This article titled “Growth fears as UK and eurozone service sectors slow – live updates” was written by Graeme Wearden (until 2pm BST) and Nick Fletcher (now), for theguardian.com on Monday 5th October 2015 14.21 UTC
Meanwhile here’s the arrivals at the Eurogroup meeting to discuss the latest Greek bailout programme:
And here’s an extract from the roundtable discussion:
Dennis de Jong, managing director at broker UFX.com said:
With inconclusive economic data in recent weeks, the Fed is now split on the timing of an interest rate rise. That situation is unlikely to change in response to today’s non-manufacturing figures, which aren’t strong enough to sway Janet Yellen and Co towards a clear decision.
A decline on last month puts a dampener on what is actually quite a robust set of numbers. It’s not all doom and gloom, however, as Yellen’s reluctance to act may be seen as a positive move elsewhere.
Wall Street, which has been quiet as it awaits consistency among the financial uncertainty, may now be prompted into increased activity before the end of 2016.
Confirmation that the US services sector saw slowing growth in September comes from the Institute for Supply Management.
The ISM services index fell to 56.9 from 59 in August, and lower than analysts’ expectations of a reading of 57.5p. Both new orders and business activity slowed.
But the employment component showed an increase:
And shortly we will get the ISM indices…
US service sector growth slows
America’s service sector is growing by less than expected, according to the first of two rival surveys.
Markit’s final purchasing managers index for the sector came in at 55.1 for September, down from an early reading of 55.6, which was also what analysts had been expecting for the final figure. That compares to 56.1 in August.
Markit’s final composite reading is 55 compared to 55.7 in August. Chris Williamson, Chief Economist at Markit said:
The US economic growth slowed in the third quarter according the PMI surveys, down to around 2.2%. But this largely represents a payback after growth rebounded in the second quarter, suggesting that the economy is settling down to a moderate rate of growth in line with its long term average.
Hiring also remains relatively robust, albeit down from earlier in the year, again suggesting that the economy has shifted down a gear but remains in good health.
“At the moment it remains unclear as to whether growth will weaken further as wemove into the fourth quarter. However, with inflationary pressures waning, policymakers may have some breathing space to gauge the extent of any slowdown. Lower fuel costs helped push average prices charged for goods and services dropping at steepest rate for nearly five years.
Wall Street opens higher
In tandem with other global markets, Wall Street is moving ahead strongly.
The Dow Jones Industrial Average is up 164 points or 12%, while the S&P 500 has opened 0.5% higher.
Markets are being driven by hopes that central banks will not pull the plug on financial support in the immediate future. Friday’s poor US jobs numbers have convinced investors that the prospect of a Federal Reserve rate rise this year is looking less and less likely.
Another factor supporting the market is a rising oil price, which is boosting energy shares. Brent crude is up 2% after reports that Russia wants to meet other producers to discuss the market, where oversupply and falling demand have sent oil prices sharply lower. That could, believe some, presage production cuts. Meanwhile Friday also saw a fall in the number of rigs drilling for oil in the US.
China can manage its economic slowdown but needs to communicate policy more effectively, says the International Monetary Fund.
Ahead of its annual meeting the IMF said China’s exchange rate was in line with medium term fundamentals after the recent devaluations, Reuters reports.
Global corporations are avoiding tax to the tune of up to $240bn a year, according to a new report from the OECD, which has also announced reform measures to tackle the problem. Simon Bowers reports:
An unprecedented international collaboration on tax reform, led by the G20 nations and targeting many of the world’s largest global corporations, will wipe out much of the tax avoidance industry, it was claimed today.
The two-year reform programme, under the auspices of the OECD, was prompted by a spate of revelations in recent years about the tax affairs of multinationals including Starbucks, Google and Amazon.
Alongside the final batch of reforms, published today, the OECD released what it called “extremely conservative” estimates suggesting large global businesses were shifting profits and eroding the tax receipts of economies around the world at a cost of $100bn (£65bn) to $240bn a year — equivalent to between 4% and 10% of global corporation tax revenues.
In the face of increasingly aggressive tax avoidance, countries have been forced to rely more heavily on taxing income less able to be shifted abroad — such as workers’ pay and VAT.
“[The reforms will help] move away from an era when tax planning had become part of core business models,” said Pascal Saint-Amans, who has led the two-year OECD reform programme, backed by 60 countries representing more than 90% of the world’s economy. “Value creation [should be] the core business of industry. Tax planning should just be some supportive, marginal activity… The tax world will not be the same.”
Read more here:
Lunchtime summary: Growth fears after weak services data
A quick recap:
Companies reported that activity grew at the slowest pace in two and a half years. Economists blame fears over China’s economy, and predict that GDP could grow by just 0.4% in the last three month of this year.
Expansion across the eurozone also eased back in September, data firm Markit reports. Firms in Germany, Spain and Ireland all said growth was slower, although France’s bucked the trend.
European stock markets are up. Shares are being driven by hopes that central banks will continue to stimulate the global economy, and resist early interest rate rises.
The FTSE 100 is now at its highest point of the day, up 132 points at 6262. The French CAC has soared by over 3%.
Workers have stormed the boardroom of Air France today, as the airline announced plans to cut 2,900 jobs. Two senior executives were forced to flee with ripped shirts.
The Greek government is preparing its new budget. Alexis Tsipras’s government must explain how it will implement tough tax rises and spending cuts demanded by lenders.
Finance minister Euclid Tsakalotos is meeting fellow eurozone finance ministers in Brussels today. They’ll discuss the various prior actions Greece must deliver to receive its next aid tranche, and to open talks on debt relief.
And in the UK, chancellor George Osborne has confirmed that he’s selling off shares in Lloyds Banking Group to the public at a chunky discount.
European commissioner Pierre Moscovici tweets from Brussels:
The Trans-Pacific Partnership deal is “a huge strategic and political win for US President Barack Obama and Japan’s Shinzo Abe,” says the FT’s Shawn Donnan.
It represents the economic backbone of the Obama administration’s strategic “pivot” to Asia and a response to the rise of the US’s chief rival, China, and its growing regional and global influence.
It is also a key component of the “third arrow” of economic reforms that Mr Abe has been pursuing in Japan since taking office in 2012.
Here’s the FT’s take (£): Negotiators strike Pacific trade deal
Historic TPP trade deal agreed
Over in Atlanta, a dozen Pacific Rim nations have reached the most sweeping trade liberalization pact in a generation.
After late hitches over drugs monopolies, and New Zealand’s dairy market, the Trans-Pacific Partnership (TPP) has been hammered out. It is meant to lower trader barriers in the region, and set common standards in around 40% of the world economy.
My colleague Martin Farrer explains:
The TPP aims to lower trade tariffs between the signatory nations and bring in wide-ranging new regulations for investment, agriculture, intellectual property, labour and the environment. This in turn could mean cheaper food, medicine and everyday household goods for millions of people. It will also help the 12 countries to counter China’s rising economic influence in the region.
The Brussels press pack are assembling for today’s meeting of finance ministers, where Greece’s new bailout package will be discussed.
But it’s not as exciting as the eurogroup meetings we enjoyed (or was it endured?) this summer, so there’s more space outside:
Greeks brace for austerity budget
The Greek parliament is back in full force today with prime minister Alexis Tsipras outlining his newly elected government’s policy programme as the draft 2015 budget is also submitted.
Our correspondent Helena Smith reports from Athens
After a week of diplomacy abroad, the Greek prime minister must now face the music of applying what will be the most onerous financial rescue programme to date. It will not be easy.
From months of often fraught negotiations just getting to the point of reaching agreement over the bailout deal, the debate has shifted from the abstract to the real with Greeks now being bombarded with news of what the latest accord will entail. The draft budget is expected to outline an array of hard hitting levies, including the much-hated property tax known as Enfia, as well as pension cuts and structural reforms – the price of being bailed out for a third time to the tune of €86bn.
The measures will throw the debt-stricken economy into recession with the budget forecasting a return to growth in 2017 (for many a conservative estimate).
The Greek finance minister, Euclid Tsakalotos, who is on his way to Luxembourg, will outline the savings and government priorities when he meets euro area counterparts attending tonight’s Euro Group.
One insider tells us:
“He will present the prior actions lenders are demanding at the meeting,”
“These are the first package of measures we have agreed to apply [in exchange] for loans.”
The measures, which are expected to include deep cuts to monthly pensions over €1,000, have to be implemented in the coming weeks – before more than 60 others are enforced in November for international creditors to begin a review of the Greek economy.
All of which is going to require nifty explanation when Tsipras (whose radical left Syriza party was first catapulted into office vowing to “cancel” such measures) takes to the podium to present the policies of his second term in office at 7:30pm this evening.
Unions and leftists are already girding for battle. “We are organising the response of popular workers to the new wave of attack,” the communist Pame announced this morning, calling on Greeks to participate in a mass rally on October 22 and a strike on November 12.
Air France-KLM has criticised those responsible for today’s violence, and insisted that most staff were protesting peacefully before a group burst into its boardroom.
A spokesman said:
“This violence was carried out by particularly violent, isolated individuals, whereas the protest by striking personnel was taking place calmly up until then.”
Associated Press has more details on the Air France protests this morning:
Union activists protesting proposed layoffs at Air France stormed the headquarters during a meeting, zeroing in on two managers who had their shirts torn from their bodies, scaled a fence and fled under police protection.
An Associated Press photographer saw about a hundred activists rush the building. The managers who fled included the head of human resources.
Alexandre de Juniac, the CEO of Air France-KLM, announced Friday the company would have to cut jobs after failing to reach an agreement with pilots. French media reported a proposal to slash 2,900 jobs.
De Juniac said the company was being squeezed by low-cost airlines in Europe and Gulf carriers for long-haul flights. Monday’s meeting was intended to detail the cuts, which he told Europe 1 radio would be “significant.”
Fortunately, Xavier Broseta and Pierre Plissonnier did manage to escape the demonstrators, sans chemises.
Air France execs lose their shirts as workers storm HQ
Over in Paris, two Air France executives appear to have had their shirts ripped from their backs after the airline announced plans to cut up to 2,900 jobs.
According to local media reports, several hundred workers stormed the airline’s headquarters this morning, after it announced the cutbacks.
Photos from the scene show Pierre Plissonnier, Air France’s assistant director for long-haul flights, leaving the scene in a disheveled state.
Human resources boss Xavier Broseta is pictured trying to climb a fence to flee.
It’s not clear exactly what happened. But the AFP newswire reports that CEO Frederic Gagey “made a hasty exit, according to two members of the committee”, after workers broke into the meeting.
Unions have also called a strike to protest at the job cuts, which were announced after pilots turned down a proposal to work 100 more hours per year for the same salary.
It could see 300 pilots, 700 air hostesses and stewards, and 1,900 ground staff laid off by 2017.
Le Figaro reports that Air France is planning to file a complaint of “aggravated violence”. More here.
European stock markets aren’t panicking at today’s service sector slowdown.
Instead, they continue to rally –– catching up with Wall Street’s late jump on Friday night.
France’s CAC index is the best performer, following the news that its services firms actually caught up (a little) with the rest of the eurozone last month.
But other markets are also gaining ground, with the FTSE 100 jumping over around 2%, despite warnings that the economy may be slowing down.
So what’s going on?
Well, investors do seem confident that the US Federal Reserve won’t raise rates this month, and probably not before 2016.
That’s bullish for shares, and also weakens the US dollar — which has a positive effect on commodity prices and oil. And that’s why mining shares are up today, while Royal Dutch Shell has gained 4%.
Jasper Lawler of CMC says:
UK and European markets were higher across the board on Monday, playing catch-up from the biggest turnaround on the Dow Jones Industrial Average in four years on Friday.
The French CAC was higher by over 2.5% supported by positive French service sector data. Missed expectations for Germany’s service sector took the edge off gains on the DAX, which was still higher by over 1.5%.
A new survey of Britain’s top finance chiefs confirms that the UK economy may be weakening.
Our Katie Allen reports this morning:
China’s downturn, the prospect of rising interest rates and uncertainty about the global economic outlook have knocked confidence among bosses of the UK’s biggest companies, according to a survey.
Chief financial officers (CFOs) polled by the consultancy Deloitte reported a sharp rise in uncertainty facing their businesses and have scaled back their expectations for investment and hiring over the coming year.
Almost three-quarters of the 122 CFOs, or 73%, said the level of financial and economic uncertainty was either above normal, high or very high. That was up from 55% in the second quarter of this year and is the highest proportion for more than two years.
Economist Howard Archer, of IHS Global Insight, fears UK economic growth could stumble in the last quarter of 2015:
UK "recovery at risk" from Chinese chill
The slowdown across Britain’s service sector is putting the recovery at risk, says David Noble CEO at the Chartered Institute of Procurement & Supply.
He blames the knock-on effect of China, which sparked global market panic in August after Beijing devalued the yuan.
The further softening of growth in the services sector must now be causing some concern for the sustainability of the recent recovery in the UK economy….
It appears that when China sneezes, the world catches a cold as some companies cited the region as a cause for worldwide concern.
Some instant reaction to the slowdown in Britain’s services sector:
UK service sector growth hits 2.5 year low
Britain’s service sector suffered a sharp slowdown last month, new data shows, raising fears that the economy may be faltering.
Data firm Markit reports that activity across the sector grew at its slowest rate since April 2013 in September. Its service PMI fell to 53.3, from August’s 55.6 (where 50=stagnation).
Firms reported that new business slowed, with some clients unwilling to place new contracts in the current “global economic uncertainty”.
More encouragingly, firms did keep hiring staff, but business investment is also under pressure.
And with Germany, Ireland and Spain’s service sectors also slowing (see last post), signs are building that the European economy may be faltering.
Markit’s Chris Williamson fears that “the economy sank further into a soft patch at the end of the third quarter”, and is only growing at 0.3% per quarter.
Services makes up around three-quarter of the UK economy, so any slowdown has serious consequences.
“Weakness is spreading from the struggling manufacturing sector, hitting transport and other industrial-related services in particular.
There are also signs that consumers have become more cautious and are pulling back on their leisure spending, such as on restaurants and hotels.”
Eurozone service slows, putting more pressure on ECB
Growth across Europe’s private sector is slowing, according to the latest healthcheck of the region’s service sector.
Markit’s Eurozone PMI, which measures activity at thousands of companies, dipped to a four-month low of 53.6 in September, down from 54.3 in August. That shows the sector kept growing, but at a slower rate.
Growth in the service sector hit a seven-month low, with the Services PMI dropping to 53.7 from 54.0.
Growth in Spain hit its lowest level since January, although France – usually a laggard in these surveys – clawed back some ground:
Here’s the detail:
Chris Williamson, chief economist at Markit, reckons that the slowdown could raise the chances of fresh stimulus measures from the European Central Bank:
“The final PMI reading came in slightly below the earlier flash estimate but still leaves a signal of the eurozone economy having expanded 0.4% in the third quarter.
“However, the failure of the economy to pick up speed over the summer will be a disappointment to the ECB, especially with job creation sliding to an eight-month low.
“The weakening of the pace of expansion in September raises the risk of growth fading further in the fourth quarter, which would in turn boost the likelihood of the ECB opening the QE taps further.
Mining stocks are packing the top of the FTSE 100 leaderboard:
That shows optimism that central banks will do more to stimulate the global economy, now that the US labor market appears to be weakening.
Tony Cross of Trustnet Direct explains:
Consensus is building that the Federal Reserve won’t now be in a position to hike interest rates before the end of the year. This gives emerging markets a little more breathing room and it’s the mining stocks that are forging their way to the top of the table.
European markets jump on stimulus hopes
Shares are rallying across Europe this morning, fuelled by hopes that central banks keep topping up the punchbowl for longer.
France’s CAC index is the biggest riser, up nearly 2%, and Germany’s DAX gaining 1.3%.
The FTSE 100 is close behind, up almost 100 points, as traders shake off their disappointment over Saturday night’s rugby.
Investors have had a weekend to ponder Friday’s disappointing US jobs report, and concluded that a weak labor market means the Federal Reserve will resist raising interest rates in 2015.
And that’s encouraging them back into the market.
Kim Young-jun, a stock analyst at SK Securities in Seoul, explains (via Reuters)
“Risk aversion weakened today as the weak U.S. employment data supported expectations that the Fed would put off the timing of rate hikes.”
They’re up 7.8p at 108.6p, having briefly jumped 20% to 114.45p. That’s quite a recovery, given they slumped to 66p last week.
However, it’s a weaker rally than in Asia, though, where they spiked 70% at one stage today.
Glencore has just issued a statement to the City, saying it is:
…the Board confirms that it is not aware of any reasons for these price and volume movements or of any information which must be announced to avoid a false market in the Company’s securities or of any inside information that needs to be disclosed…
That could dampen some of the chatter that a big deal is close…..
Treasury to sell £2bn Lloyds stake to public
Reports that Glencore is in talks to sell its entire agriculture business are helping to drive its shares higher.
That would provide fresh resources to tackle its $30bn debt mountain, and to handle a further drop in commodity prices.
Glencore shares surge on sale talk
Something is going on at Glencore, the troubled commodity trading and mining company.
Shares in Glencore leapt by over 70% in Hong Kong overnight, and are currently up over 30%.
This comes after the Daily Telegraph reported that Ivan Glencore is prepared to listen to takeover offers for the company he has created, following the recent slump in its value.
Glencore would listen to offers for a takeover of the entire company but its management does not believe there are any buyers willing to pay a fair value for the business in the current market.
That report appears to have sparked a wave of buying into Glencore, whose shares have lost around three-quarters of their value in the last year.
Glencore itself, though, says it’s “unaware” of the reason behind the surge, according to Bloomberg’s Jonathan Ferro.
American Apparel files for bankrupcy
Big news breaking in the retail sector — American Apparel, supplier of ethical clothing and god-awful adverts, has filed for bankruptcy protection.
The move follows a steady slide in sales, and ever-more disturbing antics by ex-chairman Dov Charney, who was forced out a year ago.
The Agenda: US jobs report lingers
Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.
A new week begins with investors digesting still last Friday’s disappointing US jobs data.
September’s Non-Farm Payroll was a bit of a shocker, with just 142,000 new jobs created, and wages unchanged month-on-month. That suggests America’s economy is being hit by the slowdown in emerging markets such as China, raising fears that a new downturn is looming.
And that has actually pushed shares higher in Asia this morning on speculation that monetary policy is going to stay loose for even longer.
Japan’s Nikkei gained 1.6%, while the Indian market is up around 1.5%:
We’ll get a fresh insight into the health of the global economy today, when new surveys of the world service sector are released.
Those Purchasing Managers Surveys will show if growth speeded up or slowed down; we get the eurozone report at 9am BST and the UK at 9.30am BST.
And over in Greece, Alexis Tsipras’s new government will be presenting its new budget, ahead of a vote on Wednesday.
We’ll be tracking all the main events through the day….
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