The FTSE 100 closes at a record high for the 12th successive day
- Chinese exports slump amid fears of a US trade war
- Germany’s Merkel poised for Brexit negotiations
- Bank of England’s Saunders: jobless rate could stay below 5%
- US retail sales rise 0.6% in December
- Sterling volatility mounts as May prepares Brexit speech
- UK Christmas retail: the winners and losers
For only the second week in seven months, US companies have cut the number of oil rigs on stream.
According to the Baker Hughes survey, they cut 7 oil rigs and added one gas rig last week, but this is only expected to be a temporary pause as shale producers begin to boost spending.
As the FTSE 100 hit yet new highs, European markets also ended the week on a high note.
Positive updates from JP Morgan and Bank of America helped the European banking sector, including the beleaguered Italian banks. So the final scores in Europe showed:
Not everyone is convinced the market’s record breaking run can be sustained.
Top fund manager Neil Woodford has just compared the current market euphoria with the dotcom bubble, with share prices rises out of sync with proper valuations.
On the continuing rise in the UK market, Connor Campbell, financial analyst at Spreadex, said:
Some decent data out of the US helped lift the dollar this afternoon, in the process clearing the way for the FTSE to hit a fresh high.
Though both the retail sales and consumer sentiment figures, at 0.6% and 98.1 respectively, were a tad lower than expected, they still provided enough fuel for the dollar to overturn its earlier losses. Against the pound it went from half a percent down to 0.1% up, pushing sterling back under $1.22 in the process, while taking another 0.2% off the euro. The Dow Jones also reacted positively to the figures, rising around 15 points after the bell; that only just put the index over 19900, however, a level it has repeatedly struggled to escape since before Christmas.
For the 12th consecutive day the FTSE 100 has closed at another record high.
After drifting for the early part of the day, the leading index was boosted during the afternoon as US retail sales and confidence figures lifted the dollar and weakening the pound. As has been the case since June’s Brexit vote, the fall in sterling gave a lift the to overseas earners which make up a large part of the FTSE 100.
Heading into the close, the FTSE 100 is well on course for another record closing high. The fall in the pound is one factor in the gains, as it has been since the Brexit vote, but there are others. Jasper Lawler, senior market analyst at London Capital Group, said:
There was a strong rebound in the pharmaceutical shares which sold-off in the wake of Donald Trump’s press conference. Markets have pared bets the President-elect’s hostile attitude to drug pricing would spill over to international markets.
Homebuilder Barratt Developments and Kingfisher were top risers whilst disappointing economic data from China and a downturn in the price of gold hurt mining company shares including Randgold Resources.
This week the pound dropped to a three-month low against the dollar and a two-month low versus the euro. Next Tuesday Theresa May will set out the long-awaited approach the government will take before triggering article 50. The PM has difficult balancing act of trying to offer some more clarity to the British public, parliament and financial markets without losing the upper hand in negotiations with the EU.
If the Prime Minister confirms the UK will leave the single market in a “Hard Brexit”, the British pound could drop below 1.20 against the dollar, and quite possibly into “flash crash” territory soon thereafter. More likely the PM will be a little coyer. The uncertainty of being unspecific is not good for Sterling either, but leaving the door open to staying in the single market should support the pound.
Back with the situation in Greece, and German finance minister Wolfgang Schäuble has suggested the EU might take over the country’s bailout if the International Monetary Fund decided not to get involved. Here is the report from EurActiv via Reuters:
Berlin is weighing up the possibility of the EU taking over theGreek bailout in the event that the International Monetary Fund decides to end its role in it, German Minister of Finance Wolfgang Schäuble said on Friday.
In an interview with Süddeutsche Zeitung , Schäuble floated the idea that if the IMF decides to pull out, Europe could figure out its “own solution” within the eurozone. He added, though, that such a solution must guarantee a strict implementation of the bailout’s terms.
“If we continue solely then we will have to better guarantee the agreements … This role could be assigned to the ESM,” he emphasised, saying that if the absence of the IMF brings major changes [to the agreement] then the new conditions will need the approval of the German parliament – which is preparing for elections next autumn.
However, Schäuble warned that if the Greek side does not deliver on its commitments, it will be the end of the current programme, and new negotiations will be required.
Unsurprisingly, US consumer sentiment was dominated by the political situation given the election of Donald Trump as president. The survey’s chief economist Richard Curtin said:
The post-election surge in optimism was accompanied by an unprecedented degree of both positive and negative concerns about the incoming administration spontaneously mentioned when asked about economic news. The importance of government policies and partisanship has sharply risen over the past half century. From 1960 to 2000, the combined average of positive and negative references to government policies was just 6%; during the past six years, this proportion averaged 20%, and rose to new peaks in early January, with positive and negative references totaling 44%.
This extraordinary level of partisanship has had a dramatic impact on economic expectations. In early January, the partisan divide on the Expectations Index was a stunning 42.7 points (108.9 among those who favorably mentioned government policies, and 66.2 among those who made unfavorable references).
After slightly disappointing US retail sales figures come some slightly disappointing confidence figures, although the figures remain high.
The preliminary University of Michigan survey of consumer sentiment came in at 98.1 in January, down from 98.2 in December and below expections of a figure of 98.5.
Continuing worries about Brexit, reinforced after Thursday’s news that UK prime minister Theresa May will make a speech on the subject on Tuesday, have put more pressure on the pound.
It it on course for its fifth week of falls in the last six against the dollar, and is currently down 0.21% at $1.2137.
In case you missed it, there is more controversy in the confectionary world following the decision by the makers of Toblerone to cut costs by widening the gaps between the chocolate peaks.
US markets are up a touch, with decent US retail sales and strong quarterly earnings from Bank of America and JP Morgan Chase providing some cheer.
Here is our full story on the investigation into the “flash crash” in the pound last October, which stunned traders and policymakers:
IG expects US markets to open modestly higher:
Reaction is coming in to those US retail sales figures, which showed growth of 0.6% in December. It was a touch below expectations of a 0.7% rise.
Rob Carnell, chief international economist at ING, said the figures were good enough to justify a March hike in US interest rates:
US December retail sales were not as good as had been expected. But having said that, the consensus was aggressively optimistic, and sales were not particularly weak in an absolute sense, with both main measures showing gains over the previous month.
There is therefore no good reason why this data should deter the Fed from hiking rates again at their March meeting if they want to do so, which we think they do.
With consumer confidence surging to multi-year highs after the election and employment / wage growth still solid, there is no reason to suspect that consumption growth is going to weaken in the first half of this year.
Particularly not when households will be anticipating a potentially big decline in tax rates at some point this year.
Sticking with the US, the reporting season for banks is underway.
Bank of America and JP Morgan Chase have both reported a sharp rise in quarterly earnings, boosted by a surge in activity following Donald Trump’s victory in the US presidential election.
The US economy may be building momentum. Looking ahead there is opportunity for good, rational and thoughtful policy decisions to be implemented, which would spur growth, create jobs for Americans across the income spectrum and help communities.
US retail sales grew by 0.6% in December according to figures just in from the Commerce Department.
It was a touch below expectations of a 0.7% increase, but November’s growth figure was revised up to 0.2% from 0.1%.
More pay, greater confidence lifts December retail sales https://t.co/ADIzq8xt5o
Over in the US, figures are expected to show US retail sales rose 0.7% in December, following a 0.1% rise in November. The data lands at 13.30 UK time.
Oil prices continue to slide and are on course for the first weekly fall since late December.
Crude has been hit by concerns about whether the production cuts agreed by Opec in November will stick, and the fall in Chinese exports reported earlier had added to the negative sentiment, since it casts doubt on the strength of the world’s second largest economy.
The FTSE 100 is on course to close at a record high for the 12th straight day.
Here’s an update of trading across Europe’s main markets:
The Bank for International Settlements has published its report on the “flash crash” in the pound in October.
Whatever the cause of the initial selling in sterling, the market was likely to be vulnerable at that time of day to sharp moves and an associated withdrawal of liquidity.
Gold has been hitting seven-week highs above $1,200 an ounce this week and is hovering just below that level this morning.
Berenberg’s chart of the week features the global manufacturing sector.
The German bank says purchasing managers indices for major regions suggest an upturn is underway.
All major regions, manufacturing is picking up. While turning at different times, purchasing managers indexes in the US, China, Germany and the UK are rising. Along with stable gains in employment, the pick-up in export-orientated manufacturing reflects growing optimism and willingness to spend by businesses and households. More investment in long-lived capital could generate the productivity gains that have been woefully weak recently.
US households are the global consumer of last resort; their spending patterns shape global trends, for better, and for worse. Done right, pro-growth policies should boost US demand growth over the coming years, supporting gains in global goods demand and manufacturing output.
Of course, the downside risks linked to the new administration’s potential policies are profound. International trade remains a significant wildcard. Trump has proposed to impose tariffs and erect other barriers to imports, which could trigger tit-for-tat responses for trade partners, thus inhibiting international trade and cross border flows of goods. On balance, we do not expect Congress to approve such proposals and are optimistic the upturn will continue.
German Chancellor Angela Merkel will chair a cabinet meeting on Brexit next week, a government spokesman has said.
The committee will deal with preparations for negotiations on Britain’s exit from the European Union, preparations within the federal government as well as by the European institutions.”
Arnaud Masset, market analyst at the internet bank Swissquote, considers the dollar’s prospects:
The dollar index rose almost 1% ahead of [Trump’s press] conference but quickly reversed gains, sliding as much as 2% since then, down to 100.72 before stabilising at around 101.30.
The market does not expect much from Trump’s investiture next week as it will most likely be in the same vein. Against this backdrop, we expect the market will pay increasing attention to US fundamentals and to the Federal Reserve. Obviously this will not happen overnight as investors still expect a lot from the Trump presidency; however, they have also started to realised that they were somewhat overoptimistic.
The US dollar is heading for its worst week in two months when measured against a basket of six major currencies.
It opens up the possibility for the market that he could go down the more toxic route which is becoming more protective on trade. Therefore it’s quite prudent for investors that the dollar is a bit softer.
Saunders in one line:
BoE policymaker Saunders saying unemployment will probably stay low this year but we shouldn’t expect that to mean wage growth picks up much
The BoE’s Michael Saunders is also highlighting the shift in recent years in Britain’s labour market to a gig economy and more self-employment.
In the last five years, the numbers of people that are self-employed has risen by 14%, the number of agency workers is up by about 30%, and the number of businesses registered in the UK is up by 40%.
There has been also been the expansion of zero hours contracts and the “gig economy”. Among people in work, the proportion that are full-time employees (ie not self-employed, not part-time, not in a temporary job) remains well below pre-recession levels.
Saunders suggests the prospects for wage rises in the UK are not great:
Michael Saunders, external member of the Bank of England’s Monetary Policy Committee, is speaking at a Resolution Foundation in London.
Saunders said the jobless rate may not rise as high this year as the Bank was forecasting in the November inflation report. Policymakers predicted the jobless rate would rise to 5.4% by the end of 2017 from a current 11-year low of 4.8%,
Economic growth has recently been stronger than expected.
Rather than the rise in unemployment forecast in the November inflation report, it seems quite possible to me that the jobless rate will stay below 5% this year.
Conor Campbell, financial analyst at Spreadex, points out that the weak trade data from China is limiting the FTSE’s gains this morning:
After squeaking to a fresh peak last night, making it a record 11 consecutive sessions of closing highs, the FTSE quickly began to build above 7300 this Friday.
The FTSE likely could have managed something a bit more robust this morning if it weren’t for weak data from China weighing on the miners. With Chinese exports seeing their biggest yearly drop since 2009, down 7.7% across 2016, and imports falling a troublesome 5.5%, the likes of Rio Tinto and Antofagasta found themselves in the red as Friday got underway.
On the corporate front it’s a bit calmer this morning following Retail Super Thursday yesterday. (You can read a handy round-up of how the various retailers performed over Christmas here.)
There have been a few updates this morning:
The FTSE 100 has hit a new record high and is on course to extend its longest ever winning streak. The index is currently up 27 points or 0.4% at 7,320.
Europe’s major markets are all higher this morning:
Over in the currency markets, one-week sterling volatility jumped to the highest since early November as Theresa May prepares to give a speech on Brexit on Tuesday, hitting 14.275 according to Reuters.
Michael Saunders, an external member of the Bank of England’s Monetary Policy Committee, will be giving a speech later this morning at the Resolution Foundation in London. Economists and investors will be looking for any clues on the latest thinking at Threadneedle Street.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Trade data from China has disappointed, with exports falling 7.7% in 2016, the biggest drop since 2009. Imports fell 5.5%.
Looking ahead, it’s hard to see conditions becoming much more favourable to Chinese trade than they already are. Further upside to economic activity, both in China and abroad, is probably now limited given declines in trend growth.
Instead, the risks to trade lie to the downside – the likelihood of a damaging trade spat between China and the US has risen in recent weeks following Trump’s appointment of hardliners to lead US trade policy.