Summary: Apple and factory data drag back US markets
We’re only three days into 2019, but it is already clear that the travails of the Chinese economy are set to be one of the major stories of the year.
On Wednesday weak Chinese purchasing managers index data set the mostly negative tone for investors around the world, before Apple’s revenue forecast downgrade dominated Thursday’s trading.
Alphabet has now overtaken Apple as the world’s third-largest listed company after the precipitous fall in the latter’s shares. The 9% fall at the latest reading equates to $67bn wiped off its market value. After breaking the trillion-dollar mark in 2018, it value lies at around $680bn now.
Weak US factory data from the Institute for Supply Management have added to the bearish sentiment, as new order growth slumped to its lowest since 2014.
US stocks have fallen across the major indices, with the S&P 500 down by 2.1%, the Nasdaq 100 down by 2.6% and the Dow Jones industrial average down by 2.6% as this blog closes.
And the contagion has been felt across the world, with Apple suppliers and China-exposed companies feeling the pain.
In Europe shares remain down as markets prepare to close, with the FTSE 100 losing 0.5%.
Thanks for reading the business live blog and farewell until tomorrow. JJ
Updated
US stocks are continuing their downward spiral.
The Dow Jones industrial average is now down by 2.4%, or 550 points. The S&P 500 is down by 2% and the Nasdaq down 2.1%. Apple is, unsurprisingly, a big weight in all of them.
The US’s closely followed ISM manufacturing purchasing managers index (PMI) has also offered disappointing data, with the weakest new orders since January 2014.
The index fell to a reading of 54.1 in December, much lower than the 57.9 consensus. The new order reading slumped from a reading of 62.1 in November to only 51.1.
The survey pointed to continued expansion, but at a much less robust pace, according to Timothy Fiore, chair of the Institute for Supply Management’s survey committee. He said:
Comments from the panel reflect continued expanding business strength, but at much lower levels. Demand softened, with the New Orders Index retreating to recent low levels.
Trump pipes up.
President Donald Trump has blamed the three-week-old US government shutdown on the Democrats, again, in a morning tweet.
The Shutdown is only because of the 2020 Presidential Election. The Democrats know they can’t win based on all of the achievements of “Trump,” so they are going all out on the desperately needed Wall and Border Security - and Presidential Harassment. For them, strictly politics!
— Donald J. Trump (@realDonaldTrump) January 3, 2019
And, as a chaser, he adds that the administration is “doing well in various Trade Negotiations currently going on”, mentioning China but not giving any detail.
The United States Treasury has taken in MANY billions of dollars from the Tariffs we are charging China and other countries that have not treated us fairly. In the meantime we are doing well in various Trade Negotiations currently going on. At some point this had to be done!
— Donald J. Trump (@realDonaldTrump) January 3, 2019
On a five-year view Apple has still made its investors a lot of money, but it has been an astonishing slump in just a quarter of a year from one of America’s corporate behemoths.
Read it and weep. That vertical line on the right hand side is the performance of Apple at the Wall Street open.
Apple shares peaked at $233.47 in October, but they have since lost almost 40% of their value. They opened down 8.5% at around $144 and have kept going to more than 9%.
If Apple shares remain on the same track today it would equate to the biggest one-day share price drop for five years, according to the Financial Times.
The S&P 500 is down by about 1% as well, while the Nasdaq is down by about 1.4 in early trading.
While painful for investors, it’s worth bearing in mind that futures were pointing to worse losses on US indices earlier in the European trading day.
Apple shares fall by 8.8% at Wall Street open
The Dow Jones industrial average falls by 1% in early trading as ripples from the Apple revenue downgrade spread across the market.
A reminder before the Wall Street open: Apple’s market value was briefly above $1 trillion last year. Not any more.
The market cap was $749.39bn at the end of trading on Wednesday. A 9% fall, as predicted by pre-market trading, would see that fall to almost $680bn – or $67bn off. We shall see shortly.
More on that limp end to the year for the construction sector revealed by purchasing managers index data.
The UK construction sector ended 2018 on a weaker footing, hitting a three-month low in December amid fading demand for commercial projects and the growing risk of a no-deal Brexit, writes Richard Partington.
Construction companies hit a weaker patch during the last month of 2018 as new orders increased at a relatively subdued pace, while there were some reports that wet weather disrupted work.
Read more here:
Concerns over Chinese growth – spurred by weak manufacturing survey readings as well as Apple – have rightly dominated the business agenda so far this year, but here is a little reminder of what is ahead for the UK economy as Brexit approaches.
The “startup” company hired by the government to operate extra ferries as part of no-deal Brexit planning had no ships, and now it turns out its website terms and conditions on its website were intended for a food delivery firm, writes Ben Quinn.
“It is the responsibility of the customer to thoroughly check the supplied goods before agreeing to pay for any meal/order,” read part of the text on Seaborne Freight’s website – after it won a £13.8m contract.
Read more here:
More on the consensus-busting ADP number from Capital Economics.
Andrew Hunter, Capital Economics’ senior US economist, said the data provide “further evidence that, for all the recent volatility in financial markets, the US economy remains in a healthy shape going into 2019.”
The markets apparently now believe that the Fed won’t be raising rates at all this year. However, while we have long expected that an economic slowdown would eventually persuade officials to move to the side-lines later this year, we doubt that the Fed will be ready to abandon its rate hike plans when employment growth is still so strong and economic growth is still well above trend.
US payrolls data smashes expectations ahead of non-farm payrolls
Here is something (maybe) for the US investor bulls:
Payrolls company ADP has reported that the US private sector added 271,000 jobs in December – far above the 178,000 expected, according to the economists’ consensus. The figures suggest that tomorrow’s market-moving non-farm payrolls data could beat current expectations of 177,000.
The implications for stocks could be tricky: it could mean the economy is actually performing better than expected, helping company profits; on the other hand, it could persuade the Federal Reserve to tighten monetary policy faster, eventually slowing growth.
Either way, the number is “a welcome jolt to the market’s favored narrative that the economy is slowing sharply”, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. He added:
To describe this as startling would be something of an understatement. The biggest increase in the ADP measure of private employment since February last year came out of the blue.
Less than an hour to go to the Wall Street opening bell
US futures have recovered slightly as the New York markets prepare to open, but they still point to a tough day ahead for America’s biggest companies as investors try to judge how serious Apple’s surprise revenue downgrade really was.
The tech-heavy Nasdaq index appears in line to bear the brunt of investor fears, with futures down by 1.7%. Futures for the S&P 500 are down by 0.9% while futures for the Dow Jones industrial average are down by 1%.
Apple shares are set to fall by about 8% when the Nasdaq opens, after chief executive Tim Cook said the company had been blindsided by weaker demand for its products in China.
It follows a trading day in Europe dominated by reaction to Apple’s announcement, which shocked Wall Street and sent down the share prices of Apple suppliers and companies with major exposures to the Chinese economy – the makers of luxury goods such as Gucci owner Kering and Burberry prominent among them.
In the UK, a quieter day for the City sees the FTSE 100 – now flirting with positive territory – led by Next. Despite a small profit downgrade, the retailer reported a better than expected Christmas period.
UK construction figures earlier in the day also confirmed that the sector is in wait-and-see mode ahead of Brexit.
Shares in AstraZeneca and GlaxoSmithKline have been buoyed by the $74bn Bristol-Myers Squibb deal with Celgene.
Both were in negative territory earlier in the day, but AstraZeneca is now up by 1.6% and GSK has gained 0.9%. Look at the jump in AstraZeneca’s share price after the deal was announced at around midday GMT:
Even with volatile stock markets and fears over global growth, it looks like Bristol-Myers Squibb has persuaded some investors that big pharma mergers and acquisitions are still possible.
The first mega deal of the year has just landed in the US: pharma company Bristol-Myers Squibb plans to buy biotech firm Celgene for a cool $74bn.
The $102.43 per Celgene cash and stock share offer will give Bristol-Myers 69% of the new business. It is expected to close in the third quarter of the year, generating cost synergies of $2.5bn by 2022.
Shares in Celgene, which specialises in treatments for cancer and other severe, immune, inflammatory conditions, have surged by about 30% in pre-market trading. Bristol-Myers shares fell by 13%.
Giovanni Caforio, chairman and chief executive of Bristol-Myers Squibb (who cannot have had much of a holiday), said he was “impressed by what Celgene has accomplished for patients”.
Just after midday, the European stock sell-off has accelerated in Germany and France.
The Dax is down by 1.5% and the Cac 40 has lost 1.4%.
The FTSE 100 has lost 0.3%, and the mid-cap FTSE 250 has edged down by 0.15%.
Next is the biggest riser of the blue chips, up by 4.6%, followed by Tesco, up by 2.8%. Fashion house Burberry has lost 5.5% and miner Evraz is down by 4.8%.
It’s a big anniversary today for the cryptocurrency world: bitcoin turns 10.
The original distributed ledger currency has offered much – although what it (or the underlying technology) has actually delivered so far is a different question. For many of the speculators who drove its price up above $19,000 in December 2017, the subsequent fall back to around $3,800 has hit them where it hurts.
“The most impressive feature of bitcoin is that it is still there”, writes Tibor Fischer today to mark the birthday.
It has survived crash after crash and state hostility. It has truly been battle-tested in the harshest of conditions.
Yet it has also failed in one of its key aims, Tibor says.
The identity-hiding creator of bitcoin, Satoshi Nakamoto, wanted it to be a currency. That looks unlikely. In the near future, you won’t be buying a pint of milk with it at the corner shop.
Read more here:
Amid the risk-off sentiment, gold is gaining, hitting six-month highs.
Gold spot prices reach a high earlier of $1,292.32, although they have now retreated to around $1,287.45, a gain of around 0.3% for the day.
Dean Popplewell, a vice president at spreadbetter Oanda, said:
Gold prices scaled to a new six-month high earlier this morning as investor worries about a global economic slowdown, couple with equity markets volatility is supporting investor safe-haven buying, while a weaker dollar also offered some support.
The price rise boosted London-listed gold miner Fresnillo, which was one of the best performers on the FTSE 100 approaching midday as shares rose by 2.1%.
It looks like the Apple waves are going to rock US markets as well.
After a brutal start to the first trading session of the year the major American indices actually finished Wednesday up. But that was before Apple cut its revenue guidance on the back of weakness in the Chinese market. US companies will do well to escape pain later.
S&P 500 futures are down by 1.7% with just over three hours to go until the opening bell on Wall Street, but futures for the Nasdaq, on which Apple is listed, are down by 2.8%. Dow Jones industrial average futures are down by 1.6%.
In pre-market trading Apple’s shares are down by 8.5%, after its first revenue downgrade in almost 12 years.
Mostly red across main European stock markets at late morning.
The FTSE 100 has weakened again, and is now down by 0.36%.
Germany’s Dax and France’s Cac 40 are both down by 1.2%, dragging down the Stoxx 600 by 0.9%.
An “uninspiring end to 2018” for the British construction sector.
The UK construction PMI has not exactly made waves this morning, with barely a murmur on sterling markets – the pound’s 0.3% fall today was mainly a result of the market confusion around the flash crash last night.
Construction industry activity is “lacklustre”, with limp new business numbers not pointing to any likely pick-up, said Howard Archer, chief economic adviser to the EY Item Club.
He added:
It is evident that there are significant headwinds currently hampering the construction sectors’ upside.
Some clients’ willingness to commit to major new projects (particularly in the commercial sector) is currently being limited by Brexit uncertainties and a subdued domestic economy.
However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, is more positive. He said: “The construction sector has had little to cheer recently, but 2019 should be a better year.”
Optimism among builders about the outlook for activity over the next 12 months rose to its highest level since April. While many were concerned by Brexit, others anticipated winning work related to some big-ticket transport and energy infrastructure projects in 2019.
More detail on the Apple ructions, with European suppliers particularly in the spotlight, writes Mark Sweney.
European suppliers to Apple have been hit hard, with the London-listed, Cardiff-based chip manufacturer IQE down 4%. The Newcastle-based software firm Sage fell 1.6%.
Across Europe, Dialog Semiconductor, STMicroelectronics and BE Semiconductor fell down 8%, 7% and 3% respectively. The Austrian chipmaker AMS had more than a fifth wiped off its stock value.
Treasury appoints Colette Brown and Jayne-Anne Gadhia at Bank of England
Chancellor Philip Hammond has appointed Dame Colette Bowe and Dame Jayne-Anne Gadhia as external members of one of the Bank of England’s top committees.
They will join the financial policy committee (FPC), led by governor Mark Carney, which is responsible for monitoring financial stability.
They will replace two men in the second half of the year. The Bank has faced persistent concerns about the gender balance in its top echelons. Of the 42 applicants to the jobs, 20 were women. Five women from 8 were invited to final-stage interviews.
Bowe and Gadhia will start their new jobs shortly after the UK’s departure from the EU in March 2019. The Bank has braced itself for financial market turmoil if the UK leaves without a deal.
Bowe is the current chairman of the Banking Standards Board and has served as a board member of the UK Statistics Authority and the Department for Transport. Gadhia was the chief executive of Virgin Money from 2007 until last year’s takeover by CYBG, and is one of the City’s most prominent business figures.
They will replace Richard Sharp and Martin Taylor, who are stepping down at the end of the first quarter of 2019 and the second quarter of 2019 respectively.
British builders are suffering from “an intense headwind” from – you guessed it – Brexit uncertainty, according to Tim Moore, economics associate director at IHS Markit. It was the weakest upturn in commercial activity for seven months.
UK construction firms signalled a slowdown in housing and commercial activity growth during December, which more than offset a strong performance for civil engineering at the end of 2018.
Despite the weaker housing market, housebuilding came in as the fastest growing sub-sector for builders during the course of 2018.
Yet “residential growth remains much softer than the two-and-a-half year peak achieved last summer”, adds Moore.
Expansion slows in British construction industry
The growth of the British construction industry slowed in December because of subdued demand, according to the latest purchasing managers index (PMI) for the sector.
IHS Markit’s closely followed barometer fell to a reading of 52.8 in December, down from 53.4 in November. The index remained above the 50 no-change mark, indicating the sector is still growing, but it came in slightly below economists’ expectations of 52.9.
Next reactions are still coming in, and it’s mostly positive for the retailer.
“Not such a bleak midwinter”, according to analysts at UBS, the investment bank. They said that Next’s performance “showed the benefit of holding full price for as long as possible”.
The company could also benefit from “industry capacity reduction”, UBS said – banker code for other companies failing amid a struggling industry.
Greg Lawless, consumer equity analyst at Shore Capital, said:
Like the company, we believe that we need to get through calendar Q1 and understand the political and economic backdrop of any potential Brexit deal. Given the macroeconomic environment and difficult clothing market through the autumn, management should be applauded for such a credible trading update.
And, of course, there’s also the story we know well across the retail sector, with investment in online technology key as shopping moves online.
Next’s update basically not as bad as feared, no car crash which should lift hopes for others. Online sales apace while stores struggle
— Ashley Armstrong (@AArmstrong_says) January 3, 2019
Some more interesting detail on the currency flash crash last night which, as ever with these strange incidents, has left traders scratching their heads.
The Japanese yen gained by as much as 7% against the Australian dollar, while it also fell steeply against the US dollar. Liquidity was constrained because Japan is still on holiday, meaning a few traders could have an outsized effect.
The dramatic slump (and quick rebound) are evident in the chart below.
Fritz Louw, currency analyst at Japanese bank MUFG, said:
The sharp strengthening of the yen and weakening of the Australian dollar was clearly exaggerated by the flash crash but it does also reflect building fears over slowing global growth particularly in China and Australia.
The flash crash also likely caused problems for holders of short positions against the Japanese yen. The below graph from Louw shows that short positions (the grey columns) have increased recently, meaning there will be a lot of losers from the big and brief rise in the yen’s value.
Some more good news for Next: stockbroker Liberum has upgraded its recommendation from “hold” to “buy” in light of the stronger sales growth.
Liberum analysts Tom Musson, Wayne Brown and Adam Tomlinson write:
We think is an excellent performance considering how bad November was for the sector and the scale of the downgrades we have seen elsewhere in fashion and clothing.
Their target price is now £61 for the shares – so still a lot of upside in their view from the current mark of around £43.
Next's Christmas saved by late splurge from shoppers
A spike in sales in the last three weeks of December helped save Christmas for the fashion chain Next but a surge in costly web orders will hit annual profits, writes Zoe Wood.
The high street bellwether is among only a few retail chains that resist pre-Christmas discounting and it was expected to have suffered as struggling rivals slashed prices to attract shoppers as Brexit jitters weighed on consumer confidence.
In the end the retailer reported overall sales growth of 1.5% for the last two months of 2018.
Read more here:
Early trading confirms that Apple-inspired slowdown fears are leaving their mark on European stocks.
Shares are down across major European markets – although the FTSE 100 has now recovered most of its early losses. London’s blue-chip index is down by 0.1%
Losses are steeper in Germany and France, where the Dax and Cac 40 are both down by 0.9%.
The Apple contagion is spreading across Europe. Companies with large Chinese sales volumes are in the spotlight.
Watchmaker Swatch and Kering, the luxury goods brand owner, have both taken a tumble, while Burberry is down by 3%. London-listed chipmaker IQE is down by 1%.
Mining stocks are down across the board (with the exception of miners of safe-haven gold) as the Apple update feeds into fears that the slowdown in China, the world’s second-largest economy, will drag on demand for minerals. Evraz and Antofagasta are among the largest fallers in the FTSE 100, both down by 2%.
Next shares jump by 6%.
The market appears to be pleased with Next’s update, with shares hopping over Marks & Spencer to lead the FTSE 100.
Associated British Foods, which owns the Primark retailer, gained by 2%. Kingfisher, the owner of DIY chain B&Q, gained by about 1%.
Next chief executive Simon Wolfson said, “The UK consumer is not in a bad place.”
FTSE falls by 0.5% at the open.
Marks & Spencer is the early leader, up by more than 4% in the opening minutes, boosted by the readacross from Next’s results.
Burberry, which is highly exposed to the Chinese market, is among the biggest fallers early on, down by 2.8%.
Apple forecast shock casts shadow over stock markets
Let’s get some more detail on that Apple forecast downgrade overnight.
Trading in Apple shares was temporarily halted after the California-based company cut revenue forecasts, writes Dominic Rushe.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China,” said Apple chief executive Tim Cook. He cited falling sales of iPhones, Mac computers and iPads.
Apple’s statement was its first profit warning since 2002 and its first of the smartphone age.
Introduction: Next reassures on Christmas trading and Apple forecast cut
Welcome to the business live blog, with our rolling coverage of markets, global economics and corporate news.
After John Lewis yesterday reported a bump in sales in late December following a rocky pre-Christmas period, fellow retailer Next has also issued a relatively positive update, with trading in line with its previous forecasts.
Sales at the FTSE 100 retailer rose by 1.5% from 28 October to 29 December, although it slightly downgraded its pre-tax profit forecast for the full year by £4m, to £723m.
The retail industry has been under serious pressure, but some analysts have argued that Next, which resisted the temptation to chase volumes with widespread discounting, may be able to weather the storm.
On global markets, a shock revenue forecast downgrade from Apple overnight added to jitters that have carried over from the end of 2018.
Apple’s update after the close on US markets – which recovered from earlier falls to edge up on Wednesday – shocked Wall Street. Apple shares fell by as much as 7.5% in after-hours trading, as the company issued a warning that sales in the key Chinese market were dragged back by slowing growth. US stock futures point to another tricky session coming up later.
The news prompted nerves on currency markets, where what appears to be a flash crash saw the Japanese yen soar against the US dollar as investors surged towards safe havens.
The new year is only a few days old when an apparent “flash crash” has hit currency markets. It took 7 minutes for the Yen to surge through levels that have held through almost a decade. Apple’s rev cut may have been a trigger Algorithms may be cause. https://t.co/sMaKraVMOt pic.twitter.com/hdQDibJ3Oa
— Holger Zschaepitz (@Schuldensuehner) January 3, 2019
Japanese markets remain on holiday, but Nikkei 225 futures fell by 2.2%. South Korea’s Kospi 200 index fell by 0.95%.
However, Thursday’s trading was less painful in Hong Kong and Shenzhen after heavy falls on Wednesday: shares on the Shanghai SE composite index fell by only 0.2%, while the Shanghai Shenzhen CSI 300 Index lost 0.3%. Australian shares bucked the trend as the Australian dollar fell to near decade lows, boosting mining companies.
The agenda
- 9:30am GMT: UK construction purchasing managers index (PMI)
- 1:15pm GMT: US ADP employment change
- 3pm GMT: US ISM manufacturing PMI
