European markets edge higher
A rising oil price, along with political developments in France and Germany, has helped push European stock markets into positive territory on the first trading day of the week.
The prospect that Francois Fillon could beat Marine Le Pen in next year’s French presidential election has given investors some comfort, as has Angela Merkel’s announcement she was running for a fourth term as German chancellor.
Meanwhile the climb in crude, based on growing hopes that Opec would reach an agreement on limiting output at its meeting next week, has lifted commodity companies, while dollar weakness has also helped.
But London shares slipped back from their highs after a bounce in sterling - the leading UK index is full of exporters and overseas earners who benefit from a weak pound. The currency responded to supposed hints from UK prime minister Theresa May about a Brexit transition deal.
The final scores in Europe showed:
- The FTSE 100 finished up just 2.19 points or 0.03% at 6777.96
- Germany’s Dax was 0.19% higher at 10,685.13
- France’s Cac closed up 0.56% at 4529.58
- Italy’s FTSE MIB rose 0.19% to 16,297.26
- Spain’s Ibex ended 0.1% down at 8614.6
- In Greece, the Athens market added 0.64% to 615.83
On Wall Street, the Dow Jones Industrial Average is currently up around 0.4%, hovering around a new peak of 18947. The S&P 500 and Nasdaq have also recorded new highs.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
On the effect of the US election on the euro area economic outlook, Draghi said it is too early too now.
But he said, as with the UK referendum vote, the reaction in the markets was significant to start with, but then muted. Markets have shown their resilience, helped by the actions of in the first case the Bank of England, then the ECB.
But clearly these changes have a long term impact which difficult to assess and in the case of the UK, depends on the shape of negotiations and the length of time it takes to find an agreement.
ECB president Mario Draghi is now responding to the comments of MEPs.
He says he understands the concerns about the bank’s unconventional measures, and says there are some risks. But he says they do not see an asset price bubble developing.
He said the risks are for the time being contained “but we watch them closely.”
Low interest rates are a consequence of low growth and low inflation around the world, he said, not the creation of the ECB. Policy rates have to be low to stimulate growth.
By and large, regarding the negative rate situation , the benefits outweigh the disadvantages.
Our monetary policy is by and large the same as in the US, UK and Japan, says Draghi.
He denies that the bank is overstepping its mandate (as was suggested by several MEPs).
Here’s the full Reuters report on the comments from ECB board member Benoît Cœuré on the bank not contemplating buying stocks as part of its QE programme.
Away from the ECB and back to the CBI’s annual conference in London, where Labour leader Jeremy Corbyn has begun addressing delegates.
Meanwhile, while ECB president Mario Draghi is listening to the various comments - often negative - on the bank’s annual report, executive board member Benoît Cœuré has also been speaking.
According to Reuters, he said that at some point the ECB would scale down its stimulus programme but not yet. And there was never any discussion about buying stocks as part of the QE programme.
Updated
A number of MEPs are lining up to point out the problems in the eurozone and criticise some of the ECB’s policies, while saying growth is still fragile.
Draghi has begun speaking, apologising for his late arrival due to transport problems [we’ve all been there...]
You can follow the session here.
Draghi repeats calls for government action to boost growth
European Central Bank president Mario Draghi has defended the bank’s monetary policy actions once more, and repeated his calls for governments to step up their own reforms to boost growth.
And he said the bank needed to continue its supportive policies to bring inflation close to its target.
In a speech to the European Parliament relating to the ECB’s annual report, he said challenges had increased since his last session there in February. [Brexit for a start, one would think].
But he said the European economy had shown resilience to the global uncertainty, partly due to the ECB’s actions:
The euro area recovery continues to proceed at a moderate, but steady, pace. It has shown remarkable resilience to adverse developments and uncertainties emanating from the global environment...
Our monetary policy measures since June 2014 have been a key factor behind these positive developments. Asset purchases, targeted longer-term refinancing operations (TLTROs) and low policy rates have strongly supported the recovery...
Supported by our monetary policy, the recovery is sustaining its momentum. We also expect headline inflation to continue rising over the coming months. At the same time, we are not seeing a consistent strengthening of underlying price dynamics. Much of the expected increase will be driven by statistical factors related to the stabilisation of oil prices.
Moreover, the return of inflation towards our objective still relies on the continuation of the current, unprecedented level of monetary support, in spite of the gradual closing of the output gap.
It is for this reason that we remain committed to preserving the very substantial degree of monetary accommodation necessary to secure a sustained convergence of inflation towards levels below, but close to, 2% over the medium term.
But then he called for further action elsewhere:
However... our monetary policy support has to be accompanied by decisive action from other policy areas.
In fact, we continue to face a number of structural challenges that are holding back a more dynamic expansion of the euro area economy. So the right policies need to be designed to address existing vulnerabilities and challenges and, ultimately, secure higher sustainable growth for the euro area...
The implementation of structural reforms needs to be substantially stepped up. This concerns, in particular, policy actions to raise productivity and improve the business environment...
Second, fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. For instance, a more growth-friendly composition of fiscal policies could boost growth.
Updated
The jump in the pound took the attention away from events in Europe, and also pushed the FTSE 100 lower after a bright start. Connor Campbell, financial analyst at Spreadex, said:
After a morning of euro strength, following the double whammy of Merkel’s announcement she will run for a fourth term as Chancellor and Francois Fillon’s right-wing primary win causing potential problems for the unpleasant Marine Le Pen, out of nowhere focus shifted to the pound this afternoon. While it might be a case of scrambling around for a narrative to explain a rather sudden movement, it appears that May’s (attempted) reassurances that the government is working to avoid a Brexit ‘cliff edge’ for businesses, comments that perhaps suggest a transitional deal, have caused sterling’s resurgence.
And what a resurgence it was, with the pound rocketing more than 1% higher against the dollar and 0.8% against the euro; its performance against the latter is especially remarkable given that it was nearly half a percent in the red earlier in the day. This in turn dragged the FTSE back below 6800, despite the chunky gains made in the oil and mining sectors, while also helping cement the 0.3% and 0.6% growth seen by the DAX and CAC respectively.
The Dow Jones also benefited from the dollar’s dip this Monday (the greenback maintained its 0.3% loss against the euro), with the US index rising nearly 40 points. That leaves the Dow around 20 points from a fresh all-time peak, though without much actual momentum to push it any higher.
Ahead of Wednesday’s Autumn Statement from new UK chancellor Philip Hammond, Royal London Asset Management has called for measures to boost growth. Trevor Greetham, head of multi asset at Royal London, said:
Now is the time to reset fiscal policy and the focus should be on boosting nominal growth to offset Brexit uncertainty rather than trying to deliver ‘austerity-lite’.
Going for growth should reduce the debt burden over time as the government can borrow money in the gilt market at a cost of 1-2 per cent per annum and invest in an economy with long term growth potential of four. The government should counteract the lack of private sector investment since the financial crisis by improving transport infrastructure, housing and power generation while continuing to support research and new technology.
Contrary to popular opinion, governments can borrow their way out of debt if interest rates are low enough - or ‘save’ their way deeper into debt if austerity causes the economy to weaken.
US markets head towards record highs
A rise in the oil price on hopes of an Opec deal next week to limit production has helped push US markets higher in early trading. The post-election rally has continued, boosted by the expectation of infrastructure spending and other measures to boost the US economy.
The Dow Jones Industrial Average is currently up 51 points or 0.28%, just 15 points below its record high. Meanwhile the Nasdaq index of technology companies has already reached a new peak, up 0.56%.
The pound has just jumped by over one cent against the US dollar....and it’s not quite clear why!
After a slow start, sterling suddenly jumped by over 1% to hit $1.25, from $1.234 this morning.
It’s dipping back a bit now, as traders struggle to work out what happened.
Pound rallies towards $1.25: Yes, rallies. Do not adjust your set. https://t.co/3kyOE021sj pic.twitter.com/uoEfxNvVXI
— BSIC (@BSICBocconi) November 21, 2016
One theory is that Theresa May has sparked the rally, by telling business leaders this morning that she wants to avoid a Brexit “cliff edge”.
That has raised hopes that Britain might seek a transitional arrangement, to help businesses adjust to life outside the European Union.
Reuters are calling it a ‘mystery move’, saying:
Sterling jumped by a full cent in a few seconds just after 1325 GMT on Monday, with dealers at several major banks saying there had been no clear driver of the move in a currency still smarting from a so-called “flash crash”a month ago.
Influential MP Andrew Tyrie is highly unamused that the Bank of England is considering hiking the UK’s deposit protection scheme back to £85,000, less than 18 months after cutting it to £75,000.
As we explained at 11.26am, the changes are driven by sterling’s volatility, with the BoE tacking and jibing to keep in line with the €100,000 limit set by European regulators.
But Tyrie, who chairs parliament’s Treasury committee, thinks these changes undermine public confidence in the banking system.
“The announcement today of another change to the deposit protection limit – there have been about seven in the last decade – is a recipe for yet more uncertainty.
“Each change will have carried a cost. It’s extremely valuable for the level of deposit protection to be well known for long periods. This allows savers and small businesses time to adjust. Stability is what is needed. That is what can entrench public confidence in depositor protection, the most valuable commodity of all.
“These recent changes have not been the fault of the PRA. They are an EU requirement, imposed by the European Commission. The current EU rules have always been unacceptable to a country such as the UK, in the EU but outside the Eurozone.
Tyrie’s solution is to take back control of these rules - which kick in if a bank fails:
“The absurd situation, in which the UK is left vulnerable, at the discretion of the European Commission, to frequent changes in our deposit scheme, must be brought to an end. Brexit should give the UK the opportunity to set its own level of protection. We should take it.”
Francois Fillon’s plans to shrink the French state by cutting 500,000 jobs will surely alarm France’s unions, and could be fiercely fought.
Cutting unemployment benefit and raising the retirement age will also be controversial, should Fillon become the next president.
But MEP Philippe Juvin argues that Fillon is what France needs, telling Bloomberg TV this morning that:
The financial markets want stability and they want trust.
With Fillon they would get stability and trust.
This chart, from the Economists’s Jeremy Cliffe, shows how Fillon won support from Republican voters across the country:
Fillon's sweep: Juppé (red) ahead in Seine-Saint-Denis (lefty Paris outskirts) + south-west stronghold, Sarko (yellow) in Réunion + Corsica pic.twitter.com/dcbYZFzfhm
— Jeremy Cliffe (@JeremyCliffe) November 20, 2016
From Paris, Kim Willsher reports that French politicians are swiftly rethinking their alliance following Fillon’s surprise win:
Nicolas Sarkozy crashed out of the primaries with only 20.6% of the vote. Shortly after his defeat he called on supporters to throw their weight behind Fillon.
Among those who responded to the call were former prime minister and presidential candidate Edouard Balladur, and Sarkozy supporters Brice Hortefeux and Rachida Dati, as well as fellow first-round loser Bruno Le Maire.
On the other hand, Nathalie Kosciusko-Morziet, who came fourth in the primary has announced she will support Juppé, as have former prime minister Jean-Pierre Raffarin and former minister Valérie Pécresse.
The other first round contenders, Jean-François Copé, former head of the centre-right party, and Jean-Frédéric Poisson of the Christian Democrat party, have yet to declare their second-round allegiance. François Bayrou, the president of the centrist party MoDem, has already called for his supporters to vote for Juppe.
The US stock market is expected to open calmly in 80 minutes time, as the Trump effect wears off:
US Opening Calls:#DOW 18889 +0.12%#SPX 2187 +0.22%#NASDAQ 4820 +0.25%#IGOpeningCall
— IGSquawk (@IGSquawk) November 21, 2016
Francois Fillon hasn’t got the Republican nomination sewn up quite yet.
Having won yesterday’s first round contest, he must now beat Alain Juppe in a run-off next Sunday. That shouldn’t be a problem, given Fillon’s strong showing in the primary:
The scale of his victory has surprised many observers (perhaps because most people have been distracted by the US election!).
I see that <looks at paper> Fillon is winning the <looks at paper> French Republican primary which can only mean <strong opinion here>.
— Wu Ming (@twlldun) November 20, 2016
So we’ve published a profile of Fillon, ideal for anyone muttering ‘Francois who?!’ this morning. It explains how the former PM is winning support with a neoliberal, conservative stance reminiscent of Britain’s Tory party in the 80s.
Here’s a flavour:
François Fillon, who beat his former boss Nicolas Sarkozy to join Alain Juppé in the second round of voting for France’s rightwing Republican party’s presidential candidate, is a social conservative who likes drinking tea, driving classic cars and cutting state spending.
The 62-year-old Paris MP’s campaign slogan to slash half a million public sector jobs over five years is inspired by his heroine, Margaret Thatcher.
Of the seven Republican candidates, Fillon was the most outspoken defender of what is seen in France as the Anglo-Saxon economic model. He appears unafraid of offending the French statist tradition or fuelling a popular backlash against neoliberal economics. In his last rally before Sunday’s vote, he said: “I’m tagged with an [economically] liberal label in the same way one would paint crosses on the doors of lepers in the middle ages. But I’m just a pragmatist.”
Fillon served as prime minister under Sarkozy, and is remembered for defying street protests and championing a rise in the retirement age.
He tried to distance himself from Sarkozy after the 2008 financial crash by describing the country as bankrupt and suggesting France needed to cut state spending further. Opponents have questioned why he carried on serving as Sarkozy’s prime minister if he disagreed with his approach.
Sarkozy was disdainful of Fillon as a presidential candidate, referring to him as one of his staff. But Fillon had the last laugh. By pipping him to the second round runoff next week, Fillon has all but ended Sarkozy’s political career.....
Updated
Fillon's charge for French presidency pleases markets
Europe’s big three stock markets are all pushing higher as lunchtime approaches.
European politics is the main issue in the City today, meaning concerns over Donald Trump can take a (temporary?) back seat.
Investors seem to be welcoming the emergence of Francois Fillon as the man to lead the French right-wing Republican party to victory over Marine Le Pen of Front National next May.
As explained earlier, Fillon is the favourite to become France’s next president after beating fellow right-wingers Alain Juppe and Nicolas Sarkozy in last night’s primary.
The UK’s FTSE 100 is now up 35 points at 6810, a gain of 0.5%, led by mining companies.
The French and German markets have posted similar gains (although Italy is still suffering from pre-referendum worries).
Traders are hoping that Europe will stick with mainstream politicians in next year’s crunch elections, as Conner Campbell of SpreadEx explains:
The confirmation that Angela Merkel is set to run for a fourth term as German chancellor in next year’s election, combined with a Marine Le Pen-damaging victory for Francois Fillon in the first round of France’s right-wing primaries, has given life to the euro this morning.
The Eurozone currency finds itself up 0.2% against the dollar, just about lifting it away from last week’s sub-€1.06 lows, while it has had more success against the pound, taking back nearly half a percent.
The fact that this political news suggests stability in a region standing on the precipice of potential chaos has also helped out the Eurozone indices.
#Euro, #DAX and #CAC rise as investors cheer #LePen-damaging primary win for #Fillon and 4th term aim for #Merkel...https://t.co/tx8URSSctD
— Connor Campbell (@ConnorSpreadex) November 21, 2016
French government debt have also strengthened in value this morning, pulling down the yield (interest rate) on its 10-year bonds.
#France's 10y yields drop, outperform other Eurozone markets, as Thatcherite reformist Fillon front runner in France's 2017 pres election. pic.twitter.com/4nsLpxLlYH
— Holger Zschaepitz (@Schuldensuehner) November 21, 2016
Updated
Bank of England considers raising deposit protection to £85k
Newsflash: The Bank of England is considering raising the maximum bank deposit guaranteed in the UK to £85,000, from £75,000.
The move is prompted by the pound’s slump against the euro since June’s EU referendum, from €1.30 to €1.16.
Under EU law, consumers can recover up to €100,000 if they lose money when a bank collapses. And sterling’s recent decline has pushed up the value of that protection in pound terms.
The Bank’s Prudential Regulation Authority has concluded that the pound is not going to recover anytime soon:
Taking into consideration the developments in financial markets following the UK’s referendum vote to leave the European Union on 23 June 2016, including with respect to the GBP/EUR exchange rate, the PRA considers that a structural shift in the exchange rate has occurred.
We’re consulting on restoring the protection limit for money deposited with firms we regulate to £85,000. Read more: https://t.co/gcxX6z9SlL
— Bank of England (@bankofengland) November 21, 2016
This may be a little embarrassing for the BoE. The limit was originally £85k, but the Bank’s Prudential Regulatory Authority decided to lower it to £75k in July 2015 (because the pound had rallied against the euro). That decision angered the high street banks, who had just trained their staff on the scheme.
Tinkering with the deposit protection scheme too often risks confusing consumers...
Possible good news from a lower UK Pound £. Although this is not something for a type of Hokey Cokey dance... https://t.co/pWQRixLTTC
— Shaun Richards (@notayesmansecon) November 21, 2016
Antonio Barroso of Teneo Intelligence also thinks Francois Fillon would beat Marine Le Pen in a straight race to become French president.
Barroso says Fillon’s victory over Alain Juppe and Nicolas Sarkozy in Sunday’s Republican primary is bad news for Le Pen:
While left-wing voters would find it more difficult to support Fillon than Juppe in a second round, he is a less toxic candidate than Sarkozy; it is also likely that he would moderate his stance on economic issues between the two rounds in order not to scare off centrist voters. Fillon’s biggest strength is that he would be able to limit the potential flow of traditional conservative voters towards the FN [National Front].
In sum, the former PM would probably be able to deploy the necessary ambiguity to build a coalition of voters that could defeat Le Pen.
The euro has gained almost half a cent against the US dollar this morning, as European political drama overtakes Donald Trump as the main issue on the trading floors.
The single currency is trading at $1.063, up from $1.0585 on Friday night. That ends 10 days of straight declines following the US election.
Traders are digesting Angela Merkel’s decision to run for a fourth term as German chancellor, and Francois Fillon’s sudden promotion to favourite to become the next French president.
Merkel has already warned that next year’s election will be tough, given the rising tides of populism:
#Merkel on the 2017 race: “this election will be difficult, like no election before - at least not since the German reunification.”
— Maxime Sbaihi (@MxSba) November 21, 2016
Fillon has campaigned on a conservative platform of cutting 500,000 civil service jobs and ending the 35-hour week. He also favours taking a hard line over Brexit, as our Brussels correspondent Jennifer Rankin explains:
François Fillon on #Brexit: you cannot leave the common house, avoid the charges, but benefit from the roof, the rooms and the cover (28/6)
— Jennifer Rankin (@JenniferMerode) November 21, 2016
François Fillon on #Brexit: no reason for UK to have financial passport and eurozone shd handle clearing for single currency... june speech.
— Jennifer Rankin (@JenniferMerode) November 21, 2016
François Fillon said British MEPs and civil servants should not take part in votes and decisions while Brexit is being negotiated.
— Jennifer Rankin (@JenniferMerode) November 21, 2016
Fillon’s success has raised hopes that National Front leader Marine Le Pen can be kept away from the presidency.
But Kit Juckes of Societe Generale says we can’t be complacent:
The clearest message I received over the last two weeks was that opinion polls and historical voting patterns which suggest a le Pen victory is unlikely, won’t do much to ease pre-election nervousness. Market participants can see the shift in the voter mood and the sharp swing in support for M Fillon can be seen as yet another surprise for opinion pollsters.
Uncertainty will weigh on the Euro for months to come.
City: Autumn statement may not bring big changes
City analysts are warning that Wednesday’s autumn statement will not be a game-changer, given the UK’s financial problems.
George Palmer from Waverton Investment Management hopes that Phillip Hammond will announce new infrastructure spending plans.
George Osborne’s Budgets and Autumn Statements were defined by a general intent to cut deficits, budgets and taxes on the entrepreneur. If Hammond is going to stimulate an economy that is entering a period of uncertainty it is unlikely that he will be able to cut all three. He has already abandoned the prospect of balancing the books and Wednesday 23rd will give us an idea on tax cuts.
In line with Mr Trump’s promises of improved infrastructure (not just walls) to provide growth and jobs, the expectation is that Mr Hammond will similarly spend the windfall of expanded deficits and unbalanced budgets on some sort of infrastructure. And arguably, there is capacity to do so – the lack of investment (excluding the Olympics) since the Financial Crisis means its share of GDP has been falling steeply (as this chart shows):
But Fiona Cincotti of City Index say Phillip Hammond hasn’t got much flexibility to borrow more for investment:
Given the size of the UK’s debt pile, in addition to poor economic forecasts any expectations of Trump style spending are misplaced and he is likely to opt for a rather conservative budget in comparison.
Sterling has seen a soft start to the week as Hammond’s talking down of the UK’s post Brexit economy over the weekend has done little to support the battered currency; we are expecting to see more volatility in the lead up to and during the course of the Statement on Wednesday.
And Edward Hardy of currency exchange firm World First points out that Britain’s financial position appears to be deteriorating:
The size of Hammond’s fiscal arsenal has been somewhat limited by new estimates forecasting a £100bln black hole in the UK’s finances due to slower growth and limited international investment attributed to the UK’s decision to leave the EU.
Despite the government ditching the pledge to balance the books by 2020, this lack of fiscal rigour will prevent Hammond, and any future governments, from enacting wider-reaching fiscal reform such as lifting the 1% public sector pay rise cap and revitalising public services.
May: Autumn statement will be ambitious for business and Britain
And She’s off! Theresa May is telling the CBI conference that capitalism is the best hope for people struggling in the UK.
But she’s also challenging business to do more to help Britain, through long-term investment, helping communities and creating jobs for the next generation.
We believe in free trade, capitalism and biz says PM May #cbi2016. But we need to adapt and change. Asks biz for help pic.twitter.com/vcNowlnOVP
— Anna Edwards (@annaedwardsnews) November 21, 2016
May also declares that Wednesday’s autumn statement will be “ambitious for business and ambitious for Britain”.
Philip Hammond, she says, will commit to creating a “strong and stable” basis for the economy, while also bringing the deficit down and cutting the national debt
That may be a hint not to expect a major easing of fiscal policy this week.
Stay tuned to Politics Live for more from the CBI....
Updated
The CBI’s annual conference is up and running, and Theresa May should give the keynote speech in a few minutes.
Our Politics Live blog has all the details:
Britain’s government is signalling that it may pull a sharp u-turn over plans to put workers on company boards.
The Sunday Times reported yesterday that Theresa May is considering ‘watering down’ the plan, which was one of her early pledges when she replaced David Cameron in July.
Business minister Greg Clark is now hinting that the government is indeed backing away from the plan (which wasn’t popular with City bosses), telling Radio 4 that:
“Theresa May has talked about an economy that works for everyone - that includes workers, employees, consumers, the supply chain businesses - so we will put forward a series of ways in which those voices can be represented on boards.
“We will publish those plans. We will have options. We are working with business.
Frances O’Grady, head of the TUC, isn’t impressed:
End of workers on boards idea -'we will look at different ways' says Biz sec Greg Clark - olive branch to biz from govt as May heads to CBI
— Laura Kuenssberg (@bbclaurak) November 21, 2016
If Mrs May says #Brexit means Brexit, surely workers on boards means workers on boards? https://t.co/y1iPAtiTSP
— Frances O'Grady (@FrancesOGrady) November 21, 2016
Italy’s stock market has shed 1% in early trading as traders anticipate that voters will reject constitutional reforms in next month’s referendum.
The FTSE MIB has shed 160 points to 16,103, putting it on track for its weakest close since early July.
The latest polls show that the public are likely to reject prime minister Matteo Renzi’s proposal, to trim the Italian Senate’s power and change the way its members are selected.
Renzi has threatened to resign if he loses, which could plunge the eurozone into a fresh crisis (although he could yet lead a caretaker government).
#Renzi is holding a referendum in 2 weeks: what's the probability of a YES vote? My take on @Bruegel_org https://t.co/n0NWP3v8jd #italy pic.twitter.com/oEIgmdjzUu
— Alessio Terzi (@terzibus) November 20, 2016
#Italy #referendum polls continue to give no reasonable lead. Although around 25% undecided #Renzi worried. pic.twitter.com/wmyzTJP7zr
— marksastley (@astleyeconomics) November 21, 2016
Social networking platform Facebook has given the UK economy a fillip, by announcing plans for a new headquarters in central London.
The company is planning to hire 500 new workers, increasing its UK headcount by 50%, to work at the new site in Fitzrovia (the part of London around the BT Tower).
Fingers crossed that this helps Facebook tackle its fake news problem....
ING: Trump's cabinet picks are crucial
Trump spent the weekend entertaining potential cabinet member at his New Jersey golf club.
One ‘serious’ option for the Secretary of State position is former presidential candidate Mitt Romney (who has presumably been forgiven for labelling Trump as “a phoney, a fraud’’ in March).
These choices will be a litmus test for Trump’s administration -- international investors will look for signs that the next president might row back from his anti-globalisation message.
Rob Carnell, chief international economist at ING, explains that politics will still drive the markets:
“We’ll to have to take a view as to whether these people are pro free trade, or not as anti free trade as Trump sounded on the campaign trail, and what we’re likely to get in policies such as fiscal expansion and the dollar.”
Has Trump rally run its course?
After 12 days of shock, the City may have adjusted to the prospect of Donald Trump becoming the next US president.
The world’s financial markets are stubbornly, indeed disappointingly, quiet this morning as investors watch the billionaire president-elect form his new cabinet.
Excited chatter about trillion-dollar infrastructure plans has faded, and anxiety over a bond market crash has eased too, while people wait to see how Trump prepares for power.
So the pound is absolutely flat against the US dollar at $1.2345, and most government bond prices are inching a little higher.
European stock markets are calm too, with Britain’s FTSE 100 index up 15 points in early trading.
Trump’s success pushed the Dow Jones index to a series of record highs, and sent government bond prices reeling. But that initial wild reaction may now have faded, as FXTM Chief Market Strategist Hussein Sayed explains:
The reflationary trade, or as some like to call it “Trump trade”, probably led some big name bearish investors, who were calling the end of 8-year bull market to reconsider their judgments.
Since Trump won the elections on November 9, the dollar index gained 3.6%, the Dow Jones traded at new record highs, and yields on U.S. 10-year treasury bonds rallied 25%. The shift in market sentiment was based on hopes that a Trump presidency means businesses’ profits skyrocketing due to sharp cut in taxes, more capital expenditures, and finally some inflation supported by aggressive government infrastructure spending.
It’s difficult to know how much further this bull can run especially that it’s driven by animal spirits, and yet no fundamental evidence. However, when everybody turns bullish, this is the time when you should get worried.
The agenda: What will Wednesday's autumn statement hold?
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s wet and gloomy in the City, as traders squelch to the office at the start of another busy week.
The big event comes on Wednesday, when chancellor Phillip Hammond delivers the Autumn Statement. It’ll be Hammond’s first major set piece event since replacing George Osborne at the Treasury, and a chance to set the economy on its post-Brexit path.
However, the omens aren’t great. Yesterday, Hammond downplayed the chances of giving much help to struggling families, pointing out that the national debt was “eye-wateringly” large.
So hopes of a major infrastructure spending plan are already receding (although the chancellor may find £1.3bn for the nation’s roads).
And after six years of Osborne-omics, we can see that those families at the bottom of the income pile have suffered badly.
A new survey has shown that current austerity-driven welfare cuts will cost low-income working families more than £2,500 a year by 2020.
Our front page story explains:
A study of 187,000 households across the UK found that policies including cuts to universal credit and the four-year benefit rate freeze, coupled with rising rents and higher inflation, would see low-income working families typically lose £48.90 a week by the end of the decade.
The findings have alarmed councils and charities worried that the growing financial burden on low-income families will raise poverty and homelessness levels.
Also coming up today....
The impact of Brexit will be high on the agenda at the CBI’s annual conference in London today. Prime minister Theresa May is the keynote speaker, and will be talking about her plans for “A stronger, fairer Britain” at 9.45am.
Labour leader Jeremy Corbyn is also speaking, along with many of Britain’s top business leaders.
Our politics team will be covering the CBI conference, but we’ll keep an eye for interesting titbits too.
French politics took a twist last night when former PM Francois Fillon won the first round of the race to become the Republican party’s candidate for the presidency next year.
Fillon is now the odds-on favourite to become the next president, and has probably sunk Nicolas Sarkozy’s hopes of a political comeback.
European Central Bank president Mario Draghi is presenting the ECB’s annual report to MEPs in Strasbourg this afternoon.
The oil price could be volatile, as producers prepare for an OPEC meeting at the end of this month.
But there’s not much in the economic calendar to excite us, alas, so some traders are expecting a quiet day...
A very quiet session in Asia and feel today may also be dull as we have no data of note this morning..
— Arjun K Lakhanpal (@Arjun_lakhanpal) November 21, 2016
Updated
