Mixed day for European markets
Investors were in a cautious mood, with Brexit concerns hitting the pound and markets unsettled by the latest target for Donald Trump’s sanctions, Russia.
The pound held steady for much of the day but has slipped back against the dollar in late afternoon trading, down 0.17% to $1.2857. Against the euro sterling is up 0.22% at €1.1117.
Meanwhile the Russian rouble remains near a two year low at 66.3 to the US dollar.
With some disappointing results from travel group TUI and a host of companies going ex-dividend, the FTSE 100 fell back but the German and French markets managed to edge higher. In the US, markets have lost some of their early shine, with the S&P 500 struggling to reach a new peak. The closing scores in Europe showed:
- The FTSE 100 finished down 34.88 points or 0.45% at 7741.77
- Germany’s Dax added 0.34% to 12,676.11
- France’s Cac closed 0.01% higher at 5502.25
- Italy’s FTSE MIB fell 0.72% to 21,634.25
- Spain’s Ibex ended up 0.08% at 9754.6
On Wall Street the Dow Jones Industrial Average is currently down 0.04% or 11 points.
On that note, it’s time to close for the day. Thanks for your comments, and we’ll be back tomorrow.
Talk of a new EU offer on goods has been giving some support to the pound, but that alone may not be good enough, says Joshua Mahony, market analyst at IG:
The pound hit an 11-month low against the dollar, as fears over the future relationship between the UK and the EU persist. There are reports of a potential EU offer that would allow the UK to remain within the single market for goods, while also ending the free-movement of labour. However, with the EU seeking to ensure the UK closely follows the bloc’s environmental, customs, and social rules, we are once again likely to find ourselves at a roadblock.
The truth is that both the EU and the Tory Brexiteers have such differing red lines, any deal which appeased both sides would be unlikely to receive approval from both sides. There is a real chance that we will look back at the snap election as an overriding factor which means that no deal is possible. Given the substantial differences of opinion within parliament, it seems near impossible for Theresa May to garner enough support to pass an agreement that would be satisfactory to the EU.
Wall Street: S&P edges towards new record
US markets are in positive territory, with the S&P 500 heading close to a new record.
The index is up 0.12% at 2861, around 12 points below the record 2872.87 it hit towards the end of January.
The Dow Jones Industrial Average is up 0.03% while the Nasdaq Composite rose 0.31%. A rise in technology stocks is helped to prop up the overall market.
As for the pound, which remains fairly stable at the moment, hedge fund manager Crispin Odey believes it has further to fall in the run-up to Brexit.
He told Reuters he was continuing to bet against sterling and said he believed it could fall to as low as $1.21 against the dollar. It is currently at $1.2878.
Back with the UK, and IHS Markit’s chief business economist believes that Friday’s GDP figures will make the recent Bank of England rate rise look even more puzzling:
UK #PMI points to a 0.4% rise in Q2 #GDP tomorrow, but that still makes the Bank of England's recent rate rise look odd, even with the supposed reduced speed limit for the economy. Prior to the GFC, 56.5 was the all-sector PMI 'trigger' for rate hikes. July 2018 PMI was just 53.8 pic.twitter.com/CJ9wj1ESm4
— Chris Williamson (@WilliamsonChris) August 9, 2018
US sanctions put #Russia on edge. Ruble plunges while default probability rises. But US sanctions will not bring Russia to its knees given the country has one of lowest debt levels in the world & nearly half a trillion US dollars in reserves. https://t.co/YQ8ausIid1 via @welt pic.twitter.com/7lYYGdkq87
— Holger Zschaepitz (@Schuldensuehner) August 9, 2018
The US sanctions on Russia will have little effect, reckons Michael Patrick Cullinane, Professor of US History at the University of Roehampton:
Trump is the master of media manipulation, and the decision to sanction Russia over the Skripal assassination attempt comes, not coincidentally, as pressure mounts on the president to react to the widespread condemnation of Russian meddling in the 2016 election. The decision is aimed at domestic American audiences who see Trump as soft on Putin. And he is. After all, the sanctions only cover technology or goods that might be sensitive to national security, a restriction most would have assumed was already in place, and the sanction can be suspended in some instances such as space flight cooperation.
Frankly, the tariffs against China will have a greater impact than this latest round of sanctions on Russia. Moreover, the decision comes as Kentucky Senator Rand Paul visits Moscow. Paul’s meeting with Putin will allow Trump to communicate this uncomfortable decision with some diplomatic cordiality. Needless to say, Trump has not afforded the UK the same exchange. His Twitter account is noticeably quiet; there is no mention of standing with America’s allies in Europe against blatant terrorism. Such a message might not go down well in Moscow.
Updated
The Observer did a guide to holiday money which is worth looking at, especially as travellers will want to maximise their spending power as the pound continues to wobble. Here’s the guide:
The mini-revival in the pound - up 0.04% against the dollar to $1.2883 and 0.21% higher against the euro at €1.1116 - could be short lived, says Fawad Razaqzada, market analyst at Forex.com:
After a sharp slide, the pound has finally caught a bid today. While it is too early to suggest that a low has been hit, today’s rebound is certainly a welcome relief for the pound bulls. The GBP/USD has ended a run of five consecutive losses, the GBP/JPY is up after falling six days in a row, while the EUR/GBP is back below 0.90 after a sharp 4-day rally. Sterling’s rebound is therefore mainly because of profit-taking on the short trades that had been accumulated over the past week or so.
Clearly some market participants have one eye on upcoming UK data while assessing the damage of a potential no-deal Brexit outcome on the UK economy. The latter is going to be a longer term worry which means any short-term rallies in the pound could be short-lived, as it proved to be the case after the Bank of England’s rate hike last week.
Speaking of the data, we have the latest UK growth figures to contend with on Friday. Razaqzada says:
GDP is expected to have grown in the second quarter by 0.4% following a disappointing expansion of just 0.2% in Q1. The ONS will also publish the monthly GDP estimate at the same time, as well as UK trade figures, manufacturing production, industrial production and construction output. The UK data dump tomorrow morning at 9:30 BST should cause a spike in pound volatility. If the figures are overall weaker than expected then the pound could resume its slide. If the data turn out to be stronger then it will be interesting to see whether the pound bulls will be more determined this time around after the currency’s quick reversal post the Bank of England last week.
Over at the London stock market, shares in holiday firm TUI have slumped by 5% to the bottom of the FTSE 100 leaderboard, although they are off their worst levels.
Obviously a weak pound won’t be good for their sales. But today’s selloff is mainly due to the European heatwave encouraging holidaymakers to stay at home. After all, why spend hard earned cash seeking sun elsewhere when you can frazzle for free in your own back garden.
Our full report on the TUI results is here:
Just in: America’s jobs market remained solid last week, with just 213,000 people signing on for unemployment benefit.
That’s down from 219,000 in the previous seven days, and not far from the 48-year low recorded in July. The US labo(u)r market continues to look remarkable solid....
USA Weekly Jobless Claims announcement - Actual: 213k, Expected: 220k pic.twitter.com/Vhd7KuH7UN
— Spreadex (@spreadexfins) August 9, 2018
Like a holidaymaker struggling up from the sun lounger after a well-earned snooze, the pound is rising, rather slowly and cautiously.
Sterling has recovered this morning’s early losses, and trading back around $1.289 against the US dollar.
That matches yesterday’s 11-month low, and is still 10% lower than mid-April (when the City was more confident that the UK and Eu would agree a Brexit deal)
Against the euro, the pound has clawed back 0.2% this morning, to €1.112 -- meaning one euro is worth 89.9p. That’s close to yesterday’s nine-month low, and around 4% weaker than in April.
Connor Campbell of SpreadEx says:
It initially looked like sterling was going to suffer another awful session, hitting fresh 11 month and 9 month lows against the dollar and the euro not long after the bell. However, while it is lightyears away from posting anything resembling an actual recovery, the pound has managed to edge into the green on Thursday.
The Bank of England should share some of the blame for the pound’s recent weakness.
Last week, the BoE raised interest rates (which ought to strengthen sterling), but also hinted that it might cut them again if Britain fails to reach a Brexit deal. City economists have concluded that borrowing costs are unlikely to rise again for some time - making the pound a less attractive asset.
Sky News’s Ed Conway has tweeted about this:
A few notes of caution to those getting excited today about the weak pound. First off, this is not ALL down to Brexit and fears of a no deal. If anything it’s as much down to interest rate expectations. The falls really started after the BoE’s Inflation Report last Thurs pic.twitter.com/FZ2T5I0qeY
— Ed Conway (@EdConwaySky) August 9, 2018
BoE governor Mark Carney didn’t help the mood either, when he said there was an “uncomfortably high” risk of a no-deal Brexit (a point subsequently echoed by international trade secretary Liam Fox).
How to cope with the weaker pound
Hannah Maundrell, Editor in Chief of money.co.uk, has compiled some helpful advice for British holidaymakers heading abroad this summer:
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Don’t buy cash at the airport as you’ll always be able to beat it with a bit of forward planning. The same applies with buying cash from your travel company.
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Compare travel money companies online but don’t just focus on exchange rates. Factor in delivery costs and choose the option that gives you the most cash to spend on holiday. If you’ve left it until the last minute order online for airport collection so you get the best of both worlds.
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Don’t pay for travel money with a credit card as it’s likely you’ll be charged a cash withdrawal fee which adds to the cost.
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Top up a prepaid card to lock in your rate now. Choose your card and read the T&Cs carefully as some apply hefty fees.
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Prepaid cards can’t always be used for hotel reservations or pay at pump fuel so make sure you have a backup option.
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Your regular credit card may sting you with fees abroad and your debit card is likely to be far worse. Get a credit card that doesn’t charge transaction fees abroad and pay off your statement when you get home for super cheap spending.
- As a bonus, if you buy something that costs over £100 while you’re on holiday you could get Section 75 credit card protection too.
- Taking cash out on your credit card can leave a footprint on your credit score – it’s not held in anywhere near the same weight as if you defaulted on a payment but keeping withdrawals to a minimum is something to bear in mind if you’re planning to apply for other borrowing (like a mortgage) soon.
- Double check whether American Express is accepted where you’re heading so you don’t find yourself caught short.
- Always choose to pay in the local currency rather than sterling if you’re given the choice as this will help you avoid sneaky exchange fees.
Jeremy Thomson-Cook, chief economist at WorldFirst, says the pound is being dragged down by the ‘circus’ at Westminster, and weak data on the economic front.
There are not many reasons for investors to hold on to sterling at present – economic data is weak, the political picture is a circus and overall, sentiment is poor.
GDP data due tomorrow is likely to show the UK economy grew by 0.4% in the last quarter - not even half as fast as America.
Thomson-Cook predicts that the pound could fall further this autumn as the negotiations reach fever pitch:
“On top of this, we are still concerned that the worst is yet to come with no-deal Brexit noises likely to reach a crescendo as we get closer to the European Council meeting in October, unless an Article 50 extension can be agreed upon.
Remember what happened to sterling as it became clear that we had voted to leave the EU despite most market participants still believing that Brexit would enable the UK to remain a member of the single market with broad equivalence of regulations in place?
“Well, none of that exists under this potential cliff edge scenario. While some Brexiteers may hear the explosions and think that they are celebratory fireworks, the reality would likely be one of economic devastation.”
Rouble hits lowest level since 2016
Russian assets are being pummelled this morning, after America announced fresh sanctions over the novichok poisoning case in Salisbury.
The US said it would impose sanctions later this month, after concluding that Russia used the Novichok nerve agent to poison Sergei Skripal and his daughter Yulia.
This could include a curb on export licenses for Russia to purchase items with national security implications, Associated Press says.
Russia’s currency has weakened this morning, hitting 66.2 roubles to the US dollar for the first time since August 2016, following heavy losses yesterday.
Shares in state airline Aeroflot have fallen to a two-year low, following reports that America could downgrade diplomatic relations with Russia and suspend Aeroflot’s ability to fly to the US.
Russia has criticised the move, accusing America of “far-fetched accusations”.
Hussein Sayed, chief market strategist at FXTM, fears the rouble could fall further, causing pain for Moscow.
The period of sideways trading which lasted for four months seems to be over for the Ruble. The Russian currency fell more than 3.3% on Wednesday as Trump’s administration proposed fresh sanctions following the poisoning of a former Russian agent in the U.K.
The decline in oil prices also helped to intensify the fall in the Ruble and with such uncertainty, investors will need to price in further risk premium on Russian assets. Investors will likely ignore the Russian economic fundamentals in the weeks ahead and focus on political developments.
The Ruble may find some support around the 67 level, but a break above will lead to further selling pressure.
Updated
The currency exchange booths aren’t the only places causing holidaymakers grief this summer.
Budget airline Ryanair warned yesterday that hundreds of flights will be cancelled on Friday. Pilots in Netherlands, Germany, Sweden, Belgium and Ireland are striking as they push for better working conditions.
Today’s fights are already being disrupted - 35 have been delayed due to a lack of air traffic controllers in parts of Europe, the airline says.
ATC Update - August 9th: pic.twitter.com/Mf7bUwXEqo
— Ryanair (@Ryanair) August 9, 2018
Updated
At $1.2850, sterling is 20 cents below its levels before the EU referendum in 2016.
Some City economists have predicted the pound would tumble back to $1.20 in a ‘hard Brexit’ scenario.
It’s worth noting that the pound has lost ground against most major currencies in recent weeks, as Sky News’s Lewis Goodall shows here:
Little noticed in Westminster but sterling is struggling. Lowest level against the dollar for a year. Over the last month lost value against every major currency. That's despite an interest rate rise. Markets slowly getting the message that prospect of no deal is a serious one. pic.twitter.com/hbu5OHWur2
— Lewis Goodall (@lewis_goodall) August 9, 2018
Sterling’s slide means that holidaymakers are actually getting less than one euro to the pound, if they change their money at the airport.
The Independent’s Alex Watson explains:
Exchanging currency at the airport has always been expensive, but holidaymakers are now facing exceptionally poor exchange rates if they wait until just before they fly to buy.
Foreign exchange company Moneycorp (who have locations in Bristol, Central London, Gatwick, Stansted, Southampton and Southend airports) were offering 0.94 euros to the pound at Gatwick airport, according to The Sun. This rate means holidaymakers would get 94 euros back when exchanging £100.
So if you can possibly help it, don’t swap your money at the airport! The Post Office, for example, are offering around €1.08471 per pound.
Updated
The agenda: Pound under pressure over Brexit
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Brexit fears are hitting holidaymakers in the pocket.
Sterling has slid to its lowest level agains the US dollar in almost a year, nudging $1.2850 in the foreign exchange markets this morning.
The pound is also suffering against the euro, dropping to €1.107 for the first time since last October.
Traders are rushing to sell the pound because they fear Britain is about to crash out of the European Union without a deal next March. These fears are weighing on the currency, making overseas holidays more expensive and also pushing up the cost of imported goods into the UK.
David Madden of CMC Markets says there is a lot of anxiety in the City:
Sterling suffered greatly yesterday as Brexit-related fears were doing the rounds. GBP/USD fell to a level not seen since late August last year, and EUR/GBP hit a level last seen in November 2017. The pound is still coming under pressure from Liam Fox’s comments – the possibility of a ‘no-deal Brexit’ is 60-40.
Dealers are extremely fearful about the prospect of the UK leaving the EU without an agreement in place, and until some clarity is provided, the pound would remain weak.
This weakness is threatening UK living standards; costlier imports means higher inflation, which will eat into pay packets.
Our economics editor Larry Elliott explains:
Although the government has insisted that it still expects negotiations with the EU over the next few months to prove successful, currency traders have been prepared for a deal not to emerge and are now hedging against the possibility of the hardest possible Brexit.
With less than eight months to go before the UK’s planned departure date, financial markets have now started to take seriously the chances of chaos at the borders and damage to supply chains
Thursday’s GUARDIAN: “Pound slides as no-deal Brexit fears prompt global selloff” #bbcpapers #tomorrowspaperstoday pic.twitter.com/hk2e1TKNHe
— Allie Hodgkins-Brown (@AllieHBNews) August 8, 2018
Also coming up today
Russian assets are under pressure after the US announced sanctions on Moscow over the Salisbury Novichok attack. The ruble is dropping in early trading, adding to last night’s tumble (more on that shortly)...
In the City, estate agent Savills have posted a 18% drop in profits, and warned that:
Ongoing political and economic uncertainty created by the negotiations to leave the EU make it difficult to predict market volumes for the rest of the year.
Holiday firm TUI is sticking to its profit forecasts, even though the heatwave has encouraged some people to stay at home.
It’s also a big day for House of Fraser; the retail chain’s struggling creditors are expected to asses competing rescue bids from turnaround firm Alteri Investors and retail tycoons Philip Day and Mike Ashley today.
We also get the European Central Bank’s latest economic assessment, and the regular weekly US unemployment figures.
The agenda
- 9am BST: The European Central Bank publishes its economic bulletin
- 1.30pm BST: US weekly jobless figures
Updated
