Closing summary
Wall Street has kicked off 2018 on a strong note, while stock markets in London and continental Europe are in the red on the first trading day of the year, dragged down by the strong pound and euro.
- Dow Jones up 0.4% at 24,820.65
- S&P 500 up 0.4% at 2684.95
- Nasdaq 100 up 1% at 6458.65
- UK’s FTSE 100 index down 0.6% at 6738.83
- Germany’s Dax down 0.6% at 12,840.20
- France’s CAC down 0.6% at 5280.24
- Spain’s Ibex up 0.1% at 10,056.70
- Italy’s FTSE MiB down 0.3% at 21,793.20
Manufacturing surveys for the UK, US and eurozone have been strong, with the eurozone putting in a record performance in December while the US showed the highest factory growth since 2015. Activity at Britain’s factories slowed but was described as “solid”.
Crude oil and gold have also got off to a good start to 2018. Oil prices saw their strongest start to a year since 2014, amid unrest in Iran and ongoing supply cuts led by OPEC and Russia.
Good-bye for today – we will be back tomorrow.
Updated
The upturn at US factories was underpinned by faster increases in output and new orders, with manufacturers’ output growth reaching an 11-month high.
Chris Williamson, chief business economist at IHS Markit said the combination of strengthening growth, a solid labour market and rising prices will add to expectations that the Fed will hike interest rates again soon – as soon as March.
With business optimism about the year ahead running at its highest for two years in the closing months of 2017, companies are clearly expecting to be busier in 2018. The upbeat mood is underscored by an increased appetite to hire new staff, with the survey indicating that factory payroll numbers are rising at a rate not seen for over three years.
US manufacturing strongest since 2015
The last of today’s manufacturing surveys is out, for the US. The IHS Markit purchasing managers’ index strengthened to 55.1 in December from 53.9 in November, signalling the strongest manufacturing growth since March 2015.
The highlight this week is the US non-farm payrolls report for December. It is expected to show a 189,000 increase in jobs, compared with 228,000 in November. The unemployment rate is set to have stayed at 4.1%.
ING economist James Smith says:
After the hurricanes in September, it’s been hard to make any real sense of the past few jobs reports. But three months later, we’re inclined to say December’s numbers should be close to ‘normal’. That probably means a return to the underlying trend - something in the region of 170,000 - although an over-correction after a couple of bumper readings can’t be ruled out.
That said, mid-December appears to have been fairly warm and relatively dry, which may have allowed construction projects and other weather-dependent activities to continue for longer than usual. As December’s payrolls data is typically one of the most correlated months to weather patterns, this would be a tailwind for overall jobs growth - although admittedly the effect could be somewhat marginal.
But whatever happens, with the economy essentially at full employment, the Fed is well aware jobs growth should be slowing - meaning a sub-consensus number shouldn’t bat too many eyelids.
We are waiting for the US manufacturing survey for December, which will be out in less than 10 minutes.
Wall Street opens higher
Wall Street has opened higher, as expected. The Dow Jones is up more than 120 points, or 0.5%, at 24,840; the S&P 500 has opened some 11 points higher at 2682, a 0.4% gain; and the Nasdaq is 33 points ahead, or 0.5%, at 6937.
We now have a full story on BP, which today admitted that Donald Trump’s sweeping changes to US taxes will knock about $1.5bn off its profits for the end of 2017.
Barclays, Shell and Goldman Sachs have made similar statements in recent weeks.
It’s a fairly quiet (and grey) day here in London. US stock futures are pointing to a higher opening for Wall Street.
The euro is also higher against the yen, rising as high as 135.64 yen – levels last seen in late 2015.
Against the dollar, it had its best year since 2003 last year as European economies strengthened and amid growing expectations that the European Central Bank would wind down its monetary stimulus programme. Today, the euro high a four-month high of $1.2081.
A survey of manufacturing in the eurozone and individual country reports painted a strong picture of the industrial sector.
Euro and pound up, dragging down stock markets
The pound is trading around $1.355, its highest price for more than three months, as investors continue to spurn the dollar despite Trump’s recent tax reform success.
Yet the pound wasn’t the star of 2018’s first day of trading, noted Connor Campbell, financial analyst at Spreadex.
No, that honour went to the euro, which showed no sign of shedding the barnstorming form that defined the currency’s final fortnight of 2017. With the eurozone manufacturing PMI at a record high of 60.6 – prompted by country-specific all-time peaks for Austria, Germany and Ireland – the euro surged half a percent against the dollar, sending it above $1.206, while nabbing 0.2% off sterling to send its rival to a fresh 5 week nadir.
The gains in the euro and sterling have put pressure on stock markets, most of which rose in early trading. Germany’s Dax is now down 0.5% while France’s CAC has lost more than 1%. The FTSE 100 index in London has slipped 0.45% to 7653.62.
Updated
Gold extends rally; dollar on backfoot
Looking at the markets, gold has extended its year-end rally (it gained 4.4% in the last three weeks of 2017). A further retreat in the dollar today drove gold prices above $1,310 an ounce. The dollar posted its biggest annual fall since 2003 last year, helped lift gold by more than 13% over 2017. This morning, spot gold traded 0.7% higher at $1311.30 an ounce.
Back to the UK manufacturing survey. Analysts Fabrice Montagne and Sreekala Kochuvodindan at Barclays Capital pointed to the growing gap between the UK and the rest of Europe.
Despite edging lower from November’s high, manufacturing PMIs remain on a solid footing, supported by the intermediate and investment sectors, while the consumer goods sectors remain in the doldrums. December easing was broad based, but new orders dropped the most and employment cooled to its lowest reading in six months. Price indicators eased somewhat but remain elevated.
As long as global growth powers ahead, the UK manufacturing sector will be dragged along, but data point to a continued loss of market share as the economy increasingly feels the pinch of business uncertainty and capacity constraints. Particularly telling is the growing gap between manufacturing momentum in the UK and the European Area.
Returning to cryptocurrencies, Bitcoin is apparently a bit passé. According to Bloomberg, the world’s best-known digital currency is losing ground to rivals such as monero – a new favourite with criminals. Bloomberg reported:
The European Union’s law-enforcement agency, Europol, raised alarms three months ago, writing in a report that “other cryptocurrencies such as monero, ethereum and Zcash are gaining popularity within the digital underground.”
Online extortionists, who use ransomware to lock victims’ computers until they fork over a payment, have begun demanding those currencies instead. On Dec. 18 hackers attacked up to 190,000 WordPress sites per hour to get them to produce monero, according to security company Wordfence.
Bitcoin is trading slightly lower today at $13,445, close to a one-month low.
Updated
Here is our full story on the manufacturing data.
ING economist James Smith said this “buoyant activity” at Britain’s factories had taken some time to filter through to the official manufacturing data, although the latest readings had been more encouraging.
The manufacturing sector continues to be a clear bright spot, but it’s worth remembering that it makes up a relatively small share of the overall economy. Elsewhere, there are few obvious catalysts for a pick-up in consumer spending, particularly with real wages set to be more or less flat this year. This will offset any further manufacturing gains and limit overall growth to around 1.4% in 2018.
This will continue to make life difficult for the Bank of England, who we think have a relatively narrow window before the summer if they want to squeeze in another hike. Brexit noise could really ramp up in the autumn, ahead of October when some kind of deal realistically needs to be agreed to allow time for ratification.
The question is what the survey data means for UK interest rates. Smith added:
Policymakers have signalled they are inclined to increase rates again if the opportunity arises, particularly now that a transition period is likely to be agreed at some point in the first quarter. But a benign outlook for growth and inflation means a rate hike is still far from a done deal.
Here’s more detail on the UK factory survey. Survey compiler IHS Markit said demand improved from clients in Europe, the US, China and the Middle East. Nearly 54% of companies were expecting production to rise over the coming year.
Rob Dobson, director at IHS Markit, summed up the findings:
UK manufacturing ended 2017 on a positive footing. Although growth of output and new orders moderated during December, rates of expansion remained comfortably above long-term trend rates. The sector has therefore broadly maintained its solid boost to broader economic expansion in the fourth quarter.
The main growth engines were the intermediate and investment goods sectors during December, suggesting resilient business-to-business demand and capital spending trends, albeit in part due to rising exports. Growth in the consumer goods sector remained weak in comparison and was the only sub-industry to see output expand at a slower pace than November.
JPMorgan economist Malcolm Barr noted that last month’s drop in the UK manufacturing PMI reversed the gain that had been recorded in November, but described the output and new orders balances as “healthy” at 58.9 and 57.2 respectively – “consistent with high frequency measures of growth in manufacturing output running near a 4% pace”.
He added:
While the easiest story to tell on manufacturing strength is that it is a by-product of exchange rate weakness and the strength of the expansion abroad, it remains the case that this is not obvious from the PMI data itself: the new export orders reading is running slightly below that for new orders as a whole.
Updated
Here’s some reaction to the UK manufacturing PMI, a monthly snapshot of activity at the end of the year.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
While weaker than November, the December PMI is still a pretty solid survey which indicates that manufacturing likely posted another strong performance in the fourth quarter of 2017 after being very much the UK economy’s brightest sector in the third quarter.
Manufacturers will be hoping that the UK and EU make rapid progress in 2018 on a transition arrangement after agreeing to move to phase two of Brexit negotiations and that this encourages businesses to be more positive in their investment decisions and purchases of capital goods.
European stock markets are now weaker.
In London, the FTSE 100 index lost nearly 20 points, or 0.2%, to 7660.60, dragged down by mining stocks and a rising pound. There was also talk of profit taking, after mining stocks had a strong run last week. Dollar-earning exporters were the worst hit while smaller stocks, which are less exposed to the stronger pound, gained 0.1%.
The pan-European Stoxx 60 index fell 0.4% while eurozone stocks lost 0.5%.
David Madden, market analyst at CMC Markets UK, said:
The DAX and the CAC 40 are in the red as the strength of the euro is holding back the eurozone indices.
Shares in BP are down 0.5% after the company stated it’s expects to take a hit of $1.5bn due to the changes in US tax changes. The oil titan also stated it would benefit from the new tax regime in the long-run. BP’s share price has been pushing higher since August and the recent surge in the oil market has assisted it too.
He is expecting the Dow Jones and S&P 500 to open higher.
Updated
The average reading over the final quarter of 2017 (57.0) was the best since the second quarter of 2014, according to IHS Markit, which compiled the survey.
UK factory growth 'solid' at end of 2017
Britain’s manufacturing sector expanded strongly at the end of last year, although at a slower pace than before. The UK PMI from Markit/CIPS fell to 56.3 in December from November’s 51-month high of 58.2. It remained well above the 50 mark which separates expansion from contraction. Output, new orders and employment all rose at solid rates. It is the first data release of 2018.
Updated
Russia considering 'cryptorouble' – report
Meanwhile, Russia is looking at ways to create a “cryptorouble” that could help the country get around western sanctions.
Moscow officials say that President Vladimir Putin has commissioned work on establishing a cryptocurrency, as state-run Russian institutions rush to embrace blockchain, the shared ledger technology on which bitcoin and other digital currencies are based.
Sergei Glazev, an economic adviser to Mr Putin, told a recent government meeting that a cryptorouble would be a useful tool to get around international sanctions.
“This instrument suits us very well for sensitive activity on behalf of the state. We can settle accounts with our counterparties all over the world with no regard for sanctions,” Mr Glazev said.
Updated
UK rail fares rise 3.4%
In the UK, average rail are rising by 3.4% on average from today – the biggest increase since 2013. Labour and trade unions condemned “staggering” annual increases to rail fares, which triggered protests at dozens of stations in England. Season tickets are up by 3.6%, more than the consumer price index inflation rate and well above average increases in people’s annual earnings.
Analysis by the Labour party showed the average season ticket would cost £2,888 – £694 more than in 2010 – a rise of more than 30%. The government and rail operators defended the fare rises, saying they would lead to more investment in services. You can read more here.
#Euro zone Manufacturing #PMI ended 2017 at a record high, with all-time highs seen in #Germany, #Austria & #Ireland https://t.co/KE52ekZpYh pic.twitter.com/hsOygNOz9a
— Chris Williamson (@WilliamsonChris) January 2, 2018
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Eurozone manufacturing PMI hits record high
The eurozone’s manufacturing sector as a whole has hit a record high. Strong readings for output, new orders and employment pushed the final IHS Market eurozone manufacturing PMI to 60.6 in December, the highest level since the survey began in mid-1997. It compares with 60.1 in November.
Readings for Germany, the Netherlands, Austria and Ireland were at or close to record highs.
In Germany, the manufacturing PMI hit a record high at the end of 2017. The index cloimbed to 63.3 in December from 62.5 in November.
Phil Smith, chief economist at IHS Markit, which compiled the survey, hailed a record-breaking year for the Germany manufacturing sector.
The current 37-month sequence of improving business conditions surpassed the previous record set in the run up to the financial crisis.
The goods-producing economy carries strong momentum into 2018, with new order growth at its highest for almost eight years and rising backlogs of work pointing to the need for further expansion in capacity. Business confidence rebounded back up to an elevated level by historical standards in December, further adding to the positive outlook.
The French survey showed the strongest growth in manufacturing since September 2000. The country’s PMI rose to 58.8 in December from 57.7 in November, with new orders expanding at the fastest pace since November 2010 and business confidence hitting a 5 1/2 year high.
The Italian manufacturing PMI also slipped, to 57.4 in December from November’s 58.3, but remained high. November’s reading was the best in over 6 1/2 years.
Paul Smith, director at IHS Markit which compiles the survey, said:
Growth of Italy’s manufacturing sector was sustained at an impressive pace as 2017 drew to a close, with the latest data confirming that industry remains a key driver of overall economic expansion.
With strong demand from abroad – and widespread expectations amongst manufacturers that this will continue in the months ahead – the sector has momentum and is well placed to enjoy a strong start to 2018.
Although the pipeline of new orders remains extremely positive, there are downside risks to sector expansion coming from the supply side. Vendors are struggling to keep up with surging demand, are running low on stocks and having to raise list prices, all factors that could place constraints on manufacturing growth in the months ahead.
The Spanish manufacturing PMI is out, and shows another strong performance by Spain’s industrial sector in December. Production rose sharply and companies took on more workers after an increase in export orders.
The headline index slipped to 55.8 from 56.1 in November but remained well above the 50 mark that separates expansion from contraction. The output sub-index hit a 31-month high. New business continued to increase, albeit at the slowest pace in three months, but export orders were up sharply.
Andrew Harker, associate director at IHS Markit said:
Spanish manufacturers ended 2017 on a high, the sector registering further strong improvements in December. Although new order growth eased, firms continued to ramp up production and took on extra staff at a near-record pace, reflecting the success they have had in securing new work over recent months.
2017 has been a strong year overall, with the average PMI reading the best since 2006. The sector therefore is in good shape heading into 2018.
Turning to stock markets, the French, Spanish, Italian and Portuguese markets are all up while the UK and German markets have opened slightly lower.
- UK’s FTSE 100 down 0.1% at 7679.57
- Germany’s Dax down 0.2% at 12,894.03
- France’s CAC up 0.03% at 5314.20
- Spain’s Ibex up 0.3% at 10,071.50
- Italy’s FTSE MiB up 0.2% at 21,904.35
- Portugal’s PSI 20 up 0.3% at 5405.83
Oil posts strongest year opening since 2014
Oil prices have got off to their strongest start to a year since 2014. Continued supply cuts by the oil cartel OPEC and Russia, along with anti-government protests in Iran, have lifted crude to the highest levels since mid-2015.
Brent crude futures, the international benchmark, rose as high as $67.29 a barrel while US West Texas Intermediate crude futures hit a peak of $60.74, the highest since June 2015.
It is the first time since January 2014 that both crude oil benchmarks started the year above $60 a barrel, according to Reuters.
China's manufacturing PMI jumps; Japan's PMI down
China’s Caixin manufacturing PMI jumped to 51.5 in December from 50.8 in November, and was stronger than expected.
In Japan, the Nikkei manufacturing PMI fell to 49.9 in December from 51.2 in November, with almost all subindices weakening.
Analysts at consultancy Pantheon Macroeconomics were cautious about the Chinese outlook.
The input price index continued to fall, despite the rally in China related commodity price in Q4 last year. Industrial profits growth deteriorated sharply in November. Firms could have booked profits earlier in the year, so profits possibly are holding up better than the headline suggests. At this point, we can’t tell.
At the same time, the output price index continues to show that businesses are having difficulty in passing on the pipeline pressures, despite buoyant consumer confidence.
New orders picked up sharply, implying that officials could be lifting anti-pollution production and construction curbs earlier than planned. Some of the final demand likely is foreign, though, with the new export orders index also moving higher. The index generally isn’t useful as a leader of actual export growth, but external demand should hold up or even strengthen in the case of the US. The PMI should tick lower again in January, though, as the jump in December looks erratic.
Copper is pushing higher on expectations that demand in China, the world’s biggest consumer of industrial metals, will rise this year.
Three-month copper on the London Metal Exchange rose to $7,260 a tonne. The contract ended 2017 with a 31% gain, reaching prices last seen in January 2014, according to Reuters data.
Good morning, and Happy New Year! Welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s the first day of the 2018 trading year, and futures are pointing to a higher open on European stock markets.
Global stock markets ended 2017 on record highs: they gained $9tn (£6.7tn) in value over the year – supported by a strong worldwide economy, president Donald Trump’s tax cuts and central banks’ go-slow approach to easing financial support. The MSCI all-country world index rose 22% to close an all-time high of 514.53.
The FTSE 100 in London hit a new peak, ending 2017 at 7687.77 – up 7.6% over the year. It lagged behind other stock markets, though – Japan’s Nikkei increased 19%; in the US the Nasdaq 100 posted a 32% rise while the Dow Jones gained nearly 26%, and Germany’s Dax rose almost 13%.
Agenda
We are expecting a raft of monthly manufacturing reports from the UK, the eurozone and the US today.
The Spanish manufacturing PMI is due out at 8:15am GMT, followed by Italy at 8:45am, France at 8:50am, Germany at 8:55am and the eurozone at 9:00am. The UK manufacturing PMI will be released at 9:30am and the equivalent US survey at 2:45pm GMT.
Updated
