Pound rallies after Mark Carney drops rate hint; Bundesbank warns over eurozone growth - Business Live
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Version 0 of 1. 5.38pm BST17:38 Markets rise as Ukraine tensions ease Global markets have made a good start to the week, helped by hopes of a resolution to the crisis in Ukraine and despite tensions elsewhere, notably in Iraq and Gaza. Nick Fletcher’s latest market report has details but here are the closing scores: In the US, the Dow Jones Industrial Average is currently up just over 1% or 176 points, while the pound is at $1.6720. On that note, it’s time to close up for the evening. Thanks for all your comments and we’ll be back tomorrow. 3.02pm BST15:02 Afternoon summary I’m afraid it’s a rather quiet afternoon, so here’s a recap. Two MPs have accused the Bank of England of making a secret pact with the Treasury not to raise interest rates before next May’s general election. City of London MP Mark Field, a Conservative, claimed there is a “political imperative” to keep rates low. He said: “From the moment Mark Carney became governor in July 2013, it was pretty clear forward guidance was an indication rates would not rise this side of the election – for all the talk of Bank of England independence, there was a clear bargain between him and George Osborne.” “In my view, politically nothing has changed. What is best for Carney is not to have running commentary – which Kremlinologists in the City try to work out… the political imperative is to keep rates as low as possible.” Labour’s John Mann has added his weight, saying the BoE wants to delay rate rises until just after the election. The Treasury and the BoE deny the claims, insisting that Threadneedle Street is taking decisions without political interference. Sterling has gained value today, after governor Mark Carney reignited speculation that interest rates could rise this year. He told the Sunday Times that the first hike in borrowing costs could some even if real wages remained negative (ie, were rising less fast than inflation). That pushed the pound up by 0.4 cents against the US dollar, to $1.673. Carney’s comments have baffled some in the City; only last week, the Bank indicated that it was unlikely to start raising rates until real wages were rising. Stephen Lewis of ADM Investor Services reckons Carney is trying to keep the markets guessing. He wrote: Any forward guidance Mr Carney now gives suggesting interest rates will not rise this side of the election would run the risk of confirming suspicions the rate decision had been politicised. That gives the BoE Governor strong reason to slap down market expectations whenever they begin to veer towards the first rise in rates being delayed until well into 2015. Michael Hewson of City firm CMC Market fears that the Bank of England is losing its grip: In fact it would appear that the only thing Mr Carney and the MPC are increasingly certain of, is that the outlook is uncertain, and that they have no more of a clue than the rest of us, which isn’t exactly comforting. Economics editor Larry Elliott says the comments could suggest the minutes of the last MPC meeting, due on Wednesday, will show a split (either that or Carney is floundering). In other news: Germany’s Bundesbank has admitted that eurozone growth will be weaker than expected this year. The eurozone trade surplus has widened, led by Germany A bidding war has broken out over American discount chain Family Dollar. Holiday airline Monarch is cutting up to 1,000 jobs Nationwide has reported a surge in profits, but a drop in mortgage lending And boardroom pay continues to outpace the rest of the economy, with the typical CEO earning almost 150 times their average workers. What’s to be done? Updated at 3.06pm BST 2.48pm BST14:48 Shares have risen on Wall Street at the start of trading, as investors respond to the easing in geopolitical tensions (see earlier). The Dow Jones has risen by 104 points to 16768, up 0.6%. And the tech-heavy Nasdaq has gained 0.5% to its highest level since 2000, at the end of the dot-com crash. Markets Now: Nasdaq hits a new 13+ year high and the Dow is up 100 points. • http://t.co/qrbfWBTkov European markets are also holding onto this morning’s gains - with the FTSE 100 up 44 points at 6733, and the French and German markets up around 1.3%. 2.09pm BST14:09 Second MP accuses Bank of England of secret deal over rates The bandwagon is rolling..... A second MP has accused the Bank of England of holding back from raising interest rates until after next May’s general election. Labour MP John Mann, who has clashed with Mark Carney in the past, said: “It is abundantly clear that Mark Carney is attempting to delay interest rate increases until after the election when they rise immediately.” (via the Evening Standard) Mann’s comments echo those of Mark Field, Conservative MP for the City of London. The Bank and Treasury continue to insist, though, that Britain’s central bank is completely independent. John Mann probably wasn’t close to Mark Carney’s Christmas card list -- last November, the governor appeared quite offended after Mann said he was too close to George Osborne, and was playing with politics by talking up the UK economy. Updated at 2.09pm BST 1.46pm BST13:46 Workers at UK holidays airline operator Monarch have been hit with the news that up to 1,000 jobs are being cut. Monarch is shrinking its workforce by a third, and reducing its aeroplane fleet, as it reinvents itself as a scheduled European budget airline. More here: Monarch to cut 1,000 jobs as airline seeks take off as low-cost carrier 1.37pm BST13:37 Larry Elliott: Carney's credibility is on the line There is another theory to explain Mark Carney’s latest zig-zagging; the governor may be preparing us for Wednesday, when the minutes of the Bank of England’s monetary policy committee’s most recent meeting are released. There’s a decent chance that at least one MPC member voted to raise interest rates -- which would be the first split since 2011. Our economics editor Larry Elliott writes: It was clear from last week’s Inflation Report that there is division on the MPC about the amount of spare capacity in the economy and the rate at which that slack is being used up. That’s the best gloss that can be put on the governor’s latest pronouncement. It would now be a real surprise – and a blow to Carney’s credibility – were the minutes to show a 9-0 vote in favour of keeping borrowing costs unchanged. Why? Because a split vote would mean that the governor was putting the markets on notice for a hawkish set of minutes. A unanimous vote would give the unfortunate impression that he is making it up as he goes along. Perish the thought.... More here: Why is Mark Carney keeping financial markets guessing on timing of rate rise? 1.19pm BST13:19 Over in America, a takeover battle has broken out in the discount store world: Bidding war for Family Dollar begins as General tries to trump Tree http://t.co/AfUIa6olVy 12.55pm BST12:55 Stephen Lewis: Carney's nightmare scenario (of his own making....) Stephen Lewis, chief economist of ADM Investor Services, has published an interesting note on UK interest rate policy and Mark Carney’s suggestion that borrowing costs could rise before real incomes recover. He explains that Carney now faces a “nightmare scenario”, in which his data-dependent forward guidance is being scrutinised for signs that political pressure is keeping rates down (as MP Mark Field claims today). Lewis reckons, therefore, that the governor is trying to scupper the idea that rates definitely won’t rise in 2014, given the weak outlook for earnings: If it became the common belief that the BoE’s decisions had been politicised, the result might be extremely damaging to the credibility of the BoE’s monetary policy. It might appear that we were back to the ‘bad old days’, pre-1997, when Chancellors expected to have input into interest rate decisions. It would, indeed, be worse than that because at least the so-called ‘Ken and Eddie Show’* that preceded the operational independence that Mr Gordon Brown accorded to the BoE was conducted in public, and not under wraps. Mr Carney has probably been well aware from the outset that, since his salary and accommodation allowance are almost three times the remuneration of Lord King of Lothbury, his predecessor, it would be especially important to distance himself from the Chancellor who had appointed him. The BoE has strenuously denied any secret pact with the Treasury over interest rates. The Treasury has also issued a statement confirming the BoE’s independence. Nevertheless, any forward guidance Mr Carney now gives suggesting interest rates will not rise this side of the election would run the risk of confirming suspicions the rate decision had been politicised. That gives the BoE Governor strong reason to slap down market expectations whenever they begin to veer towards the first rise in rates being delayed until well into 2015. His weekend statement that rates could rise, even if real incomes do not, keeps alive, at least notionally, the MPC’s option of raising interest rates before the general election, in February next year or even as early as November this year. In short, Mr Carney has become a central bank head, committed to forward guidance, who would prefer to keep everyone guessing regarding future policy-actions. Osborne and Carney hit by interest rate stitch-up row http://t.co/cwccM6ZtKZ via @CityAM * - that’s Ken Clarke, chancellor of the exchequer from 1993-1997, and Eddie George, the governor of the day. Lewis concludes that the BoE could ease the tension with a small rate rise soon, if it thinks the economy can bear it, saying: After all, a rate hike in the near future, even if not followed by another any time soon, would take the question of when the BoE starts to tighten off the table. However, confidence is probably fragile, and could become more so if, as we expect, the UK economy slows significantly in the remaining months of this year. The window of opportunity for such bold tactics is already closing. But politics IS a factor – even without a secret pact with George Osborne, the Bank might not fancy raising borrowing costs shortly before the nation heads to the polls in May 2015. “Despite Mr Carney’s weekend comment, the odds still weigh on the side of the first rate hike’s happening later rather than sooner,” Lewis concludes. Updated at 2.51pm BST 12.11pm BST12:11 Sterling boosted by Carney's comments Reuters has a good summary of the pound’s mini-rally this morning: Sterling was the main mover on major currency markets on Monday, recovering from last week’s multi-month lows after the Bank of England said interest rates might have to rise before wage inflation picks up. The dollar, knocked back last week after a strong run since early July, was roughly steady against the yen and euro and a basket of currencies used to measure its broader strength, hampered by U.S. Treasury yields that were close to 16-month lows. Sterling rose after BoE Governor Mark Carney said in a newspaper interview that UK rates may have to increase even before the growth of real wages recovers, backtracking from comments last week that suggested the opposite and prompted markets to push back bets on a first hike. “The comments in the (Sunday) Times were definitely a surprise to markets and that’s what is behind this move this morning,” said Adam Myers, head of European FX strategy with Credit Agricole in London. The pound has taken a hammering over the past month, hurt by the suspicion that all of the best news on the UK economy has been priced in and that the bank might not be quite as quick as some had expected to raise rates. After a sixth straight weekly loss against the dollar, it gained around a third of a percent against the euro and the dollar in early European deals, trading at 79.97 pence per euro and $1.6733. 11.59am BST11:59 City trading firm Abshire-Smith says Mark Carney risks confusing the markets by changing the tone of his comments over monetary policy. They agree that Sunday’s newspaper interview is rather more hawkish than the governor’s comments at last week’s inflation report. As traders attempt to gauge the timeline of interest rate hikes, the contradictory comments has led to criticism of Carney. Is the central bank governor playing a dangerous game of leaving the base interest rate at a record low at the risk of inflation, while verbally confusing traders? More here: Is Mark Carney Confused? 11.47am BST11:47 Back on housing.... this chart shows how annual price growth in the UK and US has eased a little this summer, while China’s economy has been cooling for some months: China's home price growth vs. U.S., U.K., South Korea & Australia: pic.twitter.com/PxCm4R7TUG 11.44am BST11:44 Nationwide profits soar as mortgage lending dives http://t.co/GsJnKpPE37 11.14am BST11:14 Bundesbank: eurozone will grow more slowly than expected Germany’s central bank has admitted that the eurozone economy is performing more poorly than previously anticipated. In its latest monthly report, the Bundesbank predicted that the eurozone will grow in the rest of 2014, having slumped into stagnation in the April-June quarter (as we learned last week), but at a slower rate. It says: Following second-quarter stagnation, the euro area is looking at a resumption of positive economic growth, albeit not at the pace predicted by many analysts in the spring. The Bundesbank also admitted that the outlook for Germany’s economy (which actually shrank in the last quarter) is less rosy than predicted in the spring. Sentiment in the German economy has deteriorated, it said, but the overall trend for domestic demand remains “upwards”, meaning “the economy will not change direction”. More details: @mhewson_CMC seriously, what does that even mean? Bundesbank: the lending business of banks in Germany experienced a clear expansion in the second quarter of 2014 Updated at 11.26am BST 10.59am BST10:59 Eurozone exports to Russia are down 14% so far this year, the latest trade data shows: #Eurozone trade: Russia's weakness slowed the export-led recovery even before #MH17 escalation http://t.co/nVdwCOxW7e pic.twitter.com/L55goY3YnT 10.43am BST10:43 Eurozone trade surplus widens Despite sliding close to recession, the eurozone continues to run a significant trade surplus with the rest of the world. Eurostat reports that the euro area ran a surplus of €16.8bn in June, up from €15.7bn in June 2013. Exports are up by 3% year-on-year, while imports only rose 2%. Imports have been steadily lagging since the eurozone crisis erupted, reflecting the drop in domestic demand in weaker members of the currency union, especially those hit by austerity. Germany, unsurprisingly, has posted the biggest surplus so far this year -- at +€84.0bn in January- May 2014, followed by the Netherlands with +€25.2 bn), then Ireland and Italy (both +€14.1 bn). Across the EU, the United Kingdom (-€48.1 bn) registered the largest deficit, followed by France (-€30.4 bn), Spain (-€10.1 bn) and Greece (-€8.8 bn). Of all countries in the EU, the UK had the worst trade deficit over Jan-May period. Next worse was France. @minefornothing Exactly my point. The UK's trade deficit is to a considerable extent driven by the Eurozone's problems. 10.35am BST10:35 Correction: that should read $102.13 per barrel of Brent Crude.... 10.18am BST10:18 The oil price has fallen this morning, amid hopes that the Russia-Ukraine talks in Berlin could deliver progress. Brent crude is down by $1.40 per barrel, to $102.13 (corrected). The latest military action in Iraq also pushed down the oil price. Overnight, Kurdish peshmerga fighters regained control of the strategically important Mosul dam from ISIS fighters, helped by US air strikes. Some economists had feared that geopolitical crises would cause the oil price to spike, wiping out global economic growth. However, other analysts have warned that a lower oil price will hurt Russia’s economy, by eroding the value of its exports.... Updated at 10.34am BST 9.51am BST09:51 Alastair McCaig, market analyst at IG, says the BoE governor is “up to his old tricks again”, after indicating that the Bank might not wait for wages to outpace inflation before raising interest rates. He says: Similarities between George Clooney and Mark Carney have often been noted, and the Canadian’s latest avoidance tactics when it comes to commitment would no doubt get George’s seal of approval. Not that the future Mr Alamuddin is an unreliable boyfriend, of course! 9.34am BST09:34 Adam Myers, head of European FX strategy with Credit Agricole, confirms that Mark Carney’s latest guidance on interest rates have caught traders out again. Myers says (via Reuters): “The comments in the (Sunday) Times were definitely a surprise to markets and that’s what is behind this move this morning,” The pound has now gained 0.4 of a cent against the US dollar, to $1.6732. Not a massive move, of course, but it does take sterling away from the four-month low hit last week. 9.24am BST09:24 What are we going to do about executive pay? A new survey of boardroom remuneration has found that the average FTSE 100 boss took home almost 150 times as much as their average employee last year. And some well-known businessmen really coined it, as my colleague Juliette Garside reports: WPP founder, Sir Martin Sorrell, received nearly £30m last year, 780 times the £38,000 earned by his average worker. At Next, Lord Wolfson received £4.6m, while his staff, most of whom work on the shop floor, typically took home £10,000 – about 459 times less than their boss. Full story: CEOs earning 143 times more than company averages, pay study shows Defenders of the free market would probably claim that Sorrell and Wolfson are worth every penny (they’ve both done a pretty decent job over the years, to be fair). But such whopping pay packets, when average real wages are shrinking, will only drive income inequality (and leave a little less in the pot for shareholders too). Could a pay cap, limiting bosses to a certain multiple, be the answer, or would it just drive bosses overseas? Poll: should the UK introduce a pay ratio ceiling to curb executive pay? Updated at 9.24am BST 9.02am BST09:02 Nationwide reports dip in mortgage lending UK building society Nationwide has given a signal that Britain’s housing market is cooling, even as it counts the profits from the recent boom. Nationwide reported that gross mortgage lending in the last quarter dropped by almost 10%, to £5.8bn from £6.4bn a year ago. It cited new affordability tests introduced this spring, which had “impacted” customer behaviour. As flagged up earlier, online estate agent Rightmove reported that average asking prices fell 2.9% this month, the biggest fall since at least 2001. Rightmove reports that the average asking price for a house in England and Wales has fallen by 2.9% over the last month. Rightmove reports that house asking prices in London fell by 5.9% over the past month. The prospect of interest rate rises may also have hit demand, of course – with potential housebuyers trying to anticipate when, and how, borrowing costs will rise. It’s been a decent quarter for Nationwide otherwise, though. Underlying earnings more than doubled in the three months to June 30, to £263m. It’s a similar tale at housebuilder Bovis Homes this morning – it reported a 150% rise in pre-tax profits to £49.4m in the half of 2014. 8.44am BST08:44 Mark Carney’s hint that interest rates could rise even if real wages are still shrinking won’t comfort those who already fear the Bank of England hasn’t got a grip on the situation. So reckons Michael Hewson of CMC Markets, who comments: Last week the governor of the Bank of England and the MPC were accused of being clueless on a scale of certainty and cluelessness about the state of the economy, which prompted Carney to respond that the range was probably between perfect certainty and perfect uncertainty. Those weekend comments will only add to the perception of a conflicted central bank. In fact it would appear that the only thing Mr Carney and the MPC are increasingly certain of, is that the outlook is uncertain, and that they have no more of a clue than the rest of us, which isn’t exactly comforting. 8.31am BST08:31 8.25am BST08:25 European markets rise in early trading A flurry of optimism over the Ukraine crisis has pushed up European stock markets at the start of trading. The German DAX and French CAC both jumped almost 1.5%, while the FTSE 100 index is up 48 points, gaining 0.7% to 6737. Investors are hoping that today’s meeting between Russian and Ukrainian foreign ministers in Berlin could deliver a breakthrough to calm geopolitical tensions in the region. It’s not a given, though - Ukraine’s Pavlo Klimkin has already tweeted that “the talks will not be easy.” European equities generally, but the Dax specifically, are off to a good start on Ukraine/Russia optimism. The Dax is now up 1.7% at 9243. 8.09am BST08:09 Bank of England denies political 'pact' to hold interest rates down The Bank of England has robustly denied that there is a secret “stitch-up” pact between Mark Carney and chancellor George Osborne to resist hiking interest rates before the election. Conservative MP Mark Field made the remarkable claim to City AM, which understandably slapped it all over page 1. Field, who represents the City of London, declared: “From the moment Mark Carney became governor in July 2013, it was pretty clear forward guidance was an indication rates would not rise this side of the election – for all the talk of Bank of England independence, there was a clear bargain between him and George Osborne.” “In my view, politically nothing has changed. What is best for Carney is not to have running commentary – which Kremlinologists in the City try to work out… the political imperative is to keep rates as low as possible.” The Bank didn’t appreciate its precious independence being dismissed so casually, insisting that there’s never been such an agreement. And a Treasury source dismissed Field’s claim as “utterly false”. Nice front page, though. And finally City AM is leading with claims that Mark Carney and George Osborne have made a pact to hold down rates. pic.twitter.com/uECC2kc7hn Updated at 8.40am BST 7.58am BST07:58 Ilya Spivak, currency strategist at Daily FX, agrees that Mark Carney appears to have changed his tune again... Carney said the economy is “much more than halfway” to full economic recovery and argued interest rates may have to rise before wages, seemingly contradicting rhetoric released in the quarterly Inflation Report just last week. 7.54am BST07:54 Pound up after Mark Carney's latest interest rate warning Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business. The pound is rallying this morning, after the Bank of England governor hinted that interest rates could rise even if British wages haven’t climbed above inflation. Mark Carney told The Sunday Times that workers should prepare for higher borrowing costs even if their own pay packets are still being eroded by inflation. He said: We have to have the confidence that real wages are going to be growing sustainably [before rates go up]. We don’t have to wait for the fact of that turn to do so. More here: Interest rates will rise before real pay stops falling, says Carney That hint is pushing up the value of sterling this morning. The pound has gained 0.3 of a cent, or 0.2%, against the US dollar to $1.6723. GBP trades stronger across the board as BoE’s Carney warns real wages will not have to turn positive before hiking the bank rate from 0.50% Despite the recovery, UK wages are currently growing at their weakest rate since at least 2001 (and actually shrinking if you include bonuses). Last week, the BoE had indicated that rates were unlikely to rise before real wages were growing. That bolstered expectations that the first hike would not come until 2015. So, Carney’s comments to the Sunday Times have prompted a rethink in the City. Once again, the governor appears to be shifting the goalposts -- or living up (down?) to his reputation as an “Unreliable Boyfriend”..... What else is afoot?... It looks like a fairly quiet start to the week. European stock markets are expected to rise, but remain closely linked to events in the Middle East and Ukraine. We get a fresh health-check on the stagnating European economy this morning, when the eurozone trade balance for June is published at 10am BST. And the latest housing surveys have shown property prices falling in the UK and China: Record August slump in house prices with London prices down 5.9% http://t.co/xl7U79y8WX I”ll be tracking the main developments through the day..... Updated at 9.29am BST |