Summary
The pound has managed to stay above the $1.30 mark, after comments from Michel Barnier boosted hopes that a Brexit deal will be struck.
The EU’s chief negotiator said “we are prepared to offer Britain a partnership such as there never has been with any other third country”.
Meanwhile a report that France’s President Emmanuel Macron will push for a deal with Britain also raised the possibility of a softer approach from the EU.
The pound is at $1.3017 and is up 0.2% against the euro at €1.1146.
Pressure is mounting on Canada and the US as a Friday deadline looms for a new NAFTA agreement. Negotiators struck an upbeat tone but remain locked in talks.
In the UK, payday lender Wonga stopped taking new loan applications as its troubles deepen, and the competition watchdog gave the provisional go-ahead to a merger between energy firms SSE and Npower.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
The number of Americans filing new unemployment claims rose last week, to 213,000 from 210,000 the week before.
It was slightly below the 214,000 claims predicted by economists, but ended a three-week run of falls.
However the broader picture was more positive, with the four-week moving average of initial claims falling 1,500 last week to 212,250 - the lowest level since December 1969.
US consumer spending rises 0.4% in July
US consumer spending rose 0.4% in July, the same rate as June and in line with economists’ forecasts.
The figures from the Commerce Department showed that American households spent more at restaurants and on hotels and other accommodation last month.
Consumer spending accounts for more than two thirds of the US economy, and helped to boost growth in the second quarter, when GDP rose at an annualised rate of 4.2%, nearly double the 2.2% rate in the previous quarter.
Not everyone with an eye on markets is in a gloomy mood today:
The news from the Financial Markets is even better than anticipated. For all of you that have made a fortune in the markets, or seen your 401k’s rise beyond your wildest expectations, more good news is coming!
— Donald J. Trump (@realDonaldTrump) August 30, 2018
Daniel Boffey, the Guardian’s Brussels bureau chief, gives his take on Michel’s Barnier’s latest Brexit comments:
Greece has suffered the deepest depression in the modern era, according to an analysis by economists at Llewellyn Consulting.
Greece might have emerged from its final bail-out with official creditors, they say, but 10 years on from the global financial crisis, the country has yet to enjoy a meaningful recovery.
They point out that among other things, GDP is still about 25% below its pre-crisis peak; nearly a fifth of the workforce are unemployed, and the proportion of people in poverty has doubled.
All this represents the deepest contraction in a major economy in the modern era.
The only comparable downturn is the 1930s Great Depression in the US. However, then US real GDP was back to its pre-crisis peak after seven years.
Here is a Q&A on what Wonga’s collapse would mean for its customers:
Jonathan Reynolds, Labour MP and shadow economic secretary to the Treasury, has responded to the news that payday lender Wonga has stopped taking new loan applications:
We need urgent action from the government to change this broken model and review the way lending is regulated.
I cannot mourn the demise of Wonga. Its business model was exploitative and immoral. Wonga had become a testament to so much that is wrong with our economy - too many people stuck in insecure employment reliant on short term debt just to keep their heads above water.
That is why the next Labour government will lift living standards and tackle the persistent debt spiral that many working families have become trapped in by capping exploitative lending, increasing real wages, and ending austerity.
With equity markets across Europe still falling and US futures down, Connor Campbell at Spread Ex considers why investors are in a glum mood:
The sentiment in Europe remained sour, with all the major indices catching a serious case of the blues.
It is hard to pinpoint the exact reason for the downturn. A lack of distraction arguably puts Brexit and the US-China trade war at the forefront of investors’ minds, though on both fronts there has been slight progress, with Barnier’s bullish comments in relation to the former, and the US-Mexico trade deal (admittedly a tenuous positive) in regards to the latter.
Regardless of the reason, the Dow Jones is set to join the end of August malaise after the bell rings on Wall Street, with the futures pointing to a 90 points drop when the US session gets underway.
Craig Erlam, senior market analyst at currency firm Oanda, says the more positive tone on Brexit struck by the EU could be the first step towards taking a no deal scenario off the table, which would be supportive of the pound.
He explains:
The pound is paring gains but continues to trade around four week highs against the dollar, with the currency having been buoyed on Wednesday by comments from Michel Barnier who claimed to be open to the idea of a bespoke Brexit deal for the UK, something the EU had appeared averse to previously.
The apparent softening in the language, combined with French President Emmanuel Macron’s desire to maintain close ties, come at a time when a no deal Brexit was looking increasingly likely.
The latest comments suggest there is a strong desire within the EU to find a solution and avoid a no deal Brexit which is understandably good for the UK and the pound.
Sterling had come under pressure in recent months as the prospect of no deal became more of a possibility but this is hopefully the first step towards it not becoming a reality. We’ve seen a small relief rally but we’ll need to see many more positive steps before traders get carried away.
Economic sentiment in the eurozone fell for an eighth consecutive month in August, as industrial and services firms were less optimistic.
The monthly survey by the European Commission showed the economic sentiment indicator for the 19 euro countries dipped to 11.6 points in August from 112.1 in July, extending the run of falls.
Jessica Hinds, European economist at Capital Economics, says that despite another fall, the indicator points to fairly strong growth.
Although the EC’s measure of eurozone economic sentiment fell again in August, it remains at a high level and consistent with growth slowing only slightly from a very strong pace.
On the face of it, it still points to a pick-up in annual GDP from 2.2% in the second quarter to around 3%. Note, though, that it has overstated growth since last summer and other surveys have been slightly less positive. So, overall, the surveys are consistent with only a modest slowdown.
Economists at RBC have played down the importance of a more optimistic approach to Brexit from Michel Barnier and Emmanuel Macron, stressing that major hurdles remain:
On Brexit, after yesterday’s comments from Barnier (relationship such as there has never been with any other third country) the market appears more hopeful. French president Macron has apparently suggested a ‘new architecture’ of ‘concentric circles’ with the UK in the first ring around the euro area.
We, however, stress that even if there is a deal struck between the EU and the UK, an even tougher hurdle will be to get any deal through the UK House of Commons - which at present seems to have moved down the ladder of concerns.
This is particularly true as any deal is unlikely to see the EU make any material concessions, as Barnier also highlighted yesterday when he stressed the importance of the integrity of the single market. The German foreign minister also said in a tweet that there will be ‘no special rules for post-Brexit UK’.
UK consumer lending grows at slowest pace since Nov 2015
British consumers borrowed at the weakest rate in more than two-and-a-half years in July, according to figures from the Bank of England.
Consumer credit growth slowed to an annual rate of 8.5% in July from 8.8% in June. It was the slowest since November 2015.
Meanwhile mortgage approvals dipped to 64,768 from 65,374, slightly below economists’ forecasts of 65,000.
Jeremy Leaf, north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors, says the mortgage figures are surprisingly weak:
These figures are a little disappointing in that they reflect a period when we would have expected a pick-up in the market over the spring buying season. Buyers and sellers are still engaged in a stand-off, whereas lack of energised demand has meant there is often very little urgency to complete deals, even when terms have been agreed.
There are regional variations, however. In London, owners who have accumulated property wealth from previous booms seem more reluctant to recognise softening prices whereas outside the capital, where loans to value are generally higher, we have noticed more enthusiasm to move. Overall, viewings are starting to rise as buyers return from holiday so we do expect to see some increase in activity over the next few months.
SSE and Npower merger gets provisional go-ahead
The competition watchdog has given the provisional go-ahead to the merger of Npower and the retail arm of SSE.
The Competition and Markets Authority found that the two firms did not compete closely for customers on the default standard variable tariffs that most people are on. Few people switched between the pair, it added.
A merger between the two would reduce Britain’s “big six” energy providers to five. The newly combined company would have 11 million customers, making it the second biggest UK energy provider after British Gas, which has 12.6 million customers.
The merger is expected to complete in late 2018 or early 2019.
European markets fall
European investors are in a subdued mood, with all major indices in the red this morning after falls in Asian markets.
- FTSE 100: -0.7% at 7,508
- Germany’s DAX: -0.4% at 12,513
- France’s CAC: -0.2% at 5,493
- Italy’s FTSE MIB: -0.3% at 20,690
- Spain’s IBEX: -0.03% at 9,567
- Europe’s STOXX 600: -0.3% at 385
Michael Hewson, chief market analyst at CMC Markets:
Markets in Asia have continued to be dominated by concerns over simmering China trade tensions, and the prospect of further tariffs next month, while markets in Europe have also slipped back.
The unresolved nature of the EU US trade talks is clearly acting as a drag on European markets in the same way that markets in Asia have continued to lag behind.
Breaking: Wonga stops taking new loan applications
Wonga has stopped taking new loan applications in a sign of deepening trouble at the payday lender on the brink of collapse.
A statement on Wonga’s website reads:
While it continues to assess its options Wonga has decided to stop taking loan applications.
If you are an existing customer you can continue to use our services to manage your loan.
It follows reports over the weekend that Wonga has lined up accountancy firm Grant Thornton to handle a potential administration of the company.
On Wednesday, the pay day lender held emergency talks with the Financial Conduct Authority over the impact of its collapse on existing customers.
Pressure on Canada and US as NAFTA deadline looms
Negotiators for Canada and the US are locked in “intense” talks as they try to strike a new trade deal by the Friday deadline set by President Trump.
Canada’s foreign minister, Chrystia Freeland, said on Wednesday evening that talks were at “a very intense moment” but added there was “a lot of good will” between negotiators on both sides of the table.
The pressure is on to modernise the 24-year-old North American Free Trade Agreement after the US and Mexico reached a bilateral deal on Monday.
Trump set a Friday deadline for all three countries to reach a deal, but Canada said late on Wednesday that a number of tricky issues were yet to be resolved.
Trump has warned he could try to go ahead with a deal with Mexico alone and impose tariffs on Canadian-made cars if Ottawa does not agree a deal, although US lawmakers have said that ratifying a bilateral deal would not be easy.
The US President told reporters at the White House:
They (Canada) want to be part of the deal, and we gave until Friday and I think we’re probably on track. We’ll see what happens, but in any event, things are working out very well.
Canadian Prime Minister Justin Trudeau was giving nothing away:
We recognise that there is a possibility of getting there by Friday, but it is only a possibility, because it will hinge on whether or not there is ultimately a good deal for Canada.
No NAFTA deal is better than a bad NAFTA deal.”
Updated
France to 'push for a Brexit deal with Britain'
France’s President, Emmanuel Macron, is preparing to push other EU leaders to agree a Brexit deal with Britain, according to a report in the Times.
Macron is hoping to persuade fellow leaders that a close relationship with Britain after Brexit will promote a united Europe.
He will use a summit in Austria next month to outline a new structure for European alliances, the Time said, quoting unnamed diplomatic sources. The idea is based on “concentric circles” with the EU and the euro at the core and Britain in a second ring.
If this is the case, it will be a major boost to Theresa May, who has been hoping to strengthen her hand in negotiations by persuading individual leaders that a decent Brexit deal for Britain will be good for the EU.
Will Barnier’s Brexit boost to the pound last?
Hussein Sayed, chief market strategist at FXTM, says there will be more volatility in the weeks ahead:
Many investors would be wondering whether Barnier’s statement could be a turning point for the pound. Although many issues related to trade and the Irish border are far from being resolved, it currently seems that negotiations may begin moving in the right direction.
If positive news flows continue when Brexit secretary Dominic Raab heads back to Brussels on Friday to resume talks, GBPUSD may quickly return to July highs that were above 1.33.
However, expect volatility to surge in the coming weeks as we get closer to the Brexit deadline.
Agenda: Pound boosted by Barnier's Brexit hint
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Just as fears were mounting that Britain is on course to crash out of Europe without a deal, Michel Barnier, the EU’s chief negotiator, took markets by surprise with a more optimistic view.
Specifically, Barnier said:
We are prepared to offer Britain a partnership such as there never has been with any other third country.
The comment on Wednesday has pushed the pound back above the $1.30 mark (currently at $1.3033), and up against the euro at €1.1133.
As Viraj Patel, Foreign Exchange Strategist at ING explains, the optimistic intervention was unexpected:
GBP markets were caught off guard as the EU’s Brexit negotiator Michel Barnier said they were “ready to propose a partnership the likes of which has not existed before with any third country”. This is something that most hadn’t thought was possible and may trigger a partial reassessment of no deal Brexit risks that lends support to a politically-infested pound.
While we’re not jumping to any conclusions about the actual final Brexit deal (this remains highly complex), constructive comments by Barnier (and Brexit secretary Raab) suggesting that negotiations remain on track – and a deal can be achieved – may be enough to ruffle the feathers of speculative GBP markets that have latched onto a bearish no deal Brexit story.
Also coming up:
- 9.30am BST: UK mortgage approvals and credit conditions data for July
- 10am BST: eurozone business and consumer confidence data for August
- 1.30pm BST: US initial jobless claims for last week
Updated
