All the day’s economic and financial news, as sterling is buffeted by the latest political drama in Westminster
- Pound hit by no-confidence talk
- Reports that 40 Tory MPs would sign a letter
- Sterling has shed almost a cent to $1.309
- What the experts say
- Full story: May faces defeat by MPs demanding meaningful vote on final Brexit deal
And finally, European stock markets ended the day in the red.
The FTSE 100 lost 17 points, or 0.25%, to 7,415 – with the weaker pound propping up the index by boosting multi-nationals’ shares.
In a roundabout way, Theresa May’s troubles a slightly helping the FTSE 100. The remainder of Europe is firmly in the red, but the weakness in sterling has cushioned the fall in the British index.
Continental Europe is being hit by the sell-off that begun last Thursday. The shock sell-off in Japan in the latter-half of last week is still being felt around the world.
There’s not much reaction in the markets to David Davis’s statement.
The pound is still down, although off its lows, at $1.3105.
One of the hundreds of amendments mentioned earlier has had an effect, it seems….
It is this cross party amendment led by Dominic Grieve, signed by 10 Tory rebels, amendment 7 that has forced the Government’s hand… pic.twitter.com/FAH1VjajyK
BREAKING Britain will leave the EU without a deal if MPs vote down final deal, David Davis said. MPs in the House of Commons audibly gasped.
Over in parliament, David Davis has said MPs will get a vote on the final Brexit deal.
That could be a significant development; except if parliament rejects the deal, then the UK could leave the EU anyway…..
John Redwood MP is under fire after financial bloggers pointed out that the pro-Brexit politician has been advising his clients at Charles Stanley to consider investing abroad…..
Time for a recap.
The Sunday Times newspaper reported over the weekend, that as many as 40 Conservative MPs have agreed to sign a letter of no-confidence in Theresa May.
Although this was eight short of the signatures needed to trigger a formal leadership challenge, this is likely to add to the bucket load of uncertainty, translating into more pain for the British Pound. With political instability at home stimulating concerns over May’s ability to govern and deliver Brexit, Sterling may have a very rough and rocky road ahead.
Brexit uncertainty seems to be hitting Europe’s stock markets.
The main EU indices are down around 1%, as the rise in the euro against the pound hits the value of exporters.
There are mounting pressures in the funding of UK defence programmes and this has resulted in the UK MoD pausing, cancelling or delaying numerous programmes.
Investors around the world will be watching the House of Commons, as the EU Withdrawal Bill debate resumes this week.
Wolf Piccoli of Teneo Intelligence says the government needs to be nimble to avoid defeat on one of the many (many!) amendments.
Given the large number of amendments tabled, the government of PM Theresa May will have to tread carefully to avoid defeat. The most controversial proposal will likely only be decided at a later stage: a final say for Westminster on the EU exit deal.
May might have to accept such a vote, but regardless, the offer from Brussels will likely be a take-it-or-leave-it deal.
EU (Withdrawal) Bill – latest list from the clerks to MPs this morning reveals there are now 471 amendments tabled to it. Yes, 471. Surely a record.
Top UK business leaders have just urged Theresa May to deliver a breakthrough in the Brexit talks before Christmas.
“With UK-EU trade worth more than €600bn each year, business groups from across Europe used today’s meeting with the Prime Minister as a welcome opportunity to highlight the mutual importance of seeing real progress before Christmas. All business organisations present reiterated the damage a ‘no-deal’ scenario would do to trade.
“A transition period reflecting the current arrangements remains the priority on both sides of the Channel. While businesses welcomed the Prime Minister’s Florence speech, we now need to move beyond warm words if jobs, investment and living standards are to be protected.
The latest UK political tensions will not have gone unnoticed in Europe.
Any weakening of Theresa May’s position fuels concern that the PM might struggle to get support for her Brexit plans, or even be ousted from office before March 2019.
More progress is required as time is ticking.
It is understandable that the (EU) chief negotiator (Michel) Barnier stresses how urgent it is for Britain to act promptly, to make proposals.”
Senior German finance ministry offical Thomas Steffen has warned "we should all be prepared" for a no deal Brexit scenario but says he hopes for alternative "but today I do not see it"
Newsflash: Convenience chain Nisa has agreed to be taken over by the Co-op, following a vote by its storeowners.
But the vote was close. The Co-op needed to get 75% support, and it barely squeaked over the line at a meeting at Leeds United football club…
Co-op successful in its offer for Nisa.
Looks like Co-op has clinched its Nisa takeover . 75.8% of members have voted in favour
Last Friday, the Brexit negotiations intensified another notch when EU negotiator Michel Barnier set the British government a two-week deadline to clarity its position on its ‘exit bill’.
MPs will get the chance to grill Brexit secretary David Davis about the situation later today, when he gives a statement to the House of Commons.
Here’s another chart from the Resolution Foundation’s Budget pre-briefing, predicting the worst wage squeeze since shortly after the Battle of Waterloo:
Investors have been jolted out of their ‘autumnal slumber’ by the latest outbreak of infighting in the UK cabinet, and the loss of two senior ministers (Priti Patel and Sir Michael Fallon) this month.
So says Kathleen Brooks of City index, who points out that sterling volatility has jumped today.
Firstly, today’s move tells us that the markets are on alert for political risks emanating out of the UK, and if there is a party coup to replace Theresa May then political turbulence is likely to weigh on the pound further.
Secondly, even though the pound has had a jolty start to the week, volatility and technical signals do not suggest to us that the pound is about to fall off a cliff just yet, we may need this story to develop further to get another big move lower in sterling.
UK political chaos seeping into sterling – UK pound most volatile relative to euro since May. Chart shows spread between 1-month GBP/USD and EUR/USD implied vol, widest since May. pic.twitter.com/ZWc9xBuAKE
As if the UK government didn’t have enough on its plate already, Philip Hammond has a budget to prepare.
And it may be a depressing event.
“Budget day looks set to bring bad news about what we have the potential to produce as a country. It looks likely that we are currently living through the worst decade for productivity growth since the start of the 19th century.
Highlights from @resfoundation Budget forecast:
UK on course for worst productivity growth in decade to 2017 since Napoleon tried to invade Russia
Britain on course for worst decade on pay growth for 200 years
Here’s some good news for people affected by the ground rent scandal: One of Britain’s biggest housebuilders, Taylor Wimpey, has set aside £130m in April to deal with the issue.
Some buyers of its new-build leasehold properties have found themselves trapped in spiralling ground rent contracts, with ground rents doubling every ten years.
“Converting to an RPI based structure addresses concerns about the mortgageability and saleability of these properties. We continue to make good progress towards securing agreements with other freeholders to also enable the conversion of the remaining doubling ground rent leases.”
The selloff is picking up pace as the ructions in the UK government worries the markets.
Sterling is priced for soggy growth and difficult negotiations. Both are likely whoever runs the Conservatives. The weakness of the PM’s position, like the incompetence of Mr Bean, is well known. That’s before we wonder who would want her job in the current circumstances; and before we wonder what her departure might do to the odds of another election, which might well put Jeremy Corbyn into Downing Street.
And would that be good for sterling (much softer Brexit) or bad for sterling (left-wing Labour hasn’t been around since the pound’s worst decade of all)?
Newsflash: The International Monetary Fund has warned that Europe’s economy would suffer if the UK left the EU without a deal.
“Under such circumstances, our concern is that economic growth will suffer, especially in the UK, but also the euro area.
We are then possibly looking at appreciably lower growth than we presently project.”
City traders are studying the headlines and concluding that Theresa May is at her weakest position since June’s general election, says Connor Campbell of SpreadEx.
There’s A LOT for May to fret about at the moment. She could be facing defeat on part of her Brexit Bill later in the week, with Tory Remainers likely to team up with Labour to try and secure Parliament a meaningful vote on any deal with the EU, something the PM is keen to avoid.
There’s also threats from Michel Barnier – who stated at the weekend the EU was preparing for a ‘no deal’ scenario – that if Britain doesn’t spell out how far it intends to ‘honour its obligations’ within the next 2 weeks then any trade talks will have to be ‘put back’.
The pound is also losing ground against the euro, down almost one euro cent at €1.122.
The weaker pound has pushed up share prices in London (as it makes overseas earnings more valuable).
The FTSE 100 has gained 22 points, or 0.3%, to 7455 points.
This is the pound’s biggest fall in a week, according to Bloomberg.
Sterling fell as much as 0.8 percent to $1.3092 as leveraged accounts aggressively sold the currency, according to traders in London, who asked not to be identified as they weren’t authorized to speak publicly.
Here’s a chart showing how the pound dropped this morning:
Sterling fell more than 0.5% early Monday, after the Sunday Times reported yesterday that 40 Conservative Party MPs agreed to sign a letter of no confidence in the Prime Minister, Theresa May. While this remains short of the 48 votes needed to force a new leadership, it still creates much frustration amongst investors seeking clarity on Brexit negotiations.
With May’s position being potentially at risk and no significant progress after six rounds of talks with EU, Sterling may come under increased pressure in the next couple of days, with the $1.3024 support level at risk of being breached. A leaked letter from Boris Johnson and Michael Gove pushing for Hard Brexit, add to the uncertainty as House of Commons meet on Tuesday.
We have argued before that UK political risk is underpriced (bookies odds point to a high probability of an election in 2018 or 2019, with Corbyn as the single most likely next prime minister). But note there were 35 MPs ready to sign a no confidence letter after May’s chaotic party conference speech and the hurdle to be MP number 47 or 48 should be high, given Labour’s performance in the polls.
Markets ended last week with a risk wobble as EM and HY spreads widened and Govt yields rose. This morning, all about 40 MPs losing confidence in T May. £ down. But U.K. govt shambles is mostly priced in & change can be good.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Another minister said: “I doubt they thought this would ever come out. It stinks to high heaven. May will have to dress them down or look weak.”
Another former cabinet minister said: “I can’t believe this has come out. This is exactly the kind of arm-twisting by Brexiters one expects to go on behind the scenes, but the fact that it is in the public and is being inflicted upon the prime minister is remarkable.”