And finally, European stock markets have closed with losses across the board.
Despite the less hawkish tone from Jerome Powell this afternoon, investors picked up the baton from Asia and send shares lower.
In London, the FTSE 100 ended 56 points down at 7,175, a fall of 0.8%. Rentokil was the biggest faller, down 9%, after cutting its profit forecasts this morning. WPP, the world’s biggest advertising firm, shed 8% after its own gloomy outlook.
David Madden of CMC Markets says:
WPP are still suffering at the hands of Google and Facebook as companies are shying away from traditional advertising and are using online targeting to reach their customers. Like-for-like billing declined by 5.4% and 2017 ‘wasn’t pretty’ according to the CEO Martin Sorrell.
The company revealed disappointing figures in August and today’s announcement sent the stock to its lowest level since October 2014. Traders may remain sceptical about the company until it can challenge the tech titans for advertising space.
Germany’s DAX lost almost 2%, while France’s CAC lost 1.1% and the pan-European Stoxx 600 fell by 1.4%.
That’s all for today. Thanks for reading and commenting. GW
Powell is also making some interesting points about student debt; suggesting it could be wiped away if an individual is made bankrupt.
Background: The US Education Department said this week it will review when borrowers can discharge student loans, an indication it could become easier to expunge those loans in bankruptcy.
Fed chair Jerome Powell is exhibiting a more dovish plumage to Congress today, having come over as quite the hawk on Tuesday.
Jerome Powell’s cautious comments about wage inflation have taken some of the sizzle out of the US dollar.
Shares have also pushed higher on Wall Street, as traders shed some of their worries about rate increases.
Powell: No strong evidence of big wage rises
Over in Washington, Federal Reserve chairman Jerome Powell is testifying to the Senate banking committee.
His prepared testimony was the same as Tuesday’s offering to the House, so it didn’t move the markets.
But Powell now taking questions….and he’s delivered a dovish-sound comment on wages increases. Perhaps importantly, the new Fed chief says there aren’t any signs of a ‘decisive’ move in wages.
That could dampen expectations of hefty interest rate rises this year.
CNBC has the details:
Federal Reserve Chairman Jerome Powell said Thursday that there are no “decisive” signs of wage inflation yet.
Speaking in testimony before the Senate Banking Committee, the central bank head also said more gains can come in the labor market without causing harmful levels of inflation.
The remarks are significant in that during Powell’s remarks two days ago before the House Financial Services Committee were interpreted as being more concerned about inflation, leading the Fed to a more aggressive path in interest rate hikes.
“We don’t see any strong evidence yet of a decisive move up in wages. We see wages by a couple of measures trending up a little bit, but most of them continuing to grow at two and a half percent,” he said. “Nothing is suggesting to me that wage inflation is at a point of accelerating. I would expect that some continued strengthening in the labor market can take place without causing inflation.”
US factory growth surges: What the experts say
Andrew Hunter of Capital Economics is impressed by today’s US manufacturing figures:
The rise in the ISM manufacturing index in February to 60.8, from 59.1, left it at a 13-year high and suggests that growth is set to pick up following a soft start to the year. On past form, the index is consistent with real GDP growth of more than 5% annualised.
Rupert Harrison of BlackRock suggests Donald Trump’s tax reforms are helping:
James Knightley of ING says the data supports the case for four US interest rate rises this year:
Given orders and production are also well above the 60 level – remember that a reading of 50 notionally means stable output – the report suggests that the manufacturing sector will continue to contribute significantly to economic activity in coming months. However, inflation pressures are also clearly building with prices paid the highest since 2011. As such, this report supports our predictions that the US economy will expand 3% this year and that headline inflation could hit 3% in the summer.
With new Fed Chair Jay Powell seemingly backing the case for further policy tightening, we look for a March 21st rate hike with three more to follow later this year.
Charlie Bilello of Pension Partners puts today’s data in context:
US factory growth hits highest since 2004
More strong US economic data!
Growth among American factories jumped last month, to the highest level in 13 years.
That’s according to the Institute of Supply Management. Its monthly manufacturing PMI survey has risen to 60.3 in February, up from January’s 59.1.
Economists had expected a small fall. Instead, ISM reports that new orders and employment growth were both strong, keeping activity in the sector bubbling away.
In contrast, the UK’s factory PMI fell to 55.2 this morning, while the eurozone posted 58.6. Any reading over 50 shows growth.
Back in the UK, households have been told to ‘carry on cooking’, despite the shortfall in gas supplies.
Energy minister Claire Perry has pledged that domestic supplies won’t be disrupted, so Britons should ”carrying on using your gas heating and cooking meals as normal”.
Here’s Ranko Berich, Head of Market Analysis at Monex Europe, on the surprise drop in US jobless claims:
“In the final week of February 1969, 201,000 US workers made jobless claims (seasonally adjusted). Led Zeppelin had just released their debut album, the Vietnam war was raging, and some 69 million workers were on Non-Farm Payrolls.
Unemployment was below 4%. The fact that a comparable number of initial jobless claims are being made today illustrates just how tight the US labour market is getting.
We also have fresh data showing that inflationary pressure are building in America, although not dramatically.
The prices paid by US consumers rose by 0.4% in January, although the annual rate remains below the significant 2% level.
Reuters has the details:
U.S. consumer prices increased in January, with a gauge of underlying inflation posting its largest gain in 12 months, bolstering views that price pressures will accelerate this year.
The Commerce Department said on Thursday consumer prices as measured by the personal consumption expenditures (PCE) price index, rose 0.4%.
That was the biggest increase since September and followed a 0.1 percent gain in December.
In the 12 months through January, the PCE price index rose 1.7% after a similar gain in December because of base effects. Excluding the volatile food and energy components, the PCE price index advanced 0.3% in January – the largest gain since January 2017.
Economist Danny Blanchflower reckons this isn’t an excuse to raise US interest rates….
Significantly, the four-week moving average of US jobless claims has also hit a 48-year low.
This measure, which strips out week-to-week volatility, fell 5,000 to 220,500 last week.
Bloomberg’s Mike McKee says today’s US unemployment data is seriously impressive:
Analyst Marco Mazzocco says the figures highlight the strength of America’s recovery
Financial blogger Bill McBride has tweeted a graph showing the initial claims figures over the decades:
US jobless claims hit lowest since 1969
Breaking: The number of Americans signing on for unemployment benefit has hit its lowest level in almost 50 years.
The weekly initial claims survey shows that just 210,000 US citizens filed new claims last week, down from 220,000 the previous week.
This extends a long run of impressive jobs data, underlining the strength of the US labor market (which is why interest rates are likely to rise three or four times this year).
The shortage of gas in the UK has pushed prices to new record levels.
Britain’s same-day gas prices have surged by more than 130 per cent to 275p per therm. That extends todays record highs, and beats the previous record high of 150p set in 2013.
Last week, wholesale gas for immediate use was trading around 60p per therm, but the snowy weather – and National Grid’s warning that supplies can’t meet demand today – has triggered a scramble to get hold of gas.
Dr Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit, says a range of factors have left Britain short of supplies.
He explains (via PA)
“Behind today’s gas deficit warning is a ‘perfect storm’ of unrelated short-term issues – freezing conditions, diminished Dutch gas production due to earthquake concerns, weather-related issues curbing imports from Europe, and a global LNG market in which supplies are being pulled to Asia by higher prices.
“But underlying it is another set of issues that speak to a failure by successive governments to map out a secure gas future in the way that they have done so successfully for electricity.
“Allowing Centrica to close the UK’s only big long-term gas store without consideration for supply during cold snaps, failing to develop a coherent plan for low-carbon heating, and above all a head-in-the-sand approach to improving energy efficiency in homes have all put households and businesses at risk of shortages and price spikes.”
The pound and the euro are both losing ground against the US dollar today.
America’s currency is benefiting from the prospect of several interest rate rises this year (which would make it more profitable to hold cash in dollars, rather than sterling or euros).
The euro has slipped to a seven-week low against the dollar, at $1.216, while the pound has dipped to $1.374, a six-week low.
The London stock market has fallen deeper into the red, after a morning of generally bad news.
The FTSE 100 is now down 63 points, or 0.9%, at 7170. Ad firm WPP remains the biggest faller, down 13%, after reporting its weakest growth since 2009 this morning.
The smaller FTSE 250 index, of medium-sized companies is also down, shedding 135 points or 0.7% .
But there are chunky losses across Europe too — with Germany’s DAX down 1.6%.
Wall Street is also expected to drop, when trading begins in over two hours time.
Investors remain nervous about the prospect for US interest rates — with new Federal Reserve Chair Jerome Powell speaking at the US Senate in a few hours time. Will Powell repeat his upbeat words from Tuesday, when he testified before the lower House of Congress?
Craig Erlam of City firm OANDA explains why traders will be watching closely:
It would appear markets are bracing for more hawkish commentary from Powell today when he appears before the Senate Banking Committee, once again discussing the semi-annual monetary policy report.
Given everything that he said on Tuesday, it seems pretty clear that economic forecasts will be revised higher this month and the pace of tightening will likely therefore pick up, which may make today’s less eventful as he reiterates many of the views already expressed. That said, should he wish to back pedal on anything or clarify points that have been misinterpreted, it may attract some attention.
Even the world’s financial markets aren’t immune to the snowy weather.
The Irish stock exchange is closing at noon today, and will be shut all Friday, due to “extreme weather conditions”.
The ISE says:
Due to the announcement by the Irish Government’s National Emergency Coordination Committee and the severe weather-related nationwide Status Red Warning, and to protect against any potential risk to market integrity in these exceptional circumstances, the Irish Stock Exchange (ISE) is altering its trading calendar to facilitate an earlier closing of the market today, Thursday, 1 March 2018 and will close all day on Friday, 2 March 2018.
Earlier today, a ‘Red’ weather alert was extended to cover the entire Republic of Ireland, which means people should stay at home to avoid the severe winter storm that is hitting the country.
The Guardian’s weather blog has full coverage of Storm Emma, and the ‘Beast from the East’:
Heads-up, UK readers. This is the last day to spend your old £10 notes (the ones with Charles Darwin on them).
From Friday morning, only the new Jane Austen ones will do (although you can always change out-of-date notes at the Bank of England).
Here’s my colleague Mark Sweney on ad giant WPP’s results, which have sent its shares sliding:
The world’s largest advertising and marketing services group, WPP, has said last year was its worst year since the 2009 recession.
The UK company reported a 0.3% fall in revenues to £15.2bn in its results for 2017, making it WPP’s worst year in growth terms since 2009 when the company reported a fall of 8.1% during the depths of the recession following the credit crunch.
WPP’s share price fell more than 10% in early trading on Thursday, the biggest faller on the FTSE 100.
Sir Martin Sorrell, WPP’s chief executive, admitted 2017 “was not a pretty year” for the company but denied it was because his agencies were being cut out of deals between advertisers and Google and Facebook.
Mike Rigby, Head of Manufacturing at Barclays, fears that Brexit uncertainty is hitting UK factory growth.
Here’s his take on this morning’s manufacturing report:
Although the sector remains positive, the continuing uncertainty over Brexit negotiations can’t be helping the investment intentions of manufacturers who are looking for some degree of clarity over the future relationship with the EU sooner rather than later. Manufacturers will also need to remain flexible in their planning as they negotiate the uncertain market conditions in 2018.
With current Barclays data highlighting the premia that international consumers are prepared to pay for British goods, and given the continuing improvement in key overseas markets, manufacturing businesses should be increasingly focusing on differentiating their products on quality and service.”
Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, reckons Britain’s factory sector is still in “a positive mood”, despite the drop in the manufacturing PMI last month.
Brexit uncertainty is a key factor, he adds:
Recent ONS figures show sector productivity is increasing, although there is still some way to go before the UK catches up to its G7 counterparts. But manufacturers are taking steps to make this happen by investing in automation and exploring the opportunities presented by Industry 4.0. Many are using specialist asset finance facilities to invest in equipment, protecting their working capital which can be used to support growth opportunities.
“Clearly, challenges and uncertainties lay ahead. All firms are keen for clarity on the future trading relationship with the EU, but manufacturers, which account for nearly half of UK exports, are disproportionately exposed to uncertainty associated with international trade agreements. The PMI will therefore be closely watched in the coming months for any clues as to how exporting firms are managing this uncertainty.”
UK factory growth hits eight-month low
Newsflash: UK factory activity growth has hit its lowest level in eight months, according to data firm Markit’s monthly healthcheck.
Manufacturers have reported that production increased at the slowest pace for 11 months in February, with “decelerations seen across the consumer, intermediate and investment goods sectors”.
Firms also suffered a sharp rise in input costs, as raw materials and other commodities became pricier. Some companies passed this onto their own customers — which could push inflation up.
But there’s good news too – new orders picked up, and firms kept hiring staff:
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, says there wasn’t much “bonhomie” in the UK manufacturing sector last month.
All sectors lost their drive as manufacturing activity crawled at a snail’s pace not seen for almost a year.
“Amidst these signs of a moderate slowdown, it was supply chain disruptions that were largely at fault. Suppliers underperformed not only on the timely delivery of goods but in their inability to meet the demand from makers for some raw materials. This intensified capacity issues and acted as a drag on overall purchasing activity.
Eurozone factory growth slows, but stays strong
Time for some data…
The euro zone’s manufacturing boom slowed a little last month, new figures from Markit show.
But Europe’s factories are still in a rosy period, and enjoying their strongest growth spell in almost 20 years.
Markit’s manufacturing Purchasing Managers’ Index (which tracks activity in the sector) dipped to 58.6 in February from 59.6. Any reading over 50 shows growth.
France and Germany both reported a small drop in growth.
Britain is running out of gas
National Grid has issued a warning that the UK will not have enough gas to meet demand on Thursday, as temperatures plummeted and imports were hit by outages.
It is thought unlikely that the situation will affect supply to households, but if enough extra gas supplies by pipeline or ship are not forthcoming, it could affect industrial users.
Within-day wholesale gas prices soared 74% to 200p per therm this morning after the formal deficit warning, which acts as a call to suppliers to bring forward more gas on Thursday. Prices have since fallen back to 170p.
European stock markets are all in the red this morning, following last night’s late slide on Wall Street.
In London, the FTSE 100 is being dragged down by advertising giant WPP – which has shed 13% after reporting a “slow start” to the new year, and a 0.3% drop in like-for-like revenues in 2017.
Otherwise, traders are continuing to fret about the prospect of sharp hikes in US interest rates this year (as the Federal Reserve tries to prevent inflation getting out of hand).
Connor Campbell of SpreadEx says European markets got off to “another duff start”, after traders saw America’s Dow Jones shed 380 points last night.
Interactive Investor’s Lee Wild explains what’s going on:
A strong US economy is great for confidence and jobs, but corporate America will have to absorb more expensive debt, which is why equity traders are selling into the rally from mid-February lows.
It’s all eyes on Jerome Powell again on Thursday when the Fed chair testifies before the Senate Banking Committee. Any further talk about an overheating economy will give equity market bears another reason to dump stock.
Carpetright profits warning: What the experts say
Retail analyst Nick Bubb is amazed that Carpetright has produced another profit warning today:
It is only 6 weeks or so since the last Carpetright profit warning on Jan 19th, but, almost unbelievably it has issued yet another profit warning today and flagged, ominously, that it is in discussions with its banks about to prop up the balance sheet.
Whether Carpetright needs to raise more equity remains unclear, as does the issue of how far its problems are to do with intense competition from its rival Tapi, but shareholders will fear the worst today…
Neil Wilson of ETX Capital says Carpetright has deteriorated sharply in recent months.
“A bad week for retail as Carpetright’s woes get worse: now the company expects to report a loss for the year to the end of April as its store investment programme is not paying off.
It’s been quite a climb-down from just a few months ago. In December it issued a profits warning, guiding underlying profit before tax for the year to be at the lower end of the previous range of £13.8m to £16.7m. As we noted at the time, profits warnings have a nasty habit of not coming alone and that guidance appeared to be wishful thinking.
In January management slashed this to a range of £2m-£6m. Horrendous post-Christmas sales were to blame then but the trend is not improving.
Now a small loss is expected as trading remains very difficult. That loss may not remain small if Easter doesn’t go well. Like-for-like sales are negative and below management expectations.
Lee Wild, Head of Equity Strategy at interactive investor, says the next few months will be crucial for Carpetright.
Carpetright’s long and painful decline clearly has further to run. Things haven’t improved since the last profits warning in January, and the company will lose money this year. It has the backing of its lenders for now, but a strong Easter is crucial for the business and any goodwill that remains.
Carpetright shares plunge after profit warning
Newsflash: Shares in Carpetright, the UK flooring and furnishing business, have plunged by 25% in early trading.
In another sign of retail gloom, Carpetright has issued a profits warning (its fourth in three months, according to Reuters). It now expects to make a small underlying pre-tax loss for the current financial year.
Carpetright admits that sales in the UK have been weaker than hoped, saying:
Trading conditions in the weeks since the Group last updated the market on 19 January 2018 have remained difficult, characterised by continued weak consumer confidence.
While the trend in the Group’s UK like-for-like sales has improved through the intervening period, it remains negative.
Carpetright says it is “proactively engaged in constructive discussions” with its banks, to ensure it sticks with its bank facilities. They add:
The bank lenders have indicated that they currently remain fully supportive.
This comes a day after Toys R Us and Maplin, two other UK retailers, both fell into administration putting over 5,500 jobs at risk.
UK house prices fall: What the experts say
The drop in UK house prices in February is a surprise, says Jeremy Leaf, north London estate agent .
’As one of the most closely-watched indicators of property market strength due to its longevity and accuracy, Nationwide’s figures may cause concern. At this time of the year we would have expected an increase, not a fall, in house price growth although of course these figures are in contrast to the previous month’s findings.
‘However, it goes to show the limitations of a national snapshot of the market. While Nationwide reports a lack of supply, on the ground, we are finding more balance between supply and demand in our part of London as buyers, spoilt for more choice, hesitate before making commitments and identifying whether they are dealing with serious sellers.’
Simon French, chief economist of Panmure Gordon, predicts that the slowdown in UK house prices will continue this year:
Jonathan Samuels, CEO of the property lender, Octane Capital, believes the property market is being battered by weak consumer confidence.
“With the ongoing financial squeeze on households, you sense the house price slowdown has now begun in earnest.
“High living costs, low wage growth, potential rate rises and a lethargic economy in the shadow of Brexit: for consumers, the bad news is in stereo mode.
“While weak supply and very low borrowing costs will prevent a collapse in prices, it’s hard to see 2018 delivering anything other than very low single digit growth.
“February could go down as the month the big freeze on prices took hold.
UK house prices fall unexpectedly
Newsflash: UK house prices fell in February, fuelling suspicions that the housing market is cooling fast.
The Nationwide Building Society has reported that prices fell by 0.3% last month, crushing expectations of a rise, following January’s 0.8% increase.
That drags the annual rate of house price growth down to 2.2%, from 3.2% a month ago.
Robert Gardner, Nationwide’s Chief Economist, blames falling consumer confidence and the squeeze on household budgets:
“Month-to-month changes can be volatile, but the slowdown is consistent with signs of softening in the household sector in recent months.
Retail sales were relatively soft over the Christmas period and at the start of the new year, as were key measures of consumer confidence, as the squeeze on household incomes continued to take its toll.
Gardner points out that mortgage approvals fell to their weakest level for three years in December – a sign that activity in the sector has fallen.
Nationwide expects house prices to only rise by 1% this year, due to ‘subdued economic activity’ and Britain’s exit from the European Union.
“How the housing market performs in the year ahead will be determined in large part by developments in the wider economy and the path of interest rates. Brexit developments will remain a key factor, though these remain hard to foresee.
I’ll pull some reaction together now…
The agenda: Interest rate worries are hitting markets again
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
European stock markets are facing fresh losses today, after a late wobble on Wall Street sent the Dow Jones industrial average down almost 400 points, or 1.5%.
The selloff ended Wall Street’s run of 11 monthly gains, and was triggered by renewed jitters about the pace of US interest rate rises .
The big fear is that America’s central bank, the Fed, will hike interest rates four times in 2017.
This has sparked declines in Asia, where Japan’s Nikkei shed 1.5%.
As AFP put it:
After a couple of weeks of calm, the volatility that kicked off February has returned on worries that the strong US economy and Donald Trump’s tax cuts will lead the Federal Reserve to tighten borrowing costs more than previously thought.
European markets are set to follow, with the main indices being called down 0.5%.
The new chair of the Federal Reserve, Jerome Powell, worried investors on Tuesday by indicating that borrowing costs must rise to prevent the US economy overheating.
We’ll hear from Powell again today, when he testifies to the Senate banking committee. If he repeats his hawkish tone, then the markets could take fright.
Michael Hewson of CMC Markets says:
Mr Powell returns for a second round today with US lawmakers and markets will be looking to see whether he rows back a little from Tuesday’s hawkish interpretation of his remarks or whether he reaffirms them.
If he does the latter then we could well see further gains for the US dollar and increased pressure on stock markets.
On the corporate side, advertising giant WPP and theme park operator Merlin are reporting results.
We also find out how the world’s manufacturing companies fared last month, as data firms Markit and ISM release their monthly healthchecks:
- 9am GMT: Eurozone manufacturing PMI report for February
- 9.30am GMT: UK manufacturing PMI report for February
- 10am GMT: Eurozone unemployment figures for January
- 1.30pm GMT: US personal income and spending figures
- 3pm GMT: US manufacturing PMI for February
- 3pm GMT: Fed chair Jerome Powell testifies to Congress (again)
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