Mark Carney warns insurance industry that markets may be mispricing risk - business live
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Version 0 of 1. 5.06pm BST17:06 European markets slide again A combination of factors has sent markets tumbling once more. Investors needed little incentive to bail out, and talk of rising UK and US interest rates certainly did the job. Poor US durable goods figures and a rise in weekly jobless claims also helped, while geopolitical tensions were also a factor: the US air strikes on Isis, not to mention talk that Russia was reacting to recent sanctions by considering seizing foreign property and acting on gas supplies to Europe. With all that, the closing scores showed: On Wall Street, the Dow Jones Industrial Average is currently 222 points or 1.28% lower. And on that note, it’s time to close up for the evening. Thanks for all your comments, and we’ll be back tomorrow. 4.23pm BST16:23 Back with Greece, and the acknowledgement that the country is seeking an amicable divorce from the International Monetary Fund has prompted frantic preparations at the Greek finance ministry ahead of next week’s arrival of troika mission chiefs. Helena Smith reports: More than ever, Athens wants the troika to come and go as quickly as possible. Although officials representing the EU, ECB and IMF have signalled they are in no rush to wrap up their review of the economy - at least before bank stress tests are completed in late October - the ruling coalition is keen to get a good report card so it can begin the process of disengaging from its creditors once and for all. (For which read the IMF which is due to continue aid disbursements through 2016 – unlike the EU whose emergency financing ends this year). Greek prime minister Antonis Samaras’ unexpected announcement in Berlin on Monday that Athens will seek to end its engagement with the Washington-based Fund earlier than anticipated has sparked a fury of speculation – not least how the government is going to finance a €1bn funding gap next year. Senior officials, including deputy prime minister Evangelos Venizelos, say it is vital that Greece now “takes ownership” of its reform programme without the constant supervision of outsiders. Hence the frantic air at the economy ministry where finance minister Gikas Hardouvelis is determined to prove that the debt-burdened country does not need a third bailout when he meets troika mission chiefs in Athens next Tuesday. “Samaras is confident the country will be able to tap the markets and at better terms [than those offered by the IMF],” wrote the columnist Costas Iordanis of the funding needs. “His confidence is not wholly unfounded if we are to go by the results of a few rather timid recent [market] forays, but the truth is that the confidence of the markets was dependent on the presence of the troika.” Updated at 4.36pm BST 4.07pm BST16:07 The market slide appears to show little signs of pausing for breath. The Dow Jones Industrial Average is down 194 points while Germany’s Dax is down 171 points and the FTSE 100 71 points. Apart from the US data and hints from both sides of the Atlantic that rate rises could be coming sooner than perhaps people had been expecting, analysts pointed to other factors. (Ironically, hints from the ECB that it was prepared to provide more stimulus for the struggling eurozone economy has done little to provide much support, and sent the euro lower again.) The situation in Syria, where the US is carrying out air strikes, is clearly a concern. But there are reports from Russian of a possible escalation in tensions with the west, with talk of the government seizing foreign property and warnings about the gas supply to the west. Jasper Lawler at CMC Markets UK said: Stock markets across Europe were trampled by a rush of selling in the US over fears of Russian retaliation as the euro fell to 22 month lows on deteriorating economic conditions and dovish comments from ECB President Mario Draghi hinting at further monetary accommodation. 3.52pm BST15:52 Over to Greece where tourism officials are predicting another bumper year come 2015 – and urging authorities to make more of the debt-stricken country’s rich cultural heritage. Helena Smith reports from Athens: With the country well on track to attracting a record 21.5m visitors this year (on top of a 15.5% increase in overall arrivals last year), officials say all the signs are Greece is poised for another bumper year next year. “We look as if we are going to enter the race as a hot favourite in 2015,” Andreas Andreadis, who heads SETE, the Confederation of Greek Tourism Enterprises, told me today. “That’s on top of total overall arrivals growing by 20 % in 2014 according to our data and those released by the Bank of Greece.” Surveys compiled by tourism agencies show that Britons and Germans, in particular, are voting for Greece which may well emerge as one of the biggest benefactors of the mayhem sweeping the Middle East. But while the numbers look healthy for a country more dependent on tourism than most, Andreadis cautioned that not enough was being done to exploit Greece’s vast cultural heritage. All too often, he said, commerce-phobic archaeologists got in the way of tourists enjoying sites. “Greece should be collecting around €300m in revenues from its sites and the cultural sector,” he averred, citing a study SETE had commissioned on the sector. “Instead, it collects around €40m. But it’s not just that we lose an annual €260m. If the product wasn’t depreciated, if it was organized and promoted in a better way, revenues could well be around €1bn a year.” A decision to extend the opening hours of sites and museums has already paid off handsomely with visitors and revenues increasing by 27% and 21% respectively between April and June. Spurred on by demand, Greek authorities, helped by EU structural funds, have recently begun repairing several monuments in Athens’ historic city centre. “We should copy the model of British Heritage in the way our culture is organized, operated and promoted,” said Andreadis. Updated at 3.53pm BST 3.18pm BST15:18 A mixed bag of US data appears to be rattling stock markets after a fairly uneventful start. Apart from the slowdown in US service sector growth, there has been a fall in durable goods orders, down 18.2% in August and the biggest decline since the survey began in 1982. This nearly reversed the 22.5% surge in the previous month, which was mainly due to a rise in aircraft orders. Initial weekly jobless claims rose 12,000 to 293,000, below expectations of a 300,000 figure, but this better than forecast figure appears to be being ignored. Earlier Dallas Federal Reserve president Richard Fisher said in Rome that the central bank could raise rates “sooner rather than later.” On top of Mark Carney’s comments on UK rates, that is not doing much for sentiment. So the Dow Jones Industrial Average has lost 131 points, dragging down European markets with it. Germany’s Dax is down 98 points, France’s Cac is off 31 points and the FTSE 100 has fallen 52 points. Updated at 3.49pm BST 2.52pm BST14:52 US service sector growth slows, but still solid Just in, the US service sector is posting another month of solid growth, although a little less vigorous than in July. The PMI survey of America’s service sector, conducted by Markit, came in at 58.5. It’s the lowest reading since April, but still shows solid expansion (any reading over 50 = growth). Chris Williamson, chief economist at Markit, says: “Although the pace of expansion slowed to a four-month low in services in September, the rate remained buoyant and accompanies a similar boom seen in manufacturing,” *U.S. SEPT. SERVICES PMI AT 58.5 VS 59.5 LAST MONTH Service sector activity. pic.twitter.com/FQ8gCS5gj1 2.32pm BST14:32 The pound has risen slightly on the back of Mark Carney’s comments that interest rate rises are “getting closer”, gaining around 0.2 of a cent against the US dollar. This phrase has caught some interest: While there is always uncertainty about the future, you can expect interest rates to begin to increase. Carney at #IFoAGIRO2014: The point at which interest rates also begin to normalise is getting closer http://t.co/XOdmmZfe8E BoE Governor Carney today: "While there is always uncertainty about the future, you can expect interest rates to begin to increase." $GBPUSD Updated at 2.34pm BST 2.06pm BST14:06 Carney: first rate rise is getting closer, but.... Mark Carney also touched on the question of when UK interest rates will rise, but doesn’t appear to say much new. Usual story, really.... the point at which interest rates also begin to normalise is “getting closer”, the judgement on when to raise has “become more balanced”... but there’s “no pre-set course” and the timing will “depend on the data”. And even once the hikes begin, rates are going to be low in historical terms for a while, because: the headwinds facing the economy are likely to take some time to die down. Demand in our major export markets remains muted. Public balance sheet repair is ongoing. And a highly indebted private sector is likely to be particularly sensitive to changes in interest rates. 1.54pm BST13:54 Mark Carney : The UK insurance industry makes a major, direct contribution: £25bn to annual GDP and 300,000 high-paying jobs #BoE 1.52pm BST13:52 Carney vows to hold insurance industry to account Mark Carney is also warning the UK insurance industry that the Bank of England is planning to start vetting their top officials. This will make it earlier to hold “the right people to account”, apparently. Carney is explaining to the insurance conference that the Bank is “minded” to include life and general insurance actuaries in its new fit and proper regime for individuals. By including your profession in the new regime, we recognise the importance of your skills, the range of your contributions, and your personal propriety. Later this year we will consult on a regime that includes the most senior actuaries – alongside CEOs, Chairmen and Chief Financial and Risk Officers – in our senior managers regime, making them directly accountable for how a firm is run, for their decisions, and for their actions. These senior persons will be expected to prove their fitness to regulators before they take up a role, and the onus will be on them to ensure risks are understood, measured and properly considered. 1.40pm BST13:40 Mark Carney: We're aware that markets may be mispricing risk Breaking: Mark Carney has warned the insurance industry that they could be hit if excessive risks build up in the financial sector. Speaking at the Institute and Faculty of Actuaries General Insurance Conference, the Bank of England governor says: The Bank is well aware that a prolonged period of historically low interest rates could encourage other risks to develop. In the UK, the biggest risks are associated with the housing market, which is why last spring the Bank took graduated and proportionate actions. We are also alert to the possibility that financial markets may be mispricing risk. As the FSB concluded last week, “there are increased signs of complacency in financial markets, in part reflecting search for yield amidst exceptionally accommodative monetary policies. Volatility has become compressed and asset valuations stretched across a growing number of markets, increasing the risk of a sharp reversal.” In such circumstances, insurers’ proven ability to look through such short term volatility is invaluable. Nevertheless, an abrupt correction in term and risk premia could have a sharp impact on the valuation of securities that are marked to market and reduce the effectiveness and availability of proximate hedging strategies.... Carney adds that the current record low interest rates are driving capital into sectors like reinsurance; a worrying sign, as that could encourage the reinsurance industry to take undue risks too. In effect, a “soft cycle” in financial markets is reinforcing a “soft cycle” in insurance – a particularly problematic combination. More to follow.... Updated at 1.41pm BST 1.34pm BST13:34 It’s nearly time for Bank of England governor Mark Carney to begin giving his speech in Wales, at the Institute and Faculty of Actuaries General Insurance Conference..... 1.30pm BST13:30 Missed this earlier. The UK is pressing forward with its plans to explicitly criminalise fixing the price of gold, oil, and other financial products. A consultation announced this morning will extend rules already introduced to combat Libor rigging, and ensure that “anyone who seeks to manipulate them is subject to the full force of the law”. Full story: Price-fixing on gold, oil and financial products to become criminal offence 12.17pm BST12:17 There’s a rumour afoot that profits at controversial payday lender Wonga have tumbled by 40%. My colleague Rupert Neate reports: The company, which has come under sustained attack for charging interest rates as high as 5,853% a year, is expected to report annual profits of about £50m for 2013 compared with £84.5m the previous year,according to Sky News. Wonga, which has previously leaked its financial results to the Sunday Times before publishing them at Companies House, said the company did not leak the figures to Sky News and said that the £50m pre-tax profit figure reported by Sky was “inaccurate”. “We will release the results democratically on Tuesday,” a spokesman said..... We’ll find out next week More here: Wonga profits set to nosedive 40% 11.53am BST11:53 The latest survey of high street spending, from the CBI, also hammers home the point that UK supermarkets face tough times. The balance of grocers reporting higher sales in August dropped to +25, from +60 in July (this is the difference between those doing better, and those doing worse) Rain Newton-Smith, CBI Director of Economics, said: “Solid growth continues on the high street, with most sectors doing decent business and department stores performing particularly well. However, the pace of growth in the grocery sector tailed off significantly compared with the previous survey. 11.47am BST11:47 Here’s our news story on Minouche Shafik’s comments on interest rate policy: Bank of England says interest rates rise hinges on pay 11.35am BST11:35 Draghi: Russian crisis will hurt Europe Mario Draghi’s visit to Lithuania today for a conference to welcome its membership of the eurozone hasn’t yielded many fireworks... ....although the Lithuanian central bank did receive a pretty star from the ECB chief to mark its arrival. The broad thrust of Draghi’s speech is that Lithuanians shouldn’t worry that euro membership will strip their country of its identity, or drive up prices in the shops (as occurred in, for example, in Germany when the euro was created). Lithuania joined on 1 January or 2015 Draghi concluded by declaring: The way in which Lithuania has striven to become part of the euro area shows that our common currency is attractive – despite the difficulties experienced in some member countries. But joining the euro area does not only follow from economic considerations: it is a binding commitment to European values. I am happy to see that Lithuania is ready to make this commitment – welcome Lithuania! Hurrah! But then, in the Q&A, the ECB president conceded that the downturn in Russia’s economy will hurt Europe. He said: “The Russian economy has been going down, growth has decreased considerably, and that certainly will have some effect on European demand.” Draghi also presented the Governor of Bank of Lithuania, Vitas Vasiliauskas, with the Euro Star (no, not that one) traditionally given to a nation adopting the currency of the European Union. Updated at 11.46am BST 11.05am BST11:05 HSBC predicts tougher times at Sainsbury's Retail analyst Dave McCarthy of HSBC has slashed his profit forecasts for Sainsbury, and predicted that it could feel the backlash from the crisis at Tesco. In a new research note, McCarthy warns that trading conditions at Sainsbury have worsened, and could get tougher if Tesco launches a price war. Industry conditions are tough and are likely to get worse if Tesco repositions as is widely expected. McCarthy cut his estimated pre-tax profits this year by £20m to £745m, and predicts that like-for-like sales will fall by 2% this year and 1% next. Previously, he expected flat sales this year, and a 0.5% drop in 2015. McCarthy writes: In the light of a deteriorating sales trend, worsening industry conditions and the likelihood of Tesco becoming much more aggressive, we are cutting our short-term PBT forecasts for Sainsbury by around 6% and lower our terminal margin to 3.5% from 3.7% – but we warn that even this margin may prove optimistic. This chart shows how Sainsbury’s sales have weakened over the last 10 quarters: 10.40am BST10:40 BoE deputy governor Minouche Shafik’s claim that she’d rather be a wise owl than a hawk or a dove has prompted a few, err, tweets: In a toe-curling comment, the @bankofengland Minouche Shafik today says she is neither a hawk or dove, but an owl trying to be wise. @ChrisGiles_ Expect whole new era of MPC members identifying selves with birds. "With my eclectic approach to data, I'm a bit of a magpie". @alanbeattie @ChrisGiles_ "I see myself as the robin of the committee, friendly and quietly chirping away in the corner." @dsmitheconomics @alanbeattie @ChrisGiles_ "I'm more of a penguin really. Yes, I do feel out of place and I'm not sure how I ended up here". Updated at 10.40am BST 10.18am BST10:18 Barclays tops list of most complained bank Barclays is the bank most complained about in the UK this year, according to the latest survey from City watchdog, the Financial Conduct Authority. More than 280,000 customers reporting problems with Barclays in the first half of 2014, the FCA found: FCA: top 5 most complained about banks Barclays 278,426 complaints Bank of Scotland 265,640 Lloyds 264,115 NatWest 140,342 Santander 135,611 And here’s what people have complained about: The full report is online here. 9.56am BST09:56 Here’s the details of the ECB’s survey of monetary developments: 9.33am BST09:33 Looking back at Minouche Shafik’s interview in the Yorkshire Post, the Bank of England’s deputy governor warned that interest rates may have to rise if workers win pay rises without delivering productivity improvements. Here’s the section: On the question of when to increase interest rates, she said she would be closely watching the relationship between wage growth and productivity. She said there are mixed signals about the strength of that growth. “If wage increases are expected but productivity is performing well we can wait for longer; if those wage increases are not accompanied by productivity increases then I think we will have to move more quickly on rates because inflationary pressures will build up. “I think that’s the key choice that we face,” said Ms Shafik, who has so far attended two meetings of the Monetary Policy Committee. It still feels unlikely that rates will rise this year, not least because wages growth hasn’t yet materialised..... Reminder, Shafik’s warning on the eurozone is covered here. Updated at 9.39am BST 9.30am BST09:30 There’s no let-up in the funding squeeze to eurozone companies and households. The ECB’s latest survey has found that loans to the private sector fell by 1.5% annually in August, only slightly better than July’s 1.6% contraction. The ECB must hope that its latest injection of low-cost loans, and the prospect of an asset-backed security purchase scheme, will improve matters 9.18am BST09:18 The euro is nearing a two-year low against the dollar. Has it got further to go?http://t.co/6pMc4UKV30 $EUR pic.twitter.com/a93sofERbM 9.16am BST09:16 The euro’s slide continues - it just dipped below $1.27 for the first time since November 2012. The selloff comes as traders anticipate tighter monetary policy in America, and more loosening in Europe. As Brenda Kelly of IG put it: The resurgence of the US currency may take some by surprise, especially those that still believe the greenback was fatally weakened by the Fed’s QE programme, but the world’s reserve currency is evidently not finished yet. A weaker euro should help eurozone exporters (who need every assistance going), and also push inflation higher by making energy imports more expensive.... The euro zone economy's saving grace? Trade-weighted euro down 5 months in a row, longest decline in over 4 years: pic.twitter.com/abhNvIQ7jI 8.44am BST08:44 Parliamentary committee may quiz Tesco over accounting blunders Tesco chiefs have also been warned this morning that they could be hauled to parliament to explain the crisis at the group. Adrian Bailey, chair of the Business, Innovation and Skills committee, told Radio 5 Live’s Wake Up to Money programme that it is “unbelievable” that an internationally renowned company such as Tesco could get into such a mess. The accounting errors that saw it overstate profits by £250m should simply never have happened, Bailey argued. He’s also concerned that supermarkets may be mistreating their suppliers, two years after his committee helped bring in the ‘grocery code’ to address the problem. If BIS launch an inquiry, it could hear from former CEO Phil Clarke, and other executives from across the sector. “We may well as a committee want to look at this. Not just at Tesco but at what is going on in the retail industry and in the relationship with the suppliers to see if the issues we came across two years ago are still there.” Bailey also said it was “unbelievable that a retailing colossus like Tesco” would have gone without a full-time finance director since April. The interview is online here (it starts around 29 minutes in) 8.32am BST08:32 Tesco’s shares are inching a little higher this morning, up 1% or 2p at 197p. Mike Ashley’s decision to bet that the supermarket’s shares will rally (see 7.54am) hasn’t sparked a stampede of investors to follow him. But it may provide some support. Although, as Times business editor Richard Fletcher points out, Ashley’s track record on share tips isn’t perfect: Ashley punting on Tesco shares .... Great retailer but not the best record of picking stocks pic.twitter.com/A6te7qYvEq 8.19am BST08:19 A relaxed start to trading in London has seen the FTSE 100 inch up by 15 points, to 6725. It’s being led by Direct Line, up 3% after selling its Italian and German affiliates. The other main markets are calm too, as order returns to the trading floors after sharp drops earlier this week. 8.11am BST08:11 Interview Mario Draghi with Lithuanian business daily Verslo Zinios http://t.co/iyakwHiKAH 8.08am BST08:08 Glaxo names Sir Philip Hampton as next chairman It’s official: Sir Philip Hampton, currently the chairman of RBS, is to join GlaxoSmithKline as their next chairman in 2015. GSK just issues a statement to the stock market, confirming that Hampton will join the board on 1 January 2015, become Deputy Chairman from 1 April, and succeed Sir Christopher Gent as non-executive chairman from 1 September or maybe earlier. So that’s Glaxo’s succession planning sorted out. But it leaves RBS looking for its next chair. RBS has issued a short statement confirming that Hampton will be off next year. No replacement for Hampton at RBS yet, the 81% taxpayer owned bank says Updated at 8.11am BST 7.55am BST07:55 Euro hits 22-month low In the markets, the euro just hit a new 22-month low against the US dollar, at $1.2731. EUR/USD1.2731 timberrrrrrrrrrrrrrrrr 7.54am BST07:54 Sports Direct enters Put Option in Tesco Sports Direct, the high street sports retailer, appears to have thrown Tesco a much needed vote of confidence. It told the City that it has entered into an arrangement with Goldman Sachs that would mean Sports Direct profited if Tesco’s share price rises. This ‘put option agreement’ covers 23m Tesco shares, or around 0.28% of its share capital. SPD says: This investment reflects Sports Direct’s growing relationship with Tesco and belief in Tesco’s long-term future. The maximum exposure in the deal is £43m – the amount SDP would have to hand to Goldman Sachs if Tesco’s shares fall to zero. #SportsDirect places Put Option with Goldman Sachs on 23m #Tesco shares (0.28%). "Investment reflects SD belief in their long term future" #MikeAshley loves a good punt doesnt he #Tesco #sportsdirect Tesco’s shares have tumbled by over 15% this week, after it admitted overstating its profits. So there is room for them to recover (despite its falling sales and speculation that its accounting problems may run deeper) Or the move could show that Mike Ashley, SPD’s founder and majority shareholder, reckons a takeover bid is on the cards. As fastFT put it: Looks like Mr Ashley sniffs a deal... Updated at 8.17am BST 7.46am BST07:46 Draghi: leaders must be decisive ECB chief Mario Draghi has echoed Minouche Shafik’s concerns over the eurozone. Speaking to Lithuanian business daily Verslo Zinios (ahead of today’s conference in Vilnius), Draghi said politicians must do more: “It is now in the hands of governments to act decisively on further structural reforms... Governments should not unravel the progress made in fiscal consolidation, but use any leeway to make fiscal policies more growth-friendly.” Draghi also called the current unemployment rates “unacceptably high”, and warned that geopolitical tensions could hurt business and consumer confidence (as illustrated by yesterday’s IFO survey). Updated at 8.10am BST 7.35am BST07:35 Minouche Shafik also declined to be classed as a hawkish or dovish member of the Bank of England; owls, it seems are in vogue these days. The Yorkshire Post explains: And asked whether she’s a hawk or a dove, Shafik says her children want her to be an owl instead: “I asked my children this question and they said, ‘Mummy, you should say you’re an owl’,” she told The Yorkshire Post. “Look at the data, try and be wise.” 7.33am BST07:33 BoE deputy governor: France and Italy must become more competitive The Bank of England’s new deputy governor, Minouche Shafik, has warned that the eurozone is still a threat to the UK economy, and urged leaders in France and Italy to do more. In her first interview since joining the Bank this summer, Shafik told the Yorkshire Post that the eurozone presents “a significant risk” to the UK economy. Shafik cited the eurozone’s low inflation -- currently just 0.4% -- as a key worry. She hopes that the European Central Bank’s new asset purchase scheme, announced this month, will help stimulate the economy. However, she added, it’s not enough on its own: “We hope that will work but of course everyone knows monetary policy can’t do all the heavy lifting and so there needs to be more growth-orientated fiscal policy and structural reforms to make the big economies particularly in Europe, France, Italy and so on, more competitive.” France did get some rare good news last night; its jobless total fell in August for the first time since last October. But its economy hasn’t grown yet this year, while Italy is back in recession. Shafik also told the paper that the BoE doesn’t want to “take risks” with the UK recovery, suggesting she isn’t close to voting for an interest rate rise. Here’s the full piece: Exclusive: Bank of England ‘won’t risk recovery’, says Minouche Updated at 7.34am BST 7.32am BST07:32 Markets await central bank speeches Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and the eurozone. There’s a calmer feel in the markets today, as investors wait to hear from Europe’s two most powerful central bankers. ECB chief Mario Draghi is speaking at a conference in Lithuania, called “Single Market, Single Currency, Common Future”. And Bank of England governor Mark Carney is speaking in Wales, from 1.40pm. Draghi’s comments will be closely watched, after yesterday’s IFO index showed German business confidence had slipped again. Jasper Lawler of CMC Market says: The euro lost further ground yesterday after poor German confidence data and on the mere hint of further easing from ECB president Mario Draghi. Attention will be paid to his comments at a conference of EU central bankers starting 8am BST.... Bank of England Governor Carney will speak today at 1.40pm BST in Wales and markets will be looking for any comments over impact on monetary policy of the Scottish ‘No’ vote or the improved employment and wage data last week which helped the British pound spring almost 500 pips off its lows. Also coming up.... Investors are also taking some comfort from French aerospace group Airbus, which last night hiked its long-term forecast for jet demand. But they’ll also be watching Tesco, after it emerged last night that one of its biggest shareholders, BlackRock, has cut its stake, putting even more pressure on chairman Sir Richard Broadbent. On the economic data front, Euro-area August credit data is released at 9am BST; followed by the latest US weekly jobless claims, August’s durable goods orders at 14:30 CET and the US Markit services PMI at 15:45 CET. |