• Jan. 23, 2017, 6:55 pm

UK inflation rises to 0.3% in January, but market rally fades on Opec news – as it happened

Powered by Guardian.co.ukThis article titled “UK inflation rises to 0.3% in January, but market rally fades on Opec news – as it happened” was written by Nick Fletcher, for theguardian.com on Tuesday 16th February 2016 14.35 UTC

Wall Street opens higher after holiday

As expected the US markets have returned from their Presidents Day break with a sharp move higher.

The Dow Jones Industrial Average is up 163 points or 1% while the S&P 500 has added 1% and Nasdaq 1.4% at the open.

But European markets are still putting in a mixed performance after the meeting of – some – oil producers agreed to curb output at January levels but failed to unveil cutbacks.

The FTSE 100 is currently 32 points or 0.5% higher while Germany’s Dax has dipped 0.6% and France’s Cac is virtually flat.

Meanwhile Brent crude has edged back into positive territory, up 0.4% at $33.53 a barrel.

On that note, it’s time to close. Thanks for all your comments, and we’ll be back tomorrow.

More doubts about the oil production agreement unveiled earlier:

Wall Street will shortly reopen after the long weekend which included the Presidents Day holiday.

The full details of the New York Empire State manufacturing survey can be found here.

New York Fed index recovers but still in negative territory

New York Fed index recovers but still in negative territory Photograph: New York Federal Reserve

Oil prices have now fallen into negative territory after their early gains, on disappointment with the agreement to keep production at January levels announced by a group of producers including Saudi Arabia and Russia.

Brent crude is now down 0.6% at $33.19 a barrel, having early climbed 4.5% on hopes of output cuts.

West Texas Intermediate, the US benchmark, is down 0.37% at $29.33.

Updated

US manufacturing data misses forecasts

Continuing signs of a mixed performance n the US economy have come from the New York Federal Reserve.

Its Empire State manufacturing index came in at -16.64 in February, an improvement on the -19.37 in January but well below expectations of a figure of -10.

But there was better news on jobs, with the employment index improving from -13 to -0.99, the best level since August.

Updated

Lunchtime summary

Time for a quick roundup.

A group of oil producers have come up with an agreement to keep output pegged at January levels, but the deal needs others to sign up, which could prove a problem.

Markets have come off their best levels after news of the outcome of the oil meeting, with investors hoping for news of a cut.

UK inflation rose to 0.3% in January but is still well below the Bank of England’s 2% target.

German consumer confidence fell sharply in February in the wake of the market turmoil since the start of the year.

Indeed, Iran has already said it will not give up its market share, and will reportedly only discuss output cuts when its production is back to pre-sanction levels.

Updated

Here’s a graphic showing the world’s biggest oil producers. No Iran shown, which has been producing around 2.9m barrels a day in recent years but had nowhere to export it due to sanctions. Now the restrictions have been lifted it aims to produce another 1m or so barrels a day.

Updated

More on the UK inflation figures, which could prove a problem for the country’s economy, says our economics editor Larry Elliott:

The level of inflation poses a risk to the UK economy but not in the way that you might think. Inflation is worryingly low rather than worryingly high.

That may seem a perverse idea at a time when the cost of living as measured by the consumer prices index has risen to its highest level in a year…

[But] core inflation – the measure of the cost of living that strips out food, fuel and the impact of the chancellor’s decisions on excise duties in the budget – fell from 1.4% in December to 1.2% in January.

None of this is a problem at the moment. Inflation at 0.3% coupled with earnings growth of 2% means that real incomes are growing at a reasonably healthy rate. That should help to underpin the economy over the coming months…

But low inflation could become a big problem if it morphs into deflation, which means a prolonged period of falling prices rather than the sporadic dips into negative territory seen in 2015.

Read Larry’s full analysis here:

Updated

Here’s Reuters on the agreement to freeze oil output following the meeting in Doha:

Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in – a major sticking point with Iran absent from the talks and determined to raise production.

The Saud, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha – their highest-level discussion in months on joint action to tackle a growing oversupply of crude and help prices recover from their lowest levels in more than a decade.

The Saudi minister, Ali al-Naimi, said freezing production at January levels – near record highs – was an adequate measure and he hoped other producers would adopt the plan. Venezuela’s Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran.

“The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilise and improve the market,” Naimi told reporters.

“We don’t want significant gyrations in prices, we don’t want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time,” he said.

The full story is here.

Updated

Over to Greece, and the task force set up by the European Commission had only mixed results in helping implement reforms.

That is the view of the European court of auditors. In a new report it said the task force, set up in 2011, focussed on reforming public administration in Greece, improving the tax system and helping a return to growth by improving the business environment. But it said:

Although the Task Force proved itself as a mechanism for delivering complex technical assistance, there were weaknesses in the design of some projects and only mixed results in terms of influence on the progress of reform,.

Technical assistance was delivered to the Greek authorities in accordance with the mandate, but it did not always advance the reforms sufficiently [although this] has to be seen in the context of the volatile political situation in Greece. The need for urgency meant that the Task Force was set up very rapidly, without a full analysis of other options or a dedicated budget. It had no single comprehensive strategic document for delivering assistance or for deciding priorities.

The delivery of assistance was relevant and broadly in line with the programme requirements, and the Task Force developed a flexible and diversified system for delivery. However, there were weaknesses at project level: procedures to select service providers were not always based on a thorough analysis of the available alternatives, and some long-term assistance contracts did not clearly state what they were expected to deliver.

Updated

Back with UK inflation, and Chris Hare at Investec expect a gradual rise in inflation with a rate rise in November. But even if market turmoil causes the Bank of England to delay any increase, he cannot see it following others into negative rates:

We maintain our view that rises in inflation should be in store in the coming months, driven by (i) the effect of late-2014/early 2015 oil price falls “dropping out” of the annual inflation rate entirely (ii) a waning drag from falls in import prices, which have been pushed down by past strength in the pound (mitigated by a 7% in trade-weighted sterling fall since mid-November) (iii) further rises in wage growth, given strength in the labour market.

The prospective rise in inflation is only likely to be gradual, though. That is not least because the oil price has fallen by more than a third since last November. But more importantly for the medium term, wage growth remains stubbornly weak.

An absence of significant inflationary pressure, coupled with worries about market volatility and the global economy seen so far this year lead us to think that the Bank of England is in no hurry to raise interest rates. Indeed, the lone MPC hawk, Ian MacCafferty, backtracked from voting for a rate hike at this month’s policy meeting.

Our central view is that the MPC will not begin raising rates until November this year, but if wobbly market sentiment ends up taking a bite out of the real economy, there is a risk the MPC will wait even longer than that. We do think though, that it would take a really major downshift to the inflation outlook for the MPC to even consider joining the expanding club of central banks opting to set negative interest rates.

And here’s Reuters on what Iran might be thinking about oil output:

It appears oil prices and stock markets have once again raced ahead on hopes of a cut in crude production to help deal with the supply glut, only to be once again disappointed.

At least this time there was a meeting – unlike previous rumours which proved unfounded. But the suggestion of keeping output at January levels turned out not to be the message the market wanted.

So Brent crude, up 4.5% earlier, is now up around 2%, while Germany’s Dax has dropped 0.7%, France’s Cac has slipped 0.2% and the FTSE 100 is up just 7 points.

The Dow futures have slipped from a near 250 point rise to a 189 point gain at the open. Mike van Dulken, Head of research at Accendo Markets, said:

Equity markets slipped from their highs to trade slightly negative. Indices exposed to commodities are giving up gains after several OPEC oil ministers agreed to freeze production at 11 Jan levels, which isn’t quite the ‘cut’ that oil bulls had been hoping for. Oh and it’s also contingent on other oil producing nations agreeing to the freeze, which Iran is unlikely to given has only just returned to the market after sanctions were lifted.

With Opec kingpin Saudi Arabia adding that it’s absolutely comfortable with current prices, it looks like yet another attempt to buoy the oil price with mere rhetoric. The problem is, we’re not fooled by that any more.

Updated

The poor German consumer confidence figures put the spotlight firmly on the European Central Bank again, and specifically, what it can do at its March meeting, says Carsten Brzeski at ING Bank.

On Monday ECB president Mario Draghi promised the bank would not hesitate to act, but Brzeski said:

Growth prospects for the German economy have taken a hit from latest market turbulences. At least this seems to be the main message of the just released ZEW index for the German economy. The index, which measures investors’ confidence, dropped to 1.0 in February, from 10.2 in January, and now stands at the lowest level since October 2014. At the same time, the current assessment component fell to 52.3, from 59.7 in January. Against the background of the latest market turmoil, this drop in investors’ sentiment is anything but a surprise. Tumbling stock markets, a stronger euro and more general concerns about the global growth outlook have clearly dented optimism about the German economy’s growth prospects.

With these disappointing sentiment data, market participants will look even closer at possible next steps by the ECB. The period in which more or less everyone tries to give the ECB advice on what to do at the next meeting should gradually come to an end. With the release of the January’s meeting minutes on Thursday, the discussion should start to move to what the ECB actually can and wants to deliver in March.

In our view, official ECB comments since the January meeting suggest two things: one, the ECB is trying hard to temper and align market expectations to avoid another disappointment as after the December decision; and, two, banks as the crucial link and transmission channel between ECB measures and the real economy are in the limelight again. Particularly the latter is a big concern for the ECB as it shows the limits of what monetary policy can do. With growing despair and fears of monetary policy’s impotence, the ECB will either have to decide on new bold and unprecedented measures or revert to “more-of-the-same”. Given institutional, legal and political constraints, the “more of the same” option seems in our view the most likely one for the March meeting.

German consumer confidence falls sharply

German consumer confidence slumped this month, according to the latest survey from the ZEW institute.

The economic sentiment index dropped from 10.2 in January to just 1 so far this month, albeit slightly better than the zero figure many economists had expected.

Unsurprisingly sentiment has been hit by falling oil prices, the general turmoil in the financial markets seen since the start of the year and concerns about the state of the global economy.

Inflation is unlikely to hit the Bank of England’s 2% target until well into 2017, says Howard Archer at IHS Global Insight:

The weakness in oil and commodity prices means that consumer price inflation will likely remain extremely low for longer. Furthermore, recent additional price cut initiatives announced by both Asda and Morrisons indicate that the supermarket pricing war is continuing.

Consumer price inflation will likely hover around 0.3% in the near-term, before gradually trending up in the second half of the year. It currently looks unlikely to get up to 1.0% until the fourth quarter of 2016. We expect inflation to then trend gradually higher to reach the Bank of England’s target rate of 2.0% late on in 2017.

Inflation is likely to remain low for some time, says Dennis de Jong, managing director at UFX.com:

After a year of inflation being glued very close to zero, it is now finally rising, although it will surely remain well below the 2% target for some time to come.

Many observers predicted that after the US raised interest rates it would just be a matter of months before Britain followed suit. However, global economic pressures have put paid to that and there are no signs of an imminent rate hike on this side of the pond.

Inflation may well continue to slowly climb up, but in the grand scheme of things it remains at a very low level. Plus, there are still many factors out there that have the potential to cause havoc with the markets, not least the UK’s EU referendum.

Here’s our inflation story:

Inflation edged up to its highest rate for a year last month as rises in the price of alcohol and clothing pushed up the cost of living.

The consumer prices index (CPI) rose to 0.3% in January from 0.2% in December, according to the Office for National Statistics (ONS).

Alcohol and tobacco rose by 1.3% compared with January 2015, when there were heavy discounts on beer.

The ONS said inflation also rose as fuel and food prices dropped less than they did a year ago.

But despite the rise in CPI, inflation still remains historically low, with the Bank of England predicting inflation to remain far below the government’s 2% target for some time yet.

The full report is here:

House prices rose by 6.7% annually in December, according to figures also released by the ONS.

This compares to an increase of 7.7% in November. In 2015 overall prices rose by 7.9%, up from 5.1% the previous year.

House price rise moderates

House price rise moderates Photograph: Office for National Statistics

Consumer price inflation rose to 0.3% year on year, but month on month it fell by 0.8%.

The month on month fall reflected the fall in air fares, as previously mentioned, as well as discounting in the post-Christmas sales.

The inflation rate is of course still well below the Bank of England’s target of 2%.

The Retail Prices Index grew by 1.3% in the year ending January 2016, up from 1.2% in December 2015.

Core consumer price inflation – which strips out energy, food, alcohol and tobacco, fell by more than expected to 1.2%.

Meanwhile factory gate prices fell 1% on the year compared with forecasts of a 0.9% decline.

And the contributions to the change in CPI:

Contributions to inflation

Contributions to inflation Photograph: Office for National Statistics

Here’s a summary of the notable movements:

Notable movments

Notable movments Photograph: Office for National Statistics

  • The main contributors to the rise in the rate were motor fuels, and to a lesser extent food, alcoholic drinks and clothes, said the Office for National Statistics.
  • Air fare prices fell by more than they did a year ago after a large increase in December, and partially offset the increase in the inflation rate.
  • On motor fuels the ONS said:
  • Motor fuels and lubricants, where overall, prices decreased by 2.6%, compared with a larger fall of 6.8% a year ago. The largest upward contribution to the change in the 12- month rate came from prices for petrol, which dropped by 1.9%, compared with a larger fall of 7.3% between the same 2 months a year ago. A similar, though less pronounced, effect was seen for diesel, with prices falling by 4.0%, compared with a fall of 6.0% a year ago.

Updated

UK inflation rises to 0.3%

Breaking news: UK CPI rose by 0.3% in January year on year, in line with expectations and up from 0.2% in December. This is the highest annual rate since January 2015.

Updated

Qatar’s energy minister Mohammad bin Saleh al-Sada said the decision by his country, Saudia Arabia, Russia and Venezuela to freeze output at January’s levels depended on other major producers following suit.

A strategist at Petromatrix, Olivier Jakob, told Reuters:

It’s really the first supply management decision taken since November 2014 so even though there will be some that will try to discount it and say it’s not a cut, it’s a change. It’s a big change in policy.

Brent crude is now up 1.4%, down from its early 4.5% rise, while shares are also slipping. Germany’s Dax has dipped into negative territory, down 0.14% while the FTSE 100 is now up just 15 points.

The Opec news has hit the oil price, which had earlier jumped on hopes of a cut.

Oil output to be frozen at January levels – but no cut

Saudi Arabia says there has been an agreement to freeze oil production at January levels, Reuters is reporting, in order to cope with the falling crude price.

The news comes after a meeting in Doha between Saudi Arabia’s oil minister Ali al-Naimi and his Russian, Qatari and Venezuelan counterpart.

The Saudi minister said they would assess the next steps to stabilising the market in the next few months, and he hoped oil producers both inside and outside Opec would agree to the proposal. He added that the Saudi economy could cope with the current oil price with no problem.

Updated

The pound is moving higher ahead of the UK inflation numbers.

Pound against the dollar.

Pound against the dollar. Photograph: Reuters

Which has brought renewed talk of possible leaks of government data:

As a reminder the UK statistics authority said this last month:

The Authority is deeply concerned about the impact that breaches (and apparent breaches) relating to the unauthorised, widespread sharing of statistics before their publication may have on the trustworthiness of the UK’s official statistics system.

European markets open higher

As expected, Europe has followed Asian markets with a positive start in early trading.

The FTSE 100 is up 54 points or 0.9%, while Germany’s Dax has opened 0.4% higher, France’s Cac has climbed 1% and Italy’s FTSE MIB is 0.8% better.

With crude prices higher and commodity prices recovering, mining shares and oil companies are among the biggest gainers in the FTSE 100. Tony Cross at Trustnet Direct said:

We are seeing yet more gains added on to the FTSE-100 in early trade as the bargain hunting continues. The fact that crude oil has broken back above $30/barrel however shouldn’t be ignored either – Saudi Arabia and Russia are scheduled to meet later today so there’s clearly hope of a deal being struck here, but the obvious flaw here has to be that any failure to progress the idea of production cuts between these two major players could see confidence in this rally undermined.

This cycling into risk-on investments has hit gold once again, with miner Randgold being pushed into negative territory, whilst Standard Chartered is also struggling after some negative broker comment [Investec has cut its recommendation from buy to hold].

FTSE 100 risers

FTSE 100 risers Photograph: Reuters
FTSE 100 worst performers

FTSE 100 worst performers Photograph: Reuters

Updated

The Bank of Japan’s surprise negative interest rate policy has come into effect today. Here’s the story:

Here’s more on the oil producers’ meeting in Doha which is pushing crude prices higher:

Oil prices surged to their highest levels in more than a week as news of a meeting of top officials from the world’s biggest oil producers spurred speculation of an eventual deal to tackle a deep supply glut.

US crude rose by as much as $1.50, or 5.1%, to $30.94, the highest since 8 February, building on Friday’s gains of more than 12%.

Brent crude for April delivery was up $2 at $35.39 a barrel, on top of 11% gains over the past two days.

Top oil officials from Saudi Arabia, Russia and several key Opec members will meet on Tuesday for their highest-level discussion in months, a potentially pivotal sign that producers are at last preparing to tackle a devastating supply glut.

The talks in the Qatari capital Doha, which had been kept under wraps until recent days, involve powerful Saudi Oil minister Ali al-Naimi and his Russian counterpart Alexander Novak, sources said, two figures who must reach an accord for any co-ordinated global action to hold any hope of success.

Full story here:

Here’s the schedule of the key events:

  • 9.30 GMT UK inflation
  • 10.00 GMT German and eurozone ZEW consumer confidence index
  • 13.30 GMT US Empire manufacturing

Agenda: UK inflation and German consumer confidence awaited

The stock market rally of the past couple of days looks as if it is continuing, with positive moves in Asia and an opening rise predicted for European markets.

The Nikkei is up 0.2% while the Hang Seng has added just over 1%. In China the CSI300, which dipped back on Monday after its week long break, has climbed 3%.

In Europe markets are expected to edge up in early trading:

And in the US, the Dow Jones futures are indicating a near 250 point gain when Wall Street reopens after Monday’s Presidents Day holiday.

After all the recent turmoil and worries about the state of the banking sector, investors are taking heart from central bank comments suggesting they will do whatever is necessary to support the global economy. The Chinese central bank suggested as much yesterday, as did European Central Bank president Mario Draghi in his appearance at the European Parliament.

In the UK Ian McCafferty, who sits on the Bank of England’s monetary policy committee and had until recently been voting for a rate rise, has now become more dovish. He said: “I think an immediate rate rise isn’t as necessary as I had felt last autumn.”

Meanwhile commodity prices have stablised, with Brent crude currently up 4.5% ahead of a meeting in Doha between Saudi Arabia’s oil minister Ali al-Naimi and his Russian, Qatari and Venezuelan counterparts. This has prompted hopes that production cuts could be on the table to help stem the supply glut.

Elsewhere there are some key economic numbers due, including UK inflation, German consumer confidence and in the US, the Empire manufacturing survey. On inflation the expected range for CPI is 0.3% to 0.5%. Analysts at RBC said:

We look for UK inflation to have picked up in January, despite recent news to the downside. We forecast CPI inflation of 0.5% year on year, up from 0.2% year on year in December, as a result of energy-related base effects.

Alongside this we see RPI inflation coming in at 1.4% year on year, up from 1.2% year on year (an index level of 258.8). Since last month’s forecast update a number of energy providers have cut household utility bills. This, along with the further dramatic moves to the downside in the oil price since the start of the year, means that our profile for CPI inflation has once again shifted down. We now see CPI inflation only getting to 0.9% year on year by the end of 2016, compared to a forecast of 1.2% year on year as recently as last month.

On the ZEW German confidence index, Michael Hewson of CMC Markets UK said:

Today’s German ZEW economic expectations survey is likely to give us an insight into how the recent volatility has clobbered overall sentiment. Expectations are for a sharp decline from January’s 10.2 to 0, which would be the lowest reading since October 2014.

Updated

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