UK services companies say new business picked up in September, easing fears that June’s referendum has triggered a downturn
US service sector improves in September… but jobs figures disappoint – ADPTheresa May: Monetary policy has got to changeServices sector records solid growthPound hits yet another 31-year low
Hard Brexit could cost £10bn in City taxComing up: IMF’s Financial Stability Report
Back to Greece where tensions are mounting over home repossessions with clashes erupting between indebted home owners and riot police outside a court in Thessaloniki this afternoon. Helena Smith reports:
Anger over the incendiary issue of home repossessions intensified as clashes broke out while a court in the northern metropolis convened over the issue. Judges were forced to adjourn the hearing as protestors, who have formed a citizens group called Collectives Against Auctions, rioted with police reinforcements sent to guard the building. Last week, the same group managed to stop a similar hearing over the foreclosure of a home belonging to a man who had defaulted on a €300,000 bank loan after storming the court room. The man, a father- of-six, who also owed €80,000 to the social security fund, claimed he had been unable to meet loan repayments after his business went bust and he had suffered a heart attack that had left him almost wholly incapacitated.
Home repossessions are widely seen as a tipping point for Greeks at the sharp end of the biting austerity that has been the price of the debt-stricken country’s rescue from insolvency.
A mild recovery in the pound after better than expected UK service sector numbers saw the FTSE 100 drift back after Tuesday’s – failed – attempt at a new record. Meanwhile talk that the European Central Bank might begin tapering its bond buying programme took the wind out of European markets, with most ending lower. But strong US services data lifted Wall Street, albeit also prompting renewed talk of US rate rises this year. The final scores in Europe showed:
After Tuesday’s attempt at a new peak, the FTSE 100 continues to flounder as the day wears on. Chris Beauchamp, chief market analyst at IG, said:
Today has seen a reversal of yesterday’s action, when the FTSE 100 soared (at least in the morning) as others fell back. Now, we have Wall Street advancing, and European markets paring losses, while the FTSE 100 languishes towards the bottom end of the day’s range. Having been such a boon in recent days, the pound has perhaps hindered the index today, although sterling has recovered only a fraction of the ground lost since the beginning of the week…
The US ISM non-manufacturing index hit a level not seen since November 2015, further boosting the cause of those expecting a Fed rate hike this year. US markets seemed happy to rally on the news, making up for the losses suffered yesterday. 2140 has held yet again for the S&P 500, putting the index in a good position to challenge the all-time highs once again. A bounce in oil prices undoubtedly helped, after stockpiles dropped once again.
Back with the IMF, and in a new report it says global debt has hit a new record. Jill Treanor reports:
Global debt levels have reached a record $152tn (£119tn) according to the International Monetary Fund – more than double the size of the global economy at 225% of annual global output.
The Washington-based fund said that two-thirds of the debt – approximately $100tn is held by the private sector, or companies and households. The IMF warns that debt “can carry great risks [at] excessive levels”.
Related: World debt has hit record high of $152tn, says IMF
Related: Governments must heed IMF warning of $152tn global debt timebomb
Oil prices are moving even higher after a surprise decrease in US crude stocks.
EIA Weekly Oil Inventories (Sep 30)
Crude -2.98 Mln v +1.50 Mln exp, prev -1.88 Mln
Cushing +0.57 Mln v +0.36 Mln exp, prev -0.63 Mln
Elsewhere the International Monetary Fund has weighed in on Deutsche Bank, saying it was one of the banks which needed to convince investors its business model was viable in a low interest rate environment. The bank’s shares have fallen sharply on concerns about its balance sheet and the consequences of a possible $14bn fine by the US Department of Justice.
At the IMF meeting in Washington, the fund’s monetary and capital markets deputy director Peter Dattels said (quotes from Reuters):
Deutsche Bank… is among banks that need to continue to adjust to convince investors that its business model is viable going forward and has addressed the issues of operational risk arising from litigation.
And the non-farms?
#US: Strong or weak jobs report for September on Friday? Markit #PMI’s and #ISM’s tell two different stories… pic.twitter.com/tN4cOH4el1
But which should investors look at most, the Markit or ISM figures?
#US: Should markets listen to the weak Markit #PMI’s or the strong #ISM’s? They send two different signals about US Q3 #GDP growth pic.twitter.com/8n26iaQ6mw
Despite these strong service sector figures Dennis de Jong, managing director at UFX.com, believes a US rate rise before December is unlikely:
After slipping to a six-year low in August, the news that September’s ISM non-manufacturing PMI has rebounded strongly will be welcomed by Fed Chair Janet Yellen.
The US economy has been sending out mixed signals in recent months, and the uncertainty has not been helped by the speculation swirling around a long-anticipated interest rate hike.
Robust #ISM PMIs could edge softer than fcast #ADP data and point to #Nonfarm #payrolls above 170K
Anthony Nieves, chair of the ISM’s non-manufacturing survey committee, said:
The comments from the respondents are mostly positive about business conditions and the overall economy. A degree of uncertainty does exist due to geopolitical conditions coupled with the upcoming U.S. presidential election.
The Institute for Supply Management service sector survey is also positive, even more so in fact.
Its non-manufacturing PMI came in at 57.1 in September, showing a strong rebound from 51.4 in August and well above estimates of a figure of 53. This is the highest level since October 2015 and the biggest rise in the index since February 2011.
The first of the US service sector surveys shows a better than expected performance in September.
The Markit services final purchasing managers’ index came in at 52.3 compared to an initial reading of 51.9 and a figure of 51 in August. This is the highest level since April.
Markit: ” the economy is growing at an
annualized rate of only 1%”
Markit: ” Across both manufacturing and services the surveys point to the smallest monthly gain in jobs since April 2010″
With oil prices continuing to rise – West Texas Intermediate is up 1.9% at $49.63 a barrel – US markets are heading higher.
The Dow Jones Industrial Average is currently up 99 points or 0.5% while the S&P 500 and Nasdaq Composite both opened around 0.3% higher.
The ADP report still shows a strong jobs market, said Mark Zandi, chief economist of co-complier Moody’s Analytics:
The current record of consecutive monthly job gains continued in September. With job openings at all-time highs and layoffs near all-time lows, the job market remains in full-swing. Job growth has moderated in recent months, but only because the economy is finally returning to full-employment.
Job gains in September eased a bit when compared to the past 12-month average. We also observed softening this month in trade/transportation/utilities, possibly due to a continued tightening U.S. labor market and lackluster consumer spending.
Ahead of more key US data – services surveys later and the non-farm payrolls on Friday – came the monthly private sector jobs figures, and they have proved disappointing.
According to payrolls processor ADP, US private employers added 154,000 jobs in September, below the 166,000 figure expected by economists. This was the smallest increase since April. August’s number was revised down from a 177,000 increase to 175,000.
In the US the warm up act for Friday’s non-farm payrolls report is the ADP Payrolls report for September. Sadly this report has given little indication in recent months of being any sort of bellwether to its bigger brother, being remarkably stable in and around the 175k level for the last 4 months [before September].
Utility shares have been weak all day on reports that Theresa May might hit out at the charges the companies make on consumers, and sure enough she said:
Where companies are exploiting the failures of the market in which they operate, where consumer choice is inhibited by deliberately complex pricing structures, we must set the market right…
It’s just not right that two thirds of energy customers are stuck on the most expensive tariffs.
By attacking ultra-loose monetary policy, Theresa May might actually have put a floor under the pound.
Sterling is still hovering around $1.272, up from this morning’s 31-year lows. Investors may have concluded that it’s a little harder for the Bank of England to ease monetary policy again in November. Especially when the economic data is still better than feared.
May certainly doesn’t mince her words, and since she spoke we have seen a slight uptick in the pound versus both the dollar and the euro.
The FTSE 100 is also off of its lows of the day, although it still remains comfortably above 7,000. This may seem counter-intuitive, but ultra low interest rates are not great for the banking sector, so May’s words could boost this sector and thus the pound and the FTSE 100 at the same time.
Theresa May’s speech, and her criticism of the Bank of England’s monetary policy, has gone down rather badly with that beacon of free market ideology, the Adam Smith Institute.
Director Sam Bowman sounds like a man whose eyebrows got a thorough workout during the PM’s speech, saying:
[There isn’t] any evidence that clamping down on EU immigration will help British workers, but we will have to borrow more if immigration falls because they pay in more than they cost. Or that quantitative easing has made us worse off – the evidence suggests that without it the post-crisis recession would have been deeper and longer.
“Mrs May’s speech was the opposite of pragmatic. We call on the Prime Minister to abandon her ideological attachment to interventionist economic policies, look at the evidence, and accept that it tells us that markets, not the state, are the solution to our problems.”
Newsflash: The International Monetary Fund has warned that pension funds and insurance groups could be wiped out by the current era of ultra-low interest rates.
Insurance companies and pension funds are at risk of becoming insolvent if ultra-low interest rates persist for a prolonged period, the International Monetary Fund has warned.
After almost eight years in which central banks have kept borrowing costs at record lows in an attempt to boost growth, the IMF said an over-reliance on monetary policy could have unwanted side-effects.
Related: Low interest rates ‘pose solvency risk to insurers and pension funds’
Theresa May will have pleased many older Brits by attacking the Bank of England’s stimulus programme.
She’s absolutely right that QE has driven up assets prices; the whole idea is that central banks mop up ‘safe’ assets such as government bonds, and encourage investors to move money into risky things.
May on monetary policy interesting – a political economy shift. Previous preferred macro mix of tight fiscal/easy money being dropped.
Wowzers…. Theresa May has just fired a broadside at the Bank of England over its stimulus programme.
While monetary policy with super low rates and quantitative easing have provided emergency medicine, we have to acknowledge some of the bad side effects. People with assets have got richer, while people without have not…
A change has got to come, and we are going to deliver it because that’s what a Conservative government can do.
Related: Theresa May speech to Tory conference: ‘we will take centre ground’ – Politics live
Over in Greece, air traffic control workers have called a strike in protest at proposals to reform their industry.
Greek air traffic controllers plan to walk off the job over four days from October 9th, grounding flights in protest at changes to their job descriptions under reforms pursued by the country’s foreign creditors.
Their union said on Wednesday they would stage 24-hour strikes on October 9th and 10th, and October 12th-13th inclusive. All but emergency and search-and-rescue flights along with flights through the Athens Flight Information region would be suspended.
How low could the pound go, as Britain rattles towards triggering article 50 next March (or earlier).
Koon How Heng, a senior foreign-exchange strategist at Credit Suisse, believes sterling could easily hit $1.25, or lower…
“Officially, our forecast for sterling dollar is at 1.25.
“We would think it’s going to head lower. It’s probably going to go down the tubes.”
“Down the tubes” https://t.co/Pxu7nE7XcN
There’s a subdued feeling on City trading floor today, after the FTSE 100 failed (just) to hit a new alltime high yesterday.
The blue-chip index has shed almost 0.6%, or 40 points, to 7034 – despite Tesco soaring higher after impressing investors with its financial results today.
The bullish sentiment that drove yesterday’s sensational rise in the FTSE has been dampened today, with markets largely responding to the fears that perhaps the seemingly unlimited ECB QE could be limited after all. Rumours of exit plans being drawn up at the ECB highlight the growing feeling that Draghi & co are facing up to a exhaustion of monetary policy policies and effectiveness.
Bank of England deputy governor Ben Broadbent has weighed in on the Brexit issue, saying June’s vote has caused rather less economic damage than feared.
There’s little doubt that the economy has performed better than surveys suggested immediately after the referendum and, although we aimed off those significantly, somewhat more strongly than our near-term forecasts as well.
The foreign exchange market attempts to price long-run risk and, to my mind, the currency fell after the referendum for fear of what the result might ultimately mean for the UK’s access to global markets.
But if that is a risk for the longer term, once the UK’s new trading arrangements come into force, those arrangements are for the time being unchanged. Against that backdrop, the fall in the exchange rate will help to support activity, cushioning the impact of greater uncertainty. While that was expected, the effect could be coming through faster than we’d anticipated.
Really good speech by @bankofengland Ben Broadbent https://t.co/5Tibyb4COl
This isn’t how Theresa May would like her first conference as Tory leader to be remembered.
But it appears that the slump in the pound vs the euro this week means Britain has fallen to sixth place in the list of the world’s biggest economies, behind our old friends France.
International Monetary Fund estimates of the size of economies in 2016 puts the UK at £1,932bn with France weighing in at €2,228bn, putting the UK ahead so long as a pound buys more than €1.153.
At the start of the week, the prime minister, chancellor, foreign secretary and Brexit secretary all boasted that Britain would get a good deal in EU talks because Britain was the fifth-largest economy in the world. At that stage their words could be justified with sterling worth €1.16 at the end of last week.
£ fall vs euro, during Conservative conference, relegates UK to worlds 6th biggest economy behind France, calcs @FT https://t.co/Pl4DF6LtsY
The encouraging service sector PMI has given the poor old pound a bit of relief.
Sterling has now struggled back from its early morning selloff, and is now back around $1.2740 against the US dollar.
We’ve now had three months worth of PMI data, since the UK referendum.
And they suggest that the economy did deteriorate in July, before bouncing back in August and September.
UK PMIs for Q3. Given the hard data for services for July showed growth, this picture could turn out to be a slight underestimate of reality pic.twitter.com/s6i8agBbdC
David Noble, CEO at the Chartered Institute of Procurement & Supply, is also encouraged by September’s service sector report.
Policymakers were offered much-needed positive news for September after the recent Brexit upheaval, as the service sector reported the fastest increase in new business since February this year. Though the overall activity index still remained below its long-term average and had dipped slightly compared to August, it reflected a modest revival of fortunes for services businesses.
The sector concentrated on stabilising rather than forging ahead with confidence, as optimism stayed below the long- term average.”
Fears that Britain could be falling into recession have faded, following today’s service sector data.
Chris Williamson, chief business economist at IHS Markit, believes the UK has regained “modest growth momentum”
“Across the three sectors [Services, Construction and Manufacturing] the pace of economic growth signalled was the strongest since January, fuelling greater job creation as companies shrugged off short-term Brexit worries and enjoyed the benefits of a weaker currency.
“The improvement suggests the economy has regained a growth rate of approximately 0.3% after recovering from the initial shock of the EU referendum in late-June. If July’s low is included, the PMI surveys point to a mere 0.1% expansion of GDP in the third quarter, but this probably overstates the weakening in the rate of growth.
Breaking: Britain’s services sector grew faster than expected last month, as firms shake off the shock of June’s Eu referendum.
The Service Sector PMI, produced by data firm Markit, has come in at 52.6.
The UK service sector continued to recover from July’s EU referendum-induced shock,
However, future expectations remained very low by historical standards and the survey recorded the sharpest increase in service sector input prices in over three-and-a-half years.
Britain’s car industry seems to have ridden out the Brexit storm, so far anyway.
New car registrations in the UK rose 1.6% in September to hit a new record, according to new data from the Society of Motor Manufacturers and Traders.
“The ability of the market to maintain this record level of demand will depend on the ability of government to overcome political uncertainty and safeguard the conditions that underpin consumer appetite”
How bad would a ‘Hard Brexit’ be?
Well, according to a new report, 70,000 financial services jobs could be lost if the UK leaves the single market. Up to £10bn of tax revenue could be wiped out too — if British firms lost the ability to sell services across the European single market.
In this scenario, revenues are predicted to decline by up to £2BN (2% of total wholesale and international business), 4,000 jobs would be at risk, and tax revenues would fall by less than £0.5BN per annum.
Under conditions where the UK moves to a third country arrangement with the EU, without any regulatory equivalence and its relationship with the EU is defined by terms set out under the World Trade Organization, up to 50% of EU-related activity (£20BN in revenue) and an estimated 35,000 jobs could be at risk, along with £5BN of tax revenues per annum.
When taking into consideration the knock-on impact to the whole financial services ecosystem – the possibility of shifting of entire business units, or the closure of lines of business due to increased costs it could almost double the effect of Brexit.
Wednesday’s i front page:
‘British jobs for British workers’#tomorrowspaperstoday #bbcpapers pic.twitter.com/CUkC6b82MB
Just in: growth in the eurozone’s private sector slowed in September, suggesting Europe’s economy may have hit a soft patch.
The monthly Eurozone Service sector PMI, from Markit, has dropped to 52.2, from 52.8 in August. That shows the slowest growth in activity since December 2014.
It’s fairly unusual for a party conference to move the currency markets.
But there’s no doubt that the news from the Conservative’s meet-up in Birmingham this week has weakened the pound.
It’s another day and another set of fresh post-Brexit lows for sterling against the majority of its trade partners. Trade weighted sterling has been lower than it is now – following the UK’s withdrawal from the ERM in the early 90s and as the Global Financial Crisis hit in 2008 – but Britain’s exporters must be praying that this Conservative Party Conference lasts another 6 weeks.
Has Tesco turned the corner? Shares in the supermarket chain have jumped by 8% this morning, after its latest financial results.
Investors are cheering a chunk rise in operating profits (but not in pre-tax levels), from £372m to £515m, and sales growth across the business. On the downside, the pension deficit has more than doubled this year….
Related: Tesco sales rise again but profits tumble
Britain’s currency has effectively been devalued by 15% against major rivals since June 23rd.
Total fall in sterling/dollar from the referendum night high to today’s low ($1.2685) is -15.56%. -18.8% in yen, -14% in euro.
Some analysts are predicting the pound could suffer further shunts downwards, as the EU exit negotiations begin in earnest.
In today’s Financial Times, Koon Chow, macro and forex strategist at UBP, says:
“The pound’s drop is likely to be a series of spaced out depreciations, with the trigger for weakness being each piece of new information on the economic sacrifice that the UK government is willing to take on the path to Brexit.”
Pound slipping again this morning, GBPUSD below 1.2700. Has now lost 15% since 23 June high: pic.twitter.com/27uB5vOVvW
London’s stock market has also dropped in early trading, even through a weak pound is good for some companies.
The FTSE 100 index, which nearly hit a record high yesterday, has dropped by 18 points to 7056.
Sterling is continuing its “slippery decline” this week as ongoing Brexit uncertainties haunt investor attraction towards the currency.
So says FXTM research analyst Lukman Otunuga, who reckons investors aren’t taking comfort from recent solid economic data.
Brexit jitters may be bone deep consequently ensuring the Sterling remains depressed until the article 50 invoke date.
Although sentiment towards the UK economy continues to be uplifted as domestic data repeatedly beats, the persistent uncertainty and unknowns over how the Brexit negotiations will take place have seriously soured investor appetite towards the Sterling.
This chart shows how sterling has hit new 31-year lows this morning, below $1.27.
The pound has now lost almost three cents against the US dollar this week (and it’s only Wednesday morning).
Theresa May knocked the wind out of sterling on Sunday, when she announced she’d trigger article 50 in March 2017, raising the chances of a hard break from the EU.
This week: Sterling decided Brexit means Hard Brexit.
Fears over Britain’s looming exit from the European Union are hitting the pound again this morning.
Sterling has slipped to a fresh 31-year low against the US dollar, falling below $1.27 for the first time since 1985.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Two down, one to go. After solid data from Britain’s manufacturing and construction sector this week, it’s time to find out how the services sector performed in September.
The September Markit/CIPS services PMI for the UK is due this morning. So far both the manufacturing and construction sector PMIs have surprised very clearly to the upside.
A repeat in the services sector would reinforce the upside risks to our Q3 GDP growth forecast of -0.1% q/q which materialised after last week’s strong news on output in the service sector in July.
Tesco’s profits fall by 28% as it keeps up battle for market share. https://t.co/Y2zy82flZx pic.twitter.com/LRjnAXaKRS