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IMF and oil falls hit markets as eurozone service growth slows - business live

Discussion in 'Market News' started by Lily, Apr 5, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Worries about emerging market risk unsettle investors, while oil price continues to slip and eurozone growth disappoints

    9.08am BST

    The final reading for the eurozone services PMI has shown a dip from the previous month, and is lower than the initial readings suggested.

    The Markit index came in a 53.1 for March, down from 53.3 in February and lower than the first estimate of 54.

    March saw the rate of economic expansion in the euro area improve for the first time in three months. The extent of the acceleration was negligible, however, and less marked than that indicated by earlier flash data. Manufacturing saw faster growth of production, but this was mostly offset by a slower rate of output expansion at service providers.

    #Eurozone growth remains subdued during opening quarter of 2016. #PMI at 53.1 (Feb: 53.0) https://t.co/BbzR9ttx3E pic.twitter.com/Vup963JooR

    9.02am BST

    Germany’s services PMI has also come in below expectations.

    The index came in at 55.1 in March, down from 55.3 in the previous month and below expectations of a rise to 55.5.

    German Services PMI (Mar F) 55.1 versus 55.5 expected, previous 55.3 | Composite PMI (Mar F) 54.0 versus 54.1 expected, previous 54.1

    The German service sector continued to expand at a solid pace at the end of the first quarter, although activity and new order inflows both increased at weaker rates. Moreover, a closer look at the sub- indices highlights some concerns that growth may slow further in coming months. In detail, the amount of work in the pipeline rose only marginally and companies took a more cautious approach with regards to hiring policies, with the rate of job creation the weakest since last July.

    Meanwhile, input costs faced by service providers rose at the slowest pace for more than six years, as the low interest rate environment continued to exert downward pressure on inflation.

    Business activity in #Italy service sector rises at slowest rate for over a year as #PMI posts 51.2 in March https://t.co/wraz9hhHcI

    8.56am BST

    The French service sector has failed to improve as much as expected in March.

    The Markit survey shows the services PMI still below 50, a sign of contraction, against expectations of a figure of 51.2:

    French Services PMI (Mar F) 49.9 versus 51.2 expected, previous 49.2 | Composite PMI (Mar F) 50.0 versus 51.1 expected, previous 49.3

    March PMI data round off a broadly flat performance of the French service sector on average over the first quarter. There remains little sign of the stagnancy lifting – although business expectations rose to the highest since last August they remain subdued in historical terms. Competitive pressures saw another round of output price cutting as firms competed for new business, underlining the challenging environment.

    8.47am BST

    There are also positive service sector figures from Spain, according to Markit. It said:

    Growth in the Spanish service sector quickened at the end of the first quarter of the year, with both activity and new orders rising at the fastest rates in four months. An increase in outstanding business was also recorded, and higher workloads encouraged further job creation. The rate of input cost inflation remained relatively weak, but companies raised their output prices for the first time since last October.

    #Spain Services #PMI rises to 4-month high of 55.3 in March, up from 54.1 in
    Feb. https://t.co/rekWmsbfwt pic.twitter.com/bLk68AIQpj

    The pick-up in service sector growth in March is something of a relief following a slowdown in previous months, and suggests that the Spanish economy was able to maintain forward momentum during the first quarter of the year. Elsewhere, while output prices were raised for the first time in five months, there is still little evidence of any meaningful inflationary pressure returning to the sector.

    8.44am BST

    The yen has hit a 17 month high against the dollar, prompting talk of possible intervention:

    Many rumours of the Bank of Japan intervening to weaken the Yen this morning #Abenomics https://t.co/21IrIyPJFV

    Clearly risk sentiment is not good and oil prices are declining this week and all these feeding and driving the dollar lower against the yen. The yen is also higher against other currencies.

    Of course, the Bank of Japan will be concerned not just about the rise in the yen, but also a drop in stock prices. So we may see some comments from the authorities there, but actual intervention is unlikely until dollar drops below 110 yen.

    8.37am BST

    The Irish service sector expanded more quickly in March, according to Markit.

    Faster expansion in activity in #Ireland service sector as #Investec #PMI rises to 62.8 in March from 62.1 in Feb https://t.co/6lKBajhXyN

    The latest Investec Services PMI Ireland report shows a slight quickening in the rate of growth of business activity, with the headline PMI improving to 62.8 in March from the previous month’s 62.1 reading. This improvement was in spite of a softening in New Orders (to a five month low, albeit it is still in growth territory), while New Export Orders eased to their slowest pace of growth since May 2012. On the latter, while panellists indicated that the UK remained a source of new business, there were suggestions that the recent strengthening of the euro against sterling had weighed on growth of new business.

    8.33am BST

    Another warning from the IMF on the global economy, from managing director Christine Lagarde. Katie Allen writes:

    Governments must urgently pursue more growth-friendly policies to shore up a weakening global economy beset with risks, the head of the International Monetary Fund has said.

    Christine Lagarde also put governments on alert that they should prepare contingency plans in case threats to the fragile global economy materialise.

    Related: IMF director urges governments to ‘pick up the growth baton’

    8.25am BST

    With metal prices and oil falling back, it’s no surprise that commodity companies are among the biggest losers so far. The top fallers in the FTSE 100 are:

    London’s FTSE-100 has started the session with some notable losses as tumbling commodity prices find themselves back at the top of the agenda. Hopes may have been building that we would see another leg higher emerge for the asset class, but yesterday saw the Dow Jones Non Ferrous Metals Index slump almost 5% and WTI crude is eyeing a move back below $35/barrel, too. As a result it’s the natural resources stocks that are scattered across the foot of the index in early trade, with Royal Dutch Shell and BP also being dragged very much into the fray.

    8.15am BST

    Interest rate watch: the Reserve Bank of Australia left rates unchanged at 2% as expected, while the Reserve Bank of India cut its main interest rate by 0.25% to 6.5%.

    8.09am BST

    As forecast, stock markets in Europe have followed their Asian counterparts with sharp falls in early trading.

    The FTSE 100 is down 61 points or 1%, while Germany’s Dax has dropped 1.8% after the poor factory order figures and France’s Cac has fallen 1.4%, while Spain’s Ibex is 1.3% lower.

    8.05am BST

    The IMF is also concerned about the insurance sector:

    Across advanced economies the contribution of life insurers to systemic risk has increased in recent years, although it clearly remains below that of banks. This increase is largely due to growing common exposures to aggregate risk, caused partly by a rise in insurers’ interest rate sensitivity. Thus, in the event of an adverse shock, insurers are unlikely to fulfill their role as financial intermediaries precisely when other parts of the financial system are failing to do so as well. The higher common exposures do not seem to be driven by marked changes in insurers’ investment portfolios, although smaller and weaker insurers in some countries have taken on more risk.

    The findings suggest that supervisors and regulators should take a more macroprudential approach to the sector. Doing so is necessary if supervision is to go beyond guarding against the solvency and contagion risks of individ- ual firms and take on the systemic risk arising from common exposures. Steps that would complement a push for stronger macroprudential policies include the international adoption of capital and transparency standards for the sector. In addition, the different behavior of smaller and weaker insurers warrants attention by supervisors.

    8.02am BST

    Policymakers need to act to prevent problems in emerging markets threatening global stability, the IMF has said.

    In excerpts from its latest financial stability report the fund said:

    The financial integration of emerging market economies into the global economy has affected international financial markets in both desirable ways—more efficient asset prices and resource allocation—and undesirable ones—amplification of shocks and transmission of excess financial volatility...

    The significant growth in global capital flows due to mutual fund investments is also affecting the nature and size of financial spillovers from emerging market economies. The decision by mutual funds to sell investments in multiple countries in response to losses in one or more countries, or because of withdrawals by their own investors, is called the portfolio channel of contagion. This channel has gained in importance as a source of financial spillovers from emerging market economies to equity markets in recent years, in line with the increase in asset allocation to these countries. The impact from the portfolio channel from advanced economies remains significantly larger, according to the IMF.

    The IMF research shows that among large emerging market economies, China is unique: news about its economic growth has an economically significant and rising impact on global equity prices. In the last five years alone, the impact of growth surprises from China on global equity prices has almost quadrupled. By contrast, changes in Chinese asset prices tend to have little effect on asset prices elsewhere.

    “Purely financial spillovers from China are still very small, but likely to grow considerably as China gradually continues to integrate into the global financial system,” said Gaston Gelos, head of the Global Financial Stability Analysis Division at the IMF.

    “The evidence underscores the need for policymakers to take into account economic and policy developments in emerging market economies when assessing their own countries’ prospects,” said Gelos.

    Enhanced international economic and macroprudential policy cooperation can also play an important role.

    7.40am BST

    German factory orders fell unexpectedly in February, according to figures from the economy ministry, hit by a decline in overseas demand.

    They dropped 1.2%, the biggest monthly fall in six months and well below expectations of a 0.2% rise. Carsten Brzeski at ING Bank said:

    German new orders dropped sharply in February, adding to evidence of continued stagnation in the German industry. New orders declined by 1.2% month on month, from an upwardly revised increase of 0.5% month on month in January. On the year, new orders were up by 0.5%. The last months have not been easy for the German industry. Since May last year, new orders have dropped in six out of ten months. Interestingly, the February drop was driven by falling foreign demand (-2.7% month on month), whole domestic demand picked up somewhat after a two-months slump.

    7.32am BST

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

    Stock markets are under pressure again as the International Monetary Fund warned of the knock on effect from growing problems in emerging markets, and oil prices slipped again. Brent crude is down 0.3% at $37.57 a barrel, as hopes of a deal to curb production at this month’s planned meeting of producers continue to fade.

    Our European opening calls:$FTSE 6133 down 32
    $DAX 9732 down 90
    $CAC 4316 down 29$IBEX 8529 down 69$MIB 17540 down 100

    Since these previous readings the Brussels terror attacks could well had an impact on sentiment, particularly in the travel and hotel sector, which has driven a lot of the improvement in the French numbers. There is a fear that events in Brussels could well have knocked confidence in a sector that appeared to be on the cusp of a fragile recovery. Today’s numbers could well be the first test of that sentiment.

    Last month we saw the sector post its weakest reading since April 2013 at 52.7. Was this merely a blip or evidence of an element of caution as we head towards the summer vote? Expectations are for a decent end to the first quarter with an improvement to 54, from February’s 52.7.

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