Summary
It’s been a good day for the pound, boosted by the decision among EU leaders to grant an extension to the Brexit deadline, taking the prospect of a no-deal departure on 29 March off the table.
The pound is up 1.4% against the euro, at €1.1676, and up 0.5% against the dollar at $1.3172.
There was some grim data from the eurozone, with the PMI surveys for March signalling a slowdown in business growth at the end of the first quarter, as factory output fell at the fastest rate in six years.
The weak data has weighed on investor sentiment, with markets down on both sides of the Atlantic.
The US PMI survey suggested firms are in better shape there, although growth is slowing. Existing homes sales jumped nearly 12%, underpinned by a strong jobs market and low interest rates.
That’s it for today, thanks for all the comments and please join us again on Monday.
FTSE down more than 100 points
Losses are building on both sides of the Atlantic, as fears of a slowing global economy weigh.
The FTSE 100 is down 117 points or 1.6% at 7,239.
Here’s how it looks in other European markets:
- Germany’s DAX: -0.7% at 11,467
- France’s CAC: -1.3% at 5,307
- Italy’s FTSE MIB: -1.1% at 21,140
- Spain’s IBEX: -1.4% at 9,230
- Europe’s STOXX 600: -0.7% at 378
And on Wall Street:
- Dow Jones: -0.8% at 25,751
- S&P 500: -0.8% at 2,832
- Nasdaq: -0.8% at 7,775
US housing sales jump nearly 12% in February
Sticking with the US, data just out shows a surge in the number of previously owned homes in February.
Existing home sales rose 11.8% over the month to 5.5 million according to the National Association of Realtors.
It compared with a 1.4% drop in January, and easily beat economists’ expectations of a 2.2% rise.
Sales were down 1.8% on an annual basis.
Lawrence Yun, chief economist at the Association, said the latest figures indicated a “powerful recovery” in existing home sales, driven partly by low interest rates.
A strong labor market and wage growth appear to be underpinning the housing market https://t.co/dMyK782DzO
— Real Time Economics (@WSJecon) March 22, 2019
🇺🇸 US Flash PMI falls to 6-month low of 54.3⬇️, from 55.5 - Feb. Factory slowdown again apparent here, with goods production growth at 33-month low, but service sector growth also eased. Survey suggests growth will remain above 2% in Q1. More: https://t.co/bGpGqFs4M9 pic.twitter.com/27h2nXFl9F
— IHS Markit PMI™ (@IHSMarkitPMI) March 22, 2019
US business see slowing growth at end of Q3
The flash US PMI surveys for March show that growth slowed over the month in both the manufacturing and services sectors.
Here are the headline numbers from IHS Markit’s report (where anything above 50 signals growth):
- The manufacturing PMI fell to a 21-month low of 52.5, from 53.0 in February
- Growth in the service sector also slipped, to a two-month low of 54.8 from 56.0
- Taken together, US business activity slipped to a six month low of 54.3 from 55.5
Chris Williamson, Chief Business Economist at IHS Markit, said the data suggested that manufacturing firms were struggling:
US businesses reported a softer end to the first quarter, with output growth easing to the second lowest recorded over the last year. The PMI survey data nevertheless remain encouragingly resilient, indicative of the economy growing at an annualised rate in excess of 2% in the first quarter, suggesting some potential upside to many current growth forecasts.
A gap has opened up between the manufacturing and service sectors, however, with goods-producers and exporters struggling amid a deteriorating external environment and concerns regarding the impact of trade wars. The survey is consistent with the official measure of manufacturing production falling at an increased rate in March and hence acting as a drag on the economy in the first quarter.
Wall Street opens lower
The opening bell has rung and US markets are down after yesterday’s bounce:
- Dow Jones: -0.6% at 25,818
- S&P 500: -0.5% at 2,841
- Nasdaq: -0.5% at 7,798
Ouch! That’s the reaction of HSBC economist Fabio Balboni, to this morning’s disappointing eurozone PMI surveys. He adds:
Clearly, the manufacturing sector in the eurozone is not out of the woods yet. Today’s print suggest industrial activity has not bottomed out yet. Export orders continue to fall, particularly in Germany, which accounts for almost a third of manufacturing activity in the eurozone. The automobile sector seems to be the main culprit.
At those levels, despite the strong January print, it will be hard for the eurozone to emerge from the industrial recession it entered in the second half of last year. The survey provider (IHS Markit) said this points to another 0.5% quarter-on-quarter contraction in industrial activity in the first quarter of the year. Furthermore, the weakness in March could also set the tone for another disappointing quarter in Q2.
Today we celebrate 25th birthday of European Economic Area. A long-term partnership where all contribute and benefit.
— Donald Tusk (@eucopresident) March 22, 2019
With resurgent nationalism and geopolitical tensions, #EEA is firmly on the side of wisdom, rule of law, cooperation and deeper integration among our nations. pic.twitter.com/05X7ZJ7F36
Wonder what he’s getting at?
Mario Draghi, president of the European Central Bank, has warned that companies across the EU must step-up preparations for a no-deal Brexit.
According to a report running on Reuters, he told EU leaders at the summit in Brussels:
Authorities and central banks are prepared but the private sector has to step up preparations.
Thomas Cook to close stores and cut hundreds of jobs
UK travel firm Thomas Cook has announced it is closing 21 stores and cutting back on retail staff, resulting in the loss of 320 jobs.
It will leave the company with a chain of 566 shops.
Will Waggott, Thomas Cook’s chief of tour operating, said the decision reflected the tough trading backdrop on Britain’s high streets:
Today’s announcement reflects the wider challenges seen on the high street, with more and more customers choosing to book online.
These measures will help us to drive greater efficiencies across Thomas Cook so that we relentlessly focus our resources in those areas that give us the greatest opportunity to make a difference to customers in our core holiday offering.
Garuda cancels order for 49 Boeing 737 Max jets
Boeing’s woes have deepened this morning after the Indonesian airline Garuda cancelled a multibillion-dollar order for 49 Boeing 737 Max 8 jets.
Garuda said its passengers had “lost trust” in the model, after two fatal crashes involving the plane.
Ikhsan Rosan, a spokesman for Garuda, said:
We have sent a letter to Boeing requesting that the order be cancelled.
The reason is that Garuda passengers in Indonesia have lost trust and no longer have the confidence”
Full story here:
The pound continues to climb against both the euro and the dollar:
- +0.8% at €1.16121
- +0.3% at $1.3142
Germany’s 10-year government bond yields turned negative earlier for the first time since October 2016.
The move represented heightened caution as the weak eurozone manufacturing data and Brexit uncertainty raised fears about the prospects of the wider economy.
The yield on 10-year bunds dipped to -0.001%, before picking up to 0.3%.
Fluid #Brexit cliff edge leads to more flight-to-quality. German 10y bond yields at zero for first time since 2016.
— Carsten Brzeski (@carstenbrzeski) March 22, 2019
Weak eurozone outlook weighs on markets
Markets across Europe are a sea of red after those weaker-than-expected PMI surveys served as a stark reminder of the challenges facing the eurozone economy:
Factory output also fell in March, with the manufacturing PMI headline index at a three-month low of 49.8 - down from 51.5 in February.
Eliot Kerr, Economist at IHS Markit, said there were some worrying signs in the data:
At the end of the first quarter, the French private sector was unable to continue the recovery seen in February, as both the manufacturing and service sectors registered contractions in business activity.
Worryingly, new orders continued to tumble amid a slowdown in demand and downward momentum in new export business. New work from abroad fell at the fastest pace for nearly three years, with a broad- based decline across both sectors.
A breakdown of the eurozone PMI surveys showed a worrying picture for manufacturing in its two largest economies, Germany and France.
Factory activity fell at the fastest rate in six-and-a-half years in Germany, with the manufacturing PMI falling to 44.7 in March from 47.6 in February
Phil Smith, principal economist at IHS Markit, said Brexit and US-China trade tensions were taking their toll:
The downturn in Germany’s manufacturing sector has become more entrenched, with March’s flash data showing accelerated declines in output, new orders and exports.
Uncertainty towards Brexit and US-China trade relations, a slowdown in the car industry and generally softer global demand all continue to weigh heavily on the performance of the manufacturing sector, which is now registering the steepest rate of contraction since 2012.
The disappointing eurozone PMIs give little hope of eurozone growth in the fourth quarter, according to Bert Colijn, a senior economist at the Dutch bank ING.
He says:
Today’s PMI indicates that GDP growth is unlikely to have bounced back in the first quarter.
The PMI further shows that manufacturing output has been declining, which means that growth continues to be based on service sector developments.
To fire on both cylinders again, the eurozone seems to require the global growth outlook to improve. Unfortunately, uncertainty is continuing into April with many of the global growth concerns still undecided.
Eurozone slowdown as manufacturing slumps
The “flash” eurozone PMI surveys for March are a bit of shocker, indicating an sharper than expected slowdown in growth after factory output shrank at the fastest rate in six years.
Here are the headline figures from the IHS Markit survey (anything below 50 signals contraction:
- Eurozone manufacturing falls to 47.6 in March from 49.3 in February
- Growth in eurozone services sector activity is roughly flat at 52.7, down slightly from 52.8 in Feb
- Taken together, growth in eurozone business activity slowed to 51.3 in March from 51.9 in Feb
Chris Williamson, chief business economist at IHS Markit:
The eurozone economy ended the first quarter on a soft note, with the flash PMI running at one of the lowest levels seen since 2014.
The survey indicates that GDP likely rose by a modest 0.2% in the opening quarter, with a decline in manufacturing output in the region of 0.5% being offset by an expansion of service sector output of approximately 0.3%.
Easyjet says it its preparing to make the ownership changes that will be required after Brexit.
Under EU rules, airlines flying in the bloc after Brexit will need to prove they are majority-owned by EU shareholders.
Easyjet has updated the market this morning to say that is still just below the 50% plus one share level required with EU ownership (excluding the UK at 49.92%).
It reserves the right to force non-EU shareholders to sell their shares.
The board continues to stand ready to activate the contingency plan of suspending shareholders’ voting rights in respect of a small number of shares on a last in first out basis, in accordance with existing provisions of our articles of association.
European markets are mainly up this morning after a strong trading session on Wall Street on Thursday which saw the Dow Jones close up 0.8% and the S&P 500 rise 1.1%.
Neil Wilson, analyst at Markets.com, gives his take:
European stocks were broadly firmer on Friday morning, with the outlier the FTSE 100, which has softened a touch as some of the large weightings have slipped.
US stocks were also a lot firmer yesterday, with the S&P 500 rising over 1% to 2,854.88 on the close. The Dow rallied to 25,96251.
Tech stocks, led by a resurgent Apple, and real estate were the main drivers as the market seemed to come around to the Fed’s new put.
Levi Strauss’ first trading session was a success, with shares up 32% above the $17 IPO price to trade at $22.41.
FTSE dips after pound makes gains
The FTSE 100 is down in early trading, weighed down partly by a stronger pound.
Here are the scores so far across European markets:
- FTSE 100: -0.4% at 7,330
- Germany’s DAX: +0.5% at 11,607
- France’s CAC: +0.1% at 5,386
- Italy’s FTSE MIB: -0.3% at 21,301
- Spain’s IBEX: +0.2% at 9,374
- Europe’s STOXX 600: +0.2% at 381
Analysts at Goldman Sachs say the chances of a no-deal Brexit have actually increased rather than diminished.
They write:
By postponing Brexit day by at least a fortnight, the UK and the EU have kept all options in play, for now.
They cut the chances of MPs voting through Theresa May’s deal to 50% from 60%, and raised the chances of a no-deal Brexit to 15% from 5%.
Introduction: Pound picks up after Brexit extension
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound has tended to be the Brexit barometer as far as investor sentiment goes, with sterling reacting to the ups and downs of the negotiations.
The latest twist in the Brexit saga is no different. The pound lurched more than 1% lower on Thursday when it looked like a no-deal exit next week was a real possibility. But its fortunes were revived when EU leaders in Brussels agreed to a Brexit deadline extension after hours of talks that ran late into the night.
A handy explainer from Donald Tusk, president of the European Council:
EU27 responds to UK requests in a positive spirit and:
— Donald Tusk (@eucopresident) March 21, 2019
👉 agrees to Art. 50 extension until 22 May if Withdrawal Agreement approved next week
👉 if not agreed next week then extension until 12 April
👉 approves ‘Strasbourg Agreement’
👉 continues no-deal preparations
The pound is currently up 0.3% against the dollar at $1.3140, and up 0.2% against the euro at €1.1540.
The agenda:
- 9am GMT: Eurozone “flash” PMI surveys for the services and manufacturing sectors in March
- 1.45pm GMT: US flash PMI surveys for services and manufacturing in March
- 2pm GMT: US existing home sales for February
