European markets end lower
Despite Wall Street making a partial recovery by the time European markets closed, this did little to help them.
Trade war tensions continued to dominate sentiment, especially in Germany which is heavily dependent on exports. In the UK a weakening pound on doubts about interest rate rises helped the FTSE 100 outperform its peers, given the index is full of overseas earners which benefit from lower sterling. The final scores showed:
- The FTSE 100 finished virtually unchanged, down just 6.06 points or 0.08% at 7615.63
- Germany’s Dax dropped 1.39% to 12,177.23
- France’s Cac closed 0.97% lower at 5275.64
- Italy’s FTSE MIB fell 0.58% to 21,432.34
- Spain’s Ibex ended down 0.72% at 9589.0
On Wall Street, the Dow Jones Industrial Average is currently down 11 points or 0.05%.
On that note, it’s time to close for the day. Thanks for all your comments and we’ll be back tomorrow.
Despite other distractions, the current trade tensions between the US and China - and elsewhere for that matter - continue to dominate market sentiment. David Madden, market analyst at CMC Markets UK, said:
Stocks have sold off as trade woes continue. Investors are cashing in on yesterday’s gains, as trade tensions remain alive and well. Investors will want to see progress being made regarding trade negotiations before they hold on to stocks for several days at a time. As a result, markets are finding it difficult to hold on to a rally, which underlines the weak sentiment.
Wall Street has regained much of its early losses but European markets continue to struggle. Joshua Mahony, market analyst at IG, said:
European markets have led the way lower, with the threat of a breakdown in trade disproportionately hurting stocks in countries which enjoy a sizeable trade surplus with the US. The continued deterioration in the Chinese yuan highlights the influence the Chinese government has upon their exchange rate, with the 5% rise in [dollar/yuan] over the past two months shifting the trade of terms before any tariffs even start to kick in.
Brexit concerns continue to dominate local sentiment, with sliding consumer and business confidence dragging the pound to a seven-month low against the dollar. However, much of the story is related to the growing prominence of the US dollar, with the greenback likely to continue gaining ground as the trade war continues. With the likes of the EU and China holding huge surpluses in the trade of goods with the US, Trump knows they have more to gain than to lose. The sharp deterioration in German stocks this week is a clear nod to the reliance the country has upon physical exports. Today’s downward revision for first quarter GDP out of the US provided a temporary dent in the dollar resurgence story.
However, while GDP came in at 2%, rather than the 2.2% previously expected, the pathway in US PMI surveys points towards continued upside for US growth despite this short term blip.
Wall Street falls back
The continuing trade tensions between the US and China are on investors minds again, pushing US markets lower in early trading. News that Amazon is buying US online pharmacy group PillPack has hit shares in rival drugs companies, adding to the pressure on markets.
The Dow Jones Industrial Average is currently down 85 points or 0.35% while the S&P 500 opened down 0.03% and the Nasdaq Composite dipped by 0.09%.
Haldane also appeared to take issue with the Labour party’s proposal to give the Bank of England a mandate to boost productivity. In his speech Haldane said:
It is ... well-known, including from historical experience, that productivity depends importantly on a number of structural features of the economy, including levels of education and skills in the workforce, the quality and quantity of infrastructure and innovation and the scale of financing to companies. Price and financial stability are necessary conditions for rising productivity. But they are far from being sufficient ones.
When it comes to those structural features of the economy, central banks do not have the tools to affect lasting change. Central bank tools are cyclical, rather than structural, because their impact on the economy is temporary, not permanent. We do not build schools, colleges, houses, roads, railways or banks. Nor do we finance them. Those tools, rightly, are in the hands either of governments or private companies. So too is the financing of them.
Here’s the chief economist of Pantheon Macroeconomics on Haldane’s comments:
Haldane speech: "data on the consumer since the May MPC meeting has, virtually without exception, bounced back strongly."
— Samuel Tombs (@samueltombs) June 28, 2018
Hmm...
BoE agents report, also released today: pic.twitter.com/9Bvqts3RW6
Bank of England chief economist Andy Haldane caught many observers off guard last week when he voted for an interest rate rise for the first time.
But in a speech in London on the UK’s productivity problem, he said the decision should not have been seen as “surprising or radical.” He said:
Voting for a 25 basis point rate rise, a full decade after monetary policy was first placed on an emergency setting, is hardly either surprising or radical. A Bank Rate rise of 25 basis points would still leave monetary conditions in the UK extraordinarily accommodative by any historical metric. And the aim in doing so is to lower the risk of needing to tighten policy less gradually in future and cause a sharper adjustment in the economy.
Truth be told, I would have voted to raise Bank Rate at the MPC’s May meeting had data on the economy held firm. What we saw ahead of that meeting was a string of weak data suggesting consumer spending might be faltering. I believed there was option value in waiting to see if these data signalled the start of a lasting retrenchment by households, or were instead a temporary snow or statistical blip. With only a modest policy tightening needed over a number of years to return inflation to target, there was “no rush”.
In the event, data on the consumer since the May MPC meeting has, virtually without exception, bounced back strongly. That includes measures of retail spending, consumer confidence and consumer credit. The underlying picture now appears to be one of gently rising household spending. This is being supported by highly accommodative credit conditions and now-positive growth in inflation-adjusted wages.
And he added (saying he did not want to tempt fate even as he was doing so):
And then, of course, there is the World Cup. Without wishing to tempt fate, England’s recent sporting success on the football field (and cricket pitch) has probably added to that feel-good factor among England-supporting consumers. The “smile count” on my recent visits to Wales and Scotland was also as high as I can remember, although I suspect that may have been the weather rather than the football.
More from Reuters:
Haldane said there would always be some data that disappoints.
“But waiting for something to turn up is not a prudent strategy in life. And waiting for everything to turn up is certainly not a prudent strategy for monetary policy,” he said.
Most of Haldane’s speech focused on fixing Britain’s abysmal record of productivity growth over the last 10 years.
He said Britain’s institutions should focus more on how to “trickle-down” new technology to the swathes of the economy that have shown only weak growth in productivity.
Stock markets continue to be volatile, with the worries about a potential trade war between the US and China continuing to dominate sentiment.
The FTSE 100 is down 0.35%, Germany’s Dax is down 1.44% and France’s Cac has fallen 0.83%. The UK market is outperforming peers due to further weakness in the pound. Connor Campbell, financial analyst at Spreadex, said:
The FTSE avoided the losses seen over in the Eurozone, largely because of sterling’s ongoing crisis.
Concerns about a more pessimistic Brexit outlook from the country’s businesses, a lack of faith in Theresa May heading into Thursday’s EU summit, and disappointment at a dovish message from MPC member Jon Cunliffe left the pound in a sorry state. Against the dollar it was at a sub-$1.31, 7 month nadir after falling 0.3%, while against the euro it hit a 7 and a half week low of €1.1305 following a half a percent plunge.
Meanwhile on Wall Street, the futures market is suggesting a fall of more than 100 points on the Dow Jones Industrial Average.
Back in the UK, and bad news for one DIY chain. Sarah Butler and Zoe Wood report:
Homebase is cutting 300 jobs at its Milton Keynes head office amid speculation that up to 80 stores will close after its takeover by the restructuring specialist Hilco.
The loss-making DIY chain was bought by the owner of HMV for £1 in a deal agreed in May after its previous Australian owner, Wesfarmers, pulled the plug on a “disastrous” venture into the UK.
Wesfarmers, which bought the business for £340m two years ago, offloaded the entire 250-store Homebase chain, which has a workforce of just over 11,000 people, ditching a plan to convert them to its Bunnings brand.
The full story is here:
Newsflash: E-commerce giant Amazon has bought US online pharmacy chain PillPack, giving its rivals quite a headache:
BREAKING: Amazon announces agreement to acquire online pharmacy Pillpack; drug store stocks plummet on the news. https://t.co/SGCj1C9UQa pic.twitter.com/Hr7O41p9vG
— CNBC Now (@CNBCnow) June 28, 2018
US growth revised down
NEWSFLASH: America’s economy suffered an even sharper slowdown than previously thought at the start of this year.
New figures show that US GDP rose by 0.5% in the first quarter of 2018, or an ‘annualised rate’ of 2.0%.
That’s down from a previous estimate of 2.2%, and much slower than the 2.9% annualised rate recorded in October-December.
It’s still faster than Britain, where GDP only rose by 0.1% during the quarter (or 0.4% on an annualised basis).
The slowdown won’t worry US policymakers too much, though. Economists think US growth roared back in the current quarter, as Donald Trump’s tax cuts boosted demand.
On June 27, the #GDPNow model estimate for real GDP growth in Q2 2018 is 4.5% https://t.co/gUnb7280Ha pic.twitter.com/ggJZ6isakE
— Atlanta Fed (@AtlantaFed) June 27, 2018
An annualised growth rate of 4.5% would pretty punchy -- although not unprecedented, as the president’s son was reminded on Twitter last night....
GDP growth was 5.2% in Quarter 3 of 2014, while Obama was president. Do you know how to use Google? https://t.co/sFNYiOnvYL pic.twitter.com/5CvmlFgQTU
— Brian Klaas (@brianklaas) June 27, 2018
Updated
In other news, oil giant BP has swooped on Britain’s biggest network of electric car-charging points in a £130m deal.
That’s an intriguing move for BP, a company more known for extracting and refining crude than for renewable energy (despite trying to move ‘beyond petroleum’ at the start of the millennium).
My colleague Adam Vaughan explains:
The acquisition of Chargemaster, which has more than 6,500 charging points across the country, will begin to result in the deployment of fast chargers at BP’s 1,200 forecourts over the next year.
The deal is understood to be worth £130m and was lauded as a significant milestone towards cleaner motoring in the UK. There are more than 140,000 electric vehicles on the UK’s roads, most of which are plug-in hybrid vehicles that can run for a short distance on battery power before switching to petrol or diesel.
More here:
Pub chain and brewer Greene King is already pinning its hopes on England enjoying a vintage World Cup.
The Suffolk-based company says sales of beer and gin have both spiked during England’s first two (triumphant) games, so is hoping for more success for the Three Lions*.
CEO Rooney Anand says:
“Let’s hope Harry Kane has got his shooting boots on tonight.
His hat-trick on Sunday helped us sell nearly half a million [more] pints during the game. It remains true that when the sun shines or sport is on, people do want to go to the pub.”
* - unlike Ireland’s Taoiseach Leo Varadkar, as EU leaders gather for today’s summit in Brussels....
Here’s when @campaignforleo told us that he’s supporting Belgium in #ENGBEL tonight. pic.twitter.com/RmdjLq9MF1
— Adam Fleming (@adamfleming) June 28, 2018
Irish leader Varadkar clearly knows that by supporting Belgium tonight, he is helping England get on the easier side of the draw and therefore to win the World Cup. I think. https://t.co/nX3fxqr0m3
— Faisal Islam (@faisalislam) June 28, 2018
Updated
BoE: Banks must be wary about cryptocurrencies
It’s been a busy morning for the Bank of England.
Deputy governor Sam Woods has written to the chief executives of Britain’s banks and insurers, urging them to be cautious about getting involved with cryptocurrencies such as bitcoin.
Woods warned that digital currencies are new, volatile, and prone to use by organised criminals, saying:
The range of products and market participants related to crypto-assets has grown quickly. In their short history, crypto-assets have exhibited high price volatility and relative illiquidity.
Crypto-assets also raise concerns related to misconduct and market integrity – many appear vulnerable to fraud and manipulation, as well as money-laundering and terrorist financing risks. Entering into activity related to crypto-assets may give also rise to reputational risks.
Woods wants banks to make a named, senior manager responsible for signing off any crypto-related ventures, and to avoid undue risk-taking. The letter is online here.
Anyone who ‘invested’ in Bitcoin late last year won’t need reminding that digital currencies are volatile. Bitcoin is trading at $6,100 this morning, down from around $20,000 in mid-December.
Updated
At the risk of putting more pressure on Gareth Southgate, UK businesses are pinning their hopes on a World Cup sales boost.
The Bank of England’s regional agents report that sales of “electronics and alcoholic drinks” are expected to rise, as fans pile into the local pub or splash out on a new TV to admire Harry Kane’s latest screamer.
Brexit isn’t bad news for all UK companies, of course. It’s proving jolly lucrative for lawyers.
The Bank of England explains:
Business services turnover had been growing relatively solidly and more strongly than most other sectors. This was despite some hesitancy around client investment decisions that contacts reported had been driven by political uncertainty
For professional services firms, Mergers and Acquisition (M&A) activity from overseas buyers, Brexit preparations, and insolvency and restructuring activity had driven fee growth.
The new GDPR rules on data have also bene a windfall for legal experts, the BoE adds, as companies have tried to understand how the regulations affect them.
The growing pessimism about Brexit among British firms bolsters the case for a second referendum on EU membership, argues Labour MP Virendra Sharma.
Sharma (a member of the Best for Britain campaign) points out that UK businesses are becoming more vocal about their concerns:
“This report highlights the damage Brexit is doing to business. That means jobs are on the line.
“A number of big employers have come out against Brexit recently. From Airbus to BMW to Jaguar Land Rover, jobs are being cut and livelihoods put at stake - all because Theresa May is running scared of the ideological extremists in her party.
“Brexit means fewer jobs. The case for a people’s vote with the option to stay in the EU becomes clearer by the day.”
Donald Trump’s threats against America’s trading partners is also causing jitters in the UK, the Bank of England’s regional agents report:
Brexit was causing exporters and clients to examine their supply chains due to potential tariff and non-tariff barriers, and there were growing concerns about global trade protectionism.
Here’s an example of why UK firms are worried about Brexit:
BREAKING Brexit impacts supply of wet wipes
— lisa o'carroll (@lisaocarroll) June 28, 2018
Yup. Ellenor McIntosh founder of Twipes, flushable wet wipes, tells Lords committee investor told her "you're business is dead" because of unknown costs of manufacturing in Estonia and importing back to UK
Today’s Regional Agents report also shows that Britain’s consumers are cutting back, particularly when it comes to big-ticket items.
Growth in demand for consumer goods had not recovered sufficiently to make up for sales lost due to the adverse weather in Q1, however, and there was ongoing weak demand for new cars, white goods and homewares.
Contacts attributed more cautious consumer sentiment to squeezed real incomes, higher pensions auto‑enrolment contributions and political uncertainty. Third-sector contacts suggested that delays in benefit payments and benefits sanctions were increasing the pressure on low-income households.
Worryingly, this means some consumer-focused firms are now planning to axe jobs:
BoE Agents Survey scores suggest that the consumer squeeze is about to squeeze out some jobs. Employment intentions for consumer services at weakest since 2009, in stark contrast to the rest of the economy. pic.twitter.com/5HxwWFII5Z
— Rupert Seggins (@Rupert_Seggins) June 28, 2018
Brexit is also making it harder for UK firms to find workers.
The Bank of England’s regional agents say that a drop in EU migration into the UK is hurting farms, restaurants and distributions firms:
Recruitment difficulties remained elevated and were widespread across sectors and job roles. There were a growing number of reports of vacancies taking longer to fill and, in a small number of cases, labour shortages were constraining headcount growth. This was particularly the case where skill shortages were most acute, eg construction trades, drivers, specialist engineering and IT.
A continued slowing in the inward flow of EU migrants for lower skilled and/or seasonal work was reported to be acting as a constraint in sectors such agriculture and food, hospitality and warehousing.
Big UK firms, and those with an overseas focus, are particularly anxious about Brexit.
The Bank of England’s regional agents say the uncertainty is forcing them to cut back on investment:
Brexit uncertainty was weighing down discretionary or expansionary investment for some medium to larger-sized businesses, or those with a greater international focus.
SMEs and domestic-facing businesses were more likely to maintain a business as usual approach to investment as potential Brexit effects remained unclear.
UK firms more pessimistic about Brexit
Newsflash: UK firms have become gloomier about the impact of Brexit on their sales in recent months.
The latest report from the Bank of England’s regional agents, just released, shows an increase in the number of companies expecting a negative impact from Britain’s exit from the EU.
The number of companies expecting a Brexit boost has also dropped a little, compared to three months ago.
As you can see, rather more companies expect Brexit to be a negative experience.
Overall, UK businesses expect around 3% to be wiped off their sales, the Bank says:
The average eventual change in sales was negative and stood at around -3%. Using the same methodology would suggest that the most pessimistic 10% of businesses expected a reduction in sales of more than 10% due to Brexit, while the most optimistic 10% of respondents expected a boost of 1% or more.
The Regional Agents also flag up a rise in debt defaults, as struggling UK companies fall into administration:
Suppliers to consumer-facing businesses had reported an increased incidence of bad debts, and contacts expected continued retail and restaurant company voluntary arrangements (CVAs) and administrations as rising costs and over‑supply put pressure on balance sheets.
Pound hits seven-month low
Sterling has hit a new seven-month low this morning, as traders digest Jon Cunliffe’s warning about household debt levels.
The pound extended its recent slide and hit $1.3076, down almost half a cent, its lowest point since November 2017.
City traders are also concerned about the state of play with Brexit; overnight, Irish PM Irish leader Leo Varadkar said the lack of progress was “disappointing”.
Connor Campbell of SpreadEx says the pound’s “misery” seems to know no end.
With the Bank of England concerned about household debt, and investors doubtful about the smooth progress of Brexit despite Theresa May’s attempts at reassurance ahead of the day’s key EU summit, sterling fell 0.4% against the dollar, taking cable under $1.31 for the first time since early November last year.
Against the euro, meanwhile, it dipped 0.3%, teasing a fresh month and a half low.
Some lenders are already more reluctant to lend to consumers - perhaps anticipating the sort of financial downturn that is worrying the Bank of England.
The Bank’s latest survey shows a very sharp decline in the availability of consumer credit - even bigger than during the last financial crisis.
The BoE explained yesterday that the boom in buying cars on credit deals seems to have faded:
The slowdown in consumer credit growth is consistent with a reduction in demand as well as some tightening in supply. Slower car finance growth may be driven by the wider weakness in the car market, reflected in falls in new car registrations since end-2016.
In addition, the structural shift increasing the share of cars purchased with some form of car finance may also have come to an end.
More generally, the reduction in credit demand may be linked to slightly lower consumer confidence
Jon Cunliffe also rejected the chance to throw his hat into the ring to replace his boss, Mark Carney.
Asked if he’ll be in the running to become governor when Carney leaves next summer, Cunliffe replied:
“I’ve got a really challenging and difficult job and I’m just focusing on doing it the best I can.
When he’s not being distracted by the World Cup, anyway.....
Bank of England Deputy Governor Jon Cunliffe captures the mood of a nation when asked if he'd be cheering on England:
— Andy Bruce (@BruceReuters) June 28, 2018
"We'll certainly be following it very closely indeed."
Updated
Jon Cunliffe also played down the prospect of interest rates rising sharply soon.
Cunliffe is one of the more dovish members of the Monetary Policy Committee - one of the six who voted to leave rates unchanged at just 0.5% last week.
Asked whether borrowing costs could hit 2.5% in a few years, Cunliffe pointed out that the City only expects them to rise modestly:
“Financial markets are assuming that interest rates go up by another three-quarters of a percentage point over the next couple of years.”
“We do our forecasting on the basis of where the financial markets have those interest rates and we think we have inflation at target at those sorts of levels.
Updated
This chart (from yesterday’s Financial Stability Report) shows why the Bank is fretting about household debt levels:
The agenda: Bank of England warning on household debt
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
One of the Bank of England’s top policymakers has warned that indebted households could be in peril if Britain falls into recession.
Deputy governor Jon Cunliffe told BBC radio this morning that he’s concerned about families with high debt levels.
Cunliffe warned that some households have run up worrying levels of debts, which could drag them into a crisis if the economy sours, saying:
“(Household debt is) quite high by historical standards but (households have) worked hard to put those debt levels down. But within that there are areas that you do worry about.
“You worry about households that have high debt (and) could be badly affected in a recession.”
UK household debt now totals £1.8 trillion. Around 75% of that is mortgage debt, which will become more expensive to repay if interest rates go up. The rest is mostly in consumer credit.
Yesterday, the Bank’s latest financial stability report shows how household debt is creeping up again, when compared to the nation’s income. We’re not at 2008 levels yet, but policymakers seem concerned about the direction of travel.
Cunliffe’s comments come a day after high street bellwether John Lewis revealed its profits had collapsed to almost nothing so far this year.
Also coming up today
One of Cunliffe’s colleagues, chief economist Andy Haldane, gives a speech this afternoon. He may elaborate on why he voted to raise interest rates last week.
European stock markets rallied yesterday after America backed away from imposing new curbs on Chinese investment in the UK. But they may fall back today, after a late wobble on Wall Street yesterday.
Jasper Lawler of London Capital Group says:
Despite an early burst higher for the Dow following Trump’s turnaround on Chinese restrictions, the index surrendered its biggest daily gain in 4 months to close 165 points in the red. A selloff in tech stocks & financials overshadowing a rally in the energy sector.
Asian markets took their cues from the US, heading southwards overnight. China, which technically entered bear market territory in the previous session after dropping 20% from its January peak, continued to grind lower, as trade war concerns and a slowing of momentum in the economy have sent investors running.
It’s a relatively busy day on the economic front, with eurozone confidence figures, German inflation data, and an updated estimate of US growth in the last quarter.
Traders will also be watching events in Brussels tonight, where EU leaders gather for a summit dominated by migration and Brexit.
The agenda:
- 10am BST: Eurozone consumer and economic confidence figures for June
- 1pm BST: German inflation figures for June
- 1.30pm BST: US GDP figures for January-March (third estimate)
- 2.30pm BST: BoE chief economist Andy Haldane speaks
Updated
