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UK manufacturing growth slows, but markets calmed by US presidential address - business live UK manufacturing growth slows, but markets calmed by US presidential address - business live
(35 minutes later)
10.38am GMT
10:38
UK mortgage approvals rise in January
Phillip Inman
More on the UK housing market following the earlier Nationwide survey.
Bank of England mortgage approval figures show the upward trend since the Brexit vote last summer continued in January.
The number of mortgages approved for new house purchase jumped from 67,898 in December to 69,928, higher than the consensus among City economist for a gentler rise to 68,650.
This was the fifth monthly rise in a row and the highest since last March.
Scott Bowman, UK economist at Capital Economics, said the bounce in mortgage lending would have strengthened the argument for rate rises later in the year if it were not for a fall in annual growth in lending to corporates from 3.2% in December to 2.7% in January.
“This contributed to a drop in annual growth in the monetary policy committee’s preferred measure of bank lending - M4 lending excluding intermediate OFCs - from 6.2% to 5.3%. Nonetheless, we think that supportive monetary policy will ensure that the slowdown in bank lending this year isn’t too sharp.”
Jeremy Duncombe, director at Legal & General Mortgage Club, said the mortgage aprovals figures highlighted the resilience of the UK housing market.
“Despite an uncertain political outlook, it is great to see the industry adopting a ‘keep calm and carry on’ approach as the mortgage industry continues to serve the needs of remortgagers and buyers alike,” he said.
But Dennis de Jong, managing director at UFX.com warned that the strength was dependent on Bank of England support following the cut in interest rates last August.
“Mark Carney and his Bank of England colleagues helped to breathe some life into it by cutting interest rates further and mortgage approvals have stood up very well in January.
“However, this may not continue for long with high levels of uncertainty around Britain’s exit from the EU far from the best breeding ground for house buying. There has been some slightly conflicting data in the past fortnight regarding the strength of UK housing, but the general consensus is that things are likely to worsen throughout the year,” he said.
10.18am GMT
10:18
Here’s more reaction to the UK manufacturing PMI figures:
Lee Hopley, chief economist at EEF, the manufacturers’ organisation:
The slight slowing in the pace of expansion in UK manufacturing signalled by today’s PMI conceals some still positive trends across the industry. Export demand gained further ground in February, offsetting a bit of a slowdown in the rate of growth in the domestic market. This is likely to be a sign of things to come as consumer facing sectors are more challenged than other manufacturing sectors as rising inflation eats into household incomes.
However, it seems that investment goods will pick up the baton – more confident and busier firms, brighter global prospects and rising commodity prices should create the right conditions for growth in this industry segment. With recent official statistics confirming that manufacturing contributed positively to the UK economic performance in 2016, what we’ve seen so far suggests we should be in for more of the same in 2017.
Mike Rigby, Head of Manufacturing at Barclays:
Two months into 2017 and despite a slowing in the rate of growth in February, manufacturers continue to register strong levels of output, healthy order books and growing trade courtesy of a weak sterling. However, despite the recent surge in exports, the sector continues to rely mostly on domestic demand and with price rises feeding through on the back of growing input costs, even with their recent easing, inflationary pressure continues to hover with intent. It’s how manufacturers now respond, particularly in their investment intentions, that will help determine how long the raised level of optimism in the sector continues.
Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, said:
There will be fears that the latest PMI data suggests the manufacturing sector is showing the first signs of slowdown since last summer as the UK prepares to begin in earnest the process of leaving the European Union.
Yet despite persistent headwinds, principally the uncertainty around future trade terms and pricier imports as a result of the weaker pound, some exporting manufacturers are taking the opportunity to review their international trade strategies and look beyond the EU, especially taking advantage in the short term of the devaluation of sterling making our exports more competitive.
Firms are also becoming more skilled at dealing with unexpected geopolitical events. Businesses in the car manufacturing supply chain are waiting to see how the PSA-Opel deal will pan out with elections in several major European countries this year.
Howard Archer, chief UK and European economist at IHS Markit:
While weaker than January and December, this is still a decent survey that points to decent manufacturing expansion in the first quarter. This would follow manufacturing output rebounding a pleasing 1.2% quarter-on-quarter in the fourth quarter of 2016 after declining 0.8% quarter-on-quarter in the third quarter.
However, the PMI does point to a slowdown in domestic demand in February. This was partly offset by a welcome pick-up in export orders after a lacklustre January performance.
Ongoing very high manufacturers’ pricing balances remains a serious black mark in the survey that fuels belief UK consumer price inflation is headed markedly higher over the coming months and will likely reach 3% later in the year.
The slowdown in growth in domestic orders in February fuels belief that there are mounting challenges for the manufacturing sector.
9.56am GMT9.56am GMT
09:5609:56
ITV suffers fall in advertising after Brexit voteITV suffers fall in advertising after Brexit vote
Mark SweneyMark Sweney
Meanwhile, ITV has reported its worst year for TV advertising since the 2009 recession as Brexit fears caused jittery companies to pull budgets last year.Meanwhile, ITV has reported its worst year for TV advertising since the 2009 recession as Brexit fears caused jittery companies to pull budgets last year.
ITV said that TV ad revenues fell 3% last year to £1.67bn and would fall 6% in the first four months this year as retailers and food companies focus on price cuts over ad spend to win over consumers.ITV said that TV ad revenues fell 3% last year to £1.67bn and would fall 6% in the first four months this year as retailers and food companies focus on price cuts over ad spend to win over consumers.
However, the UK’s biggest free-to-air broadcaster was able to pay out a special dividend to shareholders of more than £200m thanks to the performance of ITV Studios.However, the UK’s biggest free-to-air broadcaster was able to pay out a special dividend to shareholders of more than £200m thanks to the performance of ITV Studios.
The TV production business - which makes and sells shows including Victoria, Mr Selfridge, Come Dine with Me and Coronation Street - helped ITV more than offset the ad decline with double-digit growth in revenues and profits last year.The TV production business - which makes and sells shows including Victoria, Mr Selfridge, Come Dine with Me and Coronation Street - helped ITV more than offset the ad decline with double-digit growth in revenues and profits last year.
ITV saw pre-tax profits fall 14% to £553m, due to £164m in mostly non-cash charges, while total revenues grew 4% to £3.5bn. ITV, which had warned analysts of the Brexit-related TV ad decline, beat city consensus figures by 3%.ITV saw pre-tax profits fall 14% to £553m, due to £164m in mostly non-cash charges, while total revenues grew 4% to £3.5bn. ITV, which had warned analysts of the Brexit-related TV ad decline, beat city consensus figures by 3%.
UpdatedUpdated
at 9.57am GMTat 9.57am GMT
9.54am GMT9.54am GMT
09:5409:54
Despite the weaker than expected UK factory growth, Rob Dobson at survey compiler IHS Markit said UK manufacturing output could grow by as much ast 1.5% in the first quarter:Despite the weaker than expected UK factory growth, Rob Dobson at survey compiler IHS Markit said UK manufacturing output could grow by as much ast 1.5% in the first quarter:
The big question is whether robust growth can be sustained or whether it will continue to wane in the coming months. The big question is whether robust growth can be sustained or whether it will continue to wane in the coming months. The slowdown in new order growth and a drop in backlogs of work suggest output growth may slow further. However, elevated business optimism, continued job creation, a recovery in export orders and rising levels of purchasing all suggest that any easing will be only mild. Indeed, almost 50% of companies expect production to be higher in one year’s time.
Chris Williamson, chief business economist at IHS Markit, said the figures suggested the UK economy should grow by 0.5% in the first quarter.Chris Williamson, chief business economist at IHS Markit, said the figures suggested the UK economy should grow by 0.5% in the first quarter.
Updated
at 10.10am GMT
9.33am GMT9.33am GMT
09:3309:33
UK factory growth slowsUK factory growth slows
Britain’s factory activity grew more slowly than expected in February, but is still continuing to show the strong momentum seen since the Brexit vote.Britain’s factory activity grew more slowly than expected in February, but is still continuing to show the strong momentum seen since the Brexit vote.
The Markit/CIPS manufacturing purchasing managers index slipped from 55.7 in January to 54.6, below the expected figure of 55.6. But it remains close to a two and a half year high. There was a slight easing in inflationary pressures which had been rising in the wake of sterling’s slump following the referendum outcome last June.The Markit/CIPS manufacturing purchasing managers index slipped from 55.7 in January to 54.6, below the expected figure of 55.6. But it remains close to a two and a half year high. There was a slight easing in inflationary pressures which had been rising in the wake of sterling’s slump following the referendum outcome last June.
9.26am GMT9.26am GMT
09:2609:26
And here is Markit’s PMI rankings:And here is Markit’s PMI rankings:
9.24am GMT9.24am GMT
09:2409:24
Eurozone manufacturing boosted by weak euroEurozone manufacturing boosted by weak euro
Eurozone factories grew at their fastest rate for 70 months in February, as the weak euro helped boost demand for exports.Eurozone factories grew at their fastest rate for 70 months in February, as the weak euro helped boost demand for exports.
The IHS Markit purchasing managers index rose from 55.2 in January to 55.4, the highest level since April 2011. It was revised down slightly from an initial estimate of 55.5. Markit said:The IHS Markit purchasing managers index rose from 55.2 in January to 55.4, the highest level since April 2011. It was revised down slightly from an initial estimate of 55.5. Markit said:
Companies indicated that domestic demand remained solid in a number of markets, while the weak euro contributed to the fastest growth of new export business for almost six years.Companies indicated that domestic demand remained solid in a number of markets, while the weak euro contributed to the fastest growth of new export business for almost six years.
Chris Williamson, chief business economist at IHS Markit said:Chris Williamson, chief business economist at IHS Markit said:
Euro area manufacturers are reporting the strongest production and order book growth for almost six years, in what’s looking like an increasingly robust upturn.Euro area manufacturers are reporting the strongest production and order book growth for almost six years, in what’s looking like an increasingly robust upturn.
Companies clearly expect the good times to persist. This year has seen firms more optimistic about the future than at any time since the region’s debt crisis. Companies are reporting stronger demand in both home and export markets, with the weakened euro providing an accompanying tailwind to help drive sales.Companies clearly expect the good times to persist. This year has seen firms more optimistic about the future than at any time since the region’s debt crisis. Companies are reporting stronger demand in both home and export markets, with the weakened euro providing an accompanying tailwind to help drive sales.
Given the current buoyant demand environment, manufacturers are eschewing political uncertainty and quietly getting on with growing their businesses. The rate of job creation seen so far this year in the manufacturing sector has consequently been among the best seen in the history of the euro.Given the current buoyant demand environment, manufacturers are eschewing political uncertainty and quietly getting on with growing their businesses. The rate of job creation seen so far this year in the manufacturing sector has consequently been among the best seen in the history of the euro.
Greece remains the outlier, stuck firmly in contraction territory while all other countries are expanding with the Netherlands, Austria and Germany enjoying the strongest growth.Greece remains the outlier, stuck firmly in contraction territory while all other countries are expanding with the Netherlands, Austria and Germany enjoying the strongest growth.
On the price front, not only are higher commodity prices and the weak euro pushing up firms’ costs, but there’s also growing evidence of a sellers’ market developing for many goods as demand exceeds supply, which suggests core inflationary pressures may be starting to rise.On the price front, not only are higher commodity prices and the weak euro pushing up firms’ costs, but there’s also growing evidence of a sellers’ market developing for many goods as demand exceeds supply, which suggests core inflationary pressures may be starting to rise.
9.16am GMT9.16am GMT
09:1609:16
And over in China:And over in China:
#China PMI points to robust Q1 - but weaker investment growth likely to weigh on the Chinese cycle soon https://t.co/1cixmwZh00 pic.twitter.com/9jemDlhPtX#China PMI points to robust Q1 - but weaker investment growth likely to weigh on the Chinese cycle soon https://t.co/1cixmwZh00 pic.twitter.com/9jemDlhPtX
9.07am GMT9.07am GMT
09:0709:07
There was also an improvement in Greek manufacturing last month, although it still contracted for the sixth month in a row.There was also an improvement in Greek manufacturing last month, although it still contracted for the sixth month in a row.
#Greece Feb Manufacturing PMI +1.1 points to 47.7 from 46.6 in Jan (Markit). #economy#Greece Feb Manufacturing PMI +1.1 points to 47.7 from 46.6 in Jan (Markit). #economy
#Greece Markit Manufacturing PMI at 47.7 https://t.co/lhuFNx5fK1 pic.twitter.com/wGr4mQpH8c#Greece Markit Manufacturing PMI at 47.7 https://t.co/lhuFNx5fK1 pic.twitter.com/wGr4mQpH8c
9.06am GMT9.06am GMT
09:0609:06
Still with Germany, and seasonally adjusted unemployment fell by 14,000 in February to 2.592m.Still with Germany, and seasonally adjusted unemployment fell by 14,000 in February to 2.592m.
This is a bigger fall than the expected 10,000 decline but less than the 26,000 drop seen the previous month.This is a bigger fall than the expected 10,000 decline but less than the 26,000 drop seen the previous month.
The jobless rate was unchanged at 5.9%The jobless rate was unchanged at 5.9%
8.59am GMT
08:59
German factory growth at near six year high
But over in the powerhouse of the eurozone economy, things look pretty bright for manufacturers.
Factory activity expanded at the strongest rate in nearly six years in February, with Markit’s purchasing managers index up from 56.4 in January to 56.8. IHS Markit economist Trevor Balchin said:
The survey results suggest that manufacturing [which accounts for about a fifth of the economy] will contribute to a strengthening in overall economic growth in the first quarter.
He said GDP growth in the quarter was likely to rise to at least 0.6% after 0.4% growth in the final three months of 2016. Last year Germany was the best performing economy in the G7, beating the UK into second place.
Good economic news for Germany although a worry for the ECB on the prices/inflation front. https://t.co/GpHjK34ajE
Updated
at 9.03am GMT
8.56am GMT
08:56
French manufacturing growth slips back
To continue the mixed picture for European manufacturing, French factory activity more slowly in February.
The IHS Markit purchasing managers index fell from 53.6 in January to 52.2 last month, down from a preliminary reading of 52.3. Companies raised prices at the fastest pace since July 2011 as they passed on rising commodity costs on to customers. Markit economist Alex Gill said:
New business from both domestic and foreign clients..increased. However, rates of growth eased for a second successive month, suggesting a downward trend in underlying demand conditions.
#France mfg #PMI at 52.2 in February, down from 53.6 in January. Firms increase output at fastest pace in 69 months. https://t.co/mMe37J7YCX pic.twitter.com/8Ye1ApQfvW
Updated
at 9.03am GMT
8.49am GMT
08:49
Italian manufacturing grows strongly
Italy’s manufacturing sector grew at its fastest pace since December 2015 in February, according to the latest Markit survey.
The purchasing managers index rose from 53 in January to 55 last month, and well above the 53.5 figure expected by economists.
#Italy #manufacturing #PMI up markedly to 14-month high of 55.0 in Feb (53.0 in Jan). Best news sees employment growth best since Nov 2000
8.27am GMT
08:27
Back with the US, and expectations of an interest rate rise in March have soared after Federal Reserve comments and Trump’s speech. Kathleen Brooks at City Index explains:
The media is focused on the lack of detail surrounding [Trump’s] tax cuts and infrastructure plans, however, the market that matters at the moment - the Fed Funds Futures market – has surged into life since Trump spoke earlier, and is now pricing in a whopping 80% chance of a rate hike from the Federal Reserve at its next meeting on 15th March; just last week this was only 34%.
What’s triggered the sea-change in rate hike expectations from the Fed? Firstly, the Fed itself. The President of the New York Fed, Dudley, spoke last night and said that the case for tightening interest rates has “become a lot more compelling”. As head of the NY Fed, Dudley’s words hold weight, added to this he is not usually a hawk, so when he is considering a rate hike the market takes note. This was followed by even more direct comments from the head of the San Francisco Fed, who said that he sees a March rate hike getting “serious consideration”. Fed members don’t just let words slip out when they speak to the press, this was a message for the markets, and the markets have duly reacted.
The second boost to rate hike expectations is probably from Trump. Even if his speech did lack detail the President still wants Congress to pass a $1 trillion infrastructure spending programme, something he has a chance of getting through, even if it is a slimmed down version, because Congress is controlled by the Republicans. There was some expectation that Trump’s spending plans could be delayed for a year or so, the fact the President has laid them out at this early stage gives the Fed the green light to normalise monetary policy to counter-balance a boost to fiscal spending.
Of course, there is still a chance that the market will over-shoot and get too excited for a March rate hike that may never come. US PCE data later today, comments from Janet Yellen on Friday and next week’s payrolls and wage data will all be key indicators that could determine if we get a rate hike on 15th March. Thus, it could be a volatile few weeks.
8.21am GMT
08:21
Spanish factory growth slows
Spain’s manufacturing sector grew by less than expected in February and less than the previous month:
Spanish Markit Manufacturing PMI Feb: 54.8 (est 55.8; prev 55.6)
But the purchasing managers index was still well above the 50 level which separates expansion from contraction.
Manufacturers said they increased output prices to cope with the rising cost of materials such as steel.
#Spain Markit Manufacturing PMI at 54.8 https://t.co/rC4KwC3wbv pic.twitter.com/j09iV32D1Z
Updated
at 8.22am GMT
8.14am GMT
08:14
European markets open higher
As expected, investors in Europe have reacted calmly to Donald Trump’s address to Congress, with markets on the front foot ahead of a batch of economic data.
The FTSE 100 is up 43 points or 0.6% while Germany’s Dax has opened up 0.8%, France’s Cac has climbed 0.9% and Italy’s FTSE MIB and Spain’s Ibex are both around 0.8% higher.
7.55am GMT
07:55
UK house prices rise more than expected - Nationwide
Angela Monaghan
In the UK, there was little sign of a Brexit-related blow to the housing market in February, with prices rising more than expected according to Nationwide.
The average price of a home rose 0.6% to £205,846 last month, following a 0.2% increase in January.
It comfortably beat economists’ expectations of a 0.2% rise and took the annual rate of house price growth to 4.5% from 4.3% a month earlier.
Robert Gardner, Nationwide’s chief economist, said the backdrop for the housing market was mixed. The economy had performed relatively strongly on the one hand, with growth of 0.7% in the fourth quarter, but on the other hand UK consumers might be less willing to spend money in the coming months as inflation picks up.
He concludes: “In our view a small rise in house prices of around 2% is more likely than a decline over the course of 2017, since low borrowing costs and the dearth of homes on the market will continue to support prices.”
7.47am GMT
07:47
Although President Trump repeated his pledge to build a wall between the US and Mexico, he did not say explicitly that Mexico would have to pay for it, which gave some relief to the peso.
But he did attack the high cost of pharmaceuticals again, which could put some pressure on the sector, while bank investors may also be disappointed. Kathleen Brooks, research director at City Index, said:
President Trump reiterated that he would help to drive down the cost of drugs, which could knock the S&P 500’s healthcare sector back from its highest level since mid-2016. The lack of detail on financial regulation could also curb some enthusiasm for US banks. The President did not mention Dodd-Frank by name; a regulation that the financial sector had hoped would be scrapped by this administration. To cushion the blow, however, is the prospect of a Fed rate hike this month, so any decline in US banks on Wednesday could be used as a buying opportunity.
Higher US interest rates are supporting the dollar, and pushing the pound lower. Sterling is down 0.12% at $1.2366 although the UK currency is up 0.23% against the euro at €1.1728.
7.36am GMT
07:36
Here are the expected openings for the European markets:
Our European opening calls:$FTSE 7284 up 20$DAX 11858 up 24$CAC 4874 up 16$IBEX 9555 down 1$MIB 19002 up 89
7.34am GMT
07:34
Agenda: Reaction to Trump speech, global manufacturing snapshot due
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
President Trump’s long awaited address to Congress ended up being more, well, presidential than usual. There was nothing there to scare the horses, although there was not much in the way of new detail in terms of his tax reforms and infrastructure spending plans. Michael Hewson, chief market analyst at CMC Markets, said:
Having built up expectations to elevated levels over the past few weeks the President set himself an exceedingly high bar to deliver, which always suggested that it could struggle to live up to expectations, in terms of additional detail to what we already know. Ultimately that is the key benchmark here, yes the speech was optimistic and Mr Trump did come across as more Presidential, however the speech merely confirmed a lot of the details that had been heavily trailed before.
As to the key question as to whether it would come across as more or less bullish in terms of spending and rates there was still a significant lack of detail. This may be more to do with tempering expectations until he puts his final plans through Congress ahead of any debt ceiling negotiations.
The speech merely confirmed the President’s aspirations with respect to infrastructure spending, up to $1trn, while there was little in the way of content about tax policy, though we had been forewarned about that given his comments about prioritising revamping Obamacare. There were no details about a border adjustment tax, though he did reiterate his commitment to free and fair trade, as well as building the border wall with Mexico.
Our full report on Trump’s address is here:
All this served to calm the markets, although ahead of the speech the Dow Jones Industrial Average ended lower after twelve day’s of record highs, albeit down just 0.12%. That meant it has fallen short of beating the best consecutive run of closing highs - 13 days in January 1987.
But in the aftermath of Trump’s speech Asian markets moved higher, with the Nikkei up 1.4% to its best close since February 15. European markets are also expected to open ahead.
US interest rates were also in focus after more members of the Federal Reserve suggested a rise could be imminent, perhaps even at this month’s meeting. New York Fed president Bill Dudley, thought of as a dove on policy, seemed to be veering towards a rise, saying it had become “a lot more compelling” after recent data.
It being the first of the month, there is a host of new data due, including manufacturing figures for February from the eurozone, UK and US as well as German jobs and inflation data.
Updated
at 7.37am GMT