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The Guardian - UK
The Guardian - UK
Business
Nick Fletcher

Markets fall on weak US services industry data – as it happened

New York Stock Exchange
The Dow Jones industrial average was down 0.2% on Wednesday. Photograph: Richard Drew/AP

Markets fall after weak US data

The slower growth in US services has pushed Wall Street into negative territory, with the Dow Jones industrial average now down 32 points or 0.2%.

The FTSE 100 has seen its falls accelerate and is now down 70 points, while the FTSE Eurofirst 300 has lost 1.3%.

On that note, it’s time to close for the day. Thanks for all your comments and we’ll be back tomorrow for the Bank of England’s interest rate decision on Super Thursday.

Updated

US services grow slows in January

The ISM services report for the US is also showing a slowdown in growth last month.

The index came in well below expectations at 53.5 in January, compared to 55.8 in December and forecasts of a reading of 55.1.

This is the lowest reading since February 2014, while business activity is at its worst since August 2012.

The US service sector grew more slowing in January than in the previous month, according to the first of the day’s two surveys.

Markit’s services PMI for January came in at 53.2 compared to an initial reading of 53.7 and the final December level of 54.3.

The composite PMI - which measures both manufacturing and services - fell from 54 in December to 53.2. This is the lowest level since October 2013.

Updated

More on the prospects of an Opec meeting, from the Wall Street Journal:

Wall Street opens higher

With oil gaining ground and better than expected private payroll numbers, Wall Street has started the trading day on a positive note.

The Dow Jones Industrial Average has added around 90 points or 0.3%, while the S&P 500 has opened up 0.42% and Nasdaq is 0.57% higher.

Over in Greece, and journalists are joining in the general wave of protests against proposed pension reforms. Helena Smith reports:

The rally, part of a 24-hour strike, comes ahead of tomorrow’s general strike, the third to hit Greece since Syriza was voted back into office in September. Journalists claim that government plans to merge their own pension funds with others is unlawful and counterproductive.

Tomorrow’s industrial action will see the entire country come to a grinding halt. Ironically, left wing Syriza has decided to give the strike its blessing and is backing the protests against internationally dictated reforms now creating a storm of reaction across Greece. The country has similarly been paralysed by protesting farmers who have set up roadblocks and sealed off borders nationwide.

Journalists banners reading “Dignity to journalists. Truth in society.”
Journalists banners reading “Dignity to journalists. Truth in society.” Photograph: Helena Smith

The weakening of the global economy means conditions have tightened since the Federal Reserve raised US interest rates in December, according to New York Fed president William Dudley.

And if such conditions were still in place at the time of its March meeting the Fed would have to take that into consideration, he said.

In an interview with MNSI he said the weaker outlook and any further strengthening of the dollar could have “serious consequences” for the health of the US economy.

Here are the ADP numbers for the past year:

Changes in employment
Changes in employment Photograph: ADP

The full report can be found here.

Updated

US jobs beat forecasts

Ahead of Friday’s non-farm payroll numbers, the ADP private sector payroll survey has shown stronger than expected growth.

US employment increased by 205,000 in January compared to forecasts of a 195,000 rise.

The December number was revised up to 267,000 from 257,000.

Updated

Here’s a minor bright spot from Brazil’s PMIs:

GlaxoSmithKline has beaten forecasts for its fourth quarter results, helped by growing demand for new drugs helping to offset falling sales of its Advair respiratory treatment.

Sales rose 2% while core earnings per share fell 34% to 18.1p - better than the expected 17.9p.

Updated

Oil climbs on Opec-Russia talk hopes

Oil is moving higher again on hopes that an agreement between Opec and Russia to cut production might be moving a step closer.

Russian foreign minister Sergei Lavrov said if there was consensus among Opec and non-Opec producers to meet “then we will meet,” according to Reuters.

He was speaking at a news conference with Oman foreign minister Yusuf bin Alawi who said there was no agreed time for a meeting “but it will be soon.”

We have been here before of course, but these latest comments have helped push Brent crude 1.8% higher to $33.32 a barrel.

West Texas Intermediate - the US benchmark - is back above $30, adding 1.87% to $30.44.

As a consequence stock markets have recovered from their lows, with the FTSE 100 now down just 0.3% and France’s Cac off 0.24%. Germany’s Dax is down 1% however, with banks under pressure.

Here’s our report on the better than expected UK service sector survey:

Speaking of interest rates the Bank of Japan - which caught markets on the hop last week by introducing negative interest rates - said earlier there were no limits to the measures it could take to boost the economy. Reuters reports:

Bank of Japan Governor Haruhiko Kuroda said the central bank has ample room to expand stimulus further and is prepared to cut interest rates deeper into negative territory, signalling a readiness to act again to hit his ambitious inflation target.

Even after deploying what he described as “the most powerful monetary policy framework in the history of modern central banking,” Kuroda said he remained open to devising new means to revive the economy if existing tools did not work.

“If we judge that existing measures in the toolkit are not enough to achieve (our) goal, what we have to do is to devise new tools,”Kuroda said in a speech at a seminar on Wednesday.

Bank of Japan governor Kuroda.
Bank of Japan governor Kuroda. Photograph: Yuya Shino/Reuters

“I am convinced that there is no limit to measures for monetary easing,” he said.

The BOJ chief said although Japan’s economy was recovering moderately, it was taking longer than expected to achieve his 2 percent inflation target due to slumping energy costs.

While offering few clues on the trigger for further monetary easing, Kuroda said the recent global markets rout and slowing emerging economies could hurt Japanese business sentiment and discourage firms from boosting wages.

“What’s important is how (such external risks) could affect confidence,” he said.

The Bank of England’s latest interest rate decision is due on Thursday and, despite a slightly better than expected UK services PMI, no one expects any change at the meeting. Even if the pound is moving higher on the back of the figures, it is probably also being influenced by the prospects of Brexit as the referendum looms.

Many economists have doubts about whether the Bank will raise rates at all in 2016. Howard Archer at IHS Global Insight said:

There can be absolutely no doubt that the Bank of England will keep interest rates down at 0.50% again on Thursday at the conclusion of the February Monetary Policy Committee meeting.

Whether the Bank of England acts on interest rates at all in 2016 currently looks touch and go.

There will most likely be an 8-1 vote again within the MPC for interest rates staying at 0.50%, as there has been repeatedly since last August. While there may well be some speculation that [MPC member Ian] McCafferty could step back from voting for an interest rate hike at the February meeting, we suspect he will stick doggedly to his call

Governor Mark Carney’s recent high profile speech indicated that UK growth and inflation since last summer has been weaker than the Bank of England had expected, and the conditions are not in place for an interest rate hike. His speech fuelled the view that the Bank of England could sit tight on interest rates through 2016.

Mr. Carney indicated to a Treasury Committee that this is his personal view, so the analysis and forecasts contained in the Quarterly Inflation Report, as well as in the February MPC minutes, will offer insights as to what extent Mr. Carney’s views are shared by the rest of the MPC. While the near-term UK growth and consumer price inflation outlook has weakened, of key importance will be has the Bank of England become more downbeat about the longer-term outlook?

The committee room where the MPC meets each month.
The committee room where the MPC meets each month. Photograph: David Levene for the Guardian

Heading into Thursday’s events, we just about believe that one interest rate hike from 0.50% to 0.75% is more likely than not before the end of 2016 – with November the most likely candidate for action. However, there is clearly a very real possibility that the bank will sit tight until 2017. Our assumption of a November interest rate hike is based on our belief that economic growth will become more solid later on in 2016, earnings growth picks up anew amid a tightening labour market and consumer price inflation trends gradually up. But there are appreciable uncertainties and downside risks to this outlook – not least the outcome of the UK referendum on EU membership, which currently looks like it could take place in June.

Further out we expect the Bank of England to only lift interest rates to 1.50% by end-2017 and 2.25% by end-2018.

Updated

Back with the UK services PMI, and economist Daniel Vernazza at UniCredit Research said the numbers were positive, but talk of economic growth of 0.6% in the first quarter could be a little ambitious:

It’s a reassuring number, particularly given the heightened financial market volatility in January that likely adversely impacted the banking and finance sector. Moreover, the more forward-looking new orders and employment indices both accelerated and lie above their long-run average. This resilience in services sector demand is reflected in wider margins, as output price inflation edged up despite a fall in input price inflation.

The composite PMI (the weighted average of the services, manufacturing and construction PMIs) rose to a 6-month high and is consistent with quarterly GDP growth of around 0.6% at the turn of the year.

However, this is inflated by a surge in the manufacturing output PMI in January that is highly unlikely to last. We continue to expect growth to slow modestly to 0.4% quarter on quarter in the first quarter of 2016, down from 0.5% quarter on quarter in the fourth quarter of 2015, as the UK faces a number of headwinds ahead, not least the referendum on the UK’s membership of the EU that now looks likely to take place in June.

Christmas shoppers snapping up food, drinks and tobacco helped push eurozone retail sales up by 0.3% in December compared with November, in line with expectations.

Year on year, eurozone retail sales climbed 1.4%, slightly less than the forecast 1.5%, according to Eurostat.

In the 28 member European Union, sales rose 0.1% month on month and by 2% year on year.

European retail sales
European retail sales Photograph: Eurostat

Updated

Sterling has reached a three week high of $1.4449 after the stronger than expected services data.

The service sector survey suggests the UK economy could grow by around 0.6% in the first quarter, up from the estimated 0.5% in the final quarter of 2015, said Markit

UK services PMI edges higher

Despite the global economic jitters and the floods and storms in the country, the UK services sector unexpectedly grew in January.

The Markit/CIPS services purchasing managers index came in at 55.6 last month, up slightly from 55.5 in December and better than the expected dip to 55.3. The stronger than forecast figures come ahead of the latest Bank of England rate decision on Thursday, albeit most economists expect rates to remain on hold for some time yet.

And the survey showed companies are concerned about the risks to growth, not least the forthcoming EU referendum. Markit economist Chris Williamson said:

The economy defied expectations and picked up speed in January, but cracks continue to appear in the country’s resilience to the various headwinds...

Despite the uptick in growth, the increased uncertainty about the outlook and persistent lack of inflationary pressures means the majority of [Bank of England] policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates.

UK services.
UK services. Photograph: Markit

Updated

The eurozone PMI figures add to the evidence for the European Central Bank to take more stimulus measures at its March meeting, says Howard Archer at IHS Global Insight:

The slowdown in services expansion to a 12-month low in January will raise concern that heightened global economic uncertainty and financial market turmoil are weighing down on a reasonably decent but hardly robust Eurozone cyclical upturn.

Indeed, with the corresponding manufacturing survey also showing some loss of momentum in January, the purchasing managers’ composite manufacturing and services output index for the Eurozone dipped to a 4-month low of 53.6 in January from 54.3 in December.

January’s reading of 53.6 was also below the average of 54.1 seen in the fourth quarter of 2015, which was actually the best quarterly average since the second quarter of 2011; however it was still comfortably above the 50.0 level that indicates flat activity.

While there are clearly heightened downside risks to the Eurozone growth outlook from global economic and geopolitical events (which could increasingly weigh down on confidence in the Eurozone as well as hampering exports), for the time being at least we are maintaining our forecast that Eurozone GDP growth will improve to 1.7% in 2016 from an estimated 1.5% in 2015.

Appreciable support to Eurozone growth is coming from very low oil and commodity prices, a competitive euro and ECB stimulus (that looks like it will be extended in March). The influx of refugees should also provide overall help to Eurozone growth in 2016, primarily through increased public expenditure. There are also more growth orientated fiscal policies in some countries. Meanwhile, lower unemployment across the Eurozone is supportive to consumer spending along with the boost to purchasing power coming from negligible inflation, although the number of jobless remains relatively high.

Meanwhile, the January services and manufacturing PMIs showing slower expansion and deeper overall cuts in prices charged support the case for the ECB to deliver more stimulus at its 10 March policy meeting.

China expects 6.5% to 7% growth this year

China has set a target range for economic growth in 2016, and it is slightly below last year’s objective following the target being missed last year. Bloomberg reports:

China set an economic growth target range of 6.5 percent to 7 percent for this year, slower than the objective of about 7 percent in 2015, the head of the country’s top economic planner said.

While downward pressure on the economy is “relatively big” in the first quarter, China has the ability to realize such a goal, National Development and Reform Commission Chairman Xu Shaoshi said Wednesday at briefing in Beijing. The country also plans to take steps to curb excess industrial capacity and deal with unprofitable “zombie companies,” Xu said.

China has many policy tools to deploy, and the central bank’s recent cut to minimum down payments for first time home buyers will help reduce excess housing stock, Xu said.

Growth last year slowed to 6.9 percent, the slowest annual pace in a quarter century. President Xi Jinping has said gross domestic product gains in the next five years should average at least 6.5 percent per year to realize the goal of doubling 2010 gross domestic product and per capita income by 2020.

Some people are hard to please:

German service sector slows but France returns to growth

Germany’s service sector grew more slowly than expected in January.

The Markit services PMI stood at 55 last month, compared to an initial reading of 55.4 and the 56 level seen in December. Markit economist Oliver Kolodseike told Reuters:

German service providers remained in expansion mode at the start of 2016. Although output rose to the smallest extent in three months, the underlying rate of growth was robust overall, helped by a further sharp rise in new business.

The German composite PMI - which tracks activity in both the manufacturing and services sector - came in at 54.5, in line with earlier estimates but down on December’s 55.5.

In France, the service sector returned to growth in January but still showed the effects of the terror attacks in Paris in November.

The Markit services PMI rose from 49.8 in December to 50.3, slightly down on a preliminary reading of 50.6. But the increase means the sector moved above the 50 level which indicates growth rather than contraction.

The hotel and restaurant sector reported continued weakness in the wake of the Paris attacks, said Markit.

Overall the eurozone service and composite PMIs came in much as expected:

More on the Italian and Spanish PMIs:

Here’s our report on the Syngenta deal. Sean Farrell writes:

China National Chemical has offered to buy Syngenta, the Swiss pesticide maker, for more than $43bn (£30bn) in what will be the biggest takeover by a Chinese company.

ChemChina, as the state-owned company is known, has courted Syngenta, the world’s largest agribusiness company, since November when it had a proposed $42bn offer rebuffed.

The cash takeover, which Syngenta’s board will recommend to shareholders, will heighten the shakeup in the agrochemicals industry after Dow Chemical and DuPont agreed to combine to create a company valued at more than $100bn.

The deal, if completed, will make ChemChina, led by its ambitious chairman Ren Jianxin, the world’s biggest producer of pesticides and agrochemicals. It will also support the ambitions of China’s president, Xi Jinping, to increase output and keep China self sufficient in food production as its growing middle class eats more meat and farmland is turned into housing and golf courses.

Full story here:

Italy’s service sector also grew in January - for the eleventh month in a row - but at a slower pace than in December.

The Markit services PMI dropped to 53.6 in January from 55.3 the previous month, a bigger fall than expected. Analysts had forecast a figure of 54 for January.

Here’s Japan’s services numbers from earlier:

Despite the raft of service sector data emerging today, Tony Cross at Trustnet Direct says the most important numbers of the day could be the US ADP jobs figures, ahead of the non-farm payroll data on Friday:

The key point on the economic calendar today may well be the ADP payroll figures from across the Atlantic. These are something of a curtain raiser ahead of Friday’s non-farm payrolls and with the US having printed a slew of downbeat data in recent weeks, there’s concern that the Federal Reserve may have moved too quickly with that first rate hike – today’s number could well be the canary in the coal mine here.

The ADP report, which measures private sector payrolls, is expected to show an increase of 190,000, down from December’s bumper figure of 257,000.

Spain’s service sector saw a slowdown in growth in January.

Markit’s services purchasing managers index came in at 54.6 in January, down from 55.1 in the previous month and the slowest growth rate since December 2014.

Updated

In early trading, European markets have - as expected - edged lower.

The FTSE 100 has fallen 15 points or 0.27% while Germany’s Dax opened down 0.4% and France’s Cac is 0.1% lower.

On PMI services day, we’ve already had the Irish data, and it looks positive.

The Investec services purchasing managers’ index rose to 64 in January from 61.8 in December. Philip O’Sullivan, chief economist at Investec Ireland, said:

Taken together with Monday’s Manufacturing PMI report, this week’s surveys suggest that the strong momentum evident across the Irish economy in 2015 has continued into the New Year.

The composite PMI - which measures both manufacturing and services - also moved higher.

Updated

China makes its largest ever overseas acquisition

There may be worries about the state of the Chinese economy but that has not stopped one of its state owned companies making the country’s largest overseas acquisition by a Chinese firm.

ChemChina is making an agreed $43bn offer for Swiss seeds and pesticides group Syngenta. Last year US rival Monsanto made an unsuccessful attempt to buy Syngenta.

Chinese deal for Syngenta
Chinese deal for Syngenta Photograph: Arnd Wiegmann/Reuters

Ahead of what is expected to be another bearish start on the European markets, Mic Mills at Capital Index said:

An uneasy Asian session dismissed the surprisingly strong Caixin/Markit Services PMI and HSBC China Composite PMI figures from China overnight as crude oil remained centre stage, with worries of oversupply sending WTI futures back below $30 a barrel. After trading down to last week’s levels of 17070 the Nikkei did manage to claw back some ground...Gold was the biggest winner trading up to 3 month highs as investors seek a safe haven.

European markets look set to suffer a weaker open... yesterday’s better than expected employment figures [were] unable to lift the gloom as the continuing glut in oil and fears of a global slowdown seem to outweigh any good news.... Whether decent performances in [the service sector] numbers can help the markets remains a doubt.

Mike van Dulken and Augustin Eden at Accendo Markets said the downbeat mood comes despite the better than expected Chinese services data, as well as comments from the Bank of Japan suggesting there was room for more stimulus in the shape of QE or more negative interest rates.



European markets are expected to drop back again at the open:

Oil prices seem a little more stable after the recent falls. Brent crude is down 0.12% at $32.68 a barrel while West Texas Intermediate - the US benchmark - is up 0.1% at $29.91.

Agenda: Markets await services sector

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

Stock markets continue to come under pressure on renewed fears of a global economic slowdown and a renewed fall in oil prices.

Overnight Asian markets have followed a slump on Wall Street as US crude dipped under $30 a barrel again. The Hang Seng ended down 2.9% and the Nikkei is 3.1%.

In China, the CSI300 index of the largest listed companies lost 0.43% , while the Shanghai Composite closed down 0.35%.

These falls came despite moves by the Chinese government to boost the property market, with a reduction in the minimum deposit for first and second-time home buyers.

The day sees a whole raft of service sector data, and China is first out of the blocks. The Caixin services PMI came in at 52.4 in January, up from 50.2 in the previous month. This is the highest since July 2015, but did little to support the markets.

Michael Hewson, chief market analyst at CMC Markets UK, said:

The weak December reading of 50.2 in stark contrast to the much more bullish official measure had spooked concerns that Chinese consumers were reining back spending in the lead up to Chinese New Year.

This morning’s January reading came in at 52.4 a significant improvement on the previous month and in the process rather undermining the argument that concerns about a Chinese slowdown are the primary factors behind the recent bout of equity market jitters.

The services sector has been the more resilient of the two main sectors of the global economy over the past few months but there has been a concern that the weakness in manufacturing could cause some ripple out effects into the broader economy, as job losses in manufacturing dent consumer spending and cause a slowdown in the wider economy.

The latest services PMI numbers for January from Spain, Italy, France and Germany are broadly expected to remain fairly robust at 54.6, 54.2, 50.6 and 55.4 respectively. The French economy is a particular concern but that isn’t really too much of a surprise given recent events and the fact that the state of emergency is still in place.

In the UK, the PMI is expected to come in at around 55.3 but could be lower given the recent floods and severe weather. Here’s the day’s main economic events:

  • 8.45 (GMT) Italian services and composite PMI
  • 8.50 French services and composite PMI
  • 8.55 German services and composite PMI
  • 9.00 Eurozone services and composite PMI
  • 9.30 UK official reserves
  • 9.30 UK services and composite PMI
  • 10.00 Eurozone retail sales
  • 13.15 US ADP employment data
  • 14.45 US Markit services and composite PMI
  • 15.00 ISM non-manufacturing index

Updated

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