- Eurozone inflation weaker than expected at 0.2%
- US job creation slows in August
- German retail sales jump in July
- Pound rises against dollar and euro
- UK house prices rise 0.6% in August
- Eurozone unemployment steady at 10.1%
A slide in the oil price following a bigger than expected rise in US crude inventories helped put European markets under pressure, although banking shares were boosted by a number of positive signs from the UK economy and talk of possible mergers following comments from the boss of Deutsche Bank.
Investors were also cautious thanks to the continuing uncertainty about whether – or when – the US Federal Reserve might raise interest rates. Friday’s non-farm payroll numbers will be the key figures ahead of the next Fed meeting. The final scores showed:
Another successful Bank of England bond buying programme today as part of its quantitative easing operations:
The Bank of England bought £1.17 billion of UK 2023-30 Gilts this afternoon as part of its QE program #BoE
The slide in the oil price has dragged stock markets lower, with the commodity-heavy FTSE 100 now down around 30 points or 0.4%. Joshua Mahony, market analyst at IG, said:
Tumbling commodity prices have once more proven the undoing of the FTSE, with a late slide in crude prices adding to the woes of an index heavily weighted towards commodity companies. While some respite has been provided by the slowing rise of the US dollar, it is clearly not enough, with markets now looking towards the possibility of a 2016 rate hike which would drive the dollar sharply higher.
Yet again it has been the weekly EIA oil figures that have sparked this market back into life. This week’s rise of 2.3 million barrels was almost as large as the preceding week’s increase in stockpiles, putting fresh downward pressure on crude oil and taking stock markets with it.
Oil prices have come under renewed pressure on further signs of falling demand and increased production.
US crude stocks rose by more than expected last week according to the Energy Information Administration, up by 2.3m barrels compared with expectations of a 921,000 increase.
The Apple tax receipts could help Ireland cut its goverment debt to around 85% of GDP, according to ratings agency Standard & Poor’s.
But it said there was a danger the government’s policy approach could be destabilised by the ruling, and its business model could be put to a legal test.
But the US housing market is recovering to judge by the latest figures.
The National Association of Realtors said its pending home sales index rose 1.3% to 111.3 in July after two months of decline. This is the second highest reading in the last ten years. Lawrence Yun, the association’s chief economist said:
More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale. There’s little doubt there’d be more sales activity right now if there were more affordable listings on the market.
More US data, and disappointing data at that. The latest Chicago manufacturing purchasing managers index has come in below expectations in August, after a strong performance in the previous two months.
USA Chicago PMI announcement – Actual: 51.5, Expected: 54.0 pic.twitter.com/hByRHtYzZ7
Back with the US jobs data, and economist James Smith at ING Bank says the ADP figures may not be much of a guide to Friday’s non-farm payroll numbers:
The latest ADP payrolls estimate came in a touch above consensus at 177,000. The key thing to know about ADP’s model is that is predominantly a function of last month’s official employment data, which means that ADP’s own up-to-date payrolls data plays only a minor role in generating the estimate. This means that the directional accuracy of ADP as a lead indicator of non-farm payrolls (ie higher or lower growth than last month) is around 50%. We are therefore none-the-wiser ahead of Friday’s number, even if at face value, it supports the consensus call of 180,000.
We expect job creation to fall short of expectations (ING forecast 150,000), following two months of remarkably strong non-farm payrolls. But… the FOMC would probably be content with such a figure, even if markets may view it as slightly disappointing. As the pool of available labour evaporates, job creation need only keep pace with increases in the overall size of the labour force. Some FOMC speakers have said that they would be comfortable with sub-150,000 non-farm payroll numbers, most notably Vice Chair Fischer who has indicated that 75-150 thousand would be acceptable.
US markets are down in early trading:
The Guardian’s Rob Davies has been at a Ryanair press conference, where he found chief executive Michael O’Leary in typically talkative form.
There’s an awful lot of rubbish being talked over here about how there’s been no effect. The effect is never going to be immediate.
The UK is going to suffer some significant economic damage when they get into the entrails of the Brexit decision. We hope the UK does well out of it but I’d be very concerned. The UK is going to end up looking pretty stupid.
The Irish government shouldn’t even appeal the decision. They should just write a letter to Europe and tell them politely to f**k off with themselves. Which is what they need to be told.
The way to finally deal with this is the government doing something intelligent for a change and saying you can all build a new runway, God speed. It’s not in my interest to advocate three runways but it’s what the UK needs to do.
EasyJet and BA were invited for tea and muffins at…what’s the country house? Chequers. We’re the biggest airline in the UK and weren’t invited. I’d love to be invited to Chequers. I’ve never been invited to Downing Street either.
I wouldn’t want to invite a peasant like me to either of those two august institutions. Being Irish, I’d be trying to nick the silver or something else…though we shouldn’t engage in national stereotypes, even if it is slagging off the Micks.
US markets are expected to open lower:
The private sector in the US created 177,000 jobs in August according to the monthly ADP report.
If the ADP turns out to be off the mark and non-farm payrolls increase by 250,000 or more, as they did in both June and July, then a September rate hike would become a real possibility.
It is more likely that payrolls will come in below 200,000, however, which would probably persuade the Fed to hold off on the next rate hike until December.
Florian Hense, economist at Berbenberg, says low eurozone inflation of 0.2% in August is concerning for the European Central Bank:
August, just like the first seven months, does not provide much evidence for a material shift in price dynamics. This remains an ongoing source of concern for the ECB.
But whether today’s numbers cause headache to the central bankers in Frankfurt remains to be seen. Whereas market-based gauges remained close to record lows, survey-based indicators had shown more resilience.
Brent crude oil is now below $48 a barrel, down 1.3% at $47.76.
The FTSE 100 is lagging other European markets for a second day as a drop in commodity prices weighs on mining shares.
The biggest fallers:
European markets are mixed this afternoon, with the FTSE and the DAX lagging other major indices:
Over in the US, and despite a growing expectation that the Federal Reserve may raise interest rates later this year, one member believes low rates may be here for the long term.
Chicago Federal Reserve president Charles Evans suggested in Beijing today that cheaper borrowing would remain because US economic growth had slowed so much it was almost a permanent expectation for business and investors, according to Reuters. However Evans is not a voting member this year, so here are the chances of a rise in the next few months:
Probabilities of a #Fed rate hike as priced in by futures, according to CME Fedwatch:
Sep = 24%
Nov = 27%
Dec = 44%
Feb = 44%
Mar = 44%
The EU has started “an economic war” with the US by ordering Apple to pay Ireland up to €13bn plus interest in back taxes.
That is the view of Jennifer McCloskey, the director of government affairs for the information technology industry council which lobbies on behalf of US tech industry.
We would encourage that folks return to the multilateral conversation around these issues, that we work together to find reasonable solutions, and that we stay away from actions that lead to what we see now which looks like we’re starting some kind of economic war between the European Commission and the US government.
The business community needs certainty and established rule of law – rules of engagement that we can rely on. And the direction of this departs extremely from all of that. We are concerned about the implications of this and what it could mean for future investment for our member companies’ operations in Europe and around the globe.
Strong case for more ECB action. The battle against low inflation is faltering. @angelamonaghan
The price of a barrel of Brent crude oil is down 0.7% at $48.02.
Oil analysts surveyed by Reuters revised down their price forecasts for the first time since February as an agreement to cut production among oil producing nations looked unlikely, and US stocks rose.
Howard Archer at IHS Markit agrees that this morning’s eurozone data will be disappointing for ECB president Mario Draghi and his colleagues on the governing council:
Largely disappointing news for the ECB as eurozone consumer price inflation was disappointingly only stable at 0.2% in August.
Adding to ECB concerns, there are signs that the eurozone labour market is faltering in reaction to recent slower growth and uncertainties over the outlook being magnified by the UK’s vote to leave the EU.
Stephen Brown, European economist at Capital Economics, says there a strong case for further action from the ECB following the weaker than expected inflation and unemployment data:
The unchanged headline inflation rate in August highlights the fact that price pressures in the eurozone remain weak and boosts the case for more monetary easing from the ECB.
The unemployment rate is well above its 1999 to 2007 average of 8.8%, indicating that there is a large amount of slack in the economy and suggesting that wage pressures will remain subdued.
Among the eurozone’s 19 members, the jobless rate is highest in Greece at 23.5%, followed by 19.6% in Spain.
The lowest rates were in Malta, at just 3.9%, and Germany at 4.2%.
Eurostat has also published unemployment figures for July.
The jobless rate in the eurozone was unchanged at 10.1%, the lowest since July 2011. It had been expected to edge lower to 10%.
A breakdown of the eurozone inflation data shows that the core rate – stripping out energy and food which tend to be volatile – was also weaker than expected at 0.8% (unchanged).
It was expected to pick up to 0.9%.
Eurozone CPI remains at 0.2% (0.3% exp), while core CPI falls to 0.8% from 0.9%. Bad day at the office for Mario
The headline rate of inflation in the eurozone was unchanged at 0.2% in August.
Economists had expected it to edge up to 0.3%.
Consumer spending fell 0.2% in July, following a 0.8% fall in June.
It took economists by surprise, with those polled by Reuters forecasting a 0.3% increase, and weighs on the outlook for French economy in the third quarter.
More upbeat news from Germany. Unemployment in Europe’s largest economy fell more than expected in August according to figures from the Federal Labour Office.
Demand for labour, measured by employment and registered vacancies, continues to be high.
Over in Germany, consumers were more willing than expected to spend money in July.
The stronger than expected consumer confidence and house prices data is helping to push the pound higher this morning.
Sterling remains strong on the back of positive data from the economy. The next major change in direction we could see in GBPUSD may come ahead of non-farm payrolls on Friday with downside risk still strong for the pair as dollar strength persists.
House prices increased 0.6% in August according to the lender Nationwide. The average price of a home in the UK was £206,145.
The rise took economists by surprise, with the City forecasting a 0.3% drop in prices. It was the strongest rate of monthly growth in five months, and followed a 0.5% rise in July.
The pick up in price growth is somewhat at odds with signs that housing market activity has slowed in recent months. New buyer enquiries have softened as a result of the introduction of additional stamp duty on second homes in April and the uncertainty surrounding the EU referendum.
However, the decline in demand appears to have been matched by weakness on the supply side of the market. This helps to explain why the pace of house price growth has remained broadly stable.
European markets are down this morning but there are no major moves. The biggest faller is the DAX in Germany, where retail sales data were mixed (more coming up).
Traders are a bit more subdued this morning after European equities hit a two-week high on Tuesday (the FTSE lagged).
Samuel Tombs, chief UK economist at Pantheon Macroeconomics is not convinced by the uptick in consumer confidence in August.
He says confidence remains low following the Brexit vote, and is likely to weaken further in the coming months.
The only partial recovery of GfK’s composite index in August, after the sharpest month-to-month fall in 26 years in July, shows that consumer sentiment has been dealt a lasting blow by the EU referendum.
The composite index remains much lower than its average of zero in the first six months of 2016.
Consumer confidence rebounded in August, as the jitters apparent in the immediate aftermath of the Brexit vote appeared to fade away.
The headline index on the GfK consumer confidence index increased to -7 from -12 in July.
We’re reporting some recovery in the index this month as consumers settle into the new wait-and-see reality of a post-Brexit, pre-exit UK.
The uptick in confidence is driven by good news from hard data, the combination of historic low interest rates matched with falling prices and high levels of employment.
European markets are expected to open down this morning:
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The flash estimate of eurozone inflation for August will offer some clues on the challenges facing the region’s central bankers as they return from their summer break.