Closing summary: pound suffers biggest one day fall since 2016
The pound has had a shocker of a day, thanks to the resignation of two cabinet ministers and countless rumours over the future of Brexit, Theresa May and the economy.
Sterling is down 2% against the euro, on the biggest one-day fall since 27 June 2016 - four days after the Brexit vote. It is trading at €1.1256.
It has suffered a similar sell-off against the dollar, down 1.9% at $1.2745.
The FTSE 100 had a late flurry and closed in positive territory, up 4 points or 0.06% at 7,038.01, having earlier hit a low of 6,979.57.
Here are the closing scores elsewhere in Europe:
- Germany’s DAX: -0.5% at 11,353.67
- France’s CAC: -0.7% at 5,033.62
- Italy’s FTSE MIB: -0.9% at 18,905.36
- Spain’s IBEX: -0.4% at 9,073.50
- Europe’s STOXX 600: -1.1% at 358.45
Meanwhile roughly £1.6bn was wiped off the value of UK house builders, and £2.8bn off RBS as UK focused firms were sold off by nervous traders.
The UK-focused FTSE 250 closed down 1.3% or 248 points at 18,662.21.
That’s all for today - a dramatic one for UK politics and the markets. Thanks for reading and commenting, and please join us again tomorrow.
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S&P says Britain’s agreement in principle on the draft withdrawal treaty does not immediately affect its UK rating (AA/A-1+ with a negative outlook).
However, it could lower the rating if a “disorderly” Brexit becomes a reality:
We could lower the ratings under a scenario in which the likelihood of a “disorderly” Brexit appears more apparent.
We define a “disorderly” Brexit as one which would either significantly limit UK manufacturing and services access to key European markets, or subject them to tariffs and non-tariff barriers high enough to reduce their ability to compete.
Capital Economics has published a note titled: Trying to make sense of another day of Brexit chaos.
Oliver Jones at the consultancy says the market reaction to events today gives a good indication of what might happen in the event of a no deal scenario:
Sterling has once again been the biggest casualty. And Gilt yields have fallen – investors are clearly not paying any heed to Mark Carney’s suggestion that the Bank of England might have to raise rates in the event of “no deal”. Most interestingly, the FTSE 100 has not fared that badly in local currency terms. But this reflects the fact that it is packed full of multinationals who benefit from a weaker currency. Indeed, in another re-run of 2016, the more domestically focused mid-cap FTSE 250 has performed a lot worse.
Second, Prime Minister May’s apparent failure to garner support for her deal has arguably also increased the likelihood of the opposite “extreme” Brexit outcome, a second referendum with an eventual vote to remain in the EU. Clearly, investors have focused more on the possibility of “no deal”, given the fall in sterling. And there are significant political and procedural hurdles standing in the way of another referendum. That said, there is still a sense that all bets could be off if today’s Cabinet resignations and rumours of a challenge to May’s leadership spell the end of her deal (and her time in Number 10). Demand for options protecting against moves in sterling in either direction has jumped to its highest in more than a year and a half.
Time for a market recap, in what has been a volatile day so far for the pound and UK shares as traders fear what lies ahead for Brexit, Theresa May and the wider economy.
- The pound is on course for its biggest one-day fall, down 1.8% against the euro and the dollar at €1.1282 and $1.2767 respectively.
- European markets are a sea of red, with all major indices in the red. The FTSE 100 – which often benefits from a weaker pound - is now below 7,000, down 0.6% or 43 points at 6,991.
- The FTSE 100 firms hardest hit today are those which are heavily exposed to the UK economy, housebuilders and banking stocks. Housebuilders are set for their biggest one-day fall since the Brexit vote.
- The UK-focused FTSE 250 is down 2.1%.
- Wall Street losses have widened, with the Dow Jones off 0.8% at 24,888.
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The City watchdog says it is staying in touch with firms during this period of market volatility.
A spokesperson for the Financial Conduct Authority:
As you would expect in this type of situation we have regular contact with firms and will continue to engage with them.
Wall Street opens lower
US markets are down after the opening bell:
- Dow Jones: -0.4% at 24,983
- S&P 500: -0.5% at 2,688
- Nasdaq: -0.3% at 7,113
Back in Europe, all major indices are in the red:
Michael Pearce, senior US economist at Capital Economics, says that despite the 0.8% rise in US retail sales in October, spending growth has started to slow:
Looking beyond the 0.8% surge in headline retail sales, which was boosted by a price-related surge in gasoline prices, there are signs that underlying spending growth has begun to slow.
Even accounting for the boost to real incomes from the more recent drop in oil and gasoline prices, we expect consumption growth to slow further in 2019.
The plunge in oil prices in recent weeks will boost households’ real disposable incomes by close to $40bn, with surging natural gas prices likely to offset only a small fraction of that improvement in purchasing power.
With consumer confidence still high, much of this extra cash is likely to filter through to spending on other goods and services. But we doubt that will be enough to replace the boost from the earlier fiscal stimulus or offset all of the headwind from tighter monetary policy.
Accordingly, consumption growth still looks set to slow next year, which we expect will contribute to an eventual slowdown in overall GDP growth to below its 2% potential rate by mid-2019.
Sticking with the US, the number of Americans filing new jobless claims rose unexpectedly last week according to the Labour Department.
Initial claims were 216,000 for the week ended 10 November, up from 214,000 a week earlier. Economists polled by Reuters had forecast 212,000.
Here’s how traders at the spread-betting firm IG are expecting Wall Street to open:
US Opening Calls:#DOW 25073 -0.04%#SPX 2701 -0.08%#NASDAQ 6784 +0.19%#IGOpeningCall
— IGSquawk (@IGSquawk) November 15, 2018
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US retail sales rebound in October
Over in the US, data just out showed US retail sales rose 0.8% in October.
It was stronger than the 0.5% increased forecast by economists, and a big improvement on September when sales dipped 0.1%.
The Commerce department said car sales boosted the figures, as did sales of building materials, likely driven by rebuilding efforts in the aftermath of Hurricane Florence.
UK housebuilders set for worst day since Brexit vote
It is not just the pound that is being hammered. Britain’s biggest housebuilders are on course for their biggest one-day fall since the UK voted to leave the EU.
- Persimmon: -9.6%
- Taylor Wimpey: -9.2%
- Barratt Developments: -8.4%
- Berkeley Group: -7.1%
Laith Khalaf, senior analyst at Hargreaves Lansdown, explains:
The market has taken a big red pen to stocks which are heavily exposed to the UK economy like the banks, retailers and housebuilders.
These sectors were already under pressure, but the potential for an orderly Brexit to unravel in the next few days is causing further distress to be manifested in share prices.
We can expect continued volatility in financial markets while political uncertainty swirls around Westminster.
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Pound on track for biggest one-day fall in over a year
Jacob Rees-Mogg has dealt a fresh blow to the pound, as he prepares to submit a letter of no confidence in the prime minister.
The pound has suffered a fresh blow after a spokesman confirmed the planned move by the Conservative MP.
It sent the pound down 1.7% against the euro, putting it on course for the biggest one-day fall in over a year.
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Government energy scheme suffers major setback
In other news, the UK’s key scheme for ensuring the lights stay on during the winter months has been suspended after a the European court of justice ruled that it constitutes illegal state aid.
Payments under the “capacity market” scheme will be stopped as the government seeks to win permission from the European commission to restart it.
Full story to follow.
So the UK capacity market, the scheme for ensuring backup electricity supplies from gas, coal and other power stations, has been suspended.
— Adam Vaughan (@adamvaughan_uk) November 15, 2018
That is a big deal.
ECJ court ruling today means for now govt cannot issue capacity market payments to energy firms or hold auctions
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UK government bond auction hit by political uncertainty
Fears over political instability hit a sale of UK government bonds this morning, with the country’s debt agency forced to accept lower than usual bids, to an extent not seen since 2009 in the depths of the financial crisis.
Reuters reports:
The Debt Management Office said in a statement that it sold £2bn of the 1.75% 2037 conventional gilt at auction.
While bids received outstripped the amount on offer by 1.75 times, the makeup of the bids showed the DMO had to accept some unusually low bids to sell the full amount of the bond.
The gap between the average yield accepted in a bid by the DMO and the highest stood at 5.1 basis points - the biggest since March 2009, at the depths of the financial crisis.
By contrast, the average yield tail for conventional bond auctions over the last 10 years stands at just under 0.6 basis points.
Gilt yields plunged along with sterling on Thursday after Brexit minister Dominic Raab and work and pensions minister Esther McVey resigned in protest at Prime Minister Theresa May’s draft deal for leaving the European Union.
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Germany’s BDI industry association has given a gloomy assessment of the current state of play, warning that firms should still prepare for a chaotic Brexit.
A hard Brexit would be disastrous. It would put tens of thousands of companies in Europe and hundreds of thousands of employees on both sides of the Channel in big difficulty.
Brexit agreement only the first step, says UK car industry
While talk of Theresa’s May’s Brexit agreement may rapidly date as the day goes on, here is the reaction from the UK car industry, which has repeatedly argued that thousands of UK jobs would be at risk without frictionless trade in Europe.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders:
For the automotive industry, Brexit is about damage limitation. The outline agreement is a positive step in avoiding the devastating consequences of ‘no-deal’ and securing a transition period.
It is, however, only a first step and business seeks certainty and ambition when it comes to securing a competitive future. Truly frictionless trade is the only way to ensure the industry’s future success, and this should be the objective for all parties as we move into negotiating the permanent UK-EU relationship.
European markets fall as Brexit woes spread
What started out as a sea of green across European markets this morning has turned into a sea of red.
When traders arrived at their desks this morning, there was a sense of relief after Theresa May survived a crucial cabinet meeting on Thursday with ministers backing her draft Brexit plan.
By 10am the sense of relief had evaporated after the resignation of Brexit secretary Dominic Raab and fellow cabinet minister Esther McVey.
Europe’s Stoxx 600 is currently down 0.5% at 361.
Craig Erlam, analyst at currency firm Oanda, says the “crazy” trading we’re seeing is likely to persist today:
It’s been a crazy start to trading already this morning and with the Brexit headlines likely to continue throughout the day, I don’t expect that to change.
What was meant to be a day of celebration for Theresa May after she received backing from her cabinet for the Brexit deal could quickly turn into a day of hell.
The pound is coming under considerable pressure in response to the resignations and a potential leadership challenge, plunging around 1.5% against the dollar, euro and yen and looking vulnerable to further declines. The old saying that it never rains but it pours couldn’t be more true this morning, with the October retail sales data providing the icing on the cake, recording a second consecutive decline and falling well short of expectations.
I don’t expect any easing up in sterling volatility today, with the resignations potentially coming thick and fast. If the pound breaks 1.27 against the dollar, things could get very messy indeed.
Here’s what happened to the value of the pound against the dollar when Dominic Raab tweeted his resignation at 8.53am:
What now for the pound? As Garry White from Charles Stanley points out, ING have a few thoughts:
ING's GBP forecasts in different Brexit scenarios. Glad I don't have any holiday plans. pic.twitter.com/FYNc1bfjdN
— Garry White (@GarryWhite) November 15, 2018
FTSE 100 falls into the red after second cabinet resignation
The FTSE 100’s earlier gains have been wiped out after Esther McVey became the second cabinet minister to resign this morning over the draft Brexit agreement.
McVey said in her resignation letter:
We have gone from no deal is better than a bad deal to any deal is better than no deal.
The index is off 3 points or 0.1% at 7,031.
Earlier this morning I informed the Prime Minister I was resigning from her Cabinet pic.twitter.com/ZeBkL5n2xH
— Esther McVey (@EstherMcVey1) November 15, 2018
Surprise fall in UK retail sales in October
Investors have been dealt another blow to confidence this morning, after the latest figures showed UK retail sales fell unexpectedly in October
Sales were down 0.5% last month, easily missing expectations of a 0.2% rise and another sign of how slowing consumer confidence is hitting the sector.
In slightly better news, the Office for National Statistics revised up the figure for September, to show a 0.4% fall - not quite as bad as the 0.8% fall in the first estimate.
Rhian Murphy, head of retail sales at the ONS:
Retail sales slowed after a buoyant summer with the mild autumn hitting winter clothes sales. Household goods sales also fell in October following two consecutive months of strong home improvements sales.
Consumers chose to purchase goods from many stores’ websites as online sales continued to increase.
Neil Wilson from Markets.com says the drop in the pound is as drastic as it might be, given the circumstances:
Govt is up for grabs but pound not sinking. Still at $1.28, within recent range. Still reflective of binary upside/downside risks in play #Brexit #GBPUSD
— Neil Wilson (@marketsneil) November 15, 2018
Shares in UK firms fall after Raab quits
The UK-focused FTSE 250 is down 0.9% after the Brexit secretary Dominic Raab resigned, just hours after Theresa May secured the backing of the cabinet for her draft agreement.
Investors are feeling edgy now, as they digest the latest Brexit twist and consider it a negative for UK firms as it creates greater uncertainty.
The FTSE 100 - comprising the UK’s largest firms who make a large proportion of earnings abroad - is still in positive territory, up 0.4% at 7,059.
But the biggest fallers on the FTSE 100 are all firms with a major UK focus:
- Barratt Developments: -6.9%
- Persimmon: -6.5%
- RBS: -6.4%
- Taylor Wimpey: -6.3%
- Marks & Spencer: -5.8%
- Royal Mail: -5.4%
- Berkeley Group: -5.3%
- Lloyds Banking Group: -4.7%
- ITV: -4.6%
Follow our politics blog for all the latest reaction to Raab’s resignation:
Here is Raab’s resignation letter:
Today, I have resigned as Brexit Secretary. I cannot in good conscience support the terms proposed for our deal with the EU. Here is my letter to the PM explaining my reasons, and my enduring respect for her. pic.twitter.com/tf5CUZnnUz
— Dominic Raab (@DominicRaab) November 15, 2018
Pound falls sharply as Brexit secretary resigns
Those losses have just widened significantly after news breaks that Dominic Raab has resigned. Backlash starts here?
Sterling is off 1% against the euro and the dollar at €1.1377 and $1.2864.
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Pound falls against euro and dollar
Currency traders are wary this morning, putting the pound under pressure as investors digest the considerable challenges that still lie ahead for Theresa May.
The pound’s earlier gains against the dollar have been erased, and it is now down 0.3% at $1.2952.
It looks worse against the euro, down 0.5% at €1.1423.
FTSE rises in early trading
There are no wobbles across Europe’s key markets this morning, including the FTSE 100 which is up 37 points.
The latest scores:
- FTSE 100: +0.5% at 7,071
- Germany’s DAX: +0.5% at 11,465
- France’s CAC: +0.5% at 5,094
- Italy’s FTSE MIB: +0.6% at 19,199
- Spain’s IBEX: +0.7% at 9,171
- Europe’s STOXX 600: +0.3% at 363
Business leaders welcome Brexit progress but warn of risks ahead
The major business lobby groups have welcomed the news that Theresa May clinched the support of her cabinet, but acknowledged it was a compromise agreement and some key risks remain.
Here are some of the key responses:
Carolyn Fairbairn, director general of the CBI
This deal is a compromise, including for business, but it offers that essential transitional period as a step back from the cliff-edge.
The UK has had many months of discussion and division. A long journey still lies ahead but now is the time for decisions. And the first decision is to avoid no deal.
Stephen Martin, director general of the Institute of Directors:
We urge all politicians to think long and hard about how they react to this first-stage agreement. Leaving the EU without a deal is a very bad outcome for businesses, workers and consumers, and this is simply an inherent risk that comes with voting down any withdrawal deal.
Our members will adjust to a new relationship with the EU, but they must be allowed to do this in as smooth and orderly manner as possible.
Adam Marshall, director general of the British Chambers of Commerce:
Businesses will recognise the huge efforts made by the Prime Minister and across government to reach this milestone.
After two and half years of uncertainty, this may be end of the beginning — but not yet the beginning of the end. Our firms need clarity and precision on the specific terms of trade they will face in future, many of which are still to be agreed. The avoidance of sudden or multiple changes to trading conditions is crucial to business investment and confidence.
Firms digest draft Brexit plan ahead of retail sales data
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound received a slight boost this morning as traders, firms, politicians and commentators consider what lies ahead after Theresa May gained cabinet backing for her draft Brexit plan.
Sterling edged above $1.30 after it became clear the prime minister had averted the threat of a major rebellion - for now at least. It is now roughly flat at $1.2992.
Business groups cautiously welcomed the news of cabinet approval for the draft agreement, with the CBI describing it as “a step back from the cliff edge”.
However, Michael Hewson from CMC Markets says the pound is likely to face more volatility as events play out:
Sterling traders had to endure another turbulent session on Wednesday as Prime Minister Theresa May tried to pull together the various disparate views of her cabinet in trying to sell the agreement with the EU over the thorny issue of the Irish border, as well as the outlines of the future trading relationship.
While she was able to achieve what she called collective approval from her cabinet to accept the deal, the gritted teeth consensus could well be tested in the coming days, and appeared to be reflected in her tired demeanour, almost as if to brace for the whirlwind that is about to come her way in the next few days, as various cabinet members come under pressure to resign.
The Prime Minister herself could well also find herself subject to a leadership challenge if reports of letters going into the 1922 committee, are anywhere close to being accurate and come to a total of 48.
Having cleared this particular hurdle, the deal will now have to go to a special EU summit, later this month, before being put before the House of Commons in early December when the real fun is likely to begin, as the 585-page agreement is put before MP’s to vote on.
Stick with us for all the reaction from markets and business.
Also coming up:
- 9.30am: UK retail sales data for October
- 1.30pm: US retail sales data for October
- 1.30pm: US jobless claims figures for last week
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