Markets move higher as Japanese growth beats forecasts, but EU data disappoints - as it happened
- EU industrial production falls short of expectations
- Trump could struggle to meet economic targets - S&P
- European markets open higher after last week's turmoil
- Japanese economy grows faster than forecast
2.06pm BST
Here's a round up of what has been a fairly calm day after last week's North Korea- inspired uncertainties.
There was some mixed economic news across the globe. In Japan, the country's GDP grew at 4% on an annualised basis in the second quarter, compared to expectations of 2.5% growth.
1.44pm BST
The Bundesbank has been widely believed to be one of those pushing for the ECB to get on with easing its QE programme. But a speech by German central bank director Andreas Dombret in South Africa suggests it remains supportive of ECB policy. Reuters reports:
The European Central Bank's easy-money policy is "very much justified" because a recovery in euro zone inflation remains muted, Andreas Dombret, a director at Germany's Bundesbank, said on Monday.
Dombret's comments suggest the Bundesbank - which has long criticised the ECB ultra-easy policy of massive bond purchases and sub-zero interest rates - would be unlikely to push for an abrupt tightening when rate setters meet again in the autumn.
"There is therefore a broad consensus on the whole that an expansionary monetary policy is very much justified."
Dombret said views differed among ECB rate setters on the degree of support.
1.02pm BST
As we mentioned before, there has been some pressure on the European Central Bank to ease off on its quantitative easing and low interest rate programme. But the weaker EU industrial production figures and the dip in Portuguese second quarter growth add to the idea this may not happen in the immediate future:
There is no way Draghi & Co are going to be either tapering QE or raising rates any time soon. https://t.co/eucTKXhd5p
11.56am BST
Things may be calmer in the markets at the moment but that could change suddenly if the rhetoric from North Korea or the US flares up again. Craig Erlam, senior market analyst at Oanda, said:
Risk appetite is slowly returning to the markets on Monday, with no further escalation between the US and North Korea incentivising a gradual move back towards "riskier" assets.
I don't think this signifies a belief that relations between the two countries will suddenly improve, it's more a case of no news being good news and that will likely continue for as long as it lasts. The problem is that both sides can be rather unpredictable so things could escalate at any point and trigger another dash for safety. Gold, the yen and the Swiss franc may be coming off their highs at the moment but I'm not convinced it will last.
11.43am BST
Back with Portugal:
Portugal growth figures for Q2 of +0.2% qoq and +2.8% yoy are out, very much in line with our forecast. +2.4% expected for the full year
11.24am BST
As European markets continue to recover, Wall Street is forecast to open in positive territory, with the futures suggesting a near 100 initial rise on the Dow Jones Industrial Average. Connor Campbell, financial analyst at Spreadex, said:
With little to disrupt it the market-wide rebound continued this Monday, investors - for the moment at least - putting their nuclear fears to one side.
Though it's still lagging its Eurozone peers, the FTSE managed to widen its gains to more than half a percent this morning, pushing the index back towards 7350. Luckily its commodity stocks are yet to pay too much attention to the losses seen by Brent Crude and copper; the black stuff slipped under $52 per barrel, while the metal dropped 0.7%, following a trio of data-misses from China overnight.
11.14am BST
News from Portugal, where GDP grew by 2.8% year on year in the second quarter, the same level as the previous three months. The quarter on quarter increase however was 0.2%, down from 1% in the first quarter, according to the statistics office.
Domestic demand remained strong but exports of goods and services continued to be weak.
#Portugal #GDP Growth Rate year-on-year Prel at 2.8% https://t.co/mUIwlblc6b pic.twitter.com/1MqwbMm6fn
#Portugal #GDP Growth Rate QoQ Prel at 0.2% https://t.co/o9PhlMR2av pic.twitter.com/tMGTwEJoFX
11.03am BST
Despite the weaker than expected eurozone industrial production figures, there is no need to worry too much, says ING Bank economist Bert Colijn:
The recovery of Eurozone industry remains somewhat cautious as strong growth in May has been followed by a 0.6% drop in June. Most indicators point to accelerating growth in production, but data for June suggests that any acceleration from the trend of recent years has yet to happen.
We see the Eurozone boom of 2017 everywhere except in the industrial production numbers. While the growth in new orders for manufacturing has been well above 6% YoY for several months now, industrial production has dropped back to 2.6% YoY growth, which is not much better than what has been seen since 2014. It is somewhat disappointing that production has yet to recover to its pre-crisis level. With the start of the crisis now ten years ago, industrial production is still 6.5% below its peak. After this lost decade for Eurozone industry, a stronger recovery could be expected. Production data is notoriously volatile and subject to revisions, so a break in trend often only emerges after a few months of data.
10.47am BST
The fall in European stocks is not just due to the worries about the growing tension between the US and North Korea, says David Cheetham, chief market analyst at XTB:
Whilst the selling seen in stocks in the past week was widely attributed to the US-N.Korea story there has in fact been a fairly prolonged period of declines for European indices. The Eurostoxx for instance made a 2017 peak back in May and has since fallen by more than 7% to last week's low.
The market now trades back at a similar level to where it was prior to the 1st round of the French election, after which Macron's progression sparked a strong move to the upside as the seeming avoidance of a populist party gaining power sparked a sharp rally in stocks. Whilst it is tempting to feel that the current weakness will now cease as the prospect of a nuclear war seemingly recedes, there were other factors weighing on the Eurostoxx - such as the local currency appreciation - that will likely persist.
10.33am BST
Markets continue to recover some ground on hopes that the tensions between the US and North Korea have eased.
The FTSE 100 is now up 0.5%, while Germany's Dax is up more than 1% and France's Cac has climbed 0.9%. Joshua Mahony, market analyst at IG, said:
European equity markets appear to have left the fears of late last week behind, with investors coming out of their defensive positions to move back into riskier assets. Chinese involvement in the recent spat between North Korea and the US has been one of the biggest calming influences, highlighting that for the US to go to war with North Korea it must first go through China.
However, with China moving to implement a ban on whole host of North Korean products (such as coal, lead, and fish), it is clear that it is aware that something needs to be done to reign in the rebellious neighbours. Today has precious few major economic releases out of Europe and the US, with traders instead focusing on the shift out of havens, while preparing for a busy week ahead.
Gold: an easing of geopolitical tensions and technical resistance at $1,300 have collided to thwart XAU ahead of this key level. pic.twitter.com/xZoeOekyq5
10.08am BST
Some underwhelming data from Europe.
Industrial production in the eurozone fell by 0.6% in June, slightly worse than the 0.5% decline analysts had been expecting. But it rose 2.6% on an annualised basis.
Eurozone industrial production MoM (June): -0.6% vs -0.5% expected, prior 1.2% (revised from 1.3%)
Eurozone industrial production YoY (June): 2.6% vs 2.8% expected, prior 3.9% (revised from 4%).
9.55am BST
The positive Japanese data is good news for the country's central bank, says Yann Quelenn at Swissquote Bank:
Japan's growth came in much higher than forecasted at 1% q/q versus 0.6% for the second quarter. Looking back, this release is the best data in the last two and a half years. It also represents the sixth consecutive quarter of positive GDP growth.
Consumer spending has largely improved and helped spur on the good data. Indeed, spending rose 0.9% from Q1 and beat the estimate of 0.5% for the quarter. Consumer spending has traditionally been the weakest point of the Japanese economy. This is maybe changing, but a string of data will be needed to confirm this trend.
Recent fundamentals are good news for the Bank of Japan, which is still the only major central bank not able to hint about further tightening. For the time being, good numbers must at some point translate into inflation. Nationwide inflation stands at 0.4% y/y - way below the inflation target of 2% - and this despite the country's Abenomics policies and massive quantitative easing. The BoJ monetary policy still cannot be considered as a success. The only true gains have been in stock market, where the Nikkei 225 increased by 16% over the last 12 months.
Currency-wise, the yen is weakening against the dollar and remains under pressure for further appreciation. Geopolitical tensions and market uncertainties may trigger a risk-off move towards yen again. This is the curse of being a safe haven.
9.24am BST
However that does mean.....
UK is set to lose status as world's 5th biggest economy in current quarter. weakness vs euro will relegate us to 6th behind France. pic.twitter.com/gZ1Q7p0Fxu
9.20am BST
Back with the better than expected Japanese growth figures:
Japan is top of the table for growth among G-7 countries https://t.co/LqQbntwoWh pic.twitter.com/905hUaeLHp
8.53am BST
In another sign of the calmer mood at the start of the new week, the VIX volatility index has fallen back after last week hitting its highest level since President Trump was elected.
All is relatively calm, all is relatively quiet on the geopolitical front and long may that last. Markets are, as a result, trying to get back to biz-as-usual. Yields are slightly higher in bond-land, equity indices finding their feet, bitcoin making new highs seemingly ad infinitum.
8.28am BST
President Trump has problems everywhere - from the tensions with North Korea to the death of a woman at a weekend anti-racism rally - and his economic plans could also be in trouble.
That's the view of S&P Global ratings, which says Trump could struggle to meet economic growth targets. In a new report it says:
After the failure of the Republican plan to "repeal and replace" the Affordable Care Act, S&P Global Ratings believes the prospects for the administration to work with lawmakers to enact its promised pro-growth plans are, in a word, dim, said an article published today, titled "The Departed: Can U.S. Lawmakers Spur GDP Growth When They Return?."
"We no longer believe the federal government will be able to push through even a small infrastructure-spending package--much less the $1 trillion the White House has suggested," said U.S. Chief Economist Beth Ann Bovino.
8.13am BST
As expected, shares are moving ahead in early trading as some of the volatility of the past week eases.
The FTSE 100 is up 0.25%, with Standard Life up 2% as it completes its merger with Aberdeen.
There is strong fundamental backing behind the major equity markets - with the low interest rates policies being the key catalyst - so stock traders will probably find the opportunity to re-establish their long bets at lower prices after the recent pullback.
7.52am BST
The eurozone industrial production figures could show the effects of the recent strength of the euro. The single currency has benefitted from weakness elsewhere, particularly in the dollar, but this is causing a problem for the European Central Bank. President Mario Draghi is under pressure to begin easing the central bank's quantitative easing and low interest rate policy, but a stronger euro makes that more tricky. Commenting on today's expected data, Dave Madden at CMC Markets said:
The consensus is for a reading of -0.4% and 2.9% on a month-on-month basis and on a year-on-year basis respectively. The relative strength of the euro is hitting the region, and traders want to see if that is still the case.
7.48am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After last week's market turmoil in the wake of growing tensions and belligerent rhetoric between North Korea and the US, the week looks like starting on a calmer note. As Kathleen Brooks at City Index put it:
The fact that we didn't see an escalation in the rhetoric from either side over the weekend could be enough to trigger a recovery after last week's risk selloff, and keep the markets focused on the economic fundamentals.
That makes Japan the fastest growing economy in the G7 this quarter by our reckoning and may re-start the chatter about the Bank of Japan's eventual QQE [Qualitative Monetary Easing] exit strategy....
This was not one of those flukey one-offs that was caused by a surge in inventories that will be worked down in coming quarters, or one of those random spikes caused by exports and imports growing out of synch.
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