Mixed day for European markets
Most European markets ended the day higher, albeit not showing substantial gains as investors remained cautious ahead of any comments from Federal Reserve chair Janet Yellen about US interest rates in her speech on Friday.
But the FTSE 100 missed out, dragged down by mining shares after a fall in profits at Glencore.
The weaker oil price in the wake of an unexpected rise in US crude stocks also hit sentiment. Brent is now down 1.9% at $49 a barrel while West Texas Intermediate is 3% lower at $46.65. The final scores on the markets showed:
- The FTSE 100 finished down 32.73 points or 0.48% at 6835.78
- Germany’s Dax edged up 0.28% to 10622.97
- France’s Cac closed up 0.32% at 4435.47
- Italy’s FTSE MIB was 0.68% better at 16891.63
- Spain’s Ibex ended up 0.87% at 8655.5
- In Greece, the Athens market added 0.01% to 567.94
On Wall Street, the Dow Jones Industrial Average is currently down 27 points or 0.15%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
French unemployment has fallen in July, but not quite as much as expected:
French Total Jobseekers (Jul) 3.507 Mln v 3.505 Mln exp, prev 3.526 Mln | Jobseekers Net Change (Jul) -19.1K v -20.5K exp, prev +5.4K
— Sigma Squawk (@SigmaSquawk) August 24, 2016
#French unemployment down 19,100 in July to 3.5066 million. Still damagingly high but has come down from Feb record high of 3.5910 million
— Howard Archer (@HowardArcherUK) August 24, 2016
Elsewhere, Iceland’s central bank has cut interest rates for the first time since December 2014, citing concerns about low inflation.
Reducing its key interest rate by 0.5 percentage points to 5.25%, the bank said:
The inflation outlook has improved since the Bank’s last forecast. If the exchange rate remains unchanged, the outlook is for inflation to remain below target until early 2017. According to the forecast, it will edge upwards when import prices stop declining and the effects of the currency appreciation subside. Inflation will rise more slowly than previously forecast, however, and will not be as high as was previously projected. If the exchange rate continues to rise, and other things being equal, inflation will be lower than is provided for in the baseline forecast...
Whether interest rates will be lowered further or need to be raised again will depend on economic developments and on the success of the capital account liberalisation process.
The recent signs that the UK economy is - so far - holding up after the Brexit vote continue to support the pound.
Sterling is now at a three week high against the dollar, up 0.35% at $1.3235, while it has climbed 0.8% against the euro to €1.1762.
Joshua Mahony, market analyst at IG, said:
Crude prices took a knock today as the US posted its fourth inventories build-up in five weeks. Despite being in so-called driving season, the build-up of surplus oil means that domestic demand is not keeping up with supply, which has become increasingly reliant upon international imports as output falls.
On the oil price, David Morrison, senior market strategist at Spreadco, said:
The EIA reported a 2.5 million barrel build in crude stocks against expectations of a 500,000 drawdown. WTI and Brent slumped on the report which was consistent with last night’s American Petroleum Institute release...
Crude oil has been amongst the most volatile markets this week as investors prepare themselves for Janet Yellen’s speech on Friday at the Jackson Hole Economic Symposium
On Tuesday it whipsawed from negative to positive territory on a story that Iran was prepared to ‘support joint action to prop up the oil market’. However, this headline missed out on another crucial quote from the (anonymous) source which said that even if an agreement was reached to freeze output, there was very little chance that anyone would stick to it. This latter point is entirely consistent with previous attempts by OPEC members to manipulate the oil market. Even in the days when the group operated as a cartel and brought in quotas for members, nobody stuck to them
Oil took another lurch lower first thing this morning after yet another headline. In this an Iranian oil ministry official wasn’t prepared to confirm that Iran would even attend the meeting in Algeria next month, suggesting a repeat of April’s disastrous talks in Doha.
Brent crude has fallen 1.7% to $49.09 a barrel following the unexpected rise in US oil stocks. West Texas Intermediate - the US benchmark - is down 2.6% at $46.91.
US oil stocks rise unexpectedly
Oil prices are under pressure again after a surprise rise in US crude stocks, suggesting lack of demand and excess supply.
Weekly crude stocks rose 2.5m barrels to 523.59m, compared to expectations of a 0.5m fall, according to the Energy Information Administration.
Weekly gasoline stocks climbed 36,000 barrels to 232.7m, rather than the expected 1.2m decline.
US housing sales disappoint
Another factor for the Federal Reserve to consider when contemplating an interest rate rise.
US existing home sale fell by a higher than expected 3.2% to an annualised 5.39m units in July, according to the National Association of Realtors. Analysts had expected a smaller dip to 5.51m. The association said:
Lawrence Yun, NAR chief economist, says existing sales fell off track in July after steadily climbing the last four months. “Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month,” he said. “Realtors are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows.”
Updated
Bank of England bond purchase success
A Bank of England bond buying programme for medium term gilts has seen increased demand. The Bank received offers worth 3.1 times the number it wanted to buy of 7 to 15 year gilts. Last week the figure was 2.85 times.
In other words the Bank received total offers of £3.625bn and accepted £1.169bn.
Wall Street opens lower
It may be a couple of days until Janet Yellen, the chair of the US Federal Reserve, makes her speech at the Jackson Hole symposium but investors remain cautious ahead of the event.
On Wall Street, the Dow Jones Industrial Average has dipped 20 points or 0.11% in early trading, while the S&P 500 and Nasdaq Composite have both opened marginally lower.
Further weakness in the oil price ahead of the latest US crude inventory figures, due later, is adding to the uncertainty. Crude saw a sharp spike on Tuesday afternoon following reports that Iran might back plans to support the oil price at next month’s meeting of producers. But growing doubts about the chances of this happening, along with a rise in oil stocks reported by the American Petroleum Institute, saw the price fall back.
Updated
Here is our full story on the Scottish government’s spending and earnings figures for 2015-16:
The Government Expenditure and Revenue Scotland (Gers) figures showed that during 2015-16 the country’s tax receipts were £400 less than the UK average at £10,000, after several decades during which oil had pushed Scottish tax receipts above the UK level.
The gap between Scottish tax revenues and spending had also grown sharply, Gers revealed.
While overall tax receipts fell by £400 a head, the Scottish and UK governments spent £1,200 a head more on public services in the country, and on Scotland’s share of UK and overseas spending.
Compared with spending at UK level, that led to a gulf of £1,600 a head between what was raised in taxes and spent in Scotland. Yet overall government spending as a share of the economy increased again to reach nearly 44% of Scotland’s GDP, compared with 40% at UK level.
Nicola Sturgeon, Scotland’s First Minister, has commented on the Scottish public finances data published this morning.
She said the figures - which showed Scotland’s North Sea revenues fell 97% in 2015-16 to just £60m - were difficult and the drop in oil prices meant Scotland had “suffered an economic shock which has had an impact on our fiscal position”.
She added:
It is a challenge we have had for some time now – how to grow and diversify our onshore economy.
I accept Scotland faces, whatever our constitutional arrangements, a very challenging fiscal position [but] the fundamentals of our economy are strong.
Updated
Mickey Levy, chief US and Asia economist at German bank Berenberg, has some personal insight to offer on Jackson Hole.
He attended the meeting every year for 23 years with his last one in 2013 and says the media is missing the point by focusing on Yellen’s speech and the timing of the next US rate rise.
The purpose of the symposium is to get leading monetary policymakers to focus on and discuss specific broader issues critical to the conduct of monetary policy.
It is not designed to focus on the next FOMC meeting or the timing of Fed policy changes, but that’s what the media who cover the event hype, so that’s what will be reported.
Here is how it works according to Levy, who says the format, the venue, and food menus have remained virtually the same for the past 25 years:
Nearly a year before every meeting, the Federal Reserve Bank of Kansas City picks a topic and a handful of academics to prepare serious research papers.
At the symposium, the papers are presented at panels chaired by leading global central bankers (including Fed members) and each paper is critiqued by formal discussants. Symposium participants are then able to ask questions and make comments.
The papers and Yellen’s speech are embargoed until they are presented. There is no wandering around the hallways—everybody is in the meeting, which is long and formally structured.
Yellen is expected to kick off proceedings on Friday morning:
The Fed Chair gives the opening remarks at the symposium on Friday morning, 8am Mountain Time (10am Eastern Time). There is no Q&A session following the Chair’s presentation. Often, the Chair’s presentation covers the general topic of the papers that are being presented.
The last panel of the symposium, late Saturday morning, will involve four leading central bankers and policymakers commenting and discussing more current issues facing monetary policy. This will include a Fed member and an ECB member.
Updated
Jackson Hole preview: all eyes on Yellen
US traders are treading water as they await the annual meeting of central bankers in Jackson Hole, Wyoming.
Representatives from central banks will gather on Thursday but the main proceedings get underway on Friday.
The event is hosted by the Federal Reserve Bank of Kansas City, and has been since 1978. Prominent central bankers, finance ministers, and academics from around the world gather to discuss the themes around a pre-decided topic.
This year’s meeting has the catchy title: Designing Resilient Monetary Policy Frameworks for the Future.
The formal agenda is not published until Thursday evening in Jackson Hole (1am Friday morning UK time).
But we do know that US Fed chair Janet Yellen will be giving a speech on Friday. The speech is eagerly awaited by investors looking for clues as to when the Fed will next hike rates. The Federal Open Market Committee appears to be divided on the subject, leaving investors confused and uncertain.
They will look to Yellen to shed some light when she gives her speech, entitled, “The Fed’s Monetary Policy Toolkit”.
The Bank of England’s representatives will be Minouche Shafik, deputy governor for markets and banking, and Kristin Forbes, an external member of the Monetary Policy Committee.
Updated
Wall Street is expected to open modestly higher:
US Opening Calls:#DOW 18556 +0.03%#SPX 2188 +0.06%#NASDAQ 4820 +0.06%#IGOpeningCall
— IGSquawk (@IGSquawk) August 24, 2016
FTSE dragged down by miners
The FTSE 100 is lagging other European indices, down -0.2% or 10 points at 6,858.
The FTSE is being dragged lower by the mining companies, which have been hit by the sliding price of oil and other commodities.
Glencore is the biggest faller, down 4.3% after reporting a sharp drop in first-half profits.
Other major markets are rising:
- Germany’s DAX: +0.5% at 10,641
- France’s CAC: +0.6% at 4,450
- Italy’s FTSE MIB: +0.8% at 16,918
- Spain’s IBEX: +0.8% at 8,646
- Europe’s STOXX 600: +0.5% at 345
Returning to Scotland and the 97% drop in North Sea revenue in 2015-16...
The figures were published as part of the Government Expenditure & Revenue Scotland 2015-16.
As well as plunging oil revenues as North Sea fields mature and the oil price weakens, the data showed the deficit (the difference between what the government earned and spent) in Scotland was £14.8bn in 2015-16. That amounted to 9.5% of gross domestic product.
It compares with a UK deficit of £75.3bn, or 4% of GDP.
The huge drop in North Sea revenues last year creates a potential headache for Nicola Sturgeon, Scotland’s First Minister and leader of the SNP, who is considering a second referendum on Scottish independence following the Brexit vote.
It makes it easier for those opposed to Scottish independence to argue that Scotland’s economy would be better off if it remains in the UK.
However, Sturgeon has referred to Scottish government figures that forecast Brexit could cost Scotland’s economy as much as £11.2bn by 2030, and cut public revenues by £3.7bn.
SNP independence blueprint forecast North Sea oil revenues would be just shy of £8 billion by 2015/16. Actual figure: £60m. Oooops.
— Andrew Neil (@afneil) August 24, 2016
Updated
Oil price falls on surprise rise in US stocks
Oil prices are down following an unexpected increase in US crude stocks. The rise in stocks has revived fears over a supply glut.
Brent crude is down 1% or 52 cents at $49.46 a barrel, after touching an intraday low of $49.07.
US West Texas Intermediate crude fell 80 cents or 1.7% to $47.30 a barrel.
Figures published on Tuesday by the American Petroleum Institute showed US stocks had risen by 4.5 million barrels in the week ending 19 August.
Analysts expected a 455,000 fall in the number of barrels.
The US government will publish its own weekly crude stocks data later today.
Pound strengthens on post Brexit vote data
The pound is rising, up 0.3% against the dollar at $1.3230. It is up 0.5% against the euro, at €1.1728.
It seems that speculators are trimming their bets against sterling after much of the economic data relating to July and August suggests the Brexit vote has had a limited impact so far.
Updated
Scotland's North Sea revenues collapse
The Scottish government’s North Sea revenues collapsed in 2015-16 to just £60m from £1.8bn a year earlier.
As the graphic below shows, it is a far cry from the rewards reaped by Scotland in 2008-09, when North Sea revenues were £11.6bn.
The £60m revenue last year was the smallest on record since the Scottish parliament was convened in 1998-99. It represented a 78.5% share of North Sea revenues.
The North Sea is a mature oil asset, meaning much of it has already been extracted with the remaining oil more costly and complex to get out of the ground.
Its decline comes at a time when oil prices have fallen sharply, hitting revenue with a double blow.
2) Scottish north sea oil & gas revenues have plunged due to lowest exploration activity for 45 years. https://t.co/1qAkDEVBIR … #indyref2
— CPS Think Tank (@CPSThinkTank) August 24, 2016
Scotland's deficit 'almost £15bn' as North Sea oil revenue share falls 97% in one year https://t.co/Z3kipdTQ0k
— David Leask (@LeaskyHT) August 24, 2016
Lloyds boss apology: memo in full
My colleague Sean Farrell has obtained the memo sent by Lloyds boss António Horta-Osório to the bank’s staff.
Here is the message in full:
Having returned to work I wanted to use the opportunity to address the recent media coverage of my private life.
As you may have read, my expenses were reviewed in light of speculation by certain newspapers and the Group has confirmed that they are fully compliant. As you’d expect, I pay for my personal expenses whilst away and only reclaim what is a business expense.
My personal life is obviously a private matter as it is for anyone else. But I deeply regret being the cause of so much adverse publicity and the damage that has been done to the Group’s reputation. It has detracted from the great work which you do for our customers on a daily basis and from the major accomplishments of the past five years. This includes the Government shareholding having reduced from over 40% to around 9% with over £16 billion plus dividends having been returned to taxpayers.
More broadly I have been a strong advocate of expecting the highest professional standards from everyone at the bank, and that includes me. I will continue to strive to meet those standards. Having the highest professional standards raises the bar against which we are judged and as I have always said we must recognise that mistakes will be made. I don’t expect anyone to get everything right all the time. The important point being how we learn from those mistakes and the decisions and actions we take afterward.
As we look forward, it is your hard work over the last five years returning the Group to financial health that means we are best placed among our peers to continue supporting the UK economy and to help Britain prosper. We chose to focus on helping the UK economy – in particular through our support for first time buyers, small businesses and UK corporates – and as a result by choice, our future is inextricably linked with the future success of the UK economy.
The extended period of low interest rates that we now face has created uncertainties for the UK economy and new challenges for the Group. And as a UK focused bank we are not immune to the factors likely to shape the UK economic outlook, but I believe we will be well positioned to meet them.
With that in mind please be assured that I am as committed as ever to leading the Group forward to deliver our strategy and to meet our future ambitions. Thank you again for your messages of support over the last few weeks. I have greatly appreciated them.
Best wishes
António
Updated
Howard Archer, chief UK economist at IHS Global Insight, believes UK house prices will fall in 2016 and 2017 as greater uncertainty surrounding Brexit creeps in.
We suspect that house prices could ease back by around 3% over the latter months of 2016 and there could well be a further 5% drop in 2017.
We believe housing market activity is likely to be limited over the coming months and prices will weaken as heightened uncertainty following the UK’s vote to leave the EU weighs down on consumer confidence and willingness to engage in major transactions, and also hampers economic activity.
The fundamentals for house buyers look likely to soften over the coming months with unemployment rising and purchasing power softening.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics has a different interpretation of the BBA figures, arguing there are clear signs that Brexit is weighing on consumers’ minds.
July’s mortgage approvals data bring clear evidence that the Brexit vote has made households reluctant to undertake major financial commitments.
Following a 5% month-to-month fall in June, approvals fell a further 5.3% in July, leaving them at their lowest since January 2015 and down 19% year-over-year.
The decline in approvals corresponds closely with the drop in RICS’ measure of new buyer enquiries and indicators of consumer confidence, so the slowdown seems demand led.
Housing transactions, which only edged down in July, have yet to register the full adverse impact of the Brexit vote.
The BBA’s July data are the first set of borrowing figures since the Brexit vote on 23 June.
Rebecca Harding, BBA chief economist, says despite the drop in mortgage approvals the figures overall suggest the impact of the vote has had little negative impact so far.
A breakdown of the numbers reinforces the picture that consumers have so far shrugged off Brexit uncertainty. Consumer credit was 6% higher in July than a year earlier, reflecting strong retail sales and - in the case of personal loans and overdrafts - low interest rates.
Borrowing by companies meanwhile increased by £2.3bn in July after a small fall in June.
Harding:
The data does not currently suggest borrowing patterns have been significantly affected by the Brexit vote, but it is still early days. Many borrowing decisions will also have been taken before the referendum.
We are also clearly still a nation of shoppers and the Brexit vote has done nothing to change the fact that we use credit cards for short-term purchases. Strong retail sales figures appear closely associated with strong consumer credit growth.
Businesses also appear to be borrowing as usual: the upward trend that characterised the first few months of this year is continuing. June’s data looks like a blip, probably caused by pre-Brexit nervousness. But it is too early to tell how the data over the next few months will reflect the result of the decision to leave the EU.
Mortgage approvals lowest since January 2015
Britain’s high-street banks approved the fewest mortgages since January 2015 in July.
Mortgage approvals for house purchase (excluding remortgages) fell 19% last month compared with a year earlier, to 37,662 according to the British Bankers Association.
Updated
Lloyds boss to express "deep regret"
Antonio Horta-Osorio, the chief executive of Lloyds Banking Group, is expected to apologise to staff today following allegations that he had an affair with a senior academic.
The married father of three is expected to send a message to the bank’s 75,000 staff expressing “deep regret” for any embarrassment and reputational damage to the bank.
He is not expected to resign.
At 9.30 the Scottish government will publish figures that are expected to show a sharp decline in tax revenues from the oil and gas sector, following the drop in oil prices.
Opponents of Nicola Sturgeon and Scottish independence are likely to jump on any weakness in the figures as a reason why Scotland’s economic future would be more secure as part of the UK.
But Sturgeon has argued that Brexit could cost the Scottish economy as much as £11bn by 2030.
Pound stable against dollar and euro
The pound is roughly unchanged this morning, down 0.1% against the dollar at $1.3182.
It’s a similar story against the euro, with the pound down 0.01% €1.1671.
WPP is the FTSE 100’s top riser this morning after the world’s largest advertising group said full-year revenue was likely to grow more than previously expected.
The top of the table this morning:
And at the other end of the table, the miners are among the biggest fallers:
Here is our full story on WPP’s better-than-expected first-half results:
European markets open lower
Europe’s major markets are down in early trading:
- FTSE 100: -0.2% at 6,852
- Germany’s DAX: -0.5% at 10,545
- France’s CAC: -0.5% at 4,399
- Spain’s IBEX: -0.3% at 8,557
- Italy’s FTSE MIB: -0.02% at 16,755
- Europe’s STOXX 600: -0.3% at 343
WPP's Sir Martin Sorrell: we're still worried about Brexit
Sir Martin Sorrell, chief executive of the world’s largest advertising group WPP, says he is still worried about the potential fallout from the Brexit vote.
Sorrell was firmly in the remain camp in the run-up to the 23 June referendum and told BBC Radio 4’s programme the UK’s exit from the EU would be a long and uncertain process.
It’s very early days. What we did see from April to June was caution in front of the vote. What we saw after the vote in July was the UK perking up a bit. But that begs the question as to what the UK would have done in the absence of a Brexit vote or if the vote had gone the other way.
We still worry. Business wants certainty. The government wants the best negotiating position with the EU and the two are actually in conflict. We would like a quick clean solution from a business point of view but the government needs a little bit of scope and time for negotiation. So there is going to be a considerable degree of uncertainty in the future.
Sorrell said building trade agreements with both EU countries and non-EU countries was “a very long-term task and it’s going to take a lot longer I think that people anticipate.”
He added growth was going to be slow and difficult.
With all that said, WPP reported better-than-expected first half results. Things were going so well the group said the outlook for the full year had improved, and it revised up its forecast for full-year revenue growth to “well over” 3%, from an earlier forecast of “over 3%”.
So Sorrell’s main points seem to be that although there appears to have been little negative impact from Brexit so far, things could have been even better if the vote had gone the other way and things could get worse as the complexity of agreeing trade deals become apparent.
Updated
The agenda: German growth slows; Jackson Hole approaches
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Official data has confirmed the German economy slowed in the second quarter, when GDP increased by 0.4%.
It compared with growth of 0.7% in the first quarter.
The annual growth rate for the second quarter was confirmed at 3.1%.
Household and public sector spending, as well as exports, were drivers of growth in the second quarter. Investment however was a drag.
Carsten Brzeski, ING’s chief economist in Germany, comments on the outlook for Europe’s largest economy:
Private consumption should remain an important growth driver on the back of low inflation, low interest rates, low unemployment and higher wages.
In addition, at least in the short run, the refugee crisis will continue to support domestic demand and the construction sector should rebound quickly after the technical correction on the second quarter.
The economy’s Achilles’ heel, however, remains the lack of new investment. To kick-start investment in an ageing economy, some government support is needed. Not only at the national level but also at the European level.
Also today we will provide a preview of the 2016 Jackson Hole meeting of central bankers, which kicks off on Thursday.
At 9.30am the British Bankers Association will publish mortgage figures for July, giving us some clues on the state of the UK housing market in the immediate aftermath of the Brexit vote.
Later in the US housing data will offer an insight into the market there, and what implications it might have for interest rates.
We will bring you all the developments throughout the day.
