European markets edge higher but FTSE dips after Fed decisions
After their record breaking runs, US markets paused for breath following the Federal Reserve’s announcement it would begin winding down the stimulus programme which has been supporting the economy since the financial crisis.
The reaction in Europe was fairly subdued, with most markets heading higher. But continuing strength in the pound - now up 0.6% at $1.3573 - saw the UK’s leading index slip back slightly. The final scores showed:
- The FTSE 100 slipped by 8.05 points or 0.11% to 7263.90
- Germany’s Dax rose 0.25% to 12,600.03
- France’s Cac closed up 0.49% at 5267.29
- Italy’s FTSE MIB was 0.61% better at 22,491.73
- Spain’s Ibex ended up 0.05% at 10,297.0
- In Greece, the Athens market added 1.06% to 765.99
On Wall Street, the Dow Jones Industrial Average is currently down 38 points or 0.17%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
Riskier markets have shrugged off the US Federal Reserve’s suggestion of another rate rise this year, but could fall sharply in time if the US economy shows signs of flagging, says Capital Economics. The consultancy’s markets economist Oliver Jones said:
Risky asset markets took the Fed’s unexpectedly-hawkish tone on Wednesday in their stride. We think that they will remain resilient over the next year and a half or so, even though we forecast that the Fed will hike rates once a quarter between now and the early 2019.
The US dollar and Treasury yields rose after the conclusion of the FOMC’s meeting on Wednesday in response to the committee’s signal that it is likely to raise the federal funds rate in December, despite the weakness of core inflation and the effects of the recent hurricanes. (The Fed also announced the start of balance sheet “normalisation”, but this was widely expected.)
In the event, there was little reaction in risky asset markets. The S&P 500 was almost unchanged on the day, and movements in emerging market equities were small. This might be partly due to the fact that the Fed’s tone was not a huge surprise. But a couple of other factors have probably helped risky assets to be resilient too – not just on Wednesday but throughout the Fed’s tightening cycle so far. We think that these factors will continue to provide support this year and next, even if the Fed hikes rates as we expect.
First, there has been little to suggest that higher rates are dragging on economic growth, and we expect this to remain the case in 2017 and 2018. The US economy has expanded at a healthy pace since the Fed started hiking and we forecast it will continue to do so this year and next...
Second, the likelihood that interest rates will ultimately remain quite low, even if they rise in the coming quarters, has probably supported the valuations of risky assets. Despite their hawkish near-term signal on Wednesday, FOMC participants’ median forecast for the level of the federal funds rate in the “longer term” fell by 25bp, to 2.75%, the lowest since these projections were first published in 2012...
Taking this all into account, we think that risky asset prices will continue to hold up well as the Fed applies the brakes in the next eighteen months or so. However, we suspect that the lagged effects of higher rates will eventually begin to take their toll on the US economy as the Fed reaches the end of its tightening cycle in 2019. If the US economy did falter, risky asset prices globally would probably fall quite sharply.
Bank shares have been boosted by the prospect of higher interest rates, in the wake of the US Federal Reserve meeting on Wednesday. Chris Beauchamp, chief market analyst at IG, said:
The prospect of higher rates in the key US market, and indeed even the possibility of a modest rate rise in the UK, has prompted investors to buy up financial services stocks in hope of better margins and improved profits and dividends. Europe has been bolstered by a weaker euro, as Janet Yellen manages to do what Mario Draghi could not or would not, with last night’s arguably more hawkish statement putting some fight back into the US dollar. Today’s speech from Draghi stayed off the topic of monetary policy, thus providing little for euro bulls to go on.
The eurozone consumer confidence figures were at their highest level for about 16 years, says ING Bank. Its senior eurozone economist Bert Colijn said:
The current economic environment in the Eurozone continues to be very favourable to the consumer, as job growth accelerates, wage growth has begun to improve, and inflation remains below the ECB’s target. This helps the Eurozone economy as more confident consumers continue to boost household demand.
While the breakdown of individual questions from the September survey has not been released yet, recent data shows expectations of major purchases in the coming year have jumped to levels last seen before the crisis, which is in line with an increasingly positive assessment of personal finances. Expectations of households’ future financial situation have been improving too and there are few doubts related to the historically low expectations of unemployment in the coming 12 months.
While expectations of economic growth in the coming years are modest, as the Eurozone is expected to revert to a weaker growth trend, buoyant consumers are helping GDP growth to remain above trend for a while.
For the ECB, the euphoric consumer is another sign that cautious increases in upward price pressures are likely to continue. But consumer expectations of price trends have been falling since January, indicating that consumers are not expecting the Goldilocks economy to end anytime soon.
Eurozone consumer confidence beats forecasts
In the eurozone, consumer confidence rose by more than expected in September.
The European Commission’s initial estimate showed confidence among consumers rise from -1.5 in August to -1.2, better than the unchanged reading that analysts had been forecasting.
In the wider European Union consumer sentiment rose by 0.8 points to -1.5.
Wall Street slips back from record highs
After their recent record breaking runs, US markets have lost some ground in the wake of Wednesday’s Federal Reserve meeting.
News that the Fed was still considering another interest rate rise this year and would begin cutting its $4.5bn worth of bond holdings has seen investors take a more cautious tone.
So the Dow Jones Industrial Average has dipped 0.14% to 22,380 while the S&P 500 is down 0.18% and the Nasdaq Composite has fallen 0.38%.
Monetary policy cannot tackle local financial imbalances in the eurozone area, and individual governments need to rely on their own tools to solve these issues, says European Central Bank president Mario Draghi.
In a speech in Frankfurt at the second annual conference of the European Systemic Risk Board, he said:
Financial and business cycles can potentially become de-synchronised, meaning that financial imbalances can grow in an environment characterised by relatively muted inflation. In such an environment, the use of monetary policy is not the right instrument to address financial imbalances, and may lead to substantial deviations of aggregate output and inflation from their desirable levels. This is particularly so in a currency union where monetary policy affects the entire region, but financial imbalances may be local in nature. Macroprudential policies, targeted at particular markets or countries, can play a key role in addressing such imbalances.
Draghi said European banks still had too many non-performing loans on their books:
Despite recent progress, the level of non-performing loans (NPLs) on European banks’ balance sheets remains high. At the end of 2016, the stock of gross NPLs in the EU banking sector was around €1 trillion. This number, however, does not take into account the fact that that collateralised lending plays an important role in Europe. For example, including collateral and provisioning, the coverage of NPLs is, on average, 82% in the euro area. Banks’ profitability, however, is affected by the lower returns provided by the NPLs, given the weight of gross exposures in total assets: gross NPLs represent 4% of the total assets of euro area banks, against only 0.8% for US banks.
Draghi concluded:
Much has been achieved since the global financial crisis. In particular, banks in Europe are more resilient and the banking union has advanced. Moreover, authorities have the mandates and tools to tackle risks in the banking sector and are using them. These improvements have created a financial system that poses fewer risks to the real economy.
At the same time, work remains to be done. Authorities need to watch out for blind spots, where risks can build up unnoticed, and use the tools at their disposal. And legislators need to be mindful that authorities require a broad range of tools to be able to tackle risks beyond the banking sector.
Updated
Capita staff strike in pensions row
Trouble is brewing at UK outsourcing group Capita, as staff vote to hold a six-day strike in a dispute over pensions.
Members of the Unite union will walk out from October 5 after voting heavily in favour of industrial action.
Unite are protesting against plans to close the current defined benefit pension scheme and transfer staff to a defined contribution scheme.
Dominic Hook, Unite national officer, said Capita’s plans were “disgraceful”, adding:
“Capita’s pension proposals will have far-reaching consequences for the retirement of many Unite members.
Some staff will lose a shocking 70% of their retirement income.
Capita has once again put the interests of shareholders before those of its staff.
Workers at outsourcing group Capita are to stage a six-day strike next month in a dispute over pensions - @unitetheunion
— Alan Jones (@AlanJonesPA) September 21, 2017
The move comes as Capita reported that profits fell by 26% in the first half of 2017. That sent its shares slumping by 12% today, making it the worst-performing major share in London.
Capita has its fingers in a lot of pies, from collecting TV licence money to assessing whether disabled people are entitled to personal independence payments. But the last few months have been tough; it fell out of the FTSE 100 after a grim profits warning, and it hasn’t managed to replace its CEO.....
The FT’s Arthur Beesley has written about this morning’s Ryanair AGM.
Here’s a flavour:
At the AGM, a number of shareholders challenged Mr O’Leary, who took personal responsibility for the cancellations.
“We do have the sackcloth on. I have apologised personally to all of those passengers and to the ones we didn’t disrupt,” he said.
“We are not going to back to gung-ho management.”
Shareholder Brian Graham, a retired mechanic, who questioned Mr O’Leary during the meeting said it was clear that there was “no goodwill” between the chief executive and pilots. “If it happened anywhere else he’d be asking for heads to roll,” Mr Graham said.
But Mr O’Leary said there will be no dismissals as a result of the affair, saying the board was holding him to account by requiring him to resolve the matter.
More here: Ryanair pilots face holiday threat
Over in America, there’s been a sharp fall in the number of people signing on for unemployment benefit.
Around 259,000 Americans filed an “initial jobless” claim last week, much better than the 302,000 which Wall Street expected.
That’s down from 282,000 the previous week, when people sought assistance after hurricane Harvey caused devastation in Texas and beyond.
If you work for Ryanair, or have been affected by its flight cancellations, do please get in touch....
If you work for Ryanair we'd like to hear from you https://t.co/nbDrTFW8Wa
— The Guardian (@guardian) September 21, 2017
S&P downgrades China
In other news, Standard & Poor’s has fired a warning shot at China by downgrading its credit rating.
S&P warned that China’s build-up of debt is a growing concern, as it cuts its rating by one notch, to A+ from AA-.
S&P claimed that:
“China’s prolonged period of strong credit growth has increased its economic and financial risks.
Although this credit growth had contributed to strong real gross domestic product growth and higher asset prices, we believe it has also diminished financial stability to some extent.”
Beijing may not appreciate the timing, just weeks before the Communist party holds its key five-yearly congress.
But is S&P right?
It’s true that Chinese companies have been borrowing at a worrying rate, and that its shadow banking sector conceals some dubious debts.
This chart, from Bloomberg, shows how corporate debt has swelled -- and that bill could easily land back on the government.
But this isn’t new. And the Chinese government has been taking steps to avoid a financial crisis, without slowing growth too much,
Shane Oliver, chief economist at AMP Capital, argues that China is actually safer than before...
S&P downgrades #China from AA- to A+. Follows Moodys. I actually think China debt risks have fallen: corp earnings up, tighter regulation..
— Shane Oliver (@ShaneOliverAMP) September 21, 2017
..odd to think China is a huge creditor nation, saves too much (46% of GDP) & consumes too little and has a weaker credit rating than....!
— Shane Oliver (@ShaneOliverAMP) September 21, 2017
Ryanair’s share price has recovered some of its early losses, and is now down just 0.7% today.
The news that the airline plans to hire 125 new pilots ASAP could be reassuring traders. But this still means the airline has lost almost 10% of its value this week.
Jasper Lawler, head of research at London Capital Group, says:
The flight cancellations and fraught negotiations with pilots have overshadowed what would otherwise be a run-of-the-mill AGM for Ryanair. Ryanair shares dipped as Chief Executive Michael O’Leary apologised to shareholders for the management failure.
Here’s my colleague Rob Davies’s take on the Ryanair annual general meeting:
Ryanair boss Michael O’Leary has escalated the airline’s dispute with pilots, saying they do not have a “difficult job” and claiming he can force them to give up a week of leave.
O’Leary is scrambling to prevent more disruption to the no-frills airline’s schedule after last week cancelling up to 50 flights a day due to a rota “mess-up” that left it short of pilots.
Speaking at Ryanair’s AGM in Dublin on Thursday, the famously outspoken airline chief admitted that further cancellations could follow but refused to back down in a dispute with pilots.
A group of pilots on Wednesday turned down an offer of up to £12,000 to keep flying during their scheduled leave, many of them putting their names to a letter demanding improved employment terms instead....
More here:
O'Leary: We made a major boo boo
Michael O’Leary appears to be taking a carrot and stick approach with his pilots, warning that if they “misbehave there will be no goodies.”
He also downplayed the news that some pilots are planning to work to rule, saying:
If you want and need to ask your staff to give up holidays no work to rule can alter that.
I don’t even know how there would be industrial action in Ryanair. There isn’t a union.”
O’Leary has acknowledged that criticism of Ryanair’s pay structure has merit, saying “maybe we have got it a bit on the low side”.
But he also denies that staff are up in arms, claiming there’s been “huge co-operation and support from pilots”.
And asked about the causes of the crisis that forced up to 50 flights to be cancelled each week, O’Leary said:
“We make mistakes. This time we made a major boo boo.
“A very big block of annual leave (for pilots) was over-allocated for September, October and November,”
(thanks to PA and Reuters for the quotes)
Reuters have more details on Ryanair’s pay offer to pilots:
Ryanair will hand pilots at some of its largest bases a 10,000 euro annual pay rise on top of a 12,000 euro bonus offered this week to those who help the airline alleviate a pilot shortage, Chief Executive Michael O’Leary said on Thursday.
Pilots were offered the bonus in exchange for working an additional 10 days to plug a shortage that last week forced Ryanair to cancel more than 2,000 flights in September and October.
Pilots at London Stansted, Dublin, Frankfurt and Berlin have now been offered an additional 10,000 euros per year, O’Leary told a news conference. Similar offers may be made at other airports, but that will depend on whether those bases have a surplus of pilots, he said
Back in London, the Treasury has welcomed the drop in UK borrowing in August to £5.7bn, from almost £7bn.
A spokesperson says:
‘We have made substantial progress in reducing the deficit, whilst taking a balanced approach that allows us to invest in our infrastructure and public services.
This approach is working but the national debt is still too high, so we must continue to live within our means and start reducing our debt.”
Sky News’s Darren McCaffrey has just tweeted a video clip of Michael O’Leary denying that his pilots are overworked, or doing a “difficult job”.
The Ryanair boss says:
If there are fatigue issues among pilots....on short-haul flying it is never as a result of flying.
WATCH: Michael O'Leary denies he has bad relationship with pilots but then has a pop at them. pic.twitter.com/9gQrxH1r9f
— Darren McCaffrey (@DMcCaffreySKY) September 21, 2017
Updated
Here’s the Press Association’s take on Ryanair’s AGM:
Ryanair is planning to take back one week of its pilots’ holidays to prevent any further flight cancellations, the airline’s chief executive has said.
Michael O’Leary said pilots due to take a four-week block of holidays in the next few months because a change in annual leave rotas will be told to reduce that to three weeks.
He said they will get the other week back in January.
At a meeting with shareholders at the airline’s AGM in Dublin, Mr O’Leary said the airline does not need the agreement of pilots to take back a week of their leave.
He told shareholders six weeks of cancellations, which he previously admitted was a ‘mess’, has cost the airline about €25m (£22m).
Mr O’Leary again apologised for the disruption, which he said was down to mismanagement of the pilots’ rostering system.
He refused to discuss media reports that many pilots had turned down offers of a €12,000 (£10,600) bonus and instead demanded improved contracts.
Michael O’Leary has revealed that Dublin-based pilots are getting a pay rise, and it will be offered to staff at some other bases too.
Ryanair's O'Leary says captains in Dublin to get an additional €10,000 from October plus 'attendance bonus' of €12,000.
— Paul Colgan (@paulcolgan) September 21, 2017
But....the president of the Irish Airline Pilots’ Association has said Ryanair needs a “fundamental change” to the way it deals with pilots.
Evan Cullen, who heads the pilots group, outlined the extraordinary employment structure which leaves them at an arms length relationship.
Instead of being employed as staff, they are grouped into mini-companies which provide service to a UK company which in turn provides Ryanair with its pilots, said Cullen in a BBC interview.
“One of the main pillars in the grievance, is that many of the Ryanair pilots do not have a fixed permanent contract,” he told Newsnight.
The full interview starts here at around 27 minutes:
“This means that pilots are grouped into companies, into Irish companies which have between five and eight pilot directors, those companies then subcontract into a UK labour provider of pilots and then that UK provider provides the pilot labour into Ryanair. This gives an extraordinary arms length distance between Ryanair and the pilot,” Cullen explained.
He added:
“There has to be a fundamental change in how Ryanair deals with its pilots. Unfortunately the latest offers from Ryanair means it is a sticking plaster approach”
“That’s where the point of anger is with the pilots, that Ryanair don’t seem to be taking seriously the fundamental grievance about the precarious nature of the employment.”
He predicted that some newly qualified Ryanair pilots were merely waiting for their start dates in order to quit.
“Ryanair is not competing in the market place, there are many pilots that have left Ryanair such as the 140 to Norwegian Airlines but also many airlines throughout Europe have a holding pool of pilots and that holding pool is where the pilots have successfully competed the application process but awaiting a start date.
“We know that many of the pilots in these holding pools are actually Ryanair pilots waiting for a start date and when they get that start date they will then issue Ryanair with their notice.”
Updated
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Ryanair: We're hiring more pilots
Back in Dublin, Michael O’Leary is continuing to answer questions over Ryanair’s flight cancellations.
He’s told the AGM that Ryanair doesn’t have enough pilots to cover September, October and November, which is why it may force pilots to delay some holidays.
The budget airline boss also announced plans to hire an extra 125 pilots, soon, to handle the shortages which forced flights to be cut.
BREAK: @Ryanair boss Michael O'Leary announces they are going to recruit 125 pilots in next week or two. Also increase pay for some pilots.
— Darren McCaffrey (@DMcCaffreySKY) September 21, 2017
O’Leary also told investors that the situation is now ‘under control’, but warns that further cancellations can’t be ruled out
Chris Choi of ITV News is also at the AGM, and reports that some shareholders aren’t happy:
Confronted by angry shareholder, Michael O'Leary admits "a major boo boo"
— Chris Choi (@Chrisitv) September 21, 2017
#ryanair shareholder asks "didn't you foresee this" Michael O'Leary says yes "only when we got into the weeds of it"
— Chris Choi (@Chrisitv) September 21, 2017
Updated
John Hawksworth, PwC chief economist, says Philip Hammond will welcome the drop in public borrowing in August.
With the deficit below forecasts, Hawksworth believes chancellor Hammond could have some extra flexibility to boost spending in the budget.
Back in March, the OBR forecast that the budget deficit would rise to around £58 billion this year, but the latest data suggest that it may be similar to the £46 billion outturn for 2016/17. This would imply a budget deficit of just over 2% of GDP this year, which is already close to the Chancellor’s medium term target for the deficit in 2020.
“All of this suggests that the Chancellor should have room for some easing of austerity in his Budget in November. This could involve extra money for priorities such as the NHS, social care, housing and infrastructure investment as well as some further relaxation of the public sector pay cap.”
Here’s Howard Archer of EY Item Club on today’s UK public finances:
Boost for #Hammond as #UK #public #finances see lowest Aug deficit since 2007 after first July surplus since 2002. PSNBex was £5.7bn (6.9bn)
— Howard Archer (@HowardArcherUK) September 21, 2017
Aug #UK #public #finances boosted by record #VAT receipts for month (up 5.6% y/y) which ties in with robust #retail sales
— Howard Archer (@HowardArcherUK) September 21, 2017
Labour’s shadow chancellor, John McDonnell MP, points out that the government has still failed to eliminate the UK deficit:
“These figures are yet another reminder of the last seven years of failed Tory economic policy, following on from the OECD just yesterday predicting growth in our economy to continue to slow next year.
“After one year in the job Philip Hammond has continued the record of failure of his predecessor. The deficit has still not been eliminated, the national debt continues to rise, yet the Chancellor is carrying on with austerity cuts that are weakening our economy further, and hitting the incomes of working families.
The big picture of today’s public finances is that Britain now owes almost £1.8 trillion, or 88% of annual economic output.
August’s public finances also suggest that Britain might borrow less than expected this financial year.
The annual deficit had been forecast to rise to £58.3bn, from £51.7bn – but borrowing since April is actually below expectations.
UK public sector borrowing fell £0.2 billion on 2016-17 to hit £28.3 billion in the year to August. On track to come in below OBR forecast. pic.twitter.com/2iXvZmaPlX
— Rupert Seggins (@Rupert_Seggins) September 21, 2017
Updated
UK public finances beat forecasts
Newsflash: Britain’s public finances were stronger than expected in August.
Britain borrowed just £5.56bn to balance the books last month, the ONS reports. That’s the smallest deficit for any August since the financial crisis struck a decade ago.
That’s down from £6.9bn a year ago, and below City forecasts.
The public finances were boosted by higher-than-expected tax receipts, in another boost for chancellor Philip Hammond ahead of November’s budget.
UK PSNBR (July) revised to a £1.3bn surplus from £0.8bn #gbp
— Michael Hewson 🇬🇧 (@mhewson_CMC) September 21, 2017
This means that Britain’s public borrowing this financial year is £200m lower than a year ago, at £28.3bn.
O’Leary: We could take holiday off pilots
Crumbs! Michael O’Leary is telling shareholders that he’s considering “taking back” a week’s holiday from pilots, to fix the rota shortages that forced flight cancellations.
If that happens, pilots would receive extra pay for that week, he promises.
#Ryanair will ask pilots to surrender one weeks leave out of 4 - and offer double pay. Clear sign of shortage
— Chris Choi (@Chrisitv) September 21, 2017
O'Leary apologises to Ryanair investors
Newsflash: Ryanair’s boss Michael O’Leary has apologised to shareholders at today’s AGM over the airline’s flight cancellations.
It also claims that it will have dealt with 95% of customers affected, by the end of the week.
In a statement to the City, Ryanair says:
Ryanair CEO Michael O’Leary apologised to shareholders, and again to customers, for the cancellation of 2,100 of its over 103,000 flights over a 6 week period in September and October, due to a failure within its pilot rostering function.
Ryanair expects by the end of this week to have re-accommodated (or authorised refund requests to) over 95% of the 315,000 customers affected by these cancellations.
There’s also a small revolt against the pay received by Ryanair’s top brass, with only 88% of shareholders backing its renumeration report.
Looks like a couple of the big US pension funds voted against #Ryanair executive pay resolution ahead of today's AGM
— Tom Powdrill (@TomPowdrill) September 21, 2017
But O’Leary himself has been reelected with 99.3% of votes.
Chairman David Bonderman also survived efforts to unseat him, with 89.1% of shareholders voting for his re-election.
Ryanair’s AGM is up and running:
Michael O'Leary has arrived for @Ryanair AGM at Ryanair H/Q Dublin against backdrop of flight cancellations #ryanaircancellations pic.twitter.com/XTHdhYHgJT
— Deborah McAleese (@DeborahMcAleese) September 21, 2017
Ryanair shares drop again
Shares in Ryanair have fallen by 1.5% in early trading, extending their recent losses.
Our story revealing that pilot are now planning to ‘work to rule’ is fuelling concerns that Ryanair could be forced to cancel even more flights, hitting its profitability.
ETX Capital’s Neil Wilson explains:
Shares in Ryanair have slipped 10% since it announced plans to cancel flights.
The selloff this morning is all about mounting concern over rising cost pressures which are likely to hit margins and profits.
Pilots’ rejection of a one-off bonus to work extra hours – a move that management would have liked to pull off in order to lessen the damage being done – has investors worried that not only may more flights be cancelled, but also that Ryanair is walking into a protracted battle with pilots at the very worst moment.
At the very least, getting pilots to work more hours might have resulted in the airline not having to cancel any more flights. At present there is a risk that Ryanair will be forced to cancel more flights over the coming weeks.
Updated
Ryanair shareholders are gathering in Dublin for the budget airline’s AGM, and it could be a very bumpy ride.
Investors were already planning to revolt against executive pay at the airline, and vote against and the re-election of chairman David Bonderman. That was before this week’s debacle over staff holidays, which means thousands of passengers are suffering flight cancellations.
The FT’s Matthew Vincent jokes:
Ryanair could sell tickets for its AGM later today – if it weren’t for the fact that it would probably have to cancel a whole load of them at very short notice owing to a mess-up with its boardroom holiday rota.
Sky New’s Darren McCaffrey has landed outside the meeting, but is having trouble getting through security.....
Can you please, please let us in @Ryanair? We are not allowed passed this point. #thanks pic.twitter.com/uWJdWuxwph
— Darren McCaffrey (@DMcCaffreySKY) September 21, 2017
Disappointingly, Janet Yellen didn’t give us any new clues yesterday on whether she’ll seek a second term when her current stint as Fed chair ends in February.
Donald Trump’s criticism of the Fed’s actions has put Yellen’s future in doubt. Potential replacements include veteran investment banker Gary Cohn (currently director of the National Economic Council), or former Fed governor Kevin Warsh.
UBS’s Paul Donovan has a more outlandish suggestion, though....
Yesterday's Fed decision was deliberately long term. Consider it insurance against Fed Chair Ivanka https://t.co/1JzjZLy74U #economics #ubs
— Paul Donovan (@PDonovan_econ) September 21, 2017
The Financial Times says the Fed’s decision to start unwinding QE is “historic”:
Thursday's FINANCIAL TIMES: "Fed calls historic end to crisis-era QE and signals further rate rise" #tomorrowspaperstoday pic.twitter.com/rhIXaxZHYq
— Helena Lee (@BBCHelenaLee) September 20, 2017
The Times say it’s the “end of an era”.
Today's @TimesBusiness front page: Fed weans US off stimulus after nine yearshttps://t.co/3wXbQjvzKs pic.twitter.com/cjDEZBvzln
— Richard Fletcher (@fletcherr) September 21, 2017
The strength of the US dollar has pulled sterling back down to $1.348, away from last week’s one-year high over $1.36.
The euro has also taken a hit, down over one cent to below $1.19.
Alex Lydall, Head of Dealing at Foenix Partners, says Janet Yellen’s optimistic tone has helped to drive the dollar up.
The greenback rallied overnight as Fed chair Yellen signalled the official end to QE and crucially kept the door ajar for rate hikes this year despite split opinions on inflation trajectory among members.
Considering the catastrophes of late in the form of hurricanes, a sanguine approach from the Fed left markets aware a hike in December is still very much on the cards. Acknowledgment, not worry, was the general tone and optimism on the global outlook positions the Fed nicely coming into year-end with the process of balance sheet normalization set to kick-off in October.
If you missed last night’s Fed announcement, here’s the latest Dot Plot (in yellow) showing how policymakers expect US interest rates to rise over the next few years.
Here's the only CHART that matters this morning. {DOTS<Go>} on @TheTerminal. And our full post-#FOMC analysis: https://t.co/uh72djsvEX pic.twitter.com/3OFvPxOkTA
— Maxime Sbaihi (@MxSba) September 21, 2017
As you can see, they’re a little more dovish about 2018 (as the yellow dots are a little lower than June’s grey ones), and rather divided about where rates will be by 2020.
The agenda: Fed reaction and UK public finances
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The US dollar is rallying this morning after the Federal Reserve took the historic step to start unwinding its quantitative easing stimulus package.
Investors around the globe are digesting the Fed’s decision, which came alongside a commitment to keep raising interest rates if the US economy continues to strengthen.
As we live-blogged last night, Fed chair Janet Yellen fired the starting pistol to unwind QE. From October, the central bank will slowly trim its holdings of US government debt, and mortgage-backed bonds.
The decision to start normalising the Fed’s $4.5 trillion balance sheet is another milestone in the recovery from the worst financial crisis in generations.
Our US business editor Dominic Rushe explains:
The move, announced after a two-day meeting by Fed officials, will start the gradual reduction of the central bank’s $4.5tn portfolio of bonds and other securities, bought to keep interest rates close to zero in an attempt to kickstart the economy.
“The basic message here is that US economic performance has been good,” Fed chair Janet Yellen said at a press conference. The Fed’s decision had been made because “we feel the US economy is performing well” but she added the Fed could reverse course if conditions changed.
Yellen also said it was a “mystery” why inflation hasn’t reached target, but the Fed remains confident that it will get there in the end.
Markets have reacted by driving the US dollar up against other currencies.
US Dollar Rallying as FOMC Signals Start of QE Unwind Next Month https://t.co/4PmU3s1rfq via @CVecchioFX pic.twitter.com/dNX1kE4O13
— DailyFX Team Live (@DailyFXTeam) September 20, 2017
The greenback has hit a two-month high against the Japanese yen, at ¥112.645. It has also driven to a 10 week high against the Indian rupee.
The stronger dollar has also sent gold down to a three-week low.
Traders now reckon there is a 64% chance that the US Federal Reserve presses on and raises interest rates in December; potentially hurting American borrowers, and pulling capital out of emerging markets and back into US assets.
Stock markets, though, seem to be taking the move in their stride...
Asia stocks edging higher w/ reflation theme extending following Fed decision to begin bal sheet normalization & BoJ on hold. Dollar shines. pic.twitter.com/Y2ya8I9Tj9
— Holger Zschaepitz (@Schuldensuehner) September 21, 2017
Also coming up today....
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9am: European Central Bank publishes its monthly bulletin. This may contain clues about how the ECB will slow its own stimulus programme
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9.30am BST: The latest UK public finances, which will show how much Britain had to borrow to balance the books in August. Economists expect that borrowing hit £7bn, up from a small surplus in July.
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1.30pm BST: US weekly jobless figures. Has the recent hurricane season hurt the labor market?
We’ll also be watching Ryanair, which faces a bruising encounter with shareholders at its AGM in Dublin this morning.
The budget airline faces a deepening crisis over its decision to axe up to 50 flights per day, to allow staff to clear a backlog of holiday.
We have learned that Ryanair customers face the threat of a fresh wave of flight cancellations as the airline’s pilots prepare to reject an offer of a cash bonus if they give up days off.
The Guardian has obtained a draft letter signed by Ryanair pilots from across Europe, rejecting the offer and warning they will now “work to rule” - refusing to work beyond their basic contractual obligations. Ryanair had told pilots earlier this week that if they declined the £12,000 payment more flights might have to be scrapped.
Here’s the full story:
Updated
