Pound falls after IDS quits; European markets slip back - as it happened

Graeme Wearden (until 1.30) and Nick Fletcher

from Economics | The Guardian on 2016-03-21 17:57 (#17RYV)

Brexit fears are swirling again as Britain's government suffers a shock resignation

5.57pm GMT

A trading week shortened by the Easter break got off to a fairly uninspiring start. European markets ended slightly lower in the main, despite a strong performance from the Chinese market overnight. Weaker commodity shares proved a drag on the markets as metal prices steadied after recent gains, and oil drifted lower before turning higher again after comments from Opec. There was little economic data to distract investors, although what there was - US home sales, UK factory output and European confidence figures - proved disappointing.

The pound continued to fall after the resignation of work and pensions minster Ian Duncan Smith raised new Brexit concerns. The final scores showed:

5.29pm GMT

Oil prices are moving higher again after Opec secretary general Abdalla Salem el-Badri said all members of the oil producing group will be invited to a meeting on April 17.

A number of producers want to freeze output at January levels in order to deal with a supply glut that has pushed crude prices sharply lower. El-Badri said Iran had no objection to the April meeting but has some conditions on its production. He said the only problem in the market at the moment was an overhang of 300m barrels, reports Reuters.

4.54pm GMT

As markets drifted lower Tony Cross at Trustnet Direct said:

It's been a disappointing start to the week for the FTSE-100, with sentiment not quite seeming able to keep pace with the fundamentals. Oil prices had been seen as weighing on the commodity stocks in trade earlier this morning but despite WTI crude breaking back above $40/barrel, the reaction in London has been rather muted. Admittedly we're scraping a finish that's as good as unchanged, but it's far from a spring-like hop towards fresh highs for the year.

3.30pm GMT

Here's our latest report on troubled pharmaceutical group Valeant:

The chief executive of Valeant resigned on Monday, after the embattled Canadian drugmaker admitted that "improper conduct" by senior management caused the company to misstate its financial results.

Michael Pearson, who had returned to the helm last week after more than two months' sick leave with pneumonia, said he regretted the controversies the company has caused and will leave as soon as a successor is found.

Valeant was a stock market darling under Pearson, who developed a strategy of buying up companies and dramatically increasing the price of undervalued drugs.

However, such a "price gouging" strategy has been attacked by both Hillary Clinton and Bernie Sanders, and Valeant was called before Congress to explain. Two state attorney generals have opened investigations into the company's drug pricing.

3.23pm GMT

The confidence figures are a worrying sign since consumers are key to future growth in the eurozone, says economist Howard Archer at IHS Global Insight. He said:

A blow for Eurozone growth hopes as the European Commission reported overall consumer confidence weakened for a third month running in March - to be at a 15-month low.

This will fuel concern over whether consumers will help eurozone GDP growth to pick up in the near term from current lacklustre levels - even though the fundamentals for consumers still look pretty decent.

3.08pm GMT

Consumer confidence in Europe has fallen back so far in March, according to an initial survey by the European Commission.

It slipped 0.9 points to -9.7 in the eurozone, and dipped 0.7 points to -7.3 in the wider European Union. Dennis de Jong, managing director at UFX.com, said:

With more than half of the members of the eurozone now in deflation, including Germany, France and Italy, it is little surprise that consumer confidence is plummeting.

ECB president Mario Draghi is quickly running out of options, and the looming UK referendum on EU membership in June is serving up a large dish of insecurity across Europe.

3.00pm GMT

Peter Praet, an executive board member of the European Central Bank, said last week that if other stimulus measures failed, the bank could even embark on 'helicopter money' and physically press cash into the public's hands, to force inflation up.

Unsurprisingly, this idea seems to have gone down badly with the Bundesbank. Jens Weidmann, president of the German central bank, has reportedly warned of the dangers of helicopter money on bank balance sheets. Bloomberg reports:

Weidmann warned against starting a discussion about handing out cash to stimulate growth, Funke Mediengruppe reported, citing an interview.

"Helicopter money isn't manna falling from heaven, but would rip huge holes in central bank balance sheets," Weidmann, who heads Germany's Bundesbank, said, according to the newspaper. "The euro area states and taxpayers would pay the bill in the end."

2.19pm GMT

Lawrence Yun, the chief economist at the National Association of Realtors, said:

Sales took a considerable step back in most of the country last month, and especially in the Northeast [down 17.1%] and Midwest [13.8%,lower]. The lull in contract signings in January from the large East Coast blizzard, along with the slump in the stock market, may have played a role in February's lack of closings. However, the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers.

2.12pm GMT

There's some bad news from the US housing market with existing home sales falling sharply in February.

The National Association of Realtors said home sales (excluding newly built houses) dropped by 7.1% to an annual rate of 5.08m, which is the lowest level since November. That compares to expectations of a fall of around 3% to 5.31m.

US Existing Home Sales Feb: 5.08M (est 5.31M; prev 5.47M)
-Existing Home Sales (MoM) Feb: -7.10% (est -3.00%; prev 0.40%)

1.59pm GMT

Also on the way up in the US are Starwood Hotels, up 4% after an increased $13.6bn offer from Marriott, and business research group IHS, nearly 6% higher following news of a deal to buy data group Markit.

1.39pm GMT

With European markets edging down after a mixed morning, Wall Street has followed suit.

The Dow Jones Industrial Average is 11 points lower, as last week's rally ran out of steam. The S&P 500 opened down 0.16% while Nasdaq has dipped a similar amount.

1.29pm GMT

Drama on Wall Street!

Valeant, the trouble pharmaceutical company which has admitted misstating its financial results, has just announced that CEO Michael Pearson is stepping down.

"While I regret the controversies that have adversely impacted our business over the past several months, I know that Valeant is a strong and resilient company."

Wait. What? "Board requested that former [CFO] Howard Schiller tender his resignation as a director, but Mr. Schiller has not done so" $VRX

12.56pm GMT

There's a nifty GIF, showing how the UK government could raise 4.4bn to replace the abandoned cuts to disability benefits:

PM 'has full confidence' in Osborne amid disability benefit cuts U-turn row https://t.co/zvBQIiDf7q pic.twitter.com/fQrbqgxIqm

12.31pm GMT

With the pound still down, analysts are wondering if Iain Duncan Smith's shock resignation could seriously dent confidence in the government.

Robin Bew of the Economist Intelligence Unit says the crisis could highlight David Cameron's weaknesses:

#UK Gov resignation doesn't just underscore #Brexit woes. Also highlights increased inability of Gov to get policy through unimpeded

No10 confirms MPs will be asked to vote on a Budget tomorrow with 4bn missing from it after PIP U-turn. Irregular, to put it mildly.

#Breaking George Osborne still has full confidence of Prime Minister, David Cameron's official spokeswoman says pic.twitter.com/wlAsZymqpg

12.14pm GMT

French business chief Henri de Castries has moved a step closer to becoming the next chairman of banking giant HSBC.

De Castries resigned as chief executive of insurance group AXA this morning, where he's worked for the last 27 years. And that has heightened speculation that he could replace Douglas Flint at HSBC.

The 61-year old was appointed to the board of HSBC last year as a non-executive director and is now cited a candidate to replace Douglas Flint who revealed on Friday that a search was underway for his successor.

Britain's bank has already promised that its next chairman will not be selected from its top management team - breaking with tradition - and appoint an outsider to the role.

11.08am GMT

Britain's factory sector suffered another drop in March, according to the latest CBI Industrial Trends Survey.

The survey found that output volumes over the three months to March fell at the fastest pace since September 2009, with 8 of the 18 manufacturing sub-sectors posted a decline in output.

"March has been a mixed month for the UK's manufacturers. Whilst total order and export books remained steady, a drop in output reflected some volatility in the food and drink sector. Reassuringly, manufacturers expect a swift turnaround in activity.

11.05am GMT

European stock markets have shaken off their early losses, sending Germany's DAX up by 0.7%.

The British pound was an underperformer in currency markets after the resignation of MP and former Tory leader Iain Duncan-Smith. A bit of internal party bickering doesn't normally impact Sterling but this time it has because of the possible implications for Brexit.

10.45am GMT

Two data companies that we quote a lot in this liveblog are merging.

IHS Global Insight, home of Jane's Defence Weekly and the ever-quotable analyst Howard Archer, is buying UK rival Markit in an all-share deal.

10.13am GMT

The CBI, which represents Britain's businesses, has also waded into the EU referendum debate.

In a new report, it warns that Brexit could cost....100 billion pounds (a figure which is crying out for a Dr Evil impression)

"Leaving the EU would mean a smaller economy in 2030." CBI. Possible? sure. But a heroic level of guesswork/assumption in 15 yr forecasts!

9.30am GMT

Alastair Winter, chief economist at investment bank Daniel Stewart, is hopeful that Britain will avoid a sterling crisis.

Despite today's losses, he predicts the pound will hover at current levels until June's referendum is much closer.

I would expect sterling to loiter around $1.40 unless and until Brexit really looked like winning.

IDS was a disaster as Tory leader and is no firebrand. Many people believe he was out of his depth in implementing Universal Credits. I also doubt he is a market-mover.

George & Dave are undoubtedly wounded, but this profits Boris* more than Labour (except Sadiq Khan who was set to win the London mayoralty race anyway).

9.15am GMT

Richard Benson, head of portfolio investment at currency managers Millennium Global in London, also believes the pound is suffering from the aftermath of Iain Duncan Smith's resignation.

He told Reuters:

"Sterling does not normally react strongly to UK politics so this is probably due to Brexit.

"The referendum is just making people focus on issues like this a lot more. It is down in response this morning."

9.03am GMT

Sterling has been falling this morning, after work and pensions secretary Iain Duncan Smith sensationally resigned late on Friday.

The pound fell by almost one cent against the US dollar, hitting a low of $1.4377. It is also down 0.4% against the euro, at a1.2803.

The resignation of Iain Duncan Smith, the work and pensions secretary, will simply add another layer of political risk to sterling's prospects. 'Brexit' continues to dominate conversations, and the most alarming comment I've heard so far was from a business student at a talk I gave last week: "I'd quite like the Uk to leave the EU, just to see what happened'.

Young educated Londoners are natural in favour of Europe and if they're torn between rebelling and not bothering to vote at all (older voters are much more likely to turn up at the ballot box, but also more likely to vote to leave the EU), that doesn't bode well.

The political turmoil in the Conservatve party has ended last week's UK Pound rally and pushed it back to US $1.44 #GBP #BoE

Corbyn on @skynews Chancellor should consider his position, warns of a "lurking wolf" at DWP targeting needy people pic.twitter.com/SWNEvHzUfx

8.32am GMT

European Central Bank policymaker Benoi(R)t CAuri(C) is urging eurozone politicians to create closer economic and monetary union, or risk seeing the European project unravel.

The progress of European integration has increased interdependence between Member States. But we still haven't drawn all the necessary conclusions and European politicians still don't have the tools that would allow them to respond to the expectations placed on them.

This shortcoming feeds popular frustration with European policies, sometimes to the point that they question European integration itself. There is nothing inevitable about the status quo, but, to move forward, we need to redefine a common project. It will take many years to implement this project. It is all the more urgent to start defining it.

CAuri(C): A stronger euro area would benefit political stability https://t.co/bozeRS6UZR

8.23am GMT

The rally in Chinese shares has not fed through to Europe.

London's FTSE 100 dropped by 30 points, or 0.3%, at the start of trading.

Miners, oil #stocks get hit as $ rallies & US rig count increase puts supply imbalance back in spotlight pic.twitter.com/EeKtCBejJf

Commodities rolling returns for the past 10 years are at -6.1%, which is the lowest since the Great Depression. pic.twitter.com/MlmqUPvJJS

8.16am GMT

IMF chief Christine Lagarde has offered Beijing some support over the weekend.

8.01am GMT

China's new encouragement for speculative stock market borrowing is part of a broader stimulus push, argues Chris Weston of IG.

He writes:

The Chinese government is clearly pining for the days of yore when domestic stocks and property investment both moved up in tandem. The China Securities Finance Corporation loosened controls on margin lending on Friday and Chinese markets have responded in kind, rallying aggressively as soon as they reopened.

Heavy fiscal spending on the government's part has helped restart property construction in 2016, while monetary easing and weakening home purchase downpayment requirements have helped spur property sales.

One wonders whether part of the reason behind this stimulatory push is due to the fact that top members of the Chinese leadership are positioning themselves for the five out of seven Politburo Standing Committee seats that will become available at 2017's 19^th Party Congress.

7.54am GMT

A flurry of buying activity has ripped through China's stock market today, after Beijing relaxed rules designed to prevent a bubble.

The Shanghai composite index has spiked by over 2% to close at 3,020 points, a gain of 64 points, despite concerns over the Chinese economy.

China Securities Finance Corp., the state-backed agency that provides funding to brokerages for margin trading, will restart offering loans to securities firms for periods ranging from 7 days to 182 days, according to a statement posted on its website Friday.

The agency will cut interest rates on the debt to as low as 3 percent, it said.

7.41am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

After the recent drama from central bankers, there's a calmer feeling in the markets this morning. And with not much data in the calendar, it could be a bit of a drag.

History repeats itself, first as tragedy, then as farce, then as Greek bailout negotiations. pic.twitter.com/atFonyDaip

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