The dollar index against a basket of six other currencies is down 0.37% at 95.54, having earlier touched a near two week low of 95.4.
The pound, which has its own problems given the continuing uncertainty about Brexit, is managing to benefit from the dollar’s weakness, and is currently up 0.24% at $1.2817.
Meanwhile stock markets are drifting, with the FTSE 100 down 0.12% while Germany’s Dax is up 0.64% and France’s Cac has climbed 0.77%.
Greece at "the beginning of a new era" - Tsipras
In a symbolic gesture Prime minister Alexis Tsipras has flown to the island of Ithaka to hail what he described as “a historic day … a day of redemption.”
“Today is a redemption day and the beginning of a new era,” he told the nation in a pre-recorded address overlooking Ithaka’s scenic waters.
Drawing on the symbolism of Ithaka being the island that Odysseus strove to get to after the end of the Trojan war, Tsipras insisted that like the Homeric hero, Greeks had finally ended their “own modern odyssey.”
It had been an extraordinary time, one unprecedented in peacetime that had seen Greece lose 25 % of its GDP, three in ten of its citizens ejected from the workplace, six out of ten young Greeks also becoming jobless and a staggering €65bn in austerity measures being imposed on the nation.
“We will never forget what we have experienced … we have reached our destination and we have full knowledge that all is not over. New battles are ahead of us.”
But he added that now that Greeks had reached their “much desired” destination they would have the “strength” to build a country that they deserved, a Greece that not only averted the deficits that had brought it to the brink of bankruptcy but was constructed on equality , democracy and social justice.
“From today we start the new era of our country with vision and determination...Ithaki is only the beginning,” he said in the address.
As we reported yesterday Tsipras had originally hoped to mark the day with a visit to Castellorizo, where the country’s debt-drama began with its first bailout being announced, but dismissed that plan when it was felt that it would be more prudent to not overly celebrate the sombre moment.
UK factory orders growth disappoints
Growth in factory orders slipped to a three month low in August, according to the Confederation of British Industry. Its industrial trends survey showed a balance of +7, down from +11 in July and below the +9 expected. CBI economist Anna Leach said:
Manufacturing growth remains strong, supported by the lower level of sterling and strong global economy. But risks to that growth remain high in light of international trade tensions and the uncertainty caused by Brexit.
Firms will be keen to see urgent progress on the Withdrawal Agreement to lock in transition, which is crucial to continuing frictionless trade as the UK leaves the EU.
Make no mistake, a ‘no deal’ scenario would be immensely damaging not just for UK manufacturers, but also the rest of the EU. So both sets of negotiators need to demonstrate flexibility and compromise to protect trade flows worth 600 billion euros each year, particularly against the backdrop of increasing protectionist rhetoric.
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Britain has recorded the biggest July budget surplus since the millennium, giving a boost to Philip Hammond as he considers ways to pay for greater NHS spending in the autumn budget.The full story is here:
The Office for National Statistics said public sector net borrowing, excluding the state-owned banks, went into surplus for July by £2bn, meaning the government received more in tax income than was spent on public services.
The surplus was the biggest recorded for the month of July in 18 years, and outstripped City analysts’ forecasts of about £1.1bn. However, the figures showed strong seasonal inflows of income tax receipts.
The government has committed to find ways to finance a £20bn-a-year injection of extra cash into the NHS by 2023-24, with taxpayers expected to face increases when the chancellor delivers his budget. But despite the latest improvement in the public finances, which could help minimise the tax increases, Hammond has committed to delivering a zero annual deficit by the middle of the next decade.
The latest figures from the ONS showed total borrowing for the financial year so far, beginning in April, was the lowest for 16 years. The government deficit stood at £12.8bn, which is £8.5bn less than in the same period a year ago.
The Chancellor has passed on the deficit to his colleagues in other departments: record NHS deficits, schools begging parents for money for essentials, and a growing social care crisis.
Hard pressed families and underpaid public sector workers have been made to pay for the price of Tory failure on the economy, with brutal cuts to social provision and relentless pay restraint.
Labour in government will be a government for the many, not the few, will reverse the disastrous Tory austerity agenda and give workers a decent pay increase with our £10 Real Living Wage.
John Hawksworth, chief economist at PwC, said:
If the reduction in borrowing is sustained, public sector net borrowing excluding the banks would undershoot the Office for Budget Responsibility’s 2018/19 forecast by £13bn or so.
Admittedly, an undershoot of this magnitude is unlikely. The recent improvement has been partly due to temporary factors, such as the timing of gilt issuance and redemptions. And self-assessment tax receipts – which were the highest July level since records began in 1999 – can shift between July and August.
Nonetheless, as things stand, the Chancellor should have some extra money to play with in the Autumn Budget – on top of the scope already contained within his fiscal mandate. And he should be able to deliver the extra funds for the NHS without compromising his fiscal target or having to find savings elsewhere.
The Institute of Chartered Accountants in England and Wales says the chancellor must start focussing on the long term outlook for the public finances. Ross Campbell, ICAEW Public Sector Director, said:
The long hot summer also brought some sunshine for the Chancellor, with the public finances £2bn in surplus in July, the largest such July budget surplus for 18 years. That was not just before the financial crisis, but actually before Gordon Brown started spending the war chest he built up in the late 1990s...
Although it is still early days in the current financial year, the latest data point to public borrowing coming in some way below the OBR’s £37.1bn forecast for 2018/19 as a whole. In addition, this year’s structural budget deficit should be comfortably below the Chancellor’s 2% of GDP target for 2020.
This better news on the deficit should give the Chancellor a bit more wiggle room when it comes to his Budget in November. But he will still have some tough choices to make, probably including some tax rises, if he is to fund planned increases in NHS spending and to respond to other pressing demands to ease austerity for schools, local councils, prisons, police and other public services.
The continued growth throughout July is in line with projected forecasts for 2018. However, when the government comes back from the summer in September there will be a lot to do. The publication of the 2018 Fiscal Sustainability Report by the Office from Budget Responsibility has made clear that the public sector finances are not sustainable over the long run and with interest rates rising the prospect for the government being able to meet its obligations does not appear promising. Alongside this, there is economic uncertainty and increasing pressure on the Government to strike a deal with the EU over the ever looming exit.
The UK state is like a just about managing household, struggling to pay the rising bills for public services and with nothing put by for emergencies. The Chancellor must start focusing more on the long-term to ensure that public sector finances are put on a sustainable footing.
We have made great progress repairing the public finances.
Thanks to the hard work of the British people, government borrowing is down by three quarters and debt is due to begin its first sustained fall in a generation.
But we cannot be complacent, and we must keep debt falling to build a stronger economy and secure a brighter future for the next generation.
UK records biggest July budget surplus for 18 years
The budget surplus last month came in at £2bn, the best July figure since 2000 and nearly double the £1.1bn figure expected by economists. The improvement was driven by large tax receipts and takes the deficit for the first four months of the financial year to £12.8bn, down 40% on the same time last year.
The figures exclude the state-owned banks.
Markets have not particularly liked US President Trump’s comments, seeing them as a threat to the independence of the central bank. The Fed’s independence has little legal standing. It is independent by custom more than by statute. There is a shocking lack of economists amongst the voting members of the FOMC at the moment, and a high number of vacancies.
[Trump] would like easier monetary policy, or at least, he would not like to see interest rates marching higher to offset the boost to the economy from his fiscal and trade policies. His liking for low rates is something he has in common with Turkey’s President Erdogan, possibly because at heart, both are in the real estate business. The difference, of course, is that President Erdogan can influence monetary policy, because the [Turkish central bank] is clearly not independent; whereas President Trump can feel let down by Fed under Chair Powell, but he can’t do much about it.
While the conflict between Turkey and the US rumbles on, it would appear that President Trump has taken a leaf from the President Erdogan book by criticising the actions of the central bank in continuing to raise interest rates. President Trump also repeated his long held view that China was manipulating its currency, adding he thought “the euro was being manipulated too”. While the ECB is not directly manipulating its currency, you have to have some sympathy here for President Trump given the ECB continues with QE and negative interest rates despite the inflation rate sitting above the ECB’s target at 2.1%. Recent actions from China and speculation that the Chinese authorities may be about to re-adopt the ‘counter-cyclical’ factor into the daily calculations of the [renminbi] fixing means President Trump may have a point on China also. In October, the US Treasury will release the semi-annual currency report and there is the potential for China to be cited as a ‘currency manipulator’. What is apparent from yesterday’s comments is that President Trump is unlikely to sit idle and watch US dollar strength persist.
Two months before he was elected President of the United States in September 2016, Donald Trump said Fed chair Janet Yellen should be “ashamed of herself” for keeping interest rates low and creating a “false stock market” saying that the central bank’s policies were hurting savers and pension plans.
It therefore seems rather strange that he should now be criticising the current incumbent, and his choice as Fed chair for not keeping rates low, and pushing rates higher.
The US President’s comments last month, and which he repeated last night, was that he was “not thrilled” with Jerome Powell and the Federal Reserve, for its consistent policy of raising interest rates, saying he should be given more help by the Fed.
Unfortunately for the President that’s not how it works under the Fed’s mandate and while he has pledged to continue to criticise the Fed if it continues to raise rates, his criticism while unwelcome and unusual for a US President, is unlikely to stop the Fed from hiking again next month, or later this year.
If anything the President’s comments in driving down the US dollar could well make it easier for the Fed to hike rates, as they could mitigate the upside in the US dollar, as a strong currency tends to have a deflationary effect.
In any case, even before yesterday’s comments by the President, there was already a debate going on in the markets, as to the wisdom of the Fed going too quickly where rates are concerned. The crisis in emerging markets, concerns about trade, as well as geopolitics, were causing some to question as to whether the Fed should look at revising its guidance.
The worry is that the President’s interventions will make it much harder to have that debate, without accusations that the Fed is being manipulated.
With an economy set to continue to expand at around 4% the Fed does need to be acutely aware of the possibility that the economy may well overheat as a result of the fiscal stimulus that is still helping juice the current economic expansion.
Someone should tell President Trump that the central bank in hiking rates is a vote of confidence in the US economy, and thus his stewardship of it, and will also help those savers he claimed to be so worried about in 2016. He may than look at it through a slightly different lens. Of course he could well be also getting his excuses in early in the event we start to see a slowdown over the next few quarters, as he blames the Fed for slowing the economy.
Apparently the heatwave and Love Island gave a boost to sales. Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said:
The grocery market experienced strong growth buoyed in particular by the recent heatwave. Over July, thirsty Brits spent an additional £67 million on alcoholic drinks, while non-alcoholic beers were cheered on by the sun with sales up 58% compared to this time last year. Soft drinks also increased – up 28%. Meanwhile, Love Island not only tugged on shoppers’ heartstrings but also their purse strings as men’s skincare products jumped by 16%.
European markets edge lower
The FTSE 100 opened down 0.2%, Germany’s Dax has dipped 0.1%, France’s Cac is 0.2% lower and Spain’s Ibex is off 0.1%.
Calls for a negative open come in spite of upbeat trading on Wall St and in Asia, where markets were hopeful for an easing in Sino-US trade tensions, and after China’s banking regulator called for local banks to increase infrastructure lending amid a slight pullback of Chinese economy.
Most of the FTSE negativity is generated by dollar losses after President Trump criticised the Fed Chair Powell’s interest-rate hiking policy in an interview with Reuters. The Fed is independent in setting monetary policy and markets were spooked by yet another comment from Donald Trump criticising higher interest rates (his property magnate background seeping through?).
Sterling strength this morning is pressuring the FTSE, though there is silver lining to this cloud, as the corresponding greenback weakness is proving beneficial to US dollar-denominated commodities, as oil, copper and gold prices are higher this morning. That said, dual-listed Miners are lower in Australia overnight on the back of BHP Billiton results missing expectations.
Turkey is still giving investors pause for thought, and Italy is also an increasing cause for concern. David Madden, market analyst at CMC Markets UK, said;
European equities ... are still underperforming their US counterparts. The currency crisis is still hanging over Turkey, as the revelation that S&P and Moody’s downgraded the nation’s debt rating got traders wondering if individual Turkish banks could be in line to be downgraded next. Should that be the case, that could be the catalyst for a move lower in the euro and or eurozone banks. President Trump will keep his tough stance against Turkey, and won’t make any concessions for the release of US pastor Andrew Brunson, and this is likely to keep pressure on Turkey too.
Moody’s will carry out their review of Italy’s debt rating by October. In the grand scheme of things, Italy has the potential to be a much bigger problem for the eurozone than Turkey. The European Central Bank can only buy investment grade bonds for their stimulus package, and should Italian debt be classified as ‘junk’, it could spark a sell-off in Italian government debt, and in turn drive up their borrowing costs.
Agenda: US-China trade, UK public finances in focus
Kicking out a well respected central banker and replacing them with your own appointee should guarantee an easy ride for the newcomer, you would have thought. But these days we live in Trump world and Jerome Powell, the president’s choice to chair the Federal Reserve as a replacement for Janet Yellen, got it in the neck from the White House on Monday.
The Fed has been raising interest rates and is expected to continue doing so, with another two increases expected this year. But President Trump told Reuters on Monday:
Not what Powell wants to hear ahead of this week’s key meeting of central bankers in Jackson Hole. And Trump’s intervention puts the Fed in a tricky spot. Jasper Lawler, head of research at London Capital Group, said:
I’m not thrilled with his raising of interest rates, no, I’m not thrilled.
We’re negotiating very powerfully and strongly with other nations [on trade]. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated.
Trump could be sowing the seed for market perception problems later down the line. For example, should the stronger dollar result in weaker economic data moving towards December and the Fed decides not to hike. The market could question whether the Fed opted not to hike on the basis of data or to appease Trump? So, whilst Trump will not influence the path of rate hikes, his comments could impact on market’s perception of what is happening, which is an equally dangerous game to be playing.Trump also used the Reuters interview to take another swipe at China - and for good measure Europe - for supposedly manipulating their currencies.
And ahead of this week’s meeting between US and Chinese officials to discuss the current trade dispute, Trump said he did not expect much progress from the talks, which is not what the markets want to hear.
Still, if the president wants a weaker US currency, he got his wish. The dollar is slipping back, with the pound currently up 0.37% to $1.2841 and the euro around 0.5% better.
On a relatively quiet day, there could be some good news for UK chancellor Philip Hammond ahead of his autumn budget.
The UK is expected to record its biggest July budget surplus for 17 years, moving from a deficit of £5.4bn last month to a surplus of £1.1bn, helped by increased corporation tax payments.
9.30 BST UK public finance figures
11.00 BST CBI industrial trends