FTSE 100 expected to open higher but volatility remains – business live

With the prospect of rising UK interest rates, Brexit concerns, and the continuing squeeze on real wages, UK consumers appeared to have kept their money in their pockets last month, according to a Visa survey. Reuters has the details:

British shoppers spent less last month than the year before, causing spending in January to fall for the first time since 2013, according to a survey which underscored many households’ caution about their finances and the approach of Brexit.

Visa, whose debit and credit cards are used for a third of payments in Britain, said on Monday that consumers stayed away from the traditional post-Christmas sales last month.

Household spending fell by 1.2 percent in January compared with the same month in 2017, with spending in shops down by 4 percent, it said.

“Consumer spending entered the new year on a downbeat note, falling for the eighth time in the past nine months, as Britons continued to cut back on spending,” Visa’s chief commercial officer, Mark Antipof, said.

A fall in car sales weighed on the overall sales figures too. But there was better news for hotels and restaurants – as well as for hair salons and sellers of beauty products, as consumers looked for small treats for themselves.

Britain’s economy lagged behind stronger growth in other rich nations in 2017 as higher inflation since the Brexit vote and slow wage growth pinched consumers’ spending power.

Annabel Fiddes, an economist at financial data firm IHS Markit which produces the survey for Visa, said concerns about Brexit were weighing on consumer confidence. But spending could pick up later this year as inflation is expected to fall back while wages rise more quickly, she added.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

After last week’s market turmoil, which saw Wall Street enter correction territory (losing 10% from its recent peak) and some $4trn wiped off global share values, investors will be hoping for some respite this morning.

And after US markets staged a later rally on Friday and some positive moves in Asia, Europe is expected to open higher:

(@IGSquawk)

But that does not necessarily mean everything is now hunky dory. For a start the recent rise in bond yields – one of the factors behind the sudden turn in sentiment – may not be over yet. Central banks will continue to withdraw the stimulus measures which have supported the market since the financial crisis, which in turn will put pressure on bonds. And the volatility we have seen over the past couple of weeks is also unlikely to fade quickly. Michael Hewson, chief market analyst at CMC Markets UK, said:

For a market that has enjoyed steady gains and fairly low volatility over the course of the past two years the steepness of the falls speaks to a complacency that has been prevalent for a while now and which appears to have been shattered in the wake of a surge in volatility.

How this plays out over the coming days depends on whether the rebound we saw on Friday can translate into some form of base for a continuation of the uptrend that has been in place for the last nine years. This may well depend on whether we see further increases in bond yields, or a rise in interest rate expectations from other central banks around the world.

..There are other concerns, US margin debt still remains near record levels and the prospect of further losses, combined with the prospect of higher rates could prompt further jitters, not to mention the untried reaction function of a whole new breed of equity investors and traders who have never experienced the type of volatility that we’ve gone through over the last few days.

It is true that economic fundamentals remain fairly solid but it is also important to remember that this is already probably priced into US equities already, given that we’ve now seen tax reform get passed, along with a new US budget, which in itself is likely to see bond prices come under further pressure.

We’ve already seen a raft of US companies announce significant increases in salaries and bonuses and this was followed last week, with the news that German metal workers won a 4.3% wage rise, a trend that looks set to be replicated across the world, as governments urge employers to increase minimum salaries to more acceptable levels.

And the world’s biggest hedge fund is predicting that “a bigger shakeout” is coming. Echoing the complacency theme, Bob Prince, co-chief investment officer at the $160bn US hedge fund Bridgewater, told the Financial Times (£):

Here’s our report on his comments, with an update on Asian markets:

Otherwise it’s fairly quiet on the economic and corporate front, although Bank of England MPC member Jan Vlieghe is speaking later this morning.