FTSE 100 drops below 7,000 and pound hovers at $1.22 after UK industrial orders fall sharply in October

traders
  • European bourses rise, buoyed by US merger moves 
  • FTSE 100 closes lower after JP Morgan cuts UK equities rating to "neutral" 
  • Pound remains under pressure below $1.23 
  • European bank stocks recoup post-Brexit vote losses
  • Eurozone business activity expands at fastest rate this year in October
  • Shares in French Connection surge 20pc on takeover report
  • UK CBI Factory orders slide in October   

                                                                                                    

Market Report: easyJet soars on rating upgrade 

Shares in easyJet glided towards the top of the blue chip index after UBS hiked its rating, describing it as one of the “best of breed” low cost carriers in Europe.

UBS lifted its rating to “buy” from “hold” as it believes the budget airline’s valuation appears “favourable”.

The FTSE 100 company has suffered a severe bout of turbulence since the EU referendum at the end of June. Shares have plunged by almost 40pc and the group has issued three profit warnings. Earlier this month, it said annual profit had fallen by more than a quarter citing a decline in fares, pound weakness and security concerns. 

Nevertheless, analysts at UBS believe the “material destruction” in value, that shares are pricing in, is “unjustified”. Shares, which have materially de-rated, now look “attractive” and its earnings forecast risk for next year is now “balanced”, the investment bank added. In its wake, shares climbed 13p, or 1.4pc, to 931.5p.

Elsewhere, a raised target price from Goldman Sachs lifted shares in Provident Financial 84p higher to £30.89, and support services group DCC also benefited from a target price revision. Berenberg hiked its target price by £3 to £79 causing shares to rise 125p to £67.05.

Mining stocks also made gains after Barclays upgraded its view of the industry in Europe as “positive” citing “supportive” macroeconomic data, and “compelling” valuations in diversified equities. It also raised the target prices of Anglo American, BHP Billiton, Antofagasta and Rio Tinto. Shares BHP Billiton advanced 3p to £12.24, Antofagasta added 6.5p to 525p, Rio Tinto climbed 7p to £26.76, and Glencore rose 0.1p to 237.6p. However, Anglo American dipped 28.5p to £10.66.

On the wider index, JP Morgan slashed UK equities to “neutral”. Although the pound weakness has benefited the FTSE 100 in local currency, this might start to change if politics get “more uncertain”, analysts at JP Morgan said. The FTSE 100 tumbled into the red, closing down 34.07 points, or 0.49pc, at 6,986.40.

Royal Bank of Scotland came under pressure, slipping 2p to 188p, after Investec downgraded its rating to “sell” from hold”. The broker sees RBS facing  “a potentially even less favourable environment” for conduction resolution. Ian Gordon, of Investec, assumes that the settlement of the Global Restructuring Group case, where the bank faces claims from small businesses, may have “a material cost” attached to it.

Elsewhere, pharma companies fell to the bottom of the FTSE 100 after the latest US presidential opinion poll favoured Hillary Clinton, who has promised a clampdown on excessive drugs charges if she wins the election. Shares in Hikma fell 53p to £18.54, Shire skidded 107.5p to £49.46, and AstraZeneca closed 101p lower at £48.51.

On the mid-cap index, aerospace and defence company Cobham issued its second profit warning this year causing shares to plunge to a four-month low of 139.7p, down 20.9p.

Finally, shares in fashion retailer French Connection closed up 14.5pc at 37½p after the Sunday Telegraph reported bid interest. Shares rose as much as 20pc earlier in the day before retreating slightly after comments by founder Stephen Marks, who has a 41.7pc stake and has been seen as reluctant to sell at current share price.

On that note, it's time to close up for today. I'll be back again tomorrow morning with more markets coverage. 

European bourses close mixed 

European bourses closed mixed, as the FTSE 100 dropped into the red, led lower by pharma stocks.   Pharma companies fell to the bottom of the blue chip index after the latest US presidential opinion poll favoured Hillary Clinton, who has promised a clampdown on excessive drugs charges if she wins the election.

Meanwhile, other European bourses were boosted by US M&A moves. 

By close of trade: 

  • FTSE 100: -0.49pc
  • DAX: -+0.56pc
  • CAC 40: +0.43pc
  • IBEX: +0.97pc

 Chris Beauchamp, of IGsaid: "The FTSE’s early gains have turned to ashes, with the index falling into the red over the course of the afternoon. Both the US and Europe have trimmed their gains, but the fall for London’s chief index is the standout feature of the day. Now that the pound has stopped its freefall (for now at least), perhaps the index as a whole is beginning to look a tad overpriced. Certainly, it has shown little inclination to get back to its recent highs, with ongoing Brexit uncertainty making the UK less attractive versus a eurozone economy that appears, on the basis of today’s PMI numbers, to be looking much more attractive. Indeed, the bounce in European economic data has done little for the euro,  which remains close to seven-month lows; the impact of last week’s ECB meeting still appears to be the chief driver." 

Pound under pressure as May says there  will be 'a series of parliamentary debates' on Brexit

The pound has come under pressure this afternoon, it is now down 0.21pc on the day, changing hands at $1.2208 against the dollar after Prime Minister Theresa May said there will be a series of parliamentary debate son Brexit, including on 'high level' negotiating principles. 

 The Prime Minister also said she firmly believes that if "we approach Brexit talks in a constructive spirit", it will ensure a "smooth departure" from the EU. 

Here's a look at how the pound has performed so far today: 

Credit: Bloomberg

British broadcaster ITV to cut 120 jobs over Brexit uncertainty

Shares in ITV are in retreat from earlier intraday highs on news that it will axe 120 jobs. The broadcaster is changing hands at 172.3p - still up 1.2p on the day. The FTSE 100 stock had jumped earlier following the AT&T-Time Warner deal. 

Reuters has the details: 

British broadcaster ITV will cut 120 jobs as part of a programme set out earlier this year to reduce costs by 25 million pounds ($31 million) to counter the uncertainty created by the Brexit vote.

The job cuts amount to 2 percent of ITV's workforce of 6,000, of which 3,000 are British-based staff, and would be spread across the business.

ITV plans to cut costs by 25 million pounds in 2017, as it expects a drop of 1 percent in net advertising revenues in the first nine months of this year. 

“At a time of political and economic uncertainty in our key markets, it’s important that we are in the strongest possible position to continue to invest in our strategy and to meet any challenges and opportunities ahead," a spokesman said.

Business activity picks up in the eurozone as Germany forges ahead

Here's our full report by Julia Bradshaw on this morning's eurozone PMI data: 

Business activity picked up sharply across the eurozone in October, expanding at its fastest rate so far this year and raising the possibility that the European Central Bank's quantitative easing programme will need to be scaled back.

The Purchasing Managers' Index from IHS Markit, which measures companies' willingness to spend money on their businesses, jumped to 53.7 in October, up from September's reading of 52.6. The encouraging figures sent shares in European stock markets higher.

October's PMI reading, which is widely seen as a good overall indicator of growth, was the highest since last December. Anything above 50 in the PMI signals growth. 

Hiring picked up, new orders accelerated and backlogs of unfinished work grew in both manufacturing and services, which Markit said "augurs well for the economy to continue to strengthen in the coming months".

Inflationary pressures, meanwhile, showed signs of picking up, with the survey recording the largest increase in prices charged for more than five years.

Continue reading here

US manufacturing starting fourth quarter on 'a solid footing'

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said: “Manufacturing showed further signs of pulling out of the malaise seen earlier in the year, starting the fourth quarter on a solid footing. Both output and new orders are rising at the fastest rates for a year amid increasingly widespread optimism that demand will pick up again after the presidential election, which has been commonly cited as a key factor that has subdued spending and investment in recent months.

“There are also signs that the drag from cost-cutting policies of deliberate inventory reduction is moving into reverse. Inventory-building should therefore provide an extra boost to the economy in the fourth quarter.

“Weak export growth, attributable to the strong dollar, and lacklustre hiring remain big areas of disappointment, and highlight an ongoing dependency on domestic demand and a need to keep labour costs low amid a still-uncertain economic and political outlook.”

US manufacturers record strongest upturn in business conditions for 12 months in October

October data signalled that U.S. manufacturers started the fourth quarter in a strong fashion, with output and new order volumes rising at markedly faster rates than in September. A rebound in business conditions contributed to greater input buying among manufacturing firms and renewed pressures on capacity. At the same time, manufacturers sought to boost their stocks of inputs, with pre-production inventories rising for the first time since November 2015.

Credit: Markit

Manufacturers reported that supportive domestic economic conditions remained a key growth driver,helping to offset sluggish export sales in October. Survey respondents also noted that increased production and greater purchasing activity reflected hopes of a post-election upturn in client demand.

Adjusted for seasonal influences, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index 1 rebounded to 53.2 in October, from a three-month low of 51.5 in September. The latest reading signalled a solid upturn in overall business conditions, and the rate of improvement was the fastest since October 2015. Stronger output and new business growth were the key factors boosting the headline PMI, which helped offset a drag from softer job hiring in October.

Read full press release here

US manufacturing output index hits one-year high

Data from Markit this afternoon has shown that US manufacturers started the fourth quarter in a strong fashion, with output and new order volumes rising at markedly faster rates than in September

Key points: 

  1. Headline PMI rises from 51.5 to 53.2 in October;
  2. Output and new order growth hit one-year peaks;
  3. Manufacturers report fastest expansion of input buying since June 2015;
  4. Input cost inflation accelerates to its strongest for almost two years

Tata chairman Cyrus Mistry departs

Tata, the Indian industrial titan that owns Port Talbot steelworks in Wales, has removed its chairman.

The board of Tata Sons, the holding company of Tata Group, voted today to remove Cyrus Mistry, who had been chairman for four years.

Mr Cyrus will be temporarily replaced by Ratan Tata, 78, who had held the post from 1991 to 2012. The veteran industrialist will occupy the role for what Tata said is likely to be a four-month search for a permanent successor.

Tata gave no reason for Mr Mistry's defenestration, but the move has been linked to the conglomerate's sluggish performance over the last four years.

The news comes with the fate of the Port Talbot steelworks in the balance. Mr Mistry had been negotiating with the government over the future of the plant, which is one of Tata's biggest assets in the UK.

Report from Tom Ough (Read more here)

M&A activity boosts US stocks at opening bell

Wall Street opened higher this afternoon thanks to a boost from merger activity. 

At the opening bell: 

  • Dow Jones: +0.6pc
  • Nasdaq: +0.64pc
  • S&P 500: +0.45pc

It's also worth noting that Time Warner was among the most active S&P 500 stocks with 10.4m shares traded within minutes of the market open. Volume traded near twice the stock's 30-day average. 

One rate increases is all that's needed for now, says Fed's Bullard

St. Louis Federal Reserve President James Bullard reckons one interest rate rise is all that is needed for the time being. 

Speaking before a conference co-sponsored by the Association for University Business and Economic Research in Fayetteville, Ark, Mr Bullard also low interest rates are likely to be the norm for two to three years. 

Belgian internal feud blocks EU-Canada trade deal 

 The European Union's hopes of signing a landmark free trade deal with Canada this week appeared to evaporate on Monday as the Belgian federal government failed to win the consent of French-speaking regional authorities.

European Council President Donald Tusk had given Belgian Prime Minister Charles Michel until Monday, three days before the planned signing, to resolve the impasse. But a meeting Michel hosted with leaders of the five sub-federal authorities whose permission he needs to go ahead ended in stalemate.

Tusk is now expected to contact Canadian Prime Minister Justin Trudeau and call off an EU-Canada summit that was scheduled for Thursday in Brussels, although all sides insist that the CETA pact, seven years in the making, remains in everyone's interest.

"We cannot give a yes," Paul Magnette, the premier of the Wallonia region, told reporters as he emerged. He said the main problems remained not with Ottawa, which has already agreed to modifications in the deal, but with the EU authorities.

Other Socialist-led regions, including bilingual capital Brussels, are ranged behind the Walloons, while Dutch- and German-speakers back Michel's liberal-led federal coalition:

"We have a Yes from the federal, Flemish and German-speaking communities and it's a No from the others," said Flanders premier Geert Bourgeois after the meeting at Michel's residence lasting less than an hour.

"It's a real shame," the centre-right leader said. "We're the laughing stock of the whole world. It's bad for Wallonia, for Flanders, for Belgium, for Europe, for the whole world."

Michel said it was too early to say CETA was dead and that the Walloons and he were still open to dialogue but that he must inform Tusk that Belgium was not in a position to consent now to a deal that all 27 other EU member states are ready to support.

From Reuters

Doubts about globalisation make it harder to prevent another financial crisis, says BoE deputy

Countries must overcome “increased scepticism” about globalisation to work together on ways to prevent another financial crash, according to a Bank of England deputy governor.

Minouche Shafik, who oversees markets and banking, used a speech in Hong Kong to call for greater co-operation among states on financial stress tests and capital rules for the largest companies.

“The body of evidence required to justify including the interests of other nations in the setting of domestic policy is understandably large, even when the long-run benefits would be to all,” she said. “This is more true now than ever, as the unequal distribution of benefits from globalisation has increased scepticism about international co-operation.”

As the world becomes more correlated, it needs to co-operate more on financial stability, Minouche Shafik has said

Dame Minouche said research carried out by the Bank suggested that acting in “enlightened self-interest” in tandem with other nations “can further reduce the likelihood of a crisis by more than if countries act alone”.

She pointed out signs that markets around the world have become more correlated, with around three-quarters of equity and foreign exchange returns in both advanced and emerging market economies now attributable to international factors, according to the International Monetary Fund. 

Report from Marion Dakers (Read more here)

FTSE 100 turns negative

The FTSE 100 turned negative this afternoon, down 3.5 points or 0.05pc, at 7,017.

EasyJet: Darkest before the dawn... UBS upgrades to 'buy'

UBS has upgraded easyJet's rating to 'buy' as it believes it is "not about the start but about the finish". 

Following three profits warnings, shares have nearly halved in value since the beginning of the year. Nevertheless, Jarrod Castle, of UBS, cites four reasons for the upgrade: 

  1. Shares are pricing in material future value destruction - UBS doesn't think this will be the case;
  2. The shares have materially de-rated and UBS thinks they look attractive;
  3. Earnings forecast risk for 2107e in UBS's view is now "balanced";
  4. Post expansion capex the FCF and ROIC look attractive. 

Shares climbed 2.6pc towards the top of the FTSE 100. 

Petra Diamonds output jumps 30pc as market stabilises

Shares in Petra Diamonds hit a 14-month high, up 5.2pc at 147p, after reporting a 30pc jump in first quarter production. Jon Yeomans reports: 

Petra Diamonds has hailed growing stability in the diamond market as its output jumped 30pc in the first quarter.

Shares in the FTSE 250 company climbed more than 5pc in early trade to £1.47 after it reported production of 1.1m carats between July 1 and October 21, on the back of improved grades in the diamonds it mines.

South Africa-based Petra has been spending heavily over the last three years to breathe life into mines previously owned by De Beers, including the famous Cullinan pit, which produced some of the gems in the Crown Jewels.

Johan Dippenaar, chief executive, said the spending programme was paying off as it was now able to access fresh ore in the deeper parts of its mines such as Cullinan and Finsch. “We’re breaking free of our shackles so to speak after three years of heavy capital spend. It’s very pleasing to see the grades at our two biggest projects recording these upticks.”

Read more here

AT&T - Time Warner deal does not take competitors out, says AT&T boss

Meanwhile, AT&T chief executive Randall Stephenson said the deal to buy Time Warner does not take competitors out. 

In an interview with CNBC, he said the idea that Time Warner content would be restricted through the merger is "nonsensical". 

Time Warner CEO Bewkes says nobody else approached the company for a deal 

After AT&T agreed to buy Time Warner for $85.4bn on Saturday, Time Warner's chief executive has said AT&T was the only company to make a takeover offer. 

In an interview with CNBC today, Time Warner boss Jeff Bewkes said: "Nobody else approached the company for a deal." 

Several media outlets had reported that Apple had also been interested in acquiring Time Warner.

Microsoft to raise prices by up to 22pc after slump in pound

Microsoft plans to hike prices for some enterprise services by up to 22pc in Britain following the plunge in the pound following the referendum. 

James Titcomb reports: 

Microsoft is to increase its prices by as much as 22pc in the UK because of sterling’s recent decline, a rise that is likely to affect thousands of businesses and could cost the Governments tens of millions of pounds.

The software giant is the latest big-name company to force through a post-referendum price rise, saying the move would “harmonise” its prices across Europe.

The value of sterling against the dollar, in which Microsoft books its revenues, has fallen by approximately 18pc since the EU referendum on June 23.

Microsoft’s move comes after the consumer goods giant Unilever attempted to pass on a 10pc price increase to British supermarkets, a move that to led to a stand-off with Tesco, resulting in what was dubbed “Marmitegate”, a 24-hour period during which many  Unilever products disappeared from the retailer’s online store.

​Read more here

Markets update: European bourses rise after eurozone composite PMI hits 10-month high

European bourses continued to make gains this morning after data from Markit showed that eurozone business activity expanded at its fastest rate this year. 

Here's the state of play at midday: 

  • FTSE 100: +0.01pc
  • DAX: +0.77pc
  • CAC 40: +0.74pc
  • IBEX: +1.31pc

 Connor Campbell, of SpreadExsaid: "A positive swell of data has continued to boost the Eurozone this Monday morning; the FTSE’s gains, on the other hand, have gradually disappeared.

"The Eurozone went from strength to strength, the DAX and CAC now up just shy of 1pc thanks to a series of sharp recoveries in the region’s manufacturing and services PMIs. Following on from the impressive readings out of Germany and France, the Eurozone-wide composite PMI hit a 10 month peak of 53.7, the region’s firms putting the Brexit firmly behind them."

National Grid to spend £460m burying new Lake District power lines 

Shares in National Grid are down 1.5p at £10.65 today after it announced that it will spend £460m burying new power lines through the Lake District. 

Emily Gosden reports: 

National Grid has unveiled plans to spend £460m burying new power lines through the Lake District, in a U-turn that will cost seven times more than erecting pylons.

The utility giant had originally planned to build 160ft-tall pylons through a 14.5-mile stretch of the national park, as part of a 102-mile cabling project along the west coast of Cumbria to connect up NuGen's proposed new nuclear plant at Moorside.

Lake District

But after fierce opposition from campaigners, who warned the pylons would devastate the scenery and could jeopardise the Lake District's bid for Unesco world heritage site status, National Grid on Monday proposed burying the cables under the park. 

It said it could also remove the existing lower-voltage power lines that currently stand along the route, "leaving this part of the park free of pylons for the first time in 50 years".

Continue reading here

Mixed October CBI surveys fuel uncertainties over UK manufacturing outlook

The October CBI industrial trends surveys (monthly and quarterly) are "a real mixed bag", Howard Archer, of IHS, said this morning. 

"While there are clearly some positives in the October CBI surveys, we suspect that difficulties for the manufacturing sector will mount over the coming months.

"In particular, business confidence is likely to be hampered by prolonged uncertainty, constraining investment plans and limiting demand for capital goods. This uncertainty will likely be magnified once the government triggers Article 50 (by the end of March according to Theresa May) and negotiations over the UK’s exit from the European Union come to the forefront."

Mr Archer also says that it looks "inevitable" that consumers will become less able and more reluctant to buy big ticket consumer durable items over the coming months. 

"Consumers’ purchasing power seems certain to be increasingly squeezed as inflation is lifted markedly by the sharply weakened pound and companies look to clamp down on pay as they strive to save costs in a more difficult environment. The jobs market will likely also increasingly soften as business react to a more uncertain and worrying outlook."

CBI Industrial Trends Surveys: Weak domestic demand offsets export boost

After data from the CBI showed that monthly total orders fell to -17 this month from -5 in September, well below the consensus of -5, Samuel Tombs, of Pantheon Macroeconomics, said conditions in the manufacturing sector have "not deteriorated as rapidly as the total orders balance suggests". 

"The balance has a very strong seasonal pattern and it has been below its 12-month rolling average in 34 of the last 38 Octobers, by an average of six points. The orders balance is prone to seasonality because it asks firms to report if orders and above or below “normal”, which is not a clearly defined benchmark. 

"Even so, our seasonally adjusted measure of the total orders balance fell to -11 in October—its lowest level since March—from -5 in September and it is consistent with slight falls in production. The rise in the export orders balance to -6 from -10 implies that the weakness is concentrated in domestic demand."

Credit: Pantheon Macroeconomics

UK factories report weak October orders, brighter quarterly outlook 

Here's the full report from Reuters: 

British industrial orders fell sharply in October, though export demand picked up somewhat and business optimism in the three months to October as a whole was less negative than just after the Brexit vote.

The slew of quarterly and monthly figures from the Confederation of British Industry on Monday offered a mixed picture overall.

There was a recovery in investment intentions and strong export prospects, twinned with a weaker hiring outlook and concerns about rising costs and skills shortages.

The headline monthly industrial orders balance fell sharply to -17 in October from -5 in September, in sharp contrast to economists' forecasts for a small pick-up.

Expectations for output growth slowed and inflation picked up, though export orders rose faster than their long-run average.

The broader quarterly survey which the CBI released alongside the monthly figures was somewhat more upbeat.

An overall measure of business optimism rose sharply from very low levels seen in July, and export orders rose at the fastest rate since April 2014.

"Manufacturers are optimistic about export prospects and export orders are growing, following the fall in sterling. However, the weaker pound is also feeding through to costs, which are rising briskly and may well spill over into higher consumer prices in the months ahead," CBI chief economist Rain Newton-Smith said. 

Exports rise as manufacturers benefit from weaker pound

After data from the CBI show exports rise as manufacturers benefit from weaker pound , Rain Newton-Smith, CBI Chief Economist, said:

“Manufacturers’ are optimistic about export prospects and export orders are growing, following the fall in Sterling.

“However, the weaker Pound is also feeding through to costs, which are rising briskly and may well spill over into higher consumer prices in the months ahead.

“Access to skills clearly remains a high priority, so manufacturers will be looking to the Government to implement a new migration system that meets the needs of business while responding to clearly-stated public concerns. Maintaining a preferential route between the UK and the EU, our largest trading partner, will be important.

“Meanwhile, firms will be seeking further details on a long-term, industrial strategy from the Autumn Statement that combines sectors and places.

“Ultimately, all businesses need greater clarity from the Government on the fundamental issues of skills and barrier-free access to EU markets as soon as possible.”

UK CBI factory orders slide in October

UK factory orders fell sharply this month but export demand picked up, data from the Confederation of British Industry said this morning. 

Here are the key figures for this month: 

  1. Manufacturing order book balance: -17, compared with -5 in September, lowest level since February and below forecasts of -4;
  2. Manufacturing export order book balance -6 vs -10 in September;
  3. Manufacturing output expectations balance +13 vs +22 in September;
  4. Quarterly total new orders balance +9 in October,compared to +9 in July;
  5. Quarterly total export orders balance +8 in October, compared to -2 in July - highest level since April 2014;
  6. Quarterly employment intentions -15 in October vs -6 in July, that's its weakest level since October 2009
  7. Business Optimism Index -8 in October vs -47 in July

JP Morgan cuts UK equities to 'neutral' 

US investment bank JP Morgan has slashed its rating on UK equities to "neutral" from "overweight" today. 

The UK benefitted this year from large EM exposure, from falling Gilt yields and from weaker pound, Mislav Matejka, of JP Morgan, said.

"We think tactically EM will take a step back, which will remove one of the drivers for the UK. UK bond yields have rebounded, and this move is clearly not “for the right reasons” creating a problem for UK valuations. The acceleration in UK inflation could weigh on consumer plays." 

So far, the pound weakness has been a benefit, as it pushed the FTSE 100 to a new record intraday high, in local currency. However, the investment bank reckons that this might start to change if politics get "more uncertain". 

"Further pound weakness might become a negative signal for UK assets," Matejka continued. 

"UK was the only main region seeing earnings upgrades ytd, courtesy of the falling GBP and the rebound in oil, but consensus projections of +17pc UK EPS growth for ’17 limit the room for any positive surprises.

"In a nutshell, UKX is up 13pc ytd, SX5E is down 6pc, so a switch is warranted, in our view."

Treasury names Katharine Braddick as financial services head

The Treasury has named Katharine Braddick as its new director general for financial services. 

In a statement released this morning, the Treasury said Braddick would take up her role immediately, replacing Charles Roxburgh, who was appointed second permanent secretary to the Treasury in June.

Braddick joined the finance ministry in 2014 from the Bank of England and was the Treasury's Director for Financial Services. 

EU/US divergence drives euro to seven-month low 

As the euro flounders at a seven-month low against the dollar, Nawaz Ali, of Western Union Business Solutions, said: "Last week’s European Central Bank monetary policy decision triggered a response from traders, with the Euro being sold in favour of the US dollar amid bets the ECB will expand its Quantitative Easing program and probably by December. Although ECB President Mario Draghi did not explicitly say this, the market is moving to price in the high chance of more ECB stimulus.

"At the same time, with Hillary Clinton leading US election polls, traders see a high chance of a US interest rate rise by December. This divergence in EU/US monetary policy outlooks has pushed the EUR/USD rate down towards a 7-month low near the key $1.08-$1.09 support area."

Credit: Bloomberg

Strong PMIs lead mainland Europe higher

Commenting on this morning's strong eurozone PMIs, Joshua Mahony, of IG, said: 

"An impressive set of PMI survey readings out of the eurozone has ensured that mainland European markets are outperforming their UK counterparts, with early FTSE gains fading. Particularly impressive data came from the manufacturing sector which seems to have staged an unlikely comeback, with eurozone, French and German manufacturing PMIs all hitting 2016 highs.

"Coming at a time when the euro is tumbling back to a seven-month low, it is clear that producers are enjoying somewhat of a renaissance following a period of uncertainty."

Hanjin shares dive on plans to row back European business

Shares in Hanjin tumbled nearly 12pc in morning trading after the embattled South Korean shipper said it would shut most of its European business.

The firm, once the world's seventh-largest shipping company, will close 10 of its on the continent including its European headquarters in Germany, as well as in Spain, Hungary, Holland, France, the Czech Republic and Belgium, as it struggles to contend with a multi-billion-dollar debt pile.

A Hanjin cargo ship in California. The global shipping giant is the first casualty of a global downturn in the market

Hanjin says its UK offices in London, Manchester and Felixstowe will remain open.

The company, part of the South Korean conglomerate that also owns Korean Air, the national carrier, has filed for bankruptcy in its home market and the US after it lost the support of banks to repay its £5.37bn debts. Hanjin's vessels are now been seized by authorities and creditors, with others refused entry to ports.

Read more here

Cobham shares nose-dive as it issues second profit warning 

Shares in aerospace and defence group Cobham have plunged 19pc this morning after it issued its second profit warning this year. The FTSE 250 stock is floundering at four month lows and is poised for its worst day since April after it said it sees full-year profit between £225m and £275m, compared to a previous forecast of £295m. 

Tom Ough reports: 

Cobham, the struggling defence manufacturer, has revised its profit forecast downwards for the second time this year.

Shares plunged 13.5pc in early trade to £139.2p as the company said trading in its communications and electronics divisions had disappointed.

The FTSE 250 company said that “overall trading in the third quarter has been challenging” and forecast its profit would be “in the range of £255m to £275m”.

This could be as much as 14pc lower than its previous estimate and comes after a torrid few months.

Cobham was forced into a £500m rights issue in April to get its debt under control following the £900m acquisition of Aeroflex, a price that many thought was over the odds.

Read more here

Shares in French Connection surge 20pc on takeover interest 

Shares in fashion retailer French Connection surged by as much as 20.6pc  to  39.5p at the opening bell this morning after a Sunday Telegraph report revealed the group is being circled by overseas retail investors and private equity firms amid growing speculation that its septuagenarian founder may be willing to consider a sale.

The report detailed that French Connection is seeking advice from investment boutique Moelis and has had recent approaches following the retailer’s fifth consecutive year of losses and a subsequent fall in the share price.

Eurozone Composite PMI: A reassuringly solid rebound

Analysts react after eurozone companies enjoy their strongest month this year: 

 Julien Lafargue, European Equities Strategist, JP Morgan Private Bank said: "According to the flash PMIs estimates, after a difficult summer, the Eurozone is accelerating again at the start of the fourth quarter. The improvement in Services in Germany is particularly encouraging as this had been an area of concerns recently.

"The focus is now likely to switch to inflation dynamics with input costs in Germany rising at the fastest pace in nearly 1.5 years and backlogs of work in the Eurozone accumulating at the fastest rate for over 5 years. Although we believe this would be premature, this might trigger renewed concerns about the ECB having to “taper” its quantitative easing in the coming months."

Credit: Pantheon Macroeconomics

Meanwhile, Claus Vistesen, of Pantheon Macroeconomics, described the reading as "a reassuringly solid rebound". 

"It means that the PMI continues to indicate broadly unchanged GDP growth in the Eurozone of 0.3pc-to-0.4pcquarter-on-quarter. The details point to firm growth across the board. New business growth was the strongest since January, which prompted companies to increase employment. Work backlogs continued to increase, though, which suggests that firms will have to increase payrolls further in coming months. Inflation pressures are picking up too. Input costs are rising, but so far firms in the Eurozone as a whole are able to exploit strong end demand and push this cost on to clients. Detailed result of data outside Germany and France won’t be released until next week, but Markit’s press release suggests that growth rebounded, albeit only modestly. "

Although the PMI points to an increase in Q4 GDP growth,  Mr Vistesen thinks that this is "unrealistic", but adds: "the survey indicates that the economy got off to a strong start to the quarter". 

Eurozone businesses have strongest month this year in October

Here's Reuters take on the Eurozone Composite PMI flash estimate for October: 

Business activity in the euro zone has expanded at the fastest rate this year in October, even as firms raise prices at the sharpest rate in more than five years, a survey showed on Monday.

The upturn in both activity and prices will make welcome reading for policymakers at the European Central Bank, who left their ultra-loose policy unchanged last Thursday but kept the door open to more stimulus in December. 

IHS Markit's euro zone flash composite Purchasing Managers' Index, seen as a good overall growth indicator, jumped to 53.7 from September's 52.6. It was the highest reading since last December and far above the 50 point line indicating growth in activity.

It smashed even the highest forecast in a Reuters poll of economists which had predicted a more modest rise to 52.8.

"It's an encouraging picture. There are plenty of signs here that this number is going to keep improving as a lot of the sub-indexes are cementing a picture of better headline PMI numbers coming through," said Chris Williamson, chief business economist at IHS Markit.

Williamson said that if maintained, the PMI pointed to 0.4 percent growth in the current quarter, although he added that there were upside risks to that prediction. A Reuters poll last week predicted a more modest growth rate of 0.3 percent. Inflation is nowhere near the ECB's 2 percent target ceiling

it was just 0.4 percent in September - so evidence of increasing price pressures could dampen expectations that the ECB extends its massive asset-buying programme. A subindex measuring output prices jumped to 50.5 from 50.0, its highest level since August 2011.

"It's a shift from a buyer's market to a seller's market which is associated with prices rising. It's early days yet but it's a shift in the right direction," Williamson said.

The bloc's dominant service industry also performed much better than expected. Its PMI came in at a nine-month high of 53.5, ahead of September's 52.2 and beating all forecasts in a Reuters poll where the median call was for 52.4.

Credit: Markit

Suggesting the acceleration could continue into November, new business soared. The index registered 53.2, up from 52.5.

Manufacturers followed the same trend. The factory PMI climbed to a 30-month high of 53.3, above the poll median and September's 52.6, while the output index, which feeds into the composite PMI, jumped to 54.4 from 53.8.

Highlighting the confidence about the coming months amongst manufacturers, they increased headcount at the fastest rate since May 2011. The employment subindex was 53.7 compared to September's 52.1.

Eurozone economy shows renewed signs of life at start of Q4

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The eurozone economy showed renewed signs of life at the start of the fourth quarter, enjoying its strongest expansion so far this year with the promise of more to come. With backlogs of work accumulating at the fastest rate for over five years, business activity growth and hiring look set to accelerate further as we head towards the end of the year.

“October’s PMI is consistent with a quarterly GDP growth rate of 0.4pc, led by a 0.5pc pace of expansion in Germany. Modest growth of 0.2-0.3pc is being signalled for France, but there are various indicators which suggest that France will enjoy stronger growth in coming months, including a marked build-up of uncompleted work.

“Policymakers will be encouraged by signs of both stronger economic growth and rising price pressures, and the prospect of a robust fourth quarter will fuel further speculation of a possible tapering of QE purchases by the ECB.

“Not only are average charges increasing at the steepest rate for just over five years, but October also saw the extent of manufacturing supply chain delays hit one of the highest in five years. Increasingly widespread delays suggest demand is outstripping supply for many goods, something which is usually soon followed by rising prices and investment in additional capacity.”

Read full press release from Markit here

Germany leads eurozone growth to strongest so far this year

The pace of economic growth in the eurozone rose to the highest seen so far this year in October, led by a growth upturn in Germany, according to PMI survey data.

Faster growth of orders books and an acceleration in the pace of hiring also augur well for the economy to continue to strengthen in coming months. Inflationary pressures meanwhile showed signs of picking up, with the survey recording the largest increase in prices charged for over five years.

Here are the key data findings: 

  1. Flash Eurozone PMI Composite Output Index at 53.7 (52.6 in September). Ten-month high.
  2. Flash Eurozone Services PMI Activity Index(2) at 53.5 (52.2 in September). Nine-month high.
  3. Flash Eurozone Manufacturing PMI Output Index(4) at 54.4 (53.8 in September). Ten-month high.
  4. Flash Eurozone Manufacturing PMI(3) at 53.3 (52.6 in September). 30-month high.

Sterling remains below $1.23 as focus shifts to Thursday's Q3 growth readings

The pound is likely to remain under pressure this week ahead of Thursday's third quarter growth readings for the UK economy. 

After a strong second-quarter, Britain's economy is expected to slow and is forecast to grow at 0.3pcin the third quarter. The report will be the first reading of how the broad economy has performed in the immediate aftermath of the shock vote to leave the EU in June. So far, all the evidence has suggested that the economy has held up well and the country is likely to dodge a recession. 

The pound is trading up 0.03pc on the day at $1.2237 against the dollar. 

Credit: Bloomberg

German private sector growth hits 2016 high in October

Germany's private sector expanded at the fastest rate this year in October, a survey showed on Monday, suggesting Europe's largest economy is firing on all cylinders at the start of the fourth quarter after losing momentum in the previous two months.

Markit's flash composite Purchasing Managers' Index (PMI), which tracks the manufacturing and services activity that accounts for more than two-thirds of the economy, jumped to 55.1 in October from 52.8 in September, the highest reading since last December.

This was comfortably above the 50 mark that separates growth from contraction and far higher than all forecasts in a Reuters poll which produced a consensus prediction of 53.3.

Growth in the services sector picked up again after having nearly stagnated in September, while activity at factories also increased to its highest level in just over 2-1/2 years.

Markit Chief Economist Chris Williamson said the political uncertainty caused by Britain's vote to leave the European Union may have triggered the summer soft patch.

"Look through the noise of Brexit and very little has changed, so the soft patch that was caused by that is now over and we're looking at a stronger fourth quarter with nice growth of manufacturing and services," he said.

Companies enjoyed the sharpest rise in new business so far this year, encouraging them to add to their payroll numbers to the greatest extent in just over five years.

The PMI survey adds to a string of positive data in recent weeks that suggests the German economy is likely to grow faster than originally expected in the second half.

Business morale hit a 28-month high in September, while industry orders - which have been weak so far this year - also rose more than expected in August, indicating the industrial sector may undergo a recovery in coming months. 

Williamson said the PMI data pointed to "well-rounded" growth of around 0.5 percent in the fourth quarter, supported by domestic demand, services and strong manufacturing activity.

Earlier this month, the government lifted its 2016 growth forecast to 1.8 percent from 1.7 percent due to higher state spending on migrants and soaring private consumption.

Report from Reuters

European bank stocks recoup post-Brexit vote losses

European bank stocks erased their post-Brexit vote losses this morning. 

The Stoxx Europe 600 Banks index jumped 1.3pc to 152.16 points, recouping all of its losses suffered in the wake of the referendum result. It rose above the 150 points mark for the first time since June 23. 

However, it is still down some 17pc since the start of the year. 

Robust third quarter results from the US have lifted European banking stocks in recent weeks. 

Credit: Reuters

European bourses rise at opening bell, buoyed by US merger moves

European bourses began the week on the front foot, buoyed by Zodiac Aerospace and by media firms, which were boosted from positive read-across from merger moves in the US. 

Media firms jumped following AT&T's deal to buy Time Warner over the weekend for $85.4bn, while Zodiac Aerospace climbed from M&A activity in the sector. 

Thirty minutes into trading: 

  • FTSE 100: +0.6pc
  • DAX: +0.59pc
  • CAC 40: +0.74pc
  • IBEX: +1.4pc

Henry Croft, of Accendo Markets, said: "A positive opening call to begin the week comes as the USD maintains its strong footing and political developments in the UK over the weekend slightly ease fears of a so-called ‘hard’ brexit. Without major event risk this week (after the final US Presidential Election and with no monetary policy updates) macro data and earnings will remain in focus for investors, with major UK Banks Barclays, Lloyds and RBS all reporting their Q3 earnings in the latter half of the week.

"Note falling Oil prices may be prove to be the thorn in the markets’ side today as the potential OPEC production freeze agreement in November comes into question." 

French manufacturing rebounds in October but services growth cools

 France's long-struggling manufacturing sector unexpectedly returned to growth in September although overall private sector activity expanded at a slower pace due to weaker than forecast service sector business, a survey showed on Monday.

Data compiler Markit said that its flash monthly purchasing managers index for activity in the manufacturing sector rose to a 10-month high of 51.3 this month from a final September figure of 49.7.

That was better than economists' average forecast for 50.0, which also happens to be the level that demarcates an expansion in activity from a contraction.

In contrast, the service sector index eased back to a three-month low of 52.1 from 53.3 in September, confounding expectations for a reading of 53.0.

The slower pace of service sector activity meant that the composite index for overall business activity slipped to 52.2 from 52.7, matching economists' average forecast for this month.

"I'm not too disappointed by this cooldown in the number, there are signs the situation is going to improve – and potentially quite markedly," Markit chief economist Chris Williamson said.

He noted that manufacturers' new order flow had grown at the fastest pace in 2-1/2 years boosted by demand from abroad while staffing levels had stabilised after having reduced headcounts since February.

Williamson said that with business activity at levels seen in October's PMI report, growth would likely pick up in the final three months of the year. "It should be a good fourth quarter," he said.

France's statistics office will publish third-quarter economic output figures on Friday that economists expect on average to show a growth rate of 0.3 percent.

Report from Reuters

Agenda: Investors eye eurozone data

Good morning and welcome to our live markets coverage. 

It's a relatively quiet start to the week, with focus on eurozone PMI data which is released in the next hour. Ahead of the data release, the euro is trading at its lowest level against the dollar since January. 

Later this morning, the CBI will publish its latest data on UK industry. 

Also on the agenda: 

Trading update: Petra Diamonds, McBride

AGM: Axis Bank

Economics: CBI realised sales (UK)

Later in the week, the first GDP report encompassing the period after the Brexit vote will be released.

Ahead of the release, Kathleen Brooks, of City Index, said: "GDP is expected to come in at 0.4pc, not bad considering the doom and gloom about the UK economy, some may say. However, there are a few signs that Brexit is starting to weigh on the UK economy. Business investment is expected to be weak, and we expect another quarter of growth heavily reliant on the consumer. Going forward, we see consumer confidence flagging once Article 50 is triggered at some point early in Q1 next year.

"As the reality of Brexit hits home, and some multinationals consider whether or not they want to stay in London, this may be the time that consumers pull in the purse strings and 2017 could be tricky for the UK economy. Overall, it could be a busy week for equity markets. US stocks have been trading in a tight range as we lead up to the US election in 2 weeks’ time, however tech earnings and the AT&T and Time Warner merger could deliver some much-needed direction to the S&P at the start of this week."

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