European shares close higher
After another torrid week, European markets ended on a high note. Investors were in calmer mood as the prospect of Brexit appeared to fade a little, with the mood helped by the suspension of the campaigning by both sides for a while.
Banks and housebuilders, which had fallen sharply in recent days on concerns about the effect of the UK leaving the UK, were among the biggest risers. But Wall Street was weaker, with Apple down on worries about its sales in China. The final scores showed:
- The FTSE 100 added 1.19% or 70.61 points to 6021.09
- Germany’s Dax rose 0.85% to 9631.36
- France’s Cac closed up 0.98% at 4193.83
- Italy’s FTSE MIB jumped 3.49% to 16,923.29
- Spain’s Ibex ended 1.98% higher at 8362.0
- In Greece, the Athens market added 5.4% to 586.55 after an agreement to release the latest tranche of bailout cash
But on Wall Street, the Dow Jones Industrial Average is currently down 81 points or 0.46%.
Meanwhile sterling rose from Thursday’s lows of $1.4010, and is currently sitting at $1.4318.
On that note it’s time to close for the evening. Thanks for your comments, and we’ll be back next week for what promises to be a crucial few days.
#Brexit probability declines as campaigns remain quiet https://t.co/X0nlxDklcE via @RJ_FXandRates pic.twitter.com/GJ0EruCnvk
— Zoe Schneeweiss (@ZSchneeweiss) June 17, 2016
Europe has to find a new way to build trust between member states and the people, European Central Bank president Mario Draghi has said.
In a speech in Munich in honour of former German finance minister Theodor Waigel, he said:
Today we face a choice – between leaving things as they are and moving forward. And this is not a choice without costs.
We have seen that the price of inaction is high. We have seen how it leaves the economy vulnerable to instability. We have seen how the perceived impotence of public authorities in meeting the needs of their people feeds into frustration and rejection. And we have seen how that risks undermining trust in and support for our institutions – and even the European Union itself...
We have to find.. a way that builds on existing institutions to better ensure that the common needs of the people are met.
The needs that we share in common, and that can be more safely delivered in common, must be identified and explained more clearly.
They include economic interests, such as the benefits provided by a large and fully integrated financial area. They include defence, and more generally security against internal and external threats, the capacity to address global migration challenges and the protection of intellectual property – all of which the European Union helps deliver, in ways that individual governments may not necessarily be able to do. And they include environmental protection and the fight against climate change.
It is the demonstration of why, and how, those interests can be better protected in common that will gradually complement compliance and convergence as the basis for trust and the cement of the Union.
Updated
European markets are holding onto their gains as we head into the close, but Wall Street has fallen back. Recent Federal Reserve comments showing concern about the state of the global economy have not helped, nor has a drop in Apple’s share price on worries about iPhone sales in China. Joshua Mahony, market analyst at IG, said:
For once we are seeing market jitters emerge from the US markets today, as relatively solid session for the FTSE has been overshadowed by a sharp deterioration in US equities today. The fears surrounding a Brexit have abated somewhat today, with a break from the polls allowing for a more positive end to a very mixed up week for UK equities. Crucially, the incessant rise in crude prices today has provided enough emphasis to keep the main UK benchmark afloat.
Today’s ultra-dovish comments from the traditionally hawkish St. Louis Fed President Jim Bullard mark a significant shift in emphasis at the FOMC, with an indication we could only yet see one hike in the next 18 months. While there is no doubt that Fed confidence will have been knocked by this month’s payrolls shocker, the accompaniment of a growth slowdown means that Janet Yellen’s dream of a summer hike may turn into a dream of a 2017 hike.
The uncertainty over the result of the UK referendum has seen investors pull out $1.1bn from UK equity funds in the past week, according to Bank of America Merrill Lynch.
This is the fastest pace for 13 months and the second largest outflow over the past decade, after the last general election.
Brexit- there's really nothing to be afraid of, honest pic.twitter.com/IM9NXmI22p
— Joel Lewin (@JoelLewin) June 17, 2016
Donald Tusk, head of the European Council, has shared his meeting schedule for next week.
Wonder what they’ll find to talk about at 10.30 on Friday 24th?
My agenda next week: https://t.co/DSHlHapmCe pic.twitter.com/sYLPRL8DGM
— Donald Tusk (@eucopresident) June 17, 2016
It’s the calm before next week’s probable storm in the markets, according to Connor Campbell, financial analyst at Spreadex. With European shares heading higher after the suspension of Brexit campaigning, Campbell said:
Doing its best to dampen the day’s rebound was the Dow Jones, the US index opening 20 to 40 points lower after the bell. There wasn’t necessarily much to cause that decline bar a relatively weak pair of housing starts and building permits readings. Nevertheless the Dow sporadically dipped below 17700, perhaps playing catch up with the sharper declines seen across the week in Europe.
Talking of Europe, while the Eurozone indices lost some of their lustre (the DAX now up by a reduced 0.7%) the FTSE held on its growth this afternoon, the UK index increasing by 1.1%. The pound, meanwhile, saw an even more surprising rise, with cable at points grazing $1.43 for the first time since the start of the week.
Given their behaviour in the past few days the markets could be in for a real rough ride next week. The persistent polls likely to leak out in the run up to the referendum should leave the pound in a constant state of flux, while the FTSE may well see itself return to that 5900, 4 month low pretty quickly on Monday. However, while the potential post-Brexit reaction is clear, it will be interesting to see how much momentum the markets can gain if Britain opts to remain in the EU, an eventuality seemingly backed by the behaviour of Spreadex’s clients.
The result of the UK referendum could spark a spate of central bank intervention in the currency markets, including the Bank of England and potentially the Bank of Japan which has been worried about the strength of the yen anyway.
But a Brexit is less of a risk than Grexit - if Greece left the eurozone - according to Alan Ruskin. strategist at Deutsche Bank. He said in a note to clients:
The most likely scenario for the Bank of Japan to intervene and sell yen in the currency market, is if US dollar/Japanese yen threatened or breached Y100 following the UK referendum. Presumably, the Yen would also be registering even larger gains versus European currencies in such circumstances. In that situation, the Bank of Japan would likely intervene ‘under the cover’ of the UK referendum vote, by making a strong case to the US and G20, that i) Japan is being placed under unique duress from a dramatic tightening in financial conditions allied to the stronger yen; and, ii) that the exchange rate is reflective of volatile international events, and not domestic conditions.
As for the Bank of England, any intervention was likely to be co-ordinated with the European Central Bank and the US Federal Reserve:
Were sterling trading to become particularly unruly following the UK referendum (say Cable through 1.30 and continuing to drop) the Bank of England is unlikely to sit idly by. Were the Bank of Englan to intervene to support the pound, it would make sense to also have the ECB and Federal Reserve intervene on the Bank of England’s behalf, as a signal of global solidarity.
Only if events in the foreign exchange market were reflective of a global systemic event that might trigger a significant tightening in financial conditions in the the US, would the Fed intervene on its own book.
Such a global systemic spillover is not expected. The precedent of a potential Grexit was far more threatening for financial markets than the UK referendum, if only because monetary unions promote huge financial flows premised on a fixed exchange rate/price, and there are large winners and losers when they unravel. Unraveling trade agreements, do not have the same immediate risk management implications that lead to self reinforcing financial dislocations.
At the moment Cable - the sterling dollar rate - is at $1.4295.
Updated
More on the comments from German finance minister Wolfgang Schäuble on Brexit. Reuters reports:
Schäulbe said on Friday that Europe was trying to prepare for any possible outcome of Britain’s referendum on whether to stay in the European Union.
Speaking after a meeting of EU finance ministers in Luxembourg, Schaeuble also said Europe was well prepared to respond to current Brexit-related anxiety in financial market.
His comments came after Chancellor Angela Merkel said on Thursday Britain would lose privileged access to the single European market if it leaves the European Union, in her strongest remarks yet on next week’s referendum.
US markets open lower
Wall Street is down in early trading.
- Dow Jones: -0.1% at 17,716
- S&P 500: -0.1% at 2,076
- Nasdaq: -0.3% at 4,832
According to Reuters, the German finance minister Wolfgang Schäuble says Germany is trying to prepare for all eventualities following the UK referendum on EU membership.
He added:
We think we are well prepared to respond to the current anxiety in financial markets.
US housing starts fall
US housing starts dipped in May according to the Commerce Department.
Privately-owned housing starts fell 0.3% to 1.164m from a downwardly revised 1.167m in April.
Building permits rose however by 0.7% to 1.138m, suggesting the housing sector would continue to be a boost to the US economy.
On both measures it was better than economists expected.
U.S. housing starts dip, permits maintain gains https://t.co/z3Ts9pzg2T
— Reuters Business (@ReutersBiz) June 17, 2016
Also this on BHS:
The former finance consultant of BHS has broken down how Dominic Chappell took money out of BHS. Extraordinary https://t.co/f2hSKyiN81
— Graham Ruddick (@GrahamtRuddick) June 17, 2016
The parliamentary committees investigating the demise of high street retailer BHS have published some more written evidence as part of the inquiry.
Among the documents is a letter from Mike Ashley, the entrepreneur and founder of Sports Direct.
In it, he outlines his version of events relating to his communication with former BHS owner Dominic Chappell and others over a possible rescue of the business.
He suggests that Sports Direct looked twice at a potential rescue of BHS shortly before its collapse. Ashley claims that a proposed deal would have saved the vast majority of jobs and BHS stores:
Following the announcement on 25 April 2016 that BHS was now in administration, Sports Direct contacted Duff & Phelps with a view to putting together a second rescue package.
A subsequent meeting took place at the offices of Arcadia on 27 April 2016. I attended this meeting in person along with my acquisition team. The other attendees included, amongst others, Sir Philip and Phil Duffy of Duff & Phelps.
Our proposal would have potentially saved the vast majority of the jobs and stores at BHS and we felt that this should be taken into account when making a decision as to whether or not our bid was accepted.
Our understanding when we left the meeting was that we had an agreed deal, which was to be executed on Friday 13 May 2016. Following the meeting an SPA (Sale & Purchase Agreement) was sent out by DLA on behalf of Duff & Phelps, which was duly returned within 48 hours. However, as you know, the deal did not happen.
Mike Ashley on why he didnt buy BHS https://t.co/719yBO4ITU
— Graham Ruddick (@GrahamtRuddick) June 17, 2016
Updated
Jonathan Loynes, chief European economist at Capital Economics, says a British vote to leave the EU would force the European Central Bank to act.
European equity markets would be very likely to drop further and peripheral bond yields could rise further, raising the threat of a re-ignition of the [eurozone] debt crisis.
Meanwhile, an appreciation of the euro against a declining pound would exacerbate any negative effect on exports to the UK.
Against this background, the European Central Bank will come under strong pressure to provide further policy support... the Governing Council would surely err on the side of caution and take more action.
A further acceleration in its monthly asset purchases would be likely and another cut in interest rates possible. The ECB may even engage, with other central banks, in FX intervention to limit disruption in the currency markets.
Speaking of CNBC, it also has an interview with US Federal Reserve board member James Bullard, who said there should only be one rate hike before 2018. CNBC reports:
St. Louis Fed President Jim Bullard, in a significant shift in his outlook for the U.S. economy, now says low growth and a very low fed funds rate of just 63 basis points will likely remain in place through 2018.
Bullard, reversing earlier forecasts that looked for growth to pick up and rates to rise, now says 2 percent growth is the most likely forecast and that rates will remain low. Bullard also sees unemployment at 4.7 percent and trimmed-mean PCE inflation of 2 percent during this window.
As a result, he says the Fed funds rates should remain at 63 basis points during the remainder of his forecast. The current target rate is 25 to 50 basis points.
As a reminder, after the Fed raised rates in December there was talk of three or four further rises this year. Earlier this week the Fed held rates and made cautious comments about the risks to the global economy, not least the prospect of Brexit.
CNBC: Fed's Bullard: Only one rate hike needed through 2018 https://t.co/vqUJT4Quvt
— CNBCTraders (@CNBCTradersFan) June 17, 2016
More from IMF managing director Christine Lagarde.
Speaking on CNBC she said there were significant benefits from the UK being in the European Union, and that Brexit was a concern not just for the UK but for the world.
CNBC: IMF's Lagarde Exclusive with steve_sedgwick: There are significant benefits from being in the E.U. pic.twitter.com/saH8Cv0EIn
— CNBCTraders (@CNBCTradersFan) June 17, 2016
Brexit would hurt the UK more than the EU according to Italy’s Prime Minister, Matteo Renzi (Reuters is quoting the Tass news agency in Russia).
Of course it would be a problem but it would be a small problem for Europe and a much larger problem for Britain.
He made the comments on the sidelines of the St Petersburg International Economic Forum.
This follows his comments earlier in the month that a vote to leave the UK would be a “disaster” for Britain.
Updated
Brent crude oil is inching closer towards the $50 a barrel mark - currently up 2% at $48.12.
Mihir Kapadia, chief executive of Sun Global Investments, has a view:
Crude oil prices have risen today for the first time in a week, with global markets enjoying a respite from worries about the upcoming EU referendum.
The anticlimactic return back below $50 per barrel for prices recently has taken the wind out of some traders’ sails, after a light at the end of the tunnel in the form of $53 a barrel last week was met with a 5-day slide.
The impressive recovery in oil prices from early February led to some guarded optimism that we may see oil back closer to the highs of 2014, but the ubiquitous uncertainty in global markets since then makes prediction more difficult than usual. For now, oil is back on the rise. The problem for the markets is: we have no idea how long that will last.
US cosmetics company Revlon has agreed to buy Elizabeth Arden in an $870m (£611m) deal, which will bring together Revlon’s hair colour products with its rival’s anti-ageing creams and celebrity fragrances.
The move will create a cosmetics giant with annual sales of $3bn. It comes less than six months after Revlon’s main shareholder and chairman, the billionaire Ron Perelman, considered putting the company up for sale. The New York-based firm has been struggling under its heavy borrowings and the deal will help it refinance the debt.
Elizabeth Arden is known for its luxury skincare products, especially anti-ageing ranges, such as Prevage, Ceramide and SuperStart. Its fragrances include those licensed from celebrities including Britney Spears, Justin Bieber and Taylor Swift.
However, the popularity of celebrity fragrances has waned, with sales falling, while Elizabeth Arden’s namesake brand has been performing better.
Revlon was founded in 1932 by Charles Revson, his brother Joseph and a chemist, Charles Lachman, who contributed the L in the Revlon name. In the midst of the Great Depression, they started with a single product, a nail polish – the first opaque nail enamel (at the time the only shades available were pale and transparent).
Called Cherries in the Snow, it was inspired by the scarlet-lipped, cigarette-smoking Hollywood actresses of their day and is still selling today. Revlon’s other nail polishes had names such as Fatal Apple and Kissing Pink. Lipstick became the firm’s next big item in 1940 and it launched an advertising campaign touting “matching lips and fingertips”.
Jasper Lawler, analysts at CMC Markets, has this take on the markets:
Fear-based trades sent markets to extreme levels in a short space of time and they have snapped back. Gold soaring to two-month highs typified the level of market anxiety. It’s sharp reversal has typified the sentiment reversal.
The course-reversal across markets has seen everything that was doing badly, do the best and everything that was doing poorly, outperform.
That means banks, particularly debt-laden peripheral European and Brexit-exposed UK banks are ruling the roost. Homebuilders are also amongst top-risers.
US stocks look set to open basically unchanged following a day that saw the biggest daily gain after a loss of over 100 points for the Dow Jones Industrial Average since February.
German bond yields back in positive territory
German bond yields are back in positive territory, reflecting a tick-up in risk appetite on Friday.
The yield on benchmark 10-year bund yields is 0.005% after turning negative for the first time ever earlier in the week amid heightened investor caution.
The pound is rising against the dollar and the euro this morning.
Sterling is up 0.4% against the dollar at $1.4254 and up 0.2% against the euro at €1.2672.
UK investor sentiment has picked up following the suspension of the EU referendum campaign.
Full story on Christine Lagarde’s speech:
Lagarde’s full speech is available here.
She says the UK has benefited from additional jobs and income gains generated from increased trade with the EU as a result of its membership.
This is not trade that would have happened anyway, or trade that has simply been diverted away from other parts of the world.
The formation of the EU and the single market has been instrumental in generating more trade than would otherwise have been the case.
And with more trade has come more investment, as the U.K. has become integrated into European supply chains—such as in the aerospace industry, and in factories producing cars for the whole European market.
Increased trade has also raised productivity and incomes by increasing the scope for economies of scale in production and efficient specialisation.
Lagarde is also making a broader argument for unity in Europe.
Pro Europeans must speak out against the tide of negativity surrounding the European project, she says:
Right now, too many Europeans are worried about their cultural identity, their security, their jobs, incomes, and living standards.
And too many of them are led to believe that things would be better if only Europe returned to closed borders and economic nationalism.
This is a serious challenge for the European project. It is high time to confront this negative vision with a new perspective for those citizens who feel left behind.
Those who believe that only a united Europe can be prosperous and dynamic need to step forward and speak up.
Christine Lagarde urges UK to stay in the EU
Christine Lagarde, the head of the International Monetary Fund, has urged the UK to stay in the EU.
Giving an impassioned speech in Vienna, Lagarde said that while the EU was not perfect, Britain had been more successful as a result of its membership.
Membership in the EU has made the UK a richer economy, but it has also made it a more diverse, more exciting, and more creative country.
As in all countries, there are people who are struggling in this new environment, but for the majority of citizens, this has been a great success story.
It has been said that “it takes great courage to see the world in all its tainted glory, and still to love it.” So I wish bon courage to our fellow Europeans from the United Kingdom!
Some garden centre news now, as we approach the weekend...
Tesco has sold Dobbies, the UK’s second largest garden centre chain, for £217m.
Dobbies has 35 garden centres across Scotland, England and Northern Ireland, and was bought by Tesco for £150m in 2007.
The supermarket chain has sold the company to a group of investors led by Midlothian Capital Partners and Hattington Capital.
It is the latest in a string of a disposals by Tesco, as it attempts to focus its UK retail business on its “core strengths”.
Updated
Connor Campbell, analyst at Spreadex, says the Greek deal is helping to lift investor spirits this morning.
Once again the markets have bounced away from their lows, a solid US session and confirmation of a fresh Greek bailout seemingly lifting investors’ spirits.
Jumping by 1% the FTSE enjoyed the recovery from its commodity and finance stocks this Friday, with Brent Crude now back approaching $48 per barrel.
The eurozone saw a similar (dead cat?) bounce this morning, the DAX and CAC rising 1.3% and 1.4% respectively.
Unlike the FTSE, however, the region’s indices arguably had something to celebrate, with European Commissioner Pierre Moscovici revealing that yesterday’s Eurogroup meeting had seen the finance ministers sign off on Greece’s latest €7.5bn tranche of funding just in time for the country’s hefty July loan repayments.
Christine Lagarde, head of the International Monetary Fund, is in Vienna and will be giving a speech on European unity at 10am UK time.
We will bring you the highlights.
The bank’s are leading the charge on the FTSE this morning. Lloyds Banking Group is the top riser, up 5.5% at 65p.
Biggest risers:
Biggest fallers:
Markets appear to be taking a breather from Brexit fears today following the suspension of the referendum campaign.
The campaign was suspended on Thursday following the death of Jo Cox, the Labour MP for Batley and Spen.
The International Monetary Fund will publish its latest report on the UK at midnight. The Washington-based fund said on Thursday it was delaying publication by 24 hours “out of respect for today’s tragic event in the UK.”
Updated
Oil prices rise for first time in seven days
Oil prices are climbing this morning, as the fears pervading markets over recent days appear to ease.
Brent crude oil is up 1.6% at $47.96 a barrel.
FTSE climbs back above 6,000
The FTSE 100 is back above the 6,000 mark, driven higher by the banks. It’s up 74 points.
All major European markets are trading strongly this morning:
- FTSE 100: +1.2% at 6,024
- Germany’s DAX: +1.1% at 9,658
- France’s CAC: +1.1% at 4,198
- Italy’s FTSE MIB: +2.3% at 16,723
- Spain’s IBEX: +1.9% at 8,352
European markets open higher
European markets have opened higher, following Wall Street’s gains on Thursday.
The FTSE 100 is hovering close to the 6,000 mark, up 0.8% or 48 points at 5,998.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Good news for Greece, as its eurozone creditors have agreed to release a €7.5bn (£6bn) tranche of funding urgently needed by Athens.
Pierre Moscovici, European Commissioner for economic and financial affairs, said the agreement was “a welcome breath of oxygen for the Greek economy,” after ministers from the eurozone’s 19 countries agreed to unlock funds.
Minsters gave the green light at a meeting in Luxembourg after agreeing Greece had made sufficient progress on reforms, but the technical details of releasing the funds will be dealt with by senior officials today.
The money is expected to arrive in Athens next week, allowing the government to meet two debt repayments to the European Central Bank next month.
Greek Prime Minister Alexis Tsipras was clearly relieved and said the funding would allow Greece to move into a new, more positive phase:
A cycle is ending for the country. The country is entering a stable macroeconomic, fiscal and investment environment.
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