European markets close
And finally, European stock markets have closed for the night.
In London, the FTSE 100 ended the day down 8 points at 7439, a drop of 0.1%. The jump in factory orders didn’t provide much of a spark, while traders watched for developments from the Brexit talks in Brussels.
European stocks ended the day higher, perhaps helped by the jump in eurozone consumer confidence.
There’s some relief that oil has climbed back from its seven-month lows; Brent crude is now up 1.8% today at $45.62, but still looks vulnerable.
Joshua Mahony, Market Analyst at IG, says it was a day of ‘low volatility’, and few dramas:
Coming on a day which is largely devoid of any major market moving events, we have seen a degree of stability that has been lacking amongst recent political instability.
Improved consumer confidence in the eurozone continues the theme of recent months, with investors seeing Europe as a high growth region for the coming years despite Brexit uncertainty. This paves the way for an end of the week that will be heavily focused on the eurozone, with PMI surveys expected to continue the strength seen in recent months.
Those PMIs, out tomorrow morning, will give a flash view of how eurozone companies are faring this month.
And on that note, it’s time to stop. Thanks for reading and commenting. GW
Dennis de Jong, managing director at UFX.com, says the jump in eurozone consumer confidence will have delighted the European Central Bank.
The eurozone seems to have taken heart from the continued fall in unemployment, and consumer confidence is now at its highest level since 2001 – improving considerably on last month’s ten-year high.
“Even the shock general election result in the UK has not dampened the mood on the continent as Brexit discussions kick-off, and chief negotiator Michel Barnier will feel he holds the strongest hand.
“However, there are still concerns over inflation, and ECB president Mario Draghi has so far steadfastly refused to taper off the eurozone stimulus programme, perhaps aware that potential banana skins could lie around the corner.”
Nomura: UK rates will rise in August
Hold onto your hats, folks. Japanese bank Nomura have predicted that the Bank of England will raise interest rates at its next meeting, in August.
That’s a gutsy move, as BoE governor Mark Carney argued forcibly on Tuesday that it’s too early for a rate hike.
However, Nomura analyst George Buckley has predicted that the BoE will raise rates from 0.25% to 0.5%, back to their level before the EU referendum a year ago.
Buckley writes:
It has been a rollercoaster of a week when it comes to central bank commentary, with Governor Carney’s Mansion House address justifying no change in interest rates but Chief Economist Haldane highlighting the need for a possible imminent reversal of last year’s loosening.
On balance,we have decided to change our view and now expect the MPC to raise interest rates by 25bp on 3 August. With the Bank growing increasingly intolerant of above-target inflation, it has begun to feel that weaker data would now be needed to prove the case for keeping policy on hold, rather than stronger data being required to justify higher rates.
Buckley points to recent signs that the Bank is more worried about inflation, which is well over its 2% target at 2.9%.
He anticipates a ‘dovish hike’, with the Bank pointing out that:
- a) the move being a reversal of last year’s cut,
- b) policy is still highly accommodative, and
- c) future moves will be “gradual and limited”.
Now this is a bold call.
— Jamie McGeever (@ReutersJamie) June 22, 2017
The Bank of England will raise rates at its next meeting in August, say Nomura's UK analysts.
Greek unions threaten summer of strikes
Back to Greece where today’s protests and the electric atmosphere that prevailed may well be a shocking wake up call for the leftist-led government.
Municipal workers are warning of a “very hot summer” if short-term contracts aren’t replaced with permanent positions.
“We will continue the fight until the end,” Nikos Trakas who heads the workers’ union said after the protests.
“From now on there will be huge and dynamic mobilisations with decisions being taken in the coming hours.”
Eurozone consumer confidence hits 16-year high
Boom! Or do I mean Euroboom?
Eurozone consumer confidence has hit its highest level since 2001, underlining how its economic recovery is on track.
The EC’s monthly consumer morale index has jumped to -1.3 this month, up from -3.3 in May.
A negative reading may not sound much, but it’s actually the strongest number in 16 years.
Eurozone Consumer COnfidence (-1.3 vs -3e vs -3.3 prev) = best since June 2001 pic.twitter.com/h6zLxfJX25
— Mike van Dulken (@Accendo_Mike) June 22, 2017
With growth accelerating to 0.6% in the first quarter of 2017, and unemployment at a seven-year low, the eurozone is enjoying something of a purple patch.
Thirty-odd years ago, David Braben was pushing back the boundaries of computer gaming when he and fellow Cambridge student Ian Bell created Elite.
Today, he should be celebrating as Frontier Developments, the computer game developer he founded, posted sparkling financial results.
With revenue up 75% this year, the company expects to grow operating profits by 500% to £7.2m. It now expects operating profit margins to be towards the top of its previous guidance, of 15-20%.
It’s due to the success of two games; Planet Coaster, a theme park game....
...and Elite Dangerous, a massive multiplayer online space adventure game that accurately simulates our whole galaxy.
For those of a certain age, the original Elite was quite mind-blowing; Braben and Bell managed to squeeze an open-ended space trading and combat game into just 32kilobytes of RAM, at a time when most people were playing Chuckie Egg (younger readers, ask your parents).
Elite Dangerous seems to have tapped into that nostalgia; Frontier crowd-funded the money to create the game, and is turning gamers into repeat customers by releasing regular updates.
Shares in Frontier are up 6.5% this morning at 450p, compared with just 300p in mid-April....
Braben says:
Our ambition now is to build on this success, continue to invest in our franchises and scale up to create a self-publishing multi-franchise success story.
Our third franchise, which is based on an enduring Hollywood movie IP of global renown, is scheduled for release in calendar 2018, and we will provide more details about this exciting project later this year.”
Updated
Fresh protests against Greece’s austerity programme are taking place today, as refuse collectors down tools and demonstrate.
Associated Press has the details:
Thousands of striking Greek municipal workers marched through Athens on Thursday to press for better employment status, in the latest of a series of protests that have hindered trash collection in major cities.
Authorities said that about 5,000 people took part in the demonstration. Protesters briefly scuffled with police, who used tear gas to prevent them from pushing into the parliament complex. No arrests were reported, while two protesters suffered respiratory problems from the tear gas.
Earlier, some demonstrators had dumped trash outside the interior ministry building.
Union officials want the left-led government to grant full-time, permanent state jobs to municipal workers employed on short-term contracts that have expired or are about to expire.
A high court has ruled unconstitutional a government attempt to extend the contracts of municipal trash collectors, and government officials say they are seeking an alternative solution.
Union members have for days been hindering trash collection across the country, and municipal authorities in Athens and other major cities have asked the public to keep their refuse at home.
Greece has been forced to drastically cut public spending and reduce state sector hiring over the past seven years under its international bailout agreements.
Over in Brussels, EU leaders have been gathering for a summit where UK prime minister Theresa May will outline her Brexit plans.
European Council president Donald Tusk has caused a stir, by suggesting that Brexit might not even happen.
Channelling John Lennon, Tusk declared:
“Some of my British friends have even asked me whether Brexit could be reversed, and whether I could imagine an outcome where the UK stays part of the EU.
“I told them that in fact the European Union was built on dreams that seemed impossible to achieve. So, who knows? You may say I’m a dreamer, but I am not the only one.”
More here:
German Chancellor Angela Merkel, meanwhile, told reporters that that the EU must prioritise the needs of its remaining members:
“We want to have talks that take place in a good spirit and we know that later we will want to work with Great Britain, but the clear focus must be on the future for the EU 27 so that we have results for the better.”
Updated
Back in London, shares in UK tech firm Imagination have jumped by 16% this morning, after it effectively put itself up for sale.
The move comes two months after Imagination shocked the City by revealing that Apple, its biggest customer, would stop using its technology in its iPhones, iPads, and iPods.
In a statement today, Imagination said it had received interest from suitors in recent weeks so had begun a formal sale process and is talking to potential bidders.
It’s quite a dramatic fall; not long ago, Imagination was a City darling thanks to its tie-up with Apple, which provides more than half its revenue.
Neil Wilson of ETX Capital points out that Imagination tried, without much success, to sell off its best performing divisions -- before finally putting the whole company on sale today:
It was never going to be easy for Imagination Technologies when it lost its biggest customer and efforts to offload two of its three main businesses – MIPS and Ensigma - in a bid to strengthen the balance sheet clearly weren’t enough. These were both strong potential growth areas that could have delivered lasting revenue accretion to offset the loss of Apple.
That was a pretty dire scenario, akin to selling off the family silver to keep the estate going a little longer. Now the shutters are up and a buyer sought. A pretty ignominious end to what was a great British tech success story.”
More here:
The number of Americans signing on for unemployment benefit has inched up, but remains at historically low levels.
Some 241,000 US citizens filed initial jobless claims last week, new figures show, up from 238,000 the previous week.
Wall Street had expected a smaller rise, to 240,000; still, this is a level consistent with a solid labour market.
The number of ‘continuing jobless claims’ also rose to 1.94 million, meaning than an extra 8,000 people remained on jobless benefits. That’s also a relatively low figure:
US Cont Jobless Claims creep up for another week, albeit still v close to 28yr lows #usd pic.twitter.com/QhQf13R0iM
— Mike van Dulken (@Accendo_Mike) June 22, 2017
Newsflash from Wall Street: American Airlines has revealed that rival Qatar Airways is interested in buying a 10% stake.
American Airlines says it recently received an “unsolicited notice”, saying Qatar Airways intends to make a significant investment in AA’s common stock, bought on the open market.
BREAKING: American Airlines shares jump 5% after it says Qatar Airways has expressed interest in taking ~10% stake https://t.co/ja53UxPcIU
— CNBC (@CNBC) June 22, 2017
American Airlines’ shares have jumped by 5%, and other airlines are rallying too....
Whoa. Qatar Airways wants to buy about a 10% stake in American Airlines. $AAL up 5% #premarket. $UAL $LUV $DAL & other airlines up as well.
— Paul R. La Monica (@LaMonicaBuzz) June 22, 2017
After a wobbly morning, Brent crude has now risen back over the $45 per barrel level.
It’s now changing hands at around $45.17, up 0.6% compared with yesterday’s seven-month low.
Price of #crude #oil#Brent - $45.17 (+0.35/ +0.78%)#WTI - $42.73 (+0.20/ +0.47%)
— crude Oil is Now (@crudeOilNow) June 22, 2017
22 Jun 12:00 UTC (GMT) pic.twitter.com/dlbPbydVxJ
But City analysts are still downbeat about oil.
Barclays have just cut their 2017 forecast for Brent to $52 per barrel, down from $56.
ICYMI: Barclays Cuts Oil Price Forecasts #OOTT pic.twitter.com/mZzKB3WZto
— Anthony Barton (@AntBarton89) June 22, 2017
UK factory report: What the experts say
Howard Archer, chief economic advisor to the EY ITEM Club, suspects that the CBI may be over-egging the strength of UK manufacturing.
Archer says it’s “highly encouraging” to see total order books at their best level for nearly 29 years, but points out that official data have been more pessimistic.
“Taken at face value, the survey suggests that the manufacturing sector has had a strong second quarter and has considerable momentum going into the third quarter
“However, there is the concern that survey evidence for the manufacturing sector has tended to be markedly more upbeat than the official data from the Office for National Statistics (ONS) so far in 2017.
“Indeed, official data suggests that the manufacturing sector is far from guaranteed to see even modest growth in the second quarter. Specifically, latest ONS figures show manufacturing output edged up 0.2% month-on-month in April after falling in each of the first three months of 2017. Consequently, manufacturing output was down by 0.7% in the three months to April compared to the three months to January.
Philip Shaw of Investec is also cautious. He says today’s report could bolster the case for an early UK interest rate hike - but points out that manufacturing only contributes a small portion of UK GDP.
While it’s reassuring to see some evidence of a strengthening of exports, one should remember that manufacturing still only accounts for about 10 percent of the economy.”
Brexit dashboard: UK faces slowdown amid living standards squeeze
The Guardian’s latest Brexit dashboard is out....and it’s rather gloomier than the CBI’s factory report.
This month’s dashboard shows how Britons are suffering a living standards squeeze, 12 months on from the EU referendum.
My colleague Katie Allen explains:
One year since voters narrowly opted for Brexit, the Guardian’s monthly tracker of economic news paints a gloomy picture, with households facing rising costs and firms fretting over falling demand and political uncertainty.
The economy has so far avoided the recession predicted by some doomsayers at the time of the referendum, and in the months immediately following the Brexit vote the UK outperformed most other advanced economies.
But at the turn of the year the economy slowed markedly and the UK slipped to the bottom of the European growth league. It was also left trailing behind the world’s advanced economies.
As the pound’s sharp drop since the referendum works its way through the economy into higher prices in the shops, the pressures on consumer spending threaten to keep growth in the doldrums.
Now that complex Brexit talks are gettting under way, business groups are also warning of headwinds from fraught domestic politics and uncertainty around the UK’s future trading and immigration arrangements.
Here’s the full story:
Here are economists David Blanchflower and Andrew Sentance analysing the data:
And here’s the dashboard itself, tracking the key economic indicators:
The CBI’s survey also shows that UK factory order books have strengthened since the EU referendum a year ago:
Total order books climbed to the highest since August 1988, while export orders improved to a 22-year high. #CBI_ITS https://t.co/4HUMVYaHSA pic.twitter.com/s6WDKSSPBA
— CBI Economics (@CBI_Economics) June 22, 2017
Output growth eased back to the pace seen at the start of the year, but firms expect it to rebound. #CBI_ITS https://t.co/4HUMVYaHSA pic.twitter.com/jDCkMzgND5
— CBI Economics (@CBI_Economics) June 22, 2017
City experts are welcoming the news that UK factories are enjoying a blowout month.
Here’s Julian Jessop, chief economist at the Institute of Economic Affairs:
Further reassurance that UK #manufacturing is continuing to thrive in the wake of the #Brexit vote. #CBI survey bodes well for Q2 GDP too. https://t.co/PBx9id8wRD
— Julian Jessop (@julianHjessop) June 22, 2017
Here’s more reaction:
Massive beat for UK Factory Orders,Highest Level for 30YRS... Analysts Forecasts blown away again, >100% better than consensus #CBIIndTrends
— CoxeyLoxey (@CoxeyLoxey) June 22, 2017
Damn. These facts must upset prophets of Brexit doom...
— Stewart Button (@StewartButton) June 22, 2017
UK factories have best month for orders since 1988
https://t.co/E3PHkf5Hlp
UK factory orders hit 29-year high
Newsflash: Britain’s manufacturing sector is enjoying its best month for new orders since the summer of 1988.
That’s according to the CBI’s healthcheck on the sector, which found that factory order books have strengthened this month.
Some 27% of manufacturers reported total order books to be above normal, and 12% said they were below normal, giving a rounded balance of +16% -- the highest in nearly three decades.
UK CBI Trends Total Orders At Highest Level Seen In Nearly 3 Decades, Since August 1988
— LiveSquawk (@LiveSquawk) June 22, 2017
The CBI explains:
The survey of 464 manufacturers found that total order books climbed to the highest level since August 1988. This was underpinned by a broad-based improvement in 13 of the 17 sub-sectors, led by the food, drink & tobacco and chemicals sectors.
Export orders also improved to a 22-year high, hitting similar peaks to those seen in 2011 and 2013.
A jump in orders suggests factories should be pretty busy in the next few months.
Manufacturers are also quite upbeat about their prospects this year; 37% predicted growth, and 9% a decline, giving a rounded balance of +27%
However, it’s not all good news.
First, factory output growth has slowed compared to earlier this year....
Secondly, many firms told the CBI that they intent to hike prices in the months ahead. That’s because their raw materials costs have gone up (due to the weak pound).
Rain Newton-Smith, CBI Chief Economist, says:
“Britain’s manufacturers are continuing to see demand for “Made in Britain” goods rise with the temperature. Total and export order books are at highs not seen for decades, and output growth remains robust.
“Nevertheless, with cost pressures remaining elevated it’s no surprise to see that manufacturers continue to have high expectations for the prices they plan to charge.
El-Erian: IMF and EU must seek a long-term solution on Greece
Greece’s debt crisis has fallen out of the headlines again, after Athens’ creditors agreed to hand over an €8.3bn loan tranche last week.
That deal removed the immediate threat of a default this summer, but hasn’t addressed the key issue; Greece’s debt pile is unsustainably large, and Europe and the International Monetary Fund can’t agree what to do about it.
Mohamed A El-Erian, chief economic adviser at Allianz, argues that Europe needs to soften its stance and consider how to give Greece the help it needs.
He writes:
For those of us who have been following the Greek economic tragedy for many years, much of the European view continues to defy economic logic – and for a simple reason: European politicians worry about the domestic political consequences of granting Greece debt relief, especially ahead of Germany’s federal election in September.
Offering debt relief, it is feared, could undermine the credibility of governing parties and provide a boost to extremist movements.
To be sure, debt forgiveness is tricky, raising complicated issues of fairness and incentives. Yet, in some cases, there comes a time when refusal to forgive debt is more damaging. European officials know as well as the IMF does that Greece has long been at this stage, turning the country into a permanent “ward of the state” within a eurozone that does not accommodate this outcome well. But they seem unable to act.
Equities are down this morning because traders are worried that the falling oil price signals low inflation and weaker growth, says David Madden of CMC Markets.
He says:
European equities have fallen again as the weakness in oil is weighing on investor confidence.
In London, the FTSE 100 is down 0.5% and commodity related companies are the biggest fallers.
BP and Royal Dutch Shell are in the red on the back of falling oil prices. While, mining companies like Glencore, Anglo American and BHP Billiton are lower again as dealers are concerned about declining demand for commodities from Asia.
Oh sugar..... soft commodity prices fall
Oil isn’t the only commodity having a bad morning.
Sugar and coffee are at their lowest in over a year, cocoa is close to a 10-year low, and wheat has also dropped.
The Financial Times has the details:
Cocoa in New York, has fallen almost 10 per cent since the start of this week, settling at $1,853 a tonne on Wednesday. Some traders are watching to see whether it tests $1,756, the 10-year low seen in April.
Sugar is trading at 13 cents a pound, a 16-month low, while arabica coffee is at $1.2195 a pound, a level not seen since May last year.
Bitter aftertaste: cocoa, coffee, sugar prices follow oil lower https://t.co/7uglkfUrB8 pic.twitter.com/RkZYJVP8Ol
— fastFT (@fastFT) June 22, 2017
It’s a worry for producers, and emerging markets that rely on exports of these ‘soft commodities’.
But it could bring relief to consumers... IF suppliers pass these prices on. Even if they don’t, there should be less pressure to raise prices or shrink products.
ECB: Eurozone recovery is 'increasingly resilient'
Europe’s economic recovery is on course and strengthening steadily, according to the European Central Bank.
In its new economic bulletin, the ECB says the latest data suggest “solid growth” in the current quarter, thanks to rising demand at home and abroad.
The ongoing economic expansion is increasingly resilient and has broadened across sectors and countries. Euro area growth is supported primarily by domestic demand, although tailwinds from the external environment have increasingly lent support to the outlook.
The recovery is “particularly visible” in euro area labour markets, it adds, with the unemployment rate falling to 9.3%, an eight-year low.
The ECB also focuses on the oil price, saying that recent falls should have a dampening effect on inflation. It adds:
Brent crude oil prices have fluctuated in the range of $48 to $56 per barrel since early March.
The price fluctuations reflect shifting concerns among market participants about the likely success of the OPEC strategy to curtail production, amid still high oil inventories and rising US shale production. The prolongation of the output cut for nine months, which was agreed by OPEC and 11 non-OPEC countries on 25 May 2017, was widely anticipated by markets and priced in before the meeting. Hopes raised by some participating countries that there might be agreement on an even deeper or longer cut did not materialise, which led to a renewed price drop in the aftermath of the meeting of about 6% in US dollar terms. Looking ahead, the futures curve is signalling largely unchanged oil prices over the next three years. Non-oil commodity prices have declined by about 8% since early March.
The oil price is a handy proxy for how confident investors feel about the global economy, as faster growth means more demand for energy.
Chris Scicluna, head of economic research at Daiwa Capital Markets says:
“As far as the market mentality is concerned, as long as the oil price keeps weakening, this is going to tell us something about the underlying capacity of the global economy to generate inflation on a sustained basis.”
Bloomberg’s Tracy Alloway has spotted a trend in the oil price:
New trade idea - short oil every Wednesday. pic.twitter.com/jofIC9EApR
— Tracy Alloway (@tracyalloway) June 22, 2017
European stock markets have all dipped into the red, as the oil price worries traders.
In London the FTSE 100 is down 28 points, or 0.4%. Royal Dutch Shell, the oil company, has shed almost 1.5%.
Mining companies are also down, mirroring a fall in commodity prices such as copper.
Connor Campbell of SpreadEx blames the weak oil price:
The oil slick only got thicker this Thursday, the markets drowning in a well of the black stuff.
Brent Crude quickly hit a new 2017 nadir, and its worst price since November 2016, this morning, dropping another 0.2% to sit just below $45 per barrel.
Despite a brief bounce following yesterday’s larger than expected fall in US crude inventories the current oil glut fears aren’t receding, especially since ramped up production in places like Libya and America means OPEC’s ability to affect global output may be waning.
Libya and Nigeria are also pushing the oil price down, says the Wall Street Journal’s Georgi Kantchev.
He writes:
Oil production in conflict torn Libya, which is exempted from the OPEC output deal, has surprised on the upside. Despite the continued civil war in the country, which has Africa’s largest oil reserves, Libyan output has recently climbed to 885,000 barrels a day, roughly three times its level from just a year ago.
Nigeria, also exempted from the OPEC agreement due to militant attacks on its oil infrastructure, is another wild-card. Last month, its production rose to 1.68 million barrels a day, its highest level in a year, according to OPEC data.
Wayne McCurrie, fund manager at Ashburton Investments, argues that Brent crude has fallen to levels which are unprofitable for shale producers - possibly putting a floor under the oil price.
Brent crude below 45$. Oversupply US shale. Below 45 no shale in the money so there is a bottom to how far price can fall
— Wayne McCurrie (@WayneMcCurrie) June 22, 2017
The fall in the oil price is encouraging investors to bail out of risky assets, says FXTM chief market strategist Hussein Sayed.
He adds:
It’s evident that oil prices are becoming the primary driver of the financial markets. After both benchmarks entered a bear market with Brent plunging below $45 for the first time since November, investors are becoming more concerned as to when the plunge will stop.
Sayed believes that the market is losing faith in Opec:
Comments from Iranian oil minister, Bijan Zangeneh that Iran is in discussions with OPEC members for further production cuts fell on deaf ears, meaning that comments from OPEC members are unlikely to influence prices.
With no hard data to encourage bulls to jump in, the risk to the downside will continue to persist.
Introduction: Oil worries grow as Brent falls through $45
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s an edgy feel in the markets this morning, after the oil price slumped deeper into a bear market last night.
Brent crude is wallowing below $45 per barrel this morning, close to yesterday’s seven-month low, as concerns over a supply glut and falling demand dominate.
US crude oil has also tumbled, hitting its lowest levels since last summer. That helped to send energy stocks sliding on Wall Street yesterday.
This chart from Bloomberg shows how the oil price has now slumped by 20% from its recent highs, putting it in bear market territory.
The selloff is being driven by several factors, including:
- signs that the oil market is simply oversupplied,
- scepticism that Opec can actually enforce its production freeze deal,
- the reality that other producers - such as US shale oil drillers - will boost their own production if the price is right.
Mike van Dulken of Accendo Markets says a surprise fall in US oil inventories yesterday hasn’t given oil much support.
Crude oil prices have taken another leg lower, falling to their lowest level since August overnight.
The move comes as an un-named OPEC member casts doubt over the possibility of deeper production cuts by the group, offsetting a drop in US inventories.
Also coming up today...
There’s a raft of data coming up, including the latest economic bulletin from the European Central Bank and a new health-check on Britain’s factories.
European stock markets have dropped in early trading and are expected to be subdued; perhaps City traders are too worn out by the heat....
Global Update (12:35 pm)
— sharekhan jammu (@sharekhanjammu) June 22, 2017
FTSE down 21 points -0.28 %
CAC down 21 points -0.41 %
DAX down 29 points -0.23 %
DOW FUT down 10 points
Here’s the agenda:
-
9am BST: ECB publishes economic bulletin
-
11am BST: CBI publishes its survey of UK industrial trends for June
-
1.30pm BST: US weekly jobless report
-
3pm: Eurozone consumer confidence figures for June
Updated
