Markets stablise after recent rout
Some reasonable results from the likes of BT helped stock markets recover some poise after the volatile start to trading in May. There were more signs of weakness in the global economy, including disappointing UK services data and US jobs figures. But oil moved higher as supply concerns outweighed news of higher than expected US crude inventories, giving some support to commodity stocks.
But there was little to really enthuse investors ahead of Friday’s US non-farm payroll numbers, and the final scores showed:
- The FTSE 100 finished up just 5.23 points or 0.09% at 6117.25
- Germany’s Dax edged up 0.24% to 9851.86
- France’s Cac closed down 0.11% at 4319.46
- Italy’s FTSE MIB fell 0.07% to 17,923.90
- Spain’s Ibex ended up 0.41% at 8689.4
- In Greece, the Athens market added 1.94% to 601.48
On Wall Street, the Dow Jones Industrial Average is currently up 41 points or 0.24%.
On that note, we’ll close for the evening. Thanks for all your comments, and we’ll be back tomorrow for non-farm payroll day.
More on Greece, where strikes are set for the weekend and a parliamentary vote on reforms is due on Sunday:
Greek pension and tax bills all but sure to pass on Sun. But Greece & lenders still at odds over extra contingency measures demanded by IMF.
— NikiKitsantonis (@NikiKitsantonis) May 5, 2016
Global economic pressures which have dissuaded the US Federal Reserve from raising interest rates again could be waning, according to one of the central bank’s policymakers.
St Louis Fed president James Bullard said in a speech in California:
International influences on the U.S. economy have been widely discussed in global financial markets during the last several years. Those factors appear to be waning during the first half of 2016.
Financial stress has fallen according to recent readings. The effects of a stronger dollar appear to be waning.
But he said there was evidence for both the Fed’s view of a gradual pace of rate increases and the market’s belief in only a few increases:
Evidence from labor markets, inflation readings and global influences suggests the [Federal Reserve’s] median projection may be more nearly correct.
Evidence from readings on GDP growth and market-based inflation expectations suggests the market view of the path of the policy rate may be more nearly correct.
Which does not appear to shut the door to a June hike, following December’s increase.
*BULLARD: THERE IS PLENTY OF NEW DATA RELEASES BEFORE JUNE FOMC
— Michael Hewson (@mhewson_CMC) May 5, 2016
*BULLARD: FED'S `OPTIONS ARE OPEN AT THIS POINT'
— lemasabachthani (@lemasabachthani) May 5, 2016
Updated
Markets are struggling to make any headway ahead of Friday’s US non-farm payroll numbers. Chris Beauchamp, senior market analyst at IG, says:
While markets have stabilised after days of losses, there seems little that can revive bullish sentiment as the day heads to its close. Despite an early attempt at a rally, indices remain under pressure, and it looks as if sellers will continue to dominate as the week enters its final session. ...Stocks remain under pressure, and with non-farm payrolls tomorrow the outlook remains resolutely grim.
Further US dollar strength provides the reason for why there is little hope for indices at the present time. After weeks of weakness the impetus to buy the dollar appears too strong to hold back, which would provide a cogent reason for why indices have little ability to move higher. Ahead of non-farm payrolls, the market waits to see if the figure can best the number produced by ADP figures on Wednesday.
Meanwhile Greece’s unions have called a general strike for Friday and Saturday to protest against the tax and pension reforms due to be debated in parliament over the weekend, Reuters is reporting.
Over in Greece, there has been talk of a possible weekend parliamentary vote on pension reforms, ahead of the Eurogroup meeting on Monday. The Syriza government is reportedly meeting on Friday:
SYRIZA's parliamentary group to meet tomrw and discuss upcoming tax & pension legislation, under PM Alexis Tsipras. https://t.co/Z35OutLYTi
— The Greek Analyst (@GreekAnalyst) May 5, 2016
A solid US non-farms report on Friday could spark a near term revival in the US dollar, says Rob Carnell at ING Bank:
April jobs report might uphold the stagflationary trend in US data. If we can take the latest GDP data at face value, then the first quarter of 2016 saw US activity slide to an almost standstill. Yet, the labour market continues to fare well and was the one bright spot amid a general soft patch last month
Over time, activity and labour data are likely to converge, but right now there is little evidence to untangle how this will play out. Were the April jobs figures to come in on a softer note, then this would endorse the weakness in activity and imply that lagging variables such as employment are also now turning lower. Conversely, if the labour data stays resilient then we will further linger in a state of limbo as either it is the activity data that is the aberration or the lags have yet to kick in. The April jobs report may in fact accentuate the stagflationary trends (soft activity, rising inflation) noted of late:
Payrolls to come in a tad softer than expectations (ING: +190,000; consensus: +200,000). While some indicators continue to signal a robust hiring backdrop, the softer ADP print suggests that there are some (albeit marginal) downside risks to jobs growth in April.
Upward bias in the unemployment rate still in place (ING: 5.0%; consensus: 4.9%). The discrepancy between payrolls and the household survey (from which the unemployment rate rate is derived) is still evident, while the very strong labour force growth is unlikely to endure. A slight correction in both components may put some upward pressure on the unemployment rate.
Robust underlying wage pressures should result in decent headline wage growth (ING: 2.4% year on year; consensus 2.4%). We note that the headline AHE measure has been hovering at the lower end of a range of US wage indicators, with the Atlanta Fed’s wage growth tracker continuing to tick higher (on a moving average basis). Thus, we think the odds of a positive wage growth surprise are slightly higher this month.
Updated
US crude stocks rise by more than forecast
US crude stocks increased by a higher than expected 2.8m barrels last week, according to the Energy Information Administration.
Analysts had forecast a rise of 1.7m barrels. Meanwhile gasoline stocks rose unexpectedly by 536,000 compared to expectations of a 144,000 barrel decline. But stockpiles of distillate, which includes diesel and heating oil, fell by 1.3m barrels, more than the 83,000 decline expected.
Brent is currently up 3% at $46 a barrel despite the higher than expected inventory figures. The price is being supported by the wildfire threatening Canada’s oil sands region, as well as growing tensions in Libya.
Updated
Shareholders revolt at Ladbrokes and Reckitt
In the latest pay revolt nearly 24% of shareholders at Reckitt Benckiser voted against the remuneration policy and nearly 18% voted against the remuneration report.
At Ladbrokes 42% voted against the remuneration report.
The latest data on US jobs will not give much grounds for optimism for Friday’s non-farm numbers, says David Morrison, senior market strategist at Spreadco. He said:
[Weekly jobless claims] have generally been a bright spot over the past few years. They used to come in around the high 300,000s – even topping 400,000 at the end of 2012. But now we are used to seeing claims coming in below 300,000 on a regular basis.
But now traders will focus on the main event which is tomorrow’s Non-Farm Payroll release. Early expectations were for an increase of just over 200,000. But the “whisper number” will probably be well below that following yesterday’s grim ADP number. Today’s jobless claims together with a worse than expected Challenger Job-cut number haven’t helped either.
Updated
US jobless claims rise
More US employment data ahead of Friday’s non-farm numbers.
After a jump in the number of US workers laid off last month it is probably no surprise that jobless claims rose last week.
According to the Labor department the number of Americans filing for unemployment benefits rose 17,000 to 274,000, the largest increase since February of last year.
Analysts had expected a figure of around 260,000.
Updated
Donald Trump also says he’d scrap a swathe of federal regulations which are (he argues) holding back US firms.
He told CNBC:
“We’re lowering taxes very substantially and we’re going to be getting rid of a tremendous amount of regulations.”
Trump: I'd probably replace Janet Yellen
With the Republican nomination in the bag, Donald Trump is now turning his attention to how he’d run the American economy if he makes it to the White House.
And he’s just declared that he would probably replace Janet Yellen as chair of the Federal Reserve when her current term expires.
Yellen’s crime? Not being a Republican, apparently.
Speaking to CNBC, Trump declared:
I have nothing against Janet Yellen whatsoever. She’s been doing her job, and I have absolutely nothing against her.
I don’t know her, but she’s a very capable person and people that I know have a very high regard for her.
But she’s not a Republican… When her time is up, I would most likely replace her because of the fact that it would be appropriate.
But in a typical piece of Trump logic, the billionaire businessman also backed Yellen’s monetary policy stance:
She’s a low interest-rate person, she’s always been a low interest-rate person …and I must be honest, I’m a low interest rate person. If we raise interest rates, and the dollar starts getting too strong, we’re going to have some very major problems.
Yellen’s current four-year term expires in February 2018, but she could potentially serve a second term (as did her predecessor, Ben Bernanke).
Bloomberg’s Jon Ferro questions Trump’s logic on this one:
Surely the best thing Trump can do at this point is back Yellen. Does he really want the markets to move against him if climbs the polls?
— Jonathan Ferro (@FerroTV) May 5, 2016
You can watch a clip of the interview here.
Trump: Nothing against Janet Yellen, but would replace her "when her time is up" https://t.co/KxZLRBjOLN
— CNBC (@CNBC) May 5, 2016
Updated
US layoffs jump
We also have worrying news from America.
The number of US workers laid off last month jumped, and hit the highest level for an April in seven years.
It indicates American companies are feeling the pinch, after its economy slowed to virtual stagnation in the first quarter of 2016.
Reuters has the details:
Layoffs by U.S.-based companies accelerated in April, sending year-to-date job cuts to the highest level since 2009, a private study reported Thursday.
Domestic companies announced plans to let go 65,141 workers last month, a 35 percent increase from March, according to the report by outplacement firm Challenger, Gray & Christmas .
In the first four months of the year, employers said they would hand out 250,061 pink slips. That is the highest total for the January-to-April period since 2009.
“We continue to see large scale layoffs in the energy sector, where low oil prices are driving down profits. However, we are also seeing heavy downsizing activity in other areas, such as computers and retail, where changing consumer trends are creating a lot of volatility,” Challenger CEO John A. Challenger said in a statement.
BREAKING: US job cuts rise to 65,141 in April; 2016 layoffs at 7-year high - Challenger https://t.co/xGFlKQbV4Q
— CNBC Now (@CNBCnow) May 5, 2016
Meanwhile in London, the boss of consumer goods group Reckitt Benckiser has apologised over a humidifier steriliser scandal that has claimed around 100 lives.
Julia Kollewe reports:
Rakesh Kapoor, chief executive of Reckitt Benckiser told shareholders at an AGM in central London: “I’m personally very sorry and very much regret that our Oxy product caused harm to people in Korea.”
He said the company had “made a mistake” and vowed to ensure that “something like this never happens again”. He will meet representatives from one patient group, who were demonstrating outside the AGM, in his office on Friday.
The humidifier steriliser is believed to have killed nearly 100 people and injured others. It was invented in Korea and only sold there.
Reckitt acquired the firm that made the steriliser in 2001. Some of these products were also manufactured by rival companies.
Kapoor’s comments come three days after the head of Reckitt Benckiser Korea and Japan was struck while apologising for the scandal.
Updated
James Sproule, chief economist at the Institute of Directors, fears the Britain’s economy is suffering from more than the Brexit jitters.
Sproule warns:
“These figures will be put down to uncertainty over the EU referendum, but while this may explain part of the fall, we should also consider whether there are underlying factors feeding into a less rosy economic picture.
“The question we must ask is whether growth is built on solid foundations. My concern is that the exceptional period we are living in of low rates and cheap money is not the basis of a sustainable economy. We do not know what the outcome of the referendum will be, or the exact effects on the economy in the short and longer term, but this uncertainty is not an excuse to take our eye off the ball on more fundamental issues of economic sustainability.”
And this chart, from the Indie’s Ben Chu, underlines how worrying this week’s data is:
Is UK GDP growth heading down to zero? That's what the latest PMI surveys seem to suggest.https://t.co/xhgGOsW6jE pic.twitter.com/sDWTaiYoZO
— Ben Chu (@BenChu_) May 5, 2016
Could Bank of England cut rates?
With Britain’s economy seemingly slowing, there’s even less chance of the Bank of England raising interest rates in the next few months.
Some economists are even speculating that the BoE could cut rates this year.
And Chris Williamson of data firm Markit has confirmed that the Bank has previously eased monetary policy when its PMI readings have been this week.
This graph plots Markit’s PMI (dark blue) against interest rate cuts (light blue) and bouts of quantitative easing (grey).
Williamson says:
The three Markit/CIPS PMI surveys collectively indicated the weakest rate of expansion since March 2013, with growth slowing across the board. The combined Output Index fell from 53.6 in March to 51.9 in April. The latest reading is consistent with a near-stalling of economic growth, down to just 0.1% in April.
The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth, either by cutting interest rates or non-standard measures such as quantitative easing.
Updated
This chart shows why the weak service sector data probably show that UK growth has slowed sharply.
It’s from German bank Berenberg. Their economist Kallum Pickering, says there are “substantial downside risks” to UK growth, but..
If, as we expect, the UK votes to remain in the EU, then the growth rate should recover to its trend rate of 0.5% qoq in the second half of the year.
While there are some risks relating to the current account deficit and concerns that households are returning to pre-Lehman borrowing and saving habits, underlying fundamentals are sound.
With services making up 79% of UK GDP, a three year low in services PMI will have big impact on Q2 growth expectations
— Joshua Mahony (@JMahony_IG) May 5, 2016
Updated
Anthony Cheung of City firm Amplify Trading agrees that the UK economic picture has deteriorated:
UK PMI's showing a worrying picture this week. Manufacturing slows for 1st time since Mar 2013, construction & services dropped to 3yr lows
— Anthony Cheung (@AWMCheung) May 5, 2016
Dean Turner, Economist at UBS Wealth Management, agrees that Britain’s economy appears to have weakened in April.
And that means growth in the current quarter will be lower than in January-March, when GDP expanded by only 0.4%.
Turner says:
Uncertainty over the EU Referendum is clearly taking its toll on activity and with this backdrop, we expect second quarter GDP growth to dip below the already disappointing first quarter print.
With such subdued levels of growth, we expect the Bank of England will hold fire on interest rates in next week’s MPC meeting, and for many months thereafter.”
CIPS: EU referendum fears are hurting the economy
Britain’s services sector makes up around three-quarters of the economy, so this slowdown is pretty worrying.
David Noble, CEO of the Chartered Institute of Procurement & Supply, says June’s EU referendum is partly to blame.
“The UK’s services sector is stuck between a rock and a hard place. Mounting global economic uncertainty at the top of the supply chain and the reality of the new National Living Wage at the bottom mean that firms are feeling the pinch from both ends. As a result, the sector credited with being the main driver of the UK’s economic fortunes appears to be slowing down.
“The looming EU referendum has had a profound effect on the sector, keeping prices relatively stagnant and delaying new orders. At the other end of the supply chain, the National Living Wage has compounded cost increases, resulting in the overall rate of input price inflation hitting a 27-month high. Together, these factors have squeezed margins while fewer than half of businesses expect to grow over the next twelve months.
Updated
Service sector growth hits three years low
Breaking: Britain’s service sector’s growth has slumped to its lowest level in three years.
Markit, the data firm, says its service sector PMI has fallen to 52.3 in April, down from 53.7 in March.
That’s the weakest level since February 2013, and close to the 50-point mark that splits expansion from contraction.
Firms reported that job creation slowed last month, while business optimism has fallen to a three year low too.
This makes a hat-trick of bad UK economic news this week. Construction firms reported yesterday that growth has hit a three-year low, while the factory PMI showed that manufacturing is now contacting.
Chris Williamson, chief economist at Markit, fears that UK economic growth almost stalled last month:
“The slowdown in the service sector follows similar weakness in manufacturing and construction to make a triple-whammy of disappointing news on the health of the economy at the start of the second quarter.
“The PMI surveys are collectively indicating a near- stalling of economic growth, down from 0.4% in the first quarter to just 0.1% in April.
“Some of the slowdown may be attributable to the early timing of Easter, though April also saw an increase in the number of companies reporting that uncertainty about the EU referendum caused customers to hold back on purchases, exacerbating already-weak demand linked to global growth jitters and ongoing government spending cuts.
More to follow....
Updated
Here we go..... Lets see if those forecasts of a small slowdown are accurate.
5mins to UK services PMI
— Nicola Duke (@NicTrades) May 5, 2016
the big news of the day
UK services #PMI is due at 9:30 am today and it matters because both manufacturing and construction showed weakness #GBP #BoE
— Shaun Richards (@notayesmansecon) May 5, 2016
As well as posting stronger profits, BT has announced a £6bn investment in broadband and 4G coverage:
BT to spend £6bn on superfast broadband and 4G rollout as profits boosted by demand for TV & broadband bundles https://t.co/mBinMQlLpT
— Julia Kollewe (@JuliaKollewe) May 5, 2016
You can now buy shares in Britain’s luxury chocolate firm, Hotel Chocolat.
The company floated on the stock market this morning, raising £20m each for its two founders. The IPO will also yield £12m to fund new store openings, as its expansion drive continues.
Trinity Mirror: Print advertising down, New Day closes
Launching a new print newspaper, in this time of digital revolution, was always a risky move.
So you can understand why Trinity Mirror is pulling its latest offering, The New Day, after seeing sales falling to 30,000. But the speed of the move is a shock – the paper only launched 9 weeks ago.
The news broke last night (here’s Mark Sweney’s piece), and Trinity has confirmed it to shareholders this morning, saying:
Although The New Day has received many supportive reviews and built a strong following on Facebook, the circulation for the title is below our expectations.
As a result, we have decided to close the title on 6 May 2016. Whilst disappointing, the launch and subsequent closure have provided new insights into enhancing our newspapers and a number of these opportunities will be considered over time.
But that’s not the only bad news. Trinity has also revealed that revenues from print advertising has fall almost 20% - highlighting the tough conditions across media....
Updated
Europe’s stock markets have made a nervous start to trading, after two days of losses.
Britain’s FTSE 100 is up 15 points, or 0.2%, while Germany’s DAX is up 0.3% and the French CAC is flat.
BT is leading the London risers, up 3%, after reporting a 5% jump in underlying earnings this morning.
Supermarket group Morrisons has gained 1.7%; after a troubled time, it posted a 0.7% rise in underlying sales this morning. It also reported that Amazon is about to start supplying its customers with Morrisons’ products, though a deal announced recently.
Energy firm Centrica, though, has slumped by 7% after it announced plans to sell around £770m of new shares to cut its debt pile.
Turkish market hit by political crisis
Turkey’s stock markets has plunged by 2% at the start of trading, as investors react to the country’s latest political crisis.
Investors are alarmed by reports that prime minister Ahmet Davutoğlo is poised to resign, following a power struggle with president Recep Tayyip Erdoğan.
The Turkish lira is also suffering, shedding 5% overnight.
Turkish Lira Hanging in There After Biggest Decline in 5 Years Amid Political Turmoil #fx #Turkey pic.twitter.com/50NnlJKNef
— justin carrigan (@justincarri) May 5, 2016
Davutoğlo and Erdoğan held crunch talks last night, but failed to mend their disagreements over key areas such as economic policy.
Local reports suggest that elections for a new party leader to replace Davutoğlo could soon be called, causing fresh instability at a time when Turkey is already grappling with high inflation and the refugee crisis.
Asian markets fall for 7th day running
Anxiety over a possible global downturn has hit stock markets in Asia again.
The Hong Kong, South Korea and Philippines markets all shed around 0.5%. This send stocks across the region down for the seventh day running, its longest losing streak of the year
Sharon Zollner of ANZ Bank New Zealand Ltd explains that signs of economic slowdown is hurting confidence again:
Markets seem to be at something of a crossroads at present, waiting for clearer signals on whether U.S. activity will bounce back in the second quarter,”.
“If the global economy were to tip into recession at some point, what ammo, precisely, do central banks have left that won’t do more harm than good?”
Updated
The agenda: UK service sector data coming up....
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
So far this week, the UK economic data has been quite disappointing. Construction firms are growing at the slowest rate in three years, and activity across Britain’s manufacturers is actually shrinking again.
And investors are worried that the service sector, which makes up around 80% of the economy, may also be weakening.
At 9.30am, the latest Service Sector PMI hits the wires, and it may show that growth slowed in April.
A bad reading will surely reinforce concerns that the UK economy is running out of steam, with the Brexit referendum of 23 June casting a darker shadow over the country.
CMC Markets’ Michael Hewson has the details:
Both manufacturing and construction PMI’s came in short of expectations with manufacturing slipping into contraction territory for the first time since early 2013.
Given how important the services sector is to the UK economy we really need to see a decent number here or run the risk that we see a growth downgrade next week from the latest Bank of England inflation report. Expectations are for a slight decline to 53.6 from 53.7.
After two days of heavy falls, European stock markets are expected to inch higher this morning. But there’s still plenty of angst about global growth prospects, and recent fluctuations in the foreign exchange markets.
Our European opening calls:$FTSE 6134 up 22
— IGSquawk (@IGSquawk) May 5, 2016
$DAX 9863 up 34
$CAC 4330 up 5$IBEX 8694 up 40$MIB 18038 up 102
And on the corporate front, we’re getting results from telecoms firms BT, supermarket chain Morrisons, and newspaper group Trinity Mirror.
Updated
.jpg?w=600)
