European markets edge higher
With Wall Street hitting new highs and Spanish shares recovering from their falls following the weekend’s violence at the Catalan independence vote, European markets managed to gain some ground, albeit a limited amount. The final scores showed:
- The FTSE 100 finished up 29.27 points or 0.39% at 7468.11, helped by a weaker pound in the wake of disappointing construction figures
- France’s Cac closed up 0.32% at 5367.41
- Germany’s Dax was closed for the Unity day holiday
- Spain’s Ibex ended up 0.02% at 10,257.5
- But Italy’s FTSE MIB slipped 0.12% to 22,784.82
- In Greece, the Athens market added 0.8% to 752.44
On Wall Street, the Dow Jones Industrial Average is currently up 69 points or 0.31%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Some breaking UK news, and the Royal Mail is facing a strike threat, its first since it was privatised. Workers voted emphatically in favour of industrial action over pensions, pay and jobs. The Press Association reports:
Members of the Communication Workers Union (CWU) backed walkouts by 89% on a turnout of 73% of the 110,000 balloted.
It passed the threshold in the Government’s controversial Trade Union Act, under which ballots need a 50% turnout for industrial action to go ahead.
The CWU believes it is a “watershed” moment for unions as well as the Royal Mail, which it has accused of following a “relentless” programme of cost-cutting to maximise short-term profits and shareholder returns.
The union accused the company of “unilaterally” closing its defined benefit, or final salary, pension scheme, with new entrants going into an “inferior” scheme which will leave them in “pensioner poverty”. The union is also in dispute over pay and issues such as delivery office closures...
The CWU Postal Executive will meet later this week to determine the next steps in this campaign and any potential strike dates.
Joshua Mahony, market analyst at IG, is also contemplating a weaker pound:
The Dow has punched to new all-time highs today, as the optimism sparked by last week’s Trump tax plans continue to drive outperformance in US markets.
On a day devoid of any major economic data points from the eurozone and US, the focus has been on the UK in the wake of this morning’s construction PMI which plummeted into contraction territory. With London house prices shrinking, and business confidence suffering, it comes as no surprise that completed construction jobs are failing to be replaced with new orders as investment dries up.
Tomorrow’s services PMI should give us a good idea of how the fourth quarter could shape up, and if the manufacturing and construction readings are anything to go by, we are likely to see further deterioration in both economic data, and in turn, the pound.
As Wall Street hits new highs, the UK market is edging higher, mainly due to weakness in the pound. Connor Campbell, financial analyst at Spreadex, says sterling weakness could continue:
Despite having little to push it higher beyond its own momentum, a 50 point rise saw the Dow cross 22600 for the first time in its history. The FTSE, on the other hand, was at a rather less impressive on month high, climbing past 7450 – a repeated ceiling for the index in the past couple of months – thanks to a sterling-inspired 0.4% increase.
Talking of the pound, its miserable, manufacturing and construction PMI-dampened start to October continued this Tuesday. Cable fell 0.2%, taking sterling below $1.327 for the first time in almost 3 weeks. Against the euro the currency’s losses were even greater, the pound dropping 0.4% to a 2 week, sub €1.127 nadir after the European Parliament claimed that ‘sufficient progress has not yet been made’ on the EU divorce bill, preventing progress to the next round of negotiations.
Whether or not the pound can find a tourniquet for its losses may be dependent on Wednesday’s services PMI. Analysts are expecting the figure to nudge higher, from 53.2 in August to 53.3 in September; however, as we have seen twice already this week, those estimates have a tendency to be off the mark. If the services sector – the main fuel for the UK’s growth – shows the same signs of slowdown as the manufacturing and construction PMIs, then the pound may be in line for another pummelling.
Some disappointing data from the US.
The Institute for Supply Management’s current business conditions index for New York fell to 49.7 in September, down from 56.6 in August. A reading below 50 signals contraction.
#UnitedStates ISM New York Index at 49.7 https://t.co/fk69bW3bk1 pic.twitter.com/WNw6T1wg4z
— Trading Economics (@tEconomics) October 3, 2017
And if you think you’ve heard the words “record US stock market highs” many times before in the past few months, well, you have:
So far this year we've had 40 fresh record highs for S&P, 43 for Dow, 51 for Nasdaq Comp, 58 for Nasdaq Tech.
— Mike van Dulken (@Accendo_Mike) October 3, 2017
Interestingly, of the 30 Dow stocks, only 18 made a fresh record high this year, only 12 made >10, only 10 made >15, BUT 6 made >30
— Mike van Dulken (@Accendo_Mike) October 3, 2017
Updated
US markets hit new peaks
DING DING! The US stock market has hit fresh record highs at the start of trading in New York.
Today’s report also highlights how Canada has gone on a household debt spree since the financial crisis, while American families have managed to cut their borrowing burden.
Canada’s economy has posted sparkling growth earlier this year, while house prices have also soared. If the IMF are right, there could be a reckoning at some stage....
The IMF also warns that the least wealthy are being dragged deeper into debt, and will suffer the most if there is an economic crisis.
Today’s report says:
Lower-income groups tend to be more vulnerable. Household surveys confirm that, within countries, the share of lower-income households in total debt has grown.
These households typically have higher debt-to-income, higher debt-service-to-income, and higher debt-to-assets ratios, which makes them more vulnerable to adverse shocks than higher-income households.
This chart shows how a build-up of household debt can create a vicious circle:
As you can see....once banks cut back on lending, asset prices fall, households default on their debt, hitting bank capital reserves, leading them to cut back on their lending etc etc.
IMF: high household debt creates financial stability risks
Newsflash: The International Monetary Fund has warned that the rise in consumer debt risks destabilising the global economy.
In a new report, the IMF flags up that increased borrowing can stimulate short-term growth, but it also creates financial instability.
The Fund says:
On average, an increase in household debt boosts growth in the short term but may give rise to macroeconomic and financial stability risks in the medium term. Real GDP initially reacts positively to increases in household debt, as do consumption, employment, and house and bank equity prices.
However, after one or two years, the dynamic relationship between debt, GDP, consumption, employment, housing, and bank equity prices turns negative. Higher household debt is associated with a greater probability of a banking crisis, especially when debt is already high, and with greater risk of declines in bank equity prices.
The warning comes in the analytical chapters of the Fund’s Global Financial Stability Report, which have just been published.
In an accompanying blog post, senior IMF Nico Valckx spells out that increasing the ratio of household debt actually leads to lower growth, over say five years. The effect is particularly stark for advanced economies, as this chart shows:
Valckz says that debt “greases the wheels of the economy”, letting people make an important big purchase and finance it over time. But too much grease ends up bunging the wheels of growth, he explains:
At first, households take on more debt to buy things like new homes and cars. That gives the economy a short-term boost as automakers and home builders hire more workers. But later, highly indebted households may need to cut back on spending to repay their loans. That’s a drag on growth.
And as the 2008 crisis demonstrated, a sudden economic shock – such as a decline in home prices – can trigger a spiral of credit defaults that shakes the foundations of the financial system.
More here:
IMF warns that using consumer debt to fuel growth risks crisis https://t.co/mAd3HcfMuu
— The Guardian (@guardian) October 3, 2017
Updated
UK readers will be well aware that the cost of living in Britain has risen sharply in the last year, following the slump in the pound after the EU referendum.
Now, a new report has highlighted that inflation in the UK is outpacing other advanced nations, including Germany, the US and France.
My colleague Richard Partington explains:
The UK has the highest inflation rate among the world’s top economies, in the latest sign the Brexit vote is contributing to a squeeze on living standards.
The increased cost of importing food and fuel is pushing prices to rise at a faster rate than anywhere in the G7 group of leading global economies, according to the Organisation for Economic Co-operation and Development. The UK is only behind Turkey, Mexico and the eastern European states of Latvia and Estonia in the club of 35 developed nations.
The annual growth in prices in the UK jumped to 2.9% in August from 2.6% in July, equalling a four-year high in the consumer price index (CPI) reached in May earlier this year. That outstrips the average 2.2% growth in prices across the OECD for the same month.
Britain’s construction woes haven’t dampened the mood in the financial markets.
World stock markets remain at record highs today, following last night’s rally on Wall Street.
In London, the FTSE 100 has hit a one-month high, up 9 points at 7448. Big exporters are benefitting from the drop in the pound this morning.
Job threat to Norwich as Britvic pulls out
Hundreds of workers in Norwich face an uncertain future after drinks company Britvic announced plans to shut its factory in the city.
The group is planning to move production of Robinsons and Fruit Shoot drinks from the Norwich factory to sites in east London, Leeds and Rugby by 2019.
The 242 people who work there will be offered “redeployment opportunities at other sites”, says Britvic, or support to find a new job elsewhere.
The site is co-owned with consumer goods giant Unilever, which makes Coleman’s Mustard there. Unilever says it is now reviewing its own options; that could mean that production of the fiery condiment ends after two hundred years.
Local MPs and business leaders are rallying around, according to the local Eastern Daily Press.
Labour’s Clive Lewis tweets:
This is an awful prospect for hundreds of workers&their families across #norwich.Ill do all I can to save jobs here https://t.co/QJ4XmrCQwF
— Clive Lewis (@labourlewis) October 3, 2017
Chloe Smith, MP for Norwich North, says:
“This is very sad news and many constituents will be very anxious about this possible closure. At this stage, I am urging the company to make every support available to those workers.”
Updated
David Montague, chief executive of London housing association L&Q, is urging the government to help British construction and provide some Brexit certainty.
He fears that building firms will struggle badly if they lose access to workers from overseas.
“Today’s figures are worrying for the construction sector and at a time when more housebuilding is needed than ever before.
“We need assurance that an appropriate immigration policy will keep the doors open to skilled overseas talent and that there will suitable investment in training at home. Without this, the figures we are seeing today - will undoubtedly worsen.
“L&Q and many others in the sector have skilled workforces, strong partnerships, access to land and the financial strength to deliver very ambitious plans. What we need now is political and economic certainty.”
Lending to UK firms at risk after Brexit, Bank of England warns
Britain’s builders aren’t the only people worrying about Brexit.
The Bank of England has flagged up another concern this morning; that UK businesses could struggle to borrow after Britain leaves the EU.
That’s because European banks who currently operate branches in Britain may have to upgrade to fully fledged subsidiaries after Brexit. If they don’t, they might not be allowed to operate. That would cut the amount of lending offer, the BoE fears.
My colleague Jill Treanor explains:
Companies from European Economic Area countries – EU member states, Iceland, Liechtenstein and Norway – provide about 10% of lending to UK businesses and would need to reapply for authorisation to operate in Britain after it leaves the EU.
In its latest update on potential risks to financial stability, the Bank of England said: “The risk of disruption to wholesale UK banking services appeared to be slightly higher than previously thought, given that a number of EEA firms branching into the UK were not sufficiently focused on addressing this issue.
More here:
KPMG: Construction decline is bad news
Richard Threlfall, head of infrastructure, building and construction at KPMG has a very gloomy take on today’s construction PMI:
“This reading is significantly worse than expected and shows that economic uncertainty continues to have a serious impact on the construction industry. Construction is an economic bellwether, so the concern will spread well beyond the sector.
“There is a clear downturn in commercial construction, which is likely to continue. This is because new orders are dropping off, hitting pipelines. Infrastructure output also appears to be in decline and contractors will be concerned about a lack of new projects.
“The one relative bright spot in the data was housebuilding, but even this lost momentum and there are fears that demand will drop off if interest rates rise.”
Pound falls after weak construction report
The pound has dropped to its lowest level against the US dollar in over two weeks, down 0.2% at $1.325.
Sterling has also shed 0.3% against the euro, to €1.128.
U.K. construction PMI unexpectedly dipped below the key 50 threshold in September. Pound dropping to $1.3257
— Sara Sjölin (@sarasjolin) October 3, 2017
The fall in UK construction activity last month has come as a nasty shock to the City. Traders are concerned that the British economy may be weakening, in the face of Brexit worries and tensions at the heart of the UK government.
Earlier today, a senior German MEP actually urged Theresa May to sack foreign secretary Boris Johnson following his comments about Brexit.
Manuel Ortiz-Olave, Market Analyst at Monex Europe, says this political tension is not good for sterling.
“Today UK construction sector survey data fell into negative territory for the first time in more than a year. The data comes at a terrible time considering how poorly the latest rounds of macro data have performed, and also now that a potential political crisis is brewing in the Tory party.
A combination of last Friday’s downward revisions of GDP data, the increase in trade deficit and consumer debt, coupled with yesterday’s poor manufacturing survey data are now followed by construction pessimism across the board.
Updated
Today’s PMI report also shows that British builders are suffering from the weak pound.
Input cost inflation hit a seven-month high in September, meaning construction firms were forced to pay more for raw materials.
UK construction slowdown: What the experts say
Jason Robinson of trade credit insurer Euler Hermes fears that British building companies could suffer a “domino effect” of failures in the months ahead.
“Access to skilled labour is among the chief concerns within the construction industry. Without clarity on Brexit negotiations and in particularly EU workers’ rights, uncertainty will weigh on contractors’ pipelines because of the lack of concrete details over the future economic landscape.
“While the performance of housebuilders has been positive in 2017, an increase in failures across construction appears unavoidable as contracts become more difficult to get over the line and tendering becomes keener. High profile profit warnings continue as legacy contracts take their toll on margins.”
“Payment delays from large contractors could have a significant impact down the supply chain, and firms will need to be vigilant to avoid being caught in a ‘domino effect’ of failures.”
Mike Chappell, global corporates managing director for construction at Lloyds Bank Commercial Banking, says the government could help the building sector.
“In infrastructure, contractors are hoping for further positive news in November’s Budget following this week’s announcement of more funding for the north of England’s rail network.
Despite uncertainty, the UK is still on the whole viewed by overseas funders as a good place in which to invest their capital.
Hamish Muress, currency analyst at OFX, agrees that Brexit is hurting builders:
“This contraction in the construction sector wasn’t welcomed by the market, and certainly won’t be welcomed by the Brexit negotiating team and those at the Conservative Party conference.
Brexit uncertainty has returned to the fore and is back to weighing down on sterling, as a weak pound increases the cost of imported materials.
The fall in commercial construction activity last month suggests companies are stopping investing in new shops, offices and factories.
That’s a worrying sign for economic growth, says Chris Williamson of Markit.
Particularly worrying downturn in commercial construction #PMI, points to falling UK business investment in offices, shops, factories etc pic.twitter.com/7RyZ3cWiC6
— Chris Williamson (@WilliamsonChris) October 3, 2017
CIPS: Brexit blight is hitting the economy
The tumble in the UK construction PMI last month shows that anxiety over Britain’s exit from the EU is hitting the economy.
So argues Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply.
Brock said:
“A dismal picture of construction emerged this month as the sector showed signs of worsening business conditions across the board. With the biggest contraction in overall activity since July 2016, and a drop in new orders, optimism was in short supply.
“Respondents pointed to obstructive economic conditions and the Brexit blight of uncertainty, freezing clients into indecision over new projects. Even housing, the stalwart of the construction sector stuttered with a dwindling performance, but civil engineering was the biggest victim falling to its weakest level for four and a half years.
Housebuilding slows as 'fragile confidence' bites
UK housebuilding growth slowed to a six-month low, while civil engineering and construction both shrank in September.
Tim Moore of Markit, who produced today’s report, explains why activity hit a 14-month low of 48.1 last month:
Commercial development has been the worst performing category in recent months. Construction firms attributed falling volumes of commercial work to subdued business investment and reduced risk appetite among clients, linked to heightened economic and political uncertainty.
“Civil engineering work decreased at its fastest pace since April 2013, which prompted concerns from survey respondents about a near-term lack of new infrastructure projects.
“House building slipped down a gear in September, which highlighted that fragile confidence has spread across all three key market segments. Some firms suggested that the loss of momentum for residential construction reflected worries about the outlook for ultra-low mortgage rates and less upbeat demand expectations.”
UK builders suffer surprise contraction
Breaking! Britain’s construction sector is contracting, fuelling fears that the UK economy is slowing.
The Markit construction PMI, which tracks activity across the sector, fell to just 48.1 in September. That’s down from 51.1 in August.
Crucially, it is below the 50-point mark that separates expansion from contraction.
In other words, activity across the building sector is shrinking, for the first time in 13 months (just after the Brexit vote).
This is much worse than anyone in the City expected (economists predicted a reading of around 50.0)
Builders interviewed by Markit say they suffered a drop in workloads due to “fragile confidence and subdued risk appetite” among clients, especially in the commercial building sector.
Brexit uncertainty appears to be a big factor. Markit says:
Survey respondents widely commented on a headwind from political and economic uncertainty, alongside extended lead times for budget approvals among clients
More to follow....
Updated
Greggs is hoping that a new ‘all day breakfast’ wrap, and a Thai chicken soup offering, will lure customers into its shops this autumn.
The bakers chain reports that its breakfast sales have “grown strongly” in the last three months, helping total takings to rise by 8.6%.
Gregs is also cracking on with its expansion programme; planning to open up to 150 stores this year, and close 50. It’s already opened 98 since the start of January.
Greggs trading update..
— Louise Cooper (@Louiseaileen70) October 3, 2017
Sales +8.6%
Lfl +5%
98 new stores opened, 32 closed, 120 refutes.
Looking forward to new Thai Chicken Soup
Shares have risen by 1% so far today.
Updated
Shares are nudging higher in Europe, with the Stoxx 600 index up 0.1%.
Spanish shares are also up slightly, following yesterday’s selloff after the Catalan referendum.
In London, the FTSE 100 is flat. Ferguson is leading the risers, though, up 3.6% after announcing a £500m share buyback alongside a sharp rise in profits. Ferguson (previously called Wolseley) has been benefitting from a tighter focus on the US housing market.
World stock markets hit new highs
World stock markets have hit a new peak, following yesterday’s rally on Wall Street.
The MSCI All-Country World Share Index has nudged 488.33 points, indicating that equities have never been more expensive.
This rally was led by America, where the New York stock market hit fresh record highs last night.
The Dow Jones, S&P 500 and Nasdaq indices all began October with new gains.
Investors were cheered by the news that US factory growth hit a 13-year high last month, indicating that the US economy is expanding at a solid pace.
AT THE CLOSE: Dow, S&P 500, Nasdaq, and Russell post record closing highs. pic.twitter.com/vTFfff8MNK
— CNBC's Closing Bell (@CNBCClosingBell) October 2, 2017
Investors are also clinging to optimism that Donald Trump might push some growth-friendly measures though, as Bruce Bittles, chief investment strategist at Baird, explained (via CNBC):
The economy is doing well despite the storms.
A lot of folks don’t think there will be tax reform but the market thinks there will be. If that happens, it will be a big boost to the economy.”
The agenda: UK factory healthcheck
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We’ll be taking the health of the UK building sector this morning, when Markit releases its latest Construction PMI report, for September.
Britain’s builders aren’t having a great time right now, with Brexit uncertainty deterring some clients from committing to new projects. In August, the construction PMI fell to a one-year low of 51.1 (50 = stagnation). And there are fears that growth hasn’t picked up yet.
The City consensus is that September’s construction PMI dipped, to 51.0.
Anything lower than that would indicate that builders are struggling. That would be a concern, after Monday’s manufacturing PMI showed a factory slowdown.
Royal Bank of Canada expect a weak construction report....
Our expectation is for a dip to 50.3 from 51.1 which would come on the back of an undershoot of expectations in the manufacturing PMI yesterday.
However, what really matters is tomorrow’s services PMI as that will give us more of a sense of where the risks lie with our 0.2% q/q growth forecast for Q3.
We’ll also be tracking the latest development around Monarch Airlines, following its collapse yesterday.
Uber could also be in the news; its chief executive, Dara Khosrowshahi, has flown to London for talks with the transport authority over the loss of its licence in the capital.
Plus, we have results from baking firm Greggs (which has posted a 5% rise in like-for-like sales this summer), and heating supply firm Ferguson (whose profits are up 25% over the last year).
Here’s the agenda:
- 9.30am BST: UK construction PMI report for September.
- 9.30am BST: Bank of England releases the record of last month’s Financial Policy Committee meeting
- 10am BST: Eurozone producer prices figures for August.
- 2pm BST: IMF releases the Analytical Chapters of the October 2017 Global Financial Stability Report
Updated
.jpg?w=600)
