FTSE 250 hits record high, Fitch warns of Brexit challenges and MPs grill OBR - as it happened

Graeme Wearden

from on 2017-03-13 18:19 (#2FPJX)

All the day's economic and financial news, as investors anticipate US interest rates being raised on Wednesday, and Britain starting its exit from the EU this week

Treasury committee quiz Office for Budget Responsibility
FTSE 250 closes at record high
Fitch: Brexit hard work starts now
US rate hike likely this week
Pound up against the US dollar

6.19pm GMT

Finally, George Mudie MP asks if the possibility of Scotland breaking away from the UK will be modelled in the next OBR forecasts

Robert Chote replies that the OBR bases its work on UK government policy, so it all depends on the situation in November.

5.56pm GMT

The Treasury Committee have also been considering the issue of Charlotte Hogg, the new deputy governor of the Bank of England who broke its code of conduct by not reporting that her brother works for Barclays bank.

The Committee is due to issue a report on her appointment, and it doesn't look terribly good for Hogg.

HOGG ROAST https://t.co/IqqgpWTflu pic.twitter.com/i2k8LIczXj

5.51pm GMT

Q: What impact has the gig economy had on the UK labour market, and on weak wage growth?

Chote says the OBR has made an assumption that self-employment numbers will grow faster than the rest of the labour market (previously it assumed they rose in parallel).

5.46pm GMT

Wes Streeting, another Labour MP, asks the OBR about its persistent habit of over-estimating wage growth.

Q: What are you going to do about it?

5.26pm GMT

John Mann MP asks the OBR about Brexit

Q: What is your projection for a reduction on EU nationals in the years after Brexit?

5.22pm GMT

Treasury committee chairman Andrew Tyrie asks about the data which the Treasury supplies to the OBR to help it draw up its forecasts.

Q: Why can't the figures be released publicly? Is there any confidential data about individual taxpayers in there?

5.10pm GMT

Back at parliament, Jacob Rees-Mogg MP asks the OBR about the UK tax take.

This is heading towards the highest levels since Harold Wilson was prime minister at the end of the 1960s (at around 38% of national income, I think).

5.04pm GMT

Investors won't have to worry about article 50 being triggered tomorrow, it seems.

Westminster correspondents are reporting that Theresa May won't fire the Brexit starting gun until the end of this month. Scotland's push for a new independence referendum may have forced the PM into a delay.

Hearing PM's backed away from triggering A50 tomorrow, partly because doesn't want to look cavalier about the Union, after Sturgeon speech.

Not that tomorrow was ever a definite date; but the option was being kept open, including by other Whitehall departments - until today.

I think the "never intended to trigger this week" briefing will cause a lot of anger and paranoia in Whitehall who worked to this timetable

4.53pm GMT

Back in parliament, the independent Office for Budget Responsibility is fielding questions on the budget.

4.44pm GMT

The FTSE 100 index has also closed higher, up 0.3% at 7367.

Mining stocks rallied, following a pick-up in commodity prices.

4.43pm GMT

4.38pm GMT

Newsflash: Britain's FTSE 250 index of mid-sized companies has closed at a new record high.

The FTSE 250 finished at 19,029 points, showing that Brexit angst isn't hitting the markets yet.

BRITAIN'S FTSE 250 UP 0.3 PCT, CLOSES AT RECORD LEVEL

4.18pm GMT

Over at parliament, the Treasury committee are questioning the Office for Budget Responsibility over last week's Budget.

3.39pm GMT

Dean Turner, economist at UBS Wealth Management, predicts that sterling could get spooked if Scotland does press on with a second referendum (one of Fitch's five challenges today).

He also believes the independence campaign will need to reassure voters about the economic case for breaking away from the UK, and some more detailed answers (ie, which currency they might use).

"While Brexit has, of course, added a new dimension, the economic concerns that led the majority in Scotland to vote to remain a part of the UK have not disappeared. Scottish GDP lags behind the UK and declining oil revenues have raised questions over the fiscal sustainability for an independent Scotland - especially if it intends to retain the pound. While EU membership may provide Scotland with a preferable trade agreement, carving a new membership would be no mean feat and the UK still remains Scotland's largest trading partner.

"Market reaction to Sturgeon's speech has been muted so far, most likely because she still has a long way to go to achieve approval for a second Referendum and the announcement was well-flagged. Yet if approval becomes increasingly likely, we expect volatility in sterling to rise."

2.52pm GMT

The Scottish government's push for a fresh referendum on independence isn't hurting the pound.

Sterling is holding onto this morning's gains, and changing hands at $1.223 against the US dollar, up 0.5% today.

A second referendum for Scotland is not a key event risk for UK asset markets right now for a couple of reasons: firstly, Nicola Sturgeon didn't give an actual date for this referendum, it could happen sometime between 2018 and 2019, which is probably too far in the future for the markets to start worrying and pricing in the break up of the United Kingdom. Also, the latest opinion polls suggest that a second referendum would go the same way as the first, and the majority of voters would choose to stay in the United Kingdom.

While opinion polls still can't be fully trusted, it's enough, at this stage, to keep UK markets calm.

Nicola Sturgeon has today chosen the path of further division and uncertainty. We will vote against any request for a Section 30 next week.

2.29pm GMT

European Central Bank Mario Draghi has warned that productivity in the eurozone is being held back because too few firms are embracing new technology.

Opening a conference on "Fostering Innovation and Entrepreneurship in the Euro area", Draghi argues that the future was brighter than coms fear.

If, as the world's second largest economic area, we were to dismantle barriers to innovative activity in the euro area, it would clearly give a boost to global innovation.

This is a long-standing issue for the euro area: better adoption of ICT in the United States appears to explain most of the productivity gap between the US and the EU15 from 1995 to 2007.

There are many reasons why it is a priority today in the euro area to address weak productivity growth. But while some progress can be made in innovation, it is not in my view the sole issue. Equally important for the euro area is to facilitate and encourage the spread of new technology from the frontier to the laggard firms.

Simply by diffusing better the technology we already have in the euro area, we could make sizeable gains in productivity. In other words, there is much we can still do to reverse the aggregate productivity slowdown and dispel pessimism about our future.

Draghi about existing technology at #EUinnovation conference https://t.co/LtjpVQSTZX pic.twitter.com/QqJFbvQ3nZ

1.40pm GMT

Wall Street has just opened for the week, but there's not much excitement.

The Dow Jones index and the S&P 500 have both dipped by a mere 0.01%.

12.57pm GMT

Is some UK economic data being leaked before publication, and are some unscrupulous investors profiting?

New research published in the Wall Street Journal this morning suggests that some people in the markets may be making a killing by trading on official reports from the Office for National Statistics before they're published.

UK. government-bond futures often move sharply in the 24 hours before sensitive economic reports are released, an analysis of trading data shows, a phenomenon that suggests some investors may be trading with knowledge of official statistics before they are made public.

On average, between April 2011 and December 2016, U.K. government-bond futures correctly anticipated the rise or fall that ultimately happened when economic data were published, according to an analysis prepared for The Wall Street Journal by Alexander Kurov, associate professor of finance at West Virginia University.

ICYMI - Gilt futures drift in the right direction ahead of UK econ data, suggesting some traders are informed https://t.co/t1VFNqmeof pic.twitter.com/RibMCpef2e

"Reports that markets are moving ahead of official ONS data releases in a way that is consistent with leaks and insider trading must be taken extremely seriously by the government and the ONS.

"If flaws in ONS procedures are enabling market-moving leaks to take place, allowing some individuals to profit off secret information, then something has gone badly wrong. The Cabinet Office should review ONS procedures and consider substantial reforms in light of this new evidence.

"We could follow the lead of the United States, where these suspicious market movements are seldom seen, and data is released less than 24 hours after completion and statistical reports are physically delivered to the President.

"An alternative option would be to make the process entirely open, so that the public (and the markets) can see ONS data in real-time as it is generated, and markets can price in new information immediately and openly. The ONS is already working on this, but today's findings should be an urgent call to action for them to speed up the process."

12.08pm GMT

Up in Edinburgh, first minister Nicola Sturgeon has announced that she'll ask the Scottish parliament to vote next on week on whether to hold a second independence vote.

Sturgeon is arguing that Scotland shouldn't be taken down the path of 'hard Brexit' without being offered the alternative of an independent future inside the EU.

The pound has barely reacted to the Sturgeon announcement abt a second Scottish Indyref. Here it is so far today: pic.twitter.com/IWQTmmxGFj

Sterling doesn't seem to be infected by UK break-up fear. Has it reached the stage where new Scottish groats would be preferable?

11.41am GMT

Rating agency Fitch has fired a sobering blast at anyone who thinks Britain's departure from the EU will be simple.

In a new commentary, James McCormack, Fitch's Global Head of Sovereign Ratings, outlines five challenges facing Theresa May as she prepared to trigger article 50.

Lack of full control over the negotiating agenda is the most important of these. While Prime Minister May has said a comprehensive free trade agreement with the EU is one of the government's objectives, some European leaders have suggested that post-exit trade arrangements can only be considered after the terms of exit have been agreed.

A related challenge will be settling the financial terms of the UK's departure from the EU, which is likely to be among the issues EU leaders seek to resolve up front. The UK will have a strong incentive to settle its "exit bill" quickly to preserve as much of the two-year negotiating period as possible for more difficult and important issues. But in so doing, it risks criticism at home of an early and unnecessary concession

Scotland may seek a bespoke solution to allow continued access to the single market, raising the risk of a second independence referendum if its objectives are unmet.

Beyond Scotland, there is certain to be plenty of open opposition to the government's negotiating strategies and priorities, exposing possible political pressure points that can be exploited by EU negotiators.

Finally, it will prove challenging for the government to manage expectations over a two-year period, and negotiating setbacks may be reflected in heightened financial market volatility. The biggest associated risk is a decided swing in public opinion toward a more negative view of Brexit, lending support for either a greater Parliamentary role in approving the final negotiated agreement or another opportunity for the electorate to formally express its view.

11.29am GMT

The FT's Gideon Rachman has written a good piece today about the uncertainty that shrouds Brexit - and worries the markets.

He writes:

Brexit is still shrouded by uncertainty. As one UK official closely involved in the process puts it: "Some days I wake up and think it's all going to be fine. Other days, it feels like a disaster in the making."

I feel the same way. It seems to me likely that Brexit will work out badly for Britain and fairly badly for the EU. But there are so many different variables involved that nobody sensible can be sure. There are three main "known unknowns". First, the negotiations themselves. Second, events in the wider world. Third, the unpredictable economic effects of what ever deal is struck.

.@gideonrachman on the known unknowns of Brexit https://t.co/leiQl7oT7d

10.53am GMT

Anyone caught up in today's rail strikes may be due compensation. So this chart from Money.co.uk could be useful:

"It's ridiculous that travelling by train is becoming such a headache.

The only consolation is you can claim a full refund if your train is cancelled and compensation if it's delayed. Most people don't know they can get money back from the train company if their travel plans are ruined by strike action. You can fill in a claims form online, it takes 5 minutes and gives you something to do if you're left standing at the station so it's definitely worth doing.

10.42am GMT

Transport workers in Britain and Germany have downed tools this morning, leaving some passengers marooned and others struggling to get to work.

Hundreds of flights are canceled as ground staff strike again at Berlin's two airports https://t.co/DxaO4PpPZM pic.twitter.com/0v33AXDegw

10.23am GMT

Anxiety over Wednesday's likely US interest rate rise is weighing on Europe's stock markets this morning.

The UK, French and German trading floors are all rather subdued, meaning the main indices are little changed from Friday.

Anyone wondering why the market is so quiet this morning will have to look no further than the Fed meeting for a reason. Another rate hike could be just days away, indeed, given the way the Fed's policymakers have been talking, it is practically a certainty at this point. Friday's jobs report reinforced the narrative, but the key now will be what the statement and press conference say. As a result we are likely to see the bullish flows that have dominated since the US election pause for breath, at least until Wednesday is out of the way.

FTSE100 outperforming: weak USD helps Miners more than strong GBP and lower oil hinders internationals & Energy. Housebuilder M&A also helps

9.54am GMT

The oil price has hit a three-month low this morning.

Brent crude slid to $51.26 per barrel, the weakest level since last November. And 'implied volatility ha surged, suggesting traders expect the price to move dramatically in the coming weeks.

Knock knock....Volatility? We've been expecting you. #Brent implied vol sees biggest one-week rise since Aug 2015 as price drops towards $50 pic.twitter.com/ZK011AGCUm

9.29am GMT

Currency experts predict that the pound will face further pressure once Theresa May launches Britain's departure from the European Union.

Bloomberg has a good take. Here's a flavour:

"We reject the notion that sterling has fully priced Article 50 and beyond. Risks to the currency remain to the downside on a disruptive start to negotiations," Bank of America Merrill Lynch strategists including Kamal Sharma said in a note to clients on March 2, adding they see a dip before a recovery into the end of the year.

JPMorgan Chase & Co. is also bearish. It recommended on March 3 selling the pound against the dollar at 1.2250, with a stop at 1.2530, as it sees the currency as the most over-valued in the Group-of-10 and investor confidence as vulnerable.

What to expect from the markets when Theresa May triggers the Brexit process https://t.co/Vpl6vdd4Td pic.twitter.com/ej3qZu8Rsp

8.58am GMT

Britain's FTSE 250 index has hit a fresh all-time high this morning, driven by merger activity.

The FTSE 250, which is made up of medium-sized companies, hit 19,048 points in early trading.

8.37am GMT

In the City....shares in housebuilder Bovis Homes have surged by 8% in early trading, following takeover approaches from Redrow and Galliford Try.

Redrow's offer is valued at 8.14 per Bovis share, while Galliford Try's is worth 886p per share.

There is a strong chance that one will succeed and that should support the stock. But Bovis should hold out for a better premium. Joint brokers Deutsche Bank and Jeffries have price targets of 969p and 886p respectively. A successful bid might need to at least split the difference to satisfy the board. Although even that might not be enough - only in January Deutsche Bank was targeting 1066p for Bovis. Above 10 a share might be more appropriate."

8.32am GMT

Over in Westminster, the chatter is that Theresa May could trigger Article 50 of the Lisbon Treaty on Tuesday.

The prime minister is due to update MP on events at last week's EU council meeting tomorrow, and could take the opportunity to get the Brexit ball rolling.

Open Britain, which groups a series of formerly pro-remain MPs from Labour, the Conservatives and the Liberal Democrats, said leaving with no deal would mean the UK "choosing the most extreme position of all major trading nations".

The research, by the House of Commons library, found that the EU does not currently trade with any G20 member without some sort of preferential trade arrangement in place.

8.19am GMT

After strong US jobs data last Friday, there's a strong feeling in the markets that the US Federal Reserve will raise interest rates on Wednesday.

Bloomberg: 100% consensus on @federalreserve rate hike on March 14/15. pic.twitter.com/DqpXFqqrEq

Investors are almost convinced that the Fed will move forward in tightening monetary policy, with speculators pricing in 89% chance of a rate hike according to CME's FedWatch Tool. Friday's robust non-farm payrolls report removed all doubts and now even skeptical investors believe that three rate hikes are the base scenario for 2017.

7.51am GMT

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

It's going to be a busy week for the markets.

In the UK, going into the week that should see that Brexit-article 50 bill going finally through parliament, the press is full with reports about the government preparing for a scenario where no trade deal is struck with the EU in 2 years' time.

Government officials, including various ministers, stress, however, that they expect a deal to be signed in due time.

This is a big week:

- Merkel meets Trump
- Dutch elections
- maybe Article 50

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