Wall Street opens lower
US markets are down in early trading as Trump’s comments continue to reverberate around Wall Street.
Here’s how it looked at the opening bell:
- Dow Jones: -0.2% at 20,542
- S&P 500: -0.2% at 2,339
-
Nasdaq: -0.1% at 5,828
On that note, we’ll close up for the day. Thank you for commenting and please join us again next week. Happy Easter. AM
European markets are still in the red this afternoon:
- FTSE 100: -0.6% at 7,309
- Germany’s DAX: -0.3% at 12,116
- France’s CAC: -0.6% at 5,072
- Italy’s FTSE MIB: -1% at 19,804
- Spain’s IBEX: -0.7% at 10,289
- Europe’s STOXX 600: -0.4% at 380
Over in Greece, prime minister Alexis Tsipras has used his last cabinet meeting before Easter to call for a “big political counter attack” from ministers who will soon be called to defend concessions made by his leftist-led government with creditors keeping the debt-stricken country afloat.
Slamming the International Monetary Fund for the delays that have stalled bailout negotiations for close to a year, Tsipras said extra pension cuts and tax rises demanded by creditors once Athens’ current bailout expires next year would be legislated in the next 15 days.
Discussions on medium term debt relief – viewed by many as essential for the recession-ravaged Greek economy to finally rebound - would take place at the IMF’s spring meeting next week, giving Athens a sense of what might be in store.
The Greek prime minister, who says implementation of reforms depends on debt relief, also predicted an emergency summit of eurozone finance ministers in early May, once technical teams had completed a review in Athens where a deal would be finalised.
If that happened, the country could be given access to the European Central Bank’s quantitative easing programme which would help Greece return to bond markets.
The squeeze on real incomes in the UK shouldn’t be too severe according to analysts at Capital Economics.
It follows official figures on Wednesday which showed inflation outpaced regular pay growth (excluding bonuses) for the first time in two-and-a-half years in February.
Paul Hollingsworth, UK economist at Capital Economics, says:
After two-and-a-half years of rising real wages, this week’s inflation and labour market figures confirmed that the pay squeeze has returned. And, with inflation rising faster than expected, some further drop in real earnings looks likely over the coming months.
However, the squeeze shouldn’t be as sharp or prolonged as that seen after the financial crisis, and there are other reasons to think that spending growth might hold up rather better this time around.
For a start, the labour market still appears to be tightening and we remain optimistic that this should result in at least some pick-up in nominal wage growth this year. And we think inflation should peak towards the end of this year, while nominal wage growth continues to accelerate slowly, paving the way for a faster increase in real earnings next year.
Brent crude is up 0.2% at $55.97 a barrel after the International Energy Agency said global demand for oil is close to outstripping supply after nearly three years of surplus production.
Oil stocks across the Organisation for Economic Cooperation and Development fell by 17.2m barrels in March, the IEA said.
Paresh Davdra, chief executive and co-founder of RationalFX, says the pound is increasingly at the mercy of developments in other markets:
Whilst the pound was once driven by political sentiment over Brexit before Article 50, it now seems more overtly driven by the fortunes of its major peers, achieving strong runs on the back of weakness in the dollar and the euro.
This could make for volatile or inconsistent movement for the currency should the dollar or euro prove vulnerable to political drivers which, thus far, appears highly likely.
Although being driven by risks in other markets has its benefits, investors will be hoping that the pound is able to gain independently of other currencies in the long term, particularly as the Brexit process progresses.
The pound is just about holding on to gains against the dollar - currently at $1.2540 - in what has been a decent week for sterling:
It’s all relative though. On 23 June, the day of the EU referendum and before the Brexit vote was known, one pound would buy about $1.49:
Howard Archer, chief UK economist at IHS Markit, says the Bank of England will be pleased by signs that lenders are making it tougher for consumers to borrow.
If the fundamentals for consumers do weaken further as expected over the coming months, it is vital that banks adopt tight lending standards in granting unsecured consumer credit, or it risks causing serious debt problems for the economy.
The Bank of England has clearly become more worried about consumer borrowing and debt levels in recent months. This was highlighted by the households savings ratio falling to a record low of 3.3% in the fourth quarter of 2016.
Governor Mark Carney has also indicated that the Bank of England will closely monitor consumer dynamics over the coming months and it will be a major factor in their monetary policy decisions.
Updated
Bank of England: UK lenders to rein in consumer credit supply
More British lenders plan to tighten the supply of credit to consumers than at any time since the 2008/09 financial crisis.
That’s according to the latest quarterly credit conditions survey from the Bank of England, which found that a net balance of 18.8% of lenders expect to rein in supply over the next three months, up from 7.9% in the previous survey.
It was the highest proportion since the end of 2008, when Lehman Brothers collapsed tipping the global economy into crisis.
Britain’s economic growth since the financial crisis has been fuelled by consumer spending, and the Bank had already flagged concerns that households will take on more debt to sustain spending as inflation rises and wage growth slows.
The survey on Thursday also showed weaker business investment acted as a “significant drag” on demand for credit among UK businesses.
Unite, the UK’s largest union, says it is concerned by Royal Mail’s pension closure and will be studying the implications.
Brian Scott, Unite officer for the Royal Mail:
This is a cause for serious concern for a hardworking and dedicated workforce.
We will study the implications of today’s announcement very carefully and consider all the options going forward. If we don’t achieve a satisfactory outcome, we can’t rule out an industrial action ballot on this issue.
We will be consulting our members closely on the next steps in the coming days and weeks.”
Royal Mail making big profits so understandable industrial action over pension scheme closure @CWUnews @DaveWardGS https://t.co/iygVpyn9HL
— Peter Hain (@PeterHain) April 13, 2017
Royal Mail: we could lose business from strike threat
Royal Mail has responded to the threat of strike action by the Communication Workers Union, which has condemned the company’s decision to close its defined benefit pension scheme.
A spokesperson for Royal Mail said:
Customers choose Royal Mail because they trust us to deliver. Any industrial action – or threat of it – undermines this trust between Royal Mail and our customers, and we could lose business as a result.
The CWU said workers on average face losing up to a third of their future pensions. For a 50 year-old worker earning £25,000 a year and retiring at 65, it would equate to a loss of £4,392 a year (£109,800 over 25 years), the union calculated.
Royal Mail responded:
Under our proposal, only a very small percentage would see this level of reduction in their pension. If members leave Royal Mail employment before that age, the impact on their benefits would be smaller.
The plan has around 90,000 members. The impact of the proposed changes will vary from member to member. For plan members close to retirement, we expect the changes to have a smaller effect. The impact of the proposed changes will depend on age, length of service and which part of the scheme a member is in.
We know how important pension benefits are to our colleagues. We continue to work closely with our unions on a sustainable and affordable solution for the provision of future pension benefits. We will write to plan members once further decisions have been made.
Updated
Investors appear to have welcomed the news that Royal Mail plans to close its defined benefit pensions scheme.
Shares are up 0.8% at 422.5p, making it one of the FTSE’s top risers. (The FTSE is down 0.5% at 7,311.). Shares in Royal Mail were up almost 2% earlier.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, gives his take on the plans:
Shares in Royal Mail were up 1.9% this morning after the group finally announced it will be shutting its existing pension plan. Despite the scheme currently running a surplus, an impending review of company contributions has been hanging over the group for some time.
Royal Mail’s current contributions to this scheme alone are about 10% of total salary costs, including wages of staff who are not members of the scheme. These were expected to more than double to over £1bn in 2018, equivalent to around 25% of the group’s entire 2015/16 UK wage bill.
However, with a highly unionised workforce, which has in the past shown itself willing to flex its muscle in defence members’ rights, introducing an alternative plan is likely to prove costly. Whether those costs will be in the form of chunky employer contributions to a new defined contribution scheme or lost revenue from industrial action remains to be seen.
Union threatens strike action over Royal Mail pension closure
The Communication Workers Union is threatening strike action over Royal Mail’s decision to close its defined benefit pension scheme in 2018.
The union said it “strongly condemns” the move, which it says would cost the average worker a third of their future pension.
Ray Ellis, acting deputy general secretary for postal workers at the CWU said the views of workers had been ignored:
Although Royal Mail’s own consultation exercise revealed massive opposition to its closure plan, the company has decided to ignore the views of its workforce and proceed with closure without consent.
CWU has made clear that any attempt by the company to impose change without agreement will be met with the strongest possible opposition including a ballot for industrial action.
We will not stand by and watch the company abandon the pension promises it made at the time of privatisation which threatens our members with massive cuts to their future pension benefits and insecurity and poverty in retirement.
The CWU represents about 195,000 members in post, telecoms, mobile and financial services companies including Royal Mail, Post Office, BT, EE, O2 and Santander.
Royal Mail to close 'unaffordable' defined benefit pension scheme
Corporate news is a little thin on the ground this morning but Royal Mail has confirmed the closure of its defined benefit pension scheme.
Julia Kollewe reports:
Royal Mail has announced that it will close its 90,000 member pension fund after consulting members and unions, even though the scheme in surplus.
It argues that the surplus would run out next year and the scheme would become unaffordable. The company, which was privatised in 2013, currently pays £400m a year into the fund but it says this could more than double to over £1bn in 2018.
The £7.4bn defined-benefit scheme guarantees a pension based on a postal worker’s average salary, and it is thought that Royal Mail will replace it with a less generous defined contribution scheme.
The company said:
We have concluded that there is no affordable solution to keeping the plan open in its current form. Therefore, the company has come to the decision that the plan will close to future accrual on 31 March 2018, subject to trustee approval.
We know how important pension benefits are to our colleagues. We continue to work closely with our unions on a sustainable and affordable solution for the provision of future pension benefits.
Updated
European markets fall in early trading
Major European markets have followed Wall Street and Asia lower this morning.
The scores so far:
- FTSE 100: -0.5% at 7,315
- Germany’s DAX: -0.2% at 12,130
- France’s CAC: -0.5% at 5,075
- Italy’s FTSE MIB: -0.5% at 19,899
- Spain’s IBEX: -0.4% at 10,321
- Europe’s STOXX 600: -0.4% at 380
The weaker dollar is contributing to the fall in equities, as Spreadex’s Connor Campbell explains:
The pound obviously relished Trump’s comments, climbing another half a percent in what has already been a very strong week for the currency.
This in turn dragged the FTSE lower, the UK index dropping 45 points with the majority of its commodity and banking stocks also in the red.
The eurozone indices suffered the same fate, the DAX and CAC falling by 0.5% and 0.6% respectively. That’s because the euro was an even bigger beneficiary of the dollar-situation, rising 0.6% against the US currency to hit a one week peak.
Regardless of whether this selloff has been overdone or not, there is little on the economic calendar to displace it from the forefront of investors’ minds, meaning the dollar may struggle to regain its footing until this afternoon’s US session at the very earliest.
Elsa Lignos, global head of currency strategy for RBC Capital Markets, says the reaction in the FX markets to Trump’s comments could well be short-lived.
Typically, politicians’ currency comments have no lasting effect—the kneejerk reaction may be 50–100pts but it quickly fades. The comments would have more lasting power if they drive Trump to openly look for a dove to replace Yellen, though her term is not up until October 2018.
Trump: China is not a currency manipulator
Trump softened his tone on China during the interview with the Wall Street Journal.
Having previously branded Beijing the “grand champion” of currency manipulation, the President said he’d changed his mind:
They’re not currency manipulators.
The President also refused to rule out a second term for the Fed chair Janet Yellen, despite saying on the campaign trail that she would not be reappointed.
He said it was still “very early” and that she was “not toast”.
I like her, I respect her. It’s very early.
Kathy Lien, managing director of currency strategy at BK Asset Management in New York said the dollar sell-off following Trump’s comments was probably an overreaction:
The market had a big reaction, but I think it was an overreaction. He may just be hedging his bets by making sure that the American public realises he’s not backing down on trade.
The pound is up against both the dollar and the euro this morning.
Sterling is up 0.1% against the dollar at $1.2548, and 0.2% against the euro at €1.1778.
The agenda: Pound rises, dollar falls on Trump's warning
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound is back above $1.25 following a warning from President Trump that the dollar “is getting too strong” because people have confidence in him.
He told the Wall Street Journal:
I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting -- that will hurt ultimately.
Look, there’s some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good. It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency.
The President also suggested he would like the Federal Reserve to keep US interest rates low:
I do like a low-interest rate policy, I must be honest with you.
The comments sent the dollar index - which tracks the US dollar against six major currencies - to its lowest level since 30 March.
