Britons' finances weakest since 2011; Covid-19 knocks oil near $10 a barrel – as it happened

Jasper Jolly

from on 2020-04-20 14:28 (#52CM5)

Rolling live coverage of business, economics and financial markets as British economic prospects slump

3.28pm BST

Stresses in the oil market are building up to truly epic levels, with the US benchmark nearing the $10 per barrel mark. It started the year above $60 per barrel, before the coronavirus pandemic intervened.

The price of West Texas Intermediate futures for May delivery fell as low as $10.63 on Monday, as a combination of a demand slump and rapidly filling storage capacity around the world hit markets.

Despite the deal to cut oil production, brokered by President Trump, oil prices have continued to track downwards - the promise of reduced supply has not kept pace with the expected reduction in demand, so far.

It is one of life's curiosities, for macroeconomists, that the US president would intervene to keep oil prices up, unless for environmental reasons, which feels unlikely with this administration. The US economy, like most advanced economies, is a substantial net beneficiary in the round from lower oil prices, even if the oil-producing sector is hurt.

2.59pm BST

We've caveated the plunging West Texas Intermediate price a few times: the futures contract for May delivery expires tomorrow, so a lot of traders are looking at the June contract.

But this is not normal. It is the biggest one-day drop since the WTI futures contract, the US benchmark, was introduced in March 1983.

Wild chart from @ChrisBennettCFA in today's "Daily Dashboard".

This is like the "El Cap" of contango. pic.twitter.com/tSLVrxurWu

The contango in WTI prices is extraordinary. August WTI is more than twice as expensive as May. The chart shows the front contract divided by the 4th. Too much oil, with nowhere to put it. [...]

This will put more pressure to reduce supply and the pressure may be felt most, under the circumstances, in North America.

2.32pm BST

US stock market indices fell heavily at the start of trading on Monday, as oil prices slumped with traders concerned that storage facilities are rapidly running out.

The S&P 500 fell by 1.6%, the Dow Jones industrial average lost 2%, and the Nasdaq lost 1.1%.

2.27pm BST

There were also some interesting comments earlier from Bank of England chief economist Andy Haldane, addressing the concerns that government-backed loans are not getting through to companies quickly enough.

I won't get any kudos for pointing this out, but the British Business Bank and the banks in general have been churning out CBILS loans at a rate that is *historically* incredibly fast, when compared to the predecessor scheme, the EFG pic.twitter.com/i547KEOuKV

2.19pm BST

The Bank of England has been wielding a mixture of carrot and stick towards the banks during this crisis (perhaps more of the latter) and it seems to have worked so far: financial markets have for the most part functioned.

New guidance for lenders suggests that Threadneedle Street is not yet satisfied by what the sector is doing. The Bank's Prudential Regulation Authority (PRA) today said it expects banks to focus on continuing to support customers, even if that means using some of their buffer space. Via Reuters:

Banks are expected to use their liquidity buffers in doing so, even if it means liquidity coverage ratios go significantly below 100%.

2.07pm BST

Startups probably get more coverage than they warrant on the whole, but then they are seen as a key source of the kind of innovation that's important for an economy's long-term prosperity. That's why the government is stepping in with support.

Fast-growing UK companies will be offered 1.25bn in taxpayer-backed loans, as the government attempts to protect emerging sectors of the British economy during the coronavirus pandemic, writes the Guardian's economics correspondent, Richard Partington.

1.05pm BST

Sir Richard Branson has faced mounting criticism for pleading for taxpayers' cash, rather than using his own fortune to rescue the airline.

Now he has pledged to put up his private Caribbean island as collateral to raise money in a blog post pleading for a government bailout.

Richard Branson's letter failed to convince us that suing the NHS wasn't bad for the health service, moving his money to a tax haven wasn't to avoid tax, or that emitting millions of tonnes of pollution wasn't bad for the environment.

There are still no justified grounds to give Virgin an unconditional bailout. Public money should be used for public goods. That should include improving workers' rights and protections, cutting back on bonuses and dividends, and limiting flights to a level compatible with the Paris Agreement.

12.51pm BST

And US stock market futures are also indicating pain ahead for Wall Street.

S&P 500 futures prices are down 1.8%, Dow Jones industrial average futures prices are down 1.9%, and those for the Nasdaq have lost 1.1%.

12.50pm BST

A quick round-up of market news as we approach lunchtime in London.

12.15pm BST

Argentina's international creditors have rejected the government's plans to ease the burden of $66.2bn in debt as the country tries to deal with the coronavirus pandemic.

Argentina is heading for its ninth default unless it can reach an agreement with its creditors on debt restructuring. So far, the group (a lot of whom are US fund managers) is not playing ball.

Regrettably, despite the efforts of the group and other stakeholders, the proposals contained in the recently published press release are not ones which the group can or will support.

The group believes that all stakeholders in Argentina will need to contribute to a solution that puts Argentina on a path toward sustainable growth and financial stability.

12.00pm BST

What do investors know about pandemics? No more than the average person on the street, for the most part. So don't take the below chart as a forecast - but it is a useful indicator of worsening market sentiment.

Deutsche Bank's survey of market participants has found that the outlook for a return to normal life has worsened:

While in early to mid-March expectations were that we would see life normalise over the summer, now 60% of respondents do not believe we will return to normal until September at the earliest.

Interestingly the equity market has surged since this last survey even though the reality of the new slow return to normal emerges.

11.41am BST

An update on oil markets: it has got even worse for US crude futures.

The West Texas Intermediate contract for May delivery has fallen by 26% today, just now hitting a low of $13.43 per barrel (likely as US traders wake up).

11.18am BST

Britain in lockdown: new spending data from Starling Bank, based on 1.25m accounts, reveals that video gaming on Playstation and Nintendo is up by 300% while Amazon purchases rose 39% in recent weeks.

The bank looked at its customers' seven-day spending between the week to 15 March and that ending 5 April. Deliveroo sales were flat over that period, but some retailers saw big increases in spending: Argos (+49%), Asos (+12%), John Lewis (+13%) and Apple Store (+36%).

11.16am BST

The bakery chain Pain Quotidien is reportedly close to collapse as it tries to find a buyer.

The company, which has 26 UK sites, could appoint administrators as soon as this week, according to Sky News. It reported:

An emergency sale process for the business, which trades from 26 sites in Britain, has set a deadline of Wednesday for offers.

Alvarez & Marsal, the professional services firm, is overseeing the auction and is likely to be appointed as administrator unless a solvent sale is concluded in the coming days, insiders said on Monday.

11.03am BST

Primark has agreed to pay an additional 370m to suppliers to cover stock in production or yet to be delivered after criticism for cancellation of orders during the coronavirus crisis.

10.51am BST

Metro Bank has promised to refund customers more than 11.4m after failing to send the right information about unarranged overdraft charges to customers in their text alerts.

We are very sorry that we didn't include all the information we should have done on our overdraft text alerts, and that on certain occasions some customers did not receive these alerts before 10am as they should have done. This isn't the level of service that we pride ourselves on providing and we are now contacting any customers who have been impacted to put things right for them as quickly as possible.

10.45am BST

Richard Branson has said he will use his private island as security to raise money in an effort to protect jobs, as he defended himself against criticisms for seeking a government bailout.

I've seen lots of comments about my net worth - but that is calculated on the value of Virgin businesses around the world before this crisis, not sitting as cash in a bank account ready to withdraw. Over the years significant profits have never been taken out of the Virgin Group, instead they have been reinvested in building businesses that create value and opportunities. The challenge right now is that there is no money coming in and lots going out.

Today, the cash we have in the Virgin Group and my personal wealth is being invested across many companies around the world to protect as many jobs as possible, with a big part of that going to Virgin Atlantic.

We will need government support to achieve that in the face of the severe uncertainty surrounding travel today and not knowing how long the planes will be grounded for. This would be in the form of a commercial loan - it wouldn't be free money and the airline would pay it back.

The reality of this unprecedented crisis is that many airlines around the world need government support and many have already received it. Without it there won't be any competition left and hundreds of thousands more jobs will be lost, along with critical connectivity and huge economic value.

10.16am BST

Hopes for the future for British households also look to have been severely curtailed, if the job security reading in IHS Markit's household finances index is anything to go by.

The reading fell off a cliff to by far its lowest since the survey began (although bear in mind that it was founded after 2008, when uncertainty during the financial crisis was at its highest).

The UK Household Finance Index is already showing wide-reaching financial consequences of the lockdown measures implemented in late March.

Around one-in-three UK households reported a decline in income from employment during April, which was by far the largest number since the survey began in 2009.

Nevertheless, we can still draw a small degree of positivity from the latest results, with overall measures of cash available to spend and household debt proving much more stable than workplace incomes. There was a slight pick-up in unsecured lending needs, while in some cases savings were depleted to meet immediate financing needs.

Limiting the adverse impact on UK household balance sheets will be crucial in the coming months so that when economic activity does recover, consumers are not stuck repaying debts and instead are able to boost discretionary spending to aid a strong recovery.

9.46am BST

British household finances have reached their weakest point since November 2011, according to an index broadly followed by economists.

IHS Markit's UK household finance index, which measures households' overall perceptions of financial wellbeing, plummeted to a reading of 34.9 in April, with the biggest monthly drop since the survey was started in 2009, as the financial crisis raged.

Just out from @IHSMarkitPMI team: UK household sentiment and financial wellbeing collapsed in April, with job security plummeting. More at https://t.co/rtUx3Uc5hl pic.twitter.com/8SjEq31p8x

With a large degree of uncertainty surrounding the time frame to which the emergency public health measures will be maintained, financial wellbeing expectations also fell sharply. Overall, the respective index signalled the strongest level of pessimism for almost eight-and-a-half years.

9.41am BST

There were almost 70,000 applications for the state wage support in the first half hour of the portal being open, according to the head of HM Revenue and Customs.

This is from the Financial Times () write-up of HMRC Jim Harra's appearance on BBC radio earlier:

Harra said that the website was working, with about 67,000 claims from employers before 8.30am. He said: "We have scaled our IT system to cope with the maximum number of claims. There are over 2m PAYE schemes and our system is big enough to handle a claim from every one of those."

9.28am BST

This morning is an important day for the UK government's efforts to cushion the blow of the lockdown recession: the launch of the furlough scheme that will allow companies to claim back 80% of the wages of employees not working.

Under the scheme, the government will cover 80% of workers' wages, up to 2,500 a month, if they are not working but kept on their employers' payroll, reports the Guardian's Julia Kollewe. Workers across the economy have been furloughed because of the Covid-19 lockdown.

9.19am BST

There are some worrying moves on bond markets, with Italian government debt pricing in more risk ahead of an EU summit this week where coronabonds will be on the agenda.

The yield on the 10-year Italian bond rose by almost 10 basis points (0.1 percentage points) to 1.898% on Monday morning; yields rise when prices fall due to lower demand. On the other hand, German 10-year Bund yields were little changed at -0.482%.

Selling pressure on Italian government bonds has returned in the past week, undoing some of the benefits of the European Central Bank's massive bond-buying scheme, after eurozone politicians failed to agree to common debt issuance as a means of addressing the crisis.

Italian Prime Minister Guiseppe Conte used an interview with Germany's Sueddeutsche Zeitung on Monday to repeat calls for the EU to issue common eurozone bonds to demonstrate the bloc's solidarity in the face of a pandemic that is likely to trigger the worst recession in years.

Thursday is the key day this week with the EU leaders summit a potentially big event for the future of Europe as they discuss how close the region can get to joint issuance in the near future.

Expect creative ambiguity to rule as it normally does on the continent. Nevertheless you would expect more explicit details to be outlined as to how Europe will help Italy. Will this be enough to keep Italian spreads (and domestic politics) in check though?

9.04am BST

The selloff in US crude oil futures was a brutal 21% in early Monday trade, and there is little sign of any imminent recovery, with West Texas Intermediate May prices still bumping along below $15 per barrel.

"Don't panic," suggest analysts led by Mark Haefele, chief investment officer in UBS's wealth management arm. They forecast prices of WTI and Brent crude of $20 per barrel at the end of June, and over $40 per barrel at the end of the year.

The volatile trade comes amid fears US storage facilities could soon max out, leaving markets watching both domestic production and inbound crude tankers due for US ports. If the current pace of the inventory build continues, we could see US tanks
hit max capacity roughly by the end of June.

But the sharp swing in the front month contract also reflects thinned trade, with most of the market already shifting to the June contract before the Tuesday rollover.

Regardless of what OPEC does, there will be structural demand loss for oil due to less travel. At a minimum, oil prices will be the last asset class to recover from lockdown. End transport demand will only occur in the final stages of reopening when border crossing is allowed, and travel restrictions get lifted. People will then flock again to planes, trains, and automobile

8.31am BST

One possible explanation for the bumpy ride on the FTSE 100 this morning (it is now mildly negative): the prospect of the UK easing restrictions appears to be fairly distant.

Culture secretary Oliver Dowden is doing the media rounds this morning. He confirmed that the government is reluctant to lift the lockdown for fear of sparking a second wave of infections, telling BBC Breakfast:

The worst thing we could possibly do would be to prematurely ease the restrictions, and then find a second peak and have to go right back to square one again, potentially with even more draconian measures.

8.23am BST

The positive start to the week on European stock markets was very short-lived indeed: the major indices are now negative today.

The FTSE 100 is down by 0.3%, and the Stoxx 600 is down by 0.2%.

8.22am BST

The other big mover on the FTSE 350 is Aston Martin Lagonda, as the struggling carmaker got away a rights issue. Shares are up by 12% at 65p (although still barely a third of where they were at the start of the year).

The rights issue and the investment that I, and my co-investors in the consortium, have made has underpinned the financial security of, and our confidence in, the business. We can now focus on the engineering and marketing programmes that will enable Aston Martin to become one of the preeminent luxury car brands in the world.

In this first year we will reset the business. Our most pressing objective is to plan to restart our manufacturing operations, particularly to start production of the brand's first SUV, DBX, and to bring the organisation back to full operating life. We will do this in a way that ensures we will protect our people, wherever they work - their safety is our overwhelming concern.

8.12am BST

Interesting timing on this announcement from spreadbetting company Plus 500: its chief executive has just resigned. Shares are down 7%, making it the biggest faller on the FTSE 350.

Spreadbetting companies have seen a remarkable boom during quarantine measures, as historic market volatility coupled with the fact of millions of people being locked inside have contributed to an enormous surge in revenues.

8.03am BST

The FTSE 100 has gained 0.4% in the first exchanges in a relatively gentle start for these volatile times. FTSE 100 investors endured a rocky ride last week, with the index falling back before recovering some of its losses on Friday.

In Germany the benchmark Dax gained 0.7%, while France's Cac 40 gained 0.7% and Spain's Ibex rose by 0.6%.

7.53am BST

Good morning, and welcome to our live coverage of business, economics and financial markets.

The US oil price benchmark has hit its lowest level since March 1999, with investors seeing little in the way of demand growth while coronavirus lockdowns continue in the world's largest economies.

With above-ground storage bulging at the seams, WTI's only hope, it appears, is for production cut action from the impending decisions of state authorities in Texas and Oklahoma, and lots of producers going out of business.

China cut its benchmark lending rate as expected on Monday to reduce borrowing costs for companies and prop up the coronavirus-hit economy, after it contracted for the first time in decades.

The one-year loan prime rate (LPR) was lowered by 20 basis points (bps) to 3.85% from 4.05% previously, while the five-year LPR was cut by 10 bps to 4.65% from 4.75%.

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