Markets edge lower as oil falls and manufacturing slows - as it happened

Graeme Wearden (until 2pm) and Nick Fletcher

from on 2016-02-01 17:47 (#12GCE)

Rolling coverage of the latest economic and financial news, as China's factory sector contracts again and European growth slows

5.47pm GMT

February has got off to a fairly downbeat start for stock markets. More underwhelming manufacturing data - from China to Europe to the US - has cast a further shadow over the prospects for the global economy.

The Chinese disappointment in particular has helped send crude oil prices sliding again, along with growing doubts about any early Opec agreement to cut production and tackle the supply glut. Brent is currently down 4.5% at $34.36 a barrel.

Any hope that equity markets would start February with a spring in their step has been scuppered as crude oil prices have resumed their downward trajectory. Last week's optimism that a deal to curtail output would be struck between Russia and Saudi Arabia has come to nothing, whilst the price weakness has been further exacerbated by the release of worse than expected manufacturing PMI data from China and ISM manufacturing readings from the US in the last few hours. That said, the degree of weakness in equity markets has been rather measured, the FTSE-100 is closing above 6,000 and the renewed intervention we've seen by central banks does seem to be helping limit downside pressures.

5.15pm GMT

ECB president Mario Draghi has repeated his view that risks to the global economy had increased in the past few weeks, with the global market turmoil, uncertainty in emerging markets and lowered inflation expectations.

Echoing his comments after the bank's January meeting he suggested there would be more stimulus measures in March:

At our last meeting in January we judged that it will be necessary to review and possibly reconsider our monetary policy stance at our next monetary policy meeting in early March, when the new staff macroeconomic projections become available.

There is still political uncertainty surrounding the European project. This is true in the broader context of our Union. A solution that would anchor the United Kingdom firmly within the EU while allowing the euro area to integrate further would boost confidence.... Citizens and markets are too often unsure about our capacity to act jointly in a spirit of common responsibility. We should prove them wrong.

4.50pm GMT

Here are Markit's rankings of various countries' purchasing managers' indices:

#Brazil and #China sit at the foot of the global manufacturing rankings. More here: https://t.co/keUc2aNfgN pic.twitter.com/gL5tdgY64m

4.41pm GMT

Over in Greece and farmers meeting in congregation in the centre of the country have announced that they will not back down nor accept prime minister Alexis Tsipras' olive branch of a meeting - at least until the general strike this Thursday when Tsipras conveniently will be in London. Helena Smith writes:

Farmers, now leading the wave of social discontent against unpopular EU/IMF dictated reforms, appear poised to declare all out war, said protestor Aris Andris in Tempi where the meeting is taking place.

"This is not a struggle we are going to give up because this is about our survival," he said. "We are now telling everyone that cities everywhere are going to experience unprecedented things.'"

4.02pm GMT

The ISM report is here, and it includes some mixed responses from the companies surveyed:

3.23pm GMT

The ISM survey could indicate that Friday's US non-farm payroll numbers could be weaker than expected, said James Knightley at ING Bank:

US manufacturing ISM for January is a bit weaker than expected at 48.2...and marks the fourth straight sub-50 (contraction territory) outcome. However, the details are more encouraging with both production and new orders moving back above 50. The main weakness was in the employment component, which fell to 45.9 from 48.0 - the worst outcome since June 2009.

This suggests that the sector will be a drag on overall employment growth in Friday's payrolls report and indicates the consensus is being a little optimistic in thinking that US manufacturing employment is only going to fall 2,000. Indeed, we were seeing manufacturing employment fall by around 25-50,000 per month in 2009 when the ISM employment component was last at these sorts of levels.

3.07pm GMT

It's a similar tale for US manufacturing from the ISM survey.

Its manufacturing activity index came in at 48.2 in January, up from 48 in December but lower than forecasts of up to 48.5. But a reminder than any reading below 50 signals contraction, and this is the fourth month this has happened.

2.59pm GMT

Markit PMI indicates Fed measure of US #manufacturing output more or less stagnated in Jan https://t.co/Bg4kXsEShm pic.twitter.com/nWBa45JkDZ

2.50pm GMT

US manufacturing in January was stronger than the previous month but less than initial expectations, according to a new survey.

The Markit manufacturing sector final PMI was 52.4 compared to expectations of a reading of 52.7, the same as the initial December level. The final reading for December was 51.2.

Markit #U.S. Manufacturing #PMI at 52.4 in Jan'16, up from Dec'15 38-month low of 51.2 https://t.co/6g1Y2YP1b0 pic.twitter.com/GshT0rLU4C

2.37pm GMT

Will oil falling again after the disappointing Chinese manufacturing data and diminishing hopes of Opec production cuts, Wall Street has followed other global markets lower.

The Dow Jones Industrial Average is down 135 points or 0.8% in early trading , while the S&P 500 has opened 0.4% lower and Nasdaq has fallen 0.6%.

2.30pm GMT

And here is some news on a UK bid battle. David Hellier reports:

Sainsbury's has won its three-month courtship of Home Retail Group, with a 1.3bn takeover of the Argos owner expected to be announced as early as Tuesday, according to leading investors in both groups.

Sainsbury's had its first approach for Home Retail snubbed in November at a price believed to be around 1bn.

2.23pm GMT

Back in the UK, and pharmacy chain Boots is cutting up to 350 jobs as part of a cost reduction programme. Graham Ruddick reports:

This is the second round of job cuts at Boots in the last seven months, after an announcement in June last year that the company would cut 700 jobs in offices around the UK. In the latest round of redundancies, the company plans to cut between 300 and 350 assistant store managers at its biggest stores.

2.07pm GMT

US consumers did not rush out to spend any of the cash they saved from lower fuel prices, according to official figures.

Consumer spending in December was unchanged after a 0.5% increase in the previous month, itself revised up from an initial 0.3% gain.

Last weeks Fed statement also saw the omission of a line about policymakers being reasonably confident that inflation will rise to 2% in the medium term, due to the sharp declines seen in oil prices in the last few weeks.

The PCE inflation numbers, which is the Fed's preferred inflation targeting measure, while not necessarily susceptible to these types of moves in energy prices have started to track lower, and if today's number drops back from last month's 1.3%, then it will become increasingly difficult for Fed officials to argue with any degree of credibility that we can expect to see anywhere near three of four rate rises this year,

1.49pm GMT

A reminder of why markets are worrying about China again:

1.24pm GMT

Over in Wall Street, shares in social network Twitter have jumped by up to 8% in pre-market trading.

There's some chatter that venture capitalist Mark Andreessen and private equity firm Silver Lake have considered an offer for Twitter, but it all looks a bit flaky.

$TWTR up 8% #premarket. Deal chatter? May wonders never cease.

Okay. So apparently there is a rumor that Andreessen & Silver Lake have considered a deal for Twitter. $TWTR popping. What say you, @pmarca?

1.06pm GMT

Back in the markets, budget airline Ryanair is defying today's selloff.

Its shares are up 5% so far today, after announcing a a800m share buyback. It is also slashing prices by 6%, in response to cheaper oil prices and a drop in demand following the Paris terror attacks.

12.49pm GMT

Over in Greece escalating protests have put the leftist-led government of Alexis Tsipras increasingly on the defensive as international creditors launch another round of talks in the crisis-hit country.

"the country appears to be on the brink of a social explosion."

12.04pm GMT

Four hours into the trading months, and European stock markest are mostly in the red.

The slowdown in eurozone factory growth, following the latest contraction in China, have given investors little reason for optimism.

After appearing to have shrugged off China's dire data at the open, the European markets soon abandoned their gains, the situation exacerbated by a mixed showing from the region's own manufacturing figures.

Despite managing a 19-month high PMI of 52.9 (against the 51.9 forecast), the UK's manufacturing picture wasn't as clear cut as that number suggests; export orders continued to fall, whilst the worrying trend of companies cutting their staffing levels persisted. Those factors, and the generally unconvinced tone from analysts, took the spark out of what initially looked like a decent number, leaving the FTSE to tumble into the red as Monday progressed.

11.19am GMT

Money continues to pour into eurozone government bonds this morning.

The news that eurozone factories cut prices again last month is fuelling bets that the European Central Bank will announce more stimulus measures at its March meeting.

Risk appetite still fueled in #Japan by stimulus announced Friday. Yields on 10-yr = 0.067%...strongest rally decade pic.twitter.com/M6ZPUuB29c

10.41am GMT

We shouldn't get carried away by the increase in UK factory activity last month, warns Ms Lee Hopley, Chief Economist at EEF, the manufacturers' organisation.

She points out that firms in the energy sector are under particular pressure:

"At face value, today's data got 2016 off to an encouraging start with activity levels improving a little on the back of a pickup in new orders, with domestic demand compensating for, once again, lacklustre export orders.

But, looking beyond the headline there's conflicting signals, with growth drivers narrower in terms of sub-sector and size, and manufacturing posting job losses for the fourth time in the last six months.

9.59am GMT

9.39am GMT

Britain's factories have enjoyed a fairly solid start to the year.

The UK manufacturing PMI, just released, showed that activity rose to a three month high of 52.9 in January, up from 51.9. That beats expectations.

UK Manufacturing PMI (Jan) comes in at 52.9 exp:51.6, Prev: 51.9

The ongoing weakness in global commodity prices led to a further substantial reduction in manufacturers' average purchasing costs during January. Average input prices fell at the fastest rate for four months and to one of the greatest extents during the 24-year survey history. There were reports of lower prices for chemicals, metals, oil and plastics.

Part of the reduction in raw material costs was passed on to clients in the form of decreased factory gate prices, the fifth reduction in as many months. The rate of output charge deflation remained mild.

9.24am GMT

It's official: growth across Europe's factory sector slowed last month.

This morning's surveys show that the eurozone manufacturing sector expanded at a slower pace. The headline PMI dipped to 52.3 in January, down from 53.2 in December

"The eurozone's manufacturing economy missed a beat at the start of the year. Having accelerated for three straight months, the rate of growth slipped from the 20-month high attained at the end of 2015. Growth of order books, exports and output all slowed.

"If the slowdown in business activity wasn't enough to worry policymakers, prices charged by producers fell at the fastest rate for a year to spur further concern about deflation becoming ingrained.

9.01am GMT

Greece's factory also stagnated last month:

Markit Greek Manufacturing PMI Jan: 50.0 (prev 50.2)

9.01am GMT

Germany's factory sector made an unspectacular start to 2016.

The German manufacturing PMI came in at 52.3, down from 53.2 in December, indicating growth cooled at the start of 2016.

The increase in new business was the least marked in four months. Weaker demand from export markets was one of the reasons for the slowdown in total new business.

However, some panellists reported that the weak euro and improved demand from the US helped secure higher new export orders.

8.54am GMT

January was another month of stagnation in the French factory sector.

Its manufacturing PMI dropped to 50.0 - the cut-off point between growth and expansion, down from 51.4 in December.

8.53am GMT

Growth in Italy's factory sector slowed, last month, with the PMI dipping to 53.2 to 54.9.

8.52am GMT

An unofficial measure of Chinese factory output has confirmed that the sector shrank again last month.

The Caixin China General Manufacturing PMI showed a sharper downturn, coming in at 48.4, up from 48.2 in December.

"The government needs to watch economic trends closely and proactively make fine adjustments to prevent a hard landing.

It also needs to push ahead with existing reform measures to strengthen market confidence and to signal its intentions clearly."

8.33am GMT

Good news! Spain's factories grew at a faster pace last month, outperforming their rivals in China.

The Spanish manufacturing PMI, which measures activity across the sector, rose to 55.4 last month, up from 53. That shows faster growth, and beats forecasts:

Spain Manufacturing PMI (Jan) comes in at 55.4, well above expectations of 52.5

"The Spanish manufacturing sector shrugged off uncertainty surrounding the make-up of the next government in January, posting a strong start to 2016. One key highlight was the fastest rise in new business since prior to the economic crisis, while efforts to increase stock holdings point to confidence in the near-term outlook for orders.

8.26am GMT

European stock markets have begun February cautiously. The FTSE 100 has dipped by 3 points, while the German DAX is down 16 points or 0.2%.

BP is leading the fallers in London, down 1%. It is expected to report a big slump in profits tomorrow, partly due to the fall in the oil price:

8.22am GMT

Today's selloff came after a rough January for Chinese stocks, in which the main markets fell by over a fifth.

Some 12 trillion yuan ($1.8 trillion) were sliced off the value of its benchmark indexes. The CSI300 and the Shanghai Composite indexes fell more than 20% each in January.

8.01am GMT

Here's some reaction to the news that China's manufacturing sector has shrunk at its fastest pace since 2012:

ANZ's chief China economist, Li-Gang Liu, says the factory slump will continue for some time.

"The manufacturing sector will likely face a tough year ahead on the back of overcapacity, weakening global demand, and the government's plans to tackle pollution."

"There's a realization that for a lot of these industries, there has to be a big downsizing.

"Rather than avoiding that issue, plans are now being made as to how workers can be laid off and looked after. We expect there'll be some funding from the central government."

#China PMI drops to 3-year high (and 6 consecutive months below 50 level) https://t.co/MBsE2b51Y8 #oil #commodities pic.twitter.com/7kKuI39WGq

It is quite concerning that the significant monetary and fiscal stimulus in 2015 has only managed to slow the rate of decline in China's industrial activity......It is looking like it will be quite a struggle for China to even hit its lowered growth target of 6.5% for 2016.

#China's manufacturing struggles continue. pic.twitter.com/GjKssaG7Sf

7.49am GMT

It's been another bad day on the Chinese stock market.

Shares hit a new 14 month low, after a new survey showed its manufacturing sector weakened last month.

7.18am GMT

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

It's a gusty morning in the City, as Storm Henry pays a visit. And traders will be hoping it blows January's volatility away with it, after a testing start to the year.

Our European opening calls:$FTSE 6106 up 23
$DAX 9820 up 22
$CAC 4419 up 2$IBEX 8823 up 7$MIB 18693 up 36

We have the latest Spanish, Italian, French and German January manufacturing numbers, and here there has been some softening of data in recent weeks, as economic activity has dropped off.

It's been the same story in the UK as well with the latest January manufacturing PMI expected to come in at 51.8, down from 51.9.

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