Qatar market tumbles after Gulf states cut ties, as UK services sector growth slows - as it happened

Ahead of next week’s eurogroup meeting over Greece, some positive noises from the IMF. A report in Germany’s Handelsblatt (£) says:

The managing director of the International Monetary Fund, Christine Lagarde, is willing to participate in a Greek bailout and give European creditors more time to settle an ongoing dispute over debt relief, she told Handelsblatt in an exclusive interview.

“If the creditors are not yet at that stage where they can agree on and respect our assumptions, if it takes them more time to get there, we can acknowledge that and give them a bit more time,” she said.

The pound is continuing its recent volatility, something which is likely to continue this week in the run up to the UK election as various polls emerge but with little in the way of consistency.

Sterling is currently up 0.3% against the dollar at $1.2929 and 0.6% against the euro at €1.1491. Connor Campbell, financial analyst at Spreadex, said:

The pound remained the day’s main mover, seemingly still dining out on this morning’s Guardian/ICM poll.

Sterling gradually widened its growth, taking 0.3% off the dollar and pushing 0.6% higher against the euro; in reality, however, this has done little to change the currency’s standing. Cable still has a bit to go before it has clawed back all of the losses it suffered this time last week, while the pound has barely escaped its 7 week lows against the euro....Today’s rather dreary, pound-heavy trading is likely the template for the rest of the week, as there is nothing in the run-up to the election that can topple it from its dominant perch. In fact, all of the week’s points of interest come on Thursday: alongside the UK vote there is the month’s ECB press conference and, perhaps most excitingly, the reappearance of former FBI chief James Comey for his testimony in front of the Senate intelligence committee.

Michael Hewson, chief market analyst at CMC Markets UK, said:

Despite a weakening in [the UK] services PMI for May to 53.8 from 55.8 in April the pound has held up rather well in the wake of the weekend terror attacks. If financial markets are nervous about Thursday’s election and a weakening of economic activity they don’t appear to be showing it, with opinion polls still showing divergent results.

YouGov appear to be doubling down on their recent survey by suggesting that the Conservatives will fall short of a majority by 21 seats, while the latest ICM poll shows a lead of 11 points. Markets appear to be taking the view that the YouGov poll is an outlier and unreliable which when you look at the margin for error on it, and the balance of probabilities right now, seems a sensible conclusion.

And here’s more detail from the survey itself:

Here are some of the comments from the respondents to the ISM survey:

• “Lumber tariff effects are beginning to show up.” (Construction)
• “Business is progressing steadily. No real issues or adjustments to affect annual goals/efforts.” (Finance & Insurance)
• “General feeling is caution. Too much uncertainty.” (Health Care & Social Assistance)
• “Seeing an uptick in the overall activity within the oil and gas sector, which typically will cause a trickle-down effect on the majority of businesses.” (Mining)
• “Typical transition month in terms of fresh produce and other food related categories. End of spring items and beginning of summer. Gapping of some items. Beef is increasing in price, especially grilling meat cuts. I anticipate this to increase to over $1 per pound on some items as we approach the 4th of July holiday.” (Accommodation & Food Services)
• “Continuing to feel [the] effect of overheated commercial construction market — few bidders, higher prices. Scarce construction labor seems to be the driver.” (Public Administration)
• “Business outlook continues to be steady and meeting original projects, but some ups and downs in successive months.” (Professional, Scientific & Technical Services)
• “Overall, business conditions the past month were flat as compared with several months of growth. While levels haven’t decreased, it may be that overall conditions have reached a high watermark.” (Retail Trade)
• “Strong market conditions bring a renewed confidence.” (Transportation & Warehousing)

The surveys show that the US economy is enjoying steady if unspectacular growth, said Chris Williamson, chief business economist at IHS Markit:

Although service sector business activity picked up in May, the PMI surveys for manufacturing and services collectively indicate only a modest pace of economic growth so far in the second quarter.

Historical comparisons with GDP indicate the PMI is signalling second quarter GDP growth of just over 2%, suggesting there may be some downside risks to IHS Markit’s current forecast of a GDP growth rebound to just over 3% in the second quarter.

However, the key message from the PMI is that the economy is enjoying steady, albeit unspectacular, growth, and that the pace of expansion has been slowly lifting higher in recent months.

Hiring meanwhile remains on a firm footing, with the survey’s employment indicators running at levels consistent with around 160,000 jobs added to the economy in May.

In another sign of the economy’s underlying steady expansion, average prices charged for goods and services is running at the second highest in almost two years, indicating that rising demand is helping restore some pricing power.

The first of the day’s two US economic surveys has shown a month on month improvement in the service sector, albeit not as much as earlier expected.

The final Markit services PMI reading for May came in at 53.6, up from 53.1 in April but lower than the initial estimate of 54. It was still the highest level since February.

It was a similar picture for the composite index - services and manufacturing together - which rose from 53.2 in April to 53.6, lower than the first reading of 53.9.

Wall Street is about to open and the forecast is for a slight fall in initial trading:

Meanwhile the oil price has lost its early gains, which were made on the back of the Qatar news. Strength in the dollar - which makes oil less affordable for international buyers - seems to be outweighing the prospect of supply shortages following the Gulf dispute. In any case, Qatar is not a major producer of oil, rather it specialises in liquefied natural gas (LNG). Clement Thibault, senior market analyst at Investing.com, said:

According to the latest data, five of the top 10 oil producers in the world are Gulf countries (Saudi Arabia, Iraq, Iran, UAE, Kuwait). Together, they are responsible for over 24 million barrels of crude a day, or over two and a half times the US’s crude production.

However, Qatar is a minor player among the OPEC big boys. Its strength is aligned with LNG. Indeed, it’s the world’s largest LNG producer, supplying almost 30% of global production. By land, Qatar is completely blocked by Saudi Arabia. By sea, its exporting tankers have to pass through the Strait of Hormuz, situated between Iran and the UAE, putting it in a precarious situation any way it turns. Asian customers such as Japan, India, and South Korea would be the most affected by a disruption in NG service, since they are the major importers of Qatari gas...

Though we aren’t raising any alarms yet, we believe this is a situation worth monitoring carefully. The Middle East is after all an energy powerhouse, but also rather notorious for a lack of political stability. Any geo political incident coming out of this region could have worldwide energy implications.

Despite Qatar’s minor role in oil, the dispute has raised new fears that the recent Opec deal to cut production could run into trouble.

Brent crude is currently down 1% at $49.44 a barrel while West Texas Intermediate is 0.9% lower at $47.23.

After a rough session of heavy losses, the Qatar stock market has closed down 7.27%.

After a fairly quiet morning in London, the FTSE 100 has dropped by 22 points to 0.3% to 7525.

Mining stocks such as Antofagasta (-2.7%) and BHP Billiton (-1.8%) are among the fallers, tracking a 1% drop in the copper price.

The slowdown in UK service sector growth last month hasn’t spooked the markets, though, as the pound is still back above $1.29 today.

Connor Campbell of SpreadEx says:

The pound’s gains also ignored an unexpectedly weak services PMI. The figure fell from 55.8 to 53.8 month-on-month, the slowdown due to the dual pressures of rising inflation and pre-election jitters.

The FTSE ended up bearing the brunt of the bad news, falling 0.3%; the index wasn’t helped by its mining stocks, which dropped between 1.5% and 2.5% thanks to copper’s own 1% decline.

There’s not much action in Europe, where some markets are closed for the Whit Monday holidays. So City traders are getting on with business, putting last weekend’s terrorist attacks at London Bridge (south of the Square Mile) behind them.

Yesterday, it emerged that Sunday Express business editor Geoff Ho has been injured after stepping in after a bouncer was attacked during Saturday night’s atrocities.

Sunday Express editor Martin Townsend summed up the mood, saying:

“Geoff Ho is an absolutely first class reporter and a fine and decent man and our thoughts are with him and his family at this time.

“We are all hoping and praying for a speedy recovery.”

And the good news is that Geoff has been tweeting from his hospital bed today.

Reuters is reporting that some Egyptian banks have suspended links with their counterparts in Qatar:

Some photos from today’s Qatar stock market have arrived, showing the scene of the biggest selloff since the financial crisis.

Every blue-chip share on the Qatar stock market has fallen sharply this morning.

Many stocks - including property and energy companies - have slumped by 10%, which is the maximum daily move allowed by regulators.

Even the best-performing stock on the QSI index is down 6%, as investors are spooked by the sudden freeze in relations with other Gulf states.

The Qatar index is currently down by 7.5%, hitting its worst level since early 2016.