ECB Decision: rates on hold
Pound back below $1.30
IAG cuts flight capacity after ‘levelling off’ in bookings
Markets turn south
Games Workshop shares hit record after sales surge
Introduction: ECB in the spotlight
Melissa Davies, chief economist at Redburn, says the ECB faces a particularly difficult task in nursing the eurozone back to health, particularly in the eurozone periphery:
“There is no hint of policy change in the ECB’s statement today, leaving Lagarde with the unenviable task of juggling questions about euro strength and the Eurozone’s most recent negative inflation print for August during the press conference.
“The reality is that the ECB has a more difficult job than most central banks in stimulating the economy, with no fully-fledged federal sovereign to coordinate with. National central bank data are showing that core countries, including Germany, are proving able to monetise government spending while periphery central banks cannot. The ECB always has a real problem in trying to stimulate the periphery and, now, in supporting governments to spend.
The ECB also says that it’s pressing on with its €1.35trn programme to protect the eurozone economy from the Covid-19 crisis.
Today’s statement says the pandemic emergency purchase programme (PEPP) should cushion the ‘downward’ impact on prices during the pandemic.
These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation.
There’s no significant changes in the statement, though, with the ECB also maintaining its quantitative easing programme at €20bn per month (buying government and corporate bonds with newly create money).
ECB Decision: rates on hold
Newsflash: The European Central Bank has left interest rates across the eurozone unchanged, at their current record lows.
This means the headline rate remain at 0.0%.
The ECB will continue to impose a negative interest rate -0.5% on commercial banks deposits left in its vault – to encourage lending.
It will also maintain a rate of just 0.25% on its main refinancing operations – short-term loans to commercial banks
The ECB has also repeated its guidance that rates will not rise for some time:
The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
Pound back below $1.30
A sudden burst of selling pressure has pushed the pound lower, as Brexit worries swirl.
Sterling is down nearly half a cent against the US dollar at $1.296, amid reports that London may have already broken the terms of the Brexit divorce deal.
The pound has also fallen further against the generally stronger euro, down 0.5% at €1.095.
Here’s the details:
Britain has already breached the withdrawal agreement by tabling the internal market bill, prompting Brussels to plan legal action that could lead to financial and trade sanctions, according to a leaked EU legal opinion.
The European commission believes Boris Johnson’s government breached the terms of the treaty just by taking the first steps to pass a new law that would negate key parts of the agreement signed last year.
A reminder of why the ECB is worried about inflation:
As it met today, the European Central Bank can take satisfaction that the recent divergence in German and Italian bond yields has narrowed steadily since the spring.
This ‘spread’ widened alarming in April, on fears that the ECB wouldn’t help Italy handle the cost of the pandemic. It then narrowed, after officials insisted they were still committed to holding the eurozone together.
Katharina Utermöhl, senior economist at Allianz, predicts the European Central Bank will still need to do more quantitative easing, probably in December.
Dutch bank ING reckons the ECB’s comments about the strength of the euro will be most important today:
With the pound also up against the US dollar, at $1.3025, shares in London are still down.
The FTSE 100 is currently 60 points lower at 5952, down 1%, having closed at a two-week high yesterday.
Every sector has lost ground, led by miners, banks and energy companies. Morrison’s is still the top faller after reporting a 25% tumble in profits during the pandemic, while housebuilder Persimmon is the top riser.
Back in the markets, the euro is holding this morning’s gains ahead of the European Central Bank decision (in an hour).
It’s up 0.25% against the US dollar now, at $1.1835, on predictions that the ECB will sound an optimistic note about the recovery (despite rising Covid-19 cases)
City AM has learned that the Bank of England has spent at least £117,000 on making its historic headquarters Covid-19 safe.
The measures, including temperature scans and new office signage, should allow more staff to return to Threadneedle Street following the lockdown.
The bill includes £14,000 on hand sanitisers, 14,000 worth of new masks, and £8,300 of cleaning products up until June (and probably more since!). It’s a handy reminder of the challenges all offices face in returning to more normal working patterns.
City AM’s Harry Robertson explains:
The Bank of England’s biggest outlay was £56,800 spent on “altering facilities” between March and June. That included buying thermal imaging cameras to scan people’s temperatures at entrances, and screens for catering facilities.
It also spent £18,100 on the sort of signage that has become commonplace during the pandemic. The Bank has put in place circulation routes and separate entry and exit points, among other measures.
Last week, top BoE officials warned that it’s not practical, or indeed possible, for all offices workers to return to their desks.
Many of its staff have been working from home for months, executing its Covid-19 stimulus package remotely.
Chris Beauchamp, Chief Market Analyst at IG, says investor are subdued ahead of the ECB’s interest rate decision in 90 minutes.
He doesn’t expect new stimulus measures today, but instead a hint that it’s coming soon:
“European markets are edging lower ahead of the ECB, as the bullish sentiment that was so prevalent yesterday pauses for breath.
“Some will be wondering if the correction of the past week has run its course, which would be in line with the scope and duration of pullbacks for the this rally, or whether the upcoming US election, Brexit and a host of concerns about renewed lockdowns and economic weakness will lead to a more sustained drop into October.
“Today’s ECB meeting should see the bank make at least a passing reference to recent euro strength against the dollar, although firm action is unlikely this time around.
“Instead we will likely see the bank lay out a path to further easing later in the year, responding as needed if and when the initial rebound from the Covid-19 economic shock begins to fade.
With central banks in the spotlight, former UK prime minister Gordon Brown has called for the Bank of England to prioritise job creation.
Brown, who gave the BoE independent control of interest rates after becoming chancellor in 1997, argues that it should target employment as well as inflation – like America’s Federal Reserve.
“All UK institutions have to make high levels of employment a greater priority,”
“Having been the chancellor responsible for the Bank of England Act 22 years ago, I am disappointed that while obligations for employment are included in its statutory objectives, the Bank of England does not place greater emphasis on maximising employment.”
The latest weekly healthcheck on the UK economy shows an increase in people setting up new companies, despite the economic uncertainty.
The Office for National Statistics has also found that a third of employees were working from home, as of the middle of August. IT workers, and scientific and technical staff, were most likely to be based at home, along with education workers (with teachers preparing for the new term).
Here’s the details:
- 36% of the workforce were working remotely and 11% were still furloughed, according to the latest Business Impact of Coronavirus (COVID-19) Survey (BICS) [covering 10 August to 23 August 2020].
- According to the new indicator, online prices of items in the food and drink basket decreased by 0.1% in the latest week (31 August to 6 September).
- For a third consecutive month, between June and July 2020, more firms reported increasing turnover than decreasing turnover, in the latest HMRC VAT business turnover returns.
- In the week starting Saturday 29 August, there was an average of 3,836 company incorporations per working day, an increase from the previous week’s average of 3,066.
- Between 28 August and 4 September, total online job adverts decreased from 55% to 50% of their 2019 average, decreasing in every region and country of the UK.
- In the week commencing 31 August, Energy Performance Certificate (EPC) lodgements across England and Wales were 3% lower for existing dwellings and 17% lower for new dwellings than the same week a year ago, although this may be impacted by the bank holiday on 31 August.
- In the week commencing 31 August, footfall in retail parks remained around 90% of its level the same day a year ago, while footfall in high streets and shopping centres remained a little below 75%.
- According to traffic camera data, between 31 August and 6 September counts of cars in London have returned to the average level seen immediately pre-lockdown but the North East remained at around 95%.
- Department for Transport traffic count data show that on Monday 7 September, heavy vehicle traffic was four percentage points above traffic seen on the equivalent Monday in the first week of February, the highest recorded level since the Prime Minister’s announcement on 16 March.
- Between 31 August and 6 September, the average volume of daily ship visits was 374, an increase from the previous week’s average of 324 daily visits.
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