US service sector growth slows
Weale: Economy appears to have weakened since Brexit vote
Businesses fear negative interest rates
Pound slides as traders anticipate rate cut
BT shares jump after Ofcom decides against break-up
4.34pm BST
In sum, the US data seems to point to a possible rate rise this year, which has not been lost on the stock market. Wall Street has now lost ground, with the Dow Jones Industrial Average now down 80 points or 0.44%. Joshua Mahony, market analyst at IG, said:
A batch of particularly strong US data points highlighted the frustrating position [Federal Reserve chair] Janet Yellen & co find themselves in, where their domestic economy warrants another interest rate hike to normalise monetary policy. However, with global headwinds blowing more from the Atlantic and less from the Pacific, the Fed appears to have her hands tied for the time being. Despite markets largely disregarding the possibility of any actions from the Fed tomorrow, today’s outperformance in data spanning manufacturing, consumer confidence and new home sales seemed to raise the likeliness of a 2016 hike, spurring weakness in US stocks.
3.51pm BST
More on the rise in US new home sales. Reuters reports:
New U.S. single-family home sales rose more than expected in June, reaching their highest level in nearly 8-1/2 years, the latest sign that the housing market was gathering momentum.
The Commerce Department said on Tuesday new home sales increased 3.5 percent to a seasonally adjusted annual rate of 592,000 units last month, the highest level since February 2008.
3.11pm BST
More US data, this time fairly reasonable, and giving the Federal Reserve something to think about.
The July consumer confidence index came in at 97.3, better than the expected 95.9 and little changed from the revised 97.4 figure for June (down from an initial 98).
USA Consumer Confidence announcement - Actual: 97.3, Expected: 95.9 pic.twitter.com/OwInKR2viJ
Yet more good USD data...Fed in a bind. But still unable to hike further due to global headwinds
2.56pm BST
On the services data Markit said:
July data suggested that growth in the U.S. service sector remained muted, with activity rising at the weakest pace in the current five-month sequence of expansion. A slower increase in new business was also recorded. On a more positive note, the rate of job creation picked up slightly and business sentiment improved markedly from June’s record low. On the price front, slower increases were registered for both input costs and output prices during the month.
Slowest Rise In Business Activity In Five Months, But Sentiment Improves Markedly In July https://t.co/RrpL65MNFF
The U.S. service sector remained stuck in a low gear at the start of the third quarter of 2016, with growth of activity remaining subdued amid a slower rise in new business. This is particularly disappointing given the decent numbers posted by the manufacturing sector last week.
A bit more encouraging was the rebound in business confidence following June’s survey low, suggesting that a return to stronger growth will be possible once the current soft patch comes to an end. Whether this will be before the presidential election or not remains to be seen, however.
2.48pm BST
Growth in the US service sector is slowing, according to an initial estimate for July.
Markit’s services PMI index came in at 50.9, down from the 51.4 level seen in June and below forecasts of a figure of 52.
2.42pm BST
US markets are marginally higher in early trading as investors keep their powder dry ahead of a host of big name companies reporting later, including Apple and Twitter, as well as Wednesday’s interest rate decision from the Federal Reserve.
So the Dow Jones Industrial Average is currently up just 11 points or 0.06%.
2.29pm BST
Oil continues to come under pressure on persistent concerns about a supply glut at the same time as demand weakens along with the global economy. Brent crude is currently dow 0.36% at $44.56 a barrel, having earlier fallen as low as $44.14, a level not seen since the middle of May.
2.20pm BST
Over to the US, and as the Federal Reserve meets to decide its latest move on interest rates, there is a spate of economic data coming out for them to consider.
Markets are not expecting the US central bank to change rates, although there is a growing school of thought that it may raise borrowing costs before the end of the year if the economic picture seems to be heading in the right direction. Larry Hatheway, chief economist at asset management firm GAM, said:
The Federal Reserve is unlikely to announce a change in its target Fed Funds rate at the conclusion of this week’s Federal Open Market Committee (FOMC) meeting. A hallmark of the Yellen Fed, and its predecessors, is clear communication regarding policy decisions, avoiding surprises. Given the uncertainties the Fed had cited around ‘Brexit’ as well as the weakness of the May employment report, the Fed is widely believed to be ‘on hold’, a view it will almost certainly confirm this week.
That said, the FOMC statement is also likely to recognise that the much discussed concerns for capital markets, the world economy and – by extension – the US economy stemming from the UK ‘Leave’ result have not, for the most part, manifested themselves. Without saying so directly, the Fed is likely to conclude that the primary economic consequences of ‘Brexit’ will be felt in the UK, with little impact on US economic conditions.
Overall, housing is doing quite well...In addition to strong prices, sales of existing homes reached the highest monthly level since 2007 as construction of new homes showed continuing gains.
1.43pm BST
Assuming Martin Weale is a bellwether, what might the Bank of England do next week to stimulate the economy?
Jeremy Cook of World First predicts an interest rate cut, a new bout of quantitative easing (QE; buying bonds with new money), and new measures to encourage banks to lend.
We are maintaining our call for a Bank of England interest rate cut by 25bps and an increase in QE by somewhere between £50bn and £75bn. Within the announcement we are also looking for something similar to the ECB’s TLTRO – Targeted Longer-Term Refinancing Operation – that allows banks to borrow at negative rates i.e. get paid for borrowing. This would be a subsidy to British banks that should insulate the financial system from the unwanted effects of negative deposit rates should the Bank see the need.
This is the kind of financial policy engineering that may allow for a near term pick-up in inflation expectations and, maybe more importantly, a calming of fears around financial stability.
Slim majority of economists predict Bank of England won't restart quantitative easing on Aug 4: Reuters poll
1/3 Next week #BoE will renew stimulus efforts to cushion post-Brexit econ against downturn. But will soon bump up against limits of mon pol
2/3 Reminder of unconventional options from Haldane in Sep 15: 1)Higher inf target. 2)More QE. 3)–ve rate on currency/issue digital currency
3/3 BoE will need time to explore some of these: https://t.co/ZbQlrvWvBr. For now expect constraints to force a shift in mon/fiscal pol mix.
1.12pm BST
We should have worn special hats today, as apparently it’s Mario Draghi Day.
Happy Mario Draghi day: four charts on what's happened after 'whatever it takes' https://t.co/I9QTWVNkmf pic.twitter.com/ed9qR9GAKj
12.31pm BST
After a quiet morning in the City, BT is still the best-performing stock on the FTSE 100.
Its shares have now jumped by almost 5%, showing investors’ verdict on Ofcom’s decision not to split the company.
No surprise BT desperate to keep hold of Openreach - accounts for lion's share of revenues, profits and cash flow: pic.twitter.com/iCSZV6kAEK
11.37am BST
Britain’s banks have turned up their noses at the latest offer of cheap cash from the Bank of England.
The BoE has allocated just £75m of liquidity in its latest weekly auction since the Brexit vote. This gives banks a chance to swap assets for ready cash, in case they are facing a funding squeeze.
11.12am BST
The Federation of Small Businesses is deeply alarmed about the prospect that firms could be charged negative interest rates by their banks.
Mike Cherry, the FSB’s national chairman, has urged the Bank of England to fully consider the consequences of cutting rates to fresh record low:
Today’s warning from Natwest and RBS will be deeply concerning to small firms. FSB’s latest research shows small business confidence is already at a four year low. Firms are less optimistic, cutting headcount and curbing investment intentions.
“When the Monetary Policy Committee meets next week to decide on interest rates, we would call on them to do everything possible to consider the implications of changing interest rates for smaller firms and the self-employed looking to maintain or grow their business.
Tuesday's Guardian front page:
Bank warns of first negative interest rates#tomorrowspaperstoday #bbcpapers pic.twitter.com/w09Fh30SjO
10.42am BST
Martin Weale’s new enthusiasm for a fresh stimulus package raises the prospect that UK interest rates are slashed to almost zero next week.
A interest rate cut would present challenges for the banking sector, as rates are already just 0.5%.
Related: NatWest paves way for introduction of negative interest rates
“It is vital that all customers, but especially small business customers, check all communications from their bank and monitor their accounts. Banks are well within their rights to do this, but for small businesses where cash flow is tight, this could cause significant problems if they are not prepared.
“The danger is that this could have a distorting effect by incentivising customers not to keep their money in the bank – either prompting unwarranted spending or causing them to store money in ways that are less safe”
10.07am BST
Lending to UK business and housebuyers has fallen, highlighting nervousness created by the EU referendum.
Mortgage approvals fell to 40,103 in June, down from 41,842 [corrected] in May, according to the British Bankers Association.
UK BBA: Gross mortgage borrowing of £12.2bn in the month was 4% higher than in June 2015 #BoE
“Overall, business confidence was clearly fragile in anticipation of the outcome of the vote, but these results are not a verdict on the health of the economy post-Brexit,”
9.35am BST
The pound has weakened against all other major currencies this morning, after Martin Weale threw his weight behind a new stimulus package for the UK economy.
British pound worst performing major FX as #BOE policy make Weale favours immediate stimulus after poor UK data pic.twitter.com/FncjYQ5qlH
9.16am BST
UK hedge fund manager Man Group has warned that the EU referendum is casting a shadow over the City.
Man posted a 3% drop in funds under management today. CEO Manny Roman says customers could be spooked by the Brexit vote:
The outlook, particularly cross border post Brexit, remains uncertain and accordingly the risk appetite of our clients has the potential to impact flows.
9.02am BST
Oil giant BP has warned that economic conditions are tough, after missing City forecasts in the last quarter.
“As we look forward we expect the external environment to remain challenging,”
#Oil giant @BP_plc shares drop again as reports 45% slump in profit, warns on more pressure in refining pic.twitter.com/CtEh2CdwWO
8.42am BST
Next week’s Bank of England monetary policy committee meeting is Martin Weale’s last chance to influence monetary policy, as he steps down later in August.
He has a somewhat spotty record too – having voted to raise borrowing costs several times since the financial crisis due to (unwarranted?) worries over inflation.
He has attended 71 MPC meetings so far (if my maths is right) and has voted to leave rates unchanged 59 times and to hike 12 times. The MPC has never moved rates over that period but perhaps this time, he’ll be a bellwether.
8.36am BST
Martin Weale’s warning about the weakening UK economy shows that the Bank of England is close to launching a stimulus package, say analysts.
Here’s Tony Cross of Trustnet Direct:
Although the Bank of England meet again to discuss rates next week, it had initially been thought that meaningful action would have to wait until we had a full quarter’s worth of post-Brexit data on the table, but opinions here may now be shifting.
With Weale now expected to vote for a policy cut in what will be his last meeting as a member of the Monetary Policy Committee it is now almost a guarantee that the majority will plump for a stimulatory increase in monetary accommodation. The exact make-up of that policy still remains in doubt.
BoE's Weale turns full circle. A week ago he saw no need for urgent rate cut, now he sees things "rather differently" after PMI plunge.
8.24am BST
Liberal Democrat leader Tim Farron has also blasted Ofcom for not splitting BT up, given the steady criticism over the telco’s broadband service.
“It provides a poor service to customers and has been starved of investment. Giving more powers and investment to Openreach is better than nothing but the crucial thing is it will leave millions of customers with poor quality broadband.
That is unacceptable in the modern age when the government claims to be creating a digital economy.
8.21am BST
John Fingleton, the former head of Britain’s Office for Fair Trading, reckons Ofcom have blundered by not completing separating BT’s network arm from the retail side of the company.
yes, it is BT 1: Ofcom 0. Conduct regulation has failed, and this is just more failure. @AnnRobinson8
8.12am BST
BT’s bosses may be breathing a sigh of relief this morning after regulator Ofcom resisted pressure to formally split the company.
BT will not have to sell off its Openreach broadband division despite concerns that it has been starved of investment and provides a poor quality of service.
The media regulator, Ofcom, has instead ordered BT to give more independence and investment powers to Openreach.
Related: BT avoids Openreach breakup but Ofcom orders more investment
8.06am BST
Shares in London are rising in early trading, partly thanks to the weakening pound:
European markets see mildly higher open, still digesting corporate earnings https://t.co/XZ7PiHajW4 pic.twitter.com/VYGKJu2NbW
7.56am BST
Martin Weale’s decision to back fresh stimulus measures next week has caused a stir in the City.
Analysts at Royal Bank of Canada reckon that there’s only one ‘hawk’ left on the committee:
The Financial Times carries an interview with BoE MPC member Martin Weale that indicates he will now vote in favour of an immediate stimulus package at the August meeting.
In a speech last week said he wanted to “wait for firmer evidence before making any policy change” but following the sharp fall in the recent ‘flash’ PMI surveys he now thinks that news will be very material for next week’s decision.
BoE Weale
18th July: "wage & productivity growth may argue against rate cut"
1 week later
25th July: "Immediate measures may be needed"
I'm teaching my 2-year-old `The Weales on the bus go round and round' today
7.43am BST
City traders are selling the pound with gusto, following Martin Weale’s hint that he’ll vote for a Bank of England stimulus programme next week.
Sterling has fallen by half a cent against the US dollar to $1.3092, which isn’t great news for anyone heading to America on their holidays.
7.28am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The big news this morning is that one of the Bank of England’s most hawkish members has warned that the economy is worse than he expected.
“They are the best short-term indicator we have at the moment. I certainly feel they are very material for the decision we’ll be taking next week.”
MPC member Martin Weale shifts stance to back stimulus call https://t.co/I1mnJseFOs via @FT
#Breaking BT's Openreach broadband operation should become a "distinct company" within the BT Group - Ofcom
Related: Philip Green threatens to sue Frank Field over 'Maxwell slur'
UK companies posting numbers today - BP, Man Group, Sage Group, Jardine Lloyd Thompson, Unite, PZ Cussons, Virgin Money
US companies posting interim results today - Starwood Hotels, Twitter, Apple, 3Ms, KKR, Valero Energy, BJ Restaurants, Match
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