European markets close in the red
And finally, European stock markets ended the day in the red.
The FTSE 100 lost 17 points, or 0.25%, to 7,415 - with the weaker pound propping up the index by boosting multi-nationals’ shares.
But the French CAC lost 0.75% and Germany’s DAX shed 0.4%.
David Madden of CMC Markets says:
In a roundabout way, Theresa May’s troubles a slightly helping the FTSE 100. The remainder of Europe is firmly in the red, but the weakness in sterling has cushioned the fall in the British index.
Continental Europe is being hit by the sell-off that begun last Thursday. The shock sell-off in Japan in the latter-half of last week is still being felt around the world.
Here’s our latest news story on events in parliament this afternoon:
Here’s our take on the IMF’s latest report:
And if that’s not enough...here’s our take on the Resolution Foundation’s gloomy assessment of next week’s Budget:
That’s all for today. Thanks for reading and commenting. GW
There’s not much reaction in the markets to David Davis’s statement.
The pound is still down, although off its lows, at $1.3105.
Updated
One of the hundreds of amendments mentioned earlier has had an effect, it seems....
It is this cross party amendment led by Dominic Grieve, signed by 10 Tory rebels, amendment 7 that has forced the Government’s hand... pic.twitter.com/FAH1VjajyK
— Faisal Islam (@faisalislam) November 13, 2017
BREAKING Britain will leave the EU without a deal if MPs vote down final deal, David Davis said. MPs in the House of Commons audibly gasped.
— Christopher Hope 📝 (@christopherhope) November 13, 2017
With plenty more amendments to come, there may be more twists and turns coming up...
Over in parliament, David Davis has said MPs will get a vote on the final Brexit deal.
That could be a significant development; except if parliament rejects the deal, then the UK could leave the EU anyway.....
More here:
John Redwood MP is under fire after financial bloggers pointed out that the pro-Brexit politician has been advising his clients at Charles Stanley to consider investing abroad.....
Summary
Time for a recap.
Sterling ha shed a cent against the US dollar, to below $1.31, and a similar amount against the euro to €1.122. The selloff came as MPs from across the political spectrum mobilised as the EU withdrawal bill headed back to parliament.
#GBPUSD and #GBPEUR under downside pressure following talks of no confidence in Theresa May pic.twitter.com/72RWsc7rtC
— Miles Eakers (@mileseakers) November 13, 2017
Some City analysts fear that political jitters, and Brexit developments, could push the pound lower in the weeks ahead.
Lukman Otunuga, research analyst at FXTM, says the ‘mounting political uncertainty’ in the UK gripped the currency markets today.
The Sunday Times newspaper reported over the weekend, that as many as 40 Conservative MPs have agreed to sign a letter of no-confidence in Theresa May.
Although this was eight short of the signatures needed to trigger a formal leadership challenge, this is likely to add to the bucket load of uncertainty, translating into more pain for the British Pound. With political instability at home stimulating concerns over May’s ability to govern and deliver Brexit, Sterling may have a very rough and rocky road ahead.
Business leaders have met the PM today, and urged her to move talks forwards before Christmas. The CBI warns that jobs and investment depend on it.
The Resolution Foundation has warned that the UK’s potential productivity growth will probably be revised down in next week’s budget. This will drag on growth, and hurt wage increases.
European stock markets have fallen into the red, and Wall Street is likely to follow suit.
Rough start to the week is taking shape early https://t.co/m0O18af6Iy pic.twitter.com/nT6aDzALUW
— MarketWatch (@MarketWatch) November 13, 2017
Updated
Brexit uncertainty seems to be hitting Europe’s stock markets.
The main EU indices are down around 1%, as the rise in the euro against the pound hits the value of exporters.
Any sign that Theresa May’s authority is weakening will worry investors, especially given the two-week deadline for an agreement on financial payments to the EU.
In London, defence stocks are falling on fears that government cutbacks are biting.
Ultra Electronics, the FTSE 250-listed defence firm, plunged by fifth after a profits warning.
It told shareholders that
There are mounting pressures in the funding of UK defence programmes and this has resulted in the UK MoD pausing, cancelling or delaying numerous programmes.
BAE Systems, which produces weapons and military equipment for air, land and sea have fallen by 3% while Babcock are down 7%.
Investors around the world will be watching the House of Commons, as the EU Withdrawal Bill debate resumes this week.
Wolf Piccoli of Teneo Intelligence says the government needs to be nimble to avoid defeat on one of the many (many!) amendments.
Given the large number of amendments tabled, the government of PM Theresa May will have to tread carefully to avoid defeat. The most controversial proposal will likely only be decided at a later stage: a final say for Westminster on the EU exit deal.
May might have to accept such a vote, but regardless, the offer from Brussels will likely be a take-it-or-leave-it deal.
EU (Withdrawal) Bill - latest list from the clerks to MPs this morning reveals there are now 471 amendments tabled to it. Yes, 471. Surely a record.
— Tom Newton Dunn (@tnewtondunn) November 13, 2017
Business leaders tell Theresa May to make Brexit progress, fast
Top UK business leaders have just urged Theresa May to deliver a breakthrough in the Brexit talks before Christmas.
The group met with the PM at Downing Street this morning, and warned that the economy would suffer serious harm if a Brexit deal isn’t agreed.
The CBI, which represents Britain’s bosses, hopes that negotiations can move onto Britain’s future relationship with Europe soon, before nervous companies start to trigger their contingency plans.
Carolyn Fairbairn, CBI Director-General, says:
“With UK-EU trade worth more than €600bn each year, business groups from across Europe used today’s meeting with the Prime Minister as a welcome opportunity to highlight the mutual importance of seeing real progress before Christmas. All business organisations present reiterated the damage a ‘no-deal’ scenario would do to trade.
“A transition period reflecting the current arrangements remains the priority on both sides of the Channel. While businesses welcomed the Prime Minister’s Florence speech, we now need to move beyond warm words if jobs, investment and living standards are to be protected.
“Moving to the next phase will enable discussions to gather momentum, so negotiators can focus on the future economic relationship. It’s in everyone’s interests that a good, unique final deal reflects the strength and depth of our existing relationship and integration. This will help promote prosperity and better living standards right across Europe for generations to come.”
The latest UK political tensions will not have gone unnoticed in Europe.
Any weakening of Theresa May’s position fuels concern that the PM might struggle to get support for her Brexit plans, or even be ousted from office before March 2019.
Over in Berlin, German government spokesman Steffen Seibert has warned that the situation is now urgent.
Seibert told reporters (via Reuters) that:
More progress is required as time is ticking.
It is understandable that the (EU) chief negotiator (Michel) Barnier stresses how urgent it is for Britain to act promptly, to make proposals.”
Deputy Finance Minister Thomas Steffen has also weighed in, saying people should be prepared for a ‘no deal’ Brexit....
Senior German finance ministry offical Thomas Steffen has warned "we should all be prepared" for a no deal Brexit scenario but says he hopes for alternative "but today I do not see it"
— Marta Vokshi (@marta_vokshi) November 13, 2017
Newsflash: Convenience chain Nisa has agreed to be taken over by the Co-op, following a vote by its storeowners.
But the vote was close. The Co-op needed to get 75% support, and it barely squeaked over the line at a meeting at Leeds United football club...
Co-op successful in its offer for Nisa.
— George MacDonald (@GeorgeMacD) November 13, 2017
Looks like Co-op has clinched its Nisa takeover . 75.8% of members have voted in favour
— Ashley Armstrong (@AArmstrong_says) November 13, 2017
Some Nisa members had argued against the deal, worried that it would damage their independence (as we reported this morning).
Last Friday, the Brexit negotiations intensified another notch when EU negotiator Michel Barnier set the British government a two-week deadline to clarity its position on its ‘exit bill’.
MPs will get the chance to grill Brexit secretary David Davis about the situation later today, when he gives a statement to the House of Commons.
My colleague Andrew Sparrow is covering events in parliament here:
Here’s another chart from the Resolution Foundation’s Budget pre-briefing, predicting the worst wage squeeze since shortly after the Battle of Waterloo:
Resolution say chancellor Hammond could help the situation, by cutting the cap on public sector pay rises.
Here are their four priorities for next week’s Budget:
- Housing, going well beyond the additional Help-to-Buy funding already trailed. The government should take advantage of today’s ultra-low borrowing costs to embark on a large-scale programme of state investment in housebuilding – revising the fiscal rules to allow this to happen
- Revising social security plans, not only to shorten the six week wait in Universal Credit but to also reverse cuts to the new benefit and undo a deeper than expected benefit freeze
- Supporting the ending of the public sector pay cap with additional resources – especially for the NHS
- Ending the expensive and regressive policy of raising income tax thresholds now that the goal of a £12,500 personal allowance is within sight, instead raising revenues via freezes to income tax thresholds later this parliament
Updated
Investors have been jolted out of their ‘autumnal slumber’ by the latest outbreak of infighting in the UK cabinet, and the loss of two senior ministers (Priti Patel and Sir Michael Fallon) this month.
So says Kathleen Brooks of City index, who points out that sterling volatility has jumped today.
She writes:
Firstly, today’s move tells us that the markets are on alert for political risks emanating out of the UK, and if there is a party coup to replace Theresa May then political turbulence is likely to weigh on the pound further.
Secondly, even though the pound has had a jolty start to the week, volatility and technical signals do not suggest to us that the pound is about to fall off a cliff just yet, we may need this story to develop further to get another big move lower in sterling.
Thirdly, don’t get too complacent about the pound, the political and Brexit situations remain fluid and can throw up surprises. In future, when volatility is low in the pound investors should be on their guard that a pullback is likely.
This chart from Reuters’s Jamie McGeever highlights how the pound has become more volatile, compared to the euro:
UK political chaos seeping into sterling - UK pound most volatile relative to euro since May. Chart shows spread between 1-month GBP/USD and EUR/USD implied vol, widest since May. pic.twitter.com/ZWc9xBuAKE
— Jamie McGeever (@ReutersJamie) November 13, 2017
Resolution: Prepare for a gloomy budget
As if the UK government didn’t have enough on its plate already, Philip Hammond has a budget to prepare.
And it may be a depressing event.
The Resolution Foundation have just published a new report, warning that UK productivity will probably be revised down next week (the budget is on Thursday).
That will make a dent in the public finances - it means lower growth, and thus less progress in cutting the UK’s deficit.
But Resolution also warn that it will hurt households in the pocket, as weak productivity means less chance of significant wage increases.
Matt Whittaker, Chief Economist at the Resolution Foundation, said:
“Budget day looks set to bring bad news about what we have the potential to produce as a country. It looks likely that we are currently living through the worst decade for productivity growth since the start of the 19th century.
Highlights from @resfoundation Budget forecast:
— Christopher Hope 📝 (@christopherhope) November 13, 2017
UK on course for worst productivity growth in decade to 2017 since Napoleon tried to invade Russia
Britain on course for worst decade on pay growth for 200 years
Resolution reckons that weekly pay will be almost £25 lower in 2022 than previously expected, still £22.70 below the pre-crisis peak.
Here’s a chart from their report:
Updated
Here’s some good news for people affected by the ground rent scandal: One of Britain’s biggest housebuilders, Taylor Wimpey, has set aside £130m in April to deal with the issue.
Some buyers of its new-build leasehold properties have found themselves trapped in spiralling ground rent contracts, with ground rents doubling every ten years.
The housebuilder said today it had reached agreements with freeholders to enable the “substantial majority” of its customers with a ten-year doubling lease to switch to inflation-based increases.
Ground rents will go back to their original level before they started doubling plus retail price index inflation, currently running at 3.9%. They will be reviewed every ten years in line with RPI inflation. The £130m will go to freeholders.
Taylor Wimpey said:
“Converting to an RPI based structure addresses concerns about the mortgageability and saleability of these properties. We continue to make good progress towards securing agreements with other freeholders to also enable the conversion of the remaining doubling ground rent leases.”
The selloff is picking up pace as the ructions in the UK government worries the markets.
Sterling is now down 1.25 cents or almost 1% at $1.3066. That’s a one-week low, but also close to its lowest point since early September.
Rebecca O’Keeffe, head of investing at interactive investor, says the pound is suffering from the mounting pressure on Theresa May who is “struggling to maintain her grip on power”.
Kit Juckes of Societe Generale has now fired over his latest note to clients, outlining why he thinks the current turmoil is generally priced in.
Sterling is priced for soggy growth and difficult negotiations. Both are likely whoever runs the Conservatives. The weakness of the PM’s position, like the incompetence of Mr Bean, is well known. That’s before we wonder who would want her job in the current circumstances; and before we wonder what her departure might do to the odds of another election, which might well put Jeremy Corbyn into Downing Street.
And would that be good for sterling (much softer Brexit) or bad for sterling (left-wing Labour hasn’t been around since the pound’s worst decade of all)?
IMF: Hard Brexit would hurt EU and UK
Newsflash: The International Monetary Fund has warned that Europe’s economy would suffer if the UK left the EU without a deal.
IMF official Joerg Decressin told Reuters that a hard Brexit would cause damage on both sides of the channel:
“Under such circumstances, our concern is that economic growth will suffer, especially in the UK, but also the euro area.
We are then possibly looking at appreciably lower growth than we presently project.”
Decressin was speaking after the IMF released its latest assessment of the European economy. It believes the recovery looks increasingly assured, with Europe expected to grow by 2.4% this year (although the UK may only manage 1.7%....)
Economic growth in #Europe is expected at 2.4% in 2017, with all countries in the region growing. https://t.co/SZu7Pfqz2p pic.twitter.com/HliDWDvTQ6
— IMF (@IMFNews) November 13, 2017
City traders are studying the headlines and concluding that Theresa May is at her weakest position since June’s general election, says Connor Campbell of SpreadEx.
He writes:
There’s A LOT for May to fret about at the moment. She could be facing defeat on part of her Brexit Bill later in the week, with Tory Remainers likely to team up with Labour to try and secure Parliament a meaningful vote on any deal with the EU, something the PM is keen to avoid.
There’s also threats from Michel Barnier – who stated at the weekend the EU was preparing for a ‘no deal’ scenario – that if Britain doesn’t spell out how far it intends to ‘honour its obligations’ within the next 2 weeks then any trade talks will have to be ‘put back’.
Finally, there’s the leaked ‘Orwellian’ letter from Michael Gove and Boris Johnson – back to scheming after last year’s Tory leadership falling out – to May, with the prominent Leaver MPs outlining a series of secret Brexit demands.
The pound is also losing ground against the euro, down almost one euro cent at €1.122.
The weaker pound has pushed up share prices in London (as it makes overseas earnings more valuable).
The FTSE 100 has gained 22 points, or 0.3%, to 7455 points.
This is the pound’s biggest fall in a week, according to Bloomberg.
They say:
Sterling fell as much as 0.8 percent to $1.3092 as leveraged accounts aggressively sold the currency, according to traders in London, who asked not to be identified as they weren’t authorized to speak publicly.
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Brexit fears hit pound: What the experts say
Here’s a chart showing how the pound dropped this morning:
Hussein Sayed, chief market strategist at FXTM, says sterling is suffering from Theresa May’s weak position:
Sterling fell more than 0.5% early Monday, after the Sunday Times reported yesterday that 40 Conservative Party MPs agreed to sign a letter of no confidence in the Prime Minister, Theresa May. While this remains short of the 48 votes needed to force a new leadership, it still creates much frustration amongst investors seeking clarity on Brexit negotiations.
With May’s position being potentially at risk and no significant progress after six rounds of talks with EU, Sterling may come under increased pressure in the next couple of days, with the $1.3024 support level at risk of being breached. A leaked letter from Boris Johnson and Michael Gove pushing for Hard Brexit, add to the uncertainty as House of Commons meet on Tuesday.
But....Elsa Lignos of Royal Bank of Canada suggests Tory MPs will be reluctant to oust May, given the opposition Labour party’s solid performance in the polls...
We have argued before that UK political risk is underpriced (bookies odds point to a high probability of an election in 2018 or 2019, with Corbyn as the single most likely next prime minister). But note there were 35 MPs ready to sign a no confidence letter after May’s chaotic party conference speech and the hurdle to be MP number 47 or 48 should be high, given Labour’s performance in the polls.
The pound is still down 10% compared to its value before the EU referendum (when it was worth almost $1.50).
Kit Juckes of French bank Societe Generale tweets:
Markets ended last week with a risk wobble as EM and HY spreads widened and Govt yields rose. This morning, all about 40 MPs losing confidence in T May. £ down. But U.K. govt shambles is mostly priced in & change can be good.
— Kit Juckes (@kitjuckes) November 13, 2017
(EM = emerging markets, HY = high yield, or riskier bonds that give a better return. The rest doesn’t require translation....)
The agenda: Pound under pressure as political pressures build
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound has fallen this morning as pressure mounts on prime minister Theresa May over Britain’s exit from the European Union, ahead of some crucial votes in parliament this week.
Sterling has shed almost a cent this morning, to below $1.31, after the Sunday Times reported that 40 Conservative members of Parliament have agreed to sign a letter of no confidence in her.
That’s close to the number needed to trigger a formal leadership battle, creating new jitters in the City and beyond about the stability of the UK government.
The British pound falls after news reports that members of Parliament want Theresa May to resign https://t.co/SkvSE606BB pic.twitter.com/JzYAlix7W5
— The Wall Street Journal (@WSJ) November 13, 2017
In another significant move, foreign secretary Boris Johnson and environment secretary Michael Gove have written a letter to May complaining that “some parts of Government” aren’t doing enough to prepare for a hard Brexit.
This letter, which leaked over the weekend, appears to be an attempt to undermine chancellor Philip Hammond (as he puts the finishing touches to next week’s budget).
GUARDIAN: Brexiteers send PM ‘Orwellian’ set of demands #tomorrowspaperstoday pic.twitter.com/M5tkspLrFG
— Neil Henderson (@hendopolis) November 12, 2017
One minister has described the move as “Orwellian”, suggesting that the cabinet is badly split as MPs return to parliament to debate the Brexit bill.
My colleagues Rajeev Syal and Jon Henley report:
Another minister said: “I doubt they thought this would ever come out. It stinks to high heaven. May will have to dress them down or look weak.”
Another former cabinet minister said: “I can’t believe this has come out. This is exactly the kind of arm-twisting by Brexiters one expects to go on behind the scenes, but the fact that it is in the public and is being inflicted upon the prime minister is remarkable.”
It all tees up another dramatic week, with parliament due to start debating the EU withdrawal bill again on Tuesday. There will be fireworks, with a group of MPs planning to propose an amendment to give Parliament a binding vote on the final divorce deal between Britain and the EU.....
Also coming up today...
Bookmaker Ladbrokes and housebuilder Taylor Wimpey are reporting results this morning.
We’ll also keep an eye on the Dubai Air Show - yesterday, Emirates announced a $15bn deal with Boeing. That was a surprise, as Airbus was expected to win a big deal for its Airbus A380 superjumbo - can it bounce back today?
Updated
