A late PS: Wall Street ended Thursday with fresh gains.
The Dow Jones industrial average rose 306 points, or 1.2%, to end at 25,200. The S&P also gained 1.2%, while the Nasdaq finished 1.8% higher.
Fiona Cincotta, market analyst at City Index, sums up the situation:
Investors are piling back into equities after fears of higher interest rates and recent volatility have both eased.
With the market showing signs of having carved out the bottom and optimism seemingly back on the agenda, bargain hunters are seeing this as a good time to jump in.
And finally, here’s a flavour of Reuters’ latest market report:
World equity markets climbed on Wednesday as investors shrugged off the latest indication of
rising U.S. inflation, while the dollar slipped to a 15-month low against the Japanese yen as strong global growth weighed on the U.S. currency.
U.S. producer prices accelerated in January, according to a Labor Department report that offered further evidence that inflation pressures were building in the world’s largest economy.
The report came on the heels of data on Wednesday showing a broad increase in U.S. consumer prices last month.
An index of world stock markets advanced 0.8%, while major indices in Europe also rose, bolstered by strong results from heavy hitters such as Airbus, the region’s largest aerospace firm.
Investors shrugged off fears of rising inflation and higher interest rates, bidding up shares of Apple Inc after Warren Buffett’s Berkshire Hathaway made the iPhone maker its top investment.
Network gear maker Cisco also boosted indices on upbeat results and forecast.
Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York, said he was encouraged by the reaction to the inflation data, which has overshadowed robust earnings, with about 80 percent of companies beating analysts’ estimates.
“In the midst of all the nervousness of the past two weeks, we’re winding out a really strong earnings reporting season,” Grohowski said.
“There were a lot eyes fixating on the PPI number this morning, it came in a little hot. But much like yesterday, the market’s shaking it off.”
And with the Dow now up a healthy 100 points, that’s time to stop for the day. Goodbye! GW
FTSE 100 ends the day higher
After a notably undramatic day, European stock markets have ended the day mostly higher.
Here’s the closing prices:
- Stoxx 600: up 1.7 points at 376.3
- Britain’s FTSE 100: up 20 points at 7234
- Germany’s DAX: up 7 points at 12,346
- France’s CAC: up 57 points at 5,219
David Madden of CMC Markets says there was a bit of profit-taking this afternoon:
The FTSE 100, DAX and CAC 40 reached one week highs earlier today, but since then investors have been locking in their profits and now the FTSE 100 and DAX are in the red.
The mood remains optimistic despite the small bit of selling we has seen lately. It would appears that we are slowly recovering from the major declines of last week.
But...Standard Life Aberdeen had a rotten day. Its share finished down 7% as investors reacted to the loss of its biggest client, Scottish Widows.
Ken Odeluga market analyst at City Index , says losing such a big client raises questions over the decision to merge Aberdeen Asset Management and Standard Life.
Standard Life Aberdeen’s merger last year didn’t just give it an awkward name. Thursday’s confirmation that Lloyds Banking Group will pull £109bn of asset management business reveals the cost of awkward structural problems created by Standard Life and Aberdeen’s tie-up last year. SLA said Lloyds accounted for less than 5% of 2017 revenues.
The group could unveil turnover of £19.34bn, when it reports annual results next week. But the future hit should also include a £40m impairment charge. That means the eventual impact on SLA revenues could approach £140m.
If so, more than half of the £200m annual cost savings the group projected from their merger would be erased.
Updated
After two hours of trading, Wall Street remains up - although not by a huge amount.
The Dow and the S&P 500 are both up around 0.25%, while the Nasdaq tech index has gained 0.6% (helped by Cisco).
So, a calmer environment than last week. But that doesn’t mean that everything is back to normal.
Lena Komileva, chief economist at (g+) economics, explains:
A sliding VIX and a weak dollar have sent a much needed Valentine’s week love letter to stocks. With the risks of a global recession and a systemic crisis low, investors sense that last week’s VIX jump over 50 marks the peak for now, and so the subsequent normalisation plus the monthly technical VIX expiration this week have invited algo-led trend-following strategies back into the markets. And with the VIX sliding, the need for covering short options positions (many of which have now expired) is also easing, and that is providing support for topline stock benchmarks and headline market news impulses.
Thus, the pain has subsided but this is not to say that reflation and the great Fed QE unwind haven’t turned the dial on market risk fundamentals, at the tail end of the secular stagnation phenomenon of weak productivity, a ballooning fiscal deficit and mounting private sector debt (despite weak investment and productivity). Investors now realise that the bond cycle has turned and, in a strong growth and inflation environment, high-grade equities are a safer place to be than high-grade long bonds (hence the breakdown in correlations between bonds and stocks).
Wall Street opens higher
US traders have joined the rally, driving shares higher and extending the recovery from last week.
The Dow jumped some 215 points, with almost every company on the index gaining ground.
Network equipment company Cisco is leading the charge, jumping 4.6% after beating earnings expectations.
Dow rises more than 200 points at the open, tries for 5-day winning streak https://t.co/4FeO05oTkf pic.twitter.com/QEudF9dOXp
— CNBC Now (@CNBCnow) February 15, 2018
Here’s Brian Wesbury, chief economist at First Trust Portfolio, on the jump in US producer prices:
Producer prices up 0.4% in January, overall and core. The Fed is behind the curve and as long as excess reserves exist, inflation is a threat. It’s a double edge sword, though. Increased velocity drives inflation and real growth higher. Faster growth is good for stocks.
— Brian Wesbury (@wesbury) February 15, 2018
Mark Hamrick of Bankrate.com is also concerned:
No relief from inflation pressures in the latest gauge of the nation's wholesale prices. Both headline and core (minus food/energy) UP 0.4%.
— Mark Hamrick (@hamrickisms) February 15, 2018
US producer price figures show inflation building
Boom! US factories hiked their prices again last month, putting fresh pressure on America’s central bankers to raise borrowing costs.
The producer prices index rose by 0.4% during January, new figures from the Labor Department show. On an annual basis, the PPI jumped by 2.7% - up from 2.6% in December.
The increase was driven by pricier gasoline, and healthcare services.
Wall Street economists had only expected the annual PPI to rise by 2.5%, so this suggests inflationary pressures are building faster than expected. That’s particularly significant as we saw yesterday that consumer prices jumped by 0.5% last month.
Producer Prices Rise More Than Expected In January, Markets Shrug- https://t.co/o76VIAnMJg pic.twitter.com/qPFXw7TKze
— redtrack (@redtrack_me) February 15, 2018
However, shares are still expected to open higher in New York in 45 minutes...
US Opening Calls:#DOW 25061 +0.65%#SPX 2709 +0.36%#NASDAQ 6720 +0.65%#IGOpeningCall
— IGSquawk (@IGSquawk) February 15, 2018
Updated
Finally, the flurry of US economic data is coming through....
First up, the number of Americans signing on for unemployment benefit has risen to 230,000 last week, up from 223,000. That’s pretty low by historical standards, highlighting the strength of the US jobs market.
As European traders munch into a quick lunchtime sandwich, the main indices are all up.
Connor Campbell of SpreadEx says:
Buoyed by the resilience of the last few sessions the markets started to stretch their legs this Thursday, gradually clawing back some of the hefty losses seen in early February’s bloodbath.
The French stock market is leading the way, after new figures showed that France’s jobless rate fell below 9% at the end of 2017 for the first time in almost nine years.
Soybean futures hit seven-month high
You know it’s a quiet day when you’re looking at soybean futures.
But there’s a good reason too! Soybean prices have hit their highest level since last July, due to concerns that Argentina’s crop will be disappointing.
Argentina is gripped by a prolonged dry spell -- bad news for farmers in the Pampas grain belt looking to harvest their soybeans in the coming weeks.
Commonwealth Bank of Australia analyst Tobin Gorey warns that Argentina’s soybean crops need “soaking rain” soon, but probably won’t get it.
Weather forecasters are not expecting anything like soaking rain, nor a decline in high temperatures.
We are expecting prices to gain further.”
The contract for soybeans to be delivered in March has jumped over $10.20 per bushel, a seven month high.
Worrisome...#soybeans pic.twitter.com/5MNEq12aQD
— Guillermo D. Rossi (@GuillermoRossi) February 15, 2018
Soybeans are a really important crop. They are used heavily in animal feeds, and also provide protein for use in vegetarian meals. So a jump in soybean prices can have a knock-on effect....
Volatility falls back
Volatility in the markets has fallen back today (possibly because, er..., there’s not a great deal going on).
The VIX volatility index has dropped by around 4% today to 18.5, its lowest level since shares started crashing nearly two weeks ago.
It’s a sign that investors are less nervous, having suffered a wobble last week over the prospect of interest rates being hiked to tackle inflation.
Craig Erlam of City firm OANSA says:
Volatility has remained quite elevated in recent sessions but we are slowly returning to more normal levels and are far from what we were experiencing last week. It would currently appear that last week’s plunge was just a sharp correction in an otherwise bullish market, although it may be too soon to say that with any real confidence.
Over in Greece former prime minister Antonis Samaras has announced that he has acted on his pledge to take legal action against current PM Alexis Tsipras.
Samaras filed a suit against Tsipras today, accusing him of concocting what he described as a “horrible conspiracy” of bribery claims involving the Swiss pharma giant Novartis.
Helena Smith reports from Athens:
In an unprecedented step, the former prime minister said he would be suing Tsipras because (he claims) it was clear the leftist-led government was bent on defaming its opponents with “lies” aimed ultimately at dividing the Greek people.
“He is responsible for the horrible conspiracy that is being put together,” said Samaras arguing that between 2012 and 2015, his years in office, expenditure in the Greek public health sector, and on provision of drugs, had been dramatically reduced.
Earlier this week, Tsipras called for a parliamentary inquiry into allegations, contained in a report compiled by anti-corruption prosecutors, that ten top former politicians, including two erstwhile premiers, had received millions of euros in bribes from Novartis in exchange for granting the company preferential treatment.
Overpriced contracts in pursuit of profits at the expense of the Greek health system were among the accusations made by protected witnesses who testified before prosecutors. The state is believed to have lost as much as €4bn between 2006 and 2015 when the malpractice allegedly occurred.
Samaras said the use of whistleblowers had also prompted him to take legal action because it set a dangerous precedent. “In the future every new government will be able to use coached informants to do away with political opponents.”
But government officials said demands that the witnesses be revealed were preposterous. “In the democratic history of our country it is unprecedented that judges should be accused of deliberately setting up a case, especially when we are talking about the country’s anti-corruption prosecutor who we should all support,” said Stelios Koulouglou, a euro MP representing Tsipras’ Syriza party.
“All the great economic scandals, like the Panama papers have been revealed thanks to the action of [protected] public witnesses .. they are the modern heroes of our times. There has to be protection of witnesses in our country.”
Standard Life Aberdeen shares slide after Lloyds pulls out
Losing your biggest client is rarely good for your share price. So it’s no surprise that asset management firm Standard Life Aberdeen is leading the FTSE 100 fallers today.
Standard Life Aberdeen’s shares are down 5% this morning, after revealing that Scottish Widows (part of Lloyds Banking Group) is withdrawing its funds from the group.
Scottish Life Aberdeen currently manages £109 billion of Scottish Widows assets -- roughly a sixth of its total assets under management (however, the deal only generates around 5% of SLA’s revenue)
SLA say they’re ‘disappointed’ -- Lloyds has jumped at the first opportunity to pull its funds, following a six-month transition period following the merger of Standard Life and Aberdeen Asset Management last year.
Laith Khalaf, senior analyst at Hargreaves Lansdown, explains what’s going on:
‘This is a blow for Standard Life Aberdeen, but has been on the cards ever since the merger. Standard Life and Scottish Widows are long standing rivals, and the prospect of one group managing the fund range of the other was never going to sit entirely comfortably in the corridors of power in Edinburgh.
Losing this book of business would strike a sour note for the Standard Life Aberdeen merger, and undermines some of the rationale for joining forces, which was built on scale. However while almost a fifth of Standard Life Aberdeen’s assets look like they might be walking out the door, this only equates to 5% of revenues, as these investment services are relatively low margin. It’s also worth noting the sort of funds involved are not run by the star managers of the stable, rather they are the sort of strategies that feature in older pension contracts sold under the Scottish Widows banner.
It’s not been a great morning for Laura Ashley.
The homeware and clothing group -- famous for its floral prints in the 1980s - hit shareholders with another profit warning.
Earnings almost halved in the second half of 2017, as my colleague Julie Kollewe explains:
Seán Anglim, Laura Ashley’s finance director, talked of an “overall toughening of the market” with like-for-like sales declines of 4.4% in furniture and 3.9% in decorating products such as fabrics, curtains and wallpaper.
Shares slumped by 18% at one stage - or by 1.1p to a princely 5p. Despite being a well-known brand, the company’s only worth around £44m these days.
RBC: Rees-Mogg might be bad for the pound
The pound has now risen to its highest level against the US dollar in two weeks, at $1.4070.
Analysts at Royal Bank of Canada think sterling is benefitting from signs that Theresa May’s grip on power is becoming a little less fragile.
A recent poll put the Conservative party four points ahead of Labour, even though May’s ministers has been struggling to reach agreement on Brexit among themselves (let alone with the rest of the European Union...).
Adam Cole of RBC warns, though, that sterling could suffer if May is replaced by Tory backbencher Jacob Rees-Mogg. He’s one of the most vocal Brexiteers – whose popularity has been rising in recent months as he has voiced opposition to a soft exit from the EU.
Cole says:
We note that prediction markets now have Labour and the Conservatives neck-and-neck as likely to be the largest party after the next election. At the turn of the year, there was a 10% point gap in the implied probabilities (55/45 in favour of Labour).
The probability of this government serving its full five years has also risen to a new high (36%), though the risk of an earlier election is still high.
Both of these developments have probably offered some support to GBP (sterling), though we also note that arch-Eurosceptic Rees-Mogg is now priced as most likely PM after May (ahead of Corbyn) and his hard Brexit line is probably less constructive for the currency.
Here’s our latest profile on the member for North East Somerset....
Updated
US dollar under the cosh again
The pound and the euro are both rallying against the US dollar today.
Sterling is up half a cent at $1.4047, while the euro has gained 0.3% to $1.249.
You might have expected the dollar to benefit from yesterday’s rise in US inflation (as a rise in interest rates makes it more profitable to hold dollars).
Kit Juckes of Societe Generale says other factors are in play, though:
A slightly higher-than-expected US CPI print was enough to get 10-year bond yields up to 2.92%, while equity and commodity prices both rallied sharply and the Vix [volatility index] fell back under 20.
The dollar, on the other hand, got absolutely no support from any of this.
A reminder if we needed that the better the global economic story, the worse it is for the dollar. The biggest single factor undermining the dollar this year has been the improvement in the global economy - a more balanced economic recovery drags investment away from the US and towards more interesting markets.
European markets open higher
European stock markets are gaining ground this morning, as traders shake off their recent jitters.
In London, the FTSE 100 has gained around 37 points or 0.5%, to 7250.
Mining firm Anglo American and investment group Old Mutual are leading the risers, up over 3%. They’re both involved in South Africa, so are getting a boost from president Zuma’s resignation.
The French stock market has jumped 1%, while Germany’s DAX is up 0.6%.
But what about those inflation worries? Shouldn’t yesterday’s strong consumer prices data from America have spooked the markets, as it paves the way for higher interest rates?
Apparently not. That’s because separate data from Wednesday showing a drop in US retail sales has persuaded investors that central bankers will tread cautiously.
Naeem Aslam of Think Markets explains:
A soft retail number simply gives the message that consumers have started to ease off from their spending or they are not digging deep into their pockets.
A sensible approach would be that the Fed isn’t going to increase the interest rate when they can clearly see that the retail data was soft.
A solid day’s trading in Asia:
Asia Close#ASX200 +1.16%#Nikkei +1.47%
— CommSec (@CommSec) February 15, 2018
Hang Seng +1.97%
Shanghai market holiday
USD/Yuan 6.3442
A/US$ 0.7963
(As at 7:24pm AEST)
South Africa’s stock market is surging this morning, after president Jacob Zuma resigned.
Zuma ended a long battle with his own party by stepping down last night, before a no confidence vote.
Deputy president Cyril Ramaphosa is now lined up to replace Zuma, whose tenure has been dogged by allegations of corruption and economic malaise. One of Ramaphosa’s first tasks is to get South Africa’s 2018 budget delivered next week.
Ramaphosa is one of South Africa’s richest men, and investors are hoping that he can turn the country around.
The benchmark Top40 index has jumped by almost 3% today, extending its recent gains:
But... Ramaphosa faces a massive challenge, as my colleague Jason Burke explains:
Cape Town, the country’s second city, is running out of water. According to government statistics, the total number of people living with HIV increased from an estimated 4.72 million in 2002 to 7.03 million by 2016, though the rate of infection is declining.
Unemployment remains at an historic high of 27.7% across the general population, and as high as 68% among young people. Economic growth has been limited in recent years, averaging little more than half the rate of population growth of 1.2%. Zuma’s departure has sent the rand surging and will spur a rush of much-needed foreign investment.
Updated
Analyst: It's a temporary lull
China and South Korea’s stock markets are closed today, as traders celebrate the Lunar New Year.
Trading volumes have been lighter across Asia, which may be aiding the sense of calm in the markets.
But Rob Carnell, chief Asia economist at ING, sounds most unconvinced that this tranquility will last......
“Having just gone through the roller coaster of equity sell-off induced by bond yield rises, I am frankly at a loss to explain what is now happening.
“I can only assume that we are in a temporary lull before the turmoil returns.
Updated
The agenda: Markets in risk-on mood again
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After last week’s turmoil, investors seem to have rediscovered their appetite for risk.
Asia-Pacific stock markets are rallying across the board, with Japan and Australia both up around 1%.
Associated Press have the details:
Japan’s benchmark Nikkei 225 rose 1.5% to 21,464.98 and Australia’s S&P/ASX 200 climbed 1.2% to 5,909.00. Hong Kong’s Hang Seng advanced 2% to close at 31,115.43 in a half-day trading session.
Indexes in Southeast Asia, New Zealand and India also rose.
European markets are also expected to rise, adding to yesterday’s gains, as the City looks to put recent volatility behind it.
Asia stocks climb despite rising US inflation & stronger Yen as equity investors showed signs of warming to a world w/ #inflation & sustained pace of tightening in US monetary policy. Dollar remains on defensive, hits 15-month low vs yen. Oil, gold supported by dollar weakness. pic.twitter.com/IHqv933Onm
— Holger Zschaepitz (@Schuldensuehner) February 15, 2018
The markets have also shaken off Wednesday’s surprisingly strong inflation data.
As we covered yesterday, shares were briefly hit after US consumer prices jumped by 0.5% last month, but in the end the Dow Jones finished the day up 1%.
Higher inflation raises the pressure on the world’s central bankers, particularly those at the Federal Reserve, to tighten monetary policy by raising interest rates. That would be bad for bond prices, so it’s probably a mistake to assume the markets have calmed down now.
As Jasper Lawler of London Capital Group says:
Whilst the market is showing signs of carving out a bottom and the volatility index (VIX) or fear gauge, has dropped back below 20, after peaking at over 50 just last week, it is unlikely that this is the last we have seen of the volatility as markets claw back these recent losses.
Today, investors will be looking at the latest American weekly unemployment figures, and new data showing how US factories fared last month, and how their prices changed.
Plus, several European Central Bank policymakers are giving speeches today, which might move the markets.
The agenda:
- 8.15am GMT: ECB’s Yves Mersch speaks in Paris
- 10.45am GMT: ECB Peter Praet speaks at the French finance ministry
- 1.30pm GMT: US weekly jobless figures
- 1.30pm GMT: US producer prices data for January
- 2.15pm GMT: US industrial production for January
Morning all!
— RANsquawk (@RANsquawk) February 15, 2018
- Asian stocks traded higher as the region received a tailwind from US
- The USD languished from the prior day’s losses. AUD/USD remained firmer post-jobs data
- Highlights: US weekly jobs, Philly Fed, PPI, IP and a slew of speakers
Updated
