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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK retail sales slide; gold hits six-year high - as it happened

Spectators pose for a picture in front of a covered court as rain stops play during the Queens Club tennis tournament in London, Wednesday, June 19, 2019. (AP Photo/Kirsty Wigglesworth)

And finally.... Britain’s stock market has ended the day where it began, with the FTSE 100 up just 5 points.

European stock markets posted losses, with Italy’s FTSE MIB shedding 0.75% and Spain losing 1%.

Gold is still up today, at $1,427 per ounce - near the six-year high of $1,438 struck this morning.

David Madden of CMC Markets sums up the day:

It was been a lacklustre session in Europe today as the US-Iran, and the US-China tensions continue to circulate. The G20 summit is at the forefront of traders’ minds and the meeting between Donald Trump and Xi Jinping is likely to determine the next major move in equities. Some traders are sitting on their hands until the meeting between the two leaders is out of the way.

Goodnight! GW

Updated

US consumer confidence slides

Americans are less upbeat about the economy -- something which may alarm the White House ahead of next year’s elections.

Bloomberg has the details:

U.S. consumer confidence fell in June to the lowest level since September 2017 as Americans became less upbeat about the economy and labor market amid trade tensions with China and Mexico.

The Conference Board’s index declined to 121.5, lower than all forecasts in a Bloomberg survey, data from the New York-based group showed Tuesday. A gauge of the present situation decreased to a one-year low of 162.6, while the measure of expectations fell to 94.1.

President Trump has just hit back against Iran’s claim that his new sanctions are “mentally retarded”.

Trump is threatening to ‘obliterate’ parts of the country if Iranian forces attack America, which may make investors more anxious about geopolitical tensions.

Despite today’s losses, Wall Street is still on track for its best June since 1938.

President Trump has awarded himself a pat on the back:

He should really be thanking Mr Jerome Powell, though - the Fed chair sparked the rally by hinting that interest rates will be cut next month.

Traders work on the floor at the New York Stock Exchange (NYSE).
Traders work on the floor at the New York Stock Exchange (NYSE). Photograph: Brendan McDermid/Reuters

Hello again. Wall Street has opened in the red, as geopolitical tensions worry investors.

The Dow Jones industrial average has shed 108 points, or 0.4%, to 26,628 points.

The broader S&P 500, which hit a record high last week, has also dipped, by around 0.25%.

Traders are cautious ahead of the G20 world leaders meeting this week, anxious that Donald Trump and Xi Jinping may not secure a trade war ceasefire.

Analysts at USB had added to the jitters, forecasting a 20% stock market plunge if talks break down....

Speaking of cars..... the UK auto industry has sounded another warning against a no-deal Brexit.

The SMMT has repeated its claim that car prices will go up by an average of £1,500 if Britain left the EU without a withdrawal agreement.

It also fears that a hard border would push up costs by up to £50,000 every minute! That’s because the delicate just-in-time production systems, and complicated cross-border supply chains, would become gummed up.

Here’s the full story:

Britons also cut back on new car purchases this month.

That suggests people are being cautious about making big-ticket spending decisions.

The CBI says:

10% of motor traders reported sales volumes were up on a year ago, whilst 51% said they were down, giving a balance of -41%.

Volumes are expected to be broadly flat next month (-3%).

The FT blames Britain’s poor summer for the decline in shopping.

UK retail sales were hit by unseasonably cold weather in May and the trend seems to have continued in June, according to a closely watched survey.

The CBI survey registered a retail sales balance of minus 42 per cent, after 16 per cent of the retailers surveyed said sales volumes were up on a year below in June, while 58 per cent said they were down.

The balance was the lowest since the financial crisis and worse than markets expected.

Here’s Reuters’ take on the decline in UK retail sales this month:

British retail sales plunged this month at the fastest annual pace in 10 years, in part reflecting a surge in sales in June last year which were spurred by hot weather and the men’s soccer World Cup, a survey showed on Tuesday.

The Confederation of British Industry’s monthly retail sales balance fell to -42 from -27 in May, below all forecasts in a Reuters poll that had pointed to an improved reading of -10.

“This month’s drop in sales should be taken with a pinch of salt, given the backdrop of last June’s heatwave and the start of the World Cup,” CBI economist Alpesh Paleja said.

“But even accounting for both factors, underlying conditions on the High Street remain challenging.”

The CBI found that grocers were the largest contributors to the fall in sales volumes.

That backs up the idea that Britons spent more on food and drink a year ago, as they picnicked in the sun or held World Cup parties.

Hardware & DIY stores also posted declines -- perhaps it was just too wet to buy a new barbeque or ourdoor decking.

Updated

Andy Bruce of Reuters isn’t convinced that this month’s slump in retail sales can be disregarded, just because June 2018 was so rosy.

Economics professor Danny Blanchflower reckons Brexit uncertainty is hurting the high street:

That column will be online shortly....

Worryingly, many UK retailers are pessimistic about their prospects in July, and are cutting back on orders.

Here are the key points from the CBI’s gloomy assessment of UK retailing:

  • 16% of retailers said that sales volumes were up in June on a year ago, whilst 58% said they were down, giving a weighted balance of -42%.
  • 16% of respondents expect sales volumes to increase next month, whilst 27% expect a decrease, giving a balance of -11%
  • 15% of retailers placed more orders with suppliers than they did a year ago, whilst 48% placed fewer orders, giving a balance of -33%.
  • 26% of retailers reported that their volume of sales for the time of year were good, whilst 45% said they were poor, giving a balance of -19%
  • Internet sales were broadly flat on a year ago (+3%), following growth in the previous month (+38%). Internet sales growth is expected to pick up in the year to July (+23%), but remain weaker than the long-run average (+46%)

Economists are disappointed by the slump in retail sales this month:

UK retail sales suffer biggest fall in a decade

British retail sales plunged this month at the fastest annual pace in 10 years, as wet weather hurt the high street.

The CBI’s monthly retail sales balance (which asks firms if sales were up, or down compared to a year ago) has plunged to -42 from -27 in May, dashing hopes of a rise to -10.

That sounds pretty alarming.

However, the CBI points out that June 2018 was particularly warm - encouraging people to a) buy summer clothes and furniture, and b) splash out on food and drink as they enjoyd the Men’s football world cup.

CBI chief economist Alpesh Paleja says we shouldn’t panic:

This month’s drop in sales should be taken with a pinch of salt, given the backdrop of last June’s heatwave and the start of the World Cup. But even accounting for both factors, underlying conditions on the High Street remain challenging. Retailers are having to continually compete for the attention of value-conscious shoppers, in the age of digital disruption.

“The new Prime Minister must help support retailers by reducing the high cumulative burden of costs they face. This should start by urgently reviewing the dire business rates system, which is unfairly impacting UK high streets and deterring much needed investment.”

Of course, this year has brought the Women’s World Cup, and the Cricket one, so we’re not being starved of sport. However, the weather certainly hasn’t been as good as last year.

Updated

It’s time to break away from parliament, as some alarmingly weak UK retail sales figures just landed!

More to follow!

Q: Shouldn’t Neil Woodford be forced to stop drawing management fees, having blocked investors from taking their money out.

FCA chair Andrew Bailey says it would be “a good thing” if Woodford stopped claiming these fees, although on the other hand Woodford is managing the fund more than ever!

Bailey adds that the regulator will also probe Hargreaves Lansdown over the fee reductions it negotiates on its favourite funds. Those savings are passed onto customers, but there are still concerns that they distort the market.

Q: Is the Woodford crisis a failure of rules, or a failure of regulation?

It’s a failure of rules, says top regulator Andrew Bailey firmly (and not at all biasedly).

Q: So the rules need changing?

Yes.

Q: Will Brexit allow the FCA to shake off its current EU rules-based, ‘tick-box’, regulation and focus more on principles (as Bailey alluded to)

FCA chair Charles Randall takes this point sympathetically.

A freer hand will allow the FCA to look more at outcomes, he says.

Randall also explains that the FCA (set up a decade ago) is still trying to improve.

His personal view is that the first period of the FCA’s existence was dominated by misconduct problems from the financial crisis.

It is now trying to become a more outward-looking regulator, Randall adds.

Nicky Morgan MP is concerned by the idea that the FCA could slacken off on rules -- many of which were brought in after the financail crisis.

Q: How aware will someone like Neil Woodford be of ‘principles’, unless the FCA shows it is watching closely?

Bailey says this is a very fair point, but adds that companies can hide behind the rules book when things go wrong.

Q: What about Hargreaves Lansdown’s role in the Woodford crisis?

Andrew Bailey says the FCA is pursuing Hargreaves over its Wealth 50 list of ‘favourite’ funds.

Were they too slow to take Woodford’s fund off the list, he asks?

Some early reaction to the FCA/Woodford hearing:

Andrew Bailey also concedes that the Woodford fund would have been suspended sooner if the UK used a “principles based system”, not simply a rules-based one.

But he denies that suspending the fund is a bad result -- it’s better than a firesale of assets.

This fund has to manage the shrinkage.

Q: The Woodford Equity Income fund was worth £10bn at its peak - what’s it worth today?

Between £3.5bn and £4bn, Bailey replies.

Q: Is that due to redemptions, or poor performance?

Mostly redemptions.

Q: But isn’t this fund basically a dog?

Bailey points out that Neil Woodford’s career has seen periods of poor performance, and period of strong outperformance - that’s how he built his following.

The Treasury committee are now criticising Andrew Bailey for not moving faster when Neil Woodford tried to list some of his illiquid holdings on the Guernsey Stock Exchange.

Bailey says that Guernsey did call the FCA, but the call somehow went astray. A second call, on 26 April, led to a meeting in May.

Bailey disputes Guernsey’s claim that they only discussed the situation in early June (around the time Woodford froze his fund). He claims the FCA thought it was fully briefed on 8 May.

Committee chairman Nicky Morgan isn’t impressed, saying the FCA should simply be more proactive in monitoring the markets and protecting consumers.

Q: Does anyone at the FCA actually read the newspapers?

Yes, Bailey replies defensively.

Q: So why didn’t you spot that the media were worried about Woodford?

Bailey says a Citywire article triggered the FCA’s concerns about Woodford.

MPS grill the FCA over Woodford debacle

Over in parliament, the Treasury Committee have begun their session on “The work of the Financial Conduct Authority”.

In the hot seats - CEO Andrew Bailey and chairman Charles Randell. It’s being streamed online here.

MPs start by asking the FCA about fund manager’s Neil Woodford’s suspended Equity Income fund, which has locked hundreds of thousands of investors out.

Q: The FCA were first informed that Woodford had breached the 10% limit on illiquid assets in 2017 - so why was the problem not tackled?

Bailey says the FCA put Woodford into an enhanced liquidity monitoring system the second time this rule was breached - a a rare move. This meant the FCA was aware that customers had started pulling money out in recent months.

Q: But shouldn’t you have asked more questions about the time it would take to sell assets to cover redemptions?

Bailey says the FCA was monitoring the pace of outflows vs Woodford’s sales of assets (to pay for those redemptions).

Those outflows “looked manageable”, the FCA chief says.

He then reveals that the FCA pushed Woodford to find an independent valuer of its various assets.

Bailey says the FCA “wasn’t comfortable” about the role played by Link Fund Solutions -- Woodford’s authorised corporate director who was meant to value assets that weren’t listed on stock markets (and were thus hard to sell quickly - a key reason Woodford couldn’t keep up with customer demands for their money back).

Updated

An update on the Southern Water scandal -- the company now faces prosecution by the Environment Agency, on top of today’s £126m penalty for “shocking” failures at its sewage treatment sites.

Southern’s CEO Ian McAulay, who joined in 2017, admitted on the BBC Today Programme that it is “perfectly reasonable to say there was dishonesty” before he joined, in the way the company manipulated its wastewater sampling process and misreported sewage treatment site performance.

Updated

Analyst Michael Brown of Caxton FX says the markets are in a risk-off mood today:

As you can see from this chart, gold has surged dramatically this month to this morning’s six-year highs.

The gold price over the last decade
The gold price over the last decade Photograph: Refinitiv

At $1,430-ish/ounce, gold is still someway shy of its record high of around $1,900 set in 2011.

Back then, traders reckoned that record low interest rates and quantitative easing would drive inflation up, making gold a good way to preserve capital.

Han Tan, Market Analyst at FXTM, reckons gold has more upside:

Gold’s lure has only increased amid intensified fears over the global growth outlook that has been severely dampened by US-China trade tensions that have lasted for nearly a year.

The now enlarged scope of the US-China conflict, expanding beyond trade to include the tech sector, along with the displays of brinksmanship that have unfolded in recent weeks, creates a narrative that should keep Gold’s allure intact.

Updated

Back in the UK, utility provider Southern Water has been slapped with a record-breaking £126m fine, for some shocking failures at its sewage treatment sites.

Southern has apologised, after the regulator found it failed to operate a number of sewage treatment works properly, including not making the necessary investment, which led to equipment failures and spills of wastewater.

Campaigners for the re-nationalisation of public services say the sorry episode shows private companies can’t be trusted with such vital tasks.

Analyst: Gold price could hit $1,550 soon

Analyst Naeem Aslam of Think Markets is confident that gold will keep climbing.

He thinks it could soon hit $1,550 per ounce, up more than another hundred dollars.

Why? The tensions between the US and Iran are one factor, as is the weaker US dollar (which pushes up the cost of commodities priced in $).

But there’s another reason. The boom in bond prices means more debt is only offering a negative yield (ie, you actually lose money by holding the bond until it matures). In that environment, gold looks more attractive.

Aslam writes:

An important factor which investors should be paying attention to is the correlation between the gold price and the size of the negative-yield debt. The chart below shows that there is a strong correlation which means that the gold price rises as the size of the negative yield debt increases.

This makes perfect sense, of course, no one likes to have negative yield debt. The safer bet is the shining metal. Given the current monetary policy adopted by the European Central Bank and the Federal Reserve bank, it is likely that the gold price may actually touch $1550 in the next few months.

The gold price
The gold price vs the rise in negative-yielding bonds Photograph: Think Markets

Gold actually got as high as $1,438/ounce in choppy overnight trading (highest since May 2013), before settling around $1,430 now.

Neil Wilson of Markets.com says a “perfect blend of supporting factors” is responsible for its surge.

Four things are really driving gold – falling yields, a weaker dollar, a soft macroeconomic outlook and geopolitical risks rising in the Middle East.

Updated

Gold has risen to $1,430, as Iran’s president launches a broadside at Donald Trump.

President Rouhani, in a TV speech, declared that America’s new financial sanctions on top Iranians will fail. He also insisted that the restrictions on supreme leader Khamenei will fail, as he doesn’t own any foreign assets anyway.

Dubbing the White House “retarded”, Rouhini also accuses the US of lying about seeking talks with Tehran.

Updated

Financial buildings in the Docklands .

Britain’s FTSE 100 index of leading blue-chip shares has fallen 40 points at the start of trading, down 0.5% to 7,375 points.

Other European markets are also dipping, following the losses in Asia overnight. This has pulled the EU-wide Stoxx 600 index down by 0.4%.

Precious metals miners are bucking the trend, though. Fresnillo (Mexico’s largest gold producer) is up 1% in London.

Bitcoin is also rallying today --- up another 2% to $11,267, a 15-month high.

A woman monitoring stock prices at a brokerage in Beijing today.
A woman monitoring stock prices at a brokerage in Beijing today. Photograph: Ng Han Guan/AP

While gold climbs, Asian stocks are ending the day in the red.

After a weak session, China’s CSI 300 stock index has closed down 1%.

Hong Kong’s Hang Seng shed 1.3% while Japan’s Nikkei dipped by 0.4%.

Gold’s rally shows no signs of stopping, reports Bloomberg, thanks to geopolitical issues around the globe.

It says:

Bullion’s been on a tear this month as the dollar weakened after the Fed opened the door to an interest rate cut and other central banks also pivoted to a more dovish stance. Investors are taking note -- pouring into exchange-traded funds backed by the precious metal and boosting net long positions in U.S. gold futures and options. Morgan Stanley said gold is its top commodity pick on a six-month view as the uncertain macroeconomic outlook adds to its appeal.

“The global capital market’s mood is shaky due to the fear of the unknowns and it’s this uncertainty that will continue to provide the jet fuel for an already high-octane gold market,” Stephen Innes, managing partner at Vanguard Markets Pte, said in a note.

The gold price has jumped by over 10% this month, rising from $1,288/ounce at the end of May to $1,426 this morning.

Alfonso Esparza, a senior market analyst at OANDA, believes bullion could surge higher, if the US and China can’t reach a trade deal at the G20 meeting.

He writes:

“The main event this week will be the sidebar meeting between Trump and Xi, which could stop the current gold rally with a productive sit-down that ends up in a trade agreement,”

“The flip side could boost gold prices even further as the Trump administration has shown that it could turn from friendly to aggressive in a heartbeat further fuelling investor’s demand for a safe haven.”

Gold surges as geopolitical tensions build

A man monitors stock prices at a brokerage in Beijing today
A man monitors stock prices at a brokerage in Beijing today, as most Asian markets fell Photograph: Ng Han Guan/AP

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

Jitters over the US-China trade war and tensions in the Middle East continue to buffet markets.

Overnight, Iran has hit back at America’s decision to impose new sanctions on its supreme leader, Ayatollah Ali Khamenei, saying it has slammed the door of diplomacy shut.

So, with president Trump accusing Iran of “increasingly provocative actions”, the threat of military action in the Gulf hasn’t gone away.

Most Asian stock markets have dipped overnight, and we’re expecting a weaker start in Europe too.

Investors have one eye on the Middle East, and another on the upcoming G20 meeting of world leaders in Japan.

The markets would like to see Trump cut a ceasefire deal with president Xi. But China isn’t rolling over; yesterday, Chinese Vice Commerce Minister Wang Shouwen said both sides need to compromise. Hawkish US officials aren’t in the mood to compromise on issues like forced technology transfer, though.

So faced with this picture, investors are piling into safe-haven assets.

Gold has hit a six-year high today, currently changing hands at $1,426 per ounce for the first time since 2013 (when eurozone crisis worries were raging). That’s an increase of nearly 1%, adding to recent gains.

The gold price
The gold price Photograph: Refinitiv

Ipek Ozkardeskaya, analyst at London Capital Group, says money is “pouring into gold”.

She adds:

Investors are reluctant to move their capital elsewhere in the middle of a worsening US-Iran thunderstorm and ahead of the G20 summit.

Traders are also shunning the US dollar, which is on its longest losing stretch in a year and a half.

They’re expecting the Federal Reserve to start slashing interest rates next month, especially now Trump is accusing them of childish incompetence...

Also coming up today

In London, MPs will be questioning the Financial Conduct Authority. Andrew Bailey, head of the City watchdog, can expect some tough questions over the Neil Woodford crisis.

We’re also expecting new UK retail sales figures, and US consumer confidence and housing data -- which may bolster the case for an interest rate cut.

The agenda

  • 1oam BST: The FCA testifies to the UK Treasury Committee
  • 11am BST: CBI survey of UK retail sales in May released
  • 2pm BST: US house price index for May
  • 3pm BST: US consumer confidence stats for June

Updated

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