FTSE 100 index closes lower; European markets mixed
The FTSE 100 index has closed 11 points lower at 6634.40, a 0.17% fall. Banking shares had a better day, recouping some of the losses suffered over the past two days. HSBC closed nearly 5% higher at 504.4p, the biggest gainer, followed by Standard Chartered, up 4.2% at 614.3p. Royal Bank of Scotland and Barclays were also among the top risers, gaining 2.6% and 1.6% respectively.
The Dax in Frankfurt rose 0.26% to 10,170.21 while the CAC in Paris slipped 0.16% to 4321.08. Spain’s Ibex shed 0.17% to 8263.50 while Italy’s FTSE MiB was up 0.2% at 16,129.84.
In the US, the Dow Jones is trading 0.13% higher at 18,338.15 while the wider S&P 500 is up just 0.09% at 2159 and the Nasdaw is also flat at 4718.85.
Thank you for all your great comments. We will be back tomorrow. Good-bye!
It’s been another day in the red for European markets, despite all the hype surrounding ‘Super Thursday’ when the Bank of England is widely expected to cut interest rates for the first time since early 2009, taking borrowing costs to a new record low.
Josh Mahony, market analyst at online trading firm IG, said:
Much of the market reaction following June’s referendum result have been somewhat surprising, with record highs in the US, the FTSE 250 reaching pre-referendum levels and now a sharp downturn in European stocks in the same week that both the RBA and BoE are likely to have ease monetary policy. The threat is that any rate cut is already priced in to markets and as such Carney & co will have to do more than simply a 25 basis points cut to get any positive response from markets tomorrow.
Today’s survey data has confirmed the likelihood of a recession in the UK, with a sharp deterioration in the dominant services sector pointing towards a significant slowdown in hiring, business investment and ultimately economic growth. The manufacturing and construction industries have also weakened, according to equivalent surveys out earlier this week.
The data from the US was more mixed today, with improvements in the jobs market on the one hand and weakening growth in the services sector on the other. Friday’s non-farm payrolls numbers should shed more light on the state of the US economy.
Updated
Moody's warns Brexit could lead to 10% price falls in commercial property
Credit ratings agency Moody’s has warned that Brexit will have a negative effect on the UK’s commercial property market, forecasting price falls of up to 10%.
However, any price falls would be smaller than those seen during the global financial crisis. Moody’s said:
If London were to lose its “safe haven” status with foreign investors, it is likely that transaction volumes as well as property values would fall. Over the last two years, foreign direct investment has accounted for over two-thirds of all commercial real estate transactions in central London, with the remainder outside the city [according to CBRE data].
The office market in central London would be worst hit because that’s where most financial and professional service firms are located. Demand for property would fall as firms would move some operations elsewhere in the EU, Moody’s predicted.
Developers Hammerson and Land Securities, which are major players in UK commercial property, are particularly at risk.
Some of Britain’s biggest food producers have issued a serious warning about home-grown fruit and veg following the Brexit vote.
Damian Carrington reports:
British fruit and vegetables would all but vanish from shops if Brexit means the foreign workers who pick virtually all the home-grown produce are no longer able to come to the UK, according to some of the country’s biggest producers.
They warn that the nation’s food security would be damaged and that produce in UK shops would become more expensive if the freedom of movement for EU workers came to an end. They are urging ministers to set up a new permit scheme for seasonal workers.
Without a scheme, they say production would move abroad, where many already have large operations, or would switch to cereals which are harvested by machines. The Brexit vote is already deterring foreign workers from coming to the UK, the producers report.
About 90% of British fruit, vegetables and salads are picked, graded and packed by 60,000 to 70,000 workers from overseas, mostly from eastern Europe. Many of these work in areas which voted very strongly to leave the EU: the largely agricultural borough of Boston in Lincolnshire had the highest vote for leaving the EU in the whole country, at 75%.
Photograph: Alamy Stock Photo
Updated
It’s a pretty dull afternoon on the markets, ahead of the Bank of England’s ‘Super Thursday’. Connor Campbell, financial analyst at Spreadex, has sent us his thoughts.
Struggling for any direction that isn’t its current glacial decline the Dow Jones was left wanting, the latest data-dump a decidedly mixed bag. The ADP non-farm employment change reading was better than expected at 179k against the 171k forecast; this number tends to have a rather tenuous link to the government-released non-farm figure, however, leaving it with a limited amount of market relevance. More important was the Markit and ISM services PMIs, yet even these left investors scratching their heads; the former jumped to a better than forecast 51.4, while the latter was far lower than expected, sliding to 55.5 from 56.5 last month. Unsurprisingly the Dow Jones couldn’t find much clarity in these figures, rising a meagre 0.1% after the bell.
Tomorrow, then, is the week’s biggie: the first Bank of England ‘Super Thursday’ with a chance of actually living up to its normally sarcastic moniker. Following the string of ominous UK PMIs between Monday and Wednesday Mark Carney and co. are almost guaranteed to do something on Thursday – the big question is what?
Consensus seems to suggest at the very least a rate cut to 0.25%, with some analysts suggesting it could go as low as 0.1%. The main uncertainty is over quantitative easing. A £75bn extension to the pre-existing programme has been floated in certain quarters, though this is expected to be a more hotly debated issue in the MPC than the headline interest rate. Traditional logic would dictate that a rate cut alone should cause the FTSE to rise and the pound to fall; however, there is such an air of expectation around Thursday’s meeting that a lack of QE (or something similar) may lead to disappointment for the former and relief for the latter.
Sterling is steadying ahead of tomorrow’s Bank of England decision, trading just off a three-week high against the dollar. Money markets are pricing in a quarter-point interest rate cut. Many economists are also expecting the central bank to announce other measures to stimulate the economy, for example through its quantitative easing (bond-buying) programme.
The pound is holding above $1.33, down 0.25% against the dollar.
Knight Frank’s report also showed that rental transactions for upmarket homes in central London are up since the Brexit vote on 23 June, while rental prices have declined. The lettings market is actually stronger than last summer, thanks to the more “realistic pricing”. More sellers have become landlords due to uncertainty around price growth, the estate agent added.
Tim Hyatt, head of lettings at Knight Frank, said:
The current lettings market in prime central London is encouragingly stable. We saw a spike in new instructions in the aftermath of the referendum vote, although the number of new applicants registering is slightly down creating an imbalance of supply and demand.
From a transaction perspective, the level of new deals has remained strong. In particular, the number of corporate enquiries was encouragingly positive as it was dramatically up on last year, highlighting that confidence in London as a capital city of choice remains strong.
Due to the imbalance of supply and demand, landlords need to be realistic when it comes to pricing in an increasingly competitive market. This includes considering price reductions, however significant, in order to reflect value in the current climate.
In central London, prices for luxury homes have fallen 1.5% in the year to July, according to upmarket estate agent Knight Frank. It says buyers are typically asking for 10% or more off the asking price.
The firm said stamp duty was more of a concern than the recent Brexit vote in prime central London.
Changes to the market over the last two years have meant that the Brexit vote has merely been a trigger for some to make overdue reductions to their asking price. It is too soon to say what impact Brexit will have on pricing but, in many cases, reductions reflect what would have been an appropriate price before the referendum.
The number of viewings in June was 17% higher than a year earlier, and demand in areas such as Belgravia and Knightsbridge held up better than elsewhere.
Updated
OIl prices have moved higher after their recent slide, with Brent crude – the global benchmark – up 1.4% at $42.38 a barrel and US West Texas Intermediate up 1.5% at $40.10. Prices were boosted after US government data showed a bigger-than-expected gasoline drawdown that offset a surprise build-up in crude stockpiles.
US crude inventories rose by 1.4m barrels last week, while analysts had expected a fall of the same magnitude, the Energy Information Administration reported. At the same time, gasoline stocks slumped by 3.3m barrels, compared with forecasts of drop of 200,000 barrels.
Concerns over a global oil glut persist, however. Output from the Opec cartel is near record levels.
Updated
But markets prefer to look at the ISM services survey. Both surveys signal an easing in activity.
Services Data Disappoints: Suggests "No Signs Of US Economy Moving Up A Gear" In Q3 https://t.co/QPwrGQdYCZ
— zerohedge (@zerohedge) August 3, 2016
A separate survey, from economic pollsters Markit, also showed that growth in the US service sector remained muted in July, with new business recording a slower increase.
However, the rate of job creation picked up slightly and business confidence improved markedly after hitting a record low in June. The Markit US services index came in at 51.4 in July, unchanged from June, and above the 50 mark the divides expansion from contraction.
Markit US services headline index still having some measurement problems vis-a-vis ISM pic.twitter.com/dCeDI5e04B
— Eric Burroughs (@ericbeebo) August 3, 2016
The dollar is slipping against the yen and the euro on the data.
US services sector slows in July
US data just out: the closely watched ISM services/non-manufacturing index for July has come in at 55.5, slightly less than expected and down from 56.5 in June, signalling a slowdown. Employment in the services sector has weakened.
US ISM Services/Non-Manufacturing (JUL) slight miss at 55.5 vs 55.9 exp, from 56.5; Employment subindex at 51.4 vs 52.7 prior. $DXY $FED
— Christopher Vecchio (@CVecchioFX) August 3, 2016
Updated
US stock markets have opened and are broadly flat. The Dow Jones edged up nearly six points at the bell to 18,319.73 while the tech-heavy Nasdaq and the wider S&P 500 were down slightly.
Updated
Corporate round-up
Here’s a quick round-up of today’s corporate news:
HSBC, Britain’s biggest bank, has admitted a regulatory breach in the US as it unveiled a slump in first-half profits in what it termed “turbulent” markets, our City editor Jill Treanor reports. More here.
Standard Chartered has been rooting out some of its clients as it cleans up its business in the wake of regulatory investigations, its chief executive has said as the emerging markets-focused bank returned to profit in the first half of 2016. Read the full story here.
The boss of ad agency Saatchi & Saatchi, Kevin Roberts, has resigned after provoking fury by claiming that women in the advertising industry lacked “vertical ambition” (he said they had “circular ambition”). He was suspended at the weekend by Publicis, Saatchi’s parent company, after denying that sexism was an issue in the advertising world.
The boss of London housebuilder Berkeley Group, Tony Pidgley, made £21.5m last year – despite a slight pay cut from £23.3m the previous year. Not bad for an East End lad who was adopted by travellers at the age of four and grew up in a disused railway carriage. You can read the full story here.
The energy regulator, Ofgem, has promised to introduce next spring the first price controls for some customers since the domestic power sector was privatised more than 15 years ago. Full story by our energy editor, Terry Macalister, here.
The Scotch whisky industry has warned of higher tariffs following the Brexit vote in June, and urged the UK government to push for favourable trade conditions after leaving the EU. David Frost, chief executive of the Scotch Whisky Association, said:
We are calling on the UK government to bring clarity to the transition to Brexit as soon as possible and to negotiate to ensure that the current open trading environment is not affected.
Updated
A cut in UK interest rates on Thursday will only have a short term impact, says Christopher Metcalfe at Newton Investment Management:
Tomorrow the Bank of England is expected to announce the first interest rate reduction in more than seven years from its current record low of 0.5% to 0.25%. Given current market expectations, in such an event we would only expect a modest impact to sterling, FTSE and 10-year Gilts.
A 25bp cut in the base rate will provide no more than a short-term sugar rush to the UK economy and the private sector will continue to be uncooperative. Unwilling or unable to take on the quantities of new debt necessary to overcome the structural headwinds facing the global economy, the response will continue to be the monetary policy equivalent of ‘Can’t Cook, Won’t Cook’.
Price of credit for firms is already low and it is difficult to imagine if businesses are scared or unwilling to invest in the wake of Brexit at 50bp interest rates, whether a further to 25bp will induce them to invest. Our view continues to be that the deflationary pressures exerted by the burden of surplus debt, overcapacity across many industries, and technological disruption are too big in magnitude for monetary policy to counter. Given the private sector lacks the confidence and/or ability to increase credit by the required amount, the onus falls on the public sector.
Lower interest rates mean lower margins for the banking sector. It is increasingly difficult for banks to make an attractive spread on deposits without taking large credit and/or deposit risk. This is the clear message from Europe’s experiment with low interest thus far and continues to support our decision to hold zero banks within our Newton UK portfolios.
Record-low interest rates and bond yields may validate continuing to pay higher prices for equities and other risk assets, continuing the hunt for yield and supporting safe haven assets. The housing market, particularly in the southeast of England has benefited from the availability of cheap finance. The search for yield and the decision to lower rates may support asset prices in the near-term.
The good ADP jobs figures are not necessarily a good guide to Friday’s non-farm payroll numbers. David Morrison, senior market strategist at Spreadco, said:
[The ADP report] was good news as far as investors were concerned, but it doesn’t necessarily mean that we’re set for a strong Non-Farm Payroll number on Friday.
Analysts are generally wary of taking the ADP data as a heads-up for Non-Farm Payrolls as the latter tends to be much more volatile than the ADP release. This has certainly been the case over the last few months.
But the other issue is that the next Fed meeting isn’t until 20/21st September. Not only will July’s employment data be old news by then, but the market already doubts that the Fed will tighten monetary policy this year, let alone ahead of November’s presidential Election.
US jobs data stronger than expected
Ahead of the US non-farm payroll numbers comes a report showing private sector employers created more jobs than expected in July.
The ADP report showed employment increased by 179,000 jobs last month compared to forecasts of a 170,000 rise. That compares to 176,000 in June, itself revised upwards from 172,000.
Labour shadow chancellor John McDonnell has called for action from the government following the latest gloomy economic data:
The economic outlook for the UK is uncertain, and it’s time the Chancellor stepped up and told us what he is planning to do....We must rebalance our economy and support our key industries with an industrial strategy that can provide the good secure jobs that we so desperately need.
Markets are currently mixed in the wake of the various PMI surveys.
The FTSE 100 is now down 15 points or 0.2% while France’s Cac has slipped 0.28%. But Germany’s Dax has edged higher following its strong service sector performance, adding 0.1%.
Meanwhile sterling is virtually flat against the dollar at $1.3355 and down 0.24% against the euro at €1.1926.
Updated
Here is our report on the Markit surveys from economic editor Larry Elliott:
The Bank of England has been provided with fresh evidence of the softness of the economy in the immediate post-Brexit period by a survey showing activity on course to decline by 0.4% in the third quarter of 2016.
Ahead of Threadneedle Street’s decision on whether to provide additional stimulus to boost growth, the Markit/CIPS snapshot of the services sector underlined the blow to output, orders and confidence delivered by the shock referendum result.
The final purchasing managers index for services for July fell from 52.3 to 47.4 in June – the sharpest drop on record and in line with a flash estimate provided by Markit/CIPS just under two weeks ago.
Live UK faces ‘mild recession’ as economy shrinks at fastest rate since 2009 - business live UK services sector contracts as Brexit concerns bite Read more
A composite PMI – including manufacturing as well as services – showed a slightly bigger fall than first feared, declining from 52.5 to 47.5.
Construction was not included in the original flash estimate of economic conditions in the aftermath of Brexit, but the all-sector PMI fell from 51.9 in June to 47.3 in July, its lowest level since the economy was in recession in April 2009. Any reading below 50 indicates that activity is contracting.
The full report is here:
Back with the European retail sales, and following recent weakness, they could pick up again as energy costs fall, says Peter Vanden Houte at ING Bank:
Eurozone retail sales stabilized in June, though cheaper oil and stronger job creation should support consumption in the second half of the year.
According to Eurostat figures released today, Eurozone retail sales stabilized in June, after a 0.4% expansion in May. This was in line with the consensus estimate. Portugal and Spain saw the highest increases (+3.1% and +1.0% MoM respectively), while Germany recorded a 0.1% fall and in France retail sales contracted 0.4% on the month. Year-on-year retail sales expanded by 1.6%.
On average, retail sales grew 0.1% over the quarter after a 0.6% increase in the first quarter. The main culprit for the somewhat weaker consumption growth was most likely the 30% increase in oil prices over the quarter, sapping households’ purchasing power.
However, since July, energy prices have been weakening again, while July’s PMIs are also showing that job creation remains strong in the Eurozone. Even though Brexit might have a minor adverse impact on consumer confidence, we believe that the underlying fundamentals remain strong enough to support consumption in the second half of the year. That said, we don’t see any strengthening of the expansion in the near future with GDP growth likely to hover around 0.2% over the next few quarters, resulting in a 1.5% expansion for the whole of the year.
More from Markit on the UK economy as evidenced from its latest surveys:
PMI shows UK business costs rising due to weaker £ but selling price inflation unchanged. Points to profit squeeze pic.twitter.com/L45TGJ7Rki
— Chris Williamson (@WilliamsonChris) August 3, 2016
Eurozone retail sales flat in June
Retail sales in the eurozone were stable in June, ahead of the UK’s referendum, compared with the previous month.
In the wider European Union they declined by 0.2%. In May there was an increase in both areas of 0.4%.
Meanwhile the year on year figure rose by 1.6% in the euro area and by 2.4% in the wider EU.
Euro area retail trade stable in June 16 over May 16, +1.6% over June 15 #Eurostat https://t.co/DcPGzpbt1E pic.twitter.com/NQPvhMJfK5
— EU_Eurostat (@EU_Eurostat) August 3, 2016
Updated
Even without a recession, the UK faces a period of lacklustre growth, says Dean Turner, economist at UBS Wealth Management:
Off the back of equally disappointing manufacturing figures, today’s numbers confirm that the UK economy is slowing. Although not currently our base case, if current levels for the PMIs are sustained, we may need to brace ourselves for a mild recession by the end of the year.
Today’s confirmation of the downturn in the Services PMI should not be underestimated, with significant near-term implications for UK businesses. But until the fog of Brexit begins to clear, it is frankly too early to tell whether the latest string of disappointing data is a real cause for concern. Time will tell if a recession is on the cards but it is clear we now face a period of lacklustre growth, a sharp contrast to the above trend growth we’ve enjoyed for the last three years.
These figures support speculation that we will see an interest rate cut tomorrow. We expect the Bank of England to cut rates by at least 25 basis points, reopen QE, and potentially discuss other easing measures.
But:
#UK services #PMI shrinks at fastest since '09. #BoE cut "foregone conclusion" says @Markit. Sterling traders differ pic.twitter.com/up1AT0TnXC
— Ken Odeluga (@TheSquareMile) August 3, 2016
UK #PMI consistent with 50bp rate cut. We expect a 25bp cut plus £75bn expansion of QE programme. pic.twitter.com/1RDGYA3qG0
— Capital Economics (@CapEconUK) August 3, 2016
The Bank of England is now likely to cut interest rates following this latest survey evidence, agrees David Morrison, senior market strategist at Spreadco:
This was the last piece of major UK data ahead on tomorrow’s Bank of England rate decision. It provides more evidence (if any were needed) that the Bank will want to ease monetary policy further with the consensus view that it will cut its headline Bank Rate by 25 basis points. There’s also an expectation that the Bank will restart its asset purchases. However, there are a range of views here with estimates for additional stimulus ranging from £50 – 175 billion.
The chances of the UK sliding into recession have increased, says Chris Williamson, chief economist at Markit, and an interest rate cut on Thursday now seems “a foregone conclusion.” He says:
The marked service sector downturn follows news from sister PMI surveys showing construction activity suffering its steepest decline since mid- 2009 and manufacturing output contracting at the fastest rate since late-2012. At these levels, the PMI data are collectively signalling a 0.4% quarterly rate of decline of GDP.
At its lowest since April 2009, the UK all-sector PMI points to a 0.4% GDP decline in Q3 pic.twitter.com/i28jIvjXaS
— Chris Williamson (@WilliamsonChris) August 3, 2016
It’s too early to say if the surveys will remain in such weak territory in coming months, leaving substantial uncertainty over the extent of any potential downturn. However, the unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession.
Services providers are certainly bracing themselves for worse to come, with a record drop in business confidence about the year ahead leaving optimism at its lowest ebb since February 2009.
However, the extent of any downturn clearly depends to some degree on the policy response. The PMI is already deep into territory which would normally spur the Bank of England into taking action to stimulate the economy. A quarter-point cut in interest rates therefore seems to be a foregone conclusion at tomorrow’s Monetary Policy Committee meeting, though the extent and nature of other non-standard stimulus measures remains a far greater source of uncertainty and the subject of intense speculation.
Updated
The fall in the UK all sector index from 51.9 to 47.3 in July was the biggest one month drop in the 20 year history of the survey.
Updated
UK economy shrinks at fastest rate since financial crisis
Ahead of Thursday’s Bank of England meeting, the UK economy has been confirmed as slowing at its fastest rate since the financial crisis following the Brexit vote.
The final reading of the UK services PMI for July came in at 47.4, down from 52.3 in June and in line with the flash reading two weeks ago.
The all-sector index of services and manufacturing (as well as construction) was lower than the initial estimate, down from 51.9 in June to 47.3 and marking the lowest level since April 2009. The flash estimate was 47.7.
Updated
Away from the service sector surveys for a moment, and here’s our report on the update from retailer Next:
Next has warned that trading will be difficult for the rest of this year because of weak consumer demand for clothing but the retailer predicted its annual profit would be higher than expected.
In a trading update, Next said full-price sales rose 0.3% in the second quarter of its financial year, an improvement on the 0.9% fall in the first quarter.
Sales will fall again in the third quarter compared with what was Next’s best trading period last year. If the winter is cold, fourth quarter sales could grow compared with a year earlier, when warm weather and lack of stock depressed sales, the group said.
“Trading remains extremely volatile and on a week-by-week basis is highly dependent on the weather. This volatility is indicative of the underlying weakness of consumer demand for clothing … We expect the consumer environment to remain tough for the rest of the year.”
The full story is here:
Upward revision means the euro-zone PMI actually increased after Brexit vote - but it still points to low GDP growth pic.twitter.com/Dgnm0tvU9u
— Capital Economics (@CapEconEurope) August 3, 2016
Eurozone business activity better than expected
Lifted by a strong performance from Germany, offsetting continuing stagnation in France and a slowdown in Italy and Spain, eurozone business activity edged higher in July.
Markit’s eurozone composite PMI rose from 53.1 in June to 53.2, higher than the initial reading of 52.9. The services PMI came in at 52.9 in July, up from 52.8 and better than the flash estimate of 52.7.
Chris Williamson, chief economist at Markit said:
A welcome uptick in the final PMI numbers presents a slightly better picture than the slowing signalled by the earlier flash reading, and is especially encouraging as it suggests the region saw little overall contagion from the UK’s ‘Brexit’ vote.
However, the survey is still indicating only a modest 0.3% quarterly rate of economic growth at the start of the third quarter. Such a meagre pace of expansion will inevitably fuel speculation about what the ECB could and should do to boost growth, and when.
The upturn is being led by surging growth in Germany, where a 0.5% pace of expansion is being signalled. However, France continued to stagnate, acting as a significant drag on the region. Growth has also slowed in Spain and Italy, in both cases indicating that political uncertainty is hurting businesses. While the pace of expansion in Spain has merely slowed to around 0.6% in July, Italy is growing at a sluggish 0.2% pace.
Greater comfort can be gained from the upturn in employment growth to a pace which has not been exceeded since February 2008. The improved hiring trend suggests firms have gained sufficient confidence in the durability and sustainability of the upturn to expand capacity in increasing numbers. However, if growth in Spain and Italy continues to weaken, this impressive hiring trend will inevitably come under pressure.
Germany's service sector shows strong growth
Germany’s business activity grew at its highest pace this year, boosted by strong growth in the services sector, but there were some concerns about the impact of the UK’s vote to leave the European Union.
Markit’s composote purchasing managers’ index - which includes both services and manufacturing - rose to 55.3 in July from 54.4 the previous month, unchanged from the initial estimate.
The service sector PMI increased from 53.7 in June to a two month high of 54.4.
#Germany Markit Services PMI Final at 54.4 https://t.co/e2DYDeC3Sj pic.twitter.com/zsiLL3fv4L
— Trading Economics (@tEconomics) August 3, 2016
Markit economist Oliver Kolodseike said:
Germany’s service sector continued to grow at the start of the third quarter, with the underlying trend pace broadly in line with that seen over the past three years.
But he said positive sentiment fell to an eight month low as companies expressed concern about the Brexit vote.
French service sector returns to growth
France’s service sector returned to growth in July, with a better than expected performance.
The Markit services PMI came in at 50.5 from 49.9 in June and better than the intial reading of 50.3 for the month. Anything above 50 signals expansion.historically muted level.
#France Markit Services PMI Final at 50.5 https://t.co/FT2IbuyhqI pic.twitter.com/Ldovlcnar5
— Trading Economics (@tEconomics) August 3, 2016
Manufacturing continued to be weak, but with the strength in services, the composite index of both sectors rose from 49.6 in June to 50.1, marginally better than the initial reading of 50.0.
#France Markit Composite PMI Final at 50.1 https://t.co/GHnOEntCtp pic.twitter.com/8VXmdPPr98
— Trading Economics (@tEconomics) August 3, 2016
Jack Kennedy, senior economist at Markit, said:
The service sector returned to growth at the start of the third quarter, compensating for ongoing manufacturing weakness and leaving overall private sector activity broadly flat on the month. There were slight increases in new business and employment evident in the latest survey data, but overall little sign of any change to the subdued pattern seen throughout the year to date. Indeed companies’ business expectations remain at a
But the composite figure for Italy, comprising both services and manufacturing, has slipped back in July and suggests weak third quarter GDP growth:
#Italy composite PMI down from 52.6 to 52.2 in July, 2nd-lowest in almost 1½ years and signals weak (<0.2%?) Q3 GDP pic.twitter.com/FAWl9O8wO7
— Chris Williamson (@WilliamsonChris) August 3, 2016
And they are coming thick and fast now. Italy’s service sector has grown more strongly than expected in July:
Italian Markit/ADACI Services PMI Jul: 52.0 (est 51.0; prev 51.9)
— Livesquawk (@Livesquawk) August 3, 2016
-Composite PMI Jul: 52.2 (est 52.4; prev 52.6)
Spain’s service sector growth has come in below expectations, falling to its lowest level since February.
Spanish Service PMI (Jul) 54.1 versus 55.2 expected, previous 56.0 - Lowest since February
— Sigma Squawk (@SigmaSquawk) August 3, 2016
#Spain Markit Services PMI at 54.1 https://t.co/BacavfsVtF pic.twitter.com/GPP0Azlyqz
— Trading Economics (@tEconomics) August 3, 2016
Which has helped pull down the composite index of both services and manufacturing:
#Spain Composite PMI fell to 32-month low in July amid slower services & manuf. growth but still signals +0.6% GDP pic.twitter.com/vmdH5Sklek
— Chris Williamson (@WilliamsonChris) August 3, 2016
Updated
Not everyone believes the Bank of England should cut interest rates on Thursday, despite its hints last month that a move in August was on the cards unless the UK economy improved.
If central banks are running out of ammunition, the argument goes, then perhaps Bank governor Mark Carney and the rest of the monetary policy committee should wait for more evidence of the fallout from Brexit before using up what they have left in the locker. And if the government decides to unveil fiscal measures to help boost the economy, that will not happen until September. So perhaps the Bank should wait until then to see what new chancellor Philip Hammond has up his sleeve.
Times Shadow #MPC voted 7-1 to keep rates on hold this month: https://t.co/PZcpRvmFyg (£). Real MPC should take note!
— Andrew Sentance (@asentance) August 3, 2016
China's service sector slows
China’s service sector slowed in July but a rebound in manufacturing has pushed the composite index - which covers both sectors - to its highest since September 2014.
The Caixin services index fell from an 11-month high of 52.7 in June to 51.7, but the composite index for July was 51.9, up 1.6 points from June’s reading.
Slowdown in #China service sector growth signalled in July as #PMI falls from 52.7 in June to post 51.7 https://t.co/Z7wgrCWEfG
— Markit Economics (@MarkitEconomics) August 3, 2016
Caixin said:
The renewed upswing in overall growth momentum was partly driven by the first increase in manufacturing output for four months, while services activity continued to expand in July. That said, the rate of services activity growth slowed since June and was moderate overall.
[For services] all of the index categories showed signs of deterioration, with employment falling back into the territory of contraction after three consecutive months of growth.
Implementation of supportive measures including proactive fiscal policies must continue to protect the recovery, and regulations in the services sector should be further relaxed.
European markets open higher
It’s an uncertain start but a marginally positive one for Europe’s stock markets.
The FTSE 100 is up 24 points or 0.38%, helped by a 4% rise in Next following its latest trading statement and a more than 3% jump in HSBC shares after its results.
Elsewhere Germany’s Dax opened up 0.1%, France’s Cac 0.4% higher and Spain’s Ibex 0.5% ahead.
Updated
Ahead of the UK service sector figures:
UK Service PMI at 9.30am. Story so far...
— Anthony Cheung (@AWMCheung) August 3, 2016
Manufacturing (Jul) lowest since February 2013
Construction (Jul) lowest since June 2009
HSBC could provide a little light in the gloom of the banking sector following its results.
Yes, first half profits fell by 29% but news of a £1.8bn buyback is expected to give some support to its shares. In Hong Kong its shares erased early losses to climb 0.2%, which traders hope will be followed through in London.
The banking sector has been under pressure in recent days, following the results of the European stress tests on Friday and continuing concerns about the effect of low - and in some cases negative - interest rates on their balance sheets. Not to mention non-performing loans of course, with Italian banks a particular problem.
Even the stress test results themselves have left analysts unconvinced of their merits. CMC’s Michael Hewson again:
If last week’s European bank stress tests were designed to bolster confidence in the European banking sector it is becoming quite clear that they have failed abysmally. Far from boosting confidence they appear to have helped undermine it by focussing attention on what wasn’t tested, as opposed to what was.
The omission of Portuguese and Greek bank from the tests as well as the failure to test resilience against a prolonged period of negative rates has left investors to draw their own conclusions, and Commerzbank’s decision yesterday to scrap its profit target for the year in the wake of 32% drop in quarterly profits, merely served to reinforce those fears sending its share price to new record lows, along with its sector peer Deutsche Bank, who suffered the ignominy of being relegated out of the EurStoxx50 in a clear sign of how far the shares have fallen.
Italian banking shares also resumed their downward track despite Italian Prime Minister Matteo Renzi’s attempts to calm nerves by claiming that Italian banks were fine by claiming that growth would be the best way to resolve the non-peforming loan problem.
Unfortunately for Mr Renzi the Italian economy hasn’t grown in any significant way since it joined the euro which suggests that for all his warm words the reality has been somewhat different, and isn’t likely to change any time soon, and that is likely to be his biggest challenge.
Monte dei Paschi led the declines crashing to new record lows and weighing down the rest of the sector as doubts grew about the prospect of the ability of the Italian banking sector to absorb further write downs across the rest of the sector.
Asian markets have fallen back, with concerns about a global slowdown, the weak oil price and the banking sector, not to mention disappointment with recent action from central banks.
The Nikkei 225 is down 1.88% while the Hang Seng is 2.64% lower. So we can look forward to a mixed opening in Europe:
Our European opening calls:$FTSE 6651 up 5
— IGSquawk (@IGSquawk) August 3, 2016
$DAX 10136 down 9
$CAC 4327 down 1$IBEX 8279 up 2$MIB 16114 up 16
Agenda: UK service sector in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After Monday’s global manufacturing figures for July - a mixed picture on the whole - come the service sector numbers.
In particular focus will be the UK number, as it comes just a day ahead of the Bank of England’s latest interest rate decision. As with manufacturing, a snapshot two weeks ago showed a sharp downturn in the wake of Brexit, with the index down from 52.3 in June to 47.4 in July, an 88 month low.
There is an outside chance this will be revised upwards but analysts are not holding their breath. Even if the figure is better than the initial estimate, most economists are betting the economy is weak enough to justify the Bank cutting rates on Thursday, with perhaps an extra package of stimulus to give another boost to business. But some believe central bankers are running out of ammunition. A rate cut by the Reserve Bank of Australia and a Japanese stimulus package, both on Tuesday, did little to boost market sentiment. Michael Hewson, chief market analyst at CMC Markets UK, said:
The larger concern here given recent market reaction to policy moves by central bankers is that policymakers are losing the confidence of investors.
Investors are slowly realising that with every spin of the central bank policy chamber the magazine is getting emptier, and in the absence of any will or ability of politicians to step up, central bank policy will continue to move into the realms of the more experimental with every passing day.
Of course, the UK is not alone in reporting service sector data. Here’s the European agenda:
And around 3pm BST come the US figures.
