FTSE 100 closes where it began
Finally, the London stock market has ended the day where it started!
The FTSE 100 closed flat at 7,436 points (down exactly 0.19 point, if you’re being picky).
Financial stocks rose, lifted by hopes of a US-China trade truce. Miners dropped, though, as a weaker US dollar made their overseas earnings less valuable (the dollar dipped following Donald Trump’s attack on the Federal Reserve).
Over in New York, the Dow is down 75 points, or 0.3%, at 26,337. The president’s claim yesterday that it would be 10,000 points higher if the Fed listened to him hasn’t sparked a rally.
Goodnight! GW
Time for a recap:
Wall Street bank Goldman Sachs has disappointed investors, after posting a 20% plunge in profits for the last quarter. Goldman’s revenues also fell (down 13%), as the US government shutdown and Brexit angst hit client spending.
Shares in Goldman are down 3%, as investors show disappointment (that still leaves them 20% higher for the year).
A new survey of New York state factories shows optimism for prospects in six month’s time has hit a three year low. Current business conditions have improved, though.
Global stock markets hit a six-month high this morning, on optimism that America and China could reach a trade truce. US treasury secretary Steven Mnuchin told reporters over the weekend that talks were going well.
Reports that America could stop insisting China ended industrial subsidies also cheered investors.
However, Mnuchin has just appeared on Fox News, warning that more work needs to be done; so a deal may not be close after all.
- US Treasury Sec Mnuchin: There Is More Work To Do With China, Including Enforcement
— Jesse Cohen (@JesseCohenInv) April 15, 2019
- Declines To Comment On Whether China Tariffs Are Set To Remain
Sounds like @stevenmnuchin1 backtracking on positive comments he made over the weekend.$DIA $SPY $QQQ pic.twitter.com/MnixU2lXMn
European ministers have agreed to start new trade talks with the US too. France opposes the move, though, insisting it should cover climate change issues (but not agricultural tariffs...)
Over in Germany, the former CEO of Volkswagen has been charged with a string of offences, including fraud, over the company’s diesel emissions scandal.
Martin Winterkorn is accused of covering up VW’s uses of ‘cheat software’ to disguise the true amount of pollution pumped out by the company’s diesel cars.
Winterkorn, who quit VW in 2015 when the scandal broke, claims he was kept in the dark over the scandal. Prosecutors, though, say he and four other executives were aware from at least May 2014.
Associated Press has more details:
The prosecutors said in a statement that the defendants all of them top Volkswagen managers were part of an ongoing deception that started in 2006.
The company has admitted installing software that could tell when the cars were on test stands for emissions certification. When the cars went on to everyday driving, the emission controls were turned off, improving performance but emitting far more than the U.S. legal limit of nitrogen oxides, a class of pollutant that is harmful to health.
Updated
Shares in Goldman Sachs have fallen by 2.7% in early trading in New York, as investors react to its 20% drop in profits in the last quarter.
Just in: Factory bosses in the New York area are much less optimistic about their future prospects.
The Empire manufacturing survey, which tracks industrial activity in the state, shows that the outlook for the next six months has its lowest level in over three years.
However, current business conditions have improved, bosses say, partly due to a rise in orders.
Here’s the details:
- Current business conditions index: Up to 10.1, from 3.7 in March.
- Six-month business conditions index: Down to 12.4, from 29.6 in March
- New orders index: Up to 7.5, from 3.0 in march
Latest Empire State survey shows #manufacturing activity grew modestly in New York State with headline general #business conditions index up 6.4 points to 10.1. The six-month #outlook suggested that firms were much less optimistic about future business conditions than last month. pic.twitter.com/fTSzupvrwN
— Dr Thomas Kevin Swift (@DrTKSwift) April 15, 2019
At 10.1 in April, the Empire State Manufacturing Survey's General Business Conditions index beat the consensus forecast (6.7), but indexes assessing the six-month outlook suggested firms were much less optimistic about future business conditions than last month. Worst in 39 mos. pic.twitter.com/gJZaAf6B6D
— Jeoff Hall (@JeoffHall) April 15, 2019
Pay falls 20% at Goldman
Goldman Sach’s staff have been hit in the pocket by the drop in profits last quarter.
The bank’s bill for compensation and benefits (pay, to the rest of us) fell by $798m, or 20%, to $3.259bn for the January-March quarter.
Just in: Goldman Sachs cut pay by 20% in the first quarter as its business came under pressure from tough conditions for its trading business, lower private equity gains and lower transaction revenues in its investment and lending divisions https://t.co/1yJirj3vEL pic.twitter.com/1WXdEKypVm
— Financial Times (@FinancialTimes) April 15, 2019
But..... Goldman’s earnings seems to have beaten expectations, despite falling 20% on a pre-tax basis.
Mixed bag of results from Goldman Sachs. Beat on earnings. Missed on revs. $GS up slightly #premarket.
— Paul R. La Monica (@LaMonicaBuzz) April 15, 2019
Goldman Sachs has missed Wall Street’s revenue forecasts, for the first time in eight quarters, according to Reuters.
Goldman blames US shutdown and Brexit
Goldman is blaming a series of political and geopolitical problems for its weak performance last quarter.
Its presentation to shareholders today points out that the US government shutdown overshadowed the start of 2019, while the trade war with China, and Brexit, both added to uncertainty.
Here are the key points from Goldman Sach’s financial results report, showing how profits shrank by a fifth in the last quarter:
Goldman’s Institutional Client Services division had a touch quarter, with net revenues 18% lower than the first quarter of 2018.
Net revenues in Fixed Income, Currency and Commodities (FICC) Client Execution fell by 11%, due to “lower net revenues in interest rate products, currencies and credit products, partially offset by higher net revenues in mortgages and commodities.”
Net revenues in Equities shrank by 24%, due to a sharp drop in business from clients in the face of lower volatility.
Goldman Sachs’s investment banking division had a quarter of two halves, today’s financial results show.
Net revenues in Financial Advisory work surged by 51% in January-March compared to a year ago, due to a rise in mergers and acquisitions.
However, revenues in Underwriting shrank by a quarter, due to a drop in initial public offerings (stock market floats).
As a result, net revenues in Investment Banking were flat year-on-year.
Goldman profits fall 20% as client revenues shrink
Newsflash: Wall Street titan Goldman Sachs has posted a 20% fall in profits for the last quarter.
Goldman just reported that it made $5.71 per share in the first quarter of 2019, down from $6.95/share for the first quarter of 2018. That’s also weaker than the last quarter of 2018, when the bank made $6.04 per share.
The fall in earnings came alongside a 13% drop in net revenues, year-on-year, to $8.81bn, due to a sharp fall in client income (ie, from bond and share trading).
David M. Solomon, Goldman’s CEO, blamed “muted” market conditions, saying:
“We are pleased with our performance in the first quarter, especially in the context of a muted start to the year. Our core businesses generated solid results driven by our strong franchise positions. We are focused on new opportunities to grow and diversify our business mix and serve a broader range of clients globally.
With improving momentum across our businesses, we are confident that Goldman Sachs will generate attractive returns for our shareholders.”
More to follow....
Updated
European stock markets have moved a little higher, in what’s turning into a rather uneventful session.
The major bourses are all positive, with Switzerland, Italy and Spain all leading the way.
Rupert Thompson, head of research at Kingswood, reckons the markets need a new catalyst, following decent gains in recent months.
The sharp rebound in equities seen this year is beginning to look a little tired and markets were little changed amidst a downbeat set of forecasts from the IMF. While the IMF cuts its global growth forecast for 2019 and warned of downside risks, it is still projecting but with little conviction some recovery in growth 2020 - the infamous two-handed economist lives on.
“Trade remains a major focus for markets and the US-China negotiations appear albeit rather tortuously to continue to move in the right direction. An ‘awesome’ deal – well, that’s certainly how the US will describe it – is still looking on the cards for next month. However, just as frictions with China are diminishing, trade tensions between the US and EU are increasing. Both the US and EU have threatened to impose tariffs on each other in response to past subsidies to Airbus and Boeing. And the US still has to decide whether to go ahead with tariffs on auto imports on national security grounds of all things. Meanwhile, the minutes from the latest Fed meeting confirmed the Fed is very much on pause. With inflation running at close to target and growth slowing but not collapsing, there seems every reason for the Fed to sit on its hands for some time yet.
Investors have also been cheered by new credit data, released last Friday, showing a spike in lending in China last month.
That suggests Beijing has dropped its plans to deleverage its economy, and are again trying to spur growth by pumping up demand.
The plan may be working - China’s factories posted stronger growth than expected in March
Marc-André Fongern of MAF Global Forex says recent Chinese data illustrates that monetary policy is working.
Despite a mixed bag of data, one could argue, China’s stimulus is going to support growth on a medium-term horizon. Tax cuts for example, will take some time to implement a brighter picture of China’s economy. Adding to that, positive, official comments around the trade-war are supportive as well for the mood of investors.
In another sign that relations between Washington and Beijing are improving, China has decided to start a review of anti-dumping measures on U.S. distillers grains [DDGs].
These measures impose a hefty tariff, around 33%, on imports of American DDGs. They’re a by-product of distilling -- either to produce alcoholic beverages, or from ethanol plants, and can be sold as animal feed.
China slapped tariffs on DDGS on 2016, claiming they were being sold unfairly cheaply in the Chinese market. That move drove down imports sharply.
Now, though, the Chinese ministry of commerce says it will review whether anti-dumping measures are still needed. That’s potentially good news for US ethanol producers.... though they might have to wait until the broader trade war has been resolved....
In other trade news, European countries have agreed to start formal talks with the US -- in the face of French resistance.
The Commission, which coordinates trade policy for the 28-member European Union, hopes to reach a deal to cut tariffs on industrial goods, and to make it easier to show products meet EU or U.S. standards.
EU ministers approved the plan, with industrial heavyweights such as Germany keen to lower tariffs on their goods.
BREAKING: EU ministers just approved negotiating directives for EU-U.S. #trade talks, covering tariff elimination for industrial goods + fishing and conformity assessment for testing and certification of new products. France voted against, Belgium abstained @POLITICOEurope
— Hans von der Burchard (@vonderburchard) April 15, 2019
Paris, though, is concerned that America may demand reforms to agricultural levies - which might threaten French farmers.The European Union says agriculture won’t be up for discussion, while the United States insists it must be included.
France also wants climate change issues to be considered - a red line for the US.
As a French spokesperson put it:
“It is a question of values: Europe must be exemplary and firm in its protection of climate”.
So there’s no certainty that the talks will get very far....
Updated
David Madden, market analyst at CMC Markets UK, sums up the first few hours of the trading week:
European equity markets are subdued this morning on the back of a strong finish on Friday. It seems likes investors are taking a breather, and the lack of volatility in Asia overnight prompted some dealers to sit on their hands this morning.
Steven Mnuchin, US treasury secretary, issued a positive statement about US-China trade talks over the weekend, and he claimed the negotiations are ‘close to the final round’ ,and that is adding to global feel good factor.
Global markets hit six-month high
Boom! World stock markets have hit a new six-month high this morning.
Hopes of a resolution in the US-China trade war have sent MSCI’s gauge of global stocks up 0.5% to its highest levels since early October.
That follows solid gains on Friday, and the rally in Japan today (plus gains in Italy and Spain this morning).
Kit Juckes of Societe Generale points to better-than-expected eurozone manufacturing data released late last week, and a surprise jump in Chinese exports.
He says:
Better Chinese export data on Friday were followed by a rare upside surprise from Eurozone industrial production, and up went global equities, Bund yields and the euro.
Riskier assets benefitted from better-than-expected Chinese trade data and improved sentiment over US-China trade talks. #markets
— SCOFIELD!® (@Scofield_Fx) April 15, 2019
Yesterday, Donald Trump tore his eyes away from the Masters long enough to launch a fresh blast at the US central bank.
Using his favourite club (Twitter, of course), the president claimed that the US stock market would be much higher if the Federal Reserve has listened to him last year.
Rather than unwinding its stimulus programme by selling bonds, Trump argues, the Fed should have been buying MORE.
If the Fed had done its job properly, which it has not, the Stock Market would have been up 5000 to 10,000 additional points, and GDP would have been well over 4% instead of 3%...with almost no inflation. Quantitative tightening was a killer, should have done the exact opposite!
— Donald J. Trump (@realDonaldTrump) April 14, 2019
Trump’s claim that America needs more quantitative easing is rather controversial -- and hardly matches his claim that the economy is doing well on his watch. Perhaps he’s getting his excuses in early, in case growth stalls badly this year.
But what about the points claim? Well, the Dow ended last week at 26,412 points - around 500 points shy of last October’s all-time high, and up 10% this year. Hardly a shabby performance.
Also, the biggest drag on the markets has been concerns over the global economy -- thanks in large part to Trump’s trade dispute with China.
As Paul Donovan of UBS puts it:
Over 40% of the Dow Jones industrial average is tech and industrial companies. These sectors suffer from the increasing burden of US trade taxes (which are effectively a tax on equities).
Gold has hit a one-week low this morning, as traders lose interest in safe-haven assets.
Bullion is down 0.3% to $12.86 per ounce, another sign that markets are in risk-on mood.
Margaret Yang, a market analyst with CMC Markets, says:
“Gold prices have fallen because of improving macro-economic data which is favouring risk-taking.”
The office space industry has its critics, who aren’t convinced that providing desks, comfy sofas, coffee and (if they’re lucky) craft beer to hot-desking workers adds up to a proper business.
But IWG (formerly Regus) has bucked expectations this morning by selling its Japanese operations to TKP Corp for £320m as part of a new “master franchise agreement”.
The deal will see IWG sell 130 flexible co-work centres to TKP (Japan’s largest provider of conference rooms and banquet halls to rent). TKP also gets to use the Regus, Spaces and OpenOffice brands in Japan under a franchise deal, with IWG providing sales and technology services.
IWG shares have surged 15%, as traders welcome this shift towards more franchising.
European banks shares hit six-month high
European banking stocks have hit their highest level since early October, as trading gets underway.
The Stoxx 600 Europe Banks index has gained almost, lifted by hopes that the US-China trade war could ease - potentially giving global growth a boost.
Across the markets, Spain and Italy’s bourses have risen by over 0.5%, but the action in Frankfurt, Paris and London is more muted.
Updated
Optimism that US firms will report decent results for the last quarter is also boosting markets, says Konstantinos Anthis, Head of Research at ADSS.
JP Morgan got the earnings season off to a strong start on Friday, beating forecasts with record profits and revenues. If Goldman Sachs does the same today, then the markets could be jolted higher.
But perhaps this optimism is overblown, given concerns over the global economy?
Anthis cautions:
The risk on sentiment is the key theme in the markets at the start of the week after a strong close for most instruments on Friday. High beta currencies gained across the board, equities rallied, Treasury yields moved higher and Gold retreated. This a typical risk on environment and it begs the question whether investors are right to be so cheerful. In any case, Easter price action is just around the corner and with the US earnings’ season in full swing more volatility is expected to keep market participants on their toes.
An improvement in risk sentiment is what seems to drive investors’ appetite at this stage. The Euro, the commodity dollars, the greenback against the Yen, all rallied on Friday. At the same time, Gold moved lower while equities were pushing towards more gains targeting fresh highs for the year. However, what makes sense to mention here is that the only meaningful catalyst behind this move higher was that banks reported better earnings for Q1, which sound too simplistic as a credible market driver. Should we be worried?
Reuters: US drops demands for industrial subsidies
In another significant move, Reuters are reporting that Washington has watered down one of its key demands in the trade talks.
US negotiators are, apparently, no longer insisting that China curbs industrial subsidies as part of a deal to remove tariffs on Chinese goods.
Such a climbdown could help the two sides reach a deal (but also irk hawkish US policymakers who want to prevent Beijing tilting the playing fields).
Reuters says:
The issue of industrial subsidies is thorny because they are intertwined with the Chinese government’s industrial policy. Beijing grants subsidies and tax breaks to state-owned firms and to sectors seen as strategic for long-term development. Chinese President Xi Jinping has strengthened the state’s role in parts of the economy.
In the push to secure a deal in the next month or so, U.S. negotiators have become resigned to securing less than they would like on curbing those subsidies and are focused instead on other areas where they consider demands are more achievable, the sources said.
Reuters Exclusive by @alexalper @ChrisPrentice @michaelvmartina :#US has tempered demands that China curb industrial subsidies as a condition for a trade deal after strong resistance from Beijing, according to two sources briefed on discussionshttps://t.co/7dCSsasASr
— Vincent Lee (@Rover829) April 15, 2019
Introduction: Mnuchin fuels optimism over China trade talks
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Investors are starting the new week with a spring in their step, on hope that Washington and Beijing are inching towards a resolution in their trade war.
With Brexit on the back burner, City investors are refocusing on the US-China trade talks....and welcoming upbeat comments from Treasury secretary Steven Mnuchin over the weekend.
Mnuchin told reporters in Washington that “we’re hopefully getting very close to the final round of these issues,” signalling that further face-to-face talks could be imminent.
Perhaps significantly, Mnuchin also that the U.S. is open to facing “repercussions” if it doesn’t live up to its commitments in a potential trade deal with China. That could be a sign that the deal being drawn up has teeth.
As Mnuchin put it:
There are certain commitments that the United States is making in this agreement, and there are certain commitments that China is making.
“I would expect that the enforcement mechanism works in both directions, that we expect to honour our commitments, and if we don’t, there should be certain repercussions, and the same way in the other direction.
We’ve been here before, of course -- optimism doesn’t always translate into concrete action. But both sides are keen to get a deal, especially after last Friday’s import and export data showed US trade with China has slumped over 11% this year.
Mnuchin’s comments sent shares higher in Asia, with China’s Shanghai Composite index up 0.6%.
Japan’s Nikkei surged by 1.4%, hitting its highest level since last December.
European markets are expected to post gains today too:
Global stocks starting unsurprisingly higher to the week on combination of better China data, elevated optimism over US-China trade talk & pos handover from Wall St on Fri. IMF-World Bank spring meetings cautious but constructive. Bonds unchg w/US 10y at 2.55%. Bitcoin at $5.2k. pic.twitter.com/xgvfSEDpXW
— Holger Zschaepitz (@Schuldensuehner) April 15, 2019
Risk on sentiment greets European traders this morning as Asian stocks rally on hopes of a US-China trade deal.
— Sigma Squawk (@SigmaSquawk) April 15, 2019
US Tres Sec Mnuchin hopes US-China trade talks nearing 'final round'
An agreement would go "way beyond" previous efforts to open China's markets to American firms https://t.co/VKAyQ5ODKO
Also coming up today
Goldman Sachs releases its latest financial results before Wall Street opens; analysts predict that revenue fell 10% year-on-year in the first quarter of 2019.
Plus, the latest Empire manufacturing report will show how factories in New York state are faring this month, and whether trade tensions are hurting.
The agenda
- Noon BST (estimate): Goldman Sachs results for Q1 2019
- 1.30pm BST: The New York Empire State Manufacturing Index released
Updated
