Despite continuing falls in oil prices, the rally in European markets stayed the course. Putting aside worries about China, faltering global growth and volatile commodity prices, investors took heart from a series of positive company updates, not least Lloyds Banking Group, RSA Insurance, Axa and Deutsche Telekom.
Wall Street managed to shake off some early uncertainty by the time Europe closed, but there is likely to be further nervousness around the G20 finance ministers meeting in Shanghai which starts later. For the moment, the final scores showed:
The FTSE 100 finished 145.63 points or 2.48% higher at 6012.81
Germany’s Dax added 1.79% to 9331.48
France’s Cac closed 2.24% higher at 4248.45
Italy’s FTSE MIB rose 2.3% at 17,104.54
Spain’s Ibex ended 2.52% higher at 8215.6
In Greece, the Athens market added 2.05% to 483.98
On Wall Street, the Dow Jones Industrial Average is currently up 49 points or 0.3%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
It has been suggested that with QE and low (and in some cases negative) interest rates, central banks risk running out of ammunition to boost the global economy.But Capital Economics disagrees. The research company’s Nikita Shah said:
There is undoubtedly less scope for policy easing than there was a few years ago, but the charge that central banks are now powerless is, in our view, exaggerated. For a start, policymakers still have room to cut deposit rates further and expand their QE programmes, which should help to support activity and lift inflation. And if growth and inflation fall further, we suspect that governments and central banks would, eventually, adopt more radical policies to revive their economies.
What could these more radical policies be:
Perhaps the most straightforward option would be to raise the inflation target, which would in theory cause real interest rates to fall. As Japan’s experience shows, though, it can be very difficult to raise price pressures when low inflation expectations are engrained.
A much more radical and powerful policy would be for the central bank to directly finance government spending, often referred to as a helicopter drop. Unlike QE, this would be very effective in pushing money into the economy and could be quickly stopped if inflation rises too far.
There is little appetite for more radical policies at the moment, not least because the world is not currently in a crisis situation. But policymakers have proven that they are willing to change course if they are consistently missing their mandates. And if economic conditions were to deteriorate significantly, political opposition to such policies would surely soften.
The price of crude continues to slide. Earlier, data from the US showed stockpiles at the Cushing hub in Oklahoma for oil deliveries has reached new highs.
Inventories rose by 503,000 barrels to more than 67.5m barrels between 19 and 24 February, according to Reuters.
Brent crude is now down 2.3% at $33.59 a barrel while West Texas Intermediate - the US benchmark - has dropped 3%.
The UK Treasury is not drawing up plans to deal with the fallout if Britain leaves the EU after the forthcoming referendum.
Attending a conference on market liquidity, Charles Roxburgh, director general for financial services at the Treasury, said:
It’s the government’s policy not to do contingency planning. So we will not be doing contingency planning — that’s consistent with the position we had on Scotland.
After a bright start, US markets have slipped back after another drop in the oil price, with the Dow Jones Industrial Average now up just 12 points. But European markets have held on to much of their gains and are still up around 2%. Connor Campbell at Spreadex said:
Whilst not quite at their afternoon highs the FTSE, DAX and CAC have kept up a staggering pace this Thursday; the Dow Jones, meanwhile, has lagged far behind, US investors not quite as eager to pour back into the market as their European peers...
It is interesting to see such divergence between the two regions, especially the chasm in trading sentiment currently separating the FTSE and the Dow. Both have a tendency to be weighed down by their respective commodity sectors, the latter seeing an especially volatile session last night thanks to the choppy movements in the oil price.
Wall Street underperforms. Photograph: Richard Drew/AP
Yet whilst the UK oil and mining stocks (bar the odd anomaly like Rio Tinto and Premier Oil) are largely in the green, ignoring Brent Crude’s latest decline, their US counterparts are far more bearish this Thursday, Chevron (down 1.5%), ExxonMobil (slipping around 0.8%) and Caterpillar (falling roughly 1%) all preventing the Dow from joining the day’s rebound. It appears that the US index is sorely missing the earnings-focused gains the FTSE has seen today, with the incredible, dividend driven, performances of Lloyds and RSA Insurance helping overcome any potential negative sentiment following a rough Asian session.
Tomorrow, however, does see the US shift back into the limelight after the UK GDP and Eurozone inflation focused trading of Thursday. Not that that will necessarily be a good thing; already coming in at a disappointing annualised rate of 0.7% for the fourth quarter, Friday’s second estimate US GDP figure is set to drop to 0.4%, something that may only exacerbate the Dow’s current dreariness.
After a rebound in US markets late in Wednesday’s session, the trend is continuing in early trading.
Taking its lead from a bounce in Europe - helped by well received results from financial groups Lloyds, RSA Insurance and Axa - the Dow Jones Industrial Average has climbed 72 points or 0.4%.
Meanwhile the S&P 500 is up 0.2% and Nasdaq 0.27% at the open.
Over in Europe, the FTSE 100 has jumped 2.6% - back above the 6000 level - while Germany’s Dax is up 2.3% and France’s Cac has climbed 2.67%.
Part of the reason for a tumble on Wednesday, before Wall Street’s late revival, was a falling oil price on growing US inventories and further consideration of Saudi Arabia’s comments suggesting producers were unlikely to cut output.
But crude prices have stabilised to give some support to markets, with Brent down just 0.4% at $34.26 a barrel.
But the durable goods data is more mixed than it first appears, says Rob Carnell at ING, and gives no reason for an early rate rise:
US durable goods orders data showed a strong rebound in January, rising 4.9% month on month against expectations for a rise of only 2.9%. And this data will buoy hopes that the slowdown in US GDP growth that culminated in a rate of only 0.7% (annualised) in the fourth quarer of 2015 (and will likely be revised lower on Friday), may be turning the corner.
This is choppy data at the best of times, so one month’s data has to be taken with a pinch of salt. But these figures, which provide one of the best insights into the business investment environment, are especially important right now. This is because if the US is heading into recession, as some commentators maintain, then we suspect that this decline will be led by investment, with the labour market and consumer spending following in its wake with some lag.
However, despite a decent headline figure, and bounces in some of the core indicators (we tend to focus on these core measures to shed some of the volatility of this data), the trend in orders and shipments is not giving a particularly clear message, and we will have to see more data before we can reach any firm conclusions. For example, the three month moving average for core capital goods orders fell further to -6.2%, and core capital goods shipments improved, but from -4.7% to only -4.2%, so still remain deeply depressed.
With yet another inconclusive set of data, markets will make of this whatever they want. But the fact remains, the direction of the US economy at this juncture remains far from clear. And in consequence, the Fed’s response remains in the balance, though we feel the hurdles for further tightening are high, so at the very least, this data provides no excuse for a near term tightening.
The good US data of course could also prompt renewed talk of a Federal Reserve rate rise. David Morrison at Spread Co said:
The US dollar rose a touch as did equities after durable goods (both including and excluding transportation items) blasted above market expectations. Weekly jobless claims were in line with expectations.
It was a knee-jerk reaction which appeared to be algo-driven and it doesn’t feel as if there’s much follow-through to the initial move.
Strong data may point to some robustness in the US economy but of course that’s a double-edged sword. After all, it also raises the possibility of further rate increases from the Federal Reserve. In its economic projections back in December the central bank pencilled in 100 basis points-worth of rate hikes in 2016. That would be hard to stomach given the market turmoil since the beginning of the year.
Over in America, one of the country’s top central bank officials isn’t too worried about the prospect of Britain leaving the EU.
James Bullard, president of the St. Louis Federal Reserve President, argued that Brexit isn’t a threat to the US economy, as it would take years for the details to be sorted out.
Bullard said (via Reuters):
“I don’t think it is a risk event for the US because even if British voters decide to quit the EU there will be years for markets and investors to adjust.”
Dividend increases are all the rage this morning, as Lloyds, RSA and St James’s Place all opt to flash their cash to keep shareholders happy. A 10% rally in Lloyds, along with a decent bounce for the rest of the sector has seen the FTSE add over 100 points within the first couple of hours of trading.
Martin Beck, senior economic advisor to the EY ITEM Club, says Britain’s economy was “wholly dependent on domestic activity” for growth in the last quarter.
And without the service sector, there wouldn’t have been any growth at all either, as industrial production fell by 0.5%, and construction contracted by 0.4%.
“Domestic demand rose by 0.8% on the previous quarter, with consumer spending and a rise in inventories each accounting for roughly half this increase. Disappointingly, total investment fell slightly, with business investment dropping by 2.1% the biggest fall since the first quarter of 2014.
“The bad news came on the net trade side, which knocked 0.3 percentage points off GDP. At the same time exports were down by 0.1% in the quarter and imports rose by 1.2%.
German bank Berenberg reckons that the UK growth rate will slow this year, as the EU referendum approaches.
Kallum Pickering, their senior UK economist, explains:
Uncertainty hurts confidence and despite strong domestic demand growth toward the end of last year growth is likely to soften in the coming quarters.
Economic performance depends on sentiment as much as on fundamentals. The combined effect of heightened global economic worries plus the reality of a possible Brexit - the referendum will take place on 23 June - will likely hit economic performance.
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