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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

FTSE 100 hits six-month high as pound slides - as it happened

The City of London Skyline.
The City of London Skyline. Photograph: Alamy

A late PS: Wall Street has closed at a record high, for the first time since last autumn.

The S&P 500, and the Nasdaq index, both ended at their highest ever levels, with consumer goods firms and healthcare providers leading the way.

Donald Trump’s decision to ratchet up the oil sanctions on Iran could backfire, suspects our economics editor Larry Elliott.

He reckons Brent crude could keep rising, and touch $80 per barrel in coming weeks. It could even hit $100 if Iran responds by disrupting the oil market.

Larry writes:

Tehran has responded to the US action by pledging to close the Strait of Hormuz, through which oil is shipped from all the major Middle Eastern suppliers, including Saudi Arabia, Kuwait, Iraq and the United Arab Emirates. Were that to happen, the oil price would quickly shoot above $100 a barrel.

Then there’s the fact that Trump is in effect telling China – the biggest importer of Iranian oil – that it can only do business with certain countries with the prior approval of Washington DC. That has more than a hint of imperialistic hubris about it and would be asking for trouble at the best of times. It is plain daft to be laying down the law to Beijing when the two countries are trying to avert a full-scale trade war.

Here’s our news story about Harley-Davidson’s results, and president Trump’s trade war threat towards Europe...

Footsie closes at 2019 high

A late burst of share buying has helped the FTSE 100 to end the day 63 points higher at 7,523.

That’s a gain of 0.85%, and its highest closing level since the end of last October.

A strong performance by the oil sector helped lift the index, as investors reacted to America’s clampdown on Iranian oil exports.

Multinationals also got a lift from the stronger dollar, which boosted the value of their foreign earnings.

Updated

European stock markets have shaken off their earlier losses too, thanks to the euro weakening against the US dollar.

The pan-European Stoxx 600 index is now up 0.2% at 391 points, its highest level since last August.

Connor Campbell of SpreadEx explains:

Having spent the morning caught between the gains made by its oil stocks, and the losses incurred in the banking, mining and airline sectors, the FTSE was eventually tipped into positive territory by a sharp plunge from the pound.

Sterling dropped 0.3% against the dollar, causing cable to strike a 2-month low of $1.294 on a mixture of the greenback’s strength – it’s also up 0.6% against the euro – and fears over a potential vote on the Brexit withdrawal and implementation bill next week. Those losses helped send the FTSE 0.3% higher, allowing the index to cross 7500 for the first time in nearly 7 months.

The dollar is continuing to strengthen, knocking sterling down further....

Just in: Europe’s consumers became a little gloomier this month.

The European Commission’s gauge of eurozone consumer confidence fell to -7.9 this month, down from 7.0 in March. The broader EU-wide measure also dipped.

Analysts at Royal Bank of Canada have warned clients that the pound is still vulnerable to political uncertainty (as we’ve seen today).

Talks on finding a Brexit compromise between the government and opposition Labour Party recommence today as the UK parliament returns from its Easter break. Meanwhile pressure from within the Conservative Party for PM May to resign is growing.

The 1922 backbench committee is set to meet today with ITV news reporting that its chair, Graham Brady, is planning to tell May that she must resign before the end of June.

FTSE hits fresh six-month high as pound weakens

The FTSE 100 has burst through the 7,500 point mark for the first time since the first week of October.

Multinational companies have been lifted by the fall in the pound today, which makes overseas earnings more valuable in sterling terms. So Coca Cola (+2%), publishing firm Pearson (+2.9%) and pharmaceuticals firm Hikma (+2.6%) are among the risers.

Oil giants are continuing to benefit from the jump in crude prices, with BP and Royal Dutch Shell both up 2%.

Rupert Thompson, Head of Research at Kingswood, says investors have been cheered by some recent economic data too - such as solid Chinese GDP figures last week.

While a melt-up in equities – as recently predicted by Blackrock CEO Larry Fink – to our mind continues to look rather unlikely, markets could well hold onto recent gains. Even if equities don’t see any further price gains, they have some attraction just because of their dividend yield. The FTSE 100 currently pays a dividend of 4.3%, well above the 1-2% returns available for UK investors from cash or gilts.

Pound hits two-month low as next Brexit vote looms

Sterling has just fallen to a two-month low, as the surge in the US dollar drives other currencies down.

The pound has dropped by a third of a cent to $1.2955, its lowest level since mid-December.

The fall also coincides with reports that Theresa May could bring her Brexit deal back to parliament next week, for a fourth vote. But there’s no sign that negotiations between the government and the opposition labour party have reached a breakthrough, so a fourth defeat looks likely....

The strengthening US dollar is pulling the oil price down from this morning’s highs ($74.70/barrel).

Brent crude is now trading around $74.17 per barrel, so still two dollars per barrel higher than late last week, before the US’s announcement on Iran.

Updated

The US dollar is rallying this morning, pushing some commodity prices (such as gold) into the red.

With the US economy “ticking along nicely”, the greenback is likely to remain in demand, predicts David Madden of CMC Markets.

Another US company, Twitter, has also beaten expectations....despite criticism from the White House.

The social media firm has posted an 18% jump in revenues for the last quarter, thanks to an 11% increase in users, to 134 million.

Shares have jumped almost 7% in pre-market trading, as analysts hailed the results.

Jasmine Enberg, senior analyst at eMarketer, explains:

Twitter ended its reporting of monthly active users (MAU) on a high note, with its MAUs rising quarter-over-quarter for the first time since at least Q1 2018.

Twitter’s decision to share only monetizable daily active users (mDAUs) going forward is in keeping with its value proposition to advertisers – a committed though not very large user base when compared with other social platforms.

Q1 2019 revenue growth also beat expectations, with most of the growth coming from the US despite the fact that most new users were international. That proves once again that Twitter is able to grow its revenue without significantly growing its user base.”

However, one member of the user base isn’t too happy...

That’s just a few of Trump’s 12 tweets so far today (and it’s barely breakfast time on the West Coast...)

The 115th Harley-Davidson Anniversary celebration at Vetrans Park in downtown Milwaukee, Wisconsin.
The 115th Harley-Davidson Anniversary celebration at Vetrans Park in downtown Milwaukee, Wisconsin. Photograph: Sara Stathas

Awkwardly for Donald Trump, Harley Davidson’s decision to move manufacturing out of America appears to be paying off.

The company has just reported stronger sales and earnings than expected for the last quarter, following efforts to mitigate the impact of Trump’s trade wars.

It told investors:

The company started supplying motorcycles to ASEAN (Association of Southeast Asian Nations) emerging markets from its Thailand operations in late 2018.

The tariff mitigation realized by this strategy allowed more competitive pricing and helped drive a Q1 retail sales increase of 126 percent in these markets.

However, earnings for the last quarter dropped to $0.80 per share, down from $1.03 a year ago, with retail sales down 3.8%.

Harley blames “lower revenues, unfavorable product mix and increased tariffs,” for the drop in operating profits, which were almost 27% lower than a year ago.

Updated

Political scientist Marcel Dirsus says president Trump should take responsibility for the tariffs imposed on US companies such as Harley....

NPR economics reporter Scott Horsley agrees...

Trump threatens EU with trade war over Harley Davidson tariffs

Newsflash: Donald Trump has just threatened to hit Europe with fresh tariffs, over their “unfair” treatment of motorbike maker Harley Davidson.

Let’s remember, though, that this all began last June when Trump imposed tariffs on European steel, in an attempt to support America’s steelmakers. The EU hit back with levies on American staples such as bourbon whiskey, motorcycles and orange juice.

In response, Harley Davidson said it would move some manufacturing out of the US, at which point Trump roasted the firm for such unpatriotic conduct, and called for a boycott!

That hurt Harley’s sales and rocked its share price, so I’m sure they’re happy to have Trump on their side again....

Updated

Rising UK wages boost UK confidence

Phillip Inman, economics writer for the Guardian, has looked at the IHS Markit Household Finances Index, out this morning, and found it contains more evidence of rising incomes from employment feeding higher levels of consumer confidence.

Households reported the strongest rise in wages during April since the index began in 2009. The index for wages increased to 53.1 from 51.1 in March.The compilers of the index said the increase in wages income tracked the rise in official figures from the Office for National Statistics, which showed average weekly earnings, including bonuses, rose by 3.5% on the year in the three months to February. This was the fastest level of pay growth in a decade.

However the better outlook for wages failed to push the overall index of household finances above the 50 mark that separates expansion from contraction.

The main index increased to 44 in April, from 43.4 during March to reach a three month high, but still well below the level seen last summer and below an even more optimistic period seen between 2014 and 2015.

That may be partly due to the government’s continuing austerity measure, which has meant real terms cuts to tax credits and other welfare payments to low and middle income households. The transfer of several benefits to Universal Credit has also stripped thousands of households of hundreds of pounds in annual income.

Joe Hayes, an economist at IHS Markit, said levels of confidence marked by the index should be judged in relation to its initial measures, which came after the 2008 financial crash and saw the index fall as low as 32.

Hayes said:

“The bright spot for the UK in recent months has been the resilience of its labour market, and latest survey data from households revealed that some of the positivity seen in the hard numbers has filtered through to sentiment and is supporting household finances.

“Income from employment grew at its fastest pace since the survey started in 2009, corroborating with the pick-up seen in official wages data.

“Households also moderated their concerns over job security, supporting a more relaxed approach to overall spending. Nevertheless, appetite for major purchases continued to falter, suggesting that households are still holding back on those big-ticket purchases.

“Overall, April data suggest the downbeat consumer sentiment story in the UK could turnaround in the coming months if trends in wages and job security remain accommodative, helping to drive domestic expenditure.”

The household index asks a range of people about their own finances and their outlook more generally based on the health of the economy.

Airline stocks hit by oil and strike worries

Terminal 2E at Roissy-Charles de Gaulle Airport, north of Paris.
Terminal 2E at Roissy-Charles de Gaulle Airport, north of Paris. Photograph: Joel Saget/AFP/Getty Images

Higher oil costs eat into airline profits, so it’s not surprising to see easyJet (-4%) and IAG (owner of British Airways) (-3.3%) at the bottom of the FTSE 100.

But fuel prices aren’t the only reason. France’s main pilot union is threatening to launch a week-long strike in May, over a new transport law that would force pilot unions to merge.

A walkout would hurt several airlines, including Air France and easyJet -- just when they’re trying to recover from Brexit anxiety and over-capacity worries.

Updated

The jump in oil stocks means Britain’s FTSE 100 is holding onto its six-month high, but other European markets have dipped.

European stock markets
European stock markets Photograph: Refinitiv

There’s little to get European investors excited this morning, so they may be waiting to see how earnings season plays out. Scores of US companies report results this week, including Facebook, Microsoft, Procter & Gamble and Coca Cola.

Craig Erlam of trading firm OANDA says:

The lack of direction at the start of the week isn’t surprising given the quiet bank holiday weekend but thankfully, things should pick up. Earnings season has got off to a better than expected start and we have a large number of companies reporting over the next few days.

It’s still expected to be a challenging quarter for the corporates but the bar has been sufficiently lowered which may allow them to get through the season relatively unscathed. We’re certainly off to a good start on that front with US markets very close to record highs.

Peter Kiernan, lead energy analyst at the Economist Intelligence Unit, argues that Donald Trump is taking a risk by escalating the sanctions on Iran.

The Trump administration is banking on being able to curtail Iran’s oil export revenue as much as possible, while hoping that the impact on the oil market will be limited by Saudi Arabia being able to release additional supply. Trump officials say it is seeking to maximise pressure on Iran until it returns to the negotiating table.

However, many of the political demands the Trump administration has on Iran, which go well beyond the nuclear issue, are unlikely to be conceded by the Islamic Republic, meaning that a long standoff is on the cards.

The US may be satisfied with simply keeping Iran distracted by domestic economic problems if oil markets remain assured that Saudi Arabia and others can minimise the impact of lost Iranian barrels. But supply losses elsewhere, such as in Venezuela and Libya, make this strategy risky in terms of increasing the chance of higher oil prices that will impact global economic growth. Indeed, Brent crude is already approaching $75. In the meantime, European powers will find it more difficult to persuade Iran to stick to the nuclear agreement that the US has walked away from.

China hits out at America

The Beijing skyline.
The Beijing skyline. Photograph: Jason Lee/Reuters

As the largest purchaser of Iranian oil, China has, predictably, not taken America’s move well.

The Chinese foreign ministry has told reporters that removing the waivers on Iranian sanctions will destabilise the Middle East, and also cause ructions in the energy markets.

Associated Press has more details:

Foreign ministry spokesman Geng Shuang on Tuesday said the U.S. is operating outside its jurisdiction in unilaterally imposing the sanctions. He said normal interactions between Iran and other countries are “reasonable and lawful” and deserving of respect and protection.

Shuang said China will continue to work to safeguard its companies’ interests, reflecting its desire to secure foreign markets as it pursues its massive “Belt-and-Road” infrastructure initiative.

Saudi Arabia’s foreign minister has welcomed America’s move to toughen Iran’s oil sanctions, saying it should rein in Tehran.

Ibrahim al-Assaf told state media:

“Saudi Arabia fully supports this step taken by the United States as it is necessary to force the Iranian regime to end its policy of destabilising stability and its support and sponsorship of terrorism around the world.”

Al-Assaf added that Saudi would work with other oil producers to ensure the oil market was adequately supplied.

The Trump administration’s “not so invisible hand” is pushing the oil price higher today, says analyst Stephen Innes.

He argues that the White House wants to pick a fight with Iran ahead of next year’s elections.

Admittedly I’m feeling a tad naïve this morning for not picking stronger signals from both Pompeo and Bolton with regards to Iran policy.

This despite the fact I thought a large part of the Trump election 2020 strategy would not only see the President appeal to his electorate base but of course present to the media a new villain since China will probably no longer fit the bill after a watered-down USMCA-style trade deal is signed. Well, it appears that the new villain is neither new nor surprising and was under our nose all the time.

Americans won’t welcome the prospect of higher gasoline bills. So, with the next election on the horizon, why is Donald Trump risking a backlash at the pumps?

Suzanne Maloney, deputy director at Brookings Foreign Policy, believes the Trump White House wants to deal “a death blow” to the Tehran administration. But such a move risks destabilising the Middle East.

She writes:

The past decade has demonstrated emphatically that Washington can decimate the Iranian economy and that the international community has neither the recourse nor the incentive to wholly forestall that outcome. However, there is simply no precedent for an externally-driven economic implosion to trigger a successful transition away from a well-entrenched authoritarian regime toward a durable democracy or enhanced regional stability.

And there is even less reason to believe that the current constellation of American decisionmakers has engaged in a prudent consideration of the second and third-order consequences to U.S. interests and allies that may flow from its escalation of economic warfare against Iran. General Alireza Tangsiri, commander of Iran’s Islamic Revolutionary Guard Navy, today reiterated the energy security formula that Tehran has observed for the past 30 years, warning that if Iran is prevented from exporting oil, its neighbours will face similar impediments...

The city of London.

Britain’s blue-chip index of top shares has hit a new six-month high.

The FTSE 100 index has gained 30 points, or 0.4%, to 7489, thanks to Royal Dutch Shell and BP’s rally.

A total Iranian oil embargo would have a noticable impact on global crude production.

Iran is thought to have produced around 1.7 million barrels of oil per day in March, out of a global market of some 80 million bpd.

As this chart shows, China took the biggest slice of the market, followed by South Korea, India and Turkey, then a handful of countries who had been granted waivers by America (but not for much longer!).

Iran’s oil production
Iran’s oil production Photograph: Bloomberg

Iran could close Strait of Hormuz

Iran has responded to America’s move by threatening to close the Strait of Hormuz (the narrow point between the Persian Gulf and the Gulf of Oman, stretching from Iran’s southern border to the United Arab Emirates).

Here’s a picture, for those who skipped geography class.

The Strait of Hormuz
The Strait of Hormuz Photograph: IISS

The Strait of Hormuz is a major oil shipment channel in the Gulf, with tankers from Saudi Arabia, Iraq, Kuwait and the UAE all passing through it.

Sea traffic in the Persian Gulf
Tanker traffic in the Persian Gulf this morning. Photograph: Refinitiv

Updated

Shares in energy companies have jumped in early trading, as the City reacts to the US crackdown on Iran.

Royal Dutch Shell is leading the FTSE 100 risers, up 2%, closely followed by BP (+1.6%).

Both companies profit from higher oil prices, and traders are calculating that crude prices could keep rising if Iran’s taps are turned off.

Neil Wilson of Markets.com says the oil markets are “jumpy”.

Suddenly we’re back to supply uncertainty being a graver threat than demand uncertainty. This risks a very real prospect of an abrupt spike in prices if there is not enough supply to fill the gap. It is no guarantee that Saudi Arabia can simply open the taps, moreover having made that mistake last year ahead of the sanctions being imposed, the country will seek clear evidence that it needs to raise output before doing so.

Risks seem skewed to the upside for oil and we may see a pop higher still.

America’s goal is to impose a total oil embargo on Iran, explains my colleague Julian Borger.

“Today I am announcing that we will no longer grant any exemptions,” Mike Pompeo, the secretary of state, said. “We’re going to zero. We will continue to enforce sanctions and monitor compliance. Any nation or entity interacting with Iran should do its diligence and err on the side of caution. The risks are simply not going to be worth the benefits.”

Neither Pompeo nor senior state department officials would say whether sanctions would be immediately imposed on the affected countries on 3 May, if oil purchases continued.

Donald Trump withdrew from the 2015 multilateral nuclear deal with Iran, the Joint Comprehensive Programme of Action (JCPOA), in May 2018 and threatened US sanctions against any international companies that continued to do business with Iran....

However, Julian also points out that it will be hard to prevent countries such as China from flouting the embargo. More here:

The sanctions squeeze on Iran has driven US crude oil over $66 per barrel for the first time since the start of November 2018.

That mirrors the rise in Brent crude (sourced from the North Sea).

Oil jumps as US ditches Iran waivers

A gas flare on an oil production platform in the Soroush oil fields in the Persian Gulf, Iran.
A gas flare on an oil production platform in the Soroush oil fields in the Persian Gulf, Iran. Photograph: Raheb Homavandi/Reuters

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

The oil price is bubbling upwards this morning after Washington turned the screw on Tehran, with a new crackdown on its energy exports.

In a move with significant geopolitical implications, the Trump administration has decided to end waivers that allow a group of countries to circumvent its sanctions on Iran.

Currently, China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey can all still buy Iranian oil without risking US reprisals. Those waivers expire at the start of May, and the White House has decided they will not be renewed.

The move is intended to put more economic pressure on Iran, with president Trump concerned that Tehran is still providing support for for terrorist organizations and destabilising the Middle East.

White House Press Secretary Sarah Sanders argues that the move won’t create oil shortages:

“This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.

“The U.S., Saudi Arabia and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied.

However, some analysts fear that the move could rebound. It could upset relations with allies such as India, create further tensions with China, and drive up energy and fuel prices.

Those concerns have already reached the financial markets, where Brent crude has jumped to $74.64 per barrel, up from below $72 last week.

That’s its highest levels since November 2018.

Oil had already spiked once this month, when political instability in Libya raised fears of supply disruption. So, with Opec committed to cutting supplies (to prop up the price), the $75/barrel mark could be breached soon.

Also coming up today

European stock markets are expected to rise a little this morning, as City traders return to work after the Easter holiday break.

Otherwise, it looks like a quiet day, although new US house sales and eurozone consumer confidence data may make ripples

The agenda

  • 3pm BST: US home sales figures for March
  • 3pm: Eurozone consumer confidence figures for April

Updated

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