Markets end the week on a high note
With the US Federal Reserve minutes released on Thursday adding fuel to the suggestion the central bank will not raise rates this year, markets have moved higher once more. Commodity companies again led the way as metal prices climbed on the back of Glencore’s decision to cut zinc production. Oil remained close to recent highs despite edging lower on the day. So the final scores showed:
- the FTSE 100 finished up 41.34 points or 0.65% at 6416.16, and recorded its biggest weekly rise since December 2011
- Germany’s Dax rose 1.04% to 10,096.60
- France’s Cac climbed 0.54% to 4701.39
- Italy’s FTSE MIB added 0.46% to 22,257.89
- Spain’s Ibex ended up 1.26% at 10,309.6
- In Greece the Athens market dipped 0.17% to 676.93
On Wall Street, the Dow Jones Industrial Average is currently pretty flat, down just 6 points or 0.04%.
On that note, it’s time to close up for the evening. Thank’s for all your comments, and we’ll be back again on Monday.
Greece’s debt has become unsustainable and the country needs debt relief, according to the International Monetary Fund. Reuters reports:
Greece cannot deal with its public debt through reforms alone and needs a significant extension of grace periods and longer maturities from its European creditors, the head of the IMF’s European department said.
The European Commission has forecast in May that Greek debt would reach more than 180% of its gross domestic product this year and euro zone governments, the main creditors of Greece, have promised to start debt relief talks later this year, once Athens implements agreed reforms.
“We think that Greek debt... has become highly unsustainable,” Poul Thomsen told a news conference in Lima, on the sidelines of a meetig of the IMF.
“We think that Greece cannot deal with its debt without debt relief. Greece cannot deal with debt just through reforms and adjustment,” he said.
Thomsen said that the discussion on how to provide debt relief to Greece has shifted from a nominal haircut on the stock of its debt to capping gross financing needs.
The G20 has taken another step towards tackling multi-national tax avoidance. AP reports:
Finance officials from the world’s 20 biggest economies have committed to toughening laws and boosting cross-border cooperation to prevent multinational companies from avoiding as much as $250 billion a year in taxes.
The unanimous agreement was announced Friday in Peru’s capital on the sidelines of the International Monetary Fund’s annual meeting. The plan, to be presented to heads of state for approval next month at a Group of 20 summit in Turkey, seeks to address concerns about whether large companies such as Apple and Google are paying their fair amount of taxes.
The 15-point action plan was drafted by the Organization for Economic Cooperation and Development in consultation with more than 100 countries. It seeks to eliminate so-called “tax shopping” for most-favorable rates, profit shifting and a host of other strategies estimated to cost between 4 and 10 percent of global corporate income tax annually.
“This isn’t about whether you have high taxes or law taxes, it’s about whether you’re paying your taxes,” said British Finance Minister George Osborne.
Angel Gurria, secretary general of the OECD, said the plan’s implementation will be key given the wide range of capacities and resources of tax authorities around the world. To that end, Treasury Secretary Jacob Lew said the U.S. is doubling funding to help developing countries improve their technical expertise.
“This isn’t just to ensure sustainability of public finances but recover the trust of our citizens who are coping with economic hardship,” said Gurria.
Taxes should be paid where profits are made. Great to see @OECD #BEPS rules agreed here in Lima. UK will lead by example + implement early
— George Osborne (@George_Osborne) October 9, 2015
Here’s the full IMF statement on Iceland repaying all its obligations ahead of schedule:
Iceland Repays All of Its Remaining Obligations to the IMF Ahead of Schedule
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Fed board member says October or December rate rise "likely appropriate"
One of the factors supporting the market in recent days - and responsible for the recovery seen since China’s devaluation sent tremors around the world - is the idea that the US Federal Reserve may not after all raise interest rates this year. The theory goes that the slowdown in China, the subsequent market volatility and uncertainty about inflation would combine to stay the Fed’s hand.
On Thursday one Fed member even suggested a cut in rates could be in order, while the latest minutes issued shortly afterwards showed the Fed’s concerns about inflation and a global economic slowdown.
Still, there are always dissenting voices, and Atlanta Federal Reserve president Dennis Lockhart has said in a speech today that a rate rise is still probable in October or December.
He said the global slowdown and last week’s week US jobs data - a catalyst for the recent optimism in global markets - meant there was “a touch more downside risk” to the US economy.
But overall he said the economy remained on a satisfactory track and he saw a “liftoff decision” at the October or December meetings as “likely appropriate.”
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Crude oil prices have edged lower after traders said that fears about the conflict in Syria - one of the driver for higher prices - was overblown.
Brent crude is 0.3% lower at $52.85, which has taken some of the shine off shares.
On Wall Street the Dow Jones Industrial Average is down 5 points while the FTSE 100 is just about holding on to the 6400 level, up 27 points at 6402.
Sports Direct shares are now down 5.5% and are the biggest faller in the FTSE 100 after the Guardian’s Simon Goodley reported chief executive Dave Forsley had been charged with a criminal offence over the pre-pack administration of USC.
Full story here:
Meanwhile, Iceland has repaid, ahead of schedule, all of its remaining obligations to the International Monetary Fund, totalling about $332m, the IMF said.
Iceland has staged a remarkable recovery since its banking collapse in 2008 when it secured a $6bn IMF-led rescue package.
Osborne: global risks rising and UK not immune
Some headlines have flashed on Reuters: George Osborne is speaking at the IMF/World Bank meetings in Lima, Peru.
He said there are growing risks in the global economy and Britain can’t be immune. He highlighted risks from the Greek debt crisis and falling commodity prices and worryingly high debt levels in some countries.
This is all the more reason, he argued, to deliver his economic plan to fix the UK’s public finances, improve productivity and invest in infrastructure. He said the IMF sees the UK going from having the second-worst public finances in the G-7 to the second best by 2020.
The UK chancellor is backing Christine Lagarde in her bid to serve a second five-year term as managing director of the IMF.
Osborne believes that the UK is in much better position than five years ago to handle whatever the global economy throws at it.
He also said that 250,000 British citizens have registered their interest in taking part in Lloyds’ £2bn share sale next spring.
Sports Direct CEO charged over USC administration
Guardian exclusive: David Forsey, the chief executive of the FTSE 100 retailer Sports Direct, has been charged with a criminal offence relating to the group’s controversial pre-pack administration of its fashion retailer USC.
The 49-year-old businessman is accused of failing to notify authorities of plans to lay off warehouse staff in Scotland, around 200 of whom were given just 15 minutes notice by the administrator in January that they were losing their jobs. Forsey was sent his summons in July and his case is scheduled to be heard at Chesterfield magistrates’ court next week.
ECB chief: slowing emerging markets pose fresh risks to eurozone
Here are some comments from European Central Bank president Mario Draghi at the IMF/World Bank meetings in Lima. He flagged up fresh risks from slowing emerging markets to the eurozone, which has been resilient so far, he said.
Faced with a more challenging external environment than six months ago, the euro area economy has shown signs of resilience. However, developments surrounding the slower growth in emerging market economies are posing renewed risks to the euro area outlook.”
In the light of renewed risks that have emerged on the back of recent developments in global and in financial and commodity markets, we are closely monitoring all relevant incoming information.”
He added that policymakers
are ready to use all the instruments available within our mandate to act, if warranted, in particular by adjusting the size, composition and duration of the asset-purchase programme.”
Draghi called for a “more complete” economic and monetary union in Europe.
It is also necessary for the euro area to move towards completing banking union in order to create a truly single banking system and achieve its objectives of breaking the bank-sovereign nexus, making the financial system more resilient, and protecting the interests of taxpayers. In parallel, the authorities will need to decisively deal with remaining crisis legacies to create a better foundation for bank lending to the real economy.”
Here is the statement in full.
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Here is our full story on the UK trade figures. The August trade in goods deficit narrowed to £11.1bn from £12.2bn in July as reported earlier, but was bigger than expected despite record car exports. This means the UK is heading for a huge shortfall in the third quarter.
Paul Hollingsworth, UK economist at Capital Economics, said:
Even if the trade deficit held steady in September, this would still leave the deficit in the third quarter as a whole at around £11bn, far higher than the £3.5bn deficit recorded in the second quarter.”
New Standard Chartered CEO to lay off 1,000 senior bankers
Standard Chartered’s new boss Bill Winters plans to cut up to a quarter of the bank’s most senior staff to reduce costs – a loss of about 1,000 jobs – Reuters is reporting, citing a memo sent to staff.
The memo shows that Winters plans to reduce the number of staff who are graded in bands 1-4 by a quarter. They cover bankers from director level upwards, and include about 4,000 people.
The former investment banker was hired by the embattled bank in February to turn it around after a damaging Iran sanction-busting scandal and a series of profit warnings. He has been awarded £6.7m in shares, most of which is intended to compensate him for quitting the hedge fund he was previously running.
Winters, who took over in June, told staff at the troubled bank:
Our situation requires decisive and immediate action. Each member of the management team has a mission to drive through improvements in our returns and part of this will be further streamlining of our organisation, eliminating management layers and duplication of roles.”
As part of his review, the bank will also sell off some assets and reduce the number of clients, he said, according to Reuters. Winters is expected to set out his plans to shareholders and staff in November or December.
Standard Chartered has had a tough three years, following fines from US regulators, weakness in many of its key emerging markets and growing losses from bad loans in India and China. The bank was fined more than $1bn for breaching US sanctions and still faces further investigations.
Winters said in the memo:
We lost some discipline during that time, leading to our recent problems with loan impairments and relatively high expenses.”
Shares in the bank rose 4% to 778.3p on the news.
Winters halved Standard Charterd’s dividend in August and said the bank would tap investors for cash if needed. At the time, it said it had cut 4,000 staff since the start of the year, taking the global workforce to 88,000.
Oil on track for biggest weekly rise since 2009
Returning to the markets, oil is enjoying a good week, and is set for its biggest weekly rise since 2009. Brent crude, the global benchmark, is up 1.4% at $53.81 a barrel, putting it on track for a 12% gain this week. US crude has risen by 2.4% to $50.60 a barrel.
Germany says 3.6m VW cars will need hardware changes
In the Volkswagen emissions-rigging scandal, it has emerged that about 3.6m VW diesel cars in Europe with 1.6l engines will need hardware changes to ensure they comply with emissions standards. News agency Reuters cited a spokesman for the German transport ministry.
Police raided the embattled German carmaker’s offices and several employees’ homes yesterday as prosecutors stepped up their investigation into the scandal that has rocked the group and the global car industry.
VW shares are trading 2.4% higher at the moment, while the Dax in Frankfurt is 1.1% ahead.
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In the beer battle, South African brewer SABMiller has announced a drastically accelerated cost-cutting plan today after rebuffing a $100bn (£65bn) takeover approach from rival Anheuser-Busch InBev, the world’s largest brewer.
SABMiller, which makes Grolsch, Coors and Peroni, has announced that it is aiming for annual cost savings of $1.05bn by 2020. The previous target was $500m by 2018. SABMiller’s management is meeting shareholders today.
AB InBev boss Carlos Brito has called on SABMiller shareholders to force the company’s chairman, Jan du Plessis, to discuss the terms. A takeover would create a brewing giant that would produce a third of the world’s beer.
Martin Beck, senior economic advisor to the EY ITEM Club, has looked at the UK trade figures:
The July trade release had been dire so there was always a good chance that there would be some payback in the August data. However, the scale of the rebound was underwhelming, with the trade deficit narrowing from £4.4bn in July to £3.3bn in August; this kept it much wider than the average of the past six months (-£2.5bn).
The monthly data has been hugely volatile lately, with July’s collapse in goods exports being followed by a rebound in August. But the underlying picture is one of a weakening export performance, with the official data moving closer to the story that has been conveyed by business surveys for some time.
The geographic breakdown of exports shows an interesting turnaround compared to earlier in the year. Previously exports to EU countries had been very weak, reflecting the relatively slow recovery in the Eurozone and the appreciation of the pound against the euro. While trade with the EU has now picked up, exports to non-EU countries have weakened. This suggests that the impact of the slowdown in China and other emerging markets is beginning to bite, with exports to China down 16% over the three months to August compared with the previous three months.
These figures suggest that net trade is likely to exert a sizeable drag on GDP growth in Q3. And more bad news came from the construction figures, with output slumping by 4.3% on the month in August. Our short-term model suggests that we are likely to see construction output fall by more than 2% in Q3. With manufacturing output also likely to have fallen, Q3 growth will have been almost entirely reliant on the services sector. There is now some downside risk to our forecast that the preliminary estimate – due at the end of the month – will show GDP growth of 0.6%.”
Zinc leaps 10%, other metals surge on Glencore news
Zinc has surged 10% and other base metals also jumped after commodities giant Glencore said it would slash its zinc output by a third. Glencore said it would cut 500,000 tonnes of annual zinc production, equivalent to 4% of global supply.
Glencore shares are now up 7.3% at 129.5p, the top riser on the FTSE 100 index.
The price of zinc on the London Metal Exchange hit $1,837, its highest level in a month. Lead leapt 6% at one stage to $1,774, copper and aluminium both rose 4% and nickel gained more than 5% to hit a one-month high.
The rally brings some relief to commodities after their recent slump, just as members of the metals industry are heading to London for the annual LME Week celebrations which start on Monday.
The London Metal Exchange wants to buy the Baltic Exchange, also in London, and has made an informal approach, Reuters reported, citing two sources. One said:
The LME has made strong overtures to the Baltic.”
The LME is the world’s oldest and biggest market for trading industrial metals such copper and aluminium. The Baltic Exchange produces daily benchmark rates and indices that are used to trade and settle freight contracts.
Sterling dipped after the poor construction numbers and the bigger-than-expected trade deficit, which cast some doubt on the strength of Britain’s economic recovery. The pound slipped 0.4% to 73.72p per euro.
The official trade figures were a bit better. They showed Britain’s deficit in trade in goods narrowed in August, to £11.1bn from £12.2bn in July, but it was still larger than expected and is also set to weigh on economic growth in the third quarter. This reduced the trade in goods and services gap by £1.2bn from July to £3.3bn.
Exports of goods went up £800m to £23.6bn in August, as exports of cars hit a record high of £2.4bn, up £600m, while chemicals increased by £500m. Imports declined by £300m to £34.7bn.
Construction output dropped 4.3% from July, its biggest monthly fall since December 2012. It was down 1.3% when compared with August 2014 - the first year-on-year fall since May 2013, the Office for National Statistics said.
City economists had expected a monthly increase of 1%. Construction makes up about 6% of Britain’s economy. In the three months to August, output fell by 0.8%, the biggest decline since March 2013.
Construction was down across the board, with housebuilding falling 3% in August from July.
.@ONS construction output in Aug 1.3% lower than a year ago, 1st annual fall since May 2013 http://t.co/LdaJKyyvTK pic.twitter.com/J0JJKmSnoK
— Noble Francis (@NobleFrancis) October 9, 2015
UK construction output slumps
The British construction industry had a bad August, a particularly wet month. Official figures out today show output fell at its sharpest rate since late 2012, adding to other signs that overall economic growth slowed in the third quarter, between July and September.
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FTSE 100 on course for biggest weekly rise in 4 years
The FTSE 100 index in London, meanwhile, is on course for its biggest weekly rise in nearly four years.
Our markets correspondent Nick Fletcher reports:
The FTSE 100 has jumped another 29.15 points to 6404.97, its eighth day of rises. This week the index has gained 4.55% so far, its biggest weekly rise since December 2011, and it is set for its highest close since 18 August. As well as the Fed, investors are also hoping for further stimulus measures from the European Central Bank and perhaps the Chinese authorities.
Gloomy forecasts for the global outlook from the International Monetary Fund have added to the feeling that central banks will keep acting to try and boost growth.”
European shares head for best week since January
A degree of calm has returned to financial markets. European shares are heading for their best week since January, on fresh optimism that interest rate hikes in the UK and US could still be some way off. The pan-European FTSEurofirst 300 index is up 4.8% so far this week, following a sharp sell-off in August and September. Commodity prices have also stabilised somewhat.
Neither the Bank of England nor the US Fed seems to be in a rush to raise borrowing costs.
Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, says:
The Fed minutes indicate that it will be patient in raising rates. The jury is still out whether the Fed will hike rates in December or early 2016, but this seems to be enough to lift global stocks after a horrible third quarter.”
Glencore top of FTSE 100
Glencore is the top performer on the FTSE 100 index this morning. Its shares leapt more than 5% to 127p after the embattled FTSE 100 miner said it would cut a third of its annual zinc output, in a bid to ride out weak commodities prices. You can read the full story here.
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Last night, International Monetary Fund chief Christine Lagarde urged global policymakers to build stronger buffers against volatile financial markets in a “rapidly changing and uncertain world”.
Speaking at the fund’s annual meeting in Peru, she denied the global economy was entering a “dark period” but said debts needed to be cut and called for greater international cooperation to prevent the economic recovery from being derailed.
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The IMF/World Bank autumn meetings are under way in Lima, Peru. George Osborne will be speaking there at 10pm UK time. Over here, David Cameron is due to meet German chancellor Angela Merkel at Chequers.
In the US, Fed members Evans and Lockhart are scheduled to speak on the US economy and monetary policy.
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Regarding economic data, it is a quiet day. UK construction output and trade numbers for August are out at 9.30am London time.
Investec economist Victoria Clarke has done a preview:
The UK’s trade deficit widened markedly in July, to £11.1bn, with exports seen falling sharply, particularly to the United States and particularly chemical exports.
One key uncertainty looking at the prospect for the August numbers is whether we will see last month’s slump in chemical exports unwind; we are pencilling in only a modest correction.
More broadly, survey data for the month suggest little by way of a quick turn in fortunes. Indeed, the August Manufacturing PMI pointed to new export business falling for the 5th straight month with companies linking this to the sterling exchange rate and weak sales performance to the Euro area and China.
Against such headwinds we are doubtful we will see a sharp improvement in the overall trade balance; we are pencilling in a deficit of £10.5bn. With the services trade balance steadier month to month, we look for a combined balance in goods and services of -£2.8bn.”
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Economists at Daiwa Capital Markets agreed:
The minutes from the FOMC’s September meeting confirmed overnight that ‘many’, albeit not ‘most’, voting members still expected conditions for lift-off to be met this year, although ‘several’ remained concerned about the downside risks to activity and inflation.
Indeed, the latest labour market report effectively ruled out a rate hike at the October FOMC meeting. And, in the absence of an improvement in tone of global economic data and financial market developments, lift-off might still be postponed into early 2016.”
Fed minutes and China calm give risk a lift. Japan's fear index Nikkei Volatility drops almost 5% to lowest since Aug pic.twitter.com/HjrcV1Z5Wx
— Holger Zschaepitz (@Schuldensuehner) October 9, 2015
Dovish Fed minutes give EM assets another lift. Rupiah and Ringgit jump most since #Asia crisis in 1998 on inflows. pic.twitter.com/TUtvY28KAA
— Holger Zschaepitz (@Schuldensuehner) October 9, 2015
Angus Campbell, senior analyst at online broker FxPro, has sent his thoughts on the Fed.
Risk assets are being buoyed further by hungry investors happy to get back into equities as the outlook for monetary policy tightening looks more assured with rates set to stay lower for longer. The FOMC minutes were decidedly dovish with the Fed continuing to stress its concern in respect to risks from overseas and the impact this is having on global growth and US domestic inflation. This is increasing risk appetite giving renewed strength to the Aussie which overnight has broken to a new six week high against the dollar having pressed against the 0.7300 level already this morning.
As we continue to move into the final quarter of 2015 the odds on there being a December rate hike from the Fed have significantly reduced. Our chief economist has been consistent in his call for no Fed hike this year as far back as 2014 (read here) and as the past couple of years have proved, whilst it is incredibly difficult to predict central bank monetary policy, we are looking for the first Fed hike to come in March 2016.”
UK government cuts Lloyds stake to below 11%
The UK government has sold off another 1% of its stake in Lloyds Banking Group, reducing its holding in the bailed-out bank to below 11% (10.97%).
UK Financial Investments, which manages the government’s stakes in Lloyds and Royal Bank of Scotland, has now recouped £15.5bn of the £20.5bn of taxpayers’ money which was pumped into Lloyds to rescue it at the height of the financial crisis in 2008.
You can read the full story here, by our City editor Jill Treanor.
Earlier this week, the chancellor, George Osborne, announced at the Conservative party conference that the government would sell at least £2bn of Lloyds shares to private investors next spring to return the bank to full private ownership.
More than 120,000 investors have registered their interest for the £2bn share sale so far with investment firm Hargreaves Lansdown. It will be the biggest privatisation Britain has seen since the 1980s when Margaret Thatcher’s government sold £3.9bn worth of shares in British Telecom and £5.6bn of British Gas shares.
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Germany’s Dax opened 1.1% higher, France’s CAC and Italy’s FTSE MiB gained 1%, and Spain’s Ibex rose 0.9% in early trading, on hopes hat a US rate hike could be some way off.
Unexpectedly weak US jobs numbers published a week ago triggered speculation that the Fed could hold off raising rates this year and wait until 2016.
The dollar lost ground on Friday as rate hike expectations receded, falling 0.2% against the euro to $1.1302.
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In Asia, Japan’s Nikkei closed 1.6% higher, taking the week’s gain to 4%. Chinese stock markets were also up, extending Thursday’s 3% gains. The blue-chip CSI300 index finished the day 1.3% higher while the Shanghai Composite Index rose 1.2%.
In London, the FTSE 100 has climbed 45 points, or 0.7%, to 6240.75 within the first five minutes of trading.
Good Morning. The ‘bad-news-is-good-news’ dynamics continue after dovish Fed minutes. Asian risk markets rally. pic.twitter.com/QHZNgCrm9n
— Holger Zschaepitz (@Schuldensuehner) October 9, 2015
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Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Wall Street and Asian shares rallied overnight as the minutes of the last US Federal Reserve meeting suggested an imminent interest rate hike was unlikely. European stock markets are set to open higher, with gains of 0.9% predicted for Britain’s FTSE 100 index, 1.4% for Germany’s Dax and France’s CAC 1.3%.
The minutes of the Fed’s 16-17 September meeting showed the US central bank thought the strengthening American economy warranted a rate hike soon, but was concerned that inflation could get stuck at low levels. Policymakers concluded that it was “prudent to wait” for more evidence, amid growing fears over the global economic slowdown.
The minutes said:
After assessing the outlook for economic activity, the labor market, and inflation and weighing the uncertainties associated with the outlook, all but one member concluded that, although the U.S. economy had strengthened and labor underutilization had diminished, economic conditions did not warrant an increase in the target range for the federal funds rate at this meeting.
In part because of the risks to the outlook for economic activity and inflation, the committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated and bolstering members’ confidence that inflation would gradually move up toward 2 percent over the medium term.”
London Capital Group said in a note:
European equities are set to rally as central banks give into the bulls’ demands for dovish monetary policy to rescue them from their current plight. The Fed Minutes underlined the global economic slowdown and the potential to threaten the US economic outlook.”
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