European markets close higher
It’s not been the most exciting day in the financial markets, with traders distracted by reports of banks and insurers preparing for life after Brexit.
And it’s ended with the main European markets posting small gains, with Germany’s DAX hitting a new two-year high.
The French CAC and Italian FTSE MIB also closed up around 0.5%. Shares in exporters were boosted by a weakening euro, which dropped after today’s fall in German inflation.
The FTSE 100 missed out, though, and closed down 0.06%. It was hit by a pick-up in the value of the pound, which gained half a cent to $1.249 against the US dollar.
Jasper Lawler of London Capital Group sums up the session:
Stocks are still in a bit of a holding pattern with traders lacking a bit of conviction to follow through on the last two days of dip-buying. A positive open in the US, helped by further recovery in crude oil prices improved sentiment in European markets by the afternoon.
A bigger than expected fall in German inflation during March assured investors who have been buying the country’s shares in hopes of an extended period of easy money policies. The German benchmark DAX index touched a two-year high for a second day.
The resilience of the British pound in the face of Article 50 uncertainty was probably the biggest factor behind the underperformance of the FTSE 100. Fund manager Schroders was the biggest loser while Ashtead Group was top gainer.
And on that note, we’re closing down for the night. Thanks for reading and commenting. GW
Theresa May’s decision to activate Article 50 yesterday has also encouraged City firms to trigger their own contingency plans, says Joshua Mahony, market analyst at IG.
He predicts short-term pain for London, as the Brexit process rumbles on.
Lloyds of London’s decision to relocate jobs to Brussels, coupled with rumours of potential relocations for the likes of Citi and JP Morgan do little to inspire confidence in the City of London.
There is no doubt that London will be the main loser from the coming two years of negotiations, much in the same way it was the UK’s main beneficiary from our EU membership. While the UK’s loss may be the EU’s gain in the short-term, the long-term picture of a more open, globalised UK should mean that perhaps the EU and the UK will be better off further down the line.
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Another investment bank, Citigroup, has told its staff that some London-based jobs will move overseas due to Britain leaving the EU.
Jim Cowles, the head of Citi’s Europe, Middle East and Africa division, told staff in an internal memo that planning has been underway for months.
Cowles explained that Citi expects a “hard Brexit” (ie, losing membership of the single market and the Customs Union), adding;
“A hard Brexit would require certain changes, including relocating certain client-facing roles to the EU from the UK, and the possible creation of a new broker-dealer entity within the EU.”
In another Brexity development, Luxembourg has thrown its hat into the ring to become the new home of the European Banking Authority.
The EBA’s responsibilities include holding the regular European-wide banking stress tests. It is currently based in London, which won’t be sustainable once Britain has left the EU.
Amsterdam, Dublin, Frankfurt, Paris and Vienna have all reportedly been batting their eyelashes at the EBA. The EC has suggested it could be merged with a pensions regulator, based in Germany.
Luxembourg, though, claims it has a legal right to host the EBA, citing a letter from 1965 which said it would be considered as a host for financial institutions.
Luxembourg claims right to host London-based European Banking Authority after Brexit. @AFP story https://t.co/0LRBvTIxK5
— Danny Kemp (@dannyctkemp) March 30, 2017
Here’s our news story about JP Morgan’s plans:
The Liberal Democrats are worried that JP Morgan and Lloyd’s could be signalling an exodus from the City.
Susan Kramer, the Lib Dem Treasury spokeswoman, says:
“David Davis has already gone back on his assurances that British firms would continue to enjoy all the benefits of single market membership in his post-Brexit utopia. Now reality is starting to intervene, with JP Morgan reportedly looking to move 1,000 jobs out of London. This follows Lloyd’s of London saying it will open an office in Brussels due to Brexit and become, at least in part, Lloyd’s of Brussels.
“It is the prime minister’s choice to drive Britain out of the single market, and that is driving jobs and wealth creation out of the UK. Estimates suggest leaving the single market could cost Britain up to £200bn over 15 years.
“When the P45s start to land and the NHS operations are cancelled, this will be the government’s fault.”
Banks aren’t the only companies considering moving jobs out of the UK after Brexit.
Two fifths of computer games companies based in the UK are considering relocating out of the country, a new survey has found.
The industry fears that it will lose access to international talent from the EU, and funds administered by Brussels. More here:
UK games industry: 40% of companies considering relocating after Brexit https://t.co/msOURmqBYd
— LSE Brexit (@lsebrexitvote) March 30, 2017
German inflation tumbles to 1.5%
Newsflash: Germany’s inflation rate has fallen, and by even more than expected.
The German Consumer Prices Index rose by just 1.5% annually this month, down from the four-year high of 2.2% scaled in February.
Economists expected it to drop to 1.9%.
German inflation miss.
— Joe Weisenthal (@TheStalwart) March 30, 2017
That’s partly because Easter fell in late March in 2016, but this year isn’t until mid-April. Prices usually rise around the Easter holidays, partly due to higher transport costs.
But even so, this should take some pressure off the European Central Bank to start tightening monetary policy. The overall eurozone inflation rate, announced on Friday morning, is on track to fall from last month’s 2%.
German (core) inflation slowed a bit more than expected, but that's mostly due to Easter effects, likely to be reversed next month. https://t.co/sRWnyDyWDE
— Frederik Ducrozet (@fwred) March 30, 2017
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We mentioned earlier that Lloyd’s of London is planning to shift “tens of jobs” to Brussels, rather than whole floors of staff from London.
Reuters’s George Hay has dubbed this an example of the “phantom exodus”, and suspects that fewer staff will leave the City than feared.
He writes:
There is no way to spin this outflow as a good thing. Even if every financial firm moves only 10 percent of staff, that could still risk a tangible proportion of the 71 billion pounds of tax from financial services companies generated in 2016. UBS has said a fifth of its 5,000 London staff could be affected by Brexit, while a quarter of JPMorgan’s 16,000 UK staff could be.
Still, anecdotally bankers at the big firms think the exodus will be less, and London will retain its financial hub status. While a free trade agreement between the EU and the UK on favourable terms for finance seems far-fetched, it’s not impossible – and Prime Minister Theresa May on Wednesday said that a future free trade agreement ought to cover financial services. More simply, not many financial types want to leave London. As such, Lloyd’s is merely doing what every other firm is doing – acquiring an option that it hopes will expire, out of the money.
Lloyd's of London Brussels move: Brexit parachutes are ready, but it's a long way from threatening City’s dominance https://t.co/W0xQGV5bmg
— ReutersBreakingviews (@Breakingviews) March 30, 2017
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Banker fined for sharing info over WhatsApp
Just in: A former investment banker has been fined over £37,000 for sharing confidential client information over the WhatsApp messaging service.
The Financial Conduct Authority imposed the penalty on Christopher Niehaus, ruling that he failed to act with “due skill, care and diligence”.
It explains:
The FCA found that Mr Niehaus, who was a managing director in the Investment Banking division at Jefferies International Limited, received client confidential information during the course of his employment and, on a number of occasions between 24 January and 16 May 2016, shared that information with both a personal acquaintance and a friend, who was also a client of the firm. In one of the instances where Mr Niehaus shared client confidential information with his friend, who was also a client of the firm, that information was about a competitor. Mr Niehaus used the instant messaging application WhatsApp to share this information. The information was shared by Mr Niehaus because he wanted to impress the people that he shared the information with.
The details of the information he shared included the identity of the client, the details relating to the client mandate and the fee Jefferies would charge for their involvement in the transaction. Mr Niehaus also boasted about how he may be able to pay off his mortgage if one of the deals was successful.
None of the parties traded on the information shared, the FCA adds. Even so, Niehaus resigned from Jefferies after being suspended, after the WhatsApping came to light. More here.
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Bloomberg is also reporting that JPMorgan is in talks to buy office space in Dublin in response to Brexit.
It believes the bank wants enough room for over 1,000 workers.
It says
The lender is negotiating the potential purchase of a building in Dublin’s Capital Dock that’s being developed by a venture between Kennedy Wilson Holdings Inc. and Ireland’s National Asset Management Agency, the people said, asking not to be identified because the plans are private.
The building, at 200 Capital Dock, has about 130,000 square feet (12,000 square meters) of space, the people said. That’s enough for more than 1,000 workers.
JPMorgan is in talks to buy a Dublin office building that holds 1,000 people, sources say https://t.co/i24NfXIwvF pic.twitter.com/TpmiR9CMW5
— Bloomberg Brexit (@Brexit) March 30, 2017
JP Morgan 'eyes Dublin's Capital Dock for Brexit relocation'
In another potential blow to the City, JP Morgan is reportedly considering moving hundreds of jobs to Dublin.
That’s according to the Irish Independent this morning, which reports:
US investment banking giant JP Morgan is understood to be considering the relocation of hundreds of its employees from London to Capital Dock, the 31,600 sq m (340,000 sq ft) office scheme currently being developed by Kennedy Wilson in Dublin’s docklands.
News of JP Morgan’s potential post-Brexit move will be welcomed, coming as it does in the wake of the decision by two major insurance companies, Lloyd’s of London and AIG, to choose Brussels and Luxembourg instead of Dublin for their respective European Union bases.
While a source familiar with the matter insisted that a decision on Capital Dock was “still up in the air”, JP Morgan’s intentions in relation to the scheme’s offices are currently the subject of intense speculation within Dublin’s commercial real estate sector.
The Irish Independent understands that JP Morgan has been engaged in a search for space capable of accomodating employees from both its existing offices at George’s Dock in Dublin’s International Financial Services Centre and up to 500 personnel currently working within its London operations.
Here’s the full story: JP Morgan eyes Capital Dock for Brexit relocation
It’s no secret that JP Morgan has been considering moving staff out of the City. Before the referendum, CEO Jamie Dimon warned that up to 4,000 jobs could be lost from London if the public voted for Brexit.
Today’s Wall Street Journal reports that the investment bank has been weighing up the respective charms of several cities, including Paris, Frankfurt, Luxembourg and Dublin.
As with Lloyd’s of London, such a move would allow JP Morgan to retain those passporting rights to offer financial services within the EU (which the City will lose if Britain quits the single market).
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Economic confidence across the eurozone has dipped a little this month, according to the latest survey from the European Commission.
The EC’s index of investor and consumer sentiment in the region dipped to 107.9 this month, from 108 in February. That’s weaker than expected, but still close to a five-year high.
Euro-area economic confidence unexpectedly slips https://t.co/rXjonRvQH1 pic.twitter.com/U62xHpIAWC
— Bloomberg (@business) March 30, 2017
S&P: No reason to change UK's negative outlook
Standard & Poor’s isn’t planning to revise Britain’s credit rating, even though it has a better idea of Theresa May’s Brexit strategy.
S&P has had Britain on a ‘negative outlook’ since June 27, the Monday after the EU referendum, when it also ripped away the country’s triple-A rating. That’s a sign that the rating is more likely to be cut again than raised.
Moritz Kraemer, S&P’s chief of sovereign ratings, has told Reuters no reason to change that view, following the PM’s announcement on Wednesday that Brexit has begun.
Here’s a flavour:
Kraemer...said May’s speech was largely as expected and there had been “no surprises”, though her tone was “more conciliatory than it could have been”.
“The (EU) governments know that they have to hold the (Brexit) discussions in good faith,” he told Reuters.
Britain’s economy has proved far more resilient to uncertainty caused by the Brexit process than most economists - including those from S&P - had predicted.
That has raised questions as to whether the firm’s negative outlook, which suggests a greater chance of another rating cut, is still justified.
In Kraemer’s view it is. “We have seen nothing recently to make us rethink the negative outlook on the UK rating,” he said.
More here: No reason to rethink UK rating’s negative outlook: S&P
There’s not much drama in the foreign exchange market either.
Sterling is hovering around the $1.241 level, a dip of 0.2% today, and slightly below its level before Britain formally triggered Article 50.
It’s up slightly against the euro at €1.156, meaning one euro is worth 86.5p.
Yann Quelenn, market analyst at Swissquote, the Switzerland bank, believes sterling might actually rally this year as the Brexit talks proceed.
Losing 20% in the wake of the referendum vote, the weaker sterling has provided the UK with a strong exports boost.
Strengthening of the pound is now very likely especially as Europe faces a veritable minefield with the upcoming French and German elections. Time to reload GBP. [Great British Pounds]
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Britain’s Brexit secretary, David Davis, is touring the broadcasting studios this morning.
He’s denying that the UK is blackmailing Europe by using security co-operation as a bargaining chip, and trying to play down the idea of a huge exit bill.
Andy Sparrow’s Politics Live blog has all the details:
European markets flat as a fishslice
You might have expected European financial markets to be rattled by the formal opening of the Brexit process. But no.
Trading is extremely sluggish across the continent’s stock exchanges this morning. The Stoxx 600, which tracks the 600 largest companies in the region, has crept up by a mere 0.09%.
In London, the FTSE 100 is up a meagre 5 points.
But this soporific mood probably won’t last, once the UK actually begins the tussle with the rest of the EU.
Connor Campbell of SpreadEx warns:
The European markets are looking pretty sleepy this morning, lacking the direction provided by the Trump slump and Article 50 earlier in the week. However, with the real Brexit negotiations looming these kinds of placid opens may soon be a distant memory.
Kit Juckes of Societe Generale also spies trouble ahead:
In the UK dawn has broken over the new post-Article 50 environment. A beautiful red sunrise greeted me as I arrived at work, warning of rain even as the weather forecasters promise me the warmest day of the year so far. The bickering has already started over the order in which the exit can be negotiated and the uncertainty about the economic impact isn’t going away.
Now this is interesting.... Inga Beale, Lloyd’s CEO, has revealed that they chose Brussels partly because Belgium is unlikely to follow Britain out of the EU.
Speaking on BBC News, Beale said the group wanted a location with strong regulation, and good access to talent, which could be reached easily from London and other parts of Europe.
Lloyd’s also wanted to think about the likelyhood of the country remaining in the EU too, Beale explained.
She added that it would be “fantastic” if Britain negotiated a deal that meant City firms retained their passporting rights in Europe [allowing them to sell services to every country in the EU from one site].
But as that now seems unlikely, Lloyd’s is pressing on with the move to Brussels.
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Lloyd’s of London chairman John Nelson has said the new Brussels operation will employ “tens” of staff; a mixture of new hires and existing workers who will transfer to Belgium.
He adds that it’s “too early to say” whether other insurers will make a similar move, but points out that other Lloyd’s hubs have created their own ecosystems.
So we might find that some of Lloyd’s customers - the insurance brokers who trade on its market - shift jobs to Brussels too.
(thanks to Reuters for the quotes).
Lloyd’s decision to open a new EU hub in Brussels is causing a stir.
Bloomberg points out that other companies will be considering similar action:
British companies and international financial firms are considering how to continue serving European clients should the U.K. withdraw not just from the EU, but also from its single market and customs union, both of which can accommodate countries that aren’t in the bloc.
329 years ago the insurer Lloyd's was founded in London. #Brexit means it's moving awayhttps://t.co/K4EjrOyw0Y
— Naomi Christie (@NChristie) March 30, 2017
by @OliverSuess @Smudla62 pic.twitter.com/5a2Q6TmeyB
The BBC’s Simon Jack reckons Downing Street won’t appreciate the move, even though Lloyd’s is also maintaining its main headquarters in London.
Lloyds of London to move its European business to Brussels. That will go down well at number 10.
— Simon Jack (@BBCSimonJack) March 30, 2017
Paul Sommerville of Sommerville Advisory Markets wonders if a name change might be needed:
Maybe a rebranding - "Lloyd's of Brussels " https://t.co/UXQKxq6081
— Paul Sommerville (@PaulSommerville) March 30, 2017
Lloyd's: Brussels office will be ready by 2019
That didn’t take long.
Just a day after Britain triggered article 50, one of the City’s most established names announced plans to open a new office in Brussels.
Lloyd’s of London, the insurance market that famously began in a coffee house, will create a subsidiary in the Belgian capital so it can retain its ‘passporting rights’ in Europe. Those rights are essential to keep offering financial services across the EU from.
Under the plan, Lloyd’s will have its new office ready in time for the 2019 underwriting season -- to minimise the disruption from Brexit. Up to 100 staff are likely to move.
CEO Inga Beale says it will provide ‘efficient’ access to Europe, adding:
“It is now crucial that the UK government and the European Union proceed to negotiate an agreement that allows business to continue to flow under the best possible conditions once the UK formally leaves the EU. I believe it is important not just for the City but also for Europe that we reach a mutually beneficial agreement.”
Here’s Julia Kollewe’s news story on the announcement, and Lloyd’s latest financial results:
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The agenda: German inflation and US growth figures
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The City feels rather subdued this morning after the drama of seeing Britain hit the exit button to quit the European Union yesterday.
Traders are watching to see how the opening exchanges pan out...and there are already worrying signs, with EU officials unhappy that the UK is threatening that security co-operation will suffer unless it gets a decent deal.
Investors may also be alarmed that the two side are also at odds, already, over the negotiating process. Britain wants to discuss the terms of the divorce, and the future relationship, at the same time - but Germany insists the exit bill is agreed first.
So faced with this impasse, investors are taking a cautious approach this morning.
And that means the pound is serenely flat in early trading, at $1.243 against the US dollar. It’s equally unruffled against the euro, at €1.1551 - the same as last night.
Equities are calm too, with the FTSE 100 gaining 8 points in early trading, to 7382 points. No drama here (yet anyway).
FXTM chief market strategist Hussein Sayed believes Brexit will be a tricky event for the City. Traders haven’t seen such a historic event before, and
Wednesday marked the official countdown of UK’s divorce from the EU, ending a 44-year relationship with its neighbors. The end of this relationship is of course painful, but many agree that this marriage was not a case of love at first sight after all. Investors decided not to take any significant action on Wednesday, the GBP-USD traded within 70 pips trading range, and all major European equity markets closed higher.
Predicting currency movements was never an easy task, and in the pound’s case it’s even a more complicated situation given that we never experienced such a divorce in the past. Economic conditions in the U.K. are in a much better shape than what was anticipated nine months ago, with most economic indicators surprising to the upside. Meanwhile, the BoE is likely to turn more hawkish as the depreciation of sterling continues to feed through to increased prices. These factors helped the pound to find a floor in the past 6-months, but the forward outlook will much depend on how negotiations progress in the next couple of months.
Coming up this morning.
There’s some interesting economic data on the calendar today, which might move the markets.
10am BST: The latest Eurozone economic confidence reading; expected to be a little higher this month as the European economy picks up
1pm BST: German inflation figures for March. The CPI rate is expected to drop to 1.8%, down from 2.2% in February, partly because Easter comes later this year. A higher reading would increase the pressure on the European Central Bank to rein in its stimulus measures
1.30pm BST: Updated US GDP figures for the last quarter of 2016. Economists predict that the annualised growth rate could be revised up to 2.0% (or 0.5% quarter-on-quarter), from 1.9%.
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