Volkswagen prepares for 'painful' changes; oil jumps on talk of output cuts

Graeme Wearden (until 1.45) and Nick Fletcher

from on 2015-10-06 17:09 (#PK8S)

VW is preparing to scrap non-essential spending as it battles with the emissions scandal

6.09pm BST

Here's our update on the latest developments at Volkswagen, by Graham Ruddick:

The new chief executive of Volkswagen has warned the carmaker's staff that the fallout from the diesel emissions scandal "won't be painless" and that the company needs to make "massive savings" as it faces the prospect of a multibillion-euro bill.

Matthias Mi1/4ller told a gathering of 20,000 workers at VW's headquarters in Wolfsburg that "every euro that stays in the company helps us".

5.02pm BST

Investors have shrugged off the IMF's latest cut to its global growth forecasts, concentrating instead on the prospect for central banks to continue supporting the global economy and the world's stock markets. Friday's poor US jobs numbers continue to convince traders that the Federal Reserve is now less likely to raise interest rates this year. On top of that there are hopes for further stimulus measures from China and the European Central Bank.

Meanwhile energy shares have been lifted by a jump in the oil price after the US cut its output forecasts and suggested that production from non-Opec members was stalling. Opec itself said the organisation and non-members should work together to reduce the global oversupply of oil.

4.26pm BST

Here's an interesting chart from the IMF's world economic outlook, spotted by RBS:

Productivity has been growing slower in all advanced economies after 2008 than before. Apart from one country. #IMF pic.twitter.com/VwqmMU82RZ

4.03pm BST

A downturn in emerging markets in September led global economic growth lower, according to a new survey.

The JPMorgan Global PMI, compiled by Markit, fell from 53.9 in August to 52.8 in September, its weakest for nine months and signalling a rate of worldwide GDP growth of just 2% per annum. Markit said:

The divergence between developed and emerging markets widened to the greatest on record over the third quarter. At 49.0 in September, the emerging market PMI fell to its lowest since March 2009, indicating a deterioration in business conditions across manufacturing and services for the third time in the past four months.

The developed world PMI meanwhile also fell but, at 54.0 (down from 55.1 in August), remained in expansion territory.

The developed world PMI is signalling a 1.5% annual GDP expansion, while the emerging market equivalent is broadly consistent with 3% growth.

The emerging market downturn was led by manufacturing, where the PMI has signalled contraction for five successive months, with the rate of decline accelerating in September. However, services also slipped into contraction, suggesting the industrial malaise is spreading to other parts of the emerging market economies.

Global trade fell at fastest rate for 27 months in Sept. Emerging market exports saw largest fall since March 2009 pic.twitter.com/M1opIu2LuT

3.05pm BST

The Dow Jones Industrial Average has continued its recent buoyant mood, adding more than 70 points or 0.4% in early trading.

European markets, which have been having an uncertain day up until now, are also in positive territory. The FTSE 100 is currently 0.6% higher while Germany's Dax is up 1%.

3.02pm BST

Ahead of its annual meeting, the International Monetary Fund has cut its global growth forecasts for 2015:

[The IMF] is warning that the weak recovery in the west risks turning into near stagnation after cutting its global economic growth forecast for the fourth successive year.

In its half-yearly update on the health of the world economy, the Washington-based fund predicted expansion of 3.1% in 2015, 0.2 points lower than it was expecting three months ago and the weakest performance since the trough of the downturn in 2009.

2.48pm BST

Spain was warned about its budget submission after the Eurogroup meeting on Monday, but it appears the warning will not be adopted by the European Commission:

Very very surprising. EC's is not adopting today its opinion on the Spanish budget 2016, as announced yesterday by @pierremoscovici

Moscovici was quite hard on Spain on his press conf. Schiuble has said today that he was "surprised" about Moscovici's critical remarks

2.25pm BST

Oil prices have reversed their earlier losses, with Brent crude now up 1% at $49.79 a barrel, after Opec said it saw the market improving due to higher demand and a drop in supply from non-members.

Oil prices have been under pressure amid falling demand amid weak economic growth, and increased production leading to a supply glut.

2.12pm BST

Global stock markets have been volatile in recent weeks, largely on concerns about a slowdown in China and the knock on effect on commodity prices. But the risks from China are less than many imagine, according to Capital Economics. The research company's Andrew Kenningham said:

Although China's growth has slowed sharply in recent years, we do not expect a "hard landing". What's more, even if we turn out to be wrong, some emerging economies would be hit hard by a slump in China, but the impact on advanced economies should generally be modest.

GDP growth in China has already slowed from double-digit levels before 2008 to around 5% this year, according to our in-house estimates. However, it has been relatively stable over the past six months, when a slump in its equity market has triggered falls in global asset prices. Looking ahead, we think China will regain some momentum, helped by the policy support now in the pipeline.

1.58pm BST

The European parliament has approved plans to speed up a a35bn funding programme for Greece earmarked in the EU's 2014-2020 budget.

Commenting on today's vote in favour, the European Commission said:

The aim is to allow Greece to make full use of EU funds and inject liquidity into the Greek economy.

I welcome today's vote in the European Parliament giving its green light to frontloading existing EU funds for investment in growth-enhancing projects in Greece.... It should be seen in a wider context of the reform process undertaken in Greece. Timely and effective implementation of reforms to modernise Greek public administration and the economy - as agreed under the new stability support programme - is crucial to regain financial stability and, consequently, ensure economic growth and job creation.

1.40pm BST

America's trade gap has hit a five-month high, in another sign that global economic growth may be weakening.

US imports rose by 1.2% in August, fuelled by a 3% increased in purchases from China.

US trade deficit jumps 15.6% to $48.3 billion in August as exports fall to 3-year low - @AP

1.29pm BST

The VW scandal hasn't hurt the UK auto industry yet - car sales hit an all-time high in September, according to new data today.

Petrol-powered cars saw the strongest demand; suggesting some consumers might be more wary about diesel now.

12.41pm BST

Workers at Volkswagen have been warned to expect painful changes as the German carmaker tackles the emissions scandal.

"Technical solutions to the problems are within view. However, the business and financial consequences are not yet clear".

"Therefore we are putting all planned investments under review. What is not urgently needed will be scrapped or delayed".

12.39pm BST

Our Katie Allen confirms that Britain's directors do not march on an empty stomach, or an environmentally friendly one....

all for free lunches but in week we tried to kill off plastic bags, is it time for sun to set on #IoDAC lunchbox? pic.twitter.com/vBKJnm8guV

The annual Albert memorial picnic at the IoD convention has attracted the attention of tourists #IoDAC pic.twitter.com/dCTqd1x4wb

12.21pm BST

Delegates at the Institute of Directors' conference are tucking into their legendary lunchboxes -- a chance to refuel after a morning discussing weighty topics like Europe and migration.

There's an astonishing amount of packaging on display too -- here's a photo of just one box:

Genius conference chow!! Lunch boxes @TheIoD #IoDAC #eventplanning pic.twitter.com/gjf210s64k

12.04pm BST

Here's a couple of photos of Volkswagen staff arriving in Wolfsburg, where they were briefed on the emissions crisis today:

11.26am BST

Brewing firm SABMiller has turned down an 'informal offer' from rival Anheuser-Busch InBev, according to a Bloomberg newsflash.

That's sent SAB's shares down 3%, to the bottom of the FTSE 100 (budge up, Glencore!).

SABMiller diving on reports it's knocked back an informal takeover offer from ABInBev http://t.co/2TQcKrMFt4 pic.twitter.com/HOsVGt5Wnv

11.17am BST

The works council boss at Volkswagen, Bernd Osterloh, has told staff that the company will have to review all its investments following the emissions crisis.

He also predicted that their pay packets will suffer too.

All investments at Volkswagen will be placed under review, the carmaker's top labour representative said on Tuesday, as the embattled German group grapples with the fallout of its diesel emissions scandal.

"We will need to call into question with great resolve everything that is not economical," Bernd Osterloh, head of VW's works council told more than 20,000 workers at a staff gathering in Wolfsburg, Germany.

10.57am BST

Volkswagen has revealed that it sold eight million cars with defective emissions testing software across Europe.

10.51am BST

Looks like Lord Lawson got the last blow in:

Mandelson summing up in EU debate with Lawson at IoD: EU makes us stronger, better off and safer #IoDAC

Lawson closing EU ref debate: Mandelson was wrong "time and time again" about joining euro - "he was wrong then, he is wrong now" #IoDAC

10.44am BST

They're still arguing...

Mandelson to Lawson: "Nigel, go to Norway, go to Switzerland" see that in trading with EU they must enforce "every dot & comma" of Europ reg

10.42am BST

Back at the IoD conference, Nigel Lawson and Peter Mandelson are having a brisk exchange of views over Britain's membership of the EU (Lord M is pro, Lord L is con).

Katie Allen is impartial, and tweeting the key points from the Albert Hall:

Lord Lawson tells IoD: there may be reasons why Britain should remain in the EU but they are not economic. #IoDAC

Lawson at IoD convention says: More Europe means too often more European regulation and that EU is "project of the elites of Europe" #IoDAC

Peter Mandelson tells #IoDAC convention "EU tries to do too much. It has to do less better." But ppl must ask what alternatives are for UK

Mandelson on Brexit: UK would be "notionally more independent if we came out but more isolated and less influential as a result." #IoDAC

10.33am BST

Mining shares are leading the fallers in London this morning.

The 1.8% drop in German factory orders in August isn't helping the mood.

Slump in commodities may last for years, banks warn http://t.co/SelpXFav29 pic.twitter.com/xoqDeN56xP

10.21am BST

The Institute of Directors' chief is also rebuking UK politicians for playing the migrants card:

Simon Walker @The_IoD repeats criticism of main parties for "pandering to myths about immigration" when growing economy, NHS need migrants

9.56am BST

Over at London's Royal Albert Hall, business leaders are gathering for the annual Institute of Directors convention.

The 2,000 or so delegates will be hearing first from IoD head Simon Walker. As we reported this morning, Walker will use his speech to warn prime minister David Cameron that waiting till 2017 to hold the referendum on EU membership risks turning it into a confidence vote in the government.

"By 2017 this government will have implemented spending cuts that, while necessary, will not be popular. The third year of an election cycle is a difficult time for any administration. There is a real possibility that a 2017 referendum would be a short-term judgment on the government: a chance to whack the political elite."

"In pursuing the nirvana of steadily-rising productivity, one has to bear in mind how our economy is changing, how people choose to work, and what future economic success will look like.

We need to ask if too close a focus on productivity numbers without considering wider factors could pose a long-term risk to the economy and prosperity."

Here we go then - attendees seated and ready. Let's get this convention started! #IoDAC pic.twitter.com/mVaGPfIL0o

9.52am BST

Back in the UK, house prices dipped by 0.9% last month, according to mortgage lender Halifax.

But that's little relief to those hoping to get a house (or buy a bigger one. Prices are up around 8.9% year-on-year. On a quarter-on-quarter basis, they've been gaining since the start of 2013.

In September last year the average UK home was worth 187k according to Halifax. This September it was 203k. pic.twitter.com/8RkYjJ1u72

9.31am BST

Interesting.... Jonathan Portes, one of the UK's better known economists, has left his post as director of the National Institute of Economic and Social Research thinktank.

So farewell, then, Jonathan Portes: he has left NIESR 'by mutual consent'. @steerpike has details: http://t.co/hRq8H8khgJ

8.49am BST

Over in Wolfsburg, thousands of Volkswagen employees are meeting at company HQ to hear from their new CEO.

8.31am BST

European stock markets are being dragged down by the news that German factory orders slid in August.

The main indices are all in the red in early trading, with Germany's DAX shedding almost 0.5%.

A huge miss in German factory orders (complete with a downward revision for last month's figure) seems to have taken the edge off of the Eurozone, following a Eurogroup meeting yesterday that hinted at more trouble for the currency union going forwards.

European Commissioner Pierre Moscovici warned that Spain will miss its headline targets in 2015 and 2016, providing yet another bearish note from the country that already includes a 21 month low manufacturing figure, a 9 month low services PMI, a separatist victory in Catalonia AND an impending general election in September.

8.13am BST

Here's Associated Press's early take on the decline in German factory orders:

German factory orders dropped for the second consecutive month in August, led by a drop in demand from countries outside the eurozone and lower demand at home.

The Economy Ministry said Tuesday that orders were down 1.8% in seasonally adjusted terms compared with the previous month. That followed a 2.2% drop in July.

8.08am BST

This chart confirms that German industrial orders have tailed off in the last couple of months, after a decent start to the year.

7.46am BST

German factory orders fell unexpectedly in August, fuelling fears that Europe's largest economy is being hit by slowing global growth.

Industrial orders slid by 1.8%, according to the economy ministry, dashing expectations of a 0.5% rise.

Ugly German factory orders...August slump -1.8% & July fall revised down further. Shows exposure to weak China. Eurozone a bright spot

In July foreign German factory orders slumped 6.1%...not quite so bad in August, but domestic demand worsening amid holidays

7.33am BST

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

There's a relaxed mood in the markets this morning, as investors become increasingly convinced that central banks won't be able to tighten monetary policy anytime soon.

Modest continued rally expected at European opening - FTSe +27, DAX +45, CAC +22 (courtesy of IG)

The weaker than expected US jobs report significantly reduces the chance of a rate hike this year from the Federal Reserve.

Europe and China could also be on the verge of adding stimulus with deflation and low growth possibly enough motivation for the respective central banks to intervene before the end of 2015.

#Japan's Nikkei ends up 1% at 18186.10 on the prospect that the BoJ may need to ease again. http://t.co/zmeGKcNyoO pic.twitter.com/CvF2WUEByg

It's #IoDAC day!! Looking forward to seeing everyone later today at the @RoyalAlbertHall! pic.twitter.com/Qk5LiJ0Fai

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