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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

FTSE 100 hits record high as election jitters drive pound down – as it happened

The City of London.
The City of London.Pound suffers biggest fall in three weeks after election poll narrows’ Photograph: Bloomberg/Bloomberg via Getty Images

A late PS: Here’s Phillip Inman on today’s market action:

FTSE hits fresh record high as pound slides

Breaking! Britain’s FTSE 100 index has hit a fresh all-time closing high.

The blue-chip index surged to new levels, racking up its fifth week of gains, as the slump in the value of the pound pushed shares higher in London.

The FTSE 100 ended up 29 points higher at 7547, a gain of 0.4%.

The FTSE 250, which tracks smaller companies, also hit a fresh record high of 20024 points.

But there’s no jubilation in the City, as traders watch the pound nurse its losses after its rough day in weeks.

Sterling has tumbled by one and a half cents to $1.278, a one-month low, following YouGov’s latest poll suggesting that Jeremy Corbyn has narrowed the gap on Theresa May to just five points.

The pound is also wallowing at a two-month low against the euro, at €1.145.

Pound falls

City traders are now rethinking the prospects of Theresa May securing a big majority in next month’s election. There’s even talk about a possible hung parliament, that might make the Brexit process even messier.

Jasper Lawler of London Capital Markets says this has hurt the pound:

The pound has been looking toppy as election odds narrowed since the release of the manifestos. The latest polls from YouGov showed the Tories with only a five-point lead over Labour. A five point gap looks to have been the breaking point.

Polls are indicating a real chance of another hung parliament in the UK

Chris Beauchamp, Chief Market Analyst at IG, adds:

The precipitate fall in the pound is undoubtedly helping, with the currency taking a rather dramatic tumble below $1.28 as the script for the general election is torn up.

And here’s the moment that the script hit the floor....

The pound also suffered from an upgrade to America’s growth figures, which boosted the US dollar.

That was a sharp contrast with Britain’s GDP figures yesterday, which showed growth was even weaker than first thought (at just 0.2%).

Capital Economics say:

Our view that the pound’s recent rally can continue as the economy remains resilient and Brexit worries gradually ease has been dealt something of a double blow by the downward revision to Q1’s UK GDP figures and the YouGov poll for The Times showing a dramatic narrowing in the Conservatives’ lead over Labour to just 5 points.

A warning that neither of the main parties are being honest about their manifesto commitments also dampened the mood in the City.

That’s a good moment to stop this blog. Best wishes for the bank holiday weekend, and thanks for reading and commenting. GW

Updated

It’s turning into a rout!

The pound has now fallen below $1.28 for the first time in a month, and has lost around 1.5 cents since the YouGov poll came out.

Here’s another depressing chart from the WEF’s report into pensions:

WEF sounds alarm on pension crisis

Whoever wins next month’s election, many younger Britons face working into the 70s thanks to the pensions crisis.

That’s according to the World Economic Forum today, which warns that rising longevity will drive pension deficits to staggering large levels without big changes.

WEF research
WEF research

Our economics editor Larry Elliott explains:

The retirement age in Britain and other leading developed countries will need to rise to 70 by the middle of the century to head off the biggest pension crisis in history, according to the World Economic Forum.

The body that runs the annual gathering of the global elite in Davos said deficits in the world’s six largest pension systems would more than quadruple to $224tn by 2050 unless people worked longer and saved more.

With people born today having a life expectancy of more than 100, the WEF said the cost of providing security in retirement for a rapidly ageing population was the financial equivalent of climate change.

It warned the huge and spiralling cost would imperil the incomes of future generations and set the industrial world up for the biggest pension crisis in history.

The WEF said it had examined the world’s six biggest pension saving systems – the US, the UK, Japan, the Netherlands, Canada and Australia – and found that all were coming under strain from an expected global increase in the numbers over-65s rising from 600 million to 2.1 billion in 2050.

“The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change,” said Michael Drexler, head of financial and infrastructure systems at the WEF. “We must address it now or accept that its adverse consequences will haunt future generations, putting an impossible strain on our children and grandchildren.”

WEF pensions research

More here:

Newsflash: American consumer confidence was a little weaker than expected this month, but still pretty high.

The University of Michigan’s monthly healthcheck of consumer morale has come in at 97.1 for May, down from the preliminary reading of 97.7.

That up on April’s 97.0, and close to its highest levels since the US election last November.

The survey’s chief economist, Richard Curtin, says:

“Consumer sentiment has continued to move along the high plateau established following Trump’s election.”

As the pound drops further, the FTSE 100 hits fresh record highs.

The blue-chip index is now up 30 points at 7552, a gain of 0.4%.

The final trading day of the week is underway in New York.

Shares have dipped a little, as investors get ready for the long weekend (markets will be closed on Monday for Memorial Day).

The Dow Jones industrial average has dropped by 23 points, or 0.1%, to 21,060.

Updated

Richard de Meo, managing director of Foenix Partners, reckons the Federal Reserve is now very likely to raise American interest rates next month:

Upward revisions to 1.2% for first quarter growth have confirmed the world’s largest economy to be in rude health, strengthening the case for a Fed rate hike on June 14th.

[Fed chair Janet] Yellen will find the 0.60% quarterly uptick in consumer spending to be particularly pleasing ahead of what is being enthusiastically priced in by fixed income markets – the implied probability of policy action was above 80% at the last count.

Unless Donald Trump repeats his NATO tactics and shoulders his way into the headlines and barring any shock disappointments in the data calendar, no market event appears capable of preventing a mid-June US interest rate hike.

James Knightley of iNG isn’t too impressed with America’s growth in the first quarter of the year, even though it’s been revised up to 1.2% (annualised)

He points out that it still lags behind other developed countries (not Britain, alas):

US 1Q 2017 GDP growth has been revised up to 1.2% annualised from the 0.7% figure initially reported. There were slight improvements in all of the key components, but it is still a very disappointing outcome, mainly caused by a clear slowdown in consumer spending and a run down in inventories.

Pound hits one-month low

The US dollar has rallied after America’s first-quarter growth was revised up.

And that’s bad news for the pound, which has now spiralled to a one-month low of $1.2811, down more than a cent today.

US growth revised up, beating Britain

Breaking! America’s growth rate in the first three months of this year has been revised up.

US GDP increased at an ‘annualised rate’ of 1.2% in January-March, the Commerce Department says, up from an initial estimate of 0.7%.

That’s equivalent to a quarterly growth rate of 0.3%, the same as France, and faster than Britain after yesterday’s downgrade to 0.2%.

It’s still the weakest expansion since the first three months of 2016. Economists, though, think growth is probably rebounding quite sharply in the current quarter.

The Commerce Department has revised up its estimate for consumer spending, from +0.3% to +0.6%.

Business investment was also strong, rising by 11.4%.

Insurance group Legal & General has given Ireland a boost in its bid to attract City jobs after Brexit.

L&G has picked Dublin as the new European hub for its investment management arm.

And while it may not create many new jobs, the Irish government will be cheered that its efforts to woo major financial firms is paying off. Earlier this month, JP Morgan bought an office block in Dublin, seemingly in preparation for Britain’s exit from the EU.

The Irish Independent has more details:

The move remains subject to regulatory approval, he said, stressing that the relocation would “have no foreseeable impact on operations and staff in other LGIM locations”.

The total number of new jobs may be fewer than 50, but the move represents a significant win for the Government given L&G’s status as a household name within the industry.

The investment manager is Europe’s largest with more than €1 trillion in assets. It is known to be seeking a full EU base for after Brexit.

Ouch! The pound just hit a three-week low of $1.2843 against the US dollar, as election nerves intensify.

Chris Saint, senior analyst at HL Currency Service, says the decline in the Conservative’s Party’s leader over Labour is causing “heavy losses”.

This adds an extra strand to political risks currently weighing on the pound, with markets previously taking it almost for granted that a larger parliamentary majority would hand Mrs May a stronger negotiating position in upcoming Brexit talks.

Several of Britain’s largest banks are the worst-performing stocks on the FTSE 100 so far today.

Royal Bank of Scotland has shed 2.5%, with Barclays and Lloyds close behind.

The top fallers on the FTSE 100 this morning
The top fallers on the FTSE 100 this morning Photograph: FTSE 100

It’s part of a wider selloff; bank shares across Europe have dropped, amid new worries about two Italian banks.

Reuters has the details:

Traders cited worries over the political situation in Italy and concerns surrounding ailing regional banks Popolare di Vicenza and Veneto Banca, even though the county’s economy minister sought to reassure investors on Thursday that they will not be hit in any rescue of the two banks.

Pound pummelled: What the experts say

Sterling is likely to remain volatile until the general election is concluded, suggests Paresh Davdraof of RationalFX.

With the pound sliding below $1.29 against the dollar and at a two-month low against the euro, uncertainty over the outcome of the election is beginning to trouble the markets. In April when the election was called, a Conservative victory appeared all but secured, providing the government with a strong mandate to move forward with Brexit plans for negotiations, while also providing analysts more certainty as divorce proceedings with the EU got underway. Now, the very real possibility of a Labour victory with two weeks before polling day, however unlikely, raises the prospect of further disruption for analysts and a return to volatility in the pound as a new government determines the Brexit process.

Whilst the pound has been able to remain steady in face of the week’s tragic events and disappointing data, it is clear that the election is the most powerful driver behind the UK’s currency. The next two weeks could see more volatility for sterling as polling figures in the run up to the election become more frequent. Analysts will be looking for any definitive signs that the Conservatives can win the election before the pound can consistently return to the levels seen recently.”

But, Chris Beauchamp of IG suspects that the pound might claw back some of today’s losses, once traders have digested the latest polling data.

Cable has spent the week trying vainly to break $1.30, but the most recent YouGov poll has empowered the bears.

Such a polling bounce for Labour was also eminently predictable (a similar occurrence took place for the Conservatives in the 1997 election, and we know how that turned out), so we should see some cable buying as the session goes on.

[Explainer: ‘Cable’ is City slang for the pound-dollar exchange rate, dating back to the days when traders in London and New York used a cable on the Atlantic Sea bed to track it. Some bright sparks occasionally call it ‘Betty’ instead (rhyming slang from WW2 pin-up Betty Grable...)]

The pound’s weakness is good news for European tourists planning a trip to this Sceptred Isle this summer.

One euro now buys 87.1p on the foreign exchanges, up from just 83.1p in mid-April.

The other side of the coin is that Brits face paying more to holiday in Europe this summer.

Bloomberg have created a neat graphic, highlighting how the pound is sensitive to next month’s election victory.

A big Conservative victory is likely to drive sterling up, but a narrow win (or even a hung parliament) would spark a selloff.

How the election could move the pound.

So YouGov’s poll could potentially put sterling “in the trouble zone”, says Neil Jones, head of hedge-fund sales at Mizuho Bank.

“Sterling correlates well with anything that shows a Tory majority and vice versa, so if you’ve got this situation where the majority closes right down, it may come to a critical level where it may not have a sufficient number of seats in the house. The market doesn’t like that.”

More here.

Michael Hewson of CMC Markets says there is “increased nervousness” in the City over the Brexit negotiations, which should begin shortly after the election.

None of the parties appears to have either a coherent plan for a post Brexit Britain, or any vision of a coherent leadership.

While mid-campaign polling wobbles are nothing new, take the rogue Scottish referendum poll in 2014, neither of the main parties appears to have manifestoes which appear to add up with the Institute of Fiscal Studies criticising both.

FTSE 250 hits record high too

We also have a fresh record high on the FTSE 250 index, which contains medium-sized UK-focused companies.

The FTSE 250 has romped over the 20,000 point mark for the first time ever this morning, extending its recent rally.

Restaurant Group (owner of Frankie & Benny’s) has jumped 9% after reporting better sales figures than the City feared (like-for-like takings only fell by 1.8%)

The City fears a hung parliament

The Tory’s shrinking poll lead is raising concerns that no party might win an overall majority in June’s election, says Nomura strategist Jordan Rochester.

Rochester explains:

“Sterling is likely to continue to be under pressure now until the election is out of the way, if polling continues to indicate it’s a tighter race.”

“For the market the worst outcome is if we have further uncertainty with the chances of a hung parliament.”

That uncertainty is keeping the pound pinned at a two-month low against the euro:

The pound vs the euro over the last six months
The pound vs the euro over the last six months Photograph: Thomson Reuters

Here’s more details of the YouGocv poll that has sent the pound dropping:

IFS: Politicians aren't being honest on the econmy

In other election news, an influential economic thinktank has warned that neither of the two major parties are being totally honest with the public over the state of the UK economy.

After analysing the election manifestos, the Institute of Fiscal Studies has given both Labour and the Conservatives a poor score.

As IFS deputy director Carl Emmerson puts it:

“The shame of the two big parties’ manifestos is that neither sets out an honest set of choices.”

The Conservatives are simply offering the public “the cuts already promised”, says the IFS:

“Compared with Labour, they are offering a relatively smaller state and consequently lower taxes. With that offer come unacknowledged risks to the quality of public services, and tough choices over spending.”

But the IFS are also critical of Jeremy Corbyn’s economic plans; saying they would inevitably lead to higher taxes.

“For Labour we can have pretty much everything - free higher education, free childcare, more spending on pay, health, infrastructure.

“And the pretence is that can all be funded by faceless corporations and ‘the rich’.

Our Politics liveblog has more details:

The FTSE 100 hits a new alltime high
The FTSE 100 hits a new alltime high Photograph: Thomson Reuters

FTSE 100 hits new intraday high

Newsflash! The FTSE 100 has just hit a new all-time high.

The blue-chip index has just nudged 7534 for the first time ever, thanks to the weak pound.

Ironically, the drop in sterling is helping Britain’s stock market outperform the rest of Europe.

Most European markets are in the red, dragged down by energy companies (who have fallen following the drop in the oil price).

But the FTSE 100 has gained a handful of points, thanks to multinational firms who benefit from a weak pound.

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

Updated

The Conservative’s shrinking election lead is the main story in the City this morning, reports Connor Campbell of SpreadEx:

The most notable move came from sterling, which plunged half a percent against both the dollar, taking cable to a near 2 week low, and the euro, where the pound now sits at its worst price in around 2 months. The reason for this fall? Well, the latest election poll, conducted by YouGov for The Times, has seen the Tories’ lead slashed to just 5 points, with Labour continuing to mount a post-manifesto release comeback.

Any growth managed by sterling since April has largely been predicated on the assumption that the Conservatives would secure a landslide victory. That this presently doesn’t seem to be the case has helped further erode confidence in the currency’s current position.

Sterling has also hit a two-month low against the euro, down 0.4% to €1.148.

The pound vs the US dollar this month
The pound vs the US dollar this month Photograph: Thomson Reuters

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The agenda: YouGov poll hits pound

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

A bout of general election jitters have sent sterling down to a two-week low this morning.

The pound has lost almost a cent against the US dollar, after an opinion poll suggested that Conservative Party’s lead over Labour has narrowed to just five points.

The latest survey, from YouGov, has knocked the pound down by over half a cent against the US dollar to $1.2858, a two week low, and the biggest one-day fall since early May.

The poll is shaking the City’s confidence that Theresa May will win a large majority, possibly a landslide, on June 8th. That fuels concerns that Brexit could be even messier than feared, if May doesn’t have the substantial ‘mandate’ she is demanding.

Craig Erlam, senior market analyst at foreign exchange firm OANDA, says the poll could be signalling a shock Labour victory:

Sterling fell again overnight after a poll showed the gap between Theresa May’s Conservatives and Jeremy Corbyn’s Labour party has narrowed again. The lead – which only a few weeks ago stood at around 20 points – has fallen dramatically to just five according to this YouGov poll.

With this kind of momentum and almost two weeks to go until the vote, not only is this not going to be the breeze that May anticipated when she called the snap election last month, it could yet turn into a humiliating defeat for the Conservative leader and her party.

However, Royal Bank of Canada don’t think the situation is quite that bad for the Tories.

We note that the YouGov polls have tended to show a smaller Conservative lead than most of the other polls in recent weeks and also that YouGov says the swing in the latest poll is probably due to Conservative manifesto commitments, some of which have changed subsequently.

Campaigning for the June 8 general election recommences today and there will likely be a large number of opinion polls over the weekend, so this picture could change either way in the next few days.

Our Politics Live blog will be tracking all the action from the campaign trail, here:

Also coming up

Disappointment continues to ripple through the oil markets, after Opec and non-Opec members agreed to cut production for another nine months.

Crude prices are down this morning, after tumbling around 4% yesterday, seemingly on disappointment that a more radical deal wasn’t agreed.

Otherwise it looks like a quiet day, as City workers prepare for the bank holiday weekend. But there is some American economic data coming up, including a second estimate of US growth in the first quarter.

  • 1.30pm BST: Second estimate of US GDP for Q1 2017
  • 3pm BST: University of Michigan consumer confidence
  • 6pm BST: Baker Hughes count of US oil rigs

Updated

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