Business live

Rolling coverage of the world’s financial markets, including disappointing results from the weak eurozone inflation report. Investors still seem nervous after Monday’s rout. Eurozone inflation gauge stubbornly stuck at just 0.2% y/y in December…

Powered by Guardian.co.ukThis article titled “European markets still fragile after euro inflation gloom – business live” was written by Graeme Wearden (until 2.15) and Nick Fletcher, for theguardian.com on Tuesday 5th January 2016 15.20 UTC

Given the backdrop of disappointing Chinese data and growing tensions in the Middle East, this week’s US main economic events – the minutes of the Federal Reserve’s rate-rising meeting and Friday’s non-farm payroll figures – will be closely watched. Christopher Vecchio, currency analyst at DailyFX, said:

Weak economic data from across the globe – particularly China and the Euro-Zone – has the US dollar on stronger footing ahead of key event risk this week. Despite some alarming signs coming from the US economy (soft consumption figures, mixed housing data, and recession-level industrial production), investors and traders alike remain focused on ‘the big picture’: how fast will the Federal Reserve tighten policy this year?

With the December Federal Open Market Committee minutes due on Wednesday and the December US non-farm payrolls report due on Friday, market participants – short- or long-term in nature alike – will have a fresh look at where the Fed stands…

Minutes of the last Federal Reserve meeting due on Wednesday.
Minutes of the last Federal Reserve meeting due on Wednesday. Photograph: Richard Drew/AP

Parsing the FOMC minutes and reviewing the details of the December labor reports should help provide enough clarity for judgement to be made on “who is wrong”: either the market, currently pricing in two rates hikes for this year (via Fed funds futures); or the Fed, currently suggesting it will hike rates four times this year.

In the event that the FOMC meeting and the US non-farm payrolls prove to be supportive of the US dollar, it will likely come at the detriment of higher yielding currencies and risk-correlated assets. Any signs that the Fed could tighten policy faster than currently expected, against a backdrop of rising tensions between Iran and Saudi Arabia as well as Chinese/emerging market growth concerns, would seem like a caustic mix of influences for the commodity currency bloc in particular.

US markets edge higher

Wall Street has followed other global markets in attempting to stage a rebound after Monday’s China-induced rout. But as in Europe, the rally is rather tentative.

The Dow Jones Industrial Average is up 42 points or 0.2% in early trading, while the S&P 500 has opened 0.16% better and Nasdaq is 0.3% higher.

In Europe, the FTSE 100 is currently up 0.79% while Germany’s Dax has added 0.33% and France’s Cac has climbed 0.48%.

Oil prices remain under pressure, on fears of falling demand in the wake of the poor Chinese data seen over the past few days. A stronger US dollar is not helping matters, since it makes holding dollar-denominated commodities more expensive. These factors are outweighing the growing tensions in the Middle East – especially between Saudi Arabia and Iran – which could hinder supply.

So Brent crude is currently down 1.2% at $36.77 a barrel, while WTI is nearly 1% lower at $36.40.

Accountancy group ICAEW reckons that British businesses are actually more worried about the domestic situation, rather than problems in China.

A survey of its members found that the the UK economy is the number one concern for 2016.

However, they’re less concerned about the eurozone economy, geopolitics, or the looming referendum on Britain’s membership of the European Union.

Here’s the details:

  • 41% of businesses feel that the growing uncertainty around the UK’s position in the EU could have a negative impact, compared with 50% a year ago
  • Businesses are less concerned about the negative impact of low economic growth in the Eurozone than they were two years ago (44% v 56% in 2014). Although exporters are displaying the same concern than they did last year, with 60% expecting a negative impact.
  • Low UK inflation is expected to have a positive impact on over a third of companies (36%) but over half (52%) would be negatively impacted by any interest rate rise in 2016
  • Instability in the Middle East and Ukraine is much less of a concern to business with 29% of respondents expecting a negative impact (down from 41%).

Midday summary: Markets remain nervous

Time for a quick recap.

European stock markets remain fragile today, after an early attempt to rally back from Monday’s slump floundered.

The main bourses are mixed as traders snatch lunch in the City. The German and French markets are down around 0.5%, while Britain’s FTSE 100 is managing a slight recovery, up 18 point, having been 70 points higher in early trading.

European stock markets, 1pm today
European stock markets, 1pm today Photograph: Thomson Reuters

Investors are bruised following yesterday’s slump, which was the worst start to a trading year since the dot-com crash.

China remains a big worry today.

Overnight, Chinese authorities intervened to prevent another slump on the Shanghai market. State-backed authorities bought up shares, in a bid to prop up values.

This helped the Chinese market to end the day roughly where it started. However, the intervention may also shows that Beijing is worried about future problems, given its slowing economy and the build-up of bad debts since the financial crisis began.

Chris Beauchamp of IG sums up the morning:

Early optimism on the London market has faded as investors continue to fret about the situation in Chinese markets. As in August, state-directed buying of stocks is competing with individual selling of equities, but China’s latest attempt to ‘buck the market’ is likely to end as well as its efforts last year.

The butterfly effect has been felt in Europe again this morning, with an initial bounce giving way to more selling, while in London the FTSE is fighting hard to hold on to small gains.

While Mike van Dulken of Accendo Markets warns:

…the prospect of another Summer-style Chinese rout (the one which made the Fed hold off from hiking) remains a real possibility.

There is disappointment that eurozone inflation remains at just 0.2%, despite the ECB’s stimulus measures.

And there’s also drama in the City. with Sainsbury’s threatening to pounce on Home Retail, the firm behind Argos and Homebase….

….while the unusually warm weather has hurt sales at high street chain Next:

Updated

If Sainsbury takes over Home Retail, it will reunite the company with the homes-and-gardens chain Homebase after a 15-year break.

Sainsbury’s reveals rejected takeover offer for Home Retail

Big news in the City….. supermarket chain Sainsbury’s has revealed that it made a takeover approach to Home Retail (which owns Argos and Homebase).

The offer was made, and rejected, in November, Sainsbury says. It is now considering its position, and has until February 2 to make a new bid.

Rumours have been swirling for weeks that Home Retail could be a takeover target. Sainsbury’s decision to out itself as a possible bidder has send Home Retail shares soaring, up 30%.

dec05hffina
Home Retails’ share price today Photograph: Thomson Reuters

More here:

William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London, sums up the situation well — it’s “really messy” in the markets right now.

He told Bloomberg that investors around the globe are on edge today, and fearing trouble ahead.

“Not much is expected of the world in terms of growth, risk appetite is biased to the downside and weak data from China to the U.S. hasn’t helped at all.

Plenty of people out there believe that the next global recession is imminent.”

US stock markets are expected to post fresh losses today, when they open in three hours time.

The Dow Jones industrial average is tipped to fall by around 100 points, adding to Monday’s 276 point slide.

The euro has lost ground against the US dollar since December’s inflation figures came out. It’s down over half a cent at $1.076.

Although eurozone inflation is clearly weak, it may not be bad enough to force more stimulus out of the European Central Bank, argues Teunis Brosens of ING.

While headline inflation was stuck at 0.2%, core inflation (stripping out energy and food) was also unchanged at 0.9% in December.

Brosens says:

Hawks may argue that weak core inflation is unsurprising given the still high unemployment in many Eurozone countries. Moreover, despite this month’s weakening of core inflation, the presence of second-round effects is not yet convincing.

We think that the ECB will hold its fire for now: it will take more convincing evidence of second round effects or other really disappointing economic news to stir the ECB into further action.

And that’s why shares have fallen back this morning:

So much for the bounce-back. European stock markets couldn’t even stay in the green until London’s pubs opened for the day.

The weak eurozone inflation reading has helped to pull the major indices into the red for the second day running.

The German Dax has shed another 1%, on top of Monday’s 4% slump. The Paris CAC is down another 0.8%, and London’s FTSE 100 is off eight points.

Ipek Ozkardeskaya of City firm London Capital Group says China is still worrying investors, even though Beijing’s central bank, the People’s Bank of China, stepped in overnight to prop up its stock market.

She writes that market sentiment is “very much fragile”:

The apocalyptic Chinese story keeps the headlines busy. The intervention from the PBoC eased tensions at the heart of the storm, yet the chaotic start to 2016 warned of a challenging year ahead of us. The first trading day of the year has clearly wiped away some of the optimism and the risk-off flows dominate.

Shanghai’s Composite opened the day 3.1% lower yet managed to recover later in the session. State-controlled funds bought equities to halt the $590bn worth of sell-off suffered on Monday, and a selling ban for investors would extend beyond a week according to several sources.

Updated

The European Central Bank will be concerned that inflation remained so low last month, says Howard Archer of IHS Global Insight:

Good news for Eurozone consumers but a headache for the ECB as consumer price inflation remained down at 0.2% in December, thereby defying expectations of a small uptick.

The failure of Eurozone inflation to pick up in December is good news for consumers’ purchasing power; but it will maintain ECB concern that prolonged very low inflation could lead to a renewed weakening in inflation expectations thereby making it harder still to get Eurozone consumer price inflation up to its target rate of close to 2%.

December’s unexpectedly weak inflation report is hurting the euro.

The single currency has hit its lowest level against the yen since April 2015. One euro is now worth ¥128.03, down from ¥129.33 earlier.

Eurozone inflation weaker than expected

Breaking: inflation across the eurozone remained uncomfortably weak last month.

Prices across the single currency region rose by just 0.2% annually in December, Eurostat has just reported.

That matches November’s reading, and dashes hopes of a rise to 0.3% or 0.4%.

Cheaper energy costs are partly to blame….. but food and service price inflation did also slow last month:

Eurostat says:

Food, alcohol & tobacco is expected to have the highest annual rate in December (1.2%, compared with 1.5% in November), followed by services (1.1%, compared with 1.2% in November), non-energy industrial goods (0.5%, stable compared with November) and energy (-5.9%, compared with -7.3% in November).

Eurozone inflation

The European Central Bank is meant to maintain inflation close to, but below, 2% — but we’re a long way from that despite the ECB’s quantitative easing stimulus measures….

Updated

UK building firms post stronger growth

UK standard building brick. Image shot 05/2006. Exact date unknown.<br />AWJRH5 UK standard building brick. Image shot 05/2006. Exact date unknown.

Britain’s builders didn’t get much rest over Christmas, judging by the latest healthcheck from the sector.

Data firm Markit reports that output jumped last month, pushing its PMI index up to 57.8 in December, up from a seven-month low of 55.3. That suggests the sector grew at a faster pace last month.

jan05pminew

Markit cited “favourable demand conditions”, with builders reporting that clients were more willing to commit to new projects.

Commercial construction had a particularly good month, with growth hitting its fastest rate since October 2014.

The unusually warm weather in December may also be a factor, as Britain didn’t suffer the kind of heavy snowfalls that can scupper construction work this time of year.

Firms who can build flood defences could be busy in 2016 too, as communities across the country try to shore themselves up.

Updated

This morning’s rally is looking a little fragile, after less than 90 minutes.

European stock markets have shed much of their early gains, and are now broadly flat.

European stock markets

Invesotrs

German unemployment beats expectations

German chancellor Merkel visits China<br />30 Oct 2015, Hefei, Anhui Province, China --- German Chancellor Angela Merkel looks on under a German and a Chinese national flag as she visits the German Academy at the University of Hefei in Hefei, China, 30 October 2015. Merkel is on a two-day official visit to China. Photo: Soeren Stache/dpa --- Image by © Soeren Stache/dpa/Corbis

Here comes the latest measure of German unemployment….. and it’s better than expected.

The number of people out of work across Germany fell by 14,000 last month, on a seasonally-adjusted basis. That smashes expectations of a 6,000 drop, and shows Germany is still outperforming many neighbours.

This leaves its unemployment rate unchanged at 6.3%, compared to a eurozone average of 10.7%.

Spain has also reported that its jobless total shrank by 8% last year:

Updated

Mining stocks are leading this morning’s rally in London.

Commodity giant Glencore is up over 4%, as fears over China ease a little (for the moment….)

Top risers on the FTSE 100
Top risers on the FTSE 100 today Photograph: Thomson Reuters

Tony Cross of Trustnext Direct says traders are taking their cue from Asia:

London’s FTSE-100 has recovered some of yesterday’s losses at the open, thanks in no small part to the fact that Asian equity markets appear to have stabilised overnight – at least for now.

The vast majority of blue chips are trading in positive territory although the handful of losing stocks are being dominated by clothing retailers with that trading update from Next this morning providing little reason to get excited about the sector.

Updated

High street chain Debenhams’ shares have fallen by 2% in early trading.

That reflects concerns that Next’s weak sales over Christmas could be mirrored across the sector. Marks & Spencer are down 0.5%.

Shares in Next are out of fashion this morning.

They’re down by 3% at the start of trading, leading the FTSE fallers, as the City digests this morning’s disappointing Christmas trading.

Here’s some reaction:

Updated

Market open: European shares bounce back

Shares are rallying across Europe at the start of trading, as investors recover their nerve after Monday’s heavy selloff.

In London, the FTSE 100 has jumped by 72 points, or 1.2%, to 6165 points. That claws back almost half of yesterday’s rout, when the blue-chip index shed 148 points.

The French CAC, German DAX, Spanish IBEX and Italian FTSE MIB are all up around 1.1%.

Yesterday, the DAX slumped by over 4%, so today’s rally is only a partial recovery.

Traders are encouraged by the news that Chinese authorities took action overnight to prevent their stock market tumbling again.

Jasper Lawler, market analyst at CMC Markets, explains:

In the aftermath of a global sell-off over China growth fears, UK and European stock index futures are taking their cues from the Chinese stock market on Tuesday.

After an initial wobble, shares in Shanghai and Shenzhen turned positive on Tuesday thanks to an injection of liquidity from the People’s Bank of China.

Next blames warm weather for weak Christmas

Next results<br />File photo dated 04/12/12 of a Next Retail store, as the High Street chain blamed unseasonably warm weather for a “disappointing” performance in the run-up to Christmas as it posted a fall in store sales and sharp slowdown in its Directory business. PRESS ASSOCIATION Photo. Issue date: Tuesday January 5, 2016. The retailer said full-price sales fell 0.5% across its stores in the 60 days to December 24, while sales across its Next Directory online and catalogue arm lifted 2%. See PA story CITY Next. Photo credit should read: Paul Faith/PA Wire

High street retailer Next has sent a shiver through the sector this morning, after posting weaker than expected results for the crucial Christmas period.

Full price sales rose by just +0.4% from 26 October to 24 December. That’s a serious slowdown, as Next sales grew by 6% between July and September.

And as Next is the first major European retailer to report Christmas trading figures, this may mean more trouble ahead…

Next pinned much of the blame on the unusually warm weather this autumn. This is a classic excuse for British retailers, who can often point to the skies to explain away a poor performance.

But to give Next credit, it also released a graph showing how sales did indeed shrink in weeks where the temperature was hotter than in 2014:

Next sales

And the weather isn’t the only culprit. The firm also admits that its catalogue shopping arm, NEXT Directory’s, suffered poor stock availability from October onward.

Updated

Spread-betting firm IG is predicting that European markets will bounce back when trading begins in a few minutes, clawing back some of Monday’s losses.

IG is calling the main markets up around 1%:

Chinese authorities intervene to prop up markets

Chinese shares make modest gains after Monday rout<br />epa05088128 Chinese investors look at a screen showing stock movements at a stock brokerage house in Beijing, China, 05 January 2016. Shares in China made modest gains 05 January morning, the day after a plunge in the market triggered a halt to trading. The CSI 300 Index was up 0.79 per cent when the market shut for its lunch break. The index comprises 300 shares from the biggest companies on the Shanghai and Shenzhen exchanges. EPA/HOW HWEE YOUNG
Chinese investors look at a screen showing stock movements at a stock brokerage house in Beijing. Photograph: How Hwee Young/EPA

It’s been a wild day in China, as Beijing tries to prevent a repeat of Monday’s rout.

Chinese authorities intervened in the markets today, buying up stocks to give investors confidence.

And it appears to have worked. The Shanghai composite index has closed for the day, down just 0.28%, having shed 3% at one stage today.

That’s rather better than Monday’s 7% slump, which forced trading to be halted.

That doesn’t address the underlying problems in China, such as the build-up of bad debts and its slowing economy. And it suggests Beijing isn’t prepared to allow market forces to take their natural course….

Updated

Introduction: Markets could stabilise after Monday’s rout

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It’s day two of the trading year, and investors around the globe will be hoping for a better performance than on day one.

There’s a nervous air in the markets today, after yesterday’s selloff wiped hundreds of billions of dollars off bourses worldwide. Britain’s FTSE 100 lost £38bn in a blink of an eye:

But unlike vanishing candyfloss, market value can reappear.

And European stock markets are expected to recover some ground today. But it could be another volatile session, with concerns over China’s economy looming over markets.

Also on the agenda today, we get the first estimate of eurozone inflation for December. Economists predict it will rise to an annual rate of 0.4%, from 0.2% in November.

We also get the latest German unemployment data for December, and an estimate of how UK builders fared last month.

  • 8.55am GMT: German unemployment report
  • 9.30am GMT: UK construction PMI
  • 10am: Eurozone inflation for December

And high street retailer Next is reporting its financial results for the last quarter. That will give us an insight into how the crucial Christmas trading season went…..

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USA 

Investors believe Mario Draghi could impose deeper negative interest rates and unleash more QE tomorrow. UK construction growth hits seven-month low. Latest: eurozone inflation just 0.1%. Citi predicts big moves from Draghi tomorrow…

Powered by Guardian.co.ukThis article titled “Euro weakens as eurozone inflation boosts stimulus hopes – business live” was written by Graeme Wearden, for theguardian.com on Wednesday 2nd December 2015 17.01 UTC

After a fairly undramatic day, London’s stock market has closed higher:

In 24 hours we’ll know exactly what Mario Draghi and co have decided.

In the meantime, City analysts continue to speculate — and perhaps prepare the ground for some ‘I told you so’ action.

Capital Economics have nailed their trousers to the mast, forecasting steeper negative interest rates on banks, and a serious QE boost.

Brian Davidson says:

We have long argued that the ECB would need to add more stimulus before long, and the consensus has come round to this view following a series of dovish signals by the ECB. Accordingly, markets are now pricing in a cut of around 10bp to the deposit rate and polls show that most economists expect a €15bn increase in monthly asset purchases. We think the ECB will cut the deposit rate by 20bp, and increase its monthly asset purchases by €20bn.

Updated

Thursday’s ECB meeting could be quite combative, as some central bank governors are reluctant to provide more stimulus.

The German contingent are particularly concerned, as the Wall Street Journal explains:

Several officials have expressed skepticism that more stimulus is needed at this time, led by the ECB’s two German officials, Bundesbank President Jens Weidmann and ECB executive board member Sabine Lautenschläger. Central bankers from Baltic euro members have also signalled resistance, making it unlikely that Thursday’s decision will be a unanimous one.

More here:

Newsflash from Ontario: The Bank of Canada has left interest rates unchanged at today’s policy meeting.

Money is also flowing into eurozone government bonds today, on anticipation that the ECB will boost its QE programme.

This has driven the yield, or interest rate on German two-year bonds deeper into negative territory – which means the price is at a record high.

The pound is tumbling on the FX markets today.

It just hit a new seven and a half-month low against the US dollar at $1.4979.

Sterling is being hit by two events

Back to the eurozone.

Swiss bank UBS have produced a nifty chart showing the main options which the ECB could deploy tomorrow…..and the likely impact on the markets.

ECB policy options

Updated

US private sector job creation hits five-month high

A strong dose of US employment data has just increased the chances that the Federal Reserve raises interest rates in two weeks time.

A total of 217,000 new jobs were created by US companies last month, according to the ADP Research Institute.

That’s the biggest rise in private sector payrolls since June, and beats forecasts for a 190,000 increase. It also beats October’s reading of 196,000, which was revised up from 182,000.

It suggests that the wider Non-Farm Payroll will show a robust labour market. The NFP is due on Friday, and is the last major data point until the Fed’s December meeting.

US ADP Payroll

US ADP Payroll Photograph: ADP / fastFT

As fastFT puts it:

Although the ADP survey has not proved a consistent forecaster of the official monthly government jobs numbers, they may soothe investors nerves ahead of an important period for economic data and central bank decisions.

The euro has fallen back today, in another sign that Draghi is expected to announce new stimulus measures tomorrow.

The single currency dropped back through the $1.06 mark against the US dollar today, which is a near eight-month low.

Euro vs US dollar today

Euro vs US dollar today Photograph: Thomson Reuters

This is a handy chart, showing the three main options in the ECB’s toolbox, and the way they could be deployed:

There’s no realistic chance that eurozone inflation will hit the forecasts drawn up by the ECB’s own economists three months ago.

That’s the view of Timo del Carpio, European Economist, RBC Capital Markets, who told clients:

The most recent staff projections from the ECB (published in September) revealed an expectation for HICP [inflation] to average 0.4% y/y over Q4/15 as a whole.

Taking into account today’s outturn, this would require the headline rate to rise to at least 0.8% y/y in December in order for those forecasts to still be valid. Suffice to say, we think that is too tall an order, even taking into account the expected base effects from last year’s oil price declines (expected to come into force primarily in December and January).

In other words, this outturn should represent further downside news for the ECB.

And that’s why del Carpio predicts a further 20 basis point cut to the deposit rate, and a 6-month extension to the QE asset purchase programme .

It’s all systems go for more ECB stimulus, says Jonathan Loynes, chief European economist at Capital Economics:

“November’s weaker-than-expected eurozone consumer prices figures give a final green light for the ECB to both increase the pace of its asset purchases and cut its deposit rate at tomorrow’s policy meeting.”

Loynes is also concerned the core inflation – which excludes volatile components such as energy prices – dropped from 1.1% in October to 0.9% in November.

(FILES) A picture taken on August 7, 2014 shows the Euro logo in front of the European Central Bank, ECB in Frankfurt am Main, western Germany. Financial markets are looking to the European Central Bank to open the cash floodgates next week after consumer price data showed the 18-country eurozone is flirting with deflation, analysts said. AFP PHOTO / DANIEL ROLANDDANIEL ROLAND/AFP/Getty Images

Ruben Segura-Cayuela, a euro zone economist at Bank of America Merrill Lynch, believes the weak inflation report will have surprised the European Central Bank, in a bad way.

With inflation stuck at just 0.1%, Segura-Cayuela believes the ECB will boost its bond-buying QE programme from the current rate of €60bn per month.

I’ve taken the quotes off Reuters:

“It [the inflation report] is not consistent with the trend that the ECB was expecting.

We are expecting a one year extension on QE purchases and quantities to go up to as much as €70bn a month.”

Segura-Cayuela is also in the ‘deeper negative rates’ camp — he reckons the deposit rate on bank deposits at the ECB could fall from -0.2% to -0.3%.

European stock markets are still rallying after the inflation data reinforced hopes of more eurozone stimulus:

European stock markts

Bloomberg’s Maxime Sbaihi also expects significant action from the European Central Bank tomorrow:

Updated

Economist and ECB watcher Fred Ducrozet has found a chart showing how weak inflation will prompt extra QE from the European Central Bank.

The x-axis shows the forecast for inflation — the ECB’s target is just below 2%.

The y-axis shows how much extra bond-buying would be needed if inflation is falling short — red if the ECB is struggling to push funds into the real economy, and grey if the ‘transmission mechanism’ is working well.

And as Fred tweets, today’s poor inflation data suggests anything between €400bn and one trillion euros of extra QE could be required.

Citi predicts lots more QE.

Citigroup has predicted that Mario Draghi will make two serious announcements tomorrow.

1) They expect him to hit the banks with more severe negative interest rates, by cutting the deposit rate at the ECB to minus 0.4% (compared with minus 0.2% today).

2) In addition, they suspect Draghi will boost the ECB’s bond-buying programme from €60bn per month to €75bn per month….

…and also run the quantitative easing programme for another six months. So rather than ending in September 2016, it would continue to March 2017.

That adds up to around €585bn of extra QE, I reckon.

City traders are predicting that Mario Draghi will announce a significant increase in the ECB’s stimulus measures on Thursday:

This weak inflation report could provoke the ECB into a more dramatic stimulus boost at tomorrow’s governing council meeting, says Jasper Lawler of CMC Markets:

He believes Mario Draghi could announce plans to buy more assets with newly printed money each month, rather than just run the quantitative easing programme for longer.

The euro plunged after data showed Eurozone inflation was stuck at a meagre 0.1% year-over-year in November, missing estimates of a slight rise to 0.2%.

The inflation miss adds to the case for stronger action from the ECB tomorrow. The data could be the difference-maker for the ECB choosing to increase the size of monthly asset purchases over just extending the end-date of the QE program.

Currently the ECB is buying €60bn of assets each month with new money, to expand its balance sheet and push more cash into the economy.

Updated

The euro has fallen sharply, as investors calculate that the ECB is very likely to announce new stimulus measures tomorrow:

Eurozone inflation: the detail

Eurozone’s inflation rate was, once again, pegged back by cheaper oil and petrol.

Here’s the detail, explaining why inflation was just 0.1% last month.

  • Energy prices slumped by 7.3%
  • Food: up 1.5%
  • Service: up 1.1%
  • Other goods: +0.5%
Eurozone inflation

Eurozone inflation, November 2015 Photograph: Eurostat

Another blow – core inflation, which excludes energy, food and tobacco, only rose by 0.9%.

That’s down from 1.1% a month ago, suggesting that inflationary pressure in the eurozone is actually weakening….

Eurozone inflation stuck at 0.1%

Here comes the eagerly-awaited eurozone inflation data!

And it shows that consumer prices only rose by 0.1% year-on-year in November.

That’s a little weaker than the 0.2% which economists had expected.

It raises the chances of significant new stimulus moves from the European Central Bank tomorrow (as explained earlier in this blog)

More to follow….

Updated

The pound has been knocked by the news that UK construction growth has hit a seven-month low:

Pound vs dollar today

Pound vs dollar today Photograph: Thomson Reuters

Updated

Britain’s construction sector is suffering from a lack of skilled builders, warns David Noble, CEO at the Chartered Institute of Procurement & Supply.

He says this is a key factor behind the sharp drop in growth last month:

“Suppliers continued to struggle this month, citing shortages in key materials, supply chain capacity and skilled capability as the causes.

But there is a question mark over the coming months as the housing sector, normally the star performer, may drag back on recovery along with the lack of availability of skilled staff.”

Maybe George Osborne should get back to that building site….

Britain’s Chancellor of the Exchequer George Osborne lays a brick during a visit to a housing development in South Ockendon in Essex, Britain November 26, 2015. REUTERS/Carl Court/Pool

Construction recovery is ‘down but not out’

The slowdown in housebuilding growth last month means that it was overtaken by the commercial building sector, as this chart shows:

Construction PMI by sector

Tim Moore, senior economist at Markit, explains:

“The UK construction recovery is down but not out, according to November’s survey data. Aside from a pre-election growth slowdown in April, the latest expansion of construction activity was the weakest for almost two-and-a-half years amid a sharp loss of housebuilding momentum.

“Residential activity lost its position as the best performing sub-category, but a supportive policy backdrop should help prevent longer-term malaise. Strong growth of commercial construction was maintained in November as positive UK economic conditions acted as a boost to new projects, while civil engineering remained the weakest performer.

UK construction growth hits seven-month low

Breaking — growth across Britain’s construction sector has slowed to a seven month low, as builders suffer an unexpected slowdown.

Data firm Markit reports that house building activity expanded at the lowest rate since June 2013 in November.

Markit’s Construction PMI, which measures activity across the sector, fell to 55.3 last month from 58.8 in October.

That is the weakest reading since the pre-election slowdown in April, and the second-weakest since mid 2013.

The slowdown was particularly sharp in the house-building area – which is particularly worrying, given Britain’s desperate need for more homes.

Markit says:

All three broad areas of construction activity experienced a slowdown in output growth during November. Residential building activity increased at the weakest pace since June 2013, while civil engineering activity rose at the slowest rate for six months and was the worst performing sub- category.

UK construction PMI

More to follow…

Yannis Stournaras governor of Bank of Greece shows the new 20 euro note in Athens, Tuesday, Nov. 24, 2015. The new 20 euro notes will circulate in the 19 Eurozone countries on Wednesday. Greece was formally cleared Monday to get the next batch of bailout loans due from its third financial rescue after the cash-strapped country implemented a series of economic reform measures that European creditors had demanded. (AP Photo/Thanassis Stavrakis)

A new survey of Europe’s businesses has found that, for the first time since 2009, they aren’t struggling to get credit.

That suggests the ECB’s policy measures are having an effect — and also indicates that perhaps more stimulus isn’t needed after all….

The ECB surveyed more than 11,000 companies across the eurozone. And most reported that they have no concerns over their ability to borrow. Instead, the main problem is a lack of customers.

It’s six weeks since the last ECB meeting, when Mario Draghi dropped a loud hint that the central bank was ready to do more stimulus if needed.

Since then, European stock markets have climbed steadily, and are heading for a three-month high today.

Latvia’s central bank governor has apparently told a local newspaper that the ECB’s quantitative easing programme is “better than doing nothing”.

That’s via Bloomberg. The interview took place with the Neatkariga Rita Avize newspaper – but there’s only a teaser online.

There’s a bit of edginess in the markets this morning, as investors wait for November’s eurozone inflation data to arrive in 70 minutes time.

Economists expect a small uptick, from 0.1% to 0.2% — while core inflation (which strips out volatile factors like energy and food) might hover around 1.1%.

A poor reading would surely seal fresh stimulus measure at tomorrow’s ECB meeting. But a stronger inflation report might cause jitters, as Conner Campbell of Spreadex puts it:

Given that the region’s failure to reach its inflation targets is one of the main reasons the Eurozone’s central bank is considering another injection of QE, this Wednesday’s figures perhaps carry slightly more weight than they have of late.

European stock markets

European stock markets in early trading Photograph: Thomson Reuters

This chart shows how investors expect the ECB to impose deeper negative interest rates on commercial banks.

That would discourage them from leaving money in its vaults rather than lending it to consumers and businesses:

Ramin Nakisa of UBS

Ramin Nakisa of UBS Photograph: Bloomberg TV

It’s possible that the European Central Bank disappoints the markets tomorrow.

Ramin Nakisa, global asset allocation manager at UBS, believes the ECB will not boost its quantitative easing programme tomorrow, despite a general belief that more QE is coming.

He also reckons the deposit rate paid by banks who leave cash at the ECB will only be cut by 10 basis points, from minus 0.2% to minus 0.3%.

Nakisa tells Bloomberg TV:

If that happens, there could be some disappointment in the markets.

But in the long-term, Nakisa adds, the eurozone economy is recovering. More stimulus isn’t really needed.

Ding ding – European markets are open for trading, and shares are rising.

The German DAX, French CAC, Italian FTSE MIB and Spanish IBEX are all up around 0.4%, ahead of tomorrow’s ECB meeting.

The FTSE 100 is lagging, though – up just 0.1%. It’s being dragged down by Saga, the travel and insurance group, which has shed 5% after its biggest shareholder sold a 13% stake.

The Bank of England printing works, now De La Rue, in Debden Newly printed sheets of 5 notes are checked for printing mistakes<br />B81HM8 The Bank of England printing works, now De La Rue, in Debden Newly printed sheets of 5 notes are checked for printing mistakes

You’d think that printing banknotes would be a safely lucrative business (losing money? Just make some more!).

But De La Rue, the UK-based printer, has just announced that it’s cutting around 300 staff and halving its production lines from eight to four.

The axe is falling sharply on its Malta plant, which is to close.

De La Rue prints more than 150 national currencies, and has suffered from falling demand for paper notes. There had been chatter that it might pick up the contract to produce new drachma for Greece, but that particular opportunity appears to have gone…..

Updated

VW shareholders to face workers

There could be ructions in Wolfsberg his morning, as the billionaire owners of Volkswagen face workers for the first time since the emissions cheating scandal broke.

The Porsche-Piech have been criticised for keeping a low profile since the VW crisis erupted. But today, several members of the group will make the trip to the carmakers headquarters to show solidarity with workers – who are being forced to down tools over Christmas because sales have weakened.

Bloomberg has a good take:

Wolfgang Porsche, chairman of family-owned majority shareholder Porsche Automobil Holding SE, will address thousands of workers in hall 11 of Volkswagen’s huge factory in Wolfsburg, Germany. He’ll be flanked at the 9:30 a.m. staff meeting by the other three supervisory board members who represent the reclusive clan: Louise Kiesling, Hans-Michel Piech and Ferdinand Oliver Porsche.

The Porsche-Piech family has been asked by labor leaders to signal their commitment to workers, now facing two weeks of forced leave during the Christmas holidays as the crisis begins to affect sales.

Labor chief Bernd Osterloh, who has pushed to shield workers by focusing cutbacks on Volkswagen’s model portfolio, will host the assembly. It comes amid mixed news for Volkswagen: though the company has made progress toward a simpler-than-expected recall of 8.5 million rigged diesel cars in Europe, plummeting U.S. sales show the impact of the crisis on the showroom floor.

Updated

The Agenda: Eurozone inflation could seal stimulus move

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

There’s a ‘calm before the storm’ feeling in the markets today. Investors are bracing for Thursday’s European Central Bank meeting, where it is widely expected to boost its stimulus programme.

European stock markets are tipped to rally at the open, on anticipation that Mario Draghi will step up to the plate again and announce something significant.

It could be a new cut to borrowing costs, hitting banks with harsher negative interest rates to force them to lend money. Or it could be an extension to the ECB’s QE programme – a commitment to pump even more new electronic money into the economy.

Or both.

Or something else entirely. With ‘Super Mario’, you never know for sure.

The ECB is under pressure to act, because inflation in the eurozone is so weak.

At 10am GMT, the latest eurozone prices data is released — it’s expected to show that prices rose by just 0.2% annually in November. That would be an improvement on October’s 0.1%, but still far short of the target (just below 2%).

Also coming up today….

  • Market releases its UK construction PMI report at 9.30am GMT. That will show how the building industry fared last month -
  • The latest measure of US private sector employment is released at 1.30pm GMT. That will give a clue to how many jobs were created across America last month, ahead of Friday’s non-farm payroll report.
  • Federal Reserve chair Janet Yellen is speaking at the Economics Club of Washington on Wednesday at 5:25pm GMT.
  • And Canada’s central bank sets interest rates at 3pm GMT – we’re expecting no change.

We’ll be tracking all the main events through the day….

Updated

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Disappointment as Germany, France and Italy only post modest growth, while Portugal stagnates and Finland continues to slow. Eurozone GDP misses expectations. France returns to growth, but analysts aren’t impressed. Germany hit by global problems…

Powered by Guardian.co.ukThis article titled “Eurozone GDP: Growth slows to just 0.3% – as it happened” was written by Graeme Wearden, for theguardian.com on Friday 13th November 2015 13.42 UTC

Closing summary: Weak eurozone growth puts pressure on ECB

Rather like April Fool’s Day, eurozone GDP day is best enjoyed before lunchtime. So here’s a summary:

Europe’s economic recovery has faltered, with growth in the single currency region slowing to just 0.3% in the third quarter of the year.

Weak international trade helped to drag back Germany and Italy, and limited France’s recovery too.

Only consumer spending came to Europe’s aid, with household expenditure providing much of the growth impetus.

The subdued performance raises the pressure on the European Central Bank to boost its stimulus programmes at its December meeting.

Nick Kounis, head of macro and financial markets research at ABN AMRO bank, called it the “final push” for the ECB to be decisive.

The day began with France returning to growth, with GDP up by 0.3%.

Finance minister Michel Sapin told AFP that France’s economy will grow “by at least 1.1 percent” for 2015 as a whole, adding he believed the country had “exited the period of extremely weak growth that had lasted too long”.

But analysts were less impressed, pointing out that France’s ran a large trade deficit during the quarter. Only stockpiling by companies prevented the economy shrinking.

Germany’s economy also grew by 0.3%, down from 0.4%. The economy ministry blamed weak trade; economists warned that emerging market slowdown is hurting.

Smaller nations didn’t fare well either, with Italy slowing to +0.2%, the Netherlands barely growing, and Portugal actually stagnating.

But Finland was the real shocker — living up to its reputation as the ‘sick man of Europe’ with a 0.6% contraction.

Finland GDP

Only Greece beat expectations – shrinking by a mere 0.5%, not the 1% expected. That tells you something about the accuracy of City forecasts, and the turmoil in the Greek economy this year. When a 0.5% contraction is ‘good news’, you know you’re been through the mire.

But it may mean that Greece’s economy ‘only’ stagnates during 2015.

That’s probably all for today. I’m off to fold up the Eurozone GDP Day banners, and finish up the party punch.

Thanks for reading and commenting; see you next week. GW

A double helping of halušky to Slovakia, which was the fastest-growing member of the eurozone in the last quarter.

But it’s cold potatoes for Finland, which posted the worst performance – even worse than a Greek economy gripped by capital controls:

Eurozone GDP chart

Eurozone GDP chart

Updated

Here’s our news story on today’s GDP figures (to save new readers scrolling back to 6.15am onwards):

The eurozone’s economy lost steam in the latest quarter as Portugal stalled, Germany slowed and debt-stricken Greece contracted.

Gross domestic product (GDP) across the 19 countries in the single currency bloc rose just 0.3% in the third quarter, according to Eurostat. That defied expectations for growth to hold at 0.4%, according to a Reuters poll of economists. On a year earlier, GDP was up 1.6%, lower than forecasts for 1.7%.

The July to September figures mark a slowdown from eurozone GDP growth of 0.4% in the second quarter and 0.5% in the first quarter and come as the European Central Bank (ECB) hints that it is planning to inject further funds into the eurozone economy to maintain recovery…..

Updated

Eurozone markets hit by GDP disappointment

European stock markets have been hit by the news that growth slowed across the eurozone in the last quarter.

The main indices are all in the red, adding to yesterday’s selloff:

European stock markets, November 13 2015

Conner Campbell of SpreadEX says the mood darkened as this morning’s data emerged.

Joining a decent French figure and sliding Germany growth were misses by Italy and the Netherlands. Even worse were the performances from Portugal and Finland; the former, so often pointed to as one of the region’s post-crisis success stories, saw no growth at all in the third quarter, whilst the latter, increasingly becoming one of the Eurozone’s most rotten appendages, actually saw its GDP contract by 0.6%.

Given region’s general malaise, the Eurozone as a whole was arguably lucky only to see a 0.1% decline quarter-on-quarter, with its Q3 figure coming in at a forecast-missing 0.3%. Understandably investors weren’t too pleased with these results, meaning even the spectre of more ECB QE (the likelihood of which only increased with this morning’s figures) couldn’t drag the DAX and CAC out of the red.

This chart shows how Italy, Portugal and the Netherlands all missed expectations this morning, dragging the eurozone growth rate down (via Bloomberg)

Eurozone GDP

Updated

At just 0.3%, the eurozone economy isn’t growing fast enough to pull unemployment down and drive demand, as Bloomberg economist Maxime Sbaihi explains:

The weakness of the eurozone recovery adds “to the already strong case for the ECB to step up monetary stimulus in December,” says Nick Kounis, head of macro research at ABN Amro Bank.

Kounis added that while Europe’s domestic economy is doing well, it is suffering from weak world trade and deteriorating export markets.

Cyprus has posted another quarter of growth, as its recovery from its 2013 bailout trauma continues.

Cypriot GDP rose by 0.5% in July-to-September, matching the growth in April-June.

That means Cyprus’s economy is now 2.2% larger than a year ago.

The eurozone’s recovery has “ disappointingly lost momentum for a second successive quarter”, says Howard Archer of IHS Global Insight.

The third-quarter slowdown in Eurozone GDP growth appears to have been largely the consequence of negative net trade (this was certainly true of Germany, France and Italy).

This suggests that the benefit to Eurozone exporters coming from the weak euro was offset by muted global growth. Meanwhile, relatively decent Eurozone domestic demand supported imports.

This chart shows how Greece’s economy went into reverse in the last quarter:

Greek GDP

Greek economy shrinks

Oxi Day celebrations, Athens, Greece - 28 Oct 2015<br />Mandatory Credit: Photo by Kostas Pikoulas/Pacific Pres/REX Shutterstock (5320493d) A Greek flag waves during the parade Oxi Day celebrations, Athens, Greece - 28 Oct 2015 Students parade celebrating the ‘’Oxi Day’’ during the 75th anniversary of Greece’s entering WWII, after denying the Italian ultimatum to enter Greek soil in 28th October 1940.

Today’s figures also show that Greece’s faltering recovery has been wiped out in the last three months.

Greek GDP contracted by 0.5% in the July-September quarter, Eurostat says, having risen by 0.4% in April-June.

That’s not a surprise, given the bailout drama this summer which saw banks shuttered and capital controls imposed.

And it’s actually less awful than feared — economists had forecast a 1% contraction:

Updated

Eurozone growth slows to 0.3%

Breaking: The eurozone economy grew by just 0.3% in the third quarter of the year.

That’s a slowdown on the 0.4% recorded three months earlier, showing that Europe’s recovery remains fragile and lacklustre despite the huge stimulus measures launched by the European Central Bank this year.

It’s also weaker than expected — economists had expected 0.4% growth.

Updated

Brussels officials have pointed to Portugal as an example that tough fiscal consolidation can deliver results. Today’s disappointing (no) growth figures may prompt a rethink….

Portugal’s economy stagnates

The national Portuguese flag is hoisted next to the Euro 2004 flag<br />epa000207050 The national Portuguese flag is hoisted next to the Euro 2004 flag as the England soccer squad arrives in Lisbon on Monday, 07 June 2004, for the Euro 2004 European soccer Championships. England will play their opening first round match against France on Sunday. EPA/JOAO RELVAS

More gloom. Portugal’s recovery ran out of steam in the last quarter, just as its political crisis escalates.

GDP was flat in the July-September quarter, after growing by 0.5% in the second quarter.

That’s much weaker than the 0.4% economists had expected, and looks like the weakest quarter in 18 months.

The Portuguese Stats Office says:

Comparing with the second quarter, GDP registered a null change rate in real terms in the third quarter (0.5% in the second quarter).

The contribution of domestic demand was negative, mainly due to the reduction of Investment, while net external demand contributed positively, with Imports of Goods and Services decreasing more intensely than Exports of Goods and Services.

On an annual basis, Portuguese GDP grew by 1.4%, down from 1.6% three month ago.

Portuguese GDP

This comes as Portugal’s left-wing parties vow to overturn its austerity programmes and implement more growth-friendly measures, having overturned its centre-right government this week.

Updated

We now have to wait until 10am GMT for the official eurozone-wide GDP reading for July-September.

But it’s already clear that this wasn’t a great quarter for Europe, with a weak trade performance dragging back the three largest eurozone economies.

Economist Fred Ducrozet reckons eurozone growth will fall short of the 0.4% expected, to 0.3%.

While City firm Abshire-Smith reckons the European Central Bank is under even more pressure to ease monetary policy:

Updated

Italy growth slows

Here comes Italy’s GDP report….and it’s weaker than hoped.

The Italian economy grew by just 0.2% in the third quarter of 2015, dashing expectations of a 0.3% expansion.

It suggests Italy’s recovery is running out of steam.

GDP rose by 0.4% in the first quarter of 2015, dipping to 0.3% in the second quarter – and now just 0.2% in Q3.

Finland’s economy has now been locked in a painful downturn for the last three years, as this chart from Statistics Finland shows:

Finnish GDP

That’s via fastFT, which warns:

Finland is used to cold, dark winters, and the experience could stand it in good stead as the Nordic country’s bitter economic cold snap shows no sign of a thaw.

Netherlands grows by just 0.1%

The Dutch flag flies outside the ING head office in Amsterdam, Netherlands, Monday Oct. 20, 2008.

Next up, the Netherlands…. and its economy struggled to grow in the last quarter.

GDP rose by just 0.1% in the July-September quarter, a very modest performance.

And second-quarter GDP has been revised down, to just +0.1% from +0.2% originally.

That left the economy 1.9% larger than a year ago, weaker than forecast.

Updated

‘Sick man’ Finland’s economy shrinks by 0.6%

Scandinavian Flags<br />ca. 1990s, Helsinki, Finland --- Scandinavian Flags --- Image by Joel W. Rogers/CORBIS

Finland has cemented its growing reputation as one of Europe’s most ailing members.

Finnish GDP contracted by 0.6% in the last quarter, according to new data this morning. That left Finland’s economy 0.8% smaller than a year ago.

The fall in natural resource prices, the demise of Nokia, and the knock-on impact of Russia’s economic problems are all hurting.

Having been one of the cheeleaders for eurozone austerity, Finland now finds itself in a very tough position. It is trying to cut spending to keep its deficit within the limits set by Brussels, which is hurting attempts to return to growth.

Two months ago, finance minister Alex Stubb admitted “we are the sick man of Europe.” Today’s figures don’t challenge that diagnosis.

Slovakia has outpaced its larger neighbours to the west, with growth of 0.9% in the last three months. That’s up from 0.8% in the second quarter.

The Czech Republic has beaten expectations, with growth of 0.5% in the last quarter.

City analysts have been chewing through France’s GDP figures, and they’re not too impressed.

RBC is concerned that inventory-building by companies provided much of the growth:

While Barclays says France’s economy is still vulnerable.

More data. Hungary has missed forecasts by posting annual growth of 2.3% in the last quarter, down from 2.7% three months earlier.

On a quarter-on-quarter basis, Hungary (which isn’t in the eurozone) grew by 0.5%.

Germany’s economy would be in a worse state if consumers weren’t benefiting from cheaper energy costs, points out Holger Sandte of Nordea Markets.

This morning’s figures show that Britain has outpaced its two largest European rivals in the last quarter.

UK GDP grew by 0.5% between July and September, data released last month showed.

That’s obviously better than France and Germany, and also beats America (which grew by around 0.4% in Q3).

Germany’s Statistics Office says that domestic spending was a key driver of growth, while overseas demand for German exports lagged behind:

“Private and public consumption both increased.”

“According to preliminary estimates, growth was held back by foreign trade because imports rose far more strongly than exports.”

Germany’s economy has been dented by problems overseas, says Carsten Brzeski of ING.

Here’s his quick take on today’s growth figures:

The summer weakness of the German industry seems to be more substantial than only a vacation-driven soft spell. The turmoil in emerging markets and the Chinese slowdown have finally left some marks on the German economy.

More generally, the German industry has not managed to accelerate and shift up one gear. Somehow, the weak euro and extremely favourable financing conditions have not fully deployed their full impact on the industry, yet. This is partly the result of weakening external demand but also still the structural lack of investment incentives and projects.

Consumer spending, though, is still strong. More here.

Updated

This German GDP report “isn’t overwhelming”, says Bloomberg’s Hans Nichols, but at least the its economy is still growing.

The slight slowdown in the last quarter suggests Germany has been hit by problems in emerging markets such as China.

And as these charts show, 2015 hasn’t been a vintage year for the German economy

German GDP

german Photograph: Bloomberg
german GDP

The German GDP report is online here.

Germany posts 0.3% growth

German chancellor Merkel visits China<br />30 Oct 2015, Hefei, Anhui Province, China --- German Chancellor Angela Merkel looks on under a German and a Chinese national flag as she visits the German Academy at the University of Hefei in Hefei, China, 30 October 2015. Merkel is on a two-day official visit to China. Photo: Soeren Stache/dpa --- Image by © Soeren Stache/dpa/Corbis

Here comes Germany’s GDP data…. and it shows that Europe’s largest economy grew by 0.3% in the last quarter.

That matches France’s performance, and is a slightly slowdown on the 0.4% recorded in April-June.

Germany’s stats office says that consumer and government spending both rose.

Trade had a negative impact on growth, though, with imports growing faster than exports….

Updated

French finance minister Michel Sapin has welcomed today’s GDP data.

He told AFP newswires that France has escaped a long period of very low growth.

Some reaction to the French GDP report:

French GDP: The details

France’s return to growth was driven by household spending (up 0.3%) and business investment (up 0.7%).

But the trade picture is quite ugly. Exports fell by 0.6%, while imports grew by 1.7%.

So net trade actually knocked 0.7% off GDP, but this was compensated by firms bolstering their inventories.

Without that, the figures look worse.

CTrBwwPVAAAzodW

The French GDP report is online here.

Updated

Bloomberg TV flags up that the French economy has generally been sluggish over the few quarters, apart from a healthy bounce at the start of this year:

French quarterly GDP

French GDP over the last five quarters Photograph: Bloomberg

France’s economy is now 1.2% larger than a year ago, slightly better than the 1.1% annual growth economists expected.

French economy growing again – GDP up 0.3%

Close-up of French flag<br />A63GGC Close-up of French flag

France has got eurozone GDP day up and running by returning to growth.

French GDP increased by 0.3% in the last quarter, the INSEE stats office reports.

That follows zero growth in the April-June quarter, which fuelled fears that the French economy was stalling.

Updated

Introduction: Eurozone growth figures released

Hang out the bunting and put on the party hats, folks. It’s eurozone GDP day!

We’re about to discover how countries across Europe performed in the third quarter of 2015, from heavyweights like Germany and France to smaller members like Slovakia and Portugal.

Actually, you shouldn’t blow up too many balloons, because we’re probably going to learn that Europe’s recovery remains jammed in second gear.

Economists predict that the eurozone expanded by just 0.4% in the July-to-September quarter. That would match the performance in the second quarter of the year. Better than a recession, but not rapid enough to deal with Europe’s persistent unemployment and debt problems.

EU, eurozone and US growth compared

EU, eurozone and US growth compared Photograph: Eurostat

A poor number today would suggest that Europe has been hit harder than we thought by problems in emerging markets over the summer. It may also show the impact of the Greek bailout crisis on the region.

But anything stronger than 0.4% would be welcome.

The data will also influence whether the European Central Bank feels forced into taking fresh action to stimulate the eurozone economy – a boost to its bond-buying QE programme is already looking likely.

Here’s how the morning should unfold:

  • France: 6.30am GMT / 7.30am CET
  • Germany: 7am GMT / 8am CET
  • Hungary: 8am GMT / 9am CET
  • Romania: 8am GMT / 9am CET
  • Czech Republic: 8am GMT / 9am CET
  • The Netherlands: 8.30am GMT / 9.30am CET
  • Italy: 9am GMT / 10am CET
  • Portugal: 9,30am GMT / 10.30am CET
  • Greece: 10am GMT / 11am CET
  • The eurozone: 10am GMT / 11am CET

Updated

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Powered by Guardian.co.ukThis article titled “Bank of England governor has ‘no regrets’ over interest rates – business live” was written by Graeme Wearden, for theguardian.com on Thursday 5th November 2015 14.52 UTC

Martin Beck, senior economic advisor to the EY ITEM Club, agrees that the Bank was more downbeat than expected:

“While we expected a downgrade to the MPC’s growth and inflation forecasts in November’s Inflation Report, the MPC’s latest assessment of the economy struck an unexpectedly dovish tone for interest rates.

“Based on market expectations that the first interest rate rise won’t happen until Q1 2017, the MPC forecast that inflation would only slightly exceed the 2% target by that date. This implies the Committee’s view of the appropriate timing of a rate rise is roughly in line with the market consensus.

Bank of England

Updated

The Institute of Directors has hit out at the Bank of England for playing a “dangerous game” by leaving interest rates so low.

Chief economist James Sproule, who has been calling in vain for a rate hike, says:

“Caution won out again at the Bank of England today, with the Monetary Policy Committee spooked by a worsening outlook for global growth. But, with strong consumer confidence and wages on the up, the arguments against raising interest rates from the current exceptionally low level are falling away.”

Sproule argues that the Bank is storing up trouble; asset prices are being forced up, consumers are putting on more debt, and capital is being misallocated.

And so it begins…

Savers should brace for interest rates to stay at record lows until perhaps 2017, says Maike Currie, associate investment director at Fidelity International.

“Super Thursday has quickly turned into Superfluous Thursday.

It’s now 80 months and counting since the Bank of England has failed to push the button on rising interest rates with its surprisingly dovish stance today….

It leaves investors and retirees facing the ongoing conundrum of finding a home for their money in an environment of low inflation and low interest rates – a backdrop which typically makes for measly returns

Updated

Kallum Pickering of Berenberg Bank has kindly sent a chart, showing how the BoE cut its growth forecasts today:

BoE forecasts

The FT’s Chris Giles reckons Carney attempted a repair job during today’s press conference, which was more hawkish than the actual Inflation Report.

He didn’t row too far – the pound is still down heavily.

Updated

The pound has been thumped against all major currencies since the Bank of England unleashed its unexpectedly dovish inflation report.

That highlights that investors expect rates to remain at record lows for at least another year.

If this was a “Super Thursday” club night*, you’d probably be entitled to a refund.

* – these still exist, right?

Press conference over. Hacks scramble back to base, Mark Carney and colleagues return to protecting the monetary affair of the nation.

I’ll pull some reaction together now.

Carney: We could cut rates (but we didn’t discuss it)

Business Insider’s Mike Bird asks Carney about the possibility that UK interest rates could be lowered from 0.5%.

He cites recent comments from ECB chief Mario Draghi on this issue of zero interest-rate policy, suggesting that borrowing costs could go lower than previously thought.

Carney replies that the MPC did not consider easing monetary policy today.

But it could potentially lower borrowing costs if needed.

Reuters snapped the key points:

  • BANK OF ENGLAND’S CARNEY – IF WE EVER NEEDED TO, WE COULD CUT RATES BELOW CURRENT LEVEL
  • BANK OF ENGLAND’S CARNEY – FACT WE ARE NOT AT ZERO LOWER BOUND WEAKENS ARGUMENT FOR NOT RAISING INTEREST RATES

That seems to have knocked the pound, it’s down 1.5 cents or 1% at $1.5230.

Mind you, that could be the impact of Mike’s wardrobe….

Q: What discussions has the BoE had with other central banks about the possibility that monetary policy diverges next year, with the UK and US may raising rates while the eurozone and Japan could get more stimulus?

It feels like we meet almost continually, says Carney wearily. We’ll be meeting again next week in Basel.

We don’t sit there saying ‘here’s what I told that press conference but here’s what we really think’, he promises

And he also insists that monetary policy isn’t secretly agreed in advance:

There is no major central bank that knows what it is going to do at its next meeting.

They all have frameworks and objectives, and the factors that influence its decisions.

And in all Carney’s years as a G7 central bank governor in Canada and the UK, this has only changed once:

The only time that was different was the depth of 2008, when we agreed to do certain things.

That was the wild days of October 2008, when the world banks announced co-ordinated rate cuts to try to calm the global panic.

Updated

Yield curves (which show investors’ expectations of rate hikes) have not matched up to the Bank’s own forecasts. So how worried is the governor that he’s losing credibility in the markets?

Carney insists that he’s “not at all” concerned about this. One can read too much into market yield curves.

Q: Some of this summer’s market mayhem was caused by speculation that US interest rates might rise soon, so are central banks making the situation worse?

Deputy governor Minouche Shafik agrees that there was significant volatility this summer – with the VIX index (which measures this) hitting its highest level since 2011.

But volatility has dropped back since, suggesting the markets are operating as they should.

We’re returning to how things were before the Great Moderation, Shafik adds.

Our Katie Allen asks Carney about the Bank’s belief that the UK economy is ‘resilient’ despite the government’s fiscal consolidation (George Osborne’s ongoing attempts to eliminate the deficit).

Q: Should we expect major changes to these forecasts in February, once we’ve seen the Autumn Statement?

We have incorporated the current fiscal plans into our forecasts, Carney says. We’ll make adjustment if the government’s fiscal stance changes but we won’t react to rumour.

And he notes that this fiscal consolidation is “material”, and has had a significant impact on the UK economy.

Updated

What are households expect to make of things?

Many people expect rates to go up in the next year, Carney replies, and that’s a “reasonable” idea.

Governor Carney isn’t spoiling us with too many straight answers.

Here’s the proof that the markets have been consistently wrong about UK interest rates going up:

Chris Giles of the Financial Times points out that house price inflation is running at 9% (according to the Halifax).

So, does the Bank need to unleash some macro-prudential tools to cool the housing market while it leaves rates so low?

Mark Carney agrees that the housing market appears to be picking up, and unsecured credit is growing too.

We do have to think about the balance in the recovery, and the potential implication of the continuation of those development…And that does bring into scope some macro-prudential issues.

That sounds like a YES.

So what might it mean? In theory, the Bank could impose tougher lending rules on banks and building societies to cool the market.

Updated

Q: The Federal Reserve says it could raise interest rates in December; Could the Bank of England say the same about the first half of 2016?

Mark Carney won’t be lured into any predictions.

We take a decision each month, based on many factors, and we are committed to getting inflation back to target, he says.

Sky News Ed Conway’s asks whether we should even bother looking at market expectations for bank rate (a key part of today’s inflation report).

Five years ago, market expected rates to be 3.75% today. A year ago, they expected 1%, so should we stop paying attention?

Carney says that the Bank doesn’t endorse these expectations.

Ed squeezes in a second question – is there something ‘chronic’ wrong with the UK economy that means rates are still so low, or have we just suffered a series of unfortunate events?

Ben Broadbent, deputy governor, responds, points out that the equilibrium inflation rate has been falling for many years, even before the financial crisis.

“There are deep global forces that were at work here – including demographics”

Therefore the level of official interest rates aren’t an arbitrary choice. – we are responding to the situation.

Our ambition is to return ‘sustainably’ to the inflation target, Carney says, rather than blunder by trying to fight the ‘persistent’ factors keeping prices low.

Updated

Carney: No regrets over rate predictions

Robert Peston has the microphone, and uses it like a laser beam to target Carney’s credibility.

Q: Do you regret telling the public that the decision over UK interest rates will come into ‘sharper relief’ at the turn of the year?

Absolutely not, Carney replies.

Growth has ticked down in recent months, but domestic conditions have evolved rather as the Bank expected. “Foreign effect” are to blame for weak inflation expectations.

We have a situation where there is mixed progress, but there is progress…. towards monetary normalisation.

Updated

Onto questions:

Q: Not much appears to have changed in today’s Inflation Report, but there’s a big reaction in the markets. Why?

Mark Carney says there have been some important changes since early August (the last meeting).

Firstly: Demand for risk-free assets has risen, and there’s been “a sharp selloff in risk assets”.

Bank funding costs are up, credit spreads are up, equity markets have fallen. There’s been “a big unwind”.

Secondly: concerns over the emerging markets has risen.

Now this is interesting. Carney says that the Bank expects to keep its stock of UK government bonds until interest rates have reached a level where they can be cut.

That means the BoE won’t be unwinding QE until rates have hit 2%.

There are a range of views among the monetary policy committee over the balance of risks to inflation, says Carney.

Mark Carney confirms that UK inflation is expected to remain below 1% until the second half of 2016, citing factors such as cheaper commodity prices and other imported goods prices.

Carney at Bank press conference
Carney at press conference Photograph: Bloomberg TV

Carney warns of global risks

“Remember, remember the 5th of November” grins Mark Carney as the press conference begins (maybe he’ll hand out some toffee apples later #hint)

So what’s memorable about today? There are some familiar themes – inflation remains low, rates remain unchanged, and it’s another 8-1 split.

But there are some subtle but significant shifts in the picture since August.

Global developments are the biggest change in the last three months; these post a downside risk to the UK economy.

But the UK economy is more encouraging, he adds.

Domestic momentum remains resilient, as does consumer confidence, while firms still have robust inflation intentions.

Updated

Bank of England Press Conference begins

The Bank of England press conference is starting now – you can watch it live here.

ITV’s Robert Peston is preparing to give Carney a grilling

The story: BoE signals rates will stay at 0.5% for a while

Here’s Katie Allen’s story on the Bank of England rate decision:

The Bank of England has sent a reassuring message to businesses and households that interest rates are to remain at their record low well into next year as it cut its forecast for near-term inflation.

The central bank signalled in its latest Inflation Report that interest rates would need to rise at some point from the current 0.5%, but it gave no indication a move was imminent and reiterated that when borrowing costs do go up, they will do so only gradually.

Rates have been at 0.5% since the depths of the global financial crisis more than six years ago. Minutes from the Bank’s latest rate-setting meeting, published alongside the report, showed that only one of the nine monetary policy committee members felt it was now time to start hiking. Ian McCafferty dissented from the rest of the MPC, as he has done in recent months, based on risks that inflation would start to pick up.

The Bank’s quarterly outlook said that based on recent falls in oil and other commodity prices, “inflation is likely to remain lower than previously expected until late 2017” and return to the government-set target of 2% in around two years’ time, then rise above it. The latest official figures put inflation at -0.1%.

The report also flagged a weaker outlook for global growth than at the time of its last forecasts in August and the MPC downgraded the prospects for emerging market economies. Such an outlook would continue to influence the UK economy and the path of interest rates.

Here’s the full story:

The Bank also flags up that market expectations of future interest rate rises have fallen since August:

It says:

Short-term interest rates in the United Kingdom, United States and euro area were lower in the run-up to the November Report than three months earlier.

While some of those falls may reflect lower expectations of the most likely path for policy, given the weaker outlook for global growth and inflation, some could also reflect increased perceptions of downside risks.

Bank of England inflation report

Updated

This chart explains why the Bank of England is worried about emerging markets:

Bank of England quarterly inflation report

The Bank’s new quarterly inflation report is online here (as a pdf).

It is packed with interesting charts.

These two show that the UK economy will take a serious hit if China suffers a hard landing.A 3% drop in Chinese growth wipes 0.3% off UK GDP.

Bank of England quarterly inflation report
Bank of England quarterly inflation report

The Bank says:

As in August, Chinese growth is projected to continue to moderate gently in the near term. But recent financial market developments have highlighted the challenges faced by the authorities in maintaining growth while both liberalising and rebalancing the Chinese economy…..

A sharp slowing in China could affect the UK economy.

Updated

Carney also told Osborne that inflation should start to pick up, from zero, in early 2016:

The Bank has also released a letter from governor Carney to chancellor George Osborne, explaining why he hasn’t managed to keep inflation on target.

He blames international factors such as cheaper oil and metals, the strength of sterling (pushing down the cost of imports) and limited earnings growth (although real wages are finally rising).

This chart of inflation forecasts shows exactly why the Bank isn’t rushing to raise borrowing costs:

The key message from the Bank is that the UK still needs record low borrowing costs to ward off the global downturn:

Peter Hemington, partner at accountancy firm BDO LLP, says the Bank of England made the right decision, given signs that UK growth is weakening amid a global slowdown.

“With rates so low, policymakers must act to insulate the UK economy from the increasingly gloomy global economic outlook. So far our recovery has largely been based on consumer spending, but we need business and public sector investment if we are to rebalance the economy, boost productivity and make sure that companies thrive across the country.

This will put the economy on the firmest possible footing for the potentially shaky months ahead.”

The Bank also reminds us that when (but when?!) Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles.

The Bank of England remains fairly optimistic about the domestic UK economy.

The minutes say:

Domestic momentum remains resilient. Consumer confidence is firm, real income growth this year is expected to be the strongest since the crisis, and investment intentions remain robust. As a result, domestic demand growth has been solid despite the fiscal consolidation….

Robust private domestic demand is expected to produce sufficient momentum to eliminate the margin of spare capacity over the next year.

But with few inflationary pressures, and worries over the global economy, eight members of the committee voted to leave interest rates at 0.5%.

Updated

Pound hit by dovish Bank of England

DOWN GOES THE POUND.

Sterling is tumbling like a wounded hawk, as traders scramble to react to the Bank’s downgraded forecasts.

Sterling was trading at $1.5391 before the news broke, and it’s now dropped to $1.5312.

The Bank has also cut its inflation forecasts.

It now expects the Consumer Prices Index to remain below 1% until the second half of 2016, far from the official target of 2%.

BoE cuts growth forecasts on emerging market gloom

The Bank of England has also cut its forecasts for economic growth in 2015 and 2016.

In a gloomy statement, it reveals that it is less optimistic about the UK economy.

The outlook for global growth has weakened since the August Inflation Report. Many emerging market economies have slowed markedly and the Committee has downgraded its assessment of their medium-term growth prospects.

And the Bank also fears trouble in emerging markets:

While growth in advanced economies has continued and broadened, the Committee nonetheless expects the overall pace of UK-weighted global growth to be more modest than had been expected in August. There remain downside risks to this outlook, including that of a more abrupt slowdown in emerging economies.

The BoE also voted 9-0 to leave its quantitative easing programme unchanged, meaning it will still hold £375bn of UK gilts.

Ian McCafferty was the only MPC policy maker to vote to hike to 0.75% again.

That has dashed speculation that Kristin Forbes or Martin Weale would join him on the hawks perch.

Updated

Bank of England leaves rates unchanged

BREAKING: The Bank of England has voted 8-1 to leave interest rates unchanged, at the current record low of 0.5%.

Updated

A Bank of England official is phoning the speaking clock right now…. (seriously).

ONE MINUTE TO GO!

Spoiler alert:

Reminder: We get the monetary policy decision at noon, along with the latest quarterly inflation report. Then there’s a 45 minute wait until Mark Carney faces the press pack.

File photo of the logo as seen at the Bank of England in the City of London<br />The logo is seen at the Bank of England in the City of London, Britain in this January 16, 2014 file photo. The Bank of England is expected to make an interest rate decision this week. REUTERS/Luke MacGregor/FilesGLOBAL BUSINESS WEEK AHEAD PACKAGE – SEARCH “BUSINESS WEEK AHEAD OCTOBER 5” FOR ALL 29 IMAGES” width=”1000″ height=”742″ class=”gu-image” /> </figure>
<p><strong>Over at the Bank, they’ll be putting the finishing touches to their announcements — we can expect some rapidfire tweeting once the clock strikes 12.</strong></p>
<p>That’s also the moment that economics correspondents are released from their lock-in. Fleet Street’s finest have been confined in the Bank this morning, getting an early peek at the Inflation Report. </p>
<p>My colleague <strong>Katie Allen</strong> is in Guardian colours….</p>
</p></div>
<p class=Updated

Super Thursday: What to expect

Here are some key points to watch for from the Bank of England today:

  1. The timing of a rate rise: Financial markets are pricing in the first rate hike in autumn 2016, but economists believe it will come sooner. Today’s data could force one side to rethink.
  2. The latest economic forecasts: Global inflation and growth look weaker since the Bank’s last big meeting, in August, so we could get downgrades today.
  3. The EU referendum. Is the Bank worried that Britain could vote to leave the EU? How much damage is the Brexit risk already causing?
  4. How the MPC votes. A second policymaker could join Ian McCafferty and vote to raise rates, or the committee could split 8-1 once again
  5. How the pound reacts. A hawkish performance from Mark Carney at the press conference could drive sterling up, which would not please exporters.

Marketwatch’s preview has more details:

5 things to watch for the Bank of England’s Super Thursday

The mood in the City is rather subdued today, as investors wait for the Bank of England to unleash a plethora of announcements and reports at noon.

The FTSE 100 has lost 27 points, under-performing the rest of Europe. It’s been pulled down by the mining sector, and supermarket chain Morrisons which posted a 2.6% drop in sales.

Biggest fallers on the FTSE 100
Biggest fallers on the FTSE 100 Photograph: Thomson Reuters

Alastair McCaig, Market Analyst at IG, predicts few surprises from the BoE today.

Last quarter’s Super Thursday was not that super and it is difficult to see where the shock and awe will come from this time round. City traders will have to digest a plethora of data in quick succession, with a rate decision, policy minutes and the inflation report all followed by a speech from Mark Carney.

We might see another member vote for change but other than a 7-2 result it would be hard to see any change being viewed as anything other than forced.

Despite the emissions scandal, Volkswagen still had two cars in the top-ten bestsellers in the UK last month.

This chart from today’s report shows that Golfs and Polos remained popular:

UK car sales
UK car sales Photograph: SMMT

And VW insiders are playing down suggestions that customers are shunning it.

ITV business editor Joel Hills says:

“It could have been a lot worse” a source at VW tells me. “UK sales are pretty robust”. VW’s Golf and Polo models moved up the best-seller list.

George Magnus

Experienced City economist George Magnus, adviser to UBS, is on Bloomberg TV now, arguing that there is no reason for the Bank of England to raise rates yet.

Instead, Mark Carney and colleagues should wait and let the US Federal Reserve make the first move (possibly at its December meeting).

Magnus says:

The danger if the Bank steals a march on the Fed it could push up the pound, which is bad for manufacturing.

Magnus also warned that the upcoming EU referendum is the “big unknown, hanging over the economy like a big black cloud”.

Two hours to go until the Bank of England begins the Super Thursday party:

Updated

The SMMT says it is too early to tell if the drop in VW sales is due to the emission scandal.

Mike Hawes, SMMT Chief Executive, argues that the UK car sector is still robust, even though sales growth has finally dipped.

“The UK car market has gone through a period of unprecedented growth and, so far, 2015 has been a bumper year with the strongest performance since the recession.

As expected, demand has now begun to level off but the sector is in a strong position, as low interest rates, consumer confidence and exciting new products combine to attract new car buyers. The current full-year growth forecast remains on track.”

Volkswagen UK sales fall nearly 10%

Volkswagen sales in the UK have fallen, suggesting the company has been hurt by the news that it faked emission test results.

Sales of Volkswagen-branded models tumbled by 9.8% year-on-year in October, from 15,495 to 13,970, according to the SMMT’s new report. That means its market share shrank from 8.62% to 7.86%.

Other VW brands saw sales fall.

SEAT sales tumbled by 32%, from 3,450 to 2,338, while Skoda dipped by 3%.

Audi, though, posted a 3% jump in sales compared to a year ago, even though it has been caught up in the scandal.

And it’s worth noting that other carmakers had a bad month. Sales of Minis (part of the BMW group) fell by a fifth from 5,262 to 4,112.

But it’s certainly not great news for VW, on top of the plunge in South Korean sales reported this morning (see 7.50am post)

Updated

UK car sales fall for first time in 43 months

Just in. UK car sales have fallen, for the first time since early 2012.

The Society of Motor Manufacturers and Traders reports that new registrations were down 1.1% in October, compared with a year ago.

Sales so far this year are still 6.4% higher than in 2015, but it looks like the long run of post-recession growth is finally tailing off:

UK car sales

Here’s the key points from the SMMT’s sales report:

  • New car registrations see 1.1% decline in October following period of phenomenal record growth.
  • Total market year-to-date up 6.4% to 2,274,550 units registered – the best performance on record.
  • Alternatively fuelled vehicle market enjoys 13.8% boost, with diesel and petrol registrations steady.

Just looking at the detail of the report now….

Updated

Jeremy Cook, chief economist at currency firm World First, reckons UK interest rates will remain at their record lows for another six months.

London newspaper City AM runs a ‘shadow MPC’, asking nine senior economists how they would vote.

And this month, it has split 6-3, with a trio calling for a rate hike.

One of the “shadow hawks” is Simon Ward of Henderson Global Investors, who argues:

Raise. Corporate liquidity is surging. Private pay growth is over three per cent, while productivity remains sluggish. Global risks have faded.

Andrew Sentance, who once served on the MPC, also believes the BoE should raise rates:

Here’s a handy chart showing which BoE policymakers appear keen to raise rates soon, and which are reluctant….

Andy Haldane, the premier Dove, has even suggested recently that rates might be cut to new record lows….

Updated

Some economists believe that divisions at the Bank of England over interest rate policy will widen today during Super Thursday.

At recent meetings, the monetary policy committee has split 8-1, with only Ian McCafferty voting to hike borrowing costs from 0.5% to 0.75%.

But a 7-2 split can’t be ruled out, or even a 6-3 (although that might be pushing it).

And that’s why Simon Wells, chief UK economist at HSBC, says today does feel like a “big day”.

Simon Wells of HSBC
Simon Wells of HSBC (left) Photograph: Bloomberg TV

He told Bloomberg TV:

It’s Bonfire Night, and if there are fireworks here, it will be in the vote.

Kristin Forbes has been very hawkish of late, and she may go and join McCafferty, and possibly Martin Weale too.

The markets would “react strongly” to a 6-3 split, probably driving the pound sharply higher on expectations of an early rate hike.

Wells expects that first rise will come in February 2016, so the BoE may be keen to communicate that today.

Today is probably the Bank of England’s last chance to prepare people for an interest rate hike early next year.

Brian Hilliard, chief U.K. economist at Societe Generale, explains:

“It’s make or break for clear communication on a first-quarter rate increase.

“If it is going to happen in February they’re going to have to send a strong and clear signal.”

German factory orders fall again

A German supporter with the national flags on her head watches the World Cup soccer match between Germany and Ghana at a public viewing area in Hamburg, southern Germany, on Wednesday, June 23, 2010. (AP Photo/Matthias Schrader)

As if the Volkswagen scandal wasn’t bad enough, Germany’s factories have also suffered another drop in demand orders.

Industrial orders fall by 1.7% in September, new figures show, the third monthly decline in a row.

That’s rather worse than expected – economists forecast a 1% rise – and it suggests Europe’s largest economy is suffering from weaknesses overseas.

The economy ministry didn’t try to sugar-coat the figures either, saying that “overall, industrial orders are in a weak phase”.

Updated

VW sales slide in South Korea

Sign at the Volkswagen Chattanooga Assembly Plant in Chattanooga, Tennessee November 4, 2015. Volkswagen told NHTSA that it would recall about 92,000 vehicles, which are some 2015 and 2016 models of Jetta, Passat, Golf and Beetle, in the United States. REUTERS/Tami Chappell

We have firm evidence that the emissions scandal has hurt Volkswagen, from South Korea.

Sales to South Korean customers almost halved in October, new figures show, dropping below the 1,000 mark for the first time since 2011.

The Korea Automobile Importers & Distributors Association reported that VW only sold 947 cars last month, following the revelations that it used software to cheat nitrogen oxide emission tests. That’s 46% lower than a year ago, and 67% below September’s figures.

The sales collapse for Volkswagen contrasted with a 6% rise in sales of imported cars in South Korea in the same period, Reuters points out.

Have UK drivers also abandoned VW? We find out at 9am when the latest sales figures are released….

Updated

Introduction: Bank of England rate decision, and more…

Bank of England Governor Mark Carney makes a speech at The Sheldonian Theatre in the University of Oxford on October 21, 2015 in Oxford, United Kingdom. Carney spoke about the benefits and risks of Britain’s EU membership. (Photo by Eddie Keogh-Pool/Getty Images)
Bank of England Governor Mark Carney, who will hold a press conference at 12.45pm today Photograph: Pool/Getty Images

Happy Super Thursday!

The Bank of England is preparing to hit us with a quadruple whammy of news and economic data at noon.

Firstly, the Bank’s Monetary Policy Committee will set UK interest rates. A rate rise isn’t expected, but some members of the MPC may vote for the first hike since the financial crisis began. Last month they split 8-1, but could another hawk jump the fence?

The minutes of the meeting are also released at noon, showing the details of the committee’s discussions and its views on the UK and global economy.

We also get the latest quarterly inflation report, packed with new economic forecasts.

And if that’s not enough of a treat, the Bank governor Mark Carney then holds a press conference at 12.45pm. That’s his opportunity to guide the markets – and potential housebuyers and borrowers – on the chances of an interest rate rise in early 2016.

Also coming up today….

We get new UK car sales figures for October at 9am. They are expected to show that some customers have deserted Volkswagen following its emissions crisis.

In the City, we have some disappointing results from Morrisons, which has reported its 15th straight quarterly sales fall.

And the European financial markets are expected to be calm, after a solid trading day in Asia which saw the Chinese market rise 20% above its recent low.

That means they are back into a bull market, as traders put this summer’s panic selling behind them.

We’ll be tracking all the main events through the day….

Updated

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

German bosses are more optimistic about future prospects but UK factories suffer as exports fall the fastest since 2012. Portuguese government bonds are coming under some pressure today as investors react to the unfolding political crisis…

 

Powered by Guardian.co.ukThis article titled “Germany shrugs off VW crisis, but UK factory orders slide – business live” was written by Graeme Wearden, for theguardian.com on Monday 26th October 2015 13.26 UTC

Portuguese bonds hit by political crisis

Portuguese government bonds are coming under some pressure today as investors react to the unfolding political crisis in Lisbon.

While most eurozone bonds have strengthened today, Portugal has gone the other way, pushing up the yield (or interest rate) on its 10-year debt from 2.37% to 2.45%.

Portuguese 10-year bond yield
Portuguese 10-year bond yield today Photograph: Thomson Reuters

The move came after opposition parties vowed to bring down Portugal’s new government in a confidence vote later this week. They’re furious that the centre-right coalition, led by former PM Pedro Passos Coelho, has been invited to form another administration despite failing to win a majority in this month’s election.

In taking this decision, Portugal’s president Cavaco Silva has enraged some certain commentators who argue that he’s “banned” the Portuguese left-wing a fair crack at power in a massive failure for democracy.

It’s a complicated situation, though. No party won an overall majority, although Passos Coelho’s group came first with 38% of the vote. The socialists came second with 32% followed by the hard left Left Bloc with 10% and the communists with 7%.

Those three left-wing parties *could* form a majority, but instead president Silva passed the mandate to Passos Coelho. Crucially, and controversially, he also warned that the far-left parties’ anti-EU views were a threat to Portugal.

Politics lecturer Chris Hanretty has written a good blogpost here, explaining why talk of a coup in Portugal is a little simplistic.

He says:

Often, there is no right or obvious answer to the question, “who won the election?”. But if Cavaco Silva’s decision is wrong, then it will be righted automatically by the actions of Parliament in less than a fortnight’s time.

If that happens, the alarmists will have been proven wrong. Unfortunately, attention will likely have moved on.

Sam Tombs of consultancy firm Pantheon Macroeconomic fears that UK factories will continue to struggle because of the strong pound.

He’s created a chart showing how exports fall after the the pound strengthens (the inverted left-hand scale, shifted forwards nine months).

And that correlation means factory orders could continue to weaken, Tombs explains:

The chart shows that the worst is not over for the manufacturing sector; sterling’s further appreciation over the last year will continue to depress export orders until mid-2016, at least.

IHS economist Howard Archer is alarmed by the drop in UK factory orders reported by the CBI:

This is a thoroughly disappointing survey through and through which indicates that manufacturers’ struggles are intensifying as a moderation in domestic demand adds to a still weakening export outlook.

Persistent and seemingly deepening manufacturing weakness is very worrying for hopes that UK growth can ultimately become more balanced and less dependent on the services sector and consumer spending.

Factory fears as UK exports fall at fastest pace since 2012

A turbine at Alstom power plant turbine refurbishment facility in Rugby.
A turbine at Alstom power plant turbine refurbishment facility in Rugby. Photograph: Bloomberg/Bloomberg via Getty Images

More signs that UK manufacturers are having a tough time as they contend with China’s downturn and a stronger pound.

The latest survey of factory bosses by business group CBI suggests orders have dropped from both within the UK and outside. The report’s key order book balance is the weakest for more than two years.

This does not bode well for official GDP figures due on Tuesday that will give the first snapshot of UK growth in the third quarter. The consensus forecast is for quarterly growth of 0.6% in the July-September period, down from 0.7% in the second quarter, according to a Reuters poll.

The CBI’s report suggests that in the three months to October new export orders fell at the fastest pace in three years. That was possibly down to the continued strength of the pound, which makes UK goods more expensive to overseas buyers, the CBI said.

Total new domestic orders fell over the quarter for the first time since April 2013.

Manufacturing production also edged downwards during the three months to October, marking the first decline in the last two years, according to the CBI Quarterly Industrial Trends Survey.

Against that backdrop, manufacturers’ optimism about both their business situation and export prospects for the year ahead fell at the fastest pace since October 2012, according to the poll of 463 companies. But they predicted that overall manufacturing conditions will stabilise in the next three months, with a small rise in output.

Rain Newton-Smith, CBI director of economics, says UK manufacturers are being buffeted at home and abroad.

“Manufacturers have been struggling with weak export demand for several months, because of the strength of the pound and subdued global growth. But now they’re also facing pressure back home as domestic demand is easing.”

And here are the key figures from the report:

  • 22% of businesses reported an increase in total new order books and 30% a decrease, giving a balance of -8%, the lowest since October 2012.
  • 20% of businesses reported an increase in domestic orders, with 31% noting a decrease. The balance for domestic orders (-11%) was below the long-run average (-5%), the lowest since April 2013 (-14%).
  • 15% reported an increase in export orders, with 33% signalling a decrease. The resulting balance for export orders (-17%) signalled a faster decrease in orders than the historic average (-7%). This marks the lowest rate since October 2012 (-17%).

Germany’s central bank reckons that the country’s economy remains “quite strong”, despite signs that growth slowed in the last three months.

Peterson leaves Southwark Crown Court in London<br />Magnus Peterson leaves Southwark Crown Court in London October 14, 2014. Magnus Peterson, the founder of the $600 million Weavering hedge fund that collapsed in the wake of the credit crisis in 2009, pleaded not guilty to 16 fraud-related charges at his London trial on Tuesday. REUTERS/Stefan Wermuth (BRITAIN - Tags: BUSINESS) - RTR4A646
Magnus Peterson in 2014. Photograph: Stefan Wermuth / Reuters/REUTERS

Former hedge fund boss Magnus Peterson has just been banned from the City, over one of the biggest rogue trading scandals of recent years.

Peterson’s Weavering Macro Fixed Income Fund collapsed in 2009, costing investors around £350m. It had been marketed as a safe and secure investment, which investors could easily reclaim their funds from.

But once the financial crisis struck, Peterson embarked on a series of risky wagers on financial derivatives which failed to reverse its fortunes. He was convicted of several counts of fraud, after the high court heard how he had taken out $600m of swap contracts, which turned out to be worthless, with another company under his control.

Mark Steward, director of enforcement and market oversight at the FCA, says Peterson has been banned to protect consumer and markets.

“Mr Peterson defrauded investors who should have been able to trust him. Over a prolonged period he purposely used investors’ money to prop up his business, and then lied in order to cover up his deception.”

This makes little practical difference to Peterson, aged 51, right now, as he was jailed for 13 years in January.

Updated

9% hacked off TalkTalk shares after cybercrime attack

Back in the City, UK telecoms group TalkTalk is the biggest faller on the stock market after suffering a major cybercrime attack last week.

TalkTalk shares have slumped by around 9.5% this morning. Last week, the firm admitted that customers’ personal and financial details could have been stolen by cybercriminals who breached its security systems.

TalkTalk boss Dido Harding told my colleague Josh Halliday last night that it’s too early to say if the company will compensate those affected.

She also argued that TalkTalk’s security was better than its rivals, despite the breach:

“Nobody is perfect. God knows, we’ve just demonstrated that our website security wasn’t perfect – I’m not going to pretend it is – but we take it incredibly seriously.

“On that specific vulnerability, it’s much better than it was and we are head and shoulders better than some of our competitors and some of the media bodies that were throwing those particular stones.”

And despite criticism from shareholders, Harding is determined to hold onto her job:

Updated

IFO: German car industry unfazed by VW scandal

IFO economist Klaus Wohlrabe has confirmed that Germany’s auto industry is shrugging off the revelations that VW deliberately cheated on emissions tests.

Speaking to Reuters about today’s IFO report, Wohlrabe pointed out that business expectations and the assessment of current conditions in the sector had both improved this month.

That helped to push IFO’s measure of business confidence higher this month, from 103.3 to 103.8.

Wohlrabe says:

The German automobile industry appears to be unfazed by the VW scandal.

Updated

German business leaders aren’t frightened by the crisis at Volkswagen, and the slowdown in emerging markets, explains Carsten Brzeski of ING.

Here’s his analysis on today’s IFO report:

Surprised but not frightened? German businesses showed an interesting reaction to the recent series of uncertainties and turmoil. In fact, the reaction can be summarized as impressed but not frightened.

Germany’s most prominent leading indicator, the just released Ifo index dropped to 108.2 in October, from 108.5 in September. The first drop since June this year. Interestingly, the drop was exclusively driven by a weaker assessment of the current situation. The expectation component, on the other side, increased to 103.8, from 103.3, continuing its recent positive trend and actually reaching the highest level since June last year.

Of course, one should not interpret too much in a single confidence indicator but today’s Ifo reading suggests that the German business community is filing the Volkswagen scandal as a one-off and also shrugs off the risk from a possible Chinese and emerging markets slowdown. Despite these external uncertainties and regular concerns about the real strength of the German economy, German business remain highly optimistic.

There are two possible explanations for this trend: either German businesses are naive optimists or ice-cold realists, sticking to the facts. In our view, there are many arguments in favour of the latter.

Updated

The euro is slightly higher following the IFO survey:

Updated

German IFO survey: What the experts say

Today’s German business confidence survey shows Europe’s powerhouse economy remains in decent health, say City experts.

Economist Frederik Ducrozet is encouraged by the rise in business expectation this month:

Die Welt’s Holger Zschaepitz points out that confidence in the German carmaking industry rose this month:

Bloomberg’s Maxime Sbaihi points out that demand within Germany is still robust:

Updated

German business climate worsens, but expectations rise

Business conditions in Germany have fallen this month, according to the latest survey of corporate confidence in Europe’s latest economy.

The IFO thinktank has just reported that current conditions in the German economy have deteriorated this month, for the first time in four months.

But IFO also found that business leaders are more upbeat about future prospects than in September. That suggests the VW emissions scandal has not caused major trauma.

IFO’s business climate index fell to 108.2 in October, down from 108.5 in September, but rather higher than expected.

The current conditions index fell to 112.6, from 114 a month ago. That suggests that business leaders are finding life a bit harder — after seeing exports and factory orders deteriorate over the summer.

But the expectations index rose to 103.8, from 103.3, indicating that Germany PLC expects to ride out the slowdown in China and other emerging markets, and the Volkswagen saga.

I’ll mop up some reaction now…

Updated

Speaking of carmakers…Japan’s Toyota has overtaken Germany’s Volkswagen to become the world’s largest carmaker.

Toyota has reported that it sold almost 7.5 million cars in the third quarter of 2015, while VW sold 7.43m.

Does that show that the diesel emissions scandal has hurt VW? Not really — that news only broke in mid-September, giving little opportunity for it to show up in these figures.

But it does show that VW may already have been finding life tougher, even before admitting that around 11 million vehicles were sold with software to trick emissions tests.

(FILES) - The logo of French car maker PSA Peugeot is seen on a car parked in front of French Economy minstry (left) in Paris, on September 11, 2012. French auto giant PSA Peugeot Citroen’s worldwide sales in 2012 dropped by 16.5 percent in 2012 due to contracting demand in debt-crippled southern Europe and the suspension of its activities in Iran, it said in a statement on January 9, 2013. AFP PHOTO JOEL SAGETJOEL SAGET/AFP/Getty Images

Shares in French carmaker Peugeot are down 2% this morning, after reporting a 4.4% drop in sales in China and South East Asia.

That took the shine off a 3.8% rise in sales in Europe.

WPP: business leaders remain ‘risk averse’

Sir Martin Sorrell, WPP chief executive, hides his head in his hand.

Advertising titan WPP is among the biggest fallers in London, down around 2%, despite reporting a 3.3% rise in net sales in the last six months.

Traders may be discouraged by a warning that “risk averse” business leaders are reluctant to stick their necks out too far, given the current geopolitical tensions.

WPP told shareholders that:

Country specific slowdowns in China and Brazil and geopolitical issues remain top of business leaders’ concerns. The continuing crisis in the Ukraine and consequent bilateral sanctions, principally affecting Russia, continued tensions in the Middle East and North Africa and the risk of possible exits from the European Community, driven by further political and economic trouble in Greece, top the agenda.

Corporate bosses are also facing a two-pronged squeeze — from new technology rivals on one side, and cost-cutting activists on the other, WPP added:

If you are trying to run a legacy business, at one end of the spectrum you have the disrupters like Uber and Airbnb and at the other end you have the cost-focused models like 3G in fast moving consumer goods, and Valeant and Endo in pharmaceuticals, whilst in the middle, hovering above you, you have the activists led by such as Nelson Peltz, Bill Ackman and Dan Loeb, emphasising short-term performance.

Not surprising then, that corporate leaders tend to be risk averse.

European markets in muted mood

As predicted, Europe’s stock markets have fallen into the red this morning.

The FTSE 100 has shed arounds 33 points, or 0.5%, as Tony Cross of Trustnet Direct, explains:

It has been a surprisingly muted overnight session in Asia with markets showing little reaction to Friday’s rate cut news out of China.

London’s FTSE-100 is failing to find any inspiration off the back of the news either, with the vast majority of stocks mired in red ink shortly after the open.

The other main markets are also down, apart from Germany’s DAX which is flat.

European stock markets, early trading, October 26 2015
European stock markets in early trading today. Photograph: Thomson Reuters

Mining and energy stocks are generally lower, showing that concerns over global growth haven’t gone away.

Connor Campbell of SpreadEx says:

The FTSE, falling by around 25 points soon after the bell, was weighed down by (what else?) its mining and oil stocks, with investors seemingly less sure about the Chinese rate cut than they were last Friday

Larry Elliott: Why China’s interest rate cut may be bad news for the world economy

By cutting interest rates, China’s central bank risks creating further instability in a global economy that is already hooked on ultra-cheap money and regular hits of stimulus.

As our economic editor Larry Elliott explains, such stimulus measures may already be less effective too:

Problem number one is that by deliberately weakening their exchange rates, countries are stealing growth from each other. Central banks insist that this does not represent a return to the competitive devaluations and protectionism of the 1930s, but it is starting to look awfully like it.

Problem number two is that the monetary stimulus is becoming less and less effective over time. There are two main channels through which QE operates. One is through the exchange rate, but the policy doesn’t work if all countries want a cheaper currency at once. Then, as the weakness of global trade testifies, it is simply robbing Peter to pay Paul.

The other channel is through long-term interest rates, which are linked to the price of bonds. When central banks buy bonds, they reduce the available supply and drive up the price. Interest rates (the yield) on bonds move in the opposite direction to the price, so a higher price means borrowing is cheaper for businesses, households and governments.

But when bond yields are already at historic lows, it is hard to drive them much lower even with large dollops of QE. In Keynes’s immortal words, central banks are pushing on a piece of string….

Here’s Larry’s full analysis on the rate cut:

Copper, a classic measure of the health of the global economy, hasn’t benefitted much from China’s rate cut. It’s only up by 0.2% this morning.

Chinese officials to agree next five-year plan

China is also in the spotlight today as top communist officials gather to hammer out its 13th five-year plan, setting the country’s economic programme until 2020.

Premier Li Keqiang has already indicated that slower growth is on the agenda, by declaring that Beijing will not “defend to the death” its target of 7% growth (which was narrowly missed in the third quarter of 2015).

He declared:

“We have never said that we should defend to the death any goal, but that the economy should operate within a reasonable range.”

Trade links and green issues will also be discussed, as China’s top brass try to manage the country’s economic rebalancing.

With China easing monetary policy last week, and the ECB expected to follow suit in December, it could soon be Japan’s turn to stimulate its economy again….

No jubilation in Hong Kong either, where the Hang Seng index just closed 0.2% lower.

Asian market creep higher after Chinese rate cut

Investors in Asia have given China’s interest rate cut a cautious reception overnight, but there’s no sign of euphoria.

In Shanghai, the main index of Chinese shares rose by just 0.5%, or 17 points, to 3430. Although Friday’s stimulus move has been welcomed, traders are also worrying about whether China is still going to suffer a hard landing.

Said Zhang Qi, an analyst at Haitong Securities in Shanghai, says shares got a small lift from the rate cut:

“But the market appeared to be in correction after it rose a lot in October, and some investors sold stocks on the short-lived rise from the rate cuts. So overall, the market stayed stable today.”

Japan’s Nikkei gained around 0.7%, but the Australian S&P market dipped a little despite hopes that its mining sector would benefit from Chinese stimulus moves.

Asian stock markets, October 26
Here’s the situation across Asia’s stock markets Photograph: Thomson Reuters

Updated

The agenda: Investors await German confidence figures

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we’ll find out whether business confidence in Germany has been badly hit by the Volkswagen saga, and the slowdown in emerging markets.

The latest IFO survey, due at 9am GMT, is expect to show that German firms are gloomier about their prospects. That’s understandable, given the drop in German exports, factory output and orders in August.

We’ll also be mopping up the reaction to China’s interest rate cut, announced late last week.

That did give shares a boost on Friday afternoon, but European stock markets are tipped to fall back this morning, as concerns over the situation in China reemerge.

China’s rate cut came just a day after the European Central Bank hinted that it could boost its stimulus package soon, so investors have lots to ponder.

China cuts interest rates in surprise move – as it happened

In the corporate world, traders are digesting results from advertising giant WPP and French carmaker Peugeot.

And we’ll also be keeping an eye on Portugal, where the president has dramatically asked centre-right leader Pedro Passos Coelho to form another government, rather than two eurosceptic left-wing parties.

Portugal Government Fuels Debate About Democracy in Europe

We’ll be tracking all the main events through the day…..

Updated

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World’s second largest economy continues to see slowing growth. Chinese GDP growth at six year low, but central bank unlikely to cut rates says economist. Weak European construction output. ECB likely to leave QE unchanged at next meeting…

 

Powered by Guardian.co.ukThis article titled “Markets mixed despite better than expected Chinese GDP – business live” was written by Nick Fletcher, for theguardian.com on Monday 19th October 2015 12.20 UTC

Here’s a full report on Oprah Winfrey’s deal with Weight Watchers:

Meanwhile Weight Watchers shares have jumped around 40% in pre-market trading following the news that Oprah Winfrey will invest and join the board.

That’s a nice return already on her investment.

Morgan Stanley earnings drop more than 42%

More news from the US, and Wall Street bank Morgan Stanley has just reported a 42.4% fall in third quarter earnings to $939m.

It was hit by turbulence in bond, currency and commodity markets following the concerns about the Chinese economy.

Oprah Winfrey takes stake in Weight Watchers

Over in the US, Oprah Winfrey has linked up with Weight Watchers International, buying a 10% stake in the business – with an option for another 5% – and is joining the board.

Winfrey said: “I believe in the program so much I decided to invest in the company and partner in its evolution.”

Oprah.

Oprah. Photograph: Splash News/Corbis

Updated

China could overtake Europe for trade in 20 years – survey

As Chinese president Xi Jinping begins his state visit to the UK, British people expect China to overtake Europe as our most valuable trading partner in 20 years. A poll by YouGov also shows Brits are enthusiastic about closer economic co-operation with the Chinese.

Of those surveyed, 40% said our most valuable trading partner was Europe, with 23% choosing China. But in the next two decades this is expected to change, with 29% predicting China will be our top partner and 22% forecasting it will still be Europe.

UK trade partners.

UK trade partners. Photograph: YouGov/YouGov

Nearly half – 43% – said the UK should be seeking closer trading links with China, with 31% saying it should continue the current level of economic co-operation and only 8% saying it should weaken ties.

Closer trade with China?

Closer trade with China? Photograph: YouGov/YouGov

The majority – 54% – believed China would to continue into the next two decades with either much stronger economic growth than now (22%) or slightly stronger growth than now (32%). Only 14% predicted weaker growth. In addition, 37% expected China’s growth to lift the UK’s, while 26% said it wouldcome at the expense of western economies and 10% said it would not make any difference.

But YouGov added:

The British public seems to have a pragmatic approach to economic relations with China, but there is not much evidence of great affection for the country. Of the 12 biggest economies by GDP excluding the USA and those in Europe, China comes in at 8th in terms of net positive impressions (29% positive, 55% negative).

Ireland moves to reduce need for one and two cent coins

Ireland has moved to cut back on one and two cent coins, with plans to launch a nationwide scheme to allow retailers to round bills to the nearest five cents – with the consent of shoppers. PA reports:

Since the euro was introduced in 2001 Ireland has spent €37m issuing one and two cent coins – minting the coppers at three times the rate of the rest of the eurozone.

But the initiative to reduce the need for coppers is voluntary and consumers will retain the right to pay the exact bill and request their exact change.

The Central Bank insisted rounding would only apply to cash transactions and not to credit card, electronic or cheque payments and it would also only be used on the final cash total of a bill and not to individual goods.

As examples it said final bills ending in one and two cents or six and seven cents would be rounded down to the nearest five and those ending in three and four cents or eight and nine cents would be rounded up.

Other rules on the rounding scheme include that one and two cent coins remain legal tender.

The nationwide initiative starts on October 28.

It follows a successful trial in Wexford in 2013, which showed that 85% of consumers and 100% of retailers in Wexford who expressed an opinion wanted rounding rolled out nationally.

Ireland to cut back on one and two cent coins.

Ireland to cut back on one and two cent coins. Photograph: Chris Bacon/PA

Back to China, and the weak GDP figures show that the stimulus measures introduced by the country’s central bank have had a limited effect, said Professor Kamel Mellahi at Warwick Business School. He said:

If there is one thing to take away from the third quarter figures it is the limited short-term impact of financial and economic stimulus packages on the Chinese economy. The Chinese Government has introduced a number of measures to stimulate economic growth, but so far the needle hasn’t moved much.

Right now it’s very important the Chinese Government is focused on the long-term economic fundamentals and resists the temptation to take unnecessary actions simply to meet short-term economic growth targets.

One cannot, and should not, read too much into the third quarter growth figures. A growth of 6.9% is slightly below official government expectations but they are also marginally better than the 6.8% that most economists have predicted. Because it’s the weakest growth since 2009, the figures are very symbolic but I don’t think they tell us something substantially new about the state of the Chinese economy.

The 0.2% fall in eurozone construction in August compared to July was due to civil enginering declining by 0.3% and building construction by 0.2%, according to statistics office Eurostat.

In the wider European Union, construction output fell by 1.2% month on month.

The year on year decline in the euro area was 6% and in the EU as a whole 5%.

The full report is here:

Production in construction down by 0.2% in euro area

Decline in European construction.

Decline in European construction. Photograph: Eurostat/Eurostat

Weaker European construction output

Eurozone construction output came in weaker in August, new figures have just revealed:

Updated

Chinese GDP does not tell the whole story

More on the Chinese figures and their accuracy or otherwise. Real growth could be closer to 3% to 4% according to Russ Mould, investment director at broker AJ Bell. He said:

Chinese headline GDP growth looks healthy at 6.9% but underlying metrics suggest the real growth rate could be nearer 3% – 4%. If you look at growth in rail cargo traffic, electricity consumption and demand for loans, three metrics favoured by Prime Minister Li, the picture is not so healthy.

Credit growth still looks promising but freight shipments and electricity demand growth look to be sagging, so the so-called Li Keqiang index does raise a few questions.

Today’s GDP figures are encouraging but investors with exposure to China should still expect some bumps and lumps along the way.

Chinese growth slows

Chinese growth slows Photograph: AJ Bell / Thomson Reuters Datastream/AJ Bell / Thomson Reuters Datastream

One of the disadvantages of being a stock market index laden with commodity companies is that the sector often has a disproportionate influence on events.

So it is today. With the weak Chinese data mining companies have come under pressure on concerns about slowing demand from the world’s second largest economy. With the likes of Anglo American and Glencore down between 2% and 4%, this means the FTSE 100 has slipped back into negative territory, while other European markets are still moving higher.

Chris Beauchamp, senior market analyst at IG, said:

Overall growth in China in the third quarter was a respectable 6.9%, while strength in consumer spending will allay some fears about a slowdown. However, the figures will do nothing to dispel the idea that this particular growth bonanza has come to an end.

Big name mining stocks are in the red again this morning, with the sector at its lowest level in nearly two weeks. It looks increasingly like the bounce of early October was a false dawn, and barring some kind of sustained revival in risk appetite, perhaps via fresh monetary stimulus, the sector is heading lower once again.

Mining shares fall

Mining shares fall Photograph: Reuters/Reuters

ECB expected to leave QE unchanged this week

One of the main economic events this week is the latest meeting of the European Cental Bank, due to take place in Malta.

Despite the weakness of the global economy and continued low inflation, the bank is widely expected to keep its quantitive easing programme unchanged but suggest it is ready to act further if necessary. Many economists believe an expansion of the programme – which involves €60bn of asset purchases a month and is due to run until at least September 2016 – could be unveiled in December.

ECB board member Ewald Nowotny said it was too early to discuss changing the programme in one of a couple of interviews over the weekend and today. He said (quote from Reuters):

In my view it’s too early to talk about (adjusting the asset purchases) because we still have almost a year of the programme ahead of us.

Economists at RBC Capital Markets said:

[Nowotny] remarked that Fed policy was not a “decisive aspect” in ECB decision-making, and that one should also not overestimate the impact of a slowdown in China. His more hawkish tone contrasts with the dovish tenor to his remarks from last week, where he acknowledged the clear weakness in domestic inflationary trends.

Nowotny said in a separate interview that the ECB has to show it is in control of inflation but governments may need to loosen fiscal policies to boost growth. He said it was too early to determine long term inflation trends, with low oil and commodity prices at the moment having a strong influence.

The service sector is now the biggest part of the Chinese economy:

One of the shares pushing the German market higher is Deutsche Bank.

It has jumped more than 3% after unveiling plans over the weekend to split its investment bank in two, and removing a number of top executives as part of an overhaul by chief executive John Cryan. Earlier this month the bank announced a record loss of €6bn in the third quarter.

The full story is here:

Updated

European markets are now making a better fist of it after an uncertain start, as traders take a more positive view of the Chinese data (it was disappointing but not as bad as expected).

The FTSE 100 is up 0.2%, Germany’s Dax has added 0.9% and France’s Cac is up 0.8%.

Markets

Markets recover after Chinese data Photograph: Reuters/Reuters

Greek creditors to examine reforms this week

Over in Greece, and the country’s creditors will be reviewing its finances and the progress of reforms to release the next tranche of the €2bn rescue package. The move follows the successful passing of measures through parliament early on Saturday, despite protests against the package.

Finance minister Euclid Tsakalotos and prime minister Alexis Tsipras in parliament on Friday.

Finance minister Euclid Tsakalotos and prime minister Alexis Tsipras in parliament on Friday. Photograph: Panayiotis Tzamaros/NurPhoto/Corbis

Greek newspaper Kathimerini reports:

Representatives of Greece’s lenders – the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund – are expected to return to Athens on Tuesday to start a review that, Greece hopes, will end successfully, paving the way for the launch of talks on debt relief.

The auditors are to scour Greece’s finances too, following the presentation of the draft budget. Finance Minister Euclid Tsakalotos is expected to request flexibility, arguing that the recession estimates in the draft budget – 2.3% of gross domestic product this year and 1.3% next year – are overly pessimistic.

His aim is to eliminate some of the more contentious austerity measures that Greece has suspended, such as plans for a 23% value added tax on private schools and higher taxes on rental income.

As regards pension reform, another controversial issue, the government is keen to convince creditors to allow the inclusion of certain prior actions in a broader overhaul of the pension system, to come later.

As regards the €2bn loan tranche, the Euro Working Group is to convene on Wednesday and may recommend the immediate release of the money or may ask Greece to legislate more actions from the first list of prior actions.

The full report is here.

Protesters at a rally in front of the Greek parliament in Athens as MPs voted for reforms.

Protesters at a rally in front of the Greek parliament in Athens as MPs voted for reforms. Photograph: Louisa Gouliamaki/AFP/Getty Images

Despite the weak Chinese numbers, Tim Condon at ING Bank believes the Chinese central bank is unlikely to cut interest rates any further. He said:

The third quarter GDP data on its own implies a revision in our full-year forecast to 6.9% from 6.8%. However, our previous forecast was based on an acceleration in fourth quarter growth from reduced financial market turbulence and the impact of the stimulus implemented in response to the turbulence. We think the argument still applies and we are revising our full-year forecast to 7.0% (Bloomberg consensus 6.8%).

We see the September economic data, including the money and credit data released last week, as enabling the PBOC to remain on hold. We are revising our forecast of one 25 basis point policy interest cut in the current quarter to no more cuts.

We retain our forecast of one more cut in the reserve ratio requirement [the amount of cash that lenders must hold as reserves] in the current quarter to sterilize the impact of hot money outflows on interbank liquidity.

Shire falls on drug disappointment

One of the biggest UK fallers so far is pharmaceutical group Shire.

Its shares are down 1.8% after the US Food and Drug Administration said late on Friday that it would not approve the company’s new dry eye drug, lifitegrast, based on current data. Chief executive Flemming Ornskov said he was disappointed but still hoped to launch the treatment in 2016. If results from a new phase 3 trial due by the end of the year are positive, Shire planned to refile a submission to the FDA in the first quarter of 2016. Ornskov said:

We are committed to working with FDA to expeditiously provide the evidence required to deliver a new prescription treatment option for the 29 million adults in the US living with the symptoms of this chronic and progressive disease. This is an area of unmet medical need for which there has been no new FDA-approved treatment in over a decade.

European markets make a mixed start

The weak Chinese GDP data has seen European shares get off to an uncertain start for the week.

The FTSE 100 is up 0.15% but Germany’s Dax, France’s Cac and Spain’s Ibex have dipped 0.2%.

In China itself, the Shanghai composite has ended down 0.1% at 3386.7 points.

Oil prices have edged lower on renewed concerns about a lack of demand amid a supply glut, with Brent crude down 0.48% at $50.22 a barrel.

ITV buys television assets of Northern Irish broadcaster UTV

On the corporate front, ITV has agreed to pay £100m for the television business of Northern Irish broadcaster UTV in a long expected deal.

It means the long-gestating consolitation of the independent television network is getting into its final stages, with 13 of the 15 licences now in the hands of ITV. Analysts at Liberum:

We see the deal as a strategic plus, especially if ITV can charge retransmission revenues for the main channel where we expect more newsflow before Christmas. We reiterate ITV as our top pick in media sector.

More suggestions the official Chinese GDP figure may be an overestimation:

The Chinese data comes as the country’s president, Xi Jinping, begins his first official state visit to London.

There are likely to be deals signed and co-operation agreements made, but the visit is controversial. It is likely to be marked by protests against human rights abuses, and concerns that the UK may be jeopardising national security by allowing Chinese state companies to invest in British nuclear power plants.

And it comes amid increased wariness towards China by the US. More here:

In Asia the Shanghai Composite is currently down 0.48%, while the Nikkei is 0.88% lower and the Hang Seng is down 0.54%.

European markets are expected to make an uncertain start after the mixed messages from the Chinese data. Here are the opening forecasts from IG Index:

Chinese economic growth at a six year low

Good morning and welcome to our our rolling coverage of the world economy, the financial markets, the eurozone and the business world.

China is in the spotlight once more, with news of a slowdown in economic growth in the third quarter. The world’s second largest economy grew by 6.9%, compared to 7% in the previous quarter, and the lowest rate since the 6.2% recorded in 2009 during the global recession.

The figure was slightly better than the 6.7% expected by economists but is still likely to prompt concerns about the outlook. The government has cut interest rates five times since November, and further stimulus measures are expected in the wake of a continued slowdown.

Our full report is here:

Michael Hewson, chief market analyst at CMC Markets, said:

Last week’s China trade balance numbers showed that while exports improved slightly, the sharp drop in imports suggested that internal demand remains constrained by the weakness in commodity prices, as well as lower domestic consumption, raising concerns that the Chinese government could well find it difficult to hit its 7% GDP target for this year.

This morning’s Chinese Q3 GDP was expected to reinforce these concerns, but came in rather conveniently slightly better than markets had been expecting at 6.9%, and above some of the more pessimistic expectations of 6.7%.

While most people accept that China’s GDP numbers should only be taking at face value, due to concerns that it is artificially inflated, this number does seem surprisingly good given how weak some of the more recent individual data components have been.

This is borne out by a much bigger than expected drop in the September industrial production numbers, which came in at 5.7% and well below expectations of 6%, and well down from 6.1% in August, while Chinese retail sales saw an increase of 10.9%, only slightly higher than August’s 10.8%. Fixed asset investment also disappointed, coming in at 10.3%, down from 10.9% in August.

Economist Danny Gabay of Fathom Consulting echoed the scepticism about the Chinese figures. He told the Today programme: “The figures are produced remarkably quickly and rarely revised.” And he believes the real figure is closer to 3%.

Otherwise it appears a relatively quiet day so far, but we’ll be keeping an eye on all the latest developments.

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Rolling economic and financial news, from the latest wealth report to the UK inflation data. Credit Suisse wealth report released. German investor morale hit by VW scandal. UK inflation turns negative. Chinese imports tumble 20%…

 

Powered by Guardian.co.ukThis article titled “Richest 1% now own half of all wealth, says Credit Suisse – business live” was written by Graeme Wearden (until 2pm) and Nick Fletcher, for theguardian.com on Tuesday 13th October 2015 13.41 UTC

Wall Street opens lower

US markets have fallen back in early trading, along with other global markets in the wake of poor Chinese trade figures, which cast new doubt over the prospects for the world’s second largest economy.

The Dow Jones Industrial Average is down more than 90 points or 0.5%, while European markets are also still firmly in the red.

Markets fall

Markets fall. Photograph: Reuters/Reuters

After the Treasury Select Committee heard from the newest member of the Bank of England’s Monetary Policy Committee, Jan Vlieghe, who appeared in no hurry to vote for a rate rise, it was the turn of fellow rate-setter Ian McCafferty.

McCafferty was the only one of the nine-member monetary policy committee (MPC) to vote for a hike last week. Katie Allen reports:

McCafferty appeared less worried about the negative impact on the UK and the inflation outlook from a global economic slowdown.

“I place more weight on some of the upside domestic risks to to inflation over the three-year horizon,” McCafferty told MPs.

“It’s clear that we have seen UK wages pick up relatively smartly in nominal terms over the course of the last six months, to a rate that is higher then the MPC would have expected six or nine months ago.”

He also expects a tightening labour market will mean nonimal wage growth accelerates further over 2016 and 2017 and that is something that will only be offset to “some extent” by a pick-up in productivity growth. McCafferty described himself as not hugley optimistic about productivity growth improving.

McCafferty.

McCafferty. Photograph: Rex Features/Rex Features

Asked about the relative merits of using quantitative easing (QE) or changes in the Bank rate to influence the economy, McCafferty noted policymakers had more experience on Bnk rate. He also said he would like to see the Bank rate become an effective marginal instrument again. “Over time, I would like to see Bank rate get up to a point at which we could cut it again were we to need to do so were the economy to slow or inflation to dip below target.”

The latest official figures showed inflation dipped into negative territory in September, at a rate of -0.1%. But McCaffterty sought to reassure MPs “I do not think we are entering a form of deflation” and noted there were few signs of changes in consumer behaviour as a result of stagnant prices.

Asked whether the latest news on inflation might influence him, McCafferty said it would not.

Nor would the latest warning about weaker global growth from the International Monetary Fund.

“In isolation, those things would not on their own change my view of the last few months,” he said.

Dorsey’s promise of no “corporate speak” in his email to Twitter employees about the job cuts fell at pretty much the first hurdle:

Twitter announces job cuts

Over in California, Twitter has just announced plans to cut around 8% of its workforce.

Jack Dorsey hasn’t wasted much time since becoming CEO again. In a letter to staff, he says Twitter will “part ways” with up to 336 workers in an attempt to grow faster.

It’s a tough decision, Dorsey says, but necessary as “the world needs a strong Twitter”….

As usual, the sound of job cuts goes down well on Wall Street – Twitter shares have risen in pre-market trading.

Updated

David Drumm, former head of Anglo Irish Bank.

David Drumm. Photograph: Dan Callister / Rex Features/Dan Callister / Rex Features

One of the bankers blamed for the financial crash in Ireland due to over-lending to property speculators faces extradition from the United States later today.

David Drumm, a former senior figure in the now defunct Anglo Irish Bank, will appear in a court in Boston where he has been living in exile since the institution collapsed in 2009 and hundreds of millions of taxpayers money was spent to nationalise it.

An American judge will decide today whether his arrest at the weekend in Massachusetts at the weekend was lawful. If the judge rules it was then this will pave the way for Drumm’s extradition back to Ireland where he will face up to 33 criminal charges including seven counts of forgery and seven counts of falsifying documents.

Drumm’s re-appearance in the Irish media is a reminder on Ireland’s Budget Day of the bad old days before the crash and the international bail out when bankers loaned billions to property speculators which in turn dangerous overstretched not only key business figures in Ireland but also overheated the Republic’s economy.

Our economics editor, Larry Elliott, has taken a look at today’s UK inflation data, which showed prices were 0.1% cheaper in September than a year ago.

We haven’t seen such weak price pressure in the British economy for many decades, he points out:

This is going to be a record-breaking year for UK inflation. Not since the interwar period has upward pressure on the cost of living been as persistently weak as it has since the start of 2015.

But this is being driven by cheaper commodities, as emerging markets slow down.

The Bank of England is therefore confronted with a situation in which the inflation rate for goods is currently -2.4% while the inflation rate for services is +2.5%.

So what happens next? Larry reckons prices will pick up in 2016, pushing inflation back towards the 2% target. Unless the global economy sours….

Global rich are getting richer

The top 1% of wealth holders now own half of all household wealth.

And that includes 120,000 “ultra-high net worth individuals” across the globe who own at least $50m of wealth each.

That’s according to Credit Suisse’s latest wealth report, which is packed with details about the distribution of wealth across the globe.

This year’s report shows that China’s stock market boom has helped to create more ultra-rich people there. Chinese multimillionaires and billionaires make up 8% of all UHNWI’s.

The group of millionaires below the $50m mark make up another 0.7% of global population, but owns 45.2% of global wealth.

But while the ultra rich have got even richer, others aren’t keeping pace.

Credit Suisse’s chief executive Tidjane Thiam says:

Notably, we find that middle-class wealth has grown at a slower pace than wealth at the top end. This has reversed the pre-crisis trend, which saw the share of middle-class wealth remaining fairly stable over time.

Here are some charts from the report, which is online here.

Credit Suisse wealth report 2015
Credit Suisse wealth report 2015

The top slice of this pyramid group is made up of 34 million US dollar millionaires, who comprise less than 1% of the world’s adult population, yet own 45% of all household wealth.

Credit Suisse estimates that 123,800 individuals within this group are worth more than $50m, and 44,900 have over $100m.

Credit Suisse wealth report 2015
Credit Suisse wealth report 2015

Updated

BoE’s new policymaker: It’s not time to raise rates yet

Hedge fund manager Gertjan Vlieghe

Hedge fund manager Gertjan Vlieghe, who is joining Britain’s MPC Photograph: Gertjan Vlieghe

UK parliament’s Treasury Committee has been hearing from the newest member of the Bank of England’s rate-setting Monetary Policy Committee, Jan Vlieghe, and it appears he is in no hury to vote for a hike.

This is the first time financial markets are getting a chance to hear what the new MPC member thinks about the UK economy, the global outlook and what should come next for interest rates in the UK.

After the Bank’s chief economist, Andy Haldane, recently raised the prospect of a rate cut – from what is already a record low of 0.5% – in the face several risks to the economic outlook, Vlieghe too is not ruling out even lower borrowing costs.

He is worried about the Bank meeting its government-set target for inflation at 2% on the consumer prices index (CPI), which fell to -0.1% this morning.

Asked if the BoE had run out of tools, Vlieghe said “we can cut rates if we judge it necessary” and that the Bank could also re-start its asset purchase programme, also known as quantitative easing (QE).

But he did also say “the next move in interest rates is more likely to be up than down.”

Vlieghe highlighted what he saw as risks to the UK from China’s downturn and the wider global slowdown.

“Clearly, the UK is an open economy, it has very important trade and financial links to the rest of the world. The UK is in reasonably good shape, growth is solid but not fantastic.

But we absolutely have to take into account we are operating in a global environment which is adverse, so to speak, and it’s a headwind to growth and it is one of the things that will prevent, I think, the UK economy from accelerating meaningfully from the pace we are seeing currently.”

He set out some upsides and downsides in the current domestic situation.

The “headwinds” were:

  • A strong pound
  • That the UK is operating in a weak global environment
  • An ongoing fiscal headwind:

But on the plus side:

  • There had been some improvement to productivity growth
  • A housing market recovery
  • Some improvement in real wages

“What we are trying to judge is how these play off against each other,” Vlieghe added.
As for when he might vote for rates to go higher, after already more than six years at their record low, the former hedge fund economist highlighted a host of low inflation numbers from the core rate to people’s inflation expectations.

Speaking after official figures showed headline inflation turned negative in September, Vlieghe said other prices indicators too were “all a little bit below where you’d want them to be to be confident of meeting the 2% inflation target in the medium term”.

“We need them to rise… I am not confident enough right now that they will rise in order to vote for an immediate rate hike. I think we have time. We can wait and see how this plays out and I would want to see a more convincing broad-based upward trajectory before I say OK, now I am confident enough that we will get to 2% eventually and therefore vote for a rate rise.”

Despite the evidence of today’s ZEW survey, German economy minister Sigmar Gabriel has claimed the diesel emissions scandal at Volkswagen won’t permanently damage the German economy.

Asked whether the VW crisis would hit the economic outlook for Germany, Europe’s largest economy, Gabriel said:

“No, I don’t expect the problems at Volkswagen to have lasting effects on the German economy.”

It may be too early to be sure, though. Yesterday, Britain’s transport secretary said Volkswagen deserves to suffer “substantial damage” because of the diesel emissions scandal.

Patrick McLoughlin told MPs that:

“They have behaved in an appalling way,”

“These [defeat] devices were made illegal in 1998 and it is unbelievable to think a company the size and reputation of VW have been doing something like this. They are going to suffer very substantial damage as a result and they deserve to.”

Pre-election giveaways expected in Irish 2016 budget

Irish budget 2016<br />A child’s piggy bank with euro notes as Ireland’s Budget 2016 is to be announced today by Finance Minister Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin. PRESS ASSOCIATION Photo. Picture date: Tuesday October 13, 2015. Only weeks or months from the next general election the electorate is in line for a softening-up with sources in the coalition Government billing the limited restoration to pay packets as “family friendly”. See PA story IRISH Budget. Photo credit should read: Brian Lawless/PA Wire

For the first time in seven years an Irish budget will actually be giving away something for its citizens after the years of tax hikes, brutal spending cuts, the humiliation of an IMF-EU bail out and the crash of the Celtic Tiger.

Irish Finance Minister Michael Noonan will get to his feet after 2pm inside the Dail and deliver a budget that is expected to include:

  • An increase in €3 to the weekly Old Age Pension
  • Tax cuts for the average worker that are expected to put €1000 back into their pockets
  • A cut of to the hated Universal Social Charge tax which was brought in to help plug the gap in public finances during the bail out times.
  • A €550 tax credit for the self-employed
  • The promise of 20,000 new public homes taken from the portfolio of properties nationalised after the financial crash and the bankruptcies of property speculators. Increases in child benefits and a freeze on prescription charges.

Of course it is hardly a coincidence that the Fine Gael-Labour goverment are facing into an election year in 2016 and will no doubt face accusations from opposition parties of trying to bribe their way back into power. In return the coalition will argue that they have done the “heavy lifting” after four years in office, carried out the painful adjustment policies that restored the nation’s finances and oversaw growth in the economy, and managed an exit from the bail out.
One thing is for sure – Enda Kenny and his administration are going to wait for at least three months before today’s budget measures sink into the public’s consciousness. The Taoiseach has finally decided that he won’t call the election until late February/early March. The wisdom of that decision to go late rests an awful lot on the impact of today’s Budget 2016.

VW emission scandal hits German morale

german flag

The Volkswagen diesel emissions scandal and economic problems in emerging markets have become a toxic cocktail for confidence within Germany, new data shows.

Morale among German investors and analysts fell sharply in October, according to the ZEW think tank, pulling its economic sentiment index down from 12.1 to just 1.9.

ZEW President Professor Clemens Fuest pinned the blame on VW, and troubles overseas:

“The exhaust gas scandal of Volkswagen and the weak growth of emerging markets has dampened economic outlook for Germany.”

ZEW’s assessment of the current situation in Germany also fell, by 12.3 points to 55.2 points.

Despite that, Fuest reckons Germany will not fall back into recession.

For the survey, ZEW asked analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

VW to slash investment by €1bn/year

Over in Germany, Volkswagen has just announced that it is cutting its investment programme by €1bn per year, as it grapples with the fallout from the diesel emissions scandal.

In a statement just released, VW announced a range of changes including shifting all its diesel cars to cleaner exhaust emissions systems, and making the next generation of its Phaeton car run on electricity..

Dr. Herbert Diess, who runs Volkswagen’s Passenger Brand, says:

“The Volkswagen brand is repositioning itself for the future.

We are becoming more efficient, we are giving our product range and our core technologies a new focus, and we are creating room for forward-looking technologies by speeding up the efficiency program.”

Here’s the key points from VW’s new strategic plan:

  • Accelerated implementation of the efficiency program creates room for reorientation
  • Streamlined processes leverage further cost-saving potential, including cuts in fixed costs
  • Investments to be reduced by 1 billion euros per year compared with planning – combined with prioritization of projects for the future
  • • Product decisions formulated
  • • New Phaeton will be electric
  • • New Modular Electric Toolkit planned

Updated

Over in parliament, MPs are beginning to quiz former hedge-fund economist Gertjan Vlieghe about his appointment to Britain’s Monetary Policy Committee. You can see it here. It could be quite tasty, as explained earlier….

September’s inflation rate is used to calculate a range of benefits payments in the UK.

Consumer expert Paul Lewis reports that these payments will now be frozen, as will other payments linked to the headline inflation rate.

Updated

Britain’s return to negative inflation isn’t a great surprise or a great calamity, says Jeremy Cook, chief economist at the international payments company, World First:

He reckons inflation will pick up sharply in 2016, once the recent slump in oil prices fades into history.

Headline inflation has been pressured for nearly a year now from falling energy and commodity prices but we must remember that base effects will see that initial drop in oil prices fall out of the calculations in the coming months.

Howard Archer of IHS Global Insight also sees UK interest rates on hold for longer.

With inflation back below zero, it’s hard to see Britain’s interest rates rising from their current record low before 2016.

Peter Cameron, Associate Fund Manager at EdenTree Investment Management, explains:

“Inflation is back in negative territory again and it’s very unlikely that we’ll see the Bank of England raise interest rates this side of Christmas. Although wage pressures are emerging and the impact of the falling oil price will soon start to drop out of the numbers, a rate hike would have a deflationary effect by pushing up Sterling.

At a time when the ECB is signalling it is ready to expand QE and the Fed is likely to delay its own rate lift-off into 2016, the Bank will be fearful of allowing Sterling to appreciate too much.”

Updated

There’s no sign of deflation in the British housing market. New data shows that prices rose by 5.2% across the country in August:

Osborne: This isn’t damaging deflation

UK chancellor George Osborne insists that Britain is not entering a period of ‘damaging deflation’:

Deflation is a protracted period in which prices fall in a downward spiral, and people stop spending because today’s items are going to be cheaper tomorrow.

The bigger picture is of a broadly flat inflation rate since the beginning of the year, says Richard Campbell, head of CPI at the Office for National Statistics.

“The main downward pressures on CPI came from clothing, which rose more slowly this September than in recent years, and falling petrol and diesel prices.”

The three reasons why UK inflation is negative again

Clothing and footwear prices rose by 2.8% between August and September this year, compared to 4% between the same 2 months a year ago. That pushed the inflation rate down, to 0.1% in September.

Fuel prices fell by 2.9% between August and September this year compared with a smaller fall of 0.6% between the same 2 months a year ago.

The ONS says:

The largest downward contribution came from petrol, with prices falling by 3.7 pence per litre between August and September this year compared with a fall of 0.8 pence per litre between the same 2 months a year ago. Diesel prices are now at their lowest level since December 2009, standing at 110.2 pence per litre.

And a price cut by British Gas also helped cut the cost of living.

Over to the ONS again:

Gas prices fell by 2.1% between August and September this year, compared with no change between the same 2 months a year ago, with price reductions from a major supplier.

UK inflation, the detail, September 2015

Food and fuel have played a key role in dragging UK inflation down in the last year.

Over the last year, food prices fell by 2.5% and prices of motor fuels fell by 14.9%, according to the ONS.

This chart confirms that the UK’s inflation rate has been bobbing around zero for most of this year.

UK inflation

Clothing and fuel prices push inflation negative

Here’s the key points from today’s inflation report:

  • The Consumer Prices Index (CPI) fell by 0.1% in the year to September 2015, compared to no change (0.0%) in the year to August 2015.
  • A smaller than usual rise in clothing prices and falling motor fuel prices were the main contributors to the fall in the rate.
  • The rate of inflation has been at or around 0.0% for most of 2015.

UK in negative inflation again

Here we go! UK inflation has turned negative again!

The Consumer prices index fell by 0.1% in September, the Office for National Statistics reports. That’s weaker than the zero reading that economists had expected.

It’s the first sub-zero reading since April.

More to follow

Crumbs! The pound has just taken a dive in the foreign exchange markets, dropping almost one cent against the US dollar.

Pound vs dollar

Pound vs US dollar today Photograph: Thomson Reuters

Traders may be calculating that September’s UK inflation reading, due in a moment, is weaker than expected. Could the inflation number possibly have leaked??

Updated

More signs of weakness in Germany – Berlin is expected to trim its estimate for growth this year to 1.7%, down from 1.8%.

Economy minister Sigmar Gabriel could announce the new forecast tomorrow, according to Reuters.

This follows a hattrick of bad economic data last week, with factory orders, industrial production and exports all declining, as emerging market problems hit Germany.

Inflation, a preamble

Just 30 minute to go until we get the Britain’s inflation date for September.

City economists broadly expect that the consumer prices index will remain flat for a second month, leaving inflation at zero. But a negative reading can’t be ruled out.

My colleague Katie Allen explains:

Falling pump prices and a cut in energy bills by British Gas are expected to have kept inflation at zero last month, putting little pressure on the Bank of England to raise interest rates from their record low any time soon.

Official figures on inflation due at 9.30am are forecast to show no change in the consumer prices index measure. Against the backdrop of tumbling global commodity prices, from food to oil, inflation in the UK has been at or close to zero since February, well below the Bank’s target of 2%.

While some have described low inflation as a sign of economic fragility, it relieves the pressure on household budgets after several years of wages falling in real terms following the financial crisis. The latest official figures on the jobs market on Wednesday are expected to put pay growth at 3.1%.

Here’s her preview:

Hedge fund manager Gertjan Vlieghe

MPs could give Gertjan Vlieghe, Britain’s newest interest rate setter, a rough ride when he appears before them in an hour’s time.

Vlieghe should expect some tough questions about his previous role as economist at a hedge fund (Brevan Howard Asset Management).

Vlieghe was appointed to the Bank of England in late July. He had originally hoped to remain a member of Brevan Howard’s long-term incentive plan, but was forced to exit it to avoid “any mistaken impression” of a conflict of interest.

Alan Clarke, an economist at Scotiabank in London, reckons that those concerns may dominate today’s hearing — as Brevan Howard Asset Management (like any hedge fund) could potentially make or lose money due to decisions taken at the BoE.

Clarke told Bloomberg:

“It’s probably right that happens because financial markets have not had a great reputation recently. Sadly, I think, that will overshadow what is an otherwise great appointment.”

Bloomberg economist Maxime Sbaihi predicts that today’s ZEW survey, due at 10am BST, will show economic confidence deteriorated in Germany this month.

Mining stocks hit by Chinese gloom

European stock markets are all falling this morning, as the 20% slide in Chinese imports last month spooks traders.

In London, the FTSE 100 has lost 36 points, or 0.6%, led by mining stocks such as Glencore (-4.5%).

FTSE 100 fallers

FTSE 100 fallers Photograph: Thomson Reuters

The French CAC shed 1%, while Germany’s DAX is down 0.6%.

Conner Campbell of SpreadEX explains:

A whopping 20% fall in Chinese imports in September didn’t get the day off to the best start, with that drop in demand sure to cause ripples of worry the world over.

Updated

Shares in SABMiller have jumped by 9% at the start of trading in London, to around £39.50.

That’s short of the £44 per share proposal which its board have accepted; the City may not be 100% convinced that AB InBev will pull this deal off.

SAB Miller shares

SAB Miller shares this morning Photograph: Thomson Reuters

AB InBev now has until 5pm on the 28th October to file a firm offer for SAB, having won the board round with its latest proposal.

The key is whether Colombia’s Santo Domingo family, which owns 14% of SABMiller, feels £44 per share is enough.

Updated

You know a deal is big when it moves the pound.

Here’s how sterling reacted to the news that AB INBev and SABMiller have agreed terms.

Pound vs US dollar

Pound vs US dollar today Photograph: Thomson Reuters

Updated

AB InBev and SABMiller agree terms on £68bn deal

File photo of a waiter serving a glass of beer ahead of an Anheuser-Busch InBev shareholders meeting in Brussels<br />A waiter serves a glass of beer ahead of an Anheuser-Busch InBev shareholders meeting in Brussels in this April 30, 2014 file photo. SABMiller, the world’s second largest brewer, has promptly rejected an improved offer from bigger rival Anheuser-Busch InBev, saying October 7, 2015, that its 68 billion-pound ($104 billion) valuation was insufficient. REUTERS/Yves Herman/Files

One of the biggest takeover battles in the City in recent years is heading to a climax this morning.

Anheuser-Busch InBev, the brewing giant behind Stella Artois and Budweiser, has announced it has “reached an agreement in principle on the key terms of a possible recommended offer” for its rival, SABMiller (producer of Grolsch, Peroni, Pilsner Urquell…).

Here’s the statement issued to the City.

At £44 per share, the deal values SABMiller at around £68bn — making it the biggest takeover of a UK company ever.

It’s not signed and sealed yet, though – it still needs the support of SAB’s shareholders. Yesterday, SAB rejected £43.50 per share, but the board has now calculated that it can’t turn down this new higher offer.

More here:

Updated

The impact of China’s slowdown will be felt around the globe, warns economist Cees Bruggemans.

The 20% tumble in Chinese imports last month means that growth is continuing to slow, says Yang Zhao, China economist at Nomura Holdings Inc. in Hong Kong.

He said (via Bloomberg)

“Import growth remained sluggish, suggesting weakening domestic demand, particularly investment demand

We maintain our view that GDP growth will decline to 6.7 percent in the third quarter.”

GDP growth was measured at 7.0% in the second quarter of 2015.

Updated

Chinese imports slump 20% as slowdown continues

The latest trade data from China has sent a shiver through the markets this morning.

Chinese imports slumped by over 20% year-on-year in September (in dollar terms), a worse performance than economists had expected. That means imports have now fallen for 11 months running, as the country’s economy has slowed.

Exports dipped by 3.7% — better than the 6% slide which was expected. But it’s the slump in imports that is alarming analysts, as it hints at more problems building in China.

Reuters has more details:

Imports plunged 20.4% in September from a year earlier to $145.2bn, customs officials said, due to weak commodity prices and soft domestic demand.

These factors will complicate Beijing’s efforts to stave off deflation, one of the headwinds threatening the world’s second biggest economy.

The news helped to drive shares down in Asia, where Japan’s Nikkei fell over 1% overnight.

Commodity prices also weakened, as investors calculated that China would be importing less raw materials in the months ahead.

Updated

Introduction: Has UK inflation turned negative again?

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

After the glamour and drama of yesterday’s Nobel economics prize, we’re back into the gritty world of data this morning.

At 9.30am, the latest UK inflation figures for September could show that the cost of living is falling again (at least according to the Consumer Price Index).

It was 0% in August, mainly due to cheaper energy costs, and some economists think it could have fallen below zero last month.

Then at 10am, Germany’s ZEW economic sentiment index will highlight if the emerging market slowdown and the Volkswagen emissions scandal is hurting Europe’s largest economy.

Also coming up…

At 10am, MPs on the Treasury Select Committee will grill Gertjan Vlieghe, the newest member of the Bank of England’s monetary policy committee.

And the banking reporting season will kick off later, with results from JPMorgan Chase, Citigroup and Wells Fargo.

Updated

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Published via the Guardian News Feed plugin for WordPress.

German factories suffer in August. VW is preparing to scrap non-essential spending as it battles with the emissions scandal. VW boss: “This won’t be painless”. Non-essential VW investment in doubt. Institute of Directors demand early EU vote…

 

Powered by Guardian.co.ukThis article titled “Volkswagen prepares for ‘painful’ changes; German factory orders slide – business live” was written by Graeme Wearden, for theguardian.com on Tuesday 6th October 2015 12.40 UTC

America’s trade gap has hit a five-month high, in another sign that global economic growth may be weakening.

US imports rose by 1.2% in August, fuelled by a 3% increased in purchases from China.

But exports shrank by 2%, to their lowest point since October 2012. That indicates weakness in key markets such as emerging nations and Europe. It could also reflect the impact of the stronger US dollar, which has gained against other currencies.

This drove the US Trade Deficit up to $48.33bn in August, up from $41.81bn a year ago.

The VW scandal hasn’t hurt the UK auto industry yet – car sales hit an all-time high in September, according to new data today.

Petrol-powered cars saw the strongest demand; suggesting some consumers might be more wary about diesel now.

Updated

Volkswagen boss: Painful changes are ahead

A VW employee enters the Volkswagen factory site through Gate 17 in Wolfsburg, Germany, Oct. 6, 2015. For Volkswagen, the cost of its cheating on emissions tests in the U.S. is likely to run into the tens of billions of dollars and prematurely end its long-sought status as the world’s biggest carmaker. (Julian Stratenschulte/dpa via AP)

A VW employee arriving at the Wolfsburg factory today. Photograph: Julian Stratenschulte/AP

Workers at Volkswagen have been warned to expect painful changes as the German carmaker tackles the emissions scandal.

New CEO Matthias Müller told staff that non-essential investments will be delayed or abandoned as it wrestles with the crisis.

Müller told today’s meeting in Wolfsburg that:

“Technical solutions to the problems are within view. However, the business and financial consequences are not yet clear”.

“Therefore we are putting all planned investments under review. What is not urgently needed will be scrapped or delayed”.

“And therefore we will adjust our efficiency programme. I will be very open: this won’t be painless.”

Muller’s warning came after works council boss Bernd Osterloh predicted that bonus payments to workers are now at risk too.

Updated

Our Katie Allen confirms that Britain’s directors do not march on an empty stomach, or an environmentally friendly one….

Update: IoD delegates have now plonked themselves outside in the sun — making a nice photo for visiting tourists.

Updated

Delegates at the Institute of Directors’ conference are tucking into their legendary lunchboxes — a chance to refuel after a morning discussing weighty topics like Europe and migration.

There’s an astonishing amount of packaging on display too — here’s a photo of just one box:

Perhaps Britain’s new tax on plastic bags should be extended? £10 per plastic lid might cover it….

Here’s a couple of photos of Volkswagen staff arriving in Wolfsburg, where they were briefed on the emissions crisis today:

Volkswagen<br />06 Oct 2015, Wolfsburg, Germany --- VW employees enter the Volkswagen factory site through Gate 17 in Wolfsburg, Germany, 06 October 2015. Photo: JULIAN STRATENSCHULTE/dpa --- Image by © Julian Stratenschulte/dpa/Corbis

VW employees enter the Volkswagen factory site through Gate 17 in Wolfsburg, Germany. Photograph: Julian Stratenschulte/dpa/Corbis
Volkswagen<br />06 Oct 2015, Wolfsburg, Germany --- VW employee Birgit Schuettke shows off an IG Metall shirt written with ‘One Team. One Family.’ at the end of the works assembly at Gate 17 at the Volkswagen factory in Wolfsburg, Germany, 06 October 2015. Photo: JULIAN STRATENSCHULTE/dpa --- Image by © Julian Stratenschulte/dpa/Corbis

Volkswagen employee Birgit Schuettke shows off an IG Metall shirt written with ‘One Team. One Family.’ at the end of the works assembly at Gate 17. Photograph: Julian Stratenschulte/dpa/Corbis

Brewing firm SABMiller has turned down an ‘informal offer’ from rival Anheuser-Busch InBev, according to a Bloomberg newsflash.

That’s sent SAB’s shares down 3%, to the bottom of the FTSE 100 (budge up, Glencore!).

This come three weeks after AB INBev, which brews Stella Artois and Budweiser, approached SAB, whose brands including Grolsch and Peroni.

Any deal would be huge, creating a new company worth perhaps $250bn (£160bn).

AB InBev has just a week to make a firm bid or walk away, so it’s not Last Orders in this story, yet.

The works council boss at Volkswagen, Bernd Osterloh, has told staff that the company will have to review all its investments following the emissions crisis.

He also predicted that their pay packets will suffer too.

Osterloh gave the warning at today’s staff meeting in Wolfsburg (see earlier post)

Reuters has the story:

All investments at Volkswagen will be placed under review, the carmaker’s top labour representative said on Tuesday, as the embattled German group grapples with the fallout of its diesel emissions scandal.

“We will need to call into question with great resolve everything that is not economical,” Bernd Osterloh, head of VW’s works council told more than 20,000 workers at a staff gathering in Wolfsburg, Germany.

The scandal is not yet having consequences for jobs at VW, which employs 60,000 people at its main factory, but will impact earnings at the core autos division as well as bonus payments to workers, Osterloh said.

VW: eight million cars sold in EU with cheat software

Volkswagen Wrestles With Diesel Emissions Scandal<br />BERLIN, GERMANY - OCTOBER 06: The Volkswagen logo is visible under coloured lights on the front of a Volkswagen Passat 2.0 turbodiesel passenger car affected by the Volkswagen diesel emissions software scandal on October 6, 2015 in Berlin, Germany.

Volkswagen has revealed that it sold eight million cars with defective emissions testing software across Europe.

It made the admission in a letter to German MPs, dated last Friday.

That’s the bulk of the 11 million cars affected, including almost 500,000 in the US.

We already know that 1.2m cars sold in the UK contained software to beat emission tests, plus 2.8m in Germany.

Updated

Looks like Lord Lawson got the last blow in:

They’re still arguing…

Lawson and Mandelson on Europe

Back at the IoD conference, Nigel Lawson and Peter Mandelson are having a brisk exchange of views over Britain’s membership of the EU (Lord M is pro, Lord L is con).

Katie Allen is impartial, and tweeting the key points from the Albert Hall:

Mining shares are leading the fallers in London this morning.

The 1.8% drop in German factory orders in August isn’t helping the mood.

Investors are concerned that falling demand from emerging markets could increase the raw materials glut, which has already driven commodity price down to multi-year lows.

Biggest fallers on the FTSE 100, October 05 2015

Biggest fallers on the FTSE 100 this morning. Photograph: Thomson Reuters

Updated

The Institute of Directors’ chief is also rebuking UK politicians for playing the migrants card:

Business leaders demand early EU referendum

Over at London’s Royal Albert Hall, business leaders are gathering for the annual Institute of Directors convention.

The 2,000 or so delegates will be hearing first from IoD head Simon Walker. As we reported this morning, Walker will use his speech to warn prime minister David Cameron that waiting till 2017 to hold the referendum on EU membership risks turning it into a confidence vote in the government.

He wants the referendum brought forward to 2016.

Walker will tell the audience that:

“By 2017 this government will have implemented spending cuts that, while necessary, will not be popular. The third year of an election cycle is a difficult time for any administration. There is a real possibility that a 2017 referendum would be a short-term judgment on the government: a chance to whack the political elite.”

Next up, just after 10am is a debate on Britain’s EU membership between former Labour business secretary Lord Mandelson and former chancellor Lord Lawson, who last week announced he will lead a Conservative party campaign to leave the EU.

Also making an appearance, is chief executive of Lloyds Banking Group, Antonio Horta-Osorio, just a day after chancellor George Osborne announced the sale of the taxpayers’ remaining stake in the bailed out bank. The bank boss is talking on a panel under the banner “The future of banking: How to win back trust in a changing world.”

Alongside its trailing of Walker’s EU referendum thoughts, the IoD is also using its convention to adds its thoughts to the never-ending UK productivity puzzle debate.

Policymakers are looking at the puzzle all wrong, according to the business group’s new report, Balancing UK Productivity and Agility. It wants more focus on “agility” to ensure “new ideas and technologies spread throughout the economy as quickly as possible”.

It warns factors that have driven productivity gains in the past, such as large firms realising economies of scale and developing deep specialisations in certain areas, are no longer relevant for the UK and “it would be foolish to try to recreate them”.

IoD chief economist James Sproule explains:

“In pursuing the nirvana of steadily-rising productivity, one has to bear in mind how our economy is changing, how people choose to work, and what future economic success will look like.

We need to ask if too close a focus on productivity numbers without considering wider factors could pose a long-term risk to the economy and prosperity.”

His report echoes scepticism over how much can be gleaned from current productivity data and what many economists see as a narrow focus on mere output per hour measures.

Updated

Back in the UK, house prices dipped by 0.9% last month, according to mortgage lender Halifax.

But that’s little relief to those hoping to get a house (or buy a bigger one. Prices are up around 8.9% year-on-year. On a quarter-on-quarter basis, they’ve been gaining since the start of 2013.

Jonathan Portes

Interesting…. Jonathan Portes, one of the UK’s better known economists, has left his post as director of the National Institute of Economic and Social Research thinktank.

There doesn’t appear to be an official announcement, but NIESR has updated its website to show that Dame Frances Cairncross is now ‘interim director’.

Portes (who’s staying at NIESR as a research fellow until April) is known for using his statistical nous to fact-checking erroneous claims in the papers, especially over the impact of fiscal policy on poorer households.

But he also raised hackles among right wingers for his comments on austerity; they claimed loudly that Portes (once PM Gordon Brown’s chief economist) was too partisan for an independent thinktank:

Those spats culminated in an epic row with historian Niall Ferguson over an article in the Financial Times, which spawned an 16-page adjudication – and no clear winner (although the FT cleared itself of any failings, of course)

Updated

A general view of Wolfsburg, home to German carmaker Volkswagen.

A general view of Wolfsburg, home to German carmaker Volkswagen. Photograph: Carsten Koall/Getty Images

Over in Wolfsburg, thousands of Volkswagen employees are meeting at company HQ to hear from their new CEO.

Matthias Müller will brief staff on the ongoing emissions scandal, as Volkswagen strives to find a solution after selling millions of vehicles containing ‘defeat devices’ to fool emissions tests.

Müller was appointed as CEO less than two weeks ago, after Martin Winterkorn stepped down following the revelations that VW engines contained illicit software to hide how much noxious gases they produced.

It emerged last night that the probe into the VW scandal centres on two top engineers. Ulrich Hackenberg, Audi’s chief engineer, and Wolfgang Hatz, developer of Porsche’s Formula One and Le Mans racing engines, were among the engineers suspended last week, according to the WSJ.

European stock markets are being dragged down by the news that German factory orders slid in August.

The main indices are all in the red in early trading, with Germany’s DAX shedding almost 0.5%.

European stock markets, October 06 2015

Investors may also be anxious about the eurozone, after Brussels warned Spain last night that i’s 2016 budget isn’t good enough, and needs more spending cuts.

Conner Campbell of SpreadEx explains:

A huge miss in German factory orders (complete with a downward revision for last month’s figure) seems to have taken the edge off of the Eurozone, following a Eurogroup meeting yesterday that hinted at more trouble for the currency union going forwards.

European Commissioner Pierre Moscovici warned that Spain will miss its headline targets in 2015 and 2016, providing yet another bearish note from the country that already includes a 21 month low manufacturing figure, a 9 month low services PMI, a separatist victory in Catalonia AND an impending general election in September.

German economy minister: Global demand is ‘less reliable’

Here’s Associated Press’s early take on the decline in German factory orders:

German factory orders dropped for the second consecutive month in August, led by a drop in demand from countries outside the eurozone and lower demand at home.

The Economy Ministry said Tuesday that orders were down 1.8% in seasonally adjusted terms compared with the previous month. That followed a 2.2% drop in July.

Orders from other countries in the euro area were up 2.5%, following a smaller gain in July. However, demand from inside Germany was off 2.6% percent and orders from outside the eurozone dropped 3.7%.

The Economy Ministry noted that demand from countries beyond the euro area appears to be “less reliable at present.”

Germany has Europe’s biggest economy and is one of the world’s biggest exporters.

Updated

This chart confirms that German industrial orders have tailed off in the last couple of months, after a decent start to the year.

German industrial orders

German industrial orders Photograph: Destatis

The red line shows the total (or Insgesamt), while the blue line shows domestic orders (Inland) and the yellow line shows overseas orders (Ausland).

German factories suffer sliding orders

German factory orders fell unexpectedly in August, fuelling fears that Europe’s largest economy is being hit by slowing global growth.

Industrial orders slid by 1.8%, according to the economy ministry, dashing expectations of a 0.5% rise.

The decline was mainly due to falling demand from outside the eurozone, according to the ministry (which also attribute some of the decline to holidays). Orders from non-euro countries slid by 3.7%, while domestic orders shrank by 2.6%.

This is before the Volkswagen emissions scandal struck, hurting confidence in German industry.

July’s industrial orders has been revised down too, from -1.4% to -2.2%; again, driven by a decline in overseas demand.

It’s a worrying sign, suggesting ripples from the emerging market slowdown are now lapping against the eurozone.

Updated

The Agenda: Stimulus hopes keep markets buoyant

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

There’s a relaxed mood in the markets this morning, as investors become increasingly convinced that central banks won’t be able to tighten monetary policy anytime soon.

European stock markets are expected to inch higher after the Dow Jones industrial average jumped by 304 points overnight.

Last Friday’s disappointing US jobs report has probably helped to kick the first American interest rate rise into 2016.

Jasper Lawler of CMC Markets explains:

The weaker than expected US jobs report significantly reduces the chance of a rate hike this year from the Federal Reserve.

Europe and China could also be on the verge of adding stimulus with deflation and low growth possibly enough motivation for the respective central banks to intervene before the end of 2015.

Over in Japan, the Nikkei has closed 1% higher, as traders in Tokyo anticipate more stimulus from their own central bank.

Also coming up….

The bosses of Britain’s top companies will be gathering at the Institute of Director’s annual bash in London. They’ll be discussing Europe and the refugee crisis (among other topics).

Six former City brokers are going on trial over allegation that they rigged the benchmark Libor interest rate.

And in the City, we’ll be looking at results from budget airline easyJet and pastry purveyor Greggs…..

Updated

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Powered by Guardian.co.ukThis 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:

Updated

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 service sector PMI
Market service sector PMI Photograph: Markit/Markit

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.

Markit composite index
Markit composite index Photograph: Markit/Markit

Updated

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:

Britain’s recovery slowed last month, according to the latest survey of its dominant service sector.

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%.

Two dozen Pacific-Rim countries are celebrating the creation of a major new trade partnership.

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.

TOPSHOTS Director of Air France in Orly Pierre Plissonnier, nearly shirtless, tries to cross a fence, helped by security and police officers, after several hundred of employees invaded the offices of Air France, interrupting the meeting of the Central Committee (CCE) in Roissy-en-France, on October 5, 2015. Air France-KLM unveiled a revamped restructuring plan on October 5 that could lead to 2,900 job losses after pilots for the struggling airline refused to accept a proposal to work longer hours. AFP PHOTO / KENZO TRIBOUILLARDKENZO TRIBOUILLARD/AFP/Getty Images
Air France director Pierre Plissonnier, nearly shirtless, tries to cross a fence after several hundred of employees invaded the firm’s offices today. Photograph: Kenzo Tribouillard/AFP/Getty Images

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.

Updated

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.

He writes:

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.

More here:

Updated

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:

Updated

Greeks brace for austerity budget

Prime Minister of Greece Alexis Tsipras in parliament last night.
Prime Minister of Greece Alexis Tsipras in parliament last night. Photograph: George Panagakis/Pacific Pres/BI/.

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.

Updated

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.”

Air France assistant director long-haul flight, Pierre Plissonnier, left, is protected by security guards as he flees the Air France headquarters at Roissy Airport, north of Paris, France, after scuffles with union activists. Monday, Oct. 5, 2015. Union activists protesting proposed layoffs at Air France stormed the headquarters during a meeting about the job cuts, zeroing in on two managers who had their shirts torn from their bodies, scaled a fence and fled under police protection. (AP Photo/Jacques Brinon)
Air France assistant director long-haul flight, Pierre Plissonnier, left, is protected by security guards as he flees the Air France headquarters. Photograph: Jacques Brinon/AP

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.”

Employees of Air France shout slogans inside the company headquarters in Roissy-en-France, on October 5, 2015, interrupting the launch of the plan at a central committee meeting.
Employees of Air France shout slogans inside the company headquarters in Roissy-en-France, on October 5, 2015, interrupting the launch of the plan at a central committee meeting. Photograph: Kenzo Tribouillard/AFP/Getty Images

Fortunately, Xavier Broseta and Pierre Plissonnier did manage to escape the demonstrators, sans chemises.

Air France director of Human Ressources, Xavier Broseta, right, and Air France assistant director long-haul flight, Pierre Plissonnier, center, are protected by a police officer as they flee Air France headquarters at Roissy Airport, north of Paris, after scuffles with union activist, Monday, Oct. 5, 2015. Union activists protesting proposed layoffs at Air France stormed the headquarters during a meeting about the job cuts, zeroing in on two managers who had their shirts torn from their bodies, scaled a fence and fled under police protection. (AP Photo/Jacques Brinon)

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.

Director of Air France in Orly Pierre Plissonnier, nearly shirtless, runs away from the demonstrators, helped by security officers, after several hundred of employees invaded the offices of Air France, interrupting the meeting of the Central Committee (CCE) in Roissy-en-France, on October 5, 2015. Air France-KLM unveiled a revamped restructuring plan on October 5 that could lead to 2,900 job losses after pilots for the struggling airline refused to accept a proposal to work longer hours. AFP PHOTO / KENZO TRIBOUILLARDKENZO TRIBOUILLARD/AFP/Getty Images
Pierre Plissonnier, the director of Air France in Orly, running away from the demonstrators, helped by security officers, after several hundred of employees invaded the offices of Air France. Photograph: Kenzo Tribouillard/AFP/Getty Images
Director of Air France in Orly Pierre Plissonnier, nearly shirtless, walks away from the crowd, helped by security and police officers, after several hundred of employees invaded the offices of Air France, interrupting the meeting of the Central Committee (CCE) in Roissy-en-France, on October 5, 2015. Air France-KLM unveiled a revamped restructuring plan on October 5 that could lead to 2,900 job losses after pilots for the struggling airline refused to accept a proposal to work longer hours. AFP PHOTO / KENZO TRIBOUILLARDKENZO TRIBOUILLARD/AFP/Getty Images
Plissonnier walking away from the crowd. Photograph: Kenzo Tribouillard/AFP/Getty Images

Human resources boss Xavier Broseta is pictured trying to climb a fence to flee.

Xavier Broseta, Executive Vice President for Human Resources and Labour Relations at Air France, is evacuated by security after employees interrupted a meeting at the Air France headquarters building in Roissy<br />A shirtless Xavier Broseta (C), Executive Vice President for Human Resources and Labour Relations at Air France, is evacuated by security after employees interrupted a meeting with representatives staff at the Air France headquarters building at the Charles de Gaulle International Airport in Roissy, near Paris, France, October 5, 2015.” width=”1000″ height=”662″ class=”gu-image” /><br />
<figcaption> <span class=Xavier Broseta, Executive Vice President for Human Resources and Labour Relations at Air France, is evacuated by security. Photograph: Jacky Naegelen/Reuters
Human Resources Assistant Manager of Air France Xavier Broseta, shirtless, tries to cross a fence, helped by security and police officers, after several hundred of employees invaded the offices of Air France, interrupting the meeting of the Central Committee (CCE) in Roissy-en-France, on October 5, 2015. Air France-KLM unveiled a revamped restructuring plan on October 5 that could lead to 2,900 job losses after pilots for the struggling airline refused to accept a proposal to work longer hours. AFP PHOTO / KENZO TRIBOUILLARDKENZO TRIBOUILLARD/AFP/Getty Images
Broseta then tried to cross a fence, helped by security and police officers. Photograph: Kenzo Tribouillard/AFP/Getty Images

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.

Updated

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.

European stock markets, 11am October 05 2015
European stock markets, 11am today. Photograph: Thomson Reuters

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.

More here:

Deloitte survey of CFOs
Uncertainty is rising…. Photograph: Deloitte/Guardian

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.

Noble says:

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.

UK service PMI, September 2015
The blue line = today’s PMI survey Photograph: Markit

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.

Williamson says:

“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.”

Updated

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:

Eurozone PMIs, September 2015
Eurozone PMIs, September 2015 Photograph: Markit

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:

Top risers on the FTSE 100
Top risers on the FTSE 100 this morning. Photograph: Thomson Reuters

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.

Updated

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.

European stock markets, October 05 2015

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.”

Glencore’s shares have rallied by 8% in early trading in London, fuelled by that takeover talk and speculation that it could sell its agricultural business.

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…..

Updated

Treasury to sell £2bn Lloyds stake to public

Lloyds Bank shares to go on sale to the British public<br />epa04963989 (FILE) A file photograph showing a sign outside a Lloyds bank branch in London, Britain, 23 October 2014. According to news reports, on 05 October 2015 the British Chancellor of the Exchquer, Geroge Osbourne, has announce that 2 billion GBP or 2.7 billion euro worth of Lloyds Bank shares to go on sale to the British public. EPA/WILL OLIVER” width=”1000″ height=”631″ class=”gu-image” /> </figure>
<p><strong>Seven long years after bailing out Lloyds Banking Group, the UK government is finally selling some of its remaining stake to the public.</strong></p>
<p><a href=The Treasury has announced plans to sell £2bn of Lloyds shares in a retail offering. Anyone taking part will get a 5% discount, plus a bonus shares for every 10 they hold for at least a year.

The value of the bonus share incentive will be capped at £200 per investor. People applying for investments of less than £1,000 will be prioritised.

The move brings a bit of Thatcherite glamour (?!) to the Conservative Party conference, where delegates fondly remember the “Tell Sid” privatisation fetish drive of the 1980s.

But as the Economist’s Stan Pignal points out, discounted share sales benefit some rather more than others….

Updated

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.

Their commodity editor Andrew Critchlow wrote:

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….

Updated

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