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European stocks hit four-year high; John Deere profits warning – business live US economic growth rate revised up to 2.1% – business live
(32 minutes later)
Shares rally on hopes of a trade deal, but the US-China dispute has already hurt Deere & CoShares rally on hopes of a trade deal, but the US-China dispute has already hurt Deere & Co
The latest US jobless data is also stronger than expected.
Just 213,000 Americans signed on for unemployment benefit last week, down from 228,000 in the previous seven days.
In a further boost, US durable goods orders jumped by 0.6% in October.
That’s much better than the 0.5% contraction which economists expected, following a 1.4% decline in September.
Today’s US growth report is “a decent result under the circumstances, as the economy continues to outpace many of its peers”, says Craig Erlam, senior market analyst at OANDA Europe.
Newsflash: America’s economy grew faster than previously though in the third quarter of this year.
New data show that GDP grew at an annualised rate of 2.1% in July-September -- the equivalent of just over 0.5% during the quarter.
That’s up from the 1.9% annualised rate estimated a month ago -- showing the US economy is a little stronger than expected.
The Commerce Department has revised up its estimate of inventory growth, and private investment in the last quarter. It also believes personal consumption was a little bit stronger than first thought.
Marketwatch has the details:
Back in the UK, Capital Economics have issued an interesting research note on how next month’s election could move the markets, and affect the economy.
On an economic perspective, they argue that the best outcome for Brexit is a Labour-led government - which would negotiate a softer withdrawal agreement followed by a referendum which Remain could win.
The worst outcome, though, would be a Conservative minority government as this could lead to a no-deal crisis at the end of January 2020, or December 2020.
A Conservative majority - the most likely outcome at pixel time - is “somewhere in between”.
But how about asset prices? They have plenty of predictions, including:
Despite Deere’s gloominess, Wall Street could hit a new all-time high when trading begins in 90 minutes.Despite Deere’s gloominess, Wall Street could hit a new all-time high when trading begins in 90 minutes.
Looking ahead, Deere & Co is also bracing for equipment sales to fall significantly next year.Looking ahead, Deere & Co is also bracing for equipment sales to fall significantly next year.
Here’s the details:Here’s the details:
Deere has also reported a 9% drop in adjusted operating profits in the last year, partly due to lower earnings from equipment sales.Deere has also reported a 9% drop in adjusted operating profits in the last year, partly due to lower earnings from equipment sales.
That also suggests the trade war, which cut sales of US soybeans to China, has deterred farmers from buying new tractors.That also suggests the trade war, which cut sales of US soybeans to China, has deterred farmers from buying new tractors.
CEO John May says:CEO John May says:
Just in: The firm behind John Deere tractors and combine harvesters has issued a profit warning, and blamed the US-China trade war.Just in: The firm behind John Deere tractors and combine harvesters has issued a profit warning, and blamed the US-China trade war.
Deere & Co slashed its profit forecast for 2020, warning that farmers are more cautious about investing in new technology.Deere & Co slashed its profit forecast for 2020, warning that farmers are more cautious about investing in new technology.
It blames the tariffs imposed on US farm exports by China, during the tit-for-tat dispute with the US, along with recent poor weather.It blames the tariffs imposed on US farm exports by China, during the tit-for-tat dispute with the US, along with recent poor weather.
CEO John May told shareholders:CEO John May told shareholders:
Deers now expects its net income in 2020 to reach $2.7bn to $3.1bn. Wall Street had expected $3.4bn.Deers now expects its net income in 2020 to reach $2.7bn to $3.1bn. Wall Street had expected $3.4bn.
Shares in Deere have slumped over 4% in pre-market trading.Shares in Deere have slumped over 4% in pre-market trading.
Global stock markets are creeping close to a record high today.Global stock markets are creeping close to a record high today.
The MSCI all-country world index is now 0.4% shy of its previous peak, thanks to the rally in Europe and (most of) the Asia-Pacific region today.The MSCI all-country world index is now 0.4% shy of its previous peak, thanks to the rally in Europe and (most of) the Asia-Pacific region today.
What happened to volatility?!What happened to volatility?!
The financial markets feel unnaturally calm and still at present -- and that’s because volatility has slipped to unusually low levels.The financial markets feel unnaturally calm and still at present -- and that’s because volatility has slipped to unusually low levels.
This chart from Royal Bank of Canada shows that the volatility between significant ‘pairs’ of currencies, such as euro-US dollar, and the Australian and New Zealand dollars, have collapsed.This chart from Royal Bank of Canada shows that the volatility between significant ‘pairs’ of currencies, such as euro-US dollar, and the Australian and New Zealand dollars, have collapsed.
That shows that assets are increasingly moving in lockstep,That shows that assets are increasingly moving in lockstep,
It’s not just currencies either. Shares, treasury bills and oil futures are all equally subdued. That reflects the lack of major news recently, and the long wait for a trade war breakthrough.It’s not just currencies either. Shares, treasury bills and oil futures are all equally subdued. That reflects the lack of major news recently, and the long wait for a trade war breakthrough.
The UK’s FTSE 100 index is up 10% so far this year, while the EU-wide Stoxx 600 has gained 21.5%.
And a new poll by Reuters shows that many investors expect the rally to run on in 2020, as fears of a global recession ease.
53 out of 102 analysts, brokers and strategists reckon that risks to the market are “to the upside” - meaning shares could do better than generally expected next year.
Back in August, two-thirds of those polled thought risks were tilted to the downside.
Recent signs of progress in the US-China trade talks have fuelled recent optimism, but investors want to see an actual breakthrough at some point!
Shares in smaller UK companies are also pushing higher today.
The FSTE 250 index of medium-sized listed firms has jumped another 79 points, or 0.38%, to 20,944 -- its highest level since August 2018.
British American Tobacco is the top riser in London today, despite a slowdown in its e-cigarettes division.
BAT told shareholders today that it was benefitting from higher prices, and greater market share, in old-school ‘combustible’ cigarettes. This means revenue growth should hit the top end of its expectations - lifting BAT’s shares by 2.5%.
However.. revenues from “new category” such as e-cigarettes and heated tobacco will only reach the lower end of its goal of 30-50% growth.
The boom in vaping is now under pressure, with President Donald Trump now pushing for a minimum age of 21 for the purchase of e-cigarette products.
Mining stocks are rallying this morning, despite the slump in Chinese factory profits.
Trade war optimism seems to be outweighing anxiety over China. And that’s pushed the Stoxx 600 index to a new four-year high.
Stocks are up in Paris, Frankfurt, Milan and Madrid, as well as London. Basic materials producers, consumer firms, banks and tech stocks are all having a good day.
Jasper Lawler of London Capital Group explains how hopes of a Phase One trade deal (and how often have we read that?!) are pushing equities higher.
Britain’s FTSE 100 has hit a two-month high this morning, as election worries push the pound down.
The blue-chip index has gained 38 points, or 0.5%, to 7441, its highest point since late September.
Major multinationals are among the risers, as they benefit from a small drop in sterling today to $1.284. That makes their overseas earnings a little more valuable in pound terms.
Investors are also clinging to hopes of a trade war breakthrough.
China’s stock market has lost ground today, as the sharp drop in factory profits worried investors.
Nearly every sector fell, led by consumer cyclicals (-1.3%) and industrial companies (-1%).
Other Asia-Pacific markets rose, though, helped by Trump’s latest claim that a trade war deal was close.
Japan’s Nikkei: up 64 points or 0.3% at 23,437
China’s CSI 300: down 16 points or 0.4% at 3,875
Australia’s S&P/ASX 200: up 63 points or 0.9% at 6,850
South Korea’s KOSPI 200: up 1 point or 0.35% at 282.5
As is his wont, Donald Trump has been talking up the prospects of a trade deal with China.
He told reporters at the White House last night that a breakthrough was imminent... but also implied that Beijing needs to calm the situation in Hong Kong first.
Trump declared:
Trump’s only talking about the Phase One deal, of course. That would probably see China commit to buying more US agricultural products in return for some tariffs being relaxed.
Commodity prices have been hammered by the slide in Chinese factory profits. Iron ore and steel prices have both fallen today, on fears of falling demand.
Reuters has the details:
These charts from Bloomberg show clearly how Chinese factory earnings have deteriorated rapidly this year:
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
As the trade war between Beijing and Washington drags on, Chinese factories are being hit hard -- fuelling concerns that the world’s second-largest economy is losing momentum.
Profits at China’s industrial firms tumbled by almost 10% year-on-year in October, new government data show today. That’s the worst slump in eight months, suggesting the tariffs imposed on Chinese imports by the US are hurting.
This is the third monthly decline in factory profits in a row, and much worse than the 5.3% decline seen in September.
It appears to be the worst decline in a single month in at least eight years! However, there was a 14% slump in January-February (when the Lunar New Year distorts the data). Either way, it’s a bad sign.
So far this year, profits across China’s massive factory sector are down 2.9%, with manufacturing profits slumping by almost 5%. That will worry Beijing, and could force policymakers to consider new stimulus measures.
Zhu Hong, a senior statistician at China’s National Bureau of Statistics said the decline in profits was mainly due to “a bigger decline in the output price of industrial products, slowing growth of production and sales and other factors.”
We already know that China’s growth hit a near-30 year low in the July-September quarter, and this implies that the fourth quarter of 2019 is tough too.
Economist George Magnus says China’s economy is clearly “still struggling”:
Nie Wen, economist at Shanghai-based Hwabao Trust, fears that Chinese industrial firms will keep struggling, saying (via Reuters):
Such weak data also puts more pressure on president Xi Jinping to agree a trade deal with America. That, though, would require big concessions on issues such as intellectual property protections and curbing state subsidies of Chinese firms.
The US stock market hit another record high last night, as investors cling to hopes that a deal will be reached soon.
We’ll find out later today if America’s economy is suffering any ill-effects from the trade dispute, when the latest personal income and home sales data is released, along with updated Q3 growth figures.
The agenda
1.30pm GMT: Second reading of US third-quarter GDP. Expected to be unchanged, with annualise growth of 1.9%
3pm GMT: US personal income and pending home sales for October