China trade data far better than expected, boosting Asian stocks
Bank of England hawk warns of 2022 rates rise
Meanwhile, the Bank of England’s most hawkish policymaker has raised the prospect of a 2022 rates rise – but said any increase would be limited.
Michael Saunders, the sole dissenter at the Monetary Policy Committee’s August meeting to continue holding interest rates at their record low of 0.1pc, said that if the economy grows as fast as forecast, rates may need to rise to curb inflation.
Unchanged, the Bank’s existing policy stance would risk “persistent inflation overshoot versus the 2pc target” amid rising global cost pressures and ongoing supply shortages, Saunders warned.
His comments mark a contrast with fellow Bank economists, who predict the current rise in inflation will prove to be a temporary side-effect of the economic recovery.
But he said that transitory inflation would not remain as high as recent spikes have proven, and so any interest rate rise would not need to be steep.
Saunders added that the UK economy is “probably fairly close to pre-pandemic levels but the recovery has been very uneven”, noting that while spending on services has not yet fully bounced back, consumer spending on goods and business investment in machinery have been buoyant.
The long-term effects of Brexit, he warned, in terms of slower capital stock growth and a shrunken workforce, could outweigh those of the pandemic but investment in productivity may be a silver lining of the Covid-19 crisis.
The pound fell 0.13pc against the dollar to 1.3815 following the announcement, but markets were largely unaffected, with traders expecting a rates hike next May.
The Times: 888 wins race to snap up William Hill assets
Here’s some breaking financial news: 888 has won the auction to buy rival betting giant William Hill’s UK and European businesses with a bid of over £2bn, according to The Times.
That would trump private equity giant Apollo’s attempt to snap up the gambling giant’s chain of 1,400 shops.
Caesars Entertainment kicked off the sale of the bookmaker’s non-US assets in May after paying £2.9bn to buy the company earlier this year, with Ladbrokes owner Entain and Fred Done, the 78-year-old billionaire founder of Betfred, also in the running at various points.
Eurozone quarterly GDP growth lifted to 2.2pc
There was more positive financial data in the wider eurozone area, however, as GDP figures were lifted for the second quarter.
Final figures showed the eurozone economy expanded 2.2pc in the three months to the end of June – up from the 2pc rise originally reported by Eurostat. The growth was driven largely by a 3.7pc uptick in household consumption as Covid lockdowns began to ease across the continent.
German business confidence sinks
German investor sentiment has dropped sharply in September since last month, casting a shadow over recovery hopes in Europe’s largest economy, writes James Warrington.
Headline numbers for September’s ZEW Economic Sentiment Index fell to 26.5 from 40.4 the previous month, lagging well behind forecasts of 30.3.
The downbeat sentiment marked the fourth consecutive month of declines and the lowest rate in 18 months.
However, businesses’ assessment of the economy actually improved, inching up from 29.3 in August to 31.9.
Deutsche Telekom fuels BT takeover speculation
BT is leading the FTSE risers this morning amid heightened takeover speculation following comments from its joint largest shareholder Deutsche Telekom.
The German rival said it expected movement on its 12pc stake within the next year, pushing BT’s share price 2.6pc higher in early trading.
“In the next 12 months something is going to happen there around this asset because the shareholder side is changing rapidly,” Deutsche boss Tim Hoettges said.
“It’s too early to make a decision,” he added. “We are entertaining all options. We have a lot of optionalities now on the table in the BT business. We will do something which is a good deal.”
Deutsche is a long-time shareholder of BT, but found its stake matched by French rival Altice earlier this year, fuelling speculation of a foreign takeover of one of the FTSE’s largest companies.
“There is a new player in town which is [Altice chief executive] Patrick Drahi, with his activity,” Hoettges, who has previously described himself as a “kingmaker” in any takeover scenario, said.
“And I’m listening. We are today in a listening mode, we are not in an acting mode.”
London broker spooked by ‘quiet markets’
London broker TP Icap led FTSE 250 fallers today as it warned of the impact of “quiet markets” as the pandemic-inspired trading boom came to an end.
Revenue fell 5.5pc to £936m in the first six months of the year and profit shrank a dramatic 64pc as trading returned to pre-pandemic levels. The profit plunge prompted investors to sell, leaving TP Icap more than 7pc lower in early trading.
The broker blamed a resurgence of Covid-19 for leaving “traders working from home and effectively having to limit their risk appetites” as well as Brexit disruption.
“Despite the subdued trading conditions we have experienced in the period, together with continuing uncertainty caused by quiet markets and the disruption from Covid-19, we anticipate full-year revenue … to be broadly in line with 2020,” chief executive Nicolas Breteau said.
The drop follows a 26pc share price plunge at rival CMC Markets last week following a slowdown in trading activity.
DS Smith shares up as box demand packs a punch
Shares in DS Smith pushed higher this morning as the packaging group said ongoing growth in ecommerce continued to drive up demand for its products, writes James Warrington.
The box manufacturer said sales volumes had grown “very strongly” since May compared to the same period both last year and in 2019. Shares rose as much as 3.5pc before settling up around 1.7pc.
While DS Smith reported growth across all its divisions, it said trading was particularly strong in the US and southern Europe, as well as with its large FMCG multinational customers.
Miles Roberts, group chief executive, said: “I am very pleased with the progress made during the financial year to date. We have continued to build on our strong customer relationships resulting in excellent volume growth and good progress towards recovering the significant increasing costs of production through higher prices. “Consequently overall trading continues to strengthen in line with our expectations.”
Ted Baker sales jump as dressing up comes back in style
Ted Baker saw its sales surge in the second quarter as the easing of lockdown restrictions fuelled demand for fashion among British shoppers, writes James Warrington.
The fashion retailer hailed a strong recovery from the pandemic as it posted a 50pc rise in revenue for the three months to 14 August.
Brick-and-mortar sales increased 30pc on last year, but still lagged 30pc behind the same period before the pandemic in its 2020 financial year.
Online sales were also down by a quarter compared to last year due to the return to high street shopping and heavy discounting in the previous period.
Chief executive Rachel Osborne said: “We have made encouraging progress, with trading over the second quarter in line with expectations, albeit the speed of recovery is different across store locations and regions. “Full price sales mix has significantly improved across all our retail channels as we continue to re-establish our premium lifestyle brand positioning.”
China’s surprise exports surge
China was given a welcome boost overnight as fresh data showed an unexpectedly rapid growth in trade in August, writes James Warrington.
The world’s second-largest economy enjoyed a 25.6pc rise in exports year-on-year – a sharp uptick on the 19.3pc gain recorded in July despite the part closure of a port to deal with a Covid outbreak. Imports also increased by a third amid strong global demand.
China’s trade surplus for August stood at $58.34bn last month, ahead of analyst forecasts of $53.64bn. The figures will come as a boost to the Asian giant, whose recovery from the pandemic has been under threat in recent weeks from a range of factors including a fresh wave of Covid outbreaks and slowing factory activity.
Asian stocks pushed higher thanks to the surprise trade boost, with the Nikkei gaining 0.86 per cent and Hong Kong’s Hang Seng up a similar amount.
FTSE 100 slips after strong start to week
The FTSE 100 slipped as markets opened this morning, pulling back gains made at the start of the week, writes my colleague James Warrington.
The blue-chip index was down 0.26pc at around 7,170 points following strong trade data from China overnight. It comes after the FTSE gained 0.7pc yesterday during a quiet day of trading, with US markets closed for Labor Day.
Chart: UK records new house price high
Here’s a chart showing the new record house price:
‘Homeworking driving housing demand’
Russell Galley, managing director at Halifax, pointed out the August increase was the housing market’s lowest in five months amid the end of the stamp duty holiday, but said other factors are driving demand:
Much of the impact from the stamp duty holiday has now left the market, as highlighted by the drop in industry transaction numbers compared to a year ago. However, while such government schemes have provided vital stimulus, there have also been other significant drivers of house price inflation.
We believe structural factors have driven record levels of buyer activity – such as the demand for more space amid greater home working. These trends look set to persist and the price gains made since the start of the pandemic are unlikely to be reversed once the remaining tax break comes to an end later this month.
Moreover, the macroeconomic environment is becoming increasingly positive, with job vacancies at a record high and consumer confidence returning to pre-pandemic levels. Coupled with a supply of properties for sale that looks increasingly tight, and barring any reimposition of lockdown measures or a significant increase in unemployment as job support schemes are unwound later this year, these factors should continue to support prices in the near-term.
Halifax: House prices soar 7pc in August
House prices surged 7.1pc higher in August to hit a new record, according to Halifax’s housing market index, released this morning.
The average value of a UK home hit a new high of £262,954 last month thanks to the rise, which was slightly slower than July’s 7.6pc increase.
On a monthly basis prices rose by 0.7pc last month, with Greater London the slowest growing region with a rise of just 1.3pc, its worst in 18 months, to £508,503.
El Salvador adopts Bitcoin as legal tender
Good morning. All eyes will be on Bitcoin today as El Salvador officially adopts the cryptocurrency as legal tender, going the furthest any nation has gone to start using the coin more widely.
New laws in El Salvador mean that, from Tuesday, all companies will have to accept payments in Bitcoin. The cryptocurrency climbed close to 2pc to $52,682 after the country’s president, Nayib Bukele, revealed his government now holds 400 bitcoin.
Elsewhere, the FTSE 100 is set to drop 0.2pc after yesterday’s 0.7pc increase, leaving it at around 7,175 points. That follows better than expected trade data from China overnight, with the trade balance climbing to $58.34bn thanks to a 26pc rise in exports year on year, and imports surging a third higher.
That pushed up the Hang Seng almost 1pc higher, a rise matched by Japan’s Nikkei. “Asian equities are breathing a sigh of relief, and oil prices have moved higher post-data,” said Oanda analyst Jeffrey Halley.
“China’s data will take the heat of the recessionary fears but may also lessen the likelihood, in investors’ minds, of the need for China to open the stimulus taps.”
5 things to start your day
1) Britain forced to fire up coal plant amid record power prices: Wholesale power costs surged to more than four times their normal level, as calm weather shut down the country’s wind turbines. It is feared the high prices will continue into winter as the weather gets colder, raising fears over household bills and putting a string of energy suppliers at risk of going bust.
2) City watchdog takes aim at Kardashian: Charles Randell, who oversees the Financial Conduct Authority (FCA), singled out Kim Kardashian as he said that famous people who promote cryptocurrencies and other high-risk investments on social media are “betraying the trust” of their fans. He vowed to hold influencers to account if they cost the public money.
3) Ministers intervene in Chinese takeover of Welsh firm: Kwasi Kwarteng referred the potential takeover of Perpetuus to the Competition and Markets Authority. Perpetuus, based in Swansea, is believed to be currently negotiating an investment deal from Taurus International, a UK entity backed by Chinese investors who plan to take a majority stake in the company.
4) Privatisation will harm viewers, Channel 4 boss warns: The broadcaster will be forced to shut regional offices and abandon coverage of the Paralympic Games if it is privatised, the station’s bosses have said as they launch a fightback against ministers’ plans. There is no evidence to suggest that privatisation would benefit audiences or the economy outside London, chief executive Alex Mahon said after hiring accountant EY to model the potential impact on the broadcaster.
5) City ‘must hug China close in order to thrive: Ministers should help firms deepen their ties with the authoritarian country and could offer to help Beijing develop its capital markets according to TheCityUK, which represents financial and professional service companies across London.
What happened overnight
Tokyo’s Nikkei 225 briefly broke 30,000 for the first time in five months on growing expectations for a fresh stimulus after Japan’s prime minister said he would step aside, paving the way for Fumio Kishida, the former foreign minister who wants a 30 trillion yen (£197 billion) spending package. With US traders off on Monday for a public holiday, Asia had few catalysts but Hong Kong, Shanghai, Manila and Jakarta all posted gains. Sydney, Seoul, Singapore, Wellington and Taipei edged down.
Coming up today
Corporate: Alumasc (Full year); Cairn Energy, McBride, TP Icap, Vistry, IQE, Parsley Box, Luceco (Interim); DS Smith, Ted Baker, Safestore Holdings (Trading update)
Economics: Halifax house price index (UK), GDP, employment (EU)