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| UK borrowing costs hit highest level since Brexit vote– Business live | UK borrowing costs hit highest level since Brexit vote– Business live |
| (about 1 hour later) | |
| 1.52pm BST | |
| 13:52 | |
| More on Tuesday’s UK inflation figures, and Kathleen Brooks, research director at City Index, reckons the number could be higher than the market believes: | |
| The market is expecting prices to rise by an annual 0.9% rate last month, up from 0.6% in August. Core prices, which exclude energy and food prices, are also expected to pick up to 1.4% from 1.3%. | |
| We believe that the risks are to the upside for September’s price data, as the impact of a weak pound continues to weigh on price pressure.... | |
| We think.. annual CPI could breach the 1% mark for September, while the market expects a reading of 0.9%. A strong inflation reading could be another reason to sell the pound tomorrow, which, ironically, could lead to even higher inflation in the coming months. If prices rise as we expect, then the Monetary Policy Committee’s 2% inflation target to be breached at some point in the first quarter of 2017. | |
| If, against the odds, CPI does not rise by as much as expected, then we would expect the pound to rally as it could brighten the UK economic outlook and put less pressure on future consumption. However, we view this outcome as unlikely at this stage. | |
| 1.41pm BST | |
| 13:41 | |
| The Empire report says: | |
| Business activity continued to decline in New York State, according to firms responding to the October 2016 Empire State Manufacturing Survey. The headline general business conditions index slipped five points to -6.8. The new orders index edged up but remained negative at -5.6, indicating an ongoing drop in orders, and the shipments index increased to -0.6, suggesting that shipments were essentially flat. | |
| Labor market conditions remained weak, with both employment levels and the average workweek reported as lower. Price indexes increased somewhat, and continued to signal moderate input price increases and a slight increase in selling prices. | |
| But the outlook is more optimistic: | |
| Indexes for the six-month outlook suggested that manufacturing firms expect conditions to improve in the months ahead. | |
| 1.35pm BST | |
| 13:35 | |
| Weak manufacturing data from US | |
| The latest snapshot of US manufacturing - in this case in New York state - has shown a shock plunge rather than the expected revival. | |
| The New York Empire manufacturing index came in at -6.8 in October compared to -2.0 in September and forecasts of a rebound to 1.1. This is the lowest level since May. | |
| Empire State Manufacturing Index prints -6.8 vs +1.1 expected and -2.0 in September ^FR #FX | |
| Updated | |
| at 1.37pm BST | |
| 1.25pm BST | |
| 13:25 | |
| Another reason for the slide in bond prices, and subsequent rise in yields, is recent comments from central bankers on their willingness to tolerate an increase in inflation. | |
| On Friday Bank of England governor Mark Carney said he was willing to let inflation run a bit higher than the Bank’s 2% target to help boost the economy and employment. | |
| Janet Yellen, chair of the US Federal Reserve, said something similar a little later, saying there were plausible ways to let higher inflation lift the economy. | |
| Higher inflation erodes the fixed payments on bonds, adding to the downbeat mood. So UK inflation figures on Tuesday will be widely watched, with consumer prices expected to rise by an annual 0.9% in September, up from 0.6% in August. | |
| 12.23pm BST | 12.23pm BST |
| 12:23 | 12:23 |
| It’s a thin day for data but there are some US figures out later. Ahead of that, the futures are suggesting an opening fall on Wall Street. Connor Campbell, financial analyst at Spreadex, said: | It’s a thin day for data but there are some US figures out later. Ahead of that, the futures are suggesting an opening fall on Wall Street. Connor Campbell, financial analyst at Spreadex, said: |
| Looking to the US open and the Dow Jones seems fairly uninterested this Monday, with the futures suggesting a 40 point fall after the bell. There is a string of B-tier data for the US index to deal with this afternoon; the Empire State manufacturing index is set to bounce back to 1.1 from -2.0, while the capacity utilization rate is expected to edge up 0.1% to 75.6% and the industrial production reading is forecast to climb back to 0.3% from -0.4% last month. | Looking to the US open and the Dow Jones seems fairly uninterested this Monday, with the futures suggesting a 40 point fall after the bell. There is a string of B-tier data for the US index to deal with this afternoon; the Empire State manufacturing index is set to bounce back to 1.1 from -2.0, while the capacity utilization rate is expected to edge up 0.1% to 75.6% and the industrial production reading is forecast to climb back to 0.3% from -0.4% last month. |
| 12.19pm BST | 12.19pm BST |
| 12:19 | 12:19 |
| Sterling hits low for the day | Sterling hits low for the day |
| The pound continues to hover below $1.22 against the dollar, and is currently down 0.3% at $1.2144, a new low for the day as US traders begin to start work. | The pound continues to hover below $1.22 against the dollar, and is currently down 0.3% at $1.2144, a new low for the day as US traders begin to start work. |
| That is nowhere near the levels hit during the flash crash earlier this month, of course, when it fell as low as $1.1491, according to data from Thomson Reuters. | That is nowhere near the levels hit during the flash crash earlier this month, of course, when it fell as low as $1.1491, according to data from Thomson Reuters. |
| Reuters has just issued a report saying that sterling traded more than three times its daily average against the dollar in the 24 hours following the flash crash, showing the volatility and nervousness around the currency at the moment. | Reuters has just issued a report saying that sterling traded more than three times its daily average against the dollar in the 24 hours following the flash crash, showing the volatility and nervousness around the currency at the moment. |
| Updated | Updated |
| at 12.20pm BST | at 12.20pm BST |
| 12.04pm BST | 12.04pm BST |
| 12:04 | 12:04 |
| Newsflash from Downing Street: Theresa May’s spokeswoman has insisted the prime minister has ‘full confidence’ in Philip Hammond, following reports of a split with other cabinet members over Brexit. | Newsflash from Downing Street: Theresa May’s spokeswoman has insisted the prime minister has ‘full confidence’ in Philip Hammond, following reports of a split with other cabinet members over Brexit. |
| The PM also respects the Bank of England’s independence -- which is reassuring, until you realise that this ought to go without saying.... | The PM also respects the Bank of England’s independence -- which is reassuring, until you realise that this ought to go without saying.... |
| Number 10: PM "has full confidence" in Chancellor, "respects the independence of the @bankofengland" and is "clear in her support" of Carney | Number 10: PM "has full confidence" in Chancellor, "respects the independence of the @bankofengland" and is "clear in her support" of Carney |
| (reminder, May criticised the BoE’s stimulus programme during her party conference two weeks ago, prompting governor Mark Carney to hit back on Friday). | (reminder, May criticised the BoE’s stimulus programme during her party conference two weeks ago, prompting governor Mark Carney to hit back on Friday). |
| UK prime minister May says she has full confidence in finance minister Hammond, respects BoE independence.The very fact that needs said... | UK prime minister May says she has full confidence in finance minister Hammond, respects BoE independence.The very fact that needs said... |
| Andy Sparrow’s Politics Live blog has more details from today’s briefing to Lobby journalists: | Andy Sparrow’s Politics Live blog has more details from today’s briefing to Lobby journalists: |
| 11.20am BST | 11.20am BST |
| 11:20 | 11:20 |
| Analysts: Hammond dispute hits UK assets | Analysts: Hammond dispute hits UK assets |
| The disputes between Philip Hammond and the Brexiteers in the cabinet are hitting shares, the pound and government debt today, according to one analyst. | The disputes between Philip Hammond and the Brexiteers in the cabinet are hitting shares, the pound and government debt today, according to one analyst. |
| Jasper Lawler of CMC Markets says rumours (now denied) that the chancellor might quit are alarming investors. | Jasper Lawler of CMC Markets says rumours (now denied) that the chancellor might quit are alarming investors. |
| Over the weekend Mr Hammond was rumoured as preparing to quit over the divisions, though the Treasury has since denied this is the case. In a cabinet with some hot-headed opinions on Brexit, Mr Hammond is viewed by markets as a cooler cucumber. His departure and the resulting political uncertainty would likely see another nose-dive in the pound and exacerbate the rise in gilt yields. | Over the weekend Mr Hammond was rumoured as preparing to quit over the divisions, though the Treasury has since denied this is the case. In a cabinet with some hot-headed opinions on Brexit, Mr Hammond is viewed by markets as a cooler cucumber. His departure and the resulting political uncertainty would likely see another nose-dive in the pound and exacerbate the rise in gilt yields. |
| Mr Hammond is thought to prefer a plan in which migration curbs are delayed and Britain would pay into the EU budget for single market access. It’s a stance that would be welcomed by markets but he has been described as “arguing like an accountant” and “only seeing the risks” by fellow MPs. | Mr Hammond is thought to prefer a plan in which migration curbs are delayed and Britain would pay into the EU budget for single market access. It’s a stance that would be welcomed by markets but he has been described as “arguing like an accountant” and “only seeing the risks” by fellow MPs. |
| So that’s why 10-year UK gilt prices have hit their lowest level since the referendum (see earlier post), sending yields up. | So that’s why 10-year UK gilt prices have hit their lowest level since the referendum (see earlier post), sending yields up. |
| And housebuilders are also falling in value today, Lawler adds, matching the rise in gilt yields. | And housebuilders are also falling in value today, Lawler adds, matching the rise in gilt yields. |
| Barratt Developments is one of the biggest decliners on the FTSE 100. Higher interest rates lead to higher mortgages, which is typically not good for the housing market since it makes borrowing to buy a house more expensive. | Barratt Developments is one of the biggest decliners on the FTSE 100. Higher interest rates lead to higher mortgages, which is typically not good for the housing market since it makes borrowing to buy a house more expensive. |
| So, the FTSE 100 is now down by 55 points, or 0.8%, at 6957 points, with almost every share falling. | So, the FTSE 100 is now down by 55 points, or 0.8%, at 6957 points, with almost every share falling. |
| The pound still near a 31-year low against the US dollar, at $1.2167. | The pound still near a 31-year low against the US dollar, at $1.2167. |
| And 10-year gilt yields (a measure of UK borrowing costs) are hovering around 1.17%, from 1.1% on Friday. | And 10-year gilt yields (a measure of UK borrowing costs) are hovering around 1.17%, from 1.1% on Friday. |
| Gilt yields continuing to rise, though from a very low base. https://t.co/QPYe3CWjwM | Gilt yields continuing to rise, though from a very low base. https://t.co/QPYe3CWjwM |
| Updated | Updated |
| at 11.29am BST | at 11.29am BST |
| 10.49am BST | 10.49am BST |
| 10:49 | 10:49 |
| The FT published a good piece yesterday, pointing out how car parts whizz around the EU on their journey from raw materials to finished product. | The FT published a good piece yesterday, pointing out how car parts whizz around the EU on their journey from raw materials to finished product. |
| In some cases, they could cross the Channel five times -- creating a serious headache for auto makers if Britain left the single market. | In some cases, they could cross the Channel five times -- creating a serious headache for auto makers if Britain left the single market. |
| The piece is here. Here’s a flavour: | The piece is here. Here’s a flavour: |
| Bumpers for some Bentley Bentaygas, for example, are made in Europe but then sent to Crewe for inspection before then going to Germany for specialist painting. After that, they return to the UK for final assembly. | Bumpers for some Bentley Bentaygas, for example, are made in Europe but then sent to Crewe for inspection before then going to Germany for specialist painting. After that, they return to the UK for final assembly. |
| Another example of the interconnectedness of the supply chain is a fuel injector for diesel lorries manufactured by the US component maker Delphi. | Another example of the interconnectedness of the supply chain is a fuel injector for diesel lorries manufactured by the US component maker Delphi. |
| This part uses steel from Europe which is machined in the UK before going to Germany for special heat treatment. The injector is then assembled at Delphi’s UK plant in Stonehouse, Gloucestershire, before being sold on to truckmakers based in Sweden, France or Germany. | This part uses steel from Europe which is machined in the UK before going to Germany for special heat treatment. The injector is then assembled at Delphi’s UK plant in Stonehouse, Gloucestershire, before being sold on to truckmakers based in Sweden, France or Germany. |
| If the resulting truck is sold into the UK market, the component or materials used in it will have crossed the Channel five times before the lorry is ever driven by the customer. If tariffs are applied at each stage, the cost could be substantial. | If the resulting truck is sold into the UK market, the component or materials used in it will have crossed the Channel five times before the lorry is ever driven by the customer. If tariffs are applied at each stage, the cost could be substantial. |
| Great FT research shows how often car parts cross the Channel, amidst fears that the Single Market was working https://t.co/7UqC27RnHo pic.twitter.com/mj9YtolNRo | Great FT research shows how often car parts cross the Channel, amidst fears that the Single Market was working https://t.co/7UqC27RnHo pic.twitter.com/mj9YtolNRo |
| 10.49am BST | 10.49am BST |
| 10:49 | 10:49 |
| Britain isn’t alone. Germany’s borrowing costs have also hit their highest level since the EU referendum: | Britain isn’t alone. Germany’s borrowing costs have also hit their highest level since the EU referendum: |
| Germany's bund yields jump to their highest since @Brexit vote https://t.co/VvTbdJppcR pic.twitter.com/WYTOOABD0P | Germany's bund yields jump to their highest since @Brexit vote https://t.co/VvTbdJppcR pic.twitter.com/WYTOOABD0P |
| 10.36am BST | 10.36am BST |
| 10:36 | 10:36 |
| A tiny gobbet of economic data – inflation in the euro area rose by 0.4% in September, up from 0.2% in August. | A tiny gobbet of economic data – inflation in the euro area rose by 0.4% in September, up from 0.2% in August. |
| That’s the highest in nearly two years. | That’s the highest in nearly two years. |
| Higher prices at restaurants & cafés pushed living costs up, along with more expensive rent, food and tobacco. Energy prices still pulled inflation down, but by less than earlier this year. | Higher prices at restaurants & cafés pushed living costs up, along with more expensive rent, food and tobacco. Energy prices still pulled inflation down, but by less than earlier this year. |
| #Euro area annual inflation confirmed at 0.4% in September 2016 (August 0.3%) https://t.co/mPiQ1yyVXS /via @EU_Eurostat pic.twitter.com/5tfKX2nZxS | #Euro area annual inflation confirmed at 0.4% in September 2016 (August 0.3%) https://t.co/mPiQ1yyVXS /via @EU_Eurostat pic.twitter.com/5tfKX2nZxS |
| Updated | Updated |
| at 10.54am BST | at 10.54am BST |
| 10.22am BST | 10.22am BST |
| 10:22 | 10:22 |
| The slump in the pound since June’s Brexit vote isn’t a bad thing, according to Ben Broadbent, deputy governor of the Bank of England. | The slump in the pound since June’s Brexit vote isn’t a bad thing, according to Ben Broadbent, deputy governor of the Bank of England. |
| He told BBC Radio 5 this morning that sterling has helped to cushion the shock of the referendum result. | He told BBC Radio 5 this morning that sterling has helped to cushion the shock of the referendum result. |
| According to Broadbent: | According to Broadbent: |
| “Having a flexible currency is an extremely important thing, especially in an environment when your economy faces shocks that are different from your trading partners.” | “Having a flexible currency is an extremely important thing, especially in an environment when your economy faces shocks that are different from your trading partners.” |
| “In the shape of the referendum, we’ve had exactly one of those shocks. Allowing the currency to react to that I think is a very important shock absorber. | “In the shape of the referendum, we’ve had exactly one of those shocks. Allowing the currency to react to that I think is a very important shock absorber. |
| Hurrah for floating exchange rates, eh? | Hurrah for floating exchange rates, eh? |
| However... analysts at Deutsche Bank aren’t convinced that the weak pound will give UK factories a major boost. | However... analysts at Deutsche Bank aren’t convinced that the weak pound will give UK factories a major boost. |
| They argue that modern trade is simply too complicated.... | They argue that modern trade is simply too complicated.... |
| International economics has evolved since the Victorian era, and world trade no longer consists of final consumption goods being bartered for raw materials. The rise of global value chains has come with huge growth in the trade of intermediate and capital goods. Any economy’s manufacturing exports today contain a significant chunk of value that is added abroad. | International economics has evolved since the Victorian era, and world trade no longer consists of final consumption goods being bartered for raw materials. The rise of global value chains has come with huge growth in the trade of intermediate and capital goods. Any economy’s manufacturing exports today contain a significant chunk of value that is added abroad. |
| We find that the low domestic value added in UK manufacturing means sterling depreciation will hurt exporters as well as help them | We find that the low domestic value added in UK manufacturing means sterling depreciation will hurt exporters as well as help them |
| Deutsche Bank: The slump in sterling will not help the UK economy because we no longer live in the Victorian era. pic.twitter.com/VjK7vDmQJu | Deutsche Bank: The slump in sterling will not help the UK economy because we no longer live in the Victorian era. pic.twitter.com/VjK7vDmQJu |
| Updated | Updated |
| at 10.53am BST | at 10.53am BST |
| 9.45am BST | 9.45am BST |
| 09:45 | 09:45 |
| UK borrowing costs hit highest since June | UK borrowing costs hit highest since June |
| This morning’s selloff in UK government debt is gathering pace, as the City ponders the tensions in the | This morning’s selloff in UK government debt is gathering pace, as the City ponders the tensions in the |
| Ten-year gilts (bonds that mature in a decade’s time) are dropping in value, to levels not seen since the aftermath of the Brexit vote. | Ten-year gilts (bonds that mature in a decade’s time) are dropping in value, to levels not seen since the aftermath of the Brexit vote. |
| This chart shows how the price of gilts has dropped back in recent weeks, and is now the lowest since late June. | This chart shows how the price of gilts has dropped back in recent weeks, and is now the lowest since late June. |
| Happy selloff Monday for the UK Gilt market pic.twitter.com/t0IrTkSexJ | Happy selloff Monday for the UK Gilt market pic.twitter.com/t0IrTkSexJ |
| As prices fall, borrowing costs rise. And the interest rate (yield) on 10-year gilts has now jumped to 1.2%, from 1.1% on Friday night. | As prices fall, borrowing costs rise. And the interest rate (yield) on 10-year gilts has now jumped to 1.2%, from 1.1% on Friday night. |
| That indicates that it will cost the government more to issue new debt to cover the gap between tax revenues and spending. | That indicates that it will cost the government more to issue new debt to cover the gap between tax revenues and spending. |
| And the pound is still under some pressure, bobbing around $1.217. | And the pound is still under some pressure, bobbing around $1.217. |
| Traders said the selloff in gilts was hurting sentiment towards the currency, Reuters reports. | Traders said the selloff in gilts was hurting sentiment towards the currency, Reuters reports. |
| Another day, another big sell-off in gilts it seems - 10-year yields up 12 bps at 1.22 pct pic.twitter.com/otkGu4oR9E | Another day, another big sell-off in gilts it seems - 10-year yields up 12 bps at 1.22 pct pic.twitter.com/otkGu4oR9E |
| Updated | Updated |
| at 9.49am BST | at 9.49am BST |