Pound highest since 2018 amid Brexit deal hopes; bitcoin hits $20,000 – as it happened

Graeme Wearden

from on 2020-12-16 18:20 (#5BQ3Z)

Rolling coverage of the latest economic and financial news

Latest: Bitcoin surges over $20k for first time
Pound rallies over $1.35 on optimism
Factories report severe pressure' on supply chains
UK inflation falls to 0.3% in November
Clothing and footwear prices fell sharply amid discounting

6.19pm GMT

Time for a recap

The pound has hit its highest level in 31 months, on hopes that an EU-UK trade deal could be close. Sterling jumped to $1.355 for the first time since May 2018, after Commission president Ursula von der Leyen told the European Parliament that there was a path to an agreement'.

6.03pm GMT

The latest word from parliament tonight is that the House of Commons will go into recess for the Christmas break tomorrow, as planned.

However, Downing Street says the House can be recalled very quickly to pass the trade deal legislation if necessary, our Politics Liveblog explains.

Number 10 confirms that Parliament will finish up tomorrow, but makes it clear they would bring MPs back quickly to vote IF there is a Brexit deal

And that recall could be as early as next week... in other words, Brexit deal isn't done yet, but if it is, Commons still has time to ram it through by the end of the year when status quo runs out

Sources confirm Commons *will* rise for Christmas recess this week.

But if there's a breakthrough in talks by Sunday they'll be recalled next week.

And if there's one next week they'll be recalled between Christmas and NY.

So not necessarily a sign of how talks are going.

4.59pm GMT

Brexit trade deal optimism has also helped the London stock market to close higher.

The blue-chip FTSE 100 has closed 57 points higher at 6570 points, a gain of 0.9%. That's close to last week's nine-month high.

4.46pm GMT

Back on Brexit... and Boris Johnson said that a good deal' can be done, but the EU knows the UK's limits in the negotiations.

Asked during a news conference (to discuss the Christmas rules) whether he still thinks moving to WTO terms is the most likely outcome, Johnson said:

Where we get to with the EU - well, again, that is very much a matter for our friends. They know what the parameters are.

We've just got to make sure that we control our own laws and control our own waters, and there's a good deal there to be done but if not, WTO/Australia terms it is, and as I say we will prosper mightily on those terms as well.

4.19pm GMT

Ryan Browne of CNBC has written a handy thread about the factors pushing bitcoin up:

So what's going on here? We're hearing a lot of buzz about institutional investors buying into bitcoin. Asset manager Ruffer was the latest to do so today, allocating about 2.5% of its assets to BTC https://t.co/P0DyuHrz1W

Then you've got massive companies now getting active in this space, such as PayPal and Fidelity, while S&P and Cboe are both making a big push into crypto market data services

eToro's @yoniassia on bitcoin at $20k: We have seen a significant shift in the demographic of those interested and invested in crypto. No longer the domain of just computer programmers and fintech advocates."

From @JasonADeane at @QE4Everyone: "The race is on to secure bitcoin in a market of ever-dwindling supply. It's probably not too strong to say this is institutional FOMO and those organizations who have been looking to do this now realize they will have to move fast to secure it"

4.14pm GMT

Ruffer told its shareholders yesterday afternoon that it had bought its bitcoin stake, as a small but potent' insurance against currency devaluation.

In a performance update memo published here, it wrote:

The exposure to bitcoin is currently equivalent to around 2.5% of the portfolio. We see this as a small but potent insurance policy against the continuing devaluation of the world's major currencies.

Bitcoin diversifies the company's (much larger) investments in gold and inflation-linked bonds, and acts as a hedge to some of the monetary and market risks that we see.

UK-based Ruffer Investment confirms its massive November bitcoin investment of over $740 million in an email to CoinDesk clarifying its shareholder memo.
by @zackvoell https://t.co/9ehdROOsiW

3.59pm GMT

The surge in bitcoin's price comes as British fund manager Ruffer Investment Management confirmed it has invested around 2.7% of its portfolio in the cryptocurrency.

Ruffer, which manages around 20bn, has told Reuters that it allocated some of its funds into bitcoin last month, as a hedge' against the risks in distorted'.

British fund manager Ruffer Investment Management last month made a bet on bitcoin now worth around 550m ($745m), a spokesman for the company told Reuters, in one of the largest signals of rising institutional interest in the digital currency this year.

The allocation by Ruffer, which managed 20.3bn ($27.3bn) in assets at end-November on behalf of more than 6,500 investors globally, acts as a hedge to some of the risks that we see in a fragile monetary system and distorted financial markets," the spokesman said via email.

We see this as a small but potent insurance policy against the continuing devaluation of the world's major currencies," Ruffer said in a memo seen by Reuters.

Meanwhile Bitcoin smashed through $20,000 for the first time on Wednesday, jumping 4.5% to $20,440.

UK-based Ruffer Investment confirms its massive November bitcoin investment of over $740 million in an email to CoinDesk clarifying its shareholder memo.
by @zackvoell https://t.co/9ehdROOsiW

3.20pm GMT

Yoni Assia, CEO and co-founder of trading platform eToro, says financial institutions have woken up" to cryptocurrencies this year, with many banks and hedge funds buying bitcoin during 2020.

We expect this to continue into 2021 as fears of inflation continue to creep up globally.

2.46pm GMT

Sterling isn't the only asset rallying today.

Cryptocurrency bitcoin has smashed through the $20,000 mark for the first time ever.

Bitcoin surges above $20,000 https://t.co/nFrO7EYio0 pic.twitter.com/mDSHAWyq9v

Unlike previous surges, this time around, a major price driver seems to be fuelled by the flow of institutional investors, who are steadily increasing their exposure to Bitcoin and other cryptocurrencies.

They're being attracted by the good returns that the digital asset class is currently offering but, more importantly, by the huge future potential it offers.

These emergency measures, like the massive money-printing agenda, reduce the value of traditional currencies like the dollar and raise the inflation threat. Bitcoin, like gold, acts as a shield."

2.31pm GMT

The pound has now dipped back slightly from its 31-month high of $1.355, after Downing Street told reporters that No-Deal remains the most likely outcome, although some progress" has been made.

Reuters has the details:

Britain and the European Union have made some progress" in post-Brexit trade talks but there are still significant gaps and the most likely outcome is for negotiations to end in no deal, Prime Minister Boris Johnson's spokesman said on Wednesday.

We have made some progress in some areas but it still remains that there significant gaps," the spokesman told reporters. Our position is still that we want to reach an FTA (free trade agreement) but it is still the case ... the most likely outcome is still leaving on Australia terms."

2.21pm GMT

Here's our news story on the problems caused by the disruption at UK ports.

2.20pm GMT

Fawad Razaqzada, market analyst at Think Markets, suggests a UK-EU free trade deal could push the pound up to $1.40.

No-deal, though, could send it sliding down to $1.20.

Ursula von der Leyen this morning said that now there is a narrow" path has opened up for the two sides to strike a deal.

Although the EU Commission President stopped shy of saying whether there will be a deal or not as the issue of fishing rights are still very difficult", she added that there was progress on most outstanding issues

2.11pm GMT

At over $1.35 against the dollar, the pound is trading near levels where a Brexit deal is being priced in' by investors.

That meant it's all the more vulnerable if negotiations falter, as Paul Dales of Capital Economics explains:

The recent swings in sterling triggered by shifts in sentiment towards the chances of a Brexit deal have left little room for the pound to appreciate if there's a deal, but plenty of room for it to depreciate if there's a no deal

As the markets appear to have largely priced in a Brexit deal, such a result by 31^st December 2020 would be unlikely to push the pound much above the current levels of $1.35 and 1.13. But as a no deal would come as something of a shock to the markets, there is more scope for it to fall sharply.

1.43pm GMT

The pound has hit its highest level since May 2018, as optimism over a Brexit deal builds.

Sterling has climbed nearly a cent to trade at $1.355, a 31-month high, after European Commission president Ursula von der Leyen told MEPs this morning that there is a path to an agreement now", saying:

As things stand, I cannot tell you whether there will be a deal or not. But I can tell you that there is a path to an agreement now. The path may be very narrow but it is there.

Sterling jumped on hopes the UK and EU are close to a deal, with Ursula von der Leyen giving a broadly upbeat assessment of talks.

The spot market is inclined to think a deal is coming, while options markets also show traders are scaling back bets on a no-deal collapse.

Some Conservative Eurosceptic MPs have indicated they could tolerate the deal taking shape. Jacob Rees-Mogg, leader of the House of Commons, is clearing the decks to legislate on the details of a deal at breakneck speed.

Mr Rees-Mogg has not moved a recess motion", suggesting that plans for parliament to rise for its Christmas break on Thursday have been scrapped.

Pound hits highest level since 2018 on hopes of Brexit trade deal https://t.co/mY46KSL5KG

12.09pm GMT

Those supply chain problems are also pushing up costs for manufacturers, points out Duncan Brock, group director at CIPS:

Though manufacturing was buoyed up by Brexit panic buying and saw the fastest rise in purchasing since August 2013, delivery times increased at the third highest rate since 1992 which meant many essential materials were not getting through.

Manufacturing companies were also paying the price of goods shortages with the highest rise in cost inflation since June 2018 as shipping and commodity prices soared.

In services the watchword was wait.' Clients delayed placing orders as potential Brexit disruption loomed large and more lockdowns restricted footfall in consumer-facing businesses resulting in new orders dropping for the third month in a row.

As Covid worries and no-deal uncertainty remains, firms will continue to face the most challenging business conditions in a generation for the next few months.

11.58am GMT

The disruption at UK ports in recent weeks is putting severe pressure' on manufacturers' supply chains.

The latest survey also indicated severe pressure on manufacturing supply chains, which was overwhelmingly linked to freight delays following congestion at UK ports.

Around 45% of the survey panel reported longer wait times from suppliers, while only 2% saw an improvement. The lengthening of lead times in December was the third-steepest since the survey began in 1992, exceeded only by those seen amid COVID-19 shutdowns in April and May.

In some cases, manufacturers noted that supply chain difficulties had restricted their production volumes in December. This contributed to a rise in unfinished work across the manufacturing sector for only the second time in the past three years.

New orders expanded at the fastest pace since August, supported by a temporary boost to purchasing ahead of the Brexit deadline, while stocks of purchases were accumulated to the greatest extent since April 2019.

A rush to beat the #Brexit deadline led to a strong boost to UK manufacturing orders, Dec flash #PMI showed, but the economy was held back again by weak services activity. Read our flash results here: https://t.co/OuLo7DF1up pic.twitter.com/etFswSFa6Q

11.13am GMT

Here's our Brussels bureau chief Daniel Boffey on the Brexit trade deal:

A clash over EU access to British fishing waters could still sink hopes of a post-Brexit trade deal, Ursula von der Leyen has said, with agreement said to be so close but yet ... so far away".

In an address to the European parliament, the European commission president said the issue of domestic subsidies, so long a thorn in the side of the negotiators, had been resolved.

11.09am GMT

The blue-chip FTSE 100 index has also rallied this morning, jumping 72 points or 1.1% to 6586 points.

UK companies such as housebuilders Barratt Development (+3.6%) and Persimmon (+3.2%) are among the risers, along with investment platform Hargreaves Lansdown (4.9%) and retailers JD Sports (+3.4%).

Everybody wants to finish. Everybody wants to get a final agreement as soon as possible. We all believe the country needs it. And I think we're getting closer and closer.

10.44am GMT

Brexit optimism is also pushing shares higher in London.

The FTSE 250 index, which is domestically focused, has jumped by 1.4% this morning.

10.42am GMT

Today's rally is pushing the pound towards to the 30-month high it hit earlier this month.

At $1.351 this morning, sterling is trading close to levels last seen in May 2018.

9.55am GMT

Hopes of a UK-EU trade deal are pushing the pound up this morning, after European Commission president Ursula von der Leyen said that progress is being made.

Sterling has gained half a cent against the US dollar to above $1.35, extending its rally since the two sides agreed to keep talking on Sunday.

As things stand, I cannot tell you whether there will be a deal or not. But I can tell you that there is a path to an agreement now. The path may be very narrow but it is there.

We have found a way forward on most issues but two issues still remain outstanding: the level playing field and fisheries. I am glad to report that issues linked to governance now have largely been resolved. The next days are going to be decisive.

9.23am GMT

On the economic front, the eurozone economy is performing better than expected this month in the face of the second wave of Covid-19.

Although activity fell a little in December, the fall was much less than feared, according to the latest survey of purchasing managers across the region.

Eurozone business activity came close to stabilising in December as stronger manufacturing output growth helped to counter a further drop in service sector activity.

Encouragingly, future output expectations jumped to a 32-month high, as prospects brightened amid recent news on vaccine developments.

Eurozone business activity came close to stabilisation in December, according to the latest flash PMI data. The result followed a marked decline in November amid the imposition of tighter COVID-19 restrictions in some countries. Read more: https://t.co/aaXqauhNhY pic.twitter.com/jkKiK8D0OC

9.13am GMT

Steep discounting by clothing retailers pushed down UK inflation in November as the second national coronavirus lockdown in England and tough restrictions across the country kept consumers away from the high street, my colleague Richard Partington writes.

The Office for National Statistics (ONS) said the consumer prices index (CPI) fell to 0.3% in November from 0.7% a month earlier, with retailers slashing the price of clothing and footwear amid the second wave of the coronavirus crisis. City economists had forecast an inflation rate of 0.6%

9.11am GMT

British electricals retailer Dixons Carphone has reported that the disruption at UK ports is now causing some supply delays.

However, the company also says the delays are manageable.

Britain's main ports such as Dover and Felixstowe are under huge pressure due to a combination of Brexit stockpiling, Christmas and COVID-19.

We've seen some supply delays, up to about two days worst case, but in our space we can deal with that," Chief executive Alex Baldock told reporters.

8.59am GMT

In other travel news, the UK competition regulator has launched an investigation into airlines for not offering cash refunds to travellers who couldn't take their flights because of the coronavirus pandemic. More here:

8.56am GMT

Commuters face an inflation-busting ticket increase next year, when they (hopefully) return to their offices as pandemic restrictions are eased.

Rail fares across England will rise by 2.6% from March 2021, the government has decided.

The move comes despite widespread calls from transport campaigners to freeze rail fares to entice passengers back on to trains, with usage having plummeted during the Covid-19 pandemic.

However, the government expects to have spent almost 10bn extra on funding trains from last March until next April, since coronavirus restrictions led to fare revenue collapsing and the abolition of rail franchises in favour of emergency contracts for train operators.

8.46am GMT

Brexit could push inflation up next year, if delays at the ports lead to supply shortages, or if tariffs are imposed in a No-Deal scenario

Yael Selfin, chief economist at KPMG UK, says border frictions' could lift prices.

Early discounting in clothing and footwear lowered inflation, as retailers cut prices to try to boost consumer spend. Working from home has changed people's needs and households exercised more caution, reining in some non-essential spending in November.

Despite the weak economic background, inflation could accelerate in coming months, with border frictions as a result of Brexit causing some prices to rise more than usual.

Brexit looms and with it a potential shock to supplies of imported goods which could stoke inflation for reasons totally unrelated to the coronavirus crisis....

2021 could see inflation bounce back with a vengeance. A Brexit supply shock and rapidly reheating economy, pumped up by the vaccine, will almost certainly create material price rises as demand reignites."

The sharp fall in inflation from 0.7% in October to 0.3% in November and in the core rate from 1.5% to 1.1% came as a bit of a surprise. Some of these moves were driven by temporary factors so we still expect inflation to rise temporarily back towards the 2% target next year.

Beyond that, though, the slack in the economy should keep underlying price pressures subdued and allow inflation to drop back to 1.5% in 2022. That is unless a no deal Brexit pushes it up to a peak of 3-4%.

8.25am GMT

Laith Khalaf, financial analyst at AJ Bell, says retailers slashed prices more sharply than usual in the Black Friday sales this year:

Inflation dropped in November thanks to a Black Friday effect, with increased discounting by retailers pushing down the cost of clothing and footwear.

Of course, Black Friday occurs every year, but this time around discounts were particularly steep in clothing sales, which led to an unseasonal fall in prices. That highlights the continued pressure on the retail sector, and while price cuts on the shelves are good for consumers, they don't bode well for profits.

8.12am GMT

The slowdown in inflation also shows that the economy lost steam in November, economists say, with England under lockdown and restrictions in other parts of the UK too.

Ed Monk, associate director for personal investing at Fidelity International comments:

Price rises in most categories fell back and this was more acute for clothing, food and non-alcoholic drinks, demonstrating the pressure on retail. Clothes retailers would normally spend the Autumn increasing prices ahead of Christmas but lockdown has squashed that.

More widely, the downward pressures of low consumer confidence, increasing coronavirus cases, strict lockdowns, rising unemployment and depressed spending continue to hold back price rises.

The acceleration of consumer price growth over the past two months has been cut short. The 12-month rate for November shows that consumer prices grew by 0.3%, down from 0.7% in October. The figures reflect the second national lockdown in England, which restricted activity and subdued demand for things like fuel and clothing."

The deceleration in consumer price growth came as most of the main groups of goods and services experienced a fall in prices between October and November, including transport, health, recreation and culture. The largest drop in prices came from clothing and footwear as retailers discounted products for Black Friday."

8.11am GMT

Yeah big chunky fall in clothing, ONS say down to sales/discounting though so impact on this scale likely transitory pic.twitter.com/a2TDjeqKwD

7.51am GMT

Last month, my colleague Molly Blackall highlighted the scale of discounting on Black Friday - with some online retailers selling clothes and shoes for just pennies each.

She wrote:

Clothing brand Pretty Little Thing offered deals of up to 99% off, with high-heeled shoes on sale for 25p and dresses for 8p. One buyer said on Twitter that they had made 27 orders from the brand for just 57p each, while another said they had bought 56 items for 28.

Boohoo, which owns Pretty Little Thing alongside brands including Nasty Gal and Karen Millen, also offered up to 80% off all of their products, with skirts for as little as 1.60.

7.45am GMT

Price of food and non-alcoholic beverages fell by 0.2% last month -- compared with a rise of 0.8% a year ago.

The effect came from across a wide range of food and drink categories, but particularly sugar confectionery, vegetables and meat, from products such as large bars of chocolate, ice cream, cauliflower, premium potato crisps and cooked ham.

7.39am GMT

The fall in clothing and footwear prices last month (down 2.6% in November compared with October) was mainly driven by cheaper women's clothing, the ONS says.

But men's clothing, and other categories such as footwear, also had a downward effect.

7.26am GMT

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

Inflation in the UK has slowed sharply last month, dragged down by falling prices for clothing amid the Black Friday sales rush last month.

Prices overall fell by 2.6% between October and November 2020, compared with a rise of 1.0% between the same two months a year ago. Prices usually rise between these two months but price movements across 2020 have been unusual compared with previous years and appear to have been affected by the coronavirus lockdowns.

The price fall in November this year reflects increased discounting and there have been media reports that some Black Friday sales may have spread further across the month.

The latest flash PMIs for the UK are also expected to paint a slightly better picture for the UK economy after the slowdown in November, with an improvement in both manufacturing and services, with manufacturing expected to remain fairly resilient at 56, due to an element of pre-Brexit stock-piling, while services are expected to rebound to 50.7, after the economic reopening as the November restrictions came off.

The announcement of extended lockdowns for the likes of Germany, and the Netherlands earlier this week, along with an extension of some restrictions in France augurs ill for the outlook for northern Europe's largest economies over the next few weeks. Today's flash PMI for manufacturing and services is expected to deepen that economic gloom, even as manufacturing continues to help offset the hit the services sector is taking.

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