European markets end lower
After the Federal Reserve kept US interest rates on hold and ahead of a decision by the Bank of Japan, stock markets fell back after their recent highs. Falling oil prices and disappointing results from the likes of Royal Dutch Shell and Lloyds Banking Group also hit sentiment. Investors were nervous ahead of the European bank stress test results due on late on Friday. The final scores showed:
- The FTSE 100 finished down 29.37 points or 0.44% at 6721.06
- Germany’s Dax dipped 0.43% to 10,274.93
- France’s Cac closed down 0.59% at 4420.58
- Italy’s FTSE MIB fell 2.02% to 16,522.64 on worries about the country’s banks ahead of the stress tests
- Spain’s Ibex ended 2.1% lower at 8479.2
- In Greece, the Athens market lost 1.11% to 562.84
On Wall Street the Dow Jones Industrial Average is currently down 72 points or 0.4%.
On that note, it’s time to close up. Thanks for all your comments, and we’ll be back tomorrow.
Markets are in wait and see mode ahead of the Bank of Japan rate decision later, but oil continues to fall on renewed worries about oversupply and weak demand. West Texas Intermediate - the US benchmark has now fallen 20% since its June highs, indicating a bear market.
Meanwhile in the UK the FTSE 100 is down just 7 points while the Dow Jones Industrial Average is 74 points lower after the Federal Reserve kept US interest rates on hold but hinted at possible rises later in the year. Joshua Mahony, market analyst at IG, said:
An unsurprisingly indecisive session in Europe has seen the likes of the FTSE largely flatlining as traders reduced their risk overnight ahead of the week’s risk event from the Bank of Japan. Commodities have enjoyed a particularly volatile second half of this week, with crude continuing to tumble heavily on a global supply glut alongside evidence that fund managers are heavily shorting crude prices.
Tonight’s Bank of Japan meeting has been the focal point of the week despite yesterday’s Fed announcement. One of the main reasons for the post-referendum rally has been the promise of easing from the likes of the ECB, Bank of England and Bank of Japan. With the overnight index swap markets rating the chance of a Bank of England rate cut at 100% next week, it seems like a matter of time until we see some sort of action. However, given that we have seen the post-referendum rally stall after weeks of inaction in Europe, there is a feeling that the FTSE is waiting for some form of stimulus to spark another leg higher.
The IMF has been criticised for its handling of the eurozone crisis...by the IMF. Larry Elliott reports:
The IMF’s handling of the financial crisis in the eurozone has been criticised by the organisation’s own independent watchdog in a report that says the fund failed to spot the scale of the problem, was guilty of over-optimistic forecasts and left the impression that it was treating Europe differently.
While accepting that sorting out the problems of Greece, Ireland and Portugal “posed extraordinary challenges”, the IMF’s Independent Evaluation Office (IEO) said the fund had missed the buildup of banking system risks in some countries and shared the widely held “Europe is different” mindset.
The report looked into how the IMF handled the eurozone crisis, which began with the May 2010 bailout of Greece, but subsequently spread to Ireland, Portugal and Cyprus.
It found that the “IMF’s pre-crisis surveillance identified the right issues but did not foresee the magnitude of the risks that would later become paramount”.
The full story is here:
Updated
The vast majority of Irish small to medium enterprises believe Brexit is a threat to their business, writes Henry McDonald in Dublin:
A survey released today by the British-Irish Chamber of Commence found that out of 400 Irish SMEs 262 of them see Brexit as a threat with far fewer envisaging the post-EU future as an opportunity
The research also polled 88 British SMEs who do major business in Ireland. John McGrane, the Director General of the Chamber stressed that the Irish SME sector, which is the largest part of the Republic’s economy, still see the UK as key to their business despite Britain leaving the EU. McGrane said the uncertainty within Irish SME’s over what to do next after the Brexit vote required “joined up support” from both the Irish and British government and their relevant agencies.
He added: “Business wants collaborative thinking and the Chamber stands ready to support its members, and Government, to continue to protect and grow the deep trade linkages between the UK and Ireland. We’re ready to join up with likeminded agencies and organisations to ensure all businesses get the most joined-up supports they need to confront the uncertainties, and opportunities, ahead.”
The survey was conducted over the weeks following the EU referendum.
The expectation of an interest rate cut by the Bank of England continues to put pressure on sterling.
The pound has fallen 1% against the euro, hitting a two week low of 84.48p a euro. Against the dollar it is currently down 0.58% at $1.3142.
Back with Brexit, and ratings agency S&P Global says the decision to leave the European Union should have little impact on the UK’s project finance initiative. It said:
We analyse the effect of Brexit on our U.K. portfolio of over 50 rated transactions, in particular the potential repercussions of a higher inflationary environment, weaker economic growth, and the change in the credit quality of revenues and financial counterparties. While we believe that the risks of adverse economic developments in the U.K. have increased, we expect U.K. private finance initiative (PFI) projects will maintain their credit strength.
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Wall Street opens lower
A day after the US Federal Reserve kept interest rates on hold but suggested there could be a possible hike later this year, US stock markets have slipped lower in early trading.
The Dow Jones Industrial Average is down 44 points or 0.22%, while the S&P 500 has slipped 0.29% and Nasdaq 0.14%.
Belgian GDP grows by better than expected 0.5%
Ahead of eurozone GDP figures on Friday, new data from Belgium has shown the country’s economy growing by 0.5% quarter on quarter, despite terrorist attacks and strikes. That compares to 0.2% growth in the first quarter, and analyst expectations of a 0.3% increase. Year on year, the economy grew by 1.4%. Economist Peter Vanden Houte at ING Bank said:
According to the Ministry of Economic Affairs the negative impact of the March 22 terrorist attacks in Brussels on hotels, catering and retail trade amounted to about €180m for the first half of this year. This probably shaved off around 0.1 percentage points from second quarter GDP growth. On top of that, the second quarter saw a rather tense social climate, with several strikes, most notably in public transport. This also weighed on growth.
While the GDP components have not been published yet, the improvement in sentiment in industry seems to point to a positive contribution from investment and export. Residential construction most likely also contributed positively. With the situation on the labour market continuing to improve, consumption has probably also expanded, though some negative impact of the terrorist attacks seems likely.
All in all today’s figure seems hopeful, as it confirms that the Belgian economy still has some underlying momentum, putting in a strong performance despite the terrorist attacks and the strikes. Certainly, with Brexit and potentially a somewhat tighter fiscal policy, there are new headwinds that might hamper growth in the second half, but we believe that even then a quarterly growth pace of around 0.2% to 0.3% should be feasible. We will await further data confirmation in the coming weeks, but on the back of today’s figures we are likely to have to revise our estimate for Belgian GDP growth upwards to 1.4% (from 1.2%).
Earlier, US jobless claims rose by more than expected last week, according to the Labor Department.
The number of Americans claiming unemployment benefits grew by 14,000 to 266,000, compared to expectations of an increase to 260,000. The previous week’s level was revised down by 1,000 to 252,000.
Weekly claims have been below 300,000, which is seen as a sign of a healthy labour market, for 73 consecutive weeks.
Over in Paris, an EDF board member has resigned shortly before the energy company announce whether it will push on with plans to build a new nuclear plant at Britain’s Hinkley Point.
Gerard Magnin said the project was risky, and would undermine France’s efforts to develop renewable energy technology.
Magnin’s resignation may be a sign that EDF will stick with Hinkley. An announcement is expected later today.
An EDF board member opposed to Hinkley Point has resigned, which rather suggests that company is going to approve project...
— Graham Ruddick (@GrahamtRuddick) July 28, 2016
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Over in America, tech giant Oracle has swooped on cloud computing pioneer NetSuite in a $9.3bn deal.
The deal should boost Oracle’s web services offering; its founder, Larry Ellison, is also NetSuite’s largest shareholder.
It's the summer of self dealing acquisitions. First Elon Musk now Oracle (25% owned by Larry Ellison) buying Netsuite (40% owned by Ellison)
— Shira Ovide (@ShiraOvide) July 28, 2016
(Although unlike Tesla-Solar City, Oracle-Netsuite makes strategic sense.)
— Shira Ovide (@ShiraOvide) July 28, 2016
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Newsflash from Germany: the country’s inflation rate has jumped to 0.4% this month, up from 0.2% in June.
That’s the highest level since January, which should pleas the European Central Bank in its battle to ward off deflation.
The overall eurozone inflation reading is due at 10am BST tomorrow.
The #inflationrate in Germany is expected to be +0.4% in July 2016 #inflation https://t.co/nPg08OtgDi
— Destatis news (@destatis_news) July 28, 2016
Alex Stubb, Finlands’s former prime minister and finance minister, has warned that it will take a long time for the Brexit drama to play out.
Speaking on Bloomberg TV, Stubb said Europe was facing one of its biggest events in decades.
It’s a 1952 moment, when the Coal and Steel Community was created, or 1989 when the Cold War ended.
This is huge for Europe, there’s no denying it.
Stubb, a veteran of the eurozone debt crisis, says Europe is following its usual three-stage approach to Brexit – first crisis, then chaos, and finally a sub-optimal solution.
He adds:
It’s going to be a long, long process. What we get at the end of the day, I don’t know.
Eurozone companies have defied the fall in consumer confidence, and are actually a little more optimistic this month.
The EC’s economic sentiment indicator has risen to 104.6 in July from 104.4 in June.
Anna Zabrodzka, economist at Moody’s Analytics, says it shows “resilience” to the Brexit vote.
Other persistent worries such as the slowing Chinese economy, the immigration wave, and continued tensions with Russia also seem to made little impact on the confidence of consumers and businesses in the euro area. However, risks are skewed to the downside.”
Updated
Consumer confidence across Europe has fallen this month, driven by a sharp slump in the UK.
That’s according to the European Commission’s monthly healthcheck on consumer morale, which fell to -7.9 this month from -7.2 in June.
UK consumer confidence, which had been riding relatively high, took a real tumble:
CHART: July consumer confidence across Europe. Can you spot who decided to leave the EU? https://t.co/rbGRx2URzL pic.twitter.com/cfdML00qrL
— Maxime Sbaihi (@MxSba) July 28, 2016
The dramatic events of the last few weeks have sent some of us staggering towards the drinks cabinet.
But Diageo, the UK-based alcoholic beverages giant, is worried that the Brexit vote may hit sales of its whisky brands overseas, once Britain leaves the EU.
Ivan Menezes, chief executive of Diageo, told CNBC that Scotland’s whisky industry is dependent on global trade:
Out of Brexit, our focus is really on ensuring that we keep Scotch whisky healthy. The trade agreements in Europe and around the world. You know, Johnnie Walker was in over 100 markets, long before Coca Cola left the shores of America.”
As well as Johnnie Walker, Diageo also produces Bell’s whisky, plus several single malts including Talisker and Lagavulin.
'Protect whisky from Brexit': Diageo tells UK https://t.co/t9lum1uPRU
— CNBC International (@CNBCi) July 28, 2016
More Brexit gloom.
JCDecaux, the French outdoor advertising group, has said it is likely to cut back its UK investment plans following the decision to leave the EU.
JCDecaux, which installs those massive screens at railway stations, airports and London bus shelters, says:
Given the uncertainty surrounding the impact of the Brexit decision on the UK economy and advertising revenue, we are reviewing the number of screens we are deploying until we can evaluate the economic conditions and have improved visibility.
The worst Brexit news yet: there's gonna be less 84" advertising screens in TfL bus stops :-( https://t.co/ufFVfyhyKG
— Joel Lewin (@JoelLewin) July 28, 2016
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Union leaders are urging the UK government to act urgently to protect the economy from the impact of the Brexit vote.
TUC General Secretary Frances O’Grady says:
“The growing expectation since the Brexit vote of an economic slowdown seems to be a factor. The government needs to act now to secure jobs and investment before thousands of working people pay the price of Brexit with the loss of their job.
And Rob MacGregor of Unite is alarmed by Lloyds’s decision to cut an extra 3,000 jobs:
“This announcement is very bad news for workers and their families, and more widely it is a further body blow to the UK economy.
“These are permanent jobs that are being lost. As a country, we can’t afford to lose these jobs in a challenging post-Brexit world.
Lloyds being investigated over mortgage arrears handling
As well publishing half year results which reveal job cuts and branch closures, Lloyds Banking Group has also admitted it is being investigated by the Financial Conduct Authority over the way it handles customers facing difficulty paying their mortgages.
There is not much detail but in the results Lloyds said:
“In May, the FCA informed the group that it was commencing an investigation in connection with the group’s mortgage arrears handling. At this stage it is not possible to make an assessment of the outcome of this ongoing review”.
Lloyds did not take a provision for the payment protection misselling scandal. But in the first six months of the year the bank took a £460m to cover a range of so-called “conduct issues”.
This included £215m “in respect of arrears related activities on secured and unsecured retail products, £70m in respect of complaints relating to packaged bank accounts and £50m related to insurance products sold in Germany”.
Updated
UK consumer confidence hit by Brexit
In another worrying sign, a closely-watched survey of consumer confidence has hit its lowest level in three years after the Brexit vote.
The monthly index conducted by YouGov and the Centre for Economics and Business Research (CEBR) has tumbled to 106.6, the lowest since July 2013, down from 111.3.
That’s the biggest one-month drop in six years.
The survey found that the public are concerned about the impact of the June referendum, particularly on house prices (how very British!).
Stephen Harmston, Head of YouGov Reports, says:
“The public are still absorbing the EU referendum result but it is clear that consumer confidence has taken a significant and clear dive.”
More post-Brexit confidence wobbles. YouGov/Cebr sentiment falls to 3-year low https://t.co/1dFqDw5dkF via @charlie_ryan1
— Fergal O'Brien (@fergalob) July 28, 2016
Spain is celebrating the news that the country’s jobless rate has hit its lowest level in six years, before the eurozone crisis began.
However.... one in five adults are still out of work, and the situation could deteriorate if Europe’s economy suffers from Brexit.
The good news: Spanish unemployment rate at a 6-year low.
— Jamie McGeever (@ReutersJamie) July 28, 2016
The bad news: Spanish unemployment rate is still 20%. pic.twitter.com/qJbeekBp8a
Royal Dutch Shell is one of the biggest fallers on the FTSE 100 this morning, down 3% after posting a 70% tumble in earnings.
It blamed the recent tumble in crude oil prices, which have eaten into its profitability.
CEO Ben van Beurden warned shareholders that “lower oil prices continue to be a significant challenge across the business.”
Brexit to hit new cars sales
Inchcape, the UK car dealership, has warned that demand for new cars is weakening, due to the Brexit vote.
It told shareholders this morning:
Ahead of the EU referendum, the second quarter New Vehicle market growth rate moderated to 1.0% from 5.1% in the first quarter. We expect this moderation of the New Vehicle market to persist into the second half of 2016.
Building society Nationwide has reported that house prices were stable in July, rising 0.5% month-on-month.
The average house cost £205,715, 5.2% higher than a year ago.
However.... as mortgages are approved towards the end of the process, this doesn’t whether buyers have been spooked by the Brexit vote.
Engineering firm Rolls-Royce is also cutting jobs, after reporting an 80% tumble in profits in the first half of 2016.
Rolls-Royce says it's laying off 400 people this year, 200 more than previously announced; 270 have already left, as part of £50m cost cuts
— Julia Kollewe (@JuliaKollewe) July 28, 2016
Rolls-Royce says 400 job cuts all senior management roles, half are in the UK; but CEO stresses 'we are not just firing, we are also hiring'
— Julia Kollewe (@JuliaKollewe) July 28, 2016
Today’s losses mean Countrywide has shed a third of its value since the referendum, highlighting how the UK’s property sector will suffer from Brexit.
Lloyds slashes 3,000 jobs amid Brexit uncertainty
It’s a bleak morning in the financial sector too, as Lloyds Banking Group slashes 3,000 jobs.
The bank is speeding up its cost-cutting programme, and closing 200 branches as it enters a “period of uncertainty” following the Brexit vote.
Our City editor Jill Treanor explains that Lloyds is also preparing for interest rates to be slashed next week:
The bank is blaming changes to customer behaviour and anticipated cuts to interest rates following the vote for Brexit last month. Mark Carney, the Bank of England governor, signalled a rate cut would take place during the summer and the City now expects rates will be cut from their 0.5% historic low on 4 August.
More here:
Lloyds bank to axe 3,000 jobs and close 200 branches https://t.co/6tk8lm4ncb
— Jill Treanor (@jilltreanor) July 28, 2016
And here’s Reuters’ take:
How Brexit works: "Lloyds plans 3,000 jobs cull, fresh branch closures after Brexit shock" - https://t.co/iI1TjTZr81
— Tim Weber (@tim_weber) July 28, 2016
Shares in Countrywide has dropped by almost 5% at the start of trading, following its Brexit-induced earnings warning.
Countrywide warns on profits as Brexit hits house market
Britain’s biggest lettings and estate agent group has issued a stark warning that parts of the country’s property market are weakening, since last month’s referendum,
Countrywide, which runs 50 different high street brands, admitted that profits this year will be lower than in 2015.
And it pins the blame firmly on the decision to leave the EU.
According to Countrywide there was a clear market slowdown in May and June. And since the vote, commercial and London residential transactions have stalled, it says, with a “less pronounced impact” on other operations.
The number of homes sold subject to contract in London fell 29% in April-June, compared to January-March.
Alison Platt, Countrywide’s CEO, says:
As we stated in our last Trading Update on 26 April, we took a cautious view of the months leading up to the EU referendum and beyond. In the event, we saw a slowdown in our Retail and London residential businesses and, since the EU referendum result this has become more marked in London, the South East and expensive prime markets.
The rest of the country has fared somewhat better and our Lettings business and mortgage trends have been largely unaffected.
Countrywide also posted a 25% tumble in adjusted pretax profits for the first half of 2016, and warned of more challenges ahead.
As Platt put it says:
This period of uncertainty will inevitably impact the level of transactional activity in the second half of the year and, although it is too early to quantify accurately, we will not meet last year’s result at the EBITDA level.
Here’s a round-up of Countrywide’s brands:
Updated
The agenda: Brexit fears start to hit the UK
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Five weeks after the European Union referendum, we’re now seeing signs that the vote to leave the EU is hitting the UK economy.
Three influential surveys released overnight have shown worrying signs that Britain’s car industry, retail sector and building companies are all suffering from the Brexit vote.
In a worrying cocktail, the Society of Motor Manufacturers and Traders said its members were gloomy about the prospects for growth, jobs and investment; the British Retail Consortium said jobs were being shed in the months leading up to the referendum; and RICS – the body that represents chartered surveyors – said workloads for construction had weakened.
It’s a clear signal that the uncertainty created by June’s vote is starting to hit demand, confidence and activity.
The SMMT’s chief executive, Mike Hawes warned that Britain’s car revival has been underpinned by “tariff-free access to the single market”, so losing that access would be a serious blow.
Here’s the full story:
This all rather takes the shine off yesterday’s forecast-beating growth figures, which showed the UK’s GDP expanded by 0.6% in the last quarter.
The UK economy is collapsing and/or booming depending on which newspaper you choose to read. pic.twitter.com/K1hfSSG2Q8
— Jim Waterson (@jimwaterson) July 27, 2016
Also coming up...
Investors are pondering whether the US central bank might manage to raise interest rates soon, despite the Brexit risk.
Last night, the Federal Reserve declared that the US jobs recovery had picked up momentum, and the near-term risks to the US economy had diminished.
Intriguingly,the Fed also declared that:
“Near-term risks to the economic outlook have diminished.”
Perhaps a hint that the EU referendum hasn’t caused as much market mayhem as feared.
Over in Paris, French energy company EDF is deciding whether to give the go-ahead for an £18bn nuclear power station at Hinkley Point in Somerset. The rumours are that the project will go ahead, despite concerns over cost and safety:
And there’s a blizzard of corporate results this morning, sending my Reuters machine into overdrive as companies clear the decks before the August lull. That include Lloyds Banking Group, BT, Countrywide, Thomas Cook, Diageo, Rolls Royce, Royal Dutch Shell, BAE and Sky.
We’ll pick the best bits out...
A plethora of FTSE earnings reports this morning!
— Mike van Dulken (@Accendo_Mike) July 28, 2016
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