European markets edge higher
World markets are continuing their record runs, unperturbed by Donald Trump’s rhetoric against North Korea at the UN and despite some caution ahead of the latest Federal Reserve interest rate decision on Wednesday.
The MSCI All Country World Index, a broad measure of global shares, reached a new peak of 487.48, while the Nikkei closed just under 2% higher. On Wall Street the Dow Jones Industrial Average and S&P 500 both hit new peaks, while European shares managed to edge higher. The final scores showed:
- The FTSE 100 finished 21.97 points or 0.3% higher at 7275.25
- Germany’s Dax edged up 0.02% to 12,561.79
- France’s Cac climbed 0.16% to 5237.44
- Italy’s FTSE MIB rose 0.27% to 22,425.42
- Spain’s Ibex ended up 0.39% at 10,378.4
- In Greece, the Athens market added 0.27% to 762.86
In the US, the Dow Jones Industrial Average is currently up 0.2% at 22,378, and on track for yet another record close.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
The pound has had an uncertain day.
Initially sterling slipped back in the wake of Bank of England governor Mark Carney’s comments on Monday that any rate rises would be gradual and limited.
But a report that Boris Johnson could resign as foreign secretary before the weekend if his demands over Brexit were not met - although denied - saw the pound jump half a cent to $1.3535. But as the day progressed the currency drifted back from its best levels and is currently up just 0.01% at $1.3495.
President Trump’s speech to the UN had a few hair raising moments, including the threat that the US might have to “totally destroy North Korea.”
But markets seem to be fairly unmoved by this and all of Trump’s other state of the world comments. Wall Street is off its best levels but still up around 16 points and close to its all time highs. Dennis de Jong, managing director of UFX.com, said:
Wall Street opened this morning at a record high and, despite a few concerns over the contents of his speech, Donald Trump’s maiden address to the United Nations hasn’t upset the applecart too much.
While the President continued his hard-line stance on North Korea, the threat of war seems less likely than it did a couple of weeks ago. More importantly for traders, Trump again reiterated his desire to again put America first – continuing the run of confidence in the US market.
The next big milestone for traders is the Fed meeting tomorrow to discuss raising interest rates. While a hike doesn’t seem on the cards until December, any indication that that might be brought forward could see the bullishness of the markets quickly shaken off.
Positive outlook for global growth thanks to QE - Fitch
The outlook for global growth is positive, says ratings agency Fitch, but this could be tempered by the withdrawal of central banks’ stimulus measure. In its latest global credit outlook report, Fitch says:
Global rating outlooks remain on an improving trend and are on balance less negative that at the start of the year across most rating sectors....
However the improving outlook for global credit quality is underpinned by years of loose central bank monetary policy, including quantitative easing, as well as what are now the strongest world growth conditions since 2010.
“Looking ahead in the rating cycle, the most benign credit market conditions in modern history will gradually begin to normalise as central bank assistance is withdrawn and world growth peaks in 2018. This could begin to temper the otherwise upbeat rating outlook trend,” said Monica Insoll, managing director in Fitch’s credit market research team.
Unwinding QE will pose challenges to both borrowers and lenders, including the many sovereigns with post-2000 high government debt-to-GDP levels. With a number of markets appearing to be approaching cyclical peaks, it may also expose potential asset bubbles, including those in buoyant housing markets such as Australia, Canada and some Nordic countries.
The US Federal Reserve has already begun raising interest rates and at this week’s meeting, it is expected to set out plans to unwind its balance sheet and begin selling bonds bought as part of QE. The European Central Bank is also likely to set out plans to move away from QE before too long, while the Bank of England has recently been hinting at the prospect of a rate rise as early as November.
Wall Street hits new peak
Ahead of Wednesday’s decision from the US Federal Reserve on interest rates and the future of its monetary policy, Wall Street has opened at yet new heights.
The Dow Jones Industrial Average is up 0.15% at a record 22,366 while the S&P has edged up 0.12% to a new high. Apart from the Fed meeting, the other main event exercising investors’ minds is President Trump’s speech at the United Nations.
Some disappointing data from the US, just as the Federal Reserve deliberates on interest rates and monetary policy.
The current account deficit - the difference between goods and services flowing into and out of the country - rose from $113.5bn in the first quarter to $123.1bn in the second three months of the year compared to expectations of a figure of $115.1bn. The first quarter figure was revised down from $116.8bn.
Import prices jumped by 0.6% in August, up from 0.1% in the previous month, as the cost of petrol jumped and the dollar weakened.
And housing starts fell for the second month in a row, down 0.8% in August.
Britain's debt time bomb
Following the Guardian’s reports on the debt time bomb, with huge borrowings being racked up by Britain’s most vulnerable consumers, there are calls for an independent inquiry. Phillip Inman and Jill Treanor write:
The chairs of two powerful parliamentary committees have urged the government to set up an independent public inquiry into the £200bn of credit amassed by households, as Britain’s debt crisis raises alarm among senior MPs.
The call by Rachel Reeves, the Labour chair of the business select committee, and Frank Field, the Labour head of the work and pensions select committee, comes as the Conservative-led Treasury select committee plans to hold meetings around the country to examine the impact of debt on individuals and households.
“Debt is a huge emotional burden for people,” said Nicky Morgan, the Conservative MP who chairs the Treasury select committee. She added that “unstable personal finances” often emerged as problems raised by her constituents in Loughborough.
The £200bn of debt amassed on credit cards, personal loans and car deals is now at the same levels it reached before the 2008 financial crisis and there are fears that rises in interest rates could put more households under pressure. Mark Carney, the governor of the Bank of England, warned on Monday that interest rates were likely to rise in response to rising inflation and skills shortages brought on by Brexit that will increase pressure on wages.
Their full report is here:
And here are more reports in our series:
Updated
Sterling has edged higher following a report that Boris Johnson might resign by the weekend if the prime minister does not change her Brexit stance.
It is now up 0.25% at $1.3526, after an initial dip. The Foreign Office has no immediate comment on the Telegraph story, and Johnson told the paper he will not resign. But the ripple in the market shows investors are nervous about the whole Brexit situation. David Cheetham, chief market analyst at online trader XTB, said:
The rise in sterling since the news is modest compared to recent rallies but it shows nonetheless that the markets are closely watching the latest political developments with a keen eye. Recently economic data and monetary policy have usurped politics in driving the pound, but the latest news is a timely reminder that the political situation can quickly become front and centre once more after what has been, since the Brexit vote at least, a relatively prolonged period on the back-burner.
Updated
European stock markets are hovering around six-week highs today, as the City awaits tomorrow’s Federal Reserve meeting.
Britain’s FTSE 100 is up around 0.2%, while Germany’s DAX is down a smidgen.
City economists are still expecting the Fed to leave US interest rates on hold, perhaps until December.
The Fed will also probably outline how it will unwind its huge bond-buying programme.
Jack Flaherty, investment director at asset manager GAM explains:
The Fed finally looks set to announce the normalisation of its balance sheet and we think the necessary reinvestment tapering will begin in October.
It is not likely to change its growth and employment forecasts significantly, though with inflation on the low side of expectations, some of the base line numbers may be adjusted downwards. A rate hike is still on the cards for this year, unless inflation comes in even further below target.
I missed this earlier, but German investor confidence has bounced back in August.
The ZEW Institute’s monthly barometer of financial morale jumped to 17 this month, up from 10 back in August, and much higher than expected.
ZEW president Achim Wambach credited:
““Solid growth in the second quarter, recent big increases in banks’ lending business and growing investment from firms and the state”.
The survey also shows that German investors are concerned about Britain’s economic prospects:
German investors more & more upbeat on Italy, but still gloomy about the UK outlook. From today's #ZEW survey: https://t.co/T34qBGkePa pic.twitter.com/ptzLb4CEdh
— Maxime Sbaihi (@MxSba) September 19, 2017
European construction grows, but UK lags behind.
In other news, a new survey has shown that Europe’s builders cracked on in July.
Construction sector production in the EU rose by 0.5% per month in July, and by 0.2% in the eurozone, Eurostat reports.
It was driven by an increase in building production (such as building new houses), while civil engineering output dropped.
That suggests that construction will provide a positive impact on European growth over the summer, says Claus Vistesen of Pantheon Macro.
"EZ construction will support GDP growth in Q3." @ClausVistesen on Construction/ZEW, Eurozone & Germany, July/September #PantheonMacro
— Pantheon Macro (@PantheonMacro) September 19, 2017
Over the last year, Europe’s construction output has risen by 3.6%. Britain, though, is lagging behind, as the uncertainty created by Brexit weighs on the economy.
Eurostat says:
Among Member States for which data are available, the highest increases in production in construction were recorded in Hungary (+22.6%), Sweden (+21.2%), Poland (+19.8%) and Slovakia (+14.7%). Decreases were observed in the United Kingdom (-1.1%) and Italy (-0.4%).
How zero-hours hit young people hardest
Zero-hours contracts are a particular issue for young workers.
One third of people on “zero-hours contracts” are aged 16 to 24, compared with 11.4% for all people in employment.
Dr Carole Easton OBE, chief executive of the Young Women’s Trust, says this creates insecurity and financial problems for young people, leading to anxiety and mental health issues.
Dr Easton explains:
Budgeting, paying your bills and planning ahead can be impossible when you don’t know how many hours you will be working or how much money you will have coming in each month. For some, an inability to balance precarious shifts with childcare can make working impossible.
Here’s Richard Partington’s news story on today’s data:
Expert: Negative publicity hits zero-hours contracts
The storm of controversy over zero-hours contracts in recent years has forced some employers to ditch them.
Instead, people are being hired on contracts that only guarantee a small number of hours each week - which can then be increased as needed.
Alan Price, employment law director at Peninsula (a HR and employment law firm), explains:
Zero hours contracts have received mass negative publicity regarding their use and the unfair treatment of staff working under these contracts. Large companies, such as McDonalds, have been seeking a move away from these contracts by giving staff the opportunity to request a contract with guaranteed hours, calculated as an average of the hours worked under their previous zero hours contracts. It is likely many other companies are recruiting on similar contracts containing a small number of guaranteed hours and then requesting staff to work extra hours as and when to meet business demands.
Moving away from the name ‘zero hours contracts’ removes the negative connotations associated with these contracts and improves public perception of the company. It can also make recruitment easier by defining available positions as flexible and guaranteed hours, rather than zero hours.
On average, someone on a “zero-hours contract” usually works 26 hours a week, today’s report shows.
They’re also more likely to be female.
The ONS says:
People on “zero-hours contracts” are more likely to be young, part-time, women or in full-time education when compared with other people in employment.
The TUC have welcomed the drop in zero-hours contracts, but also wants more action.
General Secretary Frances O’Grady says:
“1.4 million zero-hour contracts is 1.4 million too many.
“While it’s good that some employers have ditched them as a result of union campaigning, let’s not pretend that life at the sharp end has become easier overnight.
“One in ten UK workers remain in insecure jobs. The spread of low-paid self-employment, agency work and short-hours contracts mean millions are struggling to get by
Updated
The Labour Party says the drop in zero-hours contracts isn’t enough - it wants them banned altogether.
Rebecca Long-Bailey MP, Labour’s Shadow Secretary of State for Business, Energy and Industrial Strategy, says all workers deserve to have guaranteed hours:
“It is a national scandal that there are 1.4 million contracts that don’t guarantee minimum hours, with people stuck in limbo in insecure work, not knowing how much they’ll earn from week to week, unable to budget for basic necessities and unsure if they can even pay the rent.
The Government urgently needs to get a grip on the broken labour market which is rigged against workers and adopt Labour’s policy to ban zero hour contracts.”
Zero-hours contracts: The key charts
This chart from today’s report shows how the number of people on zero-hours contracts appears to have peaked....
..this chart shows that administration, food, accommodation and healthcare companies use them the most...
..and crucially, this charts shows that people on zero-hours contracts are more likely to want more work than other workers.
Updated
UK zero hours contracts fall
The number of people on zero hours contracts has fallen to its lowest level since 2014, suggesting demand for these contracts may have peaked.
A new report from the Office for National Statistics shows that there were 1.4 million contracts which didn’t guarantee any actual work, down from 1.7m a year earlier.
In addition, the number of people working these contracts fell to 883,000 in the three months to June, a drop of 20,000 (as we reported last month).
This could be a significant moment, following criticism of the way that some companies use zero-hours contracts.
Senior ONS statistician David Freeman says:
In May this year there were 1.4m employment contracts in use that didn’t guarantee minimum hours, down from a peak of 2.1m two years previously.
Coupled with figures we’ve already seen from the Labour Force Survey showing a small fall in the number of people who say they’re on zero-hours contracts, it seems possible that the trend towards this type of work has begun to unwind.
1.4mn zero hours contracts in the UK, with 883k people reporting that their main job is on a ZHC. On both measures, numbers lower than 2016. pic.twitter.com/tPhtY6WMXX
— Rupert Seggins (@Rupert_Seggins) September 19, 2017
More to follow....
Updated
It’s a dark morning for Toys R Us.
The world’s biggest toy retailer has been forced to seek bankruptcy protection this morning, in an attempt to tackle its $5bn debt mountain.
Analysts are blaming the move towards online shopping and electronic gadgets, which means fewer families trek to their local toy store for a new board game, ball or bike.
Back in the 90s, every child with a working TV would regularly be told about the delights of Toys R US; a “magical place’ with millions of toys all under one roof. Happy memories....
There are plenty of issues for investors to watch closely this week, from interest rate decisions to Hurricane Maria as it heads towards the British Virgin Islands.
Matt Simpson, senior market analyst at Faraday Research, explains:
With President Trump expected to talk tough on North Korea and Iran during his first U.N. speech today, investors will be keeping a close eye on any repercussions further out.
That we also have two Central Bank meetings [in America and Japan] and the all-important Brexit speech from Theresa May to come this week, means economic data is likely to be less pressing for investors.
There are mixed feelings over the FOMC meeting too, despite high expectations of balance sheet reduction. Investors are aware that Trump has the potential to change the make-up of the Fed over the coming months, which could potentially pour cold water on any plans unveiled this week. So investors are likely bracing themselves for potential political risk around a central bank which is meant to be politically independent.
KPMG won't face sanctions over HBOS audits
Britain’s accountancy watchdog has ended its probe into KPMG over its auditing of HBOS, the bank which failed during the financial crisis almost a decade ago.
The Financial Reporting Council has concluded there isn’t a realistic prospect that a Tribunal would make an Adverse Finding against KPMG.
KPMG had been criticised for signing off HBOS’s accounts in early 2008, just eight months before the bank had to be rescued by Lloyds. Subsequently, HBOS was heavily criticised for its reckless lending policies, which led to billions of toxic loans which sank the bank when the economy weakened.
The FRC has concluded that KPMG’s work “did not fall significantly short of the standards reasonably to be expected of the audit”.
The FRC explains.
In early 2008 HBOS concluded that its financial statements for the year ended 31 December 2007 should be prepared on a “going concern” basis. HBOSdid not expect market conditions to worsen and judged that it would be able to fund itself. The auditor considered and accepted this conclusion. HBOS published its audited financial statements in February 2008 on that basis.
The evidence of market conditions at that time did not show this decision of HBOS or the auditor’s assessment of it to be unreasonable at the time.
KPMG has insisted that it challenged HBOS over its optimistic assumptions, and pushed the bank’s top management to take larger provisions against bad loans (not large enough, though, it turned out)
The pound is rallying this morning, after Bank of England governor Mark Carney dropped another hint that interest rates will rise soon.
Sterling is up 0.3% against both the euro at €1.199, and the dollar at $1.354.
Yesterday, Carney told an audience in Washington DC that “some withdrawal of monetary stimulus is likely to be appropriate over the coming months”. That makes it even more likely that the BoE will act in November.
Although, as economist Sean Richards tweets, Carney has talked the talk before, but not delivered...
He said this in 2014 and 2016 and then CUT interest-rates! #Carney https://t.co/6wsL7Xr57K
— Shaun Richards (@notayesmansecon) September 19, 2017
MSCI’s All Country World Index, a broad measure of global shares, has hit a new record today.
It struck 486.95 for the first time, thanks to the Nikkei’s rally and last night’s Wall Street action.
The agenda: Markets at record levels ahead of the Fed
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
World stock markets are nudging new all-time highs todays, as the bull market shows no signs of running out of puff.
Last night, America’s man stocks closed at new records, again, as investors prepared for Wednesday’s meeting of the Federal Reserve. Both the S&P 500 and the Dow Jones ended at new highs, driven by financial stocks.
The rally comes ahead of tomorrow’s Fed meeting, where the US central bank is expected to leave interest rates unchanged as it plots a path to unwind its stimulus measures without upsetting the markets.
Japan has now joined the rally too. After Monday’s holiday, the Nikkei surged by almost 2% today. Easing geopolitical worries are pulling down the yen (which is good for Japanese exports and will be welcomed in Tokyo).
Speculation that Japanese prime minister Abe might be planning to call a snap election also boosted confidence (not that snap elections always go as planned...).
Abe’s popularity has risen in recent months, so he could strengthen his grip on parliament. Hikaru Sato, a senior technical analyst at Daiwa Securities, says:
“Investors were worried about ‘Abexit’ before, but if he calls a snap election and his ruling party wins, it would strengthen the foundations of his once-weak government base.”
[No, I’m not sure about Abexit either...]
European markets are expected to cling onto yesterday’s six week highs.
$FTSE $DAX $CAC #Eurostoxx futures point lower before the European open. pic.twitter.com/GpISuuXdRG
— Ipek Ozkardeskaya (@IpekOzkardeskay) September 19, 2017
CMC Market’s Michael Hewson explains that investors around the globe are waiting to see what the Fed announces, and says, tomorrow:
US stock markets also continued where they left off on Friday posting new record highs as investors geared up for tomorrows Federal Reserve rate meeting and press conference, with the US central bank expected to embark on the first baby steps on the paring down of its balance sheet.
Despite recent poor US economic data there still seems to be a belief amongst some in the markets that we could see one more rate hike this year, something that may well be borne out by tomorrow’s rate dot plot projections. Whether the projections survive their exposure to the real world of the hurricane clear up of Harvey and Irma is another matter, not to mention the prospect of further hurricanes with the latest in the form of Maria as it moves towards Puerto Rico.
The latest geopolitical situation appears to have settled down for now but with President Trump set to speak at the United Nations later today it wouldn’t be too much of a surprise if North Korea decided to send him a message so to speak, perhaps in the form of another missile test. While the rhetoric appears to have settled down a touch it probably wouldn’t take much to set it all off again.
Here’s our liveblog on Hurricane Maria, which has just battered Dominica:
Traders will also be watching the latest eurozone economic data, to see if Europe’s recover remains on track.
Here’s the agenda:
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10am BST: Eurozone construction output in July. It was stagnant in June, so a recovery would be welcome.
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10am BST: ZEW survey of eurozone confidence. It is expected to improve slightly to 12.3, after sliding to just 10 in August.
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1.30pm BST: US housing starts. Economists predict that 1.7% more housebuilding projects began in August, after a drop of 4.8% in July
Updated
