European shares close higher
Despite the stronger euro as the dollar weakens, European markets have ended the week on a positive note with the Stoxx index at its highest level for ten years. Growing hopes about company earnings and growth in the economy have combined to offset any negative concerns.
In the UK the FTSE 100 has also finished higher, despite a weak performance from retailers after disappointing high street sales figures for December. In the US, early optimism has receded, as investors await news on whether the government faces a shutdown. Worse than expected US consumer confidence figures have also hit sentiment. The final scores showed:
- The FTSE 100 finished up 29.83 points or 0.39% at 7730.79
- Germany’s Dax rose 1.15% to 13,434.45
- France’s Cac climbed 0.58% to 5526.51
- Italy’s FTSE MIB was 0.5% better at 23,749.22
- Spain’s Ibex ended up 0.45% at 10,479.5
- In Greece, the Athens market added 1.19% to 847.56
On Wall Street, the Dow Jones Industrial Average is currently down 55 points or 0.21%.
On that note, it’s time to close for the day. Thanks for all your comments, have a good weekend, and we’ll be back on Monday.
Here’s our latest on Carillion. Rob Davies writes:
The chair of the British Medical Association has demanded answers about the future of two major hospitals that Carillion was building when it collapsed, amid mounting concern about the impact of any delays on stretched NHS services.
Patients’ groups joined the doctors’ trade body in calling for clarity after local NHS trusts admitted that work on the £335m Royal Liverpool University and Birmingham’s £350m Midland Metropolitan hospitals is on hold.
Aidan Kehoe, chief executive of the Royal Liverpool and Broadgreen University hospitals NHS trust, said Carillion’s liquidation would further postpone a project that has already been delayed twice.
The full story is here:
Dr Harm Bandholz, chief US economist at UniCredit, agrees the impact of a US government shutdown should be modest. But given that could be the case, it might make such a move more likely. He said:
The impact of a shutdown, if it happens, on the economy should be very limited as it affects only so-called ‘non-essential’ government services. Financial markets may also be inclined to discount this renewed display of dysfunctionality in Washington as the tax bill has already been passed. This could be yet another reason why Democrats as well as Republicans may be willing to take a stand and shut the government down That said, they currently still have another 13 hours to prevent such an embarrassment.
How bad would a US government shutdown be. Paul Ashworth at Capital Economics said:
It is still possible that Congress will reach a late deal to avoid a partial government shutdown, but the chances of agreement seem to be slipping away. That said, even if it lasted for a week or more, a shutdown would have only a modest impact on first quarter GDP growth.
Oil prices slip
Oil prices are on track for their biggest weekly fall since October as a recent rally fizzles out.
A rise in US production has outweighed declines in inventories, and the output cap agreed by Opec and Russia. Analysts had always expected US shale producers to ramp up their activities as the crude price recovered, providing a counterpoint to the Opec attempts to reduce supplies. The International Energy Agency said in its latest report that global oil stocks had tightened, but it pointed out that the US production increases would have an impact.
Brent crude, which hit a three year peak of $70.37 a barrel on Monday, is now down 1% on the day at $68.62.
Updated
Back with UK retail sales, and while the FTSE 100 might be in positive territory, the representatives from the high street are having a bad day all round.
B&Q owner Kingfisher is down 2.6%, the biggest faller in the leading index. It has been hit by, not only the disappointing retail sales figures themselves, but also the profit warning from Carpetright, suggesting big ticket home improvement items are off the agenda at the moment for UK consumers. Carpetright meanwhile is down a massive 43%.
Also on the slide are shares in Next, down 1.9%, Tesco, 0.7% lower and - in the FTSE 250 - Dixons Carphone, off 2.6%.
The survey indicated some uncertainty about Donald Trump’s tax cuts, especially the timing of any benefits to consumers, but the bulk of those questioned though the reform would be positive. The survey’s chief economist Richard Curtin said:
While the preliminary January reading for the Sentiment Index was largely unchanged from last month (-1.5%), consumers evaluated current economic conditions less favorably (-4.6%). This small decrease in current conditions produced a small overall decline. Importantly, the survey recorded persistent strength in personal finances and buying plans, while favorable levels of buying conditions for household durables have receded to preholiday levels in early January, largely due to less attractive pricing. The Expectations Index remained virtually unchanged at 84.8.
Tax reform was spontaneously mentioned by 34% of all respondents; 70% of those who mentioned tax reform thought the impact would be positive, and 18% said it would be negative.
The disconnect between the future outlook assessment and the largely positive view of the tax reform is due to uncertainties about the delayed impact of the tax reforms on the consumers. Some of the uncertainty is related to how much a cut or an increase people, especially high income households who live in high-tax states, face
Near and long term gas price expectations inched upward in early January but remained significantly below their peak. While long term inflation expectation remained at its 2017 average level and short term inflation expectation inched upward, consumers continued to remain very optimistic about the low national unemployment rate.
Updated
US consumer confidence disappoints
Meanwhile the latest US economic indicator has come in below expectations.
The University of Michigan survey of consumer sentiment came in at 94.4 in January, down from December’s final figure of 95.9 and below analysts’ forecasts of a rise to 97.
Although of course there are contigency plans being put in place, just in case the US government does shut down......
IT'S GETTING REAL: Pentagon just put out 14 page official guidance for a #shutdown . Expect it to be posted fully on https://t.co/uAhj078O5p shortly.
— Aaron Mehta (@AaronMehta) January 19, 2018
Here’s our piece earlier on the attempts to prevent a US government shutdown:
Wall Street opens higher
As expected, US markets have made a positive start, with investors seemingly untroubled by the prospect of a government shutdown. As well as the feeling that a resolution will be found at a vote in the Senate later, the political risks are overshadowed for the moment by optimism over company results during the earnings season.
So the Dow Jones Industrial Average is 12 points or 0.07% higher while the S&P 500 opened up 0.24% and the Nasdaq Composite 0.32%.
There are a couple of potential market moving events ahead in fact:
Two major uncertainties which hopefully will be resolved over the weekend: Senate vote on spending bill to avoid US government shutdown; Merkel/SPD coalition talks to try and form German government. No pressure #USD #EURUSD #DJIA $SPX #DAX30 pic.twitter.com/j63wzIcMtW
— David Morrison (@jmoz62) January 19, 2018
Craig Erlam, analyst at the currency firm Oanda, says US investors are likely to shrug off fears over a US government shutdown when the opening bell rings on Wall Street:
US equity markets are seen reversing Thursday’s losses at the open on Friday, even as investors prepare for the first government shutdown since 2013 if the Senate doesn’t pass a temporary spending bill.
Investors don’t appear particularly bothered about the prospect of a government shutdown, with the assumption being that one will eventually be signed and any economic impact will be minor or non-existent.
While the US dollar has remained under significant pressure, there is little to suggest this is related to the budget talks while rising US yields is likely more a reflection of the general central bank tightening environment.
The backdrop for UK consumers will remain tough in 2018 before easing in 2019, according to Andrew Sentance, senior economic adviser at PwC.
Commenting on the weak retail sales data out this morning, the former member of the Bank of England’s Monetary Policy Committee says:
Taking 2018 as a whole, prices are still likely to increase more than wages, so this will be another year of consumer squeeze. As a result, we expect economic growth to be around 1.5%, not disastrous, but disappointing compared with the mid 2010s.
Weak consumer spending will continue to be a drag on the UK economy in 2018, but the prospects are brighter for 2019 and beyond - as long as we get a reasonable Brexit deal with the other EU-27 countries.
Greece has won rare praise today from EU commission’s chief spokesperson, Margaritis Schinas, fuelling hopes that debt relief talks could soon be in the offing. Helena Smith reports from Athens:
Four days after MPs endorsed more biting austerity measures and reforms in a rowdy parliamentary vote, Greece’s fiscal progress was roundly applauded by the man more usually associated with tough words for the country.
In an interview with state-run ERT TV, EU commission spokesman Margaritis Schinas described the bailout compliance review Athens is currently conducting with creditors as a “model review” that was “going very well.”
“Everyone wants Greece to stand firmly on its feet,” he said, insisting it was imperative that forces inside the country supported the corrective economic adjustment reforms that had been legislated under international economic supervision under the three emergency rescue programmes Athens had received.
Now that the latest bailout review was about to be concluded – with eurozone finance ministers expected to unlock up to €6bn in aid for the country when they meet in Brussels on Monday - discussion on Greece’s post-bailout era could begin, he said. “From September, the political winds in Europe have changed,” Schinas said.
“For the first time all of our economies are in growth … and the euro is regaining its place as an anchor of stability on the world scene.”
Back in 2015, Yanis Varoufakis said he Alexis Tsipras whether he was “completely stupid”* after the Greek prime minister agreed to a demand by international creditors in for large primary surpluses.
Speaking to Parapolitika radio about his time as Greek finance minister, Varoufakis said:
I told him: ‘Are you completely stupid? What did you get in return?’ And he said: ‘Oh, did I do something stupid? It’s OK, we’ll take it back’.
Varoufakis criticised his successor Euclid Tsakalotos, calling him a “yes man” who “I no longer recognise”. Ouch.
*Varoufakis said he did not actually use the word “stupid,” it was worse than that.
Varoufakis told Tsipras he was ‘stupid’ to accept surplus goals https://t.co/5WYZxorz68 pic.twitter.com/BnxIgdJ9mG
— Kathimerini English Edition (@ekathimerini) January 19, 2018
Here’s quick markets round-up from Mike van Dulken, head of research at Accendo Markets:
Equities are positive to close out the week, rebounding from a negative US close and ahead of a key Senate vote to stave off a government shutdown tonight. Weaker than expected UK retail sales have seen the UK’s blue chip index take a leg higher, benefiting from sterling’s retreat from fresh post-referendum highs earlier this morning.
Interestingly, Germany’s DAX is the rank outperformer, this in spite of additional euro strength after hawkish ECB comments, whilst US equities point towards a positive open this afternoon. The FTSE has climbed higher thanks to the pound’s weakness...while miners are embracing the weaker dollar’s fillip for metals.
The FTSE 100 is currently up 0.28% at 7722 while Germany’s Dax is up just over 1% and France’s Cac has climbed 0.47%.
Over in the US the Dow Jones Industrial Average is forecast to open around 88 points higher.
As for the pound, it is down 0.12% against the dollar at $1.3875 - despite the pressures on the US currency - and 0.27% lower against the euro at €1.1317.
Updated
Germany's Angela Merkel to attend Davos
It’s that time of year again when world leaders and big thinkers prepare to head to the Swiss ski resort Davos to debate the most pressing social and economic issues.
Angela Merkel, the German Chancellor, is the latest world leader to confirm her attendance at the event next week, joining Donald Trump, Theresa May, Justin Trudeau and Emmanuel Macron among others.
Merkel will give a speech at Davos in a return to the world stage after months of political stalemate in Germany https://t.co/iG6Qmyishs pic.twitter.com/dkEkE7Ytc2
— Bloomberg (@business) January 19, 2018
Carillion crisis: select committee MPs raise pension concerns
The work and pensions select committee has written to the pensions regulator with a series of questions on Carillion.
Publishing the letter, Frank Field, Labour MP and chair of the committee, said:
I am pleased that the liaison committee will be investigating Carillion - the company’s collapse begs questions across government.
We have some specific concerns on the pensions side. It beggars belief that a company can be allowed to run with such apparent recklessness - and be so lucrative for the directors and shareholders - when it has a giant pension deficit and a mountain of debt.
I will be proposing we take evidence from the company directors, the trustees, the pensions regulator and the auditors who somehow concluded Carillion was a going concern.
Where our concerns overlap we will look to work closely with the business committee, as we have done successfully in the past.
Dollar hits new three-year low
The dollar index, which measures the US currency against a basket of other major currencies, has hit a new three-year low today of 90.331 as fears of a US government shutdown mount.
Analysts at Bank of America Merrill Lynch believe the dollar will recover some ground against the euro in the coming months.
Support for EUR/USD from forward rate divergence may be peaking whilst markets look ahead to the European Central Bank meeting and any commentary on the euro from European Central Bank president Mario Draghi.
EUR/USD could be vulnerable from a dovish Draghi.
The USD has sharply weakened as a result of the recent wave of global central bank repricing, despite strong US data. EUR/USD appreciation has been supported by relative interest rate expectations, however upside potential looks limited for now. A USD rebound is likely in the first half of 2018, predicated on corporate repatriation flows and vastly underpriced Fed vs ECB expectations.
Updated
More here on this morning’s dismal UK retail sales data:
The STOXX 600, comprising some of the biggest companies across Europe, is at the highest level since August 2015:
Updated
European markets rise across the board
Investors are in buoyant mood this morning, with gains in all major markets despite the strength of the euro and the pound against the dollar.
The FTSE is up 15 points.
Latest scores:
- FTSE 100: +0.2% at 7,716
- Germany’s DAX: +0.9% at 13,399
- France’s CAC: +0.4% at 5,518
- Italy’s FTSE MIB: +0.8% at 23,824
- Spain’s IBEX: +0.4% at 10,475
- Europe’s STOXX 600: +0.4% at 400
Ruth Gregory at Capital Economics says the drop in December retail sales signals “a disappointing end to 2017”.
We’ll get the first official estimate of UK economic growth in the final quarter of 2017 from the ONS next week, on 26 January.
As it stands, economists polled by Reuters are predicting growth of 0.4% in the fourth quarter, the same rate as the third quarter.
Ben Brettell, senior economist at Hargreaves Lansdown, says retail sales did little to boost the economy in the final quarter of 2017.
We’ve been waiting for the pay squeeze to filter through to the high street, but so far retail sales have held up better than many expected. Today’s retail sales data from the ONS disappointed, however, with consumers cutting back on Christmas spending after November’s Black Friday splurge. This continues the trend of bringing Christmas spending forward to take advantage of early discounts.
The figures undershot expectations by some margin, falling 1.5% on the month and rising just 1.4% year-on-year. Economists had forecast the latter number at 3.0%. This means retail sales made next to no contribution to UK economic growth in the final three months of 2017.
The big question now is whether this is the start of a worrying trend for the economy, or whether falling inflation and rising wages will come to the rescue.
2017 retail sales growth slowest in four years
The figures from the ONS show that retail sales on 2017 overall rose by 1.9% - the weakest annual growth rate since 2013.
The drop in UK retail sales in December has so far failed to hit the pound, which is still up 0.2% at $1.3918.
Sterling is down 0.1% against the euro, at €1.1332, not far off where it was before the retail figures were published.
ONS: December retail sales hit by Black Friday
The sharp fall in retail sales over the month of December (-1.5%) can partly be explained be Black Friday sales, which encouraged shoppers to bring forward some of their Christmas spending to November.
But people are also finding they have less money to spend because prices are rising faster than wages.
Rhian Murphy, a senior statistician at the ONS, explains:
Retail sales continued to grow in the last three months of the year partly due to Black Friday deals boosting spending. Consumers continue to move Christmas purchases earlier with higher spending in November and lower spending in December than seen in previous years.
However, the longer-term picture is one of slowing growth, with increased prices squeezing people’s spending.
Over the year the proportion of internet spending is continuing to rise, with almost one in every five pounds spent online by the end of 2017.
Breaking : UK retail sales fall sharply in December
Ouch. UK retail sales fell by 1.5% in December, more sharply than the 0.6% drop forecast by economists.
It was also a lot worse than November, when sales rose 1%.
More soon.
Dignity shares halve as funerals price war triggers profit warning
The market value of Dignity, one of Britain’s biggest funeral providers, has halved this morning after the company warned that it would have to cut its prices this year as a result of intense competition.
Shares are down 50% at 959p, making it the biggest faller on the FTSE 250.
Dignity said that while its profits for 2017 were in line with expectations, 2018 would be a different story because it planned to cut the price of some of its funeral services.
While the pre-arranged and crematoria businesses are performing strongly with no change to the board’s expectations for these businesses, the board is keen to address the continuing acceleration of price competition facing its funeral business.
The board is therefore taking decisive action on its funeral pricing strategy with a view to protecting market share and repositioning the group for future growth. Consequently, the board believes that the results for the period ending 28 December 2018 will be substantially below the market’s current expectations.
Effective immediately, the group’s simple funeral will be reduced by an average of approximately 25% and there will also be a price freeze for the group’s traditional funerals in the majority of the group’s locations. Consequently, the group is now embarking on a rigorous review to ensure that its funeral operations are organised to run more efficiently and effectively.
The business secretary Greg Clark was put on the defensive when interviewed about Carillion by Nick Robinson on Today.
Main points from Clark:
- Minsters did not meet Carillion bosses at any time after the profit warnings (which began last summer) but were kept informed by “officials”.
- Powers are available to the Insolvency Service to claw back bonuses from Carillion’s bosses.
- He couldn’t say whether the thousands of small businesses owed money by Carillion would be paid. That is a matter for the Insolvency Service.
- The government was right to keep awarding contracts to Carillion. It will be held to account on these decisions in the coming months.
Greg Clark has just acknowledged this on #today but insisted that ministers were kept up to speed throughout that period
— Jim Pickard (@PickardJE) January 19, 2018
Clark: ministers were kept up to speed on Carillion
Clark is asked by Nick Robinson why was there no contact between Carillion and senior ministers at any time after the profit warnings, which began in July 2017.
Actually there was substantial contact between the crown commercial service who are responsible for the oversight of public sector contracts. That is the appropriate mechanism, you have senior officials monitoring these contracts. Officials report to ministers.
So ministers did know that Carillion was in trouble? So why carry on handing them contracts?
I think that everyone in the whole country could see the profit warnings that were issued. Many companies give profit warnings, that means they expect to make less money than they had previously forecast.
If the government on each occasion downed tools and said we could no longer do business, that would cause difficulties for many companies that were healthy and viable.
Over the months ahead there will be lots of opportunities to scrutinise the decisions that were taken. That is right and proper.
Updated
Greg Clark: powers exist to claw back Carillion bonuses
On the issue of clawing back bonuses from Carillion’s top executives, Greg Clark says the powers exist and will be used where necessary.
The Insolvency Service have very powerful sanctions available here. I wrote to the head of the service to make sure the receiver looked not just at the conduct of the current directors, but the previous ones to see if they had contributed to this collapse.
And the sanctions including the recovery of bonuses that may have been paid are very substantial and they are available to the Insolvency Service.
Updated
Greg Clark has been on BBC Radio 4’s Today programme talking about Carillion and the taskforce meeting he held on Thursday.
He says he is working closely with business organisations, trade unions, banks and the department of work and pensions to make sure everything is done to “maximise the continuity of these small businesses” that were suppliers to the collapsed Carillion.
However, he says the issue of whether these small suppliers will get the money they are owed is a matter for the receivers and not the government.
The job of the official receiver is to wind the company up in an orderly way, to realise the assets, and to deal with creditors claims ... so make an assessment of how much people will get back.
Our latest story on Carillion:
Carpetright shares plunge 48% after major profits warning
Shares in Carpetright have plunged in early trading after a major profits warning. They are down 48% at 85p.
The flooring company said post Christmas trading had been “significantly behind expectations” and warned full-year profits would come in somewhere between £2m to £6m. The City had been expecting up to £15.6m.
Another sign that consumers are growing increasingly reluctant to commit to major, non essential, spending decisions at a time when inflation is outpacing wage growth.
Chief executive Wilf Walsh:
Despite a positive start to our third quarter, we have seen a significant deterioration in UK trading during the important post-Christmas trading period. While average transaction values were up year on year, the number of customer transactions since Christmas was sharply down, which we believe is indicative of reduced consumer confidence.
The severity of the decline in footfall over this key trading period and our more cautious view of the outlook for the balance of the year leads to a significant reduction in our full year expectations.
Against this background of a further deterioration in market conditions, we remain committed to driving through the improvements that are essential to the long term repositioning of the business.
The agenda: Pound edges higher ahead of UK retail sales
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound is holding on to its post Brexit-vote highs against the dollar, up 0.2% this morning at $1.3917. It is on course for a fifth weekly rise against the US currency.
Sterling has been supported by a number of factors, including optimism over Brexit negotiations, some decent data, and dollar weakness.
Michael Hewson at CMC Markets gives his view:
It’s been another decent week for the pound as it looks set to post its fifth successive weekly rise in a row against the US dollar.
A new post Brexit vote high of $1.3943 this week has raised expectations of a move through the $1.40 area in the next few days in the hope that a more convivial tone will develop between Brussels and London as the prospect of the upcoming trade talks looms on the horizon. While that remains highly optimistic, sterling short positions have continued to get squeezed hard.
The pound is down 0.1% against the euro however, at €1.1340.
UK retail sales data for December, published at 9.30am, will provide insight into whether cash-strapped consumers - under pressure from falling real pay - were willing to spend over the Christmas period.
Economists polled by Reuters are predicting a 0.6% fall in sales over the month, following a 1.1% increase in November. However, some analysts suspect the number might come in a touch higher after better-than expected figures from the British Retail Consortium.
Also this morning we’ve had profit warnings from Carpetright and the funeral provider Dignity. More on those soon.
