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The Guardian - UK
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Graeme Wearden (until 2pm) and Nick Fletcher

S&P 'sceptical' that UK is ready for interest rate hikes – as it happened

The Bank of England in London.
The Bank of England in London. Photograph: Dan Kitwood/Getty Images

Mixed day for European markets

With stronger than expected services data from the US, Wall Street shrugged off an early dip and continued on its merry way to new records.

It was a different story in Europe, with a more mixed picture. Germany’s Dax edged to a new peak but France’s Cac slipped back, while Spain’s Ibex dropped sharply in the wake of the Catalan crisis confronting the country following the weekend’s violence. The final scores showed:

  • The FTSE 100 finished down 0.53 points or 0.01% at 7467.58
  • Germany’s Dax added 0.53% to 12,970.52
  • France’s Cac closed 0.08% lower at 5363.23
  • Italy’s FTSE MIB fell 1.44% to 22,456.38
  • Spain’s Ibex ended down 2.85% at 9964.9
  • In Greece, the Athens market slipped 0.23% to 750.72

On Wall Street, the Dow Jones Industrial Average is currently up 32 points or 0.14%.

On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.

Here’s Capital Economics’ look at the global economic picture as evidenced by recent surveys:

Spanish market loses nearly 3% on Catalan concerns

In the markets, the standout performance came from Spain’s Ibex, and not in a good way.

Following the weekend violence surrounding the Catalan independence referendum, there is little sign of a resolution to the dispute between the region and the central government. So the Ibex has ended down almost 3%. Chris Beauchamp, chief market analyst at IG, said:

Today’s focus has been relentlessly on the situation in Spain, where Catalonia is seemingly headed for a declaration of independence. As a result, the Ibex remains under heavy pressure, with the index now down 11% from its highs. Geopolitical risk is back on the agenda, with investors shunning Spanish stocks in favour of their German counterparts, as the Dax returns to all-time high.

David Madden, market analyst at CMC Markets, said:

The Ibex 35 has fallen to a mark not seen since March as the uncertainty surrounding Catalan independence is eroding investor confidence. The head of the Catalan separatist movement has pledged to declare independence for the region within days. The Spanish King and Prime Minister oppose this, and the region has been threatened with direct rule. The eyes of the world are on Catalonia and the spike in political tensions is likely to keep investors away.

Updated

US interest rates are likely to rise in December given the strength of recent data, says ING Bank chief international economist James Knightley, barring a failure to resolve the debt ceiling problems. He said:

The US economy looks in great shape based on recent surveys, supporting the Fed’s message that everyone needs to prepare for a higher interest rate environment.

If you though Monday’s ISM manufacturing index was good – highest reading for 13 years, the non-manufacturing ISM index is astonishing. It has jumped from 55.3 to 59.8 – the strongest reading in 12 years.

Admittedly this jump is partly down to a rebound from the recent hurricanes but the strength clearly evident in the details of the report underlines the point that the US corporate sector is in great shape. A strong domestic economy is driving output and new orders while a fairly soft dollar and strong global demand are boosting exports.

The non-manufacturing survey shows business activity jumping five points while new orders jumped six points – the index has only been higher on two occasions in the past twelve years. Employment is also looking very strong at 56.8 versus the 50 break even level, which gives us confidence to assert that any softness in Friday’s payrolls report relating to hurricane effects will be swiftly reversed in coming months.

As such today’s report reinforces our view that the only thing stopping a December hike is the potential for debt ceiling issues coming to a head, risking a government shutdown around year-end. Inflation wise, the price paid component indicates that the decline in inflation rates seen through this year will soon come to an end and the Fed is right to assert that disinflation was merely transitory.

More on what the latest ISM surveys - manufacturing and non-manufacturing - say about the strength of the US economy:

US crude stocks fall by more than expected

US crude inventories dropped sharply last week, and by significantly more than expected.

They fell by 6.02m barrels to 464.96m, compared with expectations of a 0.8m decline. But gasoline stocks grew by more than expected, up 1.64m barrels rather than 1.1m.

But there may be some divergence between the survey and the official data, suggests Nordsea economist Johnny Bo Jakobsen:

Updated

Anthony Nieves, ISM chair, said:

The non-manufacturing sector has reflected strong growth in the month of September despite the impact on the supply chain from the recent hurricanes. Respondents’ comments indicate a good outlook for business conditions.

And here are some comments from the survey:

  • “Hurricane Irma caused a revenue challenge that will take some time to recover from, interrupting business operations in that region and offsetting growth in others.” (Accommodation & Food Services)
  • “Our business continues to grow at a good pace.” (Health Care & Social Assistance)
  • “General outlook looking up, with sales picking up. That will drive spend and investment.” (Information)
  • “Overall, consistent growth in construction/office renovation jobs. Eight percent more jobs and 6 percent more revenue.” (Construction)
  • “Positive business trends continue in second half. Business results above plan and higher year-to-year. Forecast above planned results for 2017.” (Finance & Insurance)
  • “Business still in a down trend due to lack of capital investment in worldwide mining market.” (Mining)
  • “Hurricane Harvey has been a disruption to normal business activity in the oil and gas industry. Refineries and petrochemical plants were shut down due to the storm, as were many offices along the Gulf Coast. Business is just now returning to some sense of normalcy.” (Professional, Scientific & Technical Services)
  • “Continued growth; however, slower pace than in past. Expecting some further disruptions due to weather in Texas and Florida.” (Retail Trade)

US non-manufacturing PMI at 12 year high

In contrast, the Institute for Supply Management service sector survey has come in much stronger than expected.

The ISM non-manufacturing PMI for September was 59.8, up from 55.3 in August and higher than the 55.5 expected by analysts. This is the highest level since August 2005.

The new orders index jumped from 57.1 in August to 63.

pminmi2

Updated

Commenting on the survey, Chris Williamson, chief business economist at IHS Markit said:

Given the disruption caused by recent hurricanes, some pull-back in business activity was understandable, so the resilient reading of the September services PMI makes for encouraging reading.

Looked at alongside the manufacturing PMI, the survey data point to GDP rising at an annualised rate of just over 2% in the third quarter. Growth is largely reliant on the services economy, however, as manufacturing lags behind, struggling in part due to the strong dollar.

USservices4oct

While rebuilding and a return to normal business conditions after the hurricanes will hopefully boost growth in the fourth quarter, it’s worrying to see business expectations about activity levels over the coming year drop in September. Measured across both manufacturing and services, future optimism is at its lowest since February, suggesting companies have become increasingly cautious about the outlook.

However, while optimism has slipped, the ‘hard’ survey data on recent output, new orders and hiring trends remain solid. Combined with the further upturn in price pressures seen in September, the survey data will further fuel expectations that the Fed will be keen to hike interest rates again before the year is out. Average prices charged for goods and services rose at the fastest rate for three years in September, though it’s not yet clear how much of the rise reflected short-term hurricane effects.

UScomp4oct

The first of two US service sector survey’s shows a better than expected outcome, although a slight decline on the previous month.

The Markit final service sector PMI for September came in at 55.3 compared to an initial reading of 55.1, but down on August’s figure of 56.

There was a similar pattern for the composite PMI, up from an initial 54.6 to 54.8 but down on August’s 55.3.

Wall Street's mixed open

As expected the Dow Jones Industrial Average opened marginally lower, but soon regained positive territory.

The Dow fell 3 points initially after its record breaking run, but is currently up 9 points as investors await the latest service sector data. The S&P 500 dipped 0.06% and the Nasdaq Composite edged 0.14% lower.

The non-farm payroll numbers will probably be below the ADP figures, says Ian Shepherdson, chief economist at Pantheon Macroeconomics:

US jobs figures ahead of forecasts

Meanwhile in America, the latest jobs figures have beaten expectations.

Ahead of the non-farm payroll numbers on Friday, a report from payroll processor ADP showed that US private employers added 135,000 jobs in September. This was above the Reuters forecast of a rise of 125,000.

The increase came despite hurricane Harvey and Irma, although the report did show smaller retailers were hit hard by the storms.

If the non-farm figures also come in above estimates, that will give more credence to a possible US interest rate rise before the end of the year.

The better than expected data is not set to help Wall Street, however, with the Dow Jones Industrial Average forecast to open slightly lower after its recent record breaking run.

Shares in Britain’s housebuilders haven’t reacted to another Theresa May announcement - an extra £2bn for the government’s affordable housing programme.

That’s probably because the plan will only make a small dent in Britain’s housing shortage, by building an extra 5,000 social rented homes a year.

Updated

Centrica hits 13-year low after price cap announced

Shares in Britain’s energy providers are sliding, after Theresa May told the Conservative Party conference that the government will introduce a new price cap

Centrica, which runs British Gas, has shed 6% , while SSE are down 3%.

That sends Centrica down to its lowest level since early 2004.

The biggest fallers on the FTSE 100 today
The biggest fallers on the FTSE 100 today Photograph: Thomson Reuters

Andy Sparrow’s Politics liveblog has more details (including the astonishing sight of a comedian handing May a P45 during her speech, and a lot of interruptions for coughing as the PM’s voice faltered).

S&P skeptical over UK interest rate rises

Back in the City, Standard & Poor’s have warned that Britain’s economy may not be strong enough to support an interest rate hike, especially with Brexit looming.

In a new report, S&P argues that the Bank of England has been talking up the idea of rate rises soon, to stop the pound sliding.

S&P says:

We remain a bit skeptical as to how justified such a hike would be in the near term.

One rate rise may come in November, but further increases aren’t justifiable given Britain’s weak wage growth, S&P argues:

Overall, we believe the Bank and Mark Carney’s recent statements are primarily aimed at propping up sterling to reduce imported inflation pressures.

This strategy may include an actual 25 basis point hike in November, thus bringing the policy rate back to where it was before the Brexit referendum. Additional moves in 2018 do not appear warranted on the back of a slowing economy.

S&P also warns that there is a high risk that Britain suffers a disruptive Brexit.

It points to the “tangible lack of progress” in talks with Brussels and the ongoing “infighting within the U.K. political establishment”:

Top risks facing the European economy
Top risks facing the European economy Photograph: S&P

Oxfam’s Head of Inequality Ana Arendar has welcomed the EC’s ruling against Amazon:

“Cosy deals that let companies slash their tax bills show how the global tax system is open to abuse.

“Corporate tax avoidance robs countries around the world of billions each year – money that could be used to fight poverty. Poor countries are hit hardest as they are more dependent on tax revenue from companies to pay for public services like life-saving healthcare and clean water.

“Governments need to tighten tax rules to ensure companies pay their fair share of tax. In the meantime, the UK Government should not delay implementing laws to require British multinationals to publically report their activities for each country where they do business.”

Full Story: EC hits Amazon over illegal state aid

Here’s my colleague Jennifer Rankin on today’s state aid decisions:

Amazon has been ordered to repay €250m (£222m) by EU authorities, after a ruling that the technology company benefited from illegal and unfair state aid from Luxembourg.

The European commission also announced on Wednesday that it planned to take the the Irish government to the European court of justice (ECJ) over its failure to collect €13bn in unpaid taxes from Apple, in relation to an earlier ruling.

Margrethe Vestager, the EU commissioner in charge of competition, said Luxembourg’s “illegal tax advantages to Amazon” had allowed almost three-quarters of the company’s profits to go untaxed, allowing it to pay four times less tax than local rivals.

“This is an illegal practice under EU state aid rules,” Vestager said. “Member states may not grant selective tax concessions to multinational groups to which other companies do not have access.”

The commission said Amazon had benefited from an illegal tax deal granted by the Luxembourg authorities that allowed the company to artificially reduce its tax bill by €250m from 2006 to 2014. The company has been ordered to repay the full amount plus interest.

Amazon rejected the findings of the commission investigation. “We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law. We will study the commission’s ruling and consider our legal options, including an appeal.”

Here’s Jennifer’s full story:

Updated

Ireland’s finance ministry says the EC’s decision to take it to court is “extremely regrettable”.

Dublin insists that it is making significant progress in recovering €13bn of taxes from Apple, even though it doesn’t agree with that ruling.

EC not worried about UK sweetheart deals after Brexit

Q: Are you concerned that there could be a proliferation of sweetheart tax deals in the UK after Brexit?

I don’t see why the situation would change, Vestager replies.

If you don’t have it now, why have it later?

She argues that “political direction and administrative practices” determine what kind of tax system a country runs.

Luxembourg's statement on Amazon tax ruling

The Palais du Luxembourg.
The Palais du Luxembourg. Photograph: Lionel Bonaventure/AFP/Getty Images

Luxembourg has issued a statement, arguing that Amazon did not benefit from state aid (as the EC claim):

Luxembourg has taken notice of the decision by the European Commission in the Amazon case. Luxembourg will use appropriate due diligence to analyse the decision and reserves all its rights.

The decision of the Commission refers to a period going back to 2006. Over time, both the international and the Luxembourg legal frameworks have substantially evolved. As Amazon has been taxed in accordance with the tax rules applicable at the relevant time, Luxembourg considers that the company has not been granted incompatible State aid, as foreseen by article 107(1) of the Treaty on the Functioning of the European Union.

Luxembourg has been fully cooperating with the Commission in its investigation and is strongly committed to tax transparency and the fight against harmful tax avoidance. Luxembourg fully adheres to the OECD/G20 BEPS project, which modernizes international tax rules and creates a global level playing field.

Q: Can member states claim some of Amazon’s €250m tax bill for themselves?

Vestager suggests this is unlikely (ie, because the money should have been paid to the Luxembourg tax offices).

Updated

Q: Could today’s decisions make member states more worried that the EC is interfering in their tax affairs?

Vestager says she hasn’t heard this sort of complaint. Member States understand the importance of an effective tax system in the world of digital commerce and large multinationals.

Amazon: We didn't evade tax

Amazon has rejected the EC’s ruling that it illegally avoided paying enough tax in Europe, and may appeal.

In a statement, it says:

We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law.

We will study the commission’s ruling and consider our legal options, including an appeal.”

Q: The US government is considering changing its tax rules so it can tax the trillions of dollars which are currently parked overseas by American companies. What’s your advice for them?

Vestager declines to advise the US government on this issue. She’s focused on getting Europe’s tax system to work properly.

Q: How did Amazon evade tax in Luxembourg, if it was recording revenues there?

Vestager explains that Amazon’s operating company was paying unacceptably high royalties to the holding company, which lowered its taxable income.

Q: Could this ruling spark a trade war with America?

Vestager denies that the EC is targeting US companies.

Businesses in Europe need to know they are on a level playing field, she replies.

There is no bias in our rulings. They are about ensuring there is competition in Europe, whatever your flag and your ownership.

Onto questions.

Q: Amazon’s behaviour occurred when [Commissioner president] Jean-Claude Juncker was prime minister and finance minister of Luxembourg. So was he guilty, or negligent?

Commissioner Vestager says the EC investigates behaviour by a member state, rather than conducting a criminal investigation trying to incriminate anyone.

Updated

Vestager: Ireland needs to recover Apple's €13bn tax bill

Commissioner Vestager then turns to Apple.

She explains that the EC is taking Ireland to the European Court of Justice, because it has failed to collect a year-old tax bill worth €13bn from tech giant Apple.

Vestager suggests Dublin is dragging its feet on this issue...

“We understand that recovery in certain cases maybe more complex than in others, and we are always ready to assist. But member states need to make sufficient progress to restore competition.

Background: Last August, the EC penalised Apple for having received unfair deals from Ireland that cut its effective corporate tax rate. That ruling was disputed by the tech company, and the government of Ireland.

Vestager insists that the EU isn’t fining Amazon.

We are removing an illegal advantage that it should never have received in the first place, she says.

The message is that all companies need to pay their taxes, as the huge majority of companies do, she adds firmly.

Vestager: Amazon used an 'empty shell' to illegally cut tax bill

Margrethe Vestager says Amazon used an “empty shell” of a holding company in Luxembourg to shift profits out of Europe.

This holding company had no employees and no offices, she says, and wasn’t involved in developing intellectual property. Instead, it was simply there to cut Amazon’s tax bill, and ensure that three-quarters of sales in Europe were untaxed.

This chart from the EU shows how it was done:

EC

Vestager says that Amazon’s tax deal with Luxembourg was unfair, because a local company would have paid four times as much tax on the same profits.

EC: Amazon must repay €250m

NEWSFLASH: The EC is demanding €250m from Amazon, to cover the unfair tax advantages it received from basing its European operations in Luxembourg.

Those tax benefits are ‘illegal under EU state aid rules’, commissioner Margrethe Vestager tells the press conference in Brussels.

She adds:

“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon’s profits were not taxed.

Vestager says Amazon must repay the benefits of that deal, plus interest.

In another move, the EU is also taking Ireland to the European Court of Justice for failing to recover €13bn of tax from Apple, following a ruling against the US tech giant in August 2016.

Over in Brussels, European Commissioner Margrethe Vestager is preparing to give a press conference on state aid.

She’s expected to announce that the EC is hitting Amazon with a tax bill over its ‘sweetheart’ deal with Luxembourg.

You can watch it online here.

Some background. Amazon Europe is based in Luxembourg and aggregates the billions of pounds of sales the retailer makes from individual countries across the continent,

It emerged in August that Amazon paid just £15m in tax on European revenues of £19.5bn which were reported through Luxembourg in 2016.

UK Services PMI: Snap reaction

James Smith of ING is concerned that new business growth cooled last month:

At 53.6, the UK services PMI was a little better than hoped. But dig a little deeper and the key takeaway for us was the fact new business growth is at a 13-month low. With the current PMI roughly indicating growth in the 0.3% region, this latter point means that growth over the next couple of quarters could be equally as sluggish.

Once again, political uncertainty was a key factor in holding back growth.

It is possible that we see some recovery over the next few months; the fact that the UK government is more united behind the idea of a transition period could help unlock some short-term investment. But a lack of full agreement on the terms or length of such an arrangement, or indeed the ultimate Brexit deal, is likely to keep businesses cautious.

Howard Archer of the EY Item Club says the drop in new business will knock growth:

Chris Sood-Nicholls of Lloyds Bank Commercial Banking is encouraged that the headline Services PMI rose last month:

“This slight increase in the index is encouraging, particularly given a backdrop of mixed economic signals.

“The sector still faces a period of uncertainty surrounding Brexit, a sentiment echoed in Moody’s recent decision to downgrade the UK’s credit rating to Aa2 from Aa1. Those consumer facing parts of the sector will also be mindful of the potential for an interest rate rise in the coming months, particularly as we head into one of the busiest trading periods of the year.”

Matt Whittaker of the Resolution Foundation has tweeted a nice graph showing all the PMI data this week:

CIPS: Brexit indecision is spooking businesses

The drop in new orders across the UK’s service sector last month is a serious concern, says Duncan Brock of the Chartered Institute of Procurement & Supply.

He fears that “a stagnation trend” is developing in the sector, with firms unwilling to take risks until they know how Britain’s exit from the EU is playing out.

Brock explains;

Where consumers recovered a little from their spending hesitation last month, it was the turn of businesses to be spooked into inactivity, exerting greater scrutiny over new projects and long-term spending plans.

The pressure of Brexit and resulting uncertainty were at the heart of this indecision.

Markit’s all Sector PMI, which measures growth across the UK economy, has hit its lowest level since the EU referendum, and the second worst in over four years.

UK services growth rises, but Brexit fears hit new orders

Breaking: Growth in Britain’s service sector strengthened last month.

Markit’s services PMI, which tracks activity at thousands of UK firms, has risen to 53.6 for September, up from 53.2 in August.

Any reading over 50 shows growth, so this indicates a small acceleration.

That’s welcome news, following data earlier this week showing that factory growth slowed while construction actually shrank in September.

UK service sector PMI (the blue line)
UK service sector PMI (the blue line) Photograph: Markit

But.... service sector bosses also warned that new orders rose at the slowest rate in 13 months.

Many told Markit that customers were delaying signing off on large projects due to Brexit related uncertainty [something the Lord Mayor of London will understand.....].

Firms were also hit by rising prices, with input cost inflation hitting a seven month high.

That’s due to rising food, energy and fuel bills, alongside increased prices for imported items and greater staff salaries, Markit says.

Chris Williamson of Markit estimates that the UK economy probably only grew by 0.3% in the last quarter -- matching its growth earlier this year.

He explains:

“The services sector saw another month of modest growth, running in the middle ground between the robust expansion seen in manufacturing and the contraction recorded in construction.

The three PMI surveys put the economy on course for another subdued 0.3% expansion in the third quarter, but the fourth quarter could see even slower growth.....

The surveys therefore portray an economy struggling with the unwelcome combination of sluggish growth and rising prices, presenting a dilemma for policymakers.

More to follow....

Eurozone economy continues to power ahead

Just in: Europe’s economic recovery strengthened further last month, indicating that it continues to grow faster than the UK.

That’s according to data firm Markit. Its monthly PMI survey of companies across the region has jumped to 56.7 in September, up from 55.7 in August, which shows the fastest growth in four months.

Germany, Ireland and France led the way, with firms reporting that output expanded and new orders surged. Job creation was also strong, rising at almost the fastest rate in a decade.

No wonder some in the City keep talking about a euroboom....

Eurozone composite PMI
Eurozone composite PMI Photograph: Markit

Chris Williamson, Chief Business Economist at IHS Market says Europe’s economy seems to have grown by around 0.7% in the third quarter of 2017. The jump in new orders suggests growth will remain strong this autumn.

Williamson adds:

“Growth is also becoming increasingly broadbased, which should help make the upturn more sustainable as corporate profits, labour markets and demand improve across the region.

The eurozone therefore looks increasingly able to withstand any political shocks and set for a strong end to the year.”

While the City of London worries about Brexit, the German stock market has just hit a new all-time high.

Britain’s FTSE 100, though, is flat this morning, having hit a seven-week high yesterday.

The Lord Mayor is absolutely right when he says that banks urgently need clarity over Brexit.

Several of the biggest firms in the City have already begun shifting jobs overseas; JP Morgan is buying a new office block in Dublin, for example, and Standard Chartered is opening a subsidiary in Frankfurt.

But as this graph from Bloomberg shows, thousands more jobs could yet move, depending how negotiations play out.

UK Brexit job moves

London's financial district demands Brexit transition deal quickly

Mansion House in London, U.K.

The Lord Mayor of London is urging the UK government to finalise a legally binding Brexit transition period by the end of the year, or risk serious damage to Britain’s financial sector.

Andrew Parmley will warn that banks need to plan ahead, and cannot risk a “cliff edge” Brexit that would badly hurt the UK economy.

Lord Mayor Parmley will issue the warning at the annual City Banquet - a swanky event at London’s Mansion House tonight.

He’s expected to welcome Theresa May’s proposal of a two-year transition deal after March 2019 - calling it a ‘bridge’ to London’s future. But he insists that this is nailed down within three months, so that financial companies have some clarity.

“We owe it to the sector – and to the global financial system – to do all we can not only to maintain our collaborative approach, but to enhance it.

“That is why we cannot have a cliff-edge at the moment of Brexit – businesses must have the certainty of how they will be regulated, and that requires a transition period.

“We welcome the Government’s proposal on transition – this will be our bridge to the future. But the idea must become reality, translated into a legal agreement before the end of the year.

“The longer this is left, the more it damages all our futures – not only in the UK, but the economy right across the EU.

“We also need to know more about the final state, after transition. How can the UK’s most profitable industry be expected to programme its satnav without knowing the destination?”

Parmley also blasted “economically illiterate calls” to impose new cross-border financial barriers between London and the rest of the world.

Parmley’s post is mainly ceremonial*. But he does ‘speak for the City’, and this speech is a reminder that Britain’s financial district isn’t as upbeat about Brexit as certain government MPs, who seem to think we’re re-enacting Agincourt....

Andrew Bailey, CEO of the Financial Conduct Authority and Sam Woods, head of the Bank of England’s Prudential Regulation Authority, are also speaking at tonight’s event. Surely they will touch on Brexit too?

* - correction, the Lord Mayor isn’t unelected, as I wrote earlier. He’s elected by residents and businesses in the Square Mile. Apologies for the error.

Updated

The agenda: Service sector PMIs

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today is services PMI day, when we learn how service sector companies around the globe fared last month.

So, after some underwhelming UK construction and factory data yesterday, we’re about to learn how Britain’s dominant services sector coped in the face of rising inflation and political uncertainty in September

City economists expect little improvement on August, so the PMI could be unchanged at 53.2 - a level that shows steady growth.

Anything below that will heighten concerns that growth is weakening.

Royal Bank of Canada say:

Today’s PMI services report follows weak numbers in both manufacturing (Monday) and construction (yesterday).

It is one of the final clues for the initial estimate of Q3 GDP on 25 October (RBC: 0.2%q/q). We see downside risk to today’s number as well on the back of relatively weak business expectations in recent months

Also coming up today.... European traders will be watching events in Spain again, after Catalonia’s president claimed the region would declare independence “at the end of this week or the beginning of next”.

Last night, the King of Spain weighed in, criticising the ‘irresponsible behaviour’ and ‘unacceptable disloyalty’ of Catalonia’s leaders. Could direct rule from Madrid be next?

CMC Market’s Michael Hewson says:

Having miscalculated so badly with their reaction at the weekend it would appear that Spanish Prime Minister Rajoy is in no mood to compromise and looking to double down. While he is well within his rights under the terms of the law of the constitution it’s difficult to see how this can end in any other way than badly, and for that history may well judge him harshly.

Any further misjudgements by the Spanish government could well also increase the pressure on the EU to come off the fence that it has been so busy trying to stay on, with respect to last weekend’s events.

It could be an expensive morning for Amazon. The European Union’s (EU) competition commissioner Margrethe Vestager is hit the e-commerce giant with a massive bill for back taxes related to its tax arrangement with Luxembourg.

Vestager’s announcement could come at 11am UK time.

In the City, supermarket chain Tesco has reinstated its dividend and reported a 2.2% rise in like-for-like UK sales in the last quarter. Shareholders will get one shiny penny for each share they own - a small benefit, but as they say, every little helps (sorry).

Flooring firm Topps Tiles is also reporting results, and has warned that profits will be at the lower end of expectations.

Here’s the agenda:

  • 9am: Eurozone services PMI for September. Likely to show another month of solid growth, with economists predicting the PMI will be unchanged at 55.6.
  • 9.30am: UK services PMI for September. The City will be hoping that Britain’s major economic sector shrugged off Brexit worries last month.
  • 10am: India’s interest rate decision. Reserve Bank of India is likely to leave borrowing cost unchanged.
  • 10am: Eurozone retail sales. Economists predict a 0.3% rise in September.
  • 3pm: US services PMI. After strong factory data on Monday, will America’s services sector also sparkle? Probably....
  • Tonight: City Banquet at Mansion House

Updated

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