak October manufacturing output data which marked a poor start to the monthly indicators that will add up to Q4 GDP.
The CBI survey has been less volatile than the manufacturing PMI recently and the consensus for the orders balance (-5) would be consistent with manufacturing out trending no better than flat.
We will bring you the numbers and reaction as it comes in, as well as tracking all the main events through the day.
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