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Jun 26, 2016

The Guardian | Business | Banking | Markets Markets Turmoil. Market Turmoil Fears Likely to Force Mark Carney to Abandon ECB Meeting

theguardian.com

Phillip Inman
 
Bank of England governor Mark Carney is expected to abandon plans to fly to Portugal for a summit of central bankers, amid fears of further turmoil when markets open on Monday.

With expectations that the FTSE 100 index could open almost 3% lower on Monday, the governor was weighing up whether to stick to his plans to attend the European Central Bank’s annual summit in Portugal on Wednesday.
Carney, who was quick to make a public statement on Friday after the Brexit vote sent shock waves through financial markets, seems unlikely to carry on with his schedule to attend the last day of the three-day meeting in Portugal which starts on Monday.
At one point on Friday morning as the result became clear, sterling dived to 30-year lows and the FTSE 100 was off almost 8%, although by the end of the week the stock market ended where it had started. Even so, an analyst at Dow Jones indices had calculated that the $2tn (£1.4tn) wiped off global markets on Friday was the worse on record, surpassing the losses on 29 September 2008 during the height of the banking crisis.
Carney was in Basel, Switzerland, for a meeting of central bank governors over the weekend, where he was expected to have discussed the implications of the historic vote on 23 June.
The Bank, which declined to comment on the governor’s travel plans, will on Tuesday offer the third and last of its emergency funding deals to offer cash to the banking system, which Carney had announced ahead of the 23 June referendum. The first two special loan facilities had a low uptake – £2.4bn and £370m respectively.
Carney will this week also chair a pre-scheduled meeting of the financial policy committee, set up in the wake of the banking crisis to weigh up the risks in the financial system. The meeting takes place at a time when volatility in the markets is high and anxiety about the future of the City is swirling.
Across the British financial services industry, up to 100,000 financial jobs could be on the line, according to a report for the lobby group CityUK by PricewaterhouseCoopers ahead of the referendum. Banks are known to be making plans to move some jobs to EU areas if the City loses the “passporting” arrangement that allows its banks, hedge funds and law firms to operate across Europe. HSBC would move 1,000 roles to France, while JP Morgan has said 4,000 jobs could be lost after Brexit.
Rumours have swept through the City about how quickly any contingency plans would be implemented, with financial centres in Dublin, Paris, Frankfurt and Luxembourg all cited as potential beneficiaries.
The chief executive of Deutsche Bank – which employs 11,000 in the City – has played down the long-term impact. John Cryan, who is British, told Handelsblatt: “The financial centre won’t die but it will get weaker.”
The high street banks are also affected with their shares tumbling on Friday and the government abandoning any further efforts to cut its stakes in bailed out Lloyds Banking Group and Royal Bank of Scotland.
Diane Coyle, professor of economics at Manchester University, said markets would be watching for signs that uncertainty was spilling over into the real economy.
“There is the worry that uncertainty will feed through into decisions to hold off investment, higher prices of imported goods, falling house prices and the higher costs of a summer holiday abroad to stifle consumer spending.
“These are things that can feed on themselves and cause a deeper recession.”
She added that an uncertain outcome to the Spanish elections on Sunday could trigger further volatility in financial markets.