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No-deal Brexit and slowdown fears push pound near two-year low - business live No-deal Brexit and slowdown fears push pound near two-year low - business live
(32 minutes later)
Heads-up. Philip Lane, the European Central Bank’s new chief economist, is holding an online Q&A right now.
It’s your chance to ask about the eurozone economy, whether a fresh stimulus programme is needed, and Lane’s views on issues such as cryptocurrencies, trade wars, Brexit etc.
Perhaps Christine Lagarde’s nomination to replace Mario Draghi as head of the ECB could also come up.....
Good afternoon, this is Philip R. Lane. I joined the ECB as Chief Economist on 1 June. I’m here to answer your questions for the next 45 minutes. Please use #AskECB to join the conversation. pic.twitter.com/GeqaBfKryA
The US stock market has dipped at the open, following the small losses in Europe this morning.
The Dow Jones industrial average has dropped by 104 points, or -0.4%, to 26,701 in early trading.
Dow skids 100 points lower at the open as stocks head south for 3rd straight day ahead of Powell testimony https://t.co/jkwrU6wy4W pic.twitter.com/VYB7xTPJpS
Neil Wilson of Markets.com says investors are anxious about two things.
1) Are company profits softening? That’s a key risk following the profit warning from chemicals giant BASF (see opening post).
2) Will the Federal Reserve actually cut interest rates soon, as expected, to support the economy? We’ll get more clues tomorrow when Fed chair Powell testifies to Congress.
He explains:
Markets remain nervous about the Fed and with earnings season around the corner. In particular, there may just be a growing realisation that the market has banked on the Fed turning more dovish than it is inclined to right now.
Equity markets are pricing in a lot of good news, and precious little of the bad. As we approach earnings season, revisions to corporate profit guidance could undermine the positivity we are witnessing in global equity markets right now.
The market is so fixated on the Fed put, and buying into this, that they may be blind to the drop in corporate profits. The problem for bulls from here is that several rate cuts by the Fed are already priced in, meaning, in the absence of a material rerating of valuations, we would need to see an improvement in earnings to push equities higher still.
Speaking of Jerome Powell.... one of Donald Trump’s top advisors has denied that the Fed chair’s job is at risk.
White House National Economic Council Director Larry Kudlow insisted today that Powell’s job is “safe” and “there is no effort to remove him.”
Fed Chair Jay Powell's job is safe, says Larry Kudlow"There is no effort to remove him. I will say that unequivocally at the present time. Yes, he's safe" - Kudlow pic.twitter.com/IWcrsjjWre
That’s despite a torrent of criticism from Trump recently, blasting the Fed for not cutting interest rates.
BlackRock’s Rupert Harrison has been expanding on his concerns about sterling, in this exchange with Reuters’ David Milliken.BlackRock’s Rupert Harrison has been expanding on his concerns about sterling, in this exchange with Reuters’ David Milliken.
Sterling within a whisker of January's 'flash crash' low, briefly below $1.2440 (next milestone: April 2017). Earlier today BlackRock's @rbrharrison was warning that FX markets underpriced risk of Brexit-related #GBP volatility over next 9-12 months pic.twitter.com/Y2Fjze67znSterling within a whisker of January's 'flash crash' low, briefly below $1.2440 (next milestone: April 2017). Earlier today BlackRock's @rbrharrison was warning that FX markets underpriced risk of Brexit-related #GBP volatility over next 9-12 months pic.twitter.com/Y2Fjze67zn
Indeed. Volatility underpriced in both directions - probability of tail outcomes (no deal or no Brexit) has risenIndeed. Volatility underpriced in both directions - probability of tail outcomes (no deal or no Brexit) has risen
Strange how market doesn't think sterling volatility is likely to be much greater than it was during late 1990s/early 2000s! pic.twitter.com/1Wb0hYDPQxStrange how market doesn't think sterling volatility is likely to be much greater than it was during late 1990s/early 2000s! pic.twitter.com/1Wb0hYDPQx
I think a lot of people have given up trying to play sterling through options markets because it's so hard to call the direction. As a result vol is underpriced but that can reset very quicklyI think a lot of people have given up trying to play sterling through options markets because it's so hard to call the direction. As a result vol is underpriced but that can reset very quickly
Over in Washington, Federal Reserve chairman Jerome Powell has warned that the stress tests used to assess the nation’s largest banks need to evolve.Over in Washington, Federal Reserve chairman Jerome Powell has warned that the stress tests used to assess the nation’s largest banks need to evolve.
Otherwise, Powell says, the fast-changing financial system could make them obsolete. More here.Otherwise, Powell says, the fast-changing financial system could make them obsolete. More here.
Fed Chair Powell: Stress tests for banks put into place following economic meltdown are important, but must evolve. @AP @mcrutsinger reports. https://t.co/8vfkCcr2zpFed Chair Powell: Stress tests for banks put into place following economic meltdown are important, but must evolve. @AP @mcrutsinger reports. https://t.co/8vfkCcr2zp
Powell's point: stress tests must guard against complacency by banks and regulators. https://t.co/H9VEmsmc4dPowell's point: stress tests must guard against complacency by banks and regulators. https://t.co/H9VEmsmc4d
The shake-up at the top of the European Central Bank is an ideal opportunity to shake up the eurozone’s top monetary authority.The shake-up at the top of the European Central Bank is an ideal opportunity to shake up the eurozone’s top monetary authority.
So argues Stefan Gerlach, chief economist at EFG Bank in Zurich and a former deputy governor of the Central Bank of Ireland.So argues Stefan Gerlach, chief economist at EFG Bank in Zurich and a former deputy governor of the Central Bank of Ireland.
He suggests that the ECB’s inflation target - its key mandate - should be reviewed, to see if it is actually helping the eurozone economy.He suggests that the ECB’s inflation target - its key mandate - should be reviewed, to see if it is actually helping the eurozone economy.
Such a review could help the ECB fight the next financial crisis.Such a review could help the ECB fight the next financial crisis.
Gerlach explains:Gerlach explains:
OMT, Mario Draghi’s chosen tool for fulfilling his 2012 vow to do “whatever it takes to preserve the euro,” was controversial from the moment it was announced, with the Bundesbank president, Jens Weidmann, – one of Lagarde’s main rivals for the ECB presidency – arguing fiercely against it in public. But that was seven years ago, and OMT has never actually been used.OMT, Mario Draghi’s chosen tool for fulfilling his 2012 vow to do “whatever it takes to preserve the euro,” was controversial from the moment it was announced, with the Bundesbank president, Jens Weidmann, – one of Lagarde’s main rivals for the ECB presidency – arguing fiercely against it in public. But that was seven years ago, and OMT has never actually been used.
Is the governing council still committed to it? Or have the events – and council membership changes – of the past few years rendered that commitment obsolete?Is the governing council still committed to it? Or have the events – and council membership changes – of the past few years rendered that commitment obsolete?
Here’s the full piece - worth a read.Here’s the full piece - worth a read.
Christine Lagarde's arrival would be ideal time for ECB review | Stefan GerlachChristine Lagarde's arrival would be ideal time for ECB review | Stefan Gerlach
EU finance ministers have launched discussions on how to fill the shoes of Christine Lagarde at the International Monetary Fund.EU finance ministers have launched discussions on how to fill the shoes of Christine Lagarde at the International Monetary Fund.
Lagarde’s nomination to lead the European Central Bank from 1 November, creates a vacancy at the top of the Washington-based fund. Interest in the role is mounting, after former UK chancellor George Osborne been eyeing it up.Lagarde’s nomination to lead the European Central Bank from 1 November, creates a vacancy at the top of the Washington-based fund. Interest in the role is mounting, after former UK chancellor George Osborne been eyeing it up.
Finland’s finance minister Mika Lintilä, who chaired the Ecofin meeting today, told journalists the process of finding a candidate for the IMF would soon begin, but names were not discussed at Tuesday’s monthly meeting of finance ministers.Finland’s finance minister Mika Lintilä, who chaired the Ecofin meeting today, told journalists the process of finding a candidate for the IMF would soon begin, but names were not discussed at Tuesday’s monthly meeting of finance ministers.
Lintilä explains:Lintilä explains:
Indeed we had a discussion about the process of nominating the next IMF director-president. The process will start, but we do not have a clear plan, a roadmap yet. We will start the work right now.Indeed we had a discussion about the process of nominating the next IMF director-president. The process will start, but we do not have a clear plan, a roadmap yet. We will start the work right now.
We did not discuss names yet. They will then come later.We did not discuss names yet. They will then come later.
By convention the head of the IMF is a European, while an American runs the World Bank. But the minister side-stepped a question on whether Europe means the continent, the European Union, or the 19-members of the single currency zone.By convention the head of the IMF is a European, while an American runs the World Bank. But the minister side-stepped a question on whether Europe means the continent, the European Union, or the 19-members of the single currency zone.
The answer to that question matters for Mark Carney, the Canadian head of the Bank of England, who has Irish and British passports.The answer to that question matters for Mark Carney, the Canadian head of the Bank of England, who has Irish and British passports.
The current governor of the Bank of England, who has run Canada’s central bank and chaired the post-crisis Financial Stability Board, has already been installed as the favourite for some bookmakers and is being considered by European officials, according to Bloomberg. But it is an open question whether Carney will deemed “European” enough, while there are plenty of candidates who missed at on the ECB that could be interested in the IMF job.The current governor of the Bank of England, who has run Canada’s central bank and chaired the post-crisis Financial Stability Board, has already been installed as the favourite for some bookmakers and is being considered by European officials, according to Bloomberg. But it is an open question whether Carney will deemed “European” enough, while there are plenty of candidates who missed at on the ECB that could be interested in the IMF job.
Back on the pound.... and a top advisor at asset manager BlackRock has warned that markets are underestimating the risk of volatility from the Brexit crisis.Back on the pound.... and a top advisor at asset manager BlackRock has warned that markets are underestimating the risk of volatility from the Brexit crisis.
Rupert Harrison, portfolio manager (and a former top advisor in the UK Treasury) told clients that the risks of an “extreme” Brexit outcome - either Britain leaving the European Union without a deal, or deciding to stay in the block - have risen.Rupert Harrison, portfolio manager (and a former top advisor in the UK Treasury) told clients that the risks of an “extreme” Brexit outcome - either Britain leaving the European Union without a deal, or deciding to stay in the block - have risen.
Harrison said:Harrison said:
“It’s even more uncertain than it has been at any point in the process.“It’s even more uncertain than it has been at any point in the process.
You can imagine a very, very wide range of outcomes in the next 12 months, and currently the options markets in currencies are not reflecting the scale of that potential volatility.”You can imagine a very, very wide range of outcomes in the next 12 months, and currently the options markets in currencies are not reflecting the scale of that potential volatility.”
Harrison, who advised former finance minister George Osborne from 2006 to 2015, also warned that Brexit continued to reduce the attraction of British assets for global investors.Harrison, who advised former finance minister George Osborne from 2006 to 2015, also warned that Brexit continued to reduce the attraction of British assets for global investors.
“The cumulative impact of the uncertainty, as well as ... all the stocking and destocking that we’ve seen, has definitely had a negative impact on momentum, which has become significantly more negative over the last three months or so.”“The cumulative impact of the uncertainty, as well as ... all the stocking and destocking that we’ve seen, has definitely had a negative impact on momentum, which has become significantly more negative over the last three months or so.”
The boss of BMW has warned that the Brexit crisis is intensifying,and that manufacturers don’t have the “planning reliability” they need.The boss of BMW has warned that the Brexit crisis is intensifying,and that manufacturers don’t have the “planning reliability” they need.
Speaking at the launch of BMW’s new electric mini, Oliver Zipse warned that recent Brexit developments are a “bad progression”.Speaking at the launch of BMW’s new electric mini, Oliver Zipse warned that recent Brexit developments are a “bad progression”.
Zipse warned that BMW doesn’t know whether a hard Brexit would be a “complete disaster”, or whether it could be handled. Any new tariffs at the border would be harmful, though, he added.Zipse warned that BMW doesn’t know whether a hard Brexit would be a “complete disaster”, or whether it could be handled. Any new tariffs at the border would be harmful, though, he added.
German carmakers not riding to the rescue pt. 74:BMW production boss Zipse:• Brexit developments are "bad progression"• BMW stops building engines in UK for vehicles heading for S. Africa (had previously been mooted IIRC).• Has adapted systems for border crossings pic.twitter.com/UzPsOlbrgBGerman carmakers not riding to the rescue pt. 74:BMW production boss Zipse:• Brexit developments are "bad progression"• BMW stops building engines in UK for vehicles heading for S. Africa (had previously been mooted IIRC).• Has adapted systems for border crossings pic.twitter.com/UzPsOlbrgB
Britain’s car industry has received a boost -- BMW has unveiled a new electric-powered Mini to be built at its Cowley car plant in Oxford.Britain’s car industry has received a boost -- BMW has unveiled a new electric-powered Mini to be built at its Cowley car plant in Oxford.
My colleague Jasper Jolly is there, and explains:My colleague Jasper Jolly is there, and explains:
BMW said it had 15,000 expressions of interest before order books open on Tuesday. The first deliveries to customers are expected in the first quarter of 2020, with a list price of £24,400, after the government’s plug-in car grant of £3,500 has been applied.BMW said it had 15,000 expressions of interest before order books open on Tuesday. The first deliveries to customers are expected in the first quarter of 2020, with a list price of £24,400, after the government’s plug-in car grant of £3,500 has been applied.
The investment in the new Mini will preserve the jobs of about 5,000 workers at the Oxford plant at an uncertain time for an industry awaiting Brexit clarity. The plant produced 234,501 Mini and Mini Clubman cars in 2018, an increase of 4.8% year on year.The investment in the new Mini will preserve the jobs of about 5,000 workers at the Oxford plant at an uncertain time for an industry awaiting Brexit clarity. The plant produced 234,501 Mini and Mini Clubman cars in 2018, an increase of 4.8% year on year.
BMW unveils electric Mini as it charges into new eraBMW unveils electric Mini as it charges into new era
The pound has now fallen by 5%, or seven cents, against the US dollar in the last two months.The pound has now fallen by 5%, or seven cents, against the US dollar in the last two months.
The selloff began as pressure mounted on Theresa May to quit, and intensified as most of the candidates to replace the PM backed the idea of a hard Brexit.The selloff began as pressure mounted on Theresa May to quit, and intensified as most of the candidates to replace the PM backed the idea of a hard Brexit.
Fawad Razaqzada of Forex.com says worries about tomorrow’s monthly UK GDP report (for May) are pushing sterling close to a two-year low today.Fawad Razaqzada of Forex.com says worries about tomorrow’s monthly UK GDP report (for May) are pushing sterling close to a two-year low today.
He writes:He writes:
The pound continues to be undermined by concerns that ongoing Brexit uncertainty is taking its toll on the UK economy. We have seen the release of some very poor domestic macro data in recent weeks. That run could continue tomorrow if the latest monthly GDP, construction output and manufacturing production figures disappoint expectations.The pound continues to be undermined by concerns that ongoing Brexit uncertainty is taking its toll on the UK economy. We have seen the release of some very poor domestic macro data in recent weeks. That run could continue tomorrow if the latest monthly GDP, construction output and manufacturing production figures disappoint expectations.
All these numbers fell noticeably last time and judging by the latest PMI data, I am not expecting to see a sharp rebound. Another poor set of figures could increase the pressure on the pound even more.All these numbers fell noticeably last time and judging by the latest PMI data, I am not expecting to see a sharp rebound. Another poor set of figures could increase the pressure on the pound even more.
With the pound under pressures, David Bloom, global head of currency strategy at HSBC, says it’s very hard to value the currency right now.With the pound under pressures, David Bloom, global head of currency strategy at HSBC, says it’s very hard to value the currency right now.
He warns that sterling could lose at least another 15 cents against the dollar, if Britain crashed out of the EU.He warns that sterling could lose at least another 15 cents against the dollar, if Britain crashed out of the EU.
Speaking on Bloomberg TV, he predicts:Speaking on Bloomberg TV, he predicts:
If we go to a hard Brexit, sterling could fall below $1.10If we go to a hard Brexit, sterling could fall below $1.10
But what if Brexit doesn’t happen?But what if Brexit doesn’t happen?
Bloom calls this the “Bobby Ewing” scenario, where “it’s all been a bad dream, and he’s in the shower”. In that case, sterling could rise to $1.45 - recovering almost all its losses since the referendum.Bloom calls this the “Bobby Ewing” scenario, where “it’s all been a bad dream, and he’s in the shower”. In that case, sterling could rise to $1.45 - recovering almost all its losses since the referendum.
Brexit news: The opposition Labour Party has just announced that Britain’s next prime minister must put their plan to the people in a referendum.Brexit news: The opposition Labour Party has just announced that Britain’s next prime minister must put their plan to the people in a referendum.
And significantly, leader Jeremy Corbyn says Labour would campaign for remain against No Deal or “a damaging Tory Brexit”.And significantly, leader Jeremy Corbyn says Labour would campaign for remain against No Deal or “a damaging Tory Brexit”.
In a letter to party members, Corbyn says:In a letter to party members, Corbyn says:
I have spent the past few weeks consulting with the shadow cabinet, MPs, affiliated unions and the NEC. I have also had feedback from members via the National Policy Forum consultation on Brexit.I have spent the past few weeks consulting with the shadow cabinet, MPs, affiliated unions and the NEC. I have also had feedback from members via the National Policy Forum consultation on Brexit.
Whoever becomes the new Prime Minister should have the confidence to put their deal, or No Deal, back to the people in a public vote.Whoever becomes the new Prime Minister should have the confidence to put their deal, or No Deal, back to the people in a public vote.
In those circumstances, I want to make it clear that Labour would campaign for Remain against either No Deal or a Tory deal that does not protect the economy and jobs.In those circumstances, I want to make it clear that Labour would campaign for Remain against either No Deal or a Tory deal that does not protect the economy and jobs.
However, Corbyn also says that Labour’s position of a Brexit based around a customs union, a “strong single market relationship” and protections for workers rights and environmental protections is a “sensible alternative”.However, Corbyn also says that Labour’s position of a Brexit based around a customs union, a “strong single market relationship” and protections for workers rights and environmental protections is a “sensible alternative”.
He’s also pushing for a general election, and it’s not clear how that would change Labour’s Brexit position.He’s also pushing for a general election, and it’s not clear how that would change Labour’s Brexit position.
But nothing in the lengthy email from JC to members about Labour's position at/after a general election - only that Labour wants one.But nothing in the lengthy email from JC to members about Labour's position at/after a general election - only that Labour wants one.
See this from Corbyn's email. Labour's Brexit plan is "sensible" and "could bring the country together". This is not support for Remain if Labour get into power. When Labour commit to a 2nd ref when in power - that's a shift. When they support Remain in that ref - that's a shift. pic.twitter.com/MiS5rKr4kWSee this from Corbyn's email. Labour's Brexit plan is "sensible" and "could bring the country together". This is not support for Remain if Labour get into power. When Labour commit to a 2nd ref when in power - that's a shift. When they support Remain in that ref - that's a shift. pic.twitter.com/MiS5rKr4kW
Our Politics Live blog has full details:Our Politics Live blog has full details:
Britain’s economic outlook is set to darken this autumn, as no-deal Brexit worries mount and companies struggle.Britain’s economic outlook is set to darken this autumn, as no-deal Brexit worries mount and companies struggle.
That’s according to Dean Turner, UK economist at UBS Global Wealth Management, in new analysis that helps explains why the pound is under pressure today.That’s according to Dean Turner, UK economist at UBS Global Wealth Management, in new analysis that helps explains why the pound is under pressure today.
Turner cites June’s weak PMI reports, showing UK companies have suffered their worst month since 2016.Turner cites June’s weak PMI reports, showing UK companies have suffered their worst month since 2016.
A warning from Britain’s top central banker, Mark Carney, that trade wars could ‘shipwreck the global economy’ is also a worry.A warning from Britain’s top central banker, Mark Carney, that trade wars could ‘shipwreck the global economy’ is also a worry.
Turner writes:Turner writes:
It has been a tough week for those of us following events in the UK. I’m not referring to the ongoing leadership contest between Jeremy Hunt and Boris Johnson. If anything that is a great source of amusement to most economists, as we wonder where in the UK we grow the “magic money-trees” that are going to pay for all the recent campaign promises. I, for one, am sitting here, spade in hand, ready to go and dig one up to plant in my backyard when they reveal their location.It has been a tough week for those of us following events in the UK. I’m not referring to the ongoing leadership contest between Jeremy Hunt and Boris Johnson. If anything that is a great source of amusement to most economists, as we wonder where in the UK we grow the “magic money-trees” that are going to pay for all the recent campaign promises. I, for one, am sitting here, spade in hand, ready to go and dig one up to plant in my backyard when they reveal their location.
No, I am actually referring to the economic data and shifting views of policymakers at the Bank of England. The message, on the whole, is one of much more challenging times ahead for the economy.No, I am actually referring to the economic data and shifting views of policymakers at the Bank of England. The message, on the whole, is one of much more challenging times ahead for the economy.
In conclusion, Britain could faces a “darker autumn”, and possibly a general election too, Turner says.In conclusion, Britain could faces a “darker autumn”, and possibly a general election too, Turner says.
Here’s his key predictions:Here’s his key predictions:
UK GDP: “Barring a significant positive surprise, tomorrow’s data is likely to confirm that the economy is on course to register a contraction for the second quarter.”UK GDP: “Barring a significant positive surprise, tomorrow’s data is likely to confirm that the economy is on course to register a contraction for the second quarter.”
LOOKING AHEAD: “As we enter the third quarter it is hard to see how things can improve that much for the economy. Momentum is weak, and the global backdrop is not exactly encouraging. The drop in UK manufacturing activity really brings it into line with what is happening elsewhere – UK manufacturers have been defying gravity for some time. Without a sharp pick-up in global activity, it is hard to find another catalyst to get the economy going.”LOOKING AHEAD: “As we enter the third quarter it is hard to see how things can improve that much for the economy. Momentum is weak, and the global backdrop is not exactly encouraging. The drop in UK manufacturing activity really brings it into line with what is happening elsewhere – UK manufacturers have been defying gravity for some time. Without a sharp pick-up in global activity, it is hard to find another catalyst to get the economy going.”
BREXIT: A likely more dovish Bank of England meeting on 1 August could lead the new PM to soften his tone on the chances of no-deal and focus his efforts on leaving with the existing deal in place. More likely, I believe, is that it will just mean another extension to the deadline.BREXIT: A likely more dovish Bank of England meeting on 1 August could lead the new PM to soften his tone on the chances of no-deal and focus his efforts on leaving with the existing deal in place. More likely, I believe, is that it will just mean another extension to the deadline.
GENERAL ELECTION?: “Extension would reduce uncertainty in the near term, but it would raise other concerns. The logical conclusion of all of this is going back to the ballot box.”GENERAL ELECTION?: “Extension would reduce uncertainty in the near term, but it would raise other concerns. The logical conclusion of all of this is going back to the ballot box.”
“It is certainly going to be a long, hot summer in more ways than one. We should all be prepared for the darker autumn that is likely to follow.”“It is certainly going to be a long, hot summer in more ways than one. We should all be prepared for the darker autumn that is likely to follow.”