Finally, here’s our news story on Turkey’s blockbuster interest rate hike

Good night! GW

In the City, the FTSE 100 index of top shares has ended the day down 0.4% at 7,281 points, a drop of 31 points.

Just in: president Trump has claimed that China’s markets are “collapsing”, as he denies feeling pressure to reach a trade deal.

He’s not right -- China’s stock market did hit 31-month lows this week, but it’s not entirely given up the ghost. And if it had, it would be bad news for the entire global economy, not a reason to brag.

Agathe Demarais, Turkey analyst at the Economist Intelligence Unit, says today’s Turkish interest rate hike is a “welcome signal”.

However, it won’t fix all Turkey’s economic challenges.

Here’s her take:

• “The Turkish central bank hiked rates by a whopping 625 basis point, to 24%. In doing so the central bank aims at sending a clear signal of independence and credibility to international financial markets. It also signals that normalising monetary policy conditions is a higher priority than propping up fast decelerating economic growth in the wake of the August currency crisis.”
• “The rate hike is a welcome signal for international financial markets. In addition, the recent sharp depreciation of the lira means that previously high external imbalances are quickly narrowing, which should have a positive impact on the Turkish currency.”
• “However, the lira will remain under pressure in the coming months owing to tightening global liquidity conditions and tensions between Turkey and the US. In addition, Turkish corporates remain highly indebted in foreign currency, which means that the local currency value of their debt repayments has spiked over the last few weeks. Some corporates might experience issues in repaying their external debt in the coming months, which will weigh on economic growth.”

Back in the markets, the American dollar has fallen after today’s US inflation data was weaker than expected.

That’s giving a range of battered emerging market currencies some relief, with the Turkish lira leading the charge.

The pound is also benefitting, rising by 0.5% to $1.311.

Get in touch....

Asked about Italy’s populist government, Draghi insists firmly that several Italian ministers have pledged to stick with EU budget rules.

He also doesn’t see signs of contagion from Italy to other eurozone countries.

Good point!

Draghi wasn’t ECB back then, of course.

Q: What do you think of Jean-Claude Juncker’s proposal to make the euro a reserve currency, challenging the US dollar?

Draghi says he is interested to see more details on the proposals, and is ready to work with the Commission on their plans.

Q: Looking back a decade ago, what did you learn from the Lehman Brothers collapse?

Draghi says the financial crisis actually began earlier than 2008. The first serious signs of a crisis date back to September 2007 [the month in which the credit crunch blew up, claiming Northern Rock].

Looking back, Draghi cited the “extraordinary cooperation” and “unprecedented international effort” between countries to tackle the global crisis.

Draghi adds that while measure have been taken to make finance safer, risks have moved from the financial sector to the world of shadow banking.

Q: How much of a threat are the problems in emerging markets to the eurozone, and the world economy, and is it due to US monetary policy?

Draghi says the spillovers from Turkey and Argentina have “not been substantial”. The countries most vulnerable are those with the weakest economic fundamentals, he adds.

Q: The ECB’s new forecasts show inflation hovering around 1.7% in the next few years - is that consistent with your mandate?

Yes, it’s consistent with the mandate, says Draghi crisply, reminding reporters that the mandate is to keep inflation “close to, but below 2%”.

Back in Frankfurt, Mario Draghi has warned that risks from protectionism, and emerging market volatility, have risen.

But still, he argues that the risks to the euro area growth outlook are “broadly balanced”.

Just in: US inflation rose by less than expected last month.

Prices only increased by 0.2%, compared to forecasts of 0.3%. That pulled the annual inflation rate down at 2.7%, versus expectations of 2.8%, down from 2.9% in July.

Over in Frankfurt, European Central Bank president Mario Draghi is giving his press conference.

He confirms that the ECB left interest rates unchanged, and intents to leave them at their present record lows until at least next summer.

Draghi also confirms that the ECB expects to stop buying new bonds through its asset purchase scheme after December, but will keep re-investing the proceeds from the scheme “for an extended period of time”, and as long as needed to maintain “favourable liquidity conditions” and “an ample degree of monetary accommodation”.

Paul Greer, portfolio manager at Fidelity International, says the Turkish central bank should have acted sooner to raise rates and strengthen the lira.

However, he also fears today’s rate hike will drive the economy into recession.

“Going forward the focus will now fall on Turkish growth which is slowing very quickly as the economy, and the current account deficit in particular, rebalances. Today’s move, while helping to moderate inflationary pressures, will accelerate the slowdown and probably push Turkey into a recession.

The next challenge for Turkey will be how does the economy deal with this slowdown, particularly in the banking sector where capital ratios have been eroded and asset quality will further diminish.

Relief that Turkey’s central bank has delivered such a chunky interest rate hike is driving shares up in Istanbul.

The benchmark BIST 100 index has gained 1.5%, as trader express optimism that Turkish inflation could be tamed.

Now it’s the European Central Bank’s turn.

The ECB has left its interest rates at current record lows, meaning the headline cost of borrowing sticks at just zero.

The governing council has also confirmed that it will halve the pace of its stimulus programme in October, to €15bn per month of bonds per month, ending it in December.

Neil Wilson of Markets.com says Turkey’s interest rate hike is a show of strength from the country’s central bank, in the face of political pressure:

It represents a major and important reassertion of the central bank’s independence and shows they will not be bullied by politicians, although to a large degree its hand was forced by the 18% print on August inflation.

There was also a commitment to do more if necessary and that will be regarded as a sign that policymakers are serious, although it’s maybe a tad short of being a ‘whatever it takes’ type commitment – indeed the move on the lira only takes it back to where it was at the end of August.

The Turkish lira has been through a roller-coaster ride today:

The Bank of England is also worried by the rising risks of a full-blown trade war, and its impact on emerging markets.

The Bank’s monetary policy committee say::

The global economy still appears to be growing at above-trend rates, although recent developments are likely to have increased downside risks around global growth to some degree.

In emerging market economies, indicators of growth have continued to soften and financial conditions have tightened further, in some cases markedly.

Recent announcements of further protectionist measures by the United States and China, if implemented, could have a somewhat more negative impact on global growth than was anticipated at the time of the August Report.

Hold onto your hats.. we’re about to get the Turkish and UK interest rate decisions...

Over in Turkey, president Erdoğan has made an astonishing intervention ahead of today’s interest rate decision.

Erdoğan attacked the Central Bank of the Republic of Turkey, saying it had failed to bring down inflation (which hit a 15-year high last month).

Erdoğans says:

“As of today I have not seen the central bank fix inflation rates as they promised.”

And he then repeats his argument that higher interest rates cause inflation, rather than curbing it (as conventional economics has it).

Damning interest rates as a “tool of exploitation”, the president says:

“Interest rates are the cause, inflation is the result. If you say ‘inflation is cause, the rate is the result’, you do not know this business, friend,”

These comments have sent the lira slumping against the US dollar, as traders worry that Turkey’s central bank might not raise interest rates today after all...

Bank of England governor Mark Carney has been spotted leaving Downing Street, where he must have been attending today’s cabinet meeting to discuss a no-deal.

You may wonder how Carney can also be setting UK interest rates... but actually the BoE voted yesterday.

Here’s the full quote from John Lewis chairman Charlie Mayfield, as he refuses to get into a verbal punch-up with Dominic Raab:

“This whole thing is so frothy. I didn’t say Brexit was the reason for our result.

The fact is sterling is weaker, it’s more expensive to import goods... so we have to absorb that within our margin.

I’m not going to get into some sort of ding-dong with the secretary of state for all things EU.”

Here’s our guide to what’s gone wrong at John Lewis:

John Lewis chairman Charlie Mayfield has held a conference call with journalists to discuss its plunge in profits.

He’s declined to get into a war of words with Dominic Raab over the ‘blaming Brexit’ row. Instead, he’s revealed quite how tough the last few months have been, with JL’s department stores making their first half-year loss in at least 10 years.

Moody’s chief credit officer for Europe, Colin Ellis, is concerned that the risks of a no-deal Brexit have risen.

He says:

“We still think the UK and the EU will eventually reach an agreement to preserve many - but not all - of their current trading arrangements, particularly around trade in goods. However, we believe the prospect of the UK leaving the EU without any agreement has risen materially.

“The precise impact of a ‘no deal’ outcome is impossible to define because both the UK and the EU would likely take swift steps to limit short-term disruption. But it would clearly pose more significant credit challenges than a negotiated exit.”

Financial blogger Lotty Burns has more sympathy than Dominic Raab for John Lewis’s predicament:

European credit analyst Tomas Hirst suggests Dominic Raab should resist the temptation to put the boot into British businesses -- as the weak pound is causing real problems for importers.

Here’s a video clip of Dominic Raab criticising businesses who are “tempted to blame Brexit” for disappointing results:

John Lewis Partnership chairman Charlie Mayfield has taken to the airwaves with a rallying cry to staff and customers.

Mayfield told BBC Radio that JLP won’t be “not hunkering”, even though UK retail is pretty tough today.

“You don’t succeed by retrenching so if anything we are investing more and pushing on with differentiation,.

The simple truth is that times like these call for cool heads and really determined ambition.”

John Lewis also warns that profits in the second half of the financial year (to the end of January 2019) will be sharply lower than a year ago.

It says:

With the level of uncertainty facing consumers and the economy, in part due to ongoing Brexit negotiations, forecasting is particularly difficult but we continue to expect full year profits to be substantially lower than last year for the Partnership as a whole.

We expect profit growth in Waitrose & Partners will be offset by the continuing margin pressure in John Lewis & Partners and by incremental costs of investment.

John Lewis says its department stores suffered from falling demand for “big ticket and bespoke items”, as consumers cut back.

This dragged sales at its “Home” division down by 4.2%.

Fashion sales rose by 1.2%, though, due to higher demand for womenswear, while sales of electrical items and technology jumped by 7.8%.

Here’s the top line from John Lewis today:

John Lewis’s pledge to match other retailers’ prices has also hit its bottom line this year.

The company says the plunge in profits...

...reflects our decision not to pass on to our customers all cost price inflation from a weaker exchange rate and from our Never Knowingly Undersold promise, where we have seen an unprecedented level of price matching as other retailers have discounted heavily.

Here’s some instant reaction to the John Lewis figures: