Chinese economy

 

Powered by Guardian.co.ukThis article titled “Wall Street joins market selloff as £40bn is wiped off FTSE 100 – live updates” was written by Graeme Wearden, for theguardian.com on Thursday 7th January 2016 14.50 UTC

More reaction:

Updated

Here’s a reminder of how the Chinese circuit breaker kicked into action today, triggering the shortest trading session ever (just 29 minutes!)

Chinese stock market

China suspends stock market breaker rule – reports

Breaking news from China… the stock market regulator has apparently announced that it WILL suspend its stock market breaker rule.

A sensible decision, as the rule has been tested and found wanting this week.

Ouch. The Dow Jones industrial average has shed almost 300 points, or 1.7%.

Every share is in the red:

Wall Street tumbles at the open

Open of Wall Street

Hold onto your tin hats, folks.

The New York opening bell is ringing, and shares are tumbling sharply.

The Dow Jones industrial average has lost 1.25%, and the tech-heavy Nasdaq dropped over 2%.

It will take a few minutes for Wall Street to calm down. But the news that the Chinese stock market was suspended after just 30 minutes earlier today is clearly alarming investors.

Updated

Commodity prices are hitting new five-year lows, thanks to economic growth fears and the stronger dollar.

Palladium is down 5% at $482 per ounce, its lowest level since August 2010. Zinc has hit a six-year low, and copper is also down.

Could Beijing authorities ditch their circuit-breaker rule, following this week’s turmoil?

Something certainly needs to be done.

We saw today that the prospect of an immediate daily suspension if the market drops too much actually triggered a swift selloff (as investors dashed to get out while they can).

The 5% trigger was hit after just 14 minute, followed by the 7% time-out once trading resumed. That’s not a recipe for calm, rational trading.

Updated

Britain’s FTSE 100 is currently down 2.5%, or 152 points — on track to hit a three-week low.

If it falls much further, it would threaten the lows of last August, the last time China triggered a stock market rout:

The Footsie over the last 6 months
The Footsie over the last 6 months Photograph: Thomson Reuters

The US stock market is on track to hit a new three-month low, when trading begins in 40 minutes time:

US stock market futures
US stock market futures Photograph: Bloomberg TV

The China crisis is partly caused by Beijing’s policy of pegging its currency against the US dollar, argues economist Sean Richards.

A deeper analysis of the Chinese situation shows us that its own financial instabilities have been exacerbated by the strong US Dollar.

This has been made worse by its decision to set its exchange-rate against it. Thus rather than drifting lower like virtually everyone else instead the pressure builds up, which it has tried to resist, but even with its sizeable currency reserves it has to give way every now and then. This then adds to the pressure as everybody concentrates on the decline in the reserves rather than the large amount left.

Also I suspect that those in the “know” have been trying to get out of the Yuan before it falls further which only makes things worse.

Got it in one…

China’s international competitors will fear that Beijing is triggering a currency war, by allowing the yuan to hit a five-year low against the US dollar today.

Andy Yu, senior economist at MNI Indicators, says other emerging market currencies will probably also weaken in response (reminder, they’ve already weakened this year).

“A weaker yuan is a concern for emerging markets that compete directly with China in exports. The immediate upshot is that currencies in countries including South Korea, Thailand, the Philippines and Taiwan will continue to adjust downwards in response to yuan moves.

That would push up debt repayments for countries who have borrowed in US dollars. But encouragingly, Yu reckons emerging markets have the firepower to ride out the crisis:

On current evidence the risk of a full blown emerging markets crisis looks less likely with emerging economies having built up larger foreign exchange reserves and put in place far better external debt management. Still the situation bears close scrutiny and alongside continued Fed tightening this year will put pressure on emerging markets’ currencies over 2016.”

Updated

It’s a bad day for stock market bulls…..

A styrofoam bull figure lies on its side in front of DAX board at Frankfurt’s stock exchange<br />A styrofoam bull figure lies on its side on a counter in front of the German share price index DAX board at Frankfurt’s stock exchange in Frankfurt, Germany January 7, 2016. European shares fell sharply on Thursday after China accelerated the depreciation of the yuan, sending currencies across the region reeling and domestic stock markets tumbling. Germany’s DAX dropped 3.6 percent, while Britain’s FTSE 100 weakened by 2.7 percent. REUTERS/Kai Pfaffenbach” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class=A styrofoam bull figure lies on its side in front of DAX board at Frankfurt’s stock exchange today. Photograph: Kai Pfaffenbach/Reuters

The Economist reckons China could trigger a repeat of the 1998 Asian crisis, rather than the 2008 vintage which George Soros fears.

Here’s its logic:

If China devalues, then other Asian nations will come under pressure to follow suit, for fear of losing competitive position. That will trigger worries about those Asian companies that have borrowed in dollars. there could be banking issues in Asia.

This is a potentially worrying scenario. Whether 2008 is the right parallel is another matter. If the bearish case does come true, then it sounds more like 1998 when a round of Asian devaluations was triggered by the realisation that growth had been fuelled by speculation. Western economies did manage to overcome that crisis. The real worry is that emerging countries are a lot more important for the global economy than they were back then.

More here: Is this really 2008 all over again?

Soros: It’s 2008 all over again

Hungarian-born US magnate and philanthropist George Soros attends an economic forum in Colombo on January 7, 2016. Sri Lankas new government is trying to woo investors after a year in office. AFP PHOTO / LAKRUWAN WANNIARACHCHILAKRUWAN WANNIARACHCHI/AFP/Getty Images
George Soros attending an economic forum in Colombo, Sri Lanka, today. Photograph: Lakruwan Wanniarachchi/AFP/Getty Images

Investor-turned-philanthropist George Soros has contributed to the gloom today, by claiming that we could face a repeat of the turmoil we experienced in 2008.

Soros, who famously beat the Bank of England on Black Wednesday, told an audience in Sri Lanka that the current situation reminded him of the financial crisis seven years ago.

He said:

“China has a major adjustment problem. I would say it amounts to a crisis.

When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”

Alarming stuff. However, before you sell everything, it’s worth remembering that Soros has previous form here. In 2011, he declared that the eurozone debt crisis was “more serious” than the 08 crash.

European policymakers managed to avoid a Lehman Brothers-style moment, although obviously Greece’s problems aren’t fixed. So Soros’s words are worth taking seriously…

Updated

Some Chinese companies could be forced into default if Beijing continues to devalue the yuan.

So argues Danae Kyriakopoulou, senior economist at the Centre for Economics and Business Research. She warns:

Many Chinese corporates have taken on a lot of debt, some of it dollar-denominated. This exposure creates an important risk as the People’s Bank of China PBOC continues to allow the yuan to weaken.

It is not far-fetched at this stage to draw comparisons with the Asian currency crises of 1998 that occurred as economies with high levels of dollar-denominated debts were forced to devalue. This, together with the commitment by the Chinese leadership to give market forces a greater say may mean that we will see many more corporate defaults in China this year.

As covered earlier, Beijing has already spent half a trillion dollars propping up the yuan this year. It still has more than $3trn left to help engineer an ‘orderly’ devaluation….

£40bn wiped off FTSE 100 this morning

What. A. Morning.

Nearly four hours after trading began, the FTSE 100 is still deep in the red as the latest crash in China spooks markets around the globe.

The blue-chip index is currently down 2.65% or 160 points at 5912, its lowest level since mid December.

That, by my calculations, wipes more than £40bn off the value of the 100 companies on the Footsie. A blow that will be shared by City traders, pension funds and small investors alike.

Mining companies continue to suffer, on fears that the crisis in China will cause serious harm to the global economy. Anglo American, which produces iron ore, copper, nickel and coal, has slumped to another record low.

Fund manager Aberdeen Asset Management is also being hit hard; it manages tens of billions of assets in emerging markets and in Asia.

The biggest fallers on the FTSE 100 today
The biggest fallers on the FTSE 100 today Photograph: Thomson Reuters

The news that the yuan hit a five-year low today – effectively a devaluation by Beijing – is also worrying investors.

Jasper Lawler, analyst at CMC Markets, says:

UK and European stocks are extending declines in one of the worst opening weeks for the year for stock markets in recent memory. China is at the top of a dizzying list of concerns for markets.

And with oil hitting a fresh 11-year low, and the pound at its weakest since 2010, there’s plenty for investors to fret about.

Connor Campbell of Spreadex sums up the mood:

There have been painfully few chinks of light this morning, the markets covered in an almost impenetrable cloud of bearish fog.

Updated

There are anxious faces on the Frankfurt stock market, as traders watched shares slide.

The DAX index fell by over 3% this morning, dropping through the 10,000 point mark for the first time since October.

A trader works in front of a board displaying the chart of Germany’s share index DAX at the stock exchange in Frankfurt am Main.
Stock exchange in Frankfurt - Dax drops below 10,000<br />07 Jan 2016, Rhineland, Germany — Traders look at their screens on the trading floor at the stock exchange in Frankfurt am Main, Germany, 07 January 2016. China’s ongoing stocks slump is continuing to affect the German stock market. Germany’s DAX stock market index dropped below 10,000 points. Photo: FRANK RUMPENHORST/dpa — Image by © Frank Rumpenhorst/dpa/Corbis” width=”1000″ height=”668″ class=”gu-image” /> </figure>
<p>German exporters such as <strong>BMW</strong>, <strong>Daimler</strong>, <strong>Volkswagen</strong> and <strong>ThyssenKrupp</strong> led the selloff, all falling by around 4%. They are all vulnerable to a sharp slowdown in the Chinese economy.</p>
</p></div>
</p></div>
<div id=

Wall Street is expected to join the selloff when trading begins in three and a half-hours.

The futures market suggest the Dow Jones industrial average will tumble by 2.5%, while the Nasdaq is heading for a 3.3% plunge.

The pound appears to be suffering from the uncertainty over Britain’s membership of the EU.

Andy Scott, economist at currency firm HiFX, reckons Brexit risks are compounding the impact of the China crisis on the UK currency.

He explains:

Sterling’s decline against a rising US Dollar has been accelerated by the risk-off mode this week that has investors seeking refuge in safe haven currencies including the US Dollar, Japanese Yen and the Swiss Franc. That can almost entirely be attributed to the Chinese central bank allowing its currency to weaken to its lowest level against the dollar in almost five years, fuelling speculation that the economy is slowing faster than official figures suggest.

“Concerns over a Brexit and reduced bets that the Bank of England will hike rates any time soon have also weighed on Sterling.

“The Bank of England and the Chancellor have been quite vocal about risks facing the UK economy this year and the early signs are that China’s economy is weakening further, putting a bigger question mark over global growth

And that’s why the pound is at a five and a half-year low of $1.456 today, as this chart shows:

Pound vs dollar over the last decade
Pound vs dollar over the last decade Photograph: Thomson Reuters


Veteran analyst David Buik, who has seen a few crashes in his time, says there is an “acrid stench of fear” in the City and Canary Wharf.

He adds:

The start to the year has been metaphorical carnage as far as equities are concerned. China has set the agenda with two gargantuan falls this year, aided and abetted by oil falling to its lowest level in 12 years (-4% today) suggesting that investors are not happy campers!

Updated

Panda bear market, anyone?

We have a glimmer of good news – Europe’s unemployment crisis has eased a little.

The eurozone’s jobless rate dipped to 10.5% in November 2011, according to eurostat, which is the lowest since October 2011.

That still leaves 16.924 million people out of work in the euro area, and 22.159 million in the wider European Union.

So, still too high – and at risk of rising again if the global economy hits serious problems again….

China isn’t the only developing economy to make a bad start to 2016.

A swath of emerging market currencies have weakened since the start of the year, as investors fear that their economies will falter.

Greece’s stock market is sharing the pain:

City workers crossing the Millennium footbridge at dawn.
City workers crossing the Millennium footbridge at dawn today Photograph: Toby Melville/Reuters

City traders may have now dried off after the early morning deluge, but their mood isn’t any sunnier.

Brenda Kelly of London Capital Markets says:

Not unlike the weather in London today, it never rains but it pours. While it’s said that the darkest hour is often before the dawn, nobody appears brave enough to involve themselves in risk assets this morning.

She explains how the Chinese market suspension, the slump in crude oil, and the big drop in China’s foreign exchange reserves are all causing alarm:

The drop in oil prices and China’s Shanghai Composite once again triggering circuit breakers sees major European indexes under pressure while government bonds strengthen across the board.

Trading in China stopped after 29 minutes amid the Shanghai’s Composite tumbled by 7.04%. Forex reserves in China are also lower than what were expected. At the end of December they stood at $3.33 trillion and given that the IMF has recently said that $2.6T is required to maintain the yuan fix, this worse than expected depletion is only bolstering negativity towards the world’s second biggest economy.

A reminder of what triggered today’s rout:

Record fall in China’s foreign exchange reserves

As if there wasn’t already enough to worry about, China has revealed a record drop in its foreign exchange reserves.

New data from the People’s Bank of China show that its FX reserves shrank by $107bn in December – the biggest monthly drop on record.

It suggests that China was forced to use more firepower supporting the yuan last month, as capital flows out of the Chinese economy:

Pound hits five-year low against the dollar

Sterling has just hit its lowest level against the US dollar since the middle of 2010.

The pound has lost half a cent against the greenback today, hitting $1.4561. That’s a five and a half-year low, taking us back to the uncertain times after the 2010 general election.

Worried traders are piling money into the relative safety of the dollar.

As this chart shows, the pound looks stronger against a basket of currencies:

China’s new ‘circuit breaker’ is meant to avoid market volatility. It clearly doesn’t work.

As it stands, if the market falls 5% then trading is suspended for everyone to calm down. It then reopens, allowing investors to recover their nerve.

But as we saw today, a second wave of selling can quickly push the market down by 7% – which is the signal to end trading for the day.

Mark Dampier, head of investment Research at Hargreaves Lansdown, says authorities need to accept that shares are simply overvalued:

Some amazing events on the Chinese stock markets overnight with trading halted for the second time in a week, the second time this year after just 870 seconds of trading…..

Clearly the circuit breaker is having the opposite affect to what is intended and is making things worse. It also stops the market having any chance of bouncing. Had it been introduced during 2015, it would have been triggered 20 times.

The system doesn’t work and until it is withdrawn or modified we can expect to see further use and perhaps shorter trading periods than we saw last night.

The interference by the authorities is simply delaying the inevitable. The market needs to find its own level so we will see more volatility in global markets until it does.

Today’s selloff is causing a lot of angst in the City, and sending investors running for cover.

Terry Torrison, managing director at Monaco-based McLaren Securities, says:

“The extent of the slowdown in China is certainly a worry. Investor sentiment is very fragile at the moment.”

Andreas Clenow, hedge fund manager and chief investment officer at ACIES Asset Management, is equally alarmed:

“It’s looking pretty ugly. We’ve been scaling down equity positions. It’s time to take a step back to re-evaluate the situation.”

(via Reuters)

The Financial Times has a rather smuttier take on Marc Bolland’s time at Marks & Spencer:

Good point, boss.

Updated

Marks and Spencer is defying the global rout!

Its shares are up 1.5%, making it the only riser on the FTSE 100. The City appears to be applauding the news that Marc Bolland is retiring.

Joshua Raymond Chief Marketing Officer at XTB.com explains why:

Bolland has been under intense pressure from major shareholders for his failure to grow the business. And when you look at their recent results, its easy to understand why Bolland had to go and the tough job his replacement, Mr Rowe now finds himself in. Somewhat paradoxically, I expect shareholders to react well to the news that Bolland will now depart after months of speculation.

A drop of 5.8% in general merchandise is simply awful and at the bottom of market expectations. Whilst the firm did enjoy what it claimed was its best ever Christmas week for food sales, like for like food sales over the Q3 period grew 0.4%, which is disappointing though shows M&S fared better than some of its competitors. Overall like for like UK sales fell 2.5%.

Here’s our news story on Bolland’s exit:

The Stoxx 600, which tracks the largest 600 companies across Europe, has fallen by 2.2% this morning.

By my reckoning, that’s a three-month low:

The Stoxx 600
The Stoxx 600 over the last year. Photograph: Thomson Reuters

European markets are also being hit hard, as fears over China’s economy ripple through global bourses.

Germany’s DAX is leading the selloff, tumbling by 2.75% or 281 points to 9,932. Every share in Frankfurt is down, as investors fear that the powerhouse Eurozone economy will suffer if China’s economy hits serious trouble.

The French CAC is close behind, down 2.2%.

FTSE 100 plunges 2% in early trading

The FTSE 100 has tumbled by over 100 points at the start of trading, shedding almost 2% of its value.

The blue-chip index is being dragged down by mining stocks, but every single share is in the red. It’s down 114 points, or 1.9%, right now.

London stock market
London stock market Photograph: Thomson Reuters

The slump in China’s stock market is one obvious factor – but it’s not the only one.

FXTM Research Analyst Lukman Otunuga says investors face a serious of concerns:

Equity markets are continuing their steep losses as we enter the final part of the trading week with investor sentiment being pressured by various different factors.

This includes the resumption of fears over global growth following weak data from China in the beginning of the year, while increased geo-political tensions between Saudi Arabia and Iran and an unexpected nuclear test from North Korea have also encouraged investors to dodge away from riskier assets like stocks. Another threat to investor sentiment is the persistent and continued weakness in the commodity markets, which only today saw the price of oil falling to a fresh 11 year lows of $32.70 for the first time since 2004.

Ding ding….. the European stock markets are open. Brace yourselves for a wave of selling…..

If you can’t sell shares, you may as well crack on with the knitting…..

China trading halted after shares plummet<br />epa05090894 Two stock investors knit in the brokerage house in Qingdao, Shandong province, China, 07 January 2016. Trading was halted for the day on the Shanghai and Shenzhen stock exchanges on 07 January after a steep drop in prices triggered an automatic ‘circuit breaker’ for the second time this week. Prices on the CSI 300 Index plummeted more than 7 per cent in the first 30 minutes of trading. EPA/YU FANGPING CHINA OUT” width=”1000″ height=”665″ class=”gu-image” /><br />
<figcaption> <span class=Two stock investors knitting in the brokerage house in Qingdao, Shandong province, China, today. Photograph: Yu Fangping/EPA

Oil hits 11-year low

Crude oil prices are taking another kicking, tumbling over 5% in early trading.

Brent crude has plunged below $33/barrel for the first time since 2004. It’s currently changing hands at just $32.25 per barrel, a new 11-year low.

And US crude oil has also slumped by 5%, to $32.10 per barrel.

Updated

The Chinese stock market really did suffer a precipitous decline today, triggering the circuit breaker that brought trading to a very early close:

City traders are bracing for a grim start to trading – once they’ve dried themselves (it’s wet today)

Heavy losses in Asia

Asian stock markets are a deep and grimy sea of red today, as fears over China rattle investors across the region.

  • Japan’s Nikkei fell over 2%, shedding 423 points to close at 17,767 points. It’s now down 6.65% since the start of the year.
  • The Hong Kong Hang Seng index is currently down 2.8%,
  • Australia’s S&P/ASX is down 2.2% ,
  • India’s Sensex has lost 1.9%.

Chinese regulators held an emergency meeting today to discuss the crisis — but they haven’t taken any decision on new action, Bloomberg reports.

Chinese trading halted within 30 minutes…

From Beijing, my colleague Tom Phillips sums up the dramatic action in China today:

China halted the day’s trading within 30 minutes of opening on Thursday morning as shares plunged by more than 7% – triggering an automatic “circuit breaker” – and authorities accelerated the devaluation of the Chinese yuan.

China’s recently installed “circuit breaker” mechanism paused trading for 15 minutes after the CSI300 index fell 5% in the first 13 minutes of trading. On resumption of trading it fell further, triggering the day’s halt.

The CSI300 index finished down 7.2%, the SSE composite index fell 7.3% and Shenzhen dropped by 8.3%.

Experts believe that the Chinese authorities may have to take fresh steps to prevent the rout deepening, Tom explains:

Christopher Balding, a professor of finance and economics at Peking University’s HSBC business school, said he expected more government action to halt the stock market drops, “whether it is changing the circuit breakers, whether it is again intervening in the market, whether it is extending the ban on large selling by institutions.”

“I’d be surprised if they let this continue going down. By almost any measure, the Chinese stock market is pretty over valued and so you would be looking at a pretty significant fall to get back to a reasonable valuation. I would be surprised if they allowed it to move back to more appropriate levels.”

“2016 in China is getting off on the wrong foot.”

Here’s Tom’s full story:

Introduction: China market shut again as yuan weakens further

China trading halted after shares plummet<br />epa05090899 Investors play a card game as an electronic board has halted display of stock market data at a securities brokerage house in Beijing, China, 07 January 2016. Trading was halted for the day on the Shanghai and Shenzhen stock exchanges on 07 January after a steep drop in prices triggered an automatic ‘circuit breaker’ for the second time this week. Prices on the CSI 300 Index plummeted more than 7 per cent in the first 30 minutes of trading. EPA/ROLEX DELA PENA” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class=Investors play a card game at a brokerage house in Beijing today, after trading was halted for the day. Photograph: Rolex Dela Pena/EPA

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

There’s no escape from the China crisis. Trading in Shanghai has been suspended for the second time this week, after its stock market plunged at the start of trading.

Automatic circuit-breakers kicked in, leaving nervous investors cooling their heels, after shares in Chinese companies slumped by 7% at the start of trading.

The selloff came as the yuan weakened further against the US dollar, fuelling concerns over China’s economic situation.

From Melbourne, analyst Angus Nicholson of trading firm IG explains:

The great concern for global markets is that the dramatic pace of the currency devaluation seems to indicate a far greater weakness in the Chinese economy than is easily perceivable in its publicly released statistics.

A lot of people in the market are speculating that this is primarily about boosting exports and stimulating the slowing economy. While this no doubt will help, the primary concern for the government is deflation.

Asian markets tumbled following the developments in China, and European stocks are expected to fall heavily at the open too.

Britain’s FTSE 100 is expected to suffer a triple-digit loss:

All in all, it’s a great day for UK chancellor George Osborne is due to give a speech warning that Britain is vulnerable to problems in the global economy.

And we’ll also be digesting financial results from UK retailers Marks & Spencer and Poundland.

The big news at 7am is that M&S’s CEO Marc Bolland is stepping down, after six tricky years at the helm (statement here).

Today’s results don’t look great, frankly, with sales of general merchandise down 5% over the crucial Christmas period….

Updated

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

Published via the Guardian News Feed plugin for WordPress.


USA 

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

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

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

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

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

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

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

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

US markets edge higher

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

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

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

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

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

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

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

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

Here’s the details:

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

Midday summary: Markets remain nervous

Time for a quick recap.

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

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

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

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

China remains a big worry today.

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

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

Chris Beauchamp of IG sums up the morning:

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

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

While Mike van Dulken of Accendo Markets warns:

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

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

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

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

Updated

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

Sainsbury’s reveals rejected takeover offer for Home Retail

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

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

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

dec05hffina
Home Retails’ share price today Photograph: Thomson Reuters

More here:

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

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

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

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

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

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

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

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

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

Brosens says:

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

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

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

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

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

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

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

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

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

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

Updated

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

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

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

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

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

Eurozone inflation weaker than expected

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

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

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

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

Eurostat says:

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

Eurozone inflation

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

Updated

UK building firms post stronger growth

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

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

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

jan05pminew

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

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

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

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

Updated

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

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

European stock markets

Invesotrs

German unemployment beats expectations

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

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

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

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

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

Updated

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

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

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

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

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

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

Updated

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

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

Shares in Next are out of fashion this morning.

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

Here’s some reaction:

Updated

Market open: European shares bounce back

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

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

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

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

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

Jasper Lawler, market analyst at CMC Markets, explains:

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

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

Next blames warm weather for weak Christmas

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

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

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

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

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

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

Next sales

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

Updated

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

IG is calling the main markets up around 1%:

Chinese authorities intervene to prop up markets

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

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

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

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

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

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

Updated

Introduction: Markets could stabilise after Monday’s rout

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

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

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

But unlike vanishing candyfloss, market value can reappear.

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

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

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

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

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

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

Published via the Guardian News Feed plugin for WordPress.

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

 

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

Portuguese bonds hit by political crisis

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

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

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

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

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

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

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

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

He says:

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

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

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

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

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

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

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

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

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

Factory fears as UK exports fall at fastest pace since 2012

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

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

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

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

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

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

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

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

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

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

And here are the key figures from the report:

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

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

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

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

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

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

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

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

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

Updated

9% hacked off TalkTalk shares after cybercrime attack

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

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

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

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

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

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

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

Updated

IFO: German car industry unfazed by VW scandal

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

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

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

Wohlrabe says:

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

Updated

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

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

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

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

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

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

Updated

The euro is slightly higher following the IFO survey:

Updated

German IFO survey: What the experts say

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

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

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

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

Updated

German business climate worsens, but expectations rise

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

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

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

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

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

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

I’ll mop up some reaction now…

Updated

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

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

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

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

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

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

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

WPP: business leaders remain ‘risk averse’

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

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

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

WPP told shareholders that:

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

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

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

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

European markets in muted mood

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

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

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

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

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

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

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

Connor Campbell of SpreadEx says:

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

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

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

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

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

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

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

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

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

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

Chinese officials to agree next five-year plan

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

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

He declared:

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

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

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

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

Asian market creep higher after Chinese rate cut

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

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

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

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

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

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

Updated

The agenda: Investors await German confidence figures

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

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

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

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

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

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

China cuts interest rates in surprise move – as it happened

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

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

Portugal Government Fuels Debate About Democracy in Europe

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

Updated

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

Published via the Guardian News Feed plugin for WordPress.

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.

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

Published via the Guardian News Feed plugin for WordPress.

Kristin Forbes, a member of the Bank of England Monetary Policy Committee, signals she may vote for an interest rate hike on the back of recovering UK economy by downplaying potential fallout for UK from emerging markets slowdown…

 

Powered by Guardian.co.ukThis article titled “Bank of England policymaker says rate rise will come sooner, not later” was written by Katie Allen, for theguardian.com on Friday 16th October 2015 13.06 UTC

An interest rate hike in the UK will come “sooner rather than later” and pessimism about the state of the global economy is overdone, according to a Bank of England policymaker.

Kristin Forbes, a member of the bank’s rate-setting monetary policy committee (MPC), was also upbeat about the domestic economy. She argued that the country had only limited exposure to emerging markets such as Russia and Brazil and that, despite signs of a slowdown in those markets, British businesses should not be deterred from building stronger links with them.

Forbes’s intervention, against the backdrop of a recovering UK economy, indicated that she is preparing to vote for rates to be raised from their current record low of 0.5%.

“Despite the doom and gloom sentiment, the news on the international economy has not caused me to adjust my prior expectations that the next move in UK interest rates will be up and that it will occur sooner rather than later,” she said in a speech on Friday.

Forbes conceded that if some of the potential risks to emerging markets play out – such as a sharper than expected slowdown – “then the UK economy is unlikely to be immune”. But she said the UK’s exposure “appears manageable”.

Her comments align her with fellow rate-setter Ian McCafferty, who has voted for higher rates at recent policy meetings, where the MPC has split 8-1 at recent gatherings in favour of holding rates steady. But the Bank’s chief economist, Andy Haldane, said last month that rates may have to be cut further given signs of a slowdown in the UK and risks to the global economy from China.

The newest member of the nine-person MPC, Jan Vlieghe, also left the door open to an interest rate cut this week when questioned by MPs. Highlighting low inflation, Vlieghe told parliament’s Treasury committee that there was an option to cut rates but that the next move was “more likely to be up than down”.

Forbes, a US economics professor, said that on emerging markets, “recent negative headlines merit a closer look”.

“After considering the actual data and differences across countries, the actual news for this group is much more balanced (albeit not all bright),” she said in her speech, entitled “growing your business in the global economy: Not all doom and gloom”.

She was speaking a week after the International Monetary Fund warned central bankers that the world economy risks another crash unless they continue to support growth with low interest rates.

Forbes referred to the IMF’s latest downgrade to global growth prospects but noted that the fund had left its China forecasts unchanged. The data from China “has not yet weakened by anything close to what the gloomy headlines imply”, she added.

More broadly, she felt the global outlook was also better than headlines suggested.

“Although the risks and uncertainties in the global economy have increased, the widespread pessimism is overstated,” Forbes said.

She told business leaders that they should not be deterred from trading with emerging markets by the recent negative news, which “should prove temporary”.

“UK companies – as a whole – have been slow to expand into emerging markets. This may provide some stability over the next few months if the heightened risks in some of these countries become reality. But when viewed over a longer perspective, this limited exposure to emerging markets has caused the UK to miss out on growth opportunities in the past,” Forbes said.

UK interest rates were slashed to shore up the economy during the global financial crisis and they have stayed at a record low for more than six years. With inflation below zero and headwinds from overseas, economists do not expect a rate hike until well into next year.

In the US, interest rates are also at a record low of near-zero. Policymakers had been signalling they could start hiking last month but then worries about China’s downturn prompted them to wait. Still, the Federal Reserve chair, Janet Yellen, recently said the current global weakness will not be “significant” enough to alter the central bank’s plans to raise rates by December.

Forbes was also optimistic that the UK could weather the turmoil and said its domestic-led expansion “shows all signs of continuing, even if at a more moderate pace than in the earlier stages of the recovery.””

Howard Archer, an economist at the consultancy IHS Global Insight, said Forbes’ remarks reinforced the picture of a wide range of views on the rate-setting committee.

“The current wide range of differing views within the MPC highlights just how uncertain the outlook for UK interest rates is – although it still seems to be very much a question of when will the Bank of England start to raise interest rates rather than will they,” he said.

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

Published via the Guardian News Feed plugin for WordPress.

Britain’s jobless rate has dropped to levels not seen since 2008, but wage growth has slowed a little. UK unemployment rate falls to 5.4%. Basic pay growth dips to 2.8%. Germany trims economic growth forecast, blaming weakness in China…

 

Powered by Guardian.co.ukThis article titled “UK unemployment rate hits seven-year low of 5.4% – live” was written by Graeme Wearden (earlier) and Julia Kollewe (now), for theguardian.com on Wednesday 14th October 2015 12.26 UTC

The bank earnings season is in full flow on Wall Street. Bank of America made a quarterly net profit of $4.1bn in the third quarter, compared with a loss of $470m a year ago (which was caused by massive mortgage-related costs). The second-biggest US bank beat analysts’ forecasts, despite falling revenues. Chief executive Brian Moynihan has been reducing costs, by slashing jobs and restructuring the business.

The bank, which has paid more than $70bn in legal expenses since the height of the financial crisis in 2008, said its legal costs fell for the third quarter in a row, to $231m from $6bn a year earlier. Revenues, however fell by 2.4% to $20.9bn, with the bank pointing to turbulent markets.

Moynihan said:

The key drivers of our business – deposit taking and lending to both our consumer and corporate clients – moved in the right direction this quarter and our trading results on behalf of clients remained fairly stable in challenging capital markets conditions.”

Goldman Sachs is due to report its quarterly results on Thursday at lunchtime, followed by Citigroup.

Updated

Germany trims growth forecast

Germany has trimmed its growth forecast for this year, blaming weakness in China and other major emerging economies. Economy minister Sigmar Gabriel said Berlin now expects the German economy to grow by 1.7%, down from the 1.8% predicted in April. Next year’s forecast was left unchanged at 1.8%.

Gabriel said the emissions-rigging scandal at Volkswagen, which has led to fears that the “Made in Germany” brand could be damaged, “has no enduring effect” on current economic forecasts.

He also said that money being pumped into education to help cope with the influx of refugees into Germany could work “a bit like a stimulus programme” starting next year.

Gold hits 3 1/2 month high, stock markets and dollar down

Let’s take a look at the markets. Gold prices have hit 3 1/2 month highs as concerns over weak inflation and growth in China reinforced expectations that the long-awaited US interest rate hike is still some way off.

The Fed surprised markets when it left rates unchanged at its September meeting, citing concerns about the global economy, but Fed chief Jane Yellen subsequently said the central bank was on track to increase borrowing costs later this year. However, there are signs of divisions within the Fed: Daniel Tarullo, a member of the Fed’s board of governors, told CNBC on Tuesday that it would not be “appropriate” to raise rates this year.

Spot gold rose to $1,176.20 an ounce earlier, its highest level since the end of June.

Stock markets have slipped for a second day and the dollar slid to its lowest level in nearly a month after fresh signs of a slowdown in the Chinese economy.

The FTSE 100 index is down 0.6% at 6306.45, a fall of more than 35 points. Germany’s Dax has also lost 0.6% while France’s CAC has slipped 0.3%.

German utility E.ON has clinched a $1.6bn deal to sell its Norwegian oil and gas business to Russian billionaire Mikhail Fridman. Norway’s oil and energy minister said the deal will be handled like another other – despite EU sanctions against Russia, which were imposed over the Ukraine crisis. Norway is not a member of the European Union.

Tord Lien said in a statement sent to Reuters:

An application for such an approval will be handled the usual way. The restrictive measures apply to activities in Russia. That international firms wish to invest on the Norwegian continental shelf is good.”

Mikhail Fridman, chairman of Alfa Group.

Mikhail Fridman, chairman of Alfa Group. Photograph: Sergei Karpukhin / Reuters/REUTERS

Shares in E.ON turned positive on the news and are now trading up 2.6%.

Fridman’s LetterOne fund had emerged as the frontrunner to buy the German company’s Norwegian North Sea assets after the billionaire, who is of Ukrainian descent, was forced to sell his British North Sea assets due to the western sanctions.

Updated

The Institute for Public Policy Research has looked at the regional disparities in the UK labour market. The think tank’s new chief economist, Catherine Colebrook, said:

The latest data suggests the economy is continuing to create jobs, with the employment rate at a new high, and unemployment at its lowest level since 2008.

However, a closer look at the data suggests weaknesses remain: there are big regional disparities, with the employment rate in the North East a full 10 percentage points lower than that in the South West.

And inactivity across the UK remains high, at just over a fifth of the working-age population. The government will have to tackle these weaknesses if it is to succeed in creating two million more jobs over the next five years.”

Here’s Heather Stewart on today’s jobs report:

Summary: jobless down, employment at record high

Here are the main points from today’s labour market report, covering June to August 2015 (you can scroll back to 9.30am for full coverage)

  • There were 31.12 million people in work, 140,000 more than for March to May 2015 and 359,000 more than for a year earlier.
  • There were 22.77 million people working full-time, 291,000 more than for a year earlier. There were 8.35 million people working part-time, 68,000 more than for a year earlier.
  • The employment rate (the proportion of people aged from 16 to 64 who were in work) was 73.6%, the highest since comparable records began in 1971.
  • There were 1.77 million unemployed people (people not in work but seeking and available to work), 79,000 fewer than for March to May 2015 and 198,000 fewer than for a year earlier.
  • There were 970,000 unemployed men, 125,000 fewer than for a year earlier. There were 803,000 unemployed women, 73,000 fewer than for a year earlier.
UK labour market
  • The unemployment rate fell to 5.4%, lower than for March to May 2015 (5.6%) and for a year earlier (6.0%). It has not been lower since March to May 2008. The unemployment rate is the proportion of the labour force (those in work plus those unemployed) who were unemployed.
  • There were 9.01 million people aged from 16 to 64 who were economically inactive (not working and not seeking or available to work), little changed compared with March to May 2015 but down slightly (13,000) compared with a year earlier.
  • The inactivity rate (the proportion of people aged from 16 to 64 who were economically inactive) was 22.1%, little changed compared with March to May 2015 and with a year earlier.
  • Comparing June to August 2015 with a year earlier, pay for employees in Great Britain increased by 3.0% including bonuses and by 2.8% excluding bonuses.

The full report is online here (as a pdf).

Updated

The CBI, which represents Britain’s businesses, has welcomed today’s labour market report – and implicitly criticised George Osborne’s new National Living Wage:

Matthew Fell, CBI interim chief policy director, says:

“We’re encouraged by businesses creating more jobs, leading to rising employment. It’s also good to see falling unemployment, particularly among those out of work for more than one year dropping by 44,000.

“While we want to see higher pay growth, this must go hand in hand with increases in productivity. It’s crucial that the Low Pay Commission retains autonomy over future National Living Wage rises to avoid unnecessary political interference and help boost jobs.”

Last month, outgoing CBI chief John Cridland warned that raising the minimum wage to £9 an hour by 2020 was “a gamble” that could cost jobs.

Resolution Foundation: Pre-crisis pay packets still far away

Workers in Britain’s financial sector are closest to seeing their real pay hit pre-crisis levels, according to the Resolution Foundation.

The thinktank also flags up that construction workers’ wage packets are lagging far behind.

This chart shows how real wages (pay rises minus inflation) began to fall when the financial crisis struck.

UK wage data

UK wage data Photograph: The Resolution Foundation

Matthew Whittaker, chief economist at the Resolution Foundation, explains:

“It’s encouraging to see unemployment falling again, after a pause earlier this year. But there is significant variation in the extent to which this jobs revival has been shared across the country. Many parts of the UK remain a long way short of their pre-recession levels.”

“Private sector employees are enjoying a mini pay surge that is helping to narrow the substantial wage gap that opened up after 2008. However, maintaining this momentum will prove much harder once inflation starts heading back towards its target rate next year.

Whittaker also fears that the public sector pay cap will lead to problems:

“As recovery builds, attention will turn to who is benefiting from it. The strong recent performance of wages in the low-paying retail sector is encouraging, but the picture is much less promising in manufacturing and construction. Meanwhile, ongoing pay constraint in the public sector is likely to translate into increasing recruitment and retention difficulties in the coming months.”

German bank Berenberg have produced a chart showing how real wage growth (adjusted for inflation) has picked up as the jobless rate has fallen:

UK wages

UK wages Photograph: Berenberg

Kallum Pickering, Berenberg’s senior UK economist, explains:

Falling unemployment is boosting wages! The risk that low inflation might hamper growth in wages now looks misplaced, with wage data continuing to show stable progress (see chart 1) despite weak headline inflation. The pace of real wage growth is now broadly consistent with the pre-crisis average, though unemployment is still around 0.3pp higher.

Our view is that the labour market still has some more progress to make before the unemployment rate finally settles. This further improvement however, is unlikely to bring about further real wage gains. Further slack erosion in the labour market will be consistent with higher nominal wages but, it will take place as inflation recovers.

Today’s labour market report also shows how Britain and the US benefitted from massive monetary stimulus programmes after the financial crisis struck:

UK unemployment stats

Many public sector workers are missing out on the recent increase in wages, because chancellor George Osborne has enforced a 1% pay rise freeze that could last until 2019.

Perhaps someone should remind the Department of Work and Pensions….

Updated

Britain’s economic productivity is still below its potential, warns Ian Brinkley, chief economic adviser at Lancaster University’s The Work Foundation.

Brinkley says:

“The employment growth pause that we saw in the first half of 2015 is over – job growth resumed over the three months to August compared with the previous three months, driven by more young people and older workers in employment.

Looking ahead, we can expect productivity to grow faster and employment to grow more slowly than they have in recent years as the labour market starts to return to normal. But a full recovery in productivity could be long and slow. Even with the recent boost we are still 15 per cent below where we would have been had the pre-recession productivity trend continued, and manufacturing productivity still gives serious cause for concern.”

Around four-fifths of the 359,000 jobs created last year are full time:

Part time/full time work

The fall in the jobless rate indicates there’s little slack in the UK labour market, which could mean borrowing costs rise in early 2016.

Dean Turner, Economist at UBS Wealth Management, explains:

Rising wage pressures will likely prompt the Bank of England to hike interest rates soon, most likely in the first quarter of next year.

However, tighter monetary policy is unlikely to derail the UK from its current growth trajectory, as nascent signs productivity growth should keep inflation pressures in check, the consequence being that the path of rate increases will be gradual.”

Wages have been rising this year because companies are managing to increase their productivity, argues economist Howard Archer of IHS Global Insight.

He says:

One factor that seems to be limiting employment growth compared to earlier in 2015 is that UK productivity is now seeing genuine improvement – with earnings growth stronger, UK companies are likely stepping up their efforts to lift productivity by getting more out of their existing workers.

Public sector keeps shrinking

Britain’s public sector workforce has shrunk again to just 17.2% of the working population, the lowest since records began in 1999.

UK unemployment

Today’s labour market report shows that there were 5.36 million people employed in the public sector for June 2015. This was:

  • down 16,000 from March 2015
  • down 59,000 from a year earlier
  • the lowest figure since comparable records began in 1999

In contrast, there were 25.74 million people employed in the private sector for June 2015. This was 58,000 more than for March 2015 and 472,000 more than for a year earlier.

Here’s where jobs were created, or destroyed, in the last year:

UK unemployment

After several years of suffering falling real wages, British pay packets have now been outpacing inflation for the last year or so.

Chancellor George Osborne likes the look of today’s figures:

My colleague Andrew Sparrow is covering all the drama around the fiscal charter vote in his Politics Live blog:

The number of people claiming jobless benefits appears to have bottomed out just below 800,000, with the claimant count rising by 4,600 last month.

Claimant count

Claimant count Photograph: ONS

Basic pay growth slows

Wage growth continues to outpace inflation, but not by as much as expected.

Basic pay, excluding bonuses, rose by 2.8% annually in the three months to August. That’s a slight fall compared to the 2.9% recorded a month earlier. Economists had expected a rise to 3%.

Total earnings, including bonuses, did increased by 3%.

UK wage growth

UK wage growth Photograph: ONS

UK inflation actually fell by -0.1% last month, so this means real wages are rising by around 3%.

Updated

Britain’s employment rate has risen to 73.6%, the highest since comparable records began in 1971.

UK employment rate

UK jobless rate falls to 5.4%

Here we go! Britain’s jobless rate has hit a new seven year low, falling to 5.4% in the three month to August.

The Office for National Statistics reports that the number of people out of work fell by 79,000 in the last quarter, taking the jobless total down to 1.774 million.

But the claimant count – the number of people claiming unemployment benefit – has risen by 4,600 in September. That takes the total to 796,000. That has dashed predictions of a small fall in the claimant count.

More to follow….

Updated

Updated

UK government urged to reintroduce compulsory work experience

Pupils wearing school uniform in a secondary comprehensive school , Wales UK<br />CYA7MC Pupils wearing school uniform in a secondary comprehensive school , Wales UK

Ahead of today’s unemployment report (at 9.30am BST), the British Chambers of Commerce has urged the government to reintroduce compulsory work experience for school children.

BCC director general John Longworth believes it was a mistake to stop forcing schools to offer work experience for under 16-year-olds three years ago. It would help bring down Britain’s ‘stubbornly high’ youth unemployment rate, and help young people make the jump to the workplace.

Longworth says:

“Business and school leaders are clear – we won’t bridge the gap between the world of education and the world of work unless young people spend time in workplaces while still at school.

“It was careless of Government to end compulsory work experience in 2012, but it is not too late to correct the mistake and work with companies and schools to ensure that every school pupil has the chance to feel the energy, dynamism, buzz and challenge of the workplace for themselves.

Work experience is a touchy subject in the UK; those with good contacts typically get a head start at bagging the best placements. Still, even a week painting fences at a duck sanctuary can lead (eventually) to a desk in the newsroom….

Updated

Tony Cross of Trustnet Direct agrees that today’s weak China inflation figures, and fresh deflation at the factory gate, are a worry for traders:

Downbeat data from China – this time in the shape of weaker than expected inflation – is adding another layer of concern as to how the world’s second largest economy is managing the slowdown, and as a result the base metal mining stocks once again are wearing more than their fair share of the losses.

Here’s the picture across Europe:

European markets, October 14 2015

Domino’s Pizza, cheese and tomato pizza

Pizza chain Domino’s is bucking this morning’s selloff.

Domino’s shares have jumped by 13% to a record high of £10.14, after it raised its profit forecasts and revealed that UK like-for-like sales are up by a remarkable 14.9% in the 13 weeks to September 27.

CEO David Wild credited “the success of our strategic and marketing initiatives”; the company is strong on social media, has a successful smartphone app, and has sponsored several popular TV shows from The Simpsons to Hollyoaks.

Updated

Germany’s DAX and France’s CAC are both down around 1%, adding to losses earlier this week.

Bloomberg TV’s Carolyn Hyde flags up that more than 100 billion euros has been knocked off Europe’s largest companies value this week already:

VIEW FROM CANARY WHARF TOWER ON CITY OF LONDON SKYLINE AND RIVER THAMES, LONDON, UK

Stock markets across Europe are in the red at the start of trading, and China is getting the blame.

The FTSE 100 has dropped by 55 points, or 0.85%, in early trading to 6288.

Mining stocks are all down, with Glencore dropping 2.5% and Anglo American shedding 2.3%.

Burberry is also leading the fallers, down 2%. The fashion firm is expected to report slowing sales on Thursday, due to sliding demand for its trench coats and natty checks in China.

Mike van Dulken, head of research at Accendo Markets, says today’s Chinese inflation figures are a worry for investors:

While Chinese consumer inflation (CPI) slowed further, Producer Prices made it a record 43rd straight month of deflation.

While inflation gives the People’s Bank of China room to ease monetary policy further to support the slowing economy, hopes of more stimulus are clearing failing to appease market concerns especially with Q3 GDP data only days away

Chinese policymakers may get another nudge to stimulate their economy next Monday, when GDP figures for the third quarter are released.

Growth is expected to slow to an annual rate of 6.8%, from 7.0% in the second quarter of this year. That would be the first sub-7% reading since the financial crisis.

August and September were turbulent times for China, with wild swings in the stock market. That could also hit the growth rate, if worried firms started cutting investment.

European markets are expected to fall this morning, following the weak Chinese inflation data overnight:

Chinese deflation fears as producer prices slide again

New fears over China’s economy are rippling through the markets this morning, after two piece of economic data showed that demand is weakening.

The producer prices index – which measures what Chinese firms charge for their goods – slumped by 5.9% year-on-year in September. That matches August’s decline, which was the biggest drop since the financial crisis in 2009.

It’s also the 43th month running in which producer prices have fallen.

It suggests that companies are being forced to slash prices in an attempt to stimulate sales, as Beijing tries to rebalance its economy without a ‘hard landing’.

Consumer price inflation also fell, with the CPI index dropping from 2% in August to 1.6% in September, partly due to slowing food prices

And that hit markets in Asia, with traders worrying that the Chinese economy is in urgent need of fresh stimulus.

As Chris Green, an Auckland-based strategist at First NZ Capital Ltd, told Bloomberg:

“In terms of global growth, the risk is skewed towards the downside.”

Angus Nicholson of IG reckons Beijing will act soon, saying:

Today’s Chinese CPI essentially guaranteed further cuts to the interest rate and the reserve requirement ratio (RRR) before the year is out.

But right now, all the Asian markets are in the red – with Japan’s Nikkei closing down almost 2%.

Asian stock markets

Asian stock markets today. Photograph: Thomson Reuters

Updated

Introduction: UK unemployment report in focus

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

Coming up this morning…

The latest UK unemployment report, due at 9.30am BST, will show whether or not Britain’s labour market recovery lost pace over the summer.

The jobless rate is expected to remain at 5.5%, while the number of people claiming unemployment benefit is tipped to fall by around two thousand.

The latest UK earnings figures will also be closely scrutinised. Last month, we saw that wages were rising at their fastest rate in six years, at 2.9% year-on-year. Some in the City predict they will have risen again to around 3.1%.

Michael Hewson of CMC Markets explains:

Today’s average earnings data could present Bank of England policymakers with a problem in the short term if they continue to trend higher as they have been doing for the past few months.

Expectations for the three months to August are for an increase in wages to 3.1% from 2.9%, giving a further boost to hard pressed consumers who up until a year ago had undergone a five year fiscal squeeze in the other direction. The main concern would be if wages start to push higher in a wage/price spiral but that doesn’t seem likely at this point in time

We also get a healthcheck on the eurozone at 10am BST, when the eurozone industrial production figures for August are released. Economists expect a fall in output, as we’ve already seen weak data from Germany for that month.

And over in Greece, European commissioner Pierre Moscovici is visiting prime minister Alexis Tsipras to discuss the Greek bailout programme this afternoon.

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

Updated

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

Published via the Guardian News Feed plugin for WordPress.

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

 

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

Wall Street opens lower

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

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

Markets fall

Markets fall. Photograph: Reuters/Reuters

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

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

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

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

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

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

McCafferty.

McCafferty. Photograph: Rex Features/Rex Features

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

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

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

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

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

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

Twitter announces job cuts

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

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

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

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

Updated

David Drumm, former head of Anglo Irish Bank.

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

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

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

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

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

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

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

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

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

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

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

Global rich are getting richer

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

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

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

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

The group of millionaires below the $50m mark make up another 0.7% of global population, but owns 45.2% of global wealth.

But while the ultra rich have got even richer, others aren’t keeping pace.

Credit Suisse’s chief executive Tidjane Thiam says:

Notably, we find that middle-class wealth has grown at a slower pace than wealth at the top end. This has reversed the pre-crisis trend, which saw the share of middle-class wealth remaining fairly stable over time.

Here are some charts from the report, which is online here.

Credit Suisse wealth report 2015
Credit Suisse wealth report 2015

The top slice of this pyramid group is made up of 34 million US dollar millionaires, who comprise less than 1% of the world’s adult population, yet own 45% of all household wealth.

Credit Suisse estimates that 123,800 individuals within this group are worth more than $50m, and 44,900 have over $100m.

Credit Suisse wealth report 2015
Credit Suisse wealth report 2015

Updated

BoE’s new policymaker: It’s not time to raise rates yet

Hedge fund manager Gertjan Vlieghe

Hedge fund manager Gertjan Vlieghe, who is joining Britain’s MPC Photograph: Gertjan Vlieghe

UK parliament’s Treasury Committee has been hearing from the newest member of the Bank of England’s rate-setting Monetary Policy Committee, Jan Vlieghe, and it appears he is in no hury to vote for a hike.

This is the first time financial markets are getting a chance to hear what the new MPC member thinks about the UK economy, the global outlook and what should come next for interest rates in the UK.

After the Bank’s chief economist, Andy Haldane, recently raised the prospect of a rate cut – from what is already a record low of 0.5% – in the face several risks to the economic outlook, Vlieghe too is not ruling out even lower borrowing costs.

He is worried about the Bank meeting its government-set target for inflation at 2% on the consumer prices index (CPI), which fell to -0.1% this morning.

Asked if the BoE had run out of tools, Vlieghe said “we can cut rates if we judge it necessary” and that the Bank could also re-start its asset purchase programme, also known as quantitative easing (QE).

But he did also say “the next move in interest rates is more likely to be up than down.”

Vlieghe highlighted what he saw as risks to the UK from China’s downturn and the wider global slowdown.

“Clearly, the UK is an open economy, it has very important trade and financial links to the rest of the world. The UK is in reasonably good shape, growth is solid but not fantastic.

But we absolutely have to take into account we are operating in a global environment which is adverse, so to speak, and it’s a headwind to growth and it is one of the things that will prevent, I think, the UK economy from accelerating meaningfully from the pace we are seeing currently.”

He set out some upsides and downsides in the current domestic situation.

The “headwinds” were:

  • A strong pound
  • That the UK is operating in a weak global environment
  • An ongoing fiscal headwind:

But on the plus side:

  • There had been some improvement to productivity growth
  • A housing market recovery
  • Some improvement in real wages

“What we are trying to judge is how these play off against each other,” Vlieghe added.
As for when he might vote for rates to go higher, after already more than six years at their record low, the former hedge fund economist highlighted a host of low inflation numbers from the core rate to people’s inflation expectations.

Speaking after official figures showed headline inflation turned negative in September, Vlieghe said other prices indicators too were “all a little bit below where you’d want them to be to be confident of meeting the 2% inflation target in the medium term”.

“We need them to rise… I am not confident enough right now that they will rise in order to vote for an immediate rate hike. I think we have time. We can wait and see how this plays out and I would want to see a more convincing broad-based upward trajectory before I say OK, now I am confident enough that we will get to 2% eventually and therefore vote for a rate rise.”

Despite the evidence of today’s ZEW survey, German economy minister Sigmar Gabriel has claimed the diesel emissions scandal at Volkswagen won’t permanently damage the German economy.

Asked whether the VW crisis would hit the economic outlook for Germany, Europe’s largest economy, Gabriel said:

“No, I don’t expect the problems at Volkswagen to have lasting effects on the German economy.”

It may be too early to be sure, though. Yesterday, Britain’s transport secretary said Volkswagen deserves to suffer “substantial damage” because of the diesel emissions scandal.

Patrick McLoughlin told MPs that:

“They have behaved in an appalling way,”

“These [defeat] devices were made illegal in 1998 and it is unbelievable to think a company the size and reputation of VW have been doing something like this. They are going to suffer very substantial damage as a result and they deserve to.”

Pre-election giveaways expected in Irish 2016 budget

Irish budget 2016<br />A child’s piggy bank with euro notes as Ireland’s Budget 2016 is to be announced today by Finance Minister Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin. PRESS ASSOCIATION Photo. Picture date: Tuesday October 13, 2015. Only weeks or months from the next general election the electorate is in line for a softening-up with sources in the coalition Government billing the limited restoration to pay packets as “family friendly”. See PA story IRISH Budget. Photo credit should read: Brian Lawless/PA Wire

For the first time in seven years an Irish budget will actually be giving away something for its citizens after the years of tax hikes, brutal spending cuts, the humiliation of an IMF-EU bail out and the crash of the Celtic Tiger.

Irish Finance Minister Michael Noonan will get to his feet after 2pm inside the Dail and deliver a budget that is expected to include:

  • An increase in €3 to the weekly Old Age Pension
  • Tax cuts for the average worker that are expected to put €1000 back into their pockets
  • A cut of to the hated Universal Social Charge tax which was brought in to help plug the gap in public finances during the bail out times.
  • A €550 tax credit for the self-employed
  • The promise of 20,000 new public homes taken from the portfolio of properties nationalised after the financial crash and the bankruptcies of property speculators. Increases in child benefits and a freeze on prescription charges.

Of course it is hardly a coincidence that the Fine Gael-Labour goverment are facing into an election year in 2016 and will no doubt face accusations from opposition parties of trying to bribe their way back into power. In return the coalition will argue that they have done the “heavy lifting” after four years in office, carried out the painful adjustment policies that restored the nation’s finances and oversaw growth in the economy, and managed an exit from the bail out.
One thing is for sure – Enda Kenny and his administration are going to wait for at least three months before today’s budget measures sink into the public’s consciousness. The Taoiseach has finally decided that he won’t call the election until late February/early March. The wisdom of that decision to go late rests an awful lot on the impact of today’s Budget 2016.

VW emission scandal hits German morale

german flag

The Volkswagen diesel emissions scandal and economic problems in emerging markets have become a toxic cocktail for confidence within Germany, new data shows.

Morale among German investors and analysts fell sharply in October, according to the ZEW think tank, pulling its economic sentiment index down from 12.1 to just 1.9.

ZEW President Professor Clemens Fuest pinned the blame on VW, and troubles overseas:

“The exhaust gas scandal of Volkswagen and the weak growth of emerging markets has dampened economic outlook for Germany.”

ZEW’s assessment of the current situation in Germany also fell, by 12.3 points to 55.2 points.

Despite that, Fuest reckons Germany will not fall back into recession.

For the survey, ZEW asked analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

VW to slash investment by €1bn/year

Over in Germany, Volkswagen has just announced that it is cutting its investment programme by €1bn per year, as it grapples with the fallout from the diesel emissions scandal.

In a statement just released, VW announced a range of changes including shifting all its diesel cars to cleaner exhaust emissions systems, and making the next generation of its Phaeton car run on electricity..

Dr. Herbert Diess, who runs Volkswagen’s Passenger Brand, says:

“The Volkswagen brand is repositioning itself for the future.

We are becoming more efficient, we are giving our product range and our core technologies a new focus, and we are creating room for forward-looking technologies by speeding up the efficiency program.”

Here’s the key points from VW’s new strategic plan:

  • Accelerated implementation of the efficiency program creates room for reorientation
  • Streamlined processes leverage further cost-saving potential, including cuts in fixed costs
  • Investments to be reduced by 1 billion euros per year compared with planning – combined with prioritization of projects for the future
  • • Product decisions formulated
  • • New Phaeton will be electric
  • • New Modular Electric Toolkit planned

Updated

Over in parliament, MPs are beginning to quiz former hedge-fund economist Gertjan Vlieghe about his appointment to Britain’s Monetary Policy Committee. You can see it here. It could be quite tasty, as explained earlier….

September’s inflation rate is used to calculate a range of benefits payments in the UK.

Consumer expert Paul Lewis reports that these payments will now be frozen, as will other payments linked to the headline inflation rate.

Updated

Britain’s return to negative inflation isn’t a great surprise or a great calamity, says Jeremy Cook, chief economist at the international payments company, World First:

He reckons inflation will pick up sharply in 2016, once the recent slump in oil prices fades into history.

Headline inflation has been pressured for nearly a year now from falling energy and commodity prices but we must remember that base effects will see that initial drop in oil prices fall out of the calculations in the coming months.

Howard Archer of IHS Global Insight also sees UK interest rates on hold for longer.

With inflation back below zero, it’s hard to see Britain’s interest rates rising from their current record low before 2016.

Peter Cameron, Associate Fund Manager at EdenTree Investment Management, explains:

“Inflation is back in negative territory again and it’s very unlikely that we’ll see the Bank of England raise interest rates this side of Christmas. Although wage pressures are emerging and the impact of the falling oil price will soon start to drop out of the numbers, a rate hike would have a deflationary effect by pushing up Sterling.

At a time when the ECB is signalling it is ready to expand QE and the Fed is likely to delay its own rate lift-off into 2016, the Bank will be fearful of allowing Sterling to appreciate too much.”

Updated

There’s no sign of deflation in the British housing market. New data shows that prices rose by 5.2% across the country in August:

Osborne: This isn’t damaging deflation

UK chancellor George Osborne insists that Britain is not entering a period of ‘damaging deflation’:

Deflation is a protracted period in which prices fall in a downward spiral, and people stop spending because today’s items are going to be cheaper tomorrow.

The bigger picture is of a broadly flat inflation rate since the beginning of the year, says Richard Campbell, head of CPI at the Office for National Statistics.

“The main downward pressures on CPI came from clothing, which rose more slowly this September than in recent years, and falling petrol and diesel prices.”

The three reasons why UK inflation is negative again

Clothing and footwear prices rose by 2.8% between August and September this year, compared to 4% between the same 2 months a year ago. That pushed the inflation rate down, to 0.1% in September.

Fuel prices fell by 2.9% between August and September this year compared with a smaller fall of 0.6% between the same 2 months a year ago.

The ONS says:

The largest downward contribution came from petrol, with prices falling by 3.7 pence per litre between August and September this year compared with a fall of 0.8 pence per litre between the same 2 months a year ago. Diesel prices are now at their lowest level since December 2009, standing at 110.2 pence per litre.

And a price cut by British Gas also helped cut the cost of living.

Over to the ONS again:

Gas prices fell by 2.1% between August and September this year, compared with no change between the same 2 months a year ago, with price reductions from a major supplier.

UK inflation, the detail, September 2015

Food and fuel have played a key role in dragging UK inflation down in the last year.

Over the last year, food prices fell by 2.5% and prices of motor fuels fell by 14.9%, according to the ONS.

This chart confirms that the UK’s inflation rate has been bobbing around zero for most of this year.

UK inflation

Clothing and fuel prices push inflation negative

Here’s the key points from today’s inflation report:

  • The Consumer Prices Index (CPI) fell by 0.1% in the year to September 2015, compared to no change (0.0%) in the year to August 2015.
  • A smaller than usual rise in clothing prices and falling motor fuel prices were the main contributors to the fall in the rate.
  • The rate of inflation has been at or around 0.0% for most of 2015.

UK in negative inflation again

Here we go! UK inflation has turned negative again!

The Consumer prices index fell by 0.1% in September, the Office for National Statistics reports. That’s weaker than the zero reading that economists had expected.

It’s the first sub-zero reading since April.

More to follow

Crumbs! The pound has just taken a dive in the foreign exchange markets, dropping almost one cent against the US dollar.

Pound vs dollar

Pound vs US dollar today Photograph: Thomson Reuters

Traders may be calculating that September’s UK inflation reading, due in a moment, is weaker than expected. Could the inflation number possibly have leaked??

Updated

More signs of weakness in Germany – Berlin is expected to trim its estimate for growth this year to 1.7%, down from 1.8%.

Economy minister Sigmar Gabriel could announce the new forecast tomorrow, according to Reuters.

This follows a hattrick of bad economic data last week, with factory orders, industrial production and exports all declining, as emerging market problems hit Germany.

Inflation, a preamble

Just 30 minute to go until we get the Britain’s inflation date for September.

City economists broadly expect that the consumer prices index will remain flat for a second month, leaving inflation at zero. But a negative reading can’t be ruled out.

My colleague Katie Allen explains:

Falling pump prices and a cut in energy bills by British Gas are expected to have kept inflation at zero last month, putting little pressure on the Bank of England to raise interest rates from their record low any time soon.

Official figures on inflation due at 9.30am are forecast to show no change in the consumer prices index measure. Against the backdrop of tumbling global commodity prices, from food to oil, inflation in the UK has been at or close to zero since February, well below the Bank’s target of 2%.

While some have described low inflation as a sign of economic fragility, it relieves the pressure on household budgets after several years of wages falling in real terms following the financial crisis. The latest official figures on the jobs market on Wednesday are expected to put pay growth at 3.1%.

Here’s her preview:

Hedge fund manager Gertjan Vlieghe

MPs could give Gertjan Vlieghe, Britain’s newest interest rate setter, a rough ride when he appears before them in an hour’s time.

Vlieghe should expect some tough questions about his previous role as economist at a hedge fund (Brevan Howard Asset Management).

Vlieghe was appointed to the Bank of England in late July. He had originally hoped to remain a member of Brevan Howard’s long-term incentive plan, but was forced to exit it to avoid “any mistaken impression” of a conflict of interest.

Alan Clarke, an economist at Scotiabank in London, reckons that those concerns may dominate today’s hearing — as Brevan Howard Asset Management (like any hedge fund) could potentially make or lose money due to decisions taken at the BoE.

Clarke told Bloomberg:

“It’s probably right that happens because financial markets have not had a great reputation recently. Sadly, I think, that will overshadow what is an otherwise great appointment.”

Bloomberg economist Maxime Sbaihi predicts that today’s ZEW survey, due at 10am BST, will show economic confidence deteriorated in Germany this month.

Mining stocks hit by Chinese gloom

European stock markets are all falling this morning, as the 20% slide in Chinese imports last month spooks traders.

In London, the FTSE 100 has lost 36 points, or 0.6%, led by mining stocks such as Glencore (-4.5%).

FTSE 100 fallers

FTSE 100 fallers Photograph: Thomson Reuters

The French CAC shed 1%, while Germany’s DAX is down 0.6%.

Conner Campbell of SpreadEX explains:

A whopping 20% fall in Chinese imports in September didn’t get the day off to the best start, with that drop in demand sure to cause ripples of worry the world over.

Updated

Shares in SABMiller have jumped by 9% at the start of trading in London, to around £39.50.

That’s short of the £44 per share proposal which its board have accepted; the City may not be 100% convinced that AB InBev will pull this deal off.

SAB Miller shares

SAB Miller shares this morning Photograph: Thomson Reuters

AB InBev now has until 5pm on the 28th October to file a firm offer for SAB, having won the board round with its latest proposal.

The key is whether Colombia’s Santo Domingo family, which owns 14% of SABMiller, feels £44 per share is enough.

Updated

You know a deal is big when it moves the pound.

Here’s how sterling reacted to the news that AB INBev and SABMiller have agreed terms.

Pound vs US dollar

Pound vs US dollar today Photograph: Thomson Reuters

Updated

AB InBev and SABMiller agree terms on £68bn deal

File photo of a waiter serving a glass of beer ahead of an Anheuser-Busch InBev shareholders meeting in Brussels<br />A waiter serves a glass of beer ahead of an Anheuser-Busch InBev shareholders meeting in Brussels in this April 30, 2014 file photo. SABMiller, the world’s second largest brewer, has promptly rejected an improved offer from bigger rival Anheuser-Busch InBev, saying October 7, 2015, that its 68 billion-pound ($104 billion) valuation was insufficient. REUTERS/Yves Herman/Files

One of the biggest takeover battles in the City in recent years is heading to a climax this morning.

Anheuser-Busch InBev, the brewing giant behind Stella Artois and Budweiser, has announced it has “reached an agreement in principle on the key terms of a possible recommended offer” for its rival, SABMiller (producer of Grolsch, Peroni, Pilsner Urquell…).

Here’s the statement issued to the City.

At £44 per share, the deal values SABMiller at around £68bn — making it the biggest takeover of a UK company ever.

It’s not signed and sealed yet, though – it still needs the support of SAB’s shareholders. Yesterday, SAB rejected £43.50 per share, but the board has now calculated that it can’t turn down this new higher offer.

More here:

Updated

The impact of China’s slowdown will be felt around the globe, warns economist Cees Bruggemans.

The 20% tumble in Chinese imports last month means that growth is continuing to slow, says Yang Zhao, China economist at Nomura Holdings Inc. in Hong Kong.

He said (via Bloomberg)

“Import growth remained sluggish, suggesting weakening domestic demand, particularly investment demand

We maintain our view that GDP growth will decline to 6.7 percent in the third quarter.”

GDP growth was measured at 7.0% in the second quarter of 2015.

Updated

Chinese imports slump 20% as slowdown continues

The latest trade data from China has sent a shiver through the markets this morning.

Chinese imports slumped by over 20% year-on-year in September (in dollar terms), a worse performance than economists had expected. That means imports have now fallen for 11 months running, as the country’s economy has slowed.

Exports dipped by 3.7% — better than the 6% slide which was expected. But it’s the slump in imports that is alarming analysts, as it hints at more problems building in China.

Reuters has more details:

Imports plunged 20.4% in September from a year earlier to $145.2bn, customs officials said, due to weak commodity prices and soft domestic demand.

These factors will complicate Beijing’s efforts to stave off deflation, one of the headwinds threatening the world’s second biggest economy.

The news helped to drive shares down in Asia, where Japan’s Nikkei fell over 1% overnight.

Commodity prices also weakened, as investors calculated that China would be importing less raw materials in the months ahead.

Updated

Introduction: Has UK inflation turned negative again?

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

After the glamour and drama of yesterday’s Nobel economics prize, we’re back into the gritty world of data this morning.

At 9.30am, the latest UK inflation figures for September could show that the cost of living is falling again (at least according to the Consumer Price Index).

It was 0% in August, mainly due to cheaper energy costs, and some economists think it could have fallen below zero last month.

Then at 10am, Germany’s ZEW economic sentiment index will highlight if the emerging market slowdown and the Volkswagen emissions scandal is hurting Europe’s largest economy.

Also coming up…

At 10am, MPs on the Treasury Select Committee will grill Gertjan Vlieghe, the newest member of the Bank of England’s monetary policy committee.

And the banking reporting season will kick off later, with results from JPMorgan Chase, Citigroup and Wells Fargo.

Updated

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

Published via the Guardian News Feed plugin for WordPress.

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.

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

Published via the Guardian News Feed plugin for WordPress.