- Sterling leaps to highest level since July as Juncker says Brexit deal can be reached
- European equity flat, FTSE dips under currency pressure
- RBS names Alison Rose as new boss
- Thomas Cook’s survival battle hit by £200m demand
- Ryan Bourne: The Tories should appoint a Bank Governor to box in Jeremy Corbyn
Markets facing ‘tug-of-war’ next week
Saxo Bank’s Peter Garny says thing could swing either way on the markets next week, once the glow from a week on central bank action has faded. He writes:
The FOMC smelled of missed opportunity for the Fed to get ahead of the curve and the complacency on the US-China trade war and recently ongoing stress in the USD repo market. Despite this backdrop US equities are close to all-time highs as we leave this central bank week and preparing for next week which will be very exciting on the macro release front. Most notably the Eurozone and US flash PMIs on Monday will move the market and for rates traders the US PCE inflation (Aug) figure on Friday will be an important data point.
We suspect next week to be a tug of war between the bulls and bears in equities. If the S&P 500 futures manage to climb to new all-time highs, then we expect shorts to vanish like water in the Sahara. This will clear the path for higher equities despite the muddy macro picture. While remain negative on macro we cannot ignore the technical price action.
Correction: My previous post is of course supposed to say “make fourth” in the headline, not “make forth” — which is also arguably viable but undoubtedly pretentious. Please refresh the page to see the altered version!
Federal Reserve to make fourth foray into money markets as it tries to stem repo rates
The Federal Reserve Bank of New York will thrust its hand into the plumbing of American finance for the fourth day on the trot tomorrow, as it tries to prevent further clogging in the stretched money-lending market.
The NY Fed, acting on behalf of the main Fed, will once again take $75bn to the markets in order to try and reduce the repurchase rate, which shot above its target earlier this week.
Here’s Ambrose Evans-Pritchard’s report from yesterday, after the Fed’s third cash trip received an overwhelming response:
The upheaval points to mounting stress in core parts of the US financial system and suggests that the Fed’s quarter point cut in interest rates this week did not go far enough to bring the bond markets back into equilibrium. At the very least it raises serious questions about the central bank’s monetary toolkit.
The New York Fed injected an eye-watering $75bn on Thursday into the overnight “repo” markets – a normally obscure but crucial element of US financial plumbing. Even that was not enough as the operation was oversubscribed.
Report: No-deal Brexit could push Scottish economy into recession
The latest Scottish State of the Economy report says the country could slip into a recession if the UK exit the European Union without a deal.
Scotland’s chief economist Gary Gillespie found:
- output growth contracted in the second quarter of the year reflecting the unwinding of stocks built up in advance of the original March Brexit deadline
- Scotland’s labour market continues to perform strongly by historical standards, however unemployment has increased in recent months
- prolonged Brexit uncertainty continues to impact business investment in Scotland, posing a significant risk for future output growth and productivity
- consumer and business sentiment remains weak in Scotland with households concerned about the economic outlook
- the Scottish economy is generally forecast to grow at a slower pace in 2019 (assuming a smooth Brexit transition)
- ‘no deal’ Brexit remains a live risk which could push the Scottish economy into recession in 2020
Economy Secretary Derek Mackay said:
Following the publication of GDP figures this week, this report is another warning of the worrying impact that Brexit uncertainty is already having on the Scottish economy and the risks it presents for the future.
There is no doubt that any form of Brexit will damage our economy and a ‘no deal’ would be disastrous for Scotland and could push the country into recession.
Here’s more on Scotland’s finances, by economics correspondent Tom Rees:
Climate strikes begin across globe
Many UK workers are expected to join walkouts today, as part of the largest climate strike in history:
Some of Friday’s first protests were held in Australia, where an estimated 300,000 people gathered at more than 100 rallies calling for action to guard against climate change, with further demonstrations held across parts of Asia.
Protesters joining the climate strikes in Britain can expect a day of unseasonably warm weather as they call on businesses and politicians to cut emissions.
Here are some photos from so far today:
Consumer champion passes £500,000 milestone
A big milestone beaten for the Telegraph’s consumer champion, Katie Morley:
SPECIAL ANNOUNCEMENT 🚨🚨🚨This weekend will be the first big milestone for the Katie Morley Investigates column. Following five more victories on Sat & Sun, I will have won back £500,000 for @Telegraph readers in under 4 months💪🏻 Next stop £1 million…Keep reading! #buyapaper
— Katie Morley (@KatieMorley_) September 20, 2019
Barclays: New Marks & Spencer store format offers ‘enhanced shopping experience’
Analysts from Barclays are among those to check out Marks & Spencer’s new-format, food-only store in Clapham Junction, as the company tries to adapt to challenging market conditions.
massive transformation of the m&s store on northcote road in Clapham junction. Used to be an old pretty hideous looking store. swish looking now. Clothing and home gone – all food now. A Waitrose over the road… bring on the food war…. pic.twitter.com/UCzHjP9cLR
— Deirdre Hipwell (@DeirdreHipwell) September 16, 2019
The Clapham Junction store features a number of new innovative concepts aimed at further enhancing customers’ shopping experience. Most noticeably, the branch, to our knowledge, is the first major UK supermarket bringing ‘urban farms’ to an in-store setting. Allowing customers to pick herbs from the ‘farm’ not only increases freshness but also adds an element of theatre to the shopping trip.
Barclays kept its rating on the stock as neutral, but analysts said the retailer’s progress on its food sector — which has tended to outperform its more troublesome clothing operation — is likely to be an important part of M&S’s next update to the City.
Corporate round-up: Smiths Group, Hurricane Energy and Investec
It’s a fairly quiet day on the UK corporate announcement front, but here’s what you need to know:
- Smiths Group (FTSE 100) is up narrowly, after saying it was on course to grow ahead of the market across the medium term. It continued to grow across the full-year, continuing a return to the black from the year before.
The diversified engineering firm report an adjusted pre-tax profit rise of 13pc. Jefferies analysts said: “In general, the performance in 2H19 looks satisfactory in the round”, adding: “ The outlook for FY20 is satisfactory but not inspiring, in our view
- Investec (FTSE 250) is down more than 5pc, after the dual-listed, South Africa-based banking group issued a warning over its first-half profits. It said its specialist lending business in the UK would underperform significantly due to the “persistent uncertainty” of Brexit and trade tensions.
- Hurricane Energy (AIM 50) is down nearly 2pc, after falling to a loss after tax for the half year. It said its Greater Warwick Area drilling programme would begin shortly.
Climb puts pound on track for biggest winning streak since January
Bloomberg notes that if sterling can hold its gains to the close of trade today, it will be the pound’s biggest streak of gains since January. The currency is on course for three weeks of successive gains, after reaching a nadir at the start of the month.
Analyst: Sterling looks attractive because fading no-deal risk was priced in
FxPro analyst Alex Kuptsikevich has taken an interesting longer-term look at the pound’s trends.
Without cracking out his crystal ball on where we will go from here politically, he suggests the pound is recovering because the impact of no-deal — which markets are seeing as a fading possibility — had already been fully priced-in. He writes:
During September, the British pound is struggling to get out of the pit where it fell on the fear of no-deal Brexit. This decline sent GBPUSD in August and early September to levels that had not been consistently achieved since 1985. However, it also probably attracted the interest of speculators who consider the current historically low levels as an excellent opportunity to buy over-sold British currency.
The turning point was September 3, when an intraday drop of almost 1pc during the London session was actively bought back. It buyback resulted in an exchange rate jump by the at the end of the day and leading to an even more powerful surge the next day.
It is hardly possible to consider that it is all about the mysterious insiders or smart traders who calculated the chances of Boris Johnson to come round Parliament and getting out of the EU exactly on October 31, with or without a deal. In our opinion, the pound was oversold by that time so much that it just had no room for further decline. The most destructive scenario for the economy was, probably, already priced in the historically low exchange rate.
SpreadEx’s Connor Campbell adds:
Sterling’s feeling brave. The currency is clinging to its optimism regarding Brexit, with some overnight comments from Jean-Claude Juncker causing it to shoot higher…
…It’s not shaping up to be the most thrilling session, in what has turned into a rather damp squib second half of the week, the markets struggling for direction following the Fed’s mixed bag statement on Wednesday evening.
Where did it all go wrong for Thomas Cook?
Thomas Cook shares are down almost 20pc today — though they’re already at a pitiful 3.2p, having been worth around £1.20 as recently as early last year.
My colleague Nick Trend has taken a look at the travel giant’s fall from grace. He writes:
When I started out in journalism nearly 30 years ago, a good deal of its historic reputation was intact. The company was celebrating 150 years since its first trip for a group of 500 teetotallers – to a temperance rally in Loughborough in 1841. I remember tracing the spectacular growth of the company, which soon expanded in Europe and then initiated the first around-the-world cruises. Among the many innovations Thomas Cook introduced were rail passes, hotel vouchers and travellers’ cheques.
Sterling is continuing its strong performance against the euro and the dollar.
The climb began after markets closed yesterday, when Sky News released an interview in which European Commission president Jean-Claude Juncker said he still believes the UK and EU can reach a deal before Halloween.
Here’s what the longer-term picture looks like (with approximate figures).
Analyst: ‘Still unlikely’ a Brexit deal can be reached by the deadline
Reacting to this morning’s market moves, OANDA’s Craig Erlam says:
Stock markets across Europe are marginally lower as we head into a more peaceful end to the week, one that has been dominated by central banks around the globe.
The pound has jumped at the end of the week after outgoing European Commission President Jean-Claude Juncker sounded optimistic about the prospects for a Brexit deal. This came after Johnson gave a new proposal to Juncker that he believes could break the deadlock and at least gave the impression that the commission will consider alternative ideas.
Unfortunately, this late in the day, it’s still unlikely that a new agreement can be reached without an extension. Perhaps that’s why officials on the EU side are making a conscious effort to sound more open to a deal, as they don’t want to fall into the trap of sounding dismissive and being blamed for any no-deal eventuality, which plays into Boris’ hands.
Where will the Bank of England move next?
Following the Bank of England’s decision to (yet again) hold interest rates yesterday, what will the next move from its Monetary Policy Committee be?
That was the question on everyone’s mind on Thursday, but the answer is unlikely to be simple. Policymakers at the central bank were clear on one thing: the future is unclear.
Despite signs of global gloom, they said it was better to wait out the coming months and see what Brexit brings, rather than making the ‘pre-emptive’ cut that some have demanded.
- Read more here: Bank of England gloomier on growth but refuses to join Fed in cutting rates
Deutsche Bank’s Sanjay Raja says:
The MPC noted that a further Brexit extension would result in entrenched uncertainty, increasing slack (i.e. excess supply) – which would keep growth below potential — resulting in a softening in domestically generated inflation. What does this mean for policy? Barring a deal by 31 October, we now see the MPC moving towards an easing bias.
For some investors, the prospect of turbulence-induced interest rate cuts presents an opportunity — which a record number of bets placed on changing economic policy:
Thomas Cook dealt fresh blow in battle for survival
And here’s a more unhappy RBS story: Thomas Cook’s battle to avert collapse has been dealt a blow after lenders led by the bank asked for an extra £200m injection. My colleagues Oliver Gill and LaToya Harding report:
A 17-strong banking syndicate led by Royal Bank of Scotland have asked for an additional £200m of additional underwritten funds despite the 178-year-old company being in the final throes of restructuring led by Chinese conglomerate Fosun.
The request is understood to have angered those at the company, with insiders believing that RBS is forcing the 178-year-old firm towards collapse.
- You can read their full report here: Thomas Cook’s survival battle hit by £200m demand
Alison Rose named new boss of RBS, becoming first woman to hold top job at a big UK bank
RBS lifer Alison Rose is to become the first woman ever to run one of Britain’s biggest banks after the taxpayer-controlled lender confirmed her hire as chief executive. Banking Editor Lucy Burton reports:
The bank finally broke its silence on Friday by announcing that internal frontrunner Ms Rose will replace Ross McEwan in November. Mr McEwan, who resigned in April and is taking the reins at National Australia Bank (NAB), will stand down on October 31.
Ms Rose was understood to have been informally selected by the lender’s board over a month ago but the bank has been waiting for regulators to sign off on the decision.
- Read more here: RBS names Alison Rose as new boss after weeks of speculation
What happened overnight
Asian share prices inched higher on Friday as economic stimulus around the world eased fears of economic deceleration, while crude oil prices climbed on concerns that last weekend’s attacks on Saudi Arabia’s oil facilities still pose supply risks.
On Thursday, the S&P 500 ended flat, staying than less than 1pc below its closing record high hit in July while the pan-European FTSEurofirst 300 index also came within sight of this year’s peak.
Japan’s Nikkei rose 0.34pc to come within striking distance of its year-to-date peak.
Asian shares have been lagging global peers in recent months and MSCI’s broadest index of Asia-Pacific shares outside Japan is on course to post its first weekly loss in five, although it rose 0.08pc early on Friday.
In Hong Kong, the Hang Seng Index inched up 8.16 points to 26,477.11 by the break.
Brexit hopes lift pound
Good morning. The pound leapt against the euro and dollar in after hours trading yesterday, following comments by Jean-Claude Juncker to Sky News in which the European Commission President said he believed a Brexit deal is still possible by 31 October.
It was sterling’s highest level since July 19th — just before Boris Johnson became Prime Minister. Let’s see if the currency holds its gain today.
5 things to start your day
1) Why Brexit may trigger a rate rise as other central banks keep cutting: The Fed has now delivered two cuts, the European Central Bank has served up a buffet of negative rates, loans and money printing, and the Swiss National Bank has tweaked its framework for negative rates – opening the door to them being lowered further still.
2) Excessive gloom over a ‘no deal’ Brexit could end up harming the economy if it stops the Treasury spending money or the Bank of England from cutting interest rates, according to Gerard Lyons, a contender to run the Bank. He fears that officials will slash growth forecasts too much, limiting room for the Chancellor to spend money, or forcing up inflation predictions and so pushing the Bank to raise rates.
3) A drastic shortage of liquidity in US funding markets has forced the Federal Reserve to intervene for a third consecutive day, resorting to measures last seen in the global financial crisis. The upheaval points to mounting stress in core parts of the US financial system and suggests that the Fed’s quarter point cut in interest rates this week did not go far enough to bring the bond markets back into equilibrium.
4) Investors are placing record bets that interest rates will shift in a no-deal Brexit: The number of short options taken out on UK interest rates moves has hit an all-time high, as traders look to bet on — or hedge against — a shift in monetary policy if Britain crashes out of the EU without arrangements in place.
5) The competition watchdog said JD Sports’ £90m takeover of Footasylum could lead to “higher prices”and “worse choice” for shoppers, but fell short of explaining its reasons in more detail. The Competition and Markets Authority (CMA) started scrutinising the deal in May, two months after JD Sports swooped on its smaller rival.
Coming up today
Preliminary results: Smiths Group
Interim results: Hurricane Energy
Trading statement: Investec
Economics: Consumer confidence (eurozone)