FTSE 100 and pound slip on UK election day, while ECB shuts door to rate cuts – as it happened

Graeme Wearden (until 2.30) and Nick Fletcher

from on 2017-06-08 16:41 (#2S894)

European Central Bank has raised its growth forecasts, and cut its inflation forecasts, after dropping pledge to lower rates if needed.

5.41pm BST

Finally, away from the Triple Threats, there are developments concerning Greece. The IMF has confirmed that the fund's managing director will attend next week's critical meeting of eurozone finance ministers as efforts intensify to resolve the rift over how to lighten the country's debt load. Helena Smith reports from Athens:

Its official: Christine Lagarde will attend the June 15 eurogroup meeting in Luxembourg according to IMF spokesman Gerry Rice. Her presence now leaves the door open to the Fund approving a program "in principle" if the impasse over debt relief isn't resolved at the meeting - an effective get-out clause that would allow the EU more time to come to an agreement while emergency loans were disbursed to Greece in time for a7.5bn worth of debt repayments in July. The IMF has made clear it will not contribute to disbursements until a debt relief formula is devised permitting Largarde to make the case for further bailout participation before the body's board.

"We would still be insisting on reforms and debt relief before the IMF would disburse any of its funds," Rice told reporters this afternoon. "So this is not a backing down or a walking away in any respect."

5.34pm BST

The testimony of ex-FBI director James Comey certainly does not appear to be troubling the US markets. The Dow Jones Industrial Average has just hit a new peak of 21,265. Its last record was just under a week ago on 2 June.

5.01pm BST

Triple Threat Thursday has so far pass off without too much market drama. Ahead of the close of polls in the UK election, the FTSE 100 and the pound have both slipped back, with investors nervous about the possible outcome. The general feeling is that a Conservative majority is on the cards, but traders are not ruling out a surprise, given the Brexit and Trump shocks. In Europe, the euro has weakened as the European Central Bank ruled out lowering interest rates, a change in its policy. The final scores showed:

4.07pm BST

On the latest market reaction to the UK election, David Madden, market analyst at CMC Markets UK, said:

The FTSE 100 is sliding today as dealers are concerned about the UK general election. If you take an average of the polls conducted, it points to a Conservative win but some investors have less confidence in the polls, in the wake of Brexit and President Trump. The UK stock market would prefer a Tory victory as the party is more in favour of free market economics than Labour. The ground lost by the Conservatives in the past couple of weeks has rattled some traders.

3.57pm BST

Doesn't look like #ComeyTestimony is having a suppressing effect on trading activity so far https://t.co/KCbPj5uG7A pic.twitter.com/Jjp2I2Tm55

3.48pm BST

So far markets seem to be taking the day's big events in their stride. Connor Campbell, financial analyst at Spreadex, said:

There's been a bit more movement this afternoon, but nothing to quite deliver on the promise of 'triple threat Thursday'.

So far James Comey's appearance in front of the Senate intelligence committee has done little to disrupt the US markets - if anything the dollar is looking pretty perky, rising against both the pound and the euro. Of course it's early days yet, with a couple of hours to go until the former FBI chief's public testimony is finished. Who knows what it will uncover?

3.44pm BST

A reminder that ex-FBI head James Comey is testifying at the moment. So far there has been little market reaction, with the Dow Jones Industrial Average down just a couple of points.

Here's a flavour of the meeting, with Comey explaining why he started making contemporaneous notes about his discussions with President Trump:

Why did Comey decide to document that [first] discussion. What was it about that meeting?

Comey replies:

I was honestly concerned that he might lie about the nature of our meeting, and so I thought it was important to document it.

3.25pm BST

The European Central Bank has got the eurozone economy moving again, but will it last, asks our economics editor Larry Elliott:

Growth forecasts revised up. Inflation forecasts revised down. Jobs being created. Take a bow Mario Draghi. Urged on by its proactive boss, the European Central Bank has achieved what looked impossible until recently: it has got the eurozone economy moving again.

Draghi should milk the applause while he can because the eurozone's sweet spot won't last for ever. It didn't in the US and it didn't in the UK, two countries that pursued exactly the same macro-economic strategy as the ECB, only earlier.

2.47pm BST

More reaction to Draghi and the ECB:

Not particularly exciting #ECB press conference after all! Cautious but marginally more confident #Draghi. #EURUSD #Eurozone

There was so much fuss made about this key ECB meeting and it ended up being a bit of a damp squib. The central bank and its president Mario Draghi delivered contradictory statements about inflation and probably left many market participants feeling somewhat disappointed that there wasn't anything concrete announced. To be fair, the leaked inflation and growth forecasts earlier this week had already taken the edge out of this meeting and many people had already prepared to hear a more dovish than a hawkish ECB. Hence, the euro didn't exactly fall off a cliff.

2.40pm BST

Back with the European Central Bank, and Carsten Brzeski at ING Bank has commented again following Mario Draghi's press conference:

It was a bit like in the good old days when ECB watchers looked out for code words like "vigilance". This time around, all eyes were on the ECB's forward guidance on interest rates and the risk assessment for the economic outlook. On both, the ECB delivered some changes. As regards the forward guidance on interest rates, it was not about what the ECB said but what it actually didn't say. The ECB omitted the reference that interest rates could even be lower than their present levels and therefore dropped the easing bias for interest rates. Let's not forget, however, that at the same time, the ECB kept the easing bias on QE, sticking to the formulation that the ECB would be willing to step up its monthly asset purchases if need be. Also, Draghi remarked that the ECB will remain in the market for a long while and the QE tapering was not discussed at today's meeting. As regards the ECB's macro-economic assessment, the ECB upgraded the risk to the growth outlook from negative to now "broadly balanced". Actually the first time since 2011 that the ECB calls the outlook for growth balanced.

The improved economic outlook, however, has not yet led to any significant inflationary pressure in the Eurozone. This picture was reflected in the ECB staff's economic projections which were marginally upgraded to 1.9% (during the Q&A session, Draghi said that due to the upward revision of 1Q GDP, growth would actually now come in at 2%), 1.8% and 1.7% in 2017, 2018 and 2019 respectively. At the same time, the inflation projections were revised downwards to 1.5%, 1.3% and 1.6% for 2017, 2018 and 2019. Even though the downward revision was mainly the result of lower oil prices and a slightly stronger exchange rate, subdued inflation rates remain the biggest concern for the ECB. Reasons for low inflation rates are in our view not only the slack in the Eurozone economy, still high unemployment and a high number of (involuntary) part-time and low-wage employment but also globalisation and digitalisation.

2.34pm BST

With the third element of Triple Threat Thursday - the testimony of ex-FBI head James Comey - due shortly, US markets have got off to an uncertain start.

The Dow Jones Industrial Average is currently down just 5 points, while the S&P 500 and Nasdaq Composite both edged higher.

Following the release of James Comey's statement on Wednesday - which suggested Trump pressured him for a pledge of loyalty and implied his job was in peril if he didn't drop the Michael Flynn investigation - all eyes will be on the former FBI chief's testimony in front of the Senate intelligence committee. Presently neither the dollar nor Dow Jones seems too fussed by the recent revelations, though that could all change when Comey takes the stand.

2.22pm BST

Q: The economy has started to improve nicely; is that because of QE or despite QE?

It's because of QE - we're here because of that, smiles Draghi (perhaps inwardly fuming at this implied criticism of his precious stimulus package).

Draghi says 5 million jobs creating in eurozone over last three years, 'more than in US'. Was Donald Trump listening?

2.16pm BST

Another nudge to Europe's elected leaders to crack on with the job:

Draghi: Economic and Monetary Union is incomplete, new work on completing it is to be welcomed

2.13pm BST

Draghi is trying to cool speculation that the ECB is inching towards the exit of its stimulus programme....

@ECB Draghi "we removed the easing bias on interest rates because the left tail risks have disappeared". Denies a first step towards exit.

2.11pm BST

Q: Could the ECB increase its QE programme if the economy weakens?

Draghi says that there is adequate "flexibility" in the asset purchase scheme.

Draghi: The programme is running smoothly and it has enough flexibility

2.06pm BST

An Estonian journalist asks if her country is unfairly missing out from the ECB's asset purchase scheme, because it doesn't have any government debt for the ECB to mop up.

Draghi argues that Estonia benefits from QE's positive impact on the euro area, as it is an open economy.

2.04pm BST

Q: Why did the ECB decide that Santander was the best candidate to take over Banco Popular?

Vice-president Vitor Constincio says that the ECB concluded that Popular was "failing or likely to fail", as a bank run was taking hold and liquidity was running low.

2.00pm BST

Q: Did the ECB discuss when to start normalising monetary policy?

No, says Draghi.... but then he remembers that two council members made some observations about this issue.

#Draghi reports about mild exchanges in the GC about prospective changes in monetary policies, with two members raising the issue.

#Draghi: "2 council members" expressed a different view on the #ECB policy normalization. Guess who in the Spectrometer... pic.twitter.com/gxq5NlE9S1

1.57pm BST

Q: Could a prolonged lower inflation rate force the ECB to change its forward guidance and raise its negative deposit rate before ending its QE programme? [currently it promises to complete the asset purchase scheme before tackling interest rates]

"No, no" says Draghi, emphatically.

1.54pm BST

Q: Should we expect the ECB to outline its tapering strategy in September, following today's decision to drop your pledge to cut interest rates?

It was not discussed, president Mario Draghi snaps back.

#Draghi blaming "backward-looking" wage negotiations for low wages & thus "flat low profile of the underlying inflation". Take that unions!

Broad unemployment, job quality, wage growth: those are the new key criteria in the ECB's reaction function.

1.48pm BST

The euro has shed half a cent against the US dollar after Mario Draghi announced the ECB has slashed its inflation forecasts.

#Euro drops to $1.12 as markets surprised by 2018 #ECB inflation downgrade to 1.3% from 1.6%. pic.twitter.com/XUO8dahKLk

1.46pm BST

Q: Did the ECB act quickly enough to tackle Banco Popular (the Spanish bank which was rescued by Santander this week).

Draghi says he can't comment on individual institutions, but he hails the "timely action" of the regulators who handled the sale.

1.45pm BST

Onto questions

Q: Were today's decisions unanimous?

1.45pm BST

Draghi ends his statement with his traditional call on European governments to do more to tackle structural problems in their economics, and underpin the recovery.

1.44pm BST

Growth up, inflation lower. Risks broadly balanced. A shift, but not seismic.

1.42pm BST

Higher growth, lower inflation, Draghi ready for a holiday

1.41pm BST

The leaks were true! The ECB has cut its forecasts for inflation over the next few years.

Here are the new forecasts for CPI inflation:

1.40pm BST

1.39pm BST

More encouraging news. The ECB has raised its growth forecasts for the next few years.

It now expects GDP to rise by 1.9% this year, up from 1.8% expected back in March.

Draghi: GDP projections: 1.9% in 2017 [1.8% in March], 1.8% in 2018 [1.7%], 1.7% in 2019 [1.6%]

1.36pm BST

Boom! Mario Draghi says that the eurozone recovery is enjoying "stronger momentum", and now growing at a "somewhat faster pace than previously expected.

Risks to the growth outlook are now "broadly balanced", he declares -- dropping the ECB's previous warning that risks were to the downside.

Draghi says euro zone growth risks now "broadly balanced" (previously risks were to the downside)

1.34pm BST

Over in Tallinn, Mario Draghi has arrived to explain the decisions taken at today's ECB governing council meetings.

He confirms that the ECB left interest rates on hold, adding:

The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

1.33pm BST

Away from the ECB for a moment, and more positive signs from the US economy.

Weekly jobless claims fell to 245,000 compared to 255,000 the previous week. That however was slightly worse than the 240,000 figure that had been expected. And the previous week's figure was revised up from the original estimate of 248,000.

JUST IN: Jobless claims in U.S. resume decline amid tight labor market https://t.co/CIasBGMw6K pic.twitter.com/xXy8c2YqUi

1.27pm BST

This really is a historic day.....

Trading Places premiered today in 1983. I was -2 years old. pic.twitter.com/ILN1UpZXD4

1.25pm BST

1.15pm BST

You might have expected the euro to rally, after the ECB dropped its pledge to cut interest rates to fresh lows if needed.

But actually the single currency has fallen a little, down 0.3% today at $1.1225, after a sudden spike when the ECB announcement hit the wires.

Euro quickly moves into a classic Who Cares formation. pic.twitter.com/YfRsncofYt

technically, that's a Bug Hitting A Windscreen formation

The @ecb meets expectations by saying it doesn't see lower interest rates ahead- in 20 minutes Draghi tries to keep lid on tapering fever...

1.08pm BST

Fred Ducrozet of Pictet Bank says the ECB has taken a symbolic step towards tightening monetary policy in the eurozone, for the first time in many years.

ECB policy rates to remain "at present" levels [not "lower"] for an extended period of time, and well past the horizon of QE.

A small, yet symbolically VERY important step. This is the first effective tightening in the ECB's stance since Trichet's 2011 rate hikes. https://t.co/etV6vS5jBn

It was not about what the ECB said but what it didn't say. In fact, the ECB omitted the reference that interest rates could be lower than their present levels. This easing bias is now gone.

Starting at 2.30pm CET, Draghi will present the new ECB staff macro-economic projections, the ECB's assessment on growth and inflation and possibly some hints at the future path of monetary policy. In our view, some tweaks to the macro-economic risk assessment as a clear statement that the current recovery does still not show any inflationary signs are the most likely outcomes of the press conference.

We still need to hear from Mario Draghi, but the initial assessment of the early statement is that the ECB may have made some tiny, tentative steps towards policy normalisation by dropping a reference that it could cut interest rates further.

We still need to see the ECB staff forecasts for growth and inflation, and there is a big expectation that the ECB will sharply cut its inflation forecast to the 1.5% level, way below the ECB's 2% target rate.

While the short-term costs of prolonging the ongoing monetary regime for a quarter or so seem small, it is not without incident. The longer we stay in this regime the more severe consequences it has on related currencies, such as the Swiss Franc.

The actions of the ECB force them to set very low interest rates and to engage in huge bond buying programmes on their own. This spillover effect to other currencces makes it more difficult it is to change the course of action afterwards."

12.55pm BST

The ECB has also voted to keep creating a60bn of new money each month, to buy government and corporate bonds in an attempt to get inflation up.

The bank has also pledged to boost this QE programme if needed, saying:

12.53pm BST

Newsflash: The European Central Bank has dropped its pledge to cut interest rates to fresh record lows if needed.

*ECB DROPS REFERENCE TO LOWER RATES IN FORWARD GUIDANCE

Shorter ECB: a toe is in the water

12.41pm BST

It's nearly time for the first of today's 'triple threats' -- the results of today's European Central Bank meeting, followed by Mario Draghi's press conference.

Investors across the eurozone, and beyond, will be looking closely for signs that the ECB could adjust its monetary policy stance, especially after today's growth upgrades.

While investors have their eyes and ears glued to the UK's general election, today's EU GDP release and this afternoon's interest rate decision could have big ramifications for financial markets.

"Most were expecting the upward revision of 0.6% to be confirmed and the latest estimate of EU GDP, although positive, is unlikely to alter Mario Draghi's thinking ahead of his lunchtime press conference.

12.33pm BST

Joshua Mahony, market analyst at IG, says the City is facing the 'calm before the storm', ahead of tonight's election results.

The polls are open, and despite what is expected to be an incredibly volatile 24 hours ahead, we have seen a remarkably calm start to the day for the FTSE 100...

Amid a remarkable Corbyn resurgence in the polls, FTSE traders would do well to remember the confusion caused around the US election and EU referendum, where the predicted demise of stocks in the eventuality of a Trump win or Brexit really didn't come to fruition, catching many off-guard.

12.31pm BST

Britain's stock market is basically becalmed right now, with the FTSE 100 currently down 9 points at 7469.

It has gained around 4.5% since today's general election was called in mid-April, so traders are now waiting to see if the pollsters have got this one right.

11.56am BST

With Britain's polling stations doing a brisk trade, City experts have been analysing how the results of today's vote will shift the markets.

#GeneralElection17guesses Sterling has one of its quietest political nights in a while

From a markets perspective, this election is huge and could produce some substantial moves, particularly in sterling, the FTSE and UK debt. As we've learned from similar events previously - Brexit, US election - not only is the outcome not always obvious but the market reaction can also catch people off guard and that's what's had traders acting with such caution all week.

The most undesirable outcome is surely a hung parliament that produces both domestic political uncertainty and, more importantly, uncertainty and delays in Brexit negotiations. With the currently deadline being March 2019, any delay will be detrimental to the UK in negotiations and could therefore be devastating for sterling. While the knee jerk reaction to this may also be bad for the FTSE, as we saw after the EU referendum, we could see this bounce back quite quickly with the weaker currency benefiting its mostly outward facing companies.

11.24am BST

Britain's slowdown at the start of this year was due to faltering demand in the services sector, especially among businesses that relied on consumer spending.

That's a sign that higher inflation, due to the weak pound, is hitting households.

The UK's slump in GDP growth in the first quarter has been attributed by economists to a sharp slowdown in consumer spending, owing to the spike in inflation that has followed the drop in the pound in the wake of the Brexit vote last June.

The UK's GDP growth rate is expected to pick up slightly in the next quarter, but most analysts believe that leaving the EU will set back the economy, with the damage depending on the nature and scope of future trade arrangements with the EU, our biggest trade partner.

UK economy the weakest in Europe in the first quarter of 2017. My full @TheIndyBusiness report: https://t.co/40dvapwiu1 pic.twitter.com/TPnz6ULpTS

10.47am BST

The pound has shed its early gains, following the news that Britain was the slowest-growing member of the EU in the last quarter.

Sterling is now hovering around $1.295, falling away from this morning's two-week high.

10.46am BST

Some early reaction to today's European growth figures:

Euro zone Q1 GDP revised up to +0.6%. That's the fastest rate of growth in 2 years, and easily outstripping U.S. and UK. pic.twitter.com/YKWGlQqcNT

Pressure on #ECB as #Eurozone Q1 GDP has been revised up to 0.6% QoQ (exp 0.5%). YoY goes to 1.9% vs 1.7% exp & fastest pace since Q4 2015. pic.twitter.com/U81saKvQt1

10.10am BST

Breaking! The eurozone economy grew even faster than first thought at the start of this year.

Statistics body Eurostat has just updated its figures, to show that GDP in the euro area expanded by 0.6% in January-to-March.

Euro area GDP +0.6% in Q1 2017, +1.9% compared with Q1 2016 #Eurostat https://t.co/vggaBOCvGT pic.twitter.com/mJK3IVVfSm

9.59am BST

This chart shows how the cost of insuring against the pound tumbling, or soaring, overnight has surged today - to the highest level since last year's EU referendum.

9.54am BST

We've learned over the years that it's wise to treat opinion polls with caution, which is why traders are rather nervous today.

Jasslyn Yeo, JP Morgan market strategist, says that younger voters (who typically have a lower turnout than older ones) could catch the City out.

"Markets appear to be pricing in a Conservative Party majority victory.

"However, we still see much uncertainty surrounding the UK election, where a higher turnout vote of young people could potentially turn the tables on investors."

Check this out. The v latest YouGov (3 pt Con lead) poll. After the social care fiasco. After the u-turn. But still, what a split... #ge2017 pic.twitter.com/GHit2hmi8x

9.38am BST

Here's another chart showing how the markets might react to the UK election result:

Five scenarios we could be waking up to tomorrow morning https://t.co/RzbEMqqhwg by @ThomasWPenny @SvenjaODonnell pic.twitter.com/CGT2cwnrAm

9.30am BST

There will be drama in the markets if Theresa May doesn't manage to increase her majority today (she currently has a working majority of just 17).

Marc Ostwald of ADM Investor Services reckons 40 is the magic number to avoid internal Tory party strife.

Barring a surprise the key question is how large the Conservative majority might be, with anything below 40 seats likely to embolden the ever restive elements, whose penchant for internecine warfare is well documented, to embark on a fresh leadership challenge, given the incompetence of the party's campaign.

Even if a substantially larger majority is achieved, there is little doubt that it will make not a iota of difference to the EU's stance on Brexit negotiations, though it will heighten the risk that both sides continue to talk AT, rather than TO each other, and end in a complete breakdown. There is also little doubt that the UK economy is now facing some significant headwinds, above all consumers that are facing higher inflation, weak wage growth and the pressures associated with a far too rapid pace of credit growth, the more so given an increasingly soggy housing market, above all in the populous south east.

9.07am BST

London's stock market is rather subdued this morning, with the FTSE 100 dipping by a mere 3 points to 7473.

Voters over in the UK are going to vote for their new Prime Minister, the European Central Bank will deliver their verdict about their monetary policy and James Comey will testify in front of senate.

It is difficult to say which event will have create more volatility but it would be sensible thing to be ready for all kind of outcomes. The outcome of UK elections does matter because the new Prime minister will have arduous task ahead - the negotiation process of Brexit. Moreover, the winning candidate is not going to have a glittering economic prize because the country is facing significant slow growth, tepid wage gains and a currency which has its back broken and productivity issue which is cursed.

The 3 script-writers of an historic day: #May, #Draghi, #Comey pic.twitter.com/vl1opDobc7

8.54am BST

City analysts believe the pound will rise over $1.30 if Theresa May increases her majority (which was the whole reason for calling the election).

But a hung parliament could send sterling plunging by over six cents - a really sizeable move.

how the pound might react to #UKElection2017 results pic.twitter.com/bvQDJqVHUq

8.50am BST

The cost of insuring against sharp swings in the value of the pound has soared today.

That shows that City traders are preparing for sterling to move sharply when the exit polls are released at 10pm tonight.

8.43am BST

Guardian Business has launched a daily email.

Besides the key news headlines that you'd expect, there'll be an at-a-glance agenda of the day's main events, insightful opinion pieces and a quality feature to sink your teeth into each day.

8.37am BST

Connor Campbell of SpreadEx agrees that sterling is getting a small lift from the general election:

As Britain heads to the ballot box the markets got off to a relatively quiet start this Thursday, with the pound very gently building on yesterday's gains.

Cable - which, despite some big swings, has been climbing since the beginning of June - rose another 0.2%, sending sterling to a its best price in a fortnight. Against the euro the pound has been less successful of late; nevertheless, despite being a long way from recovering the losses it has incurred since mid-May, a 0.1% increase has nudged the currency to a one and a half week peak. The pound is assumedly benefiting from the final round of polls, all of which - to varying degrees - point to a Tory win.

8.26am BST

The pound has hit a two-week high in early trading, as City investors anticipate a Conservative win in today's general election.

Sterling has hit $1.2976, its highest level since 25 May, after the last wave of opinion polls suggested that Theresa May is heading back to Number 10 Downing Street with a larger majority.

YouGov FINAL TIMES POLL for #GE2017
CON 42%
LAB 35%
LD 10%
UKIP 5%
GRN 2%
OTH 6%
(Fieldwork 5-7 June)https://t.co/QMKkFRU0ue pic.twitter.com/lbcnmdocO9

The higher the margin Conservatives win by, the more negotiation power May will have on Brexit terms, and the higher the Pound goes from here.

8.02am BST

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

When James Comey, the former FBI director, stands before a Senate committee on Thursday to give evidence about the president who fired him, it will be one of the most dramatic moments in US political history.

The stakes will be as high as they have ever been at a congressional hearing. The questions Comey will be asked by the Senate intelligence committee include whether Donald Trump tried to persuade him to stop an investigation into improper contacts between a top adviser and Russian officials, whether Trump sought to extract a vow of personal loyalty, and whether Comey was fired because he did not comply.

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