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Market buzz: Global growth speeding or slowing?

By Oliver Haill

Date: Tuesday 17 Apr 2018

Market buzz: Global growth speeding or slowing?

(ShareCast News) - 1635: After a year of strong growth and relatively tame inflation, investors have been caught off guard recently as growth momentum appears to have slowed while inflation is picking up in parts of the world, but today the IMF forecasts an acceleration of global GDP growth into 2018.

TD Securities says the recent slowdown in activity data is "broadly a return toward trend growth", with data suggesting lagged effects from last year's stronger growth are "likely to support global inflation in 2018".

TD's 'nowcast' models for the first half of 2018 suggest downside risks to the IMF forecast, with risks that the global economy slows down to slightly above trend growth of 3.7% in 2018.

1551: Lloyds announces plans to remove roughly 1,230 jobs across eight business units and creating 925 new roles.

1546: Another view on the UK labour data, this time from HSBC, cutting to the chase: today's data strengthens the case for a hike in May but they do not expect any further rate rises after that.

"It's not clear whether today's total pay disappointment is part of a trend. It may be that firms are being forced to raise regular pay due to, for example, the national living wage and the fall in net inward migration, but that this is being offset by lower bonus payments. On the other hand, of course, it may just be anomalous. The bonus pay data has historically been volatile.

"More broadly speaking, we do not share the BoE's optimism on pay growth. We think base effects largely explain today's rise in regular pay: this time last year, the 3m/yr rate dropped by 0.3ppts.

"One measure the BoE has looked at in the past is the 3m/3m annualised rate (Chart 2). This does not persuade us that much pressure is in the pipeline. It peaked higher in 2014, 2015 and 2016 without leading to any permanent shift higher in pay growth.

"Our relative pessimism on wages and underlying inflation pressures mean we do not expect any further rate rises after May."

1435: JD Sports' full year numbers beat expectations, says Peel Hunt, thanks to a very strong LFL store and online performance and the shares are "a must-have for the short and long term".

"At a tough time for the industry and the consumer, that's a stand-out effort and it is clear that the JD offer is exactly what the customers want, be that physically or online. Coming as it does at a moment when the big brands are thinking further about consolidating their retailer lists, such form is invaluable and we see the move to the US as another logical step towards JD becoming a global brand and thus a key partner of the big suppliers.

"These are revolutionary times in the industry and its hard to find a sports retailer playing its cards as well as JD: we upgrade again today (only small) but from a lowly multiple (even more lowly if JD gets Finish Line), the shares are a must have for the short and long term."

1415: US industrial production for March prints at up 0.5% on the month (consensus: 0.3%). Capacity use comes in at 78.0% (consensus: 77.9%).

Following Tuesday's data, Barclays Research bumped-up its tracking estimate for US GDP growth in the first quarter from an annualised pace of 1.6% to 1.7%.

"The survey evidence suggests that growth should remain solid over the next few months, although one or two of the manufacturing surveys in advanced economies, including the US, are warning that the global economic upswing may have peaked," said Michael Pearce at Capital Economics.

"Nevertheless, with the dollar down by around 10% since the beginning of 2017, the outlook for the manufacturing sector is still bright."

1414: According to the results of BoA-ML's latest fund manager survey, cash balances rose from 4.6% for March to 5.0% in April.

"Just 18% of investors surveyed think equities have already peaked; 40% expect a peak in the second half of 2018, while 39% think they won't peak until 2019 or later.

"Allocation to equities falls to an 18-month low of net 29%, down from net 41% overweight in March."

1413: The IMF has marked up its forecasts for 2018 growth in the euro area and Japan by half a percentage point to 2.4% and 1.2%, respectively. The Fund's economists are also now more optimistic for the US, pencilling-in GDP growth of 2.9%, which is six-tenths of a percentage point more than their last stab in the October World Economic Outlook. For China, they anticipate GDP growth of 6.6%, which is 1.1 percentage points more than last time.

Versus a January update to the last WEO, the IMF bumped up its forecast for advanced economy growth in 2018 by 0.2 percentage points to 2.5%, for the UK by one tenth of a point to 1.6% and for Spain by four tenths to 2.8%.

1324: Next chief executive Simon Wolfson's pay fell by more than a third for 2017 - a year he described as the most difficult faced by the company for a quarter of a century.

Wolfson's total pay dropped 37% to £1.15m from £1.83m a year earlier, Next's annual report showed.

1230: US housing starts jumped by 1.9% month-on-month to reach 1.39m (consensus: 1.267m).

1219: The London midday report on Tuesday finds stocks higher as the pound slips back following the latest wage growth figures for the UK.

The FTSE 100 was up 0.3% to 7,218.23, having opened flat, as the pound lost 0.1% against the dollar and the euro to 1.4322 and 1.1576 respectively after the release of UK jobs data. This came a day after sterling had hit its strongest level since the Brexit vote.

1144: If you missed them earlier, Netflix's Q1 numbers impressed Wall Street. And RBC analysts still have the serious hots for the shares.

"Global streaming revenue growth should accelerate from 36% in '17 to 40% in '18E," and operating margins are ramping, the analysts cried: "iNFLeXion!". These forecast assumptions "may be conservative", they added, breathlessly, as global subscriber additions in H1 appear on track to be over 30% higher than last year's.

1142: The People's Bank of China has reportedly cut the reserve ratio requirement for qualified banks by 100 basis points, which economists said would ease the pressure on conventional banks and clamp down on the shadow banking system.

1133: UBS has pointed to the various pressures acting on the oil price and shares in the likes of BP, noting President Donald Trump's surprise move to decide late yesterday to hold off on imposing additional sanctions on Russia for support of the Assad regime in Syria.

UBS notes that crude continues to trade up this morning after Kuwait's Oil Minster said yesterday that OPEC was considering an extension beyond 2018 of the OPEC+ production cut agreement, and would discuss options at the upcoming OPEC meeting in June.

This news "would be seen as a positive if OPEC manages to reach consensus on an extension but this has been hinted at repeatedly by various OPEC officials over the last few months, and also raises questions about why yet another extension of the agreement is necessary. The answer is that US shale has emerged as a far more serious and persistent threat that OPEC anticipated, and the group likely sees the need for a longer-term framework for intervening in order to keep supply and demand in balance."

UBS says Trump's decision to hold off on imposing additional sanctions on Russia should see BP, Total and OMV benefit today. UBS reckons the focus had shifted from the US to Russia, and "the move by Trump should de-escalate the situation and reduce the risk of an aggressive response from Putin".

1116: Ahead of the US market open, Dow Jones futures are pointing towards the index opening up 130 points higher and the S&P 500 up 13 points.

Commodities, rates and FX remained fairly flat today, with TD Securities noting that trading volumes remain relatively low. EURUSD is 0.1% down and GBPUSD has given up earlier gains after this morning's UK labour data, "despite the fact that we think it confirms a BoE rate hike in May".

Oil is hanging on to its highs at $71.44 a barrel. Equities are up in Europe, with the EuroStoxx50 up 0.7%, while the FTSE lags at +0.25%.

Says TD: "The market has shrugged off some of the recent flare-ups in geopolitical activity and instead may be turning its attention briefly back to fundamentals. Our global macro risk index underscores the improvement in conditions despite the raft of negative headlines. This setup could see markets pivot towards the Q1 earnings season for direction, leaving us constructive on the USD as we start a new week.

"Treasuries to remain focused on Fed remarks and equity sentiment for directional bias. Volatility remains low, having retraced a large portion of it recent spike."

1048: The headline UK wage growth was unchanged and short of the consensus forecast, sending the pound tumbling as it lowers the odds on a second BoE rate hike this year remains.

"From a BoE perspective, the fall in the jobless rate strengthens the case of those who believe the economy is running with too little spare capacity and the fact that wage growth is now also marginally ahead of the inflation rate will also be used as an argument for a May rate hike," says Peter Dixon, senior economist at Commerzbank.

But he said with Q1 UK GDP figures next week looking likely to turn out quite weak, "we would need to see signs of a rebound in subsequent quarters in order that the BoE can deliver a second rate hike before year-end".

1041: The UK latest labour market data was "consistent with the BoE still raising rates in May", says David Owen, chief European financial economist at Jefferies.

"Annual growth in regular pay rises in the private sector hit 2.9% in the year to Feb, the highest figure recorded since Sept 2015 BUT the 3 month annualised change in this series (which leads the annual change) went from 2.8% in Jan to only 2.3%, compared to a peak of 4% in the 3 month annualised of June 2017 (before rates were raised by 25 basis points in Nov 2017). So easier to justify raising rates now before the annual change in private sector pay settlements is seen to slow later in the year."

He also noted that regular pay in the public sector, another key metric followed by the BoE, seems to be picking up some momentum, rising 2.6% in the year to Feb (if one excludes some financial service firms currently counted as part of the public sector) the highest figure recorded since 2012.

But while a May hike looks fairly certain, Owen says what's more important is "what the BoE in May say about rates later in 2018 and 2019".

1022: Casting minds back to last month, the Bank of England's policymakers left the way open for interest rates to rise in May as they voted 7-2 in favour of leaving borrowing costs unchanged.

Explaining most members' view that an immediate increase was not needed the minutes said: "There had been few surprises in recent economic data and the February inflation report projections, conditioned on a gently rising path of Bank rate, had appeared broadly on track. The May forecast round would enable the committee to undertake a fuller assessment of the underlying momentum in the economy, the degree of slack remaining and the extent of domestic inflationary pressures."

1002: "Today's market news is brought to you by the phrase 'despite Brexit'," trolls Chris Beauchamp, chief analyst at IG.

"Despite Brexit, the pound is now at its highest level since June 2016, and with wages on the up, also despite the B-word, things are looking rosier for the UK economy. Of course, as the pound rises, inflation starts to weaken, so while a May hike from the Bank of England looks a bit more likely, perhaps the rationale for further increases will diminish as the year goes on. One swallow does not a summer make, of course, but good news is certainly welcome."

0842: Tuesday's London open market report shows stocks flattish in early trade as investors eyed a slew of key UK jobs data and the pound continued to gain ground.

The FTSE 100 was steady at 7,198.18, while the pound was flat against the euro at 1.1584 and 0.2% firmer versus the dollar at 1.4371 after hitting its strongest level since the Brexit vote on Monday, ahead of EU negotiations this week.

0841: Primark's still going great guns for AB Foods, though sugar was a slightly bitter pill for the group, as interim results this morning show. Shares have jumped around 3% to 2,665p.


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