There’s really little to cheer in today’s European confidence report. Most of the main indicators worsened, suggesting the economy is still bogged down.
- Economic Sentiment: 104, down from 105.6, worst since September 2016
- Industry: -4.1, down from -1.6
- Services: 11.5, unchanged from March’s 11.5
- Consumer: -7.9, down from -7.2
- Business Climate: 0.42, down from 0.54
Eleswhere in the markets, music streaming site Spotify has hit a milestone — 100 million paying customers.
This has helped the company, which floated a year ago, to narrow its losses — handy as it embarks on an epic investment splurge in podcasting.
European stocks have now turned negative today, as today’s disappointing fall in industrial confidence disappoints investors.
Bloomberg’s William Horobin is concerned that Europe’s economy is faltering, as companies are buffeted by problems at home and abroad.
Here’s his take on the economic (lack of) confidence data for April:
Economic confidence in the euro area dropped for a 10th month in April to the lowest in more than two years, indicating the region may struggle to pick up from its recent slump.
The European Commission’s monthly survey showed an industrial morass is increasingly entrenched as companies continue to struggle with the global slowdown and homegrown difficulties, notably the upheaval in Germany’s car industry.
The headline index, which assesses the mood of households and businesses, fell sharply to its lowest level since September 2016. Confidence in industry was particularly weak as managers become more pessimistic about production expectations, order books and stocks. In Germany, the reading hit its lowest level in three years.
Europe’s economy doesn’t look in great shape…
Analysts at currency firm BP Prime are concerned by the slide in eurozone industrial confidence this month:
Across the wider EU, economic confidence fell notably in both the UK and Poland.
The European Commission explains:
The decline of the headline indicator for the EU (−1.5) reflects the strong deterioration of sentiment in the largest non-euro area EU economies, the UK (−1.5) and Poland (−3.7).
In line with the euro area, EU industry confidence took a blow and consumer sentiment weakened. While the deterioration of EU confidence in retail trade was less marked than in the euro area, EU confidence in construction worsened more strongly.
European economic confidence hits two-year low
Newsflash: Eurozone economic sentiment has fallen for the 10th month in a row, highlighting the weakness of Europe’s recovery.
Figures from the European Commission show that managers across European industrial firms became more pessimistic this month. Retail bosses also grew more downbeat, dragging the EC’s measure of economic optimism down to a two-year low.
The EC says managers became more pessimistic views about their production expectations, the current level of overall order books and the stocks of finished products.
Manufacturers’ assessments of the past production deteriorated significantly, too, whereas there was some relief in the appraisals of export order books.
Consumer confidence also fell this month, the EC warned, explaining:
This reflected households’ more pessimistic expectations about their future financial situation and, in particular, the general economic situation, while their assessments of their past financial situation and their intentions to make major purchases remained broadly stable.
There was a brighter spark, though – service sector confidence was unchanged.
But overall, the EC’s economic sentiment indicator fell in the euro area (by 1.6 points to 104.0) and the EU (by 1.5 points to 103.7).
That suggests that growth remains weak, after slowing sharply in 2018 (we get first-quarter GDP figures for some eurozone economies tomorrow). Reaction to follow….
Spanish stocks dip after election
Spain’s stock market is bucking today’s trend, falling after Sunday’s general election delivered a hung parliament.
The IBEX has lost 0.5%, with utility stocks the biggest fallers. There are predictions that the socialist PSOE party (which won the most seats) may be forced to rein in their support for the renewables sector.
Since taking power last year, the Socialist government has taken specific steps toward closing nuclear plants in Spain – which may now be curtailed under a new coalition government.
Forestry firm ENCE, which produces eucalyptus pulp for use in biomass power stations, has shed almost 5% this morning. Endesa, which is boosting its investment in renewables, has shed 1%.
Financial shares are rallying, though, with Bankia up 2.3% to the top of the IBEX risers, as the prospect of new taxes fades.
The left-wing Podemos party had pledged to impose a transaction tax on Spain’s banks. However, it and PSOEW haven’t won enough seats to govern without support from other parties.
Ocado shares singed after robot fire report
Shares in online grocery firm Ocado have dropped this morning, after it revealed that a recent serious fire at its Hampshire warehouse was caused by a robot catching fire.
Following an investigation, Ocado has concluded that an electrical fault in a battery charging unit had caused the plastic lid on top of one of its bots to catch alight. The resulting conflagration caused serious damage to the warehouse, as 200 firefighters were scrambled to put it out.
Ocado is now taking action — installing more sprinklers and heat sensors, and removing the errant plastic lids from the robot.
Shareholders are concerned, though, that the incident could hurt Ocado’s efforts to sell its technology to supermarkets around the world. Ocado shares were down over 2% in early trading.
The IMF has also spotted that social unrest is also rising in the Middle East – although we’re not back at Arab Spring levels of anger.
In several countries in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region, social tensions are rising in the context of lower growth and reform fatigue, threatening macroeconomic stability. Such tensions may also derail much-needed reforms, potentially spilling over into conflict and further regional uncertainty
IMF warns of Iranian recession
The International Monetary Fund has published a new report into the Middle East and central Asia, and it doesn’t make cheery reading for Tehran.
Iran’s economy is predicted to shrink by 6% this year, following a 4% contraction in 2018. That follows America’s recent sanctions — but doesn’t factor in president Trump’s decision to end a waiver allowing certain countries to buy Iranian oil.
Jihad Azour, the IMF’s Mideast and Central Asia department director, warned that Iran’s economy is struggling badly, even before the US tightens its oil embargo.
“The removal of waiver will affect more the recession.
A negative growth of 6% has an impact on poverty, social protection and also on jobs.”
The wider picture is that political uncertainty and volatile oil prices will hit growth across the region this year. The IMF predicts that growth in 21 countries – from North Africa across the Persian Gulf to Afghanistan – will slow to 1.5% this year, down from 2%.
It warns that geopolitical tensions, the US-China trade war and the eurozone slowdown can all have dangerous knock-on impact on middle east markets.
Italy leads European markets higher
European stock markets have begun the new week cautiously, led by a bounce in Italy.
Italian bank shares have jumped 1%, after S&P affirmed Italy’s BBB credit rating on Friday night.
Rome’s government debt is also rallying, on relief that Italy isn’t being downgraded despite falling into recession last year.
Chinese industrial profits rebound
China’s factories have bolstered confidence in the markets today, by reporting a pick-up in earnings.
Profits in March rose 13.9% year-on-year to 589.52 billion yuan (£67bn), the National Bureau of Statistics (NBS) reported. That reverses a 14% in the first two months of 2019, and may show that economic conditions are brightening.
Introduction: Asian markets higher after US GDP boost
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s an upbeat mood in the markets today after Wall Street surged to another record close on Friday night.
Investors are taking their cue from Friday’s stronger than expected growth figures from the US. The news that US GDP expanded at a 3.2%/year rate sent the S&P 500 to new heights at the end of last week, extending its strong run since the year began.
Asian investors picked up the baton and sprinted away with it this morning. China’s benchmark CSI 300 index is up 1.3%, Hong Kong’s Hang Seng has gained 0.9%, and South Korea’s Kospi 200 is almost 2%.
Fears that the world’s largest economy was faltering have receded, even much of America’s growth in the last quarter was due to inventory building and a drop in imports (boosting net trade).
Perennial hopes of a breakthrough in the US-China trade war are also helping the markets – officials are due to resume negotiations tomorrow.
Konstantinos Anthis, head of research at ADSS, says traders are in optimistic mood — perhaps too optimistic….
For stock traders, it seems that the important catalysts are pointing higher: the US sees strong domestic growth, low inflation keeps the Fed at bay and could potentially trigger a rate cut so it seems that equities have nowhere to go but higher – at least in the short term.
Truth be told, we think that investors should employ a more cautious approach, with the US markets near record highs and 10-year yields dropping below 2.5%, suggesting that a selloff may be around the corner. In any case, market participants don’t seem to share our skepticism and equity futures in Europe and the US are pointing towards a positive opening bell.
Also coming up today
Traders in Spain will be digesting last night’s election results, which saw the ruling socialist party scoop up the most seats…and solid gains for the far-right Vox party.
Bank of England governor Mark Carney is giving the keynote speech at a fintech conference in London today — we’ll watch out for any fireworks.
One of Donald Trump’s regular mantras is that US inflation is very low. We’ll find out if he’s right later today, when the latest PCE core inflation data is released. Economists predict it will dip to 1.7%, from 1.8%, which might boost the president’s push back against interest rate hikes.
- 9.10am BST: BoE governor Mark Carney speaks at Innovate Finance Global Summit
- 10am BST: Eurozone consumer and industrial confidence data
- 1.30pm BST: US core inflation data