European shares close lower
A number of disappointing company results - from brewer Carlsberg, Austrian brickmaker Wienerberger and insurer Admiral - helped send stock markets into negative territory. Investors were also nervous ahead of the latest US Federal Reserve minutes, and what they might hint about the course of interest rates, as well as the continuing uncertainty over the fallout from the Brexit vote. The final scores showed:
- The FTSE 100 finished down 34.77 points or 0.5% at 6859.15
- Germany’s Dax dropped 1.3% to 10,537.67
- France’s Cac closed 0.96% lower at 4417.68
- Italy’s FTSE MIB fell 1.58% to 16,528.36
- Spain’s Ibex ended down 1.56% at 8487.0
- In Greece, the Athens market lost 0.86% to 567.49
On Wall Street, the Dow Jones Industrial Average is currently down 23 points or 0.12%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Here are some more pictures of the protest against the Bank of England’s quantitative easing programme.
A protest against the Bank of England’s quantitative easing programme is taking place in London at the moment. Organised by protest group Positive Money, it wants the bank to implement other measures rather than QE, which it believes just benefits financial markets.
QE protest on outside the BOE now - "invest in the economy, not financial markets" pic.twitter.com/lKxocmsa7V
— Jill Ward (@jillianfward) August 17, 2016
The pound has slipped back to below its pre-jobs data level against the dollar.
It is currently down 0.26% at $1.3012, having earlier climbed as high as $1.3070. Against the euro, sterling is down 0.15% at €1.1548.
Markets are taking a bit of a dip ahead of the US Federal Reserve meeting, despite oil prices holding up after the US data.
But investors also have the UK jobs data and the uncertainty of the Brexit negotiations on their minds. Joshua Mahony, market analyst at IG, said:
There is a certain degree of trepidation in the markets today, with indices selling off sharply in anticipation of the minutes of the Federal Open Market Committee’s last meeting, due out this evening. The July FOMC meeting took place after market fears had subsided in the wake of the UK’s referendum on EU membership, with the statement citing diminished near-term risks. If the committee no longer believes external factors are worth worrying about, then a 2016 rate hike is a distinct possibility. Given that much of the post-referendum surge in stocks has come from dovish monetary policy implications, hawkish comments are likely to exacerbate the weakness we are already seeing for markets today.
Today’s UK jobs report is significant in the post-referendum world, with Brexiteer jeers ringing out as they use the figures to back their argument that the pro-remain camp was fear-mongering with its warnings over the impact on the economy. It is certainly too early to say how the UK economy will react to the referendum result and eventual Brexit from the EU, but today’s surprise decrease in July claimants suggests that businesses are waiting it out rather than making any rash judgements of the implications.
Comments from Germany’s European Affairs Minister hinting that the UK may be able to obtain a “special status” post-Brexit are an encouraging signal ahead of the exit negotiations. Once article 50 is enacted, any perceived developments within trade discussions are sure to be significant volatility drivers in the markets, raising the prospect of two years of unpredictability.
The number one concern within the city is whether the UK will retain passporting rights, and success on this issue could define whether negotiations are perceived as a success or failure within financial markets.
US crude stocks in surprise weekly drop
And now oil is recovering some ground after the US inventory figures showed an unexpected fall last week.
The Energy Information Administration said crude stocks dropped by 2.5m barrels compared to forecasts of a 522,000 increase. Gasoline stocks fell by 2.7m barrels, much higher than the expected 1.6m barrel drop.
#UnitedStates EIA Crude Oil Stocks Change at -2.5M https://t.co/iEqHb9iXvN pic.twitter.com/yro6aUL5rK
— Trading Economics (@tEconomics) August 17, 2016
EIA reports US #crude oil inventories fell 2.5m barrels last week, more than expected and higher than API estimate (1m). #WTI oil jumps ^FR
— FOREX.com (@FOREXcom) August 17, 2016
Following the figures Brent crude is now in positive territory, up 0.1% at $49.28 a barrel while West Texas Intermediate - the US benchmark - is down 0.19% at $46.39, having earlier been as low as $45.84.
Ahead of the latest weekly US oil stocks report, Reuters is reporting that Saudi Arabia could boost its output in August to a new record of 10.8m to 10.9m barrels a day.
The news has pushed oil prices slightly lower, with Brent crude now down 0.35% at $49.06 a barrel.
Wall Street opens lower
As expected US markets have followed the example of Europe and slipped back in early trading.
But investors remain cautious ahead of the US Federal Reserve minutes due later. The Dow Jones Industrial Average is down 41 points or 0.22% while the S&P 500 and Nasdaq opened virtually flat.
US markets are expected to open roughly flat as investors await the FOMC minutes from the July meeting later in the day.
US Opening Calls:#DOW 18537 -0.10%#SPX 2179 +0.06%#NASDAQ 4804 +0.14%#IGOpeningCall
— IGSquawk (@IGSquawk) August 17, 2016
UK working age households are still £400 a year worse off than before the 2008 financial crisis according to Resolution Foundation.
The thinktank warns that a near “lost decade” in household incomes is in danger of being extended by a triple whammy of slower economic growth, higher inflation, and benefit cuts.
Resolution’s analysis of ONS figures found that working age households have been the ones to suffer.
Adam Corlett, economic analyst at Resolution Foundation:
Despite welcome income growth in 2015-16, the typical non-retired household remains some £400 a year worse-off than before the financial crisis of 2008.
We’re closing in on a lost decade for working-age households, which leaves the typical family around £8,500 a year poorer than would have been the case had we maintained pre-crisis levels of income growth.
The concern now is that lower income working-age households risk experiencing a ‘triple whammy’ of income recovery shocks as growth slows in the aftermath of the EU referendum vote, inflation picks up and cuts such as the four-year freeze on working-age benefits start to bite. This risks not only delaying the recovery for these families, but flipping it into reverse.
Gold prices have slipped following those hawkish comments from Fed policymakers William Dudley and Dennis Lockhart.
Both said a September interest rate rise was possible, sending spot gold down 0.2% at $1,343 an ounce, while US gold was down 0.6% at $1,348.60 an ounce. Rate rises tend to mean a stronger dollar, and a stronger dollar tends to signal weaker gold prices.
Uber, the taxi company that operates through an app, is legally challenging Transport for London’s plans to force drivers to take a written English test.
Our full story here:
Andrew Tyrie, Conservative MP and chairman of the Treasury select committee, is seeking a review of the government’s sale of some of its stake in bailed out bank RBS.
Specifically, Tyrie wants the National Audit Office to look without delay into the advice given by UK Financial Investments - the body set up to manage the taxpayer’s stakes in bailed out banks - to the government before the first sale of shares in 2015.
Tyrie says:
Parliament and the public will want reassurance that the Chancellor’s decision to sell the first tranche of shares in RBS in August 2015 secured the best value for money for the taxpayer, and was not influenced by political expediency.
UKFI was created with the intention to ensure that state and partly state-owned banks are run, and seen to be run, free from government interference. There is a risk that UKFI is being used as a fig leaf to disguise a high level of Treasury control. UKFI’s advice on this sale is therefore of considerable public interest.
A full and thorough review of the sale should not be left any longer.
Outlook brightens for UK household finances
Households were less pessimistic about the outlook for their finances in August according to the latest survey from Markit.
It followed a slump in July as consumers were concerned about the impact the Brexit vote would have on disposable incomes.
Expectations for finances over the next 12 months picked up to 49.8 on Markit’s household finances index in August, from 47.1 in July. Anything below 50 signals deterioration, so households are still feeling cautious.
The highest earners and private sector workers were the most confident about the outlook for their finances.
Jack Kennedy, senior economist at Markit:
The outlook for household finances stabilised in August after last month’s wobble following the Brexit vote. Expectations regarding future finances improved to the highest for five months, while current finances remain under pressure but no more so than the trend seen over the past year-and-a-half.
Concerns seem to have eased in line with the removal of some of the immediate political uncertainty arising from the shock referendum result, combined with a strong monetary policy response from the Bank of England aimed to cushion the economy and head off any lurch towards recession.
Jasper Lawler from CMC Markets has this take in this morning’s drop in European markets:
European markets dipped on Tuesday as profit-taking continued for a second day. Shares of Carlsberg led the declines after a rise in profits at the Dutch brewer fell short of estimates.
The German DAX has fallen to its lowest in over a week after turning positive for the first time this year on Monday.
Trading was thin on the FTSE 100 with minimal share price movement as traders took stock of a fall in employment claims and another sign that the economy has held its own post-Brexit.
Lawler says Wall Street’s opening is likely to be mixed as traders await the minutes of the Federal Reserve’s July meeting in which rates were held. The minutes are due at 7pm UK time.
Chris Hare, economist at Investec, brings us back down to earth with this rather gloomy take on the UK jobs market and outlook for households:
In coming months, we anticipate a hiring slowdown to lead to a sharp slowing in, or even a contraction in, net job creation. We anticipate that to be reflected in gradual rises in the unemployment rate.
Meanwhile, post-referendum falls in sterling (down over 10% since 23 June) is set to squeeze household real take-home pay.
Over time, this double-whammy of lower jobs growth and higher inflation is set to weigh on household income and spending growth. If we are right (and we hope to be surprised to the upside) then this new dynamic might make today’s labour market data look like a relic of a bygone era.
Here is our full story on Admiral, which is dragging the FTSE 100 lower with an 8.5% drop in the share price.
The upbeat jobs report has failed to lift the pound, which remains pretty much where it was before the figures were published at $1.3019.
The FTSE 100 is also underwhelmed, and European markets are now in the red after opening slightly higher.
As John Philpott, expert on the labour market and director of The Jobs Economist, points out, the better-than-expected figures could be the calm before the storm...
Frustratingly, most of these figures end just at the point at which the UK decided to make its historic change of political and economic direction.
It’s thus too early to tell whether the jobs market will easily shrug-off the shock of Brexit or instead that these latest figures merely mark the calm before the storm that many economists fear could add up to 500,000 to the jobless count.
In the run up to the referendum the jobs market was strengthening, and in better shape than expected.
“What pre-Brexit jitters?”, asks Alan Clarke, economist at Scotiabank:
The UK labour report was much stronger than we expected and surprisingly robust in the face of pre-referendum uncertainty.
Firms stepped up hiring before the referendum it seems - in stark contrast to the pre-General Election experience.
The acid test will be the next few months to see if hiring stalled in the aftermath of the vote. I suspect that will take longer to show up, but then again, I was expecting pre-Brexit jitters to show up today, so what do I know?
Key points from the ONS jobs report
In the three months ending June:
- Unemployment fell by 52,000 over the quarter to 1.64m people. It was the lowest since early 2008, months before the collapse of US investment bank Lehman Brothers.
- The unemployment rate was unchanged at 4.9%, as expected. The last time it was lower was in 2005.
- The number of people in work increased by 172,000 to 31.75m people.
- Full-time workers totalled 23.22m, while part-time workers totalled 8.53m.
- The employment rate hit a new record high of 74.5% - the highest since comparable records began in 1971.
- Averages wage growth was 2.4% including bonuses, and 2.3% excluding bonuses.
- The number of people aged 16 to 64 who were economically inactive (not working and not looking for work or not available for work) fell by 58,000 to 8.84m.
The surprise fall in the number of people claiming unemployment benefits in July suggests the Brexit vote did not deal a major blow to employer confidence, in the immediate aftermath at least.
A total of 763,600 claimed jobless benefits last month, 8,600 fewer than in June.
It was the first monthly fall since February 2016.
Updated
Unemployment rate unchanged at 4.9%
The labour market report from the Office for National Statistics also showed the ILO unemployment rate was unchanged in the three months ending June, at 4.9% (as expected).
This measure relates to the period before the EU referendum on 23 June. Wage growth including bonuses ticked up to 2.4% over the period from 2.3% over the previous three months - bang in line with expectations.
Excluding bonuses, wages increased by 2.3%, up from 2.2%.
Updated
UK jobless claims in surprise fall
A big surprise in the labour market data: the number of people claiming unemployment benefits fell by 8,600 in July, a month after the Brexit vote.
Economists were expecting a rise of 9,500.
No sign yet then that the Brexit vote is hurting the jobs market...
We will bring all the reaction.
Updated
Pound hovers above $1.30
The pound is managing to hold on above the $1.30 mark, although it is down 0.2%. It is currently trading at $1.3014.
Sterling rebounded on Tuesday following a surprise rise in the UK annual inflation rate to 0.6% in July from 0.5% in June, which in theory makes it less likely that the Bank of England will need to further cut rates.
Economists said however the Bank was likely to ignore a temporary rise in inflation and pump more money into the economy in a bid to limit the slowdown expected following the Brexit vote.
Firms advising on tax avoidance could face large fines
The government has revealed plans to clamp down on accountants, lawyers and consultants who advise clients on how to aggressively avoid tax.
Advisers whose schemes are defeated in the courts might pay a fine of up to 100% of the money lost to the taxpayer.
Our full story here:
Admiral Group is the biggest FTSE 100 faller this morning by quite some margin.
Shares are down more than 7% after the insurer issued a number of warnings falling Britain’s decision to quit the EU.
Admiral said its solvency ratio had been damaged by the vote, and warned about a weaker economic outlook and interest and exchange rate volatility.
US rate rise expectations mount
In the US, comments by Fed policymakers have brought forward expectations of a interest rate rise.
The New York Fed President William Dudley said it was “possible” the central bank could hike rates at its next policy meeting in September as the US jobs market strengthens.
He told the Fox Business Network:
We’re edging closer towards the point in time where it will be appropriate I think to raise interest rates further.
The labor market is getting tighter and we’re starting to see signs of wage gains starting to accelerate, so I think we’re getting closer to that point in time when it will be appropriate to actually raise short-term rates again.
Meanwhile Dennis Lockhart, President of the Atlanta Fed, said the US economy was potentially strong enough to withstand two rate rises before the end of 2016. Addressing the Rotary Club of Knoxville, he said:
I would not rule out September. If the meeting were today I think the economic data would justify a serious discussion. It’s conceivable we could have two rate increases this year.
Early indications of third-quarter GDP growth suggest a rebound. I don’t believe momentum has stalled. I remain confident about prospects in the second half of 2016 and 2017.
Before the comments, market expectations of a US rate hike before the end of 2016 had declined. But according to CMC Markets, Dudley’s comments saw expectations of a move in December climb from 39.1% to 50%.
At 7pm UK time, minutes of the latest meeting of the rate-setting Federal Open Market Committee (FOMC) will be published.
European markets open higher
The FTSE 100 is up 23 points or 0.3% in early trading, at 6,916.
- Germany’s DAX: +0.1%
- France’s CAC: +0.4%
- Spain’s IBEX: +0.3%
- Europe’s STOXX 600: +0.3%
The FTSE 100 is expected to open slightly higher this morning:
Our European opening calls:$FTSE 6904 up 10
— IGSquawk (@IGSquawk) August 17, 2016
$DAX 10687 up 10
$CAC 4465 up 5$IBEX 8616 down 6$MIB 16791 down 2
The agenda: UK jobless claims to offer Brexit insight
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The spotlight is on the UK jobs market today. At 9.30am the Office for National Statistics will publish the latest unemployment data.
Much of the data, including the ILO unemployment rate and total number of people out of work, will relate to the three months ending June - before the 23 June EU referendum.
But the claimant count data will reveal how many people claimed unemployment benefit it July, a month after the Brexit vote.
Economists polled by Reuters are expecting a 9,500 jump in claims last month, following a rise of 400 in June.
On the ILO measure, the unemployment rate is expected to remain unchanged at 4.9% in the three months ending June. Wage growth (including bonuses) is expected to pick up slightly to 2.4% from 2.3%.
