Markets close down
European markets have closed down, as US markets continue to slide on fears of stimulus withdrawal.
Here is a snapshot of the main markets at the end of the day:
FTSE 100: -1.6% at 6,483
CAC 40: -0.51% at 4,093
DAX 30: -0.73% at 8,379
IBEX: -0.6% at 8,736
At that point, I am going to close the blog. Thank you all for following, and for your comments. See you tomorrow for another day in the eurozone and global markets.
Oil prices at 4-mth high
The price of a barrel of Brent Crude has hit $111, its highest since April, amid growing worries that the violence in Egypt could hit supply lines in the rest of the Middle East.
Egypt is not a major oil producer, but it is a transit hub for oil transported through the Suez Canal and the Suez-Mediterranean pipeline.
Analysts at Commerzbank say that the canal is unlikely to be affected, but nonetheless the “risk premium” is likely to rise.
As Michael Hewson at CMC Markets writes:
Disruptions at the Suez Canal are unlikely, but markets never move on what’s likely. They move on fear.
More taper talk
The fall in US jobless claims and uptick in inflation has raised expectations that the Federal Reserve will wind down, or taper its $85 bn stimulus programme. Here is some of the reaction so far:
Charles Comiskey at Bank of Nova Scotia
The data continues to improve and impress the marketplace and I think the data will continue in this direction. Then the question becomes not whether they are tapering in September, but how much.
Carl Riccadonna at Deutsche Bank Securities
The critical component is going to be the August jobs report. If that come in at least where it was in July, then this is going to keep the Fed on track to initiate tapering at the September (policy) meeting.
Both quotes via Reuters
To taper or not to taper
Matt Basi at CMC Markets, writing before the US jobs and inflation data was published, is a voice of calm amid the sell-off that is underway.
From the CMC Markets blog:
The reality of the situation is that even if the fed made a definitive announcement on the timescale for pulling back from bond purchases, any immediate market reaction would be guesswork at best – tapering does not mean an end to asset purchases. The speed and scale of any would-be tapering are the relevant factors for investors to consider, and until we have confirmation of these details everything else is just noise…
Markets down on stimulus worries
And the markets continue to slide…
The Dow Jones is down 215 points, its biggest fall since late June. In London the FTSE has shed 120 points.
Dow Jones: -1.43% at 15,118
S&P: -1.28% at 1,663
FTSE 100: –1.87% at 6,464
CAC 40: -1.09% at 4,069
DAX 30: –1.28% at 8,330
Once again, investors are worrying that the US Federal Reserve will soon begin unwinding its massive stimulus programme. New claims for unemployment benefits have fallen to a six-year low while inflation is rising (1.38) fuelling speculation that the Fed will cut back its bond-buying programme.
US industrial production flat
Hello, JR taking over from Angela Monaghan.
US industrial production was flat in July, as a mini surge in mining activity was offset by falling output from factories.
Mining was up 2.1%, while utilities fell 2.1% – the fourth consecutive fall in a month.
As the Wall Street Journal writes:
Though it accounts for less than 1/5 of gross domestic product, manufacturing is an important economic bellwether because it reacts quickly to changes in the business cycle. A weak factory sector has been weighing on economic growth driven by consumer spending.
The data will be pored over amid concerns of slowdown in the world’s biggest economy.
Fed’s Bullard concerned over rising US borrowing costs
James Bullard, president of the St Louis Fed, has admitted concern over rising 10-year bond yields which hit a two-year high on Thursday:
I think it is a concern, but I think the level of yields now is still quite low by historical standards. I also think that momentum in housing is stronger than any effects that are going to come from higher yields, at least for now.
US markets open lower
US markets are down:
- DOW JONES: -0.9% at 15,194
- S&P 500: -0.6% at 1,676
Meanwhile losses in Europe have accelerated:
- FTSE 100: -1.6% at 6,482
- CAC 40: -0.8% at 4,082
- DAX 30: -1% at 8,358
- IBEX: -1% at 8,698
US inflation rises to 2%, weekly jobless figures fall
Across the Atlantic US annual inflation rose to 2% in July from 1.8% in June according to Labor Department data. It was exactly in line with economists’ expectations.
The Consumer Prices Index rose 0.2% on a monthly basis.
Meanwhile new jobless claims fell to 320,000 last week, from 335,000 a week earlier. It was fewer than expected, and the lowest since October 2007.
A combination of the two drove US borrowing costs higher as speculation mounted that the Federal Reserve will start to ease quantitative easing in September. Yields on 10-year US Treasury bonds hit 2.8% for the first time since August 2011.
The dollar strengthened to a near two-week high against the euro, and a more than one-week high against the yen. The euro was down 0.1% at $1.3238, while the dollar was up 0.4% ar 98.47 yen.
FTSE falls 1%
The FTSE 100 is down 1.2% at 6,509.
The biggest fallers are house builder Persimmon which is down 6%, easyJet which is down 3.7%, TUI Travel which is 3.5% lower and Travis Perkins which is down 3.4%.
Investor nerves are mounting amid US stimulus fears according to IG’s Chris Beauchamp:
Is the honeymoon over for Mark Carney?
A constant stream of upbeat UK economic data is fuelling hopes that unemployment will fall more quickly than previously expected, potentially causing problems for Mark Carney.
Almost immediately after the new Bank of England governor signalled a new era for Threadneedle Street with forward guidance on interest rates, the policy appeared to be undermined.
Markets are not playing ball and have ignored the Bank’s guidance that it will not raise interest rates until the unemployment rate falls to 7% or lower. According to Bank forecasts, that would mean interest rates will be left on hold until at least the second half of 2016. But markets are betting on a hike in 2015.
This from James Knightley of ING:
With economic data suggesting that the recovery in activity is strengthening and broadening out across the whole economy, the demand for workers should continue to increase. We look for the unemployment rate to fall below 7% in late 2014/early 2015, which implies that the first rate hike could come in 1Q15.
Given the strengthening labour market, we suspect wage growth will gradually climb and that we will see positive real wage growth readings in the early part of next year. Such a development, together with the fact that the BoE’s forward guidance wasn’t universally approved of within the Bank, will only add to the sense that the BoE won’t wait until 2016
Of course, it is early days for the policy, and the Bank’s Monetary Policy Committee will no doubt want to wait and see whether markets fall in line with its guidance. If they don’t, more quantitative easing might be on the cards.
Simon Wells from HSBC:
Strong data is creating a headache for the Bank of England, which is trying to convince financial markets it will
We think the recent rises in short-term rates are overdone. The majority of the MPC seem to think that supply can grow with some members may start voting for more easing soon if market rates remain at current levels.
Larry Elliott, the Guardian’s economics editor, is not so convinced unemployment is going to fall as quickly as some economists are forecasting. Read his blog here.
Is bad growth good? Economists react to UK retail sales
The 1.1% rise in monthly UK retail sales volumes was better than economists were expecting. Here is some of the reaction out so far.
David Kern, chief economist at the British Chambers of Commerce, does not share Ann Pettifor’s that Britain is in the midst of the wrong sort of recovery based on spending:
Some commentators have suggested that strong retail sales, while other areas of the economy remain weak, will lead to an unbalanced economic structure. We don’t share these concerns, as although we would like to see more growth coming from investment and net trade, it is better to rely initially on domestic demand than to have no growth at all.
Scotiabank‘s Alan Clarke publishes a comment entitled ‘UK Retail Sales Sizzler’:
Hands up who had a barbeque in July? During the 15 months to June 2013, the average temperature per month has been an average of 1½ degrees below average. That changed during July when summer belatedly started – unleashing pent up demand for barbeque food. Predominantly food sales up 2.5% m/m.
Weather aside, the rise in the trend for retail sales is very impressive, especially against a backdrop of negative real disposable income growth. This demonstrates the feel good factor that households are feeling from rising house prices – in turn it means that they are prepared to spend more than they earn. As such this is good for growth. Admittedly it is bad growth, but I’d rather have bad growth than no growth.
Chris Williamson, chief economist at Markit, says the data reinforce expectations that the UK economy made a good start to the third quarter.
Summer weather helped drive a strong upturn in retail sales in July, adding to the likelihood that the economic recovery will have continued at a firm pace into the third quarter. Coming on the back of rises in prior months, this means sales in the three months to July showed the largest quarterly rise for almost ten years.
This pace of growth of retail sales is unlikely to persist, but a further upturn in consumer confidence, an improving labour market, rising house prices and greater confidence that interest rates will stay low for longer should all help ensure that consumer spending plays a role in helping to sustain the economic recovery in coming months.
Read the full story on the retail sales data from Heather Stewart here.
Does Britain have an ‘Alice in Wongaland’ economy?
Following the stronger than expected UK retail sales data and Ann Pettifor’s comments this morning, do you think Britain is reliant on a debt and spending fuelled recovery?
Have your say in our poll here.
UK retail sales rise 1.1% in July, driven by supermarkets
Retail sales rose by 1.1% on a monthly basis in July, better than the 0.6% forecast by economists.
On an annual basis volumes were 3% higher according to the Office for National Statistics data, again beating expectations of a 2.5% rise. It was the biggest annual rise since January 2011.
The ONS said the rise in July was largely down to greater food sales, although supermarkets suggested that the sunny weather boosted sales across a range of products including food, alcohol, clothing and outdoor items.
Average weekly spend on retail in July was £7bn, up from £6.8bn in June and £6.7bn in July.
For every pound spent in the retail industry in July:
- 42p was spent in food stores
- 41p in non-food stores
- 11p in stores selling fuel
- 6p in non-store retailin
Some reaction to retail sales on Twitter:
European markets open lower
The major European indices are down slightly this morning following falls on Wall Street yesterday.
- FTSE 100: -0.4% at 6,565
- CAC 40: -0.2% at 4,105
- DAX 30: -0.3% at 8,409
- IBEX: -0.1% at 8,782
UK economists are poised for the retail sales data out shortly, which are expected to show that a combination of rising confidence, the summer heatwave, royal baby and Andy Murray’s Wimbledon succcess encouraged Britain’s consumers to shop in July.
At 1.30pm UK time US inflation data for July will be published, as well as the Empire State manufacturing survey for August and weekly jobless claims.
They will be followed at 2.15pm by US industrial production figures for July, and the National Association of Home Builders housing market index and Philadelphia Fed index at 3pm.
Britain’s Alice in Wongaland economy
The UK has an “Alice in Wongaland” economy according to Prime Economics‘ Ann Pettifor, reliant on pay-day loan-fuelled shopping sprees.
She made the comments before July retail sales figures from the Office for National Statistics are published at 9.30am.
The data are expected to show retail sales rose 0.6% on a monthly basis, which would be better than June’s 0.2% rise.
That would mean retail sales were 2.5% higher in July than a year earlier, compared with 2.2% in June.
Britain’s economy as a whole is today driven by a ‘payday borrowing’ culture encouraged by the ‘guardians of the nation’s finances’ – the public authorities. This ‘payday borrowing’ culture leads consumers to pop on to the internet to borrow a couple of hundred quid – a process we are told takes no more than 15 minutes – in order to fund (at an unusustainable rate of interest) that day’s consumption.
This is the delusional, debt-fuelled, short-term approach that the Chancellor so decried back in 2010. It led to the gigantic crash of 2007-9.
So far from moving “to a new model of economic growth that is rooted in more investment, more savings and higher exports” Britain is rapidly becoming an “Alice in Wongaland” economy.
She is also less than impressed by the government’s flagship Help to Buy housing scheme, joining the likes of Vince Cable and Lord King in voicing fears of another housing bubble:
This intervention will inflate house prices (and indeed is already doing so), increase household borrowing, and create yet another asset price bubble. At the same time it will encourage already-indebted consumers to borrow more!
Gold demand hits four-year low
Good morning all. Welcome to our rolling coverage of the latest events across the eurozone, the financial markets and the global economy.
Overnight the Nikkei fell 2.1% to 13,753 following falls on Wall Street and after Japanese policymakers played down reports the government is considering a corporation tax cut.
The World Gold Council meanwhile has published a report showing demand for the precious metal fell to a four-year low in the second quarter as investors left bullion funds and central bank buying more than halved.
The fall came despite a 53% surge in demand among global consumers. Demand for gold jewellery jumped 54% in China, and 51% in India.
Globally, jewellery demand was up 37% in the second quarter to 576 tonnes from 421 tonnes in the same period last year, reaching its highest level since the third quarter of 2008.
But a 400-tonne outflow from gold-backed exchange-traded funds and a 93-tonne fall in central bank purchases pushed overall demand down 12% compared with a year earlier, to 856 tonnes. It was the lowest level since the second-quarter of 2009.
Marcus Grubb, investment managing director at the World Gold Council comments:
The second quarter continued the trend that we saw in the first, of a rebalancing in the market, as gold coming onto the market from exchange-traded funds sales met with a wave of demand for bars and coins, as well as jewellery.
This surge in bar and coin investment was a common theme in key markets around the world, and has been particularly prominent in the world’s biggest gold markets, India and China.
Gold prices have fallen by about a fifth this year. They hit a three-year low in June of $1,180 an ounce, and are currently around $1,320 following a record high of $1,920 an ounce in September 2011.
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