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Bank of England: No-deal Brexit could cause 'significant' market turmoil - business live Bank of England: No-deal Brexit could cause 'significant' market turmoil - business live
(about 2 hours later)
The pound is having a rare good day, despite Mark Carney’s concerns about Brexit.
Connor Campbell of SpreadEx has the details:
Seemingly taking heart from the Bank of England’s claim that there has been ‘some improvement in the preparedness of the UK economy for no-deal Brexit’, the pound rebounded on Thursday.
Cable [the pound/dollar exchange rate] also benefiting from the restated dovishness of the Federal Reserve, rose 0.3%, putting further ground between it and the week’s 2-year-plus lows. Against the euro, meanwhile, it added the same amount, pushing it back above €1.114 and away from yesterday’s 6-month nadir. These gains served to prevent the FTSE from joining in with the gains seen elsewhere. Instead the UK index lost 0.2%, dragging it under 7520.
Here’s John McDonnell MP, Shadow Chancellor, n the Bank of England’s Financial Stability Report:Here’s John McDonnell MP, Shadow Chancellor, n the Bank of England’s Financial Stability Report:
“The Bank of England has spelled out that crashing out of the EU, with no care and no deal, would cause real damage to households and businesses.“The Bank of England has spelled out that crashing out of the EU, with no care and no deal, would cause real damage to households and businesses.
“No responsible politician, genuinely concerned for the wellbeing of families and communities, would advocate a no-deal Brexit given these known consequences.”“No responsible politician, genuinely concerned for the wellbeing of families and communities, would advocate a no-deal Brexit given these known consequences.”
Here’s our news story on the Bank’s latest concerns about financial stability.Here’s our news story on the Bank’s latest concerns about financial stability.
Bank of England warns of lending crisis for EU firms after no-deal BrexitBank of England warns of lending crisis for EU firms after no-deal Brexit
Time for a recapTime for a recap
The Bank of England has concluded that the UK financial sector is strong enough to withstand a trade war and a disorderly Brexit, even if they occurred at the same time.The Bank of England has concluded that the UK financial sector is strong enough to withstand a trade war and a disorderly Brexit, even if they occurred at the same time.
But, in its latest Financial Stability Report, the BoE also fears that a no-deal Brexit would cause significant disruption in the markets.But, in its latest Financial Stability Report, the BoE also fears that a no-deal Brexit would cause significant disruption in the markets.
Sweeping aside claims that a no-deal Brexit would be easily managed, BoE governor Mark Carney warned:Sweeping aside claims that a no-deal Brexit would be easily managed, BoE governor Mark Carney warned:
Being ready for financial stability does not mean market stability. Markets will adjust, potentially quite substantially if there is a no-deal Brexit,Being ready for financial stability does not mean market stability. Markets will adjust, potentially quite substantially if there is a no-deal Brexit,
It also doesn’t mean economic stability. Even with a smooth adjustment it would still be a major economic adjustment, a major economic shock, virtually instantaneously.It also doesn’t mean economic stability. Even with a smooth adjustment it would still be a major economic adjustment, a major economic shock, virtually instantaneously.
The Bank fears that open-ended funds are a growing threat to financial stability. It is taking a closer look, following the suspension of redemptions from Neil Woodford’s Equity Income fund.The Bank fears that open-ended funds are a growing threat to financial stability. It is taking a closer look, following the suspension of redemptions from Neil Woodford’s Equity Income fund.
The Bank will work with the Financial Conduct Authority on the review, looking at the risks caused by funds that let investors pull money out immediately despite being backed by assets which are difficult to sell quickly. The mismatch “has the potential to become a systemic issue” according to the Bank’s Financial Policy Committee.The Bank will work with the Financial Conduct Authority on the review, looking at the risks caused by funds that let investors pull money out immediately despite being backed by assets which are difficult to sell quickly. The mismatch “has the potential to become a systemic issue” according to the Bank’s Financial Policy Committee.
The BoE is also pressing banks to face the cost of climate change. Its next stress tests will examine how financial institutions would cope under a range of scenarios.The BoE is also pressing banks to face the cost of climate change. Its next stress tests will examine how financial institutions would cope under a range of scenarios.
Carney warned that those are prepared for a low-carbon future would thrive; the rest won’t last long.Carney warned that those are prepared for a low-carbon future would thrive; the rest won’t last long.
Carney himself twice refused to comment on whether he wants to become the next head of the IMF. He refused to reveal his thoughts until there is a formal vacancy (once Christine Lagarde is confirmed as the next ECB president).Carney himself twice refused to comment on whether he wants to become the next head of the IMF. He refused to reveal his thoughts until there is a formal vacancy (once Christine Lagarde is confirmed as the next ECB president).
Carney, who is due to leave the Bank in January 2020, pledged to ensure an “orderly transition” to his successor. He also hopes for an “open, transparent and merit-based” process to replace Lagarde.Carney, who is due to leave the Bank in January 2020, pledged to ensure an “orderly transition” to his successor. He also hopes for an “open, transparent and merit-based” process to replace Lagarde.
The Bank also fired a warning shot at Facebook over its plans for a Libra cryptocurrency. Carney said Libra must satisfy regulatory that it is extremely solid, secure and reliable - otherwise it won’t be allowed.The Bank also fired a warning shot at Facebook over its plans for a Libra cryptocurrency. Carney said Libra must satisfy regulatory that it is extremely solid, secure and reliable - otherwise it won’t be allowed.
Analysts at Royal Bank of Canada now believe the Bank of England is likely to cut interest rates this autumn, once Brexit deadlock forces a general election.Analysts at Royal Bank of Canada now believe the Bank of England is likely to cut interest rates this autumn, once Brexit deadlock forces a general election.
Just in: core consumer inflation in America has jumped, casting some doubts on expectations that US central bankers are poised to cut interest rates.Just in: core consumer inflation in America has jumped, casting some doubts on expectations that US central bankers are poised to cut interest rates.
Core inflation (stripping out volatile factors such as fuel) jumped to 2.1% per year last month, from 2%, meaning it’s now above the Federal Reserve’s inflation target.Core inflation (stripping out volatile factors such as fuel) jumped to 2.1% per year last month, from 2%, meaning it’s now above the Federal Reserve’s inflation target.
If inflation is picking up, it could be harder for the Fed to ease monetary policy aggressively. That could disappoint investors, who are thirsty for central bankers to top up the punchbowl with some rate cuts.If inflation is picking up, it could be harder for the Fed to ease monetary policy aggressively. That could disappoint investors, who are thirsty for central bankers to top up the punchbowl with some rate cuts.
US CPI (June): 1.6% vs 1.6% expected, prior 1.8%US core CPI (June): 2.1% vs 2% expected, prior 2%US jobless claims: 209,000 vs 223,000 expected, prior 222,000 (revised from 221,000)US CPI (June): 1.6% vs 1.6% expected, prior 1.8%US core CPI (June): 2.1% vs 2% expected, prior 2%US jobless claims: 209,000 vs 223,000 expected, prior 222,000 (revised from 221,000)
#Futures pulling back now in response to the better than unexpected CPI numbers $SPY $SPX $ES_F pic.twitter.com/xcovsYIBDa#Futures pulling back now in response to the better than unexpected CPI numbers $SPY $SPX $ES_F pic.twitter.com/xcovsYIBDa
#CPI apparel prices jump 1.1 percent in June -- erratic category, but still an extraordinary increase#CPI apparel prices jump 1.1 percent in June -- erratic category, but still an extraordinary increase
City of London Corporation Policy Chair Catherine McGuinness has urged politicians in Westminster to heed the Bank of England’s concerns about Brexit:City of London Corporation Policy Chair Catherine McGuinness has urged politicians in Westminster to heed the Bank of England’s concerns about Brexit:
She says a disorderly exit must be avoided:She says a disorderly exit must be avoided:
Material risks include the threat of ‘significant market volatility’, which could cause economic turmoil in the UK and beyond. While the sector is prepared, the worst impacts can only be mitigated, not avoided, by preparation. In addition to industry action, there is a need for government to take steps to prevent cliff-edge damage.Material risks include the threat of ‘significant market volatility’, which could cause economic turmoil in the UK and beyond. While the sector is prepared, the worst impacts can only be mitigated, not avoided, by preparation. In addition to industry action, there is a need for government to take steps to prevent cliff-edge damage.
“This should be a wake-up call for Westminster. We are now just over three months away from the next Brexit cliff-edge and the risk of no-deal is drawing dangerously close. As every day passes, the crippling uncertainty that is holding business hostage remains, leaving companies unable to make everyday decisions. This has been demonstrated in recent data covering the services sector.“This should be a wake-up call for Westminster. We are now just over three months away from the next Brexit cliff-edge and the risk of no-deal is drawing dangerously close. As every day passes, the crippling uncertainty that is holding business hostage remains, leaving companies unable to make everyday decisions. This has been demonstrated in recent data covering the services sector.
The clock is ticking. Politicians on all sides must now come together to agree a pragmatic solution to Brexit and make avoiding a no-deal Brexit the absolute priority.”The clock is ticking. Politicians on all sides must now come together to agree a pragmatic solution to Brexit and make avoiding a no-deal Brexit the absolute priority.”
The Bank of England’s new climate change stress tests will force banks to take the issue more seriously, says David Strachan, head of Deloitte’s EMEA Centre for Regulatory Strategy:The Bank of England’s new climate change stress tests will force banks to take the issue more seriously, says David Strachan, head of Deloitte’s EMEA Centre for Regulatory Strategy:
“Banks will need to make some very significant advances in data collection and in their understanding and management of climate change risks, in order to be ready for the 2021 exploratory scenario. For many, this will require them to develop a wholly-new risk discipline.”“Banks will need to make some very significant advances in data collection and in their understanding and management of climate change risks, in order to be ready for the 2021 exploratory scenario. For many, this will require them to develop a wholly-new risk discipline.”
The Times have written up Mark Carney’s concerns about open-ended funds.The Times have written up Mark Carney’s concerns about open-ended funds.
They say:They say:
Investment firms may be banned from allowing customers to pull out their money with a day’s notice if their underlying assets are difficult to sell, under plans being considered by the Bank of England.Investment firms may be banned from allowing customers to pull out their money with a day’s notice if their underlying assets are difficult to sell, under plans being considered by the Bank of England.
Open-ended funds that invest in commercial property such as shopping centres, which can take a year to sell, may have to tell investors that they have to keep their money tied up for about a year.Open-ended funds that invest in commercial property such as shopping centres, which can take a year to sell, may have to tell investors that they have to keep their money tied up for about a year.
UK political risk has surged in recent years, points out the Bank’s new financial stability report:UK political risk has surged in recent years, points out the Bank’s new financial stability report:
What's hot and what's not in UK financial system risk according to the latest survey from the Bank of England. pic.twitter.com/fxKfhh2k1yWhat's hot and what's not in UK financial system risk according to the latest survey from the Bank of England. pic.twitter.com/fxKfhh2k1y
During the press conference, Mark Carney was asked whether the cost of a no-deal Brexit were “vanishingly inexpensive”, as Boris Johnson breezily claimed this week.During the press conference, Mark Carney was asked whether the cost of a no-deal Brexit were “vanishingly inexpensive”, as Boris Johnson breezily claimed this week.
The governor suggested not.The governor suggested not.
Even though the banks could withstand a disorderly Brexit, the process could be very volatile.Even though the banks could withstand a disorderly Brexit, the process could be very volatile.
Carney said:Carney said:
Being ready for financial stability does not mean market stability. Markets will adjust, potentially quite substantially if there is a no-deal Brexit,Being ready for financial stability does not mean market stability. Markets will adjust, potentially quite substantially if there is a no-deal Brexit,
It also doesn’t mean economic stability. Even with a smooth adjustment it would still be a major economic adjustment, a major economic shock, virtually instantaneously.It also doesn’t mean economic stability. Even with a smooth adjustment it would still be a major economic adjustment, a major economic shock, virtually instantaneously.
.@ITVJoel asked Bank of England governor Mark Carney about Boris Johnson's claims the cost of a no-deal Brexit were “vanishingly inexpensive for us to prepare".Read more on Joel's blog here: https://t.co/5BA50AfoaJ pic.twitter.com/4ueChh6dRs.@ITVJoel asked Bank of England governor Mark Carney about Boris Johnson's claims the cost of a no-deal Brexit were “vanishingly inexpensive for us to prepare".Read more on Joel's blog here: https://t.co/5BA50AfoaJ pic.twitter.com/4ueChh6dRs
Time for one last question.....Time for one last question.....
Q: Given the important of central bank independence, what do you say to politicians who might judge your successor based on their Brexit views or their closeness to political leaders?Q: Given the important of central bank independence, what do you say to politicians who might judge your successor based on their Brexit views or their closeness to political leaders?
Hmmm, ponders Mark Carney, joking ruefully that taking one last question might be a mistake.Hmmm, ponders Mark Carney, joking ruefully that taking one last question might be a mistake.
But it’s too late now, so the BoE governor explains that part of being independent is about not giving advice when you shouldn’t give advice.But it’s too late now, so the BoE governor explains that part of being independent is about not giving advice when you shouldn’t give advice.
It’s not my position to give advice. It’s the government’s job to decide who sits on these committees.It’s not my position to give advice. It’s the government’s job to decide who sits on these committees.
But Carney then explains why independence is so valuable.But Carney then explains why independence is so valuable.
Whoever sits in these committees is guided by statutory frameworks. For the Financial Policy Committee, that means identifying risks - and taking action where possible, he outlines.Whoever sits in these committees is guided by statutory frameworks. For the Financial Policy Committee, that means identifying risks - and taking action where possible, he outlines.
Sometimes that means an uncomfortable message comes out, that a certain domestic policy or international development has a real risk to financial stability.Sometimes that means an uncomfortable message comes out, that a certain domestic policy or international development has a real risk to financial stability.
We have a statutory duty to reveal our thinking on that risk, and take action to mitigate that risk where we can.We have a statutory duty to reveal our thinking on that risk, and take action to mitigate that risk where we can.
That is the strength of the FPC.That is the strength of the FPC.
My colleague Richard Partington asks Mark Carney about the ‘tragedy of the horizon’ [where short-term focused companies won’t consider the climate emergency until it’s too late]My colleague Richard Partington asks Mark Carney about the ‘tragedy of the horizon’ [where short-term focused companies won’t consider the climate emergency until it’s too late]
Q: Is disclosure and stress-testing really adequate to tackle the market failure of the ‘tragedy of the horizon’? Isn’t it time to use macro-prudential tools, credit guidance, or green QE, as the climate activists outside say?Q: Is disclosure and stress-testing really adequate to tackle the market failure of the ‘tragedy of the horizon’? Isn’t it time to use macro-prudential tools, credit guidance, or green QE, as the climate activists outside say?
Carney says that climate policy is the solution to the tragedy of the horizon -- carbon pricing, for example, can drag issues into the present day.Carney says that climate policy is the solution to the tragedy of the horizon -- carbon pricing, for example, can drag issues into the present day.
So if public policy is credible, then the financial sector can play a huge role in driving it - if they have transparent information (which is where disclosure comes in). The system needs to be ready to help (thus the stress-testing).So if public policy is credible, then the financial sector can play a huge role in driving it - if they have transparent information (which is where disclosure comes in). The system needs to be ready to help (thus the stress-testing).
Q: What is your message to political leaders on Brexit, about what still needs to be done?Q: What is your message to political leaders on Brexit, about what still needs to be done?
Mark Carney says there is “more to be done” in terms of creating capacity and infrastructure for Britain’s new trade relations with the EU.Mark Carney says there is “more to be done” in terms of creating capacity and infrastructure for Britain’s new trade relations with the EU.
Europe is lagging behind on port infrastructure, it appears.Europe is lagging behind on port infrastructure, it appears.
In the financial sector, there isn’t adequate protection for certain cross-border derivative contracts.In the financial sector, there isn’t adequate protection for certain cross-border derivative contracts.
On data, the UK has already recognised EU data laws after Brexit, but the EU has not, even though the rules are the same. That creates a legal risk, which creates an incentive to separate data - which isn’t easy (or always safe).On data, the UK has already recognised EU data laws after Brexit, but the EU has not, even though the rules are the same. That creates a legal risk, which creates an incentive to separate data - which isn’t easy (or always safe).
That’s what we know, Carney concludes. But “it’s the things you don’t know that get you in the end”.....That’s what we know, Carney concludes. But “it’s the things you don’t know that get you in the end”.....
Q: Are you satisfied with Deutsche Bank’s restructuring (which is shedding 18,000 jobs).Q: Are you satisfied with Deutsche Bank’s restructuring (which is shedding 18,000 jobs).
Deputy governor Sam Woods says Deutsche Bank has well-known problems. The BoE welcomes its “ambitious plan”, but will work with DB to see how the plan is implemented.Deputy governor Sam Woods says Deutsche Bank has well-known problems. The BoE welcomes its “ambitious plan”, but will work with DB to see how the plan is implemented.
Q: The Financial Stability Report mentions Facebook’s Libra cryptocurrency - what are your concerns?Q: The Financial Stability Report mentions Facebook’s Libra cryptocurrency - what are your concerns?
Mark Carney explains that G7 countries have created a working group to understand Facebook’s proposition, and consider the risks and opportunities.Mark Carney explains that G7 countries have created a working group to understand Facebook’s proposition, and consider the risks and opportunities.
The issues are very broad-based, he warns.The issues are very broad-based, he warns.
1) It’s either successful or it isn’t. If it’s successful, it becomes systemic. So it’s 5-sigma, it has to be on all the time. It can’t have teething problems. People can’t be losing money.1) It’s either successful or it isn’t. If it’s successful, it becomes systemic. So it’s 5-sigma, it has to be on all the time. It can’t have teething problems. People can’t be losing money.
The standards are in a different zipcode than in other forms of technology.The standards are in a different zipcode than in other forms of technology.
2) The second issue: the actual design of the stable coin. There can’t be any basis risk, or rebalancing risk, to moving money in and out of the coin. That could create speculation in something that has to be absolutely stable.2) The second issue: the actual design of the stable coin. There can’t be any basis risk, or rebalancing risk, to moving money in and out of the coin. That could create speculation in something that has to be absolutely stable.
3) Managing the underlying assets will be a challenge, given the flows in and out.3) Managing the underlying assets will be a challenge, given the flows in and out.
4) Fundamentally there are issues about money laundering and terrorist financing.4) Fundamentally there are issues about money laundering and terrorist financing.
Carney’s broad message to Facebook: Libra needs to be right, or regulators won’t let it get near customers:Carney’s broad message to Facebook: Libra needs to be right, or regulators won’t let it get near customers:
This is not ‘learn on the job’ stuff. It needs to be rock solid right from the start, or it’s not going to start.This is not ‘learn on the job’ stuff. It needs to be rock solid right from the start, or it’s not going to start.
Having said all that, the governor also thinks Libra could be valuable to consumers.Having said all that, the governor also thinks Libra could be valuable to consumers.
It is way too expensive and slow to do domestic payments,and far too expensive to send money across borders.It is way too expensive and slow to do domestic payments,and far too expensive to send money across borders.
So if Libra isn’t the solution to financial exclusion, we need to identify something else that is, he adds.So if Libra isn’t the solution to financial exclusion, we need to identify something else that is, he adds.