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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Brexit critic Silvana Tenreyro joins Bank of England, as Macron win cheers markets - as it happened

Silvana Tenreyro has joined the Bank of England’s monetary policy committee.
Silvana Tenreyro has joined the Bank of England’s monetary policy committee. Photograph: LSE

Afternoon summary: Macron bounce continues, as Tenreyro joins the BoE

Time for a recap.

Britain has a new interest rate policymaker, after the government appointed LSE professor Silvana Tenreyro to the Bank of England.

City experts have welcomed appointment of Tenreyro, who studied at Harvard and has Argentinian, Italian and UK citizenship, to the Monetary Policy Committee.

She’s been described as a ‘Brexit critic’, given her concerns over Britain’s exit from the EU and the impact of rising inequality.

Here’s what the papers are saying.

Economists reckon she’s less likely to vote for an interest rate rise than her predecessor, Kristin Forbes (one of three MPC members who wanted to raise borrowing costs this week).

European stock markets are enjoying their best day in two months, after yesterday’s French parliamentary elections proved another triumph for Emmanuel Macron.

Paris’s CAC index has lead the way, up 1.2%, with other markets also gaining ground.

The euro faded, though, after a small bounce when the results came in last night.

European stock markets today
European stock markets today Photograph: Thomson Reuters

Macron’s La République En Marche (La REM) party, and its centre-right ally Modem, won 350 of the 577 lower house seats between them.

This leaves Macron with a clear mandate to reshuffle his cabinet and implement economic reforms, say City experts. Some also predict protests from unions, though.

Sterling has remained steady, as UK and EU officials began the Brexit talks in Brussels. The pound is hovering around $1.2765, down just 0.1% today.

It’s too early to know whether Britain will ‘have its cake and eat it’, or end up swallowing humble pie. But we do know that the two sides have had cake for lunch - in what looks like some tongue-in-cheek humour by the EU side.

The Brexit talks haven’t caused any alarm in the City, yet. The FTSE 100 has gained 65 points, or almost 1%, in a sweltering session.

Chris Beauchamp at IG says:

The long-awaited beginning of discussions between the UK and the EU has been greeted with an impressive bounce for both UK and European stocks. The rally today has been broad-based, with European markets seeing a return of buyers after weeks of indecision.

An ongoing fall in the euro is certainly helping to make life easier for European stocks, while further sterling weakness is helping to lift the FTSE 100.

The summer is supposed to be a tough period for stocks, with gains fleeting in duration, but the solid pickup in risk appetite at the beginning of the week is very encouraging, despite the lightness of the macro and corporate calendars.

US tech stocks are also recovering from last week’s selloff, with Amazon hitting a fresh record high. The rally may not be over yet....

That’s probably all for today. Thanks for reading and commenting. GW

Professor Costas Milas, of the Management School at the University of Liverpool, tells me that Silvana Tenreyro is a well-respected economist with a deep understanding of monetary policy.

He believes Tenreyro could take a dovish approach at the Bank England, if the UK economic picture deteriorates.

Professor Milas writes:

She has pretty robust knowledge of monetary policy issues and, in fact she has researched on this very area finding that (in the US) monetary policy is more powerful in expansions than in recessions.

So, if she believes her work (which I think she does) and to the extent that changes in the policy rate have limited impact in a recession, then central banks will be more likely to need to resort to other (unconventional) monetary policy measures to achieve the desired expansionary effect!

Hence, she will turn out a dove if she believes that a slowdown is imminent!

In other news... Argentina is planning to issue 100-year bonds to the market.

The country’s finance minister has announced the plan over Twitter today:

According to Bloomberg, the debt will yield a tasty 8.25% - a much better rate than you’d get from most other government bonds.

But investors should tread carefully. Argentina has defaulted several times in the past, most famously during the financial crisis of 2001.

Bloomberg has more details.

Updated

Silvana Tenreyro: What the papers say

The Financial Times says the government have appointed “a staunch critic of Brexit” to the Bank of England’s nine-strong Monetary Policy Committee.

[Professor Tenreyno’s] views on Brexit are that it will damage the UK economy and she has said this in public — in her response to the FT survey and in signing a letter from economists urging a vote to remain in the EU, ahead of the referendum last year.

In response to the FT New Year survey she said her pessimism about Brexit had not “moved much” since the EU referendum. “I think it will have a negative impact on the UK economy and Europe more generally”, she added.

She added that a “hard” Brexit of leaving the single market and the customs union might substantially reduce immigration. “The effects on the UK economy will certainly be negative — many firms will need to rethink and reorganise production as they lose talented workers.”

The Independent describes her views on monetary policy as ‘unconservative’.

In July 2015, she said “reforming the monetary system to allow negative policy interest rates will equip the [Bank of England] with an additional tool to face potential crises in the future”.

She also said that it was “worth experimenting” with an increase in the minimum wage and that this could help stimulate the wider economy.

Further, she opposed the plans of the former Chancellor, George Osborne, to run a budget surplus by 2020, saying that this consolidation was “too brisk and could hamper a healthy recovery”.

Reuters call Tenreyro a “trade-focused economist”, who will join the Bank at a critical time.

She will replace the strongest advocate for a rate hike on the BoE’s Monetary Policy Committee, meaning economists will scrutinise her opinions even more closely than usual.

Tenreyro’s work has focused on issues including trade and wage growth, both of which are important factors for the BoE’s thinking as Britain prepares to leave the European Union and as pay increases have fallen behind inflation.

Technology shares are leading the rally on Wall Street today.

Amazon are up 1.44%, as traders continue to applaud its takeover of Whole Foods, while Apple have gained 1.7%.

Newsflash: America’s Dow Jones industrial average has hit a record high at the start of trading in New York.

The Dow gained 70 points to 21,454, up 0.33%.

The Nasdaq and the S&P 500 are also climbing higher at the open.

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Silvana Tenreyro’s CV is most impressive. Seven pages long, it includes more than twenty positions (not including her current job at the LSE), a dozen honours, grants and awards, and 17 published papers.

Veteran City economist George Magnus is also a fan:

Harvard economics professor Robert Barro has told Reuters that Silvana Tenreyro is a ‘great appointment’ to the Bank of England.

Barro supervised Tenreyro when she was studying for her PhD (which she got in 2002), and says she is very knowledgeable about ‘economic fluctuations’, and the role that monetary policy can play:

Ben Chu of the Independent has spotted that professor Tenreyro was critical of the UK government’s austerity programme.....

...and in favour of negative interest rates being imposed in a crisis:

Updated

Some more snap analysis from the FT’s Chris Giles (based on her answers to the CFM’s surveys)

Tenreyro: Brexit was an angry vote by the poor

Silvana Tenreyro has argued that Britain needs a new industrial policy to help it cope with Brexit.

That’s according to a regular survey by the Centre For Macroeconomics, who poll a range of economic experts.

In February, Tenreyro said:

Brexit will change many aspects of the UK economy. There is still uncertainty about the scope and consequences that Brexit will have on the economy. (Let us not forget that Brexit has not happened yet!). I think the UK needs to think about industrial policy among many other policies. It is far from clear, however, that industrial policy will solve the problems the economy will likely face or that it will be enough to boost long term growth.

The shape industrial policy takes will matter a lot. With industrial policy, the devil is in the details.

And last July, she said “misleading politicians” had encouraged people to vote for Brexit.

Asked for the most likely reason that a majority of UK voters went against the near unanimous advice of the economics profession, she replied:

Immigration certainly played a role in the exit vote, and many voters (partly encouraged by misleading politicians) thought immigration was to be blamed for their problems, while those problems are more complex and date longer.

Skill-biased technological progress, globalization, and the fall of unions have created winners and losers, and the latter have not been compensated for their losses. They saw their standards of living deteriorate since the late 1970s, while at the same time salaries at the top of the distribution rocketed. Inequality is a critical issue in the UK and the West that needs to be addressed. Brexit was mostly an angry vote against the lack of progress of the bottom half.

More details here.

Updated

Silvana Tenreyro joins Bank of England: What the experts say

Andreas Wallström, chief analyst at Nordea Markets, thinks the Treasury have made an astute hire:

Andy Bruce of Reuters flags up that Tenreyro signed a letter in May 2016 warning that Brexit would harm the economy.

Chris Giles of the Financial Times points out that she didn’t change her view after the referendum....

Jordan Rochester of Nomura reckons that Tenreyro is less likely to push for an interest rate rise than the outgoing Kristen Forbes, who voted for a rate hike last week.

Relative to the hawkish person she is replacing (Forbes) and the view that new members do not usually jump straight into a bias, we would assume a slight swing to a more dovish vote.

Updated

The Chancellor of the Exchequer, Philip Hammond, says:

“I am delighted to appoint Professor Silvana Tenreyro as the new external member of the Monetary Policy Committee at the Bank of England.

I am confident that Professor Tenreyro will be a strong addition to the MPC, bringing a wealth of economic experience and academic rigour to the Committee’s deliberations.”

Silvana Tenreyro appointed to Bank of England

Professor Silvana Tenreyro
Professor Silvana Tenreyro. Photograph: LSE

Newsflash: Britain has a new interest rate setter -- London School of Economics professor Silvana Tenreyro.

Professor Tenreyro has just been named as the next external member of the Monetary Policy Committee (MPC). She will join the MPC on 1 July, replacing Kristin Forbes whose term expires on 30 June 2017.

Mark Carney, Governor of the Bank of England, says Tenreyro has important skills in the dynamics of the labour market -- an important issue, given Britain is struggling with weak productivity and falling real wages.

Carney says:

“I am delighted to welcome Silvana Tenreyro to the Monetary Policy Committee and am very much looking forward to working with her.

Her extensive and varied academic experience – on the monetary transmission mechanism, the dynamics of productivity, trade, housing issues as well as wage dynamics, to name just a few ­– will be invaluable to the Committee as it seeks to promote the good of the people of the United Kingdom through maintaining monetary stability.”

Tenreyro’s CV shows that she has British, Italian and Argentine citizenships. She has a degree from the National University of Tucuman, Argentina, and a PhD from Harvard University.

She lists her academic interest as “Macroeconomics, growth, macro-development, monetary economics, international economics”.

She has written academic papers on a wide range of issues including the impact of monetary policy, wage dynamics and currency unions (all important issues of the day).

Some of Prof Tenrayro’s published work
Some of Prof Tenrayro’s published work Photograph: Silvana Tenreyro

Updated

Shares in almost every major company listed on the Paris stock market have risen this morning.

Thirty six members of the CAC40 index of blue-chip French companies are up, with just four lagging behind.

This means the CAC is holding onto this morning’s 1% jump; it’s currently 35 points higher at 4173.

Industrial firms are leading the rally, including steelmaker ArcelorMittal and aeroplane maker Airbus. Banks, such as BNP Paribas, Société Générale,and Credit Agricole, are also gaining ground.

The top and bottom-performing shares on the CAC 40 index this morning
The top and bottom-performing shares on the CAC 40 index this morning Photograph: Thomson Reuters

David Madden, market analyst at CMC Markets UK, gives the credit to Emmanuel Macron:

European equity markets are in positive territory this morning as the political success of Emmanuel Macron in France has boosted investor confidence. Mr Macron was tipped to gain a majority and that he did, and traders welcomed the news as political stability in Europe is a welcome change.

Updated

Macron flies in to open Paris Air Show

A Airbus A400M carrying French President Emmanuel Macron lands at Le Bourget airport for the opening of the International Paris Air Show.
An Airbus A400M carrying French President Emmanuel Macron lands at Le Bourget airport for the opening of the International Paris Air Show. Photograph: Eric Piermont/AFP/Getty Images

With his parliamentary majority secured, Emmanuel Macron has flown to the Paris Air show in a military transport jet.

The French president landed at the Bourget airfield in an Airbus A400-M military transport plane to launch the aviation showcase.

His arrival was followed by a flypast by the world’s largest passenger plane, the Airbus A380, and France’s aerial display team.

Reuters suggests that Macron was keen to signal his support for Airbus:

The ceremony lent high-level support to two ambitious European aerospace projects tarnished by problems in recent years: the A400M because of chronic cost overruns and delays and the A380 because of weak sales that threaten its future.

French President Emmanuel Macron seated in the cockpit of the Airbus A400M turboprop transport plane.
Cleared for take-off.... Photograph: Michel Euler / POOL/EPA

The Paris Air show is the world’s biggest air show, and a major event for the industry.

My colleague Julia Kollewe explains what to expect:

Since 1909 it has been held every two years at Le Bourget Airport in north Paris – where Charles Lindbergh landed after making the first solo, non-stop transatlantic flight in 1927, between New York and Paris.

Crowds will be wowed by spectacular flying displays, but in business terms the 52nd air show is likely to be a more subdued affair.

Aviation experts say aircraft makers will bag far fewer orders than in previous years, as low oil prices have relieved pressure on airlines to replace older planes. In any case, Airbus and Boeing have been struggling to deliver due to problems with their supply chains. As usual, the two arch rivals will be seeking to outdo each other at the air show.

Boeing will reveal the new 737 Max-10, an upgraded version of its bestselling single-aisle 737 plane. The American company is also expected to unveil plans for a new highly efficient medium-sized aircraft.

Airbus, for its part, will unveil plans for an enhanced A380, the “A380plus” – with new large winglets that will save fuel.

Airbus and Boeing face new competitors – China’s Comac C-919 and Russia’s United Aircraft Corporation’s MC-21 – which will not be at the show. A new arrival at the event is Mitsubishi Heavy Industries, which will show off Japan’s first commercial aircraft in 50 years, the MRJ regional jet, which has been beset with delays. In another highlight, Brazil’s Embraer is showing three aircraft – the military transport plane KC-390, the commercial E195 airliner and the Legacy 450 business jet.

But when the event opens to the public at the end of the week, the Lockheed Martin F-35 fighter jet looks to dazzle spectators with its circus acrobatics.

A T-100 jet trainer by Leonardo-Finmeccanica and Raytheon on display at the 2017 Paris Air Show.
A T-100 jet trainer by Leonardo-Finmeccanica and Raytheon on display at the 2017 Paris Air Show. Photograph: Marina Lystseva/TASS

Updated

Back in Brussels, David Davis and Michel Barnier have shaken hands for the cameras as the Brexit negotiations begin.

Both men struck a positive tone before the press, Davis pledged to do everything possible to achieve a deal that works for all citizens, while Barnier said he hopes to agree a timetable for the negotiations today:

My colleague Jennifer Rankin has the details:

Our Politics Live blog will be tracking all the action:

Updated

Just in: France’s building sector outperformed the rest of Europe in April.

New figures from Eurostat show that French construction output jumped by 3.5% during April, after a 5.3% slump in March.

Across the whole eurozone, output rose by just 0.3% month-on-month, with housebuilding activity picking up but civil engineering contracting.

Output across the wider European Union was flat month-on-month.

Eurostat explains:

Among Member States for which data are available, the highest increases in production in construction were recorded in Sweden (+3.8%), France (+3.5%) and the Czech Republic (+1.6%), and the largest decreases in Romania (-7.7%), Italy (-4.1%) and Hungary (-2.6%).

EU construction output

Sterling rises as Brexit talks begin

A member of protocol changes the EU and British flags prior to the arrival of EU Chief Brexit Negotiator Michel Barnier and British Secretary of State David Davis at EU headquarters in Brussels today
Brussels is getting ready for EU Chief Brexit Negotiator Michel Barnier and British Secretary of State David Davis to meet today. Photograph: Virginia Mayo/AP

The pound is crept back over $1.28 this morning, up 0.25%.

Traders are watching events in Brussels, as David Davis and Michel Barnier begin negotiating Brexit.

Kit Juckes of French bank Societe Generale doesn’t expect any major developments

The UK position is as clear as mud’ beyond growing signs that the UK wants free trade without being part of the customs union or conceding grounds on border controls.

Sterling’s probably range-bound. Any rally triggered by ‘soft Brexit’ hopes is probably temporary.

Updated

Julien Manceaux, senior France economist at ING, predicts that Macron will kick off his most “unpopular” labour reforms in the first few months of his presidency.

That would let him capitalise on his honeymoon with voters; even so, there is still likely to be resistance to cutting workers’ protections and entitlements.

As Manceaux puts it:

“The mandate for reform is not extremely strong for Mr Macron who could hence endure strong civil opposition, especially to his labour and pension reforms.

(that’s via the FT)

Here are the official results from yesterday’s French parliamentary election, showing how Macron’s REM party, and his allies in the Modem party, won a substantial majority.

French election results

European markets boosted by Macron relief.

The French stock market has jumped by almost 1% at the start of trading, as Parisian traders applaud Macron’s win.

The CAC 40 index has gained 39 points, or 0.95%, to 4177, which is a two-week high.

Other markets are also showing healthy gains, on relief that France’s new president won’t face a deadlocked parliament (there had been worries that his new party wouldn’t be able to win a majority).

In London, the FTSE 100 has gained 52 points to 7515.

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

Mike van Dulken of Accendo Markets says:

The positive opening comes as traders welcome another Macron victory in France, this time in Parliamentary elections, which give hope to him passing reforms that can help both the French economy and thus Europe,

There is also optimism about a positive start to UK-EU Brexit negotiations which kick off today in Brussels.

But.... the poor turnout in yesterday’s election is causing some analysts to question whether Macron has really energised France.

Marc Ostwald of ADM Investor Services warns:

The focus will be on how French President Macron turns words into action after securing a solid parliamentary majority, though not as large as opinion polls had suggested, and with a very poor 43.5% turnout underlining a great deal of scepticism among the general public as a whole.

Updated

Emmanuel Macron now has a free hand to drive his policies through, say Royal Bank of Canada’s strategists.

We reiterate our view that there is no real opposition to the proposed economic reforms left on the political side - with only the street and unions likely to oppose the measures.

Updated

State Street: Macron will face protests

The scale of En Marche’s victory gives Macron an “incredible” position to push reforms through, says Elliot Hentov, head of policy and research for EMEA at State Street Global Advisors.

But there could still be protests on the streets, he adds, against Macron’s plans to make it easier to lay off workers or cut wages.

Macron will enjoy one of the largest majorities in French history. A large portion of these new parliamentarians are new to national politics and this reinforces the sense that a wholesale political revolution has taken place. Most importantly, it affirms that Macron will have incredible leeway in pushing his domestic agenda.

Markets should therefore expect that labour reforms should pass, as should changes to the tax code and pension system. The impact could be structural and two-fold, both in boosting French investment and productivity gains as well as in setting the stage for more audacious reforms of the Eurozone.

Nonetheless, Macron will still face public hostility to his reforms, possibly in the streets but not in parliament, but after yesterday, that will likely be expressed in burning tires rather than parliamentary machinations.”

With an absolute majority comes absolute responsibility, says Le Figaro, as it splashes on Macron’s win:

Updated

The agenda: Macron wins, as Brexit talks begin

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

There’s relief in European financial markets this morning after French president Emmanuel Macron won another landmark victory.

The La République en Marche (La REM) party, and its centrist allies the Democratic Movement (Modem), have secured a large majority in the French parliament, claiming around 350 of the 577 seats up for grabs.

This gives Macron the muscle he needs to implement his plans to change French labour law, and overhaul unemployment benefits and pensions.

Getting those reforms enacted will be a struggle - as previous French leaders have discovered. Investors, though, will be pleased to see that Macron is now in a position to push through the promises he made during his successful presidential bid this year.

That relief has sent all Europe’s main stock markets up in early trading, by around 0.75% (full details to follow).

Macron’s government spokesman Christophe Castaner, said the new party (created less than two years ago) now has to deliver:

“The French people have given us a clear majority, but they didn’t want to give us a blank cheque. It’s a responsibility. The real victory will be in five years time when things will have really changed.”

“There is a strong majority, there’s a will for things to change.”

However, there are also concerns that the turnout slumped to a record low - showing how many voters are disenchanted with politics.

The pound could be skittish today, as the formal talks over Britain’s exit from the European Union begin (nearly a year after the historic Brexit referendum).

David Davis, UK Secretary of State for Exiting the European Union, will sit down with Michel Barnier, the European Commission’s Chief Negotiator, to lay out their opening positions.

Given Britain’s fragile political situation, EU leaders fear that talks will collapse - resulting in a “brutal Brexit”

The Guardian reports this morning that:

As officials began gathering in Brussels on Sunday night, the long-awaited start of negotiations was overshadowed by political chaos back in Westminster, where chancellor Philip Hammond warned that failing to strike a deal would be “a very, very bad outcome”.

The EU side fears that, in reality, the British government will struggle to maintain any position without falling apart in the coming months, because, without support from the Democratic Unionist party, May’s negotiating hand is limited. There are also concerns that any DUP backing to give May a majority in the House of Commons would come with strings attached.

Robin Bew of the Economist Intelligence Unit fears that the talks could be tough:

Also coming up, a new healthcheck on Europe’s builders and the start of the Paris Air Show.

  • 10am BST: Eurozone construction output for April
  • All day: Paris Air Show, Day 1

Updated

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