With this, we are closing up for the day. Have a great weekend, and we’ll be back on Monday.
Closing summary
- Stock markets have fallen sharply following poor US retail sales and industrial production data which point to slower economic growth at the end of 2015. Markets were already spooked by the continued slump in oil prices.
- On Wall Street, the Dow shed more than 400 points, a drop of 2.3%, and the Nasdaq is nearly 120 points off, a 2.7% decline. The FTSE 100 index is down 2.1%, France’s CAC is off 2.8% and Germany’s Dax has lost nearly 3%.
- Oil prices have hit fresh 12-year lows. Brent crude has been below $30 a barrel for most of the day, and was down nearly 5% at one stage.
- Some currency investors are betting against sterling in the derivatives markets on the assumption that a “Brexit” referendum will be held this summer. Reuters is reporting that options market pricing shows a jump in the cost of hedging against volatility between six and nine months from now.
Another bad day on the markets. The FTSE 100 index is now trading 1.9% lower, a fall of more than 115 points to 5804.32. The Dax in Frankfurt has tumbled 2.8% while the CAC in Paris has lost 2.4%.
Wall Street opens sharply lower: Dow falls 350 points
Wall Street has opened sharply lower: the Dow lost more than 350 points, a 2.1% fall, in the first few minutes of trading. The Nasdaq is down 2.6%.
US industrial production down for third month
The US industrial production data are also bad. Output fell for the third month in a row, by 0.4% in December, after a downwardly revised 0.9% decline in November. Production was held back by a strong dollar and cutbacks made by energy firms in the wake of plunging oil prices.
Taken together with the worse-than-expected retail sales figures, they paint a worse economic picture in the last three months of 2015.
Steve Murphy, US economist at Capital Economics, said the retail sales figures point to fourth-quarter GDP growth of 1% annualised.
All things considered, it doesn’t appear that the record warm temperatures in December or the latest downward leg in gasoline prices are boosting spending in any meaningful way. We now estimate that real consumption growth was a disappointing 1.5% to 2% annualized in the fourth quarter, with overall GDP growth at an even weaker 1%.”
Neil Saunders, who heads up retail consultants Conlumino, said retail sales were held back by discounting and a lacklustre performance of many key holiday categories. Retailers had to work hard to persuade consumers to spend money.
There are a number of explanations for the December pure retail number not being higher. The first of these is that the comparative from last year was fairly tough...
A relatively weak product line up in electricals failed to capture consumer interest, resulting in a sales decline of around 3.5% in December; and although sales picked up the latter end of the month, clothing also put in a lackluster performance thanks to warmer than average weather.
The third and final factor is discounting, which was more widespread and deeper this year than last: while this probably helped to stimulate some spending activity, it did not result in huge volume uplifts; as such, the net effect was to dampen overall sales growth.”
He sums up 2015 thus:
Retail is now best described as being in a state of respectable but constrained growth. Despite consumer finances improving and despite consumers having more money to spend this is not consistently finding its way into cash registers. Retailers are having to work increasingly hard to persuade consumers to part with their cash.”
US retail sales for December were disappointing, said ING economist Rob Carnell, who found the figures somewhat puzzling.
There is no single explanation for the weakness. Warmer than usual weather may heve reduced spending on seasonal clothing, but doesn’t explain why auto sales were so much at odds with other auto sales data which are very strong. Falling electronics sales are also hard to explain, as is food, miscellaneous sales, and general merchandise.”
Factory gate prices also fell in December, by 0.2%, reflecting sharp drops in energy costs, according to the US Labor Department. This could dampen expectations that inflation will rise towards the Federal Reserve’s 2% target.
Over 2015 as a whole, producer prices fell 1%, the weakest reading since the series started in 2010.
Updated
US retail sales disappoint in December
US retail sales slipped 0.1% in December, wrongfooting economists who had forecast no change. Unusually warm weather meant retailers struggled to shift winter clothes, and cheaper gasoline dragged down sales at service stations.
The November retail sales figure was revised higher to 0.4%, the US Commerce Department said.
More worryingly, retail sales excluding automobiles, gasoline, building materials and food services (which can be volatile), fell 0.3% last month, following a 0.5% rise in November.
Royal Bank of Scotland chairman Howard Davies has put the probability of Britain exiting the European Union at 35% in an interview with Bloomberg Television.
This probability assessment is based on a review of all the polls and also reflects what RBS economists think, Davies said.
You cannot be sure how a referendum like this can go, the polls currently will tell you that there’s a small majority in favour of remaining, but it’s a very volatile environment.
And what the polls also will tell you is that the thing people most worry about is immigration in some form, and of course if you had a referendum at a time when immigration was in the news, when the evening bulletins were full of boats across the Atlantic, or there was some great terrorist attack attributed to migrants, this could affect public opinion a lot.
So I think there will be all kinds that will play into that decision when it comes which will not be fully rational based on an analysis of the impact on the City of London.”
On China’s economic slowdown, he said:
We’re adjusting to that changed role of the Chinese economy, or changed growth rate, and of course the peripheral economies around China which will be affected in the same kind of way.”
Here are the key points of the interview:
- Brexit: “35% probability”
- His pessimism about UK / European investment banking
- Downsizing of RBS investment bank is “going well”
- Banks are more constrained in bets they can take
- There’s an adjustment to Chinese growth
- There are “fault lines” in world economy
Davies also talked about his lunch with David Bowie, who died on Sunday, and Iggy Pop in east Berlin in the 1970s:
[Bowie] was worried about travelling around east Berlin as he was, and so he approached the British authorities. And as it happened, a friend of mine was in the British Embassy in east Berlin, and I was staying there for the weekend. And we escorted him around in a British diplomatic car and had lunch in the Bertolt Brecht restaurant.”
The Institute of Directors has sent us their response to the news that two former bosses of the Co-operative Bank, including its ex-CEO, have been banned from holding senior positions in the City.
Simon Walker, director general of the IoD, said there was “ clearly also a failure on the part of the whole board”.
This is further proof that the leadership of the Co-operative Bank in the run up to its spectacular failure was woefully lacking in the skills, knowledge, and decision-making needed for a major financial institution. It is stark reminder that even brands which carry a positive public reputation can have it snatched away from them if their corporate governance isn’t up to scratch.
Non-executive directors are there to constructively challenge executives on their actions. Where they do not, as at the Co-op, it can be to the great detriment of the organisation’s employees and customers. The Co-op traded on its reputation as an ethical and reliable bank, but while senior executives and the board may have believed their own hype, they manifestly failed to embody these principles, with devastating results.”
The IoD believes training for non-executives, including trustees of charities and third sector organisations, is vital for good governance and holding executives to account. It is launching a new course for charity trustees on May.
Updated
Russia has poured cold water on the idea of co-ordinated oil output cuts with Opec, the oil cartel, to prop up plunging oil prices. Brent crude is holding below the $30 a barrel mark on Friday, down 4% on the day. A global oil glut has pushed prices more than 70% lower over the past 18 months.
Russian energy minister Alexander Novak said it is unlikely that such cuts would be agreed, adding that they would “not be efficient” in any case.
The RIA news agency quoted Novak as saying in an interview with RBC TV:
From our point of view, it is unlikely that all the countries within OPEC can agree on production cuts, let alone those countries which are not in the Opec coalition.
Such consultations have been underway for the past year and a half since oil prices started to fall in mid-2014. [But] we see that in 2015 countries like Saudi Arabia in Opec have increased total production by 1.5m barrels per day.”
Last month’s Opec meeting ended without an agreement on how to shore up oil prices and some members of the cartel urged Russia to reduce its own output.
In the past, Russia has argued that its harsh climate makes it hard to restart production once wells have been closed.
Updated
We said earlier that the Shanghai Composite index had entered bear market territory, joining the rest of China. It’s worth noting that the CSI 300 index, which comprises the top 300 stocks of the Shanghai and Shenzhen markets, has been there for some time.
Why lots of media saying China in bear mkt? V. misleading. CSI Index -41% from June, been in bear mkt for 6 mths. pic.twitter.com/NEvxa32SYH
— Joshua Raymond (@Josh_RaymondUK) January 15, 2016
Bank of England bans ex-Co-op bosses
The Bank of England has banned the former boss of the Co-operative Bank, Barry Tootell, from holding a senior banking job. The lender nearly collapsed under the weight of its debts.
The Bank’s Prudential Regulation Authority also banned Keith Alderson, a former managing director of the Co-op Bank’s corporate and business banking division. Both men also received fines.
It is the first time the chief executive of a bank has been banned over their role during the financial crisis.
PRA chief executive Andrew Bailey said:
This action makes clear that there are serious consequences for senior individuals who fall short of the PRA’s expectations. The new Senior Managers Regime, which will be introduced in March, will further ensure that senior managers are held duly responsible for their actions.”
Oil and Chinese stocks - pretty closely tied together since the start of last year: pic.twitter.com/ffYQRuVJxF
— Jamie McGeever (@ReutersJamie) January 15, 2016
Shares are still tumbling, with the FTSE 100 index in London down 72.24 points, or 1.2%, at 5845.99. Germany’s Dax has lost 0.9% while France’s CAC is 1.2% lower.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, has this reassuring message.
Don't panic! Big falls in FTSE 100 usually don't signal recession. Collapses in 87 & 01 coincided with robust growth pic.twitter.com/GwZZFpnY0I
— Samuel Tombs (@samueltombs) January 14, 2016
Here in the UK, the energy regulator has accused the big six energy firms of overcharging customers. They haven’t cut their retail prices despite plunging wholesale prices on international markets.
The Guardian’s energy editor Terry Macalister writes:
The big six energy companies including SSE, npower and E.ON have made no recent announcements about cutting retail prices although British Gas did reduce its tariff by 5% last August.
“I think they are overcharging in many cases,” the head of Ofgem Dermot Nolan told BBC Radio 4’s Today programme. There should be bigger cuts in retail energy bills, he added.
Updated
This list of the EU’s main trading partners published by Eurostat shows the rising importance of the US, while there is less trade with Russia (unsurprisingly). Exports to the US grew 20% in the first 11 months of last year versus the same period in 2014, while sales to Russia slumped 29%.
The healthier November trade data have raised hopes that a stronger trade performance boosted the economy as a whole and helped eurozone GDP growth improve in the fourth quarter of 2015, wrote Howard Archer, chief UK and European economist at IHS Global Insight.
Updated
The eurozone’s trade surplus with the rest of the world widened in November, according to preliminary figures from Eurostat. It rose to €23.6bn in November, from €20.1bn a year earlier. Exports of goods to the rest of the world rose 6% while imports grew 5%.
The surplus on trade within the 19-nation currency bloc reached €145.7bn, from €138.5bn a year earlier.
Updated
Brent crude has just fallen to a fresh 12-year low of $29.46 a barrel.
Chart! The Bloomberg Commodity Index is now at its lowest point since its start in 1991. #commodities pic.twitter.com/FPkYzlTOop
— jeroen blokland (@jsblokland) January 15, 2016
Updated
On a lighter note, with global stock markets sliding and savings rates at record lows, the best investment at the moment could be a handbag. My colleague Sean Farrell writes:
Not just any handbag, though. The accessory in question is the Hermes Birkin, the world’s most coveted bag, which can cost up to £150,000 new.
In the 35 years since the actor and singer Jane Birkin sat next to Hermes’ boss Jean-Louis Dumas on a plane and complained about not being able to find a good leather weekend bag, the Birkin bag has beaten returns for gold and the benchmark US S&P 500 index, according to the luxury bag retail site Baghunter.
Read the full piece here.
Updated
Brent crude at a 12-year low
Back to oil, which is still below $30 a barrel. It hit $29.73 at one stage, the lowest since February 2004, and is now trading at $29.89 a barrel.
The International Atomic Energy Agency could issue its report on Iran’s compliance with an agreement to rein in its nuclear programme during a meeting in Vienna on Friday, whereupon western sanctions could be lifted and open the door to more oil supply from Iran. The country’s oil exports are already on track to hit a nine-month high in January, at 1.1m barrels a day.
Analysts at Commerzbank said:
With sanctions on Iran likely to be lifted, more oil is flooding the markets. Although the additional supply had been imminent for some time, current sentiment ought to send prices further south.”
They cut their 2016 forecast for oil prices to $50 per barrel for Brent by the end of the year, down from a previous forecast of $63.
Updated
Sterling hits 5 1/2 year low against dollar
Sterling has hit a 5 1/2 year low against the dollar again, as traders are growing doubtful over Britain’s economic outlook and the timing of the first rate hike – which some don’t expect until early next year – and fears over “Brexit” intensify.
Prime minister David Cameron has promised a referendum on Britain’s membership of the EU by the end of 2017, but it may come as early as June this year. Volatility in markets is likely to increase in the run-up to the poll.
The pound slipped 0.5% to $1.4337 earlier, its weakest level since May 2016. It has lost more than 6% in the past six months. It also lost ground against the euro. The euro rose 0.7% to 75p, not far off a one-year high of 76.06p it hit on Thursday.
The Bank of England said that British banks saw a notable rise in demand for personal loans and other unsecured credit in late 2015, and this is expected to continue into this year.
The Bank’s credit conditions survey said banks were awarding more unsecured lending to households as lenders’ appetite for risk grew.
The increase in unsecured credit availability appeared particularly apparent in other unsecured lending, such as personal loans, where credit scoring criteria were reported to have loosened.”
The latest data show that net unsecured consumer credit climbed to £1.5bn in November from £1.2bn in October, taking it to its highest level since February 2008. It was the ninth month running that unsecured consumer credit had been over £1bn.
Updated
Construction output fell 0.5% in Britain in November from October as firms took on fewer new work, according to official figures out just now. Production was down 1.1% on a year ago.
Updated
Greece's European lenders likely to start reform review next week
Greece’s European lenders are expected to start a review of Athens’ reform programme next week, although talks on debt relief may still be several months away.
Before those talks start, Greece needs to conclude a first review of reforms agreed last summer under its third bailout programme with its lenders, which include the EU executive and the International Monetary Fund.
European Commission vice president Valdis Dombrovskis said in an interview with Greek daily Kathimerini:
We are ready to the start the review as soon as possible, most likely next week. But we are not setting any time limit for when the review should be concluded.”
Dombrovskis said that to secure a positive progress review, Greece needs to implement pension reform, set up a new privatisation fund and find ways of achieving primary budget surpluses for 2016 to 2018.
He said:
If Greece concludes the review, it will show it is serious with its promises, its programme is on track and this would be a very positive step so that stability is restored.”
Greece and some eurozone officials have said the review could be finished next month, but Jeroen Dijsselbloem, the chairman of eurozone finance ministers, cautioned on Thursday that it could be months rather than weeks.
Greece’s finance minister Euclid Tsakalotos believes an agreement could be reached within four weeks. He has been touring eurozone capitals to explain the reforms and drum up support for an early conclusion to the review.
Dombrovskis said the European Commission is assuming that the IMF will once again be part of the bailout. The Washington-based fund provided financing for Greece’s first two bailouts in 2010 and 2012. But IMF chief Christine Lagarde has said that the fund will probably only decide in the spring whether to take part in the third bailout.
She told Germany’s Süddeutsche Zeitung that the issues of debt sustainability and progress on pension reforms will be key.
It is clear that pension reform is the trigger that will prove that Greece’s economic position is improving.”
The IMF has not provided any aid to Athens since August 2014 under a previous programme that is due to expire next March.
Brent crude has fallen below $30 a barrel again, losing one dollar to $29.88 a barrel, a 3.2% drop.
Updated
Independent City analyst Nick Bubb says about Bonmarché, which already lowered its profit estimates in mid-December and stuck to that guidance on Friday:
Back on Dec 16th, poor old Bonmarché was one of the first fashion retailers to warn that trading conditions during November and early December had been very challenging and since then that story has been well played out.
Interestingly, however, Beth Butterwick, (the soon-to-be-departed CEO), says: “In the short period since Christmas, demand has trended towards more normal levels” (which bears out the message from the recent John Lewis sales figures.”
The latest John Lewis figures out this morning were strong, showing sales rising 15.6% last week year-on-year (against a sluggish week a year ago), driven by electrical goods (up 18.8%) and fashion (15.4%). Online sales were also strong, rising nearly 26%.
Updated
Corporate round-up
After Thursday’s flurry of retail news, Friday is much quieter. Here’s a round-up of the main corporate news.
The competition regulator has given the final clearance for BT’s contentious £12.5bn takeover of EE, Britain’s largest mobile phone network, reports Sean Farrell. You can read more here.
The Competition and Markets Authority said it did not expect the takeover to lead to a substantial reduction in competition or detriment to consumers in any market in the UK, including mobile and broadband services.
It said there was little overlap between BT’s mainly fixed phone, broadband and pay-TV business and EE’s mobile phone operation. The merger was also unlikely to make things worse for other operators using BT’s network.
UK housebuilder Bovis Homes is leading gains on the FTSE 250 index, rising 3.4% to 953p, after posting record profits for 2015. The company delivered 3,934 homes last year, which represents an increase of over 8% from 2014. The average selling price rose 7% to £231,000. Like its peers, Bovis is confident about the housing market, which is underpinned by government-backed initiatives such as help to buy.
H&M said it had a good December, with sales up 10% year-on-year. In November, mild weather in north America and Europe put customers off buying winter clothing at the Swedish retailer and sales rose only 4%.
Bonmarché, the UK bargain fashion retailer who targets women over 50, fared less well. Like-for-like sales were down 1.3% in the quarter to 26 December.
Simon Smith, chief economist at broker FxPro, says 2016 so far has been a “terrible year for global stock markets”.
According to unofficial theory a 20% decline in a stock index means that it has entered an official bear market and we saw this from the Shanghai Composite overnight following another 3.5% loss. The end of the week in Asia has seen emerging markets record their third weekly loss in a row and the same can be said for some European markets.
This is now starting to be reflected in profit forecasts for S&P companies across the pond where we’re seeing the most downgrades to earnings compared to upgrades since 2009. Crude prices are also lower overnight but for all the talk about whether oil will fall to $20 or whether it won’t we have to remember that commodities entered their massive bear market by the 20% measure as far back as 2014.”
European stock markets are also in the red, half an hour after the open.
- UK’s FTSE 100 index down 0.08% at 5913.19
- Germany’s Dax down 0.4% at 9757.21
- France’s CAC down 0.6% at 4287.36
- Spain’s Ibex down 0.6% at 8732.50
- Italy’s FTSE MiB down 1% at 19,592.78
Shanghai shares enter bear market
This means that the Shanghai Composite index, which recorded its lowest close since December 2014, is now in a bear market. It has lost more than 20% from its recent high on 22 December. A bear market is defined as a drop of 20% or more from a recent high.
The tech-focused Shenzhen Composite, which finished 3.4% lower at 1,796.1, already entered a bear market a week ago, and is now down 24.5% from its recent 22 December high.
Updated
Asian stock markets finished in the red.
- The Shanghai Composite lost 3.5% to 2902.22
- The Shanghai Shenzhen CSI 300 Index shed 3.2% to 3118.73
- Japan’s Nikkei slipped 0.5% to 17,147.11
- Hong Kong’s Hang Seng fell 1.2% to 19,587.58
On the agenda today: UK construction figures for November and the Bank of England’s credit conditions survey, both out at 9:30 GMT. Eurozone trade figures for November at 10 GMT; US retail sales for December at 13.30 GMT and US industrial production for December at 14.15 GMT.
Updated
VW market share in Europe falls for first time since 2007
European car sales figures are out. They show that Volkswagen’s market share in Europe fell last year for the first time since 2007 as the emissions rigging scandal took its toll.
VW accounted for 24.8% of new cars sold in Europe compared with 25.5% in 2014, according to the European Automobile Manufacturers’ Association in Brussels.
The industry as a whole had a good year, with sales jumping 9.2% to a six-year high of 14.2m vehicles, compared with VW’s 6.2% increase.
Europe’s biggest carmaker has lost ground to rivals such as Fiat Chrysler, BMW and Daimler since the scandal broke in mid-September and put consumers off buying its cars. Bloomberg has all the details.
Volkswagen's European market share falls for first time since 2007 https://t.co/PCmqYfTNsM pic.twitter.com/Uhmr1BrEdl
— Bloomberg Business (@business) January 15, 2016
The ACEA said all major car markets had a strong finish to 2015.
Spain (+20.7%), Italy (+18.7%) and France (+12.5%) posted double-digit percentage gains during the month, followed by the UK (+8.4%) and Germany (+7.7%), which also performed better than in December 2014.
Updated
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Brent crude is continuing its slide, trading down 1.85% at $30.31 a barrel at the minute. New York Light crude is down even more, losing 3% to $30.27 a barrel.
The market is bracing itself for more supply from Iran. Western sanctions on the country are expected to be lifted within days, after a historic nuclear deal with Tehran was reached last summer.
Brent is heading for a weekly loss of about 10%. Mining giant BHP Billiton has been forced to write down the value of its onshore American oil and gas assets by more than 30% in the wake of the slump in crude oil prices.
Fresh pressure on oil prices and poor Chinese lending data pushed Asian stocks to 3 1/2 year lows on Friday.
New lending by Chinese banks was weaker than expected in December and well down on the previous month. Banks extended 597.8bn yuan ($90.76bn) of new loans in the final month of 2015, fuelling concerns that Beijing’s efforts to boost borrowing via monetary easing are not transmitting to the real economy.
Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai, said:
The fall in new yuan loans showed there was little demand for investment and reflected sluggish economic performance in the real economy.”
