- US misses on closely-watched payroll figure, prompting worries about health of economy
- German industrial output shrinks unexpectedly, raising fears Europe’s biggest economy is stuck in reverse
- Pound steady after 10-month record two-day surge
- ECB rate cuts: When does the financial medicine turn to poison?
Wrap-up: Markets close flat after day of mixed emotions
European markets have closed broadly flat, with Germany’s DAX putting in relatively-healthy growth of 0.54pc as the continent’s other blue chips looked immovable.
Mixed news prevailed from a markets perspective: although German factory data in the morning showed the factories in Europe’s biggest economy slipping deeper into disaster, the damage was offset by continued expectations that Berlin will soon intervene to re-stimulate Europe’s largest economy.
The trade war between the US and China stayed on ice as the countries prepare for as-yet-unfixed talks next month.
It was the quietest day of the week for Brexit as well, with the passage of a bill to block a no-deal Brexit passed through the House of Lords, and opposition parties settled on plans to refuse Boris Johnson a General Election until the measure enters law.
Sterling stayed low through the day, giving back some of its rapid gains from Wednesday and Thursday, as traders weighed up the seemingly-likely outcomes of a no-deal Brexit or a Jeremy Corbyn-led government. That gave little support to the FTSE 100, which closed the day flat.
That’s all from me this week. I’ll be back on Monday with the latest news of business, markets and economics. Have a great weekend!
As Mugabe dies, Zimbabwe’s economy is still in tatters
Former Zimbabwean President Robert Mugabe has died aged 95, prompting reflection on his role first an a freedom fighter, then as a dictator in the southern Africa nation.
Telegraph economics editor Russell Lynch has taken a look at the Harare strongman’s legacy, and assessed the ongoing economic impact of his flawed market policies. He writes:
At its worst, Robert Mugabe’s Zimbabwe was a failed state. For Knox Chitiyo, a proud Zimbabwean and associate fellow at the Chatham House institute, 2008 brings back painful memories.
“There was very little food in the supermarkets. You’d go in and the shelves were bare. If you were lucky you might find a handful of loaves of bread, but it might not be fresh," he recalls. "Then try to pay for things with satchels of money. The only way to survive was through the local black markets.”
The 95-year-old liberation fighter turned iron-fisted president may finally have died in exile two years after losing power, but the legacy of his economic mismanagement lives on for millions of Zimbabweans.
- You can read his full report here: How Mugabe destroyed Zimbabwe’s economy — and left more pain to come
Here are two key graphs from the piece:
In case you were wondering what’s going on with Brexit...
This is the state of UK politics currently:
This is KFC not LBC don’t @ me. https://t.co/VOfnH5kb11— KFC UK & Ireland (@KFC_UKI) September 6, 2019
Trump: Economy is ‘great’
Donald Trump appears to have weighed in, indirectly, on those jobs figures.
The Economy is great. The only thing adding to “uncertainty” is the Fake News!— Donald J. Trump (@realDonaldTrump) September 6, 2019
That’s obviously a fairly standard line from the President, though it is interesting that he hasn’t directly mentioned the Federal Reserve or Jerome Powell (yet). As a reminder, the President has called for a full percentage point cut — far ahead of the 0.25pc easing the Fed introduced in July.
Berlin, start-up hub, hopes to survive recession
Tech reporter Matthew Field has a special report on Berlin, which may see its status as a hub for tech start-ups threatened by the country’s economic troubles. He writes:
Berlin’s status as number two in Europe faces new challenges. Germany’s economy is threatened with recession after nine years of growth. It shrank 0.1pc in the first quarter as factory output fell more than 8pc. Business optimism is at its lowest since 2014.
Still, there is no shortage of confidence among venture capitalists and founders in the city.
“What you must not forget is this scene only started around 10 years ago,” says Florian Heinemann, a partner at Berlin venture capital firm Project A. “[Start-ups] have evolved into something that is a key element in Berlin. It will not go away too soon.”
- You can read his full report here: Berlin or bust: Europe’s tech start-up paradise battles to survive recession
Wall Street flat
Mixed jobs data, mixed emotions, middling markets: Wall Street is pretty flat, with the Dow outperforming the S&P 500 and Nasdaq. It looks (famous last words) like a quiet end to the week for European stocks, with the US results doing little to shift a flat overall picture.
Round-up: Spoons slashes price of pint, Woodford knocked again
Here are two stories with a very British flavour from this afternoon — what could be more 2019 than a Brexit-related story and something bad happening to Neil Woodford?
- Wetherspoons shows how beer prices will fall after Brexit — by slashing the price of a UK-made pint: Wetherspoon has sought to show how “protectionist” overseas tariffs can be avoided under a no deal Brexit - by slashing the price of a pint whose ingredients come solely from the UK.
- Fresh blow for Woodford as Patient Capital Trusts asks lenders for help: Neil Woodford's Patient Capital Trust has been forced to ask its lenders for greater flexibility after a sudden deterioration in asset values left it exposed to a possible breach of borrowing rules.
The price of a pint of beer in Wetherspoon pubs is being slashed by an average of 20p with the company accidentally giving an example of how prices can be reduced while still in the EU customs union. https://t.co/GArXsC9Tkd— Matt Chorley (@MattChorley) September 6, 2019
Shakey results puts Trump/Powell relations back in the spotlight
In the White House, Donald Trump is still silent on those jobs figures.
The weak, but not disastrous, result will surely be further grist for the President’s mill as he leans on Fed chair Jerome Powell to cut interest rates.
The President was left infuriated in July when the central bank slashed rates by just 0.25pc, with Mr Powell characterising it as a “mid-cycle adjustment”, rather than the beginning of a longer period of easing.
Almost immediately after the decision, Mr Trump ramped up tariffs on China, setting in course a rollercoaster month on the stock markets. He believes lower rates will push US markets to greater heights, while the Fed sees little reason to stimulate an already healthy-looking economy.
Back to jobs figures themselves, Pantheon Macroeconomics’s Ian Shepherdson said:
The downshift in private jobs between July and August is concentrated in services, with weaker numbers in retailing, wholesaling, finance, business services, education—possibly a seasonal quirk—and health. These can’t all be blamed on the trade war, so we think the odds favor a partial rebound in September. But the trend is softening, as firms scale back hiring plans alongside capital spending, in the face of prolonged and deep uncertainty...
...Finally, we think it likely now that the trend in the unemployment rate has levelled-off, sooner than we expected. The trend rate of growth of the labor force probably is a bit above 100K, and if payroll growth is set to slow to that pace or less, unemployment can’t keep falling. A sustained increase is unlikely anytime soon, and labor will remain scarce, from the perspective of employers, but even a modest increase in the headline rate will increase the pressure on the administration to find a way out of the trade war.
Nancy Curtin, Chief Investment Officer of Close Brothers Asset Management, said:
The Fed has made it clear that they are keen to sustain the expansion; hence any further weakness in economic activity or decline in long rates could provide a clear signal for further easing. The economic mood continues to worry investors with the threat that the global manufacturing slowdown spreads to the service economy, the yield curve inversion, and ongoing trade tensions setting an ominous tone.
Any fall-back in nonfarm payroll growth will also further infuriate the White House, with Trump determined to avoid a re-election campaign mid-recession. The fundamentals of the US economy remain robust on the consumer side, but Powell will likely respond to any threat to the expansion from these more global influences.
Here’s a round-up from July of what Mt Trump and Mr Powell have said about each other. Rest assuredthe President has certainly not abated since then:
All eyes on Trump...
...as it appears the President (true to form), may have slightly stretched the truth with his “Really Good Jobs Numbers!” tweet.
Donald Trump is almost certain to issue a fresh call for interest rates cuts from the Federal Reserve (indeed, he already has done today). Incidentally, Fed chair Jerome Powell is due to speak at 5:30pm today.
I agree with @jimcramer, the Fed should lower rates. They were WAY too early to raise, and Way too late to cut - and big dose quantitative tightening didn’t exactly help either. Where did I find this guy Jerome? Oh well, you can’t win them all!— Donald J. Trump (@realDonaldTrump) September 6, 2019
Five key points from the jobs report
The Bureau of Labor Statistics has released its full report online, here are some key points:
- Employment in federal government rose, largely reflecting the hiring of temporary workers for the 2020 Census.
- Private-sector employment was up by 96,000, with notable job gains in health care and financial activities and a job loss in mining.
- The labor force participation rate edged up to 63.2 percent in August but has shown little change, on net, thus far this year
- In August, average hourly earnings for all employees on private nonfarm payrolls rose by 11 cents to $28.11, following 9-cent gains in both June and July.
- The change in total nonfarm payroll employment for June was revised down by 15,000 from +193,000 to +178,000, and the change for July was revised down by 5,000 from +164,000 to +159,000. With these revisions, employment gains in June and July combined were 20,000 less than previously reported.
NB: I have revised the graph below (1:31pm update) to reflect this June revision, please refresh the page to see the latest version.
Miss on #jobs, in terms of both job creation in August (130,000 versus expectations of some 150,000) and 20,000 downward revisions to prior months,pushed the 3-month average down to 156,000— Mohamed A. El-Erian (@elerianm) September 6, 2019
Against this, hourly wage growth edged higher (3.2% annualized),as did labor participation https://t.co/hmUpcxrvr8
����#US#nonfarm— Danske Bank Research (@Danske_Research) September 6, 2019
Mixed report really…. headline employment growth slightly to the weak side (with neg revisions) but earnings to the high side. Don't think this will change much for the #Fed. 25bp Sep cut coming up... which is where markets were priced prior to release. pic.twitter.com/nlOuxbToJk
Snap take: Dollar drops after poor report
The latest non-farm payrolls data shows the US added 130,000 jobs in June, well below the consensus estimate of 160,000. Though some analysts had predicted such a job (or even a worse fall), that will have likely shocked markets. The dollar has weakened slightly following the outcome.
Jobs figures were boosted by 25,000 because of the upcoming US census count, for which a slew of temporary workers have been hired.
The jobless rate stayed near a half-century low, at 3.7pc. Average hourly earnings beat forecasts with a 0.4pc climb, meaning they have risen 3.2pc year-on-year.
BREAK: US added 130,00 jobs in August, undershooting estimate
The US added 130,000 jobs during August — that is a big miss.
Economists polled by Bloomberg had been expecting 160,000, a slight projected drop on July’s revised figure of 159,000.
The measure of non-farm payrolls is seen as a key indicator of economic health.
Germany outperforms as Europe stays muted
The FTSE is still 0.1pc down, with sterling more or less flat, while Europe’s other blue-chip indices are edging up slightly. Germany’s DAX is performing strongly, with expectations of government stimulus following this morning’s weak industrial data possibly driving investors.
G4S shares jump on report of American cash-business grab
Shares in G4S have jumped following a report that a US company is looking at taking over the FTSE 250 outsourcer’s cash-handling business.
Sky News says The Brink’s Company, a New York-listed company, is among the parties interested in the division.
Questor’s stock picks hold despite Brexit pressure
Questor— the Telegraph’s sagely investor advice column — has done one of its regular health checks today. Happily, an income goal of 5pc is being hit, but editor Richard Evans warns Brexit is dragging many of its domestically-focused picks. You can read his full rundown, and grab the latest stock tips, here.
Former SFO boss: Theresa May ‘undermined’ agency
Another interesting story today from the wide world of business news: Mlex reports on comments made by former Serious Fraud Office boss David Green, who who has claimed he was undermined in the role by Theresa May. He said the former PM was “obsessed” with removing the anti-fraud body.
You can read more here:
Jefferies: Berkeley statements ‘especially reassuring’
Analysts at Jefferies have given a pretty glowing assessment of Berkeley Group’s trading statement (see 8:37am update), writing:
Six-year profit targets are rare enough but especially so in today's macro and political uncertainty. From a company that has beaten guidance/targets since the downturn, these targets are especially reassuring.
They have set a price target of £43.91 on the housebuilder’s shares. That would be a fairly chunky climb given the price currently stands at £39,54, but the analysts add: “We see the £500-700m guidance per year as much more indicative of the upside potential, with our on-the-ground analysis showing scope for even more.”
Shares are up 2pc currently.
Russia cuts interest rates
The Bank of Russian has slashed interest rates for the third time, cutting the benchmark rate 0.25pc to 7pc as it tries to bring annual inflation down to a 4pc target.
It’s the third cut in a row for the bank, bringing interest rates down to their lowest level since March 2014. It said in a statement:
If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of a further key rate reduction at one of the upcoming directors’ meetings.
Here comes the Russian cavalry ���� https://t.co/XcMtdOMxty— Shaun Richards (@notayesmansecon) September 6, 2019
US markets ‘poorly positioned for positive data’
Saxo Bank’s John Hardy says a fairly bearish recent turn for Wall Street stocks might leave investors wrong-footed if jobs data (see 10:46am update) is better than anticipated — pushing traders back towards riskier assets. He writes:
...a strong US jobs report today could continue to drive discomfort with the market’s current positioning, seeing further consolidation in safe havens and driving a deeper recovery in riskier currencies. Remember over today’s payrolls change that increasingly over the coming year or so, census hiring will be a large factor in payrolls change figures, so have one eye on the private payrolls release as well.
We believe the US recovery is very long in the tooth, but employment and earnings data badly lag the economy, so we’re not necessarily expecting anything negative to show up in today’s report.
Extent of City’s sex discrimination problems revealed
Bloomberg has run a powerful report on the prevalence of sexual discrimination cases at major UK corporations. It’s well worth a read:
Here’re some tweets on the findings by reporter Kaye Wiggins:
Means (a) you have to carry a secret around, and (b) no-one sees the bigger picture or any patterns: it’s like a game of Whack-a-Mole. This vortex by the brilliant @bbgvisualdata team shows why so many people who sue their employers for sex discrimination end up settling pic.twitter.com/oNNCMDhKG9— Kaye Wiggins (@kayewiggins) September 6, 2019
Arcadia plummets to £177m loss
Struggling fashion group Arcadia, which operates the brands of retail mogul Sir Philip Green, plummeted to a £177m pre-tax loss in the year to September — reversing a £49m profit the year before.
The company has been slashing stores across its portfolio as it tries to keep costs down, blaming the “ongoing challenge global market conditions for retailers”.
Earnings before interest, tax, depreciation and amortisation fell an eye-watering 40pc. The company confirmed today it plans to re-mortgage its flagship Oxford Street Topshop store.
Here’s a full report by retail reporter Laura Onita:
Sir Philip Green's retail empire might need a cash injection to see its 3y recovery plan through, it says. The £310m mortgage on Oxford Street store coming up for renewal in Dec is a big headache on top of its £177m losses.— Laura Onita (@LauraOnita) September 6, 2019
The results arrive just after Arcadia’s interim chairman stood down:
Analysts: Investors consolidating ahead of next Brexit battle
Just over three hours into European trading, and the picture across the continent is pretty flat, with Germany’s DAX outperforming some gently negative blue-chip indices.
Analysts Royal Bank of Canada say investors will be re-balancing their UK holdings ahead of what will likely be another wild week in Westminster. They write:
If a snap election takes place around the previously proposed date, i.e. in the middle of October, that would likely leave a certain percentage of ‘no deal’ risks in the market – in the event that a Johnson government wins a majority and pursues the same path.
However, with opposition parties likely willing to deny the Conservatives the opportunity to campaign on living up to their promise, we suspect that an election will now only take place after the October deadline has firmly been buried.
In that case, the near term ‘no deal’ risks should trend towards zero (whilst the medium-term risk clearly remains). With the key US NFP data also around, we suspect that there will be some more position squaring over the coming days and we also consider it prudent to reduce risk in our trade recommendations somewhat.
(SIG)nificant improvements not enough to offset suppliers’ profit slump
Here’s more from the highly-productive Michael O’Dwyer:
Shares in insulation and construction supplier SIG have slumped 4pc to 124p this morning after it reported that pre-tax profits in the first six months of the year fell by almost three quarters to £5.2m.
Sales at the FTSE 250 company, which supplies roofing and other building products, slipped 5.1pc from the same period last year to less than £1.3bn as it battled against a “marked deterioration” in activity in the construction sector.
The industry suffered its biggest decline in new work for more than a decade last month with Brexit uncertainty causing property developers to delay decisions on projects.
The company made “significant improvements in the business.... against a backdrop of challenging trading conditions”, said Meinie Oldersma, chief executive.
It managed to lower its net debt to £158m from £176m a year earlier and boosted its margins in the UK business.
Full report: Greene King sales slip
My colleague Michael O’Dwyer has a full report on this morning’s sales figures from pub chain Greene King (see 9:40am update). He writes:
Ahead of its annual meeting on Friday, the Suffolk-based company reported like-for-like sales fell 1.8pc at its pubs in the 18 weeks to September 1 compared with the same period last year.
The brewer said the figures reflected “the tough comparatives of last year's successful World Cup and good weather”.
Here’s his full report: Sales slip as Greene King fails to match World Cup summer
China cuts bank reserve ratio to free up cash
The People’s Bank of China has announced a 0.5pc cut to the reserve ratio for all the countries banks — referring to the amount lenders have to hold back in case of a sudden need for liquidity.
Beijing clearly believes that money should be freed up for lending, to stimulate growth amid the global headwinds that are buffeting Asia’s largest economy.
The fall could push an already-weak yuan even lower, which would support Chinese exporters — potentially drawing the ire of Washington — but could lead to an unwanted rise in inflation.
Next attack in the currency war: China cuts RRR by 0.5ppts, effective on Sep16. to ramp up easing support. Central bank said it will cut the amount of cash banks must hold as reserves, injecting liquidity into an economy facing renewed headwinds to growth. https://t.co/0bUiDH7X3ppic.twitter.com/3duI7l0v7J— Holger Zschaepitz (@Schuldensuehner) September 6, 2019
The worldwide easing cycle continues this morning with the cut in #China’s reserve ratio.. Whether they’re convinced or not of the potential economic merit of further stimulus, #CentralBanks around the world find that they have no choice but to join in.— Mohamed A. El-Erian (@elerianm) September 6, 2019
Look ahead: High hopes for US jobs report
When the US starts to wake up in a few hours, all eyes will be on the US’s non-farm payroll jobs report.
The figure is closely watched as one of the most important indicators of the US economy’s overall health.
Analysts polled by Bloomberg predict 160,000 jobs will be added, but the real figures has tended to bounce either side of predictions in recent months.
Deutsche Bank’s Jim Reid said:
In terms to what the market wants from today’s payroll, it’s hard to know where the ‘risk-friendly’ number lies. With all the concerns about the economy in recent weeks, we’re probably still in a period where good is good for risk, even if it will price out the more extreme central bank action. This week we’ve already seen markets respond negatively to a weak ISM manufacturing and then positively to strong ISM non-manufacturing yesterday. So it appears that we’re treating data on its merit again.
The data is kept under close wraps by the US Department of Labor, but that hasn’t stopped some apparent hints:
Really Good Jobs Numbers!— Donald J. Trump (@realDonaldTrump) September 5, 2019
Pound downbeat as traders await Brexit news
The pound is slightly off against the euro and dollar in trading today, with a general sense of apprehension returning as traders are left in pretty much the same spot as everyone else: waiting to see what happens in the Commons.
Sterling did briefly spike a few minutes ago: it looks like that may have been down an incorrect Bloomberg Terminal alert (the news system many traders rely upon) which said Boris Johnson’s attempt to prorogue Parliament had been blocked in court: it hasn’t.
Campaigner Gina Miller has appealed, so the decision will now go to the Supreme Court, but for now there’s no big change on that front.
What impact would a general election have on the UK stock market?
After the tumultuous events in Westminster over the past few days, many investors are weighing up the likely impact of a General Election.
The Labour party has confirmed it will not back a fresh ballot during a vote on Monday, instead choosing to wait until legislation passes that would block a no-deal exit at the end of October.
Telegraph Business columnist Garry White has taken a look at the potential impact a new election could have on the UK stock market. He writes:
It is clear that the City is generally against a no-deal exit. When [Boris] Johnson lost his majority earlier this week after Philip Lee crossed the floor to join the Lib Dems, the pound reversed the day’s losses and spiked higher within seconds.
Foreign currency markets cheered the fact that the chances of the UK leaving the EU without a deal had diminished.
Indeed, two major City players also declared this week that they thought a Corbyn win would be less harmful than a no-deal Brexit.
Garry predicts that shares in companies targeted by Labour’s renationalisation plans are likely to suffer if it looks like Mr Corbyn is having a good election, but says the likehood is an Corbyn-led government would be a coalition, tempering some of his plans for reform.
- You can read his full assessment here: What will an election mean for the UK stock market?
Here’s what the polling suggests the outcome would be — though the lesson of 2017 is that things can move quite quickly once a campaign begins:
And if you need a reminder of the situation Mr Johnson faces in the Commons currently:
- You can follow the latest on our politics live blog: Brexit latest news: Labour will reject Boris Johnson's fresh election bid on Monday
ITV ‘may benefit from Brexit ad spree’
There are some fairly high trading volumes around ITV today, with Liberum saying the broadcaster might well benefit from the Government’s Brexit preparedness spending spree. Analysts wrote in a note:
There have been no change to our forecasts and we feel (famous last words) for 2019 at least, there may be an end to the advertising downgrades and, if the Government does end up spending £100m on advertising for a no-deal Brexit, ITV is likely to benefit significantly in [the fourth quarter]... As a rough guide, if ITV received £25m of this spend, this would be equivalent to a 3pc-4pc boost in Q4.
Shares are only up about 0.5pc roday, however, so its possible not all investors share that upbeat outlook.
Here’s what Chancellor of the Duchy of Lancaster Michael Gove wrote in the Telegraph about the ad scheme:
As well as television and radio advertising, there will be a straightforward, step-by-step, checker tool available on the Government’s website so all of us can identify quickly what we may need to do to get ready.
- You can read his full explanation here: Parliament must give Boris Johnson the space to secure a better Brexit deal
Greene King misses the football as it reports fall in first-quarter sales
Pub chain Greene King, which is set to be sold to one of Asia’s richest families, saw its like-for-like sales fall 1.8pc in the 18 weekend to September.
The company blamed “tough comparatives” from last summer’s World Cup run and sustained sunny weather. That mainly weighed on beer sales, with total volumes down 6.5pc over the period.
The group, which was founded in 1799, said it was “on track with our cost mitigation programme”, as it attempts to tackle sizeable debts.
Liberum analysts said they “do not expect much reaction to the share price today”, given the pending takeover. Here’s more on that:
Revamped Halifax survey says house prices were steady in August
UK house prices rose 0.3pc month-on-month in August, according to data gathered by lender Halifax.
The bank’s house price index found the average price of a property had risen to £233,541, as low supply and strong employment figures offset the impact of (you guessed it) Brexit.
The figures are still quite below estimates in the longer term, however: analysts predicted growth of 3.4pc over the year, but got just 1.8pc.
Halifax’s Russell Galley said:
While ongoing economic uncertainty continues to weigh on consumer sentiment – with evidence of both buyers and sellers exercising some caution – a number of important underlying factors such as affordability and employment remain strong.
Although the housing market will undoubtedly be influenced by events in the wider economy, it continues to show a degree of resilience for the time being. We should also not lose sight of the fact that the single biggest driver of both prices and activity over the longer-term remains the dearth of available properties to meet demand from buyers.
It’s well worth noting that the latest figures were released under a new, updated methodology — the Halifax index has gained a mixed reputation due to its limit scope and outdated methodology, but the lender had attempted to address those issues now.
If anyone wants the wonky details, here’s a good Twitter thread from yesterday on the topic:
Tomorrow is #Halifax#HPI day. And if reports are true, we will have to sit up and pay attention for once: the new revamped index is ready to go. The new methodology is outlined here: https://t.co/HRyFNTd59L /1— Keith Church (@keithbchurch) September 5, 2019
Berkeley set for pay scrutiny at AGM
Following a pretty upbeat trading statement this morning, Berkeley investors will be looking forward to the company’s annual general meeting later today, where chairman Tony Pidgley’s pay is likely to come under scrutiny. My colleague Jack Torrance wrote at the weekend:
Berkeley Group’s attempts to rally shareholders behind its controversial bonus scheme have been dealt a fresh blow as another influential City adviser called for its new pay policy to be voted down.
Institutional Shareholder Services (ISS) said payouts to bosses from Berkeley’s long-term incentive plan (LTIP) were “all but guaranteed” and that the scheme’s targets did “not offer an adequate level of stretch”.
- You can read Jack’s full report here: Berkeley braced for storm over huge bonuses as housebuilder profits surge
What do sub-zero interest rates mean for central banks?
Over a turbulent summer for financial markets, some of the most striking movements weren’t in shares or currencies: they were in bond markets, where high demand for investors looking to duck risk has push rates to record lows.
Ahead of the ECB highly-anticipated relief package next week, deputy economics editor Tim Wallace has taken a look at the phenomenon, and asked what it means for central banks. He writes:
Mario Draghi, the ECB's outgoing president, is expected to cut interest rates again next week, taking its deposit rate from minus 0.4pc to minus 0.5pc or 0.6pc. His replacement, Christine Lagarde, does not sound averse to rate cuts. There is even a one-in-six chance rates could dive to minus 0.9pc by next summer, according to financial markets’ forecasts.
If this is passed on by banks it could introduce a topsy-turvy world where debtors pay back less than they borrow and savers’ cash in the bank drains away.
You can read his full analysis here: Negative interest rates: when does the financial medicine turn to poison?
Alternatively, you can use our Mario Draghi simulator to figure out what you would do as President of the ECB. Have a go:
FTSE lags flat Europe
European markets are looking pretty flat currently, with the FTSE currently slightly below flat. More weak data from Germany is unlikely to have cheered sentiment much, but London’s blue chips might have been expected to make better gains since the pound is down slightly.
‘Place-maker’ Berkeley says market conditions are ‘robust’
Berkeley Homes, the UK’s biggest housebuilder, said its outlook remains stable amid solid demand in London and the south east of England, but warned on pressures from cost and Brexit.
In a trading update to the City this morning, said pretax profit for the next six years would be lower than last year, saying it was looking at ways to mitigate the potential impact of the UK’s exit from the EU on its business:
We continue to work with our supply chain to assess and address the risks associated with disruptive Brexit to the extent this is possible, including accelerating the delivery of certain materials and components.
Somewhat pretentiously, the housebuilder referred to itself as “the country’s leading place-maker”, adding: “Our sustained commercial success enables the valuable and enduring contributions we make to society, the economy and the natural world.”
CMC Markets’ Michael Hewson said:
The share price of UK house builder Berkeley Group has managed to hold up fairly well so far this year, up over 10pc, and this morning’s trading statement didn’t contain anything to really undermine these gains.
Investors appear to have welcomed the update, pushing shares up about 1.8pc so far this morning.
German industrial slowdown mean recession ‘all but confirmed’
Pantheon Macroeconomics’ Claus Vistesen says this morning’s industrial output data means Germany is almost certainly going to enter a recession (which would occur if its overall GDP decreases during the third quarter). he writes:
A much worse headline for industrial output than we had expected, even with the upward revision to the June numbers. Production of capital and intermediate goods fell for a second month running, offsetting a rebound in output of consumer goods. Energy production slid again, for the third month in a row, and is now down a punchy 7.2pc since May. Construction output increased by 0.2pc, extending the modest signs of a rebound in June, but we have zero confidence in these data. The Q2 numbers also looked decent to begin with only to be revised down significantly. Construction capex slowed sharply last quarter, and the surveys suggest that the slowdown will intensify in Q3.
It’s too soon to say anything about overall production in Q3 as a whole, though the outlook isn’t good. Assuming that production is falling 4-to-5pc year-over-year in August and September, the quarter-on-quarter rate will remain negative, at -1.1pc, a bit better than the -1.7pc in Q2. Finally, the July industrial production headline combined with the dreadful retail sales number now send a convincing signal that the German economy is in recession. The August and September numbers could still spring upside surprises, but we don’t have high hopes.
German Industrial slump worsens as trade uncertainty bites. Production fell 0.6% in July; factory orders also dropped. Disappointing industrial production data adds to the case for policy action. https://t.co/e800EDJkkIpic.twitter.com/OCC7UrxE8M— Holger Zschaepitz (@Schuldensuehner) September 6, 2019
Grim German factory data confirms contraction
Poor industrial production data coming out of Germany this morning confirms that a factory slowdown in Europe’s biggest economy continued in July.
The results were a shock miss — analysts (as polled by Bloomberg) had been expecting growth of 0.3pc, but sector output actually shrunk by 0.6pc. That’s a year-on-year fall of 4.2pc.
The results are a further signal that Germany is on course for a recession, following a contraction of 0.1pc in the country’s GDP during the second quarter.
More poor numbers out of Germany. The economy contracted in Q2, is a recession on the cards? https://t.co/S4Ar8KpbaW— David Madden (@dmadden_CMC) September 6, 2019
Another data miss confirming #Germany's economic slowing: July industrial output contracted by 0.6% (consensus expectations: 0.3% expansion).— Mohamed A. El-Erian (@elerianm) September 6, 2019
Also of interest: Growth in construction (+0.2%) confirms that, for now, domestic activities continues to outpace export-oriented ones.
Agenda: Investors re-embrace risk on softer signs from Britain and Hong Kong
Good morning. Recession fears on Wall Street were soothed last night by surprisingly strong economics data and the US and China announcing new trade talks. Can stocks extend their gains?
Much will depend on the US jobs report due later today. It has become one of the most closely watched indicators on financial markets in recent months and investors are looking for any sign of a slowdown in the US jobs market.
5 things to start your day
1) WeWork is set to slash its IPO valuation by over $20bn. The office space giant could slash its valuation in half in its upcoming flotation, a move that will increase fears that “unicorn” start-ups have become dangerously overhyped.
2) George Osborne fails in bid to run the IMF. Former Chancellor George Osborne’s hopes of returning to the heart of international politics have been dashed after he failed to land the top job at the lender of last resort.
3) Salesforce could be the biggest tech company you’ve never heard of. The US software giant has appointed former BT boss Gavin Patterson in a senior role, the latest high-profile name to join the company.
4) And he’s off... Philip Bowcock is bowing out of William Hill. The curse of finding a long-term leader at William Hill has hit again, after the boss stepped down.
5) The financial sector is hitting London's growth. London's economy was brought to a standstill at the end of 2018 by a struggling Square Mile as Brexit worries weighed on the capital.
What happened overnight
Global credit rating agency Fitch Ratings has downgraded Hong Kong’s long-term foreign currency issuer default rating to “AA” from “AA+” after months of unrest and protests in the region. The territory’s rating outlook is negative, Fitch Ratings said.
Meanwhile, Asian stocks joined global peers and rose while safe havens such as government bonds and the yen were on the defensive amid hopes for easing US-China trade tensions and as firm US economic data increased risk appetites.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.4pc, putting it on track for a 2.2pc weekly gain - which would make it the best week since mid-June.
Japan’s Nikkei advanced 0.4pc. Hong Kong’s Hang Seng is up 0.2pc.
The Shanghai Composite Index was up for most of the day but dropped into the red a few minutes ago and is now down 0.1pc.
In the US, risk sentiment was further improved by upbeat data on Thursday.
US private payrolls increased in August at their fastest pace in four months, according to ADP. Separately the US services industry rebounded last month to its fastest expansion since February, according to the Institute for Supply Management's non-manufacturing purchasing managers index (PMI).
On Thursday, the Dow added 1.4pc, the S&P 500 climbed 1.3pc and Nasdaq rose 1.8pc.
Coming up today
Full-year results: Ashmore, Pacific Horizon
Interims: International Public Partnerships
Economics: Halifax house prices (UK), GDP (eurozone), Non-farm payrolls and unemployment rate (US)