Services sector

A £500m rise in cars shipped abroad fails to ease prospects of huge UK trade deficit in third quarter fueled by strong pound plus eurozone woes and declining oil industry. The significant improvement seen in Q2 now considered as “only temporary”…

 

Powered by Guardian.co.ukThis article titled “Car exports cut monthly UK trade deficit but quarterly gap is growing” was written by Phillip Inman Economics correspondent, for theguardian.com on Friday 9th October 2015 11.47 UTC

A rise in car exports helped improve Britain’s trade deficit in August, according to official figures.

The monthly shortfall in the trade balance for goods narrowed to £3.3bn from £4.4bn in July. However, the UK was still heading for a huge deficit in the third quarter of the year after an upward revision to July’s shortfall.

Paul Hollingsworth, UK economist at Capital Economics, said: “Even if the trade deficit held steady in September, this would still leave the deficit in the third quarter as a whole at around £11bn, far higher than the £3.5bn deficit recorded in the second quarter.”

He said this suggests that net trade is probably making “a significant negative contribution to GDP” at the moment.

Hollingsworth warned that the strong pound and weakness in demand overseas as the US economy stuttered and the eurozone remained in the doldrums meant the government’s hopes of a significant rebalancing towards manufacturing exports would be dashed in the near term.

Alongside the £500m rise in car exports in August, the chemicals industry sent more of its production to the US, the ONS said. Total goods exports increased by 3.5% to £23.6bn in August 2015 from £22.8bn in July 2015.

But this positive news was offset by the continued decline in Britain’s oil industry, which has been a major factor holding back progress this year.

Lower production and the lower oil price have dented exports, and though oil imports are likewise cheaper, they continue to rise in volume.

The mothballing and subsequent closure of the Redcar steel plant could also have had an impact as the export of basic materials dived in August by more than 10%.

The services sector recorded an improvement in its trade balance, but the ONS pointed out that the UK continued to rely heavily on the financial services industry to pay its way in the world.

Figures for the second quarter showed that the surplus on trade in services was £22.8bn, of which almost half – £10.1bn – was contributed by banks, insurers and the fund management industry.

David Kern, chief economist at the British Chambers of Commerce, said the narrowing of the deficit in August was welcome, but taking the July and August figures together pointed towards a deterioration.

“This confirms our earlier assessment that the significant improvement seen in the second quarter was only temporary.

“The large trade deficit remains a major national problem. This is particularly true when we consider that other areas of our current account, notably the income balance, remain statistically insignificant.”

Kern urged the government to adopt measures that will “secure a long-term improvement in our trading position”.

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USA 

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

 


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

The end

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

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

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

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

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

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

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

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

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

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

Updated

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

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

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

Wall Street falls

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

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

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

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

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

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

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

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

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

It certainly sounds scary:

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

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

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

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

It’s being streamed here.

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

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

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

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

Lagarde: Mission critical to resolve US government crisis now

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

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

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

Lagarde said:

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

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

Lagarde added:

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

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

We’ll have the full story online shortly

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

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

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

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

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

Christine Lagarde urges US politicians to end budget row

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

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

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

More to follow

Updated

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

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

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

Updated

Some reaction to the Cyprus gas drilling results:

Updated

Cyprus gas results are in

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

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

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

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

Cypriot energy minister Yiorgos Lakkotrypis told reporters:

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

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

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

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

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

Can we come too?

Updated

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

US initial jobless claims rise slightly

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

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

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

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

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

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

Angela Monaghan explains:

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

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

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

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

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

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

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

He writes;

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

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

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

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

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

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

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

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

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

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

Another Golden Dawn MP in court

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

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

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

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

From Athens, Helena Smith reports:

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

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

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

Reuters flags up:

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

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

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

Updated

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

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

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

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

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

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

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

Updated

UK service sector on a charge

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

The monthly PMI survey shows that September was another strong month — with a reading of 60.3, close to August’s seven-month high of 60.5 and deep into expansion territory.

However, firms dependent on consumer spending aren’t doing quite as well as financial firms, it appears….

Reuters handily provides more details:

The sector saw jobs growth in September, something mirrored in surveys of manufacturing and construction earlier this week.

Over the third quarter as a whole, the index – measuring the change in activity, including income and chargeable hours worked, from the previous month – averaged its highest level since the second quarter of 1997, Markit said.

“Growth is being led by financial services – linked in part to increased housing market activity – and the business sector,” said Chris Williamson, chief economist at survey compilers Markit.

“Consumer-facing services continue to struggle, reflecting the ongoing squeeze on incomes due to weak pay growth and high inflation.”

Around half of firms surveyed in the service sector – which makes up more than three quarters of Britain’s output – expected even brisker trade in a year’s time, with the outlook index rising to 71.8.

Service providers reported that a jump in new business last month placed strain on resources, with backlogs of work rising at the fastest pace in more than 13 years.The workload, along with firms’ optimism about future business, led to a solid rise in employment and some pay rises.

Updated

Eurozone private sector output hits 27-month high

The eurozone recovery is gathering pace, with its private sector firms reporting the biggest leap in activity since June 2011 last month.

Data firm Markit’s monthly surveys of companies across the single currency showed a solid rise in activity.

New business has picked up, and the rate of job cuts may finally be slowing to a halt.

Markit’s monthly survey of activity came in at 52.2, up from August’s 51.5. Both service sector firms and manufacturers said conditions were better.

Here’s some key factoids from the report (online here)

Ireland: 55.7 2-month low
Germany: 53.2 2-month low
Italy: 52.8 29-month high
France: 50.5 20-month high
Spain: 49.6 2-month low

The news comes hours after China’s service sector output hit a 6-month high.

Chris Williamson, chief economist at Markit, said the eurozone data showed Europe’s recovery on track, despite Spain’s private firms faltering after a better August.

The final PMI confirms the message from the earlier flash reading that the eurozone enjoyed its strongest quarter of expansion for just over two years in the third quarter. With the rate of expansion picking up in September, the survey bodes well for ongoing growth in the final quarter of the year.

Growth is being led by Germany, but France has also now returned to growth. Even more encouraging are the upbeat survey data for Ireland and Italy, both of which show signs of returning to robust growth, and Spain has also stabilised, as ongoing weakness in the domestic economy is offset by a strong upturn in exports.

But don’t get the bunting out yet — this only suggests a weak recovery.

Williamson explains:

Growth remains only modest – the Eurozone PMI is consistent with GDP rising by just 0.2% on the third quarter, and the political instability that has reared up in Italy is a reminder that there remains plenty of scope for recoveries to be derailed.

Updated

Italian service sector finally growing

Good news from Italy this morning – its service sector has burst back into growth for the first time in 28 months.

This may suggest the Italian economy has finally stopped shrinking, a new boost a day after prime minister Enrico Letta faced down Silvio Berlusconi’s revolt.

Data provider Markit says it’s a welcome sign that the economic recovery could be underway, with the monthly PMI jumping to 52.7 in September, from 48.8 in August. It’s not been over the 50-point mark (which separates contraction from expansion) since May 2011.

Here’s the key points:

• Business activity lifted by increase in new work

• Job shedding continues, but at slower rate

• Future expectations highest in more than two years

Credit Agricole’s Frederik Ducrozet is encouraged:

Phil Smith, economist at Markit, said the data shows “the first signs” of recovery in the Italian economy after some grim months. But without political stability, he warned, it could quickly deteriorate.

He explained:

Should the data hold up, however, there may also be a return to growth in service sector employment, which showed its slowest fall for 16 months in September.

A significant improvement in businesses’ expectations for the year ahead will have no doubt also helped on this front.

The data, alongside those for manufacturing, show Italian GDP at least stabilising in Q3 and perhaps even rising slightly for the first time in more than two years. Political stability is key to this forward momentum being sustained into the later stages of the year and beyond.

Updated

Overnight in Greece, the head of the far-right Golden Dawn party was remanded in custody, hours after three of his MPs were released pending trial.

Another MP, Yannis Lagos, was also detained, as was Giorgos Patelis, the head of Golden Dawn’s local office in the area west of Athens where hip-hop star Pavlos Fyssas was stabbed two weeks ago. <updated, many thanks to reader Kizbot>

All the men faces charges of running a criminal gang, which they deny.

From Athens, Helena Smith reported:

Armed police led Nikos Mihaloliakos away from the courthouse in handcuffs in the early hours of Thursday after testimony lasting more than six hours.

His wife and daughter, also party members, and other Golden Dawn MPs, stood outside the building and shouted words of encouragement to him as he was led away.

“The ridiculous little men, they decided to jail the leader,” said party MP Michalis Arvanitis.

Golden Dawn leader jailed pending trial after Athens hearing

Updated

Just in – Spain’s service sector suffered a drop in activity in last month. Its PMI index has fallen into contraction territory again — at 49.0 in September, down from 50.4 (showing slight growth) in August.

Markit, which compiles the PMI data, also reported that new order growth slowed. On the upside, optimism hit a 41-month high.

Spain’s government ministers have been boldly declaring that the recession is over. This data doesn’t suggest much of a recovery yet.

Andrew Harker, senior economist at Markit, commented:

The Spanish service sector failed to show much sign of a recovery during September as activity fell back in response to weaker new order growth which itself had been supported by further sharp discounting.

One bright spot from the latest survey was that companies were at their most optimistic about the future for nearly three-and-a-half years, suggesting that Spanish service providers are seeing some light at the end of the tunnel.

Markets edge higher

Shares are edging a little higher in early trading — suggesting China’s strong service sector data is trumping US deadlock woes.

Here’s the early prices: (German’s DAX is closed for a public holiday)

FTSE 100: up 20 points at 6458, + 0.3%

French CAC: up 7 points at 4,165, + 0.18%

Italian FTSE MIB: up 98 points at 18,191, +0.5%

Spanish IBEX: up 21 points at 9,371, +0.23%

Mike van Dulken, head of research at Accendo Markets, reckons there’s some “cautious optimism” in the City this morning, despite the lack of progress in Washington DC. He argues that, with America on track to smash into its debt ceiling on 17 October, there’s little chance of the Federal Reserve turning down its bond-buying stimulus programme soon:

Sentiment is still not quite ignoring, but nor is it pricing in the worst case scenario – which is no agreement until debt ceiling deadline, and possible sovereign default.

The possible assumption is that default won’t be allowed, but the longer the budget takes to sort out, the longer the Fed is held off from tapering. Happy days for easy money policy lovers and risk appetite.

Updated

Michael Hewson of CMC Markets says traders will be hoping for encouraging data from Europe’s service sector this morning:

As we enter the third day of the shutdown of the US government the various positions seem as inextricably entrenched as ever. On the plus side at least we don’t have to worry about the soap opera playing out in Italy as Silvio Berlusconi negotiated what could be politely called a tactical withdrawal and agreed to support Enrico Letta’s government after it became apparent he didn’t have his party’s support with respect to the confidence vote.

While he may have run into a brick wall on this occasion Berlusconi has never lacked the capacity to surprise, so I would doubt that we have heard the last of him in this regard.

In any case while the political uncertainty in Italy may have subsided for now it still remains quite likely that any type of reform is still set to remain slow and problematic.

As for the rest of Europe’s markets while the FTSE may get a slight boost from a positive China services PMI, they continue to have one eye on events in the US, finishing lower yesterday along with US markets, though after yesterday’s non event of an ECB press conference, todays focus is on the latest services PMI data for September for Italy, Spain, France and Germany. All are expected to show positive readings above 50, with the exception of Italy, which is expected to come in at 49.2, raising expectations of a continued recovery.

Chinese service sector output hits six-month high

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

Looks like a mixed day ahead . Growing concern over the US government shutdown have taken the shine of some encouraging Chines economic data earlier today.

While in Europe, Italy is waking up to front pages dominated by Silvio Berlusconi’s humiliating defeat in the Senate yesterday, where prime minister Enrico Letta swept home in his confidence vote. More on this shortly.

First the good news — growth in China’s service sector has surged to a six month high. Activity jumped to 55.4 in September, from 53.9 in August, as measured by the official Purchasing Managers Index (anything over 50 points = growth).

That suggests that Beijing’s efforts to pep up the Chinese economy is bearing fruit this autumn.

Craig Erlam, analyst at Alpari, explained:

This is just another sign that the government’s targeted stimulus efforts, which were announced a few months ago in order to combat the slowing growth in the economy and achieve its minimum 7% growth target, are having the desired effect on the economy.

That might normally give stock markets a boost, especially with more service sector data due from the eurozone and UK this morning.

But now the bad news — Wednesday was another day of deadlock in Washington, despite US bank chiefs urging politicians on Capitol Hill to get a grip before it’s too late.

Obama meets bank chiefs as economists warn of ‘deep and dark recession’ 

So it’s probably going to be a nervy day in the markets….

Updated

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The UK service sector has posted its biggest leap in activity in over six years. Germany drags the eurozone back to growth. The head of the Dallas Federal Reserve Bank has declared that the Fed is almost ready to start slowing the US monetary stimulus program…

 


Powered by Guardian.co.ukThis article titled “Eurozone private sector returns to growth, as UK service sector surges to six-year high – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 5th August 2013 13.28 UTC

6.21pm BST

Closing summary

Time to wrap up for the day.

Here’s a brief closing summary.

The UK service sector has posted its biggest leap in activity in over six years. The monthly PMI survey, conducted by Markit, jumped to 60.2 in July, showing strong growth, and suggesting the UK recovery continues to pick up pace.

Details from 9.,39am onwards.

Analyst reaction at 10.14am

There was also optimism in the eurozone that the recession is over. PMI surveys from the region indicated that its private sector had finally returned to growth. Germany led the way, and there were signs of stabilisation in Spain and Italy.

The eurozone data is covered at 9.18am

The key highlights by country begin at 8.31am

• However, other countries performed less strongly. Brazil (see 2.19pm), India and Russia (8.10am) all saw a fall in service sector activity.

Meanwhile in the eurozone…

there were fresh protests against public sector job cuts in Greece (see 1.24pm and 12.50pm)…

…as Italy remained gripped by Silvio Berlusconi’s conviction for tax fraud (see 11.12am)…

…and the IMF urged France to rein in its austerity programme in 2014 (see 4.41pm)

I’ll be back tomorrow. Thanks for the great comments, as ever, and goodnight. GW

Updated at 6.23pm BST

5.55pm BST

Markets close

After a bright opening, Europe’s stock markets have closed with losses in London, and little change elsewhere today.

The news that Britain’s service sector enjoyed a bumper July, and that the eurozone private sector returned to growth, didn’t spark much of a rally.

In London, the FTSE 100 was dragged down by HSBC — which warned of an emerging market slowdown in today’s financial results.

David Madden, market analyst at IG, commented:

In London, the banking sector dragged the market lower after HSBC’s first-half figures were good but not good enough to entice traders to go long.

The largest bank in Europe announced an increase in profit but fell below expectations, prompting traders to unload their positions in the Asian-focused bank. Natural resource stocks initially propped up the FTSE but as the day went on dealers lost their appetite for risk.

And here’s the closing prices:

• FTSE 100: down 28 points at 6619, -0.43%

• German DAX: down 8 points at 8398, -0.1%

• French CAC: up 4 points at 4049, +0.1%

• Italian FTSE MIB: down 21 points at 16757, -0.13%

• Spanish IBEX: down 13 points at 8,560, -0.15%

5.27pm BST

If the cap doesn’t fit….

In the world of banking, HSBC is considering responding to the EU’s cap on bonus payments by boosting the basic salaries paid to its staff.

Our City editor, Jill Treanor, reports:

Speaking from Hong Kong, [chairman Douglas] Flint said one of the options being considered to tackle the bonus cap was a potential pay rise for staff and he said he was confident that shareholders would support policies intended to keep the bank competitive.

"We are looking at a whole range of things," he said.

Here’s the full story: HSBC may raise banker pay to overcome bonus cap

Updated at 5.40pm BST

4.55pm BST

Fed’s Fisher: Tapering is looming

Over in America, the head of the Dallas Federal Reserve Bank has declared that the Fed is almost ready to start slowing the US monetary stimulus programme.

President Richard Fisher told the National Association of State Retirement Administrators that the moment of ‘execution’ on ‘tapering’ the US bond-buying programme (currently bn per month) was close.

Here’s the key quote:

Having stated this quite clearly, and with the unemployment rate having come down to 7.4%, I would say that the (Fed’s policy-setting) committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months.

Fisher also declared that the Fed must avoid ‘market havoc’ when it begins to withdraw the QE punchbowl – having already seen stock markets tumble in May when the prospect was first floated.

4.41pm BST

IMF: France is recovering

The International Monetary Fund has offered the French government some support, and urged Francois Hollande to slow the pace of austerity next year.

France has been criticised for not taking more decisive action to cut its deficit, which is forecast to be 3.9% of GDP this year. But the IMF reckons Paris’s priority must be growth next year, meaning Hollande should ease up on fiscal consolidation.

In its latest report (online here), the IMF warned:

The pace of adjustment should be eased in 2014 relative to current plans in order to support the recovery. Adjustment should also be rebalanced toward expenditure containment.

The IMF also ruled out a surge in growth later this year, predicting that French GDP would shrink by 0.2% in 2013. It also predicted meagre growth in 2014, of just 0.8%.

4.26pm BST

More from JP Morgan. Senior economist Joe Lupton says the global economy made "a positive start" to the third quarter of 2013, but warned:

Although the stronger performance signalled is pleasing in itself, the structure remains uncomfortably uneven by region, particularly with regard to job creation.

4.17pm BST

Global private sector activity hits 16-month high

JP Morgan has added up all July’s PMI data, and concluded that the global services sector posted a healthy increase in activity last month, from 51.1 to 54.9.

This meant stronger growth across the global private sector too, with a PMI of 54.1, the highest level in 16 months, up from 51.2 in June.

Here’s the details:

Updated at 4.24pm BST

4.03pm BST

Putin pays Berlusconi a visit

Back to Italy, where Silvio Berlusconi is receiving a friendly visit from none other than Russian president Vladimir Putin.

That’s according to La Stampa, which reports that "Vladimir Putin, President of Russia, arrived in Rome to meet with his great friend Silvio Berlusconi".

Berlusconi’s conviction for tax fraud clearly didn’t deter Putin from making the date to see his long-time ally.

More here: Putin in visita da Berlusconi

3.45pm BST

This handy graph from Reuters compares the service sector growth in the US (dark blue), the eurozone (light blue) and China (green) over the last five years:

Larger version here.

Updated at 3.51pm BST

3.34pm BST

Duncan Weldon: 5 thoughts on the service sector surge

Duncan Weldon, the TUC’s senior policy advisor, agrees that the jump in British service sector output in July (9.39am) is good news.

He cautions, though, that the economy is still a tough place for many people.

He’s blogged five quick thoughts on the data, including:

Third, the real measure of the recovery will be found in falling unemployment and rising real wages and living standards. We have a triple crisis of jobs, wages and investment and a very long way to go to get out of them.

Here’s the full piece:

The Service Sector PMI: 5 Quick Thoughts

Updated at 5.06pm BST

3.16pm BST

US service sector also posts strong growth

America’s services sector has followed the UK by posting forecast-smashing activity for July.

The US ISM Non-Manufacturing Composite index (which measures its service sector) jumped to 56.0 last month, up from the three-year low of 52.2 reported in June.

That’s the highest reading since February, and indicates much stronger growth. Economists had expected a reading of 53.1.

The jump in the monthly index was mainly due to a surge in new orders (the sub-index leapt to 57.7 from 50.8 in June).

2.48pm BST

2006 and all that

Last month’s surge in UK service sector activity (see 9.39am onwards) is the best monthly performance in over six years. Apart from that, though, July 2013 and December 2006 have little else in common.

The recession, and its aftermath, has pushed Britain’s jobless rate up to 7.8%, from 5.5% six and a half years ago. Interest rates were 5% – compared to 0.5% today. And Tony Blair hadn’t got round to swapping Downing Street for a new career as Middle East envoy and JP Morganite.

My colleague Angela Monaghan has more here:

UK service sector high: the last time we had it so good was 2006

Updated at 2.48pm BST

2.19pm BST

Brazil’s private sector activity falls

More economic data, this time from Brazil — where service sector activity has fallen.

Markit’s Brazilian Services PMI dropped from 51.0 in June to 50.3 in July. That’s enough to drag the wider private sector PMI down to 49.6, into contraction territory.

New orders fell and job creation was unchanged.

It’s another sign of slowing growth in emerging markets, after India’s service sector output shrank for the first time since October 2011 (see opening post).

The drop in activity was also blamed on the anti-government protests which began in cities across Brazil in June.

Updated at 2.28pm BST

1.24pm BST

Photos: Greek workers march

A few more photos from Athens of today’s protest by employees from the Greek Manpower Employment Organization and the social security offices (as mentioned at 12.50pm):

12.57pm BST

Strike watch (2): German canal workers protest

Greece isn’t the only country experiencing industrial action today. In Germany, the country’s canal workers have downed tools today in a row over job cuts.

Transport on the country’s canal network is likely to be hit, as Reuters reports:

Several canals in Germany will be partially blocked to cargo shipping this week due to renewed strikes by lock operators, German trade union Ver.di said on Monday.

The strikes, set to last the rest of the week, are in protest against government plans to restructure the German inland navigation authority WSA.

Traders said they did not expect the strikes to cause widespread disruption and that shipment delays were likely to be local and restricted to smaller canals.

12.50pm BST

Strike watch (1): Protests in Athens over public sector cuts

In Greece, workers at the country’s employment offices pension fund are holding a walk-out today in the latest protest at planned job cuts.

Despite regular protests, the Athens government continues to push on with its targets for cutting 15,000 pubilc sector positions by the end of 2014.

Administrative reform minister Kyriakos Mitsotakis told Mega TV that 12,500 workers will be transferred to the new labour pool (which can lead to redeployment or redundancy).

Mitsotakis said:

The truth is that the ministries have lived up to the commitment they made to the prime minister and we have formed a clear timeline about how we will keep to one of our main pledges to have 12,500 people in the scheme by the end of September.

More here: Mitsotakis confident Greece will meet civil service target by September

Updated at 1.17pm BST

12.06pm BST

The latest retail sales from the eurozone show that the region’s consumers are still facing hard times.

Sales across the euro area sales in the euro zone fell for the first time in three months in June, dropping 0.5% compared with May, as households continued to struggle.

The largest monthly decreases were registered in Estonia (-3.3%), Hungary (-1.9%), Austria (-1.7%) and Germany (-1.5%)

Malta (+1.8%), Luxembourg (+1.3%) and Denmark (+1.2%) bucked the trend with rising sales compared with May.

And on a year-on-year basis, recession-hit Spain showed the largest decline, falling by 6.9% compared with June 2012.

11.28am BST

Key event

Here’s our full news story on the UK service sector’s knock-out performance last month:

UK service sector hits pre-crisis levels, boosting growth hopes

11.26am BST

Alberto Nardelli: Italian government’s lifetime is shortened

Speaking of Silvio Berlusconi (11.12am), political analyst Alberto Nardelli flags up that the next key development is a vote in the Senate in September to rubberstamp his sentence:

As the odds are significantly stacked against Berlusconi (8-15 in the committee which decides on immunity, and 117-198 in the senate itself which would need to vote on the committee’s decision), he may decide to directly step down as a senator. Berlusconi will also need to decide (by mid-October) how he intends to serve his one year sentence (house arrest or community service).

Nardelli also suggests that Italy faces the real prospect of another election within the year:

In summary, I believe the lifetime of the current government has been inevitably shortened and I wouldn’t bet on it lasting a full-term, and 12 more months are probably also optimistic at this point. The earliest an election could take place is November, but a spring 2014 election is more likely.

More here: Italy – what could happen next (politically)

11.12am BST

Berlusconi conviction still grips Italy

Silvio Berlusconi continues to dominate the news in Italy following his failure to overturn a conviction and jail term for tax fraud last weekend.

Yesterday, hundreds of supporters gathered outside the former PM’s home to protest against the sentence, and were treated to a classic appearance from Berlusconi himself.

Despondent at one stage, and celebratory at another, Berlusconi insisted he was innocent, while also showing support for the country’s coalition.

He declared:

I am here. I am staying here. I won’t give up. We will continue together to fight this battle for democracy and freedom.

(full story by Lizzy Davies here)

Senior members of Berlusconi’s People of Freedom (PdL) party are due to meet President Giorgio Napolitano today to discuss his future.

The ANSA news agency reports:

PdL Senate whip Renato Schifani and House whip Renato Brunetta are expected to discuss ways to make it possible for Berlusconi to stay active in politics after the four-year prison sentence – three of which have been commuted because of an amnesty – comes into effect in October.

PdL supporters are pushing for Berlusconi to be pardoned. But, as ANSA explains, that’s a tough sell:

This could be difficult for Napolitano to do for many reasons, including the fact that Berlusconi is appealing against two other criminal convictions, a seven-year sentence for paying for sex with an underage prostitute and a one-year term for involvement in the publication of an illegally obtained wiretap.

10.49am BST

FTSE 100 rises on Lloyds sell-off rumours

Europe’s stock markets hit two month highs this morning, following the news that the eurozone private sector returned to growth last month (see 9.18am)

In London, the FTSE 100 is up 12 points at 6660, led by Lloyds Banking Group (+4% at 76/7p). That is driven by speculation that the UK government is on the brink of selling some of its 38% stake in the bank.

My colleague Jill Treanor wites:

Shares in Lloyds Banking Group have hit their highest levels in almost three years amid speculation that the government could begin to sell off its 39% stake in the bailed-out bank.

The shares were trading above 76p on Monday, higher than the 73.6p average price at which the government bought its stake in the bank in 2008 and 2009.

They have now enjoyed a sustained rise since António Horta-Osório, the Lloyds boss, said last week it was now up to the government when and how to sell the shares.

More here: Lloyds shares above 76p, fuelling sell-off expectations

10.23am BST

Pound rallies

Good news for UK readers poised for a well-earned foreign holiday – sterling is strengthening against other major currencies following today’s service sector report.

The pound is up three-quarters of a cent against the US dollar, at .5363, and has also gained half a euro cent against the euro to €1.156.

10.14am BST

UK services sector PMI: what the experts say

City economists agree that today’s strong service sector data (see 9.39am) shows Britain’s recovery is taking root.

Robert Wood of Berenberg headlined his research note "UK: WOW" – underlining the surprisingly strong surge in service sector activity last month.

Wood wrote:

From zero to hero in six months, the UK is flying as tumbling mortgage rates and rising confidence are driving a consumer led recovery. Monetary policy is working….

With continued support from the Bank of England, the quagmire of the past couple of years will recede rapidly in the rear-view mirror. We expect the recovery to move onto a firmer footing next year, supported by rising real wages and recovery in the Eurozone. The UK is certainly not facing a ‘new normal’ of weak growth.

Howard Archer of IHS Global Insight called it a:

show-stopping survey that completes a very impressive hat-trick of improved purchasing managers surveys for July.

Jeremy Cook, chief economist at currency firm World First, commented that ‘the good news keep coming". But Cook also warned that the recovery remains fragile:

The key to this, and the sustainability of the recovery, is the confidence around the employment components of these surveys – jobs will only be added if these levels of growth are sustained. Wages should also increase along the way as well further improving confidence and lessening the gap between wage settlements and price rises.

Although the improvement in the weather has helped things, I do worry about sales being dragged forward from months in the future. There could be a potential ‘deflating of the balloon’ as we move through the rest of the year, and when consumers begin to save cash for the inevitable Christmas splurge.

Economist Shaun Richards also tweeted that Britain made a strong start to the third quarter of 2013:

While Deutsche Bank flags up that the service sector’s growth poses some interesting questions for the Bank of England, which releases its next inflation report on Wednesday (with thanks to The Times’s economics editor, Sam Fleming). The BoE is expected to flesh out its new ‘forward guidance’, effectively promising to keep borowing costs low until the economy improves…..

10.10am BST

Today’s blowout reading comes after six months of steadily rising activity in the UK service sector, as this image shows: (anything above 50 = growth).

9.54am BST

Graph: Britain’s surging services sector

Services makes up around three-quarters of the UK economy, and this graph shows how the surge in activity last month could equate to a jump in GDP:

The full report is online here (pdf).

9.39am BST

UK services data smashes forecasts

Britain’s dominant services sector has recorded its best monthly performance since before the financial crisis began, smashing analyst forecasts and suggesting the recovery is gathering pace.

The UK service sector PMI index has surged to 60.2 up from June’s 56.9. That’s the strongest monthly reading since late 2006, and shows extremely strong growth.

The survey found a solid rise in new orders, driving optimism higher across the service sector. Underlying demand was reported to be stronger, with firms saying they see better conditions both at home and abroad.

Recent good weather in the UK, and a recovery in the housing market, were also credited with driving the service sector in July.

A separate survey last Thursday showed that Britain’s factory activity hit its highest level since 2011 last month.

Taken together, the two reports suggest that Britain’s economic recovery is well underway.

And with the eurozone private sector also returning to growth in July (see 9.18am), Europe’s prospects look brighter.

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

The services sector stormed to a six year high in July, registering levels of performance not seen since before the financial crisis. Combined with the
manufacturing and construction figures, this is the clearest sign yet that the UK economy is experiencing a broad based economic recovery and
has the momentum to deliver continued growth. 

The seventh month of sustained, accelerated growth in services was underpinned by improved market conditions both domestically and abroad. Business confidence for UK services is now the
highest it has been for 15 months, allowing businesses to expand, develop new products and increase their fees.

The steep rise in new business and the sharpest rise in backlogs of work since 2010 have put some pressure on capacity, giving firms the conviction to take on more staff and increase wages, which have been stagnant for a long time. Taken together, these could signal a significant month in the turnaround of the fortunes of UK plc.

More to follow….

9.25am BST

Howard Archer of IHS Global Insight agrees that today’s data (see 9.18am) shows that the eurozone economy has stopped shrinking:

The near stabilization in Eurozone services activity in July fuels hope that Eurozone GDP has finally stopped contracting and is on course to eke out marginal growth over the second half of the year.

Furthermore, all countries saw an improved services performance in July compared to June.

However the recovery will be constrained by tight fiscal policy, record unemployment and "limited consumer purchasing power", Archer added.

9.18am BST

Relief for eurozone as private sector starts expanding

It’s official… the eurozone’s battered private sector has posted a rise in activity for the first time since January 2012.

Markit’s survey of thousands of firms across the eurozone showed a final private sector PMI reading of 50.5, which indicates output has risen.

The region’s service sector has almost returned to growth, while data last Thursday shows that manufacturing activity increased last month.

Markit said that the Eurozone economy has stabilised as the "German recovery accelerates and downturns ease in France, Italy and Spain" (see 9.01am for the data). Job losses slowed, and business confidence hit a 16-month high.

Here’s the key data (where 50 = the gap between expansion and contraction)

• Germany: 52.1 5-month high
• Italy: 49.7 26-month high
• France: 49.1 17-month high
• Spain: 48.6 25-month high

Rob Dobson, senior economist at Markit, said the data showed "a welcome return to growth for the Eurozone economy", boosting hopes that the recession will end this quarter.

Granted, the euro area has experienced false dawns before, but the improvements in confidence and other forward-looking indicators warrant at least some optimism for the outlook this time around. Germany posted a return to expansion in July, while the downturns in the other big-four economies all eased.

Dobson added that export demand had driven growth in the eurozone manufacturing sector, but there are also signs of recovery in domestic markets.

However…

The labour market remains the main bugbear of the eurozone, as rising joblessness hurts growth and raises political and social tensions.

9.01am BST

Signs of recovery in Europs

Back in the eurozone.. and Italy, Germany and France are all showing signs of recovery.

Activity in Italy’s service sector has hit a two year high in July, rising to 48.7 on Markit’s index — much stronger than June’s 45.8. Still a contraction, but at a much slower pace.

In France, the service sector posted its best reading in 11 months. Its July Services PMI of 48.6 was an improvement on June’s 47.2.

And, as predicted, Germany’s service sector leads the way – with a PMI of 51.3. That indicates growth in Europe’s largest economy for the third month in a row.

8.53am BST

Egypt stands out as the worst-performing of the major Middle East economies, with firms in both Saudi Arabia and the UAE reporting an increase in activity.

Updated at 8.53am BST

8.52am BST

Egypt’s private sector in dire situation

Grim confirmation that Egypt’s economy is contracting at an alarming rate.

Its private sector deteriorated sharply in July, with the headline PMI diving to 41.7, down from June’s 47.5. That’s a very sharp drop in activity. No surprise, given the political turmoil and violence that grips the country following the overthrow of Mohamed Morsi’s presidency at the start of July.

The number of people in work fell during July, and orders from overseas also dropped.

Simon Williams, chief economist for the Middle East at HSBC, warned that Egypt’s situation was perilous.

Political order is a prerequisite for recovery, but even if that is achieved, it will prove very challenging to quickly reverse the losses of the past 10 months.

8.35am BST

Graph: Spanish PMI vs GDP

And here’s a graph comparing Spain’s service sector PMI to its GDP — showing how the worst of its recession could be over…..

Updated at 8.37am BST

8.31am BST

Spain: Services downturn slows

The long slump in Spain’s service sector has eased, but firms are still suffering a drop in activity.

That’s the message from its Services PMI, which came in at 48.5, up from 47.8 in June. The best reading in nearly a year, but still a decline.

Markit, which compiled the data, said the decline in activity was slowing, suggesting Spain’s two-year recession could finally be over by Christmas:

Andrew Harker, senior economist at Markit and author of the report, commented;

The Spanish service sector came close to a change of momentum in July, with the rate of contraction in activity easing further during the month.

Should this current trend be built upon, we could be in line to see a return to growth of GDP by the end of the year.

This remains far from assured, however, with service providers continuing to highlight the effects of the economic crisis in their responses to the latest survey.
 
 
 

8.25am BST

Sweden roars back

Sweden’s service sector has roared back into growth, with a PMI of 56.6 – up from 44.8 in June.

Encouraging news for the Swedish economy, which suffered a rare (but small) contraction in the last three months (details).

8.19am BST

What we expect from Europe

This morning’s data is expected to show that Germany is the only eurozone member whose service sector is actually growing.

Michael Hewson of CMC Markets rounds up the predictions:

Of all the countries only Germany’s PMI is expected to show any form of expansion with a reading of 52.5 expected.

All the others are expected to show an improvement but are still expected to remain firmly stuck in contraction territory. Italy is expected to improve to 46.5, Spain 48.1 and France 48.3, while the broader European measure is expected to come in at 49.6.

Meanwhile, the UK service sector is expected to show stonking growth, with a PMI of at least 57, up from 56.9 in June.

Updated at 8.19am BST

8.10am BST

Service sector data adds to India’s gloom

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

It’s a big day for economic data, with a string of surveys showing how the world’s service sectors performed in July. And it’s already begun with alarming signs from two key economies – India and Russia.

The Indian service sector has shrunk for the first time since October 2011, driven by a drop in new orders and weaker economic activity. This means India’s private sector’s output has contracted for the first time in over four years, fuelling fears that its economy is on the slide.

This graph shows how India’s once-buoyant private sector has slipped in recent months:

The Indian service sector PMI tumbled to 47.9, down from 51.7 in June. Any number below 50 shows a fall in activity.

Leif Eskesen, chief economist for India at HSBC – which compiled the data – warned that manufacturing and services companies are both seeing a drop in new work.

Activity in the service sector contracted in July led by a drop in new business, which also led to a decline in optimism among the surveyed companies.

The slump in activity comes as the Reserve Bank of India (RBI) has battled to bolster the rupee, which has hit a series of record lows against the US dollar in recent weeks. Eskesen argued that the RBI will soon need to prioritise growth:

While the RBI has to cater to the currency at the moment, it will eventually need to cater more to growth as economic activity continues to soften.

The picture isn’t too much better in Russia either, where the private sector has suffered its first drop in activity in three years, and hit a four-year low.

The Markit/HSBC Services PMI, released this morning, fell marginally to 48.7 from 48.8 in June — meaning another month of falling activity.

This followed a similar drop in Russian manufacturing output last week, so Russia’s private sector PMI has now slipped to 48.7. That’s the first reading below 50 since August 2010, and the lowest since July 2009.

Russia has been hit by recent falls in commodity prices, which helped to push down privat sector employment.

Alexander Morozov, chief economist for Russia and CIS at HSBC, warned that Russia faces both cyclical and structural problems — with many firms declining to spend more on investment.

Like a duet of synchronised springboard divers, output in services and manufacturing dove in unison at identical rates in July, the HSBC Russia Composite PMI survey revealed.

Apparently, this kind of diving is not the one that can cheer anybody. In essence, it appears that the Russian economy has lost its growth engines, with neither manufacturing nor services being able to sustain overall economic growth alone anymore.

And here’s the obligatory graph:

A bad start to the morning. Can Europe do better? We get service sector from across the eurozone (9am BST), and from the UK (9.30 BST) this morning. Last week’s manufacturing data was encouragin, suggesting that the eurozone recession was over, and Britain’s recovery was gathering pace.

On top of all this economic data, I’ll be tracking the latest political developments across the eurozone area. Italy continues to be gripped by Silvio Bersluconi’s tax fraud conviction, while in Greece prime minister Antonis Samaras is preparing for a trip to America….

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