9.43am: Factory gate inflation in Britain has climbed to its highest level in nearly three years, casting doubts on whether consumer price inflation will slow next year as the Bank of England predicts.
However, the Bank is clearly more worried about the nation’s overall health as it decided to inject another £75bn into the economy yesterday. Governor Sir Mervyn King said yesterday he expects consumer price inflation to rise to 5% soon but to fall back rapidly next year.
The Office for National Statistics reported this morning that producer output price inflation hit 6.3% last month, from 6% in August, and the highest rate since October 2008. Rising food and fuel costs were the main culprits. Manufacturers’ raw material and other input costs soared at an annual rate of 17.5%.
The FTSE has turned negative and is now trading 12 points lower at 5279.
8.55am: Here is today’s agenda:
• Eurozone industrial production figures for August
• UK producer prices for September expected to show a pick-up in inflation (9.30am)
• US non-farm payrolls for September likely to show a 55,000 to 60,000 gain in jobs (1.30pm)
8.53am: The FTSE is now up just over 20 points at 5312, a 0.4% gain. Lloyds Banking Group is the biggest loser, down 2.4% at 34.9p, while RBS is down 1.7% at 23.9p following downgrades by Moody’s. Lloyds said the downgrade would have a minimal impact on its funding costs.
Manoj Ladwa, senior trader at ETX Capital, says:
Equities are likely to remain stuck in a tight range and volumes low until 1.30pm, when the US Non-Farm Payroll numbers are announced. The market is expecting a rise of 55,000 jobs for the month of September, a marked improvement on August, but hardly enough to make a dent on unemployment numbers.
Other European stock markets have also edged higher, with Spain’s Ibex and Italy’s FTSE MIB up nearly 0.8%. Germany’s Dax has climbed 0.6% while France’s CAC has gained 0.4%.
8.43am: George Osborne has insisted that Britain’s banks are well capitalised and liquid, adding that Moody’s decision to downgrade 12 UK financial institutions today merely reflects government moves to limit its support – to avoid having to rescue them again.
Speaking on BBC Radio 4‘s Today programme, the chancellor said:
People ask me ‘how are you going to avoid Britain and the British taxpayer bailout out banks in the future?’ This government is doing steps to do that, and therefore credit rating agencies and others will say ‘well, actually these banks have got to show that they can pay their way in the world.
And I am confident that British banks are well capitalised, they are liquid, they aren’t experiencing the kind of problems that some of the banks in the eurozone are experiencing at the moment.
The single biggest boost for the British economy that can take place this autumn is nothing I can announce, it is the resolution of the euro crisis.
8.39am: Washington and Wall Street will be nervously awaiting official jobs figures today as President Obama pushes Congress to vote through his latest jobs plan and investors look for signs that recovery is taking hold, my colleague Dominic Rushe in New York reports.
September’s non-farm payroll figures follow a week when Obama and senior Washington officials have called on Washington to act on the jobs crisis.
Both Federal Reserve chairman Ben Bernanke and Treasury secretary Timothy Geithner have warned that Washington needs to take swift action to address the US’s job crisis. Geithner urged politicians to pass Obama’s recently unveiled job plan, which is up for a vote in the Senate next week, while Bernanke called high unemployment a “national crisis.”
The economy generated no net new jobs in August, the first time that had happened since the second world war. The figures triggered a sharp sell-off on the US stock exchanges.
Read more here.
8.27am: The FTSE briefly turned negative when news broke that Moody’s had cut the ratings of 12 British banks and building societies, including Royal Bank of Scotland and Lloyds TSB Bank. Britain’s bluechip index is positive again, trading up some 10 points at 5302, a 0.2% gain.
My colleague Jill Treanor, the banking correspondent, says the Moody’s downgrades were “completely expected,” although the timing doesn’t help.
It is completely to be expected. They warned three months they would do it. It’s because of attempts to withdraw government support. Clearly the timing doesn’t help.
8.13am: Credit rating agency Moody’s has cut its ratings on 12 UK banks and building societies, including Lloyds TSB Bank and Royal Bank of Scotland, saying it expects the UK government will have to continue to support “systemically important financial institutions”.
Moody’s cut its rating on RBS by two notches to A2 from Aa3, and downgraded Lloyds TSB by one notch to A1 from Aa3. It also cut its ratings on Santander UK, Co-operative Bank, Nationwide Building and seven other smaller British building societies.
The agency said in a statement:
Moody’s believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift. However it is more likely now to allow smaller institutions to fail if they become financially troubled. The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government.
8.07am: The Dutch parliament approved the EFSF enlargement to €440bn yesterday, leaving only Malta and Slovakia to vote, on Monday and Tuesday respectively. Malta is expected to pass the measures, but it is less certain that Slovakia will agree to the changes.
Gary Jenkins, head of fixed income at Evolution Securities, says:
With the vote passed in the Netherlands all the major countries with the critical mass of guarantees are aboard and any upset in the last two countries will probably be worked around quietly.
European Commission President Barroso is a very busy man isn’t he? Working on the plan on how to introduce eurobonds whilst at the same time he will soon be presenting his plans for European wide recapitalisations of the banks. And my wife says men can’t multi task… Markets continued to trade better on expectation of a European agreement on bank restructuring and were helped further by the ECB increasing liquidity support for the banks.
7.58am: There is growing nervousness in Whitehall that the government might have to inject more money into Royal Bank of Scotland, according to the Financial Times. My colleague Jill Treanor, the Guardian’s banking correspondent, says there is speculation that the UK’s banks, particularly RBS, could inadvertently get caught up in recapitalisation measures intended to shore up confidence in Europe’s banks.
She writes on our business blog:
Technically, Britain’s banks should not need another bail out and the Treasury keeps reminding everyone that there are better capitalised than many of their peers. The UK banks argue they have been required to bolster their capital and liquidity faster than eurozone rivals and taken more realistic mark downs on their holdings of sovereign
bonds. RBS, for instance, has taken a 50% hit on its Greek holdings compared with 21% of many eurozone banks.
However Jose Manuel Barroso, European Commission president is promising to draw up a EU-wide plan for a recapitalisation of the EU’s banks . He does not have the power to impose to any policies on banks ( and the UK’s would in any case fight hard against being drawn into any such plan). Even so, he is influential.
RBS was adamant on Friday that it one of the most strongly capitalised banks in
the world in response to concern it might need new capital.
7.33am: Good morning. Today’s main event are the US jobless figures for September, with expectations that employers took on more staff after August’s disappointing flat outcome. The consensus forecast on Wall Street is an increase of 60,000 jobs, while the unemployment rate is set to stay at 9.1%.
The FTSE 100 index in London is expected to open nearly 30 points higher at 5317, extending the rally of the last two days, while Germany’s Dax is set to rise 25 points. Asian markets rallied overnight, with Japan’s Nikkei up nearly 1% and Hong Kong’s Hang Seng climbing 2.7%.
On Thursday, the FTSE closed 3.7% higher at 5291.26 as investors were cheered by the Bank of England embarking on a second round of quantitative easing earlier than expected. It will be pumping £75bn into the economy in the next four months by buying government bonds, casting aside fears about inflation. The Bank’s governor Sir Mervyn King warned that Britain may be facing its “most serious financial crisis ever”.
By contrast, the European Central Bank resisted calls for a rate cut but announced a number of additional liquidity measures, which “could well have bought European governments extra time to deal with the banking crisis that is engulfing the region,” noted Michael Hewson, market analyst at CMC Markets. He added:
By giving some degree of long term certainty on liquidity to the banking sector policymakers get time to arrive at a recapitalisation plan, starting with Dexia at the weekend, as Greece heads closer to a default.
There was disappointment however at the stubborn refusal of the ECB to cut rates, but the door was left open to a cut next month when Trichet pointedly omitted to assert that monetary policy remained “accommodative”, especially given that the rate decision was arrived at by consensus, and not by unanimity.
Shares in Dexia, the troubled Belgian-French bank, were suspended last night until Monday amid rumours nationalisation.
- UK banks hit by Moody’s downgrade (bbc.co.uk)
- Moody’s cuts ratings on RBS and Lloyds (independent.co.uk)
- UK Banks Downgraded As Confidence Slumps (news.sky.com)
- Latest news about betting at world’s stock market casinos. (ikners.com)
- Moody’s downgrades 12 U.K. lenders (marketwatch.com)
- Debt crisis: as it happened – September 5, 2011 (telegraph.co.uk)
- U.K. Banks, Building Societies Cut by Moody’s After Review (businessweek.com)
- Europe stocks mostly flat; downgrade hits UK banks (marketwatch.com)
- European debt crisis Live (guardian.co.uk)
- Eurozone debt crisis: Markets rally on bank recapitalisation hopes – Live (guardian.co.uk)
- Moody’s downgrades Portuguese banks (marketwatch.com)
- Voodoo rhythm economics looks for a new and different beat. It’s still the same privilege for the few nothing for the rest. Even Nobel Prize winners should be able to understand that (ikners.com)
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- Moody’s Downgrades 12 U.K. Lenders (online.wsj.com)