Mixed close in European markets
17.03 European markets are now closed and it has been a mixed day, with
the South outperforming the North of Europe.
In Germany the Dax closed down 0.46pc
In France the Cac closed down 0.16pc
In Spain the Ibex was up 1.29pc
In Italy the FTSE Mib was up 0.97pc.
UK markets close
16.43 Lingering worries over the US budget and debt ceiling have
ensured the FTSE 100 has lost a further 27.92 points, or 0.4pc, to
close at a three-month low of 6,337.91. Will Nicholls, a dealer at
spread-betting firm Capital Spreads, said:
week’s debt ceiling deadline – or they face chaotic markets in what has been
a positive year to date for global economies so far.
Janet Yellen is set to be announced as the new Fed Chairman by Barack Obama
today, but the positive effects of her dovish stance on the markets are
being over-ruled by the panic and current downward trend set by the
debt-ceiling and government shut down.
Mixed start to US earnings season
16.27 US markets have also been hit by a mixed start to earnings season
in the US.
Alcoa rallied 3.8pc after the biggest US aluminum producer unofficially kicked
off earnings season with better-than-forecast profit.
Men’s Wearhouse jumped 25pc after Jos. A. Bank Clothiers offered to acquire
the apparel retailer.
But Yum! Brands sank 8.5pc after third- quarter income fell 68pc on lower
same-store sales in China, while Costco Wholesale dropped 1.6pc after profit
missed estimates.
Wall Street waivers as it awaits official appointment of Yellen
16.18 Wall Street fluctuated between gains and losses on Wednesday as
markets awaited the official appointment of Janet Yellen as head of the US
Federal Reserve.
The SP 500 added less than 1 point to 1,655.56 after climbing
0.2pc in early trading. The Dow Jones rose 3.11 points, or less than
0.1pc to 14,779.64.
Gold has also tumbled below the $1300 on Wednesday, falling 1.6pc to
$1,2988.22, after the dollar extended gains to hit a one-week high
after it was revealed that Yellen would be the next US fed chair.
The greenback advanced 0.5pc to 97.34 yen and was up 0.5pc to $1.3512 against
the euro.
Dan Dorrow, head of research at Faros Trading, told Bloomberg:
We’ve got dollar strength against the safe havens.
Yellen’s nomination, which was widely expected, is still a risk-positive
event.
Cable says he ‘expects’ Royal Mail bosses pay to remain ‘restrained’
16.01 The business secretary admits that the pay package for the chief
executive of Royal Mail, Moya Greene, is “complicated” but says he
hopes the bosses will show “proper restraint.”
We would expect [Moya Greene] and others to exercise appropriate restraint.
But it will be a private company and we would expect them to formulate their
own remuneration policy.
And that’s it from Cable.
Independence of BNP Paribas valuation under question
15.57 The committee has pointed out that BNP Paribas, one of the groups
that helped the government set a value range for the shares, has a contract
with Royal Mail. Cable says he will check the exact arrangement, saying he
was told “categorically” it was an “independent”
valuation.
We are committed to the six-day service, says Cable
15.46 The business secretary reiterates that both the frequency of
Royal Mail’s service and the geographical spread, cannot be changed without
parliament’s approval.
The universal service obligation can’t be changed by the Royal Mail or
regulator, it will have to go to parliament.
Royal Mail unlikely to sever ties with Post Office, even after ten years,
says Cable
15.38 MPs are asking the business secretary whether he is concerned
that the Royal Mail will look to other providers, such as supermarkets,
instead of the Post Office network after the ten year agreement with the
Post Office expires.
Mr Cable says he finds those concerns “implausible”:
I find it implausible precisely because it is so much in the interest of the
Royal Mail to continue its relationship.
The Post Office has a reach that no other network has and its extremely
valuable for Royal Mail to keep it
Royal Mail brand protected under agreement with Royal Household
15.28 The business secretary confirms that there is an agreement with
Royal Hosuehold over circumstances in which the brand can be used
specifically to stop it being abused.
For example, it coudl not be used If it brought crown into disrepute or the
Royal Mail ceased to become universal service provider.
Workers do not lose shares if made redundant or leave over disability
15.25 Vince Cable has cleared up some confusion over the conditions
surrounding whether employees will lose their shares if they leave the group
before the end of the three-year lock in period. He says there is an
exception for those who leave due to redundancy or disability.
Employees who leave Royal Mail within three years must give up shares
15.23 The committee challenges Mr Cable on the fact that employees who
leave Royal Mail within the three-year lock-in period must give up their
shares. Is that fair, they ask.
That would seem unfair and I will certainly take up the issue on that probably
small number of cases of people who might find themselves disadvantaged in
that way.
No taxpayer clawback if asset sales generate unexpected windfall, says Cable
15.18 The Business Secretary is being asked whether taxpayers will
benefit should the value of Royal Mail’s buildings shoot up more than
expected, generating a windfall when they are sold. The answer is no.
I don’t think you can isolate one way of Royal Mail business in that way. It
will hopefully earn profit, through its trading business and asset
transactions. These assets are available for sale and that’s taken into
account in the valuation of the company.
It is an overall part of the same package that is part of the price people
will be paying for the company
Fed’s Evans says US monetary policy must remain accommodative
15.10 Sayonara, taper? Over in the US, the Federal Reserve’s Evans has
said the central bank should keem monetary policy loose saying economic
growth has been “not nearly strong enough”
British economy grew 0.8pc in three months to September, says NIESR
15.04 The pace of British economic expansion slowed slightly from the
three months to August, when GDP grew 0.9pc, according to the National
Institute of Economic and Social Research.
It added that it expects the UK to pass its pre-crisis peak until 2015, with
the economy still 2.5pc below the size it was in early 2008.
Panmure Gordon is an ‘outlier’ on Royal Mail valuation, says Cable
14.56 MPs bring up the Panmure Gordon note which made headlines last
week by suggesting that the government has undervalued Royal Mail by at
least £1bn.
There are a lot of equity analysts out there. This is one and its an outlier.
I’m not criticising them. In the banking crisis they were very good. But on
this particular occassion they are way outside consensus.
Ministers criticise 440-page prospectus document
14.50 The committee has repeatedly asked Mr Cable whether he think the
production of a 440 page prospectus just 12 days before closing the share
offering is unfair to individual investors, who may have bought shares
without understanding their investment.
Cable insists that he has full faith in retail investors to know that they are
taking a risk and that they will have made a judicious decision.
Royal Mail share offering attracted 700,000 individual applications from
retail investors
14.43 Vince Cable says the high number of
applicants reassures him that the £750 minimum spend did not put off too
many people.
Cable: We valued Royal Mail based on comparable situations
14.40 The business secretary says the value range was determined by
comparing Royal Mail with its peers in other European countries such as
Belgium and Austria.
Cable: NAO will decide whether float has been value for money
There are the proceeds both now and in the future and we also have to think
about whether this transaction has helped deliever our basic objective – to
enable Royal Mail to deliver universal service obligation
Cable: Royal mail share offering has a long view
14.33 Business secretary Vince Cable denies he is being inconsistent by
supporting the Royal Mail float, having criticized other privatisations
while in opposition.
flotation and what I said before about the Kay reports and long termism
A major objective is to try to obtain a long term secure responsible
institutional investor base – that’s primarily what this is about .
This is about long-term stable secure investment. As far as the fees are
concerned they are rather competitive unlike other privatisations
IMF director: ‘I cannot think of anybody better than Yellen to lead the Fed’
14.27 Here’s Jose Vinals, financial counsellor and director of money
and capital markets at the IMF:
going to make. But on a personal note if this afternoon Janet Yellen is
nomiated as chairman, I would be very happy, and this is because over the
years I have been present with her in a number of meetings and I have the
highest reg for her both as a very solid excellent thinker
Given her very substantial academic experience and background and also as a
very solid policymaker with a tremendous good sense of policy both on
academic credentials and policy credit, I cannot think of anybody who is
better than Janet Yellen to lead the fed in these challenging times
Here’s what the IMF thinks might happen if the Fed tapers too suddenly
14.23 In its global financial stability report, the IMF lays out two
scenarios. The baseline scenario (green line) assumes that the Fed
exits quantitative easing in line with its current guidance - i.e.
gradually. The adverse scenario (red line) predicts what would happen
to Treasury yields should the Fed taper more sharply. The blue dot shows
what happened to Treasury yields when Ben Bernanke announced that a taper
was on the cards – it raised yields but they remained below the long-term
average.
IMF warns that US Fed must taper with care
14.00 The International Monetary Fund has cautioned that if the US
Federal Reserve does not execute tapering in the right way, long term
borrowing costs could rocket, which could wipe as much as $2.3 trillion off
the bond market.
MS autumn/winter range on analysts’ minds
13.30 Marks Spencer‘s new clothing range has been a topic of much
discussion among analysts this week, with a number of retail experts cutting
their forecasts for the company in the belief the company’s new
autumn/winter fashion will not be a big hit. Nomura has weighed in on
the debate today and said that the “success or otherwise of
autumn/winter seems too early to call”. Looking broadly at the group’s
second quarter, they said:
through the summer months has been more promotional than we would have
liked. We indicated in our note dated 9 July that we held ‘our
above-consensus FY estimates unchanged, although we acknowledge MS
needs better trade than we have seen to date to deliver our estimates’
We believe the early start to the summer sale in June prior to the heat
wave may have been unhelpful in terms of generating full price sales in 2Q,
while the industry in general faced with promotional comparatives and warm temperatures
has struggled at the end of September.
After falling on Monday and Tuesday, MS shares have edged up 0.7pc.
The curious case of the fall in gold
13.14 The failure of gold to rally in response to news that the status
quo is likely to continue at the US Federal Reserve (loose money, low
interest rates), has prompted one analyst to brand the market in the yellow
metal “broken”. Andrew Thrasher, investment analyst at
Financial Enhancement Group, said:
When it’s unable to rally on good news, you have to take notice.
Gold price over the last three days. Source: Bloomberg
Royal Mail investors still buying in grey market after deadline
12.39 Louise Armitstead reports.
Small investors are still scrambling to get exposure to Royal Mail by
buying in the grey market after the share order books for the historic
privatisation closed at midnight.
Spreadbetting firm IG Index said demand for Royal Mail in the grey market
was “just as strong” today as the record demand yesterday with investors
betting that the shares will open far higher than the Government’s
estimates.
Alastair McCaig, market analyst at IG Index, said some investors were
selling positions and taking profits. But the majority are still buyers.
“We’re seeing a split of about 60pc buyers and 40pc sellers. The sellers
are straight profit takers rather than short-sellers. There’s still a huge
interest in this IPO and we expect it to continue until the unconditional
trading starts on Tuesday,” he said.
The mid-price in the grey market is 397p on Wednesay, down marginally from
Tuesday but still 67p higher than the top of the Government’s range of 300p
to 330p.
Full piece here.
Confused about Help to Buy? Ask our experts
12.35 Our personal finance editor Richard Dyson is answering
readers’ questions on the Chancellor’s flagship scheme to help
first-time buyers get on the housing ladder. The webchat has just kicked off
– join in here.
A Fed under Yellen will be ‘looser for longer’
12.27 Ambrose Evans-Pritchard looks
at Janet Yellen’s policy preferences and concludes that, above all
else, she is concerned the real level of unemployment – not just the
headline figure which masks the number of people who have stopped trying to
look for a job.
So there we have it. The next chairman of the Fed is going to track the
labour participation rate. Money will stay loose. Markets have been spared
again. The Brics can breathe easier.
This leaves me deeply uneasy. We are surely past the point where we can
keep using QE to pump up asset prices. My view is that emergency stimulus
should henceforth be deployed only to inject money directly into the veins
of the economy as an adjunct to the US Treasury, by fiscal dominance, as
deemed necessary.
That would take an intellectual revolution. Is Janet Yellen game for such
incendiary ideas?
Perhaps.
Read his whole piece here.
Lloyds shares rise on Help to Buy hope
11.33 Back in the FTSE 100, Lloyds Banking Group shares are up
1.9pc after influential analyst Ian Gordon, of Investec, highlighted
that Britain’s biggest mortgage lender will receive a boost from the second
round of Help to Buy. He says:
banks, in particular Lloyds, as the key beneficiaries. We see little
pressure on front-book pricing, but the key benefit (for banks) is that
“interest rate prisoners” are set to remain “trapped”. Cause for Lloyds to
celebrate?
OECD forecast signals developed economies headed for upturn
11.27 Things are looking up for the 33 developed economies covered by
the OECD. The organisation’s leading indicator, which is meant to provide an
early signal of turning points in economic activity, rose to 100.6 in August
from 100.5 in July – where the long-term average is 100.
Blow for Canada as Disney Pixar closes studio
11.14 The only Disney Pixar studio outside California is to
close down, reports Canadian news website The
Province. The studio, which employed 100 in Vancouver, Canada,
produced short films based well-known Pixar characters such as Woody and
Buzz Lightyear from the Toy Story films.
UK entrepreneurs confident about their own growth prospects
10.55 Deloitte has declared that UK businesses are “ready to
invest” after finding that 82pc of the entrepreneurs it surveyed
said they expected to grow by at least 10pc this year.
Read their full report here.
Vendata falls despite reporting record oil and gas production
10.38 Mining and oil giant Vedanta Resources has slumped to the
bottom of the FTSE 100 after issuing a production update. Vedanta,
which is controlled by Indian billionaire Anil Agarwal, said that zinc, oil
and gas production increased during the second quarter, but its shares still
fell 4.8pc today. There appear to be no positive surprises in the update,
with Liberum Capital analyst Ben Davis saying that it is “largely
inline with consensus expectations”. A rating downgrade by Morgan
Stanley won’t have helped.
Are SMEs finally starting to borrow?
10.22 Demand for lending from small and medium-sized businesses picked
up in the three months to September, according to the Bank
of England’s quarterly credit conditions survey.This has
prompted banks to expect credit demand to increase in the run-up to
Christmas.
activity were both significant positive factors affecting overall credit
demand, with the largest rises reported since the survey began in 2007. But
lenders also cited a number of factors which continued to weigh on corporate
credit demand. Despite the reported pickup in Q3, some lenders noted that
investment remained at a low level.
Pound slips around half a cent against dollar
10.18 The pound took a tumble to a two-week low after the surprisingly
downbeat industrial production figures.
Source: Bloomberg
Fall in industrial production – just a blip?
09.51 Economists aremixed over whether this morning’s
industrial production data are a reliable signal of the wider economic
picture.
Philip Shaw at Investec has put the surprise fall in output from
Britain’s factories, utilities and mines as mere “data volatility”.
This months data suggests the manufacturing sector was not roaring away at
quite the pace the earlier data suggested. We view it as data volatility and
remain relatively relaxed about the outlook for industrial production and
the UK recovery as a whole.
Meanwhile Ross Walker at RBS thinks the figures balance out the
very upbeat picture coming out of other surveys such as the purchasing
managers’ surveys (PMIs):
equally dubious – I don’t think we’re expanding at anything like the pace
the PMIs tell us – and way below forecasts.
It does take some of the gloss off the UK, I think some of the expectations
were getting a bit ahead of reality about how well the UK was doing. So this
will prompt people to have a bit of a re-think about the underlying pace of
expansion.
It’s not going to derail third quarter growth, we should still see GDP
expanding by about 0.8pc int he quarter. But the sort of hyperbole and
people talking a week ago after the PMIs about 1.2pc quarter on quarter, I
think that’s looking way off sight.
Risers and fallers in industrial production
09.49 Manufacturing of machinery, pharmaceuticals and basic metals were
the key components dragging industrial production down. But the UK’s vehicle
makers are in rude health, with the manufacture of transport equipment
rising 12.5pc.
Source: ONS
Shock fall in Britain’s industrial output
09.42 Activity out of the UK’s factories, utilities and mines
registered a sharp drop in August, largely due to falling output from
manufacturers, according to latest figures from the Office for National
Statistics.
Industrial production fell 1.1pc in August, its steepest fall in nearly
a year. Economists had expected industrial production to rise 0.4pc. The
year-on-year drop was 1.5pc.
Yellen nomination a lone bright spot for markets
09.29 With the FTSE 100 off 0.3pc in morning trade, Rebecca
O’Keeffe, head of investment at broker Interactive Investor, says:
hope will end the current gridlock. We are however still in a significant
danger zone, with negotiations likely to be protracted and painful. With the
IMF also more bearish on global growth, there is little good news to entice
investors, however markets may take some comfort from the imminent
nomination of Janet Yellen as the next Chairperson of the Federal Reserve.
Her appointment, if confirmed, should result in the status quo being
maintained.
Janet Yellen – a life in central banks and universities
09.20 The Wall Street Journal has published a timeline
of Janet Yellen’s career, from her days at Brown and Yale
Universities to her presidency of the San Francisco Federal Reserve and her
current role as second-in-command to Ben Bernanke in Washington. She’s even
had a stint in the UK as lecturer at the London School of Economics
between 1978 and 1980.
Goldman bullish on housebuilders
09.02 Goldman Sachs has driven a number of property-related shares
higher this morning. Housebuilder Taylor Wimpey has been named by
analysts at the influential broker as a “conviction buy”, sending
the shares up 3pc. Barratt Developments, Bovis Homes, and Crest
Nicholson have been rated “buy” at Goldman too, and have all
gained 2pc as a result.
08.41 Yellen a “thumbs-up” for markets
Reuters has pulled together together the reaction
to news that Janet Yellen is to be nominated as chairman the US Federal
Reserve. Her appointment has been widely greeted for the
continuity it provides – Yelen was among the architects of the Fed’s
current strategy and is seen as a talented, experienced and safe pair of
hands.
Sean Callow at Westpac in Australia, provided an apt summary of the wider
reaction:
Markets are giving Yellen the thumbs up, counting on QE being maintained at
full pace until further notice. It’s a notable reaction given Yellen’s
nomination was so widely expected and that it comes at a time markets are
already assuming the FOMC will not seriously consider a policy change at the
October meeting given the fiscal standoff.
Still, many note that she is powerless in the face of the US Congressional
stand-off. David R. Kotok, chairman of Cumberland advisors, says all
Yellen can do is “proceed slowly on any tapering policy”.
And Annette Beacher of TD Securities in Singapore, reckons a
Yellen appointment could delay tapering until as late as March.
FTSE slips in early trade
08.17 There’s no change in direction for the FTSE 100. London’s
benchmark index slipped a further 24 points, or 0.4pc, to 6,341 in early
trade, following yesterday’s 1.1pc drop, as investors remain nervous about
the US budget impasse and debt ceiling. Even the expected appointment of
policy dove Janet Yellen as Fed chief has failed to lift the index this
morning.
Mexico joins chorus urging US debt ceiling deal
08.12 Overnight, Mexico became the latest country to urge the two
houses of Congress to overcome their differences to reach a deal on raising
the debt ceiling. The US is the destination for around 80pc of Mexican
exports. Speaking on Mexican radio, the country’s finance minister Luis
Videgaray said:
[This] has the potential to enormously affect financial markets and therefore
not just the US economy but also the economies of the rest of the world.
It’s an event that could be so serious that I think we all trust that the
lawmakers and the executive of the US will findt he means to reach an
agreement.
Greggs like-for-like sales dip
08.05 Greggs meanwhile has reported another drop in
like-for-like sales – down 0.5pc in the past quarter. It’s an
improvement on the 3.2pc drop that triggered a profit warning earlier this
year but is still a challenge for the new boss Roger Whiteside. Total
sales at Greggs rose 3.6pc and Mr Whiteside says he is making “good
progress.”
Co-operative bank axes four board members
08.00 As Louise Armitstead reports in the morning City Briefing
email, it’s been “the night of the long knives” at the
Co-operative Bank, which today has announced the culling of four board
directors.
Duncan Bowdler, Peter Harvey, Bob Newton and Len Wardle will all stand down
immediately to “increase the independence of the bank” ahead of
the drastic recapitalisation programme announced in June. The board, which
is left with just nine members, says it’s looking to appoint four more
directors in due course.
Markets still cautious amid US Congress row
07.56 Voices across the financial world have greeted the nomination of
Janet Yellen for the top job at the US Federal Reserve, but it could be
tricky to see the reaction manifest itself in the markets today. As Michael
van Dulken at Accendo Markets, notes:
News that Obama is set to nominate the dovish vice Chair Janet Yellen to the
top job at the Fed (and in global central banking) has seen sentiment
improve, on prospect of policy continuity – rates staying low for long and
policy accommodative – but US political gridlock still dominant as well as
the IMF cutting global growth forecasts and warning the US.
07.23 Nomination of ‘battle-tested’ Yellen relieves
markets
Markets have reacted with relief to news that Janet Yellen, deputy
chairman at the US Federal Reserve, is to be nominated for the top job by
Barack Obama later today. Her nomination removes one of the many unknowns
that have weighed on trading in recent days, offering some breathing
space amid the uncertainty surrounding the US budget impasse.
Here’s Andrew Sullivan, director of Asian sales trading at Kim Eng
Securities:
I think it’s more politics than reality, but it’s slightly positive for
investor sentiment, certainly.
Yellen is very much in the same camp as Bernanke, so we’re not going to see
any major policy change. That’s the relief to the market.
A former colleague of Janet Yellen, Randy Krosner, has just been on
Radio Four’s Today programme. He describes the Fed chairman nominee, who led
the San Francisco branch of the US central bank during the worst of the
financial crisis, as “battle-tested”, and without using the
label, confirms her dovish stance.
She cares a lot about making sure the economy gets back on track. She doesn’t
see a lot of inflation pressure in the short or intermediate run. She would
try to do everythign possible to get the economy growing again given
inflation pressures aren’t there.
Krosner, who sat on the board of the US Federal Reserve between 2006 and 2009,
added that since Yellen was one of the “architects” of the central
bank’s current approach – using massive asset purchases and low interest
rates to stimulate the economy – her appointment is unlikely to trigger “dramatic
change” at the bank.
Taken together, Janet Yellen has more ‘hours’ in monetary policy than
any Fed chief in history Photo: AP
Best of the rest
07.10 Drones, the unmanned planes used in military operations in
Afghanistan, could
face difficulties taking off in the civilian market due to privacy concerns,
according to the Financial Times.
A shale
gas boom in the UK could create more than 100,000 jobs, according to
consultancy Poyry, in the most bullish estimate yet of the potential
economic benefits of fracking, says The Times.
The Guardian reports that the trial
of five former employees of imprisoned Ponzi-schemer Bernard Madoff kicked
off on Tuesday with the selection of the jury.
Morrisons is jumping on the bandwagon by opening
its stores on Boxing Day and New Yea’s Day for the first time in its history,
making it the last of the Big Four Supermarkets to do so, reports the Independent.
Our top stories this morning
07.05 Top news on the Telegraph finance page this morning is that US
President Barack Obama is to nominate Janet Yellen as chairman of the
country’s central bank, making her the Federal Reserve’s first
female head.
Katherine Rushton reports that America’s
stock markets tumbled yesterday after President Obama said “there are
no magic bullets” to solve the political stand-off that has forced the
country’s government to shut down and now threatens a US
default.
Jeremy Warner writes that the International
Monetary Fund’s Olivier Blanchard owes George Osborne an apology,
but is unlikely to give one.
Olivier Blanchard has performed an embarrassing about-turn on a
warning deilvered to George Osborne earlier this year that the Chancellor
was “playing with fire” with austerity. Photo: Getty
Good morning
07.00 Good morning and welcome to our daily business and markets live
blog, your one stop shop for all the breaking business stories of the day.
Business news and markets: as it happened - October 9, 2013
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