Sunday, December 10

Theresa May sets Brexit deadline: 16 month high and pound plunges below $1.29 as FTSE 100 hits



SVG unveils ‘white knight’ talks with Goldman Sachs

SVG Capital has confirmed it is in talks with several rival suitors including Goldman Sachs about a possible takeover, in a move that it hopes could fend off a hostile bid from the American investment house HarbourVest.

The FTSE 250-listed private equity specialist, which rejected HarbourVest’s £1bn proposal last month, has been searching for a “white knight” bidder that could make a better offer.

SVG said it has begun “detailed discussions” with Goldman Sachs alongside the Canadian Pension Plan Investment Board, while also speaking to another unnamed company that is seeking a partner to make a joint bid.

A third party, also unnamed, “may be interested in considering an offer”, SVG said. The firm plans to update its shareholders again tomorrow about the state of the discussions

UK manufacturers enjoy best quarter this year following Brexit vote

Here’s our full report on the UK manufacturing PMI data by Szu Chan:

UK manufacturing activity rose to its highest level in more than two years in September, as the weak pound helped to cement the sector’s strongest quarter of growth this year, according to a closely watched survey.

The fall in the value of the pound following the EU referendum was the sector’s “prime growth engine” last month as new domestic and overseas orders and promotional deals boosted activity.

Survey compiler Markit said employment rose for the second straight month as companies took on new staff to cope with higher demand.

The Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) rose to 55.4 in September, from 52.1 in August.

This was well above the 50 level that signals growth, and its highest level since June 2014.

Rumoured Deutsche Bank DoJ deal fails to materialise

Chris Beauchamp, of IG, flags that the bullish activity in markets this morning has been helped “in no small measure by the closure of German markets for a holiday, which has had the beneficial effect of sparing us any Deutsche Bank headlines.”

Despite Friday’s rumour mill going into overdrive, suggesting the German lender was on track to reach a $5.4bn deal with the US Department of Justice, it seems like the negotiations to slash the $14bn did not bear any fruit.

“The rumoured DoJ deal failed to materialise over the weekend, which might mean that the shares are due another trimming when the Dax reopens tomorrow,” Mr Beauchamp added.

Bank of England confirms will hold broader bank stress test in 2017

The Bank of England has confirmed it will hold a broader stress test of British banks’ resilience – alongside their annual check-up.

Annual stress tests which normally focus on near-term threats to the bank will look at the dangers from a severe slowdown in the British economy. Results will be released on November 30, when the BoE also releases it’s half-year Financial Stability Report.

The central bank said:

“Next year the Bank of England’s stress test of major banks will for the first time include two scenarios. In addition to the Annual Cyclical Scenario … there will be an additional ‘exploratory’ scenario.

“This will allow banks’ resilience to a wider range of potential threats to be assessed.”

The banks that will face the stress tests in 2017 include:

1. Barclays


3. Lloyds Banking Group

4. Nationwide Building Society

5. Royal Bank of Scotland

6. Santander UK

7. Standard Chartered

Manufacturing sector looking ‘increasingly towards Autumn Statement’

More reaction to this morning manufacturing PMI data. Mike Rigby, Head of Manufacturing at Barclays:

“Manufacturers continue to show their grit following the Brexit vote with today’s figures reporting increasing output and a healthy flow of new orders for September. Moreover, exporters continue to step up activity to make the most of the weak pound although the flip side of that coin is that rising input costs will have to be absorbed somewhere. We can now expect the sector to be looking increasingly towards November’s Autumn Statement to see how the government proposes to bolster industry and the UK economy.”

Philip Hammond to drop pledge for budget surplus by 2020

Head over to our live news blog for the latest on Chancellor Hammond’s plan to eliminate deficit by 2020.

Manufacturers use ‘agility and experience’ to build momentum during period of uncertainty

Dave Atkinson, Head of Manufacturing at Lloyds Bank Commercial Banking, weighs in on the manufacturing PMI data beat:

“British manufacturers have used their agility and experience to build momentum during a period of uncertainty, growing their order books in a time when others have put expansion plans on hold.

“The industry has recognised that the export benefits of a weakened pound will not last forever, and manufacturers are actively exploring new market opportunities for British products both at home and overseas.

“Delivering sustainable growth with new trade partners has taken on increasing significance in what is an evolving economic landscape, and supporting first-time exporters during this process will be fundamental to the success of the country’s export operations.”

Britain’s Hammond promises new economic plan to handle Brexit turbulence

Britain needs a new fiscal plan to navigate economic turbulence caused by Britain’s vote to leave the European Union, finance minister Philip Hammond said on Monday, stressing the need to balance spending cuts with infrastructure investment.

On Sunday, Prime Minister Theresa May told the Conservative Party annual conference she would formally trigger the EU exit by the end of March next year, at which point Britain will enter into an initial two-year negotiating period. (Full Story)

Speaking ahead of his conference speech, Hammond said data from the first half of the year showed the economy was running at “eight out of 10”, but that business and consumer confidence could suffer during the long Brexit process.

“We must expect some turbulence as we go through this negotiating process,” Hammond told BBC television.

“There will be a period of a couple of years or perhaps even longer when businesses are uncertain about the final state of our relationship with the European Union and during that period we need to support the economy.”

He reiterated his decision to push back the government’s target to turn its 4 percent 2015/16 budget deficit – among the biggest of the world’s rich economies – into a surplus by 2020. He has yet to set a new target date.

Pound irses to $1.2877 on UK manufacturing PMI data beat

After data showed this morning UK manufacturing PMI hit its highest level since June 2014 in September, the pound has risen to $1.2877 – that’s up from a low of $1.2857, which it was trading at before the data release.

Earlier today, the pound slumped to a three-month low against the dollar, touching $1.2848 after Theresa May announced formal divorce proceedings from the EU would begin before the end of March 2017.

UK factory activity grows in Sept at fastest rate since June 2014

Well that has helped the pound a little – British factory activity grew at the fastest rate in more than two years last month, boosted by a surge in export orders after sterling slumped following June’s referendum vote to leave the European Union, a survey showed on Monday.

The Markit/CIPS Purchasing Managers’ Index (PMI) for the manufacturing sector reached its highest level since June 2014 in September, rising to 55.4 in September from 53.4 in August as it continued to rebound form July’s three-year low.

After official data on Friday showed services output grew far more strongly than expected in July, Monday’s figures will increase doubts about whether the Bank of England will go ahead with a second rate cut this year in November.

“The rebound over the past two months has been encouragingly strong, and puts the sector on course to provide a further positive contribution to GDP in the third quarter,” said Rob Dobson, an economist at Markit, which compiles the survey.

September’s factory PMI exceeds all forecasts in a Reuters poll of 28 economists, and suggests manufacturing growth in the third quarter will be the strongest so far this year.

The positive data for manufacturing, which accounts for 10 percent of Britain’s economy, adds to several surveys showing the initial shock from the Brexit vote was more short-lived than most economists had predicted.

Consumer goods producers did best – reflecting continued strong demand from households – while export orders rose at the fastest rate since January 2014, as sterling weakness boosted demand from Asia, Europe and the United States.

Demand for investment goods also rose, which Markit said suggested at least a temporary pick-up in businesses’ investment intentions after a lull since the start of the year which some surveys suggested had intensified since the Brexit vote.

The flip side of the weak currency is inflation. Although price rises slowed slightly from the five-year high chalked up in August, Dobson said factories’ raw material costs were still rising at double-digit rates, and that they were passing this on to consumers.

The BoE has forecast inflation will rebound to exceed its 2 percent target next year, and Monday’s figures will increase doubts about whether the central bank will repeat August’s rate cut at its next meeting in November.

But despite the positive message from the PMI, manufacturers’ longer-term commitment to Britain after it leaves the European Union looks in doubt.

European bourses edge higher as banking stocks retreat

Concerns about Deutsche Bank continue to weigh on banking stocks in Europe, but nonetheless, European bourses have managed to edge higher this morning, with the FTSE 100 racing ahead to a 16-month high after Theresa May said formal divorce proceedings from Europe would begin by the end of March 2017.

Just over an hour into trading, here’s the state of play in Europe:

• FTSE 100: +0.94pc

• DAX: Closed for bank holiday

• CAC 40: +0.21pc

• IBEX: -0.13pc

With Germany’s DAX closed, it might be a little quieter on the Deutsche Bank front today.

Naeem Aslam, of Think Markets, said: “The economic data out of Europe has been terrific and painted a very rosy picture for the equity market. Although Deutsche bank is grabbing the main headlines, but the manufacturing PMI numbers from Germany, France, and Italy were all very positive. Traders are also showing their concern when it comes to Sterling as the UK’s prime minister has outlined the deadline for triggering the A50. This just shows that more pain may be heading for the currency as we get closer to this deadline. The prime minister has not given any details about how they going to tackle the negotiations and more details on this could provide some comfort for the currency.”

Eurozone manufacturing activity accelerates in September as demand picks up

Away from Brexit, manufacturing activity in the euro zone picked up last month as demand increased from both within and outside the currency bloc, driving factories to increase headcount, a survey showed on Monday.

However, the upturn remained uneven and was centred on Germany and its neighbours. Growth was far weaker than earlier in the year in Spain, Italy and Ireland, while manufacturing in France continued to decline.

Markit’s Manufacturing Purchasing Managers’ Index for the bloc rose to 52.6 in September from 51.7 in August, unchanged from a flash estimate. An index measuring output also held above the 50 mark separating growth from contraction, coming in at 53.8, above August’s 53.3.

“The key message from the September survey is that the euro area’s manufacturing economy continues to expand at an encouragingly solid pace. The concern is that the upturn is worryingly uneven,” said Chris Williamson, chief business economist at IHS Markit.

A sub-index measuring new orders jumped to 53.4 from August’s 18-month low of 51.4, registering one of its highest readings in the past year, and factories also accelerated hiring.

“For a region beleaguered by still-high overall unemployment, the fact that the upturn is generating more jobs is especially good news. The latest rise in factory payroll numbers was one of the best seen over the past four years,” Williamson said.

Growth in German factory activity hits 3-month high in September

German manufacturing growth accelerated to a three-month high in September, partly driven by stronger demand from abroad, a survey showed on Monday, suggesting factories will contribute to an economic expansion in the third quarter.

Markit’s Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose to 54.3 from 53.6 in August.

That was in line with a flash reading and well above the 50 line that separates growth from contraction. The PMI average reading for the third quarter as a whole stood at 53.9, the highest quarterly reading since the start of 2014.

“Germany’s manufacturing sector ended the third quarter on a positive note,” Markit economist Oliver Kolodseike said.

Firms increased production to satisfy rising demand and hired staff at a pace not seen since the start of 2012, he said.

He added that inventories fell at the strongest rate in over 6-1/2 years, suggesting manufacturers are likely to further increase output in coming months to replenish stock.

“Industry should therefore have a positive contribution to GDP growth in the third quarter,” Kolodseike concluded.

FTSE 100 soars to 16-month high

And it keeps going up – the FTSE 100 is now at a 16-month high.

Hitting 6,962 moments ago – that’s its highest level since June 3 2015, which it hit 6,985.69.

FTSE 100 charges to fresh 2016 high on pound weakness

The FTSE 100 charges to fresh 2016 high this morning on the back of the weak pound.

London’s benchmark index surged 0.87pc this morning hitting 6,959.27 – surpassing its last 2016 high of 6,955, which it hit on August 15. The blue chip index is now at its highest level since June 2015.

Connor Campbell, of SpreadEx, said: “For the FTSE, on the other hand, sterling’s slump is merely another reason to climb higher, the index approaching its year peak with a 50 point increase after the bell. There is the added complication this morning, however, of the latest manufacturing PMI; expected to slip back to 52.1 from that stellar 53.3 last month, that drop could pile on the misery for the pound AND take the edge off the FTSE’s growth.”

Brexit deadline ‘unsurprisingly’ bad news for the pound

A March deadline was set for the formal departure process to begin to untangle the UK from the EU, Connor Campbell, of SpreadEx, says this has “unsurprisingly” been bad news for the pound.

“Plunging 1pc against the dollar and 0.9pc against the euro, sterling has been spooked by May’s promise to trigger the dreaded Article 50 by the end of March 2017. Not only that, the PM has also put her weight behind a ‘hard Brexit’ to appease the more rabid members of the Tory party, something that is set to cause conflict between her and her backbenchers. Combine all this volatility together and the pound has been left at its worst price since the start of July.”

Ready, set, go?

As Theresa May prepares to fire the shot to begin divorce proceedings from the EU, Jeremy Cook, of World First, weighs in on the comments made yesterday by the PM:

“The gun is loaded but we will have to wait until the end of March next year for the shot to be fired; Brexit will begin in 2017 and all things being equal, the UK will no longer remain part of the European Union.

“Theresa May laid out a smidge more detail on her Conservative party’s plans for Brexit at conference yesterday, mainly around the timing and the likelihood that the decision to adopt a policy more targeted towards immigration reform than membership of the single market.

Immigration control as it stands is a bit of a moving target and indeed, we are unlikely to see targets placed on migration given the Cameron government’s inability to get within driving distance of its own self-imposed target.

A cut will lead to border controls in excess of what we have now and plans mooted over the weekend have pointed to the launching of a scheme that will generate permits for foreign nationals to work in the UK.

“Access to the single market would not be jeopardised by this. Tariff-free access to the single market would be however and that is a de facto worsening of our trade terms. David Davis and Boris Johnson who also spoke yesterday were unable or unwilling to expand on the PM’s words. Liam Fox, is due to take to the podium later however focus will largely fall on what new Chancellor Phillip Hammond may have up his sleeve.”

Hard Brexit to punish the pound

Naeem Aslam, of Think Markets, weighs in on the slide in the pound after Prime Minister Theresa May announces plans to invoke Article 50 by end of March.

“Another affair which is keeping investors occupied are the flashing headlines which focused on Theresa May over the weekend. Her comments had an impact on sterling and it is not something which you will praise if you have a long position. She has provided a very acute deadline for the triggering of article 50 and starting the process of leaving the EU.

“The new terms which will be under heavy focus among traders are ‘Hard Brexit’ and ‘Soft Brexit’. Each one will act as paddle in a game of currency table tennis with Sterling, by hitting it from one end to the other.

“From her comments it appears that next year it is going to be very volatile and the British currency may face a large move on any given day especially when it comes to conceptions and translations about Brexit. A harder Brexit may punish the currency more, and if the economic data starts to fall off the cliff, it may actually push the politicians to strike for a softer Brexit. The worst case scenario could be that it may just have a different name and there will be no material changes. “

Pound hits three-month low of $1.2848

The pound plunged to a three-month low of $1.2848 against the dollar this morning as the City faces up to UK-EU divorce proceedings, which will begin by March 2017.

Prime Minister Theresa May told her Conservative party’s annual conference on Sunday that she was determined to move on with the process and win the “right deal”, in a move to ease fears inside the party that she may delay the divorce.

Agenda: Fears of hard Brexit rattle City

Good morning and welcome to our live markets coverage

Attention turns to the pound this morning after Prime Minister Theresa May told her Conservative party’s annual conference on Sunday that she would begin formal divorce proceedings from Europe by March 2017.

European banking stocks continue to come under pressure as investors remain concerned about the health of Deutsche Bank.

Economics: FPC meeting minutes (UK), manufacturing PMI (UK), Sentix investor confidence (EU), final manufacturing PMI (EU), final manufacturing PMI (GER), final manufacturing PMI (US), ISM manufacturing PMI (US), construction spending m/m (US), ISM manufacturing prices (US)