FTSE flirts with new record close
Investors across Europe remain in an upbeat mood this mood, with the FTSE 100 still in with a chance of a new closing high (7,556.24 is the number to beat).
- FSTE 100: +0.3% at 7,546
- Germany’s DAX: +0.3% at 13,028
- France’s CAC: +0.3% at 5,382
- Italy’s FTSE MIB: +0.8% at 22,303
- Spain’s IBEX: +0.2% at 10,213
- Europe’s STOXX 600: +0.3% at 390
Wall Street is expected to higher, after the US Senate voted through Trump’s 2018 budget plans, potentially paving the way for the tax cuts pledged by the President.
On that note we’re closing up for the day. Thank you for all your comments, and please join us again on Monday. Have a good weekend. AM
Glimmer of hope on Brexit talks, manufacturers say
Britain’s manufacturers are encouraged by what they consider to be progress on Brexit talks after Theresa May’s trip to Brussels for the EU leaders summit.
But more needs to be done, cautioned Terry Scuoler, chief executive of the manufacturers’ trade body, EEF:
The warmer words emerging from the European Council following the approach adopted by the Prime Minister suggest there is a glimmer of light at the end of this tunnel.
Business needs to see more than a hint of progress, however, because serious planning for transitional arrangements should be taking place now if companies are to firm up their business plans and pin down investment.
Firms in the UK and across Europe are united in seeking clarity on a transition deal that maintains a level playing field in order to avoid confusion and potential economic damage.
Time is moving and without greater political certainty businesses will form their own conclusions and plan accordingly. That is why work on agreeing a transition needs to start now and businesses will redouble their efforts to encourage leaders in the UK and the EU to do that.
Pound reverse losses on hint of Brexit progress
The pound has reversed earlier losses against the dollar after a hint of progress on Brexit talks from a meeting of European leaders in Brussels.
Sterling is up 0.1% at $1.3170. The pound is also up 0.5% against the euro, at €1.1157.
Investors are feeling slightly more positive about Brexit negotiations, as Theresa May and EU leaders appeared to edge forward at the summit.
EU leaders, excluding the UK, agreed this morning that they will begin to prepare for talks about how a transition period and Britain’s long-term future outside the EU might work - something May has been pressing for.
Brexit conclusions adopted. Leaders green-light internal EU27 preparations for 2nd phase. #EUCO
— Donald Tusk (@eucopresident) October 20, 2017
Follow our politics live blog for all the latest developments in Brussels:
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Laith Khalaf, senior analyst at Hargreaves Lansdown, shares the view that Hammond is unlikely to be handing out early Christmas gifts in next month’s budget.
The deficit is heading in the right direction, helped by increasing revenues from income tax, national insurance and VAT, which underlines how reliant government finances are on UK consumers both earning money, and spending it.
Despite the improving fiscal outlook, we can’t expect too many giveaways in the forthcoming budget. While the deficit is falling, the government still owes an eye-watering amount of money.
What’s more, the imaginary pie of future tax revenues that the chancellor has to play with is expected to be trimmed back significantly, thanks to an adjustment to economic projections made by the Office for Budget Responsibility.
Finally there’s also Brexit in the mix, and the unknown effect this will have on the UK economy, and government finances. All of this means the Chancellor’s spreadsheets will tell him he doesn’t have a great deal of room for manoeuvre on Budget day.
Chancellor on track to meet full-year borrowing target
Lower than expected government borrowing in September and the year to date suggests Philip Hammond is on track to meet his target of £58.3bn for the year ending March 2018.
However, Paul Hollingsworth at Capital Economics says the chancellor is unlikely to have room for big giveaways when he delivers the budget on 22 November.
It is too soon for the chancellor to begin loosening the purse strings in response. After all, the OBR [Office for Budget Responsibility] expected the deterioration in the public finances to be back-loaded this year, reflecting the unwinding of a number of temporary factors.
Moreover, it looks set to revise down its assumptions about productivity and the economy’s potential to grow in its November forecasts, which is likely to significantly reduce the room the chancellor left himself against his fiscal targets. As a result, this is likely to constrain the chancellor’s ability to provide big giveaways in the very near term.
UK public finances going through a sunny spell. Lowest financial YTD borrowing since 2007 (£32.5bn). On track for lower than OBR forecast. pic.twitter.com/iUVkg7H9f5
— Rupert Seggins (@Rupert_Seggins) October 20, 2017
Treasury: UK borrowing is still too high
The Treasury is keen to show it is not complacent about the deficit, despite the lowest September borrowing figure in a decade.
A spokesman said:
Whilst we’ve made great progress getting the deficit down by over two thirds, government borrowing is still far too high at over £150 million a day.
We will continue to take a balanced approach that deals with our debts and allows us to invest in our public services.
UK government runs smallest September deficit for a decade
Some welcome news for the chancellor Philip Hammond ahead of his budget on 22 November.
The government borrowed less than expected in September, at £5.9bn - the lowest for the month of September since 2007, before the financial crisis dealt a huge blow to the UK economy.
Economists polled by Reuters had forecast £6.5bn.
The Office for National Statistics also revised down borrowing for August to £4.7bn from a previous estimate of £5.7bn.
It means that over the first six months of the fiscal year (April to September), the government borrowed £32.5bn, £2.5bn less than at the same point last year.
That is also the lowest year-to-date borrowing since 2007.
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Will the Bank of England’s rate setters put their money where there mouth is and vote for a hike in borrowing costs?
Last month, investors were convinced a rate hike to 0.5% from the current all-time low of 0.25% was a certainty, after the Monetary Policy Committee dropped heavy hints:
Since then however, some weaker economic data and more cautious comments from some members of the MPC have dampened expectations.
Connor Campbell, analyst at Spreadex:
Last night Bank of England deputy governor Jon Cunliffe cast further doubt on a November rate hike by arguing that the UK is “not seeing sustained signs of domestic inflation pressure”. He joins Dave Ramsden on the dovish end of the spectrum, with the newest deputy governor claiming he was not one of the MPC members who believes rates need to rise “in the coming months”.
A rate rise would require the backing of at least five members of the nine-strong committee. Ian McCafferty and Michael Saunders voted for a rise in September, so they would need the support of three others.
With Cunliffe and Ramsden seemingly out, as well as new member Silvana Tenreyro, that would leave:
- Mark Carney, governor
- Ben Broadbent, deputy governor
- Andy Haldane, chief economist
- Gertjan Vlieghe, external MPC member
All four have hinted they might be willing to vote for a rate rise in November.
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FTSE 100 in with a chance of new record close
The FTSE 100 could be in for a new record closing high. It is currently about 14 points off last Thursday’s close of 7,556.24.
Over in Spain, investors are so far shrugging off the political instability created by Madrid’s decision to impose direct rule in Catalonia.
Neil Wilson, senior market analyst at ETX Capital, has this take on the markets this morning:
Markets are in a decidedly risk-on mood on Friday. Ignoring the risks from escalating tensions in Catalonia, European indices have opened higher across the board. Even Spain’s IBEX is just in the green.
The Trump trade has been reignited, so it seems. Tax reform is definitely back on - if it was ever off, thanks to the Senate approving of the Republican-backed budget Thursday night. This is a major step towards tax cuts as it allows the GOP to pass legislation without the need for any Democrat help.
European markets follow Wall Street higher
Investors are in an upbeat mood across Europe this morning, boosted by the news that the US senate voted through budget plans for the 2018 fiscal year.
Here are the latest scores:
- FTSE 100: +0.3% at 7,543
- Germany’s DAX: +0.5% at 13,048
- France’s CAC: +0.3% at 5,384
- Italy’s FTSE MIB: +0.3% at 22,191
- Spain’s IBEX: +0.1% at 10,206
- Europe’s STOXX 600: +0.3% at 390
Japan's Nikkei enjoys longest winning streak in 50 years
Japan’s Nikkei has risen for a 14th consecutive session, posting its longest winning streak in more than 50 years.
A weaker yen helped to push up shares, with the dollar up 0.6% to 113.16 yen after the US Senate voted on Thursday to approve a budget blueprint for the 2018 fiscal year.
The Nikkei closed up just 0.04 percent, or 9 points, at 21,457.64, but it was enough to clinch its longest daily winning streak since 1961.
Japan’s share index has risen by more than 5% over the past fortnight on hopes that Prime Minister Shinzo Abe’s ruling coalition will win a general election on Sunday.
The agenda: pound dips, UK public finances, Spanish politics
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound is under pressure this morning as investors become increasingly uncertain that Bank of England policymakers will follow through on hints that UK interest rates will rise.
It was down more than half a cent at $1.3085, after some of the latest UK data started to point to slowing growth as Brexit uncertainty starts to be reflected in the behaviour of households and businesses.
Consumers are feeling much more cautious about spending, with retail sales falling 0.8% in September. Meanwhile real pay has been falling for six months as prices rise faster than wages.
On Thursday the Bank’s deputy governor Jon Cunliffe said it was not clear that interest rates needed to rise soon, planting further doubt in the minds of investors about an imminent rate rise.
Also coming up today:
- Investors are expected to remain cautious as political crisis escalates in Spain
- 09.30 BST: Public finances data is expected to show the UK government borrowed £6.5bn in September, up from £5.7bn in August
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