After a positive couple of days, European markets fell sharply as investors cashed in come of their gains amid renewed political concerns.
President Trump’s negative comments on the US-China trade talks prompted renewed fears of a trade war between the world’s two biggest economies, while he also suggested the much hyped meeting with North Korea might not now take place.
There were also some disappointing eurozone growth and consumer confidence figures, while Italy’s new coalition government continued to unsettle investors. The final scores showed:
The FTSE 100 finished 89.01 points or 1.13% lower at 7788.44
Germany’s Dax dropped 1.47% to 12,976.84
France’s Cac closed down 1.32% at 5565.85
Italy’s FTSE MIB fell 1.31% to 22,911.71
Spain’s Ibex ended down 1.12% at 10,025.0
On Wall Street the Dow Jones Industrial Average is currently down 124 points or 0.5%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Over in Turkey, the central bank has acted to stem a slide in the lira by raising one of its key lending rates to 16.5%.
The bank lifted its late liquidity window rate by 300 basis points to 16.5%, in the wake of a more than 5% fall against the dollar earlier in the day, making a near 20% drop for the year. Investors have been nervous about President Erdogan’s plans to tighten his grip on monetary policy.
News of the rate increase saw the lira recover some ground to trade flat against the dollar.
The FTSE 100 has closed below 7800 after reaching new peaks in recent days. Miners are among the leading fallers following President Trump’s negative comments about the progress of US-China trade talks. Fiona Cincotta, senior market analyst at City Index, said:
Renewed fears over a potential trade war with China, in addition to concerns that OPEC could ease the self-imposed production cut in oil, sent the FTSE tumbling on Wednesday. Whilst the FTSE shed 1.3%, it was faring slightly better than its European peers thanks to the support of a significantly weaker pound.
Commodity stocks dominated the lower reaches of the FTSE; miners, which are particularly sensitive to the health of the Chinese economy, were hit by concerns that a trade deal between the US and China may not ever be achieved, meaning trade tariffs and a potential trade war were suddenly, once again, very probable outcomes.
Heading into the close of European trading, and markets have dropped sharply after the recent boom. Chris Beauchamp, chief market analyst at IG, said:
The atmosphere on equities this afternoon is gloomy, to say the least. The certainties of earlier in the week have ebbed away, and what’s worse is that new worries have arrived to concern investors. Signs of détente between the US and China have decreased, reviving the great trade war fear, while the deterioration in Japanese and eurozone PMIs have sent chills down the spines of those hoping that the synchronised global expansion had further to run. Eurozone data in particular keeps getting worse, and the longer this goes on the more fears will rise that this ‘transitory weakness’ is not so transitory after all.
All is not yet lost, particular for European markets, which have risen so dramatically in recent weeks, but the lack of progress in US stocks is beginning to prompt the spread of fear to other parts of the equity space as well.
Back with the flagging eurozone consumer confidence figures, and ING Bank economist Peter Vanden Houte says it is hard to see stronger growth in the region in the coming months:
Eurozone consumer confidence fell in May to 0.2 from a downward revised 0.3 in April. The strong increase in oil prices in the course of this month might have been one of the factors weighing on confidence. That said, the current confidence reading remains close to historical highs and based on long-run correlations, it is compatible with consumption growth between 2-2.5%. However, that is not what we have seen, as the current growth rate in consumption expenditure is closer to 1.5%.
The disappointing performance of consumption in this recovery is not new. Since 2010, only three out of 32 quarters have seen year-on-year growth in consumer expenditure above overall GDP growth in the Eurozone. Although unemployment has now been falling five years in a row, it is still above pre-crisis levels. At the same time wage growth has remained very subdued. All of this means that consumption as a driving force in the growth story now comes even later in the cycle than usual. But for that to happen both employment and wage growth should have to pick up in the coming quarters and a further slide in sentiment should be avoided. A lot of conditions at this juncture. That’s why we continue to see consumption as a growth support, but not strong enough to foster a genuine growth acceleration in the remainder of this year.
After hitting $80 a share in recent days, oil prices have been slipping back and lost more ground after US stockpiles unexpectedly rose last week.
US crude stocks rose by 5.8m barrels compared with forecasts of a decrease of 1.6m, showing demand was less than expected. Gasoline stocks climbed by 1.9m barrels, according to the Energy Information Administration, rather than the anticipated 1.4m barrel drop.
So Brent crude has dipped 0.73% to $78.99 a barrel. West Texas Intermediate, the US benchmark, is down 0.9% at $71.54.
Eurozone consumer confidence was slightly worse than expected in May, according to the latest figures from the European Commission.
Its eurozone consumer confidence index dipped from 0.3 points in April to 0.2 points, compared to forecasts of an unchanged figure. In the wider European Union, sentiment rose by 0.4 points to -0.1 in May.
US manufacturing and service sector improve in May
Some positive US economic data, with higher manufacturing and service sector figures.
IHS Markit’s preliminary manufacturing PMI for May rose from 56.5 in April to 56.6, a 44 month high. Its services business activity index climbed from 54.6 to a three month high of 55.7, while the composite index went from 54.9 in April to 55.7.
Chris Williamson, chief business economist at IHS Markit said:
The flash May PMI surveys point to an encouragingly solid pace of economic growth of 2.5- 3% with monthly job gains running at just over 200,000, though the interesting action is coming on the prices front.
Input costs measured across both manufacturing and services are rising at the fastest rate for nearly five years, with the goods-producing sector seeing the steepest cost increases for seven years in recent months.
Furthermore, supplier delivery delays, a key forward-indicator of inflationary pressures, have risen to the highest seen in the 11 year survey history. Rising demand has stretched supply chains to the extent that suppliers are increasingly able to demand higher prices. At the same time, higher oil and energy prices are pushing up firms’ costs.
Business optimism meanwhile remains at a three- year high, with companies commonly expecting rising demand to help drive business growth, setting the scene for further strong survey results in coming months.
US markets have followed their European counterparts into negative territory, as optimism over the US-China trade talks faded after comments from President Trump, who also suggested the planned summit with North Korea may not go ahead after all.
Ahead of the latest minutes from the Federal Reserve, the Dow Jones Industrial Average has fallen 125 points or 0.49% while the S&P 500 opened 0.38% lower and the Nasdaq Composite lost 0.59%.
The pound continues to come under pressure, down 0.9% against the dollar at $1.3316 and losing more than 2% against the Japanese yen, the second biggest daily drop this year.
The unexpected fall in inflation in April has made an interest rate rise in August less likely, according to many commentators. But not everyone agrees:
Full story: UK inflation falls unexpectedly to lowest level for a year
Here’s our economics correspondent Richard Partington on today’s inflation figures:
UK inflation unexpectedly fell further last month to the lowest level in more than a year, as lower airfares provided some relief for cash-strapped Britons.
The consumer price index dropped from 2.5% in March to 2.4%, according to the Office for National Statistics (ONS). Economists had expected the annual rate of growth in prices to remain unchanged.
While the impact from sterling’s fall has started to fade, economists reckoned higher fuel prices would force inflation to remain above the Bank of England’s target of 2%.
The latest fall raises fresh questions for Threadneedle Street, after the bank delayed raising interest rates earlier this month as a consequence of weak economic growth and inflation falling further than expected in March. The pound dropped by two-thirds of a cent against the dollar on foreign exchanges, reaching a five-month low of $1.3370.
The ONS said airfares provided the biggest downward contribution, due to the timing of Easter. Airlines typically raise their prices around the holiday, although the ONS said it had found no impact this year because Easter fell between its March and April price collection periods.
Soft drink prices had their biggest increase for this time of year, rising sharply in March and April following the introduction of the sugar tax. However, Mike Hardie of the ONS said many retailers had yet to pass on the impact of the levy to shoppers.
Back in the UK, new data has confirmed that London’s housing market has come firmly off the boil.
Property prices in the capital have fallen by 0.7% in the last year - making London the only part of the UK with negative house price inflation.
Our personal finance editor Patrick Collinson explains:
Property experts in London said buyers are “sensing blood in the water” with sellers forced to cut prices steeply to ensure a sale.
Jonathan Hopper of Garrington Property Finders said: “London is paying a painfully high price for its stellar run of price rises, and a correction is now under way in several parts of the capital.
“Sellers are being forced to trim their expectations, and astute buyers are increasingly sensing blood in the water.”
Comcast tries to shoot Murdoch's Fox sale to Disney
Newsflash: Breaking away from UK inflation, US media conglomerate Comcast has just announced it is preparing an all-cash offer for most of Twenty-First Century Fox - Rupert Murdoch’s media empire.
That’s a fascinating development, because Murdoch has agreed to sell 21CF to Disney for $52.4bn.
Comcast has already tried to gatecrash the 21CF-Disney deal by bidding for UK broadcaster Sky, challenging Fox’s own bid for Sky (it already owns a 39% stake).
It is now upping the stakes and trying to thwart Disney by acquiring 21CF for itself.
Comcast, which owns NBC Universal and Universal Pictures, says it will beat Disney’s offer, telling investors.
Any offer for Fox would be all-cash and at a premium to the value of the current all-share offer from Disney.
Today’s slide means the pound has now lost 10 whole cents against the US dollar since 16 April, when it was worth $1.43.
This slide was triggered by Bank of England governor Mark Carney, who warned that weak economic data and Brexit uncertainty might hold back interest rate increases.
The ongoing cabinet infighting over Britain’s future customs relationships with the EU has also weakened sterling, as it raises the chances of a hard Brexit.
A weak pound drives up inflation, by making imports pricier., and several experts are predicting that inflation will rise again later this year.
Joel Dungate, investment analyst at investment management and stockbroking firm Redmayne Bentley, explains:
There are reasons why future inflation may move back up. In recent weeks, the price of oil has risen sharply and the value of the Pound has fallen again, both of which could drive up the costs of goods.
In addition, recent data showed that wage growth had overtaken inflation, putting more money into the pockets of consumers. In theory this could increase demand and push prices higher.”
Brent crude oil hit its highest levels since 2014 last week, at over $80 per barrel.
Rob Scammell, senior portfolio manager at Kempen Capital Management, believes this will hit consumers in the pocket.
“Oil price rises have not yet fed through to the UK – but this could be just a matter of time. With a further 10% rise in oil in sterling terms over the last month, it seems unlikely that this restraint can last for long.
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