Markets slide again on Trump fears, ahead of UK retail sales - business live

Nick Fletcher

from on 2017-05-18 13:41 (#2PWJT)

2.41pm BST

As forecast, the continuing controversy over Donald Trump and his actions relating to Russia and the sacking of FBI director James Comey, sent Wall Street lower again as markets opened.

But after their worst day since September, the falls have been fairly limited and could easily be reversed. The Dow Jones Industrial Average is currently down 14 points, while the S&P 500 fell 0.15% and the Nasdaq Composite 0.22% in early trade.

While the impeachment of Donald Trump may not be a serious possibility at this stage, the mere mention of the word has seen warning lights go off across the world, with doubts over the President's ability to deliver on his planned infrastructure spending and tax reforms.

Investors are steering clear of any risky assets due to the uncertainty over Trump's future - and given the unpredictable nature of the presidency so far, this is unlikely to improve any time soon.

2.27pm BST

And nor is Brazil:

*BRAZIL STOCK INDEX TUMBLES 10% TRIGGERING CIRCUIT BREAKER https://t.co/MKasUtMEkd pic.twitter.com/5Q4ZJMrbWP

2.25pm BST

Ahead of the Wall Street open, and European markets are not looking too healthy:

Largest 2 day drop in #EuroStoxx50 since #Brexit aftermath...
(I still don't get why the Twitter sell-off chart is blue and not red? ) pic.twitter.com/s6VkjY1z34

2.04pm BST

More fallout from the uncertainty surrounding President Trump and his future plans.

Copper has fallen 1.8% on concerns that his promised infrastructure spending could be derailed by the current controversy surrounding the president. Cantor Fitzgerald analyst Asa Bridle told Reuters:

Anything that is industrially oriented has taken a bit of a whack because there are doubts about whether Trump can push through his massive infrastructure spending plans.

1.43pm BST

Back to the US, and despite the current political shenanigans the day's economic data is better than expected.

US jobless claims fell unexpectedly last week, down by 4,000 to a seasonally adjusted 232,000. Analysts had forecast a rise to 240,000. The number of Americans receiving unemployment benefit is now at a 28 and a half year low.

With #stocks future under some pressure again this morning, US economic data (jobless claims & Philadelphia Fed) are stronger than expected.

1.20pm BST

The US is not the only country which could be heading for political problems:

$BRL futures down 6% and halted for trade after reports that Brazilian government allies are seeking President Temer's resignation

12.54pm BST

At the ECB meeting, according to the minutes, ECB board member and chief economist Peter Praet warned colleagues to be careful when talking about the future of the central bank's monetary policy:

Mr Praet considered that, at the current juncture, the Governing Council had to be particularly cautious regarding the future evolution of its policy communication. After a prolonged period of exceptional monetary policy accommodation, financial market participants were particularly sensitive to any perceived change in the future course of monetary policy. Any substantial change in communication needed to be motivated by some more evidence that the present indications of acceleration in activity found confirmation in hard data and fed through to a sustainable adjustment in inflation. Looking ahead to the Governing Council's 7-8 June monetary policy meeting, a new round of Eurosystem staff macroeconomic projections and a new assessment of the risks to the outlook would become available to inform discussions on the way forward.

12.46pm BST

At last month's regular meeting the European Central Bank kept its interest rate policy and bond buying programme unchanged, with the eurozone economy improving but the inflation outlook subdued. In the minutes of the meeting just released, the ECB expands on this:

While there was broad agreement that the configuration of risks to euro area activity had improved overall, some members considered that the risks to real GDP could now be characterised as broadly balanced, in particular given the improvement in recent data and indicators and the decline in political uncertainty. Other members maintained that downside risks to growth still prevailed and that a change in the risk assessment was premature in view of continued risks and uncertainties, even if diminishing, both globally and in the euro area.

Members exchanged views on the outlook and risks for the external environment, also taking into account the latest IMF World Economic Outlook, which had been released after the Governing Council meeting in early March, and the related discussions at the IMF spring meetings. It was underlined that the latest data on global activity and trade pointed to stronger global growth momentum and a re-synchronisation of the recovery, between global growth and trade and between advanced and emerging economies. However, the external outlook was considered to be still subject to elevated uncertainty, and the balance of risks to the outlook for global growth was assessed to remain on the downside.

Among the factors that continued to contribute to this uncertainty were the scope and timing of the future policy choices of the new US Administration, the economic impact of the United Kingdom's withdrawal from the European Union, the rebalancing of demand and the transition towards lower growth rates in China, and developments in other emerging market economies. In particular, reference was made in the discussion to the high degree of uncertainty surrounding short-term developments in the US economy, which reflected a significant divergence between hard and soft data for the United States. Moreover, financial market participants and investors were reassessing the outlook for US growth and inflation, as it appeared that US data were no longer exceeding market expectations, and there was still considerable uncertainty surrounding the new US Administration's policies, including the prospects for fiscal stimulus, and their likely expansionary effects.

12.21pm BST

April's UK retail sales figures should be treated with a little caution, says economics editor Larry Elliott:

Britain went on a spending spree in April. The shops were full of punters. Online retailers coined it in. Spring brought with it an end to the winter consumer spending blues.

That at least is what the official figures suggest. The Office for National Statistics reported that the volume of retail sales rose by 2.3% last month, smashing City expectations. This, though, is the same Office for National Statistics that said earlier this week that living standards were being squeezed because wages were failing to keep pace with prices. Something doesn't quite add up.

11.59am BST

Future market moves will be balanced between the growing Trump risk and the reasonable economic and corporate data coming out, suggests Nick Brooks,head of economic and investment research at asset manager Intermediate Capital Group:

Scepticism about Trump's ability to follow through on his campaign promises has been growing over time as reflected in the flattening of the US yield curve and weakening of the US dollar since the beginning of the year. Up until the Comey firing, however, most investors in risk assets largely ignored the political noise, preferring to focus on improving economic and earnings data.

The most recent events are being taken far more seriously by investors, with recent market movements indicating investors are looking at the latest scandal as potentially representing a death knell for Trump's fiscal agenda. Those investors that have not already capitulated on so-called Trump trades will likely be liquidating those positions sharply. A prolonged wider risk asset sell-off seems unlikely, however, as long as the macro and earnings data continues to hold up.

11.19am BST

The recovery in the US futures market seems to have gone into reverse:

US markets selling off again on out of hours - Dow now around 100 lower than last night's close. pic.twitter.com/docwFk5Jag

11.10am BST

Here's our full story on the UK retail sales, from my colleague Angela Monaghan:

10.39am BST

Most first quarter GDP figures have now been released, and Germany is leading the way again as it did last year:

With only Canada left to report in, Germany is still winning the G7 Q1 GDP growth race, narrowly pipping Japan's 0.5%q/q effort. pic.twitter.com/LCjPHWu9nZ

10.34am BST

The pound is holding on to its gains, up 0.45% against the dollar at $1.3027 and 0.8% better against the euro at $1.1712.

At its peak so far during the morning, the pound reached $1.3045, which is its highest against the dollar since 29 September last year. But it is still way below the $1.4878 level the day before the Brexit result was announced.

10.13am BST

Online sales continue to gain ground, points out Ian Geddes, head of retail at Deloitte:

Online sales have been particularly strong over the last few months and April is no different; online retail is up 19% from last year and now accounts for 15.6% of all retail spending. Indeed, UK consumers spent 1bn a week online in April.

Looking ahead, May's retail sales figures could benefit from mild, sunny weather coinciding with the two bank holiday weekends, which should be the perfect recipe for further increased footfall. However, May 2016 was a particularly strong month, so it will be interesting to see how the year-on-year comparisons fare, and whether the figures for May 2017 show the first signs of inflation starting to bite.

9.59am BST

More reaction to the forecast-busting UK retail sales figures, and there are warnings that consumer optimism may not last with the continuing squeeze on real earnings:

9.50am BST

Here's a breakdown of the retail sectors:

9.42am BST

Sterling could move even higher, according to David Cheetham, chief market analyst at online trader XTB:

The pound is trading higher across the board this morning and the recovery seen in the currency since hitting a multi-decade low in January has been impressive and looks set to continue. The retail sales figure itself was the best since the start of 2016 and will go some way to allay the fears of a slowdown in consumer spending following last month's sharp drop in this widely viewed indicator.

The release marks a 3rd consecutive day of GBP positive economic data, after both the CPI and unemployment figures surpassed estimates. With short positioning still at elevated levels in the pound there could be more legs to this rally, with little by the way of technical resistance seen until 1.32.

9.40am BST

Analysts had been expecting a recovery in retail sales after the slide in March, partly because of the timing of Easter.

But the increase was much bigger than forecast, and the Office of National Statistics said the fine weather last month had also helped boost high street spending.

9.37am BST

Boom! UK retail sales volumes have beaten expectations by some margin in April, rising by 2.3% compared to a 1.4% fall in March (itself revised up from an initial estimate of a 1.8% decline.) Expectations had been for a rise of around 1%.

The news has sent sterling above $1.30 for the first time since last September, on the basis the strong figures suggest the possibility of an earlier than expected interest rate rise from the Bank of England.

9.27am BST

The sell-off in shares may not last, says Kathleen Brooks, research director at City Index Direct:

European markets have opened lower once again as they digest the latest news that Congress is officially investigating the Trump/ Comey claims and demanding that the FBI hand over the Comey memo that states President Trump put pressure on the FBI chief to drop an investigation into his National Security Advisor. But, the selloff may not last as US futures are actually predicting a positive open for US stocks later today.

We will be watching the futures markets to see if sentiment towards US markets change, but after Wednesday's steep sell off, a bit of profit-taking is to be expected. However, this does not mean that the political risks are put to bed, if this crisis continues to escalate then we would expect a further sharp reaction in the markets. Ben Bernanke said on Wednesday that he was amazed that investors had become so blasi(C) about political risk, until it was staring them in the face. If the political genie has escaped from the bottle, then it could be an edgy summer for investors as they remain cautious about the political outlook for the US.

9.21am BST

GBP moving higher ahead of retail sales.... leak yet again?.. does that mean the figures are a beat on expectations

The "leak" comment refers to this ().

8.48am BST

Earlier, new figures showed France's unemployment rate dipped slightly in the first quarter.

It fell from 10% in the previous quarter to 9.6%, according to the national statistics office. The dip is a bit of good news from new French president Emmanuel Macron and his new government.

Figures just published by the INSEE show that unemployment went down by 0.4ppt in the first quarter, reaching less than 10% for the first time since 2012. At 9.6%, it certainly remains a challenge for [the] new government. Its members are known since yesterday, a choice that respects a very delicate equilibrium between right and left, men and women, politicians and civil society members. At this stage, the main question is if it will survive the June legislative elections...

The [unemployment] trend is yet to be confirmed in coming quarters however, as the unemployed population increased by 41k in the first quarter after having declined by 60k in the second half of 2016. The move was mainly due to the fact that one part of the population under training or subsidised jobs reintegrated the main unemployment statistics as they failed to find a job after this period. This illustrates the weakness of the subsidised system: without a strong recovery in private sector job creation, it can only be a temporary success. These difficulties were illustrated this morning by ILO data showing that the employment rate failed to increase among the active population it remained at 64.7%. Finally, figures released this morning showed in particular that unemployment among the youngest workers (15-24 y.o) remains very high at 21.8%.

8.30am BST

Royal Mail is also among the leading risers despite a fall in profits and a warning that letter volumes would continue to drop.

Annual profits fell 6% to 712m, after the uncertainty over Brexit hit marketing and business mail, while it also continues to face growing competition for parcel delivery from the likes of Amazon. It is also in talks with unions about plans to close its defined benefit pension scheme.

Royal Mail has registered delivery of a solid set of numbers, underpinned by a strong contribution from the overseas unit.

The general trend to which the group continues to react is becoming established - a letters and cards market in terminal decline, offset by the growth in the parcel delivery space as online shopping strengthens its grip on consumer behaviour. Within the numbers, there are a number of promising signs, such as the investment programme having peaked, cost savings still in focus, an improvement to the earnings per share metric and a short-term boost expected by general election mailings. Meanwhile, the dividend yield of 5.2% is extremely attractive in the current environment and remains possible given the group's cashflow. Elsewhere, recent moves to alter the pension scheme should provide financial solace further out.

Even so, the general direction of travel is encouraging. The shares have had a difficult year, dipping 14% over the last 12 months and remaining some way off their highs of over 6 in January 2014 following the initial success of the IPO. The company is, nonetheless, focussing on those areas which are particularly troublesome, and the consensus of the shares as a hold may come under review after these results.

8.08am BST

As expected European markets have slipped back in early trading, following the slump on Wall Street and overnight declines in Asia, on the latest Trump developments.

The FTSE 100 has fallen around 45 points or 0.6% while Germany's Dax opened 0.2% lower and France's Cac down 0.1%.

7.54am BST

Ahead of the UK retail sales, the pound is have a mixed time.

Against the dollar it is currently down 0.15% at $1.2950 but it has edged up 0.14% against the euro to a1.1635, reversing the previous day's trend. FXTM research analyst Lukman Otunuga said:

April's UK retail sales report... will be vital in providing some insight over the behaviour of consumers amid Brexit developments. With wage growth lagging behind inflation, the sales data may come under scrutiny for any signs of falling wages impacting consumer confidence.

If retail sales fail to meet expectations and follow the same pattern as they did in March, concerns are likely to heighten over the sustainability of the UK's consumer-driven economic growth. Although markets are expecting retail sales to rebound in April to 1% due to the Easter holiday, this still may not be convincing enough to brush away Brexit concerns. The Bank of England has already warned of a consumer spending squeeze while the uncertainty blanketing Brexit continues to weigh on sentiment.

7.41am BST

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

It was only a couple of days ago that all the talk was of new stock market peaks and low volatility. But thanks to the escalating controversy over Donald Trump's firing of FBI director James Comey and even talk of possible impeachment, the mood has changed dramatically.

With the VIX languishing at multi year lows only a couple of days ago it was perhaps inevitable that the low volatility of the past few weeks would in all likelihood end rather abruptly, with the only unknown being as to what the catalyst might be.

As it turns out it was events in Washington DC that delivered investors the kick in their complacency that many had been warning about, as stock markets and the US dollar fell sharply, while safe haven assets like gold surged....

The past six-month's reflation rally would face severe reversal risks. If the markets were to retrace the Trump-reflation gains, this would trigger a decent 'deflation' squeeze. A quick glance to recent stock price history could give an indication of the risks. The Dow Jones rallied from 17,480 to above 21,100 following Donald Trump's victory on November 9 election; this is roughly a 21% rise...

Unfortunately, the US stocks are not the only ones concerned. The global Trumpflation virus contaminated the major stock markets across the globe. Since November 9, the German DAX rallied more than 26%, Europe's Stoxx 600 gained past 12%, the Japanese Nikkei stepped up to 24%, the Australian ASX 200 soared nearly 18% before the sell-off started at the beginning of May and the UK's FTSE rose by more than 12%. Even the Brazilian stocks believed in the reflation story for a moment and added 22% between December and February. Of course, Brazil has got its own problems. Brazil is plunging back to a bribery crisis concerning its newly elected President Michel Temer - following the former President Dilma Rousseff's impeachment last year.

Our European opening calls:$FTSE 7456 -0.63%
$DAX 12584 -0.37%
$CAC 5292 -0.50%$IBEX 10743 -0.40%$MIB 21213 -0.33%

While March was a surprisingly bad month, it could merely been a case of consumers holding back ahead of Easter, as all the indicators seen in recent data from food retailers suggested that shoppers recovered some of their mojo in April. The latest BRC retail sales numbers from last week showed that, and today's retail sales numbers are expected to show a rise of 1.2%.

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