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Market rebound continues as Italian fears ease - business live Market rebound continues as Italian fears ease - business live
(35 minutes later)
A UK interest rate rise in August is by no means a done deal, says ING Bank economist James Smith. Commenting on the credit figures, he says:
It’s not something markets or analysts typically spend much time looking at each month, but the unexpectedly sharp fall in consumer credit in March was probably a key factor in the Bank of England’s decision to keep rates on hold in May.
Admittedly the reasons for this sudden decline were fairly unclear, and the latest figures released today show that the amount of unsecured consumer credit supplied fully recovered in April, rising by £1.8 billion. This tentatively suggests that the fall was simply a blip, perhaps related to the wider economic slowdown in March (although it’s not entirely clear why the bad weather would have resulted in such a sharp change).
We still think this is a story worth keeping an eye on over the next couple of months. A net 39% of banks said they tightened up on credit availability in the first quarter according to a Bank of England survey. If credit growth were to slow further, it would no doubt be a bad omen for growth - particularly as, of what little spending there has been over the past year, much of it appears to have been financed by borrowing.
Meanwhile consumers continue to remain cautious. While household incomes are no longer being squeezed quite as much as before, shoppers are now being confronted with higher petrol prices, and the latest confidence surveys suggest individuals remain pessimistic about the economic situation overall.
These cracks forming in the retail sector remain a big risk to the Bank of England outlook. While we are inclined to think policymakers have a preference to hike rates again in August if economic data allows (particularly given the better wage growth trend), this is certainly not a done deal.
As one committee member said recently, the cost of waiting a bit longer before hiking rates is relatively low.
Is Sir Dave Ramsden of the Bank of England around to explain how an extra £1.8 billion of unsecured lending in April is "weak credit growth" please?
The independent economist is referring to remarks made earlier this month at at select committee hearing, when Sir Dave said there was a risk households were spending less than the Bank had expected - as reported by the Financial Times (£).
Speaking of credit, there has been a spike in borrowing by UK consumers in April after a slowdown the previous month blamed on the snowy weather.
Consumer credit lending rose by a higher than expected £1.832bn, the biggest increase since November 2016, compared to an increase of just £425m in March. Economists polled by Reuters had expected a rise of £1.3bn.
The number of mortgages approved slipped from 62,802 in March to 62,455, less than the expected 63,000. Net mortgage lending rose by £3.894bn.
Here’s our story on the Financial Conduct Authority clamping down on high cost credit:Here’s our story on the Financial Conduct Authority clamping down on high cost credit:
The City watchdog is planning a price cap for rent-to-own retailers as part of a crackdown on high-cost credit and overdrafts to save consumers more than £200m a year.The City watchdog is planning a price cap for rent-to-own retailers as part of a crackdown on high-cost credit and overdrafts to save consumers more than £200m a year.
Although stopping short of capping charges on overdrafts, the Financial Conduct Authority outlined a series of measures on Thursday amid growing calls to protect vulnerable consumers.Although stopping short of capping charges on overdrafts, the Financial Conduct Authority outlined a series of measures on Thursday amid growing calls to protect vulnerable consumers.
The changes, the result of an 18-month review by the regulator, come as the Bank of England becomes increasingly concerned about rapid growth in personal borrowing, which is returning to levels unseen since the financial crisis. The Hollywood actor Michael Sheen, debt charities and the Labour party have applied significant pressure on the regulator to act.The changes, the result of an 18-month review by the regulator, come as the Bank of England becomes increasingly concerned about rapid growth in personal borrowing, which is returning to levels unseen since the financial crisis. The Hollywood actor Michael Sheen, debt charities and the Labour party have applied significant pressure on the regulator to act.
The FCA said it would consider introducing a price cap for the rent-to-own sector, which includes firms such as BrightHouse, from as early as April next year, although it warned it would need to consult on the measure with the industry first.The FCA said it would consider introducing a price cap for the rent-to-own sector, which includes firms such as BrightHouse, from as early as April next year, although it warned it would need to consult on the measure with the industry first.
The full report is here:The full report is here:
More positive news for Italy:More positive news for Italy:
"We are looking to buy short-term Italian bonds now," Atsushi Tachibana, CIO of Japan's $707 billion insurance fund Kampo, tells Reuters pic.twitter.com/jEZPrAVAYF"We are looking to buy short-term Italian bonds now," Atsushi Tachibana, CIO of Japan's $707 billion insurance fund Kampo, tells Reuters pic.twitter.com/jEZPrAVAYF
Germany’s Dax has dipped into the red but other European markets are holding up as investors await the latest developments in the Italian political crisis. Connor Campbell, financial analyst at Spreadex, said:Germany’s Dax has dipped into the red but other European markets are holding up as investors await the latest developments in the Italian political crisis. Connor Campbell, financial analyst at Spreadex, said:
Further steps in the right direction in regards to Italy avoiding another snap election – even if it does result in the Five Star Movement and League parties forming a Eurosceptic government – allowed the European markets to hold steady on Thursday.Further steps in the right direction in regards to Italy avoiding another snap election – even if it does result in the Five Star Movement and League parties forming a Eurosceptic government – allowed the European markets to hold steady on Thursday.
Rising 0.4% the euro managed to put a bit more distance between it and the 10 month lows it struck against the dollar on Tuesday night, the single currency climbing back towards $1.17 after the bell. Against the pound it was a bit more sluggish; however, flat at just under €1.14, it is trading at the top end of its recent bracket.Rising 0.4% the euro managed to put a bit more distance between it and the 10 month lows it struck against the dollar on Tuesday night, the single currency climbing back towards $1.17 after the bell. Against the pound it was a bit more sluggish; however, flat at just under €1.14, it is trading at the top end of its recent bracket.
The Eurozone indices, meanwhile, were broadly positive as well. Though the DAX dipped into the red, the CAC and FTSE MIB both continued to rise, the latter especially expressing its relief that things – for now, at least – appear to be calming down.The Eurozone indices, meanwhile, were broadly positive as well. Though the DAX dipped into the red, the CAC and FTSE MIB both continued to rise, the latter especially expressing its relief that things – for now, at least – appear to be calming down.
It’ll be interesting to see what role the Eurozone’s May inflation reading plays in the day’s trading. The surge in oil prices means analysts are expecting a sharp month-on-month jump, from 1.2% to 1.6%; that could give the euro a bit more room to breathe, but only if investors are willing to overlook the fact that the increase isn’t really due to anything going on in the Eurozone.It’ll be interesting to see what role the Eurozone’s May inflation reading plays in the day’s trading. The surge in oil prices means analysts are expecting a sharp month-on-month jump, from 1.2% to 1.6%; that could give the euro a bit more room to breathe, but only if investors are willing to overlook the fact that the increase isn’t really due to anything going on in the Eurozone.
Italian bond yields - which soared on Tuesday as the price fell on political concerns - continue to fall back.Italian bond yields - which soared on Tuesday as the price fell on political concerns - continue to fall back.
The two year yield is now down at 0.9% as calm returns - for the moment at least. Two days ago the yield hit 2.84%.The two year yield is now down at 0.9% as calm returns - for the moment at least. Two days ago the yield hit 2.84%.
Australian shares ended the month on a positive note, helped by the hopes for a solution to the Italian crisis and a rise in mining shares on the back of higher commodity prices.Australian shares ended the month on a positive note, helped by the hopes for a solution to the Italian crisis and a rise in mining shares on the back of higher commodity prices.
The S&P/AX index rose 0.5% on the day, helping it to a similar increase for the month as a whole.The S&P/AX index rose 0.5% on the day, helping it to a similar increase for the month as a whole.
Markets are likely to remain volatile, says Neil Wilson, chief market analyst for Markets.com:Markets are likely to remain volatile, says Neil Wilson, chief market analyst for Markets.com:
European equities are firmer in early trade and yesterday’s rebound for stocks may well hold if we see the two populists form a government, though longer term any such government faces a clash with the EU/ECB. They may also face a considerable backlash from bond markets again – calm for the moment – if they push ahead with plans to increase debt-to-GDP...European equities are firmer in early trade and yesterday’s rebound for stocks may well hold if we see the two populists form a government, though longer term any such government faces a clash with the EU/ECB. They may also face a considerable backlash from bond markets again – calm for the moment – if they push ahead with plans to increase debt-to-GDP...
Reports this morning suggest Paolo Savona could become foreign minister in a Lega-M5S government, a move that could be palatable for all the sides. In the near term the avoidance of snap elections would be positive for risk, but longer-term concerns remain. It does look as though the main risk being priced in earlier this week when bonds and stocks sold off sharply was the threat of another election that could have been framed in a more anit-EU light. Again we must reiterate that stock and bond markets will remain volatile and highly sensitive to the political situation in Rome.Reports this morning suggest Paolo Savona could become foreign minister in a Lega-M5S government, a move that could be palatable for all the sides. In the near term the avoidance of snap elections would be positive for risk, but longer-term concerns remain. It does look as though the main risk being priced in earlier this week when bonds and stocks sold off sharply was the threat of another election that could have been framed in a more anit-EU light. Again we must reiterate that stock and bond markets will remain volatile and highly sensitive to the political situation in Rome.
Added to this we have the prospect of a no-confidence vote in Spanish prime minister Mariano Rajoy, a move that would likely bring down the centre-right government. The debate, which starts today, adds to investor concerns that Europe is in a very rocky patch politically at the moment.Added to this we have the prospect of a no-confidence vote in Spanish prime minister Mariano Rajoy, a move that would likely bring down the centre-right government. The debate, which starts today, adds to investor concerns that Europe is in a very rocky patch politically at the moment.
It is indeed a positive start for European markets, albeit a slightly tentative one given all the geopolitical tensions at the moment.It is indeed a positive start for European markets, albeit a slightly tentative one given all the geopolitical tensions at the moment.
With hopes of a resolution to the Italian political impasse, the country’s FTSE MIB is up 0.38%, while Germany’s Dax is 0.12% better and France’s Cac has climbed 0.18%. In the UK, the FTSE 100 is up 0.19%. Economist Paul Donovan at UBS said:With hopes of a resolution to the Italian political impasse, the country’s FTSE MIB is up 0.38%, while Germany’s Dax is 0.12% better and France’s Cac has climbed 0.18%. In the UK, the FTSE 100 is up 0.19%. Economist Paul Donovan at UBS said:
We are not back to normal, but markets have reacquainted themselves with what normal might look like. Italian bond yields fell and the euro recovered yesterday. A consensus is forming that there will not be elections in Italy until September at the earliest. Italian President Mattarella is waiting to see if the two anti-parties can in fact form a coalition.We are not back to normal, but markets have reacquainted themselves with what normal might look like. Italian bond yields fell and the euro recovered yesterday. A consensus is forming that there will not be elections in Italy until September at the earliest. Italian President Mattarella is waiting to see if the two anti-parties can in fact form a coalition.
Ahead of the eurozone inflation figure we have had an update from France. Reuters reports:Ahead of the eurozone inflation figure we have had an update from France. Reuters reports:
French inflation rose in May to its highest level since August 2012, according to data from the INSEE national statistics agency, adding to a raft of strong inflation readings across the euro zone as the European Central Bank considers whether or not to tighten its monetary policy.French inflation rose in May to its highest level since August 2012, according to data from the INSEE national statistics agency, adding to a raft of strong inflation readings across the euro zone as the European Central Bank considers whether or not to tighten its monetary policy.
French consumer prices rose from April due partly to higher energy and food prices. The year-on-year inflation rate came in at 2.3 percent, according to EU-harmonised data from INSEE, above a forecast for an inflation reading of 2.0 percent according to a Reuters poll.French consumer prices rose from April due partly to higher energy and food prices. The year-on-year inflation rate came in at 2.3 percent, according to EU-harmonised data from INSEE, above a forecast for an inflation reading of 2.0 percent according to a Reuters poll.
Earlier this week, data had also shown inflation in Germany, the euro zone’s biggest economy, surging more than expected in May to its highest level in more than a year, while data also showed inflation picking up in Spain.Earlier this week, data had also shown inflation in Germany, the euro zone’s biggest economy, surging more than expected in May to its highest level in more than a year, while data also showed inflation picking up in Spain.
Germany’s May inflation of 2.2 percent also surpassed the European Central Bank’s (ECB) target of just under 2 percent for the euro zone as a whole.Germany’s May inflation of 2.2 percent also surpassed the European Central Bank’s (ECB) target of just under 2 percent for the euro zone as a whole.
ING Bank economist James Smith says the UK credit numbers could be interesting:ING Bank economist James Smith says the UK credit numbers could be interesting:
After last month's collapse, worth watching #UK credit numbers today. March fall may have been a blip, but if we don't get a rebound it would raise further questions over the spending outlook $GBP pic.twitter.com/8noDu8i324After last month's collapse, worth watching #UK credit numbers today. March fall may have been a blip, but if we don't get a rebound it would raise further questions over the spending outlook $GBP pic.twitter.com/8noDu8i324
Here’s more on the Financial Conduct Authority’s clampdown on high cost credit. FCA chief executive Andrew Bailey said:Here’s more on the Financial Conduct Authority’s clampdown on high cost credit. FCA chief executive Andrew Bailey said:
High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society. Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending.High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society. Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending.
The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.
Here is the full FCA announcement.Here is the full FCA announcement.
Eurozone inflation is expected to move sharply higher, partly due to the recent surge in oil prices. UniCredit economists said:Eurozone inflation is expected to move sharply higher, partly due to the recent surge in oil prices. UniCredit economists said:
We expect headline inflation to rebound strongly in May, from 1.2% to 1.8% year on year. We see two main drivers: a rebound in core inflation and a jump in energy prices. Core inflation probably reversed its April drop and rose to 1.1% year on year from 0.7%. This would reflect normalization in the price of holiday-sensitive items, with the April reading having been distorted to the downside by the early timing of Easter. Surging oil prices are likely to push energy prices up strongly, adding 0.3 percentage points to headline inflation .We expect headline inflation to rebound strongly in May, from 1.2% to 1.8% year on year. We see two main drivers: a rebound in core inflation and a jump in energy prices. Core inflation probably reversed its April drop and rose to 1.1% year on year from 0.7%. This would reflect normalization in the price of holiday-sensitive items, with the April reading having been distorted to the downside by the early timing of Easter. Surging oil prices are likely to push energy prices up strongly, adding 0.3 percentage points to headline inflation .
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Optimism that the Italian political crisis can be resolved without new elections is expected to see markets continue their revival today. The 5 Star and Lega parties are making renewed efforts to form a coalition, which has eased fears that a new vote could give a mandate for the country to leave the euro - Italexit or Quitaly, take your pick.Optimism that the Italian political crisis can be resolved without new elections is expected to see markets continue their revival today. The 5 Star and Lega parties are making renewed efforts to form a coalition, which has eased fears that a new vote could give a mandate for the country to leave the euro - Italexit or Quitaly, take your pick.
So Italian bond yields have fallen back from their highs earlier in the week, while European markets are expected to make a positive start. CMC Markets UK’s opening forecasts showSo Italian bond yields have fallen back from their highs earlier in the week, while European markets are expected to make a positive start. CMC Markets UK’s opening forecasts show
The FTSE 100 up 3 pointsThe FTSE 100 up 3 points
Germany’s Dax 20 points higherGermany’s Dax 20 points higher
France’s Cac climbing 8 pointsFrance’s Cac climbing 8 points
Italy’s FTSE MIB up 50 points.Italy’s FTSE MIB up 50 points.
CMC’s chief market analyst Michael Hewson said:CMC’s chief market analyst Michael Hewson said:
[Market] optimism was reinforced by a call from the Five Star movement for Paolo Savona to withdraw his candidacy for the position of finance minister. This would appear to be at odds with the position of the League and its leader Matteo Salvini, whose pick Savona is. The differences of opinion between the two parties certainly don’t bode well for any future relationship in government, if Salvini does change his mind about Savona and put someone else forward as finance minister...[Market] optimism was reinforced by a call from the Five Star movement for Paolo Savona to withdraw his candidacy for the position of finance minister. This would appear to be at odds with the position of the League and its leader Matteo Salvini, whose pick Savona is. The differences of opinion between the two parties certainly don’t bode well for any future relationship in government, if Salvini does change his mind about Savona and put someone else forward as finance minister...
Even though investors have significant concerns about the recent steep rise in Italian borrowing costs it should be noted they still remain well below their long-term averages prior to the financial crisis, when they were on average in and around the 4% level for most of the noughties. This means that while Italian borrowing costs now are high relative to the last few years, they still remain low by historical standards.Even though investors have significant concerns about the recent steep rise in Italian borrowing costs it should be noted they still remain well below their long-term averages prior to the financial crisis, when they were on average in and around the 4% level for most of the noughties. This means that while Italian borrowing costs now are high relative to the last few years, they still remain low by historical standards.
Still, investors would be right to be cautious. Italy is not the only potential problem in the eurozone, with Spain’s prime minister Rajoy facing a no confidence vote on Friday.Still, investors would be right to be cautious. Italy is not the only potential problem in the eurozone, with Spain’s prime minister Rajoy facing a no confidence vote on Friday.
On the same day, the EU’s temporary exemption from the US steel and aluminium tariffs is due to expire although developments could come as soon as today, while there are also the continuing concerns about a trade war between the US and China, as well the situation in North Korea.On the same day, the EU’s temporary exemption from the US steel and aluminium tariffs is due to expire although developments could come as soon as today, while there are also the continuing concerns about a trade war between the US and China, as well the situation in North Korea.
It’s set to be a busier day all round, with news already that the UK regulator the Financial Conduct Authority is clamping down on high cost credit.It’s set to be a busier day all round, with news already that the UK regulator the Financial Conduct Authority is clamping down on high cost credit.
Meanwhile Nationwide’s latest house price index has shown weaker than expected growth in May, with prices up 2.4%, down from a 2.6% increase in April and below the expected figure of 3%. Jonathan Samuels, chief executive of property lender, Octane Capital, said:Meanwhile Nationwide’s latest house price index has shown weaker than expected growth in May, with prices up 2.4%, down from a 2.6% increase in April and below the expected figure of 3%. Jonathan Samuels, chief executive of property lender, Octane Capital, said:
Tight supply and subdued demand are the key contributors to the ongoing limbo gripping the UK property market. A lethargic economy populated by cautious and squeezed consumers has created a property market lacking both momentum and direction.Tight supply and subdued demand are the key contributors to the ongoing limbo gripping the UK property market. A lethargic economy populated by cautious and squeezed consumers has created a property market lacking both momentum and direction.
And on the corporate front, the chief executive of train and bus business FirstGroup is leaving with immediate effect. As the company reported a poor set of results, Tim O’Toole said:And on the corporate front, the chief executive of train and bus business FirstGroup is leaving with immediate effect. As the company reported a poor set of results, Tim O’Toole said:
The time is right for me to step aside. Today’s results clear the way for the new approach sought by our Chairman and the Board.The time is right for me to step aside. Today’s results clear the way for the new approach sought by our Chairman and the Board.
Investors will also be watching out for European inflation figures after Wednesday’s higher than expected consumer price index from Germany.Investors will also be watching out for European inflation figures after Wednesday’s higher than expected consumer price index from Germany.
Agenda:Agenda:
9.30 BST UK mortgage lending9.30 BST UK mortgage lending
10.00 BST Eurozone consumer price index10.00 BST Eurozone consumer price index
13.30 BST US weekly jobs claims13.30 BST US weekly jobs claims