Bank's QE programme 'like heroin' says ex-Treasury official – as it happened

Nick Fletcher

from on 2017-08-21 13:07 (#2ZTQX)

2.07pm BST

Stock markets have a cautious tone ahead of some key events later in the week.

North Korean tensions could be on the rise again as the US and South Korea begin military exercises, while on the economic front, all eyes will be on the Jackson Hole meeting of central bankers. Observers will be looking for clues about any easing off of quantitative easing programmes, but meanwhile a former senior Treasury official has described QE as "like heroin."

1.24pm BST

Britain's current account deficit in 2015 was bigger than originally thought, according to new government figures. Reuters has the details:

Britain's current account deficit, the largest of any major economy last year, was even bigger in 2015 than previously thought, according to new estimates from the Office for National Statistics.

The current account deficit has been in the spotlight since last year's vote on leaving the European Union, and although it has narrowed recently is not far off levels that would trigger a currency crisis in a less developed economy.

12.54pm BST

An ex-Treasury official - formerly the most senior civil servant at the department - has described the Bank of England's money printing programme as "like heroin" and called for its end.

Lord Macpherson of Earls Court, who was permanent secretary to the Treasury from 2005 to 2016 and oversaw the Bank's introduction of quantitative easing as a response to the financial crisis in 2009, tweeted today:

QE like heroin: need ever increasing fixes to create a high. Meanwhile, negative side effects increase. Time to move on.

11.50am BST

Germany's economy could grow faster than expected this year, according to economist at the country's central bank.

The Bundesbank had previously predicted 1.9% growth in 2017. But with a strong start to the year - 0.7% GDP growth in the first three months, 0.6% in the second quarter - it says in its latest monthly report:

The Bundesbank believes that the German economy is likely to continue to grow with strong momentum in the current quarter, too. This is suggested.. by the exceptionally upbeat sentiment among both enterprises and consumers as well as the positive order situation in the industrial sector. The underlying pace of economic activity, which was already quite strong in the previous year owing to buoyant domestic activity, recently accelerated again given a more favourable external environment, the report continues.

"Overall, GDP growth in the current year could even be somewhat stronger than expected in the June projection", write the Bundesbank's economists. In early June, the Bundesbank projected a 1.9% rise in calendar-adjusted GDP for 2017.

11.30am BST

Donald Trump's views on Janet Yellen, the chair of the US Federal Reserve, seem to flipflop between disdain and admiration. During his election campaign, the president said she should be ashamed of herself for the Fed's policies, but later he praised her for doing a good job.

But that does not mean he will give her another term once her current one is up in February.

10.57am BST

The Total deal to buy Maersk Oil for $7.5bn will boost the French company's presence in the North Sea, making it the second largest player in the area.

And it is not the only big deal in the sector today. Essar Oil has sold its India assets to a consortium led by Rosneft for $12.9bn. The deal will be the largest by a foreign company in India. Rebecca O'Keeffe, head of investment at Interactive Investor said:

The deal announced this morning between Total and Maersk Oil and completion of the Rosneft and Essar Oil deal confirm how Big Oil is having to look to consolidation to achieve access to additional capacity outside the US, having failed to invest in new production over the past few years.

The collapse in oil prices from over $100 per barrel in May 2014 to under $30 in January 2016 forced oil companies to cut their spending to the bone and these decisions dramatically reduced future production. However, with a moderate recovery in oil prices and a significant improvement in cash flows, oil majors are on the prowl, looking to buy assets to improve production levels and deliver excess returns and profits.

10.22am BST

Sterling is just about holding steady against the other major currencies at the moment after its worst week since early June, but the currency remains under pressure.

It is marginally lower against the dollar at $1.2870, having earlier fallen as low as $1.2851. Against the euro, it is up 0.1% at a1.0959.

#IHSMarkit survey shows proportion of #UK #households expecting #BOE #interest #rate hike in next 12 months down to 33% in Aug (48% in Jul)

10.14am BST

Back with China's interest in Fiat Chrysler:

Great Wall confirms it is interested in buying Fiat Chrysler. Can't see how this will possibly be a problem for @realDonaldTrump.

9.53am BST

German chancellor Angela Merkel has criticised bonuses for car executives in the wake of the emissions scandal in an interview with Bild. Reuters reports:

Multi-million euro bonuses to German car company executives are not fair given the sector's tarnished image after the emissions scandal, Chancellor Angela Merkel said on Monday.

"No I don't think this is fair. I don't know how the automotive industry is going to respond," Merkel told mass-selling Bild newspaper in an interview broadcast live online.

9.43am BST

Fiat Chrysler shares have accelerated 3% following reports that China's Great Wall Motor was interested in bidding for the carmaker.

Reuters has quoted a Great Wall spokesman as saying, "We currently have an intention to acquire. We are interested in [Fiat Chrysler]."

9.26am BST

More on the Maersk Oil deal. Reuters reports:

Total is buying Maersk Oil in a $7.45 billion deal which the French oil major said would boost its earnings and cash flow, and bolster its dividend prospects.

Danish company AP Moller Maersk is selling its Maersk Oil division to Total to focus on other activities including its shipping business. Under the terms of the deal, A.P. Moller Maersk will get $4.95 billion in Total shares and Total will assume $2.5 billion of Maersk Oil's debt.

"This transaction is immediately accretive to both cash flow and earnings per share and delivers further growth over coming years," said Total Chief Executive Patrick Pouyanne in a statement.

"It is in line with our announced strategy to take advantage of the current market conditions and of our stronger balance sheet to add new resources at attractive conditions," he added.

8.47am BST

Here's Danske Bank on the forthcoming Jackson Hole meeting of central bankers:

ECB president Mario Draghi is set to be among the speakers for the first time in three years. In 2014, he hinted at QE and now the focus is on tapering signals. We expect him to deliver a dovish message and to not give any new communication on the issue of tapering of asset purchases.

When it comes to the Fed, we do not expect anything dramatic. We look for a repeat of signals that the announcement on balance sheet reduction will come relatively soon (likely September) and that one more rate hike is still the base case this year - as signalled by vice president Bill Dudley last week.

8.34am BST

It is a key year for oil and gas companies, according to analysts at Barclays:

We see the next 12 months as a critical period for the oil and gas industry and one that should see companies getting back to covering dividends and reducing debt organically. As such, over the coming year, we see competitive performance as a crucial determinant of value creation and this report is our annual assessment of the operational and financial performance of the integrated companies over a 25-year history. It allows us to align companies to differing quartiles of performance and assess whether they are appropriately valued. We conclude that there is still material value in the large cap oils, with our preference towards those stocks with lower break-evens and more potential to re-rate over the next 12 months. Our key overweight stocks are BP, Conoco, Exxon, OMV and Shell.

8.31am BST

News of a major oil deal has helped to limit some of the market falls.

The Danish shipping company Moller-Maersk has announced it will sell its oil and gas division, Maersk Oil, to France's Total for $7.45bn. It plans to return a large part of the proceeds to shareholders, which has helped to push its shares up around 5%.

8.20am BST

As expected, investors appear to be keeping their powder dry at the start of the new trading week.

In keeping with the gloomy weather in London at the moment, the FTSE 100 has dipped 0.1%, with banks among the biggest fallers. But mining shares are moving higher, with BHP Billiton leading the way ahead of its results on Tuesday.

8.04am BST

The dollar has been under pressure recently, not least because of the car-crash that is US politics at the moment. It seems a bit calmer this morning, edging away from four month lows against the yen. But Viraj Patel, foreign exchange strategist at ING Bank, believes that any respite for the US currency could be short-lived:

There is little love lost for the dollar right now, with the currency fast becoming a sell on the current White House drama. It is a bit strange to see both speculative and actual personnel changes within the White House causing such a stir for global markets, though we may be able to put this down to summer markets. Still, we prefer to focus on the broader economic implications of US politics and what this means for the dollar.

In addition to diminishing odds of any pro-growth policies from the Trump administration, we believe the narrative is shifting towards political uncertainty having a dampening effect on business confidence and investment activity. Given that US political environment remains frenetic, the risk relief rally seen late on Friday may prove to be short-lived and this could well keep the dollar pinned down over the coming weeks.

7.55am BST

Oil is slipping back on worries that increasing US production could outweigh attempts by Opec to curb output and support crude prices.

Brent is currently down 0.19% at $52.62 a barrel while West Texas Intermediate, the US benchmark, is 0.1% lower at $48.46. Traders will be keeping an eye on an Opec technical meeting today. Ipek Ozkardeskaya, senior market analyst at London Capital Group, said:

[At the meeting] nations are expected to ensure compliance with output cuts to prevent prices from diving again. Satisfactory comments could encourage a further recovery in oil prices.

7.44am BST

In Asia the Nikkei 225 is down around 0.4%, and European markets are forecast to open lower:

Our European opening calls:$FTSE 7300 down 24
$DAX 12154 down 11
$CAC 5104 down 10$IBEX 10365 down 20$MIB 21762 down 53

7.42am BST

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

Stock markets are in a cautious mood amid continuing political tensions and ahead of a big week for central bankers.

Europe is set for a slightly negative start on Monday, threatening to extend its losing streak to three sessions as political and geopolitical risk continue to weigh on risk appetite.

Geopolitical risk could rear its ugly head again this week as the US and South Korea begin planned military exercises on Monday, just as tensions between the North and these two countries appear to have calmed. Should North Korea respond in kind, then we could see a repeat of the safe haven rush from a couple of weeks ago when the situation previously flared up between the countries.

We did see a late rebound off the lows late on Friday when it was announced that Steve Bannon, one of President Trump's closest advisers, had left the administration. It was well known that there was tension amongst him and some other members of the president's top team, including chief economic adviser Gary Cohn.

There had been some uncertainty surrounding the future of Cohn, in the wake of recent events in Charlottesville, and the president's failure unequivocally to condemn the violence of the far right, particularly given Cohn's own Jewish ancestry.

The scope for surprises was diminished somewhat by ECB sources at the end of last week when it was reported the ECB president Mario Draghi would not be making any comment on monetary policy when he speaks later this week.

This reticence to comment may also have something to do with the fact that there appears to some concern on the governing council about an overshoot to the upside for the euro, particularly given the recent weakness of the US dollar.

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