The ISM survey could indicate that Friday’s US non-farm payroll numbers could be weaker than expected, said James Knightley at ING Bank:
US manufacturing ISM for January is a bit weaker than expected at 48.2…and marks the fourth straight sub-50 (contraction territory) outcome. However, the details are more encouraging with both production and new orders moving back above 50. The main weakness was in the employment component, which fell to 45.9 from 48.0 – the worst outcome since June 2009.
This suggests that the sector will be a drag on overall employment growth in Friday’s payrolls report and indicates the consensus is being a little optimistic in thinking that US manufacturing employment is only going to fall 2,000. Indeed, we were seeing manufacturing employment fall by around 25-50,000 per month in 2009 when the ISM employment component was last at these sorts of levels.
As a result, the overall payrolls consensus figure for Friday at 190,000 is looking a bit high too.
It’s a similar tale for US manufacturing from the ISM survey.
Its manufacturing activity index came in at 48.2 in January, up from 48 in December but lower than forecasts of up to 48.5. But a reminder than any reading below 50 signals contraction, and this is the fourth month this has happened.
The employment index at 45.9 was well below expectations of a reading of 48 and marks the lowest level since June 2009. This is not a good sign ahead of the non-farm payroll numbers due on Friday.
US manufacturing in January was stronger than the previous month but less than initial expectations, according to a new survey.
The Markit manufacturing sector final PMI was 52.4 compared to expectations of a reading of 52.7, the same as the initial December level. The final reading for December was 51.2.
Another survey, the ISM manufacturing index, is due shortly.
Wall Street opens lower
Will oil falling again after the disappointing Chinese manufacturing data and diminishing hopes of Opec production cuts, Wall Street has followed other global markets lower.
The Dow Jones Industrial Average is down 135 points or 0.8% in early trading , while the S&P 500 has opened 0.4% lower and Nasdaq has fallen 0.6%.
Meanwhile Brent is down more than 2% at $35.19 a barrel.
And here is some news on a UK bid battle. David Hellier reports:
Sainsbury’s has won its three-month courtship of Home Retail Group, with a £1.3bn takeover of the Argos owner expected to be announced as early as Tuesday, according to leading investors in both groups.
But it returned to the pursuit of its target shortly after the New Year and now needs to put up a formal offer before 5pm tomorrow or ask for an extension from the City’s Takeover Panel, which regulates bids and deals.
Back in the UK, and pharmacy chain Boots is cutting up to 350 jobs as part of a cost reduction programme. Graham Ruddick reports:
This is the second round of job cuts at Boots in the last seven months, after an announcement in June last year that the company would cut 700 jobs in offices around the UK. In the latest round of redundancies, the company plans to cut between 300 and 350 assistant store managers at its biggest stores.
Boots is now part of Walgreens Boots Alliance, one of the biggest retailers in the world, after the merger of Walgreens and Alliance Boots in 2014.
The company employs 60,000 people in the UK and Stefano Pessina, the chief executive of Walgreens Boots Alliance, has pledged that Boots will remain committed to the UK despite the mega-merger.
Full story here:
US consumers did not rush out to spend any of the cash they saved from lower fuel prices, according to official figures.
Consumer spending in December was unchanged after a 0.5% increase in the previous month, itself revised up from an initial 0.3% gain.
The core PCE price index – the Federal Reserve’s preferred measure – rose 1.4% year on year, well short of the central bank’s inflation target of 2%. Ahead of the figures, Michael Hewson at CMC Markets said:
Last weeks Fed statement also saw the omission of a line about policymakers being reasonably confident that inflation will rise to 2% in the medium term, due to the sharp declines seen in oil prices in the last few weeks.
The PCE inflation numbers, which is the Fed’s preferred inflation targeting measure, while not necessarily susceptible to these types of moves in energy prices have started to track lower, and if today’s number drops back from last month’s 1.3%, then it will become increasingly difficult for Fed officials to argue with any degree of credibility that we can expect to see anywhere near three of four rate rises this year,
Over in Wall Street, shares in social network Twitter have jumped by up to 8% in pre-market trading.
There’s some chatter that venture capitalist Mark Andreessen and private equity firm Silver Lake have considered an offer for Twitter, but it all looks a bit flaky.
At $17 per share, Twitter has lost more than half its value since it floated in late 2013.
Indeed, the stock has lost around 40% in the last three months, as it struggles to compete with Facebook, expand its user base and grow revenue as fast as Wall Street would like.
Back in the markets, budget airline Ryanair is defying today’s selloff.
Its shares are up 5% so far today, after announcing a €800m share buyback. It is also slashing prices by 6%, in response to cheaper oil prices and a drop in demand following the Paris terror attacks.
Greek government resumes talks with lenders
Over in Greece escalating protests have put the leftist-led government of Alexis Tsipras increasingly on the defensive as international creditors launch another round of talks in the crisis-hit country.
Our correspondent Helena Smith reports from Athens.
In a week that will see farmers, civil servants, doctors, lawyers, engineers, pharmacists and other freelance professionals take to the streets, the Greek prime minister is feeling the heat as never before.
With farmers blocking key junctions across the country and pledging to increase tractor roadblocks if the government doesn’t rescind controversial tax and pension reforms, creditor mission chiefs launched a new round of talks in Athens this morning amid renewed fears that Greece is heading for political and social chaos.
The conservative daily Kathimerini set the mood, in an editorial declaring:
“the country appears to be on the brink of a social explosion.”
Lenders, led by the International Monetary Fund, have already signaled that draft pension reforms put forward by the government are insufficient with the Washington-based body pushing for further cuts of up to 15% in pensions.
Tsipras, whose political future could rest on measures taken, has adamantly ruled out further cuts suggesting that social security contributions be increased instead – a move creditors argue would be yet another corrosive blow to the business sector. Concerns that the Syriza-dominated coalition, in power with a mere majority of three, will be able to survive the storm mounted at the weekend when irate farmers confronted ministers and Syriza party MPS as they returned to their constituencies.
That in turn has raised the pressure on parliamentarians to throw their weight behind the legislation with a growing number (insiders speak of as many as ten) indicating that they may not support the reforms when they are brought to the 300-seat House for a vote.
Analysts are increasingly talking of the spectre of early elections – a prospect seen as potentially disastrous for the debt-stricken economy.
No one is now expecting the review to be ended any time soon. The Greek finance minister Euclid Tsakalotos, giving a first hint of the timeline, said he did not think it would be completed until the end of March at the earliest – further delaying what the government regards as the critical debate on debt relief. What is certain is a problem-strewn path lies ahead with emotions climbing – some would say dangerously – in a week that will climax when the country is brought to a halt with a general strike on Thursday.
European markets fall after factory disappointment
Four hours into the trading months, and European stock markest are mostly in the red.
Conner Campbell of SpreadEx has helpfully rounded up the data:
After appearing to have shrugged off China’s dire data at the open, the European markets soon abandoned their gains, the situation exacerbated by a mixed showing from the region’s own manufacturing figures.
Despite managing a 19-month high PMI of 52.9 (against the 51.9 forecast), the UK’s manufacturing picture wasn’t as clear cut as that number suggests; export orders continued to fall, whilst the worrying trend of companies cutting their staffing levels persisted. Those factors, and the generally unconvinced tone from analysts, took the spark out of what initially looked like a decent number, leaving the FTSE to tumble into the red as Monday progressed.
Things were even messier over in the Eurozone. An 8 month manufacturing high for Spain (coming a week after its robust GDP data) and a 4 month high for Italy were joined by 3 and 5 month lows for Germany and France respectively, the slowdown seen by those powerhouses causing the region-wide figure to drop from 53.2 to 52.3 month-on-month.
Money continues to pour into eurozone government bonds this morning.
Bonds are also in demand after the Bank of Japan announced negative interest rates last Friday.
The yield (effectively the interest rate) on German bonds has slumped to fresh record lows; five-year German debt is now yielding minus 0.318%, meaning investors are paying more than the face value of the bonds.
That’s also below the ECB deposit rate of -0.3%, meaning the central bank cannot actually buy them through its QE programme. Traders are betting that the deposit rate could fall again soon.
Japanese bonds have also been driven to fresh highs today, sending their yields tumbling.
She points out that firms in the energy sector are under particular pressure:
“At face value, today’s data got 2016 off to an encouraging start with activity levels improving a little on the back of a pickup in new orders, with domestic demand compensating for, once again, lacklustre export orders.
But, looking beyond the headline there’s conflicting signals, with growth drivers narrower in terms of sub-sector and size, and manufacturing posting job losses for the fourth time in the last six months.
Britain’s factories have enjoyed a fairly solid start to the year.
The UK manufacturing PMI, just released, showed that activity rose to a three month high of 52.9 in January, up from 51.9. That beats expectations.
But it’s a slightly mixed picture –although output hit 19-month high, new export orders fell, leaving companies reliant on domestic demand.
They also cut their staffing levels, in a worrying sign for future employment figures.
In addition, UK firms reported that their raw materials were cheaper, allowing them to cut prices – adding to deflationary pressures.
The ongoing weakness in global commodity prices led to a further substantial reduction in manufacturers’ average purchasing costs during January. Average input prices fell at the fastest rate for four months and to one of the greatest extents during the 24-year survey history. There were reports of lower prices for chemicals, metals, oil and plastics.
Part of the reduction in raw material costs was passed on to clients in the form of decreased factory gate prices, the fifth reduction in as many months. The rate of output charge deflation remained mild.
Deflation fears grow as eurozone factory growth slows
It’s official: growth across Europe’s factory sector slowed last month.
This morning’s surveys show that the eurozone manufacturing sector expanded at a slower pace. The headline PMI dipped to 52.3 in January, down from 53.2 in December
Firms reported that output, new orders and new export business all grew at a slower pace in January, suggesting the sector weakened.
The survey also found that firms cut prices for the fifth month running, and at the sharpest rate since January 2015.
That’s good news for consumers, but not for central bankers who are trying to get inflation up.
Chris Williamson, Chief Economist at Markit said:
“The eurozone’s manufacturing economy missed a beat at the start of the year. Having accelerated for three straight months, the rate of growth slipped from the 20-month high attained at the end of 2015. Growth of order books, exports and output all slowed.
“If the slowdown in business activity wasn’t enough to worry policymakers, prices charged by producers fell at the fastest rate for a year to spur further concern about deflation becoming ingrained.
Greece’s factory also stagnated last month:
Germany’s factory sector made an unspectacular start to 2016.
The German manufacturing PMI came in at 52.3, down from 53.2 in December, indicating growth cooled at the start of 2016.
Markit reports that output and new orders increased at weaker rates.
The increase in new business was the least marked in four months. Weaker demand from export markets was one of the reasons for the slowdown in total new business.
However, some panellists reported that the weak euro and improved demand from the US helped secure higher new export orders.
January was another month of stagnation in the French factory sector.
Its manufacturing PMI dropped to 50.0 – the cut-off point between growth and expansion, down from 51.4 in December.
Growth in Italy’s factory sector slowed, last month, with the PMI dipping to 53.2 to 54.9.
An unofficial measure of Chinese factory output has confirmed that the sector shrank again last month.
The Caixin China General Manufacturing PMI showed a sharper downturn, coming in at 48.4, up from 48.2 in December.
That’s worse than the official PMI reading of 49.4 (see earlier post), showing a faster downturn.
Caixin reported that:
Operating conditions continue to deteriorate at a modest pace
Output and employment both contract at faster rates…
…but new orders decline at softest pace in seven months
Dr. He Fan, chief economist at Caixin Insight Group, says Beijing needs to steer the economy closely:
“The government needs to watch economic trends closely and proactively make fine adjustments to prevent a hard landing.
It also needs to push ahead with existing reform measures to strengthen market confidence and to signal its intentions clearly.”
Spanish factory growth beats forecast
Good news! Spain’s factories grew at a faster pace last month, outperforming their rivals in China.
The Spanish manufacturing PMI, which measures activity across the sector, rose to 55.4 last month, up from 53. That shows faster growth, and beats forecasts:
Encouragingly, firms reported that new business rose at the fastest pace since February 2007.
That pushed up the backlogs of work, and meant that the rate of job creation quickened to the fastest in five months.
Andrew Harker, senior economist at Markit, says:
“The Spanish manufacturing sector shrugged off uncertainty surrounding the make-up of the next government in January, posting a strong start to 2016. One key highlight was the fastest rise in new business since prior to the economic crisis, while efforts to increase stock holdings point to confidence in the near-term outlook for orders.
European stock markets have begun February cautiously. The FTSE 100 has dipped by 3 points, while the German DAX is down 16 points or 0.2%.
BP is leading the fallers in London, down 1%. It is expected to report a big slump in profits tomorrow, partly due to the fall in the oil price:
Today’s selloff came after a rough January for Chinese stocks, in which the main markets fell by over a fifth.
Reuters has the details:
Some 12 trillion yuan ($1.8 trillion) were sliced off the value of its benchmark indexes. The CSI300 and the Shanghai Composite indexes fell more than 20% each in January.
Chinese factory output shrinks: What the analysts say
Here’s some reaction to the news that China’s manufacturing sector has shrunk at its fastest pace since 2012:
ANZ’s chief China economist, Li-Gang Liu, says the factory slump will continue for some time.
“The manufacturing sector will likely face a tough year ahead on the back of overcapacity, weakening global demand, and the government’s plans to tackle pollution.”
Erwin Sanft, head of China strategy at Macquarie, says China’s factory sector is dogged by overcapacity (via CNBC):
“There’s a realization that for a lot of these industries, there has to be a big downsizing.
“Rather than avoiding that issue, plans are now being made as to how workers can be laid off and looked after. We expect there’ll be some funding from the central government.”
Angus Nicholson of IG says today’s PMI numbers confirm that momentum in Chinese economic activity has continued to weaken into 2016.
It is quite concerning that the significant monetary and fiscal stimulus in 2015 has only managed to slow the rate of decline in China’s industrial activity……It is looking like it will be quite a struggle for China to even hit its lowered growth target of 6.5% for 2016.
Chinese stocks fall after latest weak factory data
It’s been another bad day on the Chinese stock market.
Shares hit a new 14 month low, after a new survey showed its manufacturing sector weakened last month.
Activity across the Chinese factory sector shrank at its fastest rate in three years, according to the official purchasing managers’ index (PMI). It came in at 49.4 in January, compared with the previous month’s reading of 49.7 — where any reading below 50 shows a contraction.
This is the sixth month running where the PMI has shows China’s factory sector has shrunk, hit by weakening demand at home and abroad.
Data firm Markit reported that operating conditions deteriorated, with output and employment declining at slightly faster rates than in December
And the news sparked another day of selling on the markets.
The benchmark Shanghai Composite index shed 1.7%, or 48 points, to close at 2,689 points. That means it has lost 24% of its value since the start of 2016, as the Chinese stock bubble unwound.
The Agenda: Factory data, Dark Pool fines, flash crash trader in court….
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s a gusty morning in the City, as Storm Henry pays a visit. And traders will be hoping it blows January’s volatility away with it, after a testing start to the year.
A new month brings new economic data. We’ll be getting manufacturing data from across Europe this morning, and the US this afternoon.
The eurozone’s factory Purchasing Manager’s Index is expected to come in at 52.3, unchanged from December, showing moderate growth. A poor result would hint at fresh signs of slowdown in the global economy.
Michael Hewson of CMC Markets explains:
We have the latest Spanish, Italian, French and German January manufacturing numbers, and here there has been some softening of data in recent weeks, as economic activity has dropped off.
It’s been the same story in the UK as well with the latest January manufacturing PMI expected to come in at 51.8, down from 51.9.
Over in America, US authorities are expected to announce a $150m settlement with Barclays and Credit Suisse over their controversial dark pool trading platforms
Internationally, we’ll have one eye on Nigeria after it asked the World Bank and the African Development Bank for $3.5bn in emergency loans (more on that shortly).
The other eye will be on Greece, where protest are escalating against the government’s austerity programme and pension cuts.
Over in parliament, MPs will be debating whether the UK city watchdog, the Financial Conduct Authority, is fit for purpose.
And “flash crash” trader Navinder Sarao will be in court, fighting attempts to extradite him to the US.
We’ll be tracking all the main events through the day….