Wall Street close: S&P's worst month since March 2020
And finally... the US stock market has closed with strong gains, after a turbulent month in which worries about US interest rate rises, and the Ukraine crisis, hit shares.
The S&P 500 has jumped by 1.9% today, led by technology stock such as Netflix and Tesla which both gained over 10%.
But that still leaves the S&P 500 down around 5.26% in January, its worst month since March 2020.
The Nasdaq surged by 3.4% today, but was still down almost 9% this month --also its worst month since the crash of March 2020.
Stocks bounced for a second day Monday to wrap up a rough January, as investors snapped up some of the tech shares that have been battered all month.
— CNBC (@CNBC) January 31, 2022
The Dow was up 1.17%.
The S&P 500 rose 1.89%.
The Nasdaq surged 3.41%. https://t.co/ogSDEyuLo9 pic.twitter.com/etgY0gwy2K
📈Market Conditions Today📉#DJI ⬆️ 1.16% 💲35,131#SP500 ⬆️ 1.88% 💲4,515#NASDAQ ⬆️ 3.4% 💲14,239#US10Y ⬆️ .21% 💲1.784% #DXY 🔻 .69% 💲96.60#WTI ⬆️ 1.72% 💲88.31#Gold ⬆️ .75% 💲1,798#BTC ⬆️ 2% 💲38,430#ETH ⬆️ 4% 💲2,680
— Real Vision (@RealVision) January 31, 2022
According to Reuters it’s the S&P 500’s worst January drop since 2009, while the Dow had its weakest start to a year since 2016, and it was the Nasdaq’s worst January since 2008.
Fears that the US central bank would hike interest rates four or more times this year, even as the economy slows, hit markets hard this month
As Art Hogan, chief market strategist at National Securities, told CNBC:
Between the amount of volumes that we saw and the massive swings that we saw in markets, the volatility really felt like it had a crescendo,”
Those crescendos usually happen when there is a massive amount of capitulation in markets and everything is for sale,” Hogan added.
“For most of the month we would see money coming out of growth but going into cyclical. Then that would unwind and growth would catch a bit. That was all true until this past week. We’ve seen a bit of the aftermath of that storm, and that seems to be more stabilization.”
Dow jumps 406 points, and Nasdaq Composite’s 3.4% Monday rally cuts brutal monthly loss but still results in worst January since 2008 financial crisis https://t.co/s0RREedcQW
— MarketWatch (@MarketWatch) January 31, 2022
On that note, goodnight... GW
Mexico in technical recession after weak end to 2021
Mexico has fallen into recession, as supply chain disruption, a new labour law and a lack of economic support in the pandemic all hit its economy.
Mexico’s GDP fell by 0.1% in the last quarter of 2021, statistics body INEGI reported, following a 0.4% in Q3.
Two consecutive quarters of contraction are a technical recession.
Reuters adds:
The disappointing Mexico data comes as Brazil’s weakened economy is in danger of sinking deeper into recession this year ahead of October’s presidential election, as anxiety over the vote and steep interest rate rises continue to hurt growth, according to a Reuters poll.
“With its weak Q4 outturn, Mexico has joined Brazil in technical recession, an extremely disappointing result that leaves real GDP in Mexico a whopping 4% below its mid-2019 pre-Covid peak,” said Fiona Mackie, regional director, Latin America and the Caribbean at Economist Intelligence Unit.
Wall Street continues to finish a shaky January on the front foot - with the Dow up over 0.5% in late trading and the Nasdaq Composite over 2% higher.
US Update:#DOW 34999 +0.79%#SPX 4496 +1.42%#NASDAQ 14832 +2.65%#RUSSELL 2013 +2.28%#FANG 6801 +5.14%
— IGSquawk (@IGSquawk) January 31, 2022
Many investors will be relieved to put January behind them, though, says Danni Hewson, AJ Bell financial analyst:
“January stormed in full of optimism that Omicron wouldn’t pack the punch Delta did and that recovery would bring revitalisation for global economies. There will be many investors who’d rather like a do-over, but markets can be unforgiving. Today’s action has been pretty subdued but broadly positive, but whilst the Dow Jones has managed to find a forward gear London’s FTSE ended the day in reverse. But casting around at today’s economic data it’s hard to pin down whether the end of the month leaves up with the glass half full or half empty.
“On one hand Germany’s inflation numbers have come down, on the other output from the Chinese manufacturing sector fell to its lowest rates in two years in January, suggesting there’s more choppy water ahead. But then if you look at the Baltic Dry Index it suggests shipping costs are finally on their way down, but according the JLR’s latest and rather disappointing update there’s still no end to the global chip shortage. In a nutshell the world is in post-covid flux and it’s also dealing with a soupçon of nerves about how the situation in the Ukraine will ultimately play out.
“Whilst Goldman Sachs has cut its US growth forecast growth stocks seemed very much back in vogue today with the Scottish Mortgage Investment Trust topping London’s blue-chip index and Baillie Gifford’s US Growth Trust making decent gains on the FTSE 250 and Tesla and Netflix joining e-commerce Pinduoduo to help push up the Nasdaq. But though the day has been full of tech cheer the month has been a difficult one for the tech heavy index and it’s still down more than 10% since the start of the month, whilst the FTSE 100 has managed to emerge slightly up on where the year started.
“February will undoubtedly bring its own tribulations beginning with the Bank of England’s latest rate rise decision. Investors are confident another hike is on the cards but there is also that little seed of doubt until the decision drops. Certainly, the pressure to do something to help cash strapped consumers will weigh heavily but there is a time lag and relief won’t be instant. “
Updated
Here’s our news story on the closure of Tesco’s Jack’s discount chain:
UK food and drink firms warn of shortages as ‘bailout’ of CO2 industry ends
Back in the UK, food producers and brewers have warned of shortages of meat, beer and fizzy drinks, as well as higher prices, after the government opted not to renew support for the carbon dioxide industry.
Meat processors, brewers, bakers and soft drink producers all use CO2 in making and packaging their goods. It is also required for the humane slaughter of animals including pigs and chickens.
The Department for Business, Energy and Industrial Strategy (BEIS) said last autumn it had brokered a deal between businesses in the CO2 sector, to ensure supplies of the gas to the food and drink industry, as well as hospitals and nuclear power plants.
It came after the government was forced to use taxpayer money to fund a short-term bailout for CF Industries, which accounts for 60% of the UK’s CO2 supplies, to prop up the company and stave off supply chain chaos.
CF Fertilisers, which is owned by a private firm in the US, had halted production at two of its plants, Billingham on Teesside and Ince in Cheshire, as a result of rocketing prices of gas required to power its operations.
However, the three-month deal came to an end on 31 January, and BEIS said it was now up to the CO2 industry to work together.
A spokesperson from the department said:
“We welcome industry’s agreement in October to ensure CF Fertilisers on Teesside can continue to operate even during the current period of high global gas prices. It is for the CO2 industry to ensure supplies to UK businesses.”
Soros: Xi threatened by China’s real estate crisis and Omicron
The financier and philanthropist George Soros has warned tonight that China’s president Xi’s position could be threatened by the Covid-19 pandemic, and the crisis in China’s real estate sector.
At an event sponsored by the Hoover Institution at Stanford University, Soros is explaining that China will try to use the Winter Olympics, which start later this week, as a propaganda victory for its system of strict controls.
But, Soros warns, domestic problems could yet prevent Xi from extending his rule to a third term. when the Communist Party chooses its president and general secretary later this year.
Soros, who fears Chinese leader Xi poses the “greatest threat” to open societies, argues that China is facing an economic crisis centered on the real estate market. Beijing’s efforts to slow the slow the boom has made it hard for indebted developer Evergrande to meet its obligations, causing a market downturn.
In prepared remarks for the event, Soros says:
When the main selling season started in September, there were many more sellers than buyers. For a while there were hardly any transactions at the advertised prices, but today prices for both land and apartments are starting to fall. That will turn many of those who invested the bulk of their savings in real estate against Xi Jinping.
Evergrande is now in receivership and other developers face a similar fate. The creditors of Evergrande started fighting to improve their position in receiving bankruptcy distributions. The courts took charge, and their first move was to protect the subcontractors who employ some 70 million migrant workers.
It remains to be seen how the authorities will handle the crisis. They may have postponed dealing with it for too long, because people’s confidence has now been shaken.
Xi Jinping has many tools available to reestablish confidence – the question is whether he will use them properly. In my opinion, the second quarter of 2022 will show whether he has succeeded. The current situation doesn’t look promising for Xi.
He also claims that Omicron “threatens to be Xi Jinping’s undoing”, and that Beijing is maintaining its lockdown because its vaccines do not provide protection against the more infectious variant:
Xi Jinping has also encountered serious problems with vaccines. The Chinese vaccines were designed to deal with the Wuhan variant, but the world is now struggling with other variants, first Delta and now Omicron.
As China prepares to host the #WinterOlympics, its dismal human rights record and closed system have come under increased scrutiny. Our founder George Soros joins this @HooverInst event on January 31 about what is at stake for the world’s democracies. https://t.co/R1MGCpviOy
— Open Society Foundations (@OpenSociety) January 28, 2022
Updated
Tesco has abandoned its low-cost “Jack’s” format, launched back in 2018 to take on discount rivals Aldi and Lidl.
Britain’s biggest retailer says it will no longer operate its 14 “Jack’s” stores, named after Tesco’s founder Jack Cohen.
Six will be converted to Tesco superstores, with the remaining seven earmarked for closure in the coming months.
The “Jack’s” stores aimed to be the cheapest in town, by offering a much smaller range than a full Tesco and cutting out frills. But the brand hasn’t really been a success, and only makes up a small fraction of Tesco’s total estate.
Some 130 roles in the seven stores that are to close and in head office will be affected by the changes. Tesco says it will try to find staff affected other roles within the company, but unions are
Tesco UK and Ireland CEO Jason Tarry says:
“With the learnings from Jack’s now applied, the time is right to focus on ensuring we continue to deliver the best possible value for customers in our core business,”
Daniel Adams, Usdaw national officer, says staff will be devastated:
“Tesco has informed us that they are looking to undertake restructures across the business. Clearly this will be incredibly unsettling for those who may be affected.
“We should not forget the role that key workers have played throughout the Coronavirus pandemic and to receive this news is devastating.
Tesco is also closing meat, fish or hot deli counters in a further 317 stores.
Jack's never really took off. There was talk of a potential 200 stores, if I remember correctly. 3 years later a mere 13 had opened; furthest south was Cambs.
— Harry Wallop (@hwallop) January 31, 2022
The axing of "value" has been going on since 2018 at Tesco: https://t.co/SFhdV1l99H
Tesco restructure and closure of Jack's is devastating news for those affected says #Usdaw https://t.co/Q1hbcGGnEa… pic.twitter.com/3ebQeKZvQZ
— Usdaw Scotland (@UsdawScotland) January 31, 2022
Brexit News: Demands by French customs officials over the type of signature they will accept on post-Brexit paperwork has been blamed by UK business leaders for causing long queues of lorries on approach roads to Dover.
Two year after Boris Johnson smiled for the cameras, fountain pen in hand over the EU withdrawal agreement, the British Chambers of Commerce (BCC) said a minor disagreement over signatures on customs paperwork had arisen between Britain and France.
William Bain, the head of trade policy at the BCC, said the trade body had heard from UK exporters that French customs officials were demanding a wet signature on border documents for shipments of animals and plant products from the UK.
However, he said much of the documentation is produced digitally, creating unexpected holdups on deliveries from Dover to Calais.
“One of the issues at Dover currently appears to be linked to the export of food products across the Channel,” Bain said.
“Like many of the problems this looks to be down to a differing interpretation of how the trade arrangements work after leaving the EU.
“It is the latest in a string of issues with the trade deal that speaks to the wider problems of interpretation, inconsistent application and glaring gaps in its coverage.”
Nasdaq leads Wall Street higher
Meanwhile on Wall Street, stocks are wrapping up January with a late rally, reversing a little of this month’s damage.
The Dow Jones industrial average is now up 0.5%, or 162 points at 34,888, taking its losses this month to just 4%.
The tech-focused Nasdaq is charging higher, now up 2.4% today -- but that still leaves the index down 10% for January.
Nasdaq jumps 2% https://t.co/26CEZILm2a pic.twitter.com/OYwmbqGZOW
— Bloomberg (@business) January 31, 2022
The mood in equity markets is a lot more optimistic today than it was last week, and even though the headlines about the Federal Reserve potentially hiking interest rates several times this year are still doing the rounds, says David Madden, market analyst at Equiti Capital.
This day last week, European and US indices fell to multi-month lows because of mounting fears about a possible war between Russia and Ukraine, worries about quick monetary tightening from the Fed were a factor too.
Over the past week, stock markets have ticked up, and it seems that dealers are getting used to the idea the US central bank will carry out multiple rate hikes this year. The NASDAQ 100 has suffered the most during the recent bearish period due to its large exposure to technology stocks, by contrast the NASDAQ 100 is up over 2% today - its high mark in more than one week.
The eurozone economy expanded by 0.3% in the last quarter of 2021, and that was a large drop off from the 2.2% growth posted in the preceding quarter. Economists were expecting 0.4%, it wasn’t a surprise that the growth reading was disappointing seeing as last week it was announced that Germany’s economy contracted by 0.7% in the last three months of the year. It spells trouble for the entire currency bloc if the largest economy is going through a phase of negative growth.
European markets post worst month since October 2020
European stock markets have recorded their biggest monthly fall in over a year.
The pan-European Stoxx 600 index, which covers a wide range of European stocks, fell by 3.9% this month - despite a modest rally today.
That’s the biggest monthly drop since October 2020, when the Stoxx 600 lost over 5% (just before the news of successful Covid-19 vaccines triggered a global rally).
Europe’s technology sector had a particularly poor month, falling by 12% in January.
That tracked heavy losses among US tech stocks, as investors anticipated a rise in US interest rates and an end to the cheap money that has boosted fast-growing but unprofitable tech stocks.
But the oil sector jumped by 8.5% this month, while bank stocks gained 7.3%.
Germany’s DAX has lost 2.6% this month, while France’s CAC slipped by 2.1%.
Analysts at Oxford Economists say we are seeing an “overdue correction, not the start of a new bear market”.
They say:
History would suggest there could be some further downside to come as the average non-recessionary correction is around 15%. However, investor sentiment has already adjusted sharply, and we believe we have now seen the bulk of the move in bond yields.
A stalling earnings upgrade cycle has added to investor concerns, but top-line growth is likely to remain robust amidst the ongoing global upswing and the listed corporate sector appears relatively well placed to ride out the monetary tightening cycle. We maintain our modest overweight on the asset class.
Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, says the sharp fall in some “high-quality tech firms” are creating opportunities for longer-term investor:
Rather than giving up on tech in the face of near-term headwinds, we recommend a more selective approach: balancing away from mega-caps toward companies exposed to artificial intelligence, big data, and cybersecurity—the ABCs of tech—which we see as benefiting most from secular growth.”
European stocks wrap up worst month since October 2020 https://t.co/0C1YczyVcc
— Marius Ghisea (@mariusghisea) January 31, 2022
Updated
The International Monetary Fund and World Bank have postponed their planned annual meeting in Marrakesh, Morocco, by a year, due to “continuing uncertainty” over the COVID-19 pandemic.
The Marrakesh gathering has been pushed back by 12 months, to October 2023, meaning this year’s annual meeting will take place in Washington D.C.
This is the second time that the meeting in Marrakesh has been delayed by 12 months due to Covid - it was meant to take place in 2021, before the pandemic disrupted plans.
The Annual Meetings are usually held for two consecutive years at the World Bank Group and IMF headquarters in Washington, D.C. and every third year in another member country.
World Bank and IMF moving October annual meetings from Morocco to Washington DC due to the pandemic - joint press release.
— Shabtai (@velvetart) January 31, 2022
2023 meeting set for Marrakesh.
Updated
The smaller FTSE 250 index, which is more domestically-focused, had a very bruising January.
It fell by around 6.7% this month, the worst since March 2020.
After a choppy month, the UK’s blue-chip index has ended the day little changed.
The FTSE 100 index dipped by 2 points to 7464 points, with mining stocks and UK supermarket chains leading the fallers.
Rio Tinto lost 3.7%, Anglo American and Sainsbury’s both fell by 2.8%, while Glencore slipped by 2.6% and Tesco finished 2.1% lower.
Investment trust Scottish Mortgage jumped 5%, tracking the recovery in tech stocks, with online grocery firm Ocado 4.3 higher.
For the month, the FTSE 100 gained 1% -- rather better than other markets this month....
🔔 European Closing Bell 🔔
— PiQ (@PriapusIQ) January 31, 2022
🇬🇧 FTSE 100 down 0.1%
🇪🇺 STOXX 50 up 0.6&
🇩🇪 DAX up 0.6%
🇫🇷 CAC up 0.1% pic.twitter.com/kHA866fIzT
Growth at factories across Texas slowed to an eight-month low, in another sign that America’s economy has slowed this year.
The Dallas Federal Reserve’s latest Texas Manufacturing Outlook Survey shows that growth weakened this month.
The production index, which measures state manufacturing conditions, came in at 16.6, an eight-month low, down from 26 in December.
General business activity, which tracks broader business conditions in the manufacturing sector, dropped to 2.0 from 7.8, the lowest level since July 2020.
Measures of capacity utilization and shipments also showed a slowdown in growth.
Prices and wages continued to increase strongly in January, though price pressures eased slightly.
The survey also shows that factory bosses are more concerned about economic prospects. Uncertainty regarding outlooks escalated further, with the index pushing up 12 points to 30.8, its highest reading since April 2020 after the initial onset of the pandemic.
Texas factory activity continued to increase but at a slower pace in January, according to the Texas Manufacturing Outlook Survey. The details indicate a deceleration from December but still expanding! pic.twitter.com/KiijdngEZr
— Dr Thomas Kevin Swift (@DrTKSwift) January 31, 2022
Full story: China's factory output hit by Covid
Output from China’s manufacturing sector slowed to its weakest in almost two years in January as the country’s tough anti-Covid measures forced factories into temporary shutdowns.
A monthly snapshot of industry in the world’s second biggest economy showed production being hard hit by Beijing’s zero-tolerance approach to the pandemic.
The Caixin/Markit purchasing managers’ index dropped from 50.9 in December to 49.1 in January – putting pressure on China’s policymakers to step up support for the flagging economy.
A reading below 50 suggests output is contracting rather than expanding, with January’s figure the weakest since February 2020, when blanket restrictions were in force during the first wave of the Covid-19 virus.
Wang Zhe, a senior economist at Caixin Insight Group, said: “Over the past month, there were Covid-19 flare-ups in several regions in China, underscoring the downward pressure on the economy.
“Both supply and demand in the manufacturing sector weakened. Several regions tightened epidemic control measures following the resurgence, which impacted production and sales of manufactured goods.
The subindexes for output and total new orders in January fell to their lowest since August. Overseas demand shrank at an even faster pace.”
More here:
Goldman Sachs has cut its forecast for US growth this year.
It has warned that the omicron variant and ongoing supply chain problems will slow the recovery, as the boost from government spending weakens.
Reuters has the details:
Goldman Sachs cut its GDP forecast in 2022 to 3.2% from a consensus 3.8% as U.S. growth is likely to slow abruptly early in the year as fiscal support fades and the Omicron coronavirus weighs.
Goldman now expects annualized real GDP growth in the first quarter of 0.5% versus its previous estimate of 2.0%, as spending on virus-sensitive services declined sharply since early December, the bank said.
But the rebound from Omicron is likely to be swift, Goldman said.
Goldman cuts US 2022 GDP forecast to 3.2% from 3.8%, including a Q1 reduction to 0.5% from 2.0%. Cites sharp fiscal drag, Omicron, supply chain disruptions.
— Jamie McGeever (@ReutersJamie) January 31, 2022
"we now expect annualized real GDP growth of +0.5% in Q1 (previously +2.0%), +3.5% in Q2 (previously +3.0%), +3.0% in Q3, +2.0% in Q4... On an annual average basis, our GDP growth forecast is now +3.2% (vs. +3.8% consensus) in 2022"
— Jonathan Ferro (@FerroTV) January 31, 2022
GS cuts GDP forecasts
Wall Street opens
The final day of a torrid month on the New York stock market is underway... and trading is mixed.
The Dow Jones industrial average of 30 large US companies is down 157 points in early trading at 34,568 points, down 0.45%. Aircraft maker Boeing is the top riser, up 1%, while construction equipment maker Caterpillar is the top faller, down 3%.
The broader S&P 500 index is flat, around 4,431 points -- having tumbled around 7% this month.
The tech-focused Nasdaq, which has borne the brunt of this month’s selling, has gained 0.7%, but is still down 11% for 2022 so far.
The Baltic Exchange’s dry bulk sea freight index, which track shipping costs, is on track for its biggest monthly fall in two years.
The Baltic Dry index, a measure of dry bulk material transport costs has dropped by around 36% in January, its fourth monthly fall in a row.
Reuters says it’s down to seasonal weakness, and lower iron ore shipments from Australia which have weighed on vessel demand (perhaps as demand from China has softened).
The index rose through much of 2021 until peaking in early October (when there was a rush to move goods in time for Christmas and Black Friday), and has dropped sharply since.
Other measures of shipping costs are higher, though, highlighting that supply chain disruption has not ended.
Still crazy to see that. There are no signs of easing conditions on the shipping front for #containers yet.
— Lukas Kuemmerle (@MacroLukas) January 28, 2022
Meanwhile, the cost of shipping grains and dry bulk is still easing. w/w
Harpex +3,29%
China Freight Index +0,28%
Drewry -2,87%
Baltic Dry -11,67%
IGC Grains/Oilseeds -7,41 pic.twitter.com/Z1x7KTheQi
Updated
German inflation rate drops
Inflation in Germany has slowed, but prices continue rise much faster than official targets, new figures show.
Consumer prices in Germany were 4.9% higher than the previous year in January, down from 5.3% per year in December, but still more than double the European Central Bank’s goal of 2%.
German inflation decelerates for the first time since May 202, but less than expected. The main reason may be continuously high energy prices. However, looks like the peak is in. pic.twitter.com/s4haFfc50D
— Fabian Wintersberger (@f_wintersberger) January 31, 2022
Energy prices remained sharply higher, up 20.5% year-on-year. But inflation was broader based, with goods prices 7.2% over the year and food 5% pricier, while services inflation was 3%.
On a monthly basis, prices rose 0.4% in January, Destatis reports.
Inflation was 5.1% per year on an EU-harmonised basis, down from 5.7%/year in December.
Preliminary CPI for Jan report out of Germany shows inflation remaining stubbornly elevated. Advance reading came in at 5.1% vs consensus of 4.3% but down from Dec 5.7% report. Inflation hopefully is starting to peak & trend and regress back to its mean of 2-3%
— GM (@melchigr) January 31, 2022
German #CPI is expected to be up 0.4% MoM to 4.9% YoY in Jan, down from 5.3% YoY in Dec. Goods inflation is 7.2% YoY, and services inflation at 3.0% YoY, both lower than Dec. Energy prices were up 20.5% YoY from 18.3% YoY. #inflation (@destatis) https://t.co/uy9HZT9H7H
— MTS Insights (@MTSInsights) January 31, 2022
Updated
America’s tech-focused Nasdaq index is on track for its worst January on record, Bloomberg reports:
The Nasdaq Composite Index is headed for the worst start to a year in half-a-century of its existence after the Federal Reserve’s aggressive rate hike plans roiled high-flying technology stocks.
The tech-heavy index was down 12% in January as of Friday’s close, worse than the 10% drop in 2008 when the global financial crisis rocked markets worldwide. The selloff comes on the back of a surge in U.S. Treasury yields, hurting pricier tech stocks that are valued on future growth expectations.
Futures tracking the elite Nasdaq 100 Index -- an indication of what’s to come at open on the last day of the month -- showed a 0.7% rise, extending their rebound from Friday as earnings beats helped somewhat lessen the Fed blow. But even if the Composite index rises by 1%, it would still be on track for the grim milestone.
The Nasdaq Composite Index is headed for the worst start to a year in half-a-century of its existence https://t.co/THqeJXEOGY pic.twitter.com/1ojh005tE5
— Bloomberg (@business) January 31, 2022
The oil price is on track for its strongest month in almost a year.
Brent crude has jumped 17% in January, as rising demand, tight supplies, and the Ukraine crisis pushed energy prices to seven-year highs.
Victoria Scholar, head of investment at interactive investor, says crude prices could push higher - which would add to the cost of living squeeze.
Brent crude is holding firm above key support at $90, having breached this resistance for the first time since 2014 last week.
Robust demand coupled with geopolitical tensions and an OPEC mentality to drip feed supply have all underpinned an upward trendline for Brent and WTI as $100 looks set to be the next major round number resistance to eye ahead.”
#Stocks on track for worst January since 2016 as inflation concerns and worries about Russia and Ukraine weigh #Oil has been the outperformer this month, with #brent crude topping $90, on track to log its best month of since Feb 2021 when it gained around 17.4%
— Victoria Scholar (@VictoriaS_ii) January 31, 2022
Markets on track for worst month since March 2020
Back in the City, the early rally has rather fizzled out, as global markets complete their worst month since early in the pandemic.
The FTSE 100 index is now slightly lower, with supermarket chains Sainsbury (-3.6%) and Tesco (-2.3%), and miners Rio Tinto (-2.7%) and Fresnillo (-2%) in the fallers.
France’s CAC has dipped by 0.25%, while Germany’s DAX is 0.3% higher.
Anxiety over Russia-Ukraine tensions, and the prospect of several US interest rate rises this year, have knocked shares this month.
Although the FTSE 100 is still 1% higher this year, European markets have dropped this year, with the Stoxx 600 down over 4% in January.
Heavy losses in the US, where the S&P 500 was down 7% this year, mean the MSCI World index of shares is down over 6% this month -- which would be its worst month since March 2020 (when markets crashed)
Reuters reports:
The MSCI World index while higher on Monday, remains down 6.2% in January - the worst start to the year since 2016. Before Friday’s rebound the index was headed for its worst January since the global financial crisis in 2008.
Before Friday’s rebound the index was headed for its worst January since the global financial crisis in 2008.
“This is not the classic selloff affecting lower quality underperforming companies. This selloff is driven not by fundamentals but by the action of central banks at a time when growth is very strong,” said Flavio Carpenzano, Investment Director, Capital One Group.
“For years you were like a spoiled child, you could get all the money you wanted and for free and you could buy what you wanted, you didn’t care that much about quality. Now it’s the other way round, you have to be more disciplined so you need to look carefully at valuation.”
The Ukraine crisis could threaten Europe’s recovery this year, cautions Walid Koudmani, market analyst at financial brokerage XTB:
“Today’s Eurozone data showed a general improvement in GDP of the Member States for the fourth quarter 2021 with Spain (+2.0%) recording the highest increase compared to the previous quarter while declines were recorded in Austria (-2.2%) and Germany (-0.7%).
While this is overall a positive report, the situation remains unclear as many factors could slow down or impact economic growth in the area, particularly with growing tensions on the Russia-Ukraine border and rising energy prices.”
Updated
The energy crisis, and the cost of living squeeze, also weighed on the eurozone economy, points out Rachel Barton, Europe Strategy Lead for Accenture:
“Following the rapid proliferation of the Omicron variant across the continent, the impact on eurozone recovery has been clear in the slowing of GDP growth. Ongoing supply chain disruption, the energy crisis and inflation have also intensified.
Companies need to continue to shore up their operations against these headwinds as we move through 2022. That said, the recent lifting of Covid restrictions in many European countries should help to get economic and business growth back on track.”
ING: Eurozone showing more resilience to Covid-19
Although growth slowed last quarter, the eurozone economy handled the pandemic better than in early waves, says Bert Colijn, economist at ING.
Growth could be ‘feeble’ in the first quarter of 2022, due to Omicron, inflation, and supply chain disruptions. But despite that, ING don’t expect growth to turn negative in Q1.
Colijn explains:
The current Covid impact has seen milder restrictions put in place and mobility data already suggests a smaller impact compared to last year. This GDP data confirms that. Of course, it still marks a slowdown compared to growth in the third quarter, but that was to be expected given the moderating rebound effects, supply chain problems and increased coronavirus infections.
The fact that GDP still continued to grow is a sign of strength for the economy.
But there were regional differences, he adds:
Germany did not manage to grow in 4Q, confirming that the economy continues to trail the eurozone average on the back of being harder hit by supply chain problems than other countries given its high share of automotive production as a share of GDP. France on the other hand, did see growth surprise on the upside with 0.7% growth, mainly driven by catchup consumption in the service sector. Italy did better than expected with 0.6% growth, but Austria showed that economies are not yet immune to lockdowns either.
It saw GDP shrink by -2.2% on the back of the harshest lockdown of the eurozone in the quarter.
Eurozone growth of 0.3% last quarter shows the resilience of the economy despite Omicron. Germany is still lagging behind thoughhttps://t.co/BFjeR7jIMs
— ING Economics (@ING_Economics) January 31, 2022
Austria’s economy contracted sharply in the last three months of 2021, after it imposed a lockdown to slow the pandemic.
Austrian GDP shrank by 2.2% in July-September, down from 3.8% growth in Q3, which is the worst Q4 contraction recorded among EU countries so far.
Austria imposed a full lockdown for three weeks in November and December, after a surge in Covid-19 cases. Those rules forced hospitality and leisure venues, and non-essential shops to close, while people were asked to work from home.
It maintained restrictions for longer on unvaccinated citizens, who were told to remain at home for all but a handful of specific reasons, such as buying groceries, going to the doctor or exercising.
Austria’s Covid-19 cases fell to a two-month low by the end of December. So while the lockdown hit growth, it also appears to have suppressed the virus, allowing the economy to open up again.
Updated
Eurozone growth slows in Q4 as Covid-19 hit recovery
Growth across the eurozone slowed at the end of last year, as the winter wave of Covid-19 hampered the recovery, particularly in Germany.
GDP across the euro area rose by 0.3% in the October-December quarter, much slower than the pacy 2.3% expansion recorded in July-September.
The final quarter of the year saw restrictions imposed in some European countries, as the pandemic surged last autumn. This hit service sector companies, with the Omicron variant dealing another blow to sectors such as travel in December.
Germany, the eurozone’s largest member, dragged eurozone growth back.
German GDP contracted by 0.7% in the last quarter, as its economy suffered from a surge in virus cases and ongoing supply chain disruption which held back factories. Restrictions on unvaccinated citizens were introduced in December, and some Christmas markets were cancelled.
France expanded by 0.7% in the last quarter, stronger than expected, and recorded its best annual growth since 1969.
Spain recorded 2% growth, making it the fastest-growing eurozone member to report growth figures for Q4.
And as covered earlier, Italy grew by 0.6% in Q4, while Portugal’s GDP rose 1.6%.
Statistics body Eurostat also estimates that the eurozone, and the wider European Union, grew by 5.2% during 2021 as the region recovered from 2020’s steep recession.
That’s almost as fast as the US, which grew 5.7% last year, its biggest increase since 1984.
We don’t yet have UK GDP figures for Q4.
Euro Area GDP expanded 0.30 percent in the fourth quarter of 2021 over the previous quarter, confirming the slowdown despite massive monetary and fiscal stimulus. pic.twitter.com/aN52BwjJOo
— Daniel Lacalle (@dlacalle_IA) January 31, 2022
Updated
Italy’s economy grew by 0.6% in the last quarter of the year, down from 2.6% in the previous three months.
Statistics body Istat reports that industry and services both expanded, but there was a decrease of value added in agriculture, forestry and fishing.
Domestic demand increased, but net exports dragged on growth, Istat says.
The Gross Domestic Product (GDP) in Italy expanded 0.60 percent in the fourth quarter of 2021 over the previous quarter. https://t.co/4KYXd8Q0GK pic.twitter.com/pJqp5eZtrh
— Trading Economics (@tEconomics) January 31, 2022
On a year-on-year basis, GDP was 6.4% higher than Q4 2020:
The Gross Domestic Product (GDP) in Italy expanded 6.40 percent in the fourth quarter of 2021 over the same quarter of the previous year. https://t.co/Qt9Xcn4Vje pic.twitter.com/sVEmcQRmD6
— Trading Economics (@tEconomics) January 31, 2022
Portugal has recorded its fastest annual growth in over 30 years, as it recovered from the pandemic.
The Portuguese economy grew by 4.9% during 2021, the highest growth since 1990, following a historical decline of 8.4% in 2020.
Statistics body INE explains:
Domestic demand presented a significant positive contribution to the annual rate of change of GDP, after being markedly negative in 2020, with a recovery of private consumption and investment.
The contribution of net external demand was significantly less negative in 2021, with exports and imports of goods and services growing significantly.
But, growth did slow in the last quarter of 2021; GDP rose by 1.6% in October-December, down from 2.9% growth in July-September.
- Portuguese GDP (Q/Q) Q4 P: 1.6% (est 0.8%; prev 2.9%)
— LiveSquawk (@LiveSquawk) January 31, 2022
- Portuguese GDP (Y/Y) Q4 P: 5.8% (prev 4.2%)
Ryanair's results: what the experts say
Ryanair is well-placed to thrive as the travel industry recovers from the pandemic, says Russ Mould, investment director at AJ Bell - even it it has to cut prices to fill planes in the next few months:
“The latest trading update from Ryanair, covering the last three months of 2021, was always likely to show strong growth on a year-on-year basis given the comparative quarter saw some of the tightest Covid restrictions.
“However, the numbers are not as good as they might have been had Omicron not intervened. With his typical tact Ryanair boss Michael O’Leary blamed ‘media hysteria’ about the new Covid variant for the impact on the business.
“Ryanair, never usually known for its generosity to customers with O’Leary once suggesting people would have to spend a pound to spend a penny on the carrier’s planes, is being forced to offer discounted tickets in the near-term to fill its flights.
“However, the longer-term picture for pricing could be more favourable for Ryanair given the capacity which has come out of the market and likely pent-up demand for foreign travel over the summer.
“Ryanair’s model isn’t about great customer service in the traditional sense but about low fares and getting people where they want to go on time and that proposition has proved a winning one over the years.
“Ryanair has one of the strongest balance sheets in the industry and this means it is very well placed for a full recovery in the aviation sector, with the means to invest in new routes and potentially even to swoop on ailing rivals. Notably, it has raised its 2026 annual passenger target today.
“In the short term, Ryanair is making no secret of the risk of further Covid disruption to come, with investors at least able to have some confidence it can steer a flight path through any turbulence.”
Adam Vettese, analyst at trading platform eToro, says the budget airline has made progress:
“Ryanair’s third-quarter numbers demonstrate how far the airline sector has come since the start of the pandemic.
“With revenue up 286% year-on-year, load factor at 84% and revenue some 331% higher than it was in Q3 last year, its recovery is fairly advanced.
“However, as we have learnt over the past 18 months, the airline sector is perhaps more sensitive to shifts in Covid policy than most others.
“Airlines suffered over Christmas due to the imposition of stricter measures to contain the Omicron variant, denying them of revenue during one of the busiest times of the year for travel.
“A lot of investors are treating airlines such as Ryanair as a ‘reopening play’, which makes sense, but they should expect some share price turbulence until the sector is completely out of the woods.”
Stephen Furlong and Ross Harvey of stockbrokers and wealth managers Davy point out that Ryanair is well-hedged against risks such as rising fuel prices:
We see [today’s] Q3 statement as broadly a holding one before we enter the Easter/summer period. But it is important to remember that Ryanair’s cost position (both fuel with hedging and ex-fuel), network expansion, customer proposition, employee growth and obviously balance sheet/cash flows are poised for its next phase of growth.
We continue to believe that these ‘low cost’ tenets will show favourably, if not dramatically, this summer.
We maintain our forecasts, our ‘Outperform’ rating and €19 price target.
Ryanair’s shares have dipped slightly this morning, down 0.3% at €16.50.
Updated
Full story: Ryanair prepares price cuts as it warns of ‘hugely uncertain’ financial outlook
Ryanair has warned of a “hugely uncertain” financial outlook, even as the budget airline geared up to run more flights this summer than before the coronavirus pandemic struck.
The Irish-listed carrier made a loss of €96m (£80m) in the last three months of 2021, although that was a significant improvement over the €321m loss in the same period in 2020, when strict international travel restrictions were still in place. Revenues quadrupled compared with last year, it said in its third-quarter results update.
Ryanair added that the first three months of 2022 will require “significant price stimulation at lower prices” to attract customers, which could hit profits. That uncertainty, plus the possibility of new restrictions if another variant of concern were to arise, meant the airline left unchanged its guidance for a loss in the year ending in March, at €250m to €450m – a wider than usual range.
The airline blamed “media hysteria” over the Omicron variant for missing its target of 11 million passengers in December, instead carrying 9.5 million.
The Omicron variant has proved to be more infectious than earlier dominant variants but widespread vaccines have meant that many governments, including in the UK, have started to loosen some of the stricter travel requirements.
That has allowed Ryanair to plan for a summer bookings boom, with a schedule for 2022 that is 114% of 2019, the last year unaffected by the pandemic. More here...
Inflation has slowed in Spain, but remains painfully high for households
Spanish consumer prices rose by 6% year-on-year in January, statistics body INS reports.
That’s a drop on the 30-year high of 6.5% set in December, but higher than forecast, and triple the European Central Bank’s target of 2%.
Energy prices have been a key factor, as Bloomberg points out:
Spain power prices have been surging since mid-June, having consistently broken new records, driven largely by natural gas prices. This has led to regulatory changes and tax breaks from the government for consumers.
Spain inflation slows less than expected as energy prices hurt https://t.co/4DSnNC20j6 via @rorihuela @alonsosotoj pic.twitter.com/15EDi80bd4
— Zoe Schneeweiss (@ZSchneeweiss) January 31, 2022
Updated
Vodafone is among the FTSE 100 top risers, up 3% this morning, after Europe’s largest activist fund took a stake in the telecoms giant.
Cevian Capital is expected to push Vodafone to overhaul its business and restructure its portfolio, and take a more aggressive approach to consolidation in some markets,
My colleague Gwyn Topham explains:
The Swedish investment firm has built up holdings in Vodafone in recent months, according to sources quoted by Bloomberg, privately piling pressure on the firm to improve its performance.
Shares in the British multinational have almost halved in value since 2018, with investor sentiment apparently declining through a series of acquisitions and sell-offs, amid belief that Vodafone overpaid for assets such as the German cable business it acquired in an €18bn deal that year.
Cevian, which says it is a constructive investor in “overlooked, misunderstood or out-of-favour” firms, has gained prominence in the City after building up a 5% holding in the insurance firm Aviva, and has also owns a significant stake in education publisher Pearson, as well as Swedish telecoms business Ericsson.
European market open
European stock markets have opened higher, with Germany’s DAX jumping 1% in early trading.
In London, the FTSE 100 has gained 20 points or 0.3%.
It’s been a rocky month, though, with the pan-European Stoxx 600 down 3.6% (although the FTSE 100 has bucked the trend by gaining around 1.5%)
Wall Street has been particularly hit by worries about interest rate rises, with the S&P 500 down 7% in January (with one day to go), its worst month since March 2020.
Richard Hunter, head of markets at interactive investor, says stocks are delicately poised:
Investors are currently grappling with valuation metrics following a strong run over recent years for the main indices, with higher rates not only increasing borrowing costs for companies but also discounting the value of future profits.
At the same time, the latest non-farm payrolls report at the end of the week is expected to show a weaker reading given the rise of the variant in December and a bout of adverse weather, with the current forecast being that around 150000 jobs will have been added.
In the meantime, the main indices have reduced some of their losses in the year to date, although the Dow Jones remains down by 4.4%, the S&P500 by 7% and the Nasdaq by 12%.
Updated
Japan’s manufacturers ended 2021 on a low note.
Japan’s factory output shrank by 1% in December, for the first time in three months, a larger fall than expected.
It was pulled down by a decline in output of general-purpose and production machinery, such as chip-making equipment and engines used in manufacturing.
Takeshi Minami, chief economist at Norinchukin Research Institute, suggests the global semiconductor shortages hit demand:
Output especially fell among capital goods makers, probably due to the strong impact from the chip shortages.
“It suggests its impact is widening even though the focus has been on the car industry.”
Japan's factory output dips more than expected as risks emerge https://t.co/Hx4NbTjw43 pic.twitter.com/k2u3nQZXhn
— Reuters (@Reuters) January 31, 2022
A second survey of China’s factories released on Sunday also showed that coronavirus outbreaks and lockdowns in China took their toll on factories.
A private index measuring activity at factories in China fell to 49.1 in January from December’s 50.9, the weakest since February 2020 in the first wave of the pandemic.
That shows that the sector shrank this month, a gloomier view than the official PMI (see earlier post).
The Caixin/Markit manufacturing Purchasing Managers Index found that companies saw drop in output and new orders during January, at a modest pace.
New export business fell at the quickest pace since May 2020, and supply chain delays worsened. Firms also reported that inflationary pressures increased, with average input costs rising, and their own prices increasing.
Dr. Wang Zhe, Senior Economist at Caixin Insight Group, says the ongoing pandemic hit China’s factory base:
“The Caixin China General Manufacturing PMI fell to 49.1 in January, down from 50.9 the previous month. The index slumped into negative territory for the fourth time since February 2020, with January’s reading being the lowest in 23 months. Over the past month, there were Covid-19 flare-ups in several regions in China, underscoring the downward pressure on the economy.
Both supply and demand in the manufacturing sector weakened. Several regions tightened epidemic control measures following the resurgence, which impacted production and sales of manufactured goods. Both the subindexes for output and total new orders in January fell to their lowest since August. Overseas demand shrank at an even faster pace.
The spread of the omicron variant of Covid-19 overseas dampened China’s external demand, with the gauge for new export orders in January being the lowest in 20 months.
Updated
China's factory growth slows
China’s factory growth slowed this month, as the latest wave of Covid-19 infections hits its economy.
The official manufacturing Purchasing Manager’s Index (PMI) dropped to 50.1 this month, showing a slowdown from December’s 50.3, data released this weekend shows.
That’s only just above the 50-point mark showing stagnation.
#China‘s economy enters a likely bumpy 2022 #News in @Reuters
— Tariq Chaudhry (@KC_Tariq) January 31, 2022
PMI registered 50.1 in January (slowing from 50.3 in December)https://t.co/IaYEtTmSBN pic.twitter.com/MVM7T42Hgz
It suggests the Covid-19 outbreaks and lockdowns in several Chinese provinces in recent months have disrupted factories and hit demand, ahead of the Lunar New Year.
A subindex for production in January fell to 50.9, down from 51.4 in December, while a subindex for new orders came in at 49.3, down from 49.7 in December, showing orders fell at a faster rate.
New export orders rose to 48.4 compared with 48.1 a month earlier, suggesting overseas demand remained subdued.
China’s services sector also showed slower growth, pulling the wider composite PMI down to 51.0, from 52.2.
#China ‘s PMI slowdown, chart @BloombergTV pic.twitter.com/5Glv6AF2pH
— ACEMAXX ANALYTICS (@acemaxx) January 31, 2022
Updated
Ryanair is also hoping it may be able to lift fares this summer, pointing out that its rivals have cut capacity in the pandemic.
Reuters explains:
Ryanair Chief Financial Officer Neil Sorahan told Reuters in an interview that the fact so many rivals were cutting capacity compared to pre-COVID levels meant “there absolutely could be upward pressure on fares.”
He added that if Ryanair did need to cut fares to stimulate demand, its relatively large fuel hedging position means it is in a much better position than rivals to do so.
Ryanair has kept expanding, ready to win market share as travel returns. Since April 2021 it has announced 15 new bases and 720 new routes.
Introduction: Ryanair cautious on recovery after loss
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Budget airline Ryanair has struck a cautious note over the speed of the recovery in the travel sector this morning, after posting a net loss of €96m for the last three months.
With Omicron hitting operations in recent weeks, Ryanair CEO Michael O’Leary has warned that the outlook in the current quarter (its Q4) is “hugely uncertain”, despite a recent pick-up in demand.
Demand has improved recently after travel restrictions were lifted, O’Leary says. But bookings are coming in later than usual, so the airline is planning price cuts this quarter to stimulate demand.
Ryanair cut its capacity for January by a third in response to the latest variant which caused a “collapse in bookings” over the Christmas/New Year period. In December, traffic fell to 9.5m passengers, below its target of 11m.
O’Leary warns that the outlook for this quarter (January-March) is very uncertain, saying:
The outlook for pricing and yields for the remainder of FY22 is hugely uncertain.
Ryanair is sticking to its target of carrying ‘just under’ 100m passengers this financial year. But due to Covid uncertainty its earnings guidance is wider than usual - with a net loss of between €250m and €450m expected.
O’Leary adds there could be further Covid disruption ahead:
This outturn is hugely sensitive to any further positive or negative Covid news flow and so we would caution all shareholders to expect further Covid disruptions before we here in Europe and the rest of the world can finally declare that the Covid crisis is behind us.”
Ryanair takes a cautious view on the pace of the travel rebound, saying it will cut prices to stimulate demand this quarter https://t.co/vG4Bc5bD8C
— Bloomberg UK (@BloombergUK) January 31, 2022
Europe’s stock markets are expected to open higher, after a turbulent January that’s seen the pan-European Stoxx 600 drop over 4%.
European Opening Calls:#FTSE 7521 +0.74%#DAX 15528 +1.36%#CAC 7045 +1.13%#AEX 755 +1.44%#MIB 26866 +1.13%#IBEX 8729 +1.38%#OMX 2301 +1.49%#SMI 12243 +1.14%#STOXX 4194 +1.37%#IGOpeningCall
— IGSquawk (@IGSquawk) January 31, 2022
The latest eurozone GDP report will show how Europe’s economy fared at the end of last year, in the latest wave of Covid-infections. On Friday, we saw the France’s GDP rose by 0.7% in Q4, while Germany shrank by 0.7%.
The agenda
- 8am GMT: Spanish inflation rate for January
- 10am GMT Italian GDP report for Q4 2021
- 10am GMT: Eurozone GDP report for Q4 2021
- Noon GMT: Mexico GDP report for Q4 2021
- 1pm GMT: German inflation report for January
- 2.45pm GMT: Chicago PMI for January
- 3.30pm GMT: Dallas Fed Manufacturing Index for January
Updated
