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| Global markets hit by trade war fears, Bank of England leaves interest rates on hold - business live | Global markets hit by trade war fears, Bank of England leaves interest rates on hold - business live |
| (35 minutes later) | |
| With markets tumbling it is no surprise the measure of volatility is on the way up again: | |
| OUCH! Fear Index #VIX jumps above 20 again as sentiment in US stocks is confused following Fed meeting. Chaos in DC and Sell off in banks add to the confusion. pic.twitter.com/uEv5ySc3tB | |
| Back with the Bank of England, and is a May rate rise a done deal? Our economics editor Larry Elliott says it would be a suprise if there is no increase but the Bank has been careful to give itself some wriggle room: | |
| A rate rise will depend on the economic data that is published over the next month and a half, but judging by the minutes of the MPC’s March meeting that data would have to be quite poor for Threadneedle Street to sit tight. | |
| His full analysis is here: | |
| And here’s our news story on the Bank’s announcement: | |
| The weakness in the FTSE 100 could mean UK-listed companies being targets for potential predators, says Richard Hunter, head of markets at Interactive Investor,: | The weakness in the FTSE 100 could mean UK-listed companies being targets for potential predators, says Richard Hunter, head of markets at Interactive Investor,: |
| At current levels, the FTSE100 is just a few points from being down 10% in the year to date, knocking on the door of what is often described as correction territory. | At current levels, the FTSE100 is just a few points from being down 10% in the year to date, knocking on the door of what is often described as correction territory. |
| UK equities on the whole have fallen out of favour with international investors with the spectre of Brexit looming, whilst the recent relative strength of sterling has meant additional pressure on the premier index, where the majority of earnings come from overseas. Meanwhile, the possibility of trade disputes particularly between China and the US is denting sentiment, and the move towards tighter monetary policy is another brick in the wall of worry which investors are currently climbing. | UK equities on the whole have fallen out of favour with international investors with the spectre of Brexit looming, whilst the recent relative strength of sterling has meant additional pressure on the premier index, where the majority of earnings come from overseas. Meanwhile, the possibility of trade disputes particularly between China and the US is denting sentiment, and the move towards tighter monetary policy is another brick in the wall of worry which investors are currently climbing. |
| This is despite the global, synchronised economic recovery where corporate earnings have so far continued to justify some slightly rich valuations, especially in the US. The UK economy has remained resilient despite any impending Brexit fallout, with the result that some of the top quality FTSE100 companies are moving towards bargain territory – and could even, as a consequence of this index weakness, find foreign groups running the slide rule over some of them as potential bid targets. | This is despite the global, synchronised economic recovery where corporate earnings have so far continued to justify some slightly rich valuations, especially in the US. The UK economy has remained resilient despite any impending Brexit fallout, with the result that some of the top quality FTSE100 companies are moving towards bargain territory – and could even, as a consequence of this index weakness, find foreign groups running the slide rule over some of them as potential bid targets. |
| Markets continue under pressure, ahead of the announcement by President Trump of trade tariffs. | Markets continue under pressure, ahead of the announcement by President Trump of trade tariffs. |
| Apart from fears of a trade war, investors are also concerned about the fallout from the current Facebook controversy, and the prospect of increased regulation for technology companies. Facebook itself has lost another 3% so far today. | Apart from fears of a trade war, investors are also concerned about the fallout from the current Facebook controversy, and the prospect of increased regulation for technology companies. Facebook itself has lost another 3% so far today. |
| So on Wall Street the Dow Jones Industrial Average is currently down 370 points or 1.5%. In Europe, Germany’s Dax is down 2% and France’s Cac 2.16%. | So on Wall Street the Dow Jones Industrial Average is currently down 370 points or 1.5%. In Europe, Germany’s Dax is down 2% and France’s Cac 2.16%. |
| With the prospect of a UK interest rate rise in May, the FTSE 100 has fallen 1.6% to a new 15 month low. | With the prospect of a UK interest rate rise in May, the FTSE 100 has fallen 1.6% to a new 15 month low. |
| The pound’s surge in the immediate wake of the Bank of England announcement has proved short lived, as investors decided that an interest rate rise in May had really already been priced into the market. | The pound’s surge in the immediate wake of the Bank of England announcement has proved short lived, as investors decided that an interest rate rise in May had really already been priced into the market. |
| Sterling has slipped 0.02% to €1.1455 against the euro and is down 0.16% against the dollar at $1.4116. Ken Odeluga, market analyst at City Index, said: | Sterling has slipped 0.02% to €1.1455 against the euro and is down 0.16% against the dollar at $1.4116. Ken Odeluga, market analyst at City Index, said: |
| Sterling traded against the dollar was able to spike to a fresh seven-week high though it soon settled around 100 pips lower. It remained elevated relative to earlier in the month. Against the euro the pound made a similarly short-lived move to the highest levels since January but then retreated by 60 pips. In short, a May rate rise remains all but certain, but the market had largely priced it before Thursday. | Sterling traded against the dollar was able to spike to a fresh seven-week high though it soon settled around 100 pips lower. It remained elevated relative to earlier in the month. Against the euro the pound made a similarly short-lived move to the highest levels since January but then retreated by 60 pips. In short, a May rate rise remains all but certain, but the market had largely priced it before Thursday. |
| More signs of a fairly robust US economy, with the latest snapshots of the manufacturing and service sectors. | More signs of a fairly robust US economy, with the latest snapshots of the manufacturing and service sectors. |
| The preliminary IHS Markit manufacturing PMI for March has come in at 55.7, up from 55.3 last month and the highest level since March 2015. | The preliminary IHS Markit manufacturing PMI for March has come in at 55.7, up from 55.3 last month and the highest level since March 2015. |
| The manufacturing figure was better than analysts had been expecting, but the services PMI - although strong - came in below forecasts. It fell from 55.9 in February to 54.1, a two month low. | The manufacturing figure was better than analysts had been expecting, but the services PMI - although strong - came in below forecasts. It fell from 55.9 in February to 54.1, a two month low. |
| Overall the composite PMI dipped from 55.8 to 54.3 in March, but the index has been above the 50 mark (which signals expansion) for two years now. Chris Williamson, chief business economist at IHS Markit said: | Overall the composite PMI dipped from 55.8 to 54.3 in March, but the index has been above the 50 mark (which signals expansion) for two years now. Chris Williamson, chief business economist at IHS Markit said: |
| The flash PMI surveys indicate that the economy likely continued to expand at a robust pace in March, rounding off a solid opening quarter of the year. The surveys are running at a level consistent with annualised first quarter GDP growth approaching 2.5% (though we note that official GDP estimates may once again understate growth in the opening quarter of the year). | The flash PMI surveys indicate that the economy likely continued to expand at a robust pace in March, rounding off a solid opening quarter of the year. The surveys are running at a level consistent with annualised first quarter GDP growth approaching 2.5% (though we note that official GDP estimates may once again understate growth in the opening quarter of the year). |
| The survey’s employment index is meanwhile at its highest for nearly three years and indicative of another strong payroll rise in the order of 240,000 in March. | The survey’s employment index is meanwhile at its highest for nearly three years and indicative of another strong payroll rise in the order of 240,000 in March. |
| The improved hiring trend reflects buoyant optimism regarding future growth. Companies’ expectations for output in the year ahead remained elevated, dipping slightly in services but surging to a three-year high in manufacturing. | The improved hiring trend reflects buoyant optimism regarding future growth. Companies’ expectations for output in the year ahead remained elevated, dipping slightly in services but surging to a three-year high in manufacturing. |
| Inflationary pressures meanwhile remain a key theme of the surveys, especially in manufacturing, reflecting increased raw material prices, notably for metals. The survey found average prices charged for goods and services are rising at one of the strongest rates seen since 2014. Furthermore, with factory costs showing the largest jump for seven years amid growing shortages of key inputs, inflationary pressures appear to be on the rise. | Inflationary pressures meanwhile remain a key theme of the surveys, especially in manufacturing, reflecting increased raw material prices, notably for metals. The survey found average prices charged for goods and services are rising at one of the strongest rates seen since 2014. Furthermore, with factory costs showing the largest jump for seven years amid growing shortages of key inputs, inflationary pressures appear to be on the rise. |
| US Markit PMI Data (Mar P): - Manufacturing 55.7 versus 55.5 expected, previous 55.3 - Highest since March 2015 - Service 54.1 versus 55.8 expected, previous 55.9Full Report: https://t.co/BbVo6HFZkb | US Markit PMI Data (Mar P): - Manufacturing 55.7 versus 55.5 expected, previous 55.3 - Highest since March 2015 - Service 54.1 versus 55.8 expected, previous 55.9Full Report: https://t.co/BbVo6HFZkb |
| Back with UK interest rates, and there could be four over the next two years, reckons Kallum Pickering, senior UK economist at Berenberg: | Back with UK interest rates, and there could be four over the next two years, reckons Kallum Pickering, senior UK economist at Berenberg: |
| The Bank of England seems to be re-opening the playbook it used ahead of the November 2017 rate hike. Step one, signal to markets that a hike could come soon. Step two, let a couple of known hawks dissent in a policy vote shortly thereafter. Step three, hike rates. After signalling at the February 2018 Inflation Report that a rate hike could come soon, the minutes of the March Monetary Policy Committee meeting published today showed two members of the nine member Monetary Policy Committee – Saunders and McCafferty, both known hawks – voted in favour of raising the Bank Rate by 25bp to 0.75%. These are the same members that dissented ahead of the November hike. The March minutes strengthen the bank’s February guidance that a hike could come soon. The real question is, when will it happen? | The Bank of England seems to be re-opening the playbook it used ahead of the November 2017 rate hike. Step one, signal to markets that a hike could come soon. Step two, let a couple of known hawks dissent in a policy vote shortly thereafter. Step three, hike rates. After signalling at the February 2018 Inflation Report that a rate hike could come soon, the minutes of the March Monetary Policy Committee meeting published today showed two members of the nine member Monetary Policy Committee – Saunders and McCafferty, both known hawks – voted in favour of raising the Bank Rate by 25bp to 0.75%. These are the same members that dissented ahead of the November hike. The March minutes strengthen the bank’s February guidance that a hike could come soon. The real question is, when will it happen? |
| ...We expect the BoE to hike its Bank Rate by 25bp four times over the next two years, with two hikes in 2018 and two in 2019. This would take the Bank Rate to 1.5% by the end of 2019. We look for the next 25bp hike in May 2018. | ...We expect the BoE to hike its Bank Rate by 25bp four times over the next two years, with two hikes in 2018 and two in 2019. This would take the Bank Rate to 1.5% by the end of 2019. We look for the next 25bp hike in May 2018. |
| Ouch! Britain’s FTSE 100 has fallen to a fresh 15-month low. | Ouch! Britain’s FTSE 100 has fallen to a fresh 15-month low. |
| London’s index of leading shares has lost 101 points, or nearly 1.5%, to 6937. That’s its lowest point since December 2016. | London’s index of leading shares has lost 101 points, or nearly 1.5%, to 6937. That’s its lowest point since December 2016. |
| And over on Wall Street, shares are sliding too. | And over on Wall Street, shares are sliding too. |
| The Dow Jones industrial average has lost 310 points, or 1.2%, to 24,371 points. | The Dow Jones industrial average has lost 310 points, or 1.2%, to 24,371 points. |
| Traders are citing fears of trade wars, with Donald Trump expected to announce new tariffs on Chinese imports on Thursday. Those are likely to target China’s high-technology sector and could also include restrictions on Chinese investments in the United States. | Traders are citing fears of trade wars, with Donald Trump expected to announce new tariffs on Chinese imports on Thursday. Those are likely to target China’s high-technology sector and could also include restrictions on Chinese investments in the United States. |
| Peter Dixon, Economist at Commerzbank, thinks there are two good reasons for the Bank of England to raise interest rates away from their near-record lows. | Peter Dixon, Economist at Commerzbank, thinks there are two good reasons for the Bank of England to raise interest rates away from their near-record lows. |
| A rate rise would be good news for savers. And Craig Inches, head of rates & cash at Royal London Asset Management, suggests the Bank of England should have taken the plunge today. | A rate rise would be good news for savers. And Craig Inches, head of rates & cash at Royal London Asset Management, suggests the Bank of England should have taken the plunge today. |
| He argues: | He argues: |
| “Today’s decision not to raise rates was a missed opportunity in our opinion. With real wage growth moving into positive territory for the first time in over two years, strong retail sales (despite the adverse weather conditions) and some welcome progress on the Brexit negotiations, the uncertainty that has concerned the Bank in recent months is beginning to be demystified. | “Today’s decision not to raise rates was a missed opportunity in our opinion. With real wage growth moving into positive territory for the first time in over two years, strong retail sales (despite the adverse weather conditions) and some welcome progress on the Brexit negotiations, the uncertainty that has concerned the Bank in recent months is beginning to be demystified. |
| “The markets were warned in February that rates would rise “faster and sooner”, the question we’d ask is why the Bank thought it necessary to wait until May. The probability of a rate rise now stands at over 75% following the vote today, sterling has risen in recent weeks from £1.37 to £1.42 and gilt short gilt yields have risen to the highs of the year. Given these moves and in light of the recent slew of positive data, the economy is clearly ready for a rate hike in May, but it would have been just as ready today! | “The markets were warned in February that rates would rise “faster and sooner”, the question we’d ask is why the Bank thought it necessary to wait until May. The probability of a rate rise now stands at over 75% following the vote today, sterling has risen in recent weeks from £1.37 to £1.42 and gilt short gilt yields have risen to the highs of the year. Given these moves and in light of the recent slew of positive data, the economy is clearly ready for a rate hike in May, but it would have been just as ready today! |
| Inches is also concerned that the Bank hasn’t begun unwinding its quantitative easing stimulus programme, which holds £435bn of government bonds. | Inches is also concerned that the Bank hasn’t begun unwinding its quantitative easing stimulus programme, which holds £435bn of government bonds. |
| “In the meantime the Bank continues to buy gilts via the APF facility and is massively distorting the shape of the yield curve, which is detrimental for pension funds and an accident waiting to happen further down the line.” | “In the meantime the Bank continues to buy gilts via the APF facility and is massively distorting the shape of the yield curve, which is detrimental for pension funds and an accident waiting to happen further down the line.” |
| Economist James Smith of Dutch bank ING says the Bank of England could potentially raise interest rates twice this year - perhaps once in May, and once in the autumn. | Economist James Smith of Dutch bank ING says the Bank of England could potentially raise interest rates twice this year - perhaps once in May, and once in the autumn. |
| But that could be undone if Brexit negotiations hit problems, Smith adds: | But that could be undone if Brexit negotiations hit problems, Smith adds: |
| By alluding to the need for “ongoing tightening”, policymakers have kept the door open to a second rate hike later this year. We certainly wouldn’t rule it out, and markets are increasingly coming around to this view – there’s now not far off two hikes priced in for this year. | By alluding to the need for “ongoing tightening”, policymakers have kept the door open to a second rate hike later this year. We certainly wouldn’t rule it out, and markets are increasingly coming around to this view – there’s now not far off two hikes priced in for this year. |
| But if Brexit talks – which are due to be wrapped up in October to allow time for ratification – get particularly noisy, then this could get in the way of a second rate rise in the autumn. | But if Brexit talks – which are due to be wrapped up in October to allow time for ratification – get particularly noisy, then this could get in the way of a second rate rise in the autumn. |
| We're not going to rule out a second rate hike in 2018 says ING's @smitheconomics and other key takeaways from the Bank of England meeting.https://t.co/rVwZOjSbMM | We're not going to rule out a second rate hike in 2018 says ING's @smitheconomics and other key takeaways from the Bank of England meeting.https://t.co/rVwZOjSbMM |
| The City was surprised that two MPC policymakers wanted to raise interest rates today, says Ben Brettell, senior economist at Hargreaves Lansdown. | The City was surprised that two MPC policymakers wanted to raise interest rates today, says Ben Brettell, senior economist at Hargreaves Lansdown. |
| He suspects that Brexit angst is helping to split the monetary policy committee: | He suspects that Brexit angst is helping to split the monetary policy committee: |
| Ian McCafferty and Michael Saunders are worried that inaction now will mean rates will need to rise faster and further in future. Sterling jumped on the news, hitting a seven-week high against the dollar. | Ian McCafferty and Michael Saunders are worried that inaction now will mean rates will need to rise faster and further in future. Sterling jumped on the news, hitting a seven-week high against the dollar. |
| The Bank faces a delicate balancing act. Inflation seems to be falling back towards the target of 2%, as the effect of the weaker pound starts to filter out of the calculation. But a pick-up in wage growth points to an erosion of slack in the labour market. This raises the prospect that a wage-price spiral could push inflation back up in future. Throw in a hefty dose of Brexit-related uncertainty and it’s easy to see why the committee is divided at present. | The Bank faces a delicate balancing act. Inflation seems to be falling back towards the target of 2%, as the effect of the weaker pound starts to filter out of the calculation. But a pick-up in wage growth points to an erosion of slack in the labour market. This raises the prospect that a wage-price spiral could push inflation back up in future. Throw in a hefty dose of Brexit-related uncertainty and it’s easy to see why the committee is divided at present. |
| The Institute of Director’s senior economist, Tej Parikh, reckons the Bank made the right decision this month. | The Institute of Director’s senior economist, Tej Parikh, reckons the Bank made the right decision this month. |
| “Business leaders will welcome the Bank of England’s decision not to spring any surprises this month, but firms and households will be on tenterhooks for what comes in May. | “Business leaders will welcome the Bank of England’s decision not to spring any surprises this month, but firms and households will be on tenterhooks for what comes in May. |
| “The Bank has been paving the way for a rate rise, but must tread lightly until there is richer evidence of growing inflationary pressures, to avoid unnecessarily placing a speed bump in the way of economic activity. | “The Bank has been paving the way for a rate rise, but must tread lightly until there is richer evidence of growing inflationary pressures, to avoid unnecessarily placing a speed bump in the way of economic activity. |