IMF warns of share price bubble as stocks slide before Fed decision - as it happened

Julia Kollewe

from on 2021-01-27 15:16 (#5DC89)

3.16pm GMT

The sell-off in global stocks has gathered pace as worries over extended Covid-19 restrictions and the vaccine rollout resurfaced. Oil prices are falling, reversing earlier gains.

2.46pm GMT

On Wall Street, stocks are falling, mirroring declines in Europe. The Nasdaq has lost 2%, and the Dow Jones and S&P 500 have fallen 1%. The FTSE 100 in London has also declined 2%.

2.38pm GMT

Michael Pearce, senior US economist at Capital Economics, says:

The weaker 0.2% gain in headline durable goods orders in December was mainly due to ongoing problems among aircraft manufacturers and a drop off in defence orders. The bigger story is the continued strong gains in core orders, which underlines that the recovery in business equipment investment still has plenty of momentum.

With restrictions on international travel tightening in recent weeks, demand for aircraft will remain at very low levels for the foreseeable future. Despite that persistent drag, the continued strength of core orders means that overall durable goods orders and shipments are now back above pre-pandemic levels, reflecting the boost from lower interest rates and the relative resilience of the investment-intensive manufacturing sector.

2.30pm GMT

In the US, business orders for durable goods such as tools, appliances and new cars rose in December for the eighth month in a row, but by just 0.2%, far less than the 1% forecast by analysts. This was due to a a slump in demand for new airplanes (mainly at Boeing) since the start of the pandemic, which caused a 1% drop in transport orders.

Stripping out transportation, core orders rose by 0.7% - an increase described as solid" by economists.

2.22pm GMT

The sell-off continues on the stock markets.

1.34pm GMT

You can read the full global financial stability report here.

1.31pm GMT

Governments and central banks must maintain their pandemic rescue programmes or risk triggering a stock market crash, the International Monetary Fund has said.

Warning that there were legitimate concerns about a share price bubble, the Washington-based organisation said that without continued low interest rates and government subsidies it was possible a correction' in stock markets across the world would be the unwelcome result, writes our economics correspondent Phillip Inman.

12.25pm GMT

Josh Mahoney, senior market analyst at the online trading platform IG, reckons the Dow Jones will open 89 points lower, at 30,848. And what can we expect from the Fed tonight?

The Federal Reserve come back into focus today, with traders increasingly looking towards the US for some form of stimulus boost in the coming weeks. Unfortunately, with Biden expected to drive forth his $1.9 trillion stimulus coronavirus support package, we are unlikely to see the Fed turn up the dials at today's meeting.

A new year brings new voting members for the Fed, with four regional Fed members rotating into a position where their opinion can be better reflected. Key to that voting member rotation is the addition of Atlanta Fed President Raphael Bostic who has already speculated that the Fed might be able to recalibrate' in fairly short order' once the recovery gets going.

12.22pm GMT

The sell-off on European stock markets has gathered pace, ahead of the US Federal Reserve policy decision. In London, mining shares are leading the losers, amid concerns that extended coronavirus lockdowns will hit demand for commodities.

12.11pm GMT

The discount retailer Poundland and its sister chain Dealz are planning to open nearly 100 more stores across Europe as the group shrugs off the difficulties on the high street, writes our retail correspondent Sarah Butler.

The group is planning to open 27 stores in the UK and Ireland and 70 in Span and Poland after reporting an 8.4% rise in revenues in the three months to the end of December. Sales at stores able to trade during the high street lockdowns rose by 4.3% as shoppers picked up homewares and cheap groceries.

What the government tried to do with business rates relief was to ensure good businesses survive and could grow again. We are doing our part of the bargain. We have managed our business well through this and are investing in the future.

Previous economic downturns have provided discount retailers with increased opportunities and confident and brave as we are it is time to put our foot down on the accelerator.

11.56am GMT

Back in the US, GameStop has become one the hottest stocks of the year.

The coronavirus pandemic has hit the video games chain hard. Like many retailers, already suffering from the shift to online sales, GameStop is losing money and plans to close 450 stores this year, reports Edward Helmore in New York.

Gamestonk!! https://t.co/RZtkDzAewJ

11.27am GMT

Here's our full story on the delays to Hinkley Point. The Covid-19 pandemic could delay construction of the Hinkley Point C nuclear reactor by six months and raise its costs by 500m, according to its developer.

11.09am GMT

Over in the US, Amazon is attempting to force workers planning to unionise at an Alabama warehouse to vote in person rather than by mail as it fights off a landmark attempt by its staff to organise, reports Michael Sainato, who writes on civil rights issues for the Miami Times.

10.30am GMT

On the markets, the FTSE 100 in London briefly ventured into positive territory, but is now trading lower again, by some 20 points, a 0.32% drop, to 6,632. Germany's Dax has lost 0.33%, France's CAC is flat and Italy's FTSE MiB has shed 0.66%.

Oil prices are still pushing higher after US crude stockpiles unexpectedly dropped last week, and as China, the world's biggest oil importer, reported the smallest daily rise in new Covid-19 cases in more than two weeks. Brent crude is 55 cents ahead at $56.22 a barrel while US crude has gained 49 cents to $52.87.

9.46am GMT

It has emerged that Sir Philip Green's retail empire Arcadia collapsed under the weight of a debt pile of 750m. This is according to reports drawn up by Deloitte, which was appointed as Arcadia's administrator at the end of November, the Daily Telegraph reported. Topshop and Topman had gross liabilities of more than 550m.

9.32am GMT

EDF Energy has said that the Covid-19 pandemic could delay construction of the Hinkley Point C nuclear reactor by six months and raise its costs to 23bn, reports our energy correspondent Jillian Ambrose.

The fresh delays are expected to add 500m to the cost of the UK's first new nuclear power plant in a generation, and delay its first electricity generation to the summer of 2026.

9.05am GMT

In the UK-EU vaccine wars, it is worth reading this long interview by AstraZeneca chief executive Pascal Soriot with Italian newspaper La Repubblica.

He explains in detail why the amount of vaccine produced by different sites may vary hugely, and that the UK ordered the Covid-19 vaccine (100m doses) from the drugmaker three months before the EU -- as we have also reported.

Essentially, we have cell cultures, big batches, 1000-litre or 2000-litre batches. We have cell cultures inside those batches and we inject them with the virus, the vaccine, if you will. Then those cells produce the vaccine, it's a biotechnology protection.

Now, some of those batches have very high yield and others have low yield. Particularly in Europe, we had one site with large capacity that experienced yield issues. So it's essentially a question of when you scale up to the level we are scaling up to - something like this that's never been done. We are scaling up to hundreds of millions, billions of doses of vaccines at a very high speed.

The UK agreement was reached in June, three months before the European one.

As you could imagine, the UK government said the supply coming out of the UK supply chain would go for the UK first. Basically, that's how it is.

The EU and others helped with money to build research capacities and production facilities. Europe invested billions to help develop the world's first Covid-19 vaccines. To create a truly global common good. And now, the companies must deliver. They must honour their obligations."

8.53am GMT

Turning to the UK housing market... the latest Covid-19 surge has shaken the housing market, reducing the flow of new homes being listed for sale by 12% in the first few weeks of 2021, according to the latest data from the property website Zoopla.

The shortage of properties on the market is pushing up prices, with house price growth reaching near four year high at 4.3%.

The housing market momentum built up in the second half of 2020 has rolled into early 2021, despite a spike in the pandemic and a third lockdown. Sellers are more cautious however and appear to be waiting for case numbers to drop much further before listing their home, or until we see a return to tier based restrictions.

The strength of the market in 2020 has eroded the available number of homes for sale and this will mean continued upward pressure on house prices in the short term. The most affordable parts of the UK are recording the highest rate of price growth for 10 years up to 5.4% a year. We still expect house price growth to slow towards 1% by the end of the year.

8.47am GMT

Here's a quick round-up of the main news overnight. The rating agency S&P has warned 13 oil and gas companies, including the some of the world's biggest, that it may downgrade them within weeks because of increasing competition from renewable energy, writes my colleague Ben Butler in Australia.

On notice of a possible downgrade are Australia's Woodside Petroleum as well as multinationals Chevron, Exxon Mobil, Imperial Oil, Royal Dutch Shell, Shell Energy North America, Canadian Natural Resources, ConocoPhillips and French group Total.

8.30am GMT

Analysts at Shore Capital, Darren Shirley and Clive Black, have looked at the sofa retailer ScC's results.

At the start of the important winter trading period on Boxing Day, ScS was trading from 57 out of its total 100 stores, with a further 37 forced to closed on the 30th December; with all closed on the 4th January. The stores are reported to have traded strongly whilst open.

Online continues to partially compensate for store closures, increasing by 98% in the period, though most customers appear to want the tactile experience of a store visit ahead of purchasing furniture, and particularly floorings!

8.18am GMT

Conversely, oil prices have climbed after industry data showed US crude stockpiles fell unexpectedly last week. And China, the world's second-biggest oil user, has recorded its lowest daily rise in Covid-19 infections (75 new cases) in over a fortnight, sparking hopes that demand for oil will rise.

Brent crude, the global benchmark, has risen 30 cents to $56.25 a barrel, a 0.54% gain, while US crude gained 26 cents to $52.87 a barrel, up 0.49%.

Market participants are now in wait and see' mode, wanting to see how lockdowns evolve in the coming weeks and months, and how successful countries are in rolling out Covid-19 vaccines.

8.08am GMT

And we're off. Following a better day yesterday, European shares are sliding again.

8.03am GMT

There isn't much corporate news here in London this morning, apart from ScS, the sofa retailer, reporting surging sales of sofas. My colleague Jo Partridge reports:

Sofa retailer ScS enjoyed surging sales over the last six months, as locked-down consumers opted to spend money on new furniture for their homes.

Gross sales at ScS rose by 13.9% over the 26 weeks to 23 January to reach 182.3m, compared with sales of 160m a year earlier.

7.41am GMT

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

Microsoft released stellar results last night as the Covid-19 pandemic sparked a boom in PC sales and video gaming and drove higher usage of the company's cloud services. The Xbox and PC maker posted a 17% increase in revenues to $43.1bn between October and December, which beat forecasts. Profits jumped 33% to $15.5bn, sending Microsoft shares to a record high.

And there will certainly be no hint of a policy tightening, or tapering in the foreseeable future, given that the health crisis has not been losing speed with the mutation of the virus and delay in vaccine distributions across the globe. It appears that Joe Biden has been too optimistic about getting anyone who wants vaccinated by the end of spring. It is now said that end-of-summer is a more realistic target, if all goes well with the production and the distribution of doses.

Speaking of that, the unconsidered scarcity in vaccine doses may turn the trade tensions between the US and Europe that emerged under Trump administration into a vaccine war, as Germany now threatens to retaliate over the US trade restrictions by limiting AstraZeneca's vaccine exports. No one saw that coming.

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