Graeme Wearden 

German consumer morale slides; Brexit jitters weigh on markets – business live

Rolling coverage of the latest economic and financial news, including more worrying data from Germany
  
  

Frankfurt’s financial district
Frankfurt’s financial district Photograph: Ingo Roesler/Getty Images

Finally, the FTSE 100 index ended just 3 points lower at 7,324, lagging the rest of Europe.

France gained 0.6%, while Germany gained 0.17% despite the skid in consumer confidence. The IFO survey, showing stabilising business confidence, helped.

Goodnight!

Having canned the budget, the government is facing calls to release the latest growth and borrowing forecasts......

...unless they’ve something to hide?

Blunder of the day goes to the Office For National Statistics, for overstating public borrowing by up to £1.5bn this year.

Sterling is ending the weak on a low point - it’s now down almost half a cent today, just above $1.28.

Tom Rosser, investment research analyst at The Share Centre, says political uncertainty is hurting:

Yesterday, Boris laid down the gauntlet in challenging MPs to give him a general election on 12 December. For investors this creates a difficult environment.

Sterling reached levels not seen since May at the start of the week, but with a snap election looking likely and with uncertainty persisting, it has since fallen back. The only thing that is certain is heightened volatility for the currency.

Updated

Wall Street opens cautiously

The New York stock market has made a very subdued start to trading.

The Dow has risen just 0.07%, gaining 20 points to 26,826, while the broader S&P 500 has dipped by 0.08%.

There are some significant moves, though. Amazon has fallen 3.6% after missing Wall Street profit forecasts following an investment splurge.

I reckon that’s knocked around $3.6bn off Jeff Bezos’s stake in the company he founded -- leaving him roughly neck-and-neck with Bill Gates as the world’s richest person.

Gold hits one-month high

Gold, a traditional safe-haven in troubled times, has jumped 1% this morning to $1,517 per ounce - it’s highest level sine late September.

Tire maker Goodyear has missed expectations, though, with sales down 3% in the third quarter.

Earnings also came in below forecasts, prompting CEO Richard Kramer to blame the weak European economy:

“Industry conditions were softer than we anticipated in Europe and we continued to see an adverse impact from lack of alignment in our distribution channels.

In response, we expect to accelerate our plans to rationalize distribution in the region.

Jaguar Land Rover has some cheering news -- it’s returned to profit.

The UK car maker says sales picked up in China, while strong demand for the Range Rover Evoque SUV vehicle also helped.

This delivered a £156m pre-tax profit in the last quarter, up from a £395m loss in April-June.

Ralf Speth, boss of the Midlands car manufacturer, says the JLR turnaround plan is firmly on track. That must be a relief to workers at its car plants in Castle Bromwich and Solihull, although Brexit uncertainty still looms over the industry.

Marketwatch is reporting that the possibility of a Labour government is also weighing on the City.

They say:

Lucy Macdonald, chief investment officer for global equities at Allianz Global Investors, said in addition to uncertainty surrounding the Brexit outcome, the policy proposals of the opposition Labour Party under leader Jeremy Corbyn have also affected sentiment.

“Another reason why global investors have been nervous about the U.K. has been the threat of an extreme left-wing government. Although that looks a lower risk because of where the polls are, it is still a risk,” said Macdonald.

More here: U.K. assets are too hot to handle right now, top investors say

That may explain why utilities -- a nationalisation target for Labour - are the worst-performing sector on the FTSE 100 this morning.

But, Labour are currently lagging in the polls, and there’s no guarantee of an election soon anyway (despite Boris Johnson’s goading of Jeremy Corbyn to ‘man up’ today...).

Billionaire Watch: Jeff Bezos could lose his crown as the world’s richest man today.

Amazon’s stock price is on track to fall around 6% when the New York stock market opens (2.30pm BST / 9.30am EST).

That would knock roughly $6bn off Bezos’s personal wealth, I estimate. And that’s just enough to send him below Bill Gates on the Bloomberg Billionaire’s index (yesterday, Bezos was worth $111bn, followed by Gates at $107bn).

Investors aren’t impressed by Amazon’s sharp fall in profits in the last quarter, or its decision to lower its earnings forecasts (details here).

Bezos explained last night that Amazon is investing more in Prime, its next-day delivery service. But some shareholders would rather it focused on profits.

Brent Thill, an analyst at Jefferies, explained (via the FT):

“The key takeaway is they are shifting from harvest mode to investment mode and it’s coming at the cost of the bottom line.

That’s a different tone. Suddenly we are back to the old Amazon.”

Several UK-focused companies are among the fallers on the FTSE 100 today.

Property giant British Land, supermarket chain Sainsbury, telecoms group BT and holiday provider TUI have all dropped, reflecting Brexit worries.

Fiona Cincotta of City Index says:

In what is beginning to look more like a high stakes poker game then legitimate politics the Prime Minister said he would ask MPs to agree on Monday to a general election before Christmas.

If they disagree he indicated that he would freeze his Brexit legislation making it impossible for Parliament to make any progress in debating the current proposal.

The FTSE 100 is currently down 33 point, or 0.5%, as traders scramble for a lunchtime sandwich.

The mid-cap FTSE 250 index, of medium-sized listed companies, has dropped by 0.7%- to its lowest level since last Wednesday.

Cincotta says Amazon’s weak results have also pushed shares down:

A weaker close on Wall Street also contributed to the FTSE’s decline particularly after Amazon reported the first drop in quarterly profits since 2017 and warned that there would be more declines during its busiest season in the year.

On Brexit, the EU has just announced that leaders have agreed “in principle” to granting the UK a Brexit extension.

But they haven’t finalised the details (the length, or the terms), and will make a final decision next week.

They appear to be waiting until MPs have decided whether a general election should be held in December, putting the ball back into Westminster’s court.

Ricardo Evangelista, senior analyst at ActivTrades, says Brexit ‘absurdity’ and ‘surrealism’ is pushing the pound towards a one-week low.

The latest political twist keeping sterling under pressure has a touch of surrealism about it: Boris Johnson is asking for an early election, for which he’ll need the support of Labour MPs; Jeremy Corbyn, the Labour leader, said he will support an early election, but only if the EU has granted a Brexit extension and no deal is off the table.

However, the EU will only grant a new extension if the British side has a clearly defined plan. There is an absurdity about the situation and the markets are reacting by once again walking away from the pound.

Brexit Dashboard: UK economy is hurting

Our latest Brexit Dashboard is out, and shows that the prolonged economic uncertainty is hurting the jobs market.

My colleague Richard Partington explains:

Brexit uncertainty has begun driving up job losses across Britain as political turmoil holds back the economy, according to a Guardian analysis of economic news over the past month.

In a sign of the mounting stress on the UK, the number of people in work dropped by the largest margin in four years in August as companies put their hiring plans on hold, with firms losing contracts and facing delays because of the uncertainty over Britain’s future. , some bright patches remain, including official figures suggesting that a summer recession has been avoided.

Here’s the key data:

Economist Danny Blanchflower says the government must reveal the economic impact of Boris Johnson’s Brexit deal:

It is disgraceful that Sajid Javid has refused to publish economic analysis of the deal parliament has been offered by the government. This is either utter incompetence or they are trying to hide bad news, or both.

Fellow economist Andrew Sentance is also concerned about Brexit’s impact on the economy:

The UK economy is likely to continue to grow at a modest pace, driven by consumer spending and the services sector. But manufacturing industries will continue to struggle – not least because it is the part of the economy most exposed to the negative aspects of Brexit.

Though economic growth is continuing, the UK economy is becoming more unbalanced, not less so. That is one of the many unfortunate consequences of Brexit.

More here:

Here’s my colleague Jasper Jolly on the probe into the Boeing 737 MAX:

The final report by Indonesian investigators into the crash of a Boeing 737 Max plane flown by Indonesia’s Lion Air that left 189 people dead has found that problems with Boeing’s design, the airline’s maintenance of the jet and pilot errors contributed to the disaster.

The report into the October 2018 crash criticised the US planemaker’s new anti-stall system, MCAS, that automatically pushed the plane’s nose down, leaving pilots fighting for control.

The 737 Max’s MCAS system is also at the centre of separate investigations into an Ethiopian Airlines crash in March that killed 159 people. Boeing’s 737 Max planes were grounded worldwide in the wake of the crashes.

More here:

Germany’s government isn’t bowing to pressure to launch a stimulus programme, according to these newsflashes:

That’s despite Mario Draghi using his final press conference as ECB president to urge governments with fiscal space to boost their spending.

Brexit jitters weigh on markets

London’s stock market is ending the week on a poor note, as political uncertainty worries traders.

The FTSE 100 index has dropped by 37 points, or 0.5%, this morning - putting it on track for its first daily loss this week.

Optimism that Britain’s exit from the European Union has been replaced by a familiar, and non-too-tasty, cocktail of doubts. Will we have another general election soon? How far will the Brexit deadline be pushed back? If No-Deal really off the table?

EU leaders are now considering pausing their decision on a Brexit extension, until MPs have decided whether to trigger a December election:

The pound is also slightly lower this morning, at $1.283. It hit $1.30 on Monday, on hopes that Johnson could get his deal through parliament. But it’s been sliding since, after MPs refused to pass the legislation rapidly.

ING economist James Smith suspects Johnson could ‘unpause’ his deal soon:

“Parliament looks poised to reject UK Prime Minister Johnson’s third attempt at triggering a general election. That means the UK may not go to the polls until 2020, and that could prove risky for the Conservatives.

Despite all the noise, if MPs reject a December election, we suspect the PM will refocus on getting the Brexit legislation through Westminster.”

Katharina Utermöhl of Allianz is also encouraged by the stabilisation in German business confidence this month:

But Carsten Brzeski of ING says Germany still risks ‘Japanification’:

Relief, unfortunately, is not the same as a rebound. However, after endless disappointing macro data out of Germany, today’s Ifo reading gives hope that at least a bottoming out could be in sight. Still, the risk of a long flirt with stagnation remains high and with it the risk of a Japanification of the German economy.

A bittersweet victory against a real recession, as such a stagnation would give the comfort of avoiding a severe crisis, while at the same time reducing the urgency to add.

IFO: What the experts say

Economists are encouraged by the news that Germany’s business morale slump has bottomed out this month.

Nadia Gharbi of Pictet Asset Management has spotted an upturn in manufacturing:

Aila Mihr of Danske Bank points out that Germany is still in a downswing, though:

IFO: German economy 'stabilising'

Newsflash: The slump in German business confidence may have bottomed out.

That’s according to a survey of 9,000 companies by the IFO Institute, just released.

IFO’s measure of German business morale has come in at 94.6, matching September’s reading. That’s worryingly close to the seven-year low recorded in August.

But while firms are more pessimistic about economic conditions today, they’re a little more upbeat about future prospects (although this morning’s drop in confidence might make them rethink...)

Here’s the details:

  • Current conditions index: 97.8, down from 98.6 in September.
  • Future prospects index: 91.5, up from 90.9

Clemens Fuest, president of IFO, says that fears of a no-deal Brexit are receding. Signs of progress in US-China trade war are also helping.

He declares:

The German economy is stabilising.

Fuest also predicted that the German economy would grow slightly in the current quarter, which could lift it out of recession (assuming the economy continued to shrink in Q3).

World's largest brewer hit by challenging conditions

Anheuser-Busch InBev, the world’s largest beer maker, has also disappointing the markets this morning by cutting its profit forecasts.

AB, maker of Budweiser, Corona and Leffe, suffered a 0.5% drop in beer volume sales in the last quarter.

This dragged underlying profits down to $1.87bn for Q3, from $2.19bn a year earlier.

AB says it only expects moderate profit growth for 2019, citing “softer macroeconomic conditions” in its key markets.

AB told investors:

The third quarter of 2019 was challenging, primarily driven by three anticipated factors: shipment phasing into 2Q19 in China ahead of summer activations, higher cost of sales per hectolitre from significant commodity and transactional currency headwinds, and the year-over-year phasing of our sales and marketing investments driven by the 2018 FIFA World Cup Russia.

In addition, price increases implemented in South Korea and Brazil drove volume declines, which were exacerbated by softer consumer demand in light of difficult macroeconomic conditions.

Shares have plunged 10% this morning, to their lowest level since June.

Here’s our story on Barclays’ results:

Updated

In the City, advertising giant WPP has jumped to the top of the FTSE 100 risers after reporting a pick-up in revenues despite economic jitters.

WPP posted a 1.9% jump in like-for-like sales in the last quarter, after landing new clients including Mondelez and eBay. That’s an improvement on the 0.9% decline in the first half of 2019.

CEO Mark Read, who took over last September, says:,

“Our growth in Q3 is encouraging but we are focused on delivering these longer-term goals and know there will be twists and turns along the way. Our guidance for 2019 remains unchanged.

Shares are up 5%.

Barclays sees challenging times ahead

UK bank Barclays is also sounding more anxious too.

CEO Jes Staley warned this morning that:

The outlook for next year is unquestionably more challenging now than it appeared a year ago, in particular given the uncertainty around the UK economy and the interest rate environment.

Staley also popped up on Bloomberg TV, where he cited the uncertainty created by a possible general election.

Staley was speaking as Barclays announced its third-quarter results, which have been dented by yet another compensation bill for mis-selling PPI insurance.

Pre-tax profits have slid to just £246m in the last quarter, down from £1,531m in Q2, thanks to a new £1.4bn provision for PPI.

After a late rush ahead of the deadline this summer, Barclays is handling more than two million claims, enquiries and information requests at various stages of processing.

Surprisingly, they also have time for some actual banking -- pre-tax profits at the corporate and investment bank rose by around 77% year on-year, to £882m from £492m.

GfK fears that the risk of a German recession has risen, saying:

Combined with the trade conflict, the global cooling off of the economy, which will especially impact the strongly export-oriented German economy, will not leave the German economy unscathed. Consequently, several automobile manufacturers as well as their suppliers have already announced redundancies.

It also cites the major job cuts being imposed by Deutsche Bank:

Owing to the European Central Bank’s (ECB) low-interest-rate policy, banks are experiencing increasing difficulties. As the example of Deutsche Bank shows, they are reacting with branch closures and redundancies.

Introduction: German consumer confidence lowest since 2016

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

The storm clouds over Germany’s economy have darkened again this morning, with consumer morale hitting a three-year low.

The Nuremberg-based GfK institute has reported that Germans are more pessimistic about the economic outlook, making them more reluctant to spend.

This pulled GfK’s consumer sentiment index down, from 9.8 to 9.6, which is the weakest reading since November 2016.

The global economic downturn, trade conflicts and “Brexit chaos” all making people gloomier, GfK says. Rising job cuts at carmakers and banks are hurting too.

“These events have dampened the mood of consumers again and optimism is dwindling,” GfK researcher Rolf Buerkl said, adding that Berlin’s government could act to stem the downturn.

Private consumption will remain an important pillar for the German economy this year – assuming that the current crises do not escalate further and both policy and the economy counter the rising fear of job losses.”

There are widespread fears that Germany, Europe’s largest economy, could have fallen into recession in the last quarter (we get the data next month).

The wider eurozone doesn’t look terribly healthy either. Yesterday, Mario Draghi signed off from the ECB by warning of “a protracted weakness in the euro area growth dynamics”.

The risks surrounding the euro area growth outlook remain on the downside.

In particular, these risks pertain to the prolonged presence of uncertainties related to geopolitical factors, rising protectionism, and vulnerabilities in emerging markets.”

German consumers, it seems, have already got the message....

Also coming up today

There’s some anxiety in the tech sector after Amazon reported a sharp drop in profits last night, due to the cost of ramping up its Prime delivery service.

My colleague Dominic Rushe explains:

Amazon’s profits slid 26% in the last quarter as the company poured money into free shipping and its cloud storage business.

While the company’s revenues rose sharply, up 24% to $70bn for the quarter or more than $23bn a month, its profits fell to $2.1bn down from $2.9bn from a year earlier.

The financial miss comes as Amazon is facing greater scrutiny from Washington, with politicians from both sides calling for investigations of its business practices.

With Texas Instruments, McDonalds, Caterpillar and Twitter already missing market expectations this week, it’s turning into a mixed reporting season.

The pound could come under pressure as EU leaders deliberate whether to grant the UK another Brexit extension, and for how long. Sterling is currently hovering around $1.285, awaiting developments (like the rest of us).

Traders will also be watching whether Boris Johnson manages to persuade MPs to hold a general election in December (very festive!). Labour aren’t keen to head to the polls, so the PM could be thwarted.

The official report into the Boeing 737 MAX crash in Indonesia a year ago, which killed 189 people, is being released, and could be pretty damning

According to Reuters, it will recommend closer scrutiny of automated control systems, improved design of flight deck alerts and better accounting for a more diverse pilot population.

The agenda

  • 9am BST: IFO survey of German consumer confidence
  • 3pm BST: University of Michigan survey of US confidence

Updated

 

Leave a Comment

Required fields are marked *

*

CAPTCHA

*