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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK service sector growth hits four-month high, but car sales slump – as it happened

The Canary Wharf business district in London.
The Canary Wharf business district in London. Photograph: Eddie Keogh/REUTERS

Afternoon summary

Time for a quick recap.

1) Britain’s economy looks healthier than a few days ago. Growth in the dominant service sector has hit a four-month high this morning, following similar strong data from the manufacturing and construction sector this week.

UK service sector PMI

2) The car industry, though, seems to have hit a bump. Sales slumped by 20% last month, after buyers scrambled to buy new cars in March before tax changes hit.

UK car registration figures
UK car registration figures Photograph: SMMT

3) The eurozone recovery looks intact; service sector growth roared to a six-year high last month. Firms reported a rise in demand, encouraging them to take on more staff.

4) The euro has strengthened, as have French bonds, as Emmanuel Macron remained the favourite to win Sunday’s presidential election. Macron has just picked up an endorsement from Barack Obama, while Le Pen is being backed by former UKIP leader Nigel Farage...

5) In the City, shares in Next have fallen sharply after the retailer cut its profit forecasts and warned that conditions are tough. HSBC is having a better day, though, up 3% after beating profit forecasts.

Next's share price over the last two years
Next’s share price over the last two years

6) Commodity prices are also under pressure, with oil hitting a five-month low today.

David Morrison of SpreadCo explains why:

There’s been no let-up in the rout in crude oil today. The benchmark WTI contract is down close to 2.5% this afternoon while Brent has slumped below $50. Both contracts trading at their lowest levels since late November last year, just after OPEC and other major producers agreed to their 1.8 million barrel per day output cut. Today’s sell-off accelerated after Russia said that there’s no decision to date on extending the production cut beyond June.

That may be all for today, unless anything huge happens. Thanks for reading and commenting. GW

Updated

Over in New York, the stock market has opened cautiously as traders await another vote in Congress over healthcare.

The Dow Jones industrial average is up just 20 points, or 0.1%.

Republicans claim they have enough votes to repeal and replace the Affordable Care Act introduced under President Obama. But it could be close....

Here’s more reaction to today’s decent UK service sector data, from Kathleen Brooks of City Index:

The UK service sector has caught up with the manufacturing sector, and today’s PMI data for April suggests that the UK economy will rebound once more in Q2, after a disappointing start to the year. This has been greeted by a bounce higher in the pound, although GBP/USD hasn’t been able to sustain gains above 1.2900 so far.

As we move into election season, the UK economy is playing into Theresa May’s hands, which could help to reduce political uncertainty as we lead up to the General Election next month. This is significant for UK assets, particularly the pound, which has been very sensitive to UK political risk post-Brexit. Thus, an easy win for Theresa May next month combined with a pick-up in UK economic data could help GBP/USD break through the 1.30 barrier in the coming weeks. As we lead up to the election on June 8th June, UK economic data will be just as important as the polls for traders to keep an eye on.

Oil price hits five-month lows

The oil price is taking a kicking today, hitting its lowest level since last December.

Brent crude is down 1.9% at $49.84, a five-month low, while US oil fell below $47 per barrel.

This comes after figures yesterday showed US oil inventories are higher than expected, suggesting weaker demand.

Reuters explains:

U.S. data showed crude inventories fell 930,000 barrels in the week to April 28, against analysts’ expectations for a decrease of 2.3 million barrels. Stocks have steadily declined for the last four weeks, but at 527.8 million barrels they are just 7 million barrels off a record high.

There’s also concern that the OPEC cartel might not extend their deal to cut production. That agreement expires in June, although it could be extended at a meeting later this month.....

Updated

US trade gap narrows, jobless claims slip too

Two pieces of US economic data just flashed up.

1) America’s trade deficit was smaller than expected in March. The gap between US imports and exports came in at $43.7bn, close to February’s $43.8bn, and lower than the $44.5bn expected.

Imports fell by 0.7% during the month, while exports shrank by 0.9%. America’s politically sensitive trade gap with China widened by 7%, though. That may be because trade patterns returned to normal after the Chinese New Year holidays.

2) The number of Americans filing new claims for jobless benefit fell unexpectedly last week.

Just 238,000 people applied for unemployment benefit last week, down from 257,000. That’s lower than expected, showing how the US labour market remains strong.

Euro rallies as traders prepare for French election drama

Optimism over Sunday’s French election continues to bubble through Europe’s financial markets today.

The euro has risen almost half a cent against the US dollar to $1.0922, and French bonds have also strengthened.

Traders are concluding that Emmanuel Macron has cleared one of the last hurdles between him and the Élysée Palace, having survived last night’s debate with Marine Le Pen relatively unscathed.

Taxi driver are a popular weathervane on these occasions, and Politico’s Nicholas Vinocur has found one who has switched to Macron.

Sunday’s election will still be a major event, though, as a surprise Le Pen victory would shake the markets and herald a new phase of euro crisis.

Barclays will have extra sales and trading staff at work around the globe this weekend, while its research team will also provide 24-hour coverage for clients.

A spokesperson says:

Barclays will have extra Sales and Trading staff in our offices in New York, London and Singapore, in order to help our clients navigate through any ensuing market volatility as the French election second round results come in.”

Updated

Greek PM blasts creditors ahead of bailout vote

Greek Prime Minister Alexis Tsipras arriving for a cabinet meeting today.
Greek Prime Minister Alexis Tsipras arriving for a cabinet meeting today. Photograph: Orestis Panagiotou/EPA

As the eurozone basks in the sun of nascent economic recovery, in Athens prime minister Alexis Tsipras has been blasting Greece’s euro zone partners (and IMF) for their unfriendly behaviour towards the bloc’s weakest link.

Helena Smith reports from Athens

Just days after a landmark agreement with them, Alexis Tsipras has resorted to some of his language of yore to describe the international creditors keeping debt-stricken Greece afloat.

Addessing his cabinet this morning the leftist leader slammed the economic “model” the eurozone and IMF had elected to inflict on Greece.

Tsipras declared:

“The lenders are not our friends. And nor did they become our friends in June 2015, or May 2016 or now.

“And that is not just a moral judgement. It is the reality. On the one hand, lenders want to secure the money that they loaned Greece, on the other they want [to impose] a particular model and strategy of organising the economy. This model very often clashes with the one that we want for the country, for the economy, to cover social needs.”

The Greek prime minister then went on to defend the way his government had negotiated the latest bailout review saying it was precisely because it was not prepared to agree to measures “at any cost” that it had negotiated so hard.

The agreement, which foresee Athens applying yet more punitive pension cuts and tax increases come 2019, has been criticised by leading figures in Tsipras’ ruling Syriza party - although it also pays the way to much-need possible debt relief.

The concessionary measures will be put before the 300-seat parliament later this month so that the deal can be finalized – and emergency funds disbursed – at the next meeting of euro group finance ministers on May 22. Greece faces major debt repayment worth €7.5bn on July 7th.

City traders are continuing to thump Next, following the retailer’s downbeat trading update this morning (details here).

Here’s the full story:

Diesel car sales take a tumble

A car being filled up with diesel.

Today’s car registration figures also show that sales of diesel-powered cars plunged by 27% year-on-year in April.

That may show that recent pollution scandals (yes you, Volkswagen) and new taxes on high-emitting vehicles are spooking drivers.

Shaun Armstrong, managing director of online car finance provider Creditplus.co.uk says:

Buyers have been spooked by the planned introduction of a toxin tax on diesel cars and the London Mayor Sadiq Khan announcing an additional charge on polluting diesel vehicles entering central London.

“Theresa May then showed her disdain for diesel by hinting that the Government is considering introducing a scrappage scheme to incentivise drivers to trade in older diesel vehicles.”

The UK car market in April
The UK car market in April Photograph: SMMT

This chart highlights how UK services firms hiked their prices in April, as the inflationary impact of the weaker pound ripples through the economy.

Service sector PMI data

And this one shows how bosses are a little less optimistic than in March (although still fairly upbeat):

Service sector PMI data

UK mortgage approvals hit six-month low

An estate agent sold sign is displayed outside a property in London, England.

We’ve also got fresh evidence that Britain’s housing market is slowing.

Mortgage approvals fell to a six-month low of 66,837 in March, down from 67,936 in February.

That’s a weaker reading than expected, and the second monthly fall in a row.

Recent surveys have shown that price growth has slowed recently, suggesting the market is cooling as real wage growth slows.

Service sector recovery: What the experts say

The UK services sector had a “stellar” April, says Duncan Brock of Chartered Institute of Procurement & Supply.

However, growth is being driven by orders from other companies - rather than the public, he adds:

“A supportive economic backdrop helped to boost the UK service sector, with resilient demand reported both at home and from abroad. Going full steam ahead with staff hires rising at one of the fastest rates since last summer, this relieved capacity pressures and provides a signal that service providers anticipate additional growth in the coming months.

“The driver of growth came primarily from business clients, as consumers took a back seat, uneasy about rising costs for essentials such as food, fuel and energy which rose at the fastest rate since July 2008.

Dean Turner, Economist at UBS Wealth Management, is encouraged that Britain’s services PMI hit a four-month high in April.

But....he’s also concerned that prices rose so sharply; this could hit economic growth this year.

“Although the services PMI beat expectations, some of the details give pause for thought. Input costs continue to point to higher inflation in the months ahead, a factor that is likely to weigh on consumers. Furthermore, although firms’ optimism about the year ahead is still positive, it fell for the third consecutive month.

“Nevertheless, the figures continue to point to the economy expanding in the current quarter, something that will provide the PM with some comfort going into the General Election and the Brexit negotiations soon after. However, an interesting nuance in the data at the moment is that surveys signal a greater sense of growth than the hard data – though markets are unlikely to be bothered this.

Service sector firms hit customers with price hikes

But there’s bad news too..... service sector companies are hiking prices at the fastest race since July 2008.

Firms argue that they had to raise prices, because they’ve been hit by higher costs themselves.

Markit reports:

UK service providers indicated a strong rise in input costs during April, despite the rate of inflation easing to a seven-month low. This was mostly linked to higher utility bills, full costs, salary payments and food prices. As a result, average prices charged by services firms increased at a robust pace that was the fastest recorded since July 2008.

We’ve now had a hat-trick of good UK economic data this week, as economist Rupert Seggins tweets:

(however, these PMI reports are only ‘soft data’, rather than ‘hard data’ like an actual GDP report)

Markit: Growth has picked up to 0.6%

Britain’s economy seems to have picked up speed, after growth slowed to just 0.3% in January-March.

Chris Williamson, Chief Business Economist at IHS Markit, says:

“The upturn in the services PMI rounds off a hat- trick of good news after upside surprises to both the manufacturing and construction PMIs. The three surveys collectively point to GDP growing at a rate of 0.6% at the start of the second quarter.

“While we expect consumer spending to slacken in coming months, with the April survey highlighting continued weakness in sectors such as hotels, restaurants and other household-facing businesses, there’s good reason to believe that at least 0.4% GDP growth can be achieved in the second quarter as a whole.

UK services sector growth hits four-month high

Breaking! Growth in Britain’s service sector has hit a four-month high.

Markit’s Service Sector PMI has jumped to 55.8 in April, up from 55.0 in March, and the highest reading this year.

That signals stronger growth last month in the dominant sector of the UK economy.

Markit says that service sector firms enjoyed “a sustained rebound in business activity during April, supported by the fastest upturn in new work so far in 2017.”

Job creation also hit a four-month high, as companies struggled to handle the increased demand.

Service sector bosses are also confident about growth prospects over the next 12 months, Markit adds.

Here’s the key facts:

Markit

More to follow!

Updated

UK car sales takes a 20% dive

Eek! UK new car registrations tumbled by almost 20% in April as new tax changes hit the sector.

That includes a 28% slide in private car sales, suggesting that consumer are reining themselves in.

SMMT car sales

It’s a complicated picture, though, as new tax changes came into force last month. The new Vehicle Excise Duty rules made it much more expensive to run certain cars, sparking a jump in sales in March.

Mike Hawes, SMMT Chief Executive, says:

With the rush to register new cars and avoid VED tax rises before the end of March, as well as fewer selling days due to the later Easter, April was always going to be much slower. It’s important to note that the market remains at record levels as customers still see many benefits in purchasing a new car. We therefore expect demand to stabilise over the year as the turbulence created by these tax changes decreases.”

And here’s economist Sam Tombs:

April’s strong PMIs suggest that the eurozone recovery picked up speed last month, says Chris Williamson, Chief Business Economist at IHS Markit said:

“With the final reading coming in slightly above the earlier flash estimate, the PMI surveys portray an economy that is growing at an encouragingly robust pace and that risks are moving from the downside to a more balanced situation.

“The April Eurozone PMI is historically consistent with a GDP growth rate of 0.7%, with similar rates of expansion signalled for both Germany and France. Even faster gains are being indicated in Spain and Ireland and Italy is also seeing growth perk up, highlighting the increasingly broad-based nature of the current upturn.

The eurozone grew by 0.5% in the first three months of this year. If growth really does accelerate to 0.7%, talk of a ‘Euro boom’ might not seem too daft.

Eurozone growth hits six-year high

Boom! The eurozone’s private sector has just reported its strongest growth since the debt crisis began in 2011.

Markit’s ‘composite output index’, which tracks thousands of companies across the region, has jumped to 56.8 in April, up from 56.4 in March.

That’s based on today’s strong services PMIs, plus Tuesday’s equally strong manufacturing data.

Eurozone composite PMI

A surge in new business helped companies to boost their output by the fastest rate in 72 months, says Markit.

Underpinning growth of economic activity was a strong increase in incoming new business. New orders rose for the twenty-ninth month running, with the rate of expansion staying close to March’s high.

The outlook for the economy also remained relatively bright in April, with business optimism about levels of output in one year’s time staying close to March’s series-record high. Rising backlogs of work also suggested that new order growth was sufficiently robust to test capacity and provide a buffer of incomplete work.

Encouragingly, firms also reported a rise in employment levels in April.

Markit explains:

Although the rate of job creation slowed, it was still one of the best seen over the past decade. Accelerated workforce growth in Spain and Ireland partly offset slower increases in Germany and Italy.

Ditto Germany.

Its services PMI has hit a two-month low of 55.4, down from 55.6 in March. That’s better than the earlier ‘flash’ estimate and still shows solid growth.

Updated

France’s services PMI has missed forecasts, but remains comfortably in ‘growth’ territory (ie, over 50).

Italian service sector smashes forecasts

Wow! Italy’s service sector grew at its fastest pace in almost a decade.

The Italian services PMI has jumped to 56.2, showing pretty strong growth, up from 52.9 in March.

Markit says:

The strong growth was driven by rising demand, which also led to the creation of more jobs as capacity pressures intensified.

Another sign that Europe’s economy is having a pretty decent year....

Macron optimism pushes markets higher

Optimism that Emmanuel Macron will beat Marine Le Pen to the French presidency is pushing shares higher, says Kathleen Brooks of City Index.

She writes:

French Presidential favourite Macron was considered to have outperformed Marine Le Pen in the final Presidential debate in France last night.

This has helped to boost equity markets in Europe and we have also seen a drop in French bond yields, suggesting that political risk premia is falling sharply ahead of the second round of the French election on Sunday.

Interestingly, an opinion poll has also suggested that Macron’s En Marche! party could claim a large share of seats in the French Assembly in June....

European markets are all up in early trading
European markets are all up in early trading Photograph: Bloomberg

Spanish service sector growth hits 20-month high

Spanish National Flag

Olé! Spain’s services sector has posted strong growth last month.

The Spanish services PMI has jumped to 57.8, signalling the fastest growth rate since August 2015, according to data firm Markit.

Spanish companies reported a “sharp increases” in activity and new business, meaning they took on more staff to tackle higher workloads.

Markit says:

April survey data pointed to further sharp monthly rises in activity and new business in the Spanish service sector. Higher workloads encouraged firms to expand their operating capacity, and to this end employment increased to the greatest extent in nine months.

Companies generally expect these trends to be sustained, supporting further optimism around the 12-month outlook.

Updated

French stock market hits nine-year high

Over in Paris, the CAC 40 index has hit its highest level since 2008.

French bonds are also rallying, after Emmanuel Macron was judged to have outperformed Marine Le Pen in a notably ill-tempered and hostile TV debate last night:

Next shares slide after gloomy trading news

High street fashion retailer NEXT, UK. Image shot 2013. Exact date unknown.E0GE02 High street fashion retailer NEXT, UK. Image shot 2013. Exact date unknown.

High street chain Next has cut its growth and profit forecasts, in the latest sign that Britain’s retail sector is struggling.

In a downbeat trading update, Next warned that:

The UK consumer environment remains challenging, particularly in the clothing and homeware markets, and real wage growth is now close to zero.

Sales of full-price items at Next’s shops has fallen by over 8% in the last three months; a sign that shoppers are cutting back in the face of higher inflation.

Next sales

It now expects to make profits of between £680m and £740m this year, down from a previous range of £680m to £780m.

This has sent Next shares slumping by 5%, the worst performer on the FTSE 100.

Next share price
Next share price Photograph: Thomson Reuters

A branch of HSBC bank in Hong Kong

Banking giant HSBC has also beaten City expectations.

Pre-tax profits in the first quarter came in at $5bn, comfortably ahead of the $4.3bn expected.

CEO Stuart Gulliver appears to be making progress in stemming the fall in revenue at HSBC; adjusted revenues rose by 2% (once you strip out currency effects and the impat of selling HSBC’s Brazil operations).

An upbeat Gulliver says:

“This is a good set of results. The increase in adjusted profit was driven by strong performances in three of our four global businesses.

Global Banking and Markets had a great quarter; Commercial Banking delivered higher revenue from our liquidity and cash management activities; and Retail Banking and Wealth Management was supported by rising interest rates and renewed customer investment appetite.

HSBC shares are up almost 3% in early trading.

Updated

Shell logos on petrol pumps at a petrol station.

Oil firm Royal Dutch Shell is leading the rally in London, up 3%, after beating analyst forecasts.

Shell doubled its earnings to $3.8bn, up from $1.6bn, in what CEO Ben van Beurden called a “strong quarter”.

Updated

German DAX hits fresh record high

European stock markets have risen at the start of trading, helped by the fall in the pound and the euro against the US dollar overnight.

In London, the FTSE 100 has gained 0.5%, while Germany’s DAX rose 0.2% to a fresh all-time high

Irish service sector growth hits 10-month high

Ireland has got Service Sector PMI day off to a good start.

Growth in Ireland’s service sector hit a 10-month high in April, according to Investec’s monthly report.

Companies reported a rise in new business, as clients grew more optimistic about economic prospects. This encouraged them to take on more staff to deal with a jump in new orders.

This sent the Irish Service PMI rocketing up to 61.1 in April, up from 59.1 in March - the highest reading since last June.

Irish services PMI
Irish services PMI Photograph: Investec

Philip O’Sullivan, chief economist at Investec Ireland, says the report “paints a bright picture” for Ireland’s economy, with service sector bosses “strongly optimistic” about the next 12 months.

The agenda: Here comes service sector PMIs....

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

There’s a more optimistic mood in the City this morning, after America’s central bank gave an upbeat assessment of the US economy last night.

After leaving interest rates on hold, the Federal Reserve predicted that the recent slowdown in US growth was “likely to be transitory”, pointing to encouraging employment statistics and rising business investment.

Marc Ostwald of ADM Investor Services says the statement was...

...carefully crafted to acknowledge what the FOMC suggested were ‘transitory’ weaknesses in personal consumption and core inflation, while placing particular emphasis on the pick-up in business investment and the strength of the labour market.

Fed watchers reckon we should expect a US interest rate rise in June....

That’s pushed up the dollar against the pound and the euro, which means European stock markets are tipped to rise this morning:

Investors are now looking to a flurry of service sector reports this morning, from data firm Markit.

They may confirm that Europe’s recovery is strengthening, with Germany, Italy, France and Spain’s services PMI all expected to rise. Those figures come between 8.15am and 9am BST.

RBC Capital Markets say:

For both Spain and Italy, we expect the services reading to improve on March. That, coupled with Tuesday’s higher manufacturing PMI would leave the composite PMI higher in both, consistent with the picture for the wider euro area that the improved Q1 sentiment has been sustained into Q2.

The UK service sector PMI (at 9.30am) is tipped to drop to 54.6, from 55 in March -- that would mean a small slowdown in growth. However, the manufacturing and construction PMIs have already beaten expectations, so perhaps services might surprise us as well.

We’re also getting new UK car registration figures at 9am BST, and eurozone retail sales figures at 10am.

There’s also masses of UK corporate news to watch, with HSBC, Societe Generale, Next, Morrisons, Royal Dutch Shell, Rolls-Royce and Randgold all reporting results.

Updated

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