The European Union could go it alone and impose taxes on big digital firms such as Google, Amazon and Facebook after the US announced it would pull out of negotiations with European countries on new international tax rules, France said this morning.
The French finance minister, Bruno Le Maire, called the US move a “provocation”. He said France, Britain, Italy and Spain had jointly responded to a letter from US Treasury Secretary Steven Mnuchin.
This letter is a provocation. It’s a provocation towards all the partners at the OECD when we were centimetres away from a deal on the taxation of digital giants.
Nearly 140 countries are taking part in the talks organised by the Organisation for Economic Co-operation and Development, in the first major write of global tax rules in a generation. They aim to reach a deal by the end of the year.
Neil Wilson, chief market analyst at trading platform Markets.com, says the Bank of England and the UK government will need to “coordinate throwing more money at the problem” as they try to steer Britain’s economy through its worst downturn in 300 years.
Central banks need to be marshalled like cavalry and stimulus like charges.
The Bank of England will mount a fresh charge at the enemy formations today. Coordination is the name of the game: it needs to keep on top of the huge amount of issuance – borrowing – by the UK government. Wartime levels of debt means the BoE must expand the envelope to hoover it up or risk yields starting to rise and spreads widening.
So, the BoE is expected to increase quantitative easing by at least £100bn, but I think it may well opt for £200bn, or even more, given that even £100bn would only last it until the end of the summer and the real long-term economic problems are going to emerge later in the autumn.
Interest rates will stay at 0.1% and expectations firmly anchored for the near future with forward guidance repeating that the Bank will do whatever it takes.
The FTSE 100 index and most other major European stock markets are sliding again, ahead of the Bank of England’s policy decision at noon. The UK’s blue-chip index has lost just under 9 points, or 0.14%, to 6,244. Germany’s Dax is down 0.4%, France’s CAC has shed 0.6% and Italy’s FTSE MiB is flat.
Sterling fell 0.6% against the dollar to $1.2480 ahead of the decision. There was a similar move versus the euro, to €1.1097.
The Swiss National Bank’s chairman Thomas Jordan said the central bank’s negative rates – the lowest in the world – are needed to help Switzerland get through its worst recession in decades.
He told a news conference that before the bank will consider a policy change,
we need more inflation and a much better economic outlook.
The SNB expects the Swiss economy to shrink by 6% this year, its worst downturn since the oil shock of the 1970s.
Like the Norges Bank, the Swiss National Bank left interest rates unchanged this morning, at -0.75%. But Norway’s central bank is closer to raising borrowing costs and has pencilled in a couple of rate hikes from zero to 0.5% by 2023.
David Oxley, senior Europe economist at the consultancy Oxford Economics, says:
The SNB’s policy rate is set to remain on hold well beyond the end of our two-year forecast horizon and, in all probability, until at least late in the decade.
The SNB is clearly reticent to avoid heaping more pressure on the banking sector and signs that European policymakers are getting their act together should allow the franc to ease back further over the coming years. All told, we expect foreign exchange interventions to remain the Bank’s weapon of choice to fend off bouts of upwards pressure on the currency.
The Bank of England is next with its policy decision at noon. It too is expected to leave interest rates unchanged, at 0.1%, but is likely to add to its bond-buying programme, known as quantitative easing, by at least £100bn, which would expand the programme to £745bn.
Greece’s unemployment rate fell to 16.2% in the first three months of the year, from 16.8% in the fourth quarter of 2019, according to the country’s statistics service ELSTAT.
Rather worryingly, nearly three-quarters of the 745,093 unemployed people have been out of work for at least 12 months. But unemployment is now far lower than it was during the Greek debt crisis, when it peaked at 27.8% in early 2014.
Somewhat surprisingly, the unemployment rate was 14.4% in March, the lowest since November 2010, despite the coronavirus pandemic. This is a different dataset and is seasonally adjusted (the quarterly figures are not adjusted for seasonal variations).
Greece’s economy contracted by 1.6% in the first quarter.
European stock markets have turned positive, but gains are limited by fears over the fresh surge in Covid-19 infections in the United States and Beijing.
- UK’s FTSE 100 up 0.12% at 6,260
- Germany’s Dax up 0.4% at 12,431
- France’s CAC 40 up 0.1% at 5,001
- Italy’s FTSE MiB up 0.5%% at 19,683
The Unfriend Coal / Insure Our Future campaign group is calling on insurers to end all support for new oil and gas projects, as it revealed that a quarter of the top companies in the sector have committed to a 1.5°C global warming target.
Unfriend Coal, which is now known as Insure Our Future, includes 18 environmental groups such as Greenpeace, 350.org and Oil Change International. Insurers have started pulling out of coal in recent years, partly due to pressure from the campaign group. It has now turned its attention to oil and gas projects.
Its research shows that out of the 15 biggest oil and gas insurers:
- Four are members of the Net Zero Asset Owners Alliance that have publicly backed the a 1.5°C global warming target: Germany’s Allianz, France’s AXA, Germany’s Munich Re and Switzerland’s Zurich.
- Seven have already limited support for fossil fuels by restricting insurance for coal: Allianz, AXA, Chubb, Liberty Mutual, Munich Re, The Hartford and Zurich.
The UN Intergovernmental Panel on Climate Change has warned that if global temperature increases are to be limited to 1.5°C, oil consumption must be reduced by 37% by 2030 and 87% by 2050. Gas consumption must fall by 25% by 2030 and 74% by 2050.
Oil Change International has found that CO2 emissions from the oil, gas and coal in existing fields and mines will push the world far beyond 1.5°C of warming.
Insure Our Future has written to the chief executives of 27 leading property & casualty insurers and three major insurance investors (Aviva, Legal & General and Teachers Insurance and Annuity Association of America), saying:
Insurers have a responsibility to support international climate targets and align their businesses with the Paris Agreement.
Covid-19 is irreversibly reshaping the energy and power sectors, and the massive disruption of the coal, oil and gas markets offers a great chance for insurance companies to reposition themselves for a lowcarbon future.
The reduced revenues from fossil fuel operations and the surge of renewable energy sources provide a perfect time for adopting or strengthening fossil fuel exit policies, divesting from fossil fuel companies not engaged in rapid decarbonization processes, and advocating for the shift away from fossil fuels as corporate citizens.
We’ve seen how quickly insurers have retreated from coal in the last three years – 19 now have limited coal insurance – so can we now expect this momentum to be continued in oil and gas? asked a spokesman for the campaign group.
Norway’s central bank has kept its main interest rate on hold, at a record low of zero. It said the economic outlook had improved more than expected in recent weeks.
Norges Bank slashed interest rates three times since March from 1.5%, to support the country’s economy through the coronavirus crisis. The oil-rich country has also been hit by the sharp fall in crude oil prices.
Since the monetary policy meeting in May, activity has picked up faster than expected. The policy rate forecast implies a rate at the current level over the next couple of years, followed by a gradual rise as economic conditions normalise.
The Norwegian economy, excluding oil and gas output, is forecast to shrink by 3.5% this year, better than the May forecast of a 5.2% drop, and is expected to bounce back with 3.7% growth next year.
Like Sweden’s central bank, Norges Bank issues forecasts for where interest rates will go, and is still predicting that rates will rise to 0.5% in 2023.
Unlike other central banks, Norges Bank can’t really do bond-buying (known as quantitative easing), because Norway’s debt market is small.
Taylor Wimpey, one of the UK’s big housebuilders, this morning announced the results of its share sale: it raised £522m (more than expected) after selling 355m new shares at 145p to institutional and other investors, including employees, as it looks to acquire more land at lower prices.
Michael Hewson, chief market analyst at CMC Markets UK, says:
Yesterday’s announcement that the company was looking to raise extra funds caught a lot of people by surprise, however management seem keen to avail themselves of a recent fall in land prices, in expectation of a pickup in the housing market a few years down the line.
Tesco is selling its Polish division to a Danish group for £181m as it continues to retreat from international markets to focus on the UK.
After struggling to gain market share in Poland, Britain’s biggest supermarket chain decided to offload its 301-strong store business there to Salling Group, the Danish owner of the Netto supermarket chain.
Tesco has already pulled out of Japan, South Korea, the US and Turkey in recent years. The latest sale leaves it with Ireland, the Czech Republic, Hungary and Slovakia as the only major operations outside the UK.
FCA to make ban on mini-bond marketing permanent
Britain’s financial watchdog said this morning that it would make permanent its ban on the mass marketing of speculative mini-bonds and other illiquid securities to retail investors.
The Financial Conduct Authority introduced the ban without consultation in January due to concerns that speculative mini-bonds were being promoted to retail investors who neither understood the risks involved, nor could afford the potential financial losses.
The FCA is extending the ban to include listed bonds with similar features to speculative illiquid securities and which are not regularly traded.
Sheldon Mills, interim executive director of strategy and competition at the FCA, said:
We know that investing in these types of products can lead to unexpected and significant loses for investors. We have already taken a wide range of action in order to protect consumers and by making the ban permanent we aim to prevent people investing in complex, high risk products which are often designed to be hard to understand.
Since we introduced the marketing ban we have seen evidence that firms are promoting other types of bonds which are not regularly traded to retail investors. We are very concerned about this and so we have proposed extending the scope of the ban.”
The term mini-bond refers to a range of investments. The ban will apply to the most complex and opaque arrangements where the funds raised are used to lend to a third party, or to buy or acquire investments, or to buy or fund the construction of property.
There are various exemptions including for listed bonds which are regularly traded, companies which raise funds for their own commercial or industrial activities, and products which fund a single UK income-generating property investment.
The FCA ban means that products caught by the rules can only be promoted to investors who are “sophisticated or high net worth”. Marketing material will also have to include a specific risk warning and disclose any costs or payments to third parties that are deducted from the money raised from investors.
In case you missed this yesterday, Londoners can look forward to more al fresco dining soon – and pretend they are on holiday in the Med. A swathe of central London is to be transformed into a huge continental-style outdoor dining area under plans to keep bars and restaurants in business.
Westminister council is lining up 50 projects to make space for al-fresco dining including pavement widening and temporary road closures for part of the day in popular districts such as Chinatown, Covent Garden, Soho and Mayfair. Some small streets near Oxford Circus could also be closed for part of the day to accommodate tables.
Hopefully this will also happen in other cities such as Liverpool, Manchester and Birmingham, where the authorities are working on plans to pedestrianise streets or widen pavements to allow more space for outdoor tables.
Lloyd’s and Greene King to make slavery reparations
Overnight, two major British firms pledged to make payments to organisations representing black people and those of other minority ethnic backgrounds, after records emerged of their founders’ roles in the trans-Atlantic slave trade.
Lloyd’s, the world’s oldest and biggest insurance market, and Greene King, the pub and brewery company both revealed that they would be making the reparations, without disclosing the sums involved. The news was first reported by the Telegraph.
Records archived by researchers at University College London (UCL) show that one of Greene King’s founders, Benjamin Greene, held at least 231 human beings in slavery and became an enthusiastic supporter of the practice.
Nick Mackenzie, Greene King’s chief executive officer, said on Wednesday night:
It is inexcusable that one of our founders profited from slavery and argued against its abolition in the 1800s.
The UCL records also show that Simon Fraser, a founder subscriber member of Lloyd’s, held at least 162 people in slavery and was paid the equivalent of nearly £400,000 at today’s rate for ceding a plantation in Dominica, while yet more were held at a site in British Guiana researchers believe either belonged to him or to his son.
Lloyd’s apologised in a lengthy statement. A spokesman said:
Lloyd’s has a long and rich history dating back over 330 years, but there are some aspects of our history that we are not proud of. In particular, we are sorry for the role played by the Lloyd’s market in the eighteenth and nineteenth century slave trade. This was an appalling and shameful period of English history, as well as our own, and we condemn the indefensible wrongdoing that occurred during this period.
European shares fall at the open
And we’re off. UK and European shares have opened lower, as expected.
- UK’s FTSE 100 down 0.59%, or 36 points, at 6,216
- Germany’s Dax down 0.3%
- France’s CAC 40 down 0.4%
- Italy’s FTSE MiB down 0.06%
- Spain’s Ibex down 0.7%
National Grid is braced for a £400m hit to its operating profits in the current financial year as the coronavirus pandemic threatens to wipe up to £1bn from the company’s cashflows, reports our energy correspondent Jillian Ambrose.
The energy networks giant, which runs Britain’s energy system and operates gas networks in the US, reported a pre-tax profit of £1.75bn for last year, down 5% from the year before.
It warned investors that its results for the current financial year would take a hit due to lower levels of energy use during the pandemic lockdown, and higher levels of ‘bad debt’ from customers in the US.
John Pettigrew, National Grid’s chief executive, said the financial impact of Covid-19 will be “largely recoverable over future years” and that the company anticipates “no material economic impact on the Group in the long-term”.
The FTSE 100 energy giant expects only a modest dent to its future capital spending, which last year reached a record £5.4bn, and will recommend that the dividend for the year climbs to 48.57p, up 2.6%.
Introduction: all eyes on BOE
Good morning, and welcome to our live coverage of business, economics and financial markets.
The rally on stock markets looks to have fizzled out, as hopes of a V-shaped economic recovery are overtaken by fears of a second coronavirus wave. There has been a jump in new infections in several US states as lockdowns are eased. Beijing has seen the biggest resurgence in the disease since early February and has reinstated travel bans and school closures, as well as cancelling dozens of flights.
This is clearly a worry for Asian markets. Japan’s Nikkei lost 0.45%, Hong Kong’s Hang Seng slid 0.56% and the Australian market fell 0.94%.
European stock markets closed slightly higher yesterday – the FTSE 100 index in London finished 0.17% higher at 6,253 and Germany’s Dax rose 0.5% – but Wall Street ended the day mostly lower. The S&P 500 slipped 0.36% and the Dow Jones lost 0.65% while the tech-heavy Nasdaq edged up 0.15%.
The Bank of England is holding its monthly meeting and will announce its policy decisions at noon. It is expected to expand its bond-buying asset purchase programme by £100bn to £150bn to help the economy recover from the coronavirus crisis. The benchmark interest rate is likely to stay unchanged at 0.1%, a historical low.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:
With plummeting inflation, rising unemployment and lingering risks of a no-deal Brexit, the bank has room and solid reasons to move towards a more unorthodox policy. While the BoE’s near zero rates and massive asset purchases should push the consumer prices higher in the long run, inflation will probably not be a cause for concern in the foreseeable future.
Given the expectation of quantitative easing expansion is fully priced in, the BoE announcement per se may not move the market significantly unless we see a meaningfully different outcome from the BoE meeting or a hint for more policy easing in the foreseeable future.
When Jerome Powell, the head of the US Federal Reserve, testified before the House Financial Services Committee yesterday, he reiterated that the Fed was ready to act if more support was needed for the economy. He said it would be unwise for Congress to curtail its support for the economy too quickly.
Finally, president Donald Trump has tried to enlist Chinese leader Xi Jinping’s help to secure re-election in November, a new book from ex-National Security adviser John Bolton says. According to US media that obtained a copy of the forthcoming book, Bolton says the US president wanted China to buy more farm products from US farmers.
- 12:00 BST: Bank of England decision and minutes of meeting followed by press briefing; contents of briefing to be released at 2:30pm BST
- 1:30pm BST: US jobless claims (forecast: 1.3m); Philly Fed manufacturing