Afternoon summary
With the US closed for Labor Day, let’s have a recap.
World stock markets have begun the week on the back foot after North Korea’s nuclear test on Sunday.
European equities are all in the red this afternoon, with the UK’s FTSE 100 currently down 26 points or 0.35% at 7411.
Asia also suffered, with South Korea’s Kopsi closing down 1.2% and Japan’s Nikkei losing almost 1%.
Gold continues to benefit from the nervousness, trading at their highest levels since autumn 2016.
#Gold extends rally to 12mth high after N Korea Nuke test. Bullion jumped to $1,338/oz, highest level since Sept27. pic.twitter.com/LinZzo1ION
— Holger Zschaepitz (@Schuldensuehner) September 4, 2017
Investors haven’t taken much comfort from today’s developments, including China criticising US president Trump’s threat to break of trade links with countries who deal with North Korea.
Although the City hopes that the crisis can be defused, there is concern that tensions could continue to rise - with South Korea carrying out a simulated attack on North Korea’s nuclear test site.
Joshua Mahony, Market Analyst at IG, says:
Another week, another provocation, as North Korea re-emerges as the key driver of market sentiment this morning. Weakness for Asian markets were provided a predictable precursor to a negative session in Europe, with the FTSE losing ground once more.
Unfortunately there is unlikely to be any end in sight for this current standoff with North Korea, with few options seemingly on the table to demilitarise the regime. One thing is for sure, with North Korea testing increasingly threatening weapons, the growing threat of a nuclear war is going to continue bolstering gold prices, which today hit an almost one-year high.
Meanwhile in the UK, we have seen more signs that Brexit has hit investment in the building sector.
Markit’s construction PMI, showing growth at a one-month low, suggests that growth prospects have weakened -- with commercial construction showing a sharp decline in August.
Markit/CIPS UK Private housing activity grew in August but infrastructure was broadly flat & commercial activity fell again.#construction pic.twitter.com/Dzqcyzs9eb
— Noble Francis (@NobleFrancis) September 4, 2017
Tomorrow, we get a flurry of service sector surveys from across the globe, which will show whether Britain’s services firms also had a tough August.
And that’s all for today. Thanks for reading and commenting. GW
Sainsbury's: Brexit disruption could leave food rotting at border
The boss of one of Britain’s biggest supermarket chains has warned that food could be left to rot at the UK border after Brexit.
Mike Coupe, the CEO of Sainsbury’s, told the Press Association that it was important that supply chains kept running smoothly once Britain has left the European Union.
Otherwise, new custom checks could cause delays which drive costs up -- and make it harder to get products onto the shelves.
Coupe said:
“If you take our fresh produce supply chains, for example, we put things on a lorry in Spain and it will arrive in a distribution centre somewhere in England, and it won’t have gone through any border checks.
“Anything that encumbers that has two effects: it adds cost, and it also has a detrimental effect on freshness - if you’re shipping fresh produce from a long distance, even a few hours of delay can make a material impact.”
Updated
Staff from the McDonald’s fast food chain have held a rally outside parliament today, to mark the company’s first ever UK strike.
Here’s a photo from the scene....
...and one from the McDonald’s store in Crayford, in London, where staff walked out this morning (alongside staff from Cambridge).
The strikers are demanding that McDonalds’ stops using zero-hours contracts by the end of the year, and raises its minimum wage to £10 per hour.
The company insists that it already pays more than the national living wage (£7.50 per hour for those over 25), and will offer all staff the option of a permanent contract by teh end of 2017.
But although the strike only affects two stores, it could be a sign that discontent among McDonalds is bubbling up.
Dr Jonathan Lord, Lecturer in employment law at the University of Salford Business School, explains:
“It is no coincidence that the 4th September is Labor day in the US and that for the first time McDonalds employees in the UK will take industrial action in a dispute over pay and contracted hours.
“The strike has been coordinated on Labor Day in solidarity with other workers who are in dispute against fast food giants around the world. The publicity garnered from the strike, on an important date in the US companies calendar, will signify that McDonalds can no longer guarantee peaceful industrial relations with their workers who are determined to improve conditions not only in the two stores on strike but for the rest of their allies in the Bakers, Food and Allied Workers Union (BFAWU).
“McDonalds themselves do not seem to be concerned about the industrial action, highlighting that only a small number of their employees who represent less than 0.01% of the workforce are intending to strike in two of their 1,270 UK restaurants.
“This is dangerous rhetoric though, as we have seen from previous industrial disputes in sectors where they would not normally occur as they can manifest into potential problems for organisations if they are not addressed swiftly and satisfactorily. Industrial action has severely declined over the last 100 years with the Office for National Statistics (ONS) highlighting that only 322,000 working days were lost to strikes in 2016 compared to 29 million in 1979.
Today’s PMI report shows that the UK building sector risks sliding into recession, warns Sam Tombs of Pantheon Economics.
More here, by my colleague Richard Partington.
Updated
This chart highlights how commercial building projects, and civil engineering work, both weakened last month:
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In other news, investor confidence in the eurozone has risen this month.
Sentix’s barometer of investor morale beat forecasts by rising to 28.2 for September, suggesting that Brexit isn’t causing much angst across the Channel.
🇪🇺#euroarea #Sentix rises to 28.2 in Sept, as #NorthKorea tensions and #EUR strength is not weighing on investor confidence yet pic.twitter.com/kQKsakFPNg
— Danske Bank Research (@Danske_Research) September 4, 2017
Robert Grigg, managing director of Property Finance at Hampshire Trust Bank, blames “ongoing economic and political uncertainty” for the slowdown in Britain’s building sector.
Grigg adds:
Though today’s data shows residential housebuilding has bucked the trend, we still need to ensure SME housebuilders are given both government and financial support in order to build their businesses and increase the number of homes in the UK - which is essential to solving the ongoing housing crisis.”
Updated
This slowdown in Britain’s building sector may be a warning signal for the wider economy, says Jeremy Cook, chief economist at WorldFirst.
“In stark contrast to Friday’s manufacturing sentiment numbers, the construction industry is looking very down in the mouth as a result of slowing government spending, uncertainty over Brexit and risks to the UK’s macroeconomic landscape.
While imprecise, this could be used as a microcosm of the UK investment picture in a post-EU referendum atmosphere.”
[Reminder: the UK factory PMI rose strongly in August, according to data released on Friday]
Britain’s building sector is now feeling the impact of drop in orders last year, says Noble Francis of the Construction Products Association.
New construction investment fell sharply in the 2nd half of 2016 & it is clear that it is now feeding through.#construction #ukconstruction https://t.co/WGNb54zt0d
— Noble Francis (@NobleFrancis) September 4, 2017
Simon French of City firm Panmure Gordon also points out that new construction orders have been sliding for many months.
Softer UK #Construction PMI bringing soft data in line with new orders data that has been slowing since Q4 2016: https://t.co/JoY5WSiZwl pic.twitter.com/vXv3G5ouLN
— Simon French (@shjfrench) September 4, 2017
Updated
Expert: Brexit is to blame
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, believes Brexit uncertainty is hurting the UK construction sector.
He writes:
“The sector hit a roadblock this month as purchasing activity slowed for the third month and new business wins were hard to come by. Reduced Government spending, economic uncertainty and Brexit-delayed decision-making among clients were largely to blame.
“The struggling commercial sector drove this disappointment, languishing under the pressure with the fastest drop in activity in over a year. Job creation was nothing to shout about and showed signs of a slowdown, as companies reined back additional spending.
However, the “strong performance” by housebuilders has helped avoid a sharper slowdown.
Markit’s survey shows that Britain’s commercial building sector is shrinking at its fastest pace since last June’s EU referendum.
That’s a worrying sign, suggesting that companies are cutting back on spending.
UK commercial #construction output slumped for a 2nd successive month in Aug. Bodes ill for the economy & investment https://t.co/tBaIMoWBwn pic.twitter.com/TMbwjMTVGl
— Chris Williamson (@WilliamsonChris) September 4, 2017
UK construction growth hits one-year low as economic worries build
Breaking! Growth in Britain’s building’s sector has fallen to its lowest level in a year.
Markit’s construction PMI, just released, has dropped to 51.1 in August - down from 51.9 in July.
That’s worryingly close to the 50 point mark that shows stagnation, and the weakest reading since August 2016.
Commercial construction had a particularly bad month, while residential house building was stronger.
Markit says that worries over the strength of the UK economy are hurting the sector.
Civil engineering activity was close to stagnation and commercial work dropped at the fastest pace since July 2016. Reports from survey respondents widely suggested that concerns about the UK economic outlook had weighed on the commercial development sector, with clients opting to delay spending decisions and, in some cases, scale back planned projects.
More to follow....
Updated
Although equities are down around the globe, and gold is up, we’re not looking at a major rout in the markets (yet, anyway).
Investors may be calculating that diplomacy might yet carry the day and military conflict can be avoided. Also, nuclear war is such a terrible outcome to consider ‘pricing in’, so traders will obviously hope it can be avoided.
Hussein Sayed, chief market strategist at FXTM, suspects that the markets may rebound soon, even though Sunday’s nuclear test is the biggest one yet recorded by North Korea.
Sayed says:
The markets’ reaction seems similar to when missile launches have taken place in the past; investors sell stock, rush to safe havens, assess the situation, and then buy the dips as tension eases. While stocks fell in Asia, the selloff was not massive, mainly because the nuclear test occurred over the weekend and there was enough time to digest the news.
An H-bomb is undeniably different from the previous missile launches or nuclear tests; it’s a game changer for North Korea’s deterrent strategy. However, the biggest question to investors remains - what’s next? Will the tensions lead to negotiations, or war?
Precious metals producers Randgold and Fresnillo are defying the selloff.
Both companies are up 2% this morning in London, following the jump in the gold price to a 10-month high.
European markets open in the red
European stock markets have all fallen at the start of trading, as traders worry about North Korea.
Germany’s DAX is leading the selloff, down 0.66%.
Although there’s no sign of immediate military action, the rising tensions are creating a ‘risk off’ mood in the markets this morning.
Naeem Aslam of Think Markets says:
North Korea has further escalated the geopolitical tensions over the weekend and the US has called for an emergency meeting of the U.N council. For investors, this does not present a stable environment for investing.
North Korea’s latest missile test is overshadowing China’s latest gathering of leading emerging economies such as Brazil, Russia and India.
That will surely irritate China’s president, Xi Jinping, as the Brics summit is a key platform for Beijing’s international ambitions. Yesterday, Xi warned that “incessant conflicts in some parts of the world” were threatening global piece.
Fiona Cincotta of City Index says the timing underlines Kim Jong Un’s ‘extraordinary’ defiance, and could provoke a response from China.
Whilst he knows the US will no doubt implement further economic sanctions, this time he risks the wrath of China, the only county that could potentially strangle North Korea’s economy.
North Korea carried out the nuclear test on Sunday with full knowledge that it would enrage Beijing, with the timing threatening to overshadow the BRIC summit hosted by Chinese President Xi. Yet the rogue state paid little regard to this, which is concerning as it means there appears to be little preventing Kim Jong escalating the tension further.
Here’s more details on the Brics summit:
Updated
My colleagues around the world are live-blogging the latest developments in North Korea here.
Gold jumps to 10-month high
The gold price has hit its highest level in almost a year, as North Korea’s latest weapons test drives investors into ‘safe haven’ assets.
Bullion is changing hands at $1,337 per ounce, its highest level since last November - when Donald Trump’s shock election win rattled the markets.
Mike van Dulken of Accendo Markets says gold is the “major beneficiary” from rising tensions in the Korean peninsula.
Expect North Korean rhetoric to heavily influence the safe haven asset throughout the day as global leaders react to the latest provocations.
The agenda: North Korea tensions hit shares
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s back to school in the UK after the summer break. But City workers are back to fretting about North Korea after it tested what it claimed was a powerful nuclear bomb on Sunday.
Pyongyang’s latest provocation comes just a few days after it fired a missile over Japan.
So with the US threatening a ‘massive military response’, and South Korea simulating its own reaction, there’s plenty to worry investors this morning.
As Craig Erlam, senior market analyst at OANDA, puts it:
Financial markets are back in risk aversion mode on Monday after the latest nuclear test from North Korea on Sunday triggered the usual safe haven rush.
Asian markets have already been hit; Japan’s Nikkei dropped by almost 1% as nervous traders drove up the value of the yen.
European stock markets are also expected to follow suit too, with falls of around 0.5% expected.
Rob Carnell, ING’s head of Asian research, says:
“Like a bad horror movie, the North Korea saga intersperses moments of calm, with occasional action to jolt you out of your chair.”
However, Carnell reckons it could be a good buying opportunity for investors - unless the situation really does deteriorate (via Reuters).
US traders won’t be able to react today, though, as New York is closed for the Labor Day holidays.
Our European opening calls:$FTSE 7428 -0.14%
— IGSquawk (@IGSquawk) September 4, 2017
$DAX 12078 -0.53%
$CAC 5100 -0.46%$IBEX 10281 -0.43%$MIB 21753 -0.48%
Investors are also awaiting a new healthcheck on Britain’s building sector. Markit’s construction PMI is expected to remain close to July’s 11-month low of 51.9 in August.
We’ll also be watching McDonalds, where workers at two stores are protesting about the fast food chain’s low pay and zero-hours contracts.
Here’s the agenda:
- 9:30am BST: Eurozone Sentix investor Confidence for September
- 9.30am BST: UK construction PMI report for August
- 10am BST: Eurozone producer prices index for July
Updated
