European shares end higher
Despite continuing falls in oil prices, the rally in European markets stayed the course. Putting aside worries about China, faltering global growth and volatile commodity prices, investors took heart from a series of positive company updates, not least Lloyds Banking Group, RSA Insurance, Axa and Deutsche Telekom.
Wall Street managed to shake off some early uncertainty by the time Europe closed, but there is likely to be further nervousness around the G20 finance ministers meeting in Shanghai which starts later. For the moment, the final scores showed:
- The FTSE 100 finished 145.63 points or 2.48% higher at 6012.81
- Germany’s Dax added 1.79% to 9331.48
- France’s Cac closed 2.24% higher at 4248.45
- Italy’s FTSE MIB rose 2.3% at 17,104.54
- Spain’s Ibex ended 2.52% higher at 8215.6
- In Greece, the Athens market added 2.05% to 483.98
On Wall Street, the Dow Jones Industrial Average is currently up 49 points or 0.3%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
It has been suggested that with QE and low (and in some cases negative) interest rates, central banks risk running out of ammunition to boost the global economy. But Capital Economics disagrees. The research company’s Nikita Shah said:
There is undoubtedly less scope for policy easing than there was a few years ago, but the charge that central banks are now powerless is, in our view, exaggerated. For a start, policymakers still have room to cut deposit rates further and expand their QE programmes, which should help to support activity and lift inflation. And if growth and inflation fall further, we suspect that governments and central banks would, eventually, adopt more radical policies to revive their economies.
What could these more radical policies be:
Perhaps the most straightforward option would be to raise the inflation target, which would in theory cause real interest rates to fall. As Japan’s experience shows, though, it can be very difficult to raise price pressures when low inflation expectations are engrained.
A much more radical and powerful policy would be for the central bank to directly finance government spending, often referred to as a helicopter drop. Unlike QE, this would be very effective in pushing money into the economy and could be quickly stopped if inflation rises too far.
There is little appetite for more radical policies at the moment, not least because the world is not currently in a crisis situation. But policymakers have proven that they are willing to change course if they are consistently missing their mandates. And if economic conditions were to deteriorate significantly, political opposition to such policies would surely soften.
The price of crude continues to slide. Earlier, data from the US showed stockpiles at the Cushing hub in Oklahoma for oil deliveries has reached new highs.
Inventories rose by 503,000 barrels to more than 67.5m barrels between 19 and 24 February, according to Reuters.
Brent crude is now down 2.3% at $33.59 a barrel while West Texas Intermediate - the US benchmark - has dropped 3%.
Updated
The UK Treasury is not drawing up plans to deal with the fallout if Britain leaves the EU after the forthcoming referendum.
Attending a conference on market liquidity, Charles Roxburgh, director general for financial services at the Treasury, said:
It’s the government’s policy not to do contingency planning. So we will not be doing contingency planning — that’s consistent with the position we had on Scotland.
The contingency planning is instead being done by the Bank of England.
After a bright start, US markets have slipped back after another drop in the oil price, with the Dow Jones Industrial Average now up just 12 points. But European markets have held on to much of their gains and are still up around 2%. Connor Campbell at Spreadex said:
Whilst not quite at their afternoon highs the FTSE, DAX and CAC have kept up a staggering pace this Thursday; the Dow Jones, meanwhile, has lagged far behind, US investors not quite as eager to pour back into the market as their European peers...
It is interesting to see such divergence between the two regions, especially the chasm in trading sentiment currently separating the FTSE and the Dow. Both have a tendency to be weighed down by their respective commodity sectors, the latter seeing an especially volatile session last night thanks to the choppy movements in the oil price.
Yet whilst the UK oil and mining stocks (bar the odd anomaly like Rio Tinto and Premier Oil) are largely in the green, ignoring Brent Crude’s latest decline, their US counterparts are far more bearish this Thursday, Chevron (down 1.5%), ExxonMobil (slipping around 0.8%) and Caterpillar (falling roughly 1%) all preventing the Dow from joining the day’s rebound. It appears that the US index is sorely missing the earnings-focused gains the FTSE has seen today, with the incredible, dividend driven, performances of Lloyds and RSA Insurance helping overcome any potential negative sentiment following a rough Asian session.
Tomorrow, however, does see the US shift back into the limelight after the UK GDP and Eurozone inflation focused trading of Thursday. Not that that will necessarily be a good thing; already coming in at a disappointing annualised rate of 0.7% for the fourth quarter, Friday’s second estimate US GDP figure is set to drop to 0.4%, something that may only exacerbate the Dow’s current dreariness.
Wall Street opens higher
After a rebound in US markets late in Wednesday’s session, the trend is continuing in early trading.
Taking its lead from a bounce in Europe - helped by well received results from financial groups Lloyds, RSA Insurance and Axa - the Dow Jones Industrial Average has climbed 72 points or 0.4%.
Meanwhile the S&P 500 is up 0.2% and Nasdaq 0.27% at the open.
Over in Europe, the FTSE 100 has jumped 2.6% - back above the 6000 level - while Germany’s Dax is up 2.3% and France’s Cac has climbed 2.67%.
Part of the reason for a tumble on Wednesday, before Wall Street’s late revival, was a falling oil price on growing US inventories and further consideration of Saudi Arabia’s comments suggesting producers were unlikely to cut output.
But crude prices have stabilised to give some support to markets, with Brent down just 0.4% at $34.26 a barrel.
But the durable goods data is more mixed than it first appears, says Rob Carnell at ING, and gives no reason for an early rate rise:
US durable goods orders data showed a strong rebound in January, rising 4.9% month on month against expectations for a rise of only 2.9%. And this data will buoy hopes that the slowdown in US GDP growth that culminated in a rate of only 0.7% (annualised) in the fourth quarer of 2015 (and will likely be revised lower on Friday), may be turning the corner.
This is choppy data at the best of times, so one month’s data has to be taken with a pinch of salt. But these figures, which provide one of the best insights into the business investment environment, are especially important right now. This is because if the US is heading into recession, as some commentators maintain, then we suspect that this decline will be led by investment, with the labour market and consumer spending following in its wake with some lag.
However, despite a decent headline figure, and bounces in some of the core indicators (we tend to focus on these core measures to shed some of the volatility of this data), the trend in orders and shipments is not giving a particularly clear message, and we will have to see more data before we can reach any firm conclusions. For example, the three month moving average for core capital goods orders fell further to -6.2%, and core capital goods shipments improved, but from -4.7% to only -4.2%, so still remain deeply depressed.
With yet another inconclusive set of data, markets will make of this whatever they want. But the fact remains, the direction of the US economy at this juncture remains far from clear. And in consequence, the Fed’s response remains in the balance, though we feel the hurdles for further tightening are high, so at the very least, this data provides no excuse for a near term tightening.
The good US data of course could also prompt renewed talk of a Federal Reserve rate rise. David Morrison at Spread Co said:
The US dollar rose a touch as did equities after durable goods (both including and excluding transportation items) blasted above market expectations. Weekly jobless claims were in line with expectations.
It was a knee-jerk reaction which appeared to be algo-driven and it doesn’t feel as if there’s much follow-through to the initial move.
Strong data may point to some robustness in the US economy but of course that’s a double-edged sword. After all, it also raises the possibility of further rate increases from the Federal Reserve. In its economic projections back in December the central bank pencilled in 100 basis points-worth of rate hikes in 2016. That would be hard to stomach given the market turmoil since the beginning of the year.
Good news from the US
Sticking with America.... and US factories have just reported a surge in demand for machinery and heavy-duty equipment last month.
It suggests the US economy is stronger than some economists feared .
Orders for US capital goods jumped by 4.9% in January, after falling by 5% in December.
That smashes forecasts of a 3% rise, and is the biggest monthly jump since March 2015.
Really nice looking durable goods number.
— Joseph Weisenthal (@TheStalwart) February 25, 2016
Durable (very) goods
— World First (@World_First) February 25, 2016
The weekly jobs figures have also been released, and they show a small increase in people filing new unemployment benefit claims.
Not a major shock, though, and the total is still low in historic terms:
*U.S. INITIAL JOBLESS CLAIMS ROSE 10,000 LAST WEEK TO 272,000
— Nour E. Al-Hammoury (@NourHammoury) February 25, 2016
Updated
Over in America, one of the country’s top central bank officials isn’t too worried about the prospect of Britain leaving the EU.
James Bullard, president of the St. Louis Federal Reserve President, argued that Brexit isn’t a threat to the US economy, as it would take years for the details to be sorted out.
Bullard said (via Reuters):
“I don’t think it is a risk event for the US because even if British voters decide to quit the EU there will be years for markets and investors to adjust.”
Britain’s blue-chip stock index just burst back through the 6,000 point mark, as investors welcome today’s GDP figures.
The FTSE 100 index, which tracks the leading blue-chip shares in London, has jumped by 2.3% or 137 points to 6,004.
That wipes out the losses suffered on Tuesday afternoon and Wednesday, when traders were fretting about the global economic slowdown.
Chris Beauchamp, senior market analyst at IG, says the ‘special dividend’ announced by Lloyds today has improved the mood in the City.
Dividend increases are all the rage this morning, as Lloyds, RSA and St James’s Place all opt to flash their cash to keep shareholders happy. A 10% rally in Lloyds, along with a decent bounce for the rest of the sector has seen the FTSE add over 100 points within the first couple of hours of trading.
Martin Beck, senior economic advisor to the EY ITEM Club, says Britain’s economy was “wholly dependent on domestic activity” for growth in the last quarter.
And without the service sector, there wouldn’t have been any growth at all either, as industrial production fell by 0.5%, and construction contracted by 0.4%.
“Domestic demand rose by 0.8% on the previous quarter, with consumer spending and a rise in inventories each accounting for roughly half this increase. Disappointingly, total investment fell slightly, with business investment dropping by 2.1% the biggest fall since the first quarter of 2014.
“The bad news came on the net trade side, which knocked 0.3 percentage points off GDP. At the same time exports were down by 0.1% in the quarter and imports rose by 1.2%.
Updated
German bank Berenberg reckons that the UK growth rate will slow this year, as the EU referendum approaches.
Kallum Pickering, their senior UK economist, explains:
Uncertainty hurts confidence and despite strong domestic demand growth toward the end of last year growth is likely to soften in the coming quarters.
Economic performance depends on sentiment as much as on fundamentals. The combined effect of heightened global economic worries plus the reality of a possible Brexit - the referendum will take place on 23 June - will likely hit economic performance.
As flagged up earlier, some economists think the UK could fall into recession if it votes to leave.
He also produced this handy table, showing the details of Britain’s growth over the last 18 months.
Updated
Some international context:
It says something that Britain’s soggy 0.5% growth rate in Q4 was the strongest in the G7 https://t.co/PZEx5BdTXX pic.twitter.com/otSc6UeDkr
— Ed Conway (@EdConwaySky) February 25, 2016
John Hawksworth, PwC’s chief economist, says Britain’s economy performed relatively well last year - encouraging people to move to the UK in search of work.
“Today’s data confirmed that the UK economy slowed from 2.9% in 2014 to 2.2% in 2015, but remained the second strongest G7 economy last year after the US.
“Relatively strong growth in private sector services continues to drive UK growth despite much weaker trends in manufacturing and construction output in the second half of 2015. This has generated a lot of new jobs and helps to explain why net migration to the UK remained at near record levels of 323,000 in the year to September 2015. The UK jobs market remains a powerful magnet for workers from other slower growing countries in the EU and beyond.
That 323,000 figure was released this morning - here’s our news story on it:
Hawksworth also agrees that consumers are providing the bulk of the growth:
“The expenditure data for the fourth quarter suggest that steady growth in consumer spending remains the mainstay of the UK recovery. Investment growth seems to have stalled in the second half of 2015, however, and imports grew much faster than exports over this period. But these figures are only preliminary at this stage and may well be revised significantly later, so not too much should be read into them.”
Britain’s economic recovery is rather less impressive once you adjust for population changes.
On a per capita basis, GDP only grew by 0.3% in the last quarter. And on that measure, the economy is barely larger than in 2008 - before the financial crisis struck.
Give yourselves a round of applause, UK consumers. You’re keeping the economy afloat.
Jeremy Cook, chief economist at the international payments company, World First, explains:
We had thought that weaker output numbers from industrial and construction sectors through Q4 would have dragged the overall growth number lower but, once again, consumer expenditure has remained resilient. Thank God for the British disposition to buy anything that isn’t nailed down and to at least offer a few quid for the things that are.”
“Net trade was also a drag on output although we can but hope that the recent GBP weakness we have seen will allow exporters to gain orders and hedge at currently attractive levels.”
Cook also fears that the “bluster and pantomime over the EU referendum” will arm the economy, by hurting business investment and consumer spending.
Updated
Britain's trade balance worsens
Britain’s trade balance is rarely a pretty sight, as the country sucks in more goods than it sells to the rest of the world.
And today’s growth report shows that the deficit has widened again, from £14.7bn in Quarter 3 2015 to £16.6bn in the fourth quarter.
The ONS explains that British companies suffered a small drop in exports in the last quarter, while imports continued to climb.
Following a 0.5% decrease in Quarter 3 2015, exports decreased by 0.1% in the latest quarter, while imports increased by 1.2% in Quarter 4 2015 following a 2.7% rise in Quarter 3 2015.
Updated
Today’s GDP report also confirms that Britain is heavily reliant on its service companies for growth.
The service sector grew by 0.7% in the last quarter, meaning it has expanded steadily for three years.
Manufacturing, though, was stagnant after shrinking for the previous three months:
Shares are pushing higher, as investors express relief that Britain’s growth rate hasnt’ been revised down.
FTSE 250 at session high following GDP data pic.twitter.com/oOod8Qyd8B
— Guy Johnson (@GuyJohnsonTV) February 25, 2016
The ONS has also confirmed that Britain grew by 2.2% during 2015.
Household spending and business investment provided the bulk of the growth, while the UK trade deficit was a drag.
UK GDP growth confirmed at 2.2% in 2015, of which
— MineForNothing (@minefornothing) February 25, 2016
Private Consumption +1.8%
Govt Spending +0.3%
Investment +0.6%
Net Exports -0.5%
The GDP report also shows that UK firms reined in their spending in the last quarter.
The ONS says that business investment shrank by 2.1% in the October-December period, the biggest drop in almost two years.
*U.K 4Q BUSINESS INVESTMENT FALLS 2.1%, MOST SINCE 1Q 2014
— Michael Hewson (@mhewson_CMC) February 25, 2016
UK growth confirmed at 0.5%
Breaking: The UK economy grew by 0.5% in the final three months of 2015.
That confirms the initial estimate of GDP growth from the Office for National Statistics.
That means Britain grew faster than Germany (which posted GDP growth of 0.3%), France (+0.2), and the United States (+0.2%).
UK Q4 GDP = 0.5% vs 0.5% expected and 0.5% previous
— World First (@World_First) February 25, 2016
Details to follow...
Tension is building in the City as we await the second estimate of UK growth in the last quarter, due in 10 minutes time.....
UK GDP at 9:30am ro remember some have known it since yesterday. The danger is a trim to 0.4% on weaker production & construction #GBP #BoE
— Shaun Richards (@notayesmansecon) February 25, 2016
Keep an eye on GDP at 09:30. 2nd estimate of Q4 growth. Last time: 0.5%. Consensus says unchanged, but I reckon there's a chance it gets cut
— Ed Conway (@EdConwaySky) February 25, 2016
Brexit 'triples risk of UK recession'
The danger of Britain slumping back into recession will jump sharply if the public vote to leave the EU in June.
So claim a group of economists surveyed by Bloomberg, who fear that confidence and spending would be knocked by a Brexit victory.
Here’s the details:
As Britons contemplate their place in the 28-nation bloc before June’s referendum, respondents to a Bloomberg survey said the probability of a slump spikes to 40% in the event of an “out” vote.
That compares with just a 13% risk predicted in the most recent monthly poll....
Chris Hare, an economist at Investec Plc, warned:
“It’s pretty likely that we’ll see volatility in financial markets, possibly a tightening in U.K. credit conditions, a hit to business and household confidence and all those things combined should drag on the economy.”
`Brexit' Seen Tripling the Chance of U.K. Falling Into Recession https://t.co/pwMHhQYY3Q via @business
— Francine Lacqua (@flacqua) February 25, 2016
Robin Bew of the Economist Intelligence Unit doesn’t believe governments will heed the IMF’s latest call for action:
#IMF calls for growth boosting measures. Unlikely. Monetary policy impotent. Not much fiscal space. So action would need to be radical
— Robin Bew (@RobinBew) February 25, 2016
BT shares have jumped by 3% this morning, as the stock market gives its verdict to Ofcom’s review of the communications sector.
Although the regulator is forcing BT to open up its network to rivals to build new fibre networks, it has backed away from the nuclear option of breaking up the company.
That’s a relief for BT, given the criticism it faces over Britain’s patchy super-fast broadband coverage.
BT's shares on the rise in early trading. Investors happy, so there's a reason to settle for what Ofcom's calling for.
— Rob Davies (@ByRobDavies) February 25, 2016
My colleague Rob Davies explains:
BT has been told to let rivals use its infrastructure to lay fibre cables that are faster than its own copper network, as part of a review of Britain’s broadband needs by regulator Ofcom.
In a once-in-a-decade review, the regulator stopped short of recommending that BT be forced to split off Openreach, the division that owns the broadband infrastructure. The verdict will be a blow to rivals including Sky and TalkTalk, which have said BT should lose control of the network.
But Ofcom left open the possibility of revisiting that nuclear option if BT does not toe the line on a string of issues. It also gave a series of recommendations, including automatic compensation for customers and businesses when the Openreach network experiences problems. The regulator wants to introduce league tables and make it easier for customers to switch provider.
Updated
Lloyd’s surging share price has helped to push the FTSE 100 index up by 91 points, or 1.5%, to 5956.
RSA, the insurance group, is also helping. Its shares are up 7.6%, after it posted a 43% jump in operating profits. CEO Stephen Hester cheered the City, by reporting that his turnaround plan is largely complete.
RSA had also been hit by the winter floods in the North of England - taking a £76m charge to cover insurance claims.
Sterling has hit a new 14-month low against the euro this morning, as concern over the EU referendum bubbles away.
The pound fell to €1.2609 against the single currency, which should make UK exports a little more competitive in Europe.
Fresh highs in EURGBP. Highest level since 18th December 2014
— World First (@World_First) February 25, 2016
Lloyds shares soar 9%
Shareholders in Lloyds Banking Group have endured some tough years.
Seven tough years, indeed, since the bank had to be bailed out after rescuing HBOS during the 2008 financial crisis.
But there’s better news this morning - Lloyds has announced it will pay them a special dividend (a princely 0.5p per share) on top of the full-year dividend of 2.25p.
Lloyds only resumed paying dividends last year, and the news of an extra payment has sent shares soaring by almost 10% this morning.
Chief executive António Horta-Osório should also be cheerful - he’s picked up an £8.5m pay deal, even though Lloyds profits dipped last year.
China’s stock market has had a bad day.
The Shanghai stock market lurched downwards by 6% today, dogged by new anxiety over the Chinese economy. Fears of a possible devaluation also hit confidence, as Martin Farrer explains:
Amid continued speculation that China could be forced to devalue the yuan this year, Zhu Guangyao, China’s vice finance minister, said Beijing would seek to keep the exchange rate stable while maintaining its current “managed float” regime.
“We do recognise the risk the global economy faces,” he said at a conference on Thursday held by the Institute of International Finance linked to the G20 summit.
“We also understand how important it is to correctly communicate with the market,” he added.
Updated
IMF demands bold action to ward off a new slump
Overnight, the International Monetary Fund threw its weight behind calls for fresh action to ward off a global slump.
The Fund is worried that the global economy is faltering as financial conditions worsen, emerging markets face tougher times, and the oil industry suffers from cheaper crude prices.
In a statement ahead of the G20 finance minister’s meeting in Shanghai, starting tomorrow, the IMF said:
These developments point to higher risks of a derailed recovery, at a moment when the global economy is highly vulnerable to adverse shocks”
It added that warned governments that they can’t simply rely on central bankers - they need to consider spending more to help their economies.
“A comprehensive approach is needed to reduce over-reliance on monetary policy.”
“In particular, near-term fiscal policy should be more supportive where appropriate and provided there is fiscal space, especially through investment that boosts both the demand and the supply potential of the economy.”
The agenda: UK GDP figures coming up
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We get a new health-check on the UK economy this morning. At 9.30am, the second estimate of British GDP for the last three months of 2015 is released.
It may confirm that the economy grew by 0.5% during the quarter - unspectacular, but better than most major rivals. But some economists reckon it could be revised down to just 0.4%, if nervous businesses have cut their spending.
A disappointing number could inflame worries over the UK, in a week where Brexit fears have already sent the pound sliding to seven-year lows.
Michael Hewson of CMC Markets explains:
In a rather strange twist of fate one of the best performing economy’s in Europe over the past 12 months has found its currency take an absolute hammering in the past few weeks as investors take a rather one eyed and alarmist perspective on the potential negative consequences of a British exit from the EU in a referendum vote scheduled for June this year.
Later this morning we get the latest iteration of UK Q4 GDP and expectations are for growth of 0.5%, unchanged from the previous reading, and an annualised number of 1.9%, though we could see some evidence that business investment is starting to slow from the previous 2.2% to 0.6%, though the annualised measure is expected to increase to 6.4% from 5.8%.
Also coming up today:
There’s a flurry of company news hitting the wires, including results from Lloyds Banking Group, theme park group Merlin, and insurance firm RSA. More on all those shortly.
And Ofcom, the telecoms regulator, is outlining its plans to create more competition and improve Britain’s broadband network. BT, the former state monopoly, is being ordered to open its network to its rivals, to help them build their own high-speed fibre services.
However, BT has also dodged the threat of being broken up - although it’s still an option if things don’t improve.
Ofcom: "Many people and businesses continue to suffer poor mobile coverage, especially in rural and remote areas."
— Kamal Ahmed (@bbckamal) February 25, 2016
Ofocom not demanding Openreach sale but says "BT must open up network, so competitors can connect fibre to homes and offices"
— Rory Cellan-Jones (@ruskin147) February 25, 2016
We’ll be tracking all the main events through the day....
