Closing summary
The end of July may usually be a fairly sleepy time on financial markets, as investors head out on holiday, but this summer is already gearing up to be a nail-biter as the UK gears up for a no-deal Brexit.
Sterling is on track for its worst day since March, giving the new government under Boris Johnson a taste of what would happen if the UK leaves the EU without a deal.
The pound traded at a low of $1.2243 against the US dollar on Monday afternoon, a fall of 1.1% today. Over July the pound has lost 3.6% at the time of writing, while against the euro the pound has lost 1.3% today, trading below €1.10 at points.
“Politics should remain the key negative for sterling in the months to come,” said Petr Krpata, chief EMEA foreign exchange and interest rates strategist at ING, the investment bank. He said:
If Boris Johnson’s government presses for a no deal Brexit, the most likely outcome will be a no confidence vote in Parliament. This could, in turn, translate into an early general election (which would most likely be accompanied by an Article 50 extension).
The pound (not the Commons) may now be the Johnson Government's main opposition to a No Deal Brexit.
— Viraj Patel (@VPatelFX) July 29, 2019
*Asked if a no-deal Brexit is now his assumption, Boris Johnson says “absolutely not”*
Time to talk up the pound? Cabinet has to realise the cost of their rhetoric $GBPUSD pic.twitter.com/sQpf96lxEQ
However, there appears to be some confusion about the government’s exact approach to Brexit (not for the first time in the last three years). While Michael Gove yesterday said it was the government’s assumption there would be a no-deal Brexit, Boris Johnson has sown confusion.
Johnson today said that a deal with the EU is on the cards. Asked about Gove’s assumption, and whether he agreed, Johnson replied:
No, absolutely not. My assumption is that we can get a new deal, we’re aiming for a new deal. But, of course, Michael is absolutely right that it’s responsible for any government to prepare for a no deal if we absolutely have to.
He also doubled down on a claim that the odds of a no-deal Brexit were a million to one. For context, the BNP Paribas report cited earlier puts the odds of no deal at 40%, or 1.5 to one.
In part thanks to the pound, but also thanks to two multibillion-pound mergers, the FTSE 100 has raced ahead of other European stock market indices to a gain of more than 2%. Shares in Just Eat and the London Stock Exchange Group have gained 24% and 15% respectively.
And the pain for investors in Neil Woodford’s funds has continued, with an extension of withdrawal freeze until December trapping the money of hundreds of thousands of investors.
Thanks for following the business live blog today. Please do join us again tomorrow for more coverage of business, economics (including the Bank of Japan’s latest interest rate announcement) and markets. JJ
Some extracts from the letter sent by the Woodford Equity Income Fund’s authorised corporate director, Link Fund Solutions:
We anticipate that the suspension of dealing is likely to last until early December while we implement the strategy to re-position the portfolio in order for the Fund to be re-opened at that time, and which is conditional upon achieving the target fund profile. In our view, this is a realistic amount of time for Woodford to complete a measured and orderly re-positioning of the Fund’s portfolio of assets ensuring that there is adequate liquidity whilst preserving or realising the value of the assets.
We have concluded that this approach would represent the best outcome in terms of value, time and equal treatment for all investors. Importantly, it would allow all investors to choose, whether they wish to remain invested in or to withdraw their investments from the Fund. The work that is underway to re-position the portfolio is designed to ensure that there are liquid assets available for these purposes, while continuing with the objectives and investment strategy of the Fund. [...]
Progress has been made with Woodford continuing to assess the portfolio and make sales where reasonable prices can be achieved.
Woodford fund redemptions suspended until December
Investors in Neil Woodford’s flagship fund will be unable to get their money back until early December, administrator Link Fund Solutions has said.
The Woodford Equity Income Fund suspended withdrawals from the fund on 3 June, and extended that suspension on 1 July.
Link said the suspension will give a “realistic” amount of time to reposition the fund’s portfolio, according to Reuters. That will likely involve selling many of its more illiquid stakes in companies to free up cash to pay back to investor clients.
Where does this all leave the Bank of England, due to publish its latest inflation report and monetary policy on Thursday?
With the European Central Bank and the Federal Reserve planning interest rate cuts to stimulate their slowing economies, the Bank is expected to hold its policy steady. Yet its assumption of a smooth Brexit outcome will sound increasingly untenable if the government insists it will leave the EU without a deal.
The BoE’s rate-setting monetary policy committee (MPC) is “stuck between a rock and a hard place”, says Paul Hollingsworth, chief UK economist at investment bank BNP Paribas.
Given the risks from Brexit and global trade tensions, we do envisage the MPC striking a cautious tone. But with inflationary pressures rising, rates already well below neutral, the pound still weak and fiscal stimulus looming, easing does not look justified. In any case, it would do little to offset the heightened uncertainty.
Hitting holidaymakers in the pocket as they head abroad during the school holidays, the pound has sunk by more than 10 cents against the dollar from a peak in excess of $1.33 in March.
Against the euro it has fallen by more than 7 cents from a high of €1.17 recorded in May.
You can read the full story by the Guardian’s Richard Partington here:
Don’t forget that the pound’s weakness comes with the US Federal Reserve set to cut interest rates on Wednesday – usually a spur for the dollar to weaken.
The market-implied probability of a rate cut is 100%, with the consensus pointing to a 0.25 percentage point cut in the Fed’s target range for the federal funds rate – the first in the decade since the financial crisis.
That would certainly please US President Donald Trump, who has been pushing for an interest rate cut to boost the economy even as the central bank has raised rates.
Under any previous president in recent years an overt intervention criticising the Fed would have been astonishing: now it is a commonplace Twitter outburst. Here are two more salvos from this morning:
The E.U. and China will further lower interest rates and pump money into their systems, making it much easier for their manufacturers to sell product. In the meantime, and with very low inflation, our Fed does nothing - and probably will do very little by comparison. Too bad!
— Donald J. Trump (@realDonaldTrump) July 29, 2019
The Fed “raised” way too early and way too much. Their quantitative tightening was another big mistake. While our Country is doing very well, the potential wealth creation that was missed, especially when measured against our debt, is staggering. We are competing with other.....
— Donald J. Trump (@realDonaldTrump) July 29, 2019
....countries that know how to play the game against the U.S. That’s actually why the E.U. was formed....and for China, until now, the U.S. has been “easy pickens.” The Fed has made all of the wrong moves. A small rate cut is not enough, but we will win anyway!
— Donald J. Trump (@realDonaldTrump) July 29, 2019
Wall Street has weakened slightly as markets open in New York.
The S&P 500 has lost less than 0.1% in early trades, the Nasdaq has lost 0.1% and the Dow Jones industrial average is basically flat.
The demand for British government debt has risen as no-deal Brexit fears have taken centre stage.
The yield on the UK 10-year gilt, the benchmark rate for government borrowing, hit 0.628% on Monday afternoon, the lowest since September 2016.
Yields move inversely to prices, implying that investors are buying more of the government bonds – likely in anticipation of a round of economic stimulus from the Bank of England in the event of no-deal Brexit. When interest rates rise the demand for debt tends to fall.
Some investors may (bravely) also see British government debt as a relative safe haven.
Boris Johnson is speaking (on a trip to Scotland), and his words appear to be putting even more pressure on the pound: it has taken another leg lower.
The new low point against the US dollar is $1.2239, a 1.1% drop. That is equal to the nadir reached on 16 March 2017.
Johnson’s ascent to prime minister has already prompted a severe weakening in sterling, as he has set course for a no-deal Brexit.
Today he repeated that the UK will leave the EU with or without a deal on 31 October, and said that the EU would have to compromise on the backstop, an insurance policy designed to prevent a hard border between Northern Ireland and the Republic of Ireland.
Today’s losses for the pound would represent the biggest one-day loss since March this year.
The field of European candidates to lead the International Monetary Fund (IMF) has narrowed to three, the Financial Times (£) reports.
Traditionally (and for no obvious reason, given the “I” in IMF) the top job at the IMF has gone to a European. The process is set to run until October.
Reportedly in the running are former Dutch finance minister Jeroen Dijsselbloem, World Bank boss Kristalina Georgieva and Finnish central bank boss Olli Rehn.
New: there are now three Europeans in consideration to lead the IMF. The field has been narrowed to Jeroen Dijsselbloem, Olli Rehn and Kristalina Georgieva. Calvino and Centeno both knocked out which suggests softening in southern European objections to "northern" MD at the fund
— Mehreen (@MehreenKhn) July 29, 2019
Picking Georgieva would require a change to the bylaws of the IMF which prevent an incoming managing director being 65 years old or above. There was no consensus to change the law at an IMF meeting last Friday but officials involved say it can be done at any time in the process
— Mehreen (@MehreenKhn) July 29, 2019
Another big deal on a day of mega-mergers: US drug company Pfizer is buying Mylan in an all-stock deal and combining the $10bn generic pharmaceutical company with its own off-patent branded and generic business.
The Pfizer business, called Upjohn, makes well known drugs such as Lipitor, Celebrex and Viagra, whose patents recently expired. Mylan, based just outside of Pittsburgh, is best known for its EpiPen, an injector used to halt life-threatening allergic reactions.
Pfizer shareholders will own 57% of the combined new company and Mylan shareholders will own 43% after the all-share merger.
The new company is expected to have revenues of $19-$20bn in 2020.
Sterling falls below $1.23 on no-deal Brexit fears
The pound has fallen further as American traders get to their desks: it has now hit a low of $1.2282 against the US dollar, a decline of 0.8% over the course of the day.
That is the first time that the pound has fallen below $1.23 since mid-March 2017.
The mid-cap FTSE 250 has followed the lead set by its weightier counterpart in rising by 0.4% – despite two big dents.
The pain for Sports Direct has lessened somewhat, with shares now down by 9% following its announcement late on Friday evening.
However, corporate services company Sanne Group is the biggest faller, with shares down by an eye-watering 33%. Sanne cut its profit forecasts and analysts at RBC cut their target price for the stock.
Here’s Sanne’s share price performance over the past year:
The pound just came within a whisker of that $1.23 mark – it traded at $1.2301 against the US dollar, a loss of about 0.6% over the day. Sterling is down by 0.5% against the euro.
The FTSE 100 is now up by 1.5% for the day.
It’s a somewhat more mixed picture across the rest of Europe. Germany’s Dax is flat, while France’s Cac 40 has lost 0.1%.
Digital bank Revolut has poached the finance director of Metro Bank, it announced on Monday.
David MacLean stepped down from the high street lender to join the London-based fintech firm.
Metro and Revolut both sell themselves as upending the traditional banking model, but the latter is among the new crop of app-based banks who eschew branch banking. Metro has followed a “bricks and clicks” model that uses prominent branches.
Both banks have suffered blows to their reputations in recent months. While MacLean was at Metro it mischaracterised loans, a major accounting error which was only noticed by the Bank of England. Revolut, meanwhile, has faced serious questions over its compliance processes and work culture.
The FTSE 100 has gained almost 100 points, or 1.3%, to reach 7,640 points.
The index has been buoyed by the London Stock Exchange Group, up 14%, and Just Eat, flying along at a 30% gain.
The latter’s increase is particularly notable. A Just Eat share will set you back £8.24 at the time of writing, compared to an implied offer price of £7.31 per share in this morning’s announcement.
The offer represents a premium of only 15% over Just Eat’s share price on Friday, so the scale of the move suggests that investors may be eyeing a possible counter offer.
Analysts at Peel Hunt this morning doggedly stuck to their target price of £5.20 and a “sell” rating on the stock – “nothing changes just yet” because Just Eat still faces the same tough competition and there will be little chance of cutting costs because of its different footprint to Takeaway.com.
Just Eat was a pure-play, high margin takeaway platform, focusing on restaurants that do their own delivery, but it is now investing in its own delivery as competition takes its toll. Uber will dominate the smartphone real estate, as its Taxi app will accelerate the distribution of its Eats app. It can also take advantage of a fast-growing, captive audience inside the taxis themselves by making timely suggestions.
Moreover, as Uber opens its platforms to restaurants that do their own delivery, its margins will improve, while Just Eat’s diminish as it does the opposite.
But Jocelyn Paulley, a partner at law firm Gowling WLG, said that the deal will allow cross-border scale in a business that can vary significantly from country to country. She said:
Whilst technology can cross borders, other issues which are specific to each country such as taxes, traffic, urban settlement patterns and customer expectations would explain why an international tie-up is preferable compared to pushing into a new market and having to redesign systems to cope with local variations.
A big media job move today: the boss of the company that owns the Mirror, Express and Star newspapers will step down to be replaced by a former betting executive.
Simon Fox, the chief executive of Reach (formerly Trinity Mirror), will be replaced by the former Ladbrokes Coral boss Jim Mullen, writes the Guardian’s Mark Sweney.
Under Fox, Reach’s share price has almost tripled as the business has made a series of acquisitions to build scale as the newspaper market has struggled from declining sales of printed copies and the shift of digital advertising spend to Silicon Valley giants Google and Facebook.
You can read more here:
An update on Neil Woodford has come through this morning: the investor could be kicked out as manager of the fund he founded.
The board of the Woodford Patient Capital Trust today said it will assess other options for the fund. While it bears his name, legally it is a separate company from Woodford Investment Management, so the board has the ability to kick him out.
It all follows the suspension of client money redemptions from his separate Equity Income Fund last month after a string of investments went sour. An announcement is due later today on whether the fund will remain suspended.
Neil Woodford himself sold shares in the Patient Capital Trust between 3-8 July, according to a separate regulatory filing.
The investor sold the shares, which Reuters reports would have netted him just under £1m, to cover a tax bill, according to the statement.
The number of Boeing 737 Max planes available to Ryanair next summer could fall to zero unless the planemaker “gets its shit together”, Michael O’Leary said, according to Reuters.
The Ryanair boss has never been one to hold back, and says that Airbus – Boeing’s major rival – has cut prices. “The world has moved in their favour,” O’Leary said.
O’Leary also said that he expects more airlines to fail this winter. He predicted the same thing last year as well.
Ryanair redundancies possible if Boeing 737 Max delays get worse
Ryanair boss Michael O’Leary has warned that the airline will not rule out making job cuts if the return to service of the Boeing 737 Max plane is delayed further.
The Irish budget airline reported a 21% drop in quarterly profit on Monday as price wars in several European markets drove ticket prices lower, but it stuck to its annual profit target as passengers continued to spend on onboard extras, Reuters reported.
However, O’Leary said that Boeing has pushed back the date at which it will carry out software upgrades to the grounded 737 Max fleet from September to October. The planes have been banned from flying across the world after two fatal crashes.
Connor Campbell, financial analyst at Spreadex, a spreadbetting firm, said:
It is effectively a worst-case-scenario end to July for the pound, one that sets up three months of intense Brexit anxiety heading into All Hallows’ Eve.
The decline in sterling came against the dollar, even as the US Federal Reserve prepares for an interest rate cut, usually a “headache” for owners of the greenback that would drive down its value.
Will we see the pound below $1.23 today? The day’s low point is now $1.2318 against the US dollar.
Analysis by US investment bank J.P. Morgan suggests it could get worse for the pound before it gets better.
Dialogue with the EU is ongoing but is likely to prove fruitless, and may segue into a general election and subsequent extension of Article 50 later this year. In the interim, the expectation is for him to push toward a “no deal” outcome as negotiations make little progress.
At the same time, there is a “deteriorating macro landscape” – the economy may even have contracted in the second quarter. And the UK is highly dependent on fickle foreign investors.
Layering Brexit concerns with downward momentum in the local economy and a concerning balance of payments setup should therefore allow GBP shorts to extend yet further.
The Bank of England also published its latest mortgage data on Monday, showing that banks approved lending for 66,400 house purchases in June – 800 more than the previous month and slightly more than economists had expected.
Net mortgage borrowing for the month by households was £3.7bn, close to the average of the previous three years, the Bank said. This followed a slightly weaker net flow of £2.9bn in May.
British consumer borrowing growth slowed in June to a five-year low, according to new Bank of England figures published on Monday.
Consumer credit, which includes borrowing such as credit cards and unsecured loans but excludes mortgages, grew at an annual rate of 5.5% year-on-year, the lowest level of growth since April 2014.
Consumer credit growth has fallen steadily since its late 2016 peak. While many economists believe that credit growth has been unsustainable for years – meaning a slowdown is in some ways welcome – its link to households’ willingness to spend also means that it can act as a bellwether for broader economic weakness.
Updated
The dealmaking and the weak pound (which boosts multinationals’ foreign currency earnings) have helped the FTSE 100 to a flying start to the week.
London’s benchmark index is now up by 1% at 7,628 points, after shortly after hitting its highest point since August 2018.
On currency markets your new low point for the pound against the US dollar is $1.2324.
An earlier post has been corrected. Please refresh to see the updated version.
Takeaway.com’s swoop for Just Eat may not be a done deal, however.
“It is a possibility that Delivery Hero could table a rival bid,” say analysts at Canaccord Genuity.
Sky News previously reported that South African internet and media company Naspers was also interested in a deal, after a round of consolidation in the sector.
You can read the full report on the deal here:
The Just Eat/Takeaway.com deal “makes sense in the long term,” said analysts at Barclays.
Just Eat chief executive Peter Duffy* is understood to be on his way out of the company, which will instead be led by Takeaway.com’s boss Jitse Groen.
Barclays said:
Just Eat shareholders would be getting the best operator in the space to run the business – a notable shift from missed execution from management in the last few years.
We are believers in the value of being a global player increasing in time, with more cash flow to fight off rising competition and tech platform synergies getting more and more relevant. This is a unique opportunity to build scale and that should benefit both parties in the long term.
*This post has been corrected to clarify that Peter Duffy is the chief executive of Just Eat, not Peter Plumb, who he replaced.
Updated
Some important details on the Just Eat deal: the new company will be headquartered in Amsterdam (the home of Takeaway.com).
However, it will still be listed on the London Stock Exchange, where Just Eat is currently a member of the FTSE 100, with a “significant part of its operations” in the UK.
Analysts appear to have welcomed the deal. Here’s the view of Russell Pointon, of Edison Investment Research:
The key feature of the combination of Just Eat and Takeaway.com is the limited geographic overlap between the companies. Therefore there will be limited consolidation of market shares in their combined markets.
The companies would share best practice and know how etc. to help improve profitability to invest further behind their less profitable markets and fund the fights for market share in what is likely to be a very competitive market.
He also points out an interesting contrast between the companies: Just Eat had annual revenues three times higher than Takeaway.com, yet still traded at a discount to its Dutch rival.
The sell-off in sterling is gathering pace: the pound has now lost 0.34% against the US dollar and 0.3% against the euro.
It’s now a new low of $1.2330 for the pound against the dollar. That is now the lowest since 16 March 2017 – before new Conservative backbencher Theresa May triggered Article 50 and her disastrous decision to call a general election.
Newly installed foreign secretary Dominic Raab does not appear to have offered traders much succour this morning: he had more fighting talk this morning on the BBC’s Today programme.
He warned the EU that it needed to change its “stubborn” Brexit position to avoid a no-deal Brexit, Reuters reported.
“We want a good deal with our EU partners,” Raab said, adding that there had been a “series of fairly stubborn positions staked out by the EU.”
Remember the “magic money tree”? The Conservative party appears to have found it, if the rash of spending promises of new Prime Minister Boris Johnson are anything to go by.
Johnson appears to be doing two things with his promises of billions for railways, tax cuts and “left behind” towns, write the Guardian’s Larry Elliott and Richard Partington: revving up the economy to gain support for his plans with a fallback that more spending could cushion the fallout of a no-deal departure.
Although framed by Johnson as spending headroom at his disposal, economists say the additional firepower is something of an illusion. Thomas Pugh, of the consultancy Capital Economics, said:
This isn’t money sitting in a savings account waiting to be spent. It’s more like borrowing from an overdraft where the limit is set at 2% of annual income. So spending it would result in a higher deficit and more borrowing.
You can read the full story here:
The London Stock Exchange Group has also enjoyed a strong morning on the weekend’s merger talk: shares are up by 13% at the time of writing.
LSE boss David Schwimmer (not that one) has been in the job for just over a year, but has clearly taken a leaf from Xavier Rolet, his predecessor, in going for big deals.
As well as running the stock exchange and the FTSE Russell index group (which produces the FTSE 100 index), the LSE already has a lot of data services that fit in well with its trading technologies.
Refinitiv, the data company carved out of Thomson Reuters last year, runs Eikon terminals which collect trading and financial data into one place for investors.
Merger delivers 22% Just Eat shares gain
At the other end of the scale from Sports Direct, Just Eat 22% shares have popped by 22% following the news of the proposed takeover by Dutch competitor Takeaway.com.
The deal will give the new company a strong presence across the EU, and will also give it the scale to take on other well resourced rivals.
The two companies do not compete directly in any of their major markets, so investors have long been pushing for a tie-up.
Takeaway.com shares have risen by 3.7% to a record high after the deal. German rival Delivery Hero has gained 4.6% on the news as well.
Sports Direct shares drop after tax bill announcement
Sports Direct shares have fallen by as much as 20% after the retailer issued an extraordinary results statement on Friday that revealed massive tax bills, poor trading and a retail industry warning.
The results were delayed throughout the day on Friday, so this morning was the first chance investors had to react. They have not welcomed the news.
Here is your guide to what is going wrong at the retailer. Warning: there’s a lot.
The FTSE 100 has gained 0.1% at the open, but European markets are struggling a bit more.
The Euro Stoxx 600 index is down by 0.2%, led by the 0.2% declines on Germany’s Dax and France’s Cac 40.
Introduction: Sterling hits two-year low against the US dollar
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Boris Johnson may have achieved his ambition of getting into 10 Downing Street last week, but financial markets have served an early reminder at the start of his first full week in office that he has a daunting task ahead of him.
Sterling this morning hit a new two-year low against the US dollar, with one pound buying only $1.2358 in early trading following a weekend of no-deal Brexit tough talking from newly installed ministers. The pound weakened by 0.12% against the dollar and 0.1% against the euro.
Ministers are “turbo-charging” preparations to leave the EU without a deal on 31 October according to several senior cabinet ministers, reports the Guardian’s Rowena Mason. Johnson’s new cabinet Brexit fixer, Michael Gove, warned that the government was “operating on the assumption” that Britain would leave without a deal on 31 October and it was a “very real prospect”.
The stakes are clear for businesses in Britain. Carlos Tavares, the boss of PSA Group, used an interview last night with the Financial Times to warn that he could close the company’s factory in Ellesmere Port, which manufactures Vauxhall Astra cars, if there is a no-deal Brexit that disrupts exports from the factory. The jobs of 1,000 workers hang in the balance.
It seems unlikely that the EU will be willing to make material changes to the existing deal, according to Fernando Barajas, an analyst at Creditsights, a debt rating agency. “There is little sign” that the no-deal threats have made an impact on the EU’s stance.
A general election in the near term now seems a high likelihood outcome.
Yet all of the political noise has not put off the dealmakers in London. Over the weekend two large mergers have come through. The FTSE 100’s Just Eat and Dutch Takeaway.com have agreed a £8.2bn all-share deal to create one of the world’s biggest takeaway delivery players. Just Eat faces renewed competition from Amazon-backed Deliveroo and Uber Eats, and some activist investors have been pushing for a deal for some time.
Another big deal on the cards is the London Stock Exchange Group’s merger with data company Refinitiv, a potential $27bn deal. A formal announcement of the terms could come this week when the LSE publishes results.
Asian markets were mixed on Monday, with shares in Japan weakening, while Australia’s benchmark ASX 200 rose by 0.95%. However, many investors will have their eyes on events later in the week, when the Federal Reserve is expected to cut interest rates for the first time in a decade.
Trade talks to fix the relationship between the US and China, one of the biggest factors in the Fed’s desire to support the economy, will resume tomorrow, although few are holding out hope of a positive development.
The agenda
- 9:30am BST: Bank of England consumer credit (June)
- 9:30am BST: Bank of England mortgage approvals (June)
- 3:30pm BST: US Dallas Fed manufacturing index (July)
Updated
