China

So far, 2016 has seen some dramatic falls already, but Bank of Japan’s negative interest rates put some hope back into the global economy. The yen fell and markets reacted positively to the news of more support from a major central bank…

Powered by Guardian.co.ukThis article titled “Global markets end tumultuous month on a high” was written by Justin McCurry, Dominic Rushe and Katie Allen, for The Guardian on Friday 29th January 2016 20.24 UTC

Global markets have ended a difficult month on a stronger note after the Bank of Japan stepped in to boost its economy with negative interest rates.

However, weak economic growth figures in the US underscored the scale of a global slowdown that has rattled investors.

Policymakers at Japan’s central bank stunned markets with a narrow vote to impose a 0.1% fee on deposits left with the Bank of Japan (BoJ) – in effect a negative interest rate. The central bank was spurred into action as volatile markets, flagging global growth and a downturn in China threatened major economies around the world.

In the US, news that the economy barely grew in the final three months of 2015 prompted speculation that its central bank would rein in plans to raise interest rates this year, having tightened borrowing costs for the first time in almost a decade in December. GDP rose at an anaemic annual rate of 0.7% as consumers and businesses cut back on spending, while US exports were hurt by weaker overseas markets.

Rob Carnell, economist at ING Financial Markets, said: “All in all, these GDP data support the sense given by recent monthly numbers that the US economy lost momentum into the end of 2015. We are struggling to see how this story is reversed in the coming quarters.”

Stock market investors were cheered by the prospect of US interest rates rising at a slower pace and by the Japanese move, which followed the similarly aggressive precedent set by the European Central Bank (ECB) in June 2014. The negative rate is designed to encourage commercial banks to use excess reserves – which they normally keep with the central bank – to lend to businesses instead.

The radical intervention provided an immediate boost to stock markets around the world after a dramatic start to the year that saw trillions of dollars wiped off their value in a matter of days. On Friday, the FTSE 100 in London closed up 2.6% at 6,084, to be back within a whisker of its starting level for 2016 of 6,242. That rise was mirrored around European bourses and followed a rally in Asian stock markets, where Japan’s Nikkei jumped 2.8% to a two-week high. At the time of the London close, Wall Street was also higher, with the Dow Jones industrial average up 1.7%.

Chinese shares also rallied following the Japanese rate move but still suffered their biggest monthly fall for seven years. The Shanghai Composite Index has lost 22.6% since the start of the year.

The surprise negative rates decision came just days after the BoJ’s governor, Haruhiko Kuroda, suggested he had dismissed any drastic easing measures to boost business confidence.

On Friday, the bank said it had not ruled out a further cut. “The BoJ will cut the interest rate further into negative territory if judged as necessary,” it said in a statement.

It said the move was intended to lessen the risk to Japanese business confidence from turbulence in the global economy, a week after data showed the Chinese economy had grown at its slowest pace for a quarter of a century in 2015.

The ECB held back from injecting more electronic cash into markets at its meeting this month but it too fired up share prices with a promise to consider more action in March.

The prospect of central banks pumping more stimulus into a struggling global economy has also helped stabilise oil prices. Brent crude, which earlier in January hit a 13-year low below $28 a barrel, stood at about $33.86 on Friday. It is still down 30% from a year ago.

Highlighting global unease about the global outlook following China’s slowdown, gold prices have gained almost 5% in January.

Friday’s estimate of US GDP from the Commerce Department was less than half the 2% annual growth rate in the third quarter and was the weakest showing since a severe winter reduced growth to a 0.6% annual rate in the first quarter of 2015.

Economists cautioned that this early estimate could yet be revised but said it still pointed to global headwinds buffeting the world’s biggest economy and suggested the US Federal Reserve would not go ahead with all four interest rate rises slated for this year. Some said the latest signs of a US slowdown left the US central bank looking unwise after December’s rate rise.

“The GDP growth slowdown sheds a rather critical light on the Fed’s decision to raise interest rates in December,” said Nina Skero, economist at the Centre for Economics and Business Research.

“For the sake of credibility, it is unlikely that the Fed will reverse its December decision, but rates are likely to stay at their current level until 2017.”

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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 markets rise as investors welcome boost from cheaper credit in China and prospects for further delay to Federal Reserve rate hike in US. The unexpected rate cut, the sixth since November last year, reduced the main bank base rate to 4.35%…

 

Powered by Guardian.co.ukThis article titled “China interest rate cut fuels fears over ailing economy” was written by Phillip Inman Economics correspondent, for The Guardian on Friday 23rd October 2015 13.24 UTC

China fuelled fears that its ailing economy is about to slow further after Beijing cut its main interest rate by 0.25 percentage points.

The unexpected rate cut, the sixth since November last year, reduced the main bank base rate to 4.35%. The one-year deposit rate will fall to 1.5% from 1.75%.

The move follows official data earlier this week showing that economic growth in the latest quarter fell to a six-year low of 6.9%. A decline in exports was one of the biggest factors, blamed partly by analysts on the high value of China’s currency, the yuan.

The rate cut sent European stock markets higher as investors welcomed the boost from cheaper credit in China, together with the hint of further monetary easing by the European Central Bank president, Mario Draghi, on Thursday.

Investors were also buoyed by the likelihood that the US Federal Reserve would be forced to signal another delay to the first US rate rise since the financial crash of 2008-2009 until later next year.

The FTSE 100 was up just over 90 points, or 1.4%, at 6466, while the German Dax and French CAC were up almost 3%.

The People’s Bank of China’s last rate cut in August triggered turmoil in world markets after Beijing combined the decision with a 2% reduction in the yuan’s value. Shocked at the prospect of a slide in the Chinese currency, investors panicked and sent markets plunging.

Some economists have warned that the world economy is about to experience a third leg of post-crash instability after the initial banking collapse and eurozone crisis. The slowdown in China, as it reduces debts and a dependence for growth on investment in heavy industry and property, will be the third leg.

World trade has already contracted this year with analysts forecasting weaker trade next year. The International Monetary Fund (IMF) in July trimmed its forecast for global economic growth for this year to 3.1% from 3.3% previously, mainly as a result of China’s slowing growth. The Washington-based fund also warned that the weak recovery in the west risks turning into near stagnation.

At its October annual meeting, it said growth in the advanced countries of the west is forecast to pick up slightly, from 1.8% in 2014 to 2% in 2015 while growth in the rest of the world is expected to fall from 4.6% to 4%.

Sanjiv Shah, chief investment Officer of Sun Global Investments, said: “The Chinese decision indicates that the authorities are clearly worried about the slowdown in the pace of economic growth and have decide to engage in more pre-emptive action. The [People’s Bank of China] has cut benchmark rates and reduced banks’ reserve requirements as well as scrapping deposit controls.”

But Mark Williams, chief Asia economist at Capital Economics, remained upbeat about the prospects for China’s sustained growth, arguing that the cut in interest rates was part of a longer-term strategy and not a reaction to deteriorating growth.

“The key point is that we shouldn’t take today’s announcement as evidence that policymakers have grown more concerned about the economy. Instead, this is a controlled easing cycle that underlines how China’s policymakers, unlike many of their peers elsewhere, still have room for policy manoeuvre,” he said.

“Admittedly, we’re still waiting for clear evidence of an economic turnaround – September’s activity data still don’t show any great improvement. Nonetheless, with more stimulus in the pipeline, we still believe the economy will look stronger soon.”

Corporations considered bellwethers of the global economy have also warned of a sharp slowdown. Caterpillar, the industrial equipment manufacturer, has seen profits slide over the last year. AP Moller-Maersk, the shipping firm cut its 2015 profit forecast by 15% on Friday, blaming a slowdown in the container shipping market.

The Danish conglomerate operates Maersk Line, the world’s largest container shipping company which transports roughly 20% of all goods on the busiest routes between Asia and Europe.

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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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Finance institute forecasts net capital outflow from emerging markets for first time since 1988 leaving states vulnerable to capital drought. The IIF’s analysts say the current reversal is the latest wave of a homegrown downturn…

Powered by Guardian.co.ukThis article titled “Global investors brace for China crash, says IIF” was written by Heather Stewart, for theguardian.com on Thursday 1st October 2015 18.34 UTC

Global investors will suck capital out of emerging economies this year for the first time since 1988, as they brace themselves for a Chinese crash, according to the Institute of International Finance.

Capital flooded into promising emerging economies in the years that followed the global financial crisis of 2008-09, as investors bet that rapid expansion in countries such as Turkey and Brazil could help to offset stodgy growth in the debt-burdened US, Europe and Japan.

But with domestic investors in these and other emerging markets squirrelling their money overseas, at the same time as international investors calculate the costs of a sharp downturn in Chinese growth, the IIF, which represents the world’s financial industry, said: “We now expect that net capital flows to emerging markets in 2015 will be negative for the first time since 1988.”

capital flows to emerging markets set to turn negative

Capital flows to emerging markets look set to turn negative. Photograph: IIF

Unlike in 2008-09, when capital flows to emerging markets plunged abruptly as a result of the US sub-prime mortgage crisis, the IIF’s analysts say the current reversal is the latest wave of a homegrown downturn.

“This year’s slowdown represents a marked intensification of trends that have been underway since 2012, making the current episode feel more like a lengthening drought rather than a crisis event,” it says, in its latest monthly report on capital flows.

The IIF expects “only a moderate rebound” in 2016, as expectations for growth in emerging economies remain weak.

Mohamed El-Erian, economic advisor to Allianz, responding to the data, described emerging markets as “completely unhinged”, and warned that US growth may not be enough to rescue the global economy. “It’s not that powerful to pull everybody out,” he told CNBC.

Capital flight from China, where the prospects for growth have deteriorated sharply in recent months, and the authorities’ botched handling of the stock market crash in August undermined confidence in economic management, has been the main driver of the turnaround.

“The slump in private capital inflows is most dramatic for China,” the institute says. “Slowing growth due to excess industrial capacity, correction in the property sector and export weakness, together with monetary easing and the stock market bust have discouraged inflows.”

At the same time, domestic Chinese firms have been cutting back on their borrowing overseas, fearing that they may find themselves exposed if the yuan continues to depreciate, making it harder to repay foreign currency loans.

The IIF’s analysis shows that portfolio flows – sales of emerging market stocks and bonds – have been more important than the reversal of foreign direct investment (for example, multinationals closing down plants or business projects) in the recent shift.

It warns that several countries are likely to find their economies particularly vulnerable to this capital drought.

“Countries most in jeopardy from emerging-market turbulence include those with large current account deficits, questionable macro-policy frameworks, large corporate foreign exchange liabilities, and acute political uncertainties. Brazil and Turkey combine these features.

This warning echoed a one from the International Monetary Fund last week, that rising US interest rates could unleash a new financial crisis, as firms in emerging economies find themselves unable to service their debts.

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Shanghai stock market closes at lowest level since last July, after China’s economy grows by joint-slowest rate since 1999. Chinese GDP data- what the analysts say about the world’s second-largest economy. Irish bonds rally after Moody’s upgrade…

 


Powered by Guardian.co.ukThis article titled “Chinese growth rate slows to 14-year low of 7.7% – business live” was written by Graeme Wearden, for theguardian.com on Monday 20th January 2014 14.41 UTC

Speaking of Greece, the Kathimerini newspaper flagged up yesterday that more households and companies are falling behind with their electricity bills as wage cuts and record unemployment bites.

Public Power Corporation (PPC) data illustrate that Greek households and corporations are finding it increasingly difficult to pay their electricity bills. Total debts to the power utility from unpaid bills currently total some 1.3 billion euros, an amount which is growing at an average rate of 4 million euros per day.

The lion’s share of that debt is owed by low- and medium-voltage consumers – households and very small enterprises. The total arrears of these categories amount to an estimated 600 million euros, of which some 65 percent concerns households. The debts of the broader public sector amount to 190 million euros. The arrears of corporations connected to the medium-voltage network total some 130 million euros, while mining company Larco alone has run up debts of more than 135 million euros.

Around 35,000 households are thought to have illegally reconnected their power supply after being cut off, according to official figures. The Athens government recently agreed to keep supplying power to the poorest households, so around 7,500 have been officially reconnected.

Over in Athens, protests took place this morning against layoffs across the Greek public sector, and also against cuts to healthcare spending.

Here’s a few photos.

Speculation is rife that the International Monetary Fund will hike its estimate for UK growth when it publishes its new forecasts on Tuesday.

Sky News is reporting that the IMF will predict that the British economy expands by 2.4% this year, up from the 1.9% rate predicted three months ago.

That would match last month’s forecast from Britain’s fiscal watchdog, the OBR.

My colleague Katie Allen reports:

The IMF is also expected to upgrade its outlook for the global economy, which in October it predicted as expanding by 3.6% this year. That would reflect the cautiously optimistic tone in a New Year’s speech from its managing director, Christine Lagarde, last week.

“This crisis still lingers. Yet, optimism is in the air: the deep freeze is behind, and the horizon is brighter. My great hope is that 2014 will prove momentous … the year in which the seven weak years, economically speaking, slide into seven strong years,” she said.

If confirmed, the substantial upgrade to the UK will be a welcome boost to chancellor George Osborne and his much repeated assertion that the coalition’s “economic plan is working”.

But in the past the IMF has echoed other economists, including experts at the UK’s own Office for Budget Responsibility, that the UK remains over-dependent on consumer spending to grow.

More here: IMF upgrades UK economic growth as forecasts for global economy expands 

Back on China, and Saxo Bank has provided a handy graph showing how its growth rate has slowed as Beijing wound in its stimulus spending.

As explained in the opening post, China’s GDP rose by 7.7% annually in the last three months of 2013, a slight slowdown on the 7.8% recorded in the third quarter of the year.

Mads Koefoed, head of macro strategy at Saxo Bank, warns that a ‘prolonged slowdown’ would be a problem for Beijing, but also reckons that the slow pace of the government’s rebalancing means growth shouldn’t falter.

Koefoed said:

Should the slowdown in the economy continue over the coming quarters, the (relatively) new leadership will be tested, but the GDP report actually revealed that some of the necessary adjustments needed in the Chinese economy are starting to take place, albeit only very gradually. The credit-fuelled investment binge in China continues, but did slow down slightly in the fourth quarter to 20.3 percent year-on-year from 20.5 percent in Q3 and even more in the first half of 2013.

The very modest slowdown in investment and credit — new yuan loans rose 8.% in 2013 vs. 11.9% in 2012 — is not enough to either quickly rebalance the economy or send growth substantially lower. Furthermore, some smallish public-sector stimulus programmes will aid economic growth in the shorter term, which is why I only expect a slight slowdown overall this year to somewhere in the range of 7 to 7.5% from 7.7% in 2013.

Oxfam warning on wealth inequality

Development charity Oxfam has raised the pressure on world leaders as they prepare for Davos this week by reporting that the richest 85 people now control as much wealth as the poorest half of the world population.

Staggeringly, that means you could cram £1tn of wealth into a single double-decker bus — a reminder of how concentrated income and assets have become.

Winnie Byanyima, the Oxfam executive director who will attend the Davos meetings, said:

“It is staggering that in the 21st Century, half of the world’s population – that’s three and a half billion people – own no more than a tiny elite whose numbers could all fit comfortably on a double-decker bus.”

Oxfam’s report also flags up that almost 50% of the world’s wealth is now owned by the richest 1%.

Here’s the full story: Oxfam: 85 richest people as wealthy as poorest half of the world

More twists and turns at the Co-op over its troubled banking arm this morning.

Its auditors, KPMG, is to be investigated over its performance in checking and approving its accounts by the Financial Reporting Council.

KPMG has audited Co-op’s financial arm for three decades, but is under scrutiny after the discovery of a £1.5bn black hole in its accounts which sunk its bid to take over 600 Lloyds branches.

Co-op Group has also decided not to sell its general insurance business, which had been on the auction block to raise funds to patch up that capital hole. Co-op is now keeping it, as the revised capital-raising plan (under which it loses majority control of its Bank) requires it to contribute less funding.

Updated

David Madden, market analyst at IG, says the Chinese GDP data has left the City a little flummoxed:

Mixed reports from China overnight have left traders perplexed; the headline GDP figures exceeded expectations, but this was offset by the lower-than-expected industrial production and fixed asset investment numbers.

The mining sector had a good run last week on the back of bargain hunting and broker upgrades, and after the Chinese numbers today it doesn’t know which way to turn .

Updated

Back in the UK, the group treasurer and head of tax at supermarket chain Morrisons is under investigation by the Financial Conduct Authority over allegations relating to the trading of Ocado shares before the two firms announced a tie-up.

Paul Coyle was arrested in December in Harrogate, Yorkshire, and was taken in for questioning in connection with alleged insider dealing and market abuse.

Here’s my colleague Sean Farrell’s take:

Morrisons’ executive arrested in insider trading investigation

And a hat-tip to the Daily Telegraph’s Graham Ruddick for breaking the story overnight:

Telegraph: Morrisons treasurer held over alleged Ocado ‘insider deal’ (paywalled)

Updated

Encouraging economic news out of Italy this morning — seasonally adjusted industrial orders rose by 2.3% month-on-month in November, reversing October’s 2.3% slide.

Domestic orders jumped 4.1%, compared to a 0.4% drop in foreign business, suggesting internal demand picked up as the long Italian recession eased.

Market update

European stock markets dipped this morning as investors took stock of China’s GDP data, showing growth came in at the joint-slowest rate in 14 years.

Mining stocks are down, following those predictions that growth could be slower this year. Copper producer Antofagasta has dropped 1.5%, while Rio Tinto has shed 0.75%.

Germany’s DAX is the worst performer, dragged down by Deutsche Bank’s profit warning last night.

Earlier, the Shanghai composite index of leading Chinese shares had closed below the 2,000 mark for the first time since last July — continuing a recent trend, as this graph shows.

Alastair Winter, chief economist at Daniel Stewart & Co, said the markets remain concerned by the consequences of the clampdown on China’s shadow banking sector, adding:

It is not surprising that share prices on the mainland remain generally depressed and those in Hong Kong subdued.

Here’s the European prices:

  • German DAX: down 40 points at 9701, -0.4%
  • FTSE 100: down 5 points at 6824, – 0.06%
  • French CAC: down 5 points at 4321, -0.13%
  • Italian FTSE MIB: down 43 points at 19,924, -0.24%
  • Spanish IBEX: down 22 points at 10,442, -0.2%

Updated

Irish five-year debt is also rallying after Moody’s raised Ireland’s credit rating back to investment grade.

That has pushed the yield on five-year bonds down below 1.62% — meaning Dublin can borrow money until 2019 at a slightly cheaper rate than Washington (US five-year Treasury bills are yielding just over 1.62%).

Deutsche Bank drops 4% after profit warning

No surprise that Deutsche Bank shares have tumbled in the opening moments of trading in Frankfurt, dropping over 4% after last night’s profit warning (details here).

Other bank shares are suffering too, following fears that Deutsche’s shock announcement heralds wider problems in the sector.

In London, Royal Bank of Scotland is leading the FTSE 100 fallers, down 1.2%, and Barclays down almost 1%.

Much of DB’s €1.2bn loss was blamed on legal woes and restructuring, but the bank also reported a drop in revenues from bond trading by its fixed income arm. That dragged it down to a net loss of €965m in the final quarter of 2013, compared to forecasts of a €700m net profit.

Traders say Deutche’s announcement has cast a pall over the City, especially as this month’s corporate results have been rather unimpressive:

As Michael Hewson of CMC Market explains:

 European markets appeared to stall towards the end of last week, as more and more earnings announcements started to come out on the weaker side of estimates.

The early release of Deutsche Bank’s earnings late last night, which showed a €1.2bn Q4 loss, could well reinforce this negative tone today, particularly in the absence of US markets today, due to Martin Luther King Day.

Updated

Irish bond yields slide after investment grade rating boost

Ireland’s sovereign debt has jumped in value this morning, after Moody’s removed the stigma of a ‘Junk’ credit rating.

An early morning rally has send the yield, or interest rate, on Irish 10-year bonds sliding to just over 3.3%. That’s sharply down on Friday night’s reading of 3.45%, before Moody’s announced its move.

For comparison, UK 10-year bonds are yielding 2.82% this morning, while Spain’s are changing hands for 3.7% (a lower yield = a higher priced bond, ie a more safer investment)

Over in Japan, Nintendo’s share price took a kicking as Tokyo investors gave their verdict on last Friday’s profit warning.

The stock didn’t even trade when the Tokyo bourse opened, as traders flooded the market with sell orders.

Eventually some buyers emerged, sending Nintendo’s share price plunging by almost a fifth. It later clawed back some losses, ending the day down 6%.

 On Friday, Nintendo admitted it would probably make an operating loss of 35 billion yen, and slashed its global sales forecasts for the Wii U console this year, from 9m to just 2.8m.

Let’s not be too gloomy, though. Louis Kuijs, chief China economist at RBS, reckons the Chinese economy will spring back in 2014 with a growth rate of 8.2%.

Kuijs told clients:

“We expect China to benefit from improved global growth this year. Faster world trade growth should support China’s growth via stronger exports and corporate investment.”

(that’s via CNBC)

Chinese GDP: What the analysts say

Several economists are warning that China’s growth rate will slow further in 2014, from the 7.7% expansion racked up in 2013.

Ian Williams of Peel Hunt pointed to the detail of today’s GDP data:

Investment growth is slowing, to +19.6% YoY in December, while industrial output growth also moderated to +9.7% YoY as overseas demand cooled. Retail sales grew by +13.6% YoY.

A rebalancing economy and a neutral policy stance point to the deceleration continuing through 2014.

Nomura economists agreed, warning:

The data reinforce our view that growth is on a downtrend and we continue to expect GDP growth to slow [this year].

Ditto Dariusz Kowalczyk of Credit Agricole CIB, who said:

The economy is slowing quite rapidly. The slowdown has accelerated during the quarter,”

Updated

Chinese economic growth rate at joint-slowest since 1999

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

China has kicked off the week by reporting growth figures that beat forecasts, but also showed the joint-weakest expansion rate since 1999.

Gross domestic product across the Chinese economy increased by 7.7% year-on-year in the final three months of 2013, slightly down on the 7.8% growth seen in the third quarter.

Growth for 2013 as a whole was also recorded at 7.7% –matching 2012′s annual growth reading.

The data confirms that China’s economic boom has cooled somewhat as Beijing strive to implement economic reforms, rein back the shadow banking sector, and nurture more domestic demand to replace the investment-driven growth of the last decade.

Chinese officials warned that the task of rebalancing the country’s economy wasn’t over. Commissioner of the government statistics bureau, Ma Jiantang, told reporters that:

“A long-term accumulation of problems has yet to ease and the foundation for economic stabilisation and recovery is still consolidating.”

Here’s AP’s early take: China’s economy grows by 7.7%, equalling worst year since 1999

Industrial production growth over the last year also dipped, to 9.7% from 10% previously.

At 7.7%, annual growth did beat the Chinese government’s official target of 7.5%. But there was no rally in the Shanghai stock market, where shares dropped to their lowest level since last July

Economists cautioned that the data showed the Chinese economy was cooling, and unlikely to post stronger growth in 2014 (I’ll pull together some reaction next).

Also coming up today, Deutsche Bank is under scrutiny after rushing out a profit warning last night. The German bank made a shock pre-tax loss of €1.153bn, which it blamed on legal expenses and restructuring costs.

And I’ll have an eye on the snowy heights of Davos as world leaders prepare to jet in for the World Economic Forum (which starts officially on Wednesday).

Updated

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The U.S. ISM Non-Manufacturing Index slowed last month to 53 from 53.9. Services PMI in the eurozone stays in line at 51 in December compared with 51.2 in November. UK service growth dips to six-month low, but still in expansion territory…

 


Powered by Guardian.co.ukThis article titled “Service sector data shows mixed picture; Angela Merkel hurt in skiing accident – business live” was written by Graeme Wearden, for theguardian.com on Monday 6th January 2014 14.42 UTC

PRA begins enforcement investigation into Co-op Bank

The Bank of England has just announced that its Prudential Regulation Authority (PRA) is conducting a formal “enforcement investigation” into the Co-op Bank.

The probe will examine the role of ‘former senior managers’ at the troubled organisation.

Here’s the full statement:

The Prudential Regulation Authority (PRA) confirms it is undertaking an enforcement investigation in relation to the Co-operative Bank and as part of that investigation will consider the role of former senior managers.

No further information will be provided on the investigation until the legal process has concluded and an outcome has been reached.

The Treasury has previously indicated that the independent review announced by the Chancellor will not start until it is clear that it will not prejudice any actions that the regulators may take.

The PRA will work with the Treasury to ensure that the enforcement investigation and the independent review are sequenced appropriately.

The Co-op Bank was hit by a series of blows last year, including the discovery of a £1.5bn black hole and the scandal over its former chairman, the reverend Paul Flowers.

Updated

And we’re off….

14:30 – DOW JONES UP 28.00 POINTS, OR 0.17 PERCENT, AT 16,497.99 AFTER MARKET OPEN

14:30 – NASDAQ UP 5.47 POINTS, OR 0.13 PERCENT, AT 4,137.38 AFTER MARKET OPEN 

14:30 – S&P 500 UP 3.42 POINTS, OR 0.19 PERCENT, AT 1,834.79 AFTER MARKET OPEN

Updated

Nearly time for Wall Street to open, and the Dow Jones industrial average is expected to rise modestly…

US service sector PMI shows slight slowdown

Growth in America’s service sector slowed a little in December, but remained comfortably in ‘expansion’ territory, according to Markit’s latest report.

The US Service sector PMI fell to 55.7, down from November’s 55.9, suggesting the sector expanded at a very slightly slower rate.

Encouragingly, firms reported a pick-up in new orders – rising at the fastest rate since April 2012.

Employment at US service firms also rose strongly and at one of the fastest rates since Markit started reporting the US PMI four years ago. And there was a rise in confidence, as this graph shows:

When last week’s US manufacturing data is included, the overall US composite PMI came in at 56.1, down very slightly on November’s 56.2. That suggests steady growth across the US private sector last month.

Britain’s headline borrowing costs have dropped today, after this morning’s service sector survey showed that activity grew at the slowest rate since June.

The yield (or interest rate) on 10-year gilts has fallen to 2.98%, from 3.03% on Friday night.

Bond traders may be calculating that the Service sector PMI suggests less chance of an early tightening of monetary policy. They’re also digesting speculation that the Bank of England might tweak its forward guidance, to dampen the prospect of interest rates being raised soon.

Britain’s bosses are much more confident about the economy than a year ago, according to a survey from the Institute of Directors which just landed in my inbox.

87% of IoD members expect UK GDP growth to be higher in 2014 than in 2013, and many also expect higher revenues and profitability this year within their own firms:

IoD’s Chief Economist, James Sproule, said the survey is the latest evidence that the UK economy is recovering:

 “Our survey is another sign that the economy is indeed recovering.

While the view of the IoD is that economic expansion remains too dependent upon consumer spending, funded in large part by a shrinkage in the savings rate, the fact that 74 per cent of businesses are anticipating higher revenue does point to a welcome broadening of economic growth.

Hopefully, this optimism can also translate into higher wages – ending the long squeeze on real incomes.

Mixed picture of global service sector

Here’s a handy round-up of today’s economic data, from Reuters (with links to the liveblog for more details):

Service industry growth slowed sharply in China as 2013 drew to a close but picked up across most of Europe, suggesting still very uneven global economic performance even as most signs point to a strengthening U.S. revival.

Taken together with business surveys on manufacturing published late last week, the data suggest that an onslaught of global central bank stimulus has had some impact but is not likely to halt any time soon.

Indeed, while business has picked up in many places, particularly in the euro zone which only recently escaped recession, inflation has been on a downward trend in most industrialised countries.

Asian shares fell to a three-week low after news the HSBC/Markit China services purchasing managers’ index (PMI) fell to a two-year low of 50.9 from 52.5, underscoring nervousness about how the world’s second largest economy is performing.

The equivalent Markit survey for the euro zone went the opposite way, rising to 52.1 from 51.7, with new orders coming in at their fastest pace in more than two years. Any number above 50 denotes expansion.

“That just goes to confirm everyone’s suspicions that the Chinese economy is shifting down onto a lower growth path, and that we will see a more balanced growth pattern across the world this year,” said Peter Dixon, economist at Commerzbank.

He expects improved growth in Europe and the United States.

We get the US Service sector PMI data this afternoon…..

Updated

Video: George Osborne’s economy speech

Back on Angela Merkel’s accident briefly, Reuters reports that the German chancellor will not be at Davos later this month (something I mentioned earlier):

Merkel will not attend the World Economic Forum later this month but not because of her skiing accident, Seibert said, adding that the meeting in Davos at the end of January clashed with a scheduled German government meeting.

Market update

In the financial markets, Spain’s IBEX is the best-performing share index in Europe following the news that activity across the Spanish private sector has risen at the fastest pace in six years.

It’s a pretty calm picture otherwise — Angela Merkel’s accident hasn’t caused any anxiety on the Frankfurt trading floor.

  • FTSE 100: up 1 point at 6731, + 0.01%
  • German DAX: up 27 points at 9462, + 0.3%
  • French CAC: up 6 points at 4253, + 0.14%
  • Spanish IBEX: up 80 points at 9878, +0.8%
  • Italian FTSE MIB: up 140 points at 19,252, + 0.7%

Toby Morris, senior sales trader at CMC Markets, says markets lack ‘clear direction’ today, after the flurry of economic data:

Most of Europe has posted modest gains amidst mixed PMI data at the start of the first full trading week of the New Year.

Spain’s recovery continues to gain momentum, with the service sector notching up its strongest growth rate in 6&frac12; years and helping the IBEX top the main Euro benchmarks.

Carl Astorri, senior economic advisor to the EY ITEM Club, says George Osborne has put welfare benefits in the firing line for the next parliament:

We already knew that the Government was planning further deep cuts in spending in the next Parliament but until today we had heard very little about how those cuts were likely to be distributed beyond the first year.

“Today’s speech continues the narrative that the Chancellor set out in his Autumn Statement by suggesting that there will be a much greater focus on welfare going forwards. This would be a big change compared with the current Parliament where Government departments have borne the brunt of the cuts.

“There are obvious political factors behind this change of tack, but it is also a pragmatic decision. These cuts are due to be even deeper than those already allocated but the departmental cuts have been so great that they would struggle to achieve any further savings – particularly if they continue to protect health and large parts of education. Therefore it was inevitable that the Chancellor would have to look at these other areas of spending which, thus far, have seen very little action.”

While the TUC’s Duncan Weldon tweets that the economic debate will change this year:

Returning to the UK’s chancellor…and the Treasury have uploaded the full text of George Osborne’s speech on the economy:

New Year economy speech by the Chancellor of the Exchequer

It includes a warning from George Osborne that the eurozone remains “weak”, and a declaration that both the UK government and the welfare bill must be “permanently smaller”.

I can tell you today that on the Treasury’s current forecasts, £12 billion of further welfare cuts are needed in the first two years of next Parliament.

That’s how to reduce the deficit without even faster cuts to government departments, or big tax rises on people.

Here’s more, from our political correspondent Rowena Mason:

George Osborne warns of more cuts and austerity in ‘year of hard truths’

Osborne’s speech has been criticised by Labour’s Ed Balls, who said the chancellor’s austerity cutbacks are to blame for Britain’s deficit being too high:

“This failure means Labour will have to make cuts and in 2015/16 there will be no more borrowing for day-to-day spending. But we will get the deficit down in a fair way, not give tax cuts to millionaires.

And we know that the way to mitigate the scale of the cuts needed is to earn and grow our way to higher living standards for all.

“The social security bill is rising under George Osborne, but the best way to get it down for the long-term is to get people into work and build more homes. The Tories should back our compulsory jobs guarantee for young people and the long-term unemployed.

And in tough times it cannot be a priority to continue paying the winter fuel allowance to the richest five per cent of pensioners.

Updated

Key event

Our World News desk has an early take on Angela Merkel’s skiing injury, which has forced the chancellor to cancel a trip to Poland this week.

German Chancellor Angela Merkel has fractured her pelvis in a skiing holiday in Switzerland, forcing her to cancel meetings for the next three weeks.

Merkel’s spokesman Steffen Seibert said on Monday that the chancellor suffered what she first thought was just a bruise to her left rear pelvic area while cross-country skiing.

Doctors told her on Friday that the injury was in fact an “incomplete” bone fracture that will require her to rest for three weeks.

Seibert told reporters that Merkel is walking with the help of crutches and would need to cancel a number of official appointments in the coming weeks but would continue to lead the government and hold cabinet meetings.

Merkel will lead a cabinet meeting on Wednesday, which will be the first gathering of all the ministers in the new “grand coalition” government of her conservatives and the centre-left Social Democrats, which was formalised last month.

Seibert said Merkel’s fall occurred “at low speeds” but was unable to say if another person was involved.

Keep watching for updates:

Angela Merkel injured in skiing accident 

Reuters reports that Angela Merkel is using crutches to get around:

German Chancellor Angela Merkel has fractured her pelvis in a cross-country skiing accident and is walking with the help of crutches, forcing her to call off some foreign visits and official appointments, her spokesman said on Monday.

Merkel fell while skiing over the Christmas vacation. What she first thought was heavy bruising turned out to be a partial fracture, meaning she must take it easy for three weeks and work from home where possible, said her spokesman Steffen Seibert.”The chancellor is of course able to work and is in full communication,” said Seibert.

He added that Merkel’s accident occurred “at low speed” but he declined to give further details.

The chancellor is no stranger to crutches — as this photo from 2011 shows, she took to them almost three years ago after a knee operation, to keep working while she recovered.

Angela Merkel’s injury could potentially prevent her attending the World Economic Forum in Davos, which begins in a little over a fortnight’s time.

Davos’s icy pavements are notoriously perilous, so the chancellor would certainly be wise to keep away.

However, that would mean missing out on the chance to hobnob with other world leaders, and top economists and business leaders.

Updated

And here’s the Financial Times’ s early take on Angela Merkel’s accident. (via fastFT):

Angela Merkel, the German chancellor, has been injured in a cross country skiing accident and is under doctor’s orders to rest for three weeks.

Ms Merkel’s spokesman said on Monday she has been told to rest for three weeks after the mishap, reports the FT’s Stefan Wagstyl.

She has postponed a trip to Poland as well as meetings in Berlin, he said, However she is working and is in full contact with her officials, he said.

A bit more detail…

Angela Merkel bed-bound after skiing accident – WSJ

Angela Merkel will be stuck in bed for most of the next three weeks after injuring herself skiing, her spokesman has confirmed.

Here’s the WSJ’s early take:

BERLIN—German Chancellor Angela Merkel has injured her pelvis in a cross-country skiing trip during her Christmas vacation and will have to be mostly bound to bed for the next three weeks, her spokesman said Monday.

As a result, the chancellor has canceled her visit to Warsaw that was scheduled for Wednesday and canceled a meeting with Luxembourg’s Prime Minister Xavier Bettel, said Ms. Merkel’s spokesman Steffen Seibert.

Updated

Twitter is buzzing with reports that German chancellor Angela Merkel has been injured while skiing.

According to AFP, Mrs Merkel has been forced to cancel meetings and won’t be able to travel for several weeks.

Our correspondents in Germany are on the case….

PMI data: the summary

Time to round up this morning’s data, so we can move onto other matters:

• Growth in Britain’s dominant service sector has slowed to its weakest rate in six months, according to the latest survey of purchasing managers across the sector. Details and charts here.

Economists say the drop in the UK service PMI, from 60 to 58.8 in December, is disappointing, but that service sector firms are still pretty healthy.

Indeed, UK service sector growth for the October-December period was the strongest on record, despite last month’s dip.

Markit, which compiles the data, reckons the UK may have grown by as much as 1% in the final three months of 2013.

• In the eurozone, private sector activity picked up for the second month in a row — at the second-highest rate recorded in two and a half years. The data suggests the eurozone economy picked up at the end of last year

But France was a poor performer, again, adding to fears that the eurozone’s second largest member is falling back into recession. Its Service sector PMI fell to 47.8, from 48, showing a deeper downturn.

The latest data from Italy was also disappointing — its service sector shrank again last month. Like France, it suffered from declining new orders.

There was much better news from Spain, though, where the private sector grew at the fastest rate in 77 months after a surge in service sector activity.

And it was another solid month for Germany, with firms reporting an increase in activity and hiring.

It’s disappointing that UK service sector growth fell to a six-month low in December, says Howard Archer of IHS Global Insight. Still, the sector is growing faster than we imagined a year ago:

Services activity was always highly unlikely to sustain the very strong growth rates recently indicated by the survey (the October reading was a 16-year high) and this is still a very strong report overall showing healthy expansion, robust incoming business, markedly rising employment and confidence in the sector at a near four-year high.

In short, this is still a survey that would have been killed for at the beginning of 2013!

Head’s up, George Osborne’s in a factory in Birmingham, giving his speech on the economy in 2014

As flagged up, the chancellor is warning of more cuts to come.

Andy Sparrow is tracking every word in his Politics liveblog: 

Markit: UK growth could hit 1% for Q4 2013

Today’s service sector survey, and last week’s data from the UK’s manufacturing and construction firms, suggest Britain’s economy may have expanded by as much as 1% in the last three months.

That would mean faster growth, as UK GDP rose by 0.8% between July and September. But it might also mark the high point in the recovery, given that service sector growth hit a six-month low last month…..

Jeremy Cook, chief economist at World First, the currency brokers, says today’s data shows the “hot streak” in Britain’s service sector is over.

And while 2013 was a strong year, 2014 could be tougher unless workers finally see real wages rising, he added:

“Despite this slight disappointment in December, the services industry expanded every single month in 2013 and, alongside the expansion in both manufacturing and construction sectors, should see Q4 GDP running at around 0.9%.

“Encouragement can be found within the release from the new orders and employment components, which both expanded at close to record levels and point to a continued level of service sector expansion.

“It’s important to note that the majority of this growth is from business-to-business activity. All companies that rely on the UK consumer will remain wary moving into 2014, as a lack of real wage increases continues to hit the man-in-the-street’s pockets…”

UK service sector growth dips, but still decent

Growth in Britain’s service sector slowed unexpectedly in December to a six month low, according to Markit’s latest data.

But December was still a pretty decent month for the sector, suggesting the UK economy will grow by more than 0.8% in the final quarter of 2013.

Markit’s monthly Service sector PMI fell to 58.8, down from 60.0, surprising City analysts who had expected it to rise slightly to 60.3. It’s the weakest reading since June.

But while the pace of growth eased, firms were still upbeat. Markit found that:

The UK service sector continued to expand strongly as 2013 came to an end, with activity, new business and employment all again rising at marked rates.

Crucially, firms grew more confident in December as new business rose:

Market confidence was reportedly high, according to panellists, with clients enjoying access to larger funds and, perhaps more importantly, willing to commit these to new contracts. Increased marketing and the release of new products also bolstered sales with both new and existing customers.

And at 58.8, Britain’s service sector outpaced its major European rivals.

Here’s the key graphs:

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, cheered the data:

“The UK services sector continues to hit the high notes as business confidence surged to its highest level in nearly 4 years.

The average new business growth rate in the final quarter of 2013 was the best in the survey’s history, suggesting a very bright outlook for 2014.

The stronger positive outlook also offers a platform for investment and expansion in new products and marketing, sustaining the continued broad based recovery in the New Year.

And economist Shaun Richards tweets the the sector is still achieving strong growth.

Updated

Chris Williamson, chief economist at Markit, reckons today’s data suggests Europe’s economy should continue to recover in 2014, although France may have fallen back into recession:

He said:

“The PMI surveys indicate that the eurozone recovery gained further traction at the end of last year. December saw the second-largest increase in business activity since June 2011 and rounded off the best quarter for two-and-a-half years.

“Although consistent with a mere 0.2% expansion of GDP during the final quarter, the PMI signalled a strong turnaround in the health of the economy during the course of 2013, and stronger growth looks likely for the first quarter of 2014.

“Most importantly, the labour market stabilised in December, ending a period of falling employment that lasted nearly two years. With inflows of new work accelerating, a return to jobs growth should be seen in 2014. The revival in consumer confidence that should result from the labour market improvement should provide an all-important boost to the economy in 2014.

“However, while the region as a whole looks set for a strengthening recovery in 2014, growth is uneven, with France in particular having possibly slid back into recession late last year. The upturn in the rest of the region may help bring about a return to growth in France, but the data are highlighting the need for structural reforms to bring about a more sustainable and robust recovery in the region’s second-largest economy.”

Updated

Eurozone recovery picks up pace

The Eurozone’s private sector continued to recover in December, but France and Italy’s service sectors stumbled as weak domestic demand held back their recovery.

And there was no improvement (yet) in the region’s labour market, where unemployment remains around record levels. But at least firms appear to have stopped laying off staff.

That’s the main message from Markit, whose composite survey of activity across the region rose to 52.1 in December, up from 51.7 in November, to the second- highest level since the middle of 2011.

In a report titled” Eurozone economic recovery accelerates at end of 2013″, Markit said that “manufacturing continued to lead the recovery in December”, with production growth at its fastest since May 2011.

Service sector business activity grew too, but at the slowest pace in four-months — dragged back by France (see 9.03am for details) and Italy (see 8.55am).

  • Final Eurozone Composite Output Index: 52.1 (Flash 52.1, November 51.7)
  • Final Eurozone Services Business Activity Index: 51.0 (Flash 51.0, November 51.2) 

Nations ranked by all-sector output growth (Dec.)

  • Ireland 58.6 – 2-month high
  • Germany 55.0 – 2-month low
  • Spain 53.9 – 77-month high
  • Italy 50.0 – 2-month high
  • France 47.3 – 7-month low

Reaction to follow….

Updated

But German service sector grows again

Once again, Germany proves immune to problems in other parts of the eurozone.

German service sector firms reported that December was a pretty decent month, with activity rising at a robust pace again.

And while the pace of expansion did slow compared with November, firms hired new staff at the fastest rate in two years,

The German Service sector PMI was 53.5, down on November’s 55.7, but still showing a solid rise in activity (anything over 50=growth).

German services firms said they saw a “continued rebound in new work during December”.

Overall, Germany’s private sector recorded its eighth consecutive month of rising activity, with December being the second-strongest rate of output expansion since June 2011.

Tim Moore, senior economist at Markit, said the eurozone’s largest economy ended last year in pretty decent shape.

“Germany’s private sector finished 2013 with a further strong expansion of business activity, despite service providers indicating a moderation in growth from the near two-and-a-half year peak seen during November.

The improving underlying business climate in Germany led to a rebound in job creation during December, with manufacturing employment returning to growth while service sector companies added to their workforce numbers at the fastest rate for two years.

French private sector contracts at faster rate

And there’s bad news for France too – its service sector activity fell at the sharpest rate since June last month as the country’s firms suffered a drop in new business.

The French service sector PMI fell to 47.8 in December, down from 48.0 in November, showing the sector entered a deeper contraction in the final weeks of 2013.

New business at French service providers fell for the third month running, and firms cut jobs at a faster rate, underlining the troubled nature of the French economy.]

The ‘composite’ measure of private sector activity in France (including its manufacturing sector), fell to a seven-month low, as the graph above shows.

Jack Kennedy, Senior Economist at Markit, said French firms remain optimistic, despite facing a tough struggle in December:

“The French service sector lost further ground in December, with business activity falling at the sharpest rate in six months.

Persistently weak demand continues to impact on the sector’s performance, with firms reporting continued declines in both new business and backlogs of work.

However, firms hold some positivity that the situation will improve in 2014, with business expectations holding at a level better those seen over much of the past year-and-a-half.”

Italian service sector activity shrinks again

Oh dear – Italian service sector companies have reported that activity continued to decline in December as new work dried up, forcing many to cut jobs again.

The Italian Service PMI fell to 47.9 last month, up slightly on 47.2 in November. That shows that the sector contracted again, but at a slightly slower pace (anything below 50 shows falling activity)

Markit warned that Italian service sector firms suffered from “ a weakening of demand….which in turn contributed to further job losses and output price reductions across the sector.”

Here’s the key points:

  •  Second straight monthly decrease in business activity
  •  Further solid drop in employment levels
  •  Input price inflation lowest in three months 

Phil Smith, economist at Markit, commented:

“Recent data have disappointed following the successive increases in business activity through September and October. The service sector looks to have weighed on GDP in the final quarter but, thanks to a robust expansion in manufacturing output, the overall trend in economic activity is broadly flat.

Further notable job shedding at services firms however places upward pressure on an already high unemployment rate, which will do nothing to ease social tensions.”

Osborne: £25bn extra cuts needed

UK chancellor George Osborne has warned that Britain faces another £25bn of spending cuts after the next election, and put welfare spending firmly in the firing line.

Ahead of a big speech on the economy in 2014, Osborne told the Today Programme that further cutbacks are needed to lower Britain’s deficit.

He said:

“We need to find a further 25 billion pounds of cuts after the election. We have to make decisions about where those cuts are to be found

This enormous welfare budget, that ultimately is where you can find substantial savings.”

Our politics liveblogger, Andy Sparrow, will be covering Osborne’s speech and all the ensuing reaction in his liveblog:

George Osborne calls for £25bn spending cuts: Politics live blog

Meanwhile in Switzerland, last year’s slump in the gold price has left the country’s central bank looking at a hefty loss.

The Swiss National Bank reported this morning that it made a loss of 9bn Swiss francs in 2013 (around £6bn), after the value of its gold reserves tumbled by 15bn Swiss francs.

As Reuters explains, the loss could cause some ructions in Switzerland:

The SNB said a 15 billion franc loss on its gold holdings, which lost 28 percent of its value last year, could not entirely be offset by a gain of roughly 3 billion francs from foreign currency and profits of more than 3 billion francs from selling a stabilisation fund set up five years ago to bail out UBS during the financial crisis.

The loss is likely to be politically charged as its means the central bank cannot distribute dividends to its biggest shareholders, Switzerland’s 26 cantons, or states, or to the federal government.

And here’s the key graph showing how Spain’s service sector has enjoyed its strongest growth in over six years.

Spanish service sector growth hits six-year high

Boom. Spain’s service sector has reported the sharpest rise in activity since July 2007 — the month before the credit crunch struck the global economy — indicating a turnaround in the Spanish economy after several years of gloom.

Markit’s survey of purchasing managers across Spain found the firms reported a rise in new orders, improved business conditions and an increase in client demand.

This sent Markit’s Spanish Service Sector PMI jumping to 54.2 in December from 51.5 in November.

This was the second successive reading above the 50.0 no-change mark and signalled the sharpest rise in activity since July 2007, it said.

Staffing levels still fell, but the rate of job cuts eased for the second month running and was the slowest since the current sequence of falling employment began in March 2008.

Here’s the key points:

  • Activity and new orders expand at sharpest pace for over six years
  • Slowest fall in employment since March 2008
  • Further marked reduction in output prices

Andrew Harker, senior economist at Markit, is pretty upbeat:

“The latest services PMI data provide real optimism that in 2014 we could finally see the start of a meaningful economic recovery in Spain.

Activity and new business each rose at rates not seen since prior to the economic crisis, although the extent to which companies are relying on discounting to support growth of orders remains a worry.

There even look to be signs of positive movement in the labour market, with the sector coming close to seeing a stabilisation in employment in December.”

Frederik Ducrozet of Credit Agricole also suggests the report shows the eurozone’s periphery is recovering:

The slowdown in Chinese service sector helped to wipe almost 2.4% off Japan’s Nikkei on the first day of trading in Tokyo this year.

It fell 382 points to 15908, having ended 2013 at a six-year high.

Guy Stear, Asian credit and equity strategist at Societe Generale in Hong Kong, told Reuters that:

“The focal point of the Asian markets is more on Chinese growth and on Chinese political situation and how it’s going to pan out this year, rather than worrying about how tapering will affect Asia specifically,”

(tapering = US Federal Reserve ending its bond-buying stimulus plan)

Updated

Hong Kong’s private sector (manufacturing and services firms) also reported that activity grew at a slower rate last month:

India’s economy continued to deteriorate last month, according to the latest survey of its services companies.

The Indian service sector PMI fell to 46.7 in December, from 47.2, signalling a deeper contraction.

Firms reported that new orders fell at the quickest pace since September, due to an “increasingly fragile economy and competitive pressures”, according to the report (from Markit and HSBC)

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said:

“The service sector continues to face headwinds, with weakening new business dragging down activity. On a positive note, inflation pressures are easing and optimism about the coming year is rising.”

Chinese service sector PMI hits lowest since August 2011

Asian stock markets have fallen to three week lows after China’s service sector posted the slowest growth in over two years.

The closely watched China Services PMI, which measures activity across the country’s service sector firms, dropped to 50.9 last month, sharply own from 52.5 in November. That’s the weakest reading since August 2011, and shows only modest growth.

The data, published by HSBC and Markit, is further evidence that China’s economy is losing some oomph as Beijing tries to rein in excessive credit and rebalance towards growth.

Here’s the key points from the report:

• Output and new orders increase at weaker rates at both manufacturers and service providers

• Manufacturers reduce their payroll numbers, while service providers hire additional staff

• Inflationary pressures ease to five-month low at the composite level 

Hongbin Qu, HSBC’s chief economist for China, said that new business growth had slowed in December to a six-month low, but that firms remained optimistic, adding that:

The implementation of reforms such as lowering the entry barriers for private business in service sectors and the expanded VAT reforms should help to revitalise service sectors in the year ahead.

But Asian stock markets took the news badly, with China’s CSI300 index sliding over 2.2%.

And Japan’s Nikkei is down 2.5%, as Tokyo traders begin the year with a bout of selling (catching up with last week’s losses in Europe and on Wall Street).

A flurry of service sector data awaits us

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

Plenty of economic news coming up this morning, at the start of the first full trading week of 2014.

Surveys of service sector companies from across the globe will be released over the coming hours, giving an insight into how countries performed in December.

The readings from the eurozone should show whether the region’s weaker members are recovering:

Data from China and India has already been released, and neither was very encouraging .

The Chinese Purchasing Managers Index (PMI) showed a sharp drop in growth, while India’s service sector has now been shrinking for six months in a row (more details to follow).

The UK, though, is expected to post another strong reading.

Also coming up today…. chancellor George Osborne is expected to warn that the UK faces “a year of hard truths”, with more cuts on the way. Here’s our preview:

George Osborne says more cuts on way in ‘year of hard truths’

And the US Senate is expected to confirm Janet Yellen as the next chair of the Federal Reserve, succeeding Ben Bernanke, this afternoon.

I’ll be tracking all the key developments through the day.

Updated

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US factory output grows at fastest rate since January 2013. Markets cautious after the release of China, France and Germany’s PMI reports. UK factory output growth near to three-year high. France’s manufacturers struggle in December…

 


Powered by Guardian.co.ukThis article titled “UK and US maintain strong manufacturing growth as France stumbles – business live” was written by Graeme Wearden, for theguardian.com on Thursday 2nd January 2014 15.17 UTC

ISM’s PMI survey released

Confirmation that America’s factory sector posted decent growth in December, from the US Institute of Supply Management.

The ISM’s index of purchasing managers from across the US came in at 57.0 — slightly down on November’s 57.3, but some distance above the 50-point mark that divides expansion from contraction.

That suggests the US factory sector finished the year pretty strongly.

The report (which is distinct from Markit’s own PMI survey), showed the new orders grew at the fastest pace since April 2010, while the manufacturing employment index was the highest since June 2011.

  • ISM U.S. MANUFACTURING NEW ORDERS INDEX 64.2 IN DECEMBER VS 63.6 IN NOV
  • ISM U.S. MANUFACTURING EMPLOYMENT INDEX 56.9 IN DECEMBER VS 56.5 IN NOV

Encouraging news, but not enough to change the mood on Wall Street where the Dow Jones is still down around 0.5%.

Updated

Twenty minutes into the trading year, and the Dow Jones industrial average has dropped 75 points, or 0.45%, to 16500.

US stock market opens

Wall Street has just opened for the first time this year, and shares are dropping a little.

DOW JONES DOWN 35.58 POINTS, OR 0.21 PERCENT, AT 16,541.08 AFTER MARKET OPEN 

 NASDAQ DOWN 17.33 POINTS, OR 0.42 PERCENT, AT 4,159.26 AFTER MARKET OPEN 

 S&P 500 DOWN 4.40 POINTS, OR 0.24 PERCENT, AT 1,843.96 AFTER MARKET OPEN

In the European markets, the main indices are also in the red – led by France after its poor factory data:

• FTSE 100: down 11 points at 6737, – 0.18%

• German DAX: down 61 points at 9490, – 0.6%

• French CAC: down 42 points at 4253, -1%

Last month’s jump rise in US factory activity will encourage America’s central bank to keep winding back its stimulus programme.

So argues Chris Williamson, Chief Economist at Markit, anyway:

“The upturn in the PMI in December rounds off one of the strongest quarters for manufacturing since the economy pulled out of recession. The goods producing sector is therefore on course to provide a firm boost to the economy in the fourth quarter, which we expect to see growing at an annualised pace of at least 3%.

“Most encouraging is the fact that growth is being led by rising demand for investment goods such as plant and machinery. This tells us that business spending is picking up on the back of rising confidence, which adds to the sense that the recovery is being more self-sustaining.

“This improvement in confidence is translating into increased hiring, with the PMI Employment Index running at a level consistent with around 20,000 jobs being added in manufacturing each month.

“The buoyancy of these survey data supports the view that the Fed will continue to taper its asset purchases at its January meeting.”

Graph: US manufacturing growth at 11-month high

US manufacturing PMI at 11-month high

Growth in America’s manufacturing sector has hit an eleven-month high, according to Markit’s latest survey.

The data, just released, shows Market’s US PMI jumped to 55.0 in December, up from 54.7 in November.

That’s the highest reading since January 2013, and suggests the US economy ended last year in pretty good health.

Here’s Markit’s key points:

  •  PMI rises to 11-month high, indicating solid improvement in business conditions
  •  Output supported by strong increase in new orders (the output index hit a 21 month high of 57.5, from 57.4)
  •  Employment growth quickens to nine-month high
  •  Input price pressures intensifies 

More to follow….

The first US economic news of 2014 is in…. and the number of people filing new claims for unemployment benefit fell last week, for the second week running.

A total of 339,000 new initial jobless claims were filed in the seven days to 28 December, down from 341,000 the previous week.

The number of people filing ‘continued claims’ for jobless benefit also fell, by around 100,000 people to 2.833m.

Updated

The Athens stock market is outperforming the rest of Europe today, with the main index up around 4%.

Bank stocks are leading the way, after Greek manufacturing activity almost stopped shrinking in December.

(reminder, Greece’s manufacturing PMI hit a four-year high this morning, with thesub-index of factory output actually rising a little in December).

But while today’s data is encouraging, it doesn’t solve Greece’s wider problems — the damage caused by its long recession, the political instability, the public despair after years of austerity…

Nick Malkoutzis, Greek journalist, has blogged about the challenges facing Greece in 2014 here. Here’s a flavour:

When it comes to assessing the state of Greek society, it is true to say that there were some remarkable achievements in 2013 despite the adverse circumstances, such as the mobile app designers who are bringing in more revenues than olive oil exporters and the wine makers who are tapping into new markets.

However, exceptional accomplishments cannot disguise that reality for a growing number of Greeks is laced with doubt, disappointment and despair. The desire among local and European decision makers for a “success story” has made them blind to the fact that many Greeks are in torment and losing faith that the country will recover its economy and, most important of all, its dignity.

There are people in Greece and Europe that have come to accept that it’s okay for a developed country to have a jobless rate that’s nearing 30 percent. They accept, without much fuss, that Greece has lost a quarter of its gross domestic product in five years, and that its citizens have seen their disposable household income plummet by a third during the same period.

This blinkered approach means they do not see the other Greek narrative: The story of those who live with the daily effects of an economy in deep decline and a state that is struggling.

Greece in 2014: Where are we?

France’s ‘sickly economy’ is the biggest threat to growth in the eurozone this year, argues Stephen Lewis of Monument Securities.

Lewis writes (on the back of today’s poor factory data):

The most significant brake on global growth in 2014 is likely still to be the euro zone.

Much has been made of last year’s recovery in the zone’s economy but, still, forecasts for German GDP growth in 2014 are unexciting. The Bundesbank last month projected a rise of 1.7% while the German economic institutes’ forecasts are strung out between 1.8% and 2.0%. That, apparently, is what counts as a banner year nowadays.

Evidence has suggested the peripheral euro zone states at least stopped contracting in the course of 2013 but, for most series, reliable data is only available up to the third quarter. It remains to be seen whether these countries benefited primarily from strong summer tourist activity. The most serious threat to euro zone growth, as even the optimists acknowledge, is the sickly French economy.

The December PMIs for manufacturing, published today, illustrated the degree to which French economic performance is falling short even of the tepid growth elsewhere in the euro zone. France’s headline PMI index fell from 48.4 in November to 47.0, even as the euro zone measure rose from 51.6 to 52.7 and Germany’s index pushed higher from 52.7 to 54.3.

It seems the divergence between French and German economic fortunes will be one of the major factors influencing euro zone politics and investment in the year ahead. It will not help that the euro zone political leaders, under the cloak of establishing banking union, last month agreed a banking resolution mechanism that will, if anything, reinforce the ‘doom loop’ inextricably binding together banking and sovereign debt problems.

The WSJ has a nice piece explaining how Spanish and Italian bonds rose in value today, pushing down yields below the 4% level, as traders seek higher returns on their money:

Yes, yields are low, and the gap between yields on problem-child bonds and German debt is skinnier than it has been in a long time. But it’s still a gap. And if you assume that the euro-zone crisis is unlikely to rear up again, and that the European Central Bank still looks prepared to ease policy to help further, in contrast to the Fed, then it makes sense to jump in.

“We’re still in a low-rate environment and for many investors, Spanish and Italian bonds remain attractive as 10-year bonds in these countries still yield around 2 percentage points more than German Bunds,” said Lyn Graham-Taylor, interest rate strategist at Rabobank.

No Ugly Hangover for Spanish and Italian Bonds

Lunchtime summary

Britain’s manufacturing sector has begun 2014 on the front foot, after the latest survey of factory output showed solid growth last month.

On a busy morning for economic data, UK factories reported solid rise in output, job creation and exports.

The UK manufacturing PMI, which measures activity across the sector, fell slightly to 57.3 (from a three-year high of 58.1).

The figures suggest the UK should manage healthy growth in the next few months.

• Across the eurozone, manufacturing output rose at the fastest rate in 31 months. There was good news in Italy, where growth hit a 32-month high, and Spain, where November’s contraction was reversed.

But France’s growing reputation as the ailing man of Europe was reinforced, with its manufacturing PMI hitting a seven-month low of 47.0 - showing a significant drop in activity. There was no sign of a turnaround in the eurozone’s second-biggest economy.

Markit’s Chris Williamson commented:

France is seeing a steepening downturn, in part the result of widening export losses.

This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers.”

Most European stock markets have fallen in the first few hours of new year trading. They were hit by disappointing manufacturing data from China and India – which hit the newswires before European traders had reached their desks after the new year break.

Both countries saw their PMIs falling closer to the 50-point mark that splits expansion from contraction (China’s fell to 50.5, from 50.8; India’s to 50.7 from 51.3).

Elsewhere in Europe…

Fiat’s shares surged after it agreed a deal to take full control of Chrysler. Analysts, though, have fretted about the amount of extra debt it will take on.

• And Latvians have been getting to grips with the euro, having joined the single currency at the start of the year. Here’s some photos.

• In the UK, Debenham’s chief financial officer has quit after the retailer announced a profit warning.

Updated

Brazil’s factory sector returned to growth last month, according to the latest survey of its manufacturing sector.

Markit reported that Brazil’s manufacturing PMI rose to 50.5 in December from 49.7 in November – showing ‘marginal improvement’ in its economy.

Firms reported stronger production growth and a rise in new work, while input and output price inflation cooled.

Markit’s chief economist, Chris Williamson, tweets:

Fiat’s agreement to take full control of Chrysler Group looks like the most interesting European business story of the day.

As flagged up earlier, the Italian carmaker has cheered investors with the deal, which reduces its dependence on European consumers . However, analysts are worried that Fiat is taking on even more debt.

Here’s Reuters full take

Fiat shares jumped on Thursday after it struck a $4.35 billion deal to gain full control of Chrysler Group LLC, but doubts remained over whether the Italian carmaker can use the merger to cut losses in Europe.

Investors welcomed the deal struck by Chief Executive Sergio Marchionne under which Fiat will buy the 41.46 percent of the No. 3 U.S. automaker it does not already own, without raising funds from the stock market.

Marchionne, who has run both companies since Chrysler’s 2009 U.S. government-funded bankruptcy restructuring, aims to merge the two into the world’s seventh-largest auto group.However, analysts worried about how the deal will increase Fiat’s already heavy debt burden, despite a relatively low price negotiated by Marchionne after more than a year of talks.

Fiat shares rose as much as 16% to levels last seen in August 2011 after the agreement, announced late on Wednesday, which aims to combine the two automakers’ resources and rejuvenate Fiat’s product lineup.

A Milan-based trader said:

“They paid less than the market had expected and there will be no capital increase to fund this, so no wonder the stock is flying.

“While it’s still to be seen how this will bode for Fiat’s future, this is a good start to the year for a company that has had quite a tough ride recently, especially in Europe.”

Fiat will buy the stake in the profitable U.S. group from a retiree healthcare trust affiliated to the United Auto Workers union. The trust will receive $3.65 billion in cash for the stake, $1.9 billion of which will come from Chrysler and $1.75 billion from Fiat.

After the deal closes, Chrysler has committed to giving the UAW trust another $700 million over three years.

However, Citigroup analysts said Fiat’s debt would become the highest for any European motor manufacturer.

“Group net debt will rise to around 10 billion euros ($13.8 billion) upon completion of this transaction … leaving it the most indebted OEM (original equipment manufacturer) in Europe,” they said in a note. “We continue to have concerns about the sustainability of this heavy debt burden.”

Photos: Latvia joining the euro

The eurozone now has 18 members, after Latvia joined the single currency at midnight yesterday.

Here’s a few photos, for the record.

In the bond markets, Spanish and Italian debt has strengthened in value. This has pushed down the yield, or interest rate, on both country’s bonds.

Italian 10-year debt is now changing hands at yields below 4% for the first time in eight months.

Market update

Back in the financial markets, this morning’s disappointing factory data from China (see opening post) has sent most European stock markets into retreat.

The news that French manufacturing output has fallen at the fastest rate in seven months (see here) has also hit sentiment — particularly in Paris, where the CAC has dropped almost 1%.

In London the FTSE 100 is down 32 points, or almost 0.5%.

And the German DAX didn’t cling onto its latest record high for long – it’s also down around 0.5%.

Brenda Kelly, chief market strategist at IG, says it’s not a great start to the year:

Factory activity growth in China has blighted sentiment….. Both the official Chinese PMI number and the HSBC metric showed a slowing in the country’s manufacturing sector in December.
Over in Europe, PMI manufacturing readings continue to show a general improvement, with Spain and Italy both exceeding analyst expectations. France is starting to become a concern: factory output there posted a seven-month low, which tends to indicate that any recovery in 2014 will be weak-to-moderate at best.
The attraction of mining stocks seen over the past couple of weeks has worn off. Anglo American, Vedanta Resources and BHP Billiton have all registered losses amid fears that 2014 will bring weakening demand for basic materials. The UK’s manufacturing output missed expectations slightly but has still succeeded in printing its ninth consecutive month of expansion.

Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation, is also confident that Britain’s factories can expand this year — as long as firms invest for the long term.

She explains:

Manufacturers ended the year on a strong note and rising production, new orders and increased employment in December provided a springboard for growth going into 2014.

Surer signs of a manufacturing recovery in Europe together with steady growth both at home, in the US and emerging markets should align to support solid expansion of UK manufacturing in the year ahead.

However, while we can hope to see more of the ground lost during the recession made up this year, we must also start to see new investments coming on stream if the sector is to secure a sustainable, long-term recovery.

ING: UK could grow by almost 3% this year

And here’s James Knightley of ING on the UK factory data (see 9.42am):

The UK manufacturing purchasing managers’ index for December has fallen to 57.3 from a downwardly revised 58.1 figure for November. This is a slight disappointment given the consensus reading was 58.4, but remains consistent with very strong growth rates. New orders dipped to 60.4 from a 19 year high of 63.9, but again still suggests that the economy will expand robustly in early 2014.

Indeed, we are of the view that the UK can grow by close to 3% this year and with unemployment falling more swiftly than the Bank of England was predicting and tomorrow’s bank lending data set to show an acceleration in credit growth, the probability of an interest rate rise before year-end is growing.

Nonetheless for now we still predict the first rate rise won’t happen until early 2015, but this will depend on the implementation of macro prudential tools to try and cool particularly “hot” parts of the economy.

Jeremy Cook, chief economist of World First, says there’s still “a lot to be happy with” in the latest survey of UK manufacturing.

December’s number was still the 2nd strongest since February 2011 with the production and new orders components hitting fresh record highs.

Jobs growth remained strong on the back of stronger demand from both domestic and export markets and should continue the belief that the UK’s employment picture should improve over the course of 2014. Some concern may be raised from the increase in input prices that came as a result of supply difficulties and the likely cessation of downward pressure on energy prices.

All in all, this report confirms what we knew for a long time; the UK economy has entered at 2014 at a very decent clip.

UK factory output growth slows, but still strong

Britain’s manufacturing sector didn’t perform quite as well as expected last month, but has still posted healthy growth, according to Markit’s latest survey of the sector.

The UK manufacturing PMI, based on interviews with firms across the sector, slipped back to 57.3 in December, from a three-year high of 58.1 in November.

The City had pencilled in a reading of 58.0. Still, it’s a stronger reading than the eurozone (details here) and much, much better than France.

Manufacturing output rose for the ninth month in a row….

…as did exports, but the rate of export growth eased to the weakest since September. UK manufacturers reported improved demand from Brazil, China, Ireland, Russia and the USA.

Markit said Britain’s manufacturing sector ended 2013 on a positive footing.

December saw rates of expansion in production and new orders both remain among the highest in the 22-year survey history, leading to a pace of job creation close to November’s two- and-a-half year record.

Companies benefited from strengthening domestic market conditions and a solid bounce in incoming new export orders.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said the data was encouraging, declaring that:

UK manufacturing ended 2013 on a high and with all signs of powering ahead into 2014.

Updated

Howard Archer of IHS Global Insight says today’s data suggests the eurozone grew modestly in the final quarter of 2013:

December’s improvement in Eurozone manufacturing activity reported by the purchasing managers is welcome and it supports hopes that the Eurozone regained modest upward momentum in the fourth quarter of 2013 after GDP growth slowed to just 0.1% quarter-on-quarter in the third quarter of 2013.

We expect Eurozone GDP growth to have improved modestly to 0.2-0.3% quarter-on-quarter in the fourth quarter.

Archer also agrees that the falling French factory output “fuels concerns over the underlying health of the French economy”

And this graph shows how France’s manufacturing sector (in grey) has deteriorated while most peers have improved (you can see a larger version here).

Eurozone manufacturing output growth at 31-month high, despite French woes….

It’s official – the eurozone’s factory sector grew at the fastest pace in 31 months, suggesting that the region’s manufacturing sector is strengthening..

Data firm Markit reports that the final eurozone manufacturing PMI rose to 52.7, which indicates a pick-up in growth — it’s a improvement on November’s 51.6.

The industrial powerhouse of Germany the way, and there were very encouraging signs in Italy (where growth hit a 32-month high) and Spain (where output returned to growth)

France’s weak performance, though, is a real worry — it’s PMI reading of just 47 suggests a nasty stumble in December (although other surveys of the French economy have been more positive…).

Here’s Markit’s key points:

  •  Final Eurozone Manufacturing PMI at 52.7 in December (31-month high)
  •  Rising output and fuller order books encourage manufacturers to hold off from further job cuts
  •  New export orders continue to rise at solid pace 

This chart shows how France clearly under-performed at the back end of 2013:

Chris Williamson, chief economist at Markit said France is suffering a “steepening downturn”.

“A strengthening upturn in the manufacturing sector is helping the euro area recovery become firmly established. The latest numbers are consistent with production growing at a quarterly rate of approximately 1% at the end of the year. It’s also encouraging to see prices rising slightly, suggesting firms are seeing some improvement in pricing power.

“With producers reporting further growth of new orders, exports and backlogs of work, the stage is set for a good start to 2014, during which it seems likely that the manufacturing sector will help drive a meaningful, albeit still modest, recovery in the wider economy.

“France, however, remains a concern. While Germany, Italy and Spain are seeing the strongest output growth since early-2011, buoyed to varying degrees by improved export sales, France is seeing a steepening downturn, in part the result of widening export losses.

This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers.”

Updated

And there may be a glimmer of light in Greece.

The Greek manufacturing PMI has hit its highest level in four years, up to 49.6 in December from 49.2 in November.

That still shows a small contraction, but might indicate the recession is finally bottoming out. New orders rose, but employment kept falling.

German factory output keeps rising

Much better news, as expected, from Germany — where manufacturing output grew at a faster pace in December.

That only underlines how badly France is doing….

French factories suffering

But there’s dire news for France — its factory downturn has intensified with the worst monthly manufacturing report since May 2013.

The French manufacturing PMI dropped to just 47 for December, a seven-month low, and well below the 50-point level that splits expansion from contraction.

That shows a sharper downturn in the manufacturing sector of Europe’s second-largest economy.

Market warned that output, new orders, employment and stocks of purchases all decreased at sharper rates in December.

New orders declined for the third month in a row, with exports dropping at the fastest rate since June.

Jack Kennedy, Senior Economist at Markit warned there was no sign of a turnaround yet.

Anecdotal evidence suggested that lingering uncertainties continue to hold back the spending and investment that are necessary to support a recovery in the sector.

Instead, most key variables in the latest PMI survey showed deteriorating trends to suggest that no such turnaround is in sight.”

Here’s some instant reaction to the news that Italy’s factory output grew at the fastest rate in 32 months.

Italian manufacturing output growth at 32-month high

Italy’s manufacturing output has risen at the fastest rate in 32 months — suggesting welcome signs of recovery in the Italian economy.

Markit just reported that the Italian PMI jumped to 53.3 for December, from 51.4 in November, which shows a rise in growth.

It was driven by an increase in new orders — and, crucially, a rise in employment.

Here’s the key points:

  •  Faster increases in output and new orders
  •  Job creation continues
  •  Sharpest rise in purchase prices since March 2012 

Phil Smith, economist at Markit, said Italy’s manufacturing sector goes from strength to strength, with its best growth in more than two-and-a-half years in December.

There were numerous positives to be taken from the latest data, not least further job creation. And with backlogs accumulating at an almost unprecedented rate for the survey, this looks set to continue.

“As is expected during an upturn, input price inflation has begun to accelerate as higher demand for materials gives suppliers greater pricing power. It’s running slightly faster than the average recorded over the series history, but remains well below the highs observed in the rebound following the 2008/9 global financial crisis.”

It comes hot on the heels of decent data from Spain this morning – and may suggest conditions improving in the eurozone’s weaker nations

Updated

Fiat’s shares are <ahem> motoring this morning – jumping 14% after agreeing to pay $3.65bn to buy the 41.5% of Chrysler it does not already own.

The deal gives Fiat more opportunity to profit from the US car sector, and making it less reliant on Europe.

Spanish manufacturing returns to growth

This should cheer the Madrid government – Spanish manufacturers reported a welcome, and much-needed return to growth in December. That reverses a worrying dip in the previous month.

However — firms are still laying off staff.

The Spanish manufacturing PMI hit 50.8, jumping from November’s 48.6 — over the 50-point mark that indicates whether the sector grew or shrank.

The employment PMI rose to 48.8, from 45.1 (showing that workforce’s still shrank, but at a slower rate).

Andrew Harker, a senior economist at Markit, commented:

The return to growth of the Spanish manufacturing sector at the end of 2013 was a positive sign, largely as it allayed fears that the decline seen in November heralded the start of a new downturn.

Rises in output and new orders lay a platform that firms will hope to build on during the new year should tentative improvements in client demand strengthen.

Updated

German DAX hits new record high

The German index of leading shares has hit yet another record high as Europe’s stock markets open for 2014.

The DAX jumped 0.5% at the start of trading, showing no loss of confidence in Frankfurt after a bumper 2013.

This sent the FTSEurofirst300 index, which tracks major shares in the region, up 0.3% to a five and a half-year high.

But it’s a more cautious start in London, as news of slowing factory growth in China (see opening post) weights on the City.

The FTSE 100 is down 15 points at 6733, partly pushed down by mining companies (Anglo American has lost 1.2%). And the French CAC is up just 0.3%.

Mike van Dulken, head of research at Accendo Markets, says that “positive New Year sentiment” is being held back by fears that China will struggle to deliver strong economic growth while also implementing reforms.

Germany’s DAX had hit a series of new record highs last year – no wonder brokers were knocking back the fizz on Monday, the final German trading day of the year.

(worth noting, though, that the DAX also includes dividends, so it’s actually worth less than in 2000 – see the FT for more)

Dutch manufacturing output growth at 32-month high

More economic data flooding in, including upbeat news from the Netherlands.

The Dutch manufacturing PMI has risen to a 32-month high of 57.0 for last month, from 56.8 in November.

That’s a strong performance in December, showing that factory growth accelerated. Markit, which compiled the data, said Dutch factories reported growth in new orders and rising confidence.

The Polish manufacturing PMI has dropped for the first time in eight months, to 53.2 from 54.4 — but that still indicates the sector expanded.

Updated

12 months pay for Debs’s departing CFO

Debenham’s chief financial officer will still receive 12 month’s pay and benefits after resigning today following Tuesday’s profit warning (unless he gets another job).

From the statement:

Simon Herrick’s current service agreement has a notice period of 12 months. He receives an annual salary of £410,000, a flexible benefits payment of £18,375 per annum and an annual pension contribution of £61,500; a total of £489,875 per annum.

He is also provided with life assurance cover. He will continue to receive these amounts and benefits in 12 monthly instalments commencing 2 January 2014.

However, should he receive any payments as a result of alternative employment or provision of services during this period, other than in respect of one non-executive position, subsequent instalments would be reduced by the amount of such payments.

Updated

Elsewhere in British retail, House of Fraser is celebrating its “best Christmas trading ever”.

Like-for-like sales in the three weeks to Christmas jumped by 7.3%.

Sounds good, but we’ll be looking to see whether it cut profit margins to keep stock moving…..

Debenhams finance director quits

In the UK, the chief finance officer of Debenhams has fallen on his sword, just two days after the retail chain disappointed investors with a New Year’s Eve profits warning.

Simon Herrick is stepping down with immediate effect, the company announced this morning. He’s been under pressure after it emerged that Debenhams has asked its suppliers for discounts earlier this month.

On Tuesday, Debenhams admitted that Christmas trading had not met expectations (covered in detail in Tuesday’s liveblog). The news sent its shares tumbling by 12, and added to concerns that other retailers may have struggled…..

Updated

Growth in Sweden’s factory output fell back last month — with the PMI dropping to 52.2 from 56.0 in November. That still shows growth, but it’s quite a slowdown.

Irish factory output jumps

Better news from Ireland — its factory output has grown for the seventh month in a row, and picked up pace in December. That’s encouraging, as it leaves its bailout behind.

Markit’s Irish manufacturing PMI rose to 53.5, from 52.4 – the second highest reading of output in 18 months.

Coming up: the final reading for France’s manufacturing sector at 8.50am GMT. That could be the one to watch – the ‘flash’ estimate of 47.1 two weeks ago was pretty poor, suggesting the French economy could be sliding into recession.

The overall eurozone reading comes at 9am, with the UK at 9.30am.

Updated

China weighs on the markets

Patrick Latchford at Monex Capital Markets agrees that the Chinese data has weighed on markets:

The majority of equity markets across Asia have been under pressure with the start of 2014′s trade being defined by that worse than expected manufacturing PMI reading from China.

Critically the number remains above 50 which means the sector is still expanding but the slowing pace of growth does underline just how the market is now maturing.

Indian factory growth falls back

It’s not just China. India’s factories also lost momentum last month, with firms cutting production as domestic demand fell.

Reuters has more details:

The HSBC Manufacturing Purchasing Managers’ Index compiled by Markit, fell to 50.7 in December from 51.3 in the previous month.

The index, which gauges business activity in Indian factories but not its utilities, spent three months below the 50 mark that separates growth from contraction before rising above it in November.

“Manufacturing activity decelerated slightly in December as a slowdown in domestic order flows led to slower output growth,” said Leif Eskesen, a chief economist at HSBC.

“Today’s numbers show that growth remains moderate and struggles to take off due to lingering structural constraints.”

Happy New Year!

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

And a very happy new year to you all too.

There’s a back to school feel about this morning, with a splurge of economic data from across the globe. It’s the day when Markit publishes its surveys of manufacturing output — and we’ve already had confirmation that China’s factory growth slowed in December.

Growth in new orders also fell, while foreign sales contracted slightly for the first time in four months and staffing levels fell for the second month in a row.

This pushed the headline Chinese PMI down to 50.5 in December, from 50.8 in November — close to the 50-point mark that separates expansion from contraction.

It all suggests that China’s huge manufacturing sector finished 2013 on a lull (as the ‘flash’ data two weeks ago suggested too).

Société Générale economist Wei Yao said Beijing’s efforts to tighten credit was hampering factory output — a trend that could continue this year.

“Overall, the report suggests weakening growth momentum of China’s manufacturing sector, as we have anticipated

We expect the impact of tight liquidity conditions to become more pronounced entering [the first half of] 2014.”

This was enough to send the main Chinese stock indices down around 0.35%, with the Hong Kong index dipping too.

The big fall came in South Korea, where the index has slumped by 2.5% after some weak car sales figures (and despite a glitzy ceremony to mark the start of trading in Seoul):

Lots more data to come — including PMIs for most European countries.

I’ll track the key points, and other developments through the day…..

Updated

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Following Ireland’s exit from the bailout, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. Situation in the second-largest economy in the euro-area worsens with French firms suffering. France looks like the ‘sick man of Europe’…

 


Powered by Guardian.co.ukThis article titled “Draghi warns EU on banking supervision — business live” was written by Graeme Weardenand Nick Fletcher, for theguardian.com on Monday 16th December 2013 16.24 UTC

Coming up in the UK tomorrow morning, the latest inflation data are expected to show price rises steadied last month but still outstripped wage growth. My colleague Katie Allen writes:

The consumer price index measure of inflation is expected to hold at 2.2% in November according to the consensus forecast in a Reuters poll. But some economists see the rate dropping to 2% while others have pencilled in a rise to 2.5%. Inflation has been above average annual earnings growth for several years now and the latest official figures put pay growth at 0.8%.

The RPI rate in tomorrow’s data from the Office for National Statistics – a measure often used for setting pay and pensions – is forecast to edge up to 2.7% from 2.6% in October.

Jonathan Loynes and Jack Allen at the thinktank Capital Economics say tomorrow’s data could show CPI at the Bank of England’s government-set target of 2% for the first time since November 2009. They comment: “Admittedly, petrol prices will probably make a larger contribution to inflation than in October. While they fell by about 1% m/m last month, they dropped by nearly 2% in November 2012.

“Nonetheless, food inflation should ease in November. Both global agricultural commodity prices and domestic food producer prices have been falling this year. And the British Retail Consortium’s timelier measure of food shop price inflation fell from 2.7% to 2.3% in November.

“In addition, although the two largest energy companies, British Gas and SSE, raised their prices on 15th and 23rd November respectively, these are unlikely to affect November’s CPI reading. Index Day – the day of the month on which the ONS chooses to collect prices – always falls on either the second or third Tuesday of the month. The ONS does not say which day until after the release, but given the pattern of previous Index Days, we reckon the ONS recorded prices on 12th November, before the energy companies raised their prices.

Meanwhile Portugal says it has passed the latest review by the troika of lenders:

Over in Greece, intense efforts are underway to wrap up negotiations with mission heads representing the country’s troika of creditors. Our correspondent in Athens Helena Smith reports.

With debt-stricken Greece’s next tranche of international aid resting on the talks, finance minister Yannis Stournaras said it was the government’s aim to conclude negotiations before tomorrow’s crucial euro group meeting. But the omens do not look good.

In unusually terse statements made before the onset of a fourth round of talks focusing on the thorny issue of bank repossession of homes, the development minister Kostis Hadzidakis insisted that Athens’ fragile coalition government would simply not adopt measures “at any price.”

“It is our intention to reach an agreement … but it is obvious that we are not going to agree at any price. The government cannot go back [on its promises] and accept whatever it is offered,” he said adding that under the terms offered by creditors at the EU, ECB and IMF, vulnerable Greeks would lose their homes. “It is easy to agree but afterwards you have to handle the social consequences,” he told Skai radio. The talks, which began at 4:30 PM local time, are being billed as “the very last” effort to find consensus on the potentially explosive issue.

After Ireland’s exit from the bailout this weekend, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. From his appearance at the European Parliament:

Back with Draghi:

Updated

Following the fifth and final review of Spain’s financial sector, the troika of the ECB, European Commission and IMF have welcomed signs of stabilisation at the country’s banks while warning more needs to be done:

Spain has pulled back from severe problems in some parts of its banking sector, thanks to its reform and policy actions, with the support of the euro area and broader European initiatives.

Spanish financial markets have further stabilised. Following the drop in sovereign bond yields, and the rise in share prices, financing conditions for large parts of the economy have improved, even if financing conditions for SMEs remain more challenging.

Nevertheless, the broader economic environment has continued to weigh on the banking sector, even if that impact has recently been receding. The private sector needs to reduce its debt stocks going forward, as heavy debt burdens continue to weigh on lending to the private economy.

Supervisors and policy makers have to continue to monitor closely the operation and stability of the banking sector. Continued in-depth diagnostics of the shock resilience and solvency of the Spanish banking sector remain vital. This is also important in order to ensure a proper preparation of the pending assessment of banks’ balance sheets by the ECB and EBA in the run up to the start of the Single Supervisory Mechanism.

The recent encouraging macroeconomic developments bear witness of advancement in the process of adjustment of the Spanish economy and corroborate the expectation of a gradual recovery in activity and of an approaching end to employment destruction.

The economic situation remains however subject to risks as imbalances continue to be worked out. Respecting fully the agreed fiscal consolidation targets – so as to reverse the rise in government debt – and completing the reform agenda remain imperative to return the economy on a sustainable growth path.

Following progress during 2013, the policy momentum needs to be maintained to finalise ongoing and planned reforms – amongst which are the delayed law on professional services and associations, reforms of public administration, further strengthening of labour market policies, eliminating the electricity tariff deficit and the forthcoming review of the tax system – and to ensure effective implementation of all reforms.

Full report here.

Updated

The protests in Ukraine have put pressure on the country’s credit rating, according to Fitch. The agency said:

The duration and scale of anti-government protests in Ukraine has put additional pressure on the country’s credit profile. The longer the standoff goes on, the greater the risk that political uncertainty will raise demand for foreign currency, cause inward investment to dry up, or trigger capital flight, causing additional reserve losses and increasing the risk of disorderly currency moves.
Developments over the weekend suggest the crisis is some way from resolution as the opposition hardens demands for a change of government. Between 150,000 and 200,000 protestors gathered in Kiev, according to press reports.
Even if the immediate crisis were defused and protests ended, political uncertainty would persist. The government would still be likely to find it hard to resolve the diplomatic challenge of building closer relations with the EU while placating Russia.

Full report here:

Ukraine Protests Increase Pressure on Credit Profile

And here’s ECB president Draghi on any trimming by the US Federal Reserve of its $85bn a month bond buying programme:

Markets jump as Fed fears ease and US deals enthuse investors

After days in the doldrums, markets are moving sharply higher. Investors have been selling shares in recent dayks amid concerns the US Federal Reserve could start turning off the money taps as early as this week’s meeting.

Strong US economic data – including industrial output today – has made that more likely, as has the signs of political agreement about the US budget. But on the whole, observers still think, in the main, the Fed will wait until next year.

So with a spate of acquisitions, including Avago Technologies paying $6.6bn for LSI Corporation, shares are back in favour for the moment. The Dow Jones Industrial Average is currently nearly 1% or 156 points higher, helping to pull the FTSE 100 to its highest levels of the day, up more than 1.3%.

Back to the news that Lloyds of London has appointed its first female boss, and my colleague Jill Treanor has the full story:

Forty years after the first woman entered the Lloyd’s of London dealing floor as a broker, the 325-year-old insurance market has named its first female boss.

The company is to be run by 30-year industry veteran Inga Beale from January. Currently the chief executive of Canopius, a Lloyd’s managing agent thought to be the subject of a takeover bid, Beale will replace Richard Ward who surprised the industry by resigning in the summer.

More here:

Lloyd’s of London appoints first female chief executive in 325-year history

Draghi is strking a dovish tone, according to Annalisa Piazza at Newedge Strategy:

The ECB’s Draghi comments in front of the EU Parliament strike a rather dovish tone on the current state of the EMU economy. Indicators signal that the EMYU recovery is set to grow at a modest pace in Q4 and the ECB is ready to act if needed. The effects of past policy easing will be clear only with a certain delay. In the meanwhile, the ECB is fully aware of downside risks on inflation.

And it seems more MEPs have now turned up to hear Draghi:

Draghi warned:

We should not create a Single Resolution Mechanism that is single in name only. In this respect, I am concerned that decision-making may become overly complex and financing arrangements may not be adequate. I trust that the European Parliament, together with the Council, will succeed in creating a true Banking Union.

Draghi also discussed the Single Supervisory Mechanism, and there would be stress tests for sovereign bonds as part of the process:

An important element of our preparations is the comprehensive assessment, which comprises a supervisory risk assessment, an asset quality review and a stress test performed in cooperation with the European Banking Authority (EBA).

…The process for the selection of asset portfolios to be reviewed for the asset quality review was initiated in November, based on specific data collections. Furthermore, we expect to announce the key parameters of the stress test exercise together with the EBA towards the beginning of next year.

In this context, let me explain again the treatment of sovereign bonds: The Asset Quality Review is a valuation exercise where we will apply the current regulatory framework. It is not for us to change this framework – this is a global discussion, and the Basel Committee is the right forum for it. That said, we will of course “stress” a wide range of assets as part of the stress tests: Sovereign bonds will be among them.

On interest rates and other measures, Draghi said:

Our forward guidance still remains in place: we continue to expect ECB key interest rates to remain at present or lower levels for an extended period of time. Thus, monetary policy will remain accommodative for as long as necessary.

Adjusting interest rates is not always sufficient to maintain price stability. In this crisis, interest rate cuts have been transmitted more slowly and unevenly across euro area countries due to the fragmentation of financial markets. To address this problem, we adopted in recent years a series of non-standard measures. The purpose of these was – and remains – a more effective transmission of the ECB’s interest rate cuts, so that our monetary policy can reach companies and households throughout the euro area.

This was also the purpose of our decision in November to continue conducting all our refinancing operations as fixed rate tender procedures with full allotment at least until July 2015. Thus, we have helped to alleviate funding concerns of banks, which are still hesitant to lend to households and firms.

Two years ago, we provided funding support to euro area banks through two Long Term Refinancing Operations with a maturity of three years each. As the funding situation of banks has improved significantly since then, banks have this year opted to repay about 40% of the initially outstanding amount. Accordingly, excess liquidity in overnight money markets has been gradually receding. We are monitoring the potential impact of these developments on our monetary policy stance. We are ready to consider all available instruments.

Over in Europe, ECB president Mario Draghi is speaking at the European parliament. here are the Reuters snaps:

16-Dec-2013 14:10 – DRAGHI – UNDERLYING PRICE PRESSURES ARE SUBDUED

16-Dec-2013 14:10 – DRAGHI – SEE MODEST GROWTH IN Q4

16-Dec-2013 14:11 – DRAGHI – ACCOMMODATIVE ECB MON POL STANCE WILL SUPPORT RECOVERY

16-Dec-2013 14:12 – DRAGHI – GROWTH RISKS ARE ON DOWNSIDE

16-Dec-2013 14:14 – DRAGHI – GOVERNING COUNCIL EXPECTS KEY ECB INTEREST RATES TO REMAIN AT PRESENT OR LOWER LEVELS FOR EXTENDED PERIOD

16-Dec-2013 14:17 – DRAGHI – MONITOR MONEY MARKET CONDITIONS CLOSELY, READY TO CONSIDER ALL AVAILABLE INSTRUMENTS

16-Dec-2013 14:18 – DRAGHI – WE ARE FULLY AWARE OF DOWNWARD RISK THAT PROTRACTED PERIOD OF LOW INFLATION ENTAILS

16-Dec-2013 14:19 – DRAGHI – SEE NO RISKS OF FINANCIAL IMBALANCES RELATED TO LOW INTEREST RATE ENVIRONMENT

16-Dec-2013 14:21 – DRAGHI – SOVEREIGN BONDS WILL BE TREATED RISK-FREE IN AQR, WILL BE STRESSED IN EBA STRESS TESTS

16-Dec-2013 14:22 – DRAGHI -CONCERNED THAT SRM DECISION MAKING MAY BECOME OVERLY COMPLEX, FINANCING ARRANGEMENTS MAY NOT BE ADEQUATE

Updated

Back in the world of economics, US factory output has slowed a little this month, mirroring the news from China overnight (see 8.02am post).

Markit’s monthly flash measure of American manufacturers came in at 54.4, down from 54.47 in November. That indicates that US firms (manufacturers and service firms) still grew, but at a slightly slower rate.

The employment measures showed that firms hired new staff at the fastest rate in nine months, and Markit reckons that this quarter is turning into the best three months for US factories this year.

And separate data from the Federal Reserve backs this point up — it just reported a 1.1% jump in industrial output in November.

On that note, I’m handing over to my colleague Nick Fletcher.

Updated

Inga Beale’s appointment as boss of Lloyd’s of London will go a small way to closing the gender gap at the top of the City. But there’s still some way to go.

Currently there are just three women running FTSE 100 companies — Angela Ahrendts at Burberry; Carolyn McCall at EasyJet, and Alison Cooper at Imperial Tobacco. Moya Greene will become the fourth when Royal Mail enters the index on Wednesday night.

Lloyd’s of London isn’t a listed company, so Beale won’t join the quartet.

The total will rise to five when BT executive Liv Garfield moves to run Severn Trent — but, with Ahrendts joining Apple next year, the total could soon drop back to four.

Concern has been growing recently that the City is still a tilted playing field. A survey last week found that a man who starts his career with a FTSE 100 company is four and a half times more likely to reach the executive committee than his female counterpart (the Financial Times has more details).

The UK has a target of 25% female representation across corporate boards by 2015 — currently the figure is 19%, up from 12.5% in 2010. So there appears to be progress…. except that women who do reach senior positions are in jobs that are traditionally lower paid.

Updated

How times change…. Inga Beale is appointed as Lloyd’s first woman CEO just 40 years after the London insurance market welcomed its first ever female broker into the ranks.

Liliana Archibald was a pioneer in 1973 when she became the first ever Lloyds broker, after Lloyd’s decided to move with the times. She now gets a space in the Historic Heroes section of Lloyd’s website, which explains:

At that time, Lloyd’s made a decision to accept women as Names. Archibald applied and in 1973 was accepted.

She told Lloyd’s List, ‘I did not break down the barriers; they were broken down for me by the members of Lloyd’s in a very charming way.’

Updated

Lloyd’s of London appoints first female CEO

Lloyd’s of London has appointed its first ever female chief executive.

Inga Beale will succeed Richard Ward in January. She currently runs Canopius Group, the Lloyd’s-based insurance and reinsurance group.

There had been many whispers in the City in recent days that Beale was in line for the top job at Lloyds, making her the first women to lead the insurance market in its 325-year history.

Beale has worked in insurance for three decades — beginning her career in insurance as an underwriter with Prudential. She’s also previously worked as Global Chief Underwriting Officer of Zurich Insurance, and as Group CEO of Converium Ltd.

John Nelson, Chairman of Lloyd’s, said:

I am absolutely delighted that we have appointed Inga as Chief Executive. She has 30 years’ experience in the insurance industry.

Her CEO experience, underwriting background, international experience and operational skills, together with her knowledge of the Lloyd’s market, make Inga the ideal Chief Executive for Lloyd’s. I very much look forward to working with her.

In the statement just published, Beale said Lloyd’s has “an extraordinary opportunity to increase its footprint and to cement its position as the global hub for specialist insurance and reinsurance”.

Back in June, she argued that more diverse boardrooms could deliver stronger results. Beale explained: 

I think the business is run differently if you have women around the decision making table and that’s why it’s good to have diversity, not just on the gender side.

Different people approach things differently and provide alternative views – diverse boards help companies make better decisions, which affect the bottom line.

It’s been a good few days for gender equality in the corporate world, with Mary Barra being appointed to lead General Motors last week.

Updated

The Eurozone’s trade surplus almost doubled year-on-year in October — but a fall in imports, rather than a surge of exports, is the main factor.

Eurostat reports that the eurozone’s posted a trade surplus of €17.2bn with the rest of the world in October, up from €9.6bn in October 2012..

The trade surplus was also much larger on a month-on-month basis, up from €10.9bn in September.

That sounds encouraging, but a peek at the data confirms that the flow of goods into the eurozone has stumbled since the eurozone crisis began.

Seasonally adjusted imports fell by 1.2% in October compared with September, while exports rose by 0.2%.

So far this year, exports are up 1% to €1.578trn, while imports are down 3% at €1.455trn. The resulting trade surplus, of almost €123bn, is double last year’s €57.4bn.

The data also underlined today’s theme — the divergence between Germany and France.

So far this year, the largest surplus has been recorded in Germany (+€148.3bn in January-September 2013), followed by the Netherlands (+€40.5bn), Ireland (+€28.5bn), Italy (+19.6bn), Belgium (€11.6bn) and the Czech Republic (+€10.6bn).

The biggest deficit was registered in France (-€57.5bn) , followed by the United Kingdom (-€55.1bn), Greece (-€14.5bn) and Spain (-€11.6bn).

Updated

Troubled insurance firm RSA is the biggest faller on the FTSE 100 this morning, shedding almost 3%.

Trader fear RSA’s recent problems — three profits warning, and the resignation of its CEO — could hit its credit rating.

RSA Insurance drops another 3% on credit rating fears

Updated

In the City, power firm Aggreko is leading the FTSE 100 risers after announcing decent results — and a deal to supply temporary power for the World Cup and Commonwealth Games in 2014.

That’s sent its shares up 6% (clawing back losses suffered last week).

Aggreko wins World Cup and Commonwealth Games power contracts

The euro has risen this morning, up 0.2% to $1.3765 against the US dollar. That reflects Markit’s view that today’s PMI data doesn’t make fresh stimulus from the European Central Bank more likely.

There’s also edginess ahead of the Federal Reserve’s meeting on Wednesday -when it might start to ease back on its $85bn/month bond-buying programme

Peter O’Flanagan of Clear Currency reckons the Fed won’t taper this week:

 Although there are continued signs of improvement in the US economy we feel the Fed may well look for one more month of strong data before they announce the scaling back of their QE program.

That being said we think this decision will be down to the wire.

European market: morning update

It’s a positive start to the week in Europe’s stock markets.

The Spanish and Italian markets are the best performers, following the news that private firms in the periphery are enjoying their best month since April 2011, according to Markit

  • FTSE 100: up 32 points at 6,472, + 0.5%
  • German DAX: up 45 points at 9,052, +0.5%
  • French CAC: up 16 points at 4,076, + 0.4%
  • Spanish IBEX: up 141 points at 9,414, + 1.5%
  • Italian FTSE MIB: up 253 points at 18,089, +1.4%

Howard Archer of IHS sums up the good news in today’s data…..

Some relatively decent news for Eurozone recovery prospects with the December purchasing managers surveys indicating that overall Eurozone manufacturing and services output expanded for a sixth month running and at the fastest rate since September.

Furthermore new orders picked up in December to the highest level since mid-2011, thereby lifting hopes that Eurozone activity can pick up at the start of 2014.

… and the bad:

However, there was pretty dire news on France where overall manufacturing and services activity contracted for a second month running in December and at the fastest rate for seven months following on from GDP contraction of 0.1% quarter-on-quarter in the third quarter.

This suggests that there is a very real danger that France is slipping back into shallow recession and reinforces concern about France’s underlying competitiveness.

France lags behind as eurozone recovery picks up

Activity across the Eurozone private sector has risen this month as the single currency area ends the year with ‘fragile’ growth, according to Markit’s new data published this morning.

It found that output in peripheral eurozone countries picked up in December.

With Germany already reporting solid growth this morning (see here), France looks increasingly like the ‘sick man of Europe’ as its firms struggle.

Markit’s Eurozone PMI Composite Output Index — which measures activity at thousands of firms across the eurozone — rose to 52.1 in December, up from 51.7 in November. That’s a ‘flash’ estimate, of course, but it suggests stronger growth in most parts of the euro area – not just Germany.

December is turning into a good month for eurozone manufacturers, with output rising for the sixth successive month. The rate of increase was the highest since April 2011 .

Service sector growth was more modest, though, with the rate of expansion hitting a four-month low (but there was still growth)

But as this graph shows, France was the laggard – with its service and manufacturing firms reporting a drop in activity (see 8.23am for details).

Chris Williamson, chief economist at Markit, said the data suggested the eurozone will grow modestly this quarter, by 0.2%. He fears that France could fall back into recession though, as the gap between the eurozone’s two biggest countries gets bigger .

Williamson explained:

The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track. The upturn means that, over the final quarter, businesses saw the strongest growth since the first half of 2011, and have now enjoyed two consecutive quarters of growth.”

On the downside, the PMI is signalling a mere 0.2% expansion of GDP in the fourth quarter, suggesting the recovery remains both weak and fragile.

The upturn is also uneven. Growth is concentrated in manufacturing, where rising exports have helped push growth of the sector to the fastest for two-and- a-half years, while weak domestic demand led to a further slowing in service sector growth.

However, it‟s the unbalanced nature of the upturn among member states that is the most worrying. France looks increasingly like the new “sick man of Europe‟, as a second successive monthly contraction may translate into another quarterly decline in GDP, pushing the country back into a technical recession. In contrast, the December survey data round off a solid quarter of growth in Germany, in which GDP looks set to rise by 0.5%.

There‟s little here to suggest that euro area policymakers need to increase their stimulus, but on the other hand the sluggish nature of the upturn adds to the sense that policy will remain ultra- accommodative for quite some time.

And here’s some reaction to the news that growth in Germany manufacturing sector is currently running at a 30-month high….

Tim Moore, senior economist at Markit:

 Manufacturing achieved a particularly strong end to the year, with improving new order flows and renewed job creation also providing encouragement that the sector has gained momentum since the autumn.

Growth of new work was the fastest for over two-and- a-half years while stocks of finished goods were depleted at an accelerated pace.

Quite a contrast with France, where firms reported that orders are falling (see 8.23am)

Now over to Germany…..

Germany’s private sector is leaving France in the dust, Markit reports, led by its manufacturers.

Private sector output in the eurozone’s largest economy is growing steadily this month, for the eighth month in a row.

German factories saw output growth accelerate, pushing the manufacturing PMI up to a 30-month high of 54.2, up from 52.7 in November.

Service sector firms expanded at a slower pace than in November, but growth was still solid. The Service sector PMI was 54.0, down from 55.7.

This meant the composite German private sector PMI fell slightly to 55.2 in December, down slightly on November’s 55.4 — but still indicating healthy expansion.

That suggests Germany’s economy will grow this quarter.

Credit Agricole’s Frederik Ducrozet points out that other French economic surveys have been less pessimistic than the PMI readings…

And this graph shows how recent PMI data has been more negative than the official growth data:

Updated

French PMI: Instant reaction

Here’s how experts are reacting to the news of France’s weakening private sector:

Markit chief economist Chris Williamson said the drop in French private sector activity suggests that France’s GDP will shrink by about 0.1% in the current quarter.

That would follow the 0.1% contraction in July-September — putting France back into recession (defined as two consecutive quarters of negative growth)

Williamson added:

The pipeline of work that companies have to deal with is drying up and we’ll get to a stage where, if that doesn’t turn around, there will be increased job losses.

French private sector keeps shrinking

France could be sliding into a double-dip recession, as its private sector activity continues to fall this month.

Data provider Markit reports that the rate of decline in French private sector output accelerated during December. It recorded the biggest contraction in output in seven months.

That suggesting that France’s economy is still shrinking, as manufacturers and service sector struggle to win new contracts.

The Markit Flash France Composite Output Index, slipped to 47.0, from 48.0 in November — that’s the second month in a row that it’s been below 50 points (which signals a drop in activity).

In a report shy of good news, Markit found that new orders are decreasing in the French private sector, meaning companies are relying on existing work to keep busy.

 Backlogs of work fell solidly and at the sharpest pace in eight months, it said. Staffing levels also continued to decline during December, as firms shed staff.

Andrew Harker, Senior Economist at Markit, said the readings “paint a worrying picture on the health of the French economy.

The return to contraction in November has been followed up with a sharper reduction in December, with falling new business at the heart of this as clients were reportedly reluctant to commit to new contracts.

Firms will hope that such reticence ends in the new year as they seek to avoid another protracted downturn.

Details to follow….

Chinese factory growth slows

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

The last full working week of 2013 (in these parts, anyway) begins with the news that growth in China’s factory sector has slowed this month, for the third month in a row.

It’s that stage in the month when data provider Markit produces its ‘flash’ estimates of activity in key economies, based on interviews with purchasing managers (We get data from France and Germany this morning too).

And China’s PMI has fallen to 50.5 for December, from November’s 50.8, with firms reporting that output growth slowed. That’s closer to the 50-point mark that splits expansion from contraction.

It may suggest the global economy is ending the year on a weaker note. As well as slowing output growth, firms also reported a drop in employment. On a happier note, new orders have picked up.

The news sent China’s stock market sliding to a four-week low, with the Shanghai Composite Index shedding 1.6%.

That’s set the tone for an edgy start to the week, as global investors await the US Federal Reserve’s monthly meeting on Wednesday night (where the Fed might take the plunge and slow the pace of its stimulus programme).

Also on the agenda– the implications of Germany’s new government, after the CDU and the SPD formally formed a coalition over the weekend.

And I’ll be keeping an eye on Greece, where the government and the Troika are continuing to hold talks over its bailout programme…..

Updated

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Published via the Guardian News Feed plugin for WordPress.

IMF Chief Christine Lagarde says “vital to raise US debt ceiling”. The US Treasury Department also weighed in, warning of dire calamity. US services sector showed growth was slowing, with the PMI coming in at 54.4 in September, down from 58.6 in August…

 


Powered by Guardian.co.ukThis article titled “Lagarde demands urgent action over US debt ceiling as markets get jittery – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 3rd October 2013 16.51 UTC

The end

The big story tonight remains the US government shutdown - which my US colleagues are live-blogging here. So here’s a brief summary to finish with.

• Christine Lagarde has piled pressure on America’s politicians to raise the US debt ceiling quickly. The IMF chief said it was “mission-critical” to avert the danger of a US default. The country’s Treasury Department also weighed in, warning of dire calamity.

• Fears over a possible US default hit shares on Wall Street. There were also signs of investors moving money out of short-term US debt, pushing up bond yields. Encouraging US jobs data was cancelled out by weaker service sector growth. Here’s what analysts are saying about the debt ceiling….

• Europe’s private sector has posted its biggest rise in activity in 27 months. Italian firms reported a stronger month, boosting hopes that the country is pulling out of recession. Retail sales also picked up.

• China’s service sector performed well in September too, pushing activity to a six-month high.

• In Greece, the head of the Golden Dawn party is being held in custody ahead of the criminal trial into the party, as the clampdown continues to raise fears over the country’s political stability. Another GD MP appeared in court, as the party raged against the decision to jail its leader.

• A survey of a Cyprus gas field found smaller reserves than hoped, but the government will still push on with exploiting it.

Back tomorrow, hopefully for a more lively day. Goodnight. GW 

An uninspiring day in Europe’s stock markets is over.

The FTSE 100 finished up 11 points at 6449, but the other main markets all lost ground. The French CAC shed 0.7%, the German DAX closed 0.37% lower, Spain’s IBEX is down 0.7% and the Italian FTSE MIB dropped 0.5%. No boost from today’s decent eurozone economic data, while the US debt ceiling deadline gets closer…..

Updated

The Japonica Partners investment fund, which has a big holding of Greek debt, has been holding a conference call for City analysts to explain why Greece’s bonds are actually much better quality than people realise.

Here’s a screengrab of Bloomberg’s news flashes:

FT Alphaville’s Joseph Cotterill is on the call, and flags up that Japonica was asked whether it’s planning to buy Greek state assets with its Greek government bonds. The idea wasn’t ruled out….

Wall Street falls

Those warnings over the US debt ceiling from Christine Lagarde, and from the US Treasury, come as shares fall on Wall Street today.

US traders pushed down the Dow Jones industrial average, as they watched Barack Obama lay into the Republicans in a speech in Rockville, Maryland (details in our US liveblog).

The Dow Jones industrial average is down 130 points, or 0.8%, with 28 of its 30 members losing ground.

It’s not all because of the deadlock on Capitol Hill. A monthly survey of the US services sector showed growth was slowing, with the PMI coming in at 54.4 in September, down from 58.6 in August (anything over 50 shows growth).

There are already fears that the shutdown will cost jobs and hit growth.

United Technologies, which supplies helicopters and jet engines to the U.S. military, has warned that if there’s no deal by Monday it might tell 2,000 workers to down tools. Bloomberg has the details.

My US colleague Tom McCarthy has launched a new liveblog tracking Day Three of the government shutdown:

Government shutdown enters third day after talks fail to break deadlock – live

It includes details of a report from the US Treasury Department which warns that there would be catastrophic consequences if America doesn’t raise its debt ceiling on time.

It certainly sounds scary:

A default would be unprecedented and has the potential to be catastrophic,” the Treasury reported.

“Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.

Surely they’ll get a debt ceiling deal in time, right? Surely….

Heads-up, Alexis Tsipras, head of Greece’s Syriza party, is giving a press conference with European Parliament president Martin Schulz.

It’s being streamed here.

The Golden Dawn clampdown has been raised. Schulz said there was “no place” for those with Nazi views in a democratic society while Tsipras welcomed the EP’s plans for a special session on “Golden Dawn and right-wing extremism”.

Tsipras also slammed the Greek bailout programme, saying: “One shouldn’t be taking new loans to pay off old ones,” according to AP’s Jurgen Baetz.

I don’t think he’s arguing against rolling over sovereign debt….

The IMF are tweeting highlights from the Lagarde speech, where she’s warning about the looming debt ceiling:

Lagarde: Mission critical to resolve US government crisis now

The head of the International Monetary Fund, Christine Lagarde, urged America’s warring politicians to settle their differences as she warned that an escalation of the budget row would harm the entire global economy, our economics editor Larry Elliott writes:

Speaking ahead of the Fund’s annual meeting in Washington next week, Lagarde said it was “mission critical” that Democrats and Republicans raise the US debt ceiling before the October 17 deadline.

Financial markets have started to take fright at the prospect that America could go into technical default as a result of the impasse in Washington and the IMF’s managing director said the dispute was a fresh setback for a global economy that would take at least a decade to recover from the deep slump of 2008-09.

Lagarde said:

I have said many times before that the U.S. needs to “slow down and hurry up”—by that I mean less fiscal adjustment today and more tomorrow.

She added that the world’s biggest economy needed to put its finances in order, but favoured back-loaded measures to raise revenues and limit entitlement spending that did not jeopardise short-term growth.

Lagarde added:

In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.

So it is “mission-critical” that this be resolved as soon as possible.

We’ll have the full story online shortly

Some early snaps from Christine Lagarde’s speech, in which she also warns that America was too eager this year to cut spending and raise taxes:

03-Oct-2013 15:00 – IMF’S LAGARDE SAYS U.S. ECONOMIC GROWTH THIS YEAR WILL BE ‘TOO LOW,’ BELOW 2 PCT, DUE TO TOO MUCH FISCAL TIGHTENING

03-Oct-2013 15:00 – LAGARDE SAYS U.S. GROWTH WILL BE ABOUT 1 PERCENTAGE POINT HIGHER IN 2014 AS FISCAL STRAINS EASE – SPEECH TEXT

03-Oct-2013 15:00 – LAGARDE SAYS U.S. FAILURE TO RAISE DEBT CEILING COULD ‘VERY SERIOUSLY’ HURT U.S. AND GLOBAL ECONOMY, CRITICAL TO RESOLVE AS SOON AS POSSIBLE

03-Oct-2013 15:00 – LAGARDE SAYS MARKET TURBULENCE SINCE MAY OVER PERCEIVED END TO U.S. EASY MONEY POLICIES COULD REDUCE GDP IN MAJOR EMERGING MARKETS BY 0.5 TO 1 PCT

Christine Lagarde urges US politicians to end budget row

Breaking: Christine Lagarde, head of the International Monetary Fund, has urged politicians in Washington to act quickly to resolve the government shutdown before the global economy is hurt badly.

Speaking in Washington right now, Lagarde is warning that a failure to raise the debt ceiling could “very seriously hurt” the US and global economy.

It is critical to resolve the crisis soon, she said.

More to follow

Updated

The yield on America’s one-month debt has risen to the highest level in 10 months, suggesting investors are getting worried about the looming debt ceiling and selling bonds which mature at the end of October.

This has pushed the yield up to 0.129%, from just 0.028% a week ago. That’s still a very ‘safe’ level, of course, but it’s a sign that the US budget deadlock is starting to make traders more nervous, with the debt ceiling looming.

The cost of insuring US bonds against default is also up:

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Some reaction to the Cyprus gas drilling results:

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Cyprus gas results are in

Cyprus’s hopes of receiving a huge windfall from offshore reserves of natural gas received a knock today, after new drilling results found there is less recoverable gas at one field than hoped.

The Nicosia government announced the results of exploratory drilling off its coast a few minutes ago. Texas’s Noble Energy, which did the drilling in the Cypriot Aphrodite concession, also updated its shareholders.

And the news is that Noble Energy has estimated there is 5 trillion cubic feet of natural gas (or between 3.6trn and 6trn) to be recovered at that particular gas field south of the Mediterranean island. That’s a disappointment, as earlier drilling in 2011 indicated there was 7 trillion cubic feet (or between 5trn and 8trn).

The Cypriot government is still pushing on with its plans to exploit the reserves, though:

Cypriot energy minister Yiorgos Lakkotrypis told reporters:

It’s important to state from the outset that, despite the lower quantities we announce today compared to those of 2011, the confirmed reserves affirm a particularly important reserve of natural gas.

Keith Elliott, Noble Energy’s senior vice president for Eastern Mediterranean, also remained upbeat:

Results from the Cyprus A-2 well have confirmed substantial recoverable natural gas resources and high reservoir deliverability.

Cyprus has talked about recovering 60 trillion cubit feet of gas from its reserves – although some analysts are skeptical.

Separately, there are reports from Cyprus that the country is considering withdrawing from Eurovision as part of its financial plight.

Can we come too?

Updated

Here’s a handy graph putting today’s US jobs data into some context:

US initial jobless claims rise slightly

The weekly US jobless claims data is out…and it shows a small rise in the number of people signing on for unemployment benefit last week.

The initial jobless claims total rose by 1,000 last week to 308,000. That’s close to the recent six-year low, and better than expected.

The four-week average fell, to 305,000 – which is the lowest since May 2007.

That won’t include the effect of the US government shutdown (as this data runs to 28 September and the shutdown began at midnight on 1 October).

Oil giant BP helped push the FTSE 100 higher this morning, after a US court ruled in its favour in a case about compensation payments following the Deepwater Horizon diasaster.

BP share are up 1.5% in London, and are expected to rise a similar amount in New York. Last night, judges ruled that the company should not be forced to pay billions of dollars in compensation to those not directly affected by the environmental damage following the oil rig explosion in which 11 men died.

Angela Monaghan explains:

The British oil company welcomed a ruling by the US court of appeals which will force a rethink on how compensation claims related to the disaster will be assessed.

The supreme court also ordered that payments must be stopped to people who did not suffer “actual injury traceable to loss” from the spill until cases have been properly heard and decided through the judicial process.

More here: BP welcomes US court of appeal ruling on Gulf of Mexico oil spill payouts

Here’s the situation in Europe’s stock markets this lunchtime:

(I was incorrect to say the DAX was closed today for Germany’s Unity Holiday — but given it’s down 0.02% it may as well be :) )

Plenty of chatter in the City today about whether America will raise its debt ceiling in time.

Gary Jenkins of Swordfish Research reckons Washington DC will get its act together, before the US crashes into the $16.7bn borrowing limit, probably around 17 October.

He writes;

After all, would politicians really be so stupid as to go through a process in which the potential unintended consequences could be so harmful, where there is no precedent for their actions and where there is no clear plan of what exactly they are trying to achieve? (Unless it’s to do with military action…).

Jenkins adds, though, that the US should be careful about appearing so blasé about its priorities:

 If the US were a company and the shareholders were openly discussing whether or not they should pay their bills or not then I find it hard to believe that the agencies would be taking such a relaxed view of the matter.

So, even if the politicians step back from the abyss, unless the debt ceiling dynamic is dealt with we could see a recurrence of current events. I do not know what the unintended consequences will be, but then again nor do the politicians. What I do know is that if I had the major economic and political advantage of having the world’s reserve currency and most wanted debt instrument is that I wouldn’t play around with it.

There’s talk in Washington of carving out a ‘Grand Bargain’ (a wide-ranging fiscal program designed to lower America’s long-term borrowing needs). That’s a tough task, though, especially when the two sides can’t agree to reopen the government.

Louise Cooper of Cooper City reckons any deal will just be a temporary patch-up job

While Ishaq Siddiqi, market strategist at ETX Capital, isn’t 100% convinced Washington will manage a deal in time.

The fact that US lawmakers are tied in a game of political brinkmanship over a fresh budget leaves traders not feeling too confident that lawmakers will be able to find common ground on raising the debt ceiling.

Indeed, failure to do so could see a US default. President Obama warned Wall Street last night that a conservative faction of the Republicans is willing to allow the US to default on its debt, lifting fears in the market that such a scenario could be played out.

The euro has risen around 0.2% against the US dollar to $1.360, while Europe’s stock markets are pretty calm.

Another Golden Dawn MP in court

Back to Greece, another Golden Dawn MP has arrived in court as the courtroom drama over the last two days continues to reverberate.

Michaloliakos’ right hand man, Christos Pappas, was also arrested on charges of overseeing a criminal organisation. His hearing was due to start at 1pm local time, or 11am BST.

Earlier this week anti-terror units discovered “a heap” of Nazi paraphernalia in Pappas’s home, including a book titled “Hitler by my side”.

Golden Dawn itself is furious that judges decided to jail its leader, Nikos Michaloliakos, ahead of a trial over charges that the party is a criminal gang. It issued a statement calling the move “wretched plot” and blaming it on ”foreign centres.”

From Athens, Helena Smith reports:

In a move that has stunned Greeks, Ilias Kasidiaris, the party’s spokesman who emerged from court yesterday kicking and shoving journalists, has now used the media to denounce the imprisonment of Michaloliakos.

“The detention of our general secretary is totally unjust, unconstitutional and has been dictated by foreign centres of power,” he has told reporters gathered outside the court.

Yesterday’s courtroom drama (and the violence seen outside court afterwards) also gets plenty of coverage in today’s newspapers.

Reuters flags up:

“The leader’s in, the gang’s out!” top-selling daily Ta Nea wrote on its front page. “It is the state’s duty to go to the end: The criminals need to be revealed, they need to be tried, and they need to pay,” the newspaper said.

Kathimerini makes an important point. This is a live criminal trial, Due process needs to be followed.

The fact that certain Golden Dawn deputies were released from pretrial custody – conditionally – does not in any way represent evidence of their innocence, just as their being remanded to appear before a magistrate had not meant that they were guilty of the crimes being leveled against them.

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More good news for the European economy: retail sales were much stronger than expected in August.

Eurostat reported that retail sales volumes rose by 0.7% in the euro area, and 0.4% across the wider European Union in August. July’s data was also revised higher, showing consumers weren’t as cautious about spending as first thought.

Eurostat’s data shows that non-food shopping was strong, rising by 0.6% in the eurozone. That covers items such as computers, clothing and medical products.

The data also showed an increase in fuel purchases, suggesting a rise in motor journeys. Spending on “automotive fuel in specialised stores” (that’s petrol stations to you and me) was up by 0.9% across euro members.

Nice result for Spain in the bond markets this morning, suggesting the political tensions in the euro area have eased following yesterday’s Italian confidence vote.

Spain sold its maximum target of debt in a strong auction, in which borrowing costs hit their lowest level in three years.

The auction saw the Spanish treasury shift €1.18bn of 10-year bonds at a yield (the rate of return on the debt) of 4.269%, a drop on the 4.5% paid last month.

Updated

UK service sector on a charge

The UK’s service sector has revival continues, with the strongest quarterly growth in 16 years - driven by the upswing in the housing market.

The monthly PMI survey shows that September was another strong month — with a reading of 60.3, close to August’s seven-month high of 60.5 and deep into expansion territory.

However, firms dependent on consumer spending aren’t doing quite as well as financial firms, it appears….

Reuters handily provides more details:

The sector saw jobs growth in September, something mirrored in surveys of manufacturing and construction earlier this week.

Over the third quarter as a whole, the index – measuring the change in activity, including income and chargeable hours worked, from the previous month – averaged its highest level since the second quarter of 1997, Markit said.

“Growth is being led by financial services – linked in part to increased housing market activity – and the business sector,” said Chris Williamson, chief economist at survey compilers Markit.

“Consumer-facing services continue to struggle, reflecting the ongoing squeeze on incomes due to weak pay growth and high inflation.”

Around half of firms surveyed in the service sector – which makes up more than three quarters of Britain’s output – expected even brisker trade in a year’s time, with the outlook index rising to 71.8.

Service providers reported that a jump in new business last month placed strain on resources, with backlogs of work rising at the fastest pace in more than 13 years.The workload, along with firms’ optimism about future business, led to a solid rise in employment and some pay rises.

Updated

Eurozone private sector output hits 27-month high

The eurozone recovery is gathering pace, with its private sector firms reporting the biggest leap in activity since June 2011 last month.

Data firm Markit’s monthly surveys of companies across the single currency showed a solid rise in activity.

New business has picked up, and the rate of job cuts may finally be slowing to a halt.

Markit’s monthly survey of activity came in at 52.2, up from August’s 51.5. Both service sector firms and manufacturers said conditions were better.

Here’s some key factoids from the report (online here)

Ireland: 55.7 2-month low
Germany: 53.2 2-month low
Italy: 52.8 29-month high
France: 50.5 20-month high
Spain: 49.6 2-month low

The news comes hours after China’s service sector output hit a 6-month high.

Chris Williamson, chief economist at Markit, said the eurozone data showed Europe’s recovery on track, despite Spain’s private firms faltering after a better August.

The final PMI confirms the message from the earlier flash reading that the eurozone enjoyed its strongest quarter of expansion for just over two years in the third quarter. With the rate of expansion picking up in September, the survey bodes well for ongoing growth in the final quarter of the year.

Growth is being led by Germany, but France has also now returned to growth. Even more encouraging are the upbeat survey data for Ireland and Italy, both of which show signs of returning to robust growth, and Spain has also stabilised, as ongoing weakness in the domestic economy is offset by a strong upturn in exports.

But don’t get the bunting out yet — this only suggests a weak recovery.

Williamson explains:

Growth remains only modest – the Eurozone PMI is consistent with GDP rising by just 0.2% on the third quarter, and the political instability that has reared up in Italy is a reminder that there remains plenty of scope for recoveries to be derailed.

Updated

Italian service sector finally growing

Good news from Italy this morning – its service sector has burst back into growth for the first time in 28 months.

This may suggest the Italian economy has finally stopped shrinking, a new boost a day after prime minister Enrico Letta faced down Silvio Berlusconi’s revolt.

Data provider Markit says it’s a welcome sign that the economic recovery could be underway, with the monthly PMI jumping to 52.7 in September, from 48.8 in August. It’s not been over the 50-point mark (which separates contraction from expansion) since May 2011.

Here’s the key points:

• Business activity lifted by increase in new work

• Job shedding continues, but at slower rate

• Future expectations highest in more than two years

Credit Agricole’s Frederik Ducrozet is encouraged:

Phil Smith, economist at Markit, said the data shows “the first signs” of recovery in the Italian economy after some grim months. But without political stability, he warned, it could quickly deteriorate.

He explained:

Should the data hold up, however, there may also be a return to growth in service sector employment, which showed its slowest fall for 16 months in September.

A significant improvement in businesses’ expectations for the year ahead will have no doubt also helped on this front.

The data, alongside those for manufacturing, show Italian GDP at least stabilising in Q3 and perhaps even rising slightly for the first time in more than two years. Political stability is key to this forward momentum being sustained into the later stages of the year and beyond.

Updated

Overnight in Greece, the head of the far-right Golden Dawn party was remanded in custody, hours after three of his MPs were released pending trial.

Another MP, Yannis Lagos, was also detained, as was Giorgos Patelis, the head of Golden Dawn’s local office in the area west of Athens where hip-hop star Pavlos Fyssas was stabbed two weeks ago. <updated, many thanks to reader Kizbot>

All the men faces charges of running a criminal gang, which they deny.

From Athens, Helena Smith reported:

Armed police led Nikos Mihaloliakos away from the courthouse in handcuffs in the early hours of Thursday after testimony lasting more than six hours.

His wife and daughter, also party members, and other Golden Dawn MPs, stood outside the building and shouted words of encouragement to him as he was led away.

“The ridiculous little men, they decided to jail the leader,” said party MP Michalis Arvanitis.

Golden Dawn leader jailed pending trial after Athens hearing

Updated

Just in – Spain’s service sector suffered a drop in activity in last month. Its PMI index has fallen into contraction territory again — at 49.0 in September, down from 50.4 (showing slight growth) in August.

Markit, which compiles the PMI data, also reported that new order growth slowed. On the upside, optimism hit a 41-month high.

Spain’s government ministers have been boldly declaring that the recession is over. This data doesn’t suggest much of a recovery yet.

Andrew Harker, senior economist at Markit, commented:

The Spanish service sector failed to show much sign of a recovery during September as activity fell back in response to weaker new order growth which itself had been supported by further sharp discounting.

One bright spot from the latest survey was that companies were at their most optimistic about the future for nearly three-and-a-half years, suggesting that Spanish service providers are seeing some light at the end of the tunnel.

Markets edge higher

Shares are edging a little higher in early trading — suggesting China’s strong service sector data is trumping US deadlock woes.

Here’s the early prices: (German’s DAX is closed for a public holiday)

FTSE 100: up 20 points at 6458, + 0.3%

French CAC: up 7 points at 4,165, + 0.18%

Italian FTSE MIB: up 98 points at 18,191, +0.5%

Spanish IBEX: up 21 points at 9,371, +0.23%

Mike van Dulken, head of research at Accendo Markets, reckons there’s some “cautious optimism” in the City this morning, despite the lack of progress in Washington DC. He argues that, with America on track to smash into its debt ceiling on 17 October, there’s little chance of the Federal Reserve turning down its bond-buying stimulus programme soon:

Sentiment is still not quite ignoring, but nor is it pricing in the worst case scenario – which is no agreement until debt ceiling deadline, and possible sovereign default.

The possible assumption is that default won’t be allowed, but the longer the budget takes to sort out, the longer the Fed is held off from tapering. Happy days for easy money policy lovers and risk appetite.

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Michael Hewson of CMC Markets says traders will be hoping for encouraging data from Europe’s service sector this morning:

As we enter the third day of the shutdown of the US government the various positions seem as inextricably entrenched as ever. On the plus side at least we don’t have to worry about the soap opera playing out in Italy as Silvio Berlusconi negotiated what could be politely called a tactical withdrawal and agreed to support Enrico Letta’s government after it became apparent he didn’t have his party’s support with respect to the confidence vote.

While he may have run into a brick wall on this occasion Berlusconi has never lacked the capacity to surprise, so I would doubt that we have heard the last of him in this regard.

In any case while the political uncertainty in Italy may have subsided for now it still remains quite likely that any type of reform is still set to remain slow and problematic.

As for the rest of Europe’s markets while the FTSE may get a slight boost from a positive China services PMI, they continue to have one eye on events in the US, finishing lower yesterday along with US markets, though after yesterday’s non event of an ECB press conference, todays focus is on the latest services PMI data for September for Italy, Spain, France and Germany. All are expected to show positive readings above 50, with the exception of Italy, which is expected to come in at 49.2, raising expectations of a continued recovery.

Chinese service sector output hits six-month high

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

Looks like a mixed day ahead . Growing concern over the US government shutdown have taken the shine of some encouraging Chines economic data earlier today.

While in Europe, Italy is waking up to front pages dominated by Silvio Berlusconi’s humiliating defeat in the Senate yesterday, where prime minister Enrico Letta swept home in his confidence vote. More on this shortly.

First the good news — growth in China’s service sector has surged to a six month high. Activity jumped to 55.4 in September, from 53.9 in August, as measured by the official Purchasing Managers Index (anything over 50 points = growth).

That suggests that Beijing’s efforts to pep up the Chinese economy is bearing fruit this autumn.

Craig Erlam, analyst at Alpari, explained:

This is just another sign that the government’s targeted stimulus efforts, which were announced a few months ago in order to combat the slowing growth in the economy and achieve its minimum 7% growth target, are having the desired effect on the economy.

That might normally give stock markets a boost, especially with more service sector data due from the eurozone and UK this morning.

But now the bad news — Wednesday was another day of deadlock in Washington, despite US bank chiefs urging politicians on Capitol Hill to get a grip before it’s too late.

Obama meets bank chiefs as economists warn of ‘deep and dark recession’ 

So it’s probably going to be a nervy day in the markets….

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