Markets surge after worst month since the financial crisis –as it happened

Graeme Wearden and Julia Kollewe

from on 2018-10-29 17:17 (#41SR6)

All the day's economic and financial news, as shares rally across Europe.

European markets are surging
Car sales boosted by 'China tax cut' reports
Euro drops as Merkel gives up CDU leadership
Bloomberg: World markets have lost $8trillion in October
Shanghai Composite Index lost 2% today

5.17pm GMT

It has been a good day for stock markets. In the eurozone, the Dax closed up 1.2% while France's CAC was up 0.4% and Italy's FTSE MiB gained 1.9%.

The FTSE 100 index pared some of the gains made before the budget speech when it was up more than 120 points, and closed down 86.76 points at 7026.32, a 1.25% gain.

We got a confident, jocular chancellor and a fair bit of extra cash being splashed around for various departments - defence, potholes, schools etc. Nothing earth-shatteringly major however. This was a political budget aimed at tackling the Corbyn threat - end of PFI and a kind of pseudo Google tax. And the elephant in the room was Brexit - it could all change if there is no deal, the odds of which are shortening by the day.

5.07pm GMT

You can read more reaction and analysis on our budget live blog:

4.56pm GMT

One of the main budget announcements was a new digital services tax, on tech giants such as Google (but not start-ups). It will come into effect in April 2020 and will raise 400m a year, the chancellor said. Digital tech giants will be taxed 2% on the money they make from UK users.

Stella Amiss, head of tax policy at PricewaterhouseCoopers, said:

The chancellor's strong words of recent months were no bluff. At home, the confirmation of a new digital services tax was trailed as a step towards levelling the playing field between online retailers and the high street. But it is much more than that. Working out who is taxed and who isn't in the digital economy is no mean feat when all businesses operate in an increasing technological world.

It's no surprise then that the chancellor has approached this with caution - a narrowly targeted regime, a 2% rate, and an effective implementation date pushed back to 2020. This new tax is well and truly aimed at the tech giants and not the online retailers so will do little to address the woes of bricks and mortar retailers and could well be perceived across the pond as an anti-American measure that could come back to bite us as the UK looks to move to trade talks after the Brexit deadline.

4.46pm GMT

Duty on beer, cider and spirits has been frozen for a year - while wine wasn't spared, with duty going up in line with inflation.

The Wine and Spirit Trade Association was quick to respond. Its chief executive Miles Beale welcomed the government's decision to freeze duty on spirits, but deplored the increase in wine duty.

The decision by the chancellor to increase wine rates significantly is a hammer blow to this great British industry. It actively undermines a sector that has been hardest hit since the Brexit Referendum and will be thoroughly unwelcome for the 33 million consumers of the nation's most popular alcoholic drink.

This inflationary rise is grossly unfair, unjustified and counter-productive. The UK is the world's biggest wine trading nation and, as such, deserves government's support, not punishment.

4.39pm GMT

The chancellor has pledged a 675m high street fund and business rates to be cut by a third to help embattled high street retailers.

Paul Clement, head of place shaping at property group Savills, says:

We are very pleased that the chancellor has recognised the need to extend an essential lifeline to the British high street. Business rate relief alongside a new fund for local authorities to redevelop and transform town centres are just some of the key recommendations made by Savills as part of the evidence submitted to the Housing Communities and Local Government Committee's (HCLGC) latest government inquiry. Creating places where people want, rather than need to be, can only be achieved through this kind of systemic change.

4.16pm GMT

Earlier, Hammond said we are at a "pivotal moment" in the Brexit talks. If we get it right, there will be a "double Brexit dividend". More investment, currently on hold, will come on stream, and the Treasury will no longer have to hold back money.

But the chancellor also said he was increasing the amount of spending for no deal planning to 2bn. Markets shrugged off the comments...

Static sterling - the Budget proved more a political manoeuvre to increase pressure on Eurosceptics than a market moving event. NEXT! pic.twitter.com/vxSRQ0UTT1

Love that Phil is spinning more spending and that austerity is "coming to an end", (not, as TM suggested, "ended") BUT all these forecasts will be blown out of the water by Brexit #budget

4.07pm GMT

As to whether the budget commitments are funded whether there is a Brexit deal or not, as No. 10 said today, the chancellor suggested the opposite yesterday.

The Budget uses the OBR's forecasts. The OBR is not, presently, forecasting on the basis of no deal. https://t.co/X2ggQmUHuk

4.05pm GMT

The new UK growth forecasts from the Office for Budget Responsibility, announced by Philip Hammond in his budget speech a few minutes ago, are higher than in March but still dismal.

Paul Johnson, director of the Institute for Fiscal Studies, tweeted:

OBR growth forecasts up slightly since Spring Statement. But still very poor by all historical precedent not being above 1.6% in any of the next 5 years.

3.54pm GMT

In other news, easyJet now expects to be flying electric plans by 2030, pushing back its forecast from 2027, but expressed confidence about a technology that is expected to cut the energy costs of a plane by 30%.

The low-cost carrier's chief executive Johan Lundgren told Reuters:

We can definitely see a way forward in how we will get this aircraft into the fleet.

3.44pm GMT

More importantly, the chancellor has echoed Theresa May's comments that "the era of austerity is finally coming to an end".

You can follow the budget speech more closely at our budget live blog:

3.36pm GMT

Hammond says the last time a UK budget was presented on a Monday was in 1962, when he was six. He recalls that his parents turned to him and said: "Philip, one day that could be you."

3.34pm GMT

And we are off. Philip Hammond has started his budget speech.

3.28pm GMT

With the UK budget just a couple of minutes away, let's take a quick look at the markets. All the major indices are in the green.

On Wall Street, the Dow Jones rose as much as 300 points and is now trading 175 points higher, or 0.7%, at 24,867.62 - compared with the 27,000 all-time highs at the beginning of the month.

ITALY BUDGET TO BEGIN PARLIAMENTARY PASSAGE ON TUESDAY OR WEDNESDAY - GOVT SOURCE

3.10pm GMT

John Flint, the chief executive of HSBC, Europe's biggest bank, reckons that the murder of Saudi journalist Jamal Khashoggi is unlikely to hurt Saudi Arabia's ability to attract foreign investors.

Flint said this morning:

I understand the emotion around the story but it is very difficult to think about disengaging from Saudi Arabia, given its importance to global energy markets.

My decision [to pull out] was not an easy decision but I felt it was the right thing to do under the circumstances.

We are the biggest foreign bank in Saudi Arabia, so we own 40% of the Saudi British Bank, we have 4,000 employees in the kingdom and we have many customers in the kingdom as well so we have a responsibility to them.

We are a significant part of the banking system in many parts of the region " We will build our businesses as the opportunities arise.

2.43pm GMT

Poland's foreign minister Jacek Czaputowicz said today that Merkel plays an important role in stabilising the European Union, and expressed support for her to stay on as chancellor.

Merkel's decision not to seek re-election as CDU party chairwoman which means her fourth term as chancellor will be her last heralds the end of an era in which she has dominated European politics. She became Germany's chancellor in 2005.

2.36pm GMT

The race for a successor to Merkel at the top of the CDU has already started. This morning, three candidates announced their ambitions:

Merkel's announcement remains less of a risk for the German government than the SPD's losses in the last elections. The CDU has no interest in Merkel stepping down as chancellor or a snap election before any successor has been able to build up a profile. The SPD, however, remains in an existential crisis which could easily lead to the decision to leave the coalition next year.

As historic as today's announcement is, the approaching end of an era also holds the potential for positive developments. Not so much because new is always better but rather because it could give Merkel the freedom and the tailwind - freed from party ties - to put a final stamp on her legacy, possibly with bolder steps to reform the German economy and the monetary union.

2.18pm GMT

Stefan Koopman, market economist at Rabobank, notes that after the initial shock caused by Merkel's announcement, the market reaction has been relatively muted as she also said she would like to see her term through to 2021.

The CDU is suffering heavy losses in state elections and the opinion polls indicate there is no improvement in sight. It will now be increasingly difficult for her to stay on as Chancellor, and having shown signs of weakness, the wolves may come for her sooner rather than later.

Germany has been a cradle of political stability over the last decade, but this now looks to be over. Ms Merkel has been a driving force in Europe, leading the response to major political and economic upheaval like the Eurozone debt crisis. What now remains to be seen is whether her CDU successor has the political will and gravitas on the European stage to hold it together in these testing times.

2.02pm GMT

More on Angela Merkel's decision to step down as CDU party chair but stay on as Germany's chancellor until the next national election in 2021. She has argued against splitting the two roles in the past... Her move comes after disastrous regional elections in Hesse and Bavaria for her Christian Democrats and their Bavarian sister party, the CSU.

Holger Schmieding, economist at Berenberg Bank, says

Her first step towards the exit adds to the risk that her coalition partner SPD will walk out of the Berlin coalition in late 2019 upon a mid-term review of the government's agenda.

If Merkel were to lose her position as chancellor, the most likely outcome would be a CDU/CSU-Green-FDP coalition in Berlin led by somebody else from the CDU or - as a slightly less likely alternative - new elections.

1.43pm GMT

On Wall Street, the Dow Jones climbed about 200 points at the open to 24,922.34, a gain of almost 1%.

1.24pm GMT

Wall Street is also expected to rally when trading begins shortly.....

US Opening Calls:#DOW 24909 +0.92%#SPX 2696 +1.43%#NASDAQ 6963 +1.65%#IGOpeningCall

12.08pm GMT

European stock markets are pushing higher, as traders try to put the nightmare of October behind then.

The FTSE 100 is now up 126 points, or 1.8%, as it bounces back from last week's seven-month low.

Strong earnings from banks and positive company news boosted European markets helping them to shrug of the gloom emanating from Asia.

Italy's 10-year BTP bond yield has fallen to a one-week low this morning, narrowing the gap to the German Bund, on relief that ratings agency Standard & Poor's left the country's credit rating unchanged.

11.36am GMT

Shares in European carmakers are surging, thanks to a report that China is considering halving the sales tax on most vehicles.

The move would help Beijing spur auto sales, as it tries to protect its economy from the chill winds of the US trade war.

The country's top economic planning body submitted a plan to key policymakers to lower the purchase tax to 5 percent for passenger vehicles with engines no bigger than 1.6 liters, according to people familiar with the matter.

No decision has been made on implementation, said the people, who asked not to be identified because the information isn't public.

10.22am GMT

Elsewhere in the eurozone, Italy's stock market is flying after S&P left the country's credit rating unchanged on Friday night.

The FTSE MIB has leapt by 2.5%, and Italian government bonds are also rallying.

9.37am GMT

BREAKING: In a major development, Angela Merkel has decided not to stand for re-election as the chair of her CDU party in December.

Merkel took her decision after an election drubbing over the weekend, which saw voters in Hesse abandon the CDU in favour of the Green party and the anti-immigrant Alternative fi1/4r Deutschland (AfD).

It seems likely Merkel will remain German Chancellor, but give up leadership of her CDU party, as is being reported by some German media. It's not quite the end, yet...

German Chancellor Angela Merkel has told leaders of her Christian Democrats (CDU) that she will not seek re-election as party chairwoman at a conference in early December, a senior party source said.

Merkel has been CDU chairwoman since 2000 and giving up the role would start a race within the party to succeed her as chancellor.

Euro reacts to Bild headline that #Merkel won't run to be head of CDU again pic.twitter.com/P10MclejBx

9.25am GMT

European stock markets are all showing gains this morning.

Bank stocks are up, following HSBC's strong results, along with healthcare groups and industrial companies.

9.17am GMT

Banking giant HSBC is pulling the London stock market higher, after growing its profits sharply.

"HSBC may be the second biggest company on the UK stock market, but its profits are predominantly emanating from its historic home in the far east. Three quarters of the bank's profits so far this year have come from its Asian operations, leaving the European business trailing in its wake.

Profit growth has been broad-based across HSBC's main banking activities, and what's positive is that's coming from a rising top line rather than simply cost-cutting, which can only deliver results for so long. Indeed adjusted operating costs have actually ticked up, though that's to support investment in growth opportunities, notably in the bank's digital proposition.

8.39am GMT

Last week the US stock markets fell into correction territory, after several heavyweight companies posted disappointing results:

Global stock markets had a terrible time last week as investor sentiment continued to sour. Concerns about higher interest rates in the US, along with political uncertainty in Italy as well as geopolitical concerns played on investors' minds. Last week, Amazon and Alphabet both released quarterly figures and the revenue components missed market estimates and that added to the decline. The major US indices enjoyed a positive run over the summer, and there was a sense that valuations were lofty, particularly for the tech sector.

The S&P 500 is now in correction territory, which means it had fallen more than 10% from the recent peak, and this underlines how large the correction has been. The Shanghai Composite lost over 2% overnight after China confirmed that industrial profit fell for the fifth straight month.

8.31am GMT

Financial blogger Jeroen Blokland says a range of factors have hurt the markets this month. However, that doesn't mean we're facing a repeat of the 2008 crisis.

He writes:

This chart by Bloomberg shows that global equities have lost almost USD 8 trillion in market cap in October, the worst sell-off since 2008. However, the absolute numbers can be deceptive as the total market capitalization has increased by roughly 50% since start of the financial crisis.

But more importantly, while there are definitely a number of factors that are negatively impacting markets (China-US trade war, rising geopolitical risk, Italy's massive debt pile - to name just a few), current economic circumstances make it less likely that a crisis like the one in in 2008 will happen now. Of course, things could change quickly, especially if market sentiment remains as depressed as it is now, but this might be a good moment to take a step back and refocus on the fundamentals.

Today's sketch - 'Worst' sell-off since 2008https://t.co/YBIozs9KCp pic.twitter.com/QKJOItImI2

8.24am GMT

Today's losses in China suggest markets have further to fall, warns Hussein Sayed, chief market strategist at foreign exchange broker FXTM:

The steep sell-off in U.S. equity markets suggests October could be the worst month since the global financial crisis of 2008. Seven trillion dollars have already been wiped from the global market cap, and still there are no signs of bulls returning.

Chinese stocks fell today with the CSI 300 declining more than 3% while the Yuan remained trading near a decade low. The Nikkei 225 gave up gains of more than 1% to trade in negative territory. Moving against the trend were stocks in Australia, with the ASX 200 gaining more than 1% supported by the healthcare and telecom sectors.

8.05am GMT

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

October has been a pretty brutal month for the markets. Over the last four weeks, trillions of dollars of value have been wiped off bonds and shares, as nervous investors have sold up.

Equities globally have lost almost $8 trillion of value this month, set for the biggest wipeout since the height of the financial crisis a decade ago on concerns ranging from the peak being past for earnings growth to the U.S.-China trade war to the end of central bank quantitative easing. Traders are paring wagers on Fed rate hikes for next year, with markets now expecting fewer than two quarter-point increases in 2019, compared with three that policy makers project.

"There's room for a bit of a downside to go, because I do see this as being largely a structural shift in markets," Kyle Rodda, a market analyst at IG Group in Melbourne, said on Bloomberg Television. "Sentiment is still to the downside, is still quite bearish and there will be a little while for this correction to play out."

European Opening Calls:#FTSE 6959 +0.27%#DAX 11236 +0.31%#CAC 4978 +0.21%#MIB 18831 +0.79%#IBEX 8756 +0.30%

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