UK mortgage approvals rise, as interest rate hints drive pound up - as it happened

Graeme Wearden (until 12.15) and Nick Fletcher

from on 2018-02-26 17:40 (#3GS7X)

All the day's economic and financial news, including the latest UK mortgage approvals data

5.40pm GMT

Ahead of a testimony from new Federal Reserve chair Jerome Powell on Tuesday, investors appear to have got over their fears of interest rate hikes, helping markets to regain their poise after the early February slump.

With Wall Street adding to last weeks gains, Europe was on the front foot for most of the day. The final scores showed:

4.34pm GMT

Commenting on Draghi, Chris Beauchamp, chief market analyst at IG, said:

Speaking today, Mario Draghi stuck to his view that continued accommodation was necessary, and this was enough to drive the euro sharply lower against the US dollar, catching a few overeager euro bulls on the hop. Clearly the ECB is in no rush at all to taper further. 'Sufficient unto the day' would appear to be the message that this central banker is sending. Of course, the big event is still to come this week, as the new Fed chairman appears before US lawmakers. Draghi's dovishness is a given, but Mr Powell is something more of an unknown quantity.

Mario Draghi...stated inflation in the currency bloc is still conditional on the stimulus programme. Mr Draghi has a track record of leaving the door open to additional monetary easing, and it sounds like he hasn't changed his ways.

4.32pm GMT

A final string of questions, including:

Is monetary policy the only main tool for the recovery?

4.15pm GMT

Question on non performing loans at banks.

Draghi says the case for tackling NPLs in a determined way is clear. Banks with high stock of NPLs have given less credit to the economy, high NPLs mean less support to firms and households, harming growth.

4.12pm GMT

Question: will QE need to be pursued further than 2018 if targets not met.

Draghi says the possible extension of QE has not been discussed by the governing council. What I have been saying, in the presence of an improving economic situation, we need the right blend of three features. We are more confident that inflation is proceeding towards our objective, but we have to be persistent and patient. Headline inflation is still not within our objective, that will be key measure of monetary policy in coming months.

4.04pm GMT

Question about Draghi's controversial membership of G30 group and what he will say to ombudsman.

Draghi says we have taken note of ombudsman letter and will provide an answer by the allotted time, in April.

4.03pm GMT

Question on failure of Latvian bank.

Draghi says he won't comment on details of emergency liquidity assistance to the bank, shortly before it failed.

4.00pm GMT

Another question on Greece's performance.

Draghis says, almost all agreed prior actions have been implemented, just two left, expected to be completed in next two weeks.

3.57pm GMT

Question on Greece, and whether a fourth programme will be needed.

Draghi says, lot has been done at Greece, but certain prior actions need to be taken place in the next two weeks. At the ECB we didn't discuss further programmes.

3.54pm GMT

Supplementary question on a bubble in asset prices causing the financial crisis.

Draghi says expansive monetary policy is one way of explaining the financial crisis.

3.50pm GMT

Question on including house prices or all asset prices in the ECB's inflation measurements.

Draghi says our primarily objective is to hit the inflation target, our focus on consumer prices can best preserve the purchasing power of the people in the euro area.

3.47pm GMT

Draghi: "the true amount of economic slack may be larger than estimated". Unsurprisingly dovish overall. https://t.co/Blx7NEpEng

3.45pm GMT

Question on the appointments to the ECB board, and the fact there are no women on the board.

Draghi reads out the articles of the treaty about appointments. Then he adds, diversity and gender diversity is one of strategic priorities, we are aiming to do more than we have achieved so far.

3.42pm GMT

Question on the US tax reforms.

Draghi says US tax reforms will support the US and US corporates, but it is too early to say if the spillovers will be significant for the euro area.

3.38pm GMT

On the financial effects of Brexit, he says the EU should finalised clearing measures ahead of Brexit:

Let me also stress the crucial importance of finalising the adoption of key pieces of EU legislation... well in advance of Brexit, in order to be prepared for all possible contingencies, including a no-deal scenario. Failing to do so could leave central banks and supervisors without the appropriate tools to handle the risks..

3.29pm GMT

Delayed plane flights is the explanation for the late start to the Mario Draghi session at the European parliament, explains the chair of the economic committee Roberto Gualtieri. So he will skip his opening remarks, and will also keep questions short after Draghi's speech, which belatedly gets underway.

3.16pm GMT

Draghi concludes by repeating calls for further policy measures:

Our monetary policy measures have had tangible benefits for the euro area economy. Further policy initiatives are however needed to reduce vulnerabilities, strengthen resilience in crisis situations and increase growth potential. Only ambitious policies will deliver concrete benefits for the people of Europe.

3.15pm GMT

Europe is growing more strongly than expected but inflation is yet to show sustained signs of moving higher, says Mario Draghi.

Ahead of the ECB president's address to the European Parliament, the bank has released his opening statement. He said:

A comprehensive analysis by the Eurosystem has concluded that adverse cyclical factors have played a crucial role in explaining low underlying inflation. These notably consisted of dampened economic activity and high unemployment in the aftermath of the sovereign debt crisis, and subsequently subdued foreign demand and low oil prices. Yet, these factors are of a temporary nature and should not affect inflation over a medium-term horizon, even though they might impact on the speed of adjustment in inflation.

Overall, the analysis indicates that the relationship between growth and inflation remains largely intact, even if it has temporarily weakened in recent years to the extent that the speed of adjustment in inflation towards our aim has been affected.

Looking ahead, we anticipate that headline inflation will resume its gradual upward adjustment, supported by our monetary policy measures. At the same time, uncertainties continue to prevail. In particular, the recent volatility in financial markets, notably also in the exchange rate, deserves close monitoring with regard to its possible implications for the medium-term outlook for price stability.

2.36pm GMT

ECB president Mario Draghi is due to start his testimony shortly:

WATCH: ECB Draghi's Speaks To EP Committee On Economic And Monetary Affairs Approx. 14:40 GMT https://t.co/QnhhiKinSd

2.33pm GMT

US markets have opened higher, ahead of a key testimony by new Federal Reserve chair Jerome Powell on Tuesday.

Hopes that Powell will keep the Fed on a steady course have helped lift the Dow Jones Industrial Average 153 points or 0.6% in early trading. Meanwhile the S&P 500 opened 0.46% higher and the Nasdaq Composite 0.5% better, helped by a rise in technology shares.

2.18pm GMT

As we wait for ECB president Mario Draghi, here's more on US interest rates.

Federal Reserve member James Bullard says he is concerned about the central bank going too far, too fast on interest rates unless the data supports it. And he adds:

St. Louis Fed President James Bullard pans the 3 vs. 4 rate hike debate:
"I would like the (FOMC) committee to get out of the business of how many rate hikes there are going to be in a year."
"You need the surprise, it seems to me, to push the rates higher." #Fed #economy

1.30pm GMT

Here's our latest on the Melrose bid for GKN, which is likely to hot up this week. Karl West reports:

The hostile 7.4bn battle for control of GKN, one of Britain's oldest engineering groups, is expected to come to a head this week as the aerospace and auto parts manufacturer reports annual results, which could prompt a raised bid from predator Melrose.

GKN is scrapping for its life after rejecting the offer from Melrose, a corporate turnaround firm that specialises in buying unloved industrial assets, improving the financial returns and selling for a huge premium. Melrose has offered 1.49 of its own shares, plus 81p for every one of GKN's shares. The mainly share-based bid would leave GKN investors with 57% of the enlarged group.

12.31pm GMT

The strength of the pound in the wake of weekend comments from the Bank of England's Dave Ramsden - it is currently up 0.5% at $1.4034 against the dollar - is not limiting the gains in the FTSE 100.

The leading index is up 0.55% at 7284, near the highs of the day. Meanwhile European markets are shrugging off a stronger euro, with Germany's Dax up 0.39% and France's Cac climbing 0.55%.

The ECB has long been preparing the markets for the end of bond buying and recent statements, minutes and comments from Draghi himself have indicated that the central bank intends to give plenty of warning of upcoming changes leading many to expect such a warning in the not too distant future. Draghi may therefore drop further hints on the timing of such a policy shift in today's hearing which the euro will be particularly sensitive to.

12.09pm GMT

It's another bad morning for hundreds of Carillion workers.

Discussions with potential purchasers continue and I expect that the number of jobs safeguarded through the liquidation will continue to rise.

I am continuing to engage with staff, elected employee representatives and unions to keep them informed as these arrangements are confirmed.

11.53am GMT

The French economic recovery is gathering pace, says UBS Wealth Management, which has just raised its forecasts for the eurozone's second-largest member.

"Along with the rest of the Eurozone, the outlook for the French economy has improved sharply. The risks around last year's presidential elections now seem like a distant memory.

"Following his election and subsequent parliamentary landslide, Emmanuel Macron's willingness to embark on his ambitious program of domestic structural reforms has led to a renewed confidence in the outlook for the economy. The current sense of optimism amongst French firms should mean that investment continues to rise, and the outlook for hiring remains positive."

11.41am GMT

Back in the markets, shares in outsourcing group Interserve have slumped by almost 10% today.

Interserve provides services to the UK government across health, education and defence. It has been under tight scrutiny since the collapse of Carillion last month.

The Interserve problem appears to be investor jitters about the rescheduled loan covenant test at the end of March. But if the company is going to need a rights issue to stay alive, throwing the share price off the cliff is not sensible.

Interserve is taking big losses on a line of business it is in the process of divesting, and that is pushing up its net debt considerably. But this is a short-term problem, surely? Core business doesn't look that weak by sector standards.

Interserve does have very large trade payables and receivables though. Imho any business whose principal asset is trade receivables and principal liability is trade payables is acting like a bank. It's borrowing from its subcontractors and lending to its customers.

11.12am GMT

Jeremy Leaf, a north London estate agent, reckons that some certainty over Britain's future relationship with the EU would help the housing market.

"The UK Finance numbers are quite encouraging as they bear out what we have been seeing on the ground - in other words, buyers and sellers are getting on with business, albeit at more realistic prices. Certainly we don't see any signs of fireworks but nor do we see any major corrections in the market either.

Looking forward towards the spring market, we hope for a little bit of better news on the Brexit front which would give more certainty to the market and more balance of supply and demand in this crucial period for the housing market."

10.51am GMT

Although mortgage approvals rose in January, the amount of money borrowed by UK businesses actually shrank last month.

This morning's report from UK Finance shows that firms owed 263.9bn to Britain's high street banks in January - 1.4% less than a year ago.

*U.K. JAN. BUSINESS LENDING FALLS 1.4% Y/Y, FIRST DROP SINCE '15

10.08am GMT

Despite January's pick-up in mortgage approvals, 2018 is likely to be a tough year for the UK housing market, says Howard Archer of EY.

He predicts that the threat of interest rate rises, and weak consumer confidence, means that prices will only rise by 2% this year. If so, that might help some first-time buyers scramble onto the property ladder.

The fundamentals for house buyers are likely to remain challenging. Consumers have faced an extended squeeze on purchasing power, and it is likely to ease only gradually as the year progresses. Additionally, housing market activity is likely to be hampered by fragile consumer confidence and limited willingness to engage in major transactions.

House buyers will also likely be concerned about further interest rate hikes this year following November's first tightening of monetary policy by the Bank of England since 2007.

10.04am GMT

Economist Rupert Seggins shows how UK mortgage approvals and house price growth are both weaker than a few years ago:

40k mortgage approvals for house purchase in January, a 4k jump on December, but still 4k down on January last year. The overall picture remains one of a subdued UK housing market. pic.twitter.com/2a0DRRDxen

9.52am GMT

Today's figures also show that more people remortgaged their homes last month.

They may be looking to 'lock in' today's low interest rates, before the Bank of England raises borrowing costs.

UK mortgage approvals of 40,100 tick higher in January after 4.5 year low in December. Remortgaging volumes remain elevated at 35% of approvals. Set to grow faster next month as hawkish BoE guidance impacts rate expectations. pic.twitter.com/93L4KLJZpR

9.48am GMT

Here's a chart showing how UK mortgage approvals (in green) rose in January after cooling towards the end of 2017.

9.34am GMT

Breaking: British mortgage approvals have risen, for the first time in four months.

Some 40,117 mortgage loans were approved in January, new industry figures show. That's an increase on December's 36,085 -- which was the weakest since April 2013.

#UK | JAN. MORTGAGE APPROVALS 40,117 (-9.4% Y/Y) pic.twitter.com/OGYXcudw1b

9.29am GMT

The pound is gaining ground this morning, after a senior Bank of England policymaker hinted that interest rates will rise soon.

"Relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later".

9.19am GMT

Every major European share index has risen this morning, pushing the pan-European Stoxx 600 index up by 0.6%.

Connor Campbell of SpreadEx says:

The DAX was the region's most robust index, surging nearly 1% to tickle 12600 for the first time since February 7^th, while the CAC posted a respectable, 5350-crossing 0.7% increase. It'll be interesting to see whether Mario Draghi's testimony in Brussels changes the day's cheery sentiment.

Global stocks start the week higher https://t.co/Xzix9dgnNi pic.twitter.com/H9ZuKTwfKp

9.05am GMT

Last year's brutal hurricane season and other natural disasters wiped more than 90% of insurance firm Hiscox's annual profits.

9.03am GMT

Some solid corporate results are pushing the London stock market higher this morning.

Associated British Foods shares are up 1.5% after it told the City that profits at its Primark fashion chain are expected to accelerate over the next six months.

Equity markets in the UK and Europe are off to a good start, following on from a late surge in the US on Friday and a positive start to the week in Asia.

8.27am GMT

Britain's biggest shopping centre owner Hammerson is adding adventure games and mini golf centres to its malls, after reporting a 6.8% rise in profits to 246m last year.

"Around 85% of all retail sales do still touch a physical store, so we're very firmly of the view that the physical store has a genuine place to play."

8.19am GMT

The chief executive of Bank of Ireland has warned that the uncertainty over Britain's exit from the European Union is hitting business confidence.

"While uncertainty remains for our UK business, we've seen nothing material today with regards to asset quality, there's nothing that gives us concern.

"For our customers in Ireland, there is an element of uncertainty, particularly for smaller businesses. We do see that two out of three business customers intend to invest in their businesses in the coming years but some of them are applying a wait and see approach."

7.55am GMT

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

Londoners who use trains to get to work: all of mine were cancelled this morning. If you don't live on the underground network you might want to leave 30 mins earlier than usual.

London opens on a firm note:#FTSE 100 +0.42%#DAX 30 +0.72%#CAC 40 +0.57% #IBEX 35 +0.60%

Equity markets are likely to continue benefitting from the strong economy and thus strong earnings growth despite higher bond yields acting as a drag on P/E ratios. Yet, with corporate bond yields still low, there seems no imminent risk for corporate funding, corporate profits and the economy as a whole.

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