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The Guardian - UK
Business
Graeme Wearden (until 2pm) and Nick Fletcher

UK runs up £12.6bn deficit; Monte dei Paschi fundraising struggles – as it happened

The City of London.
The City of London. Photograph: robertharding/REX Shutterstock

European shares put in downbeat performance

In quiet pre-Christmas trading, the banking sector came under pressure on concerns that Italian bank Monte dei Pashi’s fundraising was in trouble, helping push European markets into negative territory. The moves were hardly dramatic however, ahead of the holiday period, and the German market managed to just about buck the trend. In the US, the Dow Jones Industrial Average has so far failed to test the 20,000 barrier. The final scores in Europe showed:

  • The FTSE 100 finished down 0.04% at 7041.42
  • Germany’s Dax edged up 0.03% to 11,468.64
  • France’s Cac closed 0.33% lower at 4833.82
  • Italy’s FTSE MIB fell 0.16% to 19,215.59 with Monte dei Paschi itself down 12%
  • Spain’s Ibex ended down 0.38% at 9371.7
  • In Greece, the Athens market added 1.71% to 638.99

On Wall Street the Dow Jones Industrial Average is currently down around 13 points at 19,961.

On that note it’s time to close for the day, barring any late developments on Wall Street. Thanks for all your comments and we’ll be back tomorrow.

Updated

Worries about European banks are undermining stock markets, particularly in Italy and Spain. Chris Beauchamp, chief market analyst at IG, said:

Banking concerns have played across European markets once again today, as Monte dei Paschi looks set for a government takeover. The rescue plan has fallen apart, with Rome unable to find an anchor investor; for understandable reasons, no one wants to be first ‘over the top’ should the crisis worsen.

Italy’s debt will get bigger, but a major government stake should, paradoxically, boost risk appetite among investors, who will be glad to see the Italian government taking the tough decisions.

Meanwhile, Spanish banks are under pressure after the ECJ ruled they would have to pay back funds to mortgage borrowers. 2016 saw plenty of concerns about European banks, but while it made sense for everyone to buy Deutsche shares at €10, it will be harder to find investors willing to take stakes in southern European firms. Still, the overall tone on markets is only slightly negative, although the patient watch for Dow 20,000 goes on.

Here’s Reuters on the Monte dei Paschi situation:

Ailing Italian bank Monte dei Paschi di Siena has been unable to find an anchor investor willing to put money in its privately funded rescue plan, less than 24 hours before the offer ends, two sources close to the matter said on Wednesday.

The bank needs to raise 5 billion euros ($5.2 billion) by the end of this month to avert being wound down. The Italian government is expected to step in this week to bail it out.

The Tuscan lender, Italy’s third biggest bank and the world’s oldest, had pinned its hopes on Qatar’s sovereign wealth fund investing 1 billion euros in its cash call, but that option is no longer on the table, the sources said.

As a result, the bank entire share sale, which closes at 2 p.m. (1300 GMT) on Thursday, has drawn very little interest from the wider investment community, they added.

The bank declined to comment.

Ratings agency DBRS is keeping an eye on Italy:

Monte de Paschi woes continue

Over in Italy, the rescue package for struggling bank Monte dei Paschi is looking in trouble, bringing the prospect of a state bailout closer:

Which suggests that Qatar is unwilling to invest in the bank. But Italy could find out whether any bailout breaches EU rules, if taxpayers have to foot the bill but investors are left untouched.

Updated

In the wake of its recent blog on Greece, the International Monetary Fund has responded to questions about its comments, mainly to do with tax and pensions. A tweet from the IMF’s spokesperson explains:

Oil prices have slipped slightly as the latest US figures show an unexpected rise in crude stocks.

West Texas Intermediate - the US benchmark - is 0.15% lower at $53.22 a barrel while Brent crude is down 0.38% to $55.14.

US oil stocks unexpectedly rise

US crude stocks have defied expectations with a hefty jump last week.

They rose by nearly 2.3m barrels, according to the Energy Information Administration, compared to forecasts of a fall of around 2.5m barrels.

The figures go against Tuesday’s news from the American Petroleum Institute of a much larger than expected 4.1m decline in crude.

Analyst welcomed the improvement in European consumer confidence, but there was some caution over the future outlook. Dennis de Jong, managing director at UFX.com, said:

European consumers appear to have shrugged off concerns including Brexit, the Italian banking crisis and the upcoming inauguration of President Trump to post the year’s strongest confidence figures for December, albeit still firmly in negative territory.

While today’s data will encourage ECB chief Mario Draghi, the Christmas cheer may not last long, especially if markets start to waver as Brexit negotiations begin in earnest next year.

Draghi must be congratulated for steering Europe’s economy through choppy waters during what has been a particularly testing 12 months. But now the real challenge begins: delivering substantive growth in 2017.

Economist Howard Archer at IHS Markit said:

An encouraging boost to Eurozone growth prospects as consumer confidence rose for a fourth month running in December to reach a 20-month high. Furthermore, consumer confidence is now at a very decent level compared to long-term norms. Consumers across the Eurozone are currently benefiting from pretty decent fundamentals overall, notably including higher employment and still limited inflation.

This reinforces hopes that the Eurozone will have seen some pick-up in GDP growth in the fourth quarter and is set to see a decent start to 2017...

While there are no details available, it seems reasonable suspect that the marked rise in Eurozone consumer confidence in December was due to improved perceptions on the economic situation and outlook. It is also likely that job concerns eased further across the Eurozone after a marked dip in November (following increased worries during August-October). Significantly, latest data showed that Eurozone unemployment dropped at an increased rate in October and September after labour markets had shown signs of losing momentum over the summer.

Any improvement in Eurozone consumer confidence – particularly a decent increase – is to be welcomed as the consumer clearly is vital to Eurozone growth prospects...

However, there is the danger that an increasingly uncertain political and economic environment could cause companies to become more cautious over employment during 2017.

Furthermore, consumer confidence in the Eurozone could very well be pressurised by increasing political uncertainty over the coming months, especially given that the UK’s Brexit vote in June and November’s election of Donald Trump as US President fuels concern over potential political shocks in the Eurozone. General elections are due 2017 in the Netherlands (in March), France (in April/May) and Germany (around September), and may also well occur in Italy after the December referendum defeat on constitutional reform.

Eurozone consumer confidence rises to 20 month high

Eurozone consumer confidence has improved so far in December.

The provisional reading for the month from the European Commission shows a rise of 1.1 points to -5.1, compared to expectations of a figure of -6. The Commission said:

In December 2016, the...flash estimate of the consumer confidence indicator increased markedly in both the euro area (by 1.1 points to -5.1) and the EU (by 1.2 points to -4.6) compared to November.

Updated

On the home sales, Lawrence Yun, the association’s chief economist, said the last three months had been outstanding for the housing market. He said:

The healthiest job market since the Great Recession and the anticipation of some buyers to close on a home before mortgage rates accurately rose from their historically low level have combined to drive sales higher in recent months. Furthermore, it’s no coincidence that home shoppers in the Northeast — where price growth has been tame all year — had the most success last month.

Existing housing supply at the beginning of the year was inadequate and is now even worse heading into 2017. Rental units are also seeing this shortage. As a result, both home prices and rents continue to far outstrip incomes in much of the country.

US home sales at near 10 year high

US existing home sales unexpectedly jumped in November, hitting their highest level in nearly ten years.

Sales rose 0.7% to an annualised 5.61m units, the best since February 2007, according to the National Association of Realtors. Analysts had been expecting a fall from October’s figure of 5.57m units - itself revised down from 5.6m - to 5.5m.

Updated

Well that didn’t last. The Dow is now down 14 points as investors shy away from pushing it above 20,000. For the moment at least.

Dow edges closer to 20,000 as Wall Street opens

After an initial dip, the Dow Jones Industrial Average is slightly higher, edging ever nearer to the 20,000 barrier. But the trend is not exactly certain in early trading.

The Dow is currently at 19,982, up 8 points. Elsewhere the S&P 500 opened down just 1.55 points while the Nasdaq Composite dipped 0.05%.

Updated

Analysts have been waiting for a few days now for the Dow Jones Industrial Average to break the 20,000 barrier for the first time, and on Tuesday it came tantalisingly close at 19,987 before closing at 19.974.

Could today be the day? The futures are indicating a slight rise, so it looks like edging ever closer. Kit Juckes at Societe Generale said:

I have no insight into what happens once the Dow breaks 20,000 but some people see this as a major milestone. And until it is broken it acts as Pied Piper, or perhaps Rudolph’s nose, lighting the way for the risk-hungry and those scared of being left behind.

The Guardian’s monthly Brexit Watch has just been published. It shows how the impact June’s vote is now hitting the economy, with inflation up and retail sales growth slowing.

Economists Danny Blanchflower and Andrew Sentance both agree that growth is slowing:

OBR: UK borrowing to rise over next four months

Britain’s fiscal watchdog, the Office for Budget Responsibility, has just warned that public borrowing in the final four months of this financial year will be slightly higher than a year ago.

In its official response to today’s public finance data, the OBR warns that tax receipts may weaken in the December-March period, while government spending will pick up.

The OBR says:

“Considerable uncertainty remains over prospects for borrowing in the remaining third of the year, but we expect public sector net borrowing to rise slightly relative to the same period in 2015-16. This is due to:

  • onshore corporation tax, where strength in October instalment payments that was factored into our November forecast is not expected to persist over the rest of the year;
  • stamp duty land tax, where we expect much weaker growth over the rest of the year. SDLT receipts in April 2016 were up 48 per cent on a year earlier, reflecting forestalling ahead of the introduction of an additional rate of stamp duty on additional properties (i.e. buy-to-let investments and second homes). We expect the weakness in receipts seen since the EU referendum to persist over the rest of the year; and
  • central government spending, where a number of factors are expected to boost growth later in the year. These include debt interest spending, which is expected to rise due to higher RPI inflation (with a lag of three to eight months) and higher planned investment spending.”

However (as flagged earlier), Britain’s borrowing since April is down by £7.7bn, so the annual deficit should still fall.

A Greek flag

Over in Greece, relations with creditors remain awkward and tense following Monday’s inconclusive euro working group (representing Greek creditors)

Our correspondent Helena Smith reports from Athens:

The tensions stirred by the announcement of relief measures for those hardest hit by the country’s seemingly relentless economic crisis show no sign of abating.

Monday’s euro group meeting was a test case in humiliation for the embattled Greek government with Athens being forced to accept in writing that the bonus proclaimed by prime minister Alexis Tsipras for pensioners is a “one off” that will never be repeated.

Germany, the main contributor to the emergency bailouts keeping the debt-stricken economy afloat, apparently remains unconvinced that the pre-Christmas gifts (including exempting Aegean islands from a planned sales tax) will not throw the economy off-course. The leftist-led government insists that fiscal targets can be met because the supplementary help will be extracted from the primary surplus Athens, by dint of hard effort, has managed to achieve.

The deputy prime minister Yiannis Dragasakis highlighted the tensions on Tuesday evening saying it was the country’s “sovereign right” to distribute the excess surplus as it felt fit.

Finance ministry sources say with the handwringing still ongoing, Athens has yet to send the letter. Without it, euro zone partners have said the retaliatory decision to freeze short-term debt relief measures – a huge setback for Athens – cannot be lifted.

One of Monte dei Paschi’s riskier bonds has tumbled in value today, in another sign that investors believe its €5bn cash call will fail.

That capital raising exercise ends tomorrow afternoon; if it hasn’t attracted enough support, Italy’s government might then step in and ‘bail in’ some bond holders, making them share the cost of a rescue.

Back in Italy, shares in Monte dei Paschi bank have taken an almighty dive - only to bounce right back up again <insert joke about your least favourite footballer>.

They initially slumped by 18% in a panicky selloff, as news broke that the bank might run out of liquidity within four months.

BUT then they rallies sharply, after Italian MPs approved plans to borrow an extra €20bn to fund bank bailouts (potentially starting with Monte dei Paschi)

It’s not clear, though, that shareholders would be left with much if the Rome government is forced to intervene -- which is why shares are down 99.8% from their record high....

Britain’t tax receipts have risen by 4.4% this financial year, or £17.8bn, to £421.8bn.

That helped to pull borrowing down since April -- but not by enough to prevent the national debt hitting record highs.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), is concerned that the UK tax take isn’t growing faster:

“Government borrowing in November, while higher than expected, was still marginally lower in annual terms. Despite the slight improvement, debt levels remain unsustainably high.

“2017 is likely to be a challenging period for the UK’s public finances, with economic growth likely to soften, which will hamper the UK’s ability to generate tax receipts.

The more flexible approach to deficit reduction announced in the Autumn Statement is a sensible step given the broader uncertainty. However, the acid test for the Chancellor’s new fiscal rules will be whether they are able to reverse the ongoing shortfall in tax revenue, which has persistently hampered previous attempts to reduce the deficit.”

Public finances provide reassurance to chancellor Hammond

British Chancellor of the Exchequer Philip Hammond making Christmas decoration with Spike Coates during his Christmas party last week.
British Chancellor of the Exchequer Philip Hammond making Christmas decoration with Spike Coates during his Christmas party last week. Photograph: Victoria Jones/AFP/Getty Images

Chancellor Philip Hammond may find some Christmas cheer in today’s public finances.

Even though the deficit was higher than expected, Britain seems to be on track to hit the (new) budget targets which were announced in November’s autumn statement.

Howard Archer of IHS Global Insight says its “welcome news” for Hammond.

Reassuring news for the Chancellor as the public finances saw modest improvement in November compared to a year earlier – thereby keeping the government on track to meet – or even slightly undershoot - its upwardly revised target for 2016/17 contained in November’s Autumn Statement.

It would have been somewhat embarrassing if the first set of public finance figures after the November Statement had immediately put question markets over his new fiscal targets.

Howard has also crunched through today’s data, and reports that:

There was a slowdown in growth in tax receipts in November, primarily due to income tax related receipts dipping 1.1% year-on-year. ONS data show that employment growth has slowed recently, although it needs to be borne in mind that the tax data can be erratic from month to month, partly depending on when exactly the receipts come in. It is also notable that national insurance contributions were up 6.3% year-on-year.

VAT receipts were up 4.4% year-on-year in November and corporation tax receipts were up 22.9% year-on-year, which points to still resilient economic activity.

UK public finances: What the experts say

City experts aren’t impressed that Britain’s net borrowing spiked to £12.6bn last month, up from just £4.2bn in October.

Paul Sirani, chief market analyst at Xtrade, says:

“The outlook for the UK heading into the new year is a rather bearish one and investors are unlikely to be flying in with both feet as uncertainty continues to swirl.

And here’s Dennis de Jong, managing director at UFX.com,

“The gap between UK government spending and income has risen sharply in November, raising a number of red flags with investors who will interpret this as a sign that a significant economic slowdown is coming in the new year.

“Chancellor Philip Hammond has announced the final spring budget for early March where he will attempt to plan for an uncertain future, with the triggering of Article 50 set for later that month.

“If borrowing levels continues to rise at this rate, Hammond may not have too much room for manoeuvre when setting out his fiscal policy.”

UK borrowing: the key charts

This chart, from today’s public finances, shows how Britain’s national debt hit a new record high in November - up to £1.655bn from £1.641bn in October.

.

And this chart shows how net borrowing this financial year has fallen by £7.7bn, compared to 2015-2016.

.

Updated

UK borrowed £12.65bn in November

Newsflash: Britain borrowed more than £12.6bn to balance the books in November.

The public sector net borrowing requirement (excluding the impact of our state-owned banks) came in at £12.647bn.

That’s around £400m ahead of City expectations but lower than the £13.2bn borrowed in November 2015.

And it pushes the national debt up to £1.655 trillion, a new record high, equivalent to 84.5% of GDP.

More to follow...

If the public’s inflation expectations are accurate, then pay packets are going to be eroded by rising prices in the next few years.

This chart from the Resolution Foundation shows how real wages could start falling in 2017, as inflation overtakes nominal pay growth:

Updated

Eek.....

Now this is interesting.... three of the six policymakers at Sweden’s Riksbank voted against extending its QE programme by six months.

One deputy governor wanted a smaller QE boost, while two more opposed any extension.

That forced governor Stefan Ingves to use his casting vote to get today’s decision through.

Monte dei Paschi shares plunge on liquidity worries

Shares in Italy’s Monte dei Paschi (MPS) have just been temporarily suspended in Milan after plunging over 8%.

The selloff was triggered, I think, by a Reuters report showing that MPS is burning through its €11bn cash reserves faster than expected. It is now on track to run out of funds in four months time, rather than having almost a year’s worth of liquidity.

Reuters said:

Monte dei Paschi said it now expected its net liquidity position, currently standing at €10.6bn, to turn negative after four months. On Sunday the bank had forecast that a current net liquidity position, which was of €11bn, would turn negative after 11 months under a number of assumptions.

Remember, MPS must find €5bn of fresh capital by the end of this month.

Updated

Newsflash from Stockholm: Sweden’s central bank has voted to leave interest rates at their current record low of minus 0.5%.

The Riksbank has also extended its asset-purchase scheme by another six months, to maintain its current expansionary monetary policy.

The pound is dipping in early trading, down 0.25% against the US dollar to $1.2334, and 0.4% against the euro to €1.185.

The US dollar itself is edging away from yesterday’s 14-year high, but remains strong -- possibly too strong, given the political uncertainty in America.

Jeremy Cook of World First says:

Once again, we have to think that the market is irrationally exuberant heading into the New Year and while the economic side of the new politics is being fully priced in – US and Chinese stimulus – the political side of the economics – policy mistakes and antagonistic trade stances – are not.

The dollar has made an impressive run but our minds keep circling back to the inauguration of Donald Trump on January 20th as a possible turning point. Markets like to ‘buy the rumour and sell the fact’ and the swelling of asset prices, the dollar and inflation expectations could be a monster version of this trading plan. We cannot be sure until Trump is in the White House and that is in a month’s time.

Have City traders clocked off for Christmas already?

European stock markets have barely shifted in early trading, and are hovering close to their highest level in 11 months.

In London, the FTSE 100 has risen by 4 points, or 0.07%.

European stock markets this morning

Some breaking news: Britons are expecting inflation to pick up speed over the next few years, according to a new survey.

Reuters has the details:

The British public’s long-term expectation for inflation rose to 3% in December, a more than two year high, according to a closely watched survey by polling company YouGov.

The survey for U.S. bank Citi showed that in December, people on average expected inflation in 5-10 years to reach 3%, the highest level since September 2014 and up from a November forecast of 2.8%.

In the shorter term, respondents to the survey expect inflation in 12 months’ time to be at 2.43% from an earlier forecast of 2.36%.

Last month, inflation picked up to 1.2% - and economists expect it to keep rising in 2017.

The survey comes after a series of Brexit-inflation stories, including the row between Unilever and Tesco over the price of marmite, and price hikes by US technology firms such as Apple.

The Agenda: UK public finances in focus

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

Even though its unseasonably mild, this morning’s economic data may send a shiver through the City.

At 9.30am, we find out how much Britain had to borrow last month to balance the gap between government income and spending. It’s likely to show that the deficit widened to £12.2bn in November, up from just £4.8bn in October.

A poor reading may reignite concerns over the UK’s public finances as we head towards 2017, and a likely economic slowdown.

The data may put a few investors off their mince pies, with analysts at RBC Capital Markets saying:

November is traditionally a seasonally difficult month for the public finances, and we see a deficit of £12bn on the public sector net borrowing (ex-banking groups) measure.

Also coming up....

Italy’s government will be pushing on with a €20bn rescue package for its banks, with time running short.

Monti dei Paschi, Italy’s oldest lender, is making a last-ditch attempt to raise €5bn by selling shares to retail investors and investors. But this plan hit another roadblock last night, when the country’s bank rescue fund expressed concerns about a €1.5bn loan that would underpin the deal.

If the rescue plan fails, then the Italian state will have to step in.

European stock markets are expected to dip this morning, after Wall Street hit record highs (again) last night, and the dollar hit a new 14-year high.

Traders will be watching New York later, to see if the Dow Jones index can hit 20,000 for the first time (it rose to 19,974 yesterday).

And at 3.30pm GMT, we get a new reading on America’s oil inventories - a good barometer of demand in the energy sector.

Updated

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