Mixed day for European markets
On a relatively quiet day for company and economic news, the weakness of the dollar was a dominant theme once more. The latest going-on in the White House - including the change of chief of staff following the healthcare bill failure - have helped undermine the US currency, with investors questioning how much of his promised tax reforms and spending plans will actually see the light of day. Added to that was the nervousness surrounding the latest missile tests by North Korea.
So with the euro and pound benefitting from the greenback’s weakness, European markets mainly ended the day lower. But the recent run of positive US company results, and hopes for the same from Apple on Tuesday, helped pushed the Dow Jones Industrial Average to new peaks.
The final scores in Europe showed:
- The FTSE 100 edged up 3.63 points or 0.05% to 7372.00
- Germany’s Dax dipped 0.37% to 12,118.25
- France’s Cac closed 0.73% lower at 5093.77
- Italy’s FTSE MIB finished 0.26% ahead at 21,486.91
- Spain’s Ibex ended down 0.32% at 10,502.2
- In Greece, the Athens market fell 0.95% to 812.21
On Wall Street, the Dow Jones Industrial Average is currently up 84 points or 0.39%, close to its intraday peak.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
More on the strike at the Bank of England, and here’s the Bank’s response:
The Bank has been informed that industrial action called by Unite will commence at midnight tonight for three days. The Union balloted approximately 2% of the workforce. The Bank has plans in place so that all essential business will continue to operate as normal during this period. The Bank has been in talks with Unite up to and including today and remains ready to continue those talks at any time.
The weak dollar has also seen the euro gain ground against the US currency:
Euro trades above $1.18 for first time since January 2015 (July 31, 2017) pic.twitter.com/7dc80a3dYM
— Dan Popescu (@PopescuCo) July 31, 2017
Updated
Sterling hits new 10 month high
Sterling has hit a new 10 month high against the dollar, as the US currency continues to struggle with the uncertainties caused by the actions and comments from the president.
The pound is currently up 0.35% at $1.3178, having earlier hit $1.32 for the first time since 16 September. Neil Wilson, senior market analyst at ETX Capital, said:
Sterling jumped to fresh 10-month highs as the end of month 4pm fix sent cable higher. The pound exploded higher to $1.31999, having the briefest of flirts with the $1.32 handle before easing back. The move came as the dollar heads for its worst month since January. Cable is now trading at its highest since mid-September 2016 on this sustained bout of dollar weakness. Clearly it’s all to do with Donald Trump saying it was too strong and the market having confidence in him…more likely it is the exact opposite – concerns about the chaos in Washington and a complete lack of faith in the administration delivering any kind of meaningful economic or fiscal reforms.
There is also growing doubt that the US Federal Reserve will be in a position to raise interest rates again in the immediate future.
Oil slips back following Opec report
After its earlier gains on Venezuela’s problems, the oil price is now on the slide.
Opec crude output rose by 90,000 barrels a day this month to a high for the year, according to Reuters, as supplies from Libya continued to recover.
So, ahead of a meeting next week between Opec and non-Opec producers, Brent crude is now down 0.4% at $52.28 a barrel, having earlier reached a peak for the day of $52.92.
Updated
Back with the UK consumer credit figures, and TUC general secretary Frances O’Grady has called for the government to take action:
Wages are still lower than before financial crisis, so it’s no wonder that families are being forced deeper and deeper into debt.
If working people don’t see extra cash in their pocket, borrowing will continue to spiral. Setting aside mortgages, household debt is likely to hit an all-time high this year.
The government needs to boost investment to get wages rising again. They should start by ending public sector pay restrictions and putting the minimum wage up to £10 as soon as possible.
Meanwhile Elliott Silk, Head of Commercial at Sanlam UK, said:
The Bank of England’s actions to curtail the growth of unsecured loans has had some impact, but more action is needed. While consumer credit accounts for a fraction of household debt, people are much more likely to default on unsecured loans. A lot of this has to do with understanding the area – there is a lack of financial education on the national curriculum, which means young people often come out of education naïve to the negative consequences of unsecured loans and personal debt. Companies also have a large part to play in the financial wellbeing of their employees – otherwise, they too will feel the negative impact that financial stress can have on employee performance.
Bank of England strike to go ahead - PA report
The Press Association is reporting some bad news for Bank of England governor Mark Carney ahead of this week’s monetary policy meeting:
#Breaking Three-day strike by Bank of England workers to go ahead from Tuesday after talks end without agreement, Unite union says
— Press Association (@PA) July 31, 2017
Updated
US markets continue to be buoyant, despite a relatively quiet day in terms of economic and corporate news. But there is a lot coming up this week for investors to get their teeth into, which could well provide some volatility. Connor Campbell, financial analyst at Spreadex, said:
There wasn’t all that much to drive the index higher this Monday, with investors perhaps enjoying the calm before the storm of data and earnings brought by the first few days of August.
Tuesday’s Markit and ISM manufacturing PMIs are joined by Fed-favourite inflation gauge the core PCE price index and, most crucially, Apple’s latest earnings update. Wednesday then has the ADP employment change reading, before Thursday’s double dose of services PMIs and, finally, Friday’s non-farm jobs report. In other words, plenty to challenge the Dow’s recent rise.
The Dallas Federal Reserve manufacturing activity index has climbed from 15 in June to 16.8 in July, much better than the expected fall to 13.
The production index, a key measure of state manufacturing conditions, rose 11 points to 22.8, indicating output grew at a faster pace than in June, said the Dallas Fed.
But the positive data, there were more mixed responses from respondents:
- Business is good, not great. We are busy.
- The foreign competition for new equipment is extremely competitive and our company is not able to match their selling prices.
- Things are going poorly in the economy. We have no projects, and business is slow.
- We are experiencing the summertime blues. Business is very dull July to date.
- Washington, D.C., is still a significant contingent factor for a better or worse outlook. Prospects for better are dimming.
- The increases in business are small but measurable. We have been trying to add employees over the last six months, with no qualified candidates available.
- I cannot explain it, but we are slower than we have ever been at this time and it seems like we are not the only ones.
Updated
Next on the agenda are the latest US housing figures, which have come in better than expected.
Pending home sales bounced back in June after three months of decline. The National Association of Realtors said that its index of contracts to buy previously owned homes jumped1.5% to a reading of 110.2. This was higher than the 0.7% rise that analysts had been forecasting. But the market remains limited by the number of houses available to buy.
Lawrence Yun, the NAR chief economist said:
The first half of 2017 ended with a nearly identical number of contract signings as one year ago, even as the economy added 2.2 million net new jobs.
Market conditions in many areas continue to be fast paced, with few properties to choose from, which is forcing buyers to act almost immediately on an available home that fits their criteria.
Low supply is an ongoing issue holding back activity. Housing inventory declined last month and is a staggering 7.1 percent lower than a year ago.
The fall in the Chicago PMI follows five straight months of rises, and is the lowest level for three months. Jamie Satchi, economist at MNI Indicators which helps compile the report, said:
MNI’s July Chicago Business Barometer should be viewed in the context of the underlying, upward trend in business sentiment witnessed since early 2016. Key indicators, despite reversing their June reading, remain above their respective averages set over the last twelve months, and point towards robust confidence among U.S firms.
Updated
Still with the US and there is a smidgen of data due.
First comes the Chicago Purchasing Managers Index, which has come in lower than expected, down from 65.7 in June to 58.9 in July.
USA Chicago PMI announcement - Actual: 58.9, Expected: 60.0 pic.twitter.com/gpa4ER5TGy
— Spreadex (@spreadexfins) July 31, 2017
Dow hits new high as Wall Street opens
Optimism about US company earnings has helped push Wall Street higher once more.
The Dow Jones Industrial Average has hit a new intraday peak of 21,885, while the Nasdaq Composite and S&P 500 are both on the rise in early trading. So far around 73% of major companies reporting results have beaten expectations, and Apple is the next big name to come under the spotlight, with its results due after the market closes on Tuesday.
Thurday sees the Bank of England’s latest interest rate and monetary policy decisions, and ING Bank has been looking at the possibilities. And they have felt moved to drag in Game of Thrones for some reason:
UK consumer borrowing hits £200bn
In another important development, UK consumer borrowing is back above £200bn for the first time since the financial crash.
That’s according to the latest Bank of England figures, released this morning.
Unsecured consumer credit, which includes credit cards, car loans and overdrafts, grew by 10% in the year to June, to £200.9bn. It was the first time the outstanding debt had gone above £200bn since the peak of the global financial crisis in 2008.
The pace of growth in consumer credit did ease off slightly in June, going up by £1.5bn on the month after £1.8bn in May.
Ruth Gregory, UK economist at the consultancy Capital Economics said the 10% rise on the year would still be concerning for the Bank.
Gregory says:
“This will clearly do nothing to allay policymakers’ fears that unsecured credit is growing too quickly.
But this at least suggests that households remain confident enough in their financial position to increase borrowing to help smooth consumption, as their real incomes are temporarily squeezed by higher inflation.”
Moodys issues warning over UK consumer credit
Rating agency Moody’s has sounded the alarm over Britain’s consumer credit market.
It has downgraded the outlook on bonds backed by credit card customers, buy-to-let mortgages and car loans, and warned that some British borrowers will struggle to repay their debt as the economy weakens, and inflation eats into their salaries.
In a new report Greg Davies, Moody’s assistant vice president, says:
“Household debt is high and still growing, leaving consumers vulnerable to an economic downturn, while higher inflation, weaker wage growth and levels of indebtedness leaves those in lower-income brackets the most exposed.”
“An additional challenge is that households’ capacity to draw on savings to maintain consumption and/or service their consumer debts has significantly diminished.”
As a result, Moody’s has downgraded the collateral outlooks on most ‘UK structured finance sectors’ to negative.
It believes they will perform negatively over the next 12 to 18 months.
Structured finance is the process of taking a large number of individual loans, packaging them into a single security, and selling it to investors. In theory, this allows investors to get a guaranteed income stream, but with the danger of losses if the underlying loans underperform (as happened spectacularly in the subprime crisis of 2008).
These are the areas which Moody’s is worried about:
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Non-prime residential mortgages bonds: These borrowers are paying higher interest rates, and have smaller savings pots to absorb any shocks, says Moody’s.
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Bonds backed by the UK’s buy-to-let (BTL) sector: Bondholders could suffer losses if house prices fall, due to “the high proportion of interest-only underlying loans”.
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Automobile asset-backed securities: Moody’s fears that “delinquencies are likely to rise slightly” as the economy deteriorates. It singles out the boom in Personal Contract Purchase (PCP) plans, which have allowed customers with poor credit histories to buy new cars.
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Credit card asset-backed securities: Moody’s expects delinquencies and defaults on these bonds to rise, especially if unemployment increases.
Moody’s warning comes just a few hours after Britain’s Financial Conduct Authority announced it would review the booming car loan market, amid worries that consumer debt is getting out of hand.
Updated
Newsflash: Officials from the Bank of England and the Unite union have sat down at conciliation firm ACAS.
It’s a final attempt to stop a three-day walkout at the Bank, starting tomorrow, over a 1% pay offer to Unite staff.
Last-ditch talks aimed at averting the first strike at the Bank of England in more than 50 years have started @acasorguk @unitetheunion
— Alan Jones (@AlanJonesPA) July 31, 2017
The threat of US sanctions on Venezuela has alarmed investors, sending them racing to ditch bonds issued by Caracas.
The price of long-term Venezuelan dollar bonds fell almost one cent, according to Reuters data.
Bonds issued by state oil firm Petróleos de Venezuela also took a tumble. It buys US light crude oil, and mixes it with its own crude to create a product for export - so any sanctions would hurt the company.
Meanwhile, the European Union has added its voice to the chorus of concerns over Sunday’s vote:
Venezuela - EU has 'grave doubts election result can be recognised', says held in 'doubtful, often violent circumstances'
— Danny Kemp (@dannyctkemp) July 31, 2017
Eurozone jobs: What the experts say
Marc Brütsch, chief economist at Swiss Life, says the drop in eurozone unemployment shows that Europe’s economy is strengthening:
#Eurozone recovery reaches labour market. #Unemployment rate falls to lowest sine financial crisis #Economy #Euroland https://t.co/DJjSeLYq9Z
— Marc Brütsch (@MarcBruetsch) July 31, 2017
Ken Odeluga of City Index says the data has cheered investors.
#EUR starts week on front foot on raft of strong data, incl. unexpected fall in Eurozone unemployment, better than forecast #inflation ^KO
— Ken Odeluga (@Ken_CityIndex) July 31, 2017
But Craig Erlam of OANDA points out that the eurozone has plenty of room for improvement:
Unemployment at 9.1% is still extremely high and when you break that down by country, it becomes much higher again in some places. Core inflation is also only at 1.3% which is still well below the ECB’s target and with the currency appreciating strongly this year, downward pressures here will continue to build.
The central bank should therefore tread very carefully when it comes to removing stimulus, as I expect it will.
In another encouraging sign, youth unemployment across the eurozone has fallen by 400,000 over the last year.
There are now 2.588 million young people out of work in the euro area, or 18.7% of the youth population, down from 21% in June 2016.
The lowest youth unemployment rate is in Germany (6.7%), while the highest were recorded in Greece (45.5% in April 2017), Spain (39.2%) and Italy (35.4%).
Eurozone unemployment rate hits fresh eight-year low
Boom! Unemployment across the eurozone has fallen to a new eight-year low.
The euro area jobless rate has dropped to 9.1% in June, down from 9.2% in May. This level was last seen in February 2009, after the financial crisis drove Europe into recession.
It indicates that Europe’s economy is continuing to strengthen, on the back of solid growth figures from France and Spain last week.
Unemployment in the wider European Union was stable at 7.7%, the lowest since December 2008.
Despite this recovery, the eurozone’s jobless rate is still much higher than the UK’s 4.5% or the US, where it is just 4.4%.
There are also stark regional differences, between Northern and Southern Europe:
Eurostat has more details:
Among the Member States, the lowest unemployment rates in June 2017 were recorded in the Czech Republic (2,9%), Germany (3.8%) and Malta (4.1%).
The highest unemployment rates were observed in Greece (21.7% in April 2017) and Spain (17.1%).
Separate data shows that the eurozone’s inflation rate remained at 1.3% in July, some way below the European Central Bank’s target of just below 2%.
UK mortgage approvals and consumer credit stats
Newsflash: Back in the UK, the number of mortgages being approved has dipped to a nine-month low.
A total of 64,684 new home loans were agreed in June, new figures from the Bank of England show, down from 65,109 in May. That’s the lowest since September 2016.
The figures also show that the public continued to rack up credit. Net consumer credit rose by £1.458bn in June from £1.769bn in May. That means consumer credit is growing by around 10% per year.
Economist Rupert Seggins has tweeted the key charts:
UK mortgage approvals in June continue to point to fairly flat rather than falling house prices in the next 6 months. pic.twitter.com/HMvWQ5SvBa
— Rupert Seggins (@Rupert_Seggins) July 31, 2017
UK consumer credit rises again, to 19.7% of household income in Q2. Most of the push has come from personal loans & overdrafts. pic.twitter.com/5C8YqxihDD
— Rupert Seggins (@Rupert_Seggins) July 31, 2017
As this chart shows, Venezuela is the third-largest exporter of oil into the US market:
The U.S. is weighing new sanctions against Venezuela by targeting its vital oil industry https://t.co/cHC3S4K6EF vía @WSJ pic.twitter.com/1BZzXP4hQK
— Cris Carvajal (@CrisCarvajal36) July 31, 2017
Venezuela’s public finances have been badly hurt by the fall in the oil price a couple of years ago.
That loss of revenue has fuelled the country’s political and economic crisis, as RBC Capital Markets explain:
Many petro states have seen their finances severely strained by the oil price slump. However, no country has experienced as fast and furious fall as Venezuela has, and it now appears poised to earn the dubious distinction of being the first to fully fail. The statistics are staggering.
By the end of the 2017, the Venezuelan economy will likely have shrunk by 30% in three years. The IMF forecasts that inflation will average 720% this year and top 2,000% in 2018. Half of the population is living in extreme poverty and health officials are even starting to warn of famine if current trends continue, according to the International Crisis Group. Three months of daily demonstrations and strikes have left more than a hundred dead and thousands injured. Thousands more are languishing in jail.
Venezuela’s new assembly will give President Nicolas Maduro and his supporters “near-total” control of the levers of power, say Associated Press.
AP also report that opposition parties don’t accept the government’s claim that over 40% of the public voted:
Council president Tibisay Lucena announced just before midnight that turnout in Sunday’s vote was 41.53 percent, or 8,089,320 people.
The count was met with mockery and anger from members of the opposition, who said they believed between 2 million and 3 million people voted. One well-respected independent analysis said 3.6 million appeared to have voted.
The electoral council’s vote counts in the past have traditionally been seen as reliable and generally accurate, but Sunday’s announcement appeared certain to escalate the polarization and political conflict paralyzing the country.
UK foreign office minister Sir Alan Duncan has tweeted that he’s “appalled” by the events in Venezuela:
Appalled by sham-democratic Constituent Assembly in #Venezuela, and yet more tragic deaths. Urgent negotiation needed to tackle crisis.
— Sir Alan Duncan MP (@AlanDuncanMP) July 30, 2017
My colleague Sibylla Brodzinsky has written about the deadly clashes on the streets of Venezuela during Sunday’s voting.
Many voters decided against taking part in an election the opposition said would turn the country into a full-fledged dictatorship.
As many as 14 people died in the protests, according to opposition leader Henrique Capriles, and the prosecutor’s office confirmed at least six people were killed by gunfire, including one national guardsman. Seven policemen were wounded in an explosion in the opposition stronghold neighbourhood of Altamira.
However, the leader of the ruling socialist party, Jorge Rodriguez, said there was “not one death related to the voting process today”, underscoring the contrasting versions of the day presented by the two clashing sides.
This chart shows how the Venezuela crisis has driven oil to a two-month high:
Oil hits two-month high on Venezuela sanctions threat
The oil price is rallying this morning, following reports that the US government could hit Venezuela with sanctions.
Brent crude has jumped to $52.85 per barrel, its highest level since late May, and US crude is back over the $50/barrel mark.
The surge comes after US officials expressed anger over a controversial election held in Venezuela last weekend to choose delegates for its assembly, and to rewrite its constitution.
Critics claimed that the vote was designed to shore up president Nicolas Maduro’s government. It was marred by violent clashes between opposition supporters and troops, with at least three people killed over the weekend.
Nikki Haley, the US ambassador to the United Nations, has already warned Maduro that the result isn’t acceptable.
Maduro’s sham election is another step toward dictatorship. We won't accept an illegit govt. The Venezuelan ppl & democracy will prevail.
— Nikki Haley (@nikkihaley) July 30, 2017
US State Department spokesperson Heather Nauert also warned:
“We will continue to take strong and swift actions against the architects of authoritarianism in Venezuela, including those who participate in the National Constituent Assembly as a result of today’s flawed election,”
“We encourage governments in the hemisphere and around the world to take strong action to hold accountable those who undermine democracy, deny human rights,bear responsibility for violence and repression, or engage in corrupt practices.
And a formal US response is expected soon, with officials briefing that they could impose sanctions on Venezuela’s vital oil sector this week.
Reuters has more details:
The measures, which could be announced as early as Monday, are not expected to include a ban on Venezuelan oil shipments to the United States -- one of the harshest options -- but could block sale of lighter U.S. crude that Venezuela mixes with its heavy crude and then exports, the officials told Reuters.
More reaction to follow...
The agenda: UK and eurozone data in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we get a new healthcheck on Britain’s economy, with new figures showing how much new credit was lapped up by consumer last month, and how many people took out mortgages.
With concerns over Britain’s economy mounting, City investors will scrutinise the data for signs that cash-strapped households are taking too many risks.
Michael Hewson of CMC Markets has the City predictions:
Mortgage approvals for June are set to remain steady at 65k, while net lending is expected to slow down a touch from the numbers seen in May, as declining consumer confidence and rising inflation squeezes wages, not to mention the uncertainty created by the June election result.
The main event of the morning, though, could be the latest eurozone inflation and jobs report. They could show that Europe’s recovery is continues, with unemployment tipped to hit a new post-crisis low of 9.2% in June.
Royal Bank of Canada’s analysts warn that Europe’s labour market still has black spots:
The pace of improvement is still gradual, due in particular to the continued sluggish performance of the French and Italian labour markets, meaning that the considerable degree of labour market slack that exists in the euro area continues to be absorbed only slowly.
Eurozone inflation, meanwhile, is expected to remain at 1.3% in July -- not high enough to worry the European Central Bank unduly.
Also, the Bank of England will make a final attempt to avert its first strike in half a century. The central bank will meet with union officials today, with a three-day walkout over pay due to start tomorrow:
Last-minute talks bid to halt first Bank of England strike in 50 years https://t.co/G84DRjU0qf
— The Guardian (@guardian) July 30, 2017
The agenda
- 9.30am BST: UK consumer credit and mortgage approvals for June
- 10am BST: Eurozone unemployment figures for June
- 10am BST: Eurozone inflation data for July
- 3pm BST: US pending home sales
