Closing summary
Investors started the session fretting over the fallout of the new Covid strain, which has prompted more than 40 countries to shut their borders to Britain, and raised concerns about how quickly supply chains will come under threat.
But after an initial dip, the FTSE 100 followed European indexes higher as investors took advantage of cheaper stocks following Monday’s market turmoil. Later, the EU Commission also recommended lifting the blanket bans on UK arrivals, saying it poses risks to essential travel and supply chain.
But sterling took a sharp dive after reports emerged that the EU had rejected the UK’s offer on fisheries, raising further fears that a Brexit deal might not be reached before the end of the transition period.
UK GDP growth was revised up to 16% for the third quarter. ONS figures showed Britain’s economy staged a faster recovery in the third quarter of the year than was first estimated, following a rapid return to work after the first lockdown
However public finances appear to have taken a bigger hit as a result, with the government’s borrowing soaring to a 50-year high.
Meanwhile, the US economy grew at a record pace in the third quarter at 33.4%. That was revised higher from initial estimates of 33.1% growth.
The Bank of England’s chief economist, Andy Haldane, told the Guardian that policy support that prevented UK unemployment from rising as high as 5 million during this year’s pandemic should be removed only once the risk to jobs has been reduced.
That’s all from us today. We’ll be back tomorrow. Stay safe. –KM
Apple shares are up more than 2.8% amid reports that the consumer tech giant is planning to move into self driving car and battery production.
According to Reuters:
The iPhone maker’s automotive efforts, known as Project Titan, have proceeded unevenly since 2014 when it first started to design its own vehicle from scratch. At one point, Apple scaled back the effort to focus on software and reassessed its goals. Doug Field, an Apple veteran who had worked at Tesla, returned to oversee the project in 2018 and laid off 190 people from the team in 2019.
Since then, Apple has progressed enough that it now aims to build a vehicle for consumers, two people familiar with the effort said, asking not to be named because Apple’s plans are not public.
The company’s goal of building a personal vehicle for the mass market contrasts with rivals such as Alphabet’s Waymo, which has built robo-taxis to carry passengers for a driverless ride-hailing service.
Central to Apple’s strategy is a new battery design that could “radically” reduce the cost of batteries and increase the vehicle’s range, according to a third person who has seen Apple’s battery design.
Apple declined to comment on its plans or future products.
Updated
Wall Street is open for trading and US stocks are mixed:
- S&P 500 is flat, up just 0.02 points at 3,694 points
- Dow is down 40 points or 0.13% at 30,176 points
- Nasdaq is up 38 points or 0.3% at 12,780 points
U.S. markets open very slightly higher https://t.co/GSLeH3CTr5 pic.twitter.com/NwugliVEzh
— Bloomberg Markets (@markets) December 22, 2020
Updated
US GDP revised higher for Q3
Catching up on US data, the American economy grew at a record pace in the third quarter at 33.4%
That was revised higher from the first reading of 33.1%, and followed the 31.4% contraction in Q2.
The third quarter jump was driven by $3tn in pandemic relief, and sustained by consumer spending.
However, retail sales have since declined and household incomes are under pressure after the Us government’s weekly jobless subsidy expired.
And while Congress passed the $900bn Covid aid package overnight, it pales in comparison to the first pandemic relief funding.
EU Commission recommends ending UK flight and train bans
The EU Commission has recommended lifting the blanket bans on UK arrivals, saying it poses risks to essential travel and supply chain.
Cargo flows need to continue uninterrupted, in accordance with the Green Lanes and the Air Cargo Communication, not least to ensure the timely distribution of COVID-19 vaccines, for example.
Our Recommendation to ensure EU coordinated approach to 🇬🇧 travel restrictions:
— European Commission 🇪🇺 (@EU_Commission) December 22, 2020
➡️ Non-essential travel discouraged, but transit should be facilitated.
➡️ Flight and train bans should stop: need to avoid supply chain disruptions.
More here: https://t.co/PKuvnd9kQQ pic.twitter.com/I7cPslhlWc
They stress that the UK is still part of the EU until the Brexit transition period ends on 31 December.
After that, the UK will be subject to council recommendations on temporary restrictions on non-essential travel to the the EU.
BREAKING: Ireland is heading into a fresh lockdown on Christmas Eve, Reuters is reporting.
Fresh restrictions will apply from 24 December until 12 January. However, non-essential shops will be allowed to stay open, as will schools and childcare services. However, restaurants and bars are to shut from 3pm on 24 December.
Irish residents must stay in their own county other than returning to their main residence from 26 December. Household mixing will be reduced after Christmas Day and will not be allowed from 1 January.
Extra financial resources are set to be provided for businesses that have been shut.
Industry body Scotland Food and Drink is warning over an irrecoverable loss of income for food exporters whose products are being held up at UK border crossings.
They’ve said it could be an a “fatal blow” for some small businesses.
❗️STATEMENT, UK/France freight blockage, Tues, 11.30am.
— James Withers (@scotfoodjames) December 22, 2020
- The situation is worse and deteriorating for food exporters.
- Protocol for freight movements needed today, but already too late for most Christmas orders. pic.twitter.com/DV6IEeEKQB
UK jobs support should only end post-Covid – BoE’s Haldane
The Bank of England’s chief economist, Andy Haldane, has said the policy support that prevented UK unemployment from rising as high as 5 million during this year’s pandemic should be removed only once the risk to jobs has been reduced.
In an interview with the Guardian before the introduction of new tier 4 curbs for London and much of south-east England, Haldane said he was hopeful of a rapid bounce-back in activity thanks to the vaccine but it was not the time to remove the “insurance policy” that had so far spared Britain from a return to the mass joblessness of the 1980s.
The Threadneedle Street official said unemployment had been “public enemy number one” while he was a teenager in West Yorkshire in the early 1980s.
He estimated that the UK’s unemployment rate had picked up from less than 4% to more than 6% since the arrival of the pandemic but job losses had been less severe than the Bank’s early estimates:
Policy has been tremendously important. A huge amount of insurance has been provided by the government and the Bank of England – supporting people’s jobs, supporting incomes, supporting businesses and supporting borrowing costs.
Without that insurance the outcome for jobs, incomes and the economy would have been massively, massively worse.
Read the full interview here:
European stocks have cooled slightly since their surge this morning.
- FTSE 100 is up 0.3%
- FTSE 250 is up 0.9%
- Germany’s DAX is up 1%
- France’s CAC 40 is up 0.87%
- Italy’s FTSE MIB is up 0.99%
We’re still waiting for confirmation that the border with France will re-open to freight.
However, our reporters Josh Halliday and Jon Henley have spoken to sources who saying plans are being drawn up to test all lorry drivers taking goods across the Channel for Covid.
A French government source said on Tuesday:
A solution is being worked on and will be announced during the course of the day.
The 48-hour suspension was always an emergency measure, to allow us to find practical solutions and to consult with our EU partners.
Rose, one of Europe’s biggest online retailers of bicycles and bike parts, has announced it is pulling out of the UK market due to Brexit, and will not process any further orders after 20 December.
The bike site popular with UK bike riders now has a pop-up warning UK buyers of the change in policy.
It states:
Due to Brexit and the withdrawal from the EU domestic market without a Free Trade Agreement from the 01.01.2021, we can no longer fulfill any orders from the UK.
Already ordered goods, that can be shipped until 20.12.2020 will be sent out.
Orders that can not be shipped until this date will be cancelled.
(The Guardian has tidied up the grammar and spelling here, but you get the picture.)
The company was a good value to buy parts for bikes even after the postage costs were factored in. But no more, it seems.
Sounds like the Post Offices wants to avoid adding extra mailbags to stranded freight at the Dover crossing.
The Times’ financial editor says Post Offices are trying to stop mail to France at the source:
Eh? Local Post Office is refusing to sell stamps for letters to France. Says it’s a directive from head office
— Patrick Hosking (@HoskingTheTimes) December 22, 2020
Turning back to the UK GDP figures release earlier this morning, our economics editor Larry Elliot says the economic rebound came at a price:
Never in history has the UK economy grown more quickly than it did in the third quarter of 2020. Official figures show that the spending spree of the summer was even stronger than previously expected, resulting in a 16% increase in national output.
Yet the packed beaches, the busy shops and the battle to get restaurant bookings during August’s eat out to help out promotion already seem like ancient history.
It is of only passing interest that the Office for National Statistics now says the slump in gross domestic product in the spring was slightly less severe than first feared and the rebound between July and September was a tad stronger.
But the second wave of the pandemic meant the buoyancy of the summer was short-lived. As the ONS figures for the public finances show, the tightening of restrictions on activity have had a marked impact. The talk now is of a double-dip recession rather than a V-shaped recovery.
Keeping millions of workers on furlough comes at a price. So does the extra investment in the NHS. The government borrowed £31.6bn last month – a record for a November and the third highest monthly total on record.
Read more here:
A bit more insight on the market bounce from David Madden, market analyst at CMC Markets UK:
Stock markets have rebounded from the brutal declines that were witnessed yesterday.
Fears in relation to the new strain of the coronavirus have faded a little and so have some of the concerns that the UK could suffer a prolonged period of isolation.
The French government is looking to end the ban on freight coming from Britain and this has helped ease worries with respect to good moving across the English Channel.
Yesterday, at the height of the market sell off there were fears that the UK could be given the cold shoulder for a while but the mood is more upbeat today.
The new strain of Covid-19 has been registered in a number of European countries, including The Netherlands, and even though things are quiet on the health for now, it is likely that the issue will surface at some stage.
The EU’s chief negotiator Michel Barnier is set to update EU member states on the latest in Brexit talks at 3pm today, according to Reuters
(No clarification about whether that’s GMT or otherwise, but we’ll keep you posted)
Update: That is indeed, 3pm GMT
Updated
EU rejects UK's post-Brexit fishing deal –Bloomberg
Bloomberg (£) is saying that the EU has rejected a proposal that would see the EU reduce the value of fish it catches in UK waters by 30%.
The UK was originally calling for a 60% cut last week.
BREAKING: The EU rejects the U.K.'s latest concessions on fishing, officials say, in a setback to efforts to secure a post-Brexit trade deal https://t.co/uZHkfAVEp4 pic.twitter.com/aYQC1Od4Nm
— Bloomberg Brexit (@Brexit) December 22, 2020
Twitter speculation suggests the sterling sell-off is linked to reports that UK’s Brexit offer has been rejected by the EU, raising fears that a deal may not be reached.
Sterling slumps again on apparent confirmation that UK's latest Brexit offer on fish has been rejected - Bbg#GBPUSD 1.33797 -0.63%#EURGBP 0.91242 +0.31%
— IGSquawk (@IGSquawk) December 22, 2020
The pound has been on a roller coaster ride of its own this morning, and has been dropping quickly in the past couple of minutes alone.
Against the US dollar, the pound is now down more than 0.6% at 1.3378 and down 0.3% versus the euro at 1.0954.
While some investors might be comforted by the fact that stocks are recovering, Russ Mould, investment director at AJ Bell, ways January could deliver further pain for equities.
After yesterday’s carnage on the markets with approximately 2% declines seen across Europe, investors are in a better mood as we draw closer to Christmas,” says
Yesterday’s declines were driven by investors getting a cold shower from Covid-related setbacks. Optimism had been running high and so the sudden escalation of the new virus variant and subsequent movement and business trading restrictions caught investors off guard.
The prospect of another nationwide lockdown seems inevitable going into 2021 and so earnings expectations for many industry sectors may have to be downgraded.
However, it’s comforting to see that the markets haven’t crashed for a second day in a row. That would suggest investors aren’t panicking.
But after a whirlwind year, stocks are still facing downside risks. Mould adds:
The Covid crisis and Brexit uncertainty look set to hang over equities for the rest of the calendar year and January could be a difficult period unless there is progress in getting the virus under control and clarity on when more people will get vaccinated.
While investors are hopeful that Covid border restrictions will blow over, some companies are unwilling to take any chances.
Toyota will stop production at its British and French plants earlier than scheduled before Christmas because of the chaos caused by Covid-19 border closures, Joanna Partridge writes.
The Japanese carmaker said it was expecting shortages of parts as a result of transport delays, after France’s 48-hour ban on accompanied freight or cargo from Britain led to queues of lorries miles long stuck near Dover.
Toyota said it had decided to bring forward the “planned seasonal stop” at its engine plant in Deeside in north Wales and its factory at Burnaston in Derbyshire, where it makes the Corolla. About 3,000 people are employed at the two plants.
The Deeside site will close for Christmas on Tuesday and the Burnaston plant on Wednesday. Its French site will also stop production two days earlier than planned.
The European factories would ordinarily have closed for an annual shutdown on Christmas Eve and remained shut until 4 January.
The car manufacturer said it had taken the decision “in light of the traffic bans that a growing number of countries have issued for travel from the UK and due to the uncertain nature of how long the borders will be closed for logistics activities.”
US futures are also edging into positive territory amid the European relief rally.
S&P 500 futures are marginally higher, up 0.05%. Nasdaq futures are the standout, of course, up 0.2% as investors bet that tech stocks will remain immune to new Covid pressures.
European stocks are surging ahead:
- FTSE 100 is up 0.6%
- FTSE 250 is up 1.3%
- Germany’s DAX is up 1.3%
- France’s CAC 40 is up 1.3%
- Italy’s FTSE MIB is up 1.2%
Some of yesterday’s biggest fallers on the FTSE 100 are now topping the index, pointing to a relief rally and investors taking advantage of cheaper prices.
They include UK banks like Lloyds, NatWest and Barclays - which suffered on Monday amid fears that their customers might struggle amid a prolonged recovery and supply chain disruption.
British Airways owner IAG is the largest riser, up over 4% amid hopes that borders might reopen to UK arrivals.
FTSE 100 turns positive
The FTSE 100 has reversed its losses and is now trading higher by 0.2% at 6,430 points.
The FTSE 250 is up more than 1%.
The prospect of France potentially easing its border restrictions with Britain this morning, the revised UK government borrowing figures, and undoubtedly some profit taking after yesterday’s drop are feeding into a bounce for Britain’s blue chip index.
Investors seem to be finding some encouragement from CNN reports that Pfizer and Moderna are testing their vaccines against the new Covid strain discovered in the UK.
CNN has quoted Modern as saying:
Based on the data to date, we expect that the Moderna vaccine-induced immunity would be protective against the variants recently described in the UK.
We will be performing additional tests in the coming weeks to confirm this expectation.
Meanwhile, Pfizer has said it is “generating data” on how well blood samples from people immunised with its vaccine “may be able to neutralize the new strain from the UK,” CNN added.
UK government borrowing soars to 50-year high
The UK government’s efforts to get the economy moving during the summer months, with moves including the eat out to help out subsidy in restaurants and cafes, had a greater effect than first thought.
However the public finances appear to have taken a bigger hit as a result, with the government’s borrowing soaring to a 50-year high.
The latest figures for the public finances in November showed the public sector net borrowing hit £31.6bn, £26bn more than in November 2019, which the ONS said is both the highest November borrowing and the third-highest borrowing in any month since monthly records began in 1993.
Measures introduced by the government to cut VAT for hospitality firms and forgive business rates payments played a large role in the £3.8bn drop in tax receipts.
The level of borrowing in the current financial year climbed to £241bn, up £188.6bn on the same period last year, pushing the annual deficit to 11.2% of GDP and the figure for general government gross debt to 102.8% of GDP at the end of November.
Chancellor of the Exchequer, Rishi Sunak, said:
As part of our Plan for Jobs we’ve invested £280bn to protect millions of jobs and businesses across the UK.
This is the right thing to do to protect lives and livelihoods during this acute phase of the crisis. When our economy recovers, it’s right that we take the necessary steps to put the public finances on a more sustainable footing so we are able to respond to future crises in the way we have done this year.
UK GDP revised up to 16% for Q3
Britain’s economy staged a faster recovery in the third quarter of the year than was first estimated, following a rapid return to work after the first lockdown, Phillip Inman writes.
The Office for National Statistics said national income, or GDP, increased by a record 16% in the three months to the end of September rather than the 15.5% in its first estimate. This leaves the economy 8.6% smaller than the year before, rather than the 9.7% estimated initially.
A stronger increase in government spending, a boost to the demand for goods and services from a surge in employees returning to work and a small increase in business investment contributed to the improved picture of the economy, the ONS said.
In a move that indicates the panic households suffered following the first lockdown continued to ease in the third quarter, the ONS said the savings ratio - which shows how much people save as a proportion of their income – decreased to 16.9% after reaching a record 27.4% in the second quarter.
Ruth Gregory, the UK economist at the consultancy Capital Economics said the still high level of savings meant there was more scope for households to boost spending in the coming months.
At least the drop in the saving rate left it far above its long-run average of 8.0%. That implies there is plenty of scope for household spending, and GDP, to rebound strongly once the restrictions are lifted.
Investors seem to be snapping up Britain’s domestic stocks that were made cheaper following a 2.1% slump on Monday.
The FTSE 250 is up 0.4% at 19,773 points
FTSE 100 slips at the open
UK stocks are the odd ones out, falling further into the red while European stocks rise at the open.
Here is a snapshot of the initial prints:
- FTSE 100 is down 0.4%
- Germany’s DAX is up 0.5%
- France’s CAC 40 is up 0.3%
- Spain’s IBEX is up nearly 0.4%
Introduction: UK battling to reopen borders shutting to new Covid strain
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
UK stocks are set to come under pressure this morning as the government deals with the fallout of the new Covid strain, which has prompted more than 40 countries to shut their borders to Britain, and raised concerns about how quickly supply chains will come under threat.
Prime Minister Boris Johnson has been scrambling to reach a deal with France that would re-open the border between the two countries to freight by Wednesday, having been shut since Sunday. An announcement is expected later this morning.
The UK is also under pressure to impose another nationwide lockdown across England to bring the new strain - which is more easily transmitted between people - under control.
Oil prices are taking a hit on the prospect of a more drawn out recovery. The news agenda has sent Brent crude futures are down 1.6% at $50.08.
The FTSE 100 is also expected to drop at the market open, after nearly £30bn was wiped off the value of the blue chip index on Monday. However, the fall is not expected to be as severe.
European Opening Calls:#FTSE 6380 -0.56%#DAX 13264 +0.14%#CAC 5403 +0.18%#AEX 610 +0.10%#MIB 21448 +0.18%#IBEX 7803 +0.17%#OMX 1848 +0.17%#STOXX 3457 +0.24%#IGOpeningCall
— IGSquawk (@IGSquawk) December 22, 2020
Britain’s growing isolation has been viewed as a test run for Brexit, if leaders fail to reach a deal. Overnight, Downing Street made a major counter-offer on fishing access for EU fleets in British waters to break the deadlock, raising hopes of a deal before Christmas.
The UK chaos has overshadowed relief that US lawmakers have passed a $900bn pandemic relief package that will deliver long-awaited cash to businesses and individuals, and ensure resources are in place to roll out the vaccine across the country.
The agenda
- 1.30pm GMT: US Q3 GDP (final) & Core PCE price index for Q3
