Summary: shares move higher, oil jumps, pound slips
On a quiet day for economic news, stock markets have managed to push higher, helped by a jump in mining shares after positive Chinese data.
Oil is also on the rise, fuelled by supply concerns after Iraq moved into oil-rich Kirkuk as a response to the recent Kurdish referendum. Latest reports suggest that Kurdistan has shut down some 350,000 barrels a day of production from its major oil fields following the flare up with central government. There is also the prospect of renewed sanctions on Iran after President Trump hit out at the UN’s nuclear deal with the country. So Brent is currently up 2.2% at $58.43 a barrel.
Elsewhere the euro is under pressure, as is the Ibex stock market, as the dispute between the Spanish government and Catalonia over the region’s independence showed no signs of resolution.
The pound lost its early gains against the dollar, partly due to reports that the UK government expects Brexit talks to break down unless the EU agrees to compromise.
On the data front, the eurozone trade surplus slipped in August compared to a year ago, while a New York manufacturing survey for October came in much stronger than expected.
At the moment the FTSE 100 is up 0.08%, Germany’s Dax is 0.21% better, France’s Cac has climbed 0.21% but Spain’s Ibex is down 0.62%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Still with the US, and the president’s team has come out to head off claims its proposed tax cuts are just for the rich:
The Trump administration said on Monday the average US household will get an estimated $4,000 more a year after corporate tax rates are slashed under its planned tax reforms. Proposing a stunning 5% increase in household income, the claim is likely to be met with skepticism from tax experts and Democratic lawmakers.
Pre-empting such opposition, Donald Trump tweeted: “The Democrats only want to increase taxes and obstruct. That’s all they are good at!”
A White House analysis claimed the tax cut would “conservatively” generate an income jump of $504bn, about $200bn more than revenues currently generated by the corporate income tax.
The full report is here:
The pound is slipping back against the dollar following the stronger than expected New York manufacturing survey, as well as reports that the UK expects Brexit talks to break down unless the EU compromises.
Sterling, which had been as high as $1.3311, is now down 0.17% at $1.3259. Against the euro the pound is down 0.01% at €1.1236.
Strong US Empire number = USD up = GBP down = FTSE up
— Mike van Dulken (@Accendo_Mike) October 16, 2017
New York manufacturing survey beats expectations
More fuel to the fire that is US interest rate expectations.
Most observers believe the Federal Reserve will probably raise rates in December, and the latest New York manufacturing survey backs up that idea with stronger than expected growth.
The Empire State business conditions index for October has come in at 30.2, up from 24.2 in September and well above the expected dip to 20.7. This is the highest level since September 2014.
Updated
At midnight the UK’s old pound coin ceased to be legal tender.
So how easy is it to spend the old coins now the deadline has passed? Our reporters have been finding out:
The data from China has given a lift to metal prices and miners, with copper crossing the $7,000 a tonne level for the first time in three years.
That in turn has pushed shares in mining companies such as Antofagasta up to 3% higher.
With European markets - apart from Spain - remaining in positive territory, Wall Street is also expected to open higher. Craig Erlam, senior market analyst at Oanda, said:
US equity markets are poised to start on a positive note once again, looking to build on the numerous record highs recorded in recent weeks on the prospect of a brighter global economic outlook.
With corporate earnings season now underway and the number of companies reporting on the third quarter picking up quickly – 56 S&P 500 companies to release numbers this week – investors will be looking to the figures to add further support to the rally. This is particularly the case given the quieter week we have on economic data side, with predominantly tier two figures scheduled for release.
in a way, now is all about snap elections.
— Pablo Rodríguez (@Suanzes) October 16, 2017
Rajoy hopes Puigdemont will call them.
Pro indy, that Rajoy will invoke art 155 and force them
Rajoy's letter to Puigdemont: "I deeply regret you decided not to clarify whether independende was declared or not" https://t.co/Bu55aXPIeI
— Pablo Rodríguez (@Suanzes) October 16, 2017
*SPAIN PM RAJOY SAYS PUIGDEMONT DEMAND WAS STEP TOWARD ART. 155
— Michael Hewson 🇬🇧 (@mhewson_CMC) October 16, 2017
Article 155 of Spain’s constitution allows the government to take control of an autonomous region if it “does not fulfil the obligations imposed upon it by the constitution or other laws, or acts in a way that is seriously prejudicial to the general interest of Spain”.
Updated
Back with Spain, and Catalonia has been given another three days to clarify whether it is calling for independence or not:
#Spain #Catalonia | Deputy PM Saenz says Puigdemont has until Thursday to say he did not declare independence
— Ioan Smith (@moved_average) October 16, 2017
Central Gov reply, very predictable https://t.co/6mXDc0JWY8 3 days for Puigdemont. Rajoy is not de-escalating, but not escalating either
— Pablo Rodríguez (@Suanzes) October 16, 2017
In the light of the Brexit talks, the Eurostat data shows that UK exports to the rest of the EU grew by 6% between January and August this year compared to the same period in 2016, while imports rose 1%:
Eurozone trade surplus slips
The eurozone trade surplus - the difference between exports and imports - has slipped back compared to a year ago.
The August figure came in at €16.1bn compared to €17.5bn in the same month in 2016. Imports grew by 8.6% while exports grew by 6.8%, according to Eurostat.
Eurozone Trade Balance SA (EUR) Aug: 21.6B (est 20.2B; prev R 17.9B)
— LiveSquawk (@LiveSquawk) October 16, 2017
-Trade Balance NSA (EUR) Aug: 16.1B (est 23.3B; prev 23.2B)
Updated
Here’s our story on the latest Catalan situation, from Sam Jones in Madrid:
The Catalan president, Carles Puigdemont, has refused to clarify whether he declared Catalonia’s independence from Spain last week, but has repeated his calls for negotiations with the Madrid government to resolve the country’s ongoing political crisis.
Although Puigdemont signed a unilateral declaration of independence last Tuesday, claiming that the recent referendum had given his government a mandate to create a sovereign republic, he proposed that the effects of the declaration be suspended for a few weeks to allow for dialogue.
The Spanish prime minister, Mariano Rajoy, responded with an ultimatum the following day. He warned that Puigdemont had until Monday 16 October to confirm whether he had declared independence, and until Thursday 19 October to abandon his push for independence or face the imposition of direct rule from Madrid.
In a letter on Monday, the Catalan president failed to answer Rajoy’s question, asking instead for an urgent meeting “before the situation deteriorates still further”.
“My government’s priority is to wholeheartedly pursue the path of dialogue,” wrote Puigdemont.
The full report is here:
Updated
FTSE 100 medical business loses a fifth of its value after warning
The FTSE 100 is still in positive territory, helped by mining shares and despite a slump in Convatec.
The medical technology company has dropped more than 20% after it cut its revenue targets following supply issues at two of its divisions. It was hit by problems moving manufacturing at its advance wound care division - which makes surgical cover dressings - from the US to the Dominican Republic. A similar problem with moving manufacturing lines disrupted its ostomy care business. Between them the two divisions account for around 60% of Convatec’s annual turnover.
Analysts at Numis said:
With growth expectations clearly unravelling... we continue to see significant downside for the shares and reduce our target price to 220p [from 250p] to reflect the lower growth trajectory.
Over to Spain, and the Madrid government believes the Catalan letter on possible independence is not sufficient, according to El Mundo:
Spanish Justice Minister says that Puigdemont's letter is not a valid answer https://t.co/xPEotK16d5
— Pablo Rodríguez (@Suanzes) October 16, 2017
Because it's not clear enough & because Rajoy asked for a list of measures that must be taken to restore the constitutional framework
— Pablo Rodríguez (@Suanzes) October 16, 2017
Updated
Back with the rise in oil prices, and despite the tensions surround Iraq and Iran, crude may not go much higher, reckons Neil Wilson, senior market analyst at ETX Capital:
Oil prices pushed higher as the conflict between Iraq and Kurdistan entered a new phase with the advance of Iraqi forces on Kirkuk. However any disruption may prove temporary with neither side wanting to shut-in oil production for long. The prospect of fresh US sanctions on Iran may offer longer-term support to prices, although again any sanction regime will be limited in scope given that the US position is at odds with the rest of the international community.
Brent rose above $58 and while the late September highs above $59 are within sight it may struggle to find much momentum past $60 as this remains a fairly localised conflict that is unlikely to spark wider disruption to supplies from the Middle East.
Nevertheless with around 550-600k barrels a day pumped from the region, worth about one-tenth of Iraq’s production, the escalating conflict will offer support for prices. This is really the fallout from the referendum on September 25th in which 93% of the population in the KRG-administered area voted for independence from Iraq.
The old pound coin may no longer be wanted by most people now it is not legal tender, but sterling itself is in demand.
It has climbed 0.11% against the dollar to around $1.33 and 0.38% against the euro to €1.1280, after a bit of positive news on the Brexit front. Connor Campbell, financial analyst at Spreadex, said:
Ahead of the week’s EU summit Theresa May is reportedly set to host a private dinner for her, Brexit secretary David Davis, EU chief negotiator Michel Barnier and European Commission president Jean-Claude Juncker in order to help break the ‘disturbing deadlock’ between the two sides and, in turn, help nudge the EU towards green-lighting trade talks at the end of the week.
This news seems to have helped buoy the pound, which is keeping above $1.33 against the dollar, while surging to a fresh 2 week peak against the euro with a 0.3% rise.
It may be relatively quite on the economic data front today but there are some key events to come, not least UK inflation on Tuesday. Richard Partington has been looking at the prospects:
UK inflation is expected to hit a five-year high this week, outstripping growth in pay packets and putting renewed pressure on the Bank of England to raise interest rates.
City economists forecast that the consumer price index (CPI) will be shown to have risen to 3% in September, up from 2.9% a month earlier, its highest level since 2012.
The Office for National Statistics (ONS) will release its figures on Tuesday, just before an influential committee of MPs is set to question the Bank’s governor, Mark Carney, and other officials involved in setting interest rates.
The full preview is here:
Here’s a link to the Catalan letter to Rajoy:
As expected, Puigdemont's reply was not "yes or not", but a 4 pages letter to Rajoy https://t.co/PW5lglnboO
— Pablo Rodríguez (@Suanzes) October 16, 2017
The dip in the Spanish market follows a letter from Catalonia’s President Carles Puigdemont to Madrid, which appears not to be the clear yes or no decision on the region’s independence which Spanish Prime Minister Mariano Rajoy had asked for.
Bloomberg has the story here.
European markets open mostly higher but Spain and Italy dip
As expected European markets are on the rise again, although Spain’s Ibex is proving an exception on the continuing uncertainty over Catalonia’s possible move towards independence.
The FTSE 100 is up 0.16%, helped by a positive start for mining shares after the Chinese inflation data.
Germany’s Dax has added 0.14% and France’s Cac has climbed 0.22. But Italy’s FTSE MIB is down 0.14% and Spain’s Ibex is off 0.13%.
In the UK, the old pound coin ceased to be legal tender at midnight.
But some retailers will continue to accept the coin for a limited period, while not everyone is prepared for the new 12-sided replacement.
Here is our latest report:
Ahead of Chinese third quarter GDP figures and the forthcoming Communist Party congress, the country’s inflation numbers have just been released.
The headline year on year figure for September came in at 1.6%, in line with expectations and down on the August reading of 1.8%.
But within that, factory gate prices jumped 6.9%, a six month high and well above expectations of a figure of 6.4%. CMC’s Hewson said:
With central bankers the world over scratching their heads as to how long inflationary pressures are likely to remain benign they may well be starting to see the end of this benign environment if this morning’s latest inflation data from China is anything to go by....Could this increase [in factory gate prices] be any early indicator of global inflation starting to show signs of returning?
Agenda: Markets on the rise, Chinese inflation higher than expected
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The weather may be marking the anniversary of the 1987 storms which hit the UK with ex-hurricane Ophelia causing shutdowns in Ireland. But the stock market storms which accompanied the bad weather thirty years ago are far from investors’ minds. Quite the reverse, with the MSCI All Country World share index hitting a new peak of 495.37. With the Dow Jones Industrial Average at another record high on Friday and the Nikkei 225 up nearly 0.5% for its tenth day of rises, European markets are expected to open higher.
Our European opening calls:$FTSE 7554 +0.25%
— IGSquawk (@IGSquawk) October 16, 2017
$DAX 13013 +0.17%
$CAC 5364 +0.22%$IBEX 10279 +0.20%$MIB 22409 -0.02%
Michael Hewson, chief market analyst at CMC Markets UK, said:
Last week saw new record closes for the MSCI World index, FTSE100, FTSE250, German DAX as well as the major US markets, while the Nikkei225 enjoyed its highest levels since 1996, as investors continue to adopt an optimistic outlook for the global economy, putting aside concerns about geopolitics in their hunt for returns.
While all the talk is of a possible easing back from the current easy monetary policy stance the fact remains that even with a moderate retreat from the US Federal Reserve, the European Central Bank and the Bank of England the fact remains that interest rates will still be nailed to the floor on a historical basis.
That’s not to say that we might not see some sort of policy mistake, but it would need to be a real doozy, and for now that doesn’t seem likely at this point.
It is more likely to be a geopolitical intervention that could upend the apple cart.
There is of course the continuing uncertainty over Brexit discussions, as the clock ticks down and EU leaders hold a summit this week.
More immediately there is the outcome of the Austrian election, with gains by the far right and the implications of that for EU policy, not to mention a setback for German chancellor Angela Merkel in local elections at the weekend.
And the Catalan confrontation with Madrid could come to a head today as the region’s president clarifies his position on independence after the recent referendum.
Elsewhere, oil is on the rise as tensions grow in Iraq, with federal forces moving to enter the disputed oil-rich city of Kirkuk following the Kurdistan government’s referendum last month. There is of course also the prospect of renewed sanctions against Iran following Donald Trump’s hostility to the nuclear deal with the country. So Brent is up just over 1% at $57.83 a barrel, while West Texas Intermediate has climbed 0.8% to $51.88.
On the inflation front, Chinese factory gate prices rose by more than expected, suggesting that global inflationary pressures could start building. The benign inflation outlook up until now is something that has been puzzling central bankers like the US Federal Reserve chair Janet Yellen. (More shortly)
It is a little thin on the economic data front today.
Agenda:
- 10am BST: Eurozone trade balance (August)
- 13.30 BST: US Empire manufacturing survey (October)
Updated
