There were no fireworks from Vienna, with the European Central Bank keeping rates on hold and revising its inflation and growth figures only slightly higher, while Opec failed to agree on an output ceiling on oil.
So investors remained cautious ahead of the US non-farm payroll numbers due on Friday. The final scores showed:
The FTSE 100 dipped 6.32 points or 0.1% to 6185.61
Germany’s Dax edged up 0.03% to 10,208.00
France’s Cac closed down 0.21% at 4466.00
Italy’s FTSE MIB fell 0.24% to 17,767.30
Spain’s Ibex ended up 0.46% at 8957.9
In Greece, the Athens market lost 0.92% to 639.19 as the ECB said it had not yet decided on a waiver which would allow it to buy the country’s bonds
On Wall Street, the Dow Jones Industrial Average is currently virtually unchanged, down just 2.8 points or 0.02%.
On that note it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Lingering hopes that Saudi Arabia and Iran could put aside their regional power struggle and reach a deal on oil production levels to help stabilise the volatile crude markets have been dashed.
A ministerial meeting of the Opec oil-producing cartel broke up in Vienna without agreement on Thursday, with Tehran refusing to support a plan by Riyadh and others to freeze their crude output.
The political logjam means the “fragile five” Opec members such as Nigeria, Venezuela, and Libya whose economies are almost completely dependent on petroleum revenues, will remain under pressure.
The UK North Sea industry could see more layoffs and spending cuts but a lower oil price – currently just below $50 per barrel compared with the $100 level hit in the years prior to 2014 – is good for British motorists, manufacturers and homeowners.
Opec put a brave face on its inaction, pointing out that the cost of crude had risen by 80% since its last summit in December. It said it had achieved the main purpose of the meeting, choosing a new secretary general, in Nigeria’s Mohammed Barkindo.
Back with oil, and after a surprise build up of stocks reported on Wednesday by the American Petroleum Institute, there was a fall in inventories according to the latest weekly Energy Information Administration.
EIA figures showed US crude stocks fell by 1.37m barrels, and despite being lower than the forecast 2.5m barrel draw, the news has given some support to oil prices which were hit by the earlier lack of agreement by Opec.
Brent crude, having fallen as low as $48.84 a barrel is now down 0.6% at $49.40.
Although ADP’s estimate of employment remained below 200,000 in May, we would caution against relying on it too heavily as a guide for tomorrow’s labour report.
In advance of this week’s hotly-anticipated labour report, ADP’s estimate of May’s private payrolls came in (rather magically) exactly on consensus at 173,000. This figure may not have been adjusted for the Verizon strike, which the Bureau of Labor Statistics has already said will remove approximately 35,000 workers from May’s overall employment and this in principal, supports the view that non-farm payrolls (NFP) will come in below 200,000 again tomorrow.
However, we would note that, whilst ADP use information from their client’s payrolls, this is only one (possibly relatively small) part of the overall forecasting model that they employ. It is also a function of last month’s official payrolls data (ie an autoregressive model) and a business conditions index (which is composed of activity data such as industrial production and GDP). As a result, we would caution against relying too heavily on this estimate of NFP, as the information specifically contained about May’s labour market performance may be fairly limited.
Despite the strike-related distortion, we feel that Friday’s consensus figure is a little low.
Although it is possible that job creation is slowing as the economy reaches something close to full employment, the high month-on-month volatility (arising from several factors, not least statistical/seasonal adjustment gyrations) in NFP means that the risk of a higher reading than last month (160,000) is arguably greater than the risk of a lower one. We look for something at or above what we consider to be the current underlying trend (roughly 180,000-185,000).
That said, we feel that the key to the next Federal Reserve Open Market Committee rate hike does not lie within the labour report. As recent speeches/statements have shown, the Fed’s labour market check-box is effectively already “ticked” and thus the timing of the next move depends more on how FOMC members perceive the recovery in activity data to have been since a weak first quarter.
In that regard, the final (and probably definitive) green or red light to a June hike will come from Chair Yellen’s speech on Monday. On balance, although many of the FOMC’s conditions for a hike have arguably been largely met, we feel that they are more likely to wait until the third quarter (most likely July), when the UK referendum event risk has passed.
Federal Reserve. Photograph: Kevin Lamarque/Reuters
It’s been a busy couple of hours, what with the European Central Bank and the collapse of BHS. And of course Opec.
On the outcome of the oil producers’ meeting, chief market analyst at FXTM Jameel Ahmad said:
There was never a chance that Opec would cut production today, meaning there are no real surprises from the outcome of this meeting resulting in OPEC failing to reach an output deal.
While the oil markets are finding themselves under pressure and encountering selling momentum as a result of the announcement, it is important to point out that the oil markets have been meeting sellers around $50 now for the past fortnight and this is currently seen as a “top” for the commodity.
To put it quite simply, there was very little need for Opec to change their strategy today and it is important to point out that the price of oil has rebounded substantially since the milestone lows below $30 at the beginning of 2016.
There are also reports that major institutions such as Opec and the IEA are expecting a dramatic decline in global inventories over the second half of 2016, which would be very supportive and positive to the chances of a further comeback in the price of oil for the remainder of the year.
“Very little was added to the mix during today’s press conference apart from a start date for corporate bond purchases*. The bottom line is that the outlook for inflation remains grim, but the ECB is not likely to act until it has no other choice, due to vague hopes of energy prices propping up inflation in the near future.
The sad collapse of BHS this afternoon mean there will be even more pressure on its former owner, Sir Phillip Green, when he testifies to parliament later this month.
MPs will surely ask Green about the dividends paid to his family during the good times, and the deficit in the BHS pension fund.
Dominic Chapell, who bought BHS for a pound, is also going to face some stern questions.
Many employees facing the loss of livelihood will no doubt be paying close attention to the scheduled appearances of Dominic Chapell and Sir Philip Green before the work and pensions committee over the next two weeks.
The question of how company executives were able to extract so much money from the retailer during its 16 year drift into liquidation will no doubt be high on the agenda, especially since the failure of a retail brand like BHS has been something that any visitor to its half empty stores in recent years might have made an educated guess at.
BHS’s failure comes just two days after Austin Reed went under, Copestake adds:
For those looking for a silver lining respite will be scant. BHS and Austin Reed had a combined high street presence of over 280 stores, with closures likely to make a tangible impression on some high streets.
As with all fire sales, the best assets will no doubt be picked up cheaply and resurrected by more successful retailers, which will make some dent in the job losses, but many will not as the British High Street continues to undergo a painful correction to accommodate changing shopper habits.
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