block-time published-time 11.32am GMT
Speaking of interest rates the Bank of Japan - which caught markets on the hop last week by introducing negative interest rates - said earlier there were no limits to the measures it could take to boost the economy. Reuters reports:
Bank of Japan Governor Haruhiko Kuroda said the central bank has ample room to expand stimulus further and is prepared to cut interest rates deeper into negative territory, signalling a readiness to act again to hit his ambitious inflation target.
Even after deploying what he described as “the most powerful monetary policy framework in the history of modern central banking,” Kuroda said he remained open to devising new means to revive the economy if existing tools did not work.
“If we judge that existing measures in the toolkit are not enough to achieve (our) goal, what we have to do is to devise new tools,”Kuroda said in a speech at a seminar on Wednesday.
Bank of Japan
governor Kuroda. Photograph: Yuya Shino
“I am convinced that there is no limit to measures for monetary easing,” he said.
The BOJ chief said although Japan’s economy was recovering moderately, it was taking longer than expected to achieve his 2 percent inflation target due to slumping energy costs.
While offering few clues on the trigger for further monetary easing, Kuroda said the recent global markets rout and slowing emerging economies could hurt Japanese business sentiment and discourage firms from boosting wages.
“What’s important is how (such external risks) could affect confidence,” he said.
block-time published-time 11.25am GMT
The Bank of England’s latest interest rate decision is due on Thursday and, despite a slightly better than expected
services PMI, no one expects any change at the meeting. Even if the pound is moving higher, that is probably as much to do with the betting on Brexit than anything else.
Many economists have doubts about whether the Bank will raise rates at all in 2016. Howard Archer at IHS Global Insight said:
There can be absolutely no doubt that the Bank of
will keep interest rates down at 0.50% again on Thursday at the conclusion of the February Monetary Policy Committee
Whether the Bank of
acts on interest rates at all in 2016 currently looks touch and go.
There will most likely be an 8-1 vote again within the MPC for interest rates staying at 0.50%, as there has been repeatedly since last August. While there may well be some speculation that [MPC member Ian] McCafferty could step back from voting for an interest rate hike at the February meeting, we suspect he will stick doggedly to his call
Governor Mark Carney’s recent high profile speech indicated that
growth and inflation since last summer has been weaker than the Bank of
had expected, and the conditions are not in place for an interest rate hike. His speech fuelled the view that the Bank of
could sit tight on interest rates through 2016.
Mr. Carney indicated to a Treasury Committee that this is his personal view, so the analysis and forecasts contained in the Quarterly Inflation Report, as well as in the February MPC minutes, will offer insights as to what extent Mr. Carney’s views are shared by the rest of the MPC. While the near-term
growth and consumer price inflation outlook has weakened, of key importance will be has the Bank of
become more downbeat about the longer-term outlook?The committee room where the MPC meets each month. Photograph: David Levene
for the Guardian
Heading into Thursday’s events, we just about believe that one interest rate hike from 0.50% to 0.75% is more likely than not before the end of 2016 – with November the most likely candidate for action. However, there is clearly a very real possibility that the bank will sit tight until 2017. Our assumption of a November interest rate hike is based on our belief that economic growth will become more solid later on in 2016, earnings growth picks up anew amid a tightening labour market and consumer price inflation trends gradually up. But there are appreciable uncertainties and downside risks to this outlook – not least the outcome of the
referendum on EU membership, which currently looks like it could take place in June.
Further out we expect the Bank of
to only lift interest rates to 1.50% by end-2017 and 2.25% by end-2018.
block-time published-time 10.49am GMT
Back with the
services PMI, and economist Daniel Vernazza
at UniCredit Research
said the numbers were positive, but talk of economic growth of 0.6% in the first quarter could be a little ambitious:
It’s a reassuring number, particularly given the heightened financial market volatility in January that likely adversely impacted the banking and finance sector. Moreover, the more forward-looking new orders and employment indices both accelerated and lie above their long-run average. This resilience in services sector demand is reflected in wider margins, as output price inflation edged up despite a fall in input price inflation.
The composite PMI (the weighted average of the services, manufacturing and construction PMIs) rose to a 6-month high and is consistent with quarterly GDP growth of around 0.6% at the turn of the year.
However, this is inflated by a surge in the manufacturing output PMI in January that is highly unlikely to last. We continue to expect growth to slow modestly to 0.4% quarter on quarter in the first quarter of 2016, down from 0.5% quarter on quarter in the fourth quarter of 2015, as the
faces a number of headwinds ahead, not least the referendum on the UK’s membership of the EU that now looks likely to take place in June.
block-time published-time 10.22am GMT
Christmas shoppers snapping up food, drinks and tobacco helped push eurozone retail sales up by 0.3% in December compared with November, in line with expectations.
Year on year, eurozone retail sales climbed 1.4%, slightly less than the forecast 1.5%, according to Eurostat .
In the 28 member European Union, sales rose 0.1% month on month and by 2% year on year.
European retail sales Photograph: Eurostat
block-time updated-timeUpdated at 10.28am GMT
block-time published-time 10.17am GMT
enltr #GBPUSD managing to hold on to its services-PMI-inspired gains. Could it finally make a move towards old support/2015 low at 1.4565? ^FR #FX
(@FOREXcom) February 3, 2016
block-time published-time 9.55am GMT
enltrUK #PMIs consistent with 0.6% q/q GDP growth, better than 2015's rates. But easing sentiment reason to be cautious pic.twitter.com/siJ9bL0BnR
— Capital Economics (@CapEconUK) February 3, 2016
block-time published-time 9.39am GMT
Sterling has reached a three week high of $1.4449 after the stronger than expected services data.
block-time published-time 9.37am GMT
The service sector survey suggests the
economy could grow by around 0.6% in the first quarter, up from the estimated 0.5% in the final quarter of 2015, said Markit
PMI surveys signal FASTER expansion in Jan, consistent with c.0.6% GDP growth pic.twitter.com/lUyCVPTfR1
— Chris Williamson
(@WilliamsonChris) February 3, 2016
block-time published-time 9.35am GMT
services PMI edges higher
Despite the global economic jitters and the floods and storms in the country, the
services sector unexpectedly grew in January.
The Markit/CIPS services purchasing managers index came in at 55.6 last month, up slightly from 55.5 in December and better than the expected dip to 55.3. The stronger than forecast figures come ahead of the latest Bank of
rate decision on Thursday, albeit most economists expect rates to remain on hold for some time yet.
And the survey showed companies are concerned about the risks to growth, not least the forthcoming EU referendum. Markit economist Chris Williamson said:
The economy defied expectations and picked up speed in January, but cracks continue to appear in the country’s resilience to the various headwinds...
Despite the uptick in growth, the increased uncertainty about the outlook and persistent lack of inflationary pressures means the majority of [Bank of
] policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates.
services. Photograph: Markit
block-time updated-timeUpdated at 10.01am GMT
block-time published-time 9.27am GMT
The eurozone PMI figures add to the evidence for the European Central Bank to take more stimulus measures at its March meeting, says Howard Archer at IHS Global Insight:
The slowdown in services expansion to a 12-month low in January will raise concern that heightened global economic uncertainty and financial market turmoil are weighing down on a reasonably decent but hardly robust Eurozone cyclical upturn.
Indeed, with the corresponding manufacturing survey also showing some loss of momentum in January, the purchasing managers’ composite manufacturing and services output index for the Eurozone dipped to a 4-month low of 53.6 in January from 54.3 in December.
January’s reading of 53.6 was also below the average of 54.1 seen in the fourth quarter of 2015, which was actually the best quarterly average since the second quarter of 2011; however it was still comfortably above the 50.0 level that indicates flat activity.
While there are clearly heightened downside risks to the Eurozone growth outlook from global economic and geopolitical events (which could increasingly weigh down on confidence in the Eurozone as well as hampering exports), for the time being at least we are maintaining our forecast that Eurozone GDP growth will improve to 1.7% in 2016 from an estimated 1.5% in 2015.
Appreciable support to Eurozone growth is coming from very low oil and commodity prices, a competitive euro and ECB stimulus (that looks like it will be extended in March). The influx of refugees should also provide overall help to Eurozone growth in 2016, primarily through increased public expenditure. There are also more growth orientated fiscal policies in some countries. Meanwhile, lower unemployment across the Eurozone is supportive to consumer spending along with the boost to purchasing power coming from negligible inflation, although the number of jobless remains relatively high.
Meanwhile, the January services and manufacturing PMIs showing slower expansion and deeper overall cuts in prices charged support the case for the ECB to deliver more stimulus at its 10 March policy meeting.
block-time published-time 9.23am GMT
expects 6.5% to 7% growth this year
has set a target range for economic growth in 2016, and it is slightly below last year’s objective following the target being missed last year. Bloomberg reports:
set an economic growth target range of 6.5 percent to 7 percent for this year, slower than the objective of about 7 percent in 2015, the head of the country’s top economic planner said.
While downward pressure on the economy is “relatively big” in the first quarter,
has the ability to realize such a goal, National Development and Reform Commission
Chairman Xu Shaoshi said Wednesday at briefing in
. The country also plans to take steps to curb excess industrial capacity and deal with unprofitable “zombie companies,” Xu said.
has many policy tools to deploy, and the central bank’s recent cut to minimum down payments for first time home buyers will help reduce excess housing stock, Xu said.
Growth last year slowed to 6.9 percent, the slowest annual pace in a quarter century. President Xi Jinping has said gross domestic product gains in the next five years should average at least 6.5 percent per year to realize the goal of doubling 2010 gross domestic product and per capita income by 2020.
block-time published-time 9.13am GMT
Some people are hard to please:
enltrEurozone services and composite PMIs fairly uninteresting so far,
still to come, with highlight this afternoon coming in form of ADP— RANsquawk (@RANsquawk) February 3, 2016
block-time published-time 9.10am GMT
German service sector slows but
returns to growth
Germany’s service sector grew more slowly than expected in January.
The Markit services PMI stood at 55 last month, compared to an initial reading of 55.4 and the 56 level seen in December. Markit economist Oliver Kolodseike told Reuters:
German service providers remained in expansion mode at the start of 2016. Although output rose to the smallest extent in three months, the underlying rate of growth was robust overall, helped by a further sharp rise in new business.
The German composite PMI - which tracks activity in both the manufacturing and services sector - came in at 54.5, in line with earlier estimates but down on December’s 55.5.
, the service sector returned to growth in January but still showed the effects of the terror attacks in
The Markit services PMI rose from 49.8 in December to 50.3, slightly down on a preliminary reading of 50.6. But the increase means the sector moved above the 50 level which indicates growth rather than contraction.
The hotel and restaurant sector reported continued weakness in the wake of the
attacks, said Markit
Overall the eurozone service and composite PMIs came in much as expected:
etltrEurozone Markit Services PMI Jan F: 53.6 (est 53.6; prev 53.6)
-Markit Composite PMI Jan F: 53.6 (est 53.5; prev 53.5)
— Livesquawk (@livesquawk) February 3, 2016
block-time published-time 9.02am GMT
More on the Italian and Spanish PMIs:
enltrJan fall in #Italy#PMI means it was only above
for 1 month. We expect Italian growth to remain slow in 2016. pic.twitter.com/LagaxWB7PO
— Capital Economics (@CapEconEurope) February 3, 2016
block-time published-time 9.00am GMT
Here’s our report on the Syngenta deal. Sean Farrell writes:
China National Chemical has offered to buy Syngenta, the Swiss pesticide maker, for more than $43bn (£30bn) in what will be the biggest takeover by a Chinese company.
ChemChina, as the state-owned company is known, has courted Syngenta, the world’s largest agribusiness company, since November when it had a proposed $42bn offer rebuffed.
The cash takeover, which Syngenta’s board will recommend to shareholders, will heighten the shakeup in the agrochemicals industry after Dow Chemical and DuPont agreed to combine to create a company valued at more than $100bn.
The deal, if completed, will make ChemChina, led by its ambitious chairman Ren Jianxin, the world’s biggest producer of pesticides and agrochemicals. It will also support the ambitions of China’s president, Xi Jinping, to increase output and keep
self sufficient in food production as its growing middle class eats more meat and farmland is turned into housing and golf courses.
Full story here:
Related: ChemChina makes $43bn offer for Swiss pesticide firm Syngenta
block-time published-time 8.52am GMT
Italy’s service sector also grew in January - for the eleventh month in a row - but at a slower pace than in December.
The Markit services PMI dropped to 53.6 in January from 55.3 the previous month, a bigger fall than expected. Analysts had forecast a figure of 54 for January.
inltrItalian Markit/ADACI Services PMI Jan: 53.6 (est 54.0; prev 55.3)
-Markit/ADACI Composite PMI Jan: 53.8 (prev 56.0)
— Livesquawk (@livesquawk) February 3, 2016
block-time published-time 8.36am GMT
Here’s Japan’s services numbers from earlier:
enltrNikkei #Japan Services #PMI rises to 52.4 (5-month high) in Jan’16 from 51.5 in Dec’15 https://t.co/LrXgWkCSOIpic.twitter.com/Bu6TNtZPbF
— Markit Economics (@MarkitEconomics) February 3, 2016
block-time published-time 8.28am GMT
Despite the raft of service sector data emerging today, Tony Cross at Trustnet Direct says the most important numbers of the day could be the US ADP jobs figures, ahead of the non-farm payroll data on Friday:
The key point on the economic calendar today may well be the ADP payroll figures from across the Atlantic. These are something of a curtain raiser ahead of Friday’s non-farm payrolls and with the US having printed a slew of downbeat data in recent weeks, there’s concern that the Federal Reserve may have moved too quickly with that first rate hike – today’s number could well be the canary in the coal mine here.
The ADP report, which measures private sector payrolls, is expected to show an increase of 190,000, down from December’s bumper figure of 257,000.
block-time published-time 8.24am GMT
Spain’s service sector saw a slowdown in growth in January.
Markit’s services purchasing managers index came in at 54.6 in January, down from 55.1 in the previous month and the slowest growth rate since December 2014.
enltr #Spanish@Markit#services PMI at 54.6 shows activity easing back to slowest rate since Dec 2014 although still points to decent growth
— Howard Archer
(@HowardArcherUK) February 3, 2016
block-time updated-timeUpdated at 9.20am GMT
block-time published-time 8.09am GMT
In early trading, European markets have - as expected - edged lower.
The FTSE 100 has fallen 15 points or 0.27% while Germany’s Dax opened down 0.4% and France’s Cac is 0.1% lower.
block-time published-time 8.08am GMT
On PMI services day, we’ve already had the Irish data, and it looks positive.
The Investec services purchasing managers’ index rose to 64 in January from 61.8 in December. Philip O’Sullivan, chief economist at Investec Ireland, said:
Taken together with Monday’s Manufacturing PMI report, this week’s surveys suggest that the strong momentum evident across the Irish economy in 2015 has continued into the New Year.
The composite PMI - which measures both manufacturing and services - also moved higher.
enltrMorning. Final Jan. #euro -zone & country comp. PMIs out this am. Irish PMI already out points to more strong growth. pic.twitter.com/0sJRu7X4CO
— Capital Economics (@CapEconEurope) February 3, 2016
block-time updated-timeUpdated at 9.18am GMT
block-time published-time 8.00am GMT
makes its largest ever overseas acquisition
There may be worries about the state of the Chinese economy but that has not stopped one of its state owned companies making the country’s largest overseas acquisition by a Chinese firm.
ChemChina is making an agreed $43bn offer for Swiss seeds and pesticides group Syngenta. Last year US rival Monsanto made an unsuccessful attempt to buy Syngenta.
Chinese deal for Syngenta Photograph: Arnd Wiegmann
block-time published-time 7.57am GMT
Ahead of what is expected to be another bearish start on the European markets, Mic Mills at Capital Index said:
An uneasy Asian session dismissed the surprisingly strong Caixin/Markit Services PMI and HSBC China Composite PMI figures from
overnight as crude oil remained centre stage, with worries of oversupply sending WTI futures back below $30
a barrel. After trading down to last week’s levels of 17070 the Nikkei
did manage to claw back some ground...Gold was the biggest winner trading up to 3 month highs as investors seek a safe haven.
European markets look set to suffer a weaker open... yesterday’s better than expected employment figures [were] unable to lift the gloom as the continuing glut in oil and fears of a global slowdown seem to outweigh any good news.... Whether decent performances in [the service sector] numbers can help the markets remains a doubt.
Mike van Dulken and Augustin Eden at Accendo Markets said the downbeat mood comes despite the better than expected Chinese services data, as well as comments from the Bank of Japan suggesting there was room for more stimulus in the shape of QE or more negative interest rates.
block-time published-time 7.48am GMT
European markets are expected to drop back again at the open:
enltrOur European opening calls: $FTSE 5869 down 53
$DAX 9485 down 96
$CAC 4245 down 39 $IBEX 8438 down 90 $MIB 17742 down 180
— IGSquawk (@IGSquawk) February 3, 2016
block-time published-time 7.47am GMT
Oil prices seem a little more stable after the recent falls. Brent crude is down 0.12% at $32.68 a barrel while West Texas Intermediate - the US benchmark - is up 0.1% at $29.91.
block-time published-time 7.46am GMT
Agenda: Markets await services sector
Good morning, and welcome to our rolling overage of the world economy, the financial markets, the eurozone and business.
Stock markets continue to come under pressure on renewed fears of a global economic slowdown and a renewed fall in oil prices.
Overnight Asian markets have followed a slump on Wall Street as US crude dipped under $30 a barrel again. The Hang Seng ended down 2.9% and the Nikkei is 3.1%.
, the CSI300 index of the largest listed companies lost 0.43% , while the Shanghai Composite closed down 0.35%.
These falls came despite moves by the Chinese government to boost the property market, with a reduction in the minimum deposit for first and second-time home buyers.
The day sees a whole raft of service sector data, and
is first out of the blocks. The Caixin services PMI came in at 52.4 in January, up from 50.2 in the previous month. This is the highest since July 2015, but did little to support the markets.
Michael Hewson, chief market analyst at CMC Markets
The weak December reading of 50.2 in stark contrast to the much more bullish official measure had spooked concerns that Chinese consumers were reining back spending in the lead up to Chinese New Year.
This morning’s January reading came in at 52.4 a significant improvement on the previous month and in the process rather undermining the argument that concerns about a Chinese slowdown are the primary factors behind the recent bout of equity market jitters.
The services sector has been the more resilient of the two main sectors of the global economy over the past few months but there has been a concern that the weakness in manufacturing could cause some ripple out effects into the broader economy, as job losses in manufacturing dent consumer spending and cause a slowdown in the wider economy.
The latest services PMI numbers for January from
are broadly expected to remain fairly robust at 54.6, 54.2, 50.6 and 55.4 respectively. The French economy is a particular concern but that isn’t really too much of a surprise given recent events and the fact that the state of emergency is still in place.
, the PMI is expected to come in at around 55.3 but could be lower given the recent floods and severe weather. Here’s the day’s main economic events:
- 8.45 (GMT) Italian services and composite PMI
- 8.50 French services and composite PMI
- 8.55 German services and composite PMI
- 9.00 Eurozone services and composite PMI
services and composite PMI
- 10.00 Eurozone retail sales
- 13.15 US ADP employment data
- 14.45 US Markit services and composite PMI
- 15.00 ISM non-manufacturing index
block-time updated-timeUpdated at 9.49am GMT
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