Markets rise as weak US GDP dents prospects of Fed rate hikes – as it happened
Markets also boosted by Bank of Japan's surprise move to negative interest rates. French economy slows in fourth quarter while Spain powers ahead.
2.58pm GMT
Stock markets are pushing higher after the weak US GDP data triggered expectations that the Fed will go slow on future interest rate hikes. The dollar has also strengthened, as the figures - while disappointing - were in line with forecasts.
2.45pm GMT
Back to US GDP. Alex Lydall, senior sales trader at Foenix Partners, said:
Anxious sighs echoed through the chambers of the Federal Reserve as the first estimate for Q4 GDP fell below forecasts at 0.7%. Given recent strong labour data these growth figures will disappoint Janet Yellen with the added pressure of global risk sentiment weighing on the domestic recovery. F
OMC Minutes this Wednesday showed the notable defiance of the Fed in the face of global growth pressures originating from China, but a contraction for the last quarter of 2015 could start to weigh on Yellen's outlook in the coming months. As the US made the first significant steps to recovery in the form of a rate hike last December, the Fed will be keen for this to be backed up swiftly by positive macro-news in the coming weeks.
2.36pm GMT
Belgium has also released GDP numbers for the fourth quarter: up 0.3% quarter-on-quarter (the same growth as in Austria, and slightly better than France's 0.2% gain). Its economy grew 1.4% in 2015.
ING economist Philippe Ledent said:
All in all, the figure released is positive. It shows that the gradual recovery is still resilient to the slowdown of the global economy. Moreover, even if one could have feared a negative impact of the 5-days-long lockdown of Brussels, for the time being, the impact seems limited.
To conclude, the recovery is still on track with the labour market likely to improve further in the coming quarters, making the recovery self-sustaining. In 2016, we expect a full year GDP growth of 1.5%."
2.33pm GMT
Wall Street has opened higher, as the weak GDP numbers raised hopes that the Fed will be in no rush to hike rates again.
2.17pm GMT
Annual US GDP growth 2015: 2.4% 2014: 2.4% 2013: 1.5% 2012: 2.2% 2011: 1.6% 2010: 2.5% https://t.co/yTmWAZLSpZ
That Fed hike is starting to look less and less smart. US GDP rose by annualized 0.7% in Q4 2015 - weaker than exp https://t.co/recoqKzwre
evidence here of rapid slowing in US GDP suggests FOMC wrong & @kocherlakota009 called it right March=time for a cut https://t.co/tbPRQUN8pO
2.12pm GMT
Paul Ashworth, chief US economist at Capital Economics, is also sceptical that we could see another Fed rate hike any time soon.
Although net external demand will remain a drag, inventories should be broadly neutral for growth in the first half of this year, while the drag on investment from the mining sector implosion should also fade. Assuming that consumption growth accelerates, as the fundamentals suggest, then GDP growth should rebound to between 2.5% and 3.0% in the first half of this year. Whether we will see evidence of a rebound soon enough to persuade the Fed to raise rates again in March, however, is debatable."
2.07pm GMT
At least some of the weakness looks temporary, but there are also signs that the underlying pace of expansion is on the wane, said Chris Williamson, chief economist at economic pollsters Markit.
He said the slowdown adds more pressure on the Fed to consider the timing of future interest rate hikes.
Rising inventories meanwhile took almost half a percentage point off the pace of growth, and the mild weather also led to reduced demand for energy for heating, adding further to evidence that the slowdown may prove temporary and suggesting GDP could rebound in the first quarter.
"However, the recent increase in financial market uncertainty, and expectations of an upward trend in interest rates in 2016, may mean consumers and businesses will continue to show reluctance to spend. There are already signs that we should expect a further disappointment in the first quarter GDP number.
2.03pm GMT
The stock markets have taken the data in their stride. London's leading share index is still hovering around the 6000 mark, up 1.1% while the Dax in Frankfurt is up 0.4% and the CAC in Frankfurt is 0.65% ahead.
The dollar is also holding up remarkably well, and is even extending gains against the yen, now up 2%, following the Bank of Japan's move to negative interest rates. The euro has hit a session low against the dollar, falling below $1.09.
1.59pm GMT
You can download the US GDP release here. It's worth noting that this is the flash estimate based on incomplete data, and could be revised in coming months.
Full release of US Q4 GDP from @BEA_News with full text and all tables. https://t.co/zpimcmZAju #GDP #USGDP #EconomicStatistics
1.57pm GMT
The US economy clearly lost momentum into the end of 2015, said ING economist Rob Carnell.
We are struggling to see how this story is reversed in the coming quarters, and will likely be trimming our growth, inflation and Fed rate forecasts accordingly."
1.51pm GMT
The US economy expanded 2.4% in 2015, the same as in 2014, according to the figures from the Commerce Department.https://twitter.com/darioperkins/status/693065392328175616
.@kampconsulting Still think that the US Fed will raise rates anytime soon? US GDP growth of 0.7% in Q4'15 is outrageously weak.
US GDP: Drag from inventories (-0.5%pts) and net trade (-0.5%pts) rest a little soft but not disastrous. Capex likely hurt by mining sector
1.47pm GMT
However, lower oil prices have fed through to gasoline prices, around $2 per gallon, and this combined with rising wages should help underpin consumer spending in coming months. Economists believe the slowdown in consumer spending will be short-lived.
1.44pm GMT
Here's more detail. The slump in oil prices has undermined investment by energy companies and demand for heating, and unusually mild weather meant shoppers didn't splash out on winter clothes. Consumer spending rose 2.2%, down from 3% in the third quarter.
1.31pm GMT
Breaking news: The American economy stepped sharply on the brakes at the end of last year. GDP rose at an annual rate of 0.7% in the fourth quarter, down from 2% in the third quarter and 3.9% in the second quarter - but in line with expectations.
12.35pm GMT
More reaction to today's main news, the Bank of Japan's surprise move to negative interest rates. Fung Siu, analyst for Japan at The Economist Intelligence Unit, said:
The move to adopt a negative interest rate policy is symbolic and it has had the desired effect of prompting a sell-off in the yen, which has weakened to Yen121 compared with 118 the day before the move. A weaker yen will mean higher import price inflation, which in turn will help to push up overall consumer prices.
Despite the latest move, the Economist Intelligence Unit still thinks that the Bank of Japan will struggle to meet its 2% inflation target and that the pursuit of expanding the monetary base by Yen 80 trln a year through its quantitative easing programme will remain in place this year and possibly the next."
12.27pm GMT
The rally in crude oil? Shale will cap it, says Citi https://t.co/FtirasfRUR pic.twitter.com/KqPEzNRueG
12.24pm GMT
Let's have a quick look at the markets. Global stock markets bounced back today after the Bank of Japan surprised traders (in a pleasant way) with a move to negative interest rates.
The FTSE 100 index in London is holding on to its gains, trading 1.2% higher at 6005.05, a gain of more than 70 points.
12.15pm GMT
HSBC has suspended its personal banking websites in the UK after a cyber attack. This is its second major outage this month.
The bank, Europe's largest lender, said in a statement that it had successfully defended its systems against the attack.
HSBC internet banking came under a denial of service attack this morning, which affected personal banking websites in the UK.
HSBC has successfully defended against the attack, and customer transactions were not affected.
HSBC UK internet banking was attacked this morning. We successfully defended our systems. 1/2
We are working hard to restore services, and normal service is now being resumed. We apologise for any inconvenience. 2/2
12.00pm GMT
Inflation in the eurozone picked up this month, figures showed this morning - but this won't stop the European Central Bank announcing more economic stimulus at its March meeting, economists said.
Headline inflation rose to 0.4% from 0.2% while core inflation, which strips out volatile food and energy prices, rose to 1% from 0.9%, reversing a fall in December.
Don't be fooled by today's rise in euro area inflation, it was affected by base effects that will likely be more than reversed in February.
The recent bounce in oil prices is of limited consolation for the ECB, as inflation expectations have not seen a similar rise. More monetary stimulus will be in store in March."
11.44am GMT
Russia's central bank has left its key interest rate unchanged for a fourth month, as expected. The key rate stayed at 11%.
The key rate decision has been made in recognition of the current economic situation, with elevated risks of continued recession provoked by falling oil prices.
The high debt load of Russian companies and interest rate risks for banks and their borrowers have also been factored in."
Should inflation risks amplify, the Bank of Russia cannot rule out a tightening of its monetary policy."
The additional adjustment may take several quarters. The GDP growth rate will enter positive territory in 2017, but will be low."
11.33am GMT
Meanwhile, takeover talks between Sainbury's and Argos owner Home Retail Group have stalled over price, the Financial Times is reporting.
The news sent shares in Home Retail down nearly 10% to 128.3p, making it the biggest faller on the FTSE 250 index. Sainsbury's is (unsurprisingly) up, by 3.4% to 244.8p, making it the second-biggest gainer on the FTSE 100.
Takeover talks between supermarket group J Sainsbury and Home Retail Group, owner of the Argos catalogue business, have stalled over a disagreement on price, according to people close to the matter.
Both companies remain entrenched in their positions, the people said on Friday, with a wide gap between their valuation of shares in Home Retail - just days before the deadline for Sainsbury's to table a formal offer, write Arash Massoudi and Mark Vandevelde.
11.17am GMT
Tesco will scale back opening hours at some of its 24-hour stores - turning them into 18-hour stores.
It said 76 out of its 400 24-hour shops will now close at midnight and reopen at 6am. The move forms part of efforts by chief executive Dave Lewis to turn the supermarket around.
With the growth of online grocery shopping, these stores saw very few customers during the night. We'll continue ot make changes in store in way that will make shopping at Tesco a better experience for our customers, at the times they want to shop."
10.21am GMT
US stock markets are set to join in the global euphoria and open higher, with the Dow Jones expected to rise some 150 points to 16,220 at the bell.
10.20am GMT
Laith Khalaf, senior analyst at Hargreaves Lansdown, said:
The Bank of Japan's move shows how twitchy policy makers are getting about faltering global growth and the potential for deflationary pressures to get out of control.
The UK is not immune to this malaise, and indeed interest rate markets over here are now pricing in a higher probability of a cut in rates this year, than a rise.
10.12am GMT
The Bank of Japan's surprise move is just what stock markets needed after the recent turmoil. London's leading share index has pushed 70 points higher, to 6002.34, a 1.2% gain. Germany's Dax is 1.2% ahead and France's CAC has risen 1.4%.
"FTSE says hello to 6000 again" - but seems unable to push much higher, noted Chris Beauchamp, senior market analyst at at online trading firm IG.
The Bank of Japan completed the trio of central bank meetings that over the past week or so have kept investors enthralled. The statements from the ECB, the Fed and the BoJ have not been quite like the great actions of old, when the merest utterance could send markets flying higher, but they have been enough to enable stock markets to add to gains as the recovery off the January lows goes on.
Miners have been some of the chief beneficiaries of the rally over the past week, but if the sector begins to sag it will point to tough times ahead for the broader index."
10.06am GMT
Let's return to the Bank of Japan for a minute.
Sean Yokota, head of Asia strategy at SEB, the Nordic corporate bank, explained the BOJ's move to negative interest rates, which he thinks will push the yen down towards 126 against the dollar.
The BoJ is adopting a multiple-tier system where the interest rate on financial institution's current account are not all set at -0.1%. It will be divided into positive interest rate (for basic balance of reserves), zero interest rate and negative interest rate for 'excess reserves'. On a weighted basis, the current account will likely have a rate closer to 0% instead of -0.1%. The BoJ moved to the tiered system because it is worried that negative rates on all of banks' current account will eat into their earnings and tighten lending standards.
Second, Prime Minister Shinzo Abe may delay the VAT hike from 8% to 10% scheduled for April 2017, which will be positive for the equity market and negative for the yen. Abe reiterated this week that he still plans to increase the VAT as scheduled. His party has also recently excluded certain food items from the tax hike to reduce the impact on the economy."
9.47am GMT
Economists at Socii(C)ti(C) Gi(C)ni(C)rale also think the US GDP numbers will be weak.
In stark contrast to an impressive acceleration in job creation, real business activity likely slowed to a near crawl during the fall quarter. We expect Q4 GDP growth of 0.5% seasonally adjusted annualised rate (from 2% in Q3), in part due to a considerable deceleration in real consumer spending which we forecast to also have slowed to 1.5% quarter-on-quarter from 3% in Q3.
9.43am GMT
At lunchtime (13:30 GMT), we are getting US GDP numbers for the fourth quarter - the first estimate.
Weak, but how weak? And will it even remain positive? asks ING economist Rob Carnell.
Preliminary GDP estimates are difficult to forecast accurately, and are also prone to massive revisions subsequently. But there is a growing body of evidence pointing to this latest GDP outcome being even weaker than the fairly soft 2.0% (annualised) reading delivered for 3Q15. A negative figure, though unlikely, cannot be ruled out.
This leaves only residential construction spending, which remains strong, though is probably beginning to wane, and consumer spending, which has definitely slowed to about a 2.0% pace from 3.0% in 3Q15.
If you put all this together, you get a GDP figure of about 0.9%, the same as the consensus prior to the durable goods release. But the real consensus is likely lower now, and the risk is that the inventory figure is closer to zero than +US$50bn, and if so, then GDP will be closer to zero too - a negative number cannot be ruled out.
9.33am GMT
Pantheon Macroeconomics said German retail sales were disappointing.
Assuming no major revisions next month, retail sales fell 0.1% quarter-on-quarter in Q4, down from a 0.9% surge in Q3. These data then confirm our suspicion that consumers' spending slowed towards the end of last year, but overall 2015 was a spectacular year for the German consumer, with record growth rates. Fundamentals look solid for strong growth in 2016 too, but momentum likely will slow in the short run."
9.24am GMT
In other economic news this morning, German retail sales unexpectedly dropped 0.2% on the month in December. Sales rose 1.5% year-on-year in December, down from a 2.4% rate in November and the lowest pace of growth for seven months.
A weak end to a strong year - retail sales rose 2.7% in 2015, the highest annual increase since 1994.
Dec 0.2% m/m dip in #German #retail sales dilutes hopes that #consumer spending was a major contributor to GDP growth in Q4 2015 (1)
(2) But #German #retail #sales data are not most reliable measure of #consumer spending & fundamentals look largely decent for 2016
9.19am GMT
Russia has poured cold water on the idea of a deal between oil-producing nations...
No confirmed meeting with OPEC, Non-OPEC nations - Russia's Novak - Now Oil should crash + expensive US dollar will help to erase gains.
9.01am GMT
Are we heading for a crash? Economists can't agree if gyrating financial markets mean we face a global meltdown. We asked leading analysts to debate the question " you can read the piece here.
8.54am GMT
Julien Manceaux, economist at Capital Economics, has looked at the French GDP numbers in more detail. The eurozone's second-largest economy grew just 0.2% in the fourth quarter as consumer spending declined, partly due to the terrorist attacks in Paris but also the warm weather. The economy expanded just 1.1% in 2015 as a whole.
If these figures are confirmed next month, it would mean that last year's hopes to see 2015 showing a stronger recovery of 1.5% will never materialise. Worse, this is now all we can hope for in 2016. Indeed, 2015 had all the reasons to be better: some structural reforms, tax cuts for households and companies, a weaker euro and low energy prices should have made of 2015 the year of the recovery. But confidence never returned enough to ensure that, leaving business investments and job creations too low.
Looking ahead, we expect the labour market to gradually stabilise and reinforce confidence in coming months, mostly because of new measures announced to the government. This means that the recovery is likely to continue to unfold in coming months, albeit at a slower pace than expected. If better labour market figures do not materialise soon, the risk is to see domestic demand faltering when temporary factors like low energy prices will see their effects abate.
8.45am GMT
Here's a handy explainer on how negative interest rates work, following the Bank of Japan's surprise move overnight. In 2014 the European Central Bank imposed negative interest rates of -0.1% on eurozone banks - to encourage them to lend to small firms rather than to hoard cash.
8.39am GMT
Connor Campbell, financial analyst at Spreadex, has looked at the markets:
After a shaky end to Thursday the markets have surged into life this Friday morning following the decision by the Bank of Japan to implement negative interest rates.
The move follows the latest failing of 'Abenomics' to significantly boost Japan's inflation, and has helped (temporarily) ease some of the macro-tensions that have plagued the start to 2016. This has led to a rather robust rebound from the European markets; the FTSE, also aided by a steady $35 per barrel level for Brent Crude, jumped 80 points after the bell, leaving the UK index just about back above the 6000 mark."
8.39am GMT
Oil is continuing its recovery, with Brent crude now up half a dollar, or 1.5%, at $34.40 a barrel. It is heading for its fourth day of gains, spurred by hopes of a deal among oil producers to rein in the supply glut.
Michael Hewson, chief market analyst at CMC Markets UK, said:
While the move higher has been helped in no small part by vague chatter of some form of output deal between Russia and Opec, without agreement from Iran which seems unlikely, there is about as much chance of that happening as Aston Villa winning the Premier League this year. The main reason oil prices appear to have found a base is a weaker US dollar, as well as some position covering heading into month end, which is helping support prices."
8.34am GMT
The yen is sliding after the Bank of Japan stunned markets by moving into negative interest rates. It imposed a 0.1% fee on some deposits parked with the central bank, which means it will charge banks interest.
The dollar jumped more than 2% against the yen at one stage to 121.495 yen, its highest level in more than a month, and is now trading at 120.82 yen, up 1.7% on the day.
8.27am GMT
European stock markets have got off to a strong start:
8.17am GMT
....and Spain has just followed suit with strong GDP figures: the eurozone's fourth-largest economy posted another 0.8% gain in the fourth quarter. Ay, caramba!
But economists at Capital Economics say a pick-up in eurozone growth in the fourth quarter is now unlikely, because France was relatively weak.
OFFICIAL: Spain's GDP grew by 0.8% in Q4. That brings the 2015 growth rate to +3% => best yearly performance since 2007. Felicitaciones!
#Austrian #GDP growth reported at 0.3% q/q in Q4 2015. #French GDP was up 0.2% q/q. Bank of #Spain has estimated Q4 growth at 0.8% q/q (1)
Morning. French GDP grew just 0.2% qq in Q4 as hh spending fell. Spain posted another 0.8% gain but pick-up in EZ growth in Q4 now unlikely.
8.09am GMT
The French economy - the second largest in the eurozone - grew just 1.1% in 2015, Insee said. Again, it was outperformed by Britain with 2.2% growth, although that was down from 2.9% in 2014.
France is the first country in the eurozone to publish growth figures for the end of 2015.
8.07am GMT
French GDP data out this morning was bang in line with expectations: the flash estimate for the fourth quarter showed the French economy expanded by 0.2%, a slight slowdown from 0.3% in the third quarter. This compares with 0.5% growth in the UK between October and December.
Consumer spending in France dropped 0.4%, the national statistics agency Insee said. Insee warned earlier this month that the Paris terror attacks in November had a significant impact on hotel trade. Unusually warm weather in France also weighed on consumer spending by reducing demand for heating and clothing.
#France GDP slowed in Q4 (0.2% qoq vs 0.3 in Q3). Terrorist attacks likely had some impact on activity
#France | GDP really poor quality ...inventories pic.twitter.com/7yNWUHqzlw
7.41am GMT
Meanwhile, the Russian central bank is expected to leave interest rates on hold today, because further easing could exacerbate the rouble's weakness.
The bank slashed rates by 6 percentage points to 11% in the first half of 2015 when western sanctions over Ukraine led to a deepening economic decline, but has left them unchanged since July. The country, which relies heavily on oil exports, has been hit hard by the slump in crude oil prices over the past year.
7.25am GMT
The root of the BOJ's decision today to effectively charge banks for new deposits is the dire state of the Japanese economy.
Today's inflation figures showed that prime minister's Shinzo Abe's much-heralded attempts to kickstart the economy after years of stagnation are failing - dubbed "Abenomics".
Related: Japan beats recession but the good news ends there
7.11am GMT
It looks like being a decent start to the European trading day. FTSE forecast to rise 71 points at the opening.
7.05am GMT
Investors and market experts have been caught out by the BOJ's decision, which comes days after Kuroda said that the board was not considering negative rates.
Nicholas Smith, a strategist at CLSA based in Tokyo, told Reuters:
Kuroda had been saying that he didn't think something like this would help so it is a bit surprising and it's clear the market has been surprised by it.
This is an aggressive all-stick-no-carrot approach to spurring investment, as depositors are essentially penalised for holding cash.
6.58am GMT
Today's steps don't mean that we've reached limits to our [Japanese government bond] buying. We added interest rates as a new easing tool to our existing QQE framework.
6.56am GMT
6.53am GMT
Kuroda again:
We won't hesitate taking additional (easing) steps by (expanding) the quantity, quality of money, as well as through interest rate (cuts) if needed to achieve our price target, while scrutinising risks to the economy and prices.
6.50am GMT
Kuroda adds:
Japan's economy continues to recover moderately and the underlying price trend is improving steadily. But there's a risk recent further falls in oil prices, uncertainty over emerging economies, including China, and global market instability could hurt business confidence and delay the eradication of people's deflationary mindset.
The BOJ decided to adopt negative interest rates ... to forestall such risks from materialising.
6.47am GMT
Kuroda has told journalists in Tokyo that the decision to adopt negative interest rates was taken with the 2% inflation target in mind, and in consideration of risks to Japanese business confidence posed by factors that include concern over the health of the global economy.
Kuroda refused to comment on Thursday's resignation of the economy minister, Akira Amari, but added:
As before, the aim is to see Abenomics succeed.
6.44am GMT
Kuroda is working his way through the statement issued earlier by the Bank of Japan, according to our man in Tokyo, Justin McCurry.
The decision sent the yen plunging by up to 2% as capital seeks higher rates of return elsewhere.
6.37am GMT
Bank of Japan governor Haruhiko Kuroda is speaking now ...
Updates shortly.
6.32am GMT
Stock markets in Asia Pacific have yo-yoed wildly in the wake of the BOJ move, which spells yet another round of monetary easing in Japan.
Generally speaking, traders have embraced quantitative easing in its various forms across the globe as it means cheap money and rising asset prices.
6.18am GMT
Earlier on Friday, official figures showed inflation in Japan was 0.5%, way off the bank's target of 2%.
The BOJ hopes that the rates decision will encourage commercial banks to lend more, rather than keeping cash at the BOJ, and stimulate investment and growth.
Japan's economy has continued to recover moderately, with a virtuous cycle from income to spending operating in both the household and corporate sectors, and the underlying trend in inflation has been rising steadily.
Recently, however, global financial markets have been volatile against the backdrop of the further decline in crude oil prices and uncertainty such as over future developments in emerging and commodity-exporting economies, particularly the Chinese economy.
6.11am GMT
The BOJ governor Haruhiko Kuroda will give a press conference in about 30 minutes which should help explain the thinking behind the decision, which sneaked through on a 5-4 vote of the bank's board.
The BOJ said it was adopting an interest rate of -0.1% for new excess reserves parked at the bank by financial institutions.
The BOJ will cut the interest rate further into negative territory if judged as necessary.
5.42am GMT
Hello and welcome to the business live blog. It's been a very eventful night in the world of finance with Japan making the surprise (to some, at least) decision to adopt negative interest rates.
More on the detail of the decision very shortly but here's a catch-up on what has happened:
Related: Bank of Japan shocks markets by adopting negative interest rates
Continue reading...