The optimism seen at the end of last week seems to have disappeared as quickly as it came. Crude prices were on the slide once more, given there was no sign of any deal between Opec and the likes of Russia to cut production and stem the supply glut. On top of that, sentiment was hit by major losses at BP and a 48% drop in profits at Exxon Mobil.
So Brent crude fell as much as 5% before recovering some ground – and helping markets off their worst levels at the same time. It is currently down 2.8% at $33.26 a barrel. West Texas, which slipped below $30 at one point, is now down 1% at $30.6 a barrel.
Adding to the downbeat mood came reports that China was imposing new controls to help control outflows of capital from the country, in particular a cap on people buying insurance from overseas.
So despite the marginal recovery, the final scores showed some hefty falls:
The FTSE 100 fell 138.09 points or 2.2% to 5922.01
Germany’s Dax dropped 1.8% to 9581.04
France’s Cac closed down 2.47% at 4283.99
Italy’s FTSE MIB fell 3.05% to 17,922.45
Spain’s Ibex ended down 2.96% at 8528.7
In Greece, the Athens market slipped 0.84% to 552.5
On Wall Street the Dow Jones Industrial Average is down 271 points or 1.65%.
On that gloomy note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow for a busy day of service sector surveys around the globe.
As European markets head towards the close nursing heavy losses again Chris Beauchamp, senior market analyst at IG, said:
The end of January, when markets raced higher, seems such a long time ago. Major indices are rapidly shedding the gains they made in the second half of January, as a cocktail of worries returns. The first of these is the oil price, which has rediscovered its old habit of diving like a stone, helped in no small part by the absence of any rumours about another OPEC meeting.
The session started with oil firms in the red, as BP’s results sent the shares into a tail spin, but the company has been joined at the bottom of the index by miners and insurers. The former are down as economic growth concerns take centre stage, with this concern not helped by warnings from Fed policymakers, while the latter are in retreat thanks to China, which appears to be coming up with new and creative ways to try to stem capital flight. The reaction is probably overdone where the likes of Prudential are concerned, but it is hard to remain positive when the tentative rally of the past two weeks is slipping from your grasp.
Adding to concerns was ExxonMobil, which is down 3% as the earnings beat fades amidst the stark reality of a remarkable slump in profits. As crude prices slide once more, thanks to markets suddenly waking up and remembering the massive oversupply story, it looks like this sector will be the trailblazer for any renewed slump in stock markets.
Back in the UK, and one of the biggest fallers apart from commodity companies is Prudential.
The insurance group is down nearly 8% on reports that China might be taking steps to stem outflows of capital. In particular Bloomberg has said the country could impose restrictions on people buying insurance products abroad, with a $5,000 cap per transaction to be imposed from 4 February. Analyst David Morrison at Spread Co said:
Amid today’s unsettling stock market action, Prudential stands out as one of the big losers. But this has nothing to do with the announcement that Anne Richards will be joining the Pru from Aberdeen Asset Management later this year.
Instead it comes on the back of China’s currency regulator imposing restrictions on its citizens buying overseas insurance products. This isn’t just bad news for the Pru or the insurance sector in general. It raises fears that the Chinese authorities may take further action to limit capital controls. This is a particular worry as we head towards the extended Chinese New Year holiday break.
Here are the Dow movers:
A sliding crude price and the lack of any major data to give direction have combined to send markets lower, says financial analyst Connor Campbell of Spreadex:
Things turned ugly this afternoon, with a woeful performance from Brent Crude and a particularly weak open from the US indices seeing the markets double down on the day’s losses.
Now down around 4.5% and threatening to fall below $32 per barrel, the resumption of Brent Crude’s decline has been the main catalyst for the day’s dismal trading. And as ever, when the commodities begin to fall the FTSE loses its way in pretty dramatic fashion, the UK index dropping a whopping 150 points as the day went on. The main casualty was BP; plunging by nearly 10% the oil has lost wave upon wave of investors this Tuesday following the revelation of its worst annual losses for 20 years.
Whilst the DAX was prevented from posting the kind of absurd losses it is known for thanks to a record low German unemployment rate figure, the CAC was right up there with its UK peer this afternoon, falling around 2.6% as the day wore on. Over in the US, meanwhile, the Dow Jones quickly sank by 250-ish points after the bell rang on Wall Street, exactly what the markets didn’t need following such an awful morning in Europe.
The lack of truly significant data likely exacerbated today’s losses, investors left with little other option but to focus on the same fears that have caused the markets to start 2016 in such dire fashion. Tomorrow, then, maybe slightly better, with a cavalcade of services figures around the globe set to distract the markets (however briefly or successfully is unclear) from their current malaise.
Wall Street drops nearly 250 points, with US crude below $30
The Alphabet success comes as the overall market has moved sharply lower.
The Dow Jones Industrial Average is down 241 points or 1.46%, as Wall Street follows other markets lower. Fears of a global slowdown in the wake of weak industrial data this week have unnerved investors once more, while oil continues to slide as hopes fade of a deal between Opec and other oil countries – Russia in particular – to cut production.
Brent crude is down 5% at $32.5 while West Texas has slipped below $30 a barrel.
Elsewhere the S&P is down 1.4% while the falls on European markets are accelerating.
The FTSE 100 is now down 154 points or 2.5% while Germany’s Dax is down 1.35% and France’s Cac has lost 2.1%.
Alphabet shares have jumped more than 4% at the open, valuing it at around $545bn. In contrast Apple is down almost 1% to give it a market capitalisation of around $530bn.
Google owner becomes world’s biggest quoted company
Wall Street has opened and Alphabet has indeed overtaken Apple to become the world’s largest listed company.
British Gas to cut 500 jobs
UK energy group British Gas has announced it will axe 500 jobs as part of a cost cutting programme by its parent company Centrica.
It did not say where or when the cuts would be made, according to Reuters which quotes British Gas chief executive Mark Hodges as saying:
British Gas is well positioned to grow but we must ensure that our costs allow us to be competitive for our customers.
Back with big oil, and Exxon Mobil has unveiled a 48% drop in its fourth quarter profit to $2.78bn and said it would cut spending this year by a quarter.
RBS have helpfully tweeted some of the key charts:
Our energy editor Terry Macalister has established that BP is actually planning to cut 7,000 more jobs, more than first thought, after reporting an an annual loss of $6.5bn this morning.
Terry also reports that CEO Bob Dudley thinks investors are “overreacting” by sending its shares down by 9% so far today….
Over in Greece, the negotiations between Athens and its creditors over its bailout programme have taken a curious twist, as talks resume today.
The EU side has apparently hinted that Greece might get an easier ride, if it does a better job processing the refugees arriving on its shores from the Middle East.
The Greek newspaper Kathimerini explains:
Greek authorities are scrambling to set up screening centers for migrants and refugees as soon as possible as German officials have made it clear to Athens that more efficient management of the refugee crisis could help along creditors’ review of the country’s third bailout, Kathimerini understands.
According to sources, German Chancellor Angela Merkel has indicated to Prime Minister Alexis Tsipras that success in tackling the migration crisis could boost the country’s prospects for progress with the review, which Athens hopes could ease the way for debt talks. Combined with a burgeoning debate about Greece’s future in the passport-free Schengen area, the message from Berlin is said to have encouraged action by Greek officials.
Blackmail? Bribery? Or an attempt to fix two problems in one go?
Currently, some refugees trying to move west from Greece are stranded at the border with Macedonia, due to anti-austerity protests held by farmers.
It is currently down 8.8%, which by my reckoning wipes £5.8bn off its market capitalisation.
BP boss Bob Dudley has also warned that other oil companies will follow his lead and slash jobs, in response to the slide in the crude price.
ITV’s Joel Hills has the details:
The oil sector is churning out the rumours today, as the crude price drops.
The latest one is that member of the OPEC cartel are still resisting an emergency meeting where a production cut could be hammered out.
That’s despite the pain being suffered across the oil-producing countries, with Saudi facing serious austerity, Nigeria seeking help from the World Bank, and Russia apparently considering privatising various state assets.
The oil giant is predicting a volatile 2016, and warning that the cost of the Deepwater Horizon spill disaster is still rising.
Oil price takes another dive
The oil is continuing to weaken, mirroring the selloff in the equity markets.
Brent crude is now off 3.7% or $1.20 at $32.97 per barrel, hit by persistent fears of economic slowdown and oversupply in the oil market.
And the Russian rouble is falling in sympathy, as cheaper oil brings more trouble for struggling petro-exporters.
Tim Condon, head of Asia research at ING, fears that the oil sector is locked in a vicious downward spiral with factories.
Oil companies cut spending last year after crude prices fell sharply, which meant they ordered less from manufacturers. That hit factory growth, and also meant they needed less energy. That hit demand for oil, helping to push stockpiles up and prices down.
Or as Condon put it to clients:
“Manufacturing is (the) leading edge of a global growth slowdown.”
“We think the 50% crash in global oil prices in the second half of 2014 caused the manufacturing slump by crushing commodity producers’ spending. However, we also think that in 2015 weaker manufacturing, especially in China, began to drive down oil prices. The negative feedback loop is causing severe strains.”
Alex Lydall, senior sales trader at Foenix Partners, says investors expect action in March.
Traders and investors assumed from the latest ECB press conference that further cuts in the deposit rate and perhaps an extension and expansion of Quantitative Easing are potentially on the cards.
Today’s selloff has wiped out almost all the spike last Friday, after the Bank of Japan took the dramatic step of introducing negative interest rates.
Central bank stimulus packages don’t have the impact they used to, as investors worry that the global economy is heading remorselessly downwards.
Brenda Kelly of London Capital Group explains:
It would seem that central bank impact is really beginning to lose its charm and the days of buying the dip on the back of stimulus expectations is no longer the winning strategy it once was.
We’re back to the same old story today with materials and energy providing a drag on the FTSE as BP delivered what was frankly a terrible set of results – its worst loss in 20 years.
Eurozone jobless rate hits new four-year low
Breaking: The Eurozone unemployment rate has hit its lowest level since September 2011.
Eurostat is reporting that the region’s jobless rate dipped in December to 10.4%, from 10.5%. Across the wider EU, the jobless rate remained at 9.0%.
Although the fall is encouraging, it still leaves 21.944 million men and women out of work in the 28 members of the EU, including 16.750m in the euro area.
There were, as usual, stark difference across Europe too.
Among the Member States, the lowest unemployment rates in December 2015 were recorded in the Czech Republic and Germany (both 4.5%), Malta and the United Kingdom (both 5.1%, October data for the UK).
The highest unemployment rates were observed in Greece (24.5% in October 2015) and Spain (20.8%).
More gloom. Growth in Britain’s building sector has hit a nine-month low, according to new figures from data firm Markit.
Markit’s UK construction PMI has fallen to 55.0 in January, from 57.8 in December. That suggests growth slowed to its lowest rate since April 2015.
The survey found that:
UK construction sector experiences growth slowdown at the start of 2016
Job creation eases to its slowest for almost two-and-a-half years
Construction firms report lowest business confidence since December 2014
Why markets are falling again
Worries about global growth and weak, falling oil prices are back under the spotlight today, warns Arnaud Masset, market analyst at Swissquote Bank.
And that’s why the European markets are sliding again. The FTSE 100 is now down 85 points, and being dragged lower by oil companies, banks and miners:
Investors are also gloomy after yesterday’s factory data. It showed the US manufacturing sector was not as strong as hoped, while China continued to weaken.
Kit Juckes of Societe Generale explains:
Yesterday afternoon’s US economic data was pretty consistently below expectations, reinforcing the clear signs that global manufacturing is down in the dumps.
BP’s poor results are also a reminder of the havoc playing out in the oil sector, as hopes of a deal between Russia and Saudi Arabia to cut production dwindle.
FXTM Research Analyst Lukman Otunuga says:
Tepid manufacturing data from China, the world’s largest energy consumer, renewed fears that demand may be dwindling.
These anxieties added to the rapidly fading expectations around OPEC cooperating with Russia to curb production, while ongoing concerns over the excessive oversupply of oil in the markets continued to haunt investors.
BP’s CEO, Bob Dudley, has warned that the oil price will remain volatile until the second half of 2016.
Speaking on Bloomberg TV, he predicted spikes – up and down – in the next few months as Iran returns to the oil market.
Just in: Germany’s unemployment rate has hit a new record low of just 6.2%.
Destatis, the stats body, reports that the German jobless total fell by 20,000 in January, compared to expectations of an 8,000 decline.
European markets hit in early trading
Another difficult morning is unfolding on the European stock markets.
In London, the FTSE 100 has shed 1.3%, or 82 points, to 5977.
BP is partly to blame – it has knocked 17 points off the Footsie on it own, and also dragged rival Royal Dutch Shell down too (it reports results on Thursday).
Mining shares are also down, with BHP Billiton off 4%.
Across the channel, Germany’s DAX is down 0.9% and the French CAC is down 1.3%
Shares in BP have slumped at the start of trading, after the energy giant reported its worst loss in 20 years.
BP shares fell 5.8%, or 21p, to 345p as investors reacted to the news that it lost $6.482bn in 2015, on a pre-tax basis, compared to a profit of £3.780bn in 2014.
That, Reuters reports, is the biggest loss in two decades.
Oil companies like to report their results in “underlying replacement cost profit” terms, to strip out the impact of the fluctuating oil price.
But even then, BP’s results are worse than expected. It reported a 91% drop in underlying profits in the last three months, to just $196m.
It’s bad news for workers – BP is planning to cut an extra 3,000 jobs in its downstream unit by the end of 2017, on top of 4,000 earlier cuts.
Sainsbury close to landing Argos with £1.3bn offer
After weeks of haggling, Sainsbury has finally secured the takeover of Home Retail – owner of catalogue shopping chain Argus.
The two sides reached terms overnight of a £1.3bn merger. This is Sainsbury CEO Mike Coupe’s first big deal — he’s hoping to repel the march of Amazon, and rising pressure from discount grocers.
Assuming shareholders back the deal, Sainsbury will soon be installing Argos outlets in its stores.
My colleague Sean Farrell has the details of the deal:
Britain’s second-biggest supermarket has proposed paying Home Retail shareholders 55p in cash and 0.321 Sainsbury’s shares for each of their shares, valuing Home Retail at £1.1bn.
Under the terms of the proposed deal, Home Retail shareholders would also get a further £200m from the sale of Homebase, Home retail’s DIY and homewares business. Along with a 2.8p per share payment in lieu of a final dividend, the proposed offer values Home Retail at 161.3p a share or about £1.3bn.
Chinese central bank in new cash injection
Most Asian stock markets lost ground today, with Japan’s Nikkei closing 0.64% lower.
China bucked the trend, though, jumping over 2%, after the People’s Bank of China pumped more money into the system.
Marketwatch explains why:
China’s central bank injected 100 billion yuan ($15.2 billion) in short-term loans to money markets, in a move to stave off potential liquidity squeezes ahead of the weeklong Lunar New Year holiday that starts on February 7. This is the first leg of the bank’s usual twice-a-week money-market operations.
Overnight, Australia’s central bank left interest rates unchanged at the record low of 2%.
But it also warned it could cut soon if the recent financial market turbulence continues.
Gold hits three month high
Worries over the strength of the global economy has pushed the gold price up to its highest level since the start of November.
Bullion hit $1,130 per ounce in early reading, as investors scurried for safe-havens in the face of recent weak economic data. Fears over China were also rife, after yesterday’s data showed its factory sector shrinking at the fastest rate since 2012.
Japan’s move into negative interest rates on Friday has also caused jitters, as traders wonder whether further unconventional monetary policy will be deployed soon. And this uncertainty is making gold more attractive.
With rates close to zero, the “only option is to move either towards zero or negative rates as the Japanese and selected European countries are already doing in a desperate attempt to force banks to lend”, INTL FCStone analyst Edward Meir wrote to clients.
“Whatever the case, this should be constructive for gold.”
The Agenda: Eurozone unemployment coming up
Good morning, and welcome to our rolling overage of the world economy, the financial markets, the eurozone and business.