Markets gain as global economic outlook improves
Markets gain as global economic outlook improves
The euro hit a seven-month high against the dollar on optimism that a funding deal for debt-crippled Greece will ultimately be agreed — and despite data indicating the region’s economy is on course for its deepest recession since early 2009.
“The driving factors behind euro/dollar are that the global macroeconomic backdrop seems to be improving and people are pricing out the tail risk on Greece,” said Arne Lohmann Rasmussen, head of currency research at Danske Bank.
The euro rose 0.4 percent to $1.2880, its highest since Nov. 2.
The view there will be a deal to help Athens was bolstered on Wednesday when German Chancellor Angela Merkel said after the failure of the latest talks, that an agreement was possible when euro zone ministers meet again on Monday.
The hopes for a Greek deal, combined with the better economic data and a growing view that a solution can be found to the US fiscal crisis, lifted the MSCI world equity index 0.4 percent to 326 points, putting it on track for its best week since mid-September.
Europe’s FTSE Eurofirst 300 index rose 0.4 percent to a two-week high of 1,101.70 points, with London’s FTSE 100, Paris’s CAC-40 and Frankfurt’s DAX between 0.3 and 0.7 percent higher.
However, trading was subdued, with US markets closed for the Thanksgiving holiday.
Confidence in the global economic outlook got its biggest boost from the HSBC flash Manufacturing Purchasing Managers Index (PMI) for China, which pointed to an expansion in activity after seven consecutive quarters of slowdown.
The Chinese data followed a report on Wednesday showing US manufacturing grew in November at its quickest pace in five months, indicating strong economic growth in the fourth quarter.
“There are questions over whether the Chinese economy is really that bad or if the US will take a long time to recover, but we are getting signs that the situation is not as bad as assumed,” said Peter Braendle, head of European equities at Zurich-based Swisscanto Asset Management.
PMI data on the manufacturing and services sectors in Europe’s two biggest economies, Germany and France, added to the better tone, revealing that conditions had not worsened in November, though both economies are still contracting.
However, the PMI numbers for the wider euro zone remain extremely weak, pointing to the recession-hit region shrinking by about 0.5 percent in the current quarter — its sharpest contraction since the first quarter of 2009.
“The weak PMI outturn for November is a major disappointment in light of the increases in the German and French PMI surveys, and suggest the recession on the euro zone’s periphery is gathering further pace,” said ING economist Martin van Vliet.
In the fixed-income markets, the improving tone enabled Spain to sell 3.88 billion euros ($ 4.97 billion) of new government bonds on Thursday, even though it has already raised enough funds for this year’s needs.
The average yield on the three-year bonds in the auction was 3.617 percent, compared with 3.66 percent at a sale earlier in November and a 2012 average of 3.79 percent.
Ten-year Spanish yields were 6 basis points lower on the day at 5.67 percent, having traded above 6 percent at the start of the week.
“It’s a clear reflection that sentiment in Spain has improved markedly,” RIA Capital Markets bond strategist Nick Stamenkovic said, adding that the market was expecting Madrid to ask for an international bailout early next year.
Expectations Greece will soon get more cash set Greek yields on course for their 10th consecutive daily fall. The February 2023 bond yield dropped to 16.16 percent, its lowest since it was issued during a debt restructuring in March.
Commodity prices had some support from the improving outlook for world demand, but the prospect of only modest global growth in 2013 kept the gains in check.
Three-month copper on the London Metal Exchange rose 0.6 percent to $ 7,735.25 a ton, and spot gold inched up to $ 1,730.30 an ounce.
Oil prices were more mixed as the cease-fire between Israel and Hamas eased concerns over the impact the unrest might have had on supply from the region, offsetting support from the prospect of more Chinese oil demand.
Brent slipped 7 cents to $ 110.90 a barrel, while US crude was up 2 cents at $ 87.40.
2 years on, Brexit vote has taken a toll on UK economy
- Big companies are sounding the alarm bell, with plane making giant Airbus this week threatening to pull out of the country, where it employs 14,000, if it gets no clarity on future trade deals
- The governor of the Bank of England, Mark Carney, estimated recently that average household incomes are around 900 pounds lower than the bank was forecasting on the eve of the referendum
LONDON: While it’s still unclear what Brexit will look like when it happens next year, the decision to leave has already had a clear effect on the economy: households are poorer, companies are more cautious about investing, and the property market has cooled.
In the two years since the vote to leave the European Union, Britain has gone from being a pace-setter among the world’s big economies to falling into the slow lane. And the uncertainty over what relations with the EU will be when Brexit becomes official on March 29, 2019 could make matters worse.
Prime Minister Theresa May’s Conservative government remains split on what those relations should be. There are those who favor a “hard Brexit,” a clean break that takes Britain out of the bloc’s free trade union but also gives it more freedom to strike new trade deals around the world. Others want to keep Britain as close as possible to the EU, Britain’s biggest trading partner, which could mean it has to obey more of the bloc’s rules.
Big companies are sounding the alarm bell, with plane making giant Airbus this week threatening to pull out of the country, where it employs 14,000, if it gets no clarity on future trade deals.
“Thousands of skilled, well-paid jobs are now on the line because of the shambolic mess the government have created over the Brexit negotiations,” said Darren Jones, the lawmaker for the community where Airbus has its plant.
Before the referendum of June 2016, the British economy had been one of the fastest-growing industrial economies for years. Now, it’s barely growing. In the first quarter of this year it expanded by just 0.1 percent from the previous three-month period, its slowest rate in about five years.
For most people, the first and most noticeable impact was the drop in the pound. The currency slid 15 percent after the vote in June 2016 to a post-1985 low of $1.21. That boosted prices by making imports and energy more expensive for consumers and companies — the rate of inflation hit a high of 3 percent late last year.
The weaker pound helped some companies: exporters and multinationals that do not sell mainly in the UK But it hurt consumer spending and businesses that depend on their shopping. The retail industry was hit hard, with high-profile companies like Toys R Us and Maplin going bust, and supermarket chain Marks and Spencer planning deep cuts.
While prices rose, wages lagged, even though unemployment is at its lowest since 1975, at 4.2 percent.
“After Brexit, prices definitely went up,” said Nagesh Balusu, manager of the Salt Whisky Bar and Dining Room in London. “We struggled a bit earlier this year, so now we’ve increased the prices.” The bar is next to Hyde Park, a popular destination for foreign visitors. “The tourists have a good exchange rate. They know they can spend a little bit more than they usually do. But the locals are coming a little less. They are starting to think about how much they spend.”
The governor of the Bank of England, Mark Carney, estimated recently that average household incomes are around 900 pounds lower than the bank was forecasting on the eve of the referendum.
The real estate market, meanwhile, has cooled considerably, with the number of property sales in London near a historic low last year, according to estate agent Foxtons.
While some foreign prospective buyers were attracted by the drop in the pound, others seem to have been scared off by uncertainty over what Brexit might mean for their investment.
House prices are stagnating after years of gains, also due to expectations that the Bank of England will keep gradually increasing interest rates.
Nic Budden, Foxton’s CEO, predicts that the real estate market will remain challenging this year, while Samuel Tombs, analyst at Pantheon Economics, predicts that house prices will flatline for the next 6 months.
Against the backdrop of uncertainty, businesses have become more reluctant to invest in big projects. Because Brexit could lead to tariffs on EU imports of British goods, companies are hesitant to spend big on British plants and office space before they know what the new rules will be.
Benoit Rochet, the deputy chief of the port of Calais, the French town across the Channel from Britain, complained to a parliamentary committee this month that “we know there is Brexit but we don’t know exactly what Brexit means.”
“You are not alone,” responded the Conservative chair of the committee, Nicky Morgan.