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The Guardian - UK
Business
Graeme Wearden (unitl 1.50) and Nick Fletcher

Markets edgy on geopolitical worries, but bitcoin surges through $12,000 - as it happened

Bank buildings in the Financial centre of Canary Wharf.
Bank buildings in the Financial centre of Canary Wharf. Photograph: Alamy Stock Photo

Bubble or not, Bitcoin, meanwhile, is still sharply higher, albeit off its record levels. It is up 8.7% at $12,696, down from the peak of 12,815 recorded earlier.

And on that note it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.

Uncertainty upsets markets

It has been a nervous day for investors in equities, with markets unsettled by a range of factors, including the latest Brexit confusion, concerns about the US tax reforms and the country’s debt ceiling and next week’s expected interest rise from the Federal Reserve. But European markets ended off their worst levels, with the final scores showing:

  • The FTSE 100 finished up 20.53 points or 0.28% at 7348.03
  • Germany’s Dax dropped 0.38% to 12,998.85
  • France’s Cac closed down just 0.02% at 5374.35
  • Italy’s FTSE MIB fell 0.49% to 22,307.28
  • Spain’s Ibex ended down 0.27% at 10,184.0
  • In Greece, the Athens market dipped 0.4% to 727.53

On Wall Street, the Dow Jones Industrial Average is currently down 29 points or 0.12%.

Oil price falls after rising US crude production

US crude oil stocks fell by more than expected last week but after an initial rise, prices fell back again as investors focused on rising production figures.

Crude inventories dropped by 5.6m barrels, more than the forecast 3.4m decline. But gasoline stocks rose by a much larger than expected 6.8m barrels, rather than the 1.7m rise which had been forecast.

And crude production continued to rise, up 25,000 barrels a day and hitting a new weekly record. John Kilduff at Again Capital told Reuters:

Demand for gasoline is curiously weak. And these weeks towards the end of the shopping period normally rival the summertime. So the report overall was bearish.

So Brent crude is currently down 1.2% at $62.08 a barrel.

Earlier the Bank of Canada held the country’s interest rate at 1%, as expected.

But it suggested that further rate hikes, after rises in July and September, would be required “over time” and the bank would be cautious about assessing the outlook for the economy.

Global markets have come off their worst levels but there is still a fairly downbeat mood for the most part. Connor Campbell, financial analyst at Spreadex, said:

The FTSE managed to shake off its early losses this Wednesday, a luxury not afforded to its European and US peers.

Signs of a reversal in the mining sector, and the pound’s continued problems, meant the UK index could push 0.3% higher this afternoon, once against lifting the FTSE above 7350. Sterling, meanwhile did see its situation improve, but not by much; the pound is still down 0.4% against the dollar and 0.3% against the euro, with investors processing the lunchtime shock of David Davis admitting that the government hasn’t done a sector-by-sector Brexit impact assessment.

While they couldn’t completely erase their losses like the FTSE, some of the red mist coating the Eurozone indices has cleared as the day’s gone on. The DAX’s decline is now at 0.8%, compared to the 1.2% drop seen at the open, with the CAC slipping a comparatively meagre 0.2%.

As for the Dow Jones, the index dipped just 0.1% points after the bell. That leaves the Dow just above 24150, around 400 points lower than Monday’s all-time intraday high, and the index’s worst price since last Friday’s Michael Flynn-inspired panic. In terms of data, US investors got a taster of Friday’s non-farm jobs report as the ADP reading fell from 235k in October to 190k in November.

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Speaking of Brexit, chancellor Philip Hammond is up before the Treasury Select committee and leaving the EU is obviously one of the topics.

All the developments are in our politics live blog:

Back with the pound, and any breakthrough in the Brexit discussions are likely to boost the currency, says Richard Falkenhäll, senior foreign exchange strategist at Nordic bank SEB:

Despite new set-backs in Brexit talks, we think there will be a solution which will pave the way for EU leaders to initiate stage two in talks when they meet next week (14-15 December). Should this be the case, our estimated Brexit risk premium suggests it would be followed by a generally stronger GBP. We target at least 0.85 in EUR/GBP on a solution that would break current deadlock in Brexit talks.

Time is running out but our base scenario remains that leaders will come up with a solution that satisfies EU-leaders on 14 December, moving negotiations to stage two. We continue to expect any signs of a breakthrough in negotiations between the parties to boost the GBP by decreasing the Brexit risk premium. In our view, the risk premium reflects the possibility that the UK will leave the EU without a deal in March 2019, a situation that would likely be extremely negative for the country’s growth outlook.

If a divorce deal is reached, clearing the way for trade negotiations to start later this month, then the risk premium should be considerably smaller than it is today, as the potential negative impact on the UK economy of the country’s withdrawal from the EU will have been much reduced.

At the moment the euro/pound is at 0.88 while against the dollar, the pound is down 0.45% at $1.3382.

Updated

ADP’s commentators are upbeat about their latest jobs report, although there is a warning the market could overheat in 2018:

“The labor market continues to grow at a solid pace,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Notably, manufacturing added the most jobs the industry has seen all year. As the labor market continues to tighten and wages increase it will become increasingly difficult for employers to attract and retain skilled talent.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is red hot, with broad-based job gains across industries and company sizes. The only soft spots are in industries being disrupted by technology, brick-and-mortar retailing being the best example. There is a mounting threat that the job market will overheat next year.”

adp6dec

Newsflash: America’s private sector created 190,000 jobs last month, according to payroll operator ADP.

That’s a pretty decent performance, and bang in line with forecasts. It suggests the US employment market remains healthy - which bodes well for the wider Non-Farm Payroll (NFP) figures on Friday.

But it’s important that the NFP figures also show wage growth, otherwise Americans risk missing out on the benefits of the recovery.

Why bitcoin futures could trigger a correction

One rational explanation for bitcoin’s recent explosive surge is that investors will soon be able to trade bitcoin futures.

The advent of bitcoin derivatives will open up cryptocurrencies to a wider range of investors (City trading desks aren’t necessarily au fait with bitcoin wallets). That could trigger a new surge of money in, right?

Well, possibly. But derivative contracts can also be used to profit when an asset loses value. So they will allow traders to net that bitcoin is overvalued and heading for a crash.

This chart shows how Bitcoin has surged ahead of its recent ‘moving averages’ - a traditional measure of an asset’s value. If a correction comes, it could possibly drop back to these levels.....

Via Naeem Aslam of Think Markets
Via Naeem Aslam of Think Markets Photograph: Bloomberg

Neil Wilson of ETX Capital agrees that futures contracts will make bitcoin “price discovery...a lot less opaque”.

People will see just how badly priced it is. At the moment it’s dominated by enthusiasts and speculators who want the price to go up.

Once you get enough shorts and enough people taking the other side of the bet, there will have to be a significant repricing that pops the bubble.

Updated

Britain’s FTSE 100 index is now defying the global selloff, and has crept up by 10 points (or 0.15%) today.

But don’t get the bunting out. The recovery is due to the pound’s weakness, as the lack of Brexit progress alarms traders.

The ongoing row over the Irish border, and fresh signs of cabinet divisions over the EU, is causing anxiety in the markets.

Craig Erlam of foreign exchange firm OANDA explains:

Sterling had previously rallied to two month highs against the greenback on the prospect of a deal being achieved, as both parties appeared to have closed in on a financial settlement being agreed, at least in theory.

As it turns out, what had been touted as being the largest stumbling block has turned out to be nothing in comparison to finding a solution to the border problem that satisfies all involved. The next week could get very tense for Theresa May and questions over her leadership are already once again being asked, providing more downside pressure on the currency.

Mohamed El-Erian, chief economic adviser at Allianz, has tweeted a chart showing how the pound has weakened since yesterday morning:

Poundland owner pounded over accounting problems

South African retail group Steinhoff International have taken an almighty dive this morning, after it shocked the markets by announcing it had discovered accounting irregularities.

Steinhoff, which recently bought British budget shops chain Poundland, has called experts from PwC in to examine its books. It also announced that its chief executive Markus Jooste had resigned.

Shares in Steinhoff plunged by two thirds in Frankfurt - from almost €3 each to below €1 (qualifying them to be sold in Poundland!).

Even more alarmingly, Steinhoff’s bonds have tumbled in value, as investors worried that the company could struggle to repay its debts.

(IG means investment grade, which ought to be relatively safe....)

Updated

Bitcoin just struck a new record high, at $12,800.

But this morning’s ascent may have left it feeling dizzy -- the cryptocurrency promptly tumbled by $500 in a minute.

Bitcoin today
Bitcoin today Photograph: Thomson Reuters

Ben Kumar, investment manager at 7IM, says his firm are keeping clear from bitcoin, despite its surging popularity.

Look at who Bitcoin was created by – some reclusive coding genius with a specific world view. For many people that is enough to dismiss it as a nerdy niche to be ignored. Yet reclusive coding geniuses have in recent years built some of the most successful companies in the world.

But with Futures on Bitcoin to be launched later this month, the question is will that be the death knell, or another leg upwards, once hedge funds/ pension funds get involved? The jury is out, but hedge funds/ pension fund involvement won’t necessarily chime with those who were attracted to Bitcoin in the first place.”

Most stock markets around the world are down today, most currencies have dropped against the US dollar, and most commodity prices are lower too.

Over in the City, shares in insurance and holiday group Saga have plunged by 25% after a shock profits warning this morning.

Saga, which targets the over-50s, warned it has suffered from the collapse of Monarch Airlines this autumn. This will wipe £2m off its profits this year.

Saga also told shareholders to brace for lower profits in 2018, as it throws an extra £10m into its customer recruitment efforts.

CEO Lance Batchelor said Saga had faced “some challenging trading conditions” in the last quarter.

Shareholders have responded by wiping out almost a quarter of the company’s value:

The pound has lost ground against other major currencies today.

The selloff picked up after David Davis, secretary of state for leaving the EU, told MPs that the government hasn’t actually done any sector-by-sector analysis of the impact of Brexit on the UK economy.

Wall Street is expected to fall again when trading begins in four hours.

The Dow Jones industrial average is down by 65 points in the futures market, or around 0.3%, and the S&P 500 is also being called lower.

Marc Ostwald of ADM Investors Services says:

Markets show ever more signs of winding down for the holiday period, but continue to be buffeted into spasms of activity by the various political melodramas, which continue to pockmark this year.

Why shares have fallen today

There are plenty of theories floating around for why the markets are down.

One is that traders are banking profits after a successful year, and hunkering down until 2018.

As Andrew Clarke, director of trading at Mirabaud, put it:

[Investors are] locking in profits earlier than usual for the year and not opening any new positions,” said

“Eventually, as profit taking subsides, buying for the new year will appear as people look toward 2018.”

Another (as cited already) is that investors fear that the rally will become derailed by political developments (Events, dear boy, events!)

Lukman Otunuga, Research Analyst at FXTM, points out that the trigger could come from either side of the Atlantic:

Global equity bulls were nowhere to be found during Tuesday’s trading session as market players evaluated the possible impact of proposed US tax cuts. World stocks were mostly lower amid a global technology selloff, with the lack of appetite for riskier assets punishing European shares and Wall Street.

Asian markets stumbled lower during early trading on Wednesday, following Wall Street’s overnight decline. With the renewed Brexit uncertainty likely to tarnish risk sentiment further, European stocks remain vulnerable to further downside. American shares are still at risk of extending losses this afternoon, if concerns heighten over a potential US government shutdown on Friday if a spending bill is not approved.

A third option: investors are starting to heed concerns that loose monetary policy and easy money have driven share prices to unsustainable levels.

Top UK fund manager Neil Woodford railed against “inflated” asset prices earlier this week.

He told clients that:

Ten years on from the global financial crisis, we are witnessing the product of the biggest monetary policy experiment in history. Investors have forgotten about risk and this is playing out in inflated asset prices and inflated valuations. Whether it’s Bitcoin going through $10,000, European junk bonds yielding less than US Treasuries, historic low levels of volatility or smart beta ETFs attracting gigantic inflows – there are so many lights flashing red that I am losing count.....

The difference between the performance of value stocks and growth stocks today, is greater than at any stage in stock market history.

This chart shows what Woodford is worried about:

An asset bubble ready to burst?

Sterling hit by 'cabinet split' over Brexit

Brexit angst is weighing on the pound again this morning, following reports of a new cabinet split.

According to the Daily Telegraph, Theresa May is facing a Cabinet revolt led by Boris Johnson and Michael Gove, who fear the Prime Minister is trying to force through a soft Brexit.

This has knocked the pound back down below $1.34 this morning, down almost half a cent.

As feared, European stock markets have fallen in early trading, following the losses in Asia.

London’s FTSE 100 is down 24 points, or 0.3%, partly dragged down by mining stocks following the fall in Chinese metal prices today.

There are bigger declines across Europe; Germany’s DAX has lost more than 1%.

European stock markets this morning
European stock markets this morning. Photograph: Thomson Reuters

Adam Cole of Royal Bank of Canada says the markets are fretting about the US debt ceiling deadline and Brexit.

Optimism on US tax reform has given way to concern on Friday’s deadline to avoid a government shutdown.

There have been no public developments on the UK’s position on the Irish border and reports suggest that EU officials are maintaining the line that the “deadline of deadlines” for the UK’s proposals is this Friday.

Updated

AFP: Asian markets tumble on sell-off in tech, energy firms

The AFP newswire has a good take on today’s selloff. Here’s a flavour:

Technology and energy firms were the biggest losers as Asian markets tumbled on Wednesday, extending a retreat across Europe and New York.

A global equity rally has hit the buffers this week as the US probe into Russia’s alleged election meddling sows uncertainty, Britain struggles to reach a Brexit deal with the European Union and traders remain cautious about Washington’s ability to push through tax cuts.

A key drag for Asia on Wednesday was copper prices which sank more than four percent in London, having already lost about 10 percent over the previous week. Analysts blamed a pick-up in the dollar on hopes for US tax cuts.

There are also worries about China’s crackdown on borrowing-fuelled investing.

“The sentiment in China has turned less positive after the conclusion of the national party congress, as the deleveraging rhetoric has returned to the market, especially with regards to real estate speculation,” TD Securities commodity strategist Ryan McKay told Bloomberg News.

Former Republican congressman Ron Paul (a libertarian and long-time critic of central bankers) uncovered plenty of support for bitcoin among his followers:

Let’s remember to revisit this in 2027 to see who was right (Personally I’d take the 10-year Treasuries)

Is Bitcoin going to keep climbing, or is a crash around the corner?

Naeem Aslam of Think Markets thinks we’ll see more record highs, as investors will soon be able to trade bitcoin derivatives (allowing them to profit without actually owning the asset itself).

It appears that the momentum is unstoppable and we do think that the 14K level could reach before the bitcoin futures start trading at the CBOE which is on the 11 December. Principally, investors are thoughtful that when institutional money (hedge funds) will be involved, the chances are that the price would move higher. Large investment funds have not been able to take the piece of the pie yet and that would be their opportunity to get on board.

Bitcoin futures trading on the major stock exchanges would provide more assurance for retail investors that the derivative is trading in a regulatory frame work. This would provide tail wind for bitcoin.

But.... are people actually buying bitcoin to use it, or just because they think someone else will pay more for it in future?

This tweet from experienced economist Stephen Koukoulas suggests the latter....

Bitcoin surges through $12,000

Although the markets are down, Bitcoin is maintaining its charge upwards.

The cryptocurrency has gained almost 6% this morning, bursting through the $12,000 mark to hit $12,488. Quite remarkable, given it started this year at $1,000.

This latest surge comes in the face of warnings that bitcoin is a speculative bubble, and signs that regulators are concerned that organised crime gangs are using it to launder money.

But bitcoin’s supporters will argue that more people are waking up to the potential of digital currencies and the blockchain.

The agenda: Markets are looking tired

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

There’s an edgy mood in the financial markets today, as investors worry about geopolitical issues and the state of the global economy, and wonder if a correction could be looming.

Japan’s Nikkei share average has suffered its biggest fall in over eight months, tumbling by almost 2%.

Other Asian markets also dropped, following a selloff on Wall Street yesterday, and Europe is expected to follow today.

There’s a lot of red on financial screens this morning
There’s a lot of red on financial screens this morning Photograph: Bloomberg TV

A range of factors are being blamed - including the stalled Brexit talks, and concerns over whether America’s tax reforms will actually deliver growth (or even be finalised at all).

Another factor: the news that US President Donald Trump will recognise Jerusalem as Israel’s capital and set in motion the relocation of the U.S. Embassy, despite warnings that this will fuel tensions in the Middle East.

Traders are also citing concerns over US politics, where a three-month suspension of America’s debt ceiling is about to expire. That could force the US Treasury to start using ‘extraordinary measures’ to avoid breaching the cap, which might buy a few months grace...

Debt-Limit Tracker: What to Watch in Markets as Suspension Ends

2017 has been a sterling year for the markets, but some commentators suggest that the rally may be fizzling out.

Michael Hewson of CMS Markets says:

Having seen some decent gains so far this year there appears to be increasing evidence that markets are starting to look a little tired. The first clues appeared yesterday when US markets after racing out of the blocks on Monday found it difficult to hold onto a lot of their gains, even if the Dow did manage to finish the day higher. The S&P500 on the other hand declined for the third day in succession, its worst run of losses since August.

This declining momentum has been something that has been particularly notable in European markets since the peaks back in early November, and while we have managed to find some level of support for most of the past week or so, the subsequent rebounds have been getting shallower.

Overnight, the latest Australian growth figures have missed expectations. Australia’s GDP rose by 0.6%, weaker than the 0.8% which analysts had expected.

Over in China, a senior regulator warned of tougher oversight over financial markets and illegal financial dealings, helping to push shares down in Shanghai.

Commodities are also having a bad day, with Shanghai copper prices falling by 3% on concerns that Chinese growth could slow next year.

Investors will be looking to the latest US jobs report, to see how America’s economy fared last month. Plus, the Bank of Canada will be in the spotlight as it announces its latest monetary policy decision.

The agenda

  • 1.30pm GMT: The US ADP employment report, showing how many private sector jobs were created in America last month
  • 3pm GMT: The Bank of Canada’s interest rate decision
  • 3.30pm GMT: US crude oil inventory figures

Updated

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