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RBS and Santander rapped over PPI failures – business live Markets rise as investors await Jerome Powell's keynote speech – business live
(32 minutes later)
But here is a good illustration of the challenge facing Powell as he tries to balance supporting the economy with his desire not to raise rates prematurely: a strong suggestion that China is intending to retaliate to US tariffs.
China will “take further countermeasures” in the trade war, including retailiatory tariffs, after the US imposed levies on goods worth $300bn, according to Hu Xijin, the editor of China’s Global Times, a state-controlled newspaper.
The $300bn tariffs caused markets to panic at the start of the month, after the shock decision from Donald Trump, the US president.
Ominous words from the Global Times:
China has ammunition to fight back. The US side will feel the pain.
Based on what I know, China will take further countermeasures in response to US tariffs on $300 billion Chinese goods. Beijing will soon unveil a plan of imposing retaliatory tariffs on certain US products. China has ammunition to fight back. The US side will feel the pain.
There has also been some hawkish language from US rate-setters, which might suggest the Federal Reserve does not want to cut rates too quickly.
More from Deutsche Bank:
Fed officials already descended on Jackson Hole yesterday, and we got an interesting trickle of comments from some regional presidents. Overall, the tone was on the hawkish side of expectations.
Kansas City’s George said that she is not ready to provide more policy accommodation, Dallas’s Kaplan said “I’d like to avoid having to take further action,” and Philadelphia’s Harker said “I think we should stay here for a while and see how things play out.” And yes, he was talking about interest rates, not the beautiful resort in Wyoming.
Powell certainly appears to be getting into the swing of things at the Jackson Hole resort. Just look at those relaxed zip-off trousers from the central bank chief last night. Not sure what message that sends on monetary policy.
Markets were this morning pricing in 57 basis points (0.5 percentage points) of cuts this year and another 47bps in 2020, meaning Powell has a high bar for markets to read a dovish message into today’s comments.
The last month has seen new trade war tensions, global growth slowdown fears and further steep drops in bond yields, so Powell’s speech “couldn’t come soon enough”, said analysts at Deutsche Bank led by Craig Nicol.
Recession concerns are “crystalising today”, as evidenced by the inverted yield curve, Nicol said.
The immediate focus of Powell’s speech will likely be whether he affirms that the current easing is a ‘mid-cycle adjustment’ as per the FOMC minutes or align more closely to market pricing.
The Deutsche Bank view is:
If Powell sticks to the old language, as is most likely, it would affirm that he is still confident that the strength of consumption, in combination with modest Fed easing, will be sufficient to keep the recovery broadly on track.
That would represent a slightly more hawkish message than markets are currently pricing, they reckon.
So what will Powell do?
In July the Federal Reserve chair described the interest rate cut as a “mid-cycle adjustment” of monetary policy, rather than the start of a proper cutting cycle. That comment could come back to haunt him if the US enters a recession – as markets are pricing – but in the short term investors will be keen to see whether he repeats this message.
Lee Hardman and Fritz Louw, analysts at MUFG Bank, expect a stronger dollar after he speaks:
We think he will likely stick with this theme, but highlight increased concern over the global economic outlook and the potential impact this could have on the US economy going forward.
Even though we expect a dovish overall message from Chair Powell, it will likely fall short of the capitulation demanded by the market and US President Trump. The dollar will likely be supported on the back of this.
As we approach midday in London, stock markets remain on the rise across Europe, with investors awaiting Federal Reserve chairman Jerome Powell in three hours’ time.
The FTSE 100 is up by 0.6%, while the FTSE 250 increased by 0.9%. The Stoxx 600 has also risen by 0.4%, but shed some of its earlier gains.
Rising bond yields – as investors position for a slightly more hawkish message from Powell – have boosted the US dollar. Higher government bond yields generally suggest that investors expect tighter monetary policy, making the country’s currency more attractive.
The dollar index, which measures the greenback against a trade-weighted basket of currencies, has risen by 0.3% today.
While central bankers are meeting at Jackson Hole, the leaders of the world’s largest advanced economies have their own shindig: the G7 summit in Biarritz, in the south of France.While central bankers are meeting at Jackson Hole, the leaders of the world’s largest advanced economies have their own shindig: the G7 summit in Biarritz, in the south of France.
Prime Minister Boris Johnson is there. Brexit is predictably on the agenda, for the British at least. You can follow the twists and turns today on the politics live blog.Prime Minister Boris Johnson is there. Brexit is predictably on the agenda, for the British at least. You can follow the twists and turns today on the politics live blog.
Brexiter Tories tell Boris Johnson backstop is not only problem with withdrawal agreement - live newsBrexiter Tories tell Boris Johnson backstop is not only problem with withdrawal agreement - live news
However, the start of the summit has been dominated by the reaction to wildfires in the Amazon. Emmanuel Macron, the French president, called for emergency talks on the subject at this week’s G7 summit.However, the start of the summit has been dominated by the reaction to wildfires in the Amazon. Emmanuel Macron, the French president, called for emergency talks on the subject at this week’s G7 summit.
Scientists have called for international pressure on Brazil’s president, Jair Bolsonaro, who has pursued a policy of developing the Amazon. Deforestation is thought to contribute directly to global heating.Scientists have called for international pressure on Brazil’s president, Jair Bolsonaro, who has pursued a policy of developing the Amazon. Deforestation is thought to contribute directly to global heating.
You can read more here:You can read more here:
Amazon rainforest fires: global leaders urged to divert Brazil from 'suicide' pathAmazon rainforest fires: global leaders urged to divert Brazil from 'suicide' path
Huawei, the Chinese tech giant at the heart of the geopolitical dispute with the US, said on Friday its business has been less impacted by trade restrictions than initially feared.Huawei, the Chinese tech giant at the heart of the geopolitical dispute with the US, said on Friday its business has been less impacted by trade restrictions than initially feared.
The $100bn company is “fully prepared” to live and work with US sanctions, it said.The $100bn company is “fully prepared” to live and work with US sanctions, it said.
In June Huawei founder and chief executive Ren Zhengfei said US trade restrictions would dent revenue by $30bn this year.In June Huawei founder and chief executive Ren Zhengfei said US trade restrictions would dent revenue by $30bn this year.
Eric Xu, Huawei’s deputy chairman, was at a news conference earlier to introduce new artificial intelligence chips at its headquarters in Shenzhen. He said via Reuters:Eric Xu, Huawei’s deputy chairman, was at a news conference earlier to introduce new artificial intelligence chips at its headquarters in Shenzhen. He said via Reuters:
It seems it’s going to be a little less than that. But you have to wait till our results in March.It seems it’s going to be a little less than that. But you have to wait till our results in March.
Washington said this week that it will extend by 90 days a reprieve that permits Huawei to buy from US firms in order to supply existing customers, but it also moved to add more than 40 of Huawei’s units to its economic blacklist.Washington said this week that it will extend by 90 days a reprieve that permits Huawei to buy from US firms in order to supply existing customers, but it also moved to add more than 40 of Huawei’s units to its economic blacklist.
Greggs is planning to roll out more vegan products, after the stunning marketing success of its vegan sausage roll.Greggs is planning to roll out more vegan products, after the stunning marketing success of its vegan sausage roll.
Chief executive Roger Whiteside said the company is looking at new products replacing meat with Quorn, in an interview with LBC radio station.Chief executive Roger Whiteside said the company is looking at new products replacing meat with Quorn, in an interview with LBC radio station.
Greggs sales topped £1bn for the first time last year, and the launch of the vegan sausage roll at the start of the year helped it to buck the struggles of the high street.Greggs sales topped £1bn for the first time last year, and the launch of the vegan sausage roll at the start of the year helped it to buck the struggles of the high street.
Whiteside said:Whiteside said:
We are working away at trying to see if we can come up with a vegan version of all our top-selling lines. Obviously people want a vegan option.We are working away at trying to see if we can come up with a vegan version of all our top-selling lines. Obviously people want a vegan option.
If we can succeed in doing that and produce something that tastes just as good as the meat version, then that will sell very successfully. That’s what’s been shown with the vegan sausage roll.If we can succeed in doing that and produce something that tastes just as good as the meat version, then that will sell very successfully. That’s what’s been shown with the vegan sausage roll.
RBS and Santander may be smarting from the competition regulator’s telling off this morning, but in a neat one-two punch the Financial Conduct Authority (FCA) has now criticised the claims management companies (CMCs) who have profited so immensely from the PPI scandal.RBS and Santander may be smarting from the competition regulator’s telling off this morning, but in a neat one-two punch the Financial Conduct Authority (FCA) has now criticised the claims management companies (CMCs) who have profited so immensely from the PPI scandal.
The FCA on Friday said it has “found widespread poor-practice in CMCs” using misleading adverts.The FCA on Friday said it has “found widespread poor-practice in CMCs” using misleading adverts.
CMCs make complaints on behalf of their customers – often taking fees as high as 30% of any compensation won. Regulators say they help people claim who otherwise would not be able.CMCs make complaints on behalf of their customers – often taking fees as high as 30% of any compensation won. Regulators say they help people claim who otherwise would not be able.
However, the FCA found a litany of abuses, including failing to tell users they can easily claim themselves, appearing to say customers would be better off using a CMC, and using misleadingly high compensation examples in adverts.However, the FCA found a litany of abuses, including failing to tell users they can easily claim themselves, appearing to say customers would be better off using a CMC, and using misleadingly high compensation examples in adverts.
New rules from the FCA require CMC firms to:New rules from the FCA require CMC firms to:
identify themselves as a claims management companyidentify themselves as a claims management company
prominently state if a claim can be made to a statutory ombudsman / compensation scheme without using a CMC and without incurring a feeprominently state if a claim can be made to a statutory ombudsman / compensation scheme without using a CMC and without incurring a fee
include prominent information relating to fees and termination fees which the customer may have to pay if a firm uses the term ‘no win, no fee’ or a term with similar meaninginclude prominent information relating to fees and termination fees which the customer may have to pay if a firm uses the term ‘no win, no fee’ or a term with similar meaning
The regulator took over regulation of CMCs on 1 April 2019, after the previous regulator was widely criticised as toothless.The regulator took over regulation of CMCs on 1 April 2019, after the previous regulator was widely criticised as toothless.
While the PPI deadline on 29 August will deprive CMCs of a their most valuable income stream, the industry has moved on to other areas in its search for new revenue – notably in the payday loans sector. The Guardian previously reported an avalanche of spurious complaints from some firms.While the PPI deadline on 29 August will deprive CMCs of a their most valuable income stream, the industry has moved on to other areas in its search for new revenue – notably in the payday loans sector. The Guardian previously reported an avalanche of spurious complaints from some firms.
After something of a flurry of company news (particularly for a Friday in late August), here’s a round-up of markets.After something of a flurry of company news (particularly for a Friday in late August), here’s a round-up of markets.
The FTSE 100 is up by 0.7% to 7,180 points, boosted by the weaker pound. The mid-cap FTSE 250 is up by about 1% – boosted by Peppa Pig owner Entertainment One.The FTSE 100 is up by 0.7% to 7,180 points, boosted by the weaker pound. The mid-cap FTSE 250 is up by about 1% – boosted by Peppa Pig owner Entertainment One.
Across Europe it was a sea of green, with all of the major indices gaining.Across Europe it was a sea of green, with all of the major indices gaining.
Sterling has lost 0.4% against the US dollar, with one pound buying $1.2204. Against the euro the pound had lost 0.2%.Sterling has lost 0.4% against the US dollar, with one pound buying $1.2204. Against the euro the pound had lost 0.2%.
The euro is down by 0.1% against the dollar, with the trade-weighted dollar basket up by 0.2% as investors await a speech by Federal Reserve boss Jerome Powell.The euro is down by 0.1% against the dollar, with the trade-weighted dollar basket up by 0.2% as investors await a speech by Federal Reserve boss Jerome Powell.
And news from Harland and Wolff, the shipbuilder whose yellow cranes dominate the Belfast skyline: administrators have extended a temporary lay-off period to give more time to find a buyer.
The historic Belfast shipyard that built the Titanic fell into administration at the start of the month, threatening the end of centuries of shipbuilding in the city.
BDO NI, the administrators, have extended the unpaid temporary lay-off position to 30 September to try to find a buyer, the company said in a statement on Friday.
The company has received a “healthy level of interest” from potential purchasers who could preserve the existing jobs.
This has resulted in a number of non-binding offers for the business, assets & employees on a going concern basis. There are also other interested parties who are in constructive discussions with the administrators which may result in further offers.
An update from Ryanair, whose pilots are currently striking over pay and conditions: flights from British airports are operating as usual today, with no disruption to its schedule expected.
A judge rejected an application on Wednesday for an injunction against the British Airline Pilots’ Association (Balpa), which would have forced pilots to return to work.
Hong Kong is gripped by protests and the backlash by government, and the airport will likely be disrupted again this weekend – raising concerns of a recession hitting the city.
Hong Kong is a free marketer’s dream. The tiny island has a GDP bigger than many industrialised countries, low tax and abundant cheap labour, and is a world-class financial centre boasting a stock market with a total value of more than £2.5tn, write the Guardian’s Martin Farrer and Erin Hale in Hong Kong.
No wonder then that the city’s most powerful vested interests are showing signs of nerves after 11 weeks of street protests that have paralysed the city, prompting its biggest political crisis since the handover to China in 1997 and threatening to push it into recession.
Even worse, some observers believe the standoff could destroy Hong Kong’s cherished entrepot status and send it on a journey of no return into China’s orbit.
You can read more here:
Hong Kong businesses fear protests will push economy into recession
Hasbro, the US toymaker behind My Little Pony and Play-Doh, has snapped up the Peppa Pig owner Entertainment One in a £3.3bn takeover.
The deal, which sent Entertainment One’s share price soaring by 30% in morning trading, marks the latest UK-listed company to be targeted by a foreign buyer since the dramatic weakening of the pound over fears of a no-deal Brexit.
The deal, the biggest in Hasbro’s history, is more than three times the amount ITV offered in an aborted takeover attempt three years ago.
You can read more from the Guardian’s Mark Sweney here:
Hasbro buys Peppa Pig owner Entertainment One in £3.3bn deal
Here’s a chart that tells a story: shares in Woodford Patient Capital Trust since 2015.
The shares are down by 6% today, to 41p, but earlier hit an all-time low of 38.1p – a far cry from levels above 90p at the start of the year, before the investor stampede to the exit from Woodford’s investments.
If you take a look at the list of troubled Eddie Stobart Logistics’ biggest shareholders, one stands out: Woodford Investment Management.
Woodford, run by prominent but by now bedraggled investement manager Neil Woodford, owns 23% of Eddie Stobart, whose shares have now been suspended. When it rains, it pours.
Investors are currently blocked from withdrawing money from his equity income fund, but shares in the listed Woodford Patient Capital Trust today hit a record low after a separate announcement that it must reduce the valuation of its stake in IH Holdings International Limited.
That is the parent company of Industrial Heat, a North Carolina company trying to use “low-energy nuclear reactions” as an energy source. The FT described Industrial Heat’s central idea (£) as “on the fringes of modern physics”.
Woodford Patient Capital Trust’s statement said:
The valuation adjustment reflects a reassessment of the current progress of the business.
Sterling went on a bit of a tear yesterday as Angela Merkel, the German chancellor, appeared to strike an emollient Brexit tone. It gained 1% yesterday, but is back down 0.4% today.
France’s Emmanuel Macron perhaps reminded traders last night that, to coin a phrase, nothing has changed on the UK’s departure from the EU so far.
The FTSE 100 is up by 0.5% in early trading – in part thanks to the weakness of the pound, which has lost 0.4% this morning against the US dollar.
Germany’s Dax and France’s Cac 40 indices are both up by 0.5% as well.
Eddie Stobart Logistics has said chief executive Alex Laffey will step down immediately as the company applied to suspend its shares from trading after it failed to publish its half-year results in time.
The company, which provides transportation and warehousing facilities, found errors in its previous financial statements in a review a month ago.
Eddie Stobart said on Friday it would publish the results in early September and announced a review of its dividend policy. It said Laffey will be replaced by Sebastien Desreumaux, the head of its iForce unit.
In a statement, Stobart said it need to apply “a more prudent approach to revenue recognition, re-assessing the recoverability of certain receivables, as well as considering the appropriateness of certain provisions”.
While revenue expectations for the first half are broadly in line with previous guidance, the full impact of these items on adjusted EBIT is unclear, but it is likely to be significantly lower than anticipated at the time of the half year trading update on 9 July 2019.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The UK’s competition regulator has ordered Royal Bank of Scotland and Santander to appoint an independent body to audit their PPI processes after they failed to tell thousands of customers about their policies.
The Competition and Markets Authority (CMA), led by former Conservative MP Andrew Tyrie, said RBS and Santander failed to provide required accurate reminders of their payment protection insurance (PPI) policies to 11,000 and 3,400 customers respectively. The failures took place over six and five years respectively.
The PPI scandal, in which banks systematically missold insurance to customers with little likelihood of it ever being used, has been a millstone around the necks of the banks. New City Agenda, a think tank, calculates that the bill for the British banking sector has reached £48.5bn – and it could breach £50bn.
Top 10 retail banking scandals. Top is #PPI at a cost to the banks and building societies of £48.5 bn so far - https://t.co/kBRFePZ0qI
The banks were meant to send customers an annual reminder from their PPI provider that clearly sets out how much they’ve paid for their policy, the type of cover they have, and reminds them of their right to cancel. RBS failed to send reminders, and will have to refund customers another £1.5m, while Santander sent inaccurate information.
Adam Land, a senior director at the CMA, said:
It is unacceptable that some banks aren’t providing PPI reminders – or are sending inaccurate ones – eight years after our order came into force. The legally binding directions we’ve issued today will make sure that both RBS and Santander now play by the rules.
These are serious issues that, in the future, may result in fines if the government gives us the powers we’ve asked for.
For now, we expect RBS to repay all affected customers quickly, and for both RBS and Santander to make sure that similar breaches do not happen again.
We’re also requiring RBS and Santander to appoint an independent body to audit their PPI processes to make sure they are fully compliant.
The final deadline for new PPI claims is 29 August, with the Financial Conduct Authority, the City regulator, currently carrying out an Arnold Schwarzenegger-themed advertising campaign – yes, really – to remind people to claim.
It is yet another reputational blow to the banks in the scandal which will not die.
Meanwhile, in Jackson Hole...
We’re well into sleepy August on the economic data front, with no really notable releases. Those economists who aren’t on the beach (and probably some who are, given its importance this year) will be tuning into coverage of Jackson Hole, the annual central bankers’ holiday retreat in the Wyoming countryside.
Who would take the job of Jerome Powell right now? Every Federal Reserve chair has to put up with their fair share of brickbats, but nobody for the best part of a century has had to take such furious criticism from the White House.
Powell will have a chance to hit back later today – or at least to lay out his reasons for resisting Trump’s calls to cut rates to stimulate the economy. He speaks at the central bankers’ summer retreat in Jackson Hole, hosted by the Kansas City Fed, at 3pm BST. You can see the full schedule here – Bank of England governor Mark Carney is due to speak at 8pm BST.
But what to expect? After Powell delivered the first rate cut in a decade at the start of the month, investors are looking for signs of more to come as fears around a recession rise. On bond markets the US two-year/10-year yield curve inverted again yesterday, flashing another warning sign over the world’s largest economy.
China’s renminbi hit its lowest point in more than 11 years against the US dollar in early trading, but currency moves have mostly been muted as traders await Powell’s comments.