Europe’s Q3 earnings outlook deteriorates as trade war, Brexit bite

Europe’s Q3 earnings outlook deteriorates as trade war, Brexit bite

European companies are heading for their worst quarterly earnings in three years as revenue drops for the first time since early 2018, according to the latest Refinitiv data.

The results will underscore concerns about Europe Inc’s deteriorating health.

Companies listed on the STOXX 600 regional index are now expected to report a 2.2% drop in third-quarter earnings per share.

This would be worse than the 1.9% drop expected a week ago and the biggest quarterly fall since the third quarter of 2016, according to I/B/E/S Refinitiv.

Consensus now calls for a drop in revenue of 0.3% in the quarter, which would be the first since the first quarter of 2018, but slightly better than the 0.4% fall expected last week.

Companies are already suffering a corporate recession after earnings declined in the previous two quarters as the US-China trade war and uncertainty over Brexit crimp demand and Germany, the region’s largest economy, at risk of falling into recession.

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Manufacturing sector contracts for fourth month in a row – PMI

Manufacturing sector contracts for fourth month in a row – PMI

Factory activity shrank for the fourth successive month in September and is stuck around levels posted in July and August as a global manufacturing slowdown and Brexit uncertainty weigh on demand.

The AIB IHS Markit manufacturing Purchasing Managers’ Index (PMI) stood at 48.7 in September, up slightly from 48.6 in August and in line with July’s 48.7.

The survey’s authors said anecdotal evidence from panelists suggested the fall below the 50-point mark that separates expansion from contraction was due to deteriorating demand conditions at home and abroad.

The economy here weathered the uncertainty created by the June 2016 vote by Britain to leave the EU, but the survey showed a reduction in new business from abroad with notably softer UK demand.

The sub-index measuring new export orders showed a reading of 46, down from 48.5 in August. This marked the fastest rate of contraction for new business from abroad since August 2009.

“The weak Irish data of recent months clearly show that the sharp slowdown in global manufacturing over the past year or more is being felt in Ireland also,” AIB’s chief economist Oliver Mangan said.

“Brexit uncertainty is an additional negative factor weighing on activity here,” he added, noting the Irish September PMI weakened less than the euro zone average.

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Sterling dips to one-month lows as Brexit nerves hit

Sterling dips to one-month lows as Brexit nerves hit

The British pound extended losses today, plunging through technical support levels to a one-month low against the dollar as traders became increasingly nervous about Britain crashing out of the European Union at the end of the month.

Broad-based dollar strength also contributed to the falls,analysts said.

With Prime Minister Boris Johnson expected to soon present his proposals for an amended Brexit agreement, investors questioned the likelihood of Brussels finally signing a divorce deal with the United Kingdom.

“There’s no reason (for sterling) to go up unless the EU says yes we can negotiate on this,” said Kenneth Broux,corporate FX strategist at Societe Generale, adding that the pound could fall to $1.20.

This afternoon it was down 0.6% at $1.2228, having briefly dipped to a four-week low of $1.2205. Against the euro,sterling was down 0.7% at 89.21 pence after sliding to a 2-1/2-week low of 89.345 pence.

More than three years after the 2016 Brexit referendum, Britain is heading towards an October 31 departure date without a clear understanding of whether it will leave with a deal,without a deal or even leave by the deadline.

The government’s proposals are expected to include new ideas that remove the contested insurance policy for the Irish border that Britain previously signed up to, but EU officials sounded sceptical about the chances of a breakthrough.

Moreover, Ireland dismissed reported ideas including physical checks on goods at a distance from the border itself.

“The market has seen these kinds of headlines before and then we get a push back, so there is some scepticism about what we will see,” said Jane Foley, senior currency strategist at Rabobank, referring to the expected government proposals for the backstop.

“That leaves sterling in a choppy range and there is plenty of news flow this week,” Foley said.

Broad-based gains for the dollar on renewed evidence of strength in the U.S. economy contributed to the earlier slide in the pound.

Chartists said earlier in the day they were watching the$1.2279 level, the 50-day moving average – a technical indicator that refers to the currency’s average closing price over the past 50 days.

A conclusive breach below that level would open the door to further losses, they said.

The latest UK economic data had little immediate impact on the British currency.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index showed the factory sector overall shrank for a fifth month in a row, its longest decline since mid-2009.

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Central Bank urges no-deal Brexit checks with financial services firms

Central Bank urges no-deal Brexit checks with financial services firms

The Central Bank has urged customers of financial services companies to take steps to ensure those firms are ready for the consequences of a no-deal Brexit.

The regulator has also warned there will inevitably be some negative impact on consumers where firms have not prepared properly.

Gráinne McEvoy, Director of Consumer Protection at the bank, recommended that consumers read any communication from their financial services provider, contact them if they have not heard from them and do not deal with any unauthorised providers.

“With all the talk about Brexit over the last few years, there is a danger of Brexit fatigue setting in,” she said.

“But with a no-deal Brexit potentially just weeks away, now is the time to find out how it might affect the financial products and services you and your family use.”

“If you haven’t heard from your provider, contact them now to ask them what plans they have in place for you and what they are doing to plan for a no-deal Brexit.”

The bank said the deadline for the UK leaving the EU has been debated so much and extended so often, that people may naturally be tempted to conclude Brexit will not happen this time either.

But it said consumers should nevertheless be taking steps to protect themselves.

Much of the preparatory work has been done to ensure the financial system can withstand the shock of a no-deal Brexit, Ms McEvoy said.

Firms have been pushed to take action needed to protect consumers, while banks, insurers and other financial companies have been repeatedly reminded that they are responsible for putting plans in place, she said.

Companies have also been instructed to contact customers who might be affected by Brexit to let them know what they need to do.

Most have taken the necessary steps, she claimed, and have been in touch with their customers.

“However, there will inevitably be some negative impact on consumers where firms have not put suitable plans in place, failed to secure the necessary authorisation to continue to conduct business in Ireland, or chosen no longer to provide financial services here,” she said.

Financial services providers who are offering services here from a base in the UK under EU passporting rules, need to take steps to ensure they can continue to operate here, she said.

Such businesses should have contacted their customers by now to inform them about their plans to continue providing services in the market and if not, what plans they have put in place for the customers.

“If you have received such a letter or other communication, I would urge you to take the time to read it and consider its contents,” she said.

“If you have not heard from your service provider and are concerned, you should contact them and find out if you will still be able to use their product or services after 31 October and, if not, what plans they have in place for their customers.”

Legislation has been prepared to enable continuity in some services provided by UK entities in Ireland, such as insurers, for a limited period after a hard Brexit.

However, companies in this situation should have communicated this to their customers, Ms McEvoy said.

Selling financial products or services without the necessary authorisation is a criminal offence and the regulator has warned that appropriate action will be taken against such firms if they continue to conduct business in Ireland.

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Weak US business investment, tepid profits cast shadow on economy

Weak US business investment, tepid profits cast shadow on economy

US business investment contracted more sharply than previously estimated in the second quarter and corporate profit growth was tepid.

Today’s new figures cast a shadow on an economy that is being stalked by financial market fears of a recession.

Weak business spending, which has been blamed on the Trump administration’s nearly 15-month trade war with China, and tepid profit gains could raise doubts on consumers’ ability to continue driving the economy.

Consumer spending is being fueled by a strong labour market.

The trade war is threatening the longest economic expansion on record, now in its 11th year.

US Federal Reserve Chair Jerome Powell said last week policymakers “expect the economy to continue to expand at a moderate rate,” but reiterated that “weakness in global growth and trade policy uncertainty have weighed on the economy and pose ongoing risks.”

The Fed cut interest rates again last Wednesday after lowering borrowing costs in July for the first time since 2008.

US business investment declined at a 1% annualised rate last quarter, the government said in its third reading of second-quarter gross domestic product today.

That marked the steepest decline since the fourth quarter of 2015.

Business investment was previously estimated to have declined at a 0.6% pace.

It was pulled down by an 11.1% drop in spending on structures, which reflected decreases in the categories of commercial and healthcare, and mining exploration, shafts and wells.

After-tax profits without inventory valuation and capital consumption adjustment increased at a downwardly revised $59.7 billion, or 3.3% rate. Profits were previously reported to have advanced by $86 billion, or at a 4.8% rate in the second quarter.

There were downward revisions to profits from the rest of the world and domestic industry profits.

US gross domestic product increased at an unrevised 2% rate in the first quarter as the strongest consumer spending in four and a half years offset weak exports and a slower pace of inventory investment.

The economy grew at a 3.1% rate in the three months from January to March and had expanded 2.6% in the first half of the year.

But when measured from the income side, the US economy grew at a 1.8% rate in the second quarter. Gross domestic income (GDI) was previously reported to have increased at a 2.1% pace in the April-June quarter. It rose at a 3.2% rate in the first quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, rose at a 1.9% rate last quarter, rather than the 2.1% pace estimated last month.

That was a slowdown from a 3.2% pace of growth in the first three months of the year.

The US economy is largely losing speed as the stimulus from the White House’s $1.5 trillion tax-cut package and a government spending blitz fades.

Economists are forecasting growth this year around 2.5%, below the Trump administration’s 3% target.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, surged at a 4.6% rate in the second quarter.

That was the fastest since the fourth quarter of 2014 and was a slight downward revision from the 4.7% pace estimated last month.

Consumer spending is being driven by the lowest unemployment rate in nearly 50 years.

A separate report from the Labor Department today showed initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 213,000 for the week ended September 21.

Despite the strong labour market conditions, there are fears that a recent ebb in consumer confidence amid concerns about duties on Chinese consumer goods, which came into effect in September, could slow spending. Further tariffs are expected.

The trade deficit widened to $980.7 billion in the second quarter instead of $982.5 billion as reported last month.

Trade cut 0.68 percentage point from GDP growth last quarter rather than 0.72 percentage point as previously reported.

But trade could remain a drag on GDP growth in the third quarter, with a third report from the Commerce Department showing the goods trade deficit rose 0.5% to $72.8 billion in August amid a rise in imports.

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Sterling extends losses as Brexit impasse prevails

Sterling extends losses as Brexit impasse prevails

Sterling fell today for a second day in a row, as investors waited for parliament’s next step to break the Brexit impasse and opposition leaders gathered to discuss tactics.

The European Union’s Brexit negotiator, Michel Barnier, said Britain had yet to provide “legal and operational” proposals for an agreement on exiting the bloc at the October 31 deadline.

The UK Supreme Court dealt Prime Minister Boris Johnson a blow earlier this week when it ruled he had unlawfully suspended parliament.

The ruling reinforced belief that Britain was unlikely to leave the EU without a deal on October 31, but parliament remains split, early elections look inevitable and Johnson remains adamant

Those fears eliminated all sterling’s gains since the Supreme Court ruling, for its biggest one-day fall against the dollar in two weeks.

It had slipped 0.1% to $1.235 this evening, while it was also down 0.1% against the euro at 88.5 pence.

“We don’t know where things will go with Brexit. That’s being manifested in sterling more than any other asset,” said Fahad Kamal, chief market strategist at Kleinwort Hambros.

“What we have done in the face of unknowable political outcomes and daily volatility is to make sure our portfolios can deal with any big moves, big rallies or big falls,” he added.

British opposition Labour leader Jeremy Corbyn will meet other opposition leaders later today, as they discuss how to stop Johnson from quitting the EU on October 31 if he fails to secure a deal with Brussels by October 19.

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Retail sales rebound in August – CSO

Retail sales rebound in August – CSO

Retail sales increased 2.1% in August on an annual basis, new figures from the Central Statistics Office show today.

On a monthly basis, the CSO said that retail sales jumped by 5.7% in August compared to July.

Excluding the motor trade, which has been very volatile in recent years, retail sales grew by 1.1% in August and 4.4% when compared with the same time last year, today’s figures show.

In July, retail sales had posted their sharpest annual fall since 2012 on weak car sales.

Today’s CSO figures show that the sectors with the largest monthly increases were the motor trade, with sales there jumping 12% higher, while bars sales rose by 10.6%.

The sectors with the largest monthly decreases were fuel with sales down 4.4%, while sales of pharmaceuticals, medical and cosmetic articles slowed by 3.3%.

Meanwhile the CSO figures also show an increase of 5.8% in the value of retail sales in August on a monthly basis, while there was an annual increase of 0.9%.

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FTSE drops for 5th straight day after slew of profit alerts

FTSE drops for 5th straight day after slew of profit alerts

London’s FTSE 100 fell for the fifth straight session on Thursday as profit warnings from tobacco firm Imperial Brands, Aer Lingus owner IAG and education company Pearson weighed down the blue-chip index.

The FTSE 100 gave up 0.2pc, as Imperial and BAT shed 9pc and 3pc respectively, after the blu e-cigarette maker cut annual sales and profit view.

Pearson slid over 13pc after saying full-year profit would be at the bottom of its guided range, while IAG also dipped 2pc after blaming pilot strikes for an expected €215m shortfall in annual profit.

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Mortgage approvals see annual rise of 4.1% in August

Mortgage approvals see annual rise of 4.1% in August

New figures show that the number of mortgages approved rose by 4.1% in August on an annual basis, while they fell by 15.1% compared to July.

The Banking & Payments Federation Ireland, which is urging an extension of the Help to Buy scheme in next month’s Budget, said a total of 4,355 mortgages were approved in August.

Over 51% of these mortgages were for first-time buyers while mover purchasers accounted for 27.9%, the BPFI figures show.

Mortgages approved in August were valued at €968m. First time buyers accounted for €500m (51.7%) of these mortgage approvals, while mover buyers made up €309m (31.9%) of the total.

The BPFI said the value of mortgage approvals rose by 4% year-on-year in August, while they fell by 16.7% month-on-month.

Meanwhile, re-mortgage or switching approvals fell in volume by 8.7% on the previous month and by 14.9% year on year in August.

Brian Hayes, BPFI’s chief executive, said there was significant volatility in monthly mortgage approvals figures over the summer months.

“July may have been an outlier but the latest approval figures indicate continued year-on-year growth in mortgage lending in overall terms,” Mr Hayes said.

He noted that the Help to Buy scheme has been a key support for first time buyers, with an estimated nine out of ten FTBs using the scheme.

“To avoid a slowdown in housebuilding, we strongly recommend that the scheme be extended in the Budget for a clearly defined period to provide the certainty that is needed going forward,” he added.

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Govt should consider supplementary Budget to respond to Brexit – ESRI

Govt should consider supplementary Budget to respond to Brexit – ESRI

The Economic and Social Research Institute has said the Government should consider a supplementary Budget in the New Year to respond to Brexit.

Next month’s Budget will be drawn up on a “disorderly Brexit” scenario.

In its latest Quarterly Economic Commentary, the think-tank warns that a no-deal Brexit may be worse than thought. It could push the economy into recession.

Also, if Brexit does not happen, it could prompt a rebound from consumers and investors, adding fuel to an economy already bursting at the seams in some areas.

For both scenarios, the ESRI is advising that the Government treats October’s Budget as a “draft” and revisits it in the New Year depending on what transpires over the next few months.

Minister for Finance Paschal Donohoe has said certain sectors exposed to Brexit will get targeted support.

In a report to be published later, the Dáil Committee on Budgetary Oversight will call for clarity on what these supports will be and how much they will cost.

The committee will also formally ask Mr Donohoe to clarify if the Rainy Day Fund can be used in the case of a hard Brexit.

The ESRI forecasts that the economy (GDP) will grow by 3.1% next year, which is down slightly on its forecast three months ago.

It notes indicators like consumer sentiment – at its lowest level since 2014 – and business confidence are down. Growth in retail sales has slowed.

This, the ESRI claims, is evidence of the impact Brexit is already having on the economy.

It has revised downwards its forecast for new house completions in 2019 from 23,500 units to 21,500 units.

It also blames this partly on Brexit but also on prices in some parts of the country reaching the limits of affordability.

However, it says it would be a “…serious mistake…” if Central Bank rules on lending were relaxed.

If this were to happen, the ESRI believes it “…would ultimately result in higher house prices along with higher levels of personal and household debt…”

It quotes a European Commission study which shows, when adjusted for size, house prices in Ireland are among the highest in the European Union.

The ESRI has repeated calls for the vacant sites tax to be increased to remove the factor of speculation from the price of land and make the construction of new homes cheaper.

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