The FTSE 100 closed in the red on Thursday following a batch of downbeat economic data

by Bella Palmer


UK services activity declined much more than expected in February as economic growth slowed to its weakest for almost three years, according to Markit/CIPS data.


The Markit/CIPS services purchasing managers’ index (PMI) sank to 52.7 for February, well short of the expected 55.1 and the previous month’s 55.6. A reading above 50 signals an expansion while a level below that indicates a contraction.


Caixin’s PMI on China services also fell to 51.2 in February from 52.4 in January, adding to worries about the health of the world’s second largest economy.


Markit’s US services PMI was revised lower to 49.7 in February from a flash estimate of 49.8. It compared to 52.3 in January and analysts’ expectations for a reading of 50.


The Institute for Supply Management’s non-manufacturing purchasing managers’ index retreated from a reading of 53.5 in January to 53.4 in February – the lowest level in at least a year. However, it t was better than the 53.1 which economists had projected.


The US also saw the release of figures on factory orders. The Commerce Department said factory orders rose 1.6% in January, missing expectations for a 2.1% increase.


Closer to home, Nationwide revealed UK house prices rose less than expected in February. House prices increased 0.3% on the month and 4.8% on the year, compared to analysts’ estimates of 0.5% and 5% growth respectively.


Separately, Halifax data showed UK house prices subsided 1.4% month-on-month in February, well below the consensus for a flat month after two months of strong gains.


On the company front, Admiral shares surged after it reported record annual pre-tax profits of £377m for 2015, up 6% on the previous year.
CRH rallied after reporting a 33% jump in full year earnings before interest, taxes, depreciation and amortisation to €2.2bn.


Inmarsat slumped as it said full year pre-tax profit slid 17.3% to $282m on flat revenues of $1.27bn.


Housebuilders were in the red including Taylor Wimpey, Persimmon and Barratt Developments, after ill-received data on house prices.
Imperial Brands was also losing, after Goldman Sachs downgraded the tobacco company’s stock to a neutral rating in a research note on Thursday.


The energy regulator Ofgem is to be handed sweeping new powers to manage the country’s electricity supplies, switch off factories and request emergency back-up generation, under energy market reforms being considered by Whitehall.

Documents seen by The Times show ministers are considering three main options designed to strip National Grid of its role as the UK’s power system operator, a role that grants it huge supervisory influence. – The Times


Rolls-Royce could face a shareholder rebellion at its annual meeting in May after it caved into pressure from an American activist demanding a place on the board. In a move that has taken aback leading institutional investors such as M&G and Standard Life, Rolls has appointed a representative of ValueAct Capital, the San Francisco-based activist investment group, as a director.- The Times


Aubrey McClendon, the founder and former chief executive of Chesapeake Energy, has died in a car crash just a day after he was indicted on charges of bid-rigging. The Oklahoma City Policy Department said in a tweet that Mr McClendon, 56, died in a crash on Wednesday morning. – The Financial Times

The growth of the buy-to-let sector poses a risk to financial stability, a deputy governor of the Bank of England has warned. Sir Jon Cunliffe said that there was a risk that if large numbers of buy-to-let landlords were to exit the market at the same time, there could be a “spiral of house price declines” in the property market. – The Times


The German stock market could sell off a key part of the London Stock Exchange to get its takeover of the company past regulators. Deutsche Börse launched a surprise bid for the LSE last week and bankers said yesterday that it may spin off Clearnet SA, the French part of London’s giant clearing operation for shares and other financial instruments. – The Times


Bookmakers will be forced to fill the financial black hole facing the horseracing industry under government plans to make it compulsory next year for their offshore gambling operations to contribute to the sport. The government will tomorrow say it will replace the controversial horseracing levy with a new “racing right” next April, a move the sport believes will help it plug its looming cash shortfall. – Daily Telegraph


The UK’s embattled steel sector faces fresh pressure after the US government stepped in to protect its domestic industry against the growing glut of cheap Chinese supply, industry groups have warned. UK steel producers have been dealt a double blow by the US plans to impose crippling import duties of up to 266pc against Chinese companies, and around 30pc against UK steel makers. – Daily Telegraph


A recession in Europe could lead to the collapse of the eurozone, as the single currency would buckle under the political turmoil unleashed by a fresh downturn, a leading investment bank has warned. In a research note titled “Close to the edge”, economists at Swiss bank Credit Suisse warned the fate of monetary union hangs in the balance if Europe’s policymakers are unable to ward off another global slump and quell anti-euro populism. – Daily Telegraph


Keith Hellawell has vowed to continue as chairman of Sports Direct in a snub to shareholders and campaigners calling for his head after the retailer’s relegation from the FTSE 100. In an interview with the Guardian, the former chief constable suggested the retailer’s difficulties with the City were largely cosmetic, despite concerns over the group’s trading and its treatment of workers – as well as longstanding investor complaints including the influence of 55% shareholder Mike Ashley and thefailure to hire a permanent finance director for two years. – The Guardian


The chief executive of Rolls-Royce Motor Cars, which is owned by BMW, has written to all its workers in Britain to warn that exit from the European Unionwould drive up costs and prices and could affect the company’s “employment base”. The letter, leaked to the Guardian, is one of six sent by the bosses of each of BMW’s British companies, including MINI, to their staff each warning of the dangers of UK withdrawal. It comes after the government warned that car-makers would be among those badly hit by Brexit in a civil service report. – Guardian


Seven years of quantitative easing (QE) and record low interest rates have cost savers an estimated £160bn, but supported strong increases in the prices of property, stocks and bonds. Analysis by financial firm Hargreaves Lansdown suggests that up to £106bn is being held in accounts paying no interest, as loose monetary policy has “annihilated” returns on cash. – Guardian


US stocks eked out small gains after a choppy session as oil prices recovered, but investors were reluctant to make any bold moves ahead of Friday’s all-important nonfarm payrolls report.


The Dow Jones Industrial Average and the S&P 500 both ended up 0.3% while the Nasdaq rose 0.1%.


A stabilisation in oil prices lent some support, with West Texas Intermediate up 0.1% at $34.71 a barrel and Brent crude 0.7% higher at $37.19. Prices had been weaker earlier in the session after government data on Wednesday showed US crude inventories rose 10.4m barrels to a record 517.98m last week.


Ahead of the all-important nonfarms report, the Labor Department revealed the number of first time unemployment benefits claimants in the US unexpectedly rose last week. Initial jobless claims rose by 6,000 to 278,000, versus economists’ expectations for a drop to 271,000. The previous week’s figures were unrevised.


Pantheon Macroeconomics said: “After three straight downside surprises, claims have nudged a bit above the underlying trend, which probably is in the mid-270s. At that level, and coupled with robust indicators of the pace of hiring, we’d expect payroll growth to run close to the 2015 average, 228k.


“That said, we expect only 180k tomorrow, thanks to a combination of a correction in the construction sector after the Q4 weather boost, and a tendency for the February number initially to be understated and then revised higher.”


Investors also digested some uninspiring data on the US services sector. Markit’s services purchasing managers’ index fell to 49.7 in February, down from 53.2 in January and worse than the 50 reading expected by analysts. It was below the ‘flash’ estimate of 49.8 and under the 50 mark that separates contraction from expansion for the first time in almost two and half years.


Elsewhere, data showed factory orders rose 1.6% in January following two straight monthly declines. Although this was weaker than the 2% gain expected by economists, it was the biggest increase in seven months.


Analysts expect the nonfarm payrolls report to show US employers added 193,000 jobs in February, compared to 151,000 a month earlier. The unemployment rate is forecast to hold at 4.9% while average hourly earnings are projected to rise 0.2% month-on-month in February, slowing from the previous month’s 0.5% increase.


The Federal Reserve is taking the strength of the labour market into consideration as it determines the timing of its next change in interest rates.


In corporate news, Chesapeake Energy Corp shares surged after the company’s former chief executive died on Wednesday in a car accident. He had been charged a day earlier with breaking federal antitrust laws on claims he had conspired with an unnamed company to keep land-lease rights in Oklahoma low between 2007 and 2012.


Joy Global surged after reporting a worse-than-anticipated loss for its first quarter.


On the downside, warehouse chain Costco Wholesale Corp. was lower after it posted weaker-than-expected second quarter profit and revenue.

Ciena Corp tumbled after it reported a narrower loss for its most recent quarter but issued disappointing guidance.


Supermarket chian Kroger Co was also under the cosh after its fourth quarter sales missed analysts’ expectations.


Herbalife shares tanked after the marketing and nutrition firm said it had released “errant” information regarding new members.


Oil prices rallied on Thursday for the fourth successive session, with Brent and WTI futures posting gains for much of the European afternoon.


Overnight, the International Energy Agency said US oil production fell last week by about 25,000 barrels per day to just over 9m bpd, down from a peak of 9.6m bpd in April, soothing concerns about a supply glut.

With Saudi Arabia commenting that it would work with other producers to limit oil market volatility, selected analysts opined that there were hints the market had bottomed out.


However, the US Department of Energy’s statistical arm – the Energy Information Administration – reported the country’s crude oil inventories rose by 10.4m barrels to a total of 518m barrels last week, well above the 3.6m barrel increase expected by analysts, tempering market expectations.


Analysts at FinnCapp, said “Brent had a pretty stable week as the market continues to pin its hopes on the production freeze. Data for February from Russia was indeed flat at 10.38m bpd, but this level is almost a thirty-year high. We can expect a final decision on a oil producers’ freeze in March, which if not forthcoming will likely have a negative impact on the crude price.”


At 1600 GMT, the Brent front month futures contract was up 0.68% or 25 cents to $37.18 per barrel, while the WTI fell 1.38% or 48 cents to $35.14 per barrel.

Away from oil markets, precious metals stayed on positive turf. The COMEX front-month gold futures contract was up 1.04% or $12.90 at $1,254.70 an ounce, while spot gold was up 1.33% or $16.47 to $1,256.45 an ounce.


COMEX silver rose 0.95% or 14 cents to $15.17 an ounce, while spot platinum also rose 1.31% or $12.23 to $946.93 an ounce.
Headline base metal futures were largely higher across the London Metal Exchange board. At 1635 GMT, three-month futures contracts of nickel (+1.8%), lead (+2.0%), tin (+1.7%), zinc (+1.8%) and copper (+1.3%) headed upwards, with the latter rising to its highest levels in over three months. Going against market direction, primary aluminium (-0.1%) futures headed lower.


Analysts remain concerned about the long-term direction of the metals market. Ratings agency Moody’s views current weak prices and softer demand as an indication of a “fundamental shift” in the operating environment beyond a normal cyclical downturn.


Commentators at Macquarie said there was more bad news for ex-China producers. “Chinese smelters are generally the marginal cost producer for all metals, which means that lower Chinese costs, together with potential yuan depreciation, will be a headwind to global prices across the commodity spectrum.


“We could see more exports of aluminium, steel and potentially coal. China will structurally remain a major importer of iron ore, copper, nickel and zinc regardless of reforms due to their lack or resources in those metals, so these metals should be relatively less impacted by recent reforms.”


Finally, agricultural commodity futures were on largely positive turf. CBOT wheat (+0.72%), ICE cocoa (+0.61%) and cotton (+0.59%) futures headed higher, but CBOT corn (-0.21%) and CME live cattle (-0.49%) contracts slipped in early trading calls stateside.


The dollar headed lower against major crosses on Thursday, following a sequence of disappointing macroeconomic data.


The Institute for Supply Management’s US non-manufacturing purchasing managers’ index retreated from a reading of 53.5 in January to 53.4 in February; its lowest level in at least a year.


Nonetheless, that was better than the 53.1 which economists had pencilled in. Concurrently, Non-farm labour productivity decreased at a 2.2% annual rate in the fourth quarter of 2015, according to the US Bureau of Labor Statistics.


Together with a 1.1% rise in hourly compensation, the fall in productivity drove unit labour costs up by 3.3%. Jesse Hurwitz, analyst at Barclays, said, “Even after the upward revision, the four-quarter change in non-farm business output per hour remains tepid at 0.5%, in line with the five-year average.


“On balance, this morning’s report does little to change the fact that US productivity growth remains sluggish in the aftermath of the recession.”


At 1539 GMT, the dollar was broadly flat against the yen, changing hands at JPY113.57. However, the euro and pound recovered ground, posting upticks of 0.53% and 0.48% versus the greenback, changing hands at $1.0926 and $1.4145 respectively.

Meanhwile, Capital Economics’ forecast remains that the pound will fall further against the dollar this year, to $1.30 from around $1.41 now. EUR/GBP cross moved 0.08% in favour of the Eurozone currency exchanging at £0.7725.


Kit Juckes, head of forex at Societe Generale, said, “The pound’s short-covering bounce has run out of steam and after a trio of poor UK PMIs this week, I can’t think of anything good to say about it.


“In broader terms, ‘Brexit’ is bad for UK growth and for the pound, and for European stability and for the euro. However, it is not as much of an issue this week is soggy global data, stable oil, or recovering risk sentiment.”


Elsewhere, selected commodity linked currencies gained some momentum. The greenback fell 0.07% against the Canadian dollar changing hands at CAD$1.3410. A plethora of other commodities currencies headed higher along with the loonie, particularly in Latin America, with the dollar falling 0.23%, 0.12% and 1.06% against the Colombian, Chilean pesos and the Brazilian Real respectively.


Finally, the Australian dollar rose 0.86% against the greenback exchanging at US$0.7358, after data released overnight suggested Australia’s real GDP growth was a solid 0.6% quarter-on-quarter in the fourth quarter of 2015, following 1.1% growth – revised up from 0.9% – in the previous quarter.


The New Zealand dollar also rose versus its US counterpart notching gains of 0.73% exchanging at US$0.6724.


Most European stock benchmarks ended lower on Thursday, with investors pausing for breath after five consecutive days of gains and ahead of a key US jobs report he next day.


The benchmark Stoxx Europe 600 index closed down by 0.45% at 339.42 points while France’s CAC 40 slipped 0.2% and Germany’s DAX ended the day lower by 0.25%.


Milan’s benchmark FTSE Mib was the lone exception among the Continent’s leading gauges to end the day in the green, tacking on a gain of 0.78% to 18,348.50.


At the same time, oil prices were a tad lower, with West Texas Intermediate off by 0.23% to $34.58 a barrel and Brent crude down 0.30% at $36.78.


Euro area service sector purchasing managers’ indices came in ahead of forecasts, but were nevertheless to be seen at multi-month lows in February.


The outturn in Thursday’s US ISM services PMI was similarly mixed, coming in at a forecast-beating 53.4 (consensus: 53.1), down from 53.5 in the month before.


However, a sub-index linked to hiring trends in the sector underwhelmed analysts ahead of Friday’s critical monthly jobs report.


“The big disappointment is the slump in the employment index to a two-year low of 49.7, from 52.1. At first glance that is a concern because it leaves the index consistent with monthly gains in services payrolls of only 50,000 per month. But we’ve seen this happen with the employment index before,” Paul Ashworth, chief economist at Capital Economics said in a research note sent to clients.


For their part, analysts at UBS sent a note to clients pegging the risk of a recession in the US through the fourth quarter of 2016 at 23%. However, should certain risks continue to pester markets, that probability might rise to 49% with a view to 2017, they cautioned.


“If the themes of rising Chinese devaluation risks, lower oil prices, and tighter Fed policy (through a stronger dollar) continue in 2016, 2017 recession probabilities could rise to 49%. This could lead to a substantial downside for risky assets and a significant spike in volatility,” UBS strategist Stephen Caprio said.


In corporate news, BHP Billiton was in the black after its part-owned Brazilian mining venture Samarco agreed a B$30bn ($8bn or £5.5bn) programme of compensation and clean-up from the bursting of a mine tailings dam last November.


Steelmaker ArcelorMittal was higher after its chief executive officer told Les Echos the company was not planning to cut its French production.


Insurer Admiral rallied after posting a forecast-beating 6% rise in 2015 pre-tax profit and lifting its dividend target.


Sportswear maker Adidas was weaker after reporting a slightly bigger than expected net loss for the quarter.
Evonik Industries shares tanked after the chemical maker issue a weaker-than-expected profit outlook.


Satellite communications provider Inmarsat slid after posting a drop in full year profit amid weak global government spending.


Back on the macroeconomic front, data from Eurostat showed retail sales in the Eurozone grew more strongly than expected in January.
Sales were up 0.4% on the month compared with a 0.3% gain in December and expectations of 0.1% growth.


On the year, sales rose 2%, which was higher than 1.4% the previous month and consensus expectations of 1.3% growth.


Pantheon Macroeconomics said it was “an upbeat report pointing to a good start to the year for Eurozone consumers”.


Elsewhere, Markit’s final Eurozone composite purchasing managers’ index for February fell to 53.0, which was above the flash estimate of 52.7 and January’s 53.6 but marked the lowest reading since January last year.


Still, it was comfortably above the 50 mark that separates contraction from expansion.


The services PMI, meanwhile, came in at 53.3, up from the flash estimate of 53 but below January’s 53.6 and marking a 13-month low.
In Germany, the composite PMI fell to 54.1 in February from 54.5 in January, marking a five-month low.


In France, the composite PMI slipped to 49.3 from 50.2 in January, which was a 13-month low.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
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