Rolling business and financial news: US growth buoyed by trade and defence spending while Spain also enjoyed decent growth for the third quarter and Germany posted a surprise fall in unemployment... but stock markets concerned that US rate hikes could come sooner after upbeat Fed statement
2.34pm GMT
European stock markets are still down, amid growing concerns that the US Fed could hike rates sooner than expected after last nights upbeat statement which ended its quantitative easing programme. The Fed would have seen in advance todays strong GDP numbers which showed the economy grew by 3.5% in the third quarter. The dollar has rallied against the pound and the euro.
Markets have also been spooked by comments from the European banking regulator that banks need to do more work, even those that passed the stress tests.
2.04pm GMT
Returning to the European confidence data, ING economist Peter Vanden Houte says the European Commission business and consumer survey turned out be a pleasant surprise. The overall economic sentiment index rose from 99.9 to 100.7, confounding the consensus expectation for a small drop. The business climate indicator increased to 0.05 from 0.02 in August.
The increase in overall sentiment in September was across the board, with all sectors seeing an improvement in confidence. The export-sensitive industrial sector showed a more optimistic view on both expected production and order books. The weakening of the euro exchange rate is finally giving some breathing space to European exporters, leading to more optimism.
Confidence in the more domestically oriented services and retail trade sector also both improved, while consumer confidence staged a slight increase on the back of better employment perspectives. Finally the construction sector saw a significant boost in confidence. Capacity utilization in the manufacturing sector increased to 80%, typically the level where investment expenditure starts to pick up.
2.03pm GMT
US stocks dipped at the open, but the Dow Jones is now trading 0.3% higher at 17,25.24 while the S&P 500 has slipped 0.1% and the Nasdaq is down 0.6%.
1.15pm GMT
Carsten Brzeski at ING has looked at the German jobless numbers in detail.
Did anyone say crisis? The German labour market remains solid as a rock, defying all woes from a weakening industry. Unemployment decreased by a non-seasonally adjusted 75,000 in October, bringing the total number of unemployed down to 2.733 million. In seasonally-adjusted terms, unemployment dropped by 22,000, leaving the seasonally-adjusted unemployment rate unchanged at 6.7%.
The revival of the German labour market is gaining momentum. In fact, the October improvement was the best October performance since 2011, indicating that the story on the possible vacation impact on the German economy in August and September could have been for real. Now that finally all Germans are back from vacation, the labour market is accelerating.
The labour market remains the backbone of the German economy. Thanks to earlier reforms, ageing and immigration from crisis-battered Eurozone countries, the German labour market seems to have decoupled from the real economy. Or to be more precise, the economy currently needs much less growth than in the past to at least stabilize the labour market. While in the 1990s and early 2000s, it needed GDP growth of at least 1.5% to reduce unemployment, this threshold has come down to below 1%.
Looking ahead, the labour market should remain solid, supporting private consumption. Earlier today, the statistical office reported that employment had reached a new all-time-high in September. Moreover, vacancies are increasing again and have almost returned to their all-time high of November 2011. Interestingly, the current split of the German economy into healthy domestic activity and faltering external activity is also reflected in companies recruitment plans. Employment expectations in the manufacturing sector have been negative since March, while at the same time employers in the service sector are still hiring and have actually increased their recruitment plans in recent months.
1.12pm GMT
To recap, todays economic news has been pretty good. Paul Ashworth, chief US economist at Capital Economics, shares the Feds optimism about the economy:
Admittedly, consumption growth was a relatively modest 1.8% in the third quarter. But the conditions are in place for a pick-up in the pace of consumption growth. Real personal disposable incomes increased by a healthy 2.7% in the third quarter and, with the prospect of further big gains in employment and the impact of the slump in energy prices, real incomes should enjoy an even bigger gain in the fourth quarter.
Business investment growth was also relatively healthy at 5.5%, led by a 7.2% gain in investment in equipment. Residential investment only increased by 1.8%, but we still expect more gains in home building over the next couple of years because the level of housing starts is still running well below population requirements.
1.05pm GMT
More breaking news: German inflation unexpectedly slowed to 0.7% this month, the lowest reading since May.
1.02pm GMT
Fed chair Janet Yellen is speaking at a diversity conference at the central bank, but wont touch on monetary policy or the economic outlook, according to the text of the speech, Reuters reports.
12.58pm GMT
Futures are pointing to a lower open on Wall Street, with the Dow Jones set to fall 24 points.
Over here, the FTSE 100 index is now trading down less than 40 points at 6414.61, a 0.6% drop. Germanys Dax has lost 1% and Frances CAC has shed 0.4%.
12.55pm GMT
US Q3 GDP grew 3.5%q/q (annualized). Consumption, investment, government & net exports all made healthy contributions pic.twitter.com/JKZGolh8Mr
Contributions to Percent Change in U.S. GDP: pic.twitter.com/1ska6qDR5R
If Fed was comfortable with sustainable US growth based on defense spending does this mean a Fed "war put"?
12.51pm GMT
Heres some instant reaction to the US GDP data from ING economist Rob Carnell.
No wonder the FOMC statement erred on the upbeat side on Wednesday. That said, the components of the GDP total make less impressive reading. Consumer spending rose by only 1.8%, down from 2.5% in 2Q14, and fixed investment, though not bad at 4.7%, and faster than overall GDP growth, was also down from the second quarter reading. Structures, equipment, and residential investment spending growth all slowed.
What seems to have delivered most of the growth, and offset a substantial (0.57% GDP) drag from inventories, was a reasonable export performance (7.8%QoQ), coupled with a decline in imports (-1.7%), and a big surge in the erratic defense component of government spending. This last element alone added 0.66% to the GDP total. It is unlikely to be repeated any time soon.
Having said all this, we suspect the market will be prepared to see through the detail and focus on the better looking total. Following yesterdays FOMC statement, investors will likely be looking for clues that may see the Fed hiking rates sooner than expected. This data certainly leans in that direction. Though with big falls in inflation looming, we would not be rushing to any hasty conclusions on rates just yet.
12.44pm GMT
US economic growth was fuelled by a smaller trade deficit and a surge in defence spending in the third quarter. It was the fourth quarter out of the last five that the economy has expanded by at least 3.5%.
The trade position improved because of a sharp fall in imports the biggest since the end of 2012, driven by a drop in oil imports. Trade added 1.32 percentage points to overall economic growth of 3.5%.
12.40pm GMT
Spot gold dropped nearly 1% to hit a session low of $1,199.90 an ounce.
12.39pm GMT
The dollar, already buoyed by last nights upbeat Fed statement, extended gains against the pound on the strong US GDP data. Sterling hit the days low of $1.5950.
12.34pm GMT
The number of Americans filing new claims for jobless benefits rose for a second week last week, but remained at levels consistent with a recovering labour market. Jobless claims rose 3,000 to a seasonally adjusted 287,000, the Labor Department said.
12.31pm GMT
The US economy grew at a 3.5% annual rate in the third quarter, better than the 3% expected by Wall Street.
11.43am GMT
Ranko Berich, head of market analysis at Monex Europe, says ahead of the US GDP data:
The FOMC now believes that holes in the labour market are gradually diminishing and solid gains are being made in job creation. These changes all point in one direction rate hikes in 2015.
However, rate hikes do remain conditional with key conditions being the continued improvement in inflation and the labour market. For this to happen, the economy itself needs to grow strongly, making todays first reading of US third quarter GDP even more critical. Should GDP growth meet these high expectations today, the Feds hawkishness will only increase and the dollar could find itself ascendant in 2015.
11.16am GMT
In just over an hour, we will get the first estimate for third-quarter GDP growth in the US. Wall Street economists have pencilled in a healthy 3% annual rate between July and September. It would mark the fourth quarter in the past five in which the economy has grown by at least 3%.
In the second quarter, the economy expanded by 4.6%, but this was a sharp bounceback from the first quarter when it shrank by 2.1% largely due to a harsh winter that disrupted much economic activity.
10.54am GMT
The FTSE 100 index has tumbled 75 points to 6378.93, a 1.16% fall, while Germanys Dax is down nearly 100 points, a 1% drop and Frances CAC has slid 0.6%. It looks like the prospect of higher interest rates in the US is weighing on markets, after the Fed painted a brighter picture of the economy last night. In London, miners and commodity stocks have taken nearly 25 points off the Footsie.
Brent crude oil prices have fallen below $87 a barrel, pressured by the stronger dollar.
The story is not over, even for the banks who passed it.
10.22am GMT
John Hardy, a currency strategist at Saxo Bank, has told Reuters:
Its really nothing to do with sterling, its all dollar strength at the moment on the back of the FOMC meeting last night not because the statement was particularly hawkish, but because the market was positioned for a very dovish one.
10.16am GMT
The pound has dropped below $1.60 for the first time in a fortnight after the Fed adopted a slightly more hawkish tone in its latest statement last night, when it ended quantitative easing. This has lifted the dollar against other currencies.
Ed Knox, Currency Analyst at currency exchange company Caxton FX, says:
The dollar surged against its major peers after the Fed statement, and has helped the greenback to push below 1.60 against the pound and below 1.26 against the euro. The QE announcement as well as causing a widespread dollar strength, also included an unexpected reference to an improving labour market the trigger for raising rates.
Analysts still expect to see the US raise interest rates before the UK and the demise of QE and the rallying response of the dollar certainly strengthens these expectations. An improving economy for the states then, with the absence of QE. This has already brought about some much needed volatility and the US dollar is now firmly in the driving seat.
10.09am GMT
After the surprise fall in German unemployment in October, the eurozone confidence figures have also come in better than expected.
Eurozone economic confidence Oct 100.7 vs 99.7 exp http://t.co/FEnwXHO2ZG
9.49am GMT
In the City, office rents have hit a new record at the Cheesegrater, eclipsing a deal struck at the Shard earlier this year.
British Land and Oxford Properties have agreed a deal to let the 41st floor of the Cheesegrater to insurance company FM Global at almost £85 per square foot, Propertyweek writes.
A floor spanning around 7,700 sq ft at the Leadenhall Building is now understood to be under offer to the US-based insurer.
The price eclipses a deal done by Arma Partners in Irvine Sellars Shard earlier this year, at what was hailed at the time to be a record at £80/sq ft.
9.40am GMT
More reaction to Barclays Q3 profits and provision for market-rigging. Simon Chouffot, spokesperson for the Robin Hood Tax campaign, says:
Half a billion pounds is a colossal sum, but the real shock is the regularity with which banks put aside such provisions for their scams. In what other sector would this be acceptable?
Banks shouldnt be putting money aside to pay for their bad behaviour, they shouldnt be doing wrong in the first place. A Robin Hood Tax would help curb the greed is good culture in banks and make them contribute positively to society. The fact their profits are once again rising while the rest of the economy suffers shows they can afford it.
9.38am GMT
Lets have a look at other corporate news.
French drugmaker Sanofi, which ousted its chief executive Chris Viehbacher yesterday, has got in touch with AstraZeneca boss Pascal Soriot to sound out his interest in the CEO job, Bloomberg writes. But Soriot, a Frenchman who used to run the pharmaceutical business at Roche, apparently said he wasnt interested.
Shell CFO says demand weaker, esp in emerging markets. "That is having quite a significant impact in addition to new sources of supply."
We are in an entirely different position than we were two years ago. This is a self-help story, but there is still very much more to do.
9.23am GMT
Returning to Spain, ING economist Martin van Vliet says the comeback kid lives up to its name. He notes that the Spanish economy retains significant forward momentum, despite some slowdown in the third quarter.
The nature of Spains economic recovery has clearly changed in recent quarters. For a long time, net exports were the only source of growth, but now that financial conditions have sharply improved and the labour market is turning around, domestic demand is taking over the growth baton. Nevertheless, bank lending is still contracting and unemployment remains extremely high (24.4% in August), which, together with the ongoing (albeit much slower) adjustment in the property sector and the need for further public-sector deleveraging limits the scope for stronger domestic demand growth in our view.
Moreover, export growth may lose some of its sparkle in the wake of weak eurozone growth and slowing demand from emerging markets. Indeed, the latest trade reveal that growth in exports to non-EU countries has already stalled.
9.17am GMT
Stock markets have turned negative, despite the good economic news out of Germany and Spain. Perhaps its the new hawkishness from the US Fed? European stocks erased earlier gains and the FTSE 100 index in London is now trading 0.5% lower at 6422.66, a fall of over 30 points. Spains Ibex has lot 1% and Italys FTSE MiB is 0.8% lower.
9.05am GMT
The number of unemployed people in Germany, seasonally adjusted, fell by 22,000 to 2.887m this month, according to the countrys Federal Labour Office.
8.57am GMT
The German unemployment data are much better than expected.
German #unemployment falls by 22k in October, beating consensus of a 5k rise. Unemployment rate steady at 6.7%
8.51am GMT
Industrial & Commercial Bank of China, the worlds largest lender by assets, reported its biggest jump in bad loans since at least 2006 as the property market slumped and the economy cooled, Bloomberg writes.
Nonperforming loans rose 9% in the third quarter from the previous three months, the Beijing-based bank said in an exchange filing yesterday.
A struggling Chinese economy is weighing on ICBCs share price and is poised to drag the company to its weakest full-year profit growth since at least 2001 as more borrowers default. Challenges at home may encourage the bank to add to an overseas expansion that already spans Asia, South America and Europe.
8.34am GMT
Spain became the first large EU member state to report Q3 GDP figures this morning. Its preliminary estimate confirmed the Bank of Spains forecast of growth of 0.5%, just a tad weaker than the 0.6% seen in Q2.
Robert Kuenzel at Daiwa Capital Markets says:
That is likely to make the country the only significant source of GDP growth this quarter in the euro area.
8.28am GMT
In London, Standard Chartered shares have lost 6.7p, or 0.675%, to 985.4p. Meanwhile Barclays is up nearly 2% at 224.7p after posting better-than-expected results, despite a £500m provision related to ongoing investigations into currency rigging.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, says:
The beleaguered British bank has come out fighting, with an update which has both beaten expectations and given further confirmation of a recovery story which is beginning to get traction.
Inevitability, there are pockets of disappointment within the numbers, such as the performance of the investment bank, the additional provisions for Forex and PPI, and continuing pressure on margins. However, the update is positive on a number of fronts, not least of which is the 5% increase in pre-tax profits (indeed, up 31% in the year to date). This has been largely driven by ongoing strength in the Personal and Corporate Banking and Barclaycard areas, and typified by lower impairments and costs, some material positive releases (Lehman and interest rate hedging) and an improvement in the core capital ratio in the quarter from 9.9% to 10.2%.
The sector certainly has issues, and Barclays has been far from exempt from these in terms of profits and reputation, such that the share price has dipped 17% over the last year, as compared to a 5% drop for the wider FTSE100. Nonetheless, the throng of believers in the companys recovery is growing, with the market consensus recently having strengthened to a strong buy.
8.21am GMT
European markets have taken the end of QE in the US in their stride. The FTSE 100 index opened 0.4% higher and is now up some 3 points, while Spains Ibex rose 0.6%, and Germanys Dax 0.2%. Frances CAC and Italys FTSE MiB advanced 1%.
In France, stocks are getting a lift from upbeat corporate results. Renault upgraded its European car market growth forecast, telecoms equipment maker Alcatel-Lucent improved its gross profit margin in the latest quarter and oil services group Technip posted better-than-expected profits.
8.16am GMT
The third-quarter US GDP data due later today will shed more light on how well founded the Feds optimism about the economy is. Out at 12.30 GMT, the figures are expected to show an annual growth rate of around 3%, down from the weather-related bounceback of 4.6% in the second quarter.
Weekly jobless claims, after hitting a 14-year low earlier this month, are expected to rise a tad to 285,000 from 283,000. Soon after that, Fed chair Janet Yellen will give a speech in Washington on diversity in the economic profession.
8.01am GMT
And Michael Hewson, chief market analyst at CMC Markets UK, says:
The committee also played down the risk of below target inflation while also stating that the amount of spare capacity appeared to be gradually diminishing, suggesting that if the data continued to improve then we could well see a rate hike sooner than expected.
As always the Fed insisted that any move on rates would be data dependant, but given some of the recent chatter from various FOMC voting and non-voting members alike the tone of the statement was all the more surprising for its hawkish tone, particularly given that there was no mention of the problems in Europe, the slowdown in China or concerns about a strong US dollar keeping inflation low.
7.59am GMT
Markets are still digesting last nights news of the end of QE3 in the US. The Federal Reserve, headed by Janet Yellen, ended its $4.5 trillion quantitative easing programme after more than five years. The announcement had been expected, but the statement issued by the Fed was more hawkish than some had anticipated.
Marc Ostwald, strategist at ADM Investor Services International, says:
There was always a very substantial risk that QE addicted markets were pinning too much hope on another very dovish statement, which in the event were disappointed, and to compound matters the FOMC adopted a rather more emphatically balanced view of the policy outlook, though as we have stressed, the Fed has been carefully carving out room for manoeuvre since June.
Perhaps the irony is that while (gratuitously? Ed.) retaining a considerable time, the policy outlook was reformulated in a very balanced fashion: if incoming information indicates faster progress toward the Committees employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
7.44am GMT
In other banking news, Barclays has given an indication the scale of the potential fines looming across the banking industry by setting aside £500m to cover the cost of the on-going investigations into rigging currency markets.
Our City editor Jill Treanor writes:
The provision is larger than the £290m of total fines that the bank received for manipulating Libor in 2012 and is being revealed as the Financial Conduct Authority attempts to agree a settlement with six major banks over their activities in the £3.5tn a day foreign exchange markets. The regulator is working towards revealing the outcome of this investigation and the scale of the penalties on the industry next month.
Barclays announced the provision as it announced its figures for the third quarter of the year in which it also took an extra £170m hit to cover the cost of the payment protection insurance misselling scandal.
7.38am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and the business world.
Weve woken up to the news that prosecutors in Washington and Manhattan have reopened an investigation into Standard Chartered. In August, it already warned of fresh fines from US authorities for breaching money laundering rules. Two years ago, Standard Chartered was fined $667m (£396m) for scheming with Iran to hide billions of pounds of transactions from the US authorities.
The prosecutors are questioning whether Standard Chartered, which has a large operation in New York, failed to disclose the extent of its wrongdoing to the government, imperiling the banks earlier settlement.
A mixture of new issues and lingering problems could violate earlier settlements that imposed new practices and fines on the banks but stopped short of criminal charges, according to lawyers briefed on the cases. Prosecutors are exploring whether to strengthen the earlier deals, lawyers said, or scrap them altogether and force the banks to plead guilty to a crime.
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