Nick Fletcher 

Financial firms shrug off Brexit fears – as it happened

Survey shows City believes impact of vote not as stark as feared
  
  

City firms dispel Brexit gloom
City firms dispel Brexit gloom Photograph: Stefan Rousseau/PA

Afternoon summary

There’s been a multi-billion dollar pharmaceutical deal, more fallout from the Brexit vote and markets are jittery ahead of a speech later in the week from US Federal Reserve chair Janet Yellen, on what was originally looking like a quiet summer Monday.

On the Brexit front, financial firms believe the impact of the vote to leave the European Union has not so far been as stark as expected. But the UK housing market is likely to contract next year in the wake of the decision, said estate agents Countrywide.

Meanwhile, markets are heading lower and the dollar is climbing again ahead of any interest rate comments from Janet Yellen at the Jackson Hole symposium on Friday. Investors are uncertain about the prospect for rates, given that last week’s dovish Fed minutes were followed by comments from Fed members including Stanley Fischer suggesting a rate rise could yet happen shortly.

Oil has come under pressure as hopes fade that OPEC may come up with an agreement to support prices at its meeting next month. In a note today, Morgan Stanley suggested any deal was unlikely. The strength of the dollar is also having an impact on the crude price.

And on the deal front, Pfizer is paying $14bn for cancer specialist Medivation.

On the markets, the FTSE 100 is currently down 41 points or 0.6%, Germany’s Dax has dropped 0.79% and France’s Cac is 0.4% lower. European markets have seen their declines accelerate as Wall Street opens. The Dow Jones Industrial Average is down 80 points in early trading.

On that note, we’ll close up for the day. Thanks for all your comments, and we’ll be back tomorrow.

With all the speculation about when the US Federal Reserve may raise interest rates, here is a bit of better than expected economic news.

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The strength of the dollar - lifted by growing talk of a Federal Reserve rate rise before too long - has helped push down gold and silver prices.

Gold has fallen from $1340 an ounce at the open to $1337 while silver has gone from $18.96 to $18.93.

In turn this has left shares in precious metal miners Randgold Resources and Fresnillo lower, and helped push the FTSE 100 into negative territory.

As reported earlier, Royal Bank of Scotland has started charging some corporate clients to hold their cash, but its chairman Howard Davis has just been questioning the current ultra low interest rate policies from central banks. Sean Farrell reports:

As Royal Bank of Scotland started charging some clients to hold their cash, its chairman has questioned the effectiveness of ultra-low interest rates and called for a rethink of monetary policy .

From Monday, RBS will charge interest to about 70 customers, such as banks and pension funds, on the cash they place with the state-controlled bank as collateral for trading complex financial products.

It is the first time a bank has imposed charges for sterling holdings since the BoE halved interest rates to a new record low of 0.25% on 4 August and restarted its quantitative easing (QE) programme of government bond purchases. The BoE relaxed monetary policy in an effort to support the economy following the vote to leave the EU by discouraging banks from hoarding cash.

RBS’s chairman, Sir Howard Davies, said that as interest rates get closer to zero the central bank loses control of the effects of monetary policy and leaves itself few options for action iin a recession.

Davies told Bloomberg TV: “When you reach the lower band you don’t know how the economy will respond … We don’t really know what impact QE on the scale it is being implemented is having. I really do think we are entering a period where some of the previous certainties are no longer quite so certain and you really need to rethink the monetary policy framework.”

The full story is here:

Back with oil, and Morgan Stanley does not expect any major decisions from next month’s OPEC meeting, despite the market’s earlier optimism that an agreement to support crude prices could emerge.

In a new note, the bank’s commodity strategist Adam Longson said:

We continue to view a meaningful OPEC production agreement as highly unlikely, but we would not be dismissive of the short term price impact of an OPEC meeting. Comments about intervention alone can scare off shorts. However, we see too many headwinds and logistical challenges to a meaningful deal given past statements by OPEC and its members regarding the positive state of markets, domestic output goals and objections from members producing below potential. In fact, the market has misinterpreted some recent comments from Saudi Arabia, in our view, without seeing the full quote or context.

He continued:

Oil Minister Al-Falih has said “We are, in Saudi Arabia, watching the market closely, and if there is a need to take any action to help the market rebalance, then we would, of course in cooperation with OPEC and major non- OPEC exporters.” This is the same talking point the kingdom has been using for some time. It neither acknowledges the need for action, nor firmly commits Saudi Arabia to participate if certain parameters are met. We agree with Rapidan Group that it is unlikely Riyadh will take any freeze negotiation seriously as officials believe the market share policy is slowly but surely working.

Few OPEC members have expressed a need for a freeze, with the exception of Venezuela. Members with production outages have been less supportive of a production freeze this time as well, with Nigeria now joining the dissent.

Pfizer pays $14bn for Medivation.

Pfizer has confirmed earlier reports and announced the $14bn takeover of cancer specialist Medivation. Pfizer boss Ian Read said:

The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer. The addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its pathway to a leadership position in oncology, one of our key focus areas, which we believe will drive greater growth and scale of that business over the long-term. This transaction is another example of how we are effectively deploying our capital to generate attractive returns and create shareholder value.

This is the latest deal from the acquisitive Pfizer. In April it scrapped plans to merge with Ireland’s Allergan and in 2014 a proposal to buy AstraZeneca for more than £69bn collapsed. But it has since completed the smaller takeovers of Anacor and Hospira.

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With trading light, we are seeing some bumpy movements in stock markets, which have now lost their earlier gains.

The FTSE 100 is now down 40 points or 0.5%, Germany’s Dax has fallen 0.28% and France’s Cac is 0.17% lower.

And here’s a reminder of where various US Federal Reserve members stand on policy:

Back to the gathering of central bankers in Jackson Hole later this week, and Barclays believes US Federal Reserve chair Janet Yellen could hint at a September rate rise:

Despite the dip in the oil price, stock markets have recovered from their early losses. With the FTSE 100 holding firm at around 6 points higher, Germany’s Dax is now up 0.8% while France’s Cac has climbed 0.7% and the Stoxx Europe 600 is up 0.7%.

Swiss pesticides and seeds group Syngenta is among the main risers, up 12% to a 14 month high after US regulators cleared its $44bn takeover by ChemChina.

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Here’s an interesting table from money transfer specialists HiFX, showing how sterling has fallen since the Brexit vote against a range of currencies.

The pound has been under pressure everywhere, but the smallest declines - relatively - have come against the Swedish and Turkish currencies:

Andy Scott, economist, HiFX sais:

Since the UK voted to leave the EU we have seen the ramifications unfold. Sterling has dropped against most of the world’s currencies and fell further by 1% cent against the Dollar and the Euro following the Bank of England’s recent decision to cut interest rates.

However, it is important to note that while sterling trades on the back foot due to the Brexit uncertainty, we are starting to see signs of sterling regain its footing and some lost territory. Its journey back to the levels of the evening of June 23rd is still distant; however it looks like we have already seen the ‘Brexit Bottom for Sterling’.

In an unusual move, City fund manager Neil Woodford has abolished all staff bonuses at his investment firm. The Times reports:

One of the most prominent figures in the City has taken the unprecedented step of permanently abolishing all staff bonuses at his firm.

Neil Woodford, the star stock-picker and founder of Woodford Investment Management, has rejected the conventional wisdom that bonuses are essential to motivate and retain staff and has put everyone on a flat salary.

The new pay scheme was quietly introduced on April 1 for the firm’s 35 staff, who include sales people, traders, fund managers and analysts as well as IT, marketing and compliance professionals.

The full story is here (£).

Sports Direct is never far from the headlines these days, and once again, Mike Ashley has not disappointed. Sean Farrell reports:

Sports Direct pays a company owned by the older brother of the retailer’s founder and majority owner Mike Ashley to deliver goods purchased online to customers outside the UK.

Britain’s biggest sportswear chain has not disclosed the arrangement with Barlin Delivery Limited in its annual accounts. Barlin, which was incorporated in February 2015, is owned by John Ashley. Its registered address is a detached house in a cul-de-sac in the Lincolnshire seaside town of Cleethorpes.

Sports Direct’s website says it only delivers to the UK but that Barlin may provide international delivery to online purchasers. Barlin’s terms and conditions say it uses DHL to deliver goods.

The full story is here:

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Another big pharmaceutical takeover could be on the cards.

There are reports that Pfizer is about to pay $14bn to buy California biotechnology company Medivation, a specialist in cancer treatments. Pfizer is said to have beaten a number of rivals to the deal, including France’s Sanofi.

German chancellor Angela Merkel is due to meet Italian prime minister Matteo Renzi and French president Francois Hollande for another discussion on Europe’s future following the Brexit vote.

The gathering comes three weeks before an informal EU summit in Bratislava, the first without the UK taking part.

Mixed start for European markets

After an initial dip the FTSE 100 has edged into positive territory, up around 5 points in thin trading.

But Germany’s Dax has dipped 0.17% while France’s Cac is 0.1% lower.

Against the dollar, the pound is down 0.16% at $1.3059 while it has adde 0.28% against the euro to €1.1573.

Today sees some large corporate clients of Royal Bank of Scotland facing charges for holding deposits with the lender, as it becomes the first to charge negative interest rates. Jill Treanor reported the details:

Royal Bank of Scotland is to start charging major financial institutions for any cash it holds on their behalf for trading purposes, in the latest illustration of the impact of Mark Carney’s post-Brexit vote stimulus package.

It is the first time a bank has started to make charges for sterling deposits since the governor of the Bank of England announced on 4 August that interest rates would be cut from 0.5% to 0.25% to stave off any economic downturn following the vote to leave the EU. Carney said he was not a fan of negative rates.

Even so, from Monday, about 70 RBS customers will start to receive negative rates because they will charged for any cash they place as collateral for trading in complex financial products, such as futures or options. The move will not affect the small business customers whom the bank, and its NatWest arm, warned last month it may have to charge for making deposits.

Back with Brexit, and the government could come under pressure to move ahead with new road, rail and other building projects after a sharp drop in infrastructure spending since the vote.

According to consultancy Barbour ABI, the value of contracts dropped 20% in July from the previous month, to £1.5bn. The details are here”

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Markets await key Federal Reserve speech this week

One of the major events of the week is the annual Jackson Hole symposium, mainly because US Federal Reserve chair Janet Yellen is due to speak on Friday.

Her comments will be scoured for further clues as to when the Fed might raise interest rates, given that last week saw a dovish set of Fed minutes immediately followed by comments from a number of Fed members tacking a different tack. Michael Hewson, chief market analyst at CMC Markets UK, said:

This week the focus is likely to be on central banks once more with the Jackson Hole symposium on Friday, and recent comments from Bank of Japan Governor Kuroda suggesting that he could push interest rates in Japan even more negative, while Fed vice Chair Stanley Fischer tried to buoy up expectations of some Fed action this year by saying that the US central bank was within striking distance of its inflation target...

While no one seriously expects the Federal Reserve to act on rates next month, some Fed officials seem extremely keen to try and keep the option on the table, with both the New York and California Fed President’s Dudley and Williams the most vocal, along with Fischer’s comments at the weekend.

Fed Chair Janet Yellen’s predecessor, Ben Bernanke was quite fond of signalling some significant policy moves in the wake of the financial crisis at this very event [Jackson Hole], so much so that it has become a leading indicator for Fed and central bank policy in the last few years.

In this context attention will be on Ms Yellen’s speech on Friday, however it doesn’t seem likely that we’ll get any significant clues despite the markets desire to be hand held by the Fed.

The oil price has been supported in recent days by hopes that producers will agree measures to tackle oversupply when they meet next month.

But some of that optimism has now waned, not helped by news that Chinese exports of diesel and gasoline soared in July. That follows another rise in the weekly US rig count on Friday, and comments over the weekend from Iraq that its oil exports will increase by 5% shortly as production from the Kirkuk fields restarts.

So crude has fallen back below $50 a barrel, with Brent currently down 1.85% at $49.94.

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With no major economic data due and a mixed performance in Asia, European markets are expected to open marginally lower for the most part:

Agenda: Finance firms play down Brexit effect but housing market to struggle

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The shock outcome to the UK referendum has left investors, politicians and the general public in a state of heightened uncertainty about the future.

Nowhere is this more evident than in two new surveys, with accountancy firm EY saying that the City is less gloomy about the Brexit vote than expected, but a warning from estate agency Countrywide that the housing market will be hit by vote and will not recover until 2018.

EY tracked public statements from 232 banks, insurers, private equity and other financial firms and concluded that only one fifth believed the vote would have negative implications for their business. EY said:

The immediate impact of the referendum has not been as stark as many initially feared.

But the firms were concerned about passporting rights - the laws giving financial companies the right to operate across the 28 EU states - whose future is unclear.

Meanwhile Countrywide said house price growth would slow to 2.5% this year, contract by 1% in 2017 before recovering to 2% in 2018. It said:

Our central view is that the economy will avoid a hard landing, which is good news for housing markets.

However, the weaker prospects for confidence, household incomes and the labour market mean that we do expect some modest falls in house prices before they return to positive growth towards the end of 2017 and into 2018.

Our economics editor Larry Elliott has also been looking at the implications of Brexit, and says the doom and gloom and predictions of economic armageddon have been overdone:

And there is of course no clear idea yet when Brexit will ever happen, given the uncertainty about when Article 50 - the start of the exit process - will be triggered.

Jon Henley has been looking at the process of leaving the EU, and concludes it will not happen in the immediate future, given that civil servants charged with the task do not yet have an office and hold meetings in Starbucks:

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