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UK government borrowing misses targets; historic German bond sale - business live UK government borrowing misses targets; historic German bond sale – business live
(32 minutes later)
Time for a quick recapTime for a quick recap
The UK is on track to miss its borrowing targets this year, after another month of disappointing public finances.Britain only posted a surplus of £1.3bn in July - typically a good month for tax receipts - as government spending rose faster than income. The City had expected a surplus of £2.7bn, compared with £3.3bn in July 2018.The UK is on track to miss its borrowing targets this year, after another month of disappointing public finances.Britain only posted a surplus of £1.3bn in July - typically a good month for tax receipts - as government spending rose faster than income. The City had expected a surplus of £2.7bn, compared with £3.3bn in July 2018.
Economists believe the eventual deficit for the 2019-20 financial year will exceed the target, £29.3bn, by billions of pounds.Economists believe the eventual deficit for the 2019-20 financial year will exceed the target, £29.3bn, by billions of pounds.
Government likely to exceed budget target by £8bn this yearGovernment likely to exceed budget target by £8bn this year
Germany has sold 30-year bonds with no interest repayments, for the first time ever.Demand for the zero-coupon bunds was weaker than hoped, though, with just €824m of the €2bn on offer being sold.Germany has sold 30-year bonds with no interest repayments, for the first time ever.Demand for the zero-coupon bunds was weaker than hoped, though, with just €824m of the €2bn on offer being sold.
Donald Trump has launched another assault on America’s top central banker. He dubbed Jerome Powell ‘a golfer who can’t putt’, placing more pressure on the Fed chair to lower interest rates.Donald Trump has launched another assault on America’s top central banker. He dubbed Jerome Powell ‘a golfer who can’t putt’, placing more pressure on the Fed chair to lower interest rates.
Trump also stirred the US-China trade war, claiming that Beijing had ripped America off for decades.The president suggested that short-term economic pain caused by the trade dispute was worth it.Trump also stirred the US-China trade war, claiming that Beijing had ripped America off for decades.The president suggested that short-term economic pain caused by the trade dispute was worth it.
European stock markets have rallied, on hopes that a new Italian government can be formed. Italy’s president Sergio Mattarella, has begun talks with political parties, in the hope of avoiding new elections in the autumn.European stock markets have rallied, on hopes that a new Italian government can be formed. Italy’s president Sergio Mattarella, has begun talks with political parties, in the hope of avoiding new elections in the autumn.
The future of Britain’s HS2 rail project is in doubt, after the government played a key critic on a new review of the plan’s future. A decision on whether to abandon the project is expected by the end of the year.The future of Britain’s HS2 rail project is in doubt, after the government played a key critic on a new review of the plan’s future. A decision on whether to abandon the project is expected by the end of the year.
HS2 could be scrapped as critic gets role in independent reviewHS2 could be scrapped as critic gets role in independent review
My colleague Severin Carrell has spotted that Scotland ran a deficit seven times higher than the UK as a whole last year, despite again cutting its overspend on public services.My colleague Severin Carrell has spotted that Scotland ran a deficit seven times higher than the UK as a whole last year, despite again cutting its overspend on public services.
He writes:He writes:
The latest Government Expenditure and Revenue Scotland (Gers) figures showed there was a record gap of nearly £2,000 per person between how much was spent on public services and debt repayment, and total tax revenues for 2018/19.The latest Government Expenditure and Revenue Scotland (Gers) figures showed there was a record gap of nearly £2,000 per person between how much was spent on public services and debt repayment, and total tax revenues for 2018/19.
Scotland’s notional deficit stood at £12.6bn or 7% of GDP, including North Sea oil revenues, compared to the UK’s total £23.5bn deficit – which includes Scotland’s figure, equivalent to 1.1% of UK GDP.Scotland’s notional deficit stood at £12.6bn or 7% of GDP, including North Sea oil revenues, compared to the UK’s total £23.5bn deficit – which includes Scotland’s figure, equivalent to 1.1% of UK GDP.
Total state spending in Scotland was £1,661 higher per person than the UK average at £75.3bn, while tax receipts were £307 less per head than the UK average, at £62.7bn. Excluding oil revenues, the deficit exceeded £14bn, equal to 22.5% of tax revenues.Total state spending in Scotland was £1,661 higher per person than the UK average at £75.3bn, while tax receipts were £307 less per head than the UK average, at £62.7bn. Excluding oil revenues, the deficit exceeded £14bn, equal to 22.5% of tax revenues.
More here:More here:
Scotland's 2018 deficit higher than UK as a whole last yearScotland's 2018 deficit higher than UK as a whole last year
US retailer Target has lifted the New York stock market, by beating profit and revenue forecasts.US retailer Target has lifted the New York stock market, by beating profit and revenue forecasts.
Target grew earnings by 17% in the last quarter, as its in-store pickup and same-day shipping services proved popular.Target grew earnings by 17% in the last quarter, as its in-store pickup and same-day shipping services proved popular.
It also raised its outlook for the rest of the year, suggesting it’s confident that US consumers will keep spending.It also raised its outlook for the rest of the year, suggesting it’s confident that US consumers will keep spending.
Ding ding! Wall Street has opened higher:Ding ding! Wall Street has opened higher:
Dow Jones: up 217 points or 0.84% at 26,179Dow Jones: up 217 points or 0.84% at 26,179
S&P 500: up 24 points or 0.83% at 2,924S&P 500: up 24 points or 0.83% at 2,924
Nasdaq: up 73 points or 0.93% at 8,022.Nasdaq: up 73 points or 0.93% at 8,022.
Back in Germany, a slowdown in machinery exports has reinforced fears that Europe’s largest economy is heading into recession.Back in Germany, a slowdown in machinery exports has reinforced fears that Europe’s largest economy is heading into recession.
Exports of German-made equipment shrank by 1.8% in the second quarter of 2019, according to the German Mechanical Engineering Industry Association (VDMA), having risen by 3.8% in January-March.Exports of German-made equipment shrank by 1.8% in the second quarter of 2019, according to the German Mechanical Engineering Industry Association (VDMA), having risen by 3.8% in January-March.
VDMA chief economist Ralph Wiechers blamed problems overseas, saying:VDMA chief economist Ralph Wiechers blamed problems overseas, saying:
“The uncertainty triggered by the trade conflict between the United States and China in particular, as well as the lack of prospects for an agreement on Brexit, are hurting our export-focused sector.”“The uncertainty triggered by the trade conflict between the United States and China in particular, as well as the lack of prospects for an agreement on Brexit, are hurting our export-focused sector.”
VDMA also reports that machinery exports to China have barely risen since the start of 2019.VDMA also reports that machinery exports to China have barely risen since the start of 2019.
If this weakness continued, then it could drag Germany’s GDP down in the current quarter - following a 0.1% contraction in Q2.If this weakness continued, then it could drag Germany’s GDP down in the current quarter - following a 0.1% contraction in Q2.
Just in: President Trump is launching yet another attack on America’s central bank for not cutting interest rates harder and faster.Just in: President Trump is launching yet another attack on America’s central bank for not cutting interest rates harder and faster.
In a flurry of tweets, Trump begins by claims the media are trying to talk the US economy into a recession:In a flurry of tweets, Trump begins by claims the media are trying to talk the US economy into a recession:
The Fake News LameStream Media is doing everything possible the “create” a U.S. recession, even though the numbers & facts are working totally in the opposite direction. They would be willing to hurt many people, but that doesn’t matter to them. Our Economy is sooo strong, sorry!The Fake News LameStream Media is doing everything possible the “create” a U.S. recession, even though the numbers & facts are working totally in the opposite direction. They would be willing to hurt many people, but that doesn’t matter to them. Our Economy is sooo strong, sorry!
Trump may be referring to coverage of the inverted US bond yield curve last week. I think the media were right to cover it, and to mention that it typically precedes a recession (although it quickly de-inverted....).Trump may be referring to coverage of the inverted US bond yield curve last week. I think the media were right to cover it, and to mention that it typically precedes a recession (although it quickly de-inverted....).
Trump then compared Powell to a dodgy putter - quite an insult from the Golfer In Chief - for allowing US interest rates to rise too high.Trump then compared Powell to a dodgy putter - quite an insult from the Golfer In Chief - for allowing US interest rates to rise too high.
Doing great with China and other Trade Deals. The only problem we have is Jay Powell and the Fed. He’s like a golfer who can’t putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don’t count on him! So far he has called it wrong, and only let us down....Doing great with China and other Trade Deals. The only problem we have is Jay Powell and the Fed. He’s like a golfer who can’t putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don’t count on him! So far he has called it wrong, and only let us down....
.....We are competing with many countries that have a far lower interest rate, and we should be lower than them. Yesterday, “highest Dollar in U.S.History.” No inflation. Wake up Federal Reserve. Such growth potential, almost like never before!.....We are competing with many countries that have a far lower interest rate, and we should be lower than them. Yesterday, “highest Dollar in U.S.History.” No inflation. Wake up Federal Reserve. Such growth potential, almost like never before!
Technically, the German 30-year bond auction is a failure, as Berlin sold less than half of the debt on offer.Technically, the German 30-year bond auction is a failure, as Berlin sold less than half of the debt on offer.
On the other hand, if investors are paying for the privilege of lending to you, it’s hardly a complete flop.On the other hand, if investors are paying for the privilege of lending to you, it’s hardly a complete flop.
Germany only got 40% or so of the EUR2bn it wanted from the 30y zero-coupon bunds. Still, EUR824mn at -0.11% for 30 years.Germany only got 40% or so of the EUR2bn it wanted from the 30y zero-coupon bunds. Still, EUR824mn at -0.11% for 30 years.
Back in the financial markets, Germany has broken new ground by selling 30-year government debt with a zero coupon.Back in the financial markets, Germany has broken new ground by selling 30-year government debt with a zero coupon.
That means Berlin would not pay any interest on the bonds, but simply return the money in 2049.That means Berlin would not pay any interest on the bonds, but simply return the money in 2049.
The bonds aren’t linked to inflation either, so anyone buying the bonds would surely suffer a real loss when the three decades was up. Germany has sold 10-year bund with a zero coupon before, but never a 30-year one.The bonds aren’t linked to inflation either, so anyone buying the bonds would surely suffer a real loss when the three decades was up. Germany has sold 10-year bund with a zero coupon before, but never a 30-year one.
However, the historic sale is something of a flop -- German only raised €824m, having offered €2bn of new bonds to the market.However, the historic sale is something of a flop -- German only raised €824m, having offered €2bn of new bonds to the market.
But investors who took part in the auction actually paid MORE than the face value of the bonds. That means they will actually offer a yield of -0.11%, confirming that buyers will lose money on the trade. Unless they can sell the bunds onto someone else at an even higher price.But investors who took part in the auction actually paid MORE than the face value of the bonds. That means they will actually offer a yield of -0.11%, confirming that buyers will lose money on the trade. Unless they can sell the bunds onto someone else at an even higher price.
Here’s some snap reaction:Here’s some snap reaction:
The happy investors in the new German 30-year benchmark will lose more than 3% of their investment for sure (in nominal terms), if they hold the bond until maturity. This is the crazy world we live in.The happy investors in the new German 30-year benchmark will lose more than 3% of their investment for sure (in nominal terms), if they hold the bond until maturity. This is the crazy world we live in.
#Germany #Bund - Ok not surprising given the -0.11% yield on offer - but Germany manages to sell just EUR 824 Mln of the EUR 2.0 bln of the new 0% 2050 Bund on offer #fail. So much for #negative #yields being the new normal?#Germany #Bund - Ok not surprising given the -0.11% yield on offer - but Germany manages to sell just EUR 824 Mln of the EUR 2.0 bln of the new 0% 2050 Bund on offer #fail. So much for #negative #yields being the new normal?
Germany sold the world's first 30-year bond offering a zero coupon, with an effective yield of -0.11%. Demand was pretty weak. @bloombergtv @queenofchartz pic.twitter.com/0rlq6LZyBxGermany sold the world's first 30-year bond offering a zero coupon, with an effective yield of -0.11%. Demand was pretty weak. @bloombergtv @queenofchartz pic.twitter.com/0rlq6LZyBx
A clarification to that earlier post: Ryanair’s Irish pilots have been blocked from striking later this week.A clarification to that earlier post: Ryanair’s Irish pilots have been blocked from striking later this week.
The budget airline is now seeking an injunction at the high court in London to prevent UK-based pilots walking out. Sorry for the confusion....The budget airline is now seeking an injunction at the high court in London to prevent UK-based pilots walking out. Sorry for the confusion....
Ryanair wins high court injunction to stop Irish pilot strikesRyanair wins high court injunction to stop Irish pilot strikes
Today’s borrowing figures are the first released since Sajid Javid replaced Philip Hammond at the Treasury nearly a month ago.Today’s borrowing figures are the first released since Sajid Javid replaced Philip Hammond at the Treasury nearly a month ago.
They’re a reminder of the challenge facing Britain’s finance ministry, which already didn’t expect to balance the books until the mid-2020s.They’re a reminder of the challenge facing Britain’s finance ministry, which already didn’t expect to balance the books until the mid-2020s.
The increase in this deficit this year is a “headache” for the new chancellor, says Sky News’s John-Paul Ford Rojas, as he tries to balance the books and help deliver Boris Johnson’s spending pledges.The increase in this deficit this year is a “headache” for the new chancellor, says Sky News’s John-Paul Ford Rojas, as he tries to balance the books and help deliver Boris Johnson’s spending pledges.
Worse than expected public finances deliver headache for new chancellor https://t.co/UXdk7IaQLcWorse than expected public finances deliver headache for new chancellor https://t.co/UXdk7IaQLc
Two important pieces of transport news:Two important pieces of transport news:
1) The government has appointed a major critic of its High Speed 2 rail project to help lead a review into the project.1) The government has appointed a major critic of its High Speed 2 rail project to help lead a review into the project.
Lord Berkeley, a railway expert and Labour peer, has been made deputy chair of the review - which will decide whether the scheme linking London to Birmingham, Manchester and Leeds should go ahead.Lord Berkeley, a railway expert and Labour peer, has been made deputy chair of the review - which will decide whether the scheme linking London to Birmingham, Manchester and Leeds should go ahead.
He has repeatedly challenged the Department for Transport’s cost figures and warned that the budgets were spiralling out of control -- which perhaps gives a hint about how the probe will pan out.He has repeatedly challenged the Department for Transport’s cost figures and warned that the budgets were spiralling out of control -- which perhaps gives a hint about how the probe will pan out.
More here:More here:
HS2 in doubt: review into whether rail project should proceedHS2 in doubt: review into whether rail project should proceed
2) The Dublin High Court has blocked a planned strike by Irish-based Ryanair pilots, which had been scheduled for Thursday and Friday .2) The Dublin High Court has blocked a planned strike by Irish-based Ryanair pilots, which had been scheduled for Thursday and Friday .
The budget airline says flights from Ireland will now operate as normal - which must be a relief to passengers heading off on their summer hols.The budget airline says flights from Ireland will now operate as normal - which must be a relief to passengers heading off on their summer hols.
Update for Irish customers: pic.twitter.com/X1vaXKDNVsUpdate for Irish customers: pic.twitter.com/X1vaXKDNVs
On the other hand, Britain’s widening deficit might undermine the PM’s efforts to boost spending.On the other hand, Britain’s widening deficit might undermine the PM’s efforts to boost spending.
Richard Hughes, Macroeconomic Policy Unit Research Associate at the Resolution Foundation, explains:Richard Hughes, Macroeconomic Policy Unit Research Associate at the Resolution Foundation, explains:
“Borrowing was £6 billion higher in the first four months of this year than the same period last year. The Office for Budget Responsibility had been expecting a 29 per cent increase in borrowing for this year as a whole, but we’re seeing borrowing up twice that so far, at 60 per cent.“Borrowing was £6 billion higher in the first four months of this year than the same period last year. The Office for Budget Responsibility had been expecting a 29 per cent increase in borrowing for this year as a whole, but we’re seeing borrowing up twice that so far, at 60 per cent.
Crucially these higher borrowing figures come before recent decisions by the new government to turn on the spending taps, and complicate the government’s intention to increase public spending in the September spending round if they also want to remain committed to the current fiscal rules.”Crucially these higher borrowing figures come before recent decisions by the new government to turn on the spending taps, and complicate the government’s intention to increase public spending in the September spending round if they also want to remain committed to the current fiscal rules.”
Boris Johnson’s rash of spending pledges - including more police and more NHS funding - will also blow a hole in the deficit this year.Boris Johnson’s rash of spending pledges - including more police and more NHS funding - will also blow a hole in the deficit this year.
Josie Dent, Senior Economist at the CEBR think tank, explains:Josie Dent, Senior Economist at the CEBR think tank, explains:
Boris Johnson has announced several expansionary fiscal policies since becoming Prime Minister, which are likely to increase government borrowing and expenditure in the future.Boris Johnson has announced several expansionary fiscal policies since becoming Prime Minister, which are likely to increase government borrowing and expenditure in the future.
Among the increased spending measures, he has promised more money for no-deal preparations and funding for an additional 10,000 prison places. He has also pledged to speed up the implementation of full fibre broadband and increase school funding. Meanwhile, the Prime Minister has also shown support for plans to raise the higher income tax band to £80,000, in addition speaking favourably about a cut to the rate of tax on company profits.Among the increased spending measures, he has promised more money for no-deal preparations and funding for an additional 10,000 prison places. He has also pledged to speed up the implementation of full fibre broadband and increase school funding. Meanwhile, the Prime Minister has also shown support for plans to raise the higher income tax band to £80,000, in addition speaking favourably about a cut to the rate of tax on company profits.
With the new Prime Minister’s apparent shift in focus away from balancing the government’s budgets, we are likely to see rising levels of borrowing in the coming months. Furthermore, with a recession possibly on the way, government intervention may be needed to stimulate the economy, which would add to the size of the deficit.With the new Prime Minister’s apparent shift in focus away from balancing the government’s budgets, we are likely to see rising levels of borrowing in the coming months. Furthermore, with a recession possibly on the way, government intervention may be needed to stimulate the economy, which would add to the size of the deficit.
Today’s public finances also show how the government has failed to eliminate the budget deficit, in the decade since the financial crisis began.Today’s public finances also show how the government has failed to eliminate the budget deficit, in the decade since the financial crisis began.
As you can see, this year’s deficit was already expected to exceed last year’s, even before July’s unexpectedly small surplus (and a disappointingly large deficit in June).As you can see, this year’s deficit was already expected to exceed last year’s, even before July’s unexpectedly small surplus (and a disappointingly large deficit in June).