Closing summary
The FTSE 100 is still trading 0.6% higher at 7,188.41, up 45.52 points, leaving it on track for another record close. On Wall Street, the Dow Jones is eyeing the 20,000 level – it’s currently 0.67% ahead at 19,895.87. Crude oil prices are up more than 2% as production cuts kick in.
The main economic news today was a strong UK manufacturing survey, a bigger-than-expected drop in German unemployment and a pick-up in inflation in Germany and France – all taking economists by surprise.
With this, we are closing the blog for the day. Thank you for all your great comments. We’ll be back tomorrow.
German inflation hits 3 1/2 year high
Inflation in Germany unexpectedly jumped to the highest level in three and a half years, official data showed today. The annual rate rose to 1.7% in December, the highest since July 2013, and compared with 0.7% the month before.
The increase which comes alongside a pick-up in inflation in France and Spain provides ammunition for those at the European Central Bank who are arguing for a gradual exit from the bank’s unconventional stimulus programme.
The pace of German inflation more than doubled in December, driven by a surge in oil https://t.co/bJrS28Jmqy pic.twitter.com/B52A11FIz2
— Bloomberg (@business) January 3, 2017
Wall Street opens 0.8% higher, Dow eyes 20,000
On Wall Street, the Dow Jones is up more than 150 points, or 0.8%, at 19,915.73 at the open, flirting with the 20,000 mark. The Nasdaq is more than 40 points ahead at 5,424.16 while the S&P 500 is some 17 points higher at 2,255.81, both gains of nearly 0.8%.
Updated
UK grocery prices rose slightly between November and December, but prices remained below 2015 due to competition among supermarkets, according to data from price tracking website mysupermarket.com.
A shopping basket of 35 commonly bought items cost £83.33 in December, up from £83.18 in November. Fresh fruit and veg cost more such as bananas, grapes and carrots.
But the basket was still nearly 3% cheaper than it was in December 2015, as fierce competition between supermarkets limited their ability to raise prices. Economists and retail experts expect food inflation to rise this year because the pound’s sharp fall since the Brexit vote is pushing up the cost of imported goods.
The tracker covers nearly 5,000 products across Tesco, Asda, Aldi, Sainsbury’s, Ocado, Lidl and Morrisons.
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Nicholas Hyett, equity analyst at Hargreaves Lansdown, said:
Importantly, the delay means that the Trump administration, which has in the past suggested it wants to relax banking regulation, will now be involved in signing off the new proposals. The proposals are already contentious, but whether they will be weakened remains to be seen.
Meanwhile, the retail sector has an early dose of the January blues, he noted, with Next, Dixons Carphone and Marks & Spencer the biggest fallers on the FTSE 100 today. Halfords is still the biggest loser in the FTSE 350 index.
Those with substantial import costs have been hit particularly hard, after Deutsche Bank flagged the potential for lower sterling to lead to higher inflation in a research note released this morning. With the note highlighting the difficulties a weak pound could bring to Halfords’ already increasing cost base, shares in the UK’s leading retailer of motoring and cycling products fell by 5.6%.
Our City editor Jill Treanor writes:
Global regulators have postponed a meeting to agree major reforms to the banking sector prompted by the 2008 crisis.
A leading group of central bankers was due to meet on 8 January to agree changes that could have forced some banks - largely in Europe - to hold more capital. But it was announced on Tuesday that the meeting had been called off.
No new date was given for the meeting of central bankers - known as the group of central bank governors and heads of supervision (GHOS) - who were due to discuss rules that influence how much capital banks hold and the way they measure the risks they are taking.
Banks are the biggest risers on the FTSE 100, led by Barclays which is up 4%, after global regulators delayed the sign off of new rules on bank capitalisation. Lloyds Banking Group is 3.6% ahead while Royal Bank of Scotland has risen 3.3%, Standard Chartered 2.4% and HSBC is up 2%.
Mining shares, which have been among the big winners of the weak pound in the past year, are also among the biggest gainers, including Antofagasta and Glencore.
UK drivers pay £8.25 a tank more for fuel than a year ago
Oil prices have been rising as new production cuts take effect, as reported earlier. This is feeding through to petrol prices. UK drivers are paying 15p a litre – or £8.25 a tank – more for their fuel than a year ago, according to the AA.
Petrol over the weekend averaged 117.90p a litre compared to 102.69p at the same time last year, a price last seen in December 2014. Diesel has risen to 120.35p from 105.99p 12 months ago.
AA spokesman Luke Bosdet said:
Drivers have had a bad start to 2017, seeing 1p, 2p and even 3p ticking up on the fuel price boards over the Christmas and New Year holiday period. Petrol is back to where it was in December 2014 and diesel at a level last seen in July 2015.
All in all, with the cold weather, it’s been a pretty miserable return to work.
Updated
UK workers’ confidence has not been shaken by uncertainty around leaving the European Union, with 48% saying that they are looking for a new job this year, according to specialist recruiter Reed. It asked more than 2,000 people about their careers in 2017, and found that 43% are feeling optimistic about their career prospects.
Lunchtime summary
The FTSE 100 has hit fresh all-time highs on the first trading day of the year in London, building on its record close at the end of 2016. It rose through the 7,200 mark earlier to a new record of 7,205.21 and is now more than 30 points ahead at 7,176.20, a 0.5% gain. The leading index is on track for another record close if it holds on to its gains.
Retailers are among the biggest fallers, led by Next, which was downgraded by Deutsche Bank ahead of a Christmas trading update tomorrow. Dixons Carphone, Marks & Spencer and Kingfisher are also down.
European bourses are also ahead.
- Germany’s Dax up 0.04% at 11,602.96
- France’s CAC up 0.5% at 4,906.27
- Spain’s Ibex up 0.4% at 9,460.40
- Italy’s FTSE MiB up 0.7% at 19,703.28
Britain’s factories are booming, according to the latest manufacturing PMI survey from Markit/CIPS. This drove the pound to a two-week high against the euro.
Oil prices reached 18-month highs this morning as production cuts kick in. Brent crude touched $58.37 a barrel earlier and is now up 2.1% at $58.02.
Updated
As speculation continues over where banks based in London and elsewhere in the UK might choose to settle after Brexit, we hear today from the boss of American bank JP Morgan.
Jamie Dimon, chairman and chief executive of JP Morgan, has been speaking about his hopes for the investment bank’s UK operations once Brexit becomes a reality to Financial News.
Dimon said he worries Brexit will have repercussions for the rest of the European Union.
“A major fear to me about Brexit is that it causes the EU to fail down the road,” he told Financial News in the interview at JP Morgan’s Victoria Embankment offices in London.
Financial News says Dimon also proclaimed a “love” for London, but provided no reassurance that JP Morgan wouldn’t move business from the City to the continent after Brexit takes effect.
“I wish we could keep it all here [in London],” said Dimon. “I think it’s very good for Europe.”
The full interview is available here.
Ahead of the June referendum, JP Morgan was among the big banks warning that a vote to leave would cost jobs. It said 4,000 jobs could go.
The FTSE 100 has not managed to hold on to all its earlier gains, when it pushed through the 7,200 mark, but still looks on track for another record close.
The index of London-listed bluechips is currently up 31 points at 7,174, having closed at an all-time high of 7,142.83 on Friday, the last trading day of 2016.
The futures market is also pointing to a strong start to 2017 for Wall Street.
Much of the support for the FTSE has come from the weak pound, which is down sharply since last June’s Brexit vote. The weak pound flatters the earnings of those FTSE 100 companies that report in dollars. It has also helped those firms who export from Britain and it makes assets priced in pounds more attractive to foreign investors.
Connor Campbell, financial analyst at spread betting firm Spreadex expects the FTSE 100 to remain in positive territory in afternoon trading but said the pound’s strength was limiting gains. He also expects gains on Wall Street for the Dow Jones industrial average index. Campbell commented:
It appears that this morning’s December manufacturing PMI reading... hampered the FTSE’s record-breaking surge by giving a boost to the pound. In the aftermath of the PMI release sterling jumped 0.6% against the euro, taking it back above 1.18 for the first time in a week and a half; this was enough to temper the FTSE’s growth, despite the fact that the pound is continuing to struggle against the dollar...
Looking ahead to this afternoon and following a bitterly disappointing end to 2016 that saw the index fail to break 20,000 the Dow Jones is set to recover some of its losses this Tuesday. The Dow futures are suggesting the index will reclaim around 150 points, pushing it above 19900 and putting that elusive landmark level back on the cards.
The upbeat PMI report on the UK’s manufacturing industry caught City analysts off guard. But they have been quick to point out the divergence between the PMI survey and official data which paints a gloomier picture of the factory sector and many also highlight the threat that higher inflation in 2017 will squeeze consumer spending, the biggest driver of economic growth in the UK.
The outlook remains one of a marked slowdown for the UK economy this year, says James Knightley, senior economist at the bank ING.
He commented:
This [the PMI reading] is the strongest figure since June 2014 and again suggests that the Brexit referendum has not harmed the UK’s manufacturing sector. In fact, the 18% post referendum plunge in the value of the pound against other major currencies has boosted the UK’s competitiveness on the international stage. This is being seen in the new orders component with export orders performing well.
However, sterling’s fall also means that imported components are more expensive with both costs and output prices rising yet again. This increase in domestic pipeline inflation pressures is being mirrored by higher costs for imported consumer goods and energy. As such, the squeeze on household spending power is set to intensify. So while the strength of the manufacturing sector is good news, the likely weakness in the much larger consumer sector will more than offset it. Therefore we expect GDP growth to slow to a little above 1% in 2017 from 2.2% in 2016.
A new network to link up Irish and British trading partners has been formed to offset any negative Brexit impact on trade between the UK and Ireland, reports Henry McDonald, our Ireland correspondent.
The British Irish Chamber of Commerce has launched the ‘British Irish Gateway to Trade’ service, which link up firms from both sides of the Irish Sea.
Britain remains Ireland’s biggest trading partner with business between the UK and the Republic supporting 400,000 jobs according to the British Irish Chamber of Commerce. Its chairman John McGrane said the network would promote more growth in trade between Ireland and the UK in the face of the Brexit challenge.
McGrane said:
At a time when businesses are preparing for Brexit, they appreciate a resource like BIG which helps them to grow their business by being introduced to more customers and suppliers across the UK and Ireland”.
2017 will focus all our minds on the importance of the trade between Britain and Ireland which supports over 400,000 jobs. Firms on both sides of the Irish Sea are looking for more trading opportunities and this new service supports the work of Chambers and the various state agencies to make those connections easier to find for businesses north south east and west.
The new service lets businesses find the trading partners they want within a trusted network of like-minded firms across the two islands.
The full story:
Updated
More reaction to the strong UK manufacturing PMI. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, doesn’t believe it will last.
UK manufacturing is benefiting from both continued brisk growth in domestic demand as well as improving global demand, but this momentum likely will peter out in 2017.
The pick-up in the total orders balance to 58.5 from 55.2 suggests manufacturing output will continue to grow briskly over the next couple of months. Meanwhile, the fact that the UK’s PMI exceeds those for the eurozone and U.S., 54.9 and 54.2 respectively, signals that the UK economy is continuing to marginally outperform.
The relationship between the PMI and the official data, however, has been particularly loose lately; the PMI has signalled steady growth in manufacturing output since August, but the official data have oscillated around a flat trend.
Meanwhile, we continue to think that domestic demand for manufactured goods will crumble as consumers experience a renewed squeeze on their real incomes, driven mainly by higher import prices. At the same time, the boost to growth from sterling’s depreciation will remain relatively modest, because exporters have raised sterling prices sharply and because uncertainty about the UK’s future trade relationships will deter exporters from investing.
Oil prices hit 18-month highs
Oil prices have pushed even higher, to 18-month highs, boosted by hopes that a deal to cut production between Opec and non-Opec producers such as Russia will diminish the global oil glut. Brent crude jumped about 2.5% to $58.37 a barrel, the highest since July 2015.
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Ruth Gregory, UK economist at Capital Economics, said:
December’s UK Markit/CIPS manufacturing PMI provides further evidence that the sector’s post-referendum weakness will prove short-lived... A rise in overall new orders to a two-and-a-half year high suggests that the strength in manufacturing activity will continue in the coming months. Admittedly, the fall in the pound is having a clear impact on price pressures. Indeed, despite falling back from 79.1 in November to 76.9 in December, the input prices balance remained well above its long-run average (55.1).
Nonetheless, on the basis of past form, the three-month average of the survey’s output balance is consistent with a quarterly rise in manufacturing output of about 1% in Q4, following Q3’s 0.8% contraction. This is consistent with other survey evidence, such as the CBI’s Industrial Trends Survey, which suggest that the manufacturing sector gained some momentum at the end of 2016 too.
That said, given the sharp monthly fall in October in the official figures, even a large increase in output in November and December would probably not be enough to lead to a positive contribution to GDP growth in Q4. A stronger end to the quarter would, however, provide a good base for manufacturing growth in Q1. As such, we continue to think that GDP growth will become better balanced in the quarters ahead.
Sterling jumped to a two-week high against the euro after the strong manufacturing survey. It hit 84.71p per euro, up 0.5%. Against the dollar, the pound rose to $1.2290.
The FTSE 100 index, which was up 0.8% earlier this morning, is only 0.4% ahead now at 7173.12, a gain of some 30 points.
Updated
All the main sub-indices were strong. New export business rose for the seventh month in December. Companies secured new orders from the US, Europe, China, the Middle East, India and other Asian markets.
Employment rose for the fifth month in December, with the pace of jobs growth picking up to the fastest in 14 months, especially at smaller and medium-sized firms.
Rates of inflation for input costs and prices charged both remained among the fastest seen during the survey’s history, but slowed from October’s highs.
UK factories ended 2016 on a strong note, according to the Markit/CIPS manufacturing survey. The December reading of 56.1, a 30-month high, is up from 53.6 in November and well above its long-run average of 51.5.
Rising domestic and overseas demand has boosted output and companies’ order books. Price pressures remained elevated but eased from recent highs.
UK manufacturing PMI highest since 2014
The UK manufacturing PMI has hit the highest level since June 2014, rising to 56.1 – better than expected.
Oil prices push higher
Oil prices are pushing higher this morning, helping underpin gains in the FTSE 100. Brent crude is up 82 cents, or 1.4%, at $57.64, not far below the 2016 high of $57.89, hit on 12 December. US light crude is trading 72 cents higher at $54.44, a 1.3% gain.
1 January marked the official start of a recently agreed deal between the oil cartel Opec and other exporters such as Russia to reduce output by almost 1.8m barrels a day.
Hans van Cleef, senior energy economist at ABN Amro in Amsterdam, told Reuters:
First signals suggest the Opec and non-Opec production cuts are raising hops that the global oil oversupply will diminish.
GERMANY's 5 (!) elections in 2017
— Maxime Sbaihi (@MxSba) January 3, 2017
12/2: Presidential
26/3: Saarland
7/5: Schleswig-Holstein
14/5: North Rhine-Westphalia
September: General
German unemployment falls more than expected
The number of unemployed people in Germany has fallen for a third month in a row, declining by a seasonally adjusted 17,000 in December from the previous month to 2.638 million. Economists had expected a drop of 5,000.
Germany’s Federal Statistics Office also said that the jobless rate was unchanged at 6%, the lowest since German reunification in 1990.
Updated
2016 was a good year for vinyl, when sales reached a 25-year high, as LPs continue their comeback. Hannah Ellis-Petersen writes:
More than 3.2m LPs were sold last year, a rise of 53% on last year and the highest number since 1991 when Simply Red’s Stars was the bestselling album. This was also the first year that spending on vinyl outstripped that spent on digital downloads.
The deaths of some music world giants was a key driver in vinyl sales, as people invested in records as a mementos. After David Bowie’s death he became the bestselling vinyl artist of 2016, with five albums posthumously featuring in the top 30.
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We have published our share tips for 2017, including Tesco, Diageo, Dairy Crest, Flybe and Shire. Last year our tips didn’t do so well, alas.
Looking back at 2016, our markets reporter Nick Fletcher writes:
It’s a cliche – and true enough – that stock markets hate uncertainty, which is one possible explanation for why investors shrugged off the shock of Brexit and the even bigger shock of a Donald Trump presidency. At least there was an element of knowing where we stood, in the near term at least.
In a volatile 12 months, the FTSE 100 slumped to three-and-a-half-year lows in February on fears of a global economic slowdown, recovered, then fell sharply but briefly following the EU referendum vote, before hitting new heights as a drop in the pound boosted the index’s overseas earners and a rise in oil prices lifted commodity companies. It finally ended the year at a record 7,142, up 14.4%.
Updated
The manufacturing PMI for Japan has come in weak, suggesting factory activity is shrinking at a faster rate.
Nikkei ASEAN manufacturing #PMI weakens to 13-month low of 49.1 in December, down from 49.4 in November. https://t.co/rRWwtzfz0y pic.twitter.com/puQ4Anc3Uj
— Markit Economics (@MarkitEconomics) January 3, 2017
Will European equities outperform U.S. equities this year?
— Mike Bird (@Birdyword) January 3, 2017
(Stoxx 600 total return > S&P 500 total return)
Connor Campbell, financial analyst at Spreadex, has sent us his thoughts.
Continuing the push it saw at the very end of 2016 the UK index is already eyeing the 7200 mark, a 50 point-plus rise leaving it within striking distance of that landmark level. For now, at least, investors are ignoring the potentially disruptive events littered across 2017 – most pertinent to the FTSE being March’s triggering of Article 50 and the impending announcements related to the banking sector’s decision whether or not to stay in the UK post-Brexit – to get behind the UK index.
Helping the FTSE is the performance of Brent crude which, at just above $57 per barrel, is at its best price in around 18 months, something that has secured some solid growth in the commodity sector as the New Year gets underway.
The FTSE does, however, get its first 2017-test this morning in the form of December’s manufacturing PMI; analysts are expecting the figure to dip slightly month-on-month, from 53.4 to 53.3. Any negative news will likely be absorbed by the pound, which is sitting flat just above a 2-month, sub $1.23 low against the dollar.
Shares in London continue to climb on the first trading day of the year, pushing the FTSE 100 up briefly to 7,202.44, a fresh record high. It is now 0.8% ahead, not far below the 7,200 mark.
Mining stocks Glencore and Anglo American, which have benefited hugely from the weak pound in the past year, are among the biggest risers today, as is Intercontinental Hotels, after a rating upgrade from Barclays. Retailer Next is the biggest faller, down 3.2%, after Deutsche Bank downgraded its rating on the stock to “hold” from “buy”.
European equity markets are also up for a second day. The pan-European Stoxx 600 index has risen 0.75% to 365.89, the highest level since December 2015.
Italian banks are among the top gainers, with the newly-merged Banco BPM gaining 4.6% in early trading.
Updated
Economists at Daiwa said:
With Spanish inflation on the EU harmonised measure released last Friday surprising notably on the upside, rising 0.9ppt to 1.4% year-on-year, a near-3½-year high, the equivalent flash euro area figure due tomorrow is expected to rise 0.4ppt to 1.0%Y/Y, which would be the highest in since September 2013.
Nevertheless, given the continued lack of underlying cost pressures, euro area core CPI is expected to be unchanged at just 0.8%Y/Y, for the fifth consecutive month.
French inflation picks up
In the eurozone, the focus today is on the flash estimates of December inflation figures from Germany and France as well as German unemployment data.
The French numbers are already out – inflation rose at an annual rate of 0.8% last month, the highest since May 2014, driven by higher food and energy prices while services inflation slipped back.
The German data are expected to show an annual inflation rate of 1.3%, which would be the strongest since 2013.
We are also getting German unemployment data this morning. Economists are forecasting a small fall of 5,000 in the number of jobless people, leaving the unemployment rate unchanged at 6%.
Updated
European stock markets have also opened higher. The Dax in Frankfurt and the Ibex in Madrid are both 0.3% ahead while the CAC in Paris and the FTSE MiB in Milan have gained 0.5%.
FTSE 100 hits new record high
The FTSE 100 has hit a new record high at the open, rising more than 27 points to 7170.65, a 0.4% rise.
Updated
On the corporate front, the London Stock Exchange is selling its 50% stake in the French clearing arm of LCH Clearnet to Euronext, which runs several European exchanges, in a €510m (£433m) deal. Both companies have agreed on the terms of Euronext’s all-cash offer.
The LSE is offloading its stake in LCH in an attempt to ward off anti-trust concerns raised by the European commission over its proposed £21bn mega-merger with Deutsche Börse, the operator of the German stock exchange.
Read the full story here.
Updated
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, believes that slowing growth in real incomes (adjusted for inflation) will define the UK economy this year. He says that income growth is unlikely to keep up with rising inflation, caused by the sharp slide in the pound which is pushing up the price of imported raw materials and other goods.
The UK economy retained its momentum last year, despite the seismic shock of the vote to leave the EU. Quarter-on-quarter GDP growth averaged 0.5% in the first three quarters of 2016, matching 2015’s rate and the average pace of growth across the Atlantic. So far, surveys and official data point to growth of about 0.4% in Q4. The economy’s strength, however, has relied on consumers, who will not be able to raise spending much further in 2017 as the consequences of the Brexit vote unfold...
The jobs data already have begun to lose their shine; employment fell by 6K in the three months to October, the first decline since mid-2015. The numbers often are erratic, but the deterioration in surveys of employment intentions and a small decline in the number of vacancies points to a clear slowdown in job growth. In addition, we expect no serious increase in wage growth, which likely will remain close to 2.5% this year.
Employers are responding to rising materials costs by squeezing pay; the median basic pay deal was just 1.6% in the three months to November, down from 2% in the first half of the year, according to XpertHR...
Households’ real incomes look set to stagnate this year, following increases of 3.6% in 2015 and 2% in 2016.
Investec economist Chris Hare is expecting a slight uptick in the UK factory index today, to a healthy 53.6. It dropped unexpectedly in November to 53.4 from October’s revised 54.2, the second monthly decline. Anything above 50 indicates expansion while a reading below points to contraction.
He says:
The decline on the month is no cause for panic though – the index still remains above levels that prevailed in the months before the UK’s vote to leave the EU and is also still above its long run average level.
Indeed, we expect the read from the manufacturing sector to remain fairly elevated over the coming months – exporters should continue to benefit from post-referendum falls in the pound. Over time, that should more than offset the adverse effect of higher import costs. Meanwhile, we would note that businesses have largely shrugged off the economic uncertainty associated with the post-Brexit vote environment.
The agenda: UK manufacturing PMI
Good morning, and Happy New Year. Welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The FTSE 100 ended 2016 at a record high of 7,142.83 after a surge in mining stocks and dollar earners, which dominate the index. The pound has lost 17% against the dollar since the Brexit vote in June, benefiting those companies that make most of their money overseas.
The UK market reopens today after yesterday’s bank holiday closure – the first trading day of 2017. The highlight is the UK manufacturing purchasing managers’ index for December, which will shed more light on how industry has fared since the referendum.
European stock markets got off to a good start yesterday after strong manufacturing reports. The manufacturing PMI for the eurozone rose to 54.9 last month, the highest since April 2011, boosted by Germany, France and Italy. German factory growth rose to close to a three-year high thanks to rising demand from Asia and the US. French manufacturing hit a five-and-a-half-year high, while in Italy factories grew at their fastest rate since June.
