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The Guardian - UK
The Guardian - UK
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Graeme Wearden (until 2.15) and Nick Fletcher

Pound wobbles after Tory social care U-turn, as Greek debt talks begin – as it happened

ECB president Mario Draghi arrives for the day’s eurogroup meeting.
ECB president Mario Draghi arrives for the day’s eurogroup meeting. Photograph: John Thys/AFP/Getty Images

Mixed day for European markets

A dip in the pound following the U-turn on social care from the Conservatives has helped lift the FTSE 100, packed as it is with overseas earners who benefit from a weaker sterling. Meanwhile the FTSE 250 hit a record closing high of 19,912, helped by a positive performance from the telecoms sector.

But a stronger euro following comments from German chancellor Angela Merkel has left the Dax and Cac trailing. The final scores showed:

  • The FTSE 100 finished up 25.63 points or 0.34% at 7496.34
  • Germany’s Dax dipped 0.15% to 12,619.46
  • France’s Cac closed 0.03% lower at 5322.88
  • Italy’s FTSE MIB fell 1.15% to 21,318.58
  • Spain’s Ibex ended 0.39% lower at 10,793.4
  • In Greece, the Athens market added 0.56% to 788.53

On Wall Street, the Dow Jones Industrial Average is currently up 94 points or 0.46%.

On that note we’re closing up for the evening. Thanks for all your comments, and unless there are major developments later, we’ll be back tomorrow.

Back with the eurogroup, and the Greek finance minister:

Heading into the European market close, the euro continues to be boosted by Angela Merkel’s comments. Chris Beauchamp, chief market analyst at IG, said:

On an otherwise uneventful day, it was at least pleasingly distracting to have Frau Merkel air her views on the euro. The chancellor, who seems set for re-election later this year, noted that the euro seemed too weak. This caused a frenzy of euro buying, for who can blame traders for rushing in when Europe’s most powerful politician issues a trade idea? It is euro strength more than anything else that accounts for the underperformance of European equities today, but flash PMIs tomorrow could provide a reason for the Dax et al to play catch-up later in the week.

Meanwhile the pound has recovered much of its early losses, as Theresa May signalled her U-turn of the so-called dementia tax. Connor Campbell, financial analyst at Spreadex said:

The Tory wobble continued to dominant trading this Monday, though a major U-turn from Theresa May did help cable recover its losses.

As the Prime Minister introduced an unspecified ‘absolute limit’ on lifetime care costs – an element of the Conservatives’ social care plan that was absent from the manifesto, and sees a pretty substantial alteration to the ‘dementia tax’ announced last Thursday – the pound managed to claw its way back above $1.30 against the dollar.

It wasn’t so lucky elsewhere, however; after Angela Merkel told a group of school children that the euro was ‘too weak’, the currency went on another run, taking half a percent off of both sterling and the greenback. That marks a new $1.12-plus 6 month peak for the euro-dollar, and a fresh 7 and a half week high against the pound.

Sterling’s euro-troubles allowed the FTSE to maintain its early gains, the index jumping half a percent to just about re-cross 7500. The DAX and CAC weren’t quite as enthused as their UK counterpart, falling 0.1% and rising 0.1% respectively

This will not be the end deal - eurogroup's Dijsselbloem

Ahead of the meeting Jeroen Dijsselbloem, president of the eurogroup, said:

I expect and I’m working on a deal today but it will not be the end deal. We’ve always said that the final concrete decision on extra debt relief measures will come at the end of the programme which is next year.

On the other hand the IMF has asked for more clarity, more specificity, on how far that could go , what that would look like... A formal decison on debt relief if needed will come at the end of the programme.

Is the commission still far apart from the IMF?

On some topics, there is still a different expectation, for example growth... we have time between now and next year to convergence further and Greece can show it will find the growth path...

It’s time for the IMF to come on board, to take a positive decision, to be part of the programme we have... they have made clear what they would require, that is what we are going to be working on today.

When will you decide on the disbursement of the next tranche of bailout money?

If all goes well today, and all the prior actions are implemented, to the satisfaction of the institutions, that could be done well in time before the summer.

Dijsselbloem greets Greek finance minister Euclid Tsakalotos at the eurogroup meeting.
Dijsselbloem greets Greek finance minister Euclid Tsakalotos at the eurogroup meeting. Photograph: Francois Lenoir/Reuters

Updated

Back at the eurogroup, and ministers are discussing economic forecasts. The Cypriot finance minister feels compelled to tweet a comment:

Wall Street opens higher

Over to the US, and stock markets are in an optimistic mood after last week’s volatility.

With no new Donald Trump controversy over Russia as the president continues his overseas trip, the Dow Jones Industrial Average is currently up 105 points or 0.5% while the S&P 500 opened 0.3% higher and the Nasdaq Composite 0.42% better.

Indeed, Trump’s $110m arms deal with Saudi Arabia signed over the weekend has boosted US defence companies such as General Dynamic, Raytheon, Boeing and Lockheed Martin.

Meanwhile a rise in the oil price on growing confidence producers will extend a production cut by 9 months at an Opec meeting this Thursday has also given support to shares.

Greek debt decision could be deferred - Noonan

Meanwhile Irish finance minister Michael Noonan has also played down the prospects of a debt agreement on Greece today. He said:

I don’t think we’ll get a full deal on Greece today but we might get a decision on disbursment [of €7bn] with the issue of debt write-downs being deferred.

On the sticking points he said:

There is a divergence of opinion between the [European] Commission and the IMF which as far as I know hasn’t yet been fully resolved, but I hope further progress can be made today to narrow the ground between the two.

Noonan
Noonan Photograph: European Commission

Earlier:

Updated

Slovakia cools talk of Greek debt deal

Eurozone finances ministers are arriving in Brussels for today’s eurogroup meeting, where Greece’s bailout is top of the agenda.

Germany’s Wolfgang Schäuble said he’s hoping for an agreement that Greece has done enough to receive its next tranche of loans.

Reuters has the details:

“I hope that we find a solution today which concludes things politically,” Schaeuble told reporters on entering a meeting of euro zone finance ministers devoted mainly to Greece.

He said the finalisation of an agreement on Greece would have to wait for a report on whether the country has implemented all the agreed reforms, the so-called compliance report, which euro zone officials said was positive.

But Slovakia’s finance minister, Peter Kažimír, has dampened hopes of a breakthrough on cutting Greece’s debt pile.

Arriving at today’s Eurogroup meeting, Kažimír told reporters that Greece didn’t really need debt relief right now.

Investors have turned more negative about the pound, a new gauge shows.

Bloomberg’s Kristine Aquino explains:

The positive momentum that propelled the pound to the highest since September appears to be running out just in time for the U.K. election.

Bloomberg’s Fear-Greed indicator shows traders betting on sterling declines have taken over from those predicting gains. The catalyst is probably less the result of the vote, which the ruling Conservatives are expected to win, and more the impending talks over Britain’s exit from the European Union, in which negotiating lines look increasingly hard.

Oil ministers prepare for Opec meeting

A flag with the OPEC logo

Tension is building in the energy market ahead of the next Opec meeting, due in Vienna on Thursday.

Oil ministers from across the cartel are expected to agree an extension to their production freeze, agreed last November. But how long for?

Traders had been looking for a nine-month extension, given recent comments from Saudi Arabia. But Iraq has now thrown this into confusion, saying that it only backs a six-month deal.

Georgi Kantchev of the Wall Street Journal reports that this has sparked a last-minute move by Saudi Arabia to try to persuade Iraq to back a longer extension (which would presumably keep the oil price higher).

Can a flagship pull a u-turn?

Either way, the pound had now clambered back over $1.30 as Theresa May ‘clarifies’ her manifesto promises on social care.

Sterling is now back at $1.3018, down just 0.1%, after the PM announced that there will be a cap on the amount people would have to pay for their social care costs.

She pulled the about-turn at a particularly bruising press conference; our politics liveblog suggests it is May’s worst morning since becoming PM. Full details and reaction here:

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London lobbies to keep euro clearing after Brexit

In other news, City bosses have launched a fresh bid to deter Europe from trying to move London’s lucrative euro derivatives business to the continent.

Currently, London acts as a clearing house for contracts denominated in euros, yen, dollars, pounds and other currencies. This helps to avoid a systemic meltdown, if one firm hits trouble and starts defaulting on contracts.

Xavier Rolet, the CEO of the London Stock Exchange, has claimed that moving the euro clearing out of the City would create new systemic risk and drive up trading costs.

Writing in The Times, he says:

“London clears 18 major currencies and these multi-currency netting efficiencies meant LCH saved its customers $21 billion in capital last year. Strip out euro clearing and you lose these efficiencies, potentially increasing cumulative trading costs by €100 billion over five years.

Moving euro derivatives clearing to, say, Frankfurt or Paris would cost the City jobs - and prestige.

So the City of London Corporation has also weighed in this morning, arguing that it would destabilise the global financial system and drive up costs for European companies.

Their policy chairman, Catherine McGuinness, wrote in City AM that:

Around €1 trillion are exchanged in the UK every day. In terms of interest rate derivatives, including swaps, options and other products, the UK is a clear market leader in euro-denominated transactions, with a daily turnover of €927bn.

So it’s not surprising that, with that volume, a mainland Europe eager to attract business has its eye on a piece of this cake.

That would, however, be a mistake. Clearing is centred in one place for reasons of efficiency, cost, and also – importantly – risk management.

Updated

Angela Merkel sends 'weak' euro to six-month high

German Chancellor Angela Merkel speaks with students at the Kurt Tucholsky high school in Berlin today.
German Chancellor Angela Merkel speaks with students at the Kurt Tucholsky high school in Berlin today. Photograph: John Macdougall/AFP/Getty Images

The pound isn’t the only currency having a volatile morning.

Germany’s chancellor, Angela Merkel, has sent the euro spiking after telling a group of school children in Berlin that the single currency was “too weak”.

Merkel explained that Germany’s record trade surplus was partly due to the European Central Bank’s expansionary monetary policy, which has driven down the euro.

Merkel’s comments sent the euro bouncing to $1.1234, its highest level since November 2016.

Sterling is now pushing back to $1.30, as a Tory heavyweight-turned-newspaper-editor tweets:

The pound is likely to remain skittish until the UK general election has taken place, predicts Paresh Davdra of RationalFX.

He says today’s losses, following the drop in the Conservative lead in the polls, shows that City’s view of the election:

A Conservative victory in the election represents stability for the UK during the Brexit process, and would allow Theresa May a more secure position in negotiations with the EU. The priority for the city in the upcoming election is for the Brexit process to continue with a strong negotiating position for the UK, and any sign that this is under threat will likely see a fall in the currency.

Despite the gains made by the pound last week and its movement being driven by its major peers, today’s fall seems to confirm that the key driver for the pound is the coming election. Analysts will be watching polling figures closely in the next few weeks, which may determine whether or not the pound rises or falls in the lead up to June 8th.”

This chart, from Bloomberg, shows how the pound is suffering its biggest fall against the dollar since the start of May (the month, not the PM...)

Pound vs US dollar today

Newsflash from the High Court: A judge has adjourned the case brought by Royal Bank of Scotland shareholders seeking compensation over its collapse in 2008.

The case has been knocked back by a day while the two sides discuss the last-ditch offer made by RBS this morning.

If a deal is reached, we’ll be deprived of the sight of ex-CEO Fred Goodwin being questioned over the failure of the bank he created.

Updated

The trading floor of ETX Capital in London.

The fall in the pound has pushed up the share price of multinational firms based in London (as it makes their overseas earnings more valuable).

So the FTSE 100 is now back over 7,500 points, a rise of 0.4%, and close to the record high (7,533) set last week.

Chris Beauchamp, chief market analyst at IG, says the City is also relieved that Donald Trump’s Middle East tour is proceeding without mishap, two days after it emerged that “a current White House official” was being investigated under the Russia probe.

Markets are on the up once again this morning, no doubt partially in response to the lack of any diplomatic disaster during Donald Trump’s visit to Saudi Arabia. The latest revelations from the Washington Post are now 48 hours behind us, so any impact they had has already dissipated among investors.

The FTSE 100 has once again staged a creditable recovery, along with stock markets around the globe, helping to restore some of the optimism after the shock fall of last week.

Here’s Arnaud Masset of SwissBank on the pound’s drop this morning:

Sterling went under renewed pressure on Monday morning with Brexit negotiations expected to make a comeback this week.

The pound was the worst G10 performer as it slid 0.50% against the greenback with GBP/USD easing as low as $1.2967.

Over the last few days, the pound has been testing the 1.3000-50 resistance area as investors anticipated a strong Tory majority at the upcoming general election. However, their confidence has been damaged recently over Prime Minister Theresa May’s propositions to amend the social care system and revelations that its introduction was kept in the strictest confidence, putting into question the unity of the Conservative party.

Knowing that sterling has been rallying strongly on anticipation of a stronger Tory majority following the elections, investors are naturally trimming their bullish bets on the pound.

GBP/USD has returned below the 1.30 threshold and is heading towards the next support at around 1.29. We remain cautious on the GBP outlook, especially since the tone between the EU and UK has turned up as discussions surrounding the “divorce bill”.

Neil Mellor, senior currency strategist at Bank of New York Mellon, says the drop in the Tory poll lead has caused jitters in the City:

Mellor explains (via Reuters)

“I don’t think anyone can ignore the thought at least that this could be another shock. We have two weeks to go and all sorts of things could happen.

We are round this $1.30 level. It is obviously a pivotal level and people need to be sure before they start building in their positions. At the moment the timing has come just as the market is undecided.”

Sounds like investors should also keep an eye on our Politics Live blog, which is tracking all the action from the election trail.

Howard Archer, economist at IHS Markit agrees that the pound is suffering from the Tories’ weekend wobble over social care:

Updated

Pound hit by Tory election 'wobble'

Sterling is falling this morning after the Conservative Party’s “dementia tax” failed to impress voters.

The pound has shed half a cent against the US dollar to $1.297, having hit a seven-month high on Friday.

The selloff follows polls showing that the Conservative Party’s lead has narrowed to nine points, from around 20 point early in the campaign.

Theresa May is facing a backlash over the manifesto proposal to make elderly people pay for care in their own home unless they have less than £100,000 in assets.

Many older voters (a key Tory demographic) are unhappy at the idea of being forced to sell their home to pay for their healthcare. There are now murmurings that the plan might need to be watered down, amid reports that senior party members weren’t consulted.

Another proposal, to end free school lunches for all infants, has also attracted criticism.

The City had been pretty confident that May would secure a heavy win on June 8th, strengthening her hand in Europe and allowing her to ignore backbenchers pushing for a hard Brexit.

Kathleen Brooks, research director of City Index, says investors are now rethinking their views:

What a difference a week makes, this time last week Theresa May’s Conservatives were enjoying a 20-point lead over its nearest rivals Labour. Fast-forward seven days and the Conservative manifesto that was releases last Thursday, has gone down with voters like a lead balloon, and now pollster Yougov is saying that Theresa May only has a 9-point lead over Jeremy Corbyn.

While a 9-point lead could still give Theresa May a comfortable victory on 8th June, the fact her lead has been slashed in half in just a few days may reinforce to financial markets that her victory is not a certainty. With three weeks to go before the election, another bad PR week for PM May and her team and the Tories’ lead over Labour could fall further into the low single figures, which could encourage sterling selling ahead of this crucial vote.

Updated

City And Financial District.

Britain’s FTSE 100 index is heading back towards last week’s record highs.

The blue-chip index has gained 24 points, or 0.3%, to 7495 in early trading.

Mining groups, including Anglo American, Antofagasta and Fresnillo, are among the risers, following the gains in Asia earlier today.

Connor Campbell of SpreadEx explains:

Solid growth in its commodity stocks – themselves aided by Brent Crude’s push towards $54 per barrel – provided the main thrust of the UK index’s rise, complimented by an early fall from the pound.

European markets are a little more subdued, as investors await developments at today’s eurogroup meeting on Greece.

RBS 'offers shareholders last-minute deal'

The logo of the Royal Bank of Scotland

Hello! There are reports that Royal Bank of Scotland has offered a last-minute deal to its shareholders, to ward off today’s trip to the high court.

RBS has apparently proposed paying 80p per share to the shareholder action group who are claiming compensation over its 2008 rights issue.

That’s double what other investors have received, but not matching the 92p they are demanding.

But will shareholders be swayed, or will they demand their day in court?

Here’s Sky News’s take:

Royal Bank of Scotland (RBS) has doubled the value of a prospective legal settlement with investors, just hours before a High Court trial scheduled to hear from the lender’s former boss, Fred Goodwin, is due to get underway.

It was unclear on Monday morning, just hours before the trial is due to get underway, whether the settlement offer would be accepted.

Markets rise as Trump chaos recedes

Asian stock markets are rallying today, on relief that the political storm engulfing Donald Trump hasn’t intensified (yet, anyway).

With the US president on a trip to the Middle East, the steady flow of revelations around links with Russia and the FBI’s investigation has receded.

This has sent shares up across Asia, with Japan’s Nikkei gaining 0.5% and the Hong Kong index up nearly 1%.

European markets are also expected to gain this morning.

Mike van Dulken of Accendo Markets says:

A positive opening call comes after a Wall St relief rally on Friday suggested investors putting last week’s political chaos behind them.

Asian counterparts have also made a solid start to the week, buoyed by continued optimism towards Oil and Thursday’s OPEC meeting delivering a production cut extension and a hitherto un-eventful Trump visit to the Middle East.

‘Un-eventful’ by Trump’s standards, anyway. But the trip hasn’t lacked incident. Social media has been agog over the sight of Trump touching a glowing ball, alongside the president of Egypt and Saudi King, Salman bin Abdulaziz.

Updated

City AM: D-Day for RBS shareholders

City AM are also excited about the Royal Bank of Scotland court case which begins today.

They call it “D-Day” for the group of investors who claim they were misled into supporting RBS’s 2008 rights issue, adding:

The case will see Fred Goodwin, one of the most notorious figures of the financial crisis, take the stand.

The agenda: RBS trial, Greek bailout meeting

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

Two long-running stories will be in the spotlight today.

In London, the high court will begin hearing a case brought by Royal Bank of Scotland shareholders over the bank’s collapse almost a decade ago.

The RBS investors claim they were misled into buying shares in the run-up to the financial crisis, and are seeking over £500m in compensation. And unless there’s a last-minute deal, former RBS chief Fred Goodwin will be forced into a rare public appearance.

My colleague Jill Treanor explains:

Barring an eleventh-hour settlement, the case will open in London’s high court and will require top bankers to give evidence in court for the first time since the bank was bailed out with taxpayers’ cash in 2008.

Goodwin and other former senior bankers will be forced to pore over the detail in the prospectus issued when RBS conducted a £12bn cash call in April 2008. At the time, it was a record-breaking sum.

The long-running legal action, which is a civil case that will be heard by a high court judge without a jury, is being brought by 9,000 individuals and big City investors who put up their cash to take part in the April rights issue and lost out when the bank was bailed out six months later.

Alongside Goodwin, the case names three former directors and the bank itself in a claim that focuses on accusations that untrue or misleading statements were made about the financial health of the bank at the time of the cash call.

Over in Brussels, eurozone finance ministers will (once again) discuss Greece’s bailout at a eurogroup meeting.

The Greek government is fervently hoping that they will agree to release crucial bailout loans, following the latest package of austerity measures approved by Greek MPs last week.

Greece faces €7bn of debt repayments in July, so it really needs fresh bailout loans pronto (so it can pay the money back to its creditors...).

Athens is also hoping that the eurogroup will take another step towards debt relief. However, the ongoing argument between Europe and the International Monetary Fund over Greece’s economic progress may hamper this....

Ministers should begin arriving in Brussels from noon BST, with a roundtable kicking off at 2pm BST.

Otherwise, it looks like a quiet day, although a couple of Federal Reserve governors will be speaking in America later:

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