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The Guardian - UK
Business
Graeme Wearden (until 2.pm) and Nick Fletcher

Market rally fizzles out as US oil stocks jump - as it happened

Rally fades as Wall Street opens lower
Rally fades as Wall Street opens lower Photograph: Timothy A. Clary/AFP/Getty Images

European markets close off their highs

The rally of recent days seemed set to continue after a strong performance from Asian markets, but as the day wore on it ran out of steam. A volatile oil price did not help. Early gains for the crude price reversed sharply in the wake of higher than expected US stocks. But then investors noticed the oil update also showed a fall in US production, which helped lift the crude price once more, as did talk that Saudi Arabia was negotiating a possible $10bn loan. So after all that, the FTSE 100 was virtually unchanged but other markets in Europe ended higher but off their best levels. The final scores showed:

  • The FTSE 100 finished down 5.82 points or 0.09%
  • Germany’s Dax added 0.61% to 9776.62
  • France’s Cac closed up 0.41% at 4424.89
  • Italy’s FTSE MIB rose 1.08% to 18,206.41
  • Spain’s Ibex ended up 1.78% at 8764.5
  • In Greece, the Athens market added 3.02% to 535.78

On Wall Street, the Dow Jones Industrial Average is currently down 35 points or 0.2%.

On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow for a whole host of services PMI data to digest.

San Francisco Federal Reserve president John Williams has dismissed concerns that the US could be heading for recession.

He told a group of businessmen that domestic demand was strong enough to overcome any economic weakness abroad.

He said raising interest rates was the right strategy, but emphasised that any rate hikes would be gradual.

And if the Fed did need to ease policy, he would rather use tried and tested methods such as quantitative easing rather than negative interest rates.

US Fed chair Janet Yellen said last month that negative rates were not off the table.

Williams.
Williams. Photograph: Stephen Lam/Reuters

Updated

As if to emphasise the volatility of the oil price and the markets generally, crude is now rallying despite the higher than expected US inventory figure.

The impetus appears to be a Reuters report suggesting that oil producer Saudi Arabia has asked banks to discuss giving it an international loan that could total $10bn.

Brent crude is currently up 0.79% at $37.10 a barrel, having fallen as low as $36.1 in the wake of the US stock figures.

News of the big jump in US crude stocks has had a predictable effect.

Brent crude, having been as high as $36.99 a barrel, is now down 1% at $36.41, while West Texas Intermediate - the US benchmark - has fallen 1.5% to $33.86.

Meanwhile stock markets have also fallen further, as investors use the excuse to take some profits from the recent rally.

The Dow Jones Industrial Average is now off 77 points or 0.46% while the FTSE 100 has fallen 48 points or 0.79%.

Michael Hewson, chief market analyst at CMC Markets UK, said:

After a positive start markets in Europe have slipped back from their intraday peaks as cautious profit taking started to creep into a market that has been on a good run of late. A slide back in oil prices appears to have been the main catalyst behind the caution now permeating into some of today’s more cautious trading, as US oil inventories rose sharply by over 10m barrels, reflecting a similar sharp rise in the API numbers late last night.

And storing all these stocks of crude is a growing issue:

The headline rise of 10.37m was the biggest weekly increase since April 2015, said the Energy Information Administration.

And imports also rose sharply:

US crude stocks rise by more than expected

Crude stocks in the US jumped by much more than forecast last week, renewing fears of oversupply at a time when producers are reluctant to reduce output.

They rose by 10.37m barrels to 517.98m, compared to expectations of a rise of 3.6m.

But weekly gasoline stocks fell by 1.47m barrels, rather than the forecast increase of 1.08m.

Risks in the UK housing market are growing but they are not as bad as in 2014, according to Bank of England deputy governor Jon Cunliffe. Reuters reports:

[Cunliffe] also said the growth of the rapidly growing so-called “buy-to-let” rental property sector potentially poses a financial stability risk.

The Bank of England has asked the government for the power to intervene in the sector, which is likely to be approved. A public consultation on the matter will continue until March 11.

“The risks are a bit less now than they were in 2014 but you can see the market starting to move back again,” Cunliffe told a parliamentary committee.

“The market is now coming back again so maybe some of those risks are becoming a little bit more prominent.”

Jon Cunliffe (right) with Bank of England governor Mark Carney.
Jon Cunliffe (right) with Bank of England governor Mark Carney.
 Photograph: Daniel Leal-Olivas/EPA

More hints of slight weakness in the US economy, from the New York Institute of Supply Management index for February:

Updated

Wall Street opens lower

A dip in the oil price has taken the shine off the global rally, with Wall Street heading lower in early trading and other markets off their best levels.

Data from the American Petroleum Institute late on Tuesday showed crude inventories rose by 9.9m barrels last week, sending Brent down 0.7% to $36.55. Department of Energy data due out later could either confirm this trend, or reverse it, given how volatile the oil price has been in recent times.

Meanwhile the Dow Jones Industrial Average is currently off 30 points or 0.18%. The S&P 500 opened 0.2% lower and Nasdaq down 0.17%.

In Europe, the FTSE 100 is 23 points or 0.4% lower while France’s Cac is virtually flat and Germany’s Dax has edged up 0.16%.

Updated

How resilient is the eurozone to another economic downturn?

Not very resilient at all, if you believe French bank Credit Suisse. They’ve warned that a new recession would trigger deeper political turmoil, putting the single currency under very heavy strain.

Mehreen Kahn of the Telegraph has the details:

In a research note titled “Close to the edge”, economists at French bank Credit Suisse warned the fate of monetary union hangs in the balance if Europe’s policymakers are unable to ward off another global slump and keep in check anti-euro populism.

“The viability of the euro is contingent on the current recovery,” said Peter Foley at Credit Suisse.

“If the euro area were to relapse back into recession, it is not clear it would endure.”

Is a recession imminent?

Well, the eurozone has been growing at a lacklustre 0.3% per quarter recently, so it wouldn’t take must to knock it back to stagnation.

The EC is more confident, though, predicting growth of 1.7% this year.

City chartists are squinting at their screens, wondering if the FTSE 100 rally is about to continue or fizzle out.

Apparently we’ve just reached an ‘initial support level’, based on recent trading, which could signal that the market will rise. Unless it falls though this level, in which case it might keep falling. Tricky stuff, chartism...

Today’s US jobs report show that the American economy isn’t sliding into recession, says Paul Ashcroft of Capital Economics.

The 214,000 increase in the ADP survey measure of private sector employment in February, up from 193,000 the month before, is another illustration (as if any more were needed) that the economy isn’t rolling over. The turmoil in financial markets, which has most recently begun to fade, obviously didn’t stop employers hiring last month.

The breakdown shows that most of those gains (+208,000) were in the services sector, with construction adding +27,000. Manufacturing employment fell by 9,000.

US jobs data beats forecast

Just in: American companies took on more new workers than expected last month.

ADP, the US outsourcing group, reports that 214,000 new private sector jobs were created in February, beating forecasts of 190,000.

That suggests that Friday’s Non-Farm Payroll, the eagerly-awaited health-check on the US labour market, might not be bad news.

Economists are expecting that the NFP will rise by 195,000, leaving the jobless rate at an eight-year low of 4.9%.

We shouldn’t get carried away by the recent recovery in the stock markets.

Anxiety about the global economy may have eased a little, helped by the prospect of another dose of stimulus from central banks.

But the underlying problems still aren’t fixed - from the unbalanced nature of the world economy to the debt piles built by advanced economies, and the slide towards deflation.

Kit Juckes of Société Générale, the French bank, reckons this means the optimism in the markets won’t last.

Michael Lewis’ grumble in The Big Short is, I think, that more crooked bankers weren’t sent to gaol, yet his book and the film show that the problem was an excess of fools more than an excess of crooks.

But what surprised me in the period after 2008, was that the world’s economic leaders didn’t push for debt destruction or forgiveness, but chose instead to use monetary policy to create enough inflation to deflate the debt away. In a global economy with excess supply of goods, and one where the marginal cost of supply of many services is infinitesimally small, I can’t see why we should escape disinflation any time soon. And that’s why the risk rally will be a short-lived affair.

eremy Strong, Steve Carell, Ryan Gosling, Jeffry GriffinFILE - This file photo released by Paramount Pictures shows, Rafe Spall, from left, Jeremy Strong, Steve Carell, Ryan Gosling and Jeffry Griffin in the film, “The Big Short.” Star-studded financial crisis comedy “The Big Short” gained some much-need Oscar equity Saturday night, Jan. 23, 2016, receiving the Producers Guild of America’s highest film award at a ceremony in Los Angeles. (Jaap Buitendijk/Paramount Pictures via AP, File)
The Big Short: well worth watching Photograph: Jaap Buitendijk/AP

After that early surge, shares in London have been dipping back.

As the lunchtime dash to the sandwich shop approaches, the FTSE 100 is now down 18 points at 6134 - partly dragged down by ITV.

The other European markets are still up, though, having hit one-month highs this morning.

Updated

A quick corporate catch-up

Broadcaster ITV isn’t getting much love from the City this morning. Its shares have fallen over 3%, despite posting a decent rise in profits this morning.

It may just be profit-taking, but there’s also some anxiety about sales growth - ITV says ad revenue will be flat until the European Football hits the screens.

It’s a better morning for Virgin Money - the challenger bank that is being built from the remains of Northern Rock. It quadrupled its pre-tax profits in 2015, helped by decent demand for mortgages.

But investors in Entertainment One, which owns the rights to Peppa Pig, are squealing after seeing its shares slide 12% to the bottom of the stock market fallers.

It reported a 3% fall in revenues for the last nine months of 2015, dragged down by a 14% slide film revenues. But don’t worry, kids! Retail sales still look strong, as Sky News explains:

Retail sales were expected to show a rise of 275%, with toys up 230% and clothes 300% ahead, the company said.

Canada and France are next in line for a Peppa retail launch. Markets in South East Asia and China were continuing to develop and expected to see strong growth in the next financial year.

Entertainment One’s TV revenues were up 39% but film was down 14% reflecting tough market conditions, fewer film releases than the year before and “some recent title underperformance”.

This rather pretty chart shows that the City is bracing for the pound to be rather volatile this summer, around the EU referendum (on 23rd June)

The copper price has hit a three-month high today - another signal that economic demand is picking up.

Copper on the London Metal Exchange is up 1.55 per cent to $4,789 a tonne, the highest level since November. In Shanghai copper rose 2.7 per cent to 36,820 yuan a tonne (that’s via the FT).

Today’s stock market rally highlights a surprising fact - miners have been the best-performing shares in 2016.

Europe’s natural resources companies are up around 5% this year, while the wider market has lost 7%.

Quite a decent recovery - until you remember that some miners lost two-thirds of their value during 2015.

Updated

Uncertainty over Britain’s EU referendum could be hurting the UK construction industry.

Mike Chappell, global corporates managing director for construction at Lloyds Bank Commercial Banking, explains:

The conversations I’ve had with those in the industry over the past month have been largely positive and many will be surprised to see a dip in the PMI reading.

“Commercial construction is increasingly buoyant, while in infrastructure sentiment is also positive, in spite of a number of key projects taking longer than expected to break ground. The reality is contractors are used to such delays and are otherwise comforted by the positive rhetoric suggesting improving the UK’s infrastructure is a long-term priority.

“The great unknown, however, remains Brexit. Many construction firms generate the bulk of their revenues in the UK but also rely on a steady stream of skilled workers from the EU. They are therefore considering how a vote to leave the union might impact these current arrangements.”

Surprise slowdown in UK housebuilding

This might dampen the mood a little. Growth across Britain’s construction sector has hit a 10-month low in February, due to a drop in housebuilding.

Building firms interviewed by data firm Markit reported :

  • Slowest rise in overall construction output since April 2015
  • Residential building work is the weakest performing category of activity
  • Jobs growth moderates to a 21⁄2 year low

And that dragged Markit’s construction PMI down to 54.2 last month, down from 55.0 in January, showing slower growth.

Tim Moore, senior economist at Markit, says builders lost optimism last month.

Aside from the pre-election slowdown last year, the latest upturn in construction output was the weakest for over-two- and-a-half years.

“Survey respondents noted that underlying business conditions remained favourable, especially in relation to commercial building and infrastructure-related work, but some clients had been hesitant to commit to new projects so far in 2016. Reflecting this, new order growth weakened again and construction firms were the least optimistic about their year-ahead growth prospects since December 2014.

And this chart shows how housebuilding (blue line) slowed. Anything above 50 points indicates growth, though.

UK construction PM

Updated

Over in the Treasury, a light may be flashing away on George Osborne’s desk.

And that’s because shares in Lloyds Banking Group have hit 73.8p this morning. That’s just above the point where the government can sell its stake in Lloyds.

Chancellor Osborne was forced to suspend his selloff of Lloyds shares to the public last month, because its share price has shrivelled below the ‘break-even’ point.

But if shares cling onto today’s level, the sale could soon be on again!

ECB Cœuré drops stimulus hint

Benoît Cœuré, European Central Bank board member, has dropped a clear hint that the ECB will ease monetary policy this month.

Speaking in Frankfurt, Cœuré said it was “vital” to stimulate economic growth and push inflation up, after seeing prices fall by 0.2% in January.

Some analysts are concerned that the ECB could harm the banking sector by cutting borrowing costs again - it already imposes negative rates on banks.

But Cœuré argued that banks should accept ultra-low interest rates, as the alternative is poor economic growth.

“We have seen from the recent sharp fall in bank equityprices that the sector is highly sensitive to a weaker-than-expected economic outlook

In that context, our commitment to our price stability mandate is vital to anchor expectations of nominal growth.”

The global rally has also reached Istanbul, pushing Turkey’s stock market to its highest level since the start of December.

London Capital Group analyst Ipek Ozkardeskay says encouraging economic data from America is luring money back into shares.

The French and German markets both up around 0.8% this morning, mirroring the rally in London.

It’s early days (!), but March is proving to be a better month for shares than January or February.

Conner Campbell of SpreadEx sums up the situation:

Rising a further 30 points after the bell the FTSE has already tentatively touched the 6200 mark for the first time since the end of 2015. That is a marked improvement on the barrel-scraping 3 and a half year lows seen in the middle of last month, the UK index arguably aided by the somewhat volatile, but gradually steadying, oil prices, Brent Crude slipping around a 0.5% but still hovering around the $36.50 per barrel level with the latest US crude oil inventories to come this afternoon.

The Eurozone indices, meanwhile, are similarly buoyant; the DAX, approaching 9800, is at its highest point since the start of February.

Risk sentiment is on the up in the markets today, says Chris Weston of IG, sparked by the strong rally on Wall Street last night.

Weston identifies several technical reasons behind the optimism:

The Bloomberg US financial conditions index is about to turn accommodative for the first time in 2016.

Bloomberg incorporates the S&P 500, VIX, various credit spreads, the US dollar and money market spreads into this index. This will fill the Federal Reserve with confidence.

VIX measures volatility in the markets, and is known as the ‘fear’ index.

Credit spreads show the difference between the yield on risky and less risky assets - they’ve narrowed recently, which means a greater appetite for danger.

Bloomberg financial conditions index

London stock market hits 2016 high

The London stock market has hit its highest level since New Year’s Eve 2015, as the global rally reaches Europe.

In early trading, the FTSE 100 index of leading blue-chip shares has gained 39 points to 6192, following those strong gains in Asia overnight.

It’s not been this high since 31 December, when the blue-chip index closed at 6,242 points.

The FTSE 100 since the end of December
The FTSE 100 since the end of December Photograph: Thomson Reuters

Mining shares are leading the rally, with copper producer Antofagasta up over 4%.

That suggests City investors are taking heart from encouraging manufacturing data from the US yesterday.

They’re also probably betting on fresh central bank stimulus in China and the eurozone (which has just fallen back into deflation).

Top risers on the FTSE 100 this morning
Top risers on the FTSE 100 this morning Photograph: Thomson Reuters

Updated

Michael Hewson of CMC Markets believes investors are taking confidence from recent rises in commodity prices.

They suggest demand for energy and metals may be picking up again, after some hefty falls last year.

The continued rebound in commodity prices is all the more welcome given solvency concerns about some of the more leveraged firms in the sector.

The recovery in copper, iron ore and oil prices has been a key arbiter in the rebound seen in mining and oil and gas stocks over the past few weeks, and the recent recognition by Chinese authorities that steps need to be taken to cut back on the overcapacity in the sector do appear to have also helped sentiment.

Those cutbacks could see around 6 million Chinese workers laid off in the next couple of years.

The Swiss Offices Of HSBC Private Bank In GenevaGENEVA, SWITZERLAND - FEBRUARY 09: A Swiss flag flies above a HSBC logo is seen on HSBC offices on February 9, 2015 in Geneva, Switzerland. It has been discovered that the HSBC bank has helped wealthy clients to evade tax in several countries across the world, including the UK, America, France and Belgium. (Photo by Harold Cunningham/Getty Images)

Switzerland has also smashed growth forecasts this morning.

Swiss GDP rose by 0.4% in the October-December quarter, compared to forecasts of just 0.1%.

It shows Switzerland did better than expected after the shock of January 2015, when it broke its currency peg and allowed the Swiss franc to soar against the euro

Economists had feared this would hurt exports badly and drive Switzerland into recession. But as Cornelia Luchsinger, an economist at Zuercher Kantonalbank, says:

“A year ago no one would’ve thought 2015 would wind up being as good as it was.”

An Australian flag is waved as players take to the pitch on the second day of the third Test match of the five match series between England and Australia at Edgbaston cricket ground in Birmingham, England, Thursday, July 30, 2015. (AP Photo/Jon Super)

Australia has helped drive shares higher today, by releasing stronger-than-expected growth figures.

Australian GDP rose by 0.6% in the last quarter of 2015, meaning the economy grew by 3% during the last year. That beat forecasts, suggesting that the slowdown in the commodity market has caused less grief than feared.

Here’s the full story:

China market surges 4% despite Moody's outlook cut

China’s stock market has posted its best day since November, despite credit rating agency Moody’s threatening to downgrade the country’s credit rating.

The Shanghai Composite has just closed 4% higher, amid hopes that Beijing policymakers will take more steps to stimulate the economy.

Shares in property developers led the surge, helped by reports that house prices in China are picking up, according to Reuters.

It’s quite a rally, given Moody’s began the day by cutting the outlook on China’s credit rating from stable to negative.

Moody’s warned that Beijing’s finances would come under strain if it was forced to take on the liabilities from troubled state-owned companies. It also questioned whether the Chinese government was really committed to economic reforms.

Marie Diron, a senior vice president at Moody’s, told Bloomberg Television that:

“The government’s ability to absorb shocks has diminished and we want to signal this in the negative outlook.”

Pertinent questions, given the recent capital outflows out of China which prompted the yuan to be devalued. But it didn’t hit the mood in Asia, where shares hit a two-month high.

Asian market today
Asian market today Photograph: Thomson Reuters

Updated

Japanese stock market jumps by 4%

A stunning session in Asia has sent Japan’s Nikkei index surging by 4%.

A burst of renewed confidence helped investors to drive the Tokyo market up to its highest level since 8 February.

It was a broad-based rally too, with 220 of the 225 companies on the Nikkei gaining. ground. And shares across Asia hit their highest levels in two months.

Anxiety about a possible global recession appear to have eased, a little, giving traders a new appetite for risk. Stefan Worrall, director of Japan equity sales at Credit Suisse, told Reuters:

“Following the selloff and the fears of recession that emerged early in the new year, people pulled back aggressively from their previous expectations about how a rate hike from the Federal Reserve might unfold,

“Suddenly some of this lost confidence has been restored as we’ve seen a lot of recent economic data from the U.S. beating expectations.”

Hopes of future economic stimulus from the European Central Bank, and the People’s Bank of China, are also helping the mood.

Introduction: Market rally to continue

Phew! Traders on the floor of the New York Stock Exchange last night.
Phew! Traders on the floor of the New York Stock Exchange last night. Photograph: Andrew Gombert/EPA

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

City traders can leave their tin hats at home today, because shares are going up.

Wall Street set the mood last night, where shares rallied after stronger-than-expected construction and manufacturing data. The Dow Jones industrial average surging by 2% - its biggest one-day move since January. And the Nasdaq posted its best day in six months.

Asia has picked up the baton with a strong session, helped by decent growth figures from Australia.

And European shares are going to follow, adding to yesterday’s gains (which saw the FTSE 100 hit its highest levels since the start of January).

After a scary start to this year, investors seem to have regained some confidence about economic prospects, financial conditions, and the slowdown in emerging markets.

How long that lasts is another issue....

On the Agenda....

There’s a bit of economic data to look forward to, and a couple of central bank speeches too.

  • 8:30am GMT: ECB executive board member Benoît Cœuré is speaking in Frankfurt
  • 9:30am: The Markit/CIPS UK Construction PMI will show how Britain’s builders fared in February
  • 10:00am: Bank of England deputy governor Ben Broadbent is speaking in London
  • 1.15pm: The ADP jobs report shows how many private sector jobs were created in America last month
  • 3.30pm: The US Department of Energy reports new Crude Oil Inventory figures

And on the corporate front, the City are getting results from broadcaster ITV, transport group Stagecoach and financial group Virgin Money.

Updated

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