- Euro fretful before French vote
- Pound holds steady below $1.28 against US dollar
- UK retail sales post biggest quarterly fall since 2010
- FTSE 100 suffers worst week since early November
- Deutsche Bank upgrades its pound forecasts for this year
- PMI: French business activity shines in April despite election
Market Report: Deutsche Bank raises pound forecast, as FTSE 100 suffers worst week since early November
Deutsche Bank, one of the world’s biggest sterling bears, has had a change of heart. The German lender raised its forecast for the pound thanks to the prospect of a strong Conservative victory at the forthcoming general election and a softer Brexit.
Macro strategist Oliver Harvey said: “Our new sterling forecast reflects our more optimistic view of the Brexit endgame, but not of sterling fundamentals.”
The bank, which closed out its long-standing bearish trades earlier this week, now expects the pound to fall to $1.20 against the US dollar by the end of this year, up from an earlier forecast of $1.06. By the second quarter of this year, currency strategists also have a less bearish forecast of $1.30, up from $1.14 and compares to its current level of around $1.28.
Mr Harvey said: “Politics will cease to be the only dominant driver of sterling and fundamentals will matter more,” before adding that the new forecasts are “far from bullish”.
However, the pound, which rose on the back of election optimism, weighed heavily on the FTSE 100. The blue chip index, which tends to be inversely correlated to the pound as around 70pc of its constituents are dollar earners, posted its sharpest weekly loss since early November, falling 213.04 points, or 2.91pc, to 7,114.55.
Despite a disappointing week for the index, Marks & Spencer became a stand out performer yesterday, recovering to its pre-Brexit vote levels after Barclays adopted a bullish stance on the retailer.
The bank praised Marks & Spencer’s “sensible solutions” to industry headwinds, its attractive dividend and its shift away from clothing towards food as it began covering the blue chip stock with an “overweight” rating and a price target of 410p.
Analyst James Anstead said: “Chief executive Steve Rowe’s sensible strategic plans should leave the UK business trading from better quality stores and should quickly cut around £45m of losses internationally.”
On Thursday, Marks & Spencer announced plans to shutter six stores as part of a review of its UK estate. Ten months after plunging more than 22pc, the FTSE 100 stock rallied by as much as 3.8pc to 367.20p in intraday, its highest level since June 23 last year, before closing up 6.8p, or 1.9pc at 360.5p.
Miner Rio Tinto nudged up 9.5p to £30.59 after Exane BNP Paribas raised its rating to “outperform” from “neutral”, while Barclays cut Anglo American’s price target to £1165 from £12.20, sending shares to the bottom of the blue chip index, down 19p to £11.18.
Elsewhere, a disappointing first quarter sales weighed on Reckitt Benckiser. Shares fell 60p to £72.15.
Away from the blue chips, engineer WS Atkins leapt 120p to £21.02 after its board agreed to a £2.1bn takeover by Canadian rival SNC-Lavalin, while insurer Hastings climbed 6.1p to 287.2p after Berenberg increased its price target to 315p.
Meanwhile, TalkTalk hit a five-month high, up 8.8p to 197.8p, as HSBC upgraded its rating to “buy” as it believes the company is “an obvious beneficiary” of Ofcom’s review of fibre price controls.
On the other side, packaging products maker Essentra became the biggest mid-cap faller, dropping 20.5p to 512p, as it downgraded the stock to “sell” citing downside risk.
Frankie & Benny's owner Restaurant Group tumbled 9p to 356.4p after it announced the immediate departure of finance chief Barry Nightingale, while Peel Hunt upgraded Domino’s Pizza to “buy”, urging investors to use the current weakness as “a buying opportunity”. Shares rose 4.3p to 326.3p.
Finally, Aim-listed Metal Tiger jumped 9pc after it raised a bigger-than-expected £4.85m through a private placement offering run by Sprott Capital Partners.
On that note, it's time to finish for this week. Thanks for following our markets coverage this week.
European bourses close mixed ahead of French election
It was a mixed close in Europe as investors remained hesitant in the final trading session before the first round of the French presidential vote on Sunday.
By close of play:
- FTSE 100: -0.06pc
- DAX: +0.31pc
- CAC 40: -0.27pc
- IBEX: +0.19pc
Chris Beauchamp, of IG, said: "It has not been the most riveting day for London’s FTSE 100, with the index looking like to end the day flat. The first round of the French elections is the main reason for hesitant performance across markets, while a nasty miss for US PMIs this afternoon is also making life unpleasant for those who got caught up in yesterday’s euphoric rally.
"Retailers in London seem to have avoided the worst, however, despite a miserable retail sales figure that points to UK consumers reining in their spending earlier in the year. The FTSE 100 is yet to recover from its post-election announcement sulk, hovering above 7100 until it can find a reason to recover lost ground."
Deutsche Bank: Policy divergence a big problem for sterling
Although Deutsche Bank has raised its forecasts for the pound for the year, it said the currency continues to suffer from a dovish Bank of England.
Currency strategists said: "The market is currently not penciling in a hike until the end of 2019.
"Based on two year rate differentials, GBP/USD therefore already looks very expensive and should drift down to around 1.15 next year if the forwards are realized.
"The pound could also be vulnerable to ECB tightening in the autumn. Sterling was the largest beneficiary of Eurozone outflows following the introduction of negative rates and QE in 2014 and 2015 respectively. If the Bank of England remains on hold, the Fed taper tantrum experience suggests some of these flows could reverse.
"Bank of England pricing does look extreme, but near term it is difficult to pin down what could make them turn more hawkish. Recent UK growth has been weaker, especially on the consumption side, with today’s retail sales data providing more evidence of UK consumers cutting back spending in the face of a real income shock. Hard data, like January’s index of services and January and February industrial production have all printed negative, suggesting that GDP will slow sharply in Q1."
Deutsche Bank raises pound forecast but insists its 'far from bullish'
Deutsche Bank, one of the world’s biggest sterling bears, has raised its forecast for the pound as it believes the currency will not fall as much as previously expected thanks to the prospect of a 'softer Brexit'.
Currency strategists at the bank now expect the pound to fall as low as $1.14 against the US dollar next year from $1.28 currently.
By the end of the second quarter of 2017, the bank also has a less bearish forecast of $1.30, up from $1.14, and by the end of this year, they see the pound trading at $1.20, up from $1.06.
Deutsche Bank upgrades end of 17 f'cast on GBPUSD to 1.20 from 1.06 mainly based on the belief that more time increases 'soft brexit' chance— World First (@World_First) April 21, 2017
Earlier in the week, the bank said Theresa May's call for a snap general election was "a game-changer" for the pound.
Strategist Oliver Hardy said: "Politics will cease to be the only dominant driver of sterling and fundamentals will matter more. These are far from bullish.
"Our new sterling forecast reflects our more optimistic view of the Brexit endgame, but not of sterling fundamentals."
French election is 'kind of reminiscent of the big events last year'
While the euro dipped back to $1.07, options markets suggested investors are extremely concerned about the outcome of the French election.
"I think everybody is locked down," said Simon Derrick, head of the global markets research team at Bank of New York Mellon in London.
"It is kind of reminiscent of the big events last year where people know that it is a binary outcome so the best approach is to remain as cautious as possible."
Quotes from Reuters
Euro remains under pressure on French election run-in
The euro remains under pressure this afternoon, trading just above $1.07, as investors set their sights on the first round of the French presidential election this Sunday.
Traders said an upbeat flash Purchasing Managers' Index survey from France and polls showing centrist Emmanuel Macron still in pole position ahead of the vote had helped settle nerves after a dip late yesterday.
Meanwhile, the shooting overnight in Paris claimed by Isil had no major impact on the single currency.
However, as pre-election jitters kick in, the euro is down 0.4pc at $1.0702 against the US dollar.
US stocks little changed at the opening bell as French election looms
Investors remained on the sidelines this afternoon as US stocks opened little changed ahead of the first round of the French presidential election.
At the opening bell:
- Dow Jones: +0.08pc
- S&P 500: -0.04pc
- Nasdaq: +0.04pc
France's 10-year government bond turns higher
France's 10-year government bond yield has turned higher on the day, reversing earlier falls, as the first round presidential vote looms.
According to data from Tradeweb, French 10-year government bond yields are trading up one basis point at 0.87pc.
French presidential election countdown begins
FXTM Research Analyst Lukman Otunuga thinks the French presidential elections remain a major event risk that has the ability to send serious shockwaves across the financial markets.
He added: "With recent polls indicating a fierce battle between the four candidates in the first round and millions of voters still undecided, uncertainty remains the name of the game. Although Emmanuel Macron has been labelled as favorite to become the next French President, an unexpected Marine Le Pen victory could deal a symbolic blow to the unity of the European Union and ultimately create a tidal wave of risk aversion. Investors should remain diligent as we enter the weekend, and be prepared to expect the unexpected when dealing with the elections’ repercussions on the Euro."
From a technical standpoint, he thinks the euro bears may be inspired to the prices lower, towards $1.06850 or lower against the dollar.
The euro is currently trading down 0.44pc on the day at $1.0699 against the US dollar.
US stocks to nudge higher at opening bell
Wall Street is expected to enjoy modest gains when the opening bell sounds in less than an hour's time, as investors remain on the sidelines ahead of the first round of the French presidential elections on Sunday.
Although recent polls showed centrist Emmanuel Macron is leading the four-way race, it remains tight.
Here's the US opening calls courtesy of IG:
Bank of England's Saunders edges towards rate rise
Bank of England policymaker Michael Saunders said on Friday that he expected growth and inflation this year to be higher than the central bank forecast two months ago, and saw scope for rates to rise modestly while still boosting the economy.
Saunders, in a speech to small businesses in London, said he did not want to commit to how he would vote at next month's Monetary Policy Committee meeting, as there was still plenty of data to come.
But he said that despite uncertainty about the exact terms on which Britain would leave the European Union in 2019, policymakers were not obliged to keep rates on hold until everything was clear.
"I judge that the current policy stance is clearly accommodative," he told members of the Federation of Small Businesses.
"While not prejudging what I or the MPC might decide on monetary policy – a modest rise in rates would still imply that considerable stimulus remains in place, helping to support output and jobs," he added.
*BOE'S SAUNDERS: STIMULUS WOULD REMAIN AFTER MODEST RATE RISE— Michael Hewson (@mhewson_CMC) April 21, 2017
The minutes of the BoE's last meeting in March showed that in addition to one policymaker - Kristin Forbes - backing an immediate rate rise, other unnamed MPC members were also considering doing so.
Saunders said he "would not be surprised" if consumer price inflation reached 3 percent later this year or in early 2018, and said economic growth could maintain a year-on-year rate of 2pc through this year and next.
BoE Saunders: MPC underestimated UK economy, not gone soft on inflation. Risk inflation from GBP depreciation steeper than Feb forecast. pic.twitter.com/AdEHyAdj2U— Sigma Squawk (@SigmaSquawk) April 21, 2017
The BoE's February forecasts showed growth slowing to 1.6pc in 2018 from 2.0 percent this year, and for inflation to peak at less than 3pc.
"I want to stress that this prospective near-term inflation pickup does not imply that Brexit Britain will face persistently high inflation. Nor does it signal that the MPC has gone soft on our low inflation remit," Saunders said.
"Over time, the appropriate monetary policy can and will ensure that inflation returns to the 2pc target," he added.
Report from Reuters
Pound extends losses after weaker than expected retail sales data
The pound has extended its losses this afternoon after coming under pressure following the release of weaker than expected UK retail sales data this morning.
It is now trading down 0.4pc on the day, at $1.2769 against the US dollar.
Reckitt Benckiser fails to grow sales for first time in 15 years
Reckitt Benckiser is the biggest FTSE 100 faller today after reporting disappointing first quarter sales. Shares have fallen 1.5pc to £71.64. Retail editor Ashley Armstrong has the details:
Reckitt Benckiser, the Durex and Dettol maker, has failed to grow like-for-like sales for the first time in 15 years, fuelling concerns that it is pursuing a £14.3bn takeover of a baby-milk business to bolster growth.
The company recorded flat like-for-like sales for the third quarter, dragged lower by a tough European market, which was hit further by its flop launch of a new Scholl Wet & Dry pedicure product.
Reckitt Benckiser shares were 127p, or 1.8pc, lower at £71.48 in midday trading.
The consumer goods giant said that its takeover of American infant formula company Mead Johnson was "progressing well" and it expected to close the deal by the end of the third quarter. Reckitt Benckiser has announced that it is offloading its food division, which includes French's mustard, to maintain its debt levels.
FX Strategy: What to watch for in the first round of the French election
In terms of currency markets, Nomura have published a useful research note on what to watch for in the first round of the French presidential election. Here are the three factors to focus on:
- Whether there are simple, clear outcomes or not: If two candidates going to the run-off are from the same side, FX market implications would be straightforward. The spot market reaction would be greater than other outcomes, while vol add-on for the second round should decrease. A good showing by both Macron and Fillon would be a clear relief for the financial market, and we would expect EUR to react the most positively to this outcome. We would not be surprised if EUR/USD were to appreciate toward 1.10 relatively quickly, as the outcome would be a positive surprise for EUR.
- Macron would be better for EUR than Fillon, while Le Pen would be better than Melenchon, as the initial reaction after the first round. Opinion polls consistently show that Macron would be the strongest candidate in the second round among the four candidates, while Le Pen would be the weakest.
- How high the support for Le Pen/Melenchon would be: If anti-EU candidate support is above 30pc, markets would be anxious about the possibility of a surprise in the second round. Vol add-on for the second round would remain high under this scenario. In contrast, if their support is below 30pc, markets would likely see a higher possibility of a victory for pro-EU candidates.
UK clothing sales bounce back after weak 2016
Returning to the UK retail sales figures, economist Simon French of Panmure Gordon flags that even though March was disappointing, clothing sales bounced back after a weak 2016.
Amid disappointing March UK retail sales, a bounceback in clothing sales after v weak 2016. Online sales continue double digit YoY growth pic.twitter.com/iEd7PyLU9X— Simon French (@shjfrench) April 21, 2017
Restaurant Group's finance chief exits after just 10 months
Investors lost their appetite for Frankie & Benny's owner Restaurant Group after it announced the immediate departure of finance chief Barry Nightingale. Shares slumped to the bottom of the mid-cap index, down 2.3pc to 520.5p. Bradley Gerrard reports:
The owner of Frankie & Benny’s restaurants has seen its chief financial officer quit the company after less than a year in the role.
Shares in Restaurant Group dropped more than 2pc to 357p on the back of the news that Barry Nightingale had left the company with immediate effect. He had only joined the firm in June last year and his departure comes just seven months after new chief executive Andy McCue joined to spearhead the company’s turnaround.
The business, which also owns Mexican eatery Chiquito, has suffered from declining like-for-like sales in recent years and has issued three profit warnings since November 2015.
Mr McCue, the former boss of bookmaker Paddy Power, recently unveiled a new strategy focusing on price cuts and simpler menu options to lure back customers.
Half-time update: European bourses mixed as French election looms
European bourses are mixed this lunchtime as investors remained on the sideline ahead of the French presidential election this Sunday.
Just after midday:
- FTSE 100: +0.06pc
- DAX: +0.12pc
- CAC 40: -0.45pc
- IBEX: +0.09pc
Mike van Dulken, of Accendo Markets, said: "Equity markets are only slightly offside this morning as investors prepare for risks associated with an exciting French first round election on Sunday, deal with another terror event in Paris and decide how to digest fresh US administration attempts to reignite faith in the Trump trade following the recent market sell-off. While corporate results continue to flow, investors are taking stock of a busy week, indices remaining close to breakeven. The UK's FTSE is the underperformer, with Oil (RDSb, BP) and Defensives (ULVR, BATS, RB, AZN, DGE) again doing most damage on account of oil price concerns and a stronger GBP, respectively, while both the German DAX and Wall St futures are flat, holding around their bounce highs of yesterday."
CAC 40 extends losses as latest French polls show
Over in France, the CAC 40 has extended its losses as election jitters kick in after the latest poll showed the presidential race is still tight ahead of Sunday's vote.
New French polls show that Macron is still leading, but they also show a tight margin, suggesting the race is still wide open.
The OpinionWay poll shows Macron with 23pc of votes in the first round, and Le Pen with 22pc, while Fillon gains ground (21pc) and Melenchon is on 18pc.
Meanwhile, an Ipsos Sopra/Steria poll, which was taken before the shooting in Paris last night, shows Macron has a 24pc lead, with Le Pen with 22pc and Fillon and Melenchon at 19pc.
The CAC 40 is now trading down 0.53pc at 5,050.94.
Shoppers cut back as inflation kicks in
Here's our full story on the UK retail sales data by Tim Wallace:
Retail sales are falling at the fastest pace in seven years as higher prices put an end to the shopping frenzy of the past year.
Sales volumes fell by 1.4pc in the first quarter of the year, one of the biggest drops since 2010.
But surging inflation meant that households had to spend the same amount of money in the three-month period to receive that smaller quantity of goods, according to the Office for National Statistics.
Spending was flat on the quarter, failing to match the 1.7pc growth in the final quarter of 2016 or the 2.1pc spending splurge in the previous three-month period.
FTSE 100 heads for worst week since November
The FTSE 100 is poised to record its worst week since early November, after it was hurt by the pound strength in the wake of Theresa May calling a snap general election.
It is currently down 0.12pc on the day, but trading 3pc lower so far this week. That marks its worst weekly performance since the week ended November 4, when it tanked 4.33pc on the run up to the US presidential election.
Joshua Mahony, of IG, said: "The FTSE looks set for yet another indecisive day if early trade is anything to go by, with a veritable smorgasbord of political and economic factors to weigh up proving a little too much. Markets are now facing two key elections either side of the English Channel, a heightened stand-off between North Korea and the US, alongside a highly volatile perception of what a Trump presidency will look like.
"While we are no clearer on what this weekend’s French election result will be, we at least received hints from Treasury Secretary Mnuchin that the tax reform plans are now “pretty close”. The subsequent dollar and stock rally off the back of Mnuchin’s comments have largely paved the way for today’s trade, as traders seek to ascertain whether this is the beginning of a recovery following weakness across both sectors."
Barclays on UK retail sales: Difficult month as inflation bites
Weighing on a difficult month for retailers, Ian Gilmartin, Head of Retail & Wholesale at Barclays, said: "Calculating how willing the public are to accept higher prices will be crucial over the next few months, with retailers attempting to balance the need to protect their margins at the same time as retaining footfall."
However, he cautioned that it's important not to overstate the severity of the figures.
Mr Gilmartin added: "The sector was still able to post monthly year-on-year growth and there were other bright spots, with clothing retailers posting good results boosted by a milder than usual March. The late Easter this year may also have slightly disrupted sales patterns, but the overall trend does suggest that it’s going to be a tricky time for the wider industry as we move towards the summer season.”
Retail sales to confirm consumer slowdown today with Q1 volumes around 1pc below Q4 - only 4th Q-ly fall of around 1pc or more since 1996.— Andrew Sentance (@asentance) April 21, 2017
Pound regains some poise, but still trading lower on the day
The pound has regained some momentum after UK retail sales came in weaker than expected.
Retail sales volumes contracted 1.4pc in the first quarter following a 0.8pcrise in the last three months of 2016, the Office for National Statistics said.
In its wake, the pound fell by as much as 0.33pc to $1.2778. However, it has now regained some momentum and is down 0.14pc at $1.2801.
Implied rate of annual inflation in retail sector at highest level since 2012
Matt Whittaker, of Resolution Foundation, points out that the implied rate of annual inflation in the retail sector is at its highest level since 2012.
At 3.3%, the implied rate of annual inflation in the retail sector is at its highest since 2012 - mainly driven by oil pic.twitter.com/BswqepHviM— Matt Whittaker (@MattWhittakerRF) April 21, 2017
UK retail sales fall 1.4pc in Q1: What the experts say
Here's what the experts had to say after UK retail sales posted their biggest quarterly fall since 2010:
Jeremy Cook, chief economist at the international payments company, World First, said:
“If these poor numbers are a shock then you haven’t been paying attention. The British Retail Consortium’s sales index last week fell by its greatest amount for 6 years in Q1 as spending on the High St dipped markedly and these numbers are the first quarterly fall for 4 years. Spending on everything from department stores is lower and viewed through the prism of recent store closures by both Debenhams and Marks and Spencer, the second shoe to drop of the high price, low spending atmosphere has to be further wage compression and rising joblessness in the sector.”
“We used to think that when the going got tough, the Brits went shopping but this retail environment is too much for the hardy British consumer. The weakness in the pound will have afforded some cushioning effects for higher-end retailers who will benefit from tourists hell bent on a deal. For everyone else however the picture is one of weakness. Future surveys will show whether any political fears are hurting consumer sentiment but for now, this is a function of Brexit price rises from the weakness of the pound.”
Meanwhile, David Cheetham, of XTB, said the latest UK retail sales release has shown a much larger than expected 1.8pc decline month on month for March.
He added: "To put this release in a historical context this morning’s number was the largest monthly decline since the data for December and you have to go back to early 2012 to find another worse print. However there are some mitigating factors which could be seen as meaning that this isn’t as bad news as it first appears."
Clear downward trend in retail sales volumes since the start of 2017, driven by rising prices. Last two 3m-on-3m drops biggest since 2010 pic.twitter.com/yQ2IsqfcWe— Matt Whittaker (@MattWhittakerRF) April 21, 2017
Meanwhile, Alex Marsh, Managing Director, Close Brothers Retail Finance, reckons retailers have suffered yet another blow when it comes to sales figures.
He added: "However, despite overall retail sales decreasing we have seen an increased demand for larger purchase items for outdoor activities driven by a mild March. Items which have performed particularly well include motor accessories, camping equipment, garden furniture and golfing goods.
“To ensure retailers are in the best shape to thrive, rather than just survive, retailers should embrace the direct spending impact the milder weather brings this time of year by offering consumers the chance to also buy complementary goods through flexible payment methods. Spreading the costs can make these purchases more affordable for consumers and allow them to purchase big ticket items in time for Summer.”
UK retail sales: Key charts
Here are the key charts from the retail sales data release:
Figure 1: Rolling 3 month on month and monthly all retailing, seasonally adjusted sales volumes and implied deflator, non-seasonally adjusted
Figure 2 shows the underlying pattern for the quantity bought, amount spent and average store prices for all retailing as suggested by the 3 month on 3 month movement.
Figure 3 shows the contributions to year-on-year volume and value growth from the four main retail sectors
Figure 4 shows all main retail sectors saw a decrease in the quantity bought (volume) while there were decreases in all main sectors except food stores in the amount spent (value). The largest contribution to the decreases for both quantity bought and amount spent came from non-food stores.
UK retail sales: Key points
Here are the key points from the ONS retail sales data release, which showed that UK retail sales suffered their biggest quarterly drop in seven years:
- The 3 months to March shows a decrease of 1.4pc; the third consecutive decrease for the underlying 3 month on 3 month pattern.
- Looking at the quarterly movement, the 3 months to March 2017 (Quarter 1) is the first quarterly decline since 2013 (Quarter 4).
- In March 2017, the quantity bought in the retail industry is estimated to have increased by 1.7pc compared with March 2016 and decreased by 1.8pccompared with February 2017; decreases are seen across the four main store types.
- Average store prices (including fuel) increased by 3.3pc on the year, the largest growth since March 2012; the largest contribution came from petrol stations, where year-on-year average prices rose by 16.4pc.
- Online sales (excluding automotive fuel) increased year-on-year by 19.5pc and by 0.5pc on the month, accounting for approximately 15.5pc of all retail spending.
Pound drops below $1.28 after retail sales comes in below expectations
Ouch! The pound has dropped 0.23pc to $1.2790 after UK retail sales came in below expectations.
UK retail sales posted their biggest quarterly fall since 2010, falling 1.4pc in the first quarter.
Earlier this week, the pound surged above $1.29 to a six-month high after Theresa May called a snap general election.
UK retail sales post biggest quarterly fall since 2010
UK retail sales suffered their biggest quarterly fall since 2010 during the first three months of the year, as inflation started to hit consumers.
Data from the Office for National Statistics showed that retail sales volumes fell 1.4pc in the first quarter, down from an 0.8pc increase in the fourth quarter of 2016.
Retail Sales fell by -1.4% in Q1 2017 compared with Q4 2016 https://t.co/oZI7E1Ou95— ONS (@ONS) April 21, 2017
The ONS said retail sales were likely to shave around 0.1 percentage points off first quarter economic growth - the first negative contribution of the sector since the last quarter of 2010.
Sales volumes contracted 1.8 pc in March, overturning a 1.7 percent increase in February.
"This is the first time we've seen a quarterly decline since 2013, and it seems to be a consequence of price increases across a whole range of sectors," ONS statistician Kate Davies said.
UK retail sales fell -1.4%q/q in Q1. That's the worst quarter since Q1 2010 & means the retail sector will knock c. -0.08% off UK GDP growth pic.twitter.com/PLUVV4USeE— Rupert Seggins (@Rupert_Seggins) April 21, 2017
Eurozone economy bounds into Q2 with bumper growth
The eurozone economy started the second quarter with strong and sustainable growth, according to a survey that showed businesses increased activity at the fastest rate for six years as new orders stayed robust.
IHS Markit's Flash Composite Purchasing Managers' Index, seen as a good guide to growth, climbed to 56.7 from March's 56.4, its highest reading since April 2011. A reading above 50 indicates growth.
That matched the most optimistic forecaster in a Reuters poll in which the median predicted a dip to 56.3.
"The strength of growth in the first quarter surprised us and this is even better. It's very broad-based growth," said Chris Williamson, chief business economist at IHS Markit.
"There is a good outlook for the year - it looks like the upturn has legs. With numbers like these people are going to start edging up their forecasts."
Williamson said the latest PMI data, if maintained, pointed to second-quarter economic growth of 0.7 percent, well above the 0.4 percent predicted in a Reuters poll on Thursday.
Signs the economy is on a sustainable growth path, alongside inflationary pressures, will be welcomed by policymakers at the European Central Bank, who have struggled for years to achieve either, despite ultra-loose monetary policy.
Suggesting the recovery will continue, a sub-index measuring new business only dipped to 55.8 from March's six-year high of 56.2. Firms in the bloc's dominant service industry increased activity faster this month, with its PMI rising to 56.2 from 56.0, a six-year high. That was above all forecasts in a Reuters poll, where the median predicted no change.
To meet the growing demand, and indicating confidence about the months ahead, hiring remained vigorous. The employment index held steady at 54.4, its highest since November 2007.
Factories also had a good start to the quarter - the manufacturing PMI climbed to a six-year high of 56.8 from 56.2, surpassing all estimates in a Reuters poll. An index measuring output jumped to 58.0 from 57.5, the highest since April 2011.
Future output, which gauges what factories think they will produce, rose to 66.9 from 66.6. That matched the highest reading of the sub-index, started in July 2012, set in January.
Report from Reuters
Mike Ashley expands Sports Direct empire into the US with $101m deal for sportswear chain
Sportswear tycoon Mike Ashley has taken his first strides into the American market by snapping up 50 stores in the US.
Mr Ashley’s retail giant Sports Direct has received court approval to buy Eastern Outfitters out of bankruptcy.
The company will acquire the stores, which trade as Bob’s Stores and Eastern Mountain Sports, for $101m (£79m).
The two retailers sell predominantly sports and casual wear, as well as outdoor and camping equipment.
In the financial period to January 28, the businesses made a loss of $26m. The gross assets of the businesses come to $126m.
“The acquisition is expected to complete in the first half of May 2017 and will provide Sports Direct with a footprint in US bricks-and-mortar retail and a platform from which to grow online sales,” Sports Direct said.
Options market shows insider alarm on 'Frexit' upset
Ambrose Evans-Pritchard explains why the financial derivatives markets are concerned about this weekend's election:
The financial derivatives market is flagging mounting concern over the first round of the French elections on Sunday, with a surge of interest in options used to hedge extreme outcomes.
One-month ‘risk reversals’ on the euro - a gauge of demand for protection against a sudden plunge in the currency - have reached the most extreme level since the height of the eurozone debt crisis in late 2011.
This suggests that an informed core of hedge funds, banks, and traders are sufficiently concerned about an upset result that they are willing to pay a large premium for ‘put options’ on the euro, even though the euro exchange rate against the dollar is showing no sign of stress.
Simon Derrick from BNY Mellon said this replicates the pattern before Brexit. “The price action feels to me like last summer. The pound was rising just before the referendum but people were hedging Brexit risk on the options markets,” he said.
French business activity shines in April despite election
Ahead of this weekend's election, French PMI data has been released. Reuters has the details:
French business activity confounded expectations in April by growing at the fastest pace in nearly six years, showing no signs of cooling down just days before an uncertain presidential election, a survey showed on Friday.
Data compiler IHS Markit said that its preliminary reading of its monthly purchasing manager index rose to 57.4 this month from 56.8, reaching the highest level since May 2011.
The reading not only lifted the index further away from the 50-point threshold dividing contraction from expansion in activity - it also beat economists' average forecast for 56.2 and the highest estimate in Reuters poll, which was for 56.9.
"France seems to be going from strength to strength, obviously dismissing any concerns about the election," IHS Markit chief economist Chris Williamson said.
"A lot of companies are saying there is a very positive outlook for business once this election is out of the way," he added.
Polls suggest that centrist Emmanuel Macron, a former investment banker and economy minister, will win France's two-round April-May presidential vote.
A breakdown of the survey results showed that index for France's dominant services sector rose to 57.7 from 57.5, beating expectations for 57.1.
Boosted by rising demand for French goods, buoyed by the weak euro, manufacturing saw its index improve sharply, jumping to 55.1 from 53.3, topping expectations for a slowdown to 53.0.
French PMI rose to highest since May 11 in April. Hard data suggest Q1 growth will be soft, but PMI points to sharp acceleration thereafter. pic.twitter.com/rwKt0rkvIC— Capital Economics (@CapEconEurope) April 21, 2017
PMIs at theses levels, Williamson said, were consistent with economic growth of about 0.7pc, which would be a significant acceleration from the 0.4 percent growth posted in the final quarter of last year.
French 10-year Treasury yields slump towards three-month low
French 10-year Treasury yields slumped to a near-three-month low of 0.856pc yesterday, while safe-haven German bund yields jumped to 0.244 percent, their highest close in nearly two weeks.
Euro slips from three-week high ahead of election
The euro retreated from a three-week high as investors began to fret about the first round of the French presidential election.
The single currency, which rallied to a three-week high of $1.0778 against the US dollar after opinion polls showed that Emmanuel Macron would easily beat far-right candidate Marine Le Pen in the second round, fell back after the terror attack in Paris last night.
It is currently trading down 0.22pc at $1.0724 against the US dollar, having hit an intraday low of $1.0707 in early trade.
French stocks under pressure ahead of elecion
European stocks opened mixed this morning ahead of the first round of the French election this weekend. After enjoying their best day in a month, French stocks came under pressure as election jitters set in and following after a shooting overnight in Paris that was claimed by Isil.
Here's a snapshot of the current state of play:
Mike van Dulken, of Accendo Markets, said: "Calls for a positive open come courtesy of a strong finish on Wall St that gathered momentum overnight. A move by Trump to challenge steel imports and positive tax reform rhetoric from Treasury secretary Mnuchin revived hopes for the fabled Trump ‘reflation trade’, while oil holding firm andrebounds for Copper and Iron Ore have helped boost sentiment towards the commodity sector. Markets have also taken in their stride another terror attack in the French capital just days before Sunday’s first round of the Presidential election."
Agenda: French presidential election in focus
Good morning and welcome to our live markets coverage.
Markets are focused on the first round of a tight French presidential election which takes place this Sunday after a shooting overnight in Paris that was claimed by Isil.
Yesterday, the euro rallied to a three-week high of $1.0778 against the US dollar after opinion polls showed that Emmanuel Macron would easily beat far-right candidate Marine Le Pen in the second round. However, the single currency fell back from a three-week high after the terror attack in Paris last night.
Today, French and German flash manufacturing and services data will be released.
However, Michael Hewson, of CMC Markets, said: "Against this backdrop it is likely that today’s French and German flash manufacturing and services PMI’s are likely to play second fiddle, despite the fact that they will probably show that the recovery in economic activity being seen this year in France is likely to continue into April."
Also on the agenda:
Interim results: Schlumberger
Trading update: Reckitt Benckiser Group, Record
AGM: Symphony International Holdings
Economics: Retail sales m/m (UK), flash manufacturing PMI (US), flash services PMI (US), existing home sales (US), flash services PMI (EU), flash manufacturing PMI (EU), current account (EU), flash manufacturing PMI (GER), flash services PMI (GER)
European opening calls update courtesy of CMC MARKETS -FTSE100 +8 at 7,123, DAX +15 at 12,040, CAC40 +6 at 5,081— David Buik (@truemagic68) April 21, 2017