Closing summary: An unpleasant start to the year for stock market investors
Shares have fallen in the US, Europe and Asia as the pre-holiday sell-off resumed following weak Chinese manufacturing data – renewing the focus on fears that the global economy will weaken in 2019.
In London the FTSE 100 has rebounded from steeper losses earlier in the day. The blue-chip index is now down by 0.3%. The mid-cap FTSE 250 is down by 0.1%.
Germany’s Dax lost 0.3% as well, but France’s Cac 40 remained down by around 1.3%
In the US major indices also fell. The Nasdaq and the Dow Jones industrial average both lost 1.3% at the time of writing, while the S&P 500 lost 1.2%. Tesla was among the biggest fallers in early trading after missing analyst forecasts on product deliveries.
US manufacturing survey data just released adds to the negative picture painted by today’s Chinese manufacturing purchasing managers index (PMI). US new order growth eased to a 15-month low, IHS Markit said.
For the full implications of the Chinese manufacturing weakness, Martin Farrer’s report from earlier today is here:
And, in a bumper day for manufacturing data, the UK PMI survey confirmed that stockpiling ahead of Brexit is going full throttle. It may be providing a short-term boost to the British economy, but economists warned that any long-term gain is likely to be illusory. Richard Partington has the story here:
Thanks for reading – and a belated happy new year. JJ
US stock markets slump in first trading session of 2019
In the first few minutes of trading on Wall Street in 2019 the S&P 500 lost 1.4%, while the Dow Jones industrial average dropped by more than 350 points, or 1.6%.
US markets fell to their biggest annual loss since 2008 during the course of 2018, and started 2019 on a similar footing.
The tech-heavy Nasdaq dropped by 1.8%.
In case anyone thought that the new year’s eve bounce on US stock markets was a good sign, Allianz’s chief economic adviser:
Good morning.
— Mohamed A. El-Erian (@elerianm) January 2, 2019
Weakness in US #stocks -- #Dow futures are indicated down over 400 points, consistent with lower #markets in Asia and Europe--bolsters the view that Monday's bounce was just the result of one-off re-balancing #trades rather than a durable change in investor dynamics
Updated
Approaching the US open and futures are still pointing to a painful session for investors in American companies.
S&P 500 and Dow Jones industrial average futures are both down by 1.6%. Nasdaq futures are down by 2.2%.
Tesla has disappointed analysts after it reported that production in the final quarter of 2018 – at nearly 1,000 vehicles per day – came in lower than market expectations.
The electric car maker founded by Elon Musk produced 86,555 vehicles in the three months to the end of the year, up 15% compared to the previous quarter. Shares fell by around 7% in pre-market trading.
Tesla is in a race to ramp up production of its cars – even erecting a giant tent to fit more machines. It increased deliveries by 8% to 90,700.
Sterling is now down by more than 1% today – the holiday has done little to add any festive cheer with Brexit ahead.
“The pound’s cheap, but for excellent reasons,” notes Kit Juckes, chief global foreign exchange strategist at Société Générale. “FX is [currently] a battle between a host of unloved currencies to see which is worst.”
To add to the risk-off sentiment, German bond yields, which move inversely to prices, have fallen to their lowest since November 2019 as investors fly to the safety of Bunds. The yield on the 10-year Bund has fallen by basis points today.
Good news for vegans in search of reasonably priced hot snacks: bakery chain Greggs is planning to launch a no-animal-products sausage roll this week.
Greggs, the UK’s largest bakery chain, already sells 1.5m pork sausage rolls every week, but now customers will have the option of a Quorn filling and vegetable oil puff pastry, reports Rebecca Smithers.
The product will arrive on Greggs’s shelves at the start of Veganuary – a growing movement that encourages people to embrace plant-based diets during January.
After a painful first morning of 2019, at lunchtime the sell-off has eased somewhat across Europe’s main stock markets – although there is still a sea of red.
The FTSE 100 is down by 0.66%, in line with the mid-cap companies on the FTSE 250. Next and Ocado continue to hold up the top end of the FTSE 100.
On Germany’s Dax shares are down by only 0.2%, while the earlier heavy losses on France’s Cac 40 have eased to1.3%.
Here’s more detail on manufacturing firms’ Brexit stockpiling:
In a sign of mounting stress for the British economy as the impasse in Westminster over Brexit continues, the stockpiling of finished goods increased at the second-fastest rate since 1992, writes Richard Partington.
Stockpiling has extended across multiple sectors, from cheesemakers to drugmakers via jet engine manufacturers.
Read the full report here:
US markets are expected to follow Europe down, according to futures prices an hour and a half before the opening bell.
Futures for the S&P 500 and the Dow Jones Industrial Average are both down by 1.2%.
A fall in Chinese demand, as evidenced by the Caixin manufacturing purchasing managers index (PMI) reading from earlier in the day, could have significant consequences for the US’s giant multinationals. Investor sentiment in the US has been dented in recent months by the threat of an escalation of a trade war between the US and China as well as rising borrowing costs and political gridlock in Washington.
There are few positive signs for stocks going into 2019 on either side of the Atlantic, according to Jeremy Leach, chief executive at investment firm Managing Partners Group.
Key drivers of an equities bear market will be Brexit uncertainty, further tightening of monetary policy on both sides of the Atlantic, political gridlock and trade tensions – all forcing equity values lower in the UK, Europe and the USA.
John Lewis’s enjoyed a strong finish to a rollercoaster Christmas trading period banking a bumper sales fortnight as shoppers made a late dash to the shops, writes Zoe Wood.
Fashion, beauty and leisure and technology all performed well – although it will be a while yet before the company reveals whether those sales came at the expense of profits if discounting was too heavy.
Some nice perspective on the rail fares rises here from Sky’s economics editor, Ed Conway.
Consumer price index (CPI) inflation is the most widely used measure of the cost of living.
Cumulative changes since 1995
— Ed Conway (@EdConwaySky) January 2, 2019
CPI inflation: 62%
RPI inflation: 95%
Regulated rail fares cap: 105% pic.twitter.com/XazK0pCbvY
Particularly since the financial crisis wage growth has stagnated, making these above-inflation increases even more painful for commuters.
Gold prices have hit a six-month high as the equity sell-off prompts investors to look for safe havens.
Spot prices for the yellow metal hit highs of $1,288.66 per ounce on Wednesday, the highest since June 2018.
Economists at Swiss investment bank UBS predict that gold’s value could be dented by a rising dollar in the first half of the year thanks to rising US interest rates.
However, they added: “as 2019 proceeds, a weaker dollar, higher equity market volatility, and signs that the Fed is nearing the end of its hiking cycle should act as tailwinds for gold.”
The new year festivities always come with a painful hangover: rail fare rises. Commuters across the country have today staged protests as fares rise by 3.1%.
Labour leader Jeremy Corbyn was at Kings Cross station this morning alongside union activists, reiterating his call for the nationalisation of the rail network.
Transport secretary Chris Grayling blamed union demands for higher pay for the fare increases. You can find much more detail here:
The Brexit stockpiling boost to the manufacturing sector has failed to cheer up currency traders, who have sold off the pound against the US dollar.
Sterling is now down by 0.6% today, and has fallen further since the data was released.
Much of Britain may have had something of a break from Brexit during the past few days, but “Brexit cannot help but remain the key driving force for sterling” in the next few weeks, with the vote on Prime Minister Theresa May’s deal due in the third week of January, according to Jasper Lawler, head of research at London Capital Group.
Downing Street still appears hopeful it can get the deal through parliament, despite continued opposition from many Conservative party MPs as well as other opposition parties. Foreign secretary Jeremy Hunt today suggested the deal is still alive after a speech in Singapore. He said:
When Theresa May comes back with those reassurances that she has been seeking from the EU that the deal that is on the table is not going to lead to us being permanently trapped in the customs union ... she will find a way to get this deal through parliament.
Some more reaction to the UK’s manufacturing PMI data. The main verdict? While the headline may look encouraging, be wary.
The marked increase was driven by stockpiling of goods and raw materials in preparation for possible disruption if there is no Brexit deal by 29 March. Stocks built now will have to be run down eventually, potentially lowering demand in future months.
Stockpiling is “not necessarily a boon for UK growth”, said James Smith, an economist at ING. He added:
It’s worth remembering that the manufacturing sector makes up a relatively limited share of economic output – around 10% of GDP. More importantly, warehousing is in relatively short supply, leaving firms with fairly limited scope to boost inventories.
Howard Archer, chief economic advisor to the EY ITEM Club, said: “UK GDP growth is likely to have slowed markedly to 0.3% quarter-on-quarter in the fourth quarter from 0.6% quarter-on-quarter in the third quarter.”
He added: “Conditions currently look challenging at home for manufacturers – notably heightened business caution over investment and expenditure on capital goods amid significant uncertainties, particularly Brexit.”
Francesco Arcangeli, economist at EEF, the manufacturers’ lobby group, said: “While the headline figure might suggest industry has out its foot on the accelerator at the start of the year, the detail confirms that the rush to stockpile goods ahead of Brexit and the potential disruption from a no-deal scenario is now in full swing.
The absence of any New Year joy from the European PMI data also confirms that the near future holds a bumpy ride for UK manufacturers.
John Lewis reports sales increased over crucial Christmas period
Department store chain John Lewis has reported that sales rose by 4.5% in the week to 29 December, while sales at its Waitrose supermarket surged by 19.2%.
The firm is one of the first major British retailers to reveal its Christmas performance, at a time when analysts are nervously looking out for more pain on the high street.
John Lewis hailed “very strong sales on Christmas Eve and a confident start to clearance sales both online and in shops”, in its latest sales update.
Fashion sales were up 10.7% on last year, with the firm citing strong sales in women’s cashmere, up 10%, and women’s accessories, up 21.5%. The Christmas gift ranges also performed well, with gift cook and dine up 25% and gift food sales more than doubling.
The firm had previously reported record sales in the Black Friday week in November.
A quick check-up on the FTSE 100 after the manufacturing data beat expectations: the sell-off has slowed slightly, but miners remain under pressure.
The benchmark index is now down by around 60 points, or 0.9%, with betting company GVC Holdings and grocery logistics company Ocado vying for the top spot – both are up by around 2.6%. Next shares are now up by 1.8%.
There’s some pain for miners, particularly exposed to lower demand in China, and financials, which are among the most sensitive stocks to the business cyle. Barclays and Royal Bank of Scotland have lost around 2.6% each, but Glencore, Antofagasta, Anglo American and BHP have all lost more than 4%.
ITV’s chief financial officer stepped down from the board on new year’s eve.
The FTSE 100 broadcaster had announced in June that Ian Griffiths, who also held the role of chief operating officer, would retire within 12 months.
Griffiths will leave ITV completely on 31 March 2019.
Brexit uncertainty may actually be helping British factories weather slowing global growth – although it is an irony not many major manufacturers would appreciate.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The pick-up in the PMI in December suggests that preparations for Brexit are helping manufacturers to keep their heads above water during the current global slowdown.”
However, he noted that the boost now will likely be matched by slower growth later.
December’s PMI doesn’t alter our view that the manufacturing sector will struggle over the coming months and that GDP growth will be well below-trend in Q4 and Q1; we expect quarter-on-quarter growth of 0.2% and 0.3%, respectively.
Factories are stockpiling the raw materials they need for their work as well as the products they sell as they prepare for possible disruption.
🚨BREXIT STOCKPILING LATEST🚨
— Andy Bruce (@BruceReuters) January 2, 2019
• UK factories' stocks of finished goods rise at 2nd fastest rate since records began in 1992 - PMI
• Stocks of materials purchased rise at 4th fastest pace on record https://t.co/Szwm2ZfaJo pic.twitter.com/CtjKDQPKlQ
The overall reading for British manufacturing showed the fastest expansion in six months for the sector. Unsurprisingly, it’s Brexit which is seen as the driving force.
Growth in new orders rose to a 10-month high, with inflows from domestic and foreign buyers. IHS Markit said:
Manufacturers linked increases in both domestic and overseas demand to clients purchasing to build up safety stocks to mitigate potential Brexit disruption.
The stockpiling prompted the second fastest increase in the stocks of finished products held by manufacturers since the survey began in 1992.
Although the headline reading is encouraging, IHS Markit reported that the fourth-quarter average reading was the weakest since the third quarter of 2016 (immediately after a certain referendum result was announced).
It’s also worth noting that IHS Markit revised up their November reading to 53.6, not 53.1 as previously reported.
British manufacturing sector beats expectations in December
UK manufacturing activity came in significantly higher than expected at the end of 2018 thanks in part to a steep rise in stockpiling ahead of Brexit, according to a closely followed survey.
The manufacturing purchasing managers index rose to 54.2 in December, up from 53.1 in November, data firm IHS Markit reported. Economists had expected a slowdown to 52.5.
IHS Markit said:
The rise in the PMI level during December was mainly driven by stronger inflows of new business and a solid increase in stocks of purchases. Movements in both mainly reflected Brexit preparations by manufacturers and their clients.
The European Central Bank has been busy celebrating 20 years of the euro this new year, but today it was forced to announce less pleasant news: Italian lender Banca Carige has been put in administration.
Three temporary administrators and a three-member surveillance committee will take charge of Banca Carige and replace its board – who resigned en masse today.
The plan will be a “temporary administration”, the ECB said. The bank last month failed to raise €400m in emergency cash for a rescue plan.
Eurozone manufacturing activity has fallen back from boom time a year ago to “near stagnation” now, according to Chris Williamson, chief business economist at IHS Markit.
December saw the third consecutive drop in new orders, in an onimous sign for the eurozone economy. Williamson said:
The weakness of the recent survey data in fact raises the possibility that the goods producing sector could even act as a drag on the overall economy in the fourth quarter, representing a marked contrast to the growth surge seen this time last year.
The last three months of 2018 saw manufacturers report the worst quarterly performance in terms of production since the second quarter of 2013.
The eurozone manufacturing purchasing managers index (PMI) fell to 51.4 in December, the lowest since February 2016.
There is likely to be little relief for European stocks from manufacturing figures, with IHS Markit’s barometer coming in at the consensus, but with a notably weak reading for future output.
The forward-looking reading fell to its worst in six years.
At the other end of the scale, there’s Debenhams.
The department store is one of the most shorted shares on the London Stock Exchange. That bet would have paid off handsomely over the last year: shares were worth 35p a year ago; now you’ll pay only 4.8p after another 6% slide today.
An interesting and unlikely top gainer amid a steep FTSE 100 sell-off: a British retailer.
Next is the second top riser amid London’s blue-chip stocks, with a 0.6% gain.
Retailers endured one of the worst years since the financial crisis in 2018, as Brexit uncertainties piled on top of fundamental changes to shoppers’ habits.
However, Next has resisted the urge to pile up discounts in search of large volumes. Analysts are split as to whether the strategy will work, with some betting that performance over the crucial Christmas period will surprise on the upside.
Next is due to update the market tomorrow.
We seem to be set for a bad day across the eurozone as well – unless manufacturing data can give investors some cause for excitement.
It’s a sea of red across European markets, with France’s Cac 40 suffering a particularly nasty 2.3% sell-off.
The FTSE 100 is now down by 1.9%, while Germany’s Dax index has lost 1.2%.
And it’s an unhappy new year from the FTSE 100 too, with more than 100 points knocked off at the open.
Here’s more detail on what is already shaping up to be the big story of 2019: whether global growth is dragged back by a slowdown in China.
Today’s Chinese data underline concerns that the world’s second largest economy is “heading for a tough 12 months”, writes Martin Farrer in his report.
Japan’s markets were closed for a holiday, but the pain has been felt elsewhere, with other Asian markets in the red.
The Australian dollar, which is seen as a proxy for the Chinese economy, lost 0.6% as it plunged as low as US70.05 cents. It was the currency’s lowest level since January 2016.
Updated
Introduction: Weak Chinese factory output prompts stock slide
Happy new year, and welcome to the first business live blog of 2019, with rolling coverage of the world economy, financial markets, the eurozone and business.
Stock markets in Europe are set to start the year as they finished the last one – with a slump – following the lead of Asian markets which were under the cosh.
Shares in Hong Kong fell by 2.7%, while those in Shanghai lose 1.2% and the ASX 200 benchmark closed down 1.6% in Sydney.
The Caixin purchasing managers index (PMI) fell from 50.2 in November to 49.7 in December, below the 50 no-change mark for the first time since May 2017. New orders also fell, for the first time since June 2016.
The data suggest there will be little let-up in the slowdown, according to Freya Beamish, chief Asia economist at Pantheon Macroeconomics:
The report implies deteriorating demand, with production likely to reflect that in coming months. Leading indicators suggest that activity is unlikely to begin a recovery until the second half.
The fall in demand has been at least partly blamed on fears that the trade war between the US and China pursued by US President Donald Trump has started to hurt demand.
However, trade war aside, markets could be boosted following signs that Trump may be willing to finally act to reopen the US government.
Jasper Lawler, head of research at London Capital Group, said: “News that Trump was reaching out to Congress to help end the partial government shutdown, provided some optimism to traders overnight.”
The British and European manufacturing sectors will also be in the spotlight this morning, with PMI figures due this morning. In the UK economists are expecting a slight slowdown from the relatively strong expansion seen in November, when the index hit 53.1 – but for the index to show continued expansion in output.
The agenda:
- 9am GMT: Eurozone manufacturing PMI
- 9:30am GMT: UK manufacturing PMI
- 3pm GMT: US manufacturing PMI
Updated
