Growth in UK and US in focus after new year fears rattle markets
Stock markets across the EU have rebounded from yesterday’s losses as a more positive mood takes hold thanks in part to the announcement trade talks between China and the US.
The new talks between Beijing and Washington will take place next week at the vice ministerial level, raising hopes that the trade war started by President Donald Trump will be eased.
The sell-off in equities and other risk assets, fueled by multiple worries such as growth slowdown, higher rates, lack of supportive policy catalysts and geopolitical headwinds, smacks of an overreaction.
It’s looking like a more positive day on Wall Street. Futures are pointing to a rebound after yesterday’s Apple-inspired pain.
S&P 500 futures are up by 1.3%, Dow Jones industrial average futures are up by 1.2%, and Nasdaq futures have gained 1.7%, with a few hours to go yet until markets open in New York.
British consumer credit growth has also slowed, according to more bellwether data for the UK economy published today.
Consumer credit, which includes credit cards and personal loans, grew by 7.1% year-on-year for November, the weakest since March 2015, according to Bank of England figures.
City economists are split over whether to trust the measly picture of the British economy given by the services data.
The survey is “overstating the extent of the easing” in the British economy at the end of the fourth quarter, says Paul Dales, chief UK economist at Capital Economics – and a 0.1% fourth-quarter growth prediction from IHS Markit is too pessimistic. Dales said:
We’d place more weight on the slightly more upbeat CBI [Confederation of British Industry] growth indicator and think that 0.3% quarter-on-quarter is more likely. If a Brexit deal is agreed soon, growth will surely rise this year.
The continued weakness of the business activity index in December adds to evidence that the economy effectively has ground to a halt, primarily due to mounting concerns about Brexit.
The British economy is expected to expand by 0.1% in the final quarter says IHS Markit.
The data firm’s forecasts, based on the PMI data from services, manufacturing and construction, are lower than the average of the Treasury’s collection of economists’ forecasts, which point to 0.3% growth in the final quarter of the year.
New work increased only marginally during December, which contributed to a slowdown in job creation to its weakest since July 2016.
Sterling and the FTSE 100 are stable after the services PMI release – which was broadly in line with expectations.
The pound is still up by 0.3% against the US dollar, while the FTSE 100 gains have extended to 1.1%. The mid-cap stocks on the FTSE 250 are up by 1.2%.
However, IHS Markit describe it as a “subdued end to 2018”, as business activity rose at one of the slowest rates since the Brexit vote.
November’s data had been a 20-month low, so while the pick-up was greater than expected, the survey points to uncertainty holding back activity.
The final two months of 2018 saw the weakest back-to-back expansions of business activity since late-2012 and highlight how clarity on Brexit is needed urgently in order to prevent the economy sliding into contraction.
The British services sector accelerated slightly in December, bucking expectations of a slowdown.
The closely followed purchasing managers index rose to 51.2, up from 50.4 in November, according to data firm IHS Markit.
Sterling has edged up by about 0.3% ahead of the services PMI data.
Elsewhere on currency markets the euro is up by 0.2% against the dollar, for the most part seemingly unaffected by the marginally weaker than expected performance in its services sector.
At the risk of services PMI overload, it’s worth taking a look at one of the main drivers of the slightly more hopeful feel on markets this morning from earlier in the day.
Chinese markets, which enjoyed strong recoveries today, were boosted by the Caixin services PMI, which showed expansion in the sector accelerating in December.
After an ugly start to 2019 for equities, growth concerns abound. The China services update (and stimulus pledge) helps cushion manufacturing contraction this week, and confirms Monday’s official data suggesting services are in ruder health.
French services activity fell for the first time since June 2016, which IHS Markit said reflects disruption from the “gilet jaunes”, the protesters on living costs named after their yellow vests.
Services firms reported the weakest new business volumes for four years in December.
The eurozone economy moved down another gear at the end of 2018, with growth down considerably from the elevated rates at thestart of the year.
The Eurozone composite purchasing managers index (PMI) has fallen to the lowest since July 2013.
The indicator of Eurozone economic activity fell to 51.1 in December, still above the 50 no-change mark but well below the previous reading of 52.7, IHS Markit reported.
All looking very green on European markets.
Italy’s FTSE MIB is the leader, up by 1.3%, while the FTSE 100 in London has given up some of the opening gain for a 0.6% rise – although it is likely be a holding pattern until 9:30am, when the UK services PMI data comes in.
The owner of the Slug and Lettuce chain of bars has reported its Christmas trading, and it’s mostly positive news.
Sales at Stonegate rose by 12% on the year in the two weeks to 1 January, the private company reported today.
Nationwide’s house price barometer shows a marked slowdown in the market for homes, with annual growth across the UK of just 0.5%, the slowest since February 2013.
The slowdown was broadly expected, but is still notable, said Robert Gardner, chief economist at Nationwide.
UK house price growth slowed noticeably as 2018 drew to a close, with prices just 0.5% higher than December 2017. This marks a noticeable slowdown from previous months.
It has all the signs of a bounce on the FTSE 100 risers, with oil-exposed companies among the early performers.
Oil services firm John Wood Group is up by 3.3%, while packaging firm Mondi gained 2.4% in early trading.
FTSE 100 opens up by 1%.
France’s Cac 40 up 0.8% and Italy’s FTSE MIB rises by 0.86%. Europe-wide Stoxx 600 index gains 0.8%.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
In the UK all eyes today are on the services sector, with the closely watched services purchasing managers index (PMI) up at 9:30am to give the first reading on how the majority of the economy performed at the end of 2018.
This naturally feeds into investors deep-rooted fears about the global economy this year and so the impact of the warning stretched well beyond Apple and its suppliers and even, it would seem, into the FX market where the yen was heavily bid.
We fully expect the overall tone of [Powell’s] comments to indicate a willingness to change course given the emerging evidence of a slowdown in economic activity. Chairman Powell will be fully aware that the tightening of financial market conditions in November-December has played a role in hitting sentiment and hence the Fed can be very influential in changing those conditions.
Link : ‘Brexit anxiety’ holding back British services sector – business live