With the London stock market closed, City traders are scrambling to sort their last-minute Christmas shopping, or heading home for a break.
So it’s time to wrap up this blog. I’lll be back next week, for the final sprint to the new year.
We hope you have a lovely Christmas. Thanks for reading and commenting. GW
The bitcoin selloff is gathering pace. It’s now down around $3,000 today at $12,900 -- a bitter blow to anyone who bought at almost $20,000 this week.
The selloff comes as Warren Buffett’s top lieutenant, Charlie Munger, adds his voice to the chorus of warnings against digital currencies.
CNBC has the details:
Munger, 93, was asked for his views on cryptocurrencies during a University of Michigan’s Ross School of Business event.
“I think it is perfectly asinine to even pause to think about them,” Munger said. “It’s bad people, crazy bubble, bad idea, luring people into the concept of easy wealth without much insight or work. That’s the last thing on earth you should think about … There’s just a whole lot of things that aren’t going to work for you. Figure out what they are and avoid them like the plague. And one of them is bitcoin. … It is total insanity.”
The interview was published Wednesday on the business school’s YouTube channel. It is not clear when exactly the event was held, but the video has largely gone unnoticed with roughly 7,000 views as of Friday morning.
Buffett partner Charlie Munger says bitcoin is ‘total insanity,’ avoid it ‘like the plague’ https://t.co/F1AyIAbBrb
— CNBC (@CNBC) December 22, 2017
Carlo Alberto De Casa, Chief Analyst at ActivTrades, says the bitcoin price action resembles Las Vegas:
After a record high on Sunday where bitcoin fell just short of $20,000, it has now fallen by $3000 in just a few hours and today it’s roughly valued at $13,500. It’s the type of volatility we are getting used to seeing from the Cryptocurrency and it wouldn’t surprise anyone, if it was to recover even by the end of the day
The people selling the coin believe they are getting a good deal, and then those buying it believe they are getting it at a good price. It’s continuing to fuel the unpredictability of the market and more and more people are getting involved. It’s like red or black in the casino.
Updated
Here’s our economics editor, Larry Elliott, on today’s UK GDP figures:
Spending by UK households slowed to its lowest level in almost six years during 2017 as the impact of higher inflation hit living standards.
The Office for National Statistics said spending in the third quarter was up by 1% on the same period in 2016 – the weakest annual growth since the first three months of 2012.
In its latest update on the state of the economy, the ONS reported growth of 0.4% in the third quarter – unchanged on its previous estimates but slightly higher than the 0.3% recorded in each of the first two quarters.
Revisions to previous data meant, however, that annual growth in the year to the third quarter has been adjusted up from 1.5% to 1.7%.
Household spending increased 0.5% between the second and third quarters but was boosted by consumers running down their savings during a period when real incomes were squeezed by price rises running ahead of pay.
Paul Hollingsworth, a UK analyst at Capital Economics, said the ONS figures revealed a more balanced growth picture, with household spending revised down but business investment revised up from 0.2% to 0.5%.
“The economy looks to have maintained this pace in Q4,” Hollingsworth added. “This should mean that GDP growth for 2017 as a whole should come in at about 1.8%.”...
Updated
Santa isn’t paying an early visit to Europe’s stock markets today.
All the major European bourses are as red as Rudolph’s nose, with Spain leading the fallers as pro-independence parties celebrate the Catalan election.
But the Spanish IBEX is still only down around 1.2% - so hardly a crash.
Despite today’s selloff, the German, French and Italian stock markets are up over 10% this year, and Spain isn’t far behind (up 8.9%).
Mike van Dulken of Accendo Markets says:
Catalonian regional elections may have delivered another awkward pro-independence message for PM Rajoy in Madrid, but as has been the case for the last year, if not longer, investors are happy to keep looking past geopolitical risk.
Think of all we’ve seen and heard. And look at where we are. A roller coaster it may have been, but we’re thicker skinned for it and nursing handsome gains. Might 2018 deliver more of the same?
Santa rally splutters out
Hopes that Britain’s stock market might hit a new record high in the final session before Christmas have been dashed.
The FTSE 100 has just closed down 11 points, or -0.15%, at 7592, in a rather quiet trading session.
Next, the retailer, was the top risers -- suggesting traders think it may be enjoying a good festive season.
David Madden of CMC Markets says that consumer stocks were in “high demand”, despite this morning’s concerns that households are going deeper into debt.....
Bitcoin price takes a tumble
Bitcoin investors may be feeling blue today.
The cryptocurrency has suffered a heavy selloff, shedding up to $2,000 to around $13,400 in a bout of volatile trading.
This means bitcoin has lost a quarter of its value since the start of the week, amid growing signs that regulators and governments might be cracking down on digital currencies.
So why the sudden selloff?
Kerim Derhalli, founder and CEO of finance app Invstr, has a theory:
“Bitcoin’s meteoric price rise is mostly due to the highly illiquid nature of the current market. There are very few Bitcoin available to buy on the open, which pushes prices up.
“But with illiquidity comes volatility. Even small changes to the market, in terms of either supply of Bitcoin or investor confidence, can have a big effect in prices.
“It’s not clear yet what happened here, but it is possible that someone with a large stockpile of Bitcoin made it available to the market. This increase in availability could have initially driven prices down, with other holders – especially those that bought at the top of the market – panicked into offloading as a result.
Anyone who bought bitcoin at the start of 2017, for around $1,000, is still sitting on gains, of course (as long as they haven’t lost the password for their bitcoin wallet).
Pensions Partners’ Charlie Bilello points out that bitcoin has now suffered five slumps this year. The previous four were shaken off quite quickly.....
Bitcoin has declined 34% over the past 4 days, its 5th 30+% correction of the year. $BTC.X pic.twitter.com/Tc9SuzU6FU
— Charlie Bilello (@charliebilello) December 22, 2017
The Greek government says it will not drop its crackdown against homeowners who can’t repay their debts, despite last night’s explosion in Athens.
Addressing parliament today the national economy ministry Dimitiris Papadimitriou said the leftist-led government was determined to tackle strategic defaulters who had deliberately elected not to pay “large loans to build villas” but he insisted that no primary home was at risk of being seized.
Papadimitriou says:
“The government has pledged to protect primary homes and will continue to do so.
“No heavily indebted household is at risk. Those who are in danger are the debtors who took out large loans to build villas.”
A new law would be passed tackling defaulters in the next three months, he told the House.
With just 10 minutes of the trading day to go, the FTSE 100 has dropped back from its earlier record high. The index is now down 1 point at 7602....
Getting back to today’s UK GDP report... here’s Yael Selfin, chief economist at KPMG:
“The final figures for the third quarter paint a picture of a significantly weaker domestic economy but a more positive exports performance.
Weaker government spending and a marginal downward revision to consumer spending were offset by an upward revision to investment and a rise in exports, as companies took advantage of the weak pound and bourgeoning growth momentum in many of the UK’s key trading partners. The UK’s current account position improved as a result.
“Consumer spending was a key driver of growth in the third quarter, however the rise in spending centred on households’ basic needs such as electricity, gas and fuel, as well as housing rent and transport. Spending on discretionary treats like restaurants and hotels actually declined, as a squeeze on real incomes made consumers more careful with their spending.
“With consumer spending remaining under pressure next year, exporters will need to play a significant role in propelling UK economic growth, despite uncertainty over the UK’s trading relationships once it leaves from the EU.“
The company that makes Fox’s Glacier Mints has been bought by the maker of Jacob’s biscuits in a €100m (£89m).
Ireland’s Valeo Foods Group, which is already home to Rowse honey and Balconi Italian cakes, on Friday signed a deal to buy the British and Czech confectionary operations of Finland’s Raisio.
Included in the deal are the brands Fox’s, Poppets and Pedro.
Seamus Kearney, chief executive of Valeo, says:
“We are very excited about the opportunities to expand and grow the acquired businesses through a combination of significant new capital and brand investment.”
Meanwhile, there has been major bomb blast outside Greece’s appeals court just days after parliament passed tough measures penalising anti-bailout protestors who regularly gather at court hearings.
Police are reporting extensive damage but no injuries.
Helena Smith reports from Athens
The powerful explosive device, which ripped through the court complex just meters away from Greece’s police headquarters, is being linked to mounting anger over the contentious issue of property auctions.
Courts are often the scene of violent protests when auctions of properties occur, with enraged owners attacking clerks and public notaries assigned to push them through.
This week the leftist-led government passed legislation penalising protestors who resorted to “criminal acts” of violence.”
“It is a miracle that no one was hurt,” said a police spokesman adding that guards had been alerted to the bomb after a local leftwing newspaper received a warning call shortly before the explosion at 3 AM.
Foreclosures have been demanded by Greece’s bailout creditors as part of efforts to deal with the country’s record stock of non-performing loans - which is the worst in the EU, at around 50% of debt.
Much of the bad debt has been attributed to strategic defaulters. The explosion is not only embarrassing for authorities but will put huge pressure on the government now perceived to have reneged on earlier promises to protect the thousands of Greeks who hit by austerity are unable to honour mortgage payments.
Why the rise in household borrowing matters
The rise in household borrowing will fuel concerns that some UK families are dangerously in debt.
City fund manager Toby Nangle yesterday tweeted this chart, showing where the debt burden is falling:
Each dot is a UK household in the NMG/ @bankofengland Survey pic.twitter.com/VofrrGiqf2
— Toby Nangle (@toby_n) December 21, 2017
He’s also written two interesting blog posts, showing that the key issue for policymakers is how this debt is concentrated.
He imagines two fictional countries - Feudaland, where most households owe a small amount of debt to a few creditors, and Debtzania, where most households are creditors but a few are deeply in debt.
In Feudaland, there is much less risk to financial stability - even though most people are borrowers.
As Toby puts it:
Feudaland’s wealth inequality might eventually prove politically unsustainable, but it would be hard to call it financially unsustainable, even in an environment where interest rates doubled.
Despite exactly the same aggregate debt-metrics, Debtzania looks much more financially fragile than Feudaland.
Although the upward revision to UK growth is obviously welcome, it’s being overshadowed by the news that Britain’s households have fallen deeper into debt.
Nicholas Megaw of the FT explains why it’s a worry:
Consumer spending has held up better than many economists had expected since last year’s Brexit vote, despite rising inflation and sluggish wage growth weighing on real incomes. But Friday’s data provide further evidence that consumers are increasingly taking on debt to maintain their consumption levels.
Net borrowing by households increased 75 per cent quarter on quarter to £2.8bn. The figures marked the first time households have been net borrowers for four successive quarters since records began in 1987.
British households become net borrowers for longest period on record https://t.co/FdSELgBI4u
— fastFT (@fastFT) December 22, 2017
Bloomberg’s Andrew Atkinson is also concerned by the squeeze on UK consumers, saying:
The news on growth highlights the twin pressures facing the U.K., both of them relating to Brexit.
Disposable incomes rose just 0.2 percent from a year earlier after adjusting for inflation, which has been driven higher by the fall in sterling since the vote to leave the EU. Consumer spending climbed 1 percent, the least in 5 1/2 years.
The ONS also said that households have paid out more money than they received for four consecutive quarters, the first time that’s happened since records began in 1987.
Companies, meanwhile, remain reluctant to spend until there is greater clarity about life outside the EU. Business investment increased an annual 1.7 percent, the worst reading for more than a year.
U.K. "households have paid out more money than they received for four consecutive quarters, the first time that’s happened since records began in 1987." https://t.co/hhyQgw0zUD via @business
— Jeremy Kahn (@jeremyakahn) December 22, 2017
UK GDP: What the experts say
Despite it being nearly Christmas, some City experts are still on duty and reacting to this morning’s updated UK GDP report.
Capital Economics say Britain is on track to beat growth forecasts this year:
Today's revisions to the #GDP data mean quarterly growth of between 0.3% and 0.6% in Q4 would see annual growth come in at 1.8% for 2017. The consensus at the start of the year was 1.3%. pic.twitter.com/sG8u6jubC3
— Capital Economics (@CapEconUK) December 22, 2017
Ian Stewart, chief economist at Deloitte, agrees that the UK has done better than feared in 2017:
“The UK’s performance has been rather better than the gloomy talk would suggest. Growth has come in stronger than expected a year ago and the pace of activity has edged up since July.
“A year ago the near-universal view was that unemployment would rise in 2017; instead it has fallen by 150,000 and the jobless rate is at a 42 year low.
“A whopping sterling devaluation certainly has squeezed spending power and incomes, just as you’d expect, but it’s also helped reboot manufacturing output.
“Overall, growth has slowed modestly, not collapsed. Talk of an end to UK growth has been somewhat exaggerated.”
Alpesh Paleja, the CBI’s principal economist, awards the report three Christmas tree emojis:
A tiny bit of Christmas cheer from the ONS: Q3 GDP growth looks a bit more balanced, with a flat contribution from net trade and a little more from business investment. Add to that a slight narrowing in the current account deficit 🎄🎄🎄
— Alpesh Paleja (@AlpeshPaleja) December 22, 2017
But Howard Archer of the EY Item Club says Britain is still in the ‘middle lane’, with households squeezed by “higher inflation and muted earnings growth.
Furthermore, employment dipped in the third quarter. Consequently, real household disposable income rose by just 0.2% in the third quarter while the household savings ratio dipped to 5.2% in the third quarter from 5.6% in the second quarter.
Updated
Jamie McGeever of Reuters isn’t impressed by the upward revision to UK growth:
UK economy expanded at 0.4% quarterly rate in Q3 and 1.7% annual rate. But despite being revised up from 1.5% estimate, that's still the lowest annual growth in over 4 years. pic.twitter.com/Hm6e3S5gqj
— Jamie McGeever (@ReutersJamie) December 22, 2017
Household spending growth slows to five-year low
Today’s GDP report also shows that UK households are suffering from the impact of rising inflation.
Household spending growth slowed to just 1.0% over the last year, the weakest pace in five years, and down from a previous estimate of +1.6%.
And despite that slowdown, families were forced to dip into their savings and run up more debt, to cover the fact that wages aren’t keeping pace with inflation.
The Office for National Statistics says:
- Real household disposable income quarter on previous quarter growth was 0.2% in Quarter 3 (July to Sept) 2017 as a result of an increase in wages and salaries, partially offset by the rise in prices experienced by households.
- Real household disposable income growth in 2016 has been revised down to flat from 0.1%, as previously published.
- The saving ratio fell to 5.2% in Quarter 3 2017, due mainly to the growth in households’ spending exceeding the growth in households’ income.
- In the non-financial account, the net borrowing position of households increased in the latest quarter. Households have now been net borrowers for four successive quarters for the first time since records began in 1987.
Households have now been net borrowers for four successive quarters for the first time since records began in 1987 https://t.co/lvFOSmhYWW
— ONS (@ONS) December 22, 2017
Today’s GDP report confirms that Britain’s economy has now expanded for 19 quarters in a row:
Britain’s manufacturing sector enjoyed the strongest growth over the last quarter, but the construction sector shrank:
- agriculture increased by 0.8%
- production increased by 1.3%
- construction decreased by 0.5%
- services increased by 0.4%
UK annual growth revised up
Newsflash: Britain’s economy has grown faster than expected over the last 12 months.
The Office for National Statistics has revised up its estimate for year-on-year growth in the last quarter, to 1.7% from 1.5%.
That’s because the ONS now thinks the UK economy grew faster than previously thought in the six months after the Brexit vote.
Business investment was stronger than first thought. It rose by 1.7% over the last 12 months, the ONS says, up from a previous estimate of 1.3%
Head of National Accounts Darren Morgan says that
Most of the growth came from the dominant service sector, with accounting, recruitment agencies and retailing all performing well.
“Manufacturing also boosted growth thanks to an increase in exports and the introduction of new car models. Meanwhile, household spending and business investment both grew steadily.
On a quarterly basis, UK GDP rose by 0.4% - unchanged on the previous estimate.
That’s slower than France, whose quarterly growth was revised up to 0.6% this morning, and Germany which expanded by a robust 0.8% in July to September.
More to follow....
Spanish bond prices have hit a one-month low, as the renewed political uncertainty worries traders.
This pushed the yield, or interest rate, on 10-year Spanish bonds to 1.5% - the highest level since November (yields rise when prices fall).
The euro has also slipped following the Catalan election results; it’s currently down 0.2% at $1.185.
Jane Foley of Rabobank says financial markets had hoped that the regional election would take Catalan independence off the agenda.
Clearly that’s not happened, so traders are rethinking about the whole issue.
As Foley puts it:
The markets have to reevaluate what it means for Spain, and does it mean anything for other countries - such as the Italian election in the spring.
She believes that Spain’s strong growth will help to ‘paper over the cracks’ in its political system.
But the Catalonia independence movement is just part of a wider issue, of nationalism and regionalism, that will continue to affect Europe in the next few years.
FTSE 100 hits fresh record high
Newsflash: Britain’s FTSE 100 has shaken off worries about Catalonia, and hit a new all-time high.
The blue-chip index has climbed to 7,611 points, around 5 points above last night’s record close.
Perhaps yesterday’s ‘Santa Rally’ hasn’t quite run out of steam yet.
The Catalan crisis is likely to worry credit rating agencies, says Kit Juckes of French bank Société Générale:
Pro-independence parties got enough votes to win a slim majority in yesterday’s elections, a result that is more an embarrassment for PM Rajoy than a victory for the separatists, given the small majority. Still, it lowers the chance of a rating upgrade any time soon in Spain.
Catalonia election: The official result
This chart shows how the three pro-independence parties claimed 70 of the 135 seats on offer in the Catalan election.
Former first minister Carles Puigdemont’ s Together for Catalonia (JxCAT) party won 34 seats - two more than rival independence party the Republican Left of Catalonia (ERC).
But it’s not clear whether Puigdemont could be reappointed as first minister, as he faces arrest if he returns from Belgium - where he fled last month.
Antonio Barroso of Teneo Intelligence says the process of electing a new first minister will be “far from straightforward”.
He adds that Spanish politics looks a lot less certain:
The biggest loser of Election Night was the People’s Party (PP) of Prime Minister Mariano Rajoy, which obtained only 3 seats, with Ciudadanos stealing a substantial number of voters away from Spain’s ruling party.
More crucially, Ciudadanos’ victory in Catalonia will likely give the party of Albert Rivera additional momentum in opinion polls on the national level. This means that Rajoy – whose PP does not have a majority in the Spanish parliament – has a strong incentive to avoid an early general election.
However, whether he is able to do so will depend on the negotiations on a new budget with other parties that will take place early next year, which the Catalan situation will continue to complicate. In sum, 2018 will likely be the year in which it will become clearer whether or not Rajoy can survive for a full term.
Spanish banks are leading the fallers.
Banco de Sabadell and CaixaBank - the two biggest banks in Catalonia - have both shed at least 3%.
Spain’s IBEX index had plunged by 140 points, in early trading to 10,164 points. That’s a decline of almost 1.4%.
Jasper Lawler of London Capital Group says the Catalan election results have triggered an early selloff:
The calling of regional elections in Catalonia, Spain, appears to have backfired for the Spanish Government as the pro-independence parties won enough seats to form a regional coalition government. The three pro-independence parties won 70 of the 135 seats, crucially ahead of the 68 needed.
However, it remains to be seen whether these three parties are able to create a government between them.
The agenda: Catalan election shock hits the markets
Good morning, and welcome to our rolling coverage of the of the word economy, the financial markets, the eurozone and business.
It’s the final trading day before Christmas. Traditionally, a calm time in the City as traders count this year’s winnings (or losses) and head to the pubs after trading ends at lunchtime.
But not this year. Instead, European markets have been rattled by the news that Catalonia’s pro-independence parties have retained their majority in the snap election held yesterday.
Separatist parties won 70 of the 135 seats in the Barcelona parliament (even though the centre-right, pro-unionist Citizens party actually came first).
This is a major embarrassment for Spain’s PM, Mariano Rajoy, and a significant boost to the independence movement who are pushing for Catalonia to break away. Less than two months ago, Rajoy dissolved the previous parliament after it declared independence.
This is going to spark a wave of selling in Madrid, and also weaken Spanish government bond prices.
Reuters has the details:
Spain’s IBEX futures opened down 1.2 percent before tumbling further, last down 1.8 percent and indicating a sharp fall at the open as the country’s political crisis, which has damaged the economy and caused a business exodus from Catalonia,deepened.
Spanish bond yields also edged higher in early deals.
Spain’s 10-year borrowing costs were up 4 basis points, to 1.515%.
Euro zone stocks were also set for a downbeat open with Euro STOXX 50 futures down 0.5%.
This latest twist is also likely to drag Britain’s FTSE down from yesterday’s record high (the blue-chip index closed over 7,600 points for the first time at 7,603).
It’s not quite clear what will happen next in Spain, as my colleagues Sam Jones and Stephen Burgen report from Barcelona:
Much will now depend on what the pro-independence parties agree. Puigdemont is facing arrest if he returns to Spain and fractures have appeared between him and Junqueras, who has appeared to take a more moderate line on independence.
The vote is the latest chapter in Spain’s worst political crisis since its return to democracy four decades ago. The results will be bruising for Rajoy and will do nothing to heal divisions in the region, which remains deeply and evenly divided over the independence issue. Any solution to the vexed question of Catalan sovereignty remains as elusive as ever.
Also coming up today, we get a final estimate of Britain’s economy performance in the third quarter of this year.
These national accounts are likely to confirm that GDP rose by 0.4% in July to September, and will also show business investment and the balance of payments.
The agenda:
-
9.30am GMT: Final estimate of UK GDP for the third quarter of 2017
-
1.30pm GMT: Canadian GDP for October
- 1.30pm GMT: US durable goods and personal income figures
Updated
