In other news, investor confidence in the eurozone has risen this month.
Sentix’s barometer of investor morale beat forecasts by rising to 28.2 for September, suggesting that Brexit isn’t causing much angst across the Channel.
Robert Grigg, managing director of Property Finance at Hampshire Trust Bank, blames “ongoing economic and political uncertainty” for the slowdown in Britain’s building sector.
Though today’s data shows residential housebuilding has bucked the trend, we still need to ensure SME housebuilders are given both government and financial support in order to build their businesses and increase the number of homes in the UK – which is essential to solving the ongoing housing crisis.”
This slowdown in Britain’s building sector may be a warning signal for the wider economy, says Jeremy Cook, chief economist at WorldFirst.
“In stark contrast to Friday’s manufacturing sentiment numbers, the construction industry is looking very down in the mouth as a result of slowing government spending, uncertainty over Brexit and risks to the UK’s macroeconomic landscape.
While imprecise, this could be used as a microcosm of the UK investment picture in a post-EU referendum atmosphere.”
[Reminder: the UK factory PMI rose strongly in August, according to data released on Friday]
Expert: Brexit is to blame
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, believes Brexit uncertainty is hurting the UK construction sector.
“The sector hit a roadblock this month as purchasing activity slowed for the third month and new business wins were hard to come by. Reduced Government spending, economic uncertainty and Brexit-delayed decision-making among clients were largely to blame.
“The struggling commercial sector drove this disappointment, languishing under the pressure with the fastest drop in activity in over a year. Job creation was nothing to shout about and showed signs of a slowdown, as companies reined back additional spending.
However, the “strong performance” by housebuilders has helped avoid a sharper slowdown.
UK construction growth hits one-year low as economic worries build
Breaking! Growth in Britain’s building’s sector has fallen to its lowest level in a year.
Markit’s construction PMI, just released, has dropped to 51.1 in August – down from 51.9 in July.
That’s worryingly close to the 50 point mark that shows stagnation, and the weakest reading since August 2016.
Commercial construction had a particularly bad month, while residential house building was stronger.
Markit says that worries over the strength of the UK economy are hurting the sector.
Civil engineering activity was close to stagnation and commercial work dropped at the fastest pace since July 2016. Reports from survey respondents widely suggested that concerns about the UK economic outlook had weighed on the commercial development sector, with clients opting to delay spending decisions and, in some cases, scale back planned projects.
More to follow….
Although equities are down around the globe, and gold is up, we’re not looking at a major rout in the markets (yet, anyway).
Investors may be calculating that diplomacy might yet carry the day and military conflict can be avoided. Also, nuclear war is such a terrible outcome to consider ‘pricing in’, so traders will obviously hope it can be avoided.
Hussein Sayed, chief market strategist at FXTM, suspects that the markets may rebound soon, even though Sunday’s nuclear test is the biggest one yet recorded by North Korea.
The markets’ reaction seems similar to when missile launches have taken place in the past; investors sell stock, rush to safe havens, assess the situation, and then buy the dips as tension eases. While stocks fell in Asia, the selloff was not massive, mainly because the nuclear test occurred over the weekend and there was enough time to digest the news.
An H-bomb is undeniably different from the previous missile launches or nuclear tests; it’s a game changer for North Korea’s deterrent strategy. However, the biggest question to investors remains – what’s next? Will the tensions lead to negotiations, or war?
Precious metals producers Randgold and Fresnillo are defying the selloff.
Both companies are up 2% this morning in London, following the jump in the gold price to a 10-month high.
European markets open in the red
European stock markets have all fallen at the start of trading, as traders worry about North Korea.
Germany’s DAX is leading the selloff, down 0.66%.
Although there’s no sign of immediate military action, the rising tensions are creating a ‘risk off’ mood in the markets this morning.
Naeem Aslam of Think Markets says:
North Korea has further escalated the geopolitical tensions over the weekend and the US has called for an emergency meeting of the U.N council. For investors, this does not present a stable environment for investing.
North Korea’s latest missile test is overshadowing China’s latest gathering of leading emerging economies such as Brazil, Russia and India.
That will surely irritate China’s president, Xi Jinping, as the Brics summit is a key platform for Beijing’s international ambitions. Yesterday, Xi warned that “incessant conflicts in some parts of the world” were threatening global piece.
Fiona Cincotta of City Index says the timing underlines Kim Jong Un’s ‘extraordinary’ defiance, and could provoke a response from China.
Whilst he knows the US will no doubt implement further economic sanctions, this time he risks the wrath of China, the only county that could potentially strangle North Korea’s economy.
North Korea carried out the nuclear test on Sunday with full knowledge that it would enrage Beijing, with the timing threatening to overshadow the BRIC summit hosted by Chinese President Xi. Yet the rogue state paid little regard to this, which is concerning as it means there appears to be little preventing Kim Jong escalating the tension further.
Here’s more details on the Brics summit:
My colleagues around the world are live-blogging the latest developments in North Korea here.
Gold jumps to 10-month high
The gold price has hit its highest level in almost a year, as North Korea’s latest weapons test drives investors into ‘safe haven’ assets.
Bullion is changing hands at $1,337 per ounce, its highest level since last November – when Donald Trump’s shock election win rattled the markets.
Mike van Dulken of Accendo Markets says gold is the “major beneficiary” from rising tensions in the Korean peninsula.
Expect North Korean rhetoric to heavily influence the safe haven asset throughout the day as global leaders react to the latest provocations.
The agenda: North Korea tensions hit shares
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s back to school in the UK after the summer break. But City workers are back to fretting about North Korea after it tested what it claimed was a powerful nuclear bomb on Sunday.
Pyongyang’s latest provocation comes just a few days after it fired a missile over Japan.
So with the US threatening a ‘massive military response’, and South Korea simulating its own reaction, there’s plenty to worry investors this morning.
As Craig Erlam, senior market analyst at OANDA, puts it:
Financial markets are back in risk aversion mode on Monday after the latest nuclear test from North Korea on Sunday triggered the usual safe haven rush.
Asian markets have already been hit; Japan’s Nikkei dropped by almost 1% as nervous traders drove up the value of the yen.
European stock markets are also expected to follow suit too, with falls of around 0.5% expected.
Rob Carnell, ING’s head of Asian research, says:
“Like a bad horror movie, the North Korea saga intersperses moments of calm, with occasional action to jolt you out of your chair.”
However, Carnell reckons it could be a good buying opportunity for investors – unless the situation really does deteriorate (via Reuters).
US traders won’t be able to react today, though, as New York is closed for the Labor Day holidays.
Investors are also awaiting a new healthcheck on Britain’s building sector. Markit’s construction PMI is expected to remain close to July’s 11-month low of 51.9 in August.
We’ll also be watching McDonalds, where workers at two stores are protesting about the fast food chain’s low pay and zero-hours contracts.
Here’s the agenda:
- 9:30am BST: Eurozone Sentix investor Confidence for September
- 9.30am BST: UK construction PMI report for August
- 10am BST: Eurozone producer prices index for July