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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (until 2.25) and Nick Fletcher

Oil hits 11-year low as weak Chinese data spooks markets - as it happened

An oil field near the village of Nikolo-Berezovka in Bashkortostan, Russia.
An oil field near the village of Nikolo-Berezovka in Bashkortostan, Russia. Photograph: Sergei Karpukhin/REUTERS

Investors could see the FTSE 100 - currently at 6073 - slip below 6000 during the current market rout, according to Tony Cross at Trustnet Direct. He said:

It’s been another difficult day for London equities with the FTSE-100 failing to find any meaningful support, in line with sentiment across the bulk of global stock markets. Once again miners are leading the rout, this time with suggestions that some of the big names could look to use a rights issue to build so-called war chests so they’re well placed to pick up distressed assets from smaller rivals when the inevitable fire sales come along.

The fact oil prices have hit levels not seen in over a decade is also cause for concern, with traders taking the glass half empty approach here – US crude inventories fell, but there was simultaneously a sharp build in the corresponding gasoline reading...

Downside pressure may be with us for a while yet and the obvious next level to watch for is a break below 6,000 on the FTSE-100.

On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.

European shares close lower but off worst levels

It was another day of dramatic declines on global markets. It started badly with more poor Chinese data - this time from the service sector - which prompted renewed fears of a severe slowdown in the world’s second largest economy. However there were also suggestions that the country’s central bank might unveil new stimulus measures, as well as extending the ban on short selling which is due to expire at the end of this week.

News that North Korea had claimed to have exploded a hydrogen bomb also unnerved investors, while the oil price continued to slide. Growing tensions between Saudi Arabia and Iran make it unlikely the oil-rich countries will be able to agree on production cuts to cope with falling demand and oversupply. On top of that came new figures showing a 10.1m rise in gasoline inventories in the US last week.

So markets fell sharply again, with commodity companies bearing the brunt of the selling, although they recovered from their worst levels towards the end of trading. The final scores showed:

  • The FTSE 100 fell 63.86 points or 1.04% to 6073.38, having earlier fallen as low as 6018. Around 22 points of the decline came from mining and oil companies
  • Germany’s Dax dropped 0.93% to 10,214.02
  • France’s Cac closed down 1.26% at 4480.47
  • Italy’s FTSE MIB lost 2.67% to 20,422.39
  • Spain’s Ibex ended down 1.48% at 9197.4
  • In Greece, the Athens market fell 0.57% to 617.59

In the US, the Dow Jones Industrial Average is currently down 217 points or 1.26%.

Brent crude is 5.1% lower at $34.56 a barrel, after earlier touching $34.26 - its worst level for around eleven and a half years.

Traders on the New York Stock Exchange as the market suffers more sharp falls.
Traders on the New York Stock Exchange as the market suffers more sharp falls. Photograph: Spencer Platt/Getty Images

Back with the stock markets, and the day’s events seemed to follow a familiar pattern according to Joshua Mahony, market analyst at IG. He said:

The 2016 meltdown has moved into its third day, with both European and US markets selling off heavily once more, spurred on by yet another leg lower in crude prices. A hat-trick of underperforming services PMIs saw the Chinese, UK and US readings all fall short of market expectations today. With the UK and US heavily reliant on the services sector, the continued slide in services PMIs will no doubt be worrying, with certain negative implications for future growth in both countries.

As we head towards the European close there is a distinct pattern taking shape, with selling dominating the morning session, followed by a rally within the crossover period between the US and European markets. Perhaps this is US optimism at work, yet there certainly appears to be substantially more negativity within Europe than in the US, despite the fact that the Fed is the only central bank to be raising rates.

Following the news that the US added 10.1m barrels of gasoline to inventories last week, John Kilduff of Again Capital told CNBC:

It’s the biggest increase in gasoline supply since 1993. Gasoline prices are going to collapse.

On the other hand US crude inventories dropped by 5.1m barrels last week, but this has done nothing to support the oil price.

Brent falls 5.7% on the day

And now a new low for the day. Brent crude is down $2 a barrel or 5.7% at $34.30, in the wake of the US inventory figures.

These have added to worries about oversupply and falling demand, at a time when tensions between Saudia Arabia and Iran make it less likely the major producers will be able to agree on production cuts.

Oil price at an 11 year low.
Oil price at an 11 year low. Photograph: Reuters

Updated

After staging a minor recovery, oil prices are falling again after US gasoline stocks rose by 10.6m last week, the biggest weekly rise since 1993, according to the US Energy Information Administration.

So Brent crude is now down 4.75% at $34.69, back down towards the lows of the day.

However:

Updated

Connor Campbell, financial analyst at Spreadex said:

Whilst not quite at bad their early afternoon nadirs, the global indices were still drunk off today’s toxic China/oil/North Korea cocktail, staggering to fresh lows like a troop of inebriated uncles at an uncomfortable family function.

The Dow Jones, at its worst down by nearly 300 points, settled into a 200 point loss as the open receded into the background, lifted slightly by an absurdly strong ADP non-farm employment change figure and a shrinking trade balance number. Some of that goodwill was undone, however, by a huge month-on-month drop in factory orders (from 1.5% to -0.2%) and a pair of Markit and ISM services PMIs that, at 54.3 and 55.1 respectively, both worryingly underperformed expectations. And whilst the Dow may have climbed away from its lows, it remains both firmly below the 17000 mark and approaching 3 month lows.

Over in Europe and things remained just as bad, the DAX, CAC and FTSE all haemorrhaging around 1-1.5% as the day dragged on. If anything it is admirable the UK index hasn’t fallen even further given that Brent Crude truly lost its way this Wednesday, trading below $35 per barrel to hit new 11 year lows for most of the afternoon, at one point extending its losses to nearly 5%.

Here are the bigget fallers on the Dow Jones Industrial Average. It’s a broad based decline, with only retailer Wal Mart bucking the downward trend:

Wall Street falls.
Wall Street falls. Photograph: Reuters

And US factory orders fell in November and inventories declined for the fifth straight month, according to the Commerce Department.

New orders slipped 0.2% in November compared to a 1.3% rise in October, itself downgraded from an initial reading of 1.5%. Inventories fell 0.3% in November after a 0.5% decline the previous month.

The ISM non-manufacturing report also suggests some weakness in the US economy.

Its PMI came in at 55.3 in December, down from 55.9 in November and lower than the 56 that analysts had been expecting. This was the lowest reading since April 2014.

But the new orders index rose from 57.5 in November to 58.2, while the business activity index improved from 58.2 to 58.7.

The Markit survey suggests that US economic growth could be losing momentum. Its chief economist Chris Williamson said:

The PMI surveys show the service sector losing momentum alongside a stalling of growth in the manufacturing sector, pushing the overall rate of economic expansion down to the weakest for a year.

While the survey data indicate that the economy grew at a reasonably healthy 1.9% annualised clip in the fourth quarter, the weakness seen in the final month of the year raises concerns that growth is losing momentum, possibly quite markedly.

The survey also signals robust employment growth, but likewise suggests the pace of hiring has slowed since earlier in the year as businesses have become more cautious in the face of worries such as the forthcoming elections, the strong dollar, global growth jitters and the outlook for interest rates. The December survey data are consistent with non-farm payrolls rising by around 175,000 compared to an average of 200,000 in the first eleven months of the year.

Having hiked interest rates for the first time in almost a decade at the end of last year, the Fed will likely err on the side of caution and hold off with further policy tightening until the full extent of the slowdown becomes apparent.

US services grew more strongly than expected in December, according to Markit, but were still at their lowest level since January last year.

Its services PMI came in at 54.3 compared to expectations of 54 and an initial reading of 53.7. But it was weaker than the November figure of 56.1.

Markit’s composite PMI for December was 54, down from 55.9 in November and the lowest since December 2014. Markit said:

December data highlighted that the U.S. service sector ended the year on a weaker growth footing, with business activity and incoming new work both expanding at slower rates than in November. Staffing numbers continued to rise at a solid pace, but the latest survey suggested a greater degree of caution about the business outlook.

The ISM non-manufacturing survey is due shortly.

Updated

Wall Street opens sharply lower

As expected, US markets are joining in the global downturn, sparked by the latest poor Chinese data, this time from the service sector, and of course the reports of a hydrogen bomb test by North Korea.

The Dow Jones Industrial Average is down 235 points or 1.4% in early trading.

The S&P 500 has fallen 1%, while Nasdaq is off 1.5% (not helped by weakness in Apple following reports of iPhone 6 production cutbacks.)

Updated

Oil continues to fall, the latest lurch down coming after the strong ADP jobs report which has in turn strengthened the dollar on the basis of more possible US interest rate rises. Commodities are denominated in dollars, so any rise in the US currency makes them more expensive to hold.

So Brent crude is now down 4.7% at $34.71 a barrel, having touched a low of $34.62. That’s a new low of more than 11 years (since July 2004).

Here is our story on the oil price slide:

Updated

European stocks hit three-week low.

There’s quite a New Year hangover in the markets today.

Today’s selloff has sent European stocks down to a three-week low, knocking 1.7% off the Stoxx 600 index (which tracks listed companies across Europe).

That pretty much wipes out the “Santa Rally” that kicked off after the US Federal Reserve raised interest rates in mid December:

The Stoxx 600 index since late November
The Stoxx 600 index since late November Photograph: Thomson Reuters

Alastair McCaig, Market Analyst at IG, says weak Chinese data and tensions overseas have hurt stocks this week.

Only three days into the new year and both the economic data and equity markets in China are giving investors plenty to worry about. The People’s Bank of China has already suspended equity markets, closing them early for the day, injected 130 billion yuan into the markets and has now weakened the currency. What will the fourth day of the trading year bring?

The escalation in rhetoric between Saudi Arabia and Iran has already heightened fears over the Middle East and now North Korea has decided this is the optimum time to carry out its latest nuclear bomb test.

If 2016 is going to be a good one for equities, they are going to have to do it the hard way.

Here’s today’s damage, with just over two hours trading left in Europe:

European markets
European markets Photograph: Thomson Reuters

City firm Fathom Consulting is particularly pessimistic about China - it believes growth is way, way below the official reading of 7% (which is also Beijing’s official target)

Today’s ADP report shows that the US labour market saved the best till last....

Is it too early to speculate about another US interest rate rise?

Rob Carnell of ING thinks markets could start pricing in a fresh rise in borrowing costs in March, if Friday’s Non-Farm Payroll matches today’s decent ADP jobs report.

Such a move would be backed by rising inflation, notwithstanding what is currently happening to oil prices - the base effects from last year dominate any current downward pressure on prices. Wages too will likely bolster the case for more tightening (only +0.2%mom needed to take wage inflation to 2.8% in December), and sooner than markets are expecting.

There is still a long way to go until the March meeting, and we think that by the time we get there, the Fed will have managed to come up with an excuse for dragging its feet some more. But in the meantime, stronger labour data, rising inflation and wages are making a decent case for a more aggressive Fed, a stronger USD, and higher bond yields.

US trade gap narrows in November

America’s trade deficit narrowed in November, according to figures just released by the Commerce Department. With businesses reducing inventory, imports fell to their lowest level in five years, with exports also declining but at a lower rate.

So the trade gap fell by 5% to $42.4bn, while October’s deficit was revised up to $44.6bn for $43.9bn. Rob Carnell at ING Bank said:

The November US trade deficit narrowed by a little over $2bn to $42.374bn, which will help lift the fourth quarter 2015 GDP figures by about 0.1%/0.2% relative to what a flat reading would have delivered (assuming this is sustained). But this is not quite as good a data post as first glance shows.

The deficit was not materially affected by petroleum flows or prices, with the ex-petroleum deficit actually narrowing even more than the headline figure.

What appears to be dominating this result is a sharp (1.7% month on month) decline in imports, particularly on the goods side (service imports broadly unchanged). And this may reflect a much weaker level of underlying demand in the economy than some other recent data have suggested. Exports were a little softer too, but it is weak imports that dominated this result.

Analysts are surprised by the unexpectedly strong US private sector jobs report.

It doesn’t really match up to recent economic data, particularly from US manufacturing sector:

Updated

US jobs report smashes forecasts

Breaking: American companies hired more new staff than expected last month.

It’s a sign that the US labour market remains robust, despite weakening economic growth in emerging markets such as China.

The closely watched monthly survey conducted by the Automatic Data Processing (ADP) showed that 257,000 new private sector jobs were created last month.

That beats estimates; it’s around 62,000 more jobs than expected.

It suggests Friday’s Non-Farm Payroll report will not contain any shocks that might make the Federal Reserve regret raising interest rates last month.

undefined

Updated

Wall Street traders should take their tin hats into work.

The futures market is predicting chunky falls across the three main share markets, CNBC flags up. Trading begins in 75 minutes, at 2.30pm GMT.

dow
US stock futures Photograph: CNBC

America’s tech-heavy Nasdaq index is on track to shed 2% when trading begins, in an hour and half’s time.

That reflects concerns that Apple is reportedly cutting iPhone production, which may herald wider problems in the technology sector....

There was no relief to the commodity crunch this morning:

Updated

Shares in tech giant Apple are on track to hit their lowest level since last August, when Wall Street opens.

According to reports from China, Apple is cutting back on production of its iPhone 6 smartphone, in response to weaker than expected sales.

Foxconn, a major iPhone assembler, has already cut staff levels according to the Wall Street Journal.

The news has already hit the shares of the various tech firms whose components go into the iPhone. ARM, the UK chip firm, are down 3%.

And Apple is on track to fall by 2.7% to around $99.98....

Selloff gathers pace

European markets are lurching lower -- the FTSE 100 is flirting with a triple-digit loss, as concern swirls over China and North Korea.

The German, French and Italian markets are also deeper in the red:

European stock markets

Mining firms are still the biggest fallers, as commodity prices are hit by concerns over the global economy.

The fall in the crude price has hit producer Tullow Oil, which is down over 5%.

In another sign of nervousness, the price of gold is rising:

Updated

The Russian rouble is being hit by the weakening oil price, dropping 1% to 74 roubles to the US dollar.

Oil is continuing to slide.....

Today is definitely a “risk-off” trading session, says Peter Rosenstreich, head of market strategy at online bank Swissquote Bank.

“North Korea’s announcement of a hydrogen bomb test has done little to calm already jittery nerves.

The announcement was supported by media outlets reporting a “man-made” earthquake in the area that North Korea generally uses to test their nuclear capabilities. This concerning news follows directly on the heels of the escalations of tensions between Saudi Arabia and Iran. Given the weak economic growth data emulating for emerging markets recently investors had little appetite to wait around.

Spreadex’s Conner Campbell says markets are suffering a triple-whammy -- poor Chinese data, weakening oil, and North Korean worries.

“The dismal start to 2016 appears to have only intensified this Wednesday, with disappointing Chinese services data (sending the yuan to a 5-year low against the dollar even if the Shanghai Composite managed some counter-intuitive growth), a fresh 11-year low for Brent Crude and reports of a fourth nuclear test from North Korea.”

There’s still 90 minutes to wait until dawn breaks over New York. But any early-rising Wall Street workers should brace for a lively day.

The futures market is predicting the Dow Jones industrial average will shed almost 200 points, or 1.3%, at the open.

Oil hits 11-year low

A fresh dose of gloom has swept the oil market today, driving down crude prices to their lowest levels since the summer of 2004.

Rising geopolitical tensions between Saudi Arabia and Iran pushed prices down; good news for consumers, and countries who import their energy supplies, but another blow to producers.

Brent crude, sourced from the North Sea, tumbled by 2% to just $35.52 per barrel, a new 11-year low. US crude dropped 1.5% to $35.38.

This partly reflects concerns over China’s slowing economy -- weaker growth equals less demand for energy.

But oil traders are also watching the tensions between Tehran and Riyadh carefully.

Over the weekend, Saudi Arabia cut diplomatic ties with Iran after protesters ransacked the Saudi embassy in Tehran, following Saudi’s execution of a senior Shia Muslim cleric.

Middle Eastern tensions usually push the oil price up. But in this case, it dampens the prospect of producers working together and cutting the amount of crude hitting the market.

RBC Capital Markets say:

In particular, we would highlight the government’s decision to execute the prominent Shiite Cleric and political dissident Sheikh Nimr al-Nimr as a catalyst for increased sectarian tension both at home and throughout the region.

At the time of writing, protests had broken out in the restive city of Qatif in the Kingdom’s oil-rich eastern province and angry demonstrators had set the Saudi Embassy in Tehran on fire.

Returning to China... Ilya Spivak, currency strategist at DailyFX, says traders are alarmed that Beijing allowed the yuan to hit a five-year low today.

The sentiment-sensitive Australian, Canadian and New Zealand Dollars dropped while the safety-linked Japanese Yen pushed higher as risk aversion gripped markets in Asian trade. The move followed China’s move to set the daily reference rate for the onshore Yuan exchange rate at the lowest in five years.

“Newswires suggested the move reflected Beijing’s determination that the economy needs additional stimulus, which implies a deteriorating growth outlook. Curiously, the prospect of additional policy support might have been expected to be supportive for sentiment considering a slowdown in China has been baked into consensus forecasts for some time.

He also reckons traders should chill...

“With this in mind, today’s move may prove to be a reflexive, knee-jerk response rather than a sober evaluation of China’s FX policy on its merits. The PBOC spooked investors when it began to rapidly revalue the Yuan in August, catching markets off-guard and sending asset prices scrambling. Today’s response may reflect fears of a similar scenario, but the ingredients for a repeat appear to be absent.

Growth across the UK’s service sector dipped last month, suggesting the British economy isn’t growing as fast as hoped.

Markit’s UK Services PMI dropped to 55.5 in December, from 55.9 in November. That still shows robust expansion, with firms taking on more business....but Markit sounds a little concerned about the situation.

It says:

Employment increased at a robust pace, albeit the weakest in five months....

Growth in recent months has been slower than in the first half of the year and when compared with the trend rates set in 2013-14. Reflecting this, outstanding business continued to grow only modestly in December, and firms’ longer-term expectations for business activity were the weakest since early-2013.

Jeremy Cook of currency exchange firm World First wonders if the service sector may have peaked:

Eurozone growth high 4.5 year high

Despite France’s problems, private sector growth across the euro area has hit its highest level since mid-2011.

Data firm Markit reports that activity rose across Germany, France, Italy, Spain and Ireland last month, with many firms taking on more staff.

Its composite PMI, which measures manufacturing and service sector growth across the eurozone, hit 54.3, up from 54.2 in November.

That indicates that growth in the final three months of 2015 was the strongest since the eurozone debt crisis kicked off.

Ireland posted the fastest growth, continuing a strong run. More surprisingly, Italy was the second-best performer, ahead of Germany.

Chris Williamson, chief economist at Markit, says the data is encouraging:

“The eurozone economy starts 2016 on a solid footing and well placed to enjoy a year of robust expansion. Growth of business activity continued to edge higher at the end of 2015, with an upturn in the PMI rounding off the strongest quarter for four- and-a-half years.

“It’s particularly encouraging to see firms taking on staff in increased numbers, suggesting that businesses are preparing for stronger demand in the coming year by boosting capacity.”

French service sector suffering from terror attacks

France is kicking off 2016 where it ended 2015, with more bad economic news.

Markit’s French service sector PMI, which measures activity across the sector, fell to 49.8 in December. That’s an 11-month low, and suggests a small contraction) (50 is the cutoff point).

Firms reported that new business growth slowed to near-stagnation during the month which also suggests economic demand is weak.

jan06france

Jack Kennedy, senior economist at Markit, flags up that business expectations are also lacklustre, following November’s terrorist atrocities in Paris.

Anecdotal evidence suggested that a number of businesses continued to be affected by cancellations following the recent terrorist attacks, exerting a drag on new business growth.

Correspondingly, business expectations dipped to the lowest level for over a year. Service providers responded by cutting their charges to the greatest extent in six months, which they will be hoping may spur new work intakes to get the New Year off to a more positive start.”

Updated

John Lewis sees festive sales leap online<br>File photo dated 28/11/2014 of the exterior of John Lewis lit up for Christmas, on Oxford Street in central London. The retailer saw like-for-like sales lift 5.1% in the six weeks to January 2, but it relied on a 21.4% jump in online trade as comparable store sales dropped 1.2%. PRESS ASSOCIATION Photo. Issue date: Wednesday January 6, 2016. See PA story CITY JohnLewis. Photo credit should read: Yui Mok/PA Wire

Back in the UK, John Lewis has shrugged off a drop in shoppers at its high street outlets to report a “strong” Christmas.

My colleague Sean Farrell has the details:

Group sales for the six weeks to 2 January rose 4.1% from a year earlier to £1.81bn as sales at its John Lewis department store business, including online, rose 6.9% to £951.3m. At operations open a year or more, John Lewis sales rose 5.1% with performance spread between homeware, fashion and technology.

Sales at John Lewis department stores fell 1.2%, reflecting fewer visits to high streets and shopping centres as online sales jumped 21.4%.

Maybe that Man in the Moon advert charmed the shoppers again (despite cynical hacks wondering what terrible crime the old chap had committed to prompt his lunar exile). Personally I preferred Monty the Penguin.

China’s yuan is continuing to weaken -– it just hit a record low of 6.7250 to the US dollar in London trading, according to Reuters.

Stocks are weakening across Europe this morning.

As this chart shows, the basic resources sector (miners and energy suppliers) are the worst hit, but it’s a pretty broad selloff:

Reflection Of Canary Wharf Seen In Millpond Surface In London<br>LONDON, UNITED KINGDOM - NOVEMBER 17: Reflection of Canary Wharf seen in a millpond surface on November 17, 2013 in London, England. PHOTOGRAPH BY Tony Margiocchi / Barcroft Media UK Office, London. T +44 845 370 2233 W www.barcroftmedia.com USA Office, New York City. T +1 212 796 2458 W www.barcroftusa.com Indian Office, Delhi. T +91 11 4053 2429 W www.barcroftindia.com

Mining shares are leading the selloff in London, with BHP Billiton down 4%, Rio Tinto and Antofagasta shedding 3.7% and Glencore down 2.9%.

That highlights concerns that China’s economy may be slowing faster than official figures show, which would dampen demand for commodities.

UK fashion chain Burberry is also feeling the chill, dropping 2.3% at the open. It warned in October that Chinese demand for its pricy coats and handbags had weakened since last summer’s stock market turmoil.

European markets rattled by China and North Korea

Down we go again.....

Europe’s stock markets are dropping in early trading, hit by worries over China and anxiety over North Korea’s nuclear test.

In London, the FTSE 100 has shed almost 1% at the open, with other markets close behind.

European stock markets
European stock markets Photograph: Thomson Reuters

Mike van Dulken of Accendo Markets says investors have plenty to worry about:

Geopolitical risk has moved up a gear thanks to North Korea testing a hydrogen bomb for supposed self defense which will only go to make for more tension with its neighbours, while China data disappointed with a pullback in PMI Services adding to Monday’s weakness in Manufacturing, bolstering investor fears about the slowing economy.

A Chinese investor walks past an electronic display showing prices of shares (red for price rising) at a stock brokerage house in Fuyang city today.
A Chinese investor walks past an electronic display showing prices of shares (red for price rising) at a stock brokerage house in Fuyang city today. Photograph: Imaginechina/Corbis

China’s stock markets are defying today’s selloff, and rallying on hopes that Beijing will be forced into more stimulus moves soon.

The Shanghai Composite Index jumped 1.7% to close 61 points higher, at 3,539 points. That still leaves the index down 5% this year, after Monday’s 7% slump forced trading to be suspended.

Hong Kong stock market hits three-month low

Most Asian stock markets has fallen today, driven down by worries over China and the nuclear test claims from North Korea.

Japan’s Nikkei fell 1%, while Hong Kong’s Hang Seng index lost 0.8% to hit its lowest level since October.

More here:

Chinese yuan hits five-year low

A clerk counts Chinese 100 yuan banknotes at a branch of a foreign bank in Beijing January 4, 2016. REUTERS/Kim Kyung-Hoon

In another sign of problems building in China, the country’s currency has hit a five-year low against the US dollar today.

The People’s Bank of China surprised investors by setting its daily yuan fix at the lowest level since April 2011, which triggered fresh selling overseas.

CNBC has the details:

The offshore yuan fell to 6.6915 against the greenback, the lowest rate of exchange since at least the last quarter of 2010 and a 2.1 percent discount to the onshore yuan’s 6.5506 level.

The People’s Bank of China has been under growing pressure as nervous investors pull capital out of the country. A weaker yuan should help Chinese firms compete overseas, but may also fuel concern about currency wars.

Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank in Singapore, has told Bloomberg that the drop in the yuan will “confuse” the markets.

Updated

Economists are concerned to see that China’s service sector growth ground to a halt last month.

Zhou Hao, an economist at Commerzbank AG in Singapore, warned:

“This sentiment gauge clearly clouds the growth outlook for China,”

Iris Pang, greater China economist at Natixis SA in Hong Kong, hopes for a recovery this month.

“Services have felt the heat from the economic slowdown....Spending in the Chinese New Year may lead to a rebound”.

Chinese service sector growth disappoints

This chart from Caixin shows how China’s economy took a dive in December, with service sector growth hitting a 17 month low and manufacturing actually shrinking (as we learned on Monday)

Chinese services PMI

Dr He Fan, their chief economist, says it shows Beijing needs to do more to stimulate its economy:

“The headline Caixin China General Services PMI for December is 50.2, down 1 point from the reading for the previous month and reaching the lowest point in 17 months.

The Caixin Composite Output Index came in at 49.4, below the 50-point neutral level and 1.1 points lower than November’s record. In light of the setback to services sector growth, the government needs to gradually relax restrictions in the sector. This will release the potential of supply-side reform, improve the economic structure and help with the industrial transformation and upgrading.”

Updated

Introduction: Weak Chinese data worries investors

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

Worries over China’s economy are in focus again this morning.

Overnight, fresh data has shown that the country’s service sector economy grew at its slowest rate in 17 months in December.

The Caixin/Markit Purchasing Managers’ Index (PMI) fell to 50.2 last month, which implies that the sector basically stagnated last month.

That follows Monday’s weak manufacturing data, and adds to concerns that its economy is softening, It also suggests Beijing’s move to a more consumer-driven economy isn’t going as well as hoped.

Investors are also (understandably) alarmed that North Korea is claiming to have detonated a hydrogen bomb overnight (live coverage of that drama is here).

That’s weighing on Asia markets, which are mostly in the red today, and driving up the US dollar.

We get service sector data from across Europe this morning, which is likely to show that the slow recovery in the eurozone continued in December (with Germany doing rather better than France).

The eurozone data comes in dribs-and-drabs from 8.15am to 9am GMT, with the UK services PMI at 9.30am.

We then get the US services data at 3pm, after the monthly ADP report shows how many new private sector jobs were created last month. That will tee up Friday’s Non-Farm Payroll (the broad measure of the American labour market).

And in the City, investors will be chewing through Christmas trading figures from retail bellwether John Lewis, and Topps Tiles.

We’ll be tracking all the main events through the day...

Updated

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