- FTSE 100 smashes 7,100; touches 17-month high
- Pound plunges to fresh 31-year low on Brexit worries
- European bourses open higher
- Deutsche Bank shares jump 2.3pc after German bank holiday
- UK construction industry shrugs off post-Brexit vote slump
- IMF rows back on Brexit warnings as UK poised to become fastest growing G7 economy
Wall Street rises at opening bell as attention turns to rate hike chat
Moving away from the IMF press conference, Wall Street has opened slightly higher as investors move to assess the probability of a rate hike in the coming months.
At the opening bell:
- Dow Jones: +0.22pc
- S&P 500: +0.16pc
- Nasdaq: +0.32pc
UK heading for a ‘soft landing’ in 2016 after Brexit, says IMF
Another Brexit related question for Maurice Obstfeld. When asked if we should trust the IMF’s long-term forecasts, after it appeared to get the short-term impact of Brexit wrong…..
Maurice Obstfeld repeats that a previous article presented two scenarios – one of them did not involve recession.
“It’s there in black and white”, he says.
Obstfeld thinks neither the IMF or policymakers dismissed the outcome of Brexit. He adds that a strong policy response from the Bank of England means that we are now looking at “a soft landing” in 2016 post Brexit.
However, he highlights that it is the job of the IMF to warn against the risks – and says the IMF’s published analysis was “pretty balanced in setting out all scenarios”.
It would have been ‘malpractice’ to not suggest negative Brexit scenarios, says IMF
The IMF press conference is underway. When asked if the IMF had over-estimated the negative impact of the Brexit vote.
Maurice Obstfeld, IMF chief economist, reminds reporters that the IMF presented several scenarios.
“In the event, the market response after the first day or so was much more favourable than anyone would have anticipated. Markets stabilised fairly quickly, if they hadn’t that would have created a downside.”
He adds that had the IMF not flagged the various scenarios that may occur following the Brexit vote “it would have been malpractice”.
Obstfeld acknowledges that the pound depreciation has accelerated in recent days after Theresa May set the Brexit timetable over the weekend.
He adds: “The depreciation of the pound has different effects. It has helped some sectors of the economy – seen resurgence in PMIs in the tradeable goods sector, so it’s a mixed bag.”
Obstfeld says that the IMF further downgraded 2017 forecasts as they now know the Brexit negotiations will be going on next year.
“So all in all – what is happening is consistent with one of our scenarios,” he adds.
The world economy has moved ‘sideways’, says IMF
The IMF press conference is just getting underway, here’s the opening remarks from IMF chief economist Maurice Obstfeld:
“A return to the strong, sustainable, balanced, and inclusive growth that Group of 20 leaders called for at Hangzhou in September still eludes us. Global growth remains weak, even though it shows no noticeable deceleration over the last quarter.
“The new World Economic Outlook sees a slowdown for the group of advanced economies in 2016 and an offsetting pickup for emerging and developing economies. Taken as a whole, the world economy has moved sideways.”
Global output growth projections:
- 3.1pc in 2016
- 3.4pc in 2017 (Same as in early July, shortly after the United Kingdom’s “Brexit” vote to leave the European Union)
“Within this broad outlook, however, we have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world. Prospects for 2017 are unchanged for both country groupings.
“Over the medium term, while we expect that advanced economies will continue along a disappointingly low growth path, emerging market and developing economies should accelerate as most of the large countries with currently shrinking economies stabilize and return to their longer-term growth paths. Even this more granular view conceals important differences within country groups.”
IMF rows back on Brexit warnings as UK poised to become fastest growing G7 economy
The UK will be the fastest growing major economy this year, according to the International Monetary Fund, as it rowed back on predictions that a vote to leave the EU could plunge the country into recession and trigger a stock market crash.
Action taken by the Bank of England following the Brexit vote, including cutting interest rates and freeing up more cash for banks to lend had helped to “maintain confidence” in the economy, the IMF said in its latest World Economic Outlook.
The Fund expects the UK economy to grow by 1.8pc in 2016. This is slightly higher than its forecast of 1.7pc in July, and puts the country on course to be the fastest growing G7 economy this year.
It kept its forecast for global growth unchanged at 3.1pc, which represents the slowest pace of growth since the financial crisis.
In a series of warnings on Tuesday, the IMF:
- said a global policy response including fiscal and structural reforms to raise growth was now “more urgent than ever”.
- spelled out the cost of rising protectionism, which it said could lower global output by almost 1.75pc over five years.
- described the pace of credit growth in China as “dangerous” and branded the country’s growth targets “unsustainably high”.
Gold falls below $1,300
Gold fell below $1,300 an ounce this afternoon.
Reuters has the details:
Gold fell to its lowest in over two-weeks on Tuesday as the dollar gained strength after upbeat U.S. economic data.
U.S. factories ramped up activity in September, shaking off a one-month contraction in a sign the United States was resisting the downward pull of the sluggish global economy.
“Gold prices at this moment are under pressure,” said Mark To, head of research at Hong Kong’s Wing Fung Financial Group.
“Despite the fact that we saw different types of crisis from Deutsche Bank to Brexit, we can see that prices haven’t gone beyond the resistance at $1,350. It is a pessimistic sign that even the speculators could not capitalise on the so-called bad news.”
To sees $1,270 to $1,300 an ounce as the immediate support level for gold over the next few days.
Positive economic data usually puts pressure on gold prices as it increases expectations of a U.S. interest rate hike that would increase the opportunity cost of holding non-yielding bullion.
Still, the U.S. Federal Reserve remains cautious about raising rates since it would not be able to cut them back as aggressively as it did before the recession of 2007 in the event of a new recession in the next few years, New York Fed President William Dudley said on Monday.
Krispy Kreme sold to US parent as British flotation abandoned
Doughnut maker Krispy Kreme UK has been sold to its American parent, ending hopes of a London listing for the snacks business.
Rumours swept the market on Monday afternoon that an estimated £200m flotation for the private-equity controlled business was being pulled after receiving a tasty offer from its US parent Krispy Kreme Group.
The companies confirmed on Tuesday morning that a deal was agreed on Sunday and is expected to complete by the end of October.
No price was disclosed but sources close to the deal suggest that a figure close to the flotation value was accepted.
Krispy Kreme UK is controlled by private equity investor Alcuin, which took a majority stake in 2011 in a £25m transaction. Management and Indigo Capital also hold minority stakes.
Report by Alan Tovey (Read more here)
US stocks to open higher as Deutsche Bank stocks rebound
A rebound in Deutsche Bank shares and a rally across European bourses is expected to contribute to a positive opening call on Wall Street later this afternoon.
The Dow index futures are up 3 points, S&P index futures have climbed 1.25 points and the Nasdaq is 5.75 points higher ahead of the opening call.
BoE’s Saunders to deliver first speech as MPC member
Anthony Cheung, of Amplify Trading, flags that Bank of England’s Michael Saunders is due to give his first major speech as an MPC member at 4pm.
It’ll attract plenty of attention given today’s plunge in the pound.
Mediclinic and easyJet miss out on rally
As the FTSE 100 edges ever closer to its record high, there are only two stocks in negative territory – Mediclinic and easyJet have both missed out today’s stellar rally.
- Mediclinic -6p
- easyJet -2p
Bulls are back: FTSE 100 rises 20.04pc from post-Brexit plunge
The FTSE 100 is back in bull market territory after rising 20.04pc from its post-referendum nadir of 5,923.53.
This afternoon the blue chip index surged to 7,119.16 – just three points shy of its record high of 7,122.74, which it hit last year on April 27 2015.
Markets update: FTSE 100 within seven points of record high
This lunchtime the FTSE 100 has charged ahead to hit 7,1145.89 – that’s less than seven points shy of its record high of 7,122.74 – which it touched on April 27 2015.
European bourses are also rallying as Deutsche Bank shares hit a two-week high. Frankfurt’s DAX edged up 0.5pc, the CAC 40 in Paris rose 0.91pc and the Spanish IBEX advanced 0.1pc.
Connor Campbell, of SpreadEx, said: “The DAX and CAC have felt some run-off goodwill from the FTSE’s rise, both despite the euro’s Brexit-boosted strength and because of Deutsche Bank’s mild rebound. The Dow Jones currently looks slightly less likely to join in with the fun, the futures pointing to a 0.1% increase after the bell.”
Construction bounces back as home-building surges
Here’s our full report on UK construction PMI by economics correspondent Tim Wallace:
Asurge in home-building took hold in September, according to an influential survey of businesses, shaking the construction industry out of its slump and hinting at a positive boost for wider economic growth.
The construction sector’s output expanded for the first time since May, Markit’s purchasing managers’ index (PMI) showed, indicating a recovery from a post-referendum slowdown.
The PMI score hit 52.3 in September, up from 49.2 in August and above the crucial 50-level which indicates growth in the industry.
Residential construction increased particularly strongly while civil engineering output grew at its fastest pace since March.
Commercial construction fell for the fourth consecutive month, however.
FTSE 100 seen edging lower over the coming year
It may be edging towards an all time high, but a poll by Reuters suggests traders see the blue chip index losing ground over the coming year – due to Brexit concerns and the path of interest rates.
The Reuters poll, which surveyed around 30 traders, fund managers and strategists, pointed to a median end-2016 forecast for the FTSE 100 of 6,800 points – and a decline to 6,750 by June 2017 and then a gain to 7,000 by 2017 year-end.
Stocks markets are expected to come under pressure in the coming weeks ahead of the US presidential election also, the poll found.
More people are going to work on a Greggs as strong growth at breakfast time boosts sales
Away from the pound and the FTSE, more people are munching on a Greggs before work as the high-street baker announces its breakfast and coffee sales boosted growth in the third quarter.
The firm said customers were attracted to its stores at breakfast time, enticed by value deals. Its coffee offer, where it sells a hot drink and a breakfast roll for £2, was a particular draw.