European markets end higher
Despite weak Chinese data over the weekend and a drop in the oil price, investors pushed stock markets higher ahead of this week’s raft of central bank meetings.
The poor Chinese retail sales and industrial production figures only served to suggest there could be further stimulus measures from the country’s central bank to boost its economy. So for the moment we are in bad news is good territory once more.
As for the oil price, the slide below $40 a barrel for Brent did not upset the generally positive mood. Joshua Mahony, market analyst at IG, said:
Today has marked a positively tranquil start for European markets, which have been grinding higher following on from the post-ECB rally seen last week. Tentative signs of weakness in the crude markets have sent jitters across the commodity space, with energy, precious metals and base metals all suffering on the day.
This decoupling of commodity prices and equity markets highlights a possible end to the direct linkage between crude and stocks which has dominated the trading landscape over recent months.
The upbeat mood follows last week’s stronger than expected stimulus measures from the European Central Bank, but now all eyes are on the Bank of Japan, US Federal Reserve and Bank of England, all of whom meet this week. So more volatility is likely in the coming days, but for the moment, the final scores for the day showed:
- The FTSE 100 finished up 34.78 points or 0.57% at 6174.57
- Germany’s Dax added 1.62% to 9990.26
- France’s Cac closed 0.31% higher at 4506.59
- Italy’s FTSE MIB was virtually unchanged, down just 0.03% at 18,981.77
- Spain’s Ibex ended up 0.57% at 9142.7
- In Greece, the Athens market added 0.37% to 566.20
On Wall Street, the Dow Jones Industrial Average is currently 18 points or 0.11% higher.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
The negative news for the oil price continues. After Opec said excess supply would be higher than previously thought this year and Iran dashed hopes of a co-ordinated cut in output, came reports that US crude stockpiles continued to rise.
Information firm Genscape said inventories at Cushing in Oklahoma, the delivery hub for US crude, rose by 585,854 barrels, according to Reuters.
So Brent crude continues to sit in negative territory, down 2.6% to $39.32 a barrel, although off its worst levels of the day of $38.82. West Texas Intermediate, the US benchmark, is down nearly 4% at $36.97.
Oil continues to slide:
Rinse, repeat: #Oil prices fall sharply on oversupply concerns https://t.co/pm94QwGopk pic.twitter.com/n8e8iWKcDp
— Pedro da Costa (@pdacosta) March 14, 2016
Anyone waiting for the ‘major announcement’ from Bangladesh after cyber thieves stole $81m from the central bank’s accounts.....will have to wait a little longer it appears.
To recap, the country’s finance minister Abul Maal Abdul Muhith has heavily criticised Bangladesh Bank for not alerting the government to the theft earlier, and said a statement concerning the central bank would be made shortly.
However Reuters is reporting that the announcement will now be made on Tuesday rather than today. It says central bank governor Atiur Rahman has been in India for a conference and arrived back late on Monday.
Opec expects oil surplus to grow further in 2016
Opec’s monthly oil report has kept its overall forecast for growth in crude demand unchanged at 1.25m barrels a day for 2016.
But it has cut its estimate for demand for the organisation’s own crude, and says its forecast that supply from non-Opec producers will decline by 700,000 is becoming more uncertain. It said rival producers were still trying to maintain output despite low prices.
So it expects excess supply in 2016 to increase to 760,000 barrels a day from the previously anticipated 720,000.
Some Opec producers have proposed freezing output at January levels, with a meeting between its members and other producers such as Russia reportedly planned for Doha in April. But Iran, which has just returned to the world stage following the lifting of sanctions, is believed to be reluctant to agree to a freeze.
Overall Opec said its output fell by 175,000 barrels a day in February to 32.28m barrels compared to January.
OPEC: Global Oil Demand Growth For 2016 Unchanged At Around 1.25mln BPD, To Average 94.23mln BPD
— Livesquawk (@livesquawk) March 14, 2016
OPEC: 2016 Demand For OPEC Crude Is Expected At 31.5mln BPD, 0.1mln BPD Lower Than Last Month, And 1.8mln BPD Higher Than Last Year
— Livesquawk (@livesquawk) March 14, 2016
OPEC: Crude Oil Futures Recovered In Feb Amid Numerous Positive Factors That Ignited Speculations That Oil Markets Would Soon Be Balanced
— Livesquawk (@livesquawk) March 14, 2016
The Opec report comes after the International Energy Agency said last week it believed oil prices - which have slumped on a glut of supply and falling demand - might have bottomed out.
Brent crude is currently down 3% at $39.17.
Updated
Last week’s European Central Bank announcement included - as well as a further rate cuts - the proposal to buy bonds through its QE programme issued by companies and not just financial institutions. Here is a note of what has been bought so far through the QE programme:
CHART: Assets purchased by #ECB under QE program, as of last week. Acceleration: next month. https://t.co/pr1PPZM5Xa pic.twitter.com/2nwbg289Ll
— Maxime Sbaihi (@MxSba) March 14, 2016
Another big share mover today is GW Pharmaceuticals, a pharmaceutical business which develops cannabis-based treatments.
Its shares have more than doubled after news that its Epidiolex drug had significantly reduced seizures in patients with Dravet syndrome, a type of epilesy for which there are currently no treatments approved in the US, compared to a placebo.
The full story is here:
The Starwood news has also prompted thoughts of further consolidation in the sector, helping push up shares in UK-listed InterContinental Hotels by more than 4% to £28.45.
Updated
Shares in hotel chain Starwood have soared in early New York trading, after a Chinese consortium launched an audacious $13bn takeover bid.
Chinese insurance group Anbang is leading the group, which is proposing to pay $76 per share in cash for Starwood, which owns the Sheraton, St Regis and W Hotels chains.
That may have come as a nasty shock to Marriott, which reached an agreement to acquire Starwood last November at an estimated $63.74 a share.
Starwood has said this new offer is “highly conditional and non-binding”. But Wall Street reckons it is serious, sending the group’ shares up 6.6% to over $75...
The US stock market has just opened for the week, surprising any European who didn’t realise America put its clocks forward yesterday (ahem).
Shares are dipping in early trading, with the Dow Jones industrial average dropping 26 points or 0.15%.
Investors may be cautious ahead of this week’s two-day Federal Reserve meeting, which culminates with a press conference on Wednesday afternoon.
Marc Ostwald of ADM Investor Services says the Fed faces a “delicate balancing act” this week.
They will want to sound cautious about the economic outlook, without causing panic, while also probably predicting three rate rises this year.
The fact that markets only discount a 20% chance of a rate hike in April, and a 43% probability of a June move, highlights that this delicate balancing act will be no easy task.
Berenberg: Brexit means lower growth, and PM Boris
Germany’s Berenberg has become the latest bank to predict turmoil if Britain votes to leave the European Union.
In a new report, Berenberg identified the usual risks, including a weak pound, slower growth, and a sharp hit to business confidence.
It also floated the prospect of London mayor Boris Johnson ending up in Number 10 Downing Street.
Here’s the key points from Berenberg’s Kallum Pickering:
· In the short-run, a vote for Brexit would be a demand-side shock: A sharp rise in uncertainty would harm business and household confidence, causing investment and spending to decline. Growth slows (recession possible), unemployment rises, the Bank of England (BoE) loosens monetary policy and fiscal deficits rise.
· Our key tail risk – a sterling crisis: A loss of confidence by markets leads to a run on sterling. This remains a low-probability event. But we cannot rule it out given the UK’s serious twin deficits. It would probably require the BoE to hike, despite weak demand, in order to support the pound, counter inflation and keep capital in the country.
· In the long run, we are still alive: Eventually, growth would return to more-normal patterns. But slower population growth, weaker investment and limits on free trade would likely reduce the UK’s potential growth rate – the size of this shock would depend on the new trade agreements with the EU and other countries.
· Boris for Prime Minister: David Cameron would likely resign as Prime Minister, creating turmoil in the Conservative Party. Boris Johnson would likely win a leadership battle against other prominent “outers” in the Conservative Party. Anti-UK parties in pro-EU Scotland would push for another referendum – with a modest to high chance that a new vote ends in Scotland leaving this time.
· Norway style? The UK will likely try to strike a deal for preferential access to the EU market. Of the three most likely options, Norwegian-style membership of the European Economic Association (EEA) would be the least bad. But this might not be on offer. And, even if it were, the UK might have to accept serious concessions that are far worse than those which Mr Cameron’s new “in” terms avoid. EEA membership would give the UK autonomy over its external trade policy towards non-European Union countries, which it does not have currently as an EU member. But the UK on its own may lack the clout to strike better deals with Asia and the US than the much bigger EU can.
Egypt’s stock market has soared by 6% following the surprise devaluation of the Egyptian pound this morning.
Investors are confident that the move will help Egypt’s economy, by attracting overseas capital back to the country. But it’s also likely to be inflationary, so Egyptian businesses and consumers should expect higher borrowing costs soon.
Jason Tuvey, a Middle East economist at Capital Economics, told Reuters that:
“Inevitably there will be short-term pain as inflation rises, and the central bank will hike rates at its meeting on Thursday, probably in the order of 100 basis points.
But in time the devaluation will bring benefits to Egypt...and encourage foreign investors back to the country.”
Anglo Irish Bank's former CEO back in Ireland to face charges
A former top Irish banker appeared in a Dublin court today, to face charges relating to the collapse of one of the country’s fallen lenders.
David Drumm, former CEO of Anglo Irish Bank, was arrested in the early hours of Monday after arriving at Dublin Airport. He had fought attempts to extradite him from the US for several months, before dropping his legal challenge in February.
Prosecutors are arguing that Drumm should not get bail, as our Ireland correspondent Henry McDonald reports:
The 49-year old was formally charged at a north Dublin police station after arriving at Dublin airport from Boston on Monday morning .
Drumm is accused of forgery, conspiracy and false accounting for loans in 2008 designed to rescue Anglo Irish Bank’s share price. The Dublin-born banker denies any wrongdoing. The charges carry prison sentences ranging from a maximum of five years, up to an unlimited term of imprisonment.
Anglo Irish played a crucial role in the Irish property boom, which collapsed after the financial crisis. The bank was nationalised in 2009, after sinking under billions of euros of bad property debts.
Henry explains:
After the rescue of Anglo Irish Bank, it was nationalised and renamed the Irish Banking Resolution Corporation.
The sharp practices at the bank during the Celtic boom, when it became the major financier for overstretched Irish developers and investors playing the global property market, caused national outrage in Ireland.
European stock markets are all comfortably higher as City traders’ minds turn to lunch.
After a fairly quiet (ok, dull) morning, the FTSE 100 is up 20 points, with mining stocks still among the biggest risers.
And the German DAX is still the standout performer, as Sunday’s state elections fail to spark a panic in Frankfurt.
The prospect of more stimulus measures out of China soon are pushing shares higher, says Alastair McCaig, market analyst at IG.
Monday is likely to be the calm before the storm as a dearth of corporate and economic data will see traders scratching around for a sense of direction ahead of this week’s UK budget and the FOMC’s interest rate decision.
Confirmation that China is set to return to its policy of infrastructure spending and equity market support has been as good an excuse as any to see the bulls hold the early morning upper hand. Unsurprisingly, as the Asian beast looks to be awakening from its slumber, the mining sector has been the major beneficiary in the FTSE.
Updated
Morgan Stanley have also scrapped its prediction that the US central bank would raise interest rates three times in 2016.
It now only expects a single hike from the Federal Reserve, in December, reflecting the US economy’s weaker growth prospects.
In today’s report, they say:
In the US, our economists look for the Fed to delay its next rate hike until the December 2016 FOMC meeting – a big change from their previous expectation of three hikes this year. Our economists expect quarterly real GDP growth to stay below 2.0% through 2017.
We’ll find out on Wednesday if Fed policymakers have changed their own expectations, when the results of this month’s meeting are released.
Morgan Stanley: Recession risks have risen
Morgan Stanley has slashed their forecasts for global growth, and warned that the risks of a global downturn have increased.
In a new report, analyst at the Wall Street bank cautioned that:
Growth remains weak and the probability of a global recession has risen.....
Our economists are below consensus on global, emerging markets and developed markets growth and have raised their probability of a global recession within the next 12 months to 30%.
They cut their prediction for growth across the world’s 10 largest countries to just 1.5%, down from 1.8%, and halved its forecast for Japanese growth.
MS also forecast much deeper recessions in Brazil and Russia this year, reflecting gloom over emerging market prospects.
It’s a timely reminder for global central bank chiefs in the UK, US and Japan as they gather to set monetary policy this week.
Indeed, MS warns that central bankers are losing the power to keep economies on track.
Central banks hold a declining number of less effective policy tools. Their latest foray, negative rates, may do more harm than good. How bad is it if central banks are powerless to boost the economy? Well, it clearly isn’t good. But it also isn’t as “unprecedented” (and therefore bad) as often portrayed.
Prior to 2010, central bank easing was usually unable to stop market declines (2002, 2008). And this makes sense; policy can’t change the course of the underlying economy, it can only nudge it one way or the other.
Updated
Bloomberg agrees that this is a big week for monetary policy, but doesn’t expect any interest rate hikes or cuts:
A big week for central banks @Bank_of_Japan_e, @federalreserve, @bankofengland all expected to keep rates unchanged pic.twitter.com/ZiuoPAV2zV
— BSurveillance (@bsurveillance) March 14, 2016
Here’s more details of the surprisingly decent eurozone factory data, from Howard Archer.
There were widespread gains in output across sectors in January. In particular, capital goods output jumped 3.2% month-on-month while there were also healthy month-on-month gains for consumer non-durables (2.4%), durables goods (1.3%) and intermediate goods (0.9%).
Additionally,energy output rebounded 2.4% month-on-month in January after a dip of 3.4% month-on-month in December when the weather was unseasonably mild.
Among the major Eurozone countries, industrial production saw large month-on-month increases in January in Germany (2.9%), Italy (1.9%),France (1.4%) and the Netherlands (2.1%). There was also a mightily impressive jump of 12.7% in Ireland. However, Spanish output edged down 0.2% month-on-month in January.
Updated
Eurozone factory output beats forecasts
Boom! Eurozone factories have reported a surprisingly strong increase in factory output.
Industrial production across the single currency region surged by 2.1% month-on-month in January, and was 2.8% higher than a year ago.
That’s an encouraging signal for Europe’s lacklustre economy, which appeared to slow at the start of this year.
Euro area industrial production +2.1% in Jan 16 over Dec 15, +2.8% over Jan 15 #Eurostat https://t.co/JOUNw9vRbr pic.twitter.com/I2BVCrfFn8
— EU_Eurostat (@EU_Eurostat) March 14, 2016
City economists, such as IHS’s Howard Archer, are impressed:
Boost to Q1 2016 #Eurozone #GDP growth prospects as #industrial #production spikes 2.1% m/m in January with strong gains in all sectors
— Howard Archer (@HowardArcherUK) March 14, 2016
Big beat of expectations. https://t.co/kJOMNJSMbu
— Duncan Weldon (@DuncanWeldon) March 14, 2016
No immediate market reaction, though - with shares still comfortably up this morning.
Very strong European output (2.1% vs 1.7% fcst) with upward revision. Markets ignore it.
— Burnett Tabrum (@BTabrum) March 14, 2016
Bangladesh plans 'major announcement' after cyber raid
Over in Bangladesh, the government has lashed out at the central bank after cyber thieves pinched $81m from its accounts.
Finance Minister Abul Maal Abdul Muhith has promised a ‘major announcement’ shortly, and heavily criticised Bangladesh Bank for not alerting the government to the theft earlier.
As we covered last week, the funds were lifted from an account with the Federal Reserve Bank of New York last month. The hackers nearly stole $1bn, but authorities noticed they had misspelled ‘foundation’ as ‘fandation’ and halted the transfer.
Muhith is fuming about the affair, telling reporters that:
“Bangladesh Bank has the audacity not to inform me.....
I am very unhappy about it. The handling of the matter by Bangladesh Bank is very incompetent.”
Bangladesh's central bank is branded "incompetent" after hackers steal $101 million https://t.co/6oLoQnCiAq pic.twitter.com/7uBwkAXoud
— Bloomberg Business (@business) March 14, 2016
Brent crude oil has fallen back below $40 per barrel this morning, after Iran sank hopes of a co-ordinated production cut.
Tamas Varga, oil analyst at London brokerage PVM Oil Associates, explains (via Reuters):
“Oil is down because Iran said they would only join the output freeze group once they reached production of 4 million barrels a day (bpd).”
Brent had hit a three-month high last week, partly due to speculation that producers might agree to slow their pumps.
Today’s fall is good news for consumers, but worrying for central bankers as they struggle to get inflation up.
Brent crude oil is $40 as a drop in U.S. rigs offsets Iran's supply plans https://t.co/hl3FqkmWV3 pic.twitter.com/BTKj5lMDmO
— Bloomberg Business (@business) March 14, 2016
Updated
Egypt announces devaluation
Egypt’s central bank has just fired another shot in the currency wars, by devaluing its currency.
In an unexpected move, the Egyptian Central Bank cut the value of the Egyptian pound by around 13%. That means one US dollar is now worth 8.85 Egyptian pounds, up from 7.73 before.
The move follows a worrying drop in Egypt’s foreign exchange reserves.
The Financial Times’s Cairo correspondent, Heba Saleh, explains why that matters:
Falling foreign currency inflows have been strangling businesses and threatening imports of basic necessities including medicines. A terrorist bomb that downed a Russian airliner caused a sharp drop in tourist numbers exacerbating already dollar shortages.
Egypt’s central bank also announced it would follow a “more flexible exchange rate policy” - which looks like an admission that it will allow the currency to keep weakening.
Egypt Central Bank to Adopt More Flexible Exchange Rate
— Luis Benguerel (@LuisBenguerel) March 14, 2016
@notayesmansecon Yep pic.twitter.com/U1t8803XDh
— Gavin Maguire (@RtrsAgAnalyst) March 14, 2016
German DAX hits two-month high
In Frankfurt, traders have responded to Angela Merkel’s drubbing at the polls...by sending shares soaring.
The DAX index has jumped over the 10,000 point mark for the first time since mid-January, making it the best-performing stock market today.
Every share is up, with semiconductor firm Infineon Technologies and carmakers Volkswagen and Daimler all up 2.5%.
You might have expected shares to suffer from the news that the governing CDU party lost two state elections yesterday. But some analysts argue that those defeats don’t reflect too badly on its leader.
Our Berlin bureau chief Philip Oltermann explains:
During the campaign, CDU candidates in all three states had distanced themselves to varying degrees from their leader’s strategy for the refugee crisis.
The politician who won in Baden-Württemberg’s, Green state premier Winfried Kretschmann, had passionately defended the German chancellor’s open-borders stance, stating in one day that he was “praying every day” for her wellbeing.
CHART: Yes, #Merkel lost a few feathers yesterday but remains very popular. Just look at her approval rate. #wahlen pic.twitter.com/dbpPt3vV3x
— Maxime Sbaihi (@MxSba) March 14, 2016
A breeze of optimism has pushed shares higher in London this morning.
The FTSE 100 has jumped by 44 points, or 0.75%, to 6184 points. That adds to the 103-points jump recorded on Friday, as traders (belatedly) welcomed the European Central Bank’s latest stimulus package.
Mining stocks are leading the rally, which is usually a sign of optimism about growth prospects and the (slowing) Chinese economy.
Mike van Dulken, head of research at Accendo Markets, says traders are expecting Chinese authorities to deliver more stimulus measures - after last weekend’s poor industrial production and retail sales figures.
At odds with the old adage “no news is good news”, it would appear it’s more a case of “all news is good news” when it comes to China.
China’s stock market has also enjoyed a solid day, with the Shanghai Composite index closing 1.7% higher.
The rally was sparked by hopes of fresh intervention from Beijing, after a Chinese regulator said it’s too early to consider withdrawing government bailout funds from the market.
That helped traders to ignore the latest disappointing Chinese economic data, which showed a sharp slowdown in retail sales (to +10.2%, from +11.1%).
Industrial production growth also weakened, to 5.4% from 5.9%.
Chinese data dreary-industrial/retail miss over weekend,but hey,who cares when regulator says gonna support stocks!? pic.twitter.com/u07nEzUluQ
— Caroline Hyde (@CarolineHydeTV) March 14, 2016
Updated
Asian markets rally
Shares have pushed higher across Asia as the rally that began in Europe last Friday continues.
In Japan, the Nikkei jumped by 1.75% to close at 17,233, a one-week high.
There were similar gains at other bourses, as investors begin the week in good spirits ahead of this week’s flurry of central bank meetings.
Bernard Aw, market strategist at IG in Singapore, says traders are hopeful that US interest rates remain unchanged for a few more months:
“Investors seemed more confident that there is little chance of a March Fed hike this week, but they are anticipating some sort of guidance at the press conference.”
Introduction: Central banks in focus, plus OPEC oil report
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After last week’s fireworks from the European Central Bank, the world’s other top central banks get their time in the spotlight this week.
The Bank of Japan (Tuesday ), the US Federal Reserve (Wednesday) and the Bank of England (Thursday) will all ponder how to set monetary policy to guide their respective counties forward - through the malaise of the global economy.
Mario Draghi has set the bar pretty high, by announcing rate cuts and fresh stimulus measures last week. Could the BoJ follow suit? It’s not impossible, given Japan’s persistent deflation and low growth problems.
Alastair Winter, chief economist at City bank Daniel Stewart, explains:
Recent developments have suggested Prime Minister Abe is applying pressure for even more ‘growth-friendly’ interventions, especially as Consumer Confidence last week added to the list of dismal data.
BoJ Governor Kuroda has become quite skittish of late and his recent remarks that all was going well could presage a further bout of easing, albeit perhaps not this week.
A few month ago, investors had expected the Federal Reserve to raise rates at this week’s meeting. That’s now unlikely, given the recent signs of weakness in the global economy.
As this chart shows, economists expect the first rate hike in June - but they have been wrong before....
More economists in a @WSJ survey see the Fed waiting until June to raise rates https://t.co/pnAibJWzpE pic.twitter.com/YgvAoAzZd9
— WSJ Central Banks (@WSJCentralBanks) March 14, 2016
Either way, Fed policymakers will provide new economic forecasts and rate hike predictions, so we’ll get an insight into their mood.
But don’t expect too much from the Bank of England; its likely to leave interest rates at just 0.5%, extending a pattern that began in March 2009.
Winter again:
Meanwhile, Governor Carney has in the past also been criticised for sending out false signals but he has been more consistent recently and, having resisted negative rates and more QE hitherto, is most unlikely to announce any changes on Thursday.
So the long period of record low borrowing costs is likely to continue:
Also coming up today...
OPEC, the oil cartel, is due to publish its latest monthly report today (probably before lunchtime)
In the UK, chancellor George Osborne should be putting the finishing touches to his budget, due on Wednesday. It’s likely to be a gloomy affair, with Osborne already admitting that he’ll make £4bn of fresh cuts.
And yesterday’s German state elections may have some impact on the markets. Chancellor Angela Merkel’s CDU party lost two state seats, with both pro and anti-refugee parties making ground.
Not much corporate news or economic data to look forward to, alas, but we’ll do our best.....
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