Global service sector growth weakens, as oil price falls further
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Version 0 of 1. 5.15pm GMT17:15 PS: The US stock market is following Europe.... Stock losses accelerating — Dow down 190 http://t.co/mjbuVm7slC 5.09pm GMT17:09 European markets post further falls. Ditto oil. After a topsy-turvy day, Europe’s stockmarkets finished in the red again. The usual factors were blamed -- Greek worries, the falling oil price, and fears that the global economy is weakening. The news that Britain and America’s service sector companies reported a growth slowdown in December added to the concerns. European Closing Prices: #FTSE 6366.51 -50.65 #DAX 9469.66 -3.50 #CAC 4083.5 -27.86 #MIB 18143.26 -45.18 #IBEX 9871.1 -122.20 Oil is under pressure tonight, with US crude falling further below $50/barrel this afternoon. Brent crude is weaker too, down over $2 per barrel at $51.01, a decline of almost 4% today. Oil tumbles to new low http://t.co/vnaW879CWZ pic.twitter.com/ed6MjLovXT And that’s all for today. Big day tomorrow –the latest eurozone inflation data is out, showing whether Europe has slipped closer to deflation. Or even into it?.... Goodnight, and thanks for reading. GW Updated at 5.11pm GMT 3.48pm GMT15:48 Back to Greece.... where the Syriza party is revving up its pre-election engines as the country marks Epiphany Day. Alexis Tsipras, the party’s leader, has hit back at claims that a victory for the radical leftists would prompt a hasty Greek exit from the euro zone. Syriza, he says, is not the devil incarnate but Europe’s big “hope for change.” Athens correspondent Helena Smith explains: Party cadres told me today that rather than give interviews – which may be mis-interpreted by the euro friendly press – Tsipras has decided to put out his message by way of op-ed. The first, written for the newly launched Greek language Huffington Post, goes to the heart of what Syriza says is the propaganda campaign now being waged against them. Tsipras writes: “Syriza is not the devil, the big threat for Europe, but the voice of logic. The wake up call that will raise the leadership of the old continent from lethargy and sleep-walking,” “Syriza is not only the hope for Greece and the Greek people … but for all of Europe. Because Europe will not come out of the crisis without a change of policy. And the victory of Syriza in the elections on the 25 January will reinforce the powers of change, because the impasse in Greece is the impasse [experienced by] today’s Europe. On 25 January the Greek people are being asked with their vote to write history … denouncing the failed memoranda of austerity [and] showing that when people want, when they dare, when they overcome fear, then they can change things. Neither the Greek people nor European have any reason to be scared because Syriza is not looking to dissolve the euro but save the euro. And saving the euro cannot happen with its member states having uncontrolled debt.” Tsipras accused the “conservative leadership of the German government” of being in cahoots with the popular press of promulgating what he described as the warmed up dish of Grexit. Prime Minister Antonis Samaras has taken a leaf out of their books but “he is convincing no one. The Greek people have experienced his government and knows to separate the truth from lies.” With his stance that the Greek debt load is viable, Samaras is “harming Greece,” Tsipras says and diminishing the country’s ability to negotiate with its troika of creditors at the EU, ECB and IMF. Helena adds that though the election campaign will go down as perhaps the shortest ever it is already showing signs of being the most choreographed – as this picture of Tsipras releasing a white dove today aptly shows Updated at 4.40pm GMT 3.32pm GMT15:32 Here’s a chart to ponder -- the interest rate on long-term German debt has fallen below the Japanese equivalent. OK I succumb, too remarkable not to note: 30-yr Bund yield (TWEB) shade below 30-yr JGB (JBTC) pic.twitter.com/yAxpNbmLoQ 3.27pm GMT15:27 The slowdown in America’s service sector isn’t a reason to panic, argues Paul Dales of Capital Economics. After all, November’s figure was a nine-year high. And the sector is still growing at a solid rate -- and should benefit from lower oil prices: Dales explains: The softening was widespread, with the new orders, business activity, employment and supplier deliveries indices all falling. They had all risen rapidly in recent months, however, to levels that looked too optimistic relative to what’s actually happening on the ground. The falls in December therefore look more like an adjustment back to reality than a worrying sign. Indeed, when the two ISM surveys are taken together (the manufacturing index also fell in December), they point to a more realistic pace of annualised GDP growth in the first quarter of around 3.0% compared with 4.5% previously. A weighted average of the two employment indices also suggests that payrolls may have risen by more than 300,000 last month. That lends support to our above-consensus forecast of a 300,000 rise (data are due on Friday). In short, don’t interpret this survey as a sign that the outlook has weakened. On the contrary, the further fall in oil prices has actually made things even better. 3.13pm GMT15:13 US manufacturers have reported a 0.7% drop in orders in November. Marketwatch reports: Orders for goods produced in U.S. factories fell 0.7% in November, hit by transportation equipment, matching the forecast from MarketWatch-polled economists, according to government data released Tuesday. Orders for durable goods -- products meant to last at least three years -- fell 0.9% in November, compared with a prior estimate of a 0.7% decline, the U.S. Commerce Department reported. Orders for nondurable goods fell 0.5%. In October, total factory orders fell 0.7%. America’s economy had posted strong growth in the second and third quarters of last year; the final three months are looking less impressive.... 3.07pm GMT15:07 We have confirmation that growth in the US service sector slowed in December. The Institute of Supply Management’s survey, which rivals Markit’s, has come up with the same conclusion. The ISM’s service sector PMI fell to just 56.2, down from 59.3 in November, and rather weaker than expected. That’s the lowest reading since June. Activity, new orders, and employment levels all grew more slowly than the previous month. BREAKING: ISM non-manufacturing index hits 56.2 in December, versus 58.5 estimate » http://t.co/XH7UQBxG5h US #ISM Non-Manf. Composite misses expectations at 56.2 vs 58.0, all components lower than previous 2.54pm GMT14:54 US service sector growth is weakest since February America has not escaped the December slowdown. Markit reports that the US service sector PMI fell to a 10-month low last month, dropping to 53.3 in December. That still shows growth, but much more modest than in November. Markit U.S. Services PMI @53.3 in December (earlier ‘flash’ reading: 53.6), down from 56.2 in November. 10 month low http://t.co/ahHHmRtDc2 Businesses reported that new business, and output, both grew at a slower rate as 2014 ground to a halt: City experts aren’t impressed: Another dud number .... US services PMi drops to 53.3 from 56.2 Separate data has shown US manufacturing growth slowed down in December. As a consequence Markit’s composite measure of U.S. private sector business growth hit a 14 month low. 2.36pm GMT14:36 pics of traders who no longer have head in hands MT @CNBC: stocks rebound after a big sell off; oil continues to fall pic.twitter.com/6cgium4CP9 2.35pm GMT14:35 The opening bell has rung on Wall Street. And New York traders are treading carefully, after the biggest selloff in three months yesterday. The Dow has risen 0.2%, or 30 points, to 17,538, and the tech-heavy Nasdaq has gained 0.3%. We’re also seeing a surge of money into US government debt, mirroring the moves in Europe: And, the 10 year Treasury yield is under 2 percent for the first time since May 2013. Happy new year? pic.twitter.com/95E9rxEmy6 1.56pm GMT13:56 Oxford Economics: Syriza could win 'decisive' victory in Greek election Onto Greece...and research group Oxford Economics have issued a report today, predicting the left-wing Syriza will win a decent majority in the election of 25 January. Here’s the details: Our in-depth analysis of recent Greek opinion polls suggests that the radical left wing Syriza is on course to win a clear mandate to implement anti-austerity policies that are inconsistent with continued euro membership. Syriza support is sufficient to secure a workable majority. 36% of the final vote is the approximate threshold beyond which a strong anti-austerity government is plausible. Syriza’s performance has been consistent with this in each of the last 20 opinion polls, and over 40% of the vote on average in the last five. The electoral system may work in Syriza’s favour. It is not just that a sixth of all seats are awarded as a bonus to the winner; but also that the votes of parties with less than 3% do not count in the final analysis. It is not over yet. The ruling New Democracy party is entitled to portray the vote as a referendum on euro exit (around 75% of Greeks strongly wish to stay in). The experience of mid-2012 suggests voters’ sight of the exit abyss could help New Democracy close the gap slightly on Syriza. But the binary (in or out) nature of the vote decision may also help Syriza to achieve a decisive victory by squeezing out smaller parties (eg. Independent Greeks), as voters herd to the big two. A decisive Syriza victory in such a “referendum” would lower the probability of full capitulation to Troika program requirements. Even if Syriza were to sign off on a continuation of the programme, adequate implementation appears unlikely. It was hard enough for determined centre-right politicians, never mind Syriza. Should Syriza fail to implement the program adequately, Greece could return to the precipice. Perhaps the government would fall at or before this point and there would be a return to an implementation-minded government; perhaps Greece would exit (this is not our baseline). Greek assets have responded negatively; bond prices suggest default probabilities have risen sharply. <end> And this tweet, from the Economist, shows how Syriza is leading in the polls: Pics on #Greece that are worth 140 characters (if not 1,000 words). http://t.co/GTLfH2cwHo pic.twitter.com/YzV1wTZGeE Updated at 1.57pm GMT 1.38pm GMT13:38 The recent decline in the oil price has already pushed UK petrol prices down to a five-year low, according to government data (online here). The Department of Energy and Climate Change reports that petrol fell to 111.06p per litre, on average, this week. That’s the lowest since January 2010. Diesel fell to 117.93, a level not seen since September 2010, according to Reuters. 12.42pm GMT12:42 Lunchtime Summary: Service sector slowdown Time for a catch-up. Europe’s economy ended 2014 on a low note, with private sector growth hitting its lowest rate since autumn 2013. Markit, the data firm, also reported that Italy’s service sector suffered a contraction in December, France struggled back to growth, and Germany was less robust than expected. The figures suggest Eurozone GDP growth in the fourth quarter of 2014 may not even match the 0.2% expansion seen in the third quarter. Howard Archer of IHS Global Insight explains: Despite showing slightly improved Eurozone economic activity in December and a marginally reduced drop in prices charged, the December purchasing managers surveys do little to ease pressure on the European Central Bank to take further stimulative action, and sooner rather than later. The UK’s service firms also reported a slowdown last month, sending the pound down to a 19-month low. The oil price rout had continued, with Brent crude falling below $52/barrel at one stage this morning. Economists predict it has further to fall.... ....while the odds are that UK petrol will fall below £1/litre before the month is over. Stock markets have been volatile; Japan’s Nikkei suffered its biggest one-day fall in 10 months this morning. Fung Siu, Japanese Analyst at the Economist Intelligence Unit, says the selloff reflects domestic concerns as well as eurozone issues: “The drop in the Nikkei indicates that financial investors don’t have much faith in the government’s latest fiscal stimulus package, the financing of which is expected to be approved by the cabinet this Friday. The y3.5trn package is much smaller than the Y6trn package announced at the start of 2014, which as intended to support private consumption the wake of the consumption tax hike (from 5% to 8% in April). Some European indices are now in positive territory, clawing back some of Monday’s losses. Here’s the situation: Updated at 3.25pm GMT 12.07pm GMT12:07 After a solid start, the euro is weakening. The single currency has lost 0.35% against the US dollar today to $1.189. Much lower, and it could threaten the nine-year low of $1.1864 hit yesterday. Some analysts reckon it will fall further in the months ahead: Natixis cuts their June EUR/USD forecast to 1.1200 from 1.2000 on deflationary pressures and Greek political risks Updated at 12.07pm GMT 11.22am GMT11:22 The tumble in the oil price is great news for motorists, pushing down the price of petrol. And bookmaker Ladbrokes reckons the price of a litre of unleaded is likely to fall below the £1 mark this month, for the first time in over five years. It has slashed the odds on this happening to just 1/2 (meaning punters would receive £1 for every £2 wagered, plus their £2 stake). Alex Donohue of Ladbrokes explains: “The petrol price war now means it’s odds-on for a litre to drop to levels last seen in 2009 this month. Not so long ago a sub £1 litre was a long shot but it now appears to be getting more of a certainty by the day.” FAO motorists - @Ladbrokes make it odds-on (1/2) that petrol sold for less than £1 litre this month... 11.07am GMT11:07 Markets can be so predictable sometimes. Gold has hit a three-week high of $1,211 per ounce, as jitters over Greece’s general election and the weak eurozone economy drive money into bullion. It’s a classic search for safety, as Julius Baer analyst Carsten Menke explained to Reuters: “We’ve had these issues in Greece again, and talk about Grexit. In 2011, when the euro crisis struck, this was of course a big driver of the gold market, so some people are moving back into gold because of this.” 10.28am GMT10:28 Oil hits fresh lows.... The rout in the oil price is picking up pace again, helping to drive shares down in London. Brent crude has fallen by another 3% to $51.45 per barrel, a fresh five and a half-year low. And US crude has hit $48.75 per barrel, extending its slide. The decline comes as global growth concerns mount, and as oil exporters’ fight for market share -- meaning supplies are piling up. Some oil producers may now be reacting to the slump in prices – the Financial Times reports that the number of active US oil rigs has dropped by 6% since December. Peter Rosenstreich, head of market strategy at Swissquote, reckons oil has further to fall: “Given the current oversupply and speculation of the US using crude as geopolitical weapon, it will take more than a minor price increase to reverse oils collapse, so we remains negative on oil currency in the near term”. 10.09am GMT10:09 The pound just hit a 17-month low against the US dollar at $1.5184. Traders may be calculating that today’s weaker-than-expected service sector data means interest rates will remain at record lows for longer. 10.02am GMT10:02 European stock markets fall again The rash of generally disappointing service sector data has helped to drive European stock markets into the red again. The FTSE 100 has shed 61 points to 6365, a fall of 1%. The French and German markets are all down around 0.3%. Money is flowing out of stocks and into government bonds, driving the yields on French, Dutch, Belgian, Austrian and Finnish 10-year bonds to record lows this morning. And German 30-year bonds are yielding just 1.217%, also a record low, showing the desire for safe-haven assets. 10.01am GMT10:01 This drop in UK service sector growth shows that the recovery slowed last month, according to Jeremy Cook, chief economist at the international payments company, World First: He says: “While growth in the UK services sector remains strong and above historical averages, there is no denying that Q4 last year saw a very real slowing of the progression of the largest component of the UK economy. “New business numbers as well as overall activity is said to have slowed by the most in over a year and a half, and with no sizeable increases in worker salaries despite cost cuts from fuel price movements, the message is one of definite caution. Another reason for the Bank of England to resist raising interest rates anytime soon.... 9.44am GMT09:44 UK service sector growth hits 19-month low Britain’s service sector suffered a slowdown last month, although growth was still faster than in the euro area. The UK services PMI fell unexpectedly to 55.8 in December, showing a deceleration in growth after November’s 58.6. That’s the weakest reading since May 2013. Firms reported that new business and overall activity both rose at slower rates last month, while employment growth hit a four-month low. The news hit sterling; the pound is down half a cent against the US dollar at $1.519. GBPUSD didn't like that PMI. pic.twitter.com/GkCBi2sgTM David Noble, CEO at the Chartered Institute of Purchasing & Supply, reckons the outlook for UK firms is still quite bright: “Though the index reports a slowdown this month, the recent wave of optimism has not abated amongst the panel’s respondents, half of whom believe 2015 will still be a good year. 9.15am GMT09:15 Eurozone posts weakest growth in over a year The eurozone has recorded its weakest private sector growth since autumn 2013, in another reminder that Europe’s economy is crying out for help. Data firm Markit reports that Europe’s Big Three economies all struggled in December (as covered earlier in the blog). That means growth in October-December, as measured by Markit’s PMI survey, was the slowest for any quarter since the third quarter of 2013. December’s PMI was revised down to 51.4, from the ‘flash’ reading of 51.7 two weeks ago, but better than November’s 51.1 (where 50 shows stagnation). Markit explains: German economic output posted a mild acceleration at year- end, but the rate of expansion was still lacklustre compared with earlier in 2014 as December saw inflows of new work fall for the second straight month. Output in France fell for the eighth month running, as a slight recovery in service sector business activity failed to offset the deepening downturn in production at manufacturers. Overall new orders posted a modest gain for the first time in four months, but the data by sector showed that this was despite a severe reduction in manufacturing. Italy, meanwhile, fell back into contraction, as levels of output and new business both decreased over the month. Chief economist Chris Williamson cautions that there’s no guarantee Europe will avoid recession in 2015, adding: “Of greatest concerns are the ongoing downturns in France and Italy, alongside the stuttering performance seen in Germany. Any signs of life, with Ireland and Spain most notable in seeing their best growth spells since the global financial crisis, are in danger of being extinguished by malaise spreading from the region’s largest economies unless business and consumer confidence revives. He also suggests the European Central Bank may watch to see if the falling oil price stimulates the economy, before taking the plunge into a government bond-buying programme. Ouch! Markit Composite #PMI say #Euro zone posts slowest economic growth for over a year in fourth quarter #ECB #QE Updated at 9.27am GMT 8.58am GMT08:58 Germany continues to perform better than its euro neighbours. Its service sector recorded steady growth last month, despite firms reporting a drop in new orders. German Services PMI (Dec) comes in at 52.1 exp: 51.4 New business at German service providers falls for first time in a year-and-a-half, but headline index steady at 52.1 http://t.co/fx9qFVhkq9 8.54am GMT08:54 Could this be a pousse verte of recovery in France? The French service sector PMI beat forecasts, coming in at 50.6 in December versus expectations of 49.8. That shows some growth, and means the wider private sector had it best month since April: Final Markit #France Composite Output Index at 8-month high of 49.7 (47.9 in November) http://t.co/8Nyb24t5Aq 8.51am GMT08:51 Italian service sector falls into contraction Bad news for Italy - its service sector contracted in December, according to Markit’s monthly survey. The Italian service sector PMI, based on interviews with purchasing managers at Italian companies, fell to 49.4 from 51.8 in November. That’s the first time in three months that the PMI has dropped below the 50 point mark separating expansion from contraction. Firms reported a drop in new orders, despite cutting prices again. Phil Smith, economist at Markit, says the data shows Italy’s economy remains very weak: “The recent weak trend in new business caught up with services firms in December, with activity levels falling for the first time in three months. As a consequence, the sector looks to have made little to no contribution to growth in the final quarter which, alongside a slight downturn in manufacturing, suggests the private sector economy has more or less stagnated.” 8.46am GMT08:46 Here we go again! The price of a barrel of Brent Crude Oil has fallen again today to US $52.20 or 51% lower than a year ago #Disinflation 8.31am GMT08:31 Brent crude oil has hit its lowest level since mid-2009, Reuters reports: 8.27am GMT08:27 Spanish service sector keeps growing Some good news. Growth in Spain’s service sector accelerated in December, according to the latest survey of purchasing managers (or PMI). Data firm Markit reported that sentiment among Spanish services sector firms hit a near seven-year high. Many reported seeing an increase in new business, both from domestic customers and those overseas. This pushed the Spanish services PMI up to 54.3, up from 52.7. Any reading over 50 shows growth. Growth of Spanish service sector improves at end of 2014, headline index at 543 (52.7 in Nov) http://t.co/ejxmnpxIwL http://t.co/VTKEhY7oEl Despite this optimism, employment only rose marginally, and firms continued to cut prices to stimulate demand. Spain has been posting relatively decent economic data for some months; Andrew Harker, senior economist at Markit, fears its economy may be softening: “December’s data pointed to a stronger expansion of the Spanish service sector at the end of 2014, although there has been a little underlying loss of momentum when we look at the trend over the final quarter as a whole. “While we still expect the economy to have remained in an expansionary phase when we see the next set of GDP figures, overall growth may come in a little softer than we have seen in the previous two quarters.” 8.16am GMT08:16 Nervous investors have been piling into Japanese government bonds this morning, driving down the yield (or interest rate) on its debt. Japan's 20-year yield falls below 1%: pic.twitter.com/8cIT7NM3Yo 8.15am GMT08:15 European markets open Europe is trading, and the FTSE 100 has dropped another 9 points to 6408, after sliding 2% yesterday. Other markets are broadly flat. 8.11am GMT08:11 It was also a bad day for Australian investors, as Greece’s upcoming general election and fears over the global economy hit sentiment in Sydney. Energy stocks were pummelled, and the big miners and banks fell hard as the leading ASX 200 index ended down 1.6% at 5364.8. Full story: Australian share market down on oil price fall and fear of Greek eurozone exit 7.59am GMT07:59 Stock markets in the Middle East continue to be hit by the falling oil price, with the Dubai exchange tumbling another 5% today. Arab bourses battered again as oil slides http://t.co/2lAKNXHxEM pic.twitter.com/8AmiucDCdB 7.51am GMT07:51 Oil price falls again Oil is taking another pummelling this morning. Brent crude has shed another 1%, or 57 cents per barrel, to 52.5% in early trading and US crude is down a similar amount at $49.49 per barrel. North Sea Brent breaking to new lows. pic.twitter.com/XbADjgn4oS A weaker oil price should be good for many economies (although not producers such as Russia and Venezuela, of course). But the speed of the decline is spooking the markets, as it shows investors expect weaker growth in 2015. Updated at 8.29am GMT 7.45am GMT07:45 Nikkei suffers biggest fall in 10 months Japan’s stock market has suffered its biggest one-day fall in 10 months, as fears over Greece’s future in the eurozone hit Asian markets. The Nikkei shed 3%, or 525 points, in the biggest rout since March 2014, while South Korea’s index fell 1.7% to an 18-month low. Nikkei playing follower the leader closes down just over 3%. Yen 118.98 Reuters has more details: With oil prices at their lowest since spring 2009, the Tokyo Stock Exchange sub-index of oil and mining shares tumbled 5.5%. Inpex Corp shed 5.8%. Exporters’ shares suffered from a stronger yen, which broke through the 119 level versus the dollar late in the session. Nissan lost 4.4% and Panasonic Corp slipped 3.1%. not a single Nikkei 225 stock rose in Japan today. But a dozen risers on the JPX 400, suggesting this was the usual global macro dump Investors blamed the latest revival of the eurozone crisis, and the slide in the oil price which has reinforced fears over the strength of the world economy. Stan Shamu of IG Index explains: The unwind in equities has continued with markets mostly risk-off on flaring oil and Greece concerns. As oil prices venture to levels not seen in over five years, the energy space is predictably the hardest hit, seeing indiscriminate selling across the board. 7.34am GMT07:34 The Agenda: Greek fears hit markets; service sector data Good morning, and welcome to our rolling coverage of the financial markets, the global economy, the eurozone, and business. World markets continue to be gripped by fears over Greece’s political uncertainty, and by the sliding oil price. Stocks in Asia have fallen overnight, mirroring Monday’s selloff in London and Wall Street, as investors begin 2015 in a gloomy mood. The euro is hovering near nine-year lows this morning (currently trading at $1.196) and US crude oil has slipped back below the $50/barrel mark in early trading. OIL WTI .. starting to get a kicking again trading at $49.50 European markets are expected to open flattish after yesterday’s rout, ahead of new economic data this morning showing how its service sector performed in December. Economists predict that these Service Sector PMIs will show that France and Italy suffered another contraction, highlighting the problems at the heart of the the euro economy. Michael Hewson of CMC Markets explains: Today’s economic data is likely to reinforce the weakness at play in the euro area with the latest services PMI data for December for Spain, Italy, Germany and France. While Spain and Germany are likely to continue to remain resilient with readings significantly above 50 the current poor relations in Europe of France and Italy continue to underwhelm. A poor set of data would reinforces the pressure on the European Central Bank to agree fresh stimulus measures soon.... We’ll be tracking all the main events through the day as usual. |