And finally, there’s been wild swings in the currency markets as Theresa May suffers a historic defeat over her Brexit deal.
Sterling slid to $1.266, lowest since January 4th, as investors reacted to the sheer scale of the defeat -- a majority of 230 MPs opposed the plan.
But it then staged a Lazarus-like recovery, back over $1.283, as May challenge the opposition to table a no-confidence vote, and Jeremy Corbyn promptly obliged.
Pound falls through $1.27 as Theresa May loses Brexit vote by a thumping 230 votes... then surges backs as Jeremy Corbyn tables a no confidence vote... https://t.co/65UzO7WzhV pic.twitter.com/TtsPYTw6a7
— Graeme Wearden (@graemewearden) January 15, 2019
It’s still not clear what will happen next - the deal looks dead, but May may attempt to revive it.
Ranko Berich, Head of Market Analysis at Monex Europe, comments:
“Tonight’s confused sterling price action reflects the fact that the pound was already trading with significant downside risk priced in. It seems that for now, market participants have faith in the supposed majority that exists for avoiding a no deal, and are at least a little encouraged by the prospect that the chaos results in a delay or a softening of Brexit.
A nightmare scenario for sterling would be a standoff where May sees off the vote of no confidence but still can’t pass a bill, and so is forced to continue to run down the clock while refusing to offer any real alternatives or call a referendum. Such a game of chicken would substantially increase the risk of miscalculation or deadlock leading to no deal and send sterling towards parity against the euro.
“The outcome of the vote of no confidence is obviously the first major question for sterling at this point. Our view is that tonight’s small sterling rally reflects the marginal increase in the chance of a Labour-led soft Brexit, so if May falls we could see further sterling strength. The pandemonium of a general election, however, could well end up as a net negative as the polls change from day to day.”
You can track all the action here:
When the pound goes down, the FTSE 100 often goes up, as it has today....
The pound has dropped about two cents against the dollar today. Before the voting began. Here's our latest chart pic.twitter.com/kgMdExOcrQ
— Ed Conway (@EdConwaySky) January 15, 2019
FTSE in buoyant mood, as it should be on a weaker pound. pic.twitter.com/WU4C9VrXla
— Ed van der Walt 🇿🇦🇬🇧 (@EdVanDerWalt) January 15, 2019
Something for currency traders (and the rest of us) to digest:
Am May winds up the debate, I’m told that tomorrow a number of Labour MPs will come out for a #secondreferendum, while ERG-ers I’m told are going to start pushing on with a championing the No Deal option as soon as defeat lands #BrexitDeal #brexitvote
— Beth Rigby (@BethRigby) January 15, 2019
The fortunes of the pound tonight will be determined by the size of Theresa May’s defeat.
Tyler Griffin, currency specialist at OFX, said:
Looking ahead, anything close to 100 votes would cause upside for the pound, however if May loses by more than 150 votes, there would be further turmoil for sterling which could tumble to below 1.25 versus the US Dollar.”
Pound weakens ahead of Brexit vote
In the currency markets, sterling is under pressure as parliament prepares to vote on Theresa May’s Brexit deal - and surely inflict a historic defeat on the PM.
With the US dollar generally stronger, the pound has dropped by one and a half cents to $1.2723. That’s a chunky move, but it only takes sterling back to last week’s levels.
The City isn’t really sure what to expect with Brexit, but there’s a theory that sterling assets should rally if the threat of no deal was taken away.
Joel Kruger of LMAX Exchange argues that anything short of a hard Brexit will be very good for the value of the pound.
“We believe the most critical takeaway with respect to the outlook for the UK economy is that there are no parties involved that would benefit from a no deal Brexit outcome. This puts a beaten down Pound and UK assets in position to outperform in 2019, as the tail risk event of no deal Brexit is truncated.”
Sterling is also down around 0.35% against the euro (which is also down against the dollar) at €1.118.
The pound is trending lower against the US$ and the euro as the minutes tick down towards the #Brexit vote pic.twitter.com/e1bQpt87wA
— Ed Conway (@EdConwaySky) January 15, 2019
Our Politics Live blog has all the action:
With some of the early optimism over China’s stimulus pledge fading, the FTSE 100 has closed 40 points higher at 6,895 tonight.
Beijing’s pledge to cut taxes and maintain plenty of liquidity is still welcome, but analysts are questioning quite how quickly it will happen, and how much impact it will have.
The German and French markets also handed back some gains, but still finished higher (0.33% and 0.5%).
David Madden of CMC Markets says:
European equity markets are a mixed bag this afternoon. The major equity benchmarks started off strong today after Beijing announced plans overnight to trim the tax rate for small businesses. It was the latest move by the Chinese government to try and encourage economic activity. The fact that a large portion of the gains have been handed back suggests that investors are not overly confident the Chinese economy will suddenly stop cooling. The firmer oil price has helped BP and Royal Dutch Shell, which in turn has helped the FTSE 100.
Here’s Jamie Rowlands, partner at City law firm Gowling WLG, on China’s pledge overnight to cut business taxes:
This seems to be an attempt to stimulate domestic SME-type businesses in an environment where China’s economic strength is in question – albeit still more robust than much of the rest of the world.
Definitely an internal financial boost incentive rather than international.
Wall Street has opened a little higher this morning, as traders absorb China’s pledge to stimulate its economy.
The tech-focused Nasdaq index is leading the way, thanks to Netflix which has announced price hikes (sending its shares up 6%).
US markets opened little changed on Tuesday as investors wait for the Brexit vote in the United Kingdom. The Dow alternated between gains and losses. The S&P 500 gained 0.2%, while the Nasdaq rose 0.4%. Watch live https://t.co/DCLpwSQKje
— CNN Business (@CNNBusiness) January 15, 2019
Auto news: Ford and Volkswagen have announced details of a new alliance.
The deal is designed to cut the cost of the technological revolution now shaking the industry and deal with slowing sales.
My colleague Dominic Rushe explains:
The companies will start with the development of commercial vans and mid-size pickups but the alliance will also involve sharing resources on autonomous vehicles, mobility services and electric vehicles.
“Over time, this alliance will help both companies create value and meet the needs of our customers and society,” Ford’s chief executive, Jim Hackett, said at the Detroit auto show He said the deal would give the companies “the opportunity to collaborate on shaping the next era of mobility”.
No word on the impact on jobs. Last week, Ford Europe announced thousands of job cuts, as the industry reels from the slowdown in China and the diesel emissions scandal.
Merkel, Abe, Attenborough to headline Davos 2019
Donald Trump may have blown Davos out this year (blame the shutdown over his border wall), but plenty of other world leaders will be making the trek to the snowy ski resort.
The World Economic Forum have just announced the list of attendee’s for next week’s event. Topping the list are two G7 leaders - Germany’s Angela Merkel and Japan’s Shinzo Abe.
Brazil’s new right-wing president, Jair Bolsonaro, is another big name, while China will be represented by Wang Qishan, Vice-President of the People’s Republic of China.
Also in attendance are:
Giuseppe Conte, Prime Minister of Italy; Pedro Sanchez, Prime Minister of Spain; Barham Salih, President of Iraq; Mohammad Ashraf Ghani, President of the Islamic Republic of Afghanistan; Sebastian Kurz, Federal Chancellor of Austria; Ivan Duque, President of Colombia; Abiy Ahmed, Prime Minster of Ethiopia; Leo Varadkar, Taoiseach of the Republic of Ireland; Benjamin Netanyahu, Prime Minister of Israel; Faiez Al Serrag, Prime Minister of Libya; Mark Rutte, Prime Minister of the Netherlands; Jacinda Ardem, Prime Minister of New Zealand; Erna Solberg, Prime Minister of Norway; Rami Hamdallah, Prime Minister of the Palestinian National Authority; Martin Alberto Vizcarra Cornejo, President of Peru; Paul Kagame, President of Rwanda; Cyril M. Ramaphosa, Prime Minister of South Africa; Yoweri Kaguta Museveni, President of Uganda; Nguyen Xuan Phuc, Prime Minister of Viet Nam; and Emmerson Mnangagwa, President of Zimbabwe.
Heads of the major international bodies are also attending, including the WTO’s Roberto Azevedo, the OECD’s Angel Gurría, and Christine Lagarde of the IMF.
No mention of Theresa May, but perhaps she’s waiting to see how this week’s Brexit votes pan out....
...instead, Prince William and David Attenborough will be flying the flag for the UK, talking about environmental issues, and mental health.
Assuming we can make it through the mountains of snow next week....
Greek bonds rally ahead of confidence vote
In what may well be rare good news today, Greek bond yields have hit a one-month low.
Greece’s debt is strengthening on expectation that prime minister Alexis Tsipras will survive a parliamentary vote of confidence prompted by the departure of the right-wing Independent Greeks party, ANEL, from his ruling coalition.
The leftist leader kicked off a two-day debate over the censure motion appealing to MPs to renew their confidence in the government in the name of “patriotic interest towards history and democracy.”
“We have before us many big political initiatives that must not be delayed,” he told the House before singling out increasing the minimum wage as one of the reforms.
Yields on ten-year bonds fell 2bps to 4.267%, while five-year bonds were down 3bps to 3.21% reflecting investor confidence that the government will survive the vote. Tsipras’ Syriza party controls 145 seats in the 300-member parliament but at least six opposition MPs (including four from ANEL) have said they will back the government.
Addressing parliament, Tsipras spoke more out of sorrow than anger about ANEL leader Panos Kammenos’ decision to withdraw from the coalition over the landmark accord to change neighbouring Macedonia’s name - a deal that must now be ratified by Greek MPs after being endorsed by the Skopje parliament.
Parliament’s speaker has called the ballot be held at midnight tomorrow - in a revisit of similar votes at the height of the euro crisis even if tomorrow’s is unlikely to be a cliffhanger of the kind that we all once witnessed.
JP Morgan urges politicians to grow up
Newsflash: US banking giant JP Morgan is urging politicians in Washington to work together, after missing Wall Street forecasts.
JP Morgan has just reported adjusted earnings per share of $1.98 in the last quarter, below estimates of $2.21 per share.
Recent market ructions seems to have hurt the bank; net income at its investment bank fell 15%, partly due to a weakness at its fixed-income division (bond trading).
CEO Jamie Dimon says it was a challenging quarter, as “volatility and lower market levels” hit its bottom line.
And as the US government shutdown enters its 25th day, Dimon is pushing Capitol Hill to help the economy:
As we head into 2019, we urge our country’s leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment.
Businesses, government and communities need to work together to solve problems and help strengthen the economy for the benefit of everyone.”
USA earnings season gets going with a big miss by JP Morgan- its the booming economy ya see, stupid.
— Paul Sommerville (@PaulSommerville) January 15, 2019
JPMorgan's fixed-income revenue of $1.9 billion missed the consensus estimate of $2.3 billion. So Citi’s FICC miss was not a fluke. Let’s see if JPM can also spin this in a positive light on the earnings call...
— Lisa Abramowicz (@lisaabramowicz1) January 15, 2019
Shoppers at 17 towns and cities around the UK are losing their local Marks & Spencer, as the retailer implements its restructuring plan.
The proposed closures will cost 1,000 jobs, and hurt the high streets from Huddersfield and Hull to Ashford and Felixstowe.
M&S announces latest round of store closures - 17 include Ashford, Barrow, Bedford, Boston, Buxton, Cwmbran, Deal, Felixstowe, Huddersfield, Hull, Junction One Antrim Outlet, Luton Arndale, Newark, Northwich, Rotherham, Sutton Coldfield and Weston Super Mare
— Sarah Butler (@whatbutlersaw) January 15, 2019
Updated
Elsewhere in the eurozone, shares in Italian banks are sliding after they were told to set aside more capital to cover bad loans.
Reuters has the details:
The European Central Bank has asked lenders it oversees to put aside more money to fully cover their impaired loans by around 2026, Italian newspaper Il Sole 24 Ore reported on Tuesday citing a source.
The report focused in particular on Italian banks, saying the country’s lenders were burdened by the highest amount of impaired loans in Europe.
UBI Banca, Italy’s fifth-largest bank, has slumped by almost 10% today, as investors fret about the ECB’s move. Banco BPM SpA, the third-largest lender, has shed 8.6%, while market leader Unicredit has lost 3%.
Germany’s growth pains are part of a wider slowdown across Europe.
Oxford Economics reckons eurozone growth will drop to just 1.5% this year, from 1.8% in 2018 - and a sizzling 2.7% in 2017.
With #Germany flirting with recession in H2 '18, hopes for a rebound in #eurozone growth dashed. We see EZ Q4 GDP up just 0.2%, thanks to weak industry, and +1.8% for 2018. Growth shd pick up as transitory factors wane, but we see only 1.5% 2019 growth: https://t.co/5xU2bZ0ggI pic.twitter.com/xziTBiaGKT
— Oxford Economics (@OxfordEconomics) January 15, 2019
Economists: German recession probably avoided
Here’s some snap reaction to the German growth data:
With 1.5% annual growth in 2018, it looks as if a technical recession in second half of the year was just avoided.
— Carsten Brzeski (@carstenbrzeski) January 15, 2019
2018 proves to be weakest for German growth for 5 yrs. Wld be unwise to call recession (whole yr growth of 1.5% wld imply modest rebound of 0.2% Q4) but clear eurozone losing momentum on whole.
— Dharshini David (@DharshiniDavid) January 15, 2019
🇩🇪Real GDP grew 1.5% y/y in #Germany in 2018, the slowest since 2013, mainly driven by slower private consumption growth 1.0% y/y (vs. 1.8% in 2017). Despite the recent weakness, we expect the expansion will continue in 2019 driven by domestic demand.
— Danske Bank Research (@Danske_Research) January 15, 2019
#Germany's economy grew 1.5% in 2018, the weakest annual pace in the last five years. Yet, 1.5% remains very reasonable given potential GDP growth of below 2%. pic.twitter.com/LcdZivVVpx
— jeroen blokland (@jsblokland) January 15, 2019
Updated
Why did Germany’s growth rate slide to just 1.5% last year, from 2.2%?
Germany’s finance ministry has blamed a handful of factors, including:
- A weaker global economy -- growth in China, and across the eurozone, certainly slowed last year.
- New car emission tests -- Germany’s auto industry has been struggling to meet these tougher standards, and get their models approved.
The economy ministry also blame “an outbreak of flu, low water levels hampering shipping and strikes” for the slowdown.
It also believes the economy will keep expanding in 2019 - defying fears of a recession.
German growth hits five-year low
Newsflash: Germany’s economy has grown at its slowest rate in five years, a fresh sign that the global economy is cooling.
Europe’s largest economy only expanded by 1.5% in 2018, down from 2.2% growth in 2016 and 2017.
The Federal Statistics Office (Destatis) says:
The German economy thus grew the ninth year in a row, although growth has lost momentum.
Destatis also reckons the economy probably grew in October-December, having shrunk in July-September.
If so, that would mean Germany avoided falling into a technical recession (we’ll find out for sure next month, when Q4 data is released).
German 2018 GDP growth slows to 1.5%, weakest in 5yrs. pic.twitter.com/kcyL2akLCr
— Holger Zschaepitz (@Schuldensuehner) January 15, 2019
Germany appears to have been hurt by the US-China trade war, which has dampened global demand, and thus the market for its goods. Recent data as shown that factory orders and industrial output fell this autumn.
Paul Donovan of UBS Wealth Management says China’s pledge to cut taxes is an example of “pom-pom waving cheerleading is likely to become a regular feature of the Chinese economic landscape”.
European stock markets have followed Asia’s lead.
They’re all comfortably higher this morning, clawing back Monday’s losses.
European car shares have jumped by 2.2%, to their highest levels in five weeks, thanks to China’s stimulus pledge.
Britain’s FTSE 100 has jumped by over 50 points, or 0.8%, at the start of trading.
Mining stocks are leading the charge, with Rio Tinto, Anglo American and Glencore all up at least 1.5%. They’ll all benefit from increased demand for commodities if China’s economy picks up.
Beijing is signalling that it is prepared to do whatever it can to avoid a hard landing, says Konstantinos Anthis, Head of Research at ADSS.
News that China is about to implement another round of tax cuts supports the notion that the Asian nation will do as much as possible to support the domestic economy and avoid a steep slowdown.
Asian markets rally
Stocks have jumped across Asia today, following China’s pledge to cut taxes.
China’s benchmark index, the CSI 300, surged by 2% as investors welcomed today’s stimulus measures.
Japan’s Topix gained almost 1%, with Australia’s S&P/ASX 200 close behind.
The smell of China stimulus hopes are wafting through Asian markets today.
— David Scutt (@Scutty) January 15, 2019
Adam Cole of Royal Bank of Canada points out that the plan remains sketchy:
Chinese officials are quoted as saying the government will cut taxes “on a larger scale”in 2019, especially for small businesses and manufacturing. There are no details, but the news was enough to reverse yesterday’s sell-off.
China’s stock market lost a quarter of its value in 2018, so Shanghai traders are understandably eager for good news.
Introduction: China boosts stimulus hopes
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The markets are bouncing back today as Chinese policymakers vow to take action to spur growth, and ward off an economic slump.
China’s finance ministry has pledged to slash taxes, to reduce the burden on small firms, as part of a new stimulus drive.
Under the plan, Beijing will cut value-added tax rates for some companies, including in manufacturing, and hand tax rebates to others.
China also plans to step up fiscal expenditure this year, in what looks like a Keynesian push to help companies.
Xu Hongcai, Assistant Minister of Finance, told reporters in Beijing that the government was determined to ease the burden on small enterprises and the manufacturing industry, adding:
The focus is on enhancement and efficiency.
In a co-ordinated move to reassure markets, China’s central bank has promised to make monetary policy more forward-looking, flexible and targeted.
The People’s Bank of China also vowed to keep liquidity “reasonably ample” - which could calm worries that firms could run short of funds.
The country’s state planner has also weighed in. The National Development and Reform Commission (NDRC) said China will strengthen monitoring of its economic situation and improve its “reserve” of economic policies, as it targets “a good start” to 2019.
These moves comes a day after Chinese exporters suffered the biggest drop in overseas sales in almost two years.
Also coming up today
City traders will be watching Westminster closely tonight, to see whether Theresa May can get her Brexit vote through (unlikely).
Hussein Sayed, chief market strategist at FXTM, says the scale of the likely defeat will be crucial for the pound:
If she suffers a loss by a narrow margin, it may be positive news to Sterling, as May can head back to Brussels for more concessions which could be enough to pass the bill in a second “Plan B” vote. However, a loss by a wide margin will make it tricky for Sterling traders as the bill will be rejected due to different ambitions.
Conservative MPs want concessions that are hard to get from Brussels, meanwhile, hardcore remainers want to reject the deal in the hope that they get a second referendum. This may lead to two extreme outcomes: either a hard Brexit or no Brexit at all. However, given all the uncertainty towards such a scenario, investors may sell the currency and assess the situation later, leading to high volatile moves in the Pound.
#Brexit vote day. Our team clear that deal won’t pass, and as a result #UK out of time. Can’t leave #EU at end March. Beyond that, also means death of muddle-through option. Either much softer Brexit or hard Brexit (or none at all). And politics as we’ve not seen for decades
— Robin Bew (@RobinBew) January 15, 2019
Plus, we get new eurozone trade figures, and a healthcheck on US manufacturing
The agenda
- 10am GMT: Eurozone trade balance for November
- 1.30pm GMT: US Empire manufacturing data
Updated
