Closing summary
World stock markets are up for a second day, as fears over China’s coronavirus epidemic faded somewhat and measures by the country’s central bank helped calm nerves.
The FTSE 100 index in London is 1.48% ahead while Germany’s Dax is 1.52% higher and France’s CAC has gained 1.42%. On Wall Street, the Dow Jones has climbed 1.32%, the Nasdaq is up 1.23% and the S&P 500 has risen 1.17%. Asian markets saw similar gains.
Sterling has recovered after falling sharply yesterday and this morning on hard Brexit fears, below $1.30. It is now at up 0.19% at $1.3016, and 0.34% higher against the euro at €1.1787. A stronger construction survey helped lift the pound.
And in Vienna, technical experts from the Opec oil cartel and its allies including Russia are meeting to discuss potential production cuts. Chinese fuel consumption has slumped following the virus outbreak. Any cuts to supply would only be announced at a meeting of energy ministers, according to Iraq’s oil ministry spokesman Assem Jihad. Ministers could hold an emergency meeting in mid-February.
With this, we are saying good-bye. We’ll be back tomorrow.
Iraq: Opec considering output cut
Members of the Opec oil cartel and their ally Russia are discussing a further cut to crude oil output at their meeting in Vienna due to China’s coronavirus epidemic, according to Iraq’s oil ministry.
Crude prices have tumbled since the deadly outbreak in China, the world’s biggest importer of oil.
Iraq is Opec’s second-biggest oil producer. The Organization of the Petroleum Exporting Countries and its allies are holding a meeting of a “joint technical committee” in Vienna today and tomorrow to assess the situation.
Iraq’s oil ministry spokesman Assem Jihad told AFP:
Depending on the needs of the market and how it’s been affected by the coronavirus, will a cut be necessary? This is being discussed as the technical reports are presented.
The technical committees are discussing the recommendations, which they will elevate to their ministers. Any further cut to outputs would only be announced in a ministerial meeting.
Jihad said those gathered would also consider bringing forward a March ministerial meeting to February “depending on the market’s needs and what happens with the virus”.
Russian energy minister Alexander Novak also said the schedule could be changed. He told reporters:
We have a meeting in March but we can hold it earlier if necessary.
The new coronavirus has killed more than 400 people and infected a further 20,000 in China since emerging in December, and has also spread to more than 20 other countries.
Brent crude has fallen by around 20% since early January while the US benchmark oil contract, WTI, has fallen by around 18% over the past month.
Saudi Arabia, the world’s top oil exporter, said this week that the impact of the virus on oil demand was “extremely limited” and “driven by psychological factors”.
But if the virus continues to spread, there could be a more severe hit to the market, said Neil Wilson, chief market analyst for Markets.com in London. “This kind of oil demand shock has not been seen for over a decade. The longer the lockdown in China and travel restrictions globally, the greater the impact.
The 13-member Opec cartel regularly meets with non-members led by Russia over how to influence oil prices, in a group called Opec+.
Updated
Ding dong! The opening bell has rung on Wall Street and stocks have risen, as expected.
- Dow Jones up 382 points, or 1.35%, at 28,782
- S&P 500 up 36.8 points, or 1.14%, at 3285
- Nasdaq up 127.6 points, or 1.38%, at 9401
Labour has urged the UK government to act fast to prevent the French government from scuppering a deal to save British Steel, amid opposition in Paris to a sale that would put a key national asset in Chinese hands.
The Chinese industrial firm Jingye, run by a former Communist party official, is in the final stages of negotiations to buy British Steel, including the Hayange plant in northern France.
But the French finance minister, Bruno Le Maire, has reportedly told the UK chancellor, Sajid Javid, that Paris is opposed to a Chinese firm owning a plant that supplies track to France’s vast rail network.
Meanwhile, the Duke and Duchess of Cambridge visited Tata Steel’s Port Talbot site.
Here is our full story on the closure of Ikea’s Coventry store, the Swedish furniture chain’s first big store closure in the UK – a sign of how tough things are for retailers.
In other retail news, supermarket sales of no- and low-alcohol beer jumped nearly 40% in “dry January”. The food industry estimates 4.2 million Britons cut out booze in January this year.
Others opted for Veganuary, cutting out all animal products. This boosted sales of meat substitutes such as soya mince and vegetarian burgers by 14% and lentils by 6%.
Updated
US stock index futures are pointing to a higher open on Wall Street, with the Dow Jones and S&P 500 expected to open 1.3% higher and the Nasdaq seen rising 1.5%. Last week the S&P 500 had it worst weekly fall in six months.
Buoyant US factory data helped lift US stocks yesterday. The Institute for Supply Management’s monthly snapshot showed a surprise rise in US factory activity in January, ending five months of declines.
In China, fresh intervention by the central bank has helped calm nerves. The People’s Bank of China has injected 1.7 trillian yuan ($243bn) into money markets over the past two days, boosting Chinese stocks. The Shanghai composite rose 1.3% while the blue-chip CSI 300 climbed 2.6% after a near-8% slide yesterday when markets reopened after the extended lunar new year break. Hong Kong’s Hang Seng gained 1.2%.
Markets seem less concerned about the coronavirus, even though Hong Kong recorded its first death today – which is only the second fatality outside mainland China.
Bloomberg has drawn up this useful chart looking at the drivers of oil prices so far this year, splitting them into supply and demand issues.
Britain has told its citizens to leave China if they can (airlines have suspended flights), Reuters is reporting. The Foreign Office has updated its travel advice. It also said some staff and their families from the British embassy and consulates are being withdrawn from China. Essential staff, such as people providing consular assistance, will remain in situ.
The Opec+ meeting was due to start at noon London time. Michael Burns, oil and gas partner at law firm Ashurst, says:
The oil industry faces both the immediate issue of the coronavirus but also a longer term challenge of market sentiment around oil as an energy resource of the future.
These are two significant challenges with varying impacts on demand profiles, but it is not surprising that OPEC and its partners are looking to meet to decide what actions they can take to mitigate the impacts of the challenge perceived as the most immediate in the form of the coronavirus.
Updated
Here is a chart from financial markets data firm Refinitiv that shows sterling’s moves over the past year.
Lunchtime summary
Officials from the world’s biggest oil producing nations are meeting in Vienna today and tomorrow. Technical experts from the Opec oil cartel and its allies such as Russia (a group known as Opec+) are discussing the impact of the coronavirus outbreak on the oil market. Chinese fuel consumption is estimated to have fallen by 1m (BP’s estimate) to 3m barrels a day.
The oil price has fallen sharply since early January and entered a bear market yesterday. Opec+ officials are thought to be considering whether to cut oil output by a further 500,000 barrels a day.
This has boosted oil prices today. Brent crude is up 39 cents or 0.72% at $54.84 a barrel, while US crude is up 75 cents, or 1.5%, at $50.86.
World equity markets are pushing higher for a second day, amid hopes that the spread of the deadly virus can be contained, and after the People’s Bank of China acted to inject more liquidity into China’s money markets.
- FTSE 100 index in London up 109 points, or 1.49%, at 7435
- Germany’s Dax up 1.1% at 13,203
- France’s CAC up 1.31% at 5909
- Italy’s FTSE MiB up 1.86% at 23.905
On currency markets, sterling fell through $1.30 earlier today on fears of a hard Brexit, but has reversed its declines and is now 0.1% higher against the dollar at $1.3008. Against the euro, it has strengthened by 0.26% to €1.1777.
Updated
Ikea has announced its first-ever big store closure in the UK. It plans to shuts its Coventry city centre store this summer and has pointed to high operating costs and changes in customer behaviour, which have led to “consistent losses”. The move puts 350 jobs at risk. It is one of 22 Ikea stores in the UK and was opened in 2007.
Ikea says:
Given its location and the size of the land available at the time, the store was built over seven levels, which resulted in a significant impact on the operating costs of the store and the shopping experience for customers.
In addition, the changing behaviour of customers in the area who prefer to shop in retail parks and online has resulted in visitor numbers being substantially lower than expected and continuing to decrease over time.
These factors have led to the store making consistent losses.
Updated
Bjarne Schieldrop, chief commodities analyst at the Nordic bank SEB, the leading Nordic corporate bank, says the market seems content that China will contain the coronavirus situation and that OPEC+ will act to prevent a surplus of oil.
Technical experts from Opec and its allies, including Russia, are meeting in Vienna today and tomorrow to assess the demand situation.
The continued daily growth rate in coronavirus infections will be key to how severe the outbreak will become. Ten days ago, the daily growth rate was more than 50%, but the daily growth rate today is 18.6% versus 19.5% yesterday. A slightly slowing daily growth rate in infections and no signs of an acceleration outside of China is probably calming markets.
Wuhan is China’s biggest inland transportation hub and today it is close to a ghost town with more than 40m people in lock-down. Chinese refineries are cutting throughput by 10% to 20%, with some located in central China cutting as much as 40%. How large the run-cuts will be through February 2020 remains to be seen, but somewhere between 10% to 20% seems like a fair bet. That means 1.4 -2.8m barrels a day in lost crude oil processing and crude demand for February.
Schieldrop says if Opec+’s technical committee concludes there is only a need for a cut of 500,000 barrels a day, the market will probably be disappointed. A cut of 1m and up towards 2m barrels a day is probably what the market is expecting.
If [the coronavirus outbreak] does accelerate outside of China, then clearly OPEC has a totally different situation on its hands. For now, the market seems content that China will contain and manage the virus situation, and that the worst will soon be over with no accelerated spreading outside of China, and that OPEC+ will step in with cuts and prevent a surplus and a stock building.
Goldman Sachs estimates the coronavirus outbreak will only have a modest impact on 2020 global growth – assuming the travel restrictions and other measures taken by authorities in China and elsewhere reduce the rate of new infections by the end of March.
Economists at Goldman are forecasting a hit to global GDP growth this year of 0.1 to 0.2 percentage points.
Producer prices in the eurozone fell year-on-year in December for the fifth month in a row, but the decline slowed from November, according to figures from the EU statistics office.
Eurostat said prices at the factory gate in the 19 countries sharing the euro dropped by 0.7% in December from a year earlier, following a 1.4% fall in November. Prices were flat month-on-month, after a 0.1% rise in November.
Producer prices eventually feed through to consumer prices. The European Central Bank wants to keep consumer inflation close to 2% over the medium term but it has been far below that rate, despite the central bank’s bond-buying programmes. Headline inflation picked up to 1.4% in January from 1.3% in December.
The credit ratings agency S&P has published its research on the economic impact of the coronavirus.
While the situation is obviously a fluid one, our base-case projection is that the coronavirus crisis will stabilise globally in April 2020, with virtually no new transmissions in May. Our worst-case projection holds that the virus stops spreading in late May, and optimistically in March. In turn, this suggests that the peak impact on economic activity across Asia-Pacific will be in the first and second quarters. Growth should stabilise later in 2020 and recover through early 2021 as the temporary effect on activity wanes.
In China, lockdowns and quarantines have depressed passenger flows in air and rail, and have closed property sales offices. This supports our view that the economic hit will be felt most keenly in household-related spending.
Relief measures including tax cuts and subsidies are likely. However, if the disease is not swiftly brought under control, slower economic growth would exacerbate already weaker fiscal performance in many parts of the Asia-Pacific.
Back to UK construction, which improved somewhat in January to decline at the slowest pace since May. Duncan Brock, group director at the Chartered Institute of Procurement & Supply, has sounded a note of caution.
Job losses are still in evidence overall and with an increase in sub-contractor use, it appears the sector is looking for short-term fixes to manage current workloads. Construction firms are not yet ready to scale up plans to increase workforces in the coming months without a stronger economic and political recovery clearly in sight.
So, though this rebound is a welcome sign, as with all sudden improvements, the danger remains the sector could easily recoil and shrink again. The domestic political situation and the UK’s attempt to find its place in the world remains littered with obstacles so businesses could find themselves on this see-saw of good and bad news for some time yet.
Sterling rises after falling through $1.30
The pound has just staged a small recovery, after falling through $1.30 earlier this morning to trade at levels last seen before the general election in mid-December.
Sterling suffered sharp declines yesterday when Boris Johnson and the EU’s chief negotiator Michel Barnier set out their negotiating positions ahead of next month’s trade talks. The UK prime minister’s comments revived fears of a no deal.
Against the dollar, sterling is now up 0.1% at $1.3006 and versus the euro, it is 0.14% higher at €1.1764. Sterling is the worst performer this month on Bloomberg’s world index of major currencies.
The new year has brought some cheer to Britain’s struggling construction sector, the latest PMI survey suggests. Max Jones, of Lloyds Bank Commercial Banking’s infrastructure and construction team, says:
Conversations on the ground suggest that a more stable political atmosphere is already providing cause for optimism. If a raft of major infrastructure projects get the green light, especially those in the Midlands and the north following recent promises, then this will be heightened. This will boost order books in the long run and persuade others to invest, although recent rumblings around the fate of the biggest project of all – HS2 – will still be of concern in boardrooms.
Contractors are acutely aware that construction is a cyclical sector and is generally aligned to the wider economy. However, there is usually a lag so even if recent forecasts of a more buoyant economy this year come to fruition, it may take time to show up in the construction data.
House building was the best performing area, where output fell only slightly in January. Commercial construction also improved, while civil engineering was the worst performing category. Some construction firms cited a lack of tender opportunities to help replace completed infrastructure contracts.
Tim Moore, economics associate director at IHS Markit, which compiles the construction survey, says:
The construction sector downturn lost intensity in January amid slower reductions in house building, commercial work and civil engineering activity. Measured overall, the latest dip in construction output was much shallower than in December, with survey respondents often commenting on improved willingness to spend among clients since the general election.
Commercial work dropped at the slowest pace since the start of 2019 and was the main beneficiary of receding political uncertainty. UK construction companies also commented on signs of a turnaround in demand conditions across the residential development category during January.
Despite concerns about prospects for work on infrastructure projects, latest data revealed a strong rebound in business optimism across the construction sector as a whole in January. The degree of positivity reached its highest level since April 2018, driven by hopes that improving confidence among clients will continue to translate into new contract awards over the course of 2020.
UK construction falls at slowest pace since May
Here in the UK, the latest monthly snapshot on the construction sector from IHS Markit and the Chartered Institute of Purchasing and Supply is out. It suggests things have improved somewhat on Britain’s building sites.
Construction output fell last month at the slowest pace since last May, with the headline PMI index rising to 48.4 from 44.4 in December, still below the 50 mark that divides expansion from contraction.
Firms’ new business volumes were close to stabilisation, after sharp declines in the fourth quarter of last year. The survey says:
Looking ahead, construction companies are now the most optimistic about their growth prospects since April 2018. A number of firms noted that clients’ willingness to spend had picked up after the general election, which should translate into rising workloads over the course of 2020.
Updated
Stock markets appear unfazed, however, and are pushing higher across Europe.
- UK’s FTSE 100 up 1.43% at 7430, a gain of more than 100 points
- Germany’s Dax up 0.98% at 13,173
- France’s CAC up 1.07% at 589
- Italy’s FTSE MiB up 1.53% at 23,817
The number of people infected with the coronavirus now exceeds 20,000 in China, and Hong Kong has reported its first death – only the second outside mainland China. The death toll in China from the virus has climbed to 425.
It has also emerged that a British passenger who was evacuated to the UK from Wuhan on Sunday was taken ill on the plane and escorted directly to hospital on landing.
You can read the latest on the outbreak here:
Russia 'ready to cooperate' with Opec
Russia is “ready to cooperate” with the Organisation of the Petroleum Exporting Countries, the world’s biggest oil cartel, to restore stability on the global oil market, a Kremlin spokesman said, according to Reuters.
The Kremlin said Russian president Vladimir Putin and Saudi Arabia’s King Salman spoke by phone. However, there were no comments on whether Russia supports further cuts to supply.
Technical experts from Opec and its allies, including Russia, known as Opec+, are meeting in Vienna today and tomorrow to discuss the coronavirus outbreak and potential oil production cuts. There could then be an emergency meeting of energy ministers on 14 and 15 February.
Saudi king and Russia's Putin held a rare phone call as oil markets tumbled, the latest signal that the OPEC+ alliance is trying to build a consensus for output https://t.co/DKxCpqnjE7
— Bloomberg (@business) February 4, 2020
His comments came as BP reported a 21% drop in 2019 profits to 10bn (£7.7bn), due to weaker oil and gas prices. Last year the global oil price averaged $64.36 a barrel, down sharply from an average of just over $71 in 2018. This has fallen further to around $54 a barrel this week.
The outgoing BP chief executive, Bob Dudley, agreed to bump up dividend payouts to shareholders despite the sharp fall in the oil giant’s profits, as he prepares to retire after a decade at the helm.
There seems little doubt that oil demand in China has dropped since the coronavirus outbreak started, but different figures are being bandied around. Bloomberg reported that fuel consumption could be down as much as 3m barrels a day, a 20% drop.
BP’s chief financial officer Brian Gilvary has just said that the virus outbreak has reduced Chinese oil demand by 1m barrels a day so far.
Globally, he reckons that the economic slowdown – caused by a drop in industrial activity and flight cancellations – in the wake of the deadly virus outbreak has reduced oil demand so far by 200,000 to 300,000 barrels a day, and this could rise to 300,000 to 500,000 barrels a day over 2020.
Updated
Oil in a bear market
Oil entered a bear market yesterday. A bear market refers to a price decline of 20% or more from recent highs, typically over a period of two months.
Brent crude, the global benchmark, fell by over 4% to a low of $54.17 a barrel yesterday, its weakest level in more than a year. This took since early January to more than 20%.
However, today oil prices have bounced back a bit, ahead of the Opec+ meeting in Vienna. Brent crude is up 0.5% at $54.74 a barrel while US crude has gained 1% to $50.61 a barrel. There are hopes that the Opec oil cartel and its allies could agree to cut oil output by a further 500,000 barrels a day.
Analysts at Goldman Sachs said in a note:
Oil prices are now at levels where we would expect a supply response from both Opec and shale producers, and where China would likely seek to build crude inventories.
Updated
European shares have risen at the opening bell. The FTSE 100 index in London is now up nearly 100 points to 7425, a 1.37% gain. France’s CAC rose 0.5% and Spain’s Ibex advanced 0.6%.
Global equity markets started their recovery yesterday following last week’s sell-off, with the exception of Chinese markets, which reopened after the extended lunar new year break – they fell nearly 8%. Today, all Asian markets are in the green, as are European indices.
Jasper Lawler, head of research at London Capital Group, says:
Extra liquidity courtesy of Chinese central bankers, instructions from authorities ‘not to panic’ and perhaps some state-backed institutional buying seems to have done the trick.
Updated
China became the world’s biggest oil importer in 2016 when it overtook the US. It consumes about 14m barrels a day – equivalent to the combined consumption of France, Germany, Italy, Spain, the UK, Japan and south Korea, according to Bloomberg.
Introduction: Oil cartel to debate virus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A degree of calm has returned to world stock markets, after the coronavirus outbreak in southern China sparked heavy selling last week. In China, the Shanghai composite closed 1.34% higher while the Shenzhen share index rose 1.8% after the People’s Bank of China acted to stabilise markets. Hong Kong’s Hang Seng rose 1.23% while Japan’s Nikkei gained 0.49%. European stock markets are also expected to rise at the open.
Officials from the world’s largest oil producers are meeting in Vienna, the headquarters of the Opec oil cartel, today and tomorrow to discuss the sharp slide in the crude oil price following the coronavirus outbreak.
Technical experts from Opec and its allies, including Russia, will be there (a group known as Opec+). They will discuss whether to hold an emergency meeting at ministerial level in mid-February, bringing forward a meeting scheduled for early March. Further production cuts are on the agenda, of 500,000 barrels a day.
The New York Times reported that energy ministers could consider a bigger cut of up to 1m barrels a day – or 1% of world supplies.
China is the world’s biggest oil importer and fuel consumption appears to have plummeted by as much as 20%, with travel curbs in place and cities quarantined, Bloomberg reported. It said Chinese oil demand has dropped by about 3m barrels a day – probably the biggest demand shock in the oil market since the financial crisis of 2008/9.
Brent crude, the global benchmark, is trading at $54.60 a barrel this morning while US crude is at $50.5, after falling below $50 yesterday.
Neil Wilson, chief market analyst at Markets.com, says oil is in a “proper bear market” now after the latest steep falls.
What initially was thought to be a temporary hit to the market now looks demand destruction proper. This kind of oil demand shock has not been seen for over a decade. The longer the lockdown in China and travel restrictions globally the greater the impact. OPEC and allies are worried and are bringing forward the March meeting to this month.
There is talk of OPEC+ adding 500,000 barrels per day to cuts of 1.8m bpd, but they’re just getting crushed by this market. Too much uncertainty to see a turn yet - traders are getting burned trying to call the bottom.
The Agenda
- 9:30am GMT: UK Construction PMI
- 10am GMT: Eurozone producer prices (December)
- 3pm GMT: US Durable goods and factory orders (December)
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