European stock markets are pushing cautiously higher. The FTSE 100 index in London is heading 55 points, or 0.8% higher, to 7,105, while the German market has gained 0.18%, the French index is flat and the Italian borsa is 0.5% ahead.
The London blue-chip index has received a fillip from banking stocks, with NatWest Group and Lloyds Banking Group rising nearly 4% and 2.2% respectively. The Sunday Times reported that government sources poured cold water on the idea of a windfall tax on banks to plug a big hole in the government finances.
The pound fell 1.1% below $1.15, to $1.1487, as the dollar strengthened ahead of the US Federal Reserve’s meeting on Tuesday and Wednesday. A 75 basis point rate hike is widely expected, and investors will be looking for any clues in the statement as to whether the central bank is looking to slow the pace of rate rises in the coming months.
The Bank of England is expected to announce a 75bps hike to 3% (or possibly 50bps) on Thursday.
ING has looked at four different scenarios and the likely impact on markets:
The Lloyd’s of London insurer Ascot has halted writing new cover for Ukrainian grain shipments until the situation is clearer.
On Saturday, Moscow pulled out of a deal thrashed out in July to allow ships transport grain through the Black Sea, after blasts damaged Russian navy ships in the Crimean port of Sevastopol.
Wheat futures traded in Chicago rose as much as 7.7% to $8.93 a bushel today, the highest level since mid-October, and later traded 6.1% higher at $8.79 1/2 a bushel. However, this is nothing like the spikes we saw earlier in the year after Russia’s invasion of Ukraine disrupted wheat exports.
Ascot’s head of cargo, Chris McGill, told Reuters:
From today we are pausing on quoting new shipments until we better understand the situation. Insurance that has already been issued still stands.
However, Ukraine’s infrastructure minister said 12 ships had left Ukrainian ports on Monday carrying 354,600 tonnes of grain, the biggest load since the programme began. It suggests Russia had not imposed a blockade.
At the same time, Moscow launched renewed air attacks on Kyiv and other cities, hitting energy infrastructure and knocking out power supplies.
Amir Abdullah, the UN official who coordinates the Black Sea grain programme, tweeted:
Turkish president Tayyip Erdogan, who helped negotiate the grain deal, said in a speech:
Even if Russia behaves hesitantly because it didn’t receive the same benefits, we will continue decisively our efforts to serve humanity.
Our effort to deliver this wheat to countries facing the threat of starvation is evident. With the joint mechanism that we established in Istanbul, we contributed to the relief of a global food crisis.
A New York court has dismissed a criminal indictment against Tom Hayes, the British former trader at UBS and Citigroup who served five and a half years in a UK prison for rigging the Libor lending benchmark.
Prosecutors in the US filed a motion to dismiss the case against Hayes and another former UBS trader, Roger Darin.
It followed a US appeals court in January throwing out the convictions of two former Deutsche Bank traders, Matthew Connolly and Gavin Black. The reversal of those convictions “implicates the theory charged in this case and the government’s ability to prove this case”, the motion said.
Hayes was the first person to be convicted by jury of leading a conspiracy to defraud by fixing the Libor rate in August 2015, and one of nine eventually sentenced to prison. He was released from HMP Ford, on the south coast of England, in January 2021.
The Libor rigging scandal emerged after the global financial crisis of 2008, further tarnishing the reputation of the City after enormous government bailouts of lenders.
Banks used Libor, the London interbank offered rate, to set the borrowing cost on contracts with notional values of hundreds of trillions of pounds.
Regulators found evidence that traders on a committee setting the rate every day had fixed it for their own benefit. Banks paid fines worth hundreds of millions of pounds.
Elon Musk is considering charging Twitter users $20 (£17.30) a month or $240 a year for a blue tick on their account, as the world’s richest person prepares an overhaul of the social media platform.
The Tesla chief executive is planning changes to Twitter’s Blue subscription service, according to the tech newsletter Platformer, including raising the $4.99 a month fee to $19.99. Users verified by the platform – who carry a blue tick flagging them as an authentic source – would have 90 days to sign up to Blue or lose their check mark.
Musk did not comment directly on the story but tweeted to his more than 110 million followers on Sunday that “the whole verification process is being revamped right now”.
He also flagged a Twitter poll launched on Monday morning asking Twitter users how much they would pay a month for a blue tick: $5; $10; $15; or “wouldn’t pay”. The poll was set up by the tech investor Jason Calacanis, a Musk associate who is part of a team brought in by the multibillionaire to help run the business since the $44bn takeover. A basic subscription on Netflix costs $6.99 or £4.99 a month.
An overwhelming majority of respondents to the poll said they wouldn’t pay at all; but a substantial minority indicated they would.
More than a third of UK hospitality businesses – bars, pubs, restaurants and hotels – could go bust early next year due to a triple whammy of soaring energy costs, rising inflation and declining consumer spending, the industry warns.
The survey by UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping and Hospitality Ulster, shows that 35% of businesses were expecting to be operating at a loss or to be unviable by the end of this year.
The report found that 775 of operators are seeing a drop in people eating and drinking out; 85% expect this situation to worsen, and 89% are pessimistic that the current levels of support offered by the government (for example discounts on energy bills) are not enough to protect the industry.
The trade groups said uncertainty about rising inflation, future regulation and staffing are causing a crisis of confidence among business owners. They said in a joint statement:
If urgent action isn’t taken, it is looking incredibly likely that we will lose a significant chunk of Britain’s iconic hospitality sector in the coming weeks and months.
Ahead of the new chancellor Jeremy Hunt’s autumn statement on 17 November, they called for further business rats relief and a cut in VAT sales tax for hospitality.
Hospitality accounts for 10% of UK employment, 6% of businesses and 5% of GDP, according to the industry body UKHospitality.
A dozen ships transporting grain have departed from Ukrainian ports today, despite Russia’s decision to renege on a deal struck in the summer, according to Ukraine’s minister of infrastructure, Oleksandr Kubrakov.
Russia’s decision to pull out of the deal after what it said was a “massive” drone attack against its Black Sea fleet sent wheat prices as much as 7.7% higher today.
Today’s Bank of England data showed a shift away from credit card spending to higher saving (among those who can).
Karl Thompson, economist at the Centre for Economics and Business Research, said:
While soaring inflation has likely driven many households to resort to credit in order to finance essential spending, the latest figures suggest that rising interest rates have acted to disincentivise borrowing and drive higher savings, among those who can. Indeed, new savings reached their highest level in over a year in September.
Savings showed a notable uptick in September, with households depositing an additional £8.1bn with banks and building societies last month, up from £3.2bn in August and marking the highest figure since June 2021.
This likely reflects the notable increased incentive to save, for those who are able to, as saving rates have jumped. Meanwhile, the expected worsening of the cost-of-living crisis over the months to come will be leading to a rise in precautionary savings. With further monetary policy tightening expected over the coming months, the gap in borrowing and saving behaviour between households with different degrees of financial health is likely to widen further.
Members of the Just Stop Oil campaign group Just Stop Oil supporters have sprayed orange paint on four buildings in Central London, and are demanding that the government halts all new oil and gas licences and consents.
This morning, Just Stop Oil supporters sprayed orange paint from fire extinguishers on the Home Office, the MI5 building, The Bank of England and the headquarters of News Corp at London Bridge. The buildings were chosen to represent the pillars that support and maintain the power of the fossil fuel economy – government, security, finance and media, the group said.
A Just Stop Oil spokesperson said:
We are not prepared to stand by and watch while everything we love is destroyed, while vulnerable people go hungry and fossil fuel companies and the rich profit from our misery.
The era of fossil fuels should be long gone, but the creeping tentacles of fossil fuel interests continue to corrupt our politics, government and the media as they have for decades.
How else do you explain a government ignoring sensible no-brainer policies like renewables, insulation and public transport, which would cut our energy bills and our carbon emissions, in favour of corrupt schemes to drill for uneconomic oil and gas at taxpayers expense?
The group said it would continue to fight peacefully against the government’s plans to licence over 100 new oil and gas projects by 2025, and its failure to fulfil its promise to help people with their skyrocketing energy bills.
Government-backed battery startup Britishvolt is considering entering administration with the potential loss of nearly 300 jobs after it struggled to find investors willing to fund its effort to build a giant £3.8bn “gigafactory” in north-east England.
The company could announce an administration as soon as Monday, with the accountancy firm EY lined up to carry it out if it goes ahead, two sources with knowledge of Britishvolt’s operations told the Guardian. However, one source cautioned that Britishvolt was also still examining other options.
A Britishvolt spokesperson said: “Company policy is to not comment on market speculation.”
Britishvolt was founded less than three years ago with the ambitious aim of building an enormous factory that would be able to supply batteries to carmakers. It quickly became a flagship project for the UK automotive industry, and gained the support of former prime minister Boris Johnson, who repeatedly cited the project as an example of Britain leading the way in moving away from fossil fuels.
The government eventually gave the company a promise of £100m in financial support, while the current prime minister, Rishi Sunak, was chancellor. However, the company has not yet received the money, which was earmarked for tooling within the factory which has not been bought.
Martin Beck, chief economic advisor to the EY ITEM Club, an leading economic forecaster, has looked at today’s mortgage data from the Bank of England.
Mortgage activity weakened in September after a surprise increase in activity in August. Approvals for home purchase were 66,789 in September, down from 74,422 in August and a little below the average of the year-to-date. Net lending held steady at £6.1bn in September.
The rise in swap rates following the mini-Budget caused a sizeable increase in quoted interest rates for fixed rate mortgages, meaning that house prices looked heavily overvalued based on mortgage affordability. Swap rates have since fallen back, with mortgage rates set to follow.
However, interest rates are likely to remain well above the levels seen in the first half of this year, and house prices will continue to look stretched. This is likely to cause new buyer demand to fall in the short-term. While the high share of fixed-rate mortgage deals will slow the pace at which borrowers have to face higher debt servicing costs – and so limit the extent of ‘forced’ sales – a correction in house prices still remains likely.
Net unsecured lending fell back to just £0.7bn in September, down from £1.2bn in October and a nine-month low. This was due to both another rise in the already-high level of repayments and a fall in gross lending. At the same time, the monthly increase in household deposits of £8.1bn was at a 15-month high.
The monthly data can be volatile and prone to revision. However, this combination is indicative of a household sector that is low on confidence and either unable, or unwilling, to borrow more and save less to try to push back against the squeeze on real incomes. The EY item Club thinks that with many mortgagors facing significant increases in their debt servicing costs in the next couple of years, they could begin to save more to try to absorb the higher payments.
Bert Colijn, senior eurozone economist at ING, has looked at the eurozone data, and the implications for monetary policy:
The eurozone contraction hasn’t started yet as GDP growth for the third quarter came in at 0.2%. Inflation continues to increase though, which sets the eurozone economy up for a tough winter as a recession is looming.
A positive surprise for eurozone GDP. In fairness, this has happened often during the pandemic recovery as the rebound effect has been stronger and lasted longer than expected. While cracks in the eurozone economy are clearly showing, the economy continued to expand in the third quarter. In Germany, it looks like this was mainly due to the last legs of the consumer rebound, while in France consumption growth had already stalled. Investment was the positive surprise in France. Spain experienced fast slowing growth but the tourism recovery prevented the economy from going into the red in the third quarter.
Overall, the picture remains bleak though. Consumer confidence is near historical lows as real wage growth is at a multiple-decade low at the moment…
The inflation rate jumped once again in October, to a whopping 10.7%. This was partly on higher consumer energy prices. The low prices on the wholesale market in recent weeks are clearly not yet translating into declining prices for households. In fact, it’s likely that this will only happen in a few months’ time and even that is a big ‘if’ because it depends on uncertain factors such as energy supply and the weather of course.
Turning to the outlook for eurozone borrowing costs, he said:
The slightly more dovish tone at the ECB press conference on Thursday indicates we shouldn’t come to expect such extensive rate hikes, such as the 75bp rise they gave us last week, to be a feature of forthcoming meetings, especially since a recession is drawing closer. Today’s data will provide more ammunition for the hawks to show that there is no need to make a sudden pivot yet. Overall though, we keep reiterating that current inflation cannot be fought effectively by monetary policy that has the most effect with a big lag. And hawks cannot expect GDP to keep surprising on the upside forever.
With economic conditions weakening and a recession in the making for the winter, we think the ECB is going make its next hike somewhat smaller at 50 basis points. Given the historic total size of the hikes the ECB is delivering, that will have quite the slowing impact on the economy next year.
Core inflation in the eurozone, which strips out volatile items such as food, alcohol and tobacco along with energy, picked up to 5% in October from 4.8%, as expected.
The European Central Bank has raised interest rates three times in recent months to combat high inflation. Last week, it lifted its key interest rate, the deposit rate, by 75 basis points to 1.5%.
Pledging to bring inflation back down to 2%, the ECB president, Christine Lagarde, said she was nevertheless concerned by a looming recession across the 19-member currency bloc, sending a strong signal that future rate rises would be muted.
Investors have been betting that the deposit rate, which governs the borrowing costs passed on by commercial banks, will peak at 3% next year as the German, Italian, French and Spanish economies contract.
Nicola Nobile and Paolo Grignani, economists at Oxford Economics, said:
Last Friday’s data at the national level showed price pressures intensifying in Germany, France and Italy, despite some moderation coming from Spain. What’s more, the divergence among inflation rates within eurozone countries is intensifying, making the matter worse for monetary policy.
Last Thursday the ECB, after a 75bps increase in rates, signalled that the pace of hikes could slow. This is in line with our baseline view, which sees a further 75bps rate hike between the end of this year and early 2023.
However, too many caveats remain, in particular with respect to the near-term inflation outlook. Indeed, the latest host of data showed an upside surprise in GDP growth rates in Q3 and higher-than-expected inflation in October that somehow reduce the likelihood of a quicker dovish pivot.
https://www.theguardian.com/business/live/2022/oct/31/wheat-prices-soar-russia-pulls-grain-deal-eurozone-inflation-expected-hit-new-record-live Eurozone inflation hits record high of 10.7%; UK mortgage approvals, credit card borrowing fall – business live | Business