European markets close higher
Ahead of a testimony from new Federal Reserve chair Jerome Powell on Tuesday, investors appear to have got over their fears of interest rate hikes, helping markets to regain their poise after the early February slump.
With Wall Street adding to last weeks gains, Europe was on the front foot for most of the day. The final scores showed:
- The FTSE 100 finished 45.17 points or 0.62% higher at 7289.58
- Germany’s Dax rose 0.35% to 12,527.04
- France’s Cac climbed 0.51% to 5344.26
- Italy’s FTSE MIB added 0.15% 22,706.21
- Spain’s Ibex ended 0.81% higher at 9902.4
- But in Greece, the Athens market slipped 0.84% to 837.04
On Wall Street, the Dow Jones Industrial Average is currently 279 points or 1.1% higher.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Commenting on Draghi, Chris Beauchamp, chief market analyst at IG, said:
Speaking today, Mario Draghi stuck to his view that continued accommodation was necessary, and this was enough to drive the euro sharply lower against the US dollar, catching a few overeager euro bulls on the hop. Clearly the ECB is in no rush at all to taper further. ‘Sufficient unto the day’ would appear to be the message that this central banker is sending. Of course, the big event is still to come this week, as the new Fed chairman appears before US lawmakers. Draghi’s dovishness is a given, but Mr Powell is something more of an unknown quantity.
David Madden, market analyst at CMC Markets UK, added:
Mario Draghi...stated inflation in the currency bloc is still conditional on the stimulus programme. Mr Draghi has a track record of leaving the door open to additional monetary easing, and it sounds like he hasn’t changed his ways.
Updated
A final string of questions, including:
Is monetary policy the only main tool for the recovery?
Draghi: No, you must be tired of hearing this, I have been saying it for five years, structural reforms are of key importance.
How can we avoid currency wars?
Draghi: there is no currency war, the worries of the governing council are about increasing volatility which might cause an unwanted tightening of financial conditions in the eurozone.
Question about Greece’s inflation not being on target.
Draghi says the longer and more dramatic the recessession, the slower the rate of inflation getting towards its target. The improvement in the situation should strengthen the belief the objective will be reached. But the ECB target is not individual country’s inflation target but the eurozone as a whole.
And the session concludes.
Question on non performing loans at banks.
Draghi says the case for tackling NPLs in a determined way is clear. Banks with high stock of NPLs have given less credit to the economy, high NPLs mean less support to firms and households, harming growth.
Question: will QE need to be pursued further than 2018 if targets not met.
Draghi says the possible extension of QE has not been discussed by the governing council. What I have been saying, in the presence of an improving economic situation, we need the right blend of three features. We are more confident that inflation is proceeding towards our objective, but we have to be persistent and patient. Headline inflation is still not within our objective, that will be key measure of monetary policy in coming months.
The effects of monetary policy have been produced by several measures, one is net asset purchases, another is the stock of assets accumulated by the ECB. The governing council will keep on reinvesting bonds that come to maturity for a length of time after end of QE.
Guidance on interest rates is very important, and the “well past” comment is very important.
Question about Draghi’s controversial membership of G30 group and what he will say to ombudsman.
Draghi says we have taken note of ombudsman letter and will provide an answer by the allotted time, in April.
Question on failure of Latvian bank.
Draghi says he won’t comment on details of emergency liquidity assistance to the bank, shortly before it failed.
Another question on Greece’s performance.
Draghis says, almost all agreed prior actions have been implemented, just two left, expected to be completed in next two weeks.
Question on Greece, and whether a fourth programme will be needed.
Draghi says, lot has been done at Greece, but certain prior actions need to be taken place in the next two weeks. At the ECB we didn’t discuss further programmes.
Supplementary question on a bubble in asset prices causing the financial crisis.
Draghi says expansive monetary policy is one way of explaining the financial crisis.
Another is the dismantling of existing financial legislation.
Expansionary policy is required by our mandate so the last thing we want to see is the dismantling of existing legislation.
Question on including house prices or all asset prices in the ECB’s inflation measurements.
Draghi says our primarily objective is to hit the inflation target, our focus on consumer prices can best preserve the purchasing power of the people in the euro area.
We assess asset prices, for example on wealth effects and financial conditions.
Draghi: "the true amount of economic slack may be larger than estimated". Unsurprisingly dovish overall. https://t.co/Blx7NEpEng
— Frederik Ducrozet (@fwred) February 26, 2018
Question on the appointments to the ECB board, and the fact there are no women on the board.
Draghi reads out the articles of the treaty about appointments. Then he adds, diversity and gender diversity is one of strategic priorities, we are aiming to do more than we have achieved so far.
Question on the US tax reforms.
Draghi says US tax reforms will support the US and US corporates, but it is too early to say if the spillovers will be significant for the euro area.
It will reshape the tax landscape in the world. The implications are complex. We have seen money outflows from European corporates to US corporates. For the time being we are observing these flows but it is hard to say what the long term consequences are.
On the financial effects of Brexit, he says the EU should finalised clearing measures ahead of Brexit:
Let me also stress the crucial importance of finalising the adoption of key pieces of EU legislation... well in advance of Brexit, in order to be prepared for all possible contingencies, including a no-deal scenario. Failing to do so could leave central banks and supervisors without the appropriate tools to handle the risks..
Updated
Delayed plane flights is the explanation for the late start to the Mario Draghi session at the European parliament, explains the chair of the economic committee Roberto Gualtieri. So he will skip his opening remarks, and will also keep questions short after Draghi’s speech, which belatedly gets underway.
Updated
Draghi concludes by repeating calls for further policy measures:
Our monetary policy measures have had tangible benefits for the euro area economy. Further policy initiatives are however needed to reduce vulnerabilities, strengthen resilience in crisis situations and increase growth potential. Only ambitious policies will deliver concrete benefits for the people of Europe.
Patience needed on monetary policy - ECB's Draghi
Europe is growing more strongly than expected but inflation is yet to show sustained signs of moving higher, says Mario Draghi.
Ahead of the ECB president’s address to the European Parliament, the bank has released his opening statement. He said:
A comprehensive analysis by the Eurosystem has concluded that adverse cyclical factors have played a crucial role in explaining low underlying inflation. These notably consisted of dampened economic activity and high unemployment in the aftermath of the sovereign debt crisis, and subsequently subdued foreign demand and low oil prices. Yet, these factors are of a temporary nature and should not affect inflation over a medium-term horizon, even though they might impact on the speed of adjustment in inflation.
He added:
Overall, the analysis indicates that the relationship between growth and inflation remains largely intact, even if it has temporarily weakened in recent years to the extent that the speed of adjustment in inflation towards our aim has been affected.
Looking ahead, we anticipate that headline inflation will resume its gradual upward adjustment, supported by our monetary policy measures. At the same time, uncertainties continue to prevail. In particular, the recent volatility in financial markets, notably also in the exchange rate, deserves close monitoring with regard to its possible implications for the medium-term outlook for price stability.
Therefore, while the strong momentum of the euro area economy has clearly strengthened our confidence in the inflation outlook, patience and persistence with regard to monetary policy is still needed for inflation to sustainably return to levels of below, but close to, 2%. In fact, the evolution of inflation remains crucially conditional on an ample degree of monetary stimulus provided by the full set of our monetary policy measures: our net asset purchases, the sizeable stock of acquired assets and the forthcoming reinvestments, and our forward guidance on policy interest rates.
ECB president Mario Draghi is due to start his testimony shortly:
WATCH: ECB Draghi’s Speaks To EP Committee On Economic And Monetary Affairs Approx. 14:40 GMT https://t.co/QnhhiKinSd
— LiveSquawk (@LiveSquawk) February 26, 2018
Wall Street opens higher
US markets have opened higher, ahead of a key testimony by new Federal Reserve chair Jerome Powell on Tuesday.
Hopes that Powell will keep the Fed on a steady course have helped lift the Dow Jones Industrial Average 153 points or 0.6% in early trading. Meanwhile the S&P 500 opened 0.46% higher and the Nasdaq Composite 0.5% better, helped by a rise in technology shares.
As we wait for ECB president Mario Draghi, here’s more on US interest rates.
Federal Reserve member James Bullard says he is concerned about the central bank going too far, too fast on interest rates unless the data supports it. And he adds:
St. Louis Fed President James Bullard pans the 3 vs. 4 rate hike debate:
— Heather Long (@byHeatherLong) February 26, 2018
"I would like the (FOMC) committee to get out of the business of how many rate hikes there are going to be in a year."
"You need the surprise, it seems to me, to push the rates higher." #Fed #economy
He also indicated he was not overly concerned about the recent stock market volatility, and he did not think it meant investors were re-thinking the prospects for growth in either the US or globally.
Here’s our latest on the Melrose bid for GKN, which is likely to hot up this week. Karl West reports:
The hostile £7.4bn battle for control of GKN, one of Britain’s oldest engineering groups, is expected to come to a head this week as the aerospace and auto parts manufacturer reports annual results, which could prompt a raised bid from predator Melrose.
GKN is scrapping for its life after rejecting the offer from Melrose, a corporate turnaround firm that specialises in buying unloved industrial assets, improving the financial returns and selling for a huge premium. Melrose has offered 1.49 of its own shares, plus 81p for every one of GKN’s shares. The mainly share-based bid would leave GKN investors with 57% of the enlarged group.
Simon Peckham, the chief executive of Melrose, is confident he can pull off a coup and break GKN’s resistance. “Look at what’s happening in the market – our shares are going up and theirs are tracking ours,” he told the Guardian. “It’s their job to explain to investors why they think they are the best management for the business. Their shareholders haven’t told us to go away.”
Melrose is expected to raise the stakes following GKN’s results on Tuesday. It is thought the buyout firm may have to sweeten its offer by raising GKN investors’ holding to about 65% of the merged group.
The full story is here:
The strength of the pound in the wake of weekend comments from the Bank of England’s Dave Ramsden - it is currently up 0.5% at $1.4034 against the dollar - is not limiting the gains in the FTSE 100.
The leading index is up 0.55% at 7284, near the highs of the day. Meanwhile European markets are shrugging off a stronger euro, with Germany’s Dax up 0.39% and France’s Cac climbing 0.55%.
Forecasts of a stronger opening on Wall Street are helping. After the Dow Jones Industrial Average managed a late spurt on Friday to end the day 347 points or 1.39% higher, the futures are indicating an opening gain of around 169 points.
But the outlook for the euro and therefore European markets could be determined later when European Central Bank president Mario Draghi testifies before the European Parliament. Craig Erlam, senior market analyst at Oanda, said:
The ECB has long been preparing the markets for the end of bond buying and recent statements, minutes and comments from Draghi himself have indicated that the central bank intends to give plenty of warning of upcoming changes leading many to expect such a warning in the not too distant future. Draghi may therefore drop further hints on the timing of such a policy shift in today’s hearing which the euro will be particularly sensitive to.
It’s another bad morning for hundreds of Carillion workers.
The Official Receiver has announced that another 230 employees have been made redundant, following its collapse last month.
In happier news, the Receiver has managed to save an extra 456 jobs by finding new suppliers to take on Carillion’s public and private sector contracts.
Over the last month, 8,066 jobs have been saved and 1,371 jobs have been made redundant.
That means that roughly half of Carillion’s 19,000 workers still face uncertainty,
The Receiver is hopeful that more jobs can be saved, saying:
Discussions with potential purchasers continue and I expect that the number of jobs safeguarded through the liquidation will continue to rise.
I am continuing to engage with staff, elected employee representatives and unions to keep them informed as these arrangements are confirmed.
UBS hikes French growth forecasts
The French economic recovery is gathering pace, says UBS Wealth Management, which has just raised its forecasts for the eurozone’s second-largest member.
UBS now expects the French economy to grow by 2.3% this year, up from 1.8% previously. In 2019, it now expects GDP to rise by 2%, up from an earlier forecast of 1.6%.
A year ago, investors were fretting that far-right candidate Marine Le Pen might become France’s new president. Things look brighter today, says Dean Turner, Economist at UBS Wealth Management:
“Along with the rest of the Eurozone, the outlook for the French economy has improved sharply. The risks around last year’s presidential elections now seem like a distant memory.
“Following his election and subsequent parliamentary landslide, Emmanuel Macron’s willingness to embark on his ambitious program of domestic structural reforms has led to a renewed confidence in the outlook for the economy. The current sense of optimism amongst French firms should mean that investment continues to rise, and the outlook for hiring remains positive.”
Back in the markets, shares in outsourcing group Interserve have slumped by almost 10% today.
Interserve provides services to the UK government across health, education and defence. It has been under tight scrutiny since the collapse of Carillion last month.
According to the Sunday Telegraph, Interserve’s banks are reluctant to back a crucial debt refinancing deal, having already suffered big losses following Carillion’s liquidation.
Interserve is hoping to persuade creditors to agree new loans lasting up to five years, to replace emergency funding that expires at the end of March. It has denies that talks with creditors have ‘stumbled’.
The UK cabinet office has been watching Interserve closely, and denied that the company could be ‘the next Carillion’.
Financial commentator Frances Coppola tweets:
The Interserve problem appears to be investor jitters about the rescheduled loan covenant test at the end of March. But if the company is going to need a rights issue to stay alive, throwing the share price off the cliff is not sensible.
— (((Frances Coppola))) (@Frances_Coppola) February 26, 2018
Interserve is taking big losses on a line of business it is in the process of divesting, and that is pushing up its net debt considerably. But this is a short-term problem, surely? Core business doesn't look that weak by sector standards.
— (((Frances Coppola))) (@Frances_Coppola) February 26, 2018
Interserve does have very large trade payables and receivables though. Imho any business whose principal asset is trade receivables and principal liability is trade payables is acting like a bank. It's borrowing from its subcontractors and lending to its customers.
— (((Frances Coppola))) (@Frances_Coppola) February 26, 2018
Jeremy Leaf, a north London estate agent, reckons that some certainty over Britain’s future relationship with the EU would help the housing market.
He writes:
“The UK Finance numbers are quite encouraging as they bear out what we have been seeing on the ground - in other words, buyers and sellers are getting on with business, albeit at more realistic prices. Certainly we don’t see any signs of fireworks but nor do we see any major corrections in the market either.
Looking forward towards the spring market, we hope for a little bit of better news on the Brexit front which would give more certainty to the market and more balance of supply and demand in this crucial period for the housing market.”
Although mortgage approvals rose in January, the amount of money borrowed by UK businesses actually shrank last month.
This morning’s report from UK Finance shows that firms owed £263.9bn to Britain’s high street banks in January - 1.4% less than a year ago.
*U.K. JAN. BUSINESS LENDING FALLS 1.4% Y/Y, FIRST DROP SINCE '15
— Michael Hewson 🇬🇧 (@mhewson_CMC) February 26, 2018
As this chart shows, UK businesses have been trimming their debts over the last few months. That may be another sign that firms are cautious about committing to new projects while Brexit remains uncertain.
Despite January’s pick-up in mortgage approvals, 2018 is likely to be a tough year for the UK housing market, says Howard Archer of EY.
He predicts that the threat of interest rate rises, and weak consumer confidence, means that prices will only rise by 2% this year. If so, that might help some first-time buyers scramble onto the property ladder.
Archer writes:
The fundamentals for house buyers are likely to remain challenging. Consumers have faced an extended squeeze on purchasing power, and it is likely to ease only gradually as the year progresses. Additionally, housing market activity is likely to be hampered by fragile consumer confidence and limited willingness to engage in major transactions.
House buyers will also likely be concerned about further interest rate hikes this year following November’s first tightening of monetary policy by the Bank of England since 2007.
While the increase in interest rates was just 0.25% and mortgage rates are still at historically very low levels, there does appear to have been some impact on house buyers’ psychology. We expect the Bank of England to raise interest rates twice in 2018 (each time by 0.25%), with the next move likely in May.
Economist Rupert Seggins shows how UK mortgage approvals and house price growth are both weaker than a few years ago:
40k mortgage approvals for house purchase in January, a 4k jump on December, but still 4k down on January last year. The overall picture remains one of a subdued UK housing market. pic.twitter.com/2a0DRRDxen
— Rupert Seggins (@Rupert_Seggins) February 26, 2018
Today’s figures also show that more people remortgaged their homes last month.
They may be looking to ‘lock in’ today’s low interest rates, before the Bank of England raises borrowing costs.
Simon French of Panmure Gordon predicts that this trend will continue, especially as a May hike is looking more likely....
UK mortgage approvals of 40,100 tick higher in January after 4.5 year low in December. Remortgaging volumes remain elevated at 35% of approvals. Set to grow faster next month as hawkish BoE guidance impacts rate expectations. pic.twitter.com/93L4KLJZpR
— Simon French (@shjfrench) February 26, 2018
Here’s a chart showing how UK mortgage approvals (in green) rose in January after cooling towards the end of 2017.
UK mortgage approvals rise from four-year low
Breaking: British mortgage approvals have risen, for the first time in four months.
Some 40,117 mortgage loans were approved in January, new industry figures show. That’s an increase on December’s 36,085 -- which was the weakest since April 2013.
However, this is still down on January 2017, when 44,259 mortgages were agreed with lenders.
#UK | JAN. MORTGAGE APPROVALS 40,117 (-9.4% Y/Y) pic.twitter.com/OGYXcudw1b
— Ioan Smith (@moved_average) February 26, 2018
Pound jumps after rate rise hint
The pound is gaining ground this morning, after a senior Bank of England policymaker hinted that interest rates will rise soon.
Deputy governor Dave Ramsden told the Sunday Times that:
“Relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later”.
That’s significant, as Ramsden opposed last November’s interest rate hike, meaning he’s seen as a dovish member of the Monetary Policy Committee.
Traders have driven sterling up by 0.5% this morning, or three-quarters of a cent, to $1.4042. Some City experts believe the Bank will hike interest rates, currently 0.5%, in May.
Kit Juckes, foreign exchange expert at Societe Generals, says that “Dave the Dove” has helped the pound overcome “the usual depressing Monday morning Brexit headlines”.
Updated
Every major European share index has risen this morning, pushing the pan-European Stoxx 600 index up by 0.6%.
Connor Campbell of SpreadEx says:
The DAX was the region’s most robust index, surging nearly 1% to tickle 12600 for the first time since February 7th, while the CAC posted a respectable, 5350-crossing 0.7% increase. It’ll be interesting to see whether Mario Draghi’s testimony in Brussels changes the day’s cheery sentiment.
Global stocks start the week higher https://t.co/Xzix9dgnNi pic.twitter.com/H9ZuKTwfKp
— The Wall Street Journal (@WSJ) February 26, 2018
Hiscox profits shrink by 90% after year of catastrophes
Last year’s brutal hurricane season and other natural disasters wiped more than 90% of insurance firm Hiscox’s annual profits.
The Lloyd’s of London firm, which provides cover for anything from burst water pipes to hurricane damage and kidnappings, said 2017 had been a “historic year for catastrophes”.
The industry as a whole footed a $140bn bill – the worst year ever for natural disasters.
Hiscox’s pretax profits shrank to £30.8m from £354.5m in 2016.
Its London market cut premiums by 20% but is now raising them following last year’s hurricanes, earthquakes and wildfires. Hurricanes Harvey, Irma and Maria battered the Caribbean and US Gulf coast in a month.
Hiscox shares fell 8% in early trading and are now down almost 5% at £13.29.
“Market pricing has improved and as a consequence we have growth ambitions for every part of our business,” said chief executive Bronek Masojada.
Some solid corporate results are pushing the London stock market higher this morning.
Associated British Foods shares are up 1.5% after it told the City that profits at its Primark fashion chain are expected to accelerate over the next six months.
Business supplies company Bunzl have inched up 0.3% after reporting a 13% rise in profits for the last year.
Mining companies are also helping to keep the FTSE 100 up this morning. They’re rallying because the US dollar has weakened today (which pushes up commodity prices).
Rebecca O’Keeffe, Head of Investment at interactive investor, says:
Equity markets in the UK and Europe are off to a good start, following on from a late surge in the US on Friday and a positive start to the week in Asia.
Is mini-golf and adventuring the future of shopping?
Britain’s biggest shopping centre owner Hammerson is adding adventure games and mini golf centres to its malls, after reporting a 6.8% rise in profits to £246m last year.
The owner of the Bullring in Birmingham and Brent Cross in London is focusing on providing “experiences” to draw shoppers in, such as ice-skating in the winter and a beach in the summer. Hammerson has just signed up Escape Hunt, which offers games where players solve a crime story or mystery, at Cabot Circus in Bristol and Martineau Galleries in Birmingham.
Hammerson’s chief executive David Atkins brushed aside talk of the death of the mall.
He told the BBC’s Today programme.
“Around 85% of all retail sales do still touch a physical store, so we’re very firmly of the view that the physical store has a genuine place to play.”
Hammerson said 98.3% of its space was occupied, a 17-year high.
“Our portfolio is focused on the better, bigger shopping centres and we try and provide more than just retail by offering experiences for our shoppers that provide more than just the physical shops,” Atkins added.
The company is letting about 40% of its space to fashion, down from 60% a few years ago. At the same, space taken up by leisure and dining has gone up by a third to 14%.
A Hammerson spokeswoman explained there was less space allocated to cheaper “fast fashion” (with the notable exception of Primark) while shops selling “athleisure” were taking more space.
Bank of Ireland on Brexit
The chief executive of Bank of Ireland has warned that the uncertainty over Britain’s exit from the European Union is hitting business confidence.
Bank of Ireland restored its dividend this morning, for the first time in a decade, after posting an underlying profit of €1,078m last year.
But while it hasn’t suffered any ‘material’ hit from Brexit, it can see that companies in Ireland are nervous.
CEO Francesca McDonagh told Reuters that some firms, particularly smaller ones, are holding back from investment until they know how Brexit will pan out.
McDonagh said:
“While uncertainty remains for our UK business, we’ve seen nothing material today with regards to asset quality, there’s nothing that gives us concern.
“For our customers in Ireland, there is an element of uncertainty, particularly for smaller businesses. We do see that two out of three business customers intend to invest in their businesses in the coming years but some of them are applying a wait and see approach.”
The UK government says it’s committed to avoiding a ‘hard border’ with the Republic of Ireland after Brexit. However, it’s not clear how this can be achieved if Britain leaves the Single Market and the customs union. Research has shown that Ireland could be the EU member most badly affected by Brexit.
Two weeks ago, taoiseach Leo Varadkar warned that achieving a frictionless Irish border was “the tricky bit” of the Brexit talks....
The agenda: UK mortgage approvals, Draghi speech
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Traders faced a chilly commute into the City this morning, as the Beast from the East brings a blast of icy weather - freezing fingers and causing some delays on the rail network...
Londoners who use trains to get to work: all of mine were cancelled this morning. If you don’t live on the underground network you might want to leave 30 mins earlier than usual.
— Jess Brammar (@jessbrammar) February 26, 2018
But once they get in, investors are expected to push stocks higher. The main European indices are all rising in early trading, as confidence returns to the markets after the wobbles earlier this month.
In London, the FTSE 100 has gained 0.5%, or 38 points, to 7278.
London opens on a firm note:#FTSE 100 +0.42%#DAX 30 +0.72%#CAC 40 +0.57% #IBEX 35 +0.60%
— IC Markets (@IC_Markets) February 26, 2018
Analysts at Royal Bank of Canada say:
Equity markets are likely to continue benefitting from the strong economy and thus strong earnings growth despite higher bond yields acting as a drag on P/E ratios. Yet, with corporate bond yields still low, there seems no imminent risk for corporate funding, corporate profits and the economy as a whole.
Today we find out how many UK mortgages were approved in January. Economists expect a small increase compared to December, when approvals hit a four-year low.
Investors will also be listening out for any guidance from European Central Bank chief Mario Draghi, when he appears before MEPs later today. Draghi could be quizzed on Europe’s economic recovery, and when the ECB will wind up its stimulus programme.
The agenda
-
9.30am GMT: UK mortgage approval figures for January
-
2pm GMT: ECB president Mario Draghi testifies to the European Parliament in Brussels.
- 6pm GMT: Bank of England deputy governor Sir Jon Cunliffe speaks at Warwick University
Updated
