Sterling bounces back from 34-year low as MPs vote to take control of the Commons agenda.
Pound sinks below $1.20, reaching its lowest level since 1985 if ‘flash crash’ is excluded
M&S, Micro Focus and Direct Line are all headed for relegation from the FTSE 100
The pound has rebounded from its lowest level in 34 years ahead of the Brexit showdown in Parliament as it swung from losses to gains in a highly volatile day of trading.
The rising threat of a snap election dragged sterling below the symbolic $1.20 mark against the dollar, sliding as much as 1pc to a low of $1.1959. It was the currency's lowest level in more than three decades when the October 2016 “flash crash” is excluded.
It later clawed back its losses ahead of the crunch vote in Parliament following the defection of Conservative MP Philip Lee, rebounding briefly back to $1.21 as MPs debated a no-deal Brexit, before ending the day on $1.20.
Traders braced for wild swings in sterling as analysts warned that the currency is vulnerable to more pain. ING currency strategist Petr Krpata argued the threat of a no-deal Brexit and early election is still “underpriced by the market”, warning that there is a risk of sterling falling further.
Moves on options markets signalled yesterday investors are bracing for the most volatile two months for the currency since the EU referendum.
That's all for tonight
The pound is currently trading at $1.2086 - above yesterday's close of $1.2068 and above today's historic low of $1.1965.
It's been an eventful day for the currency, and more excitement is ahead. Tomorrow, MPs will seek to pass a law which would require the Prime Minister to ask the EU for a delay, pushing the Brexit date of October 31 back to January 31.
Johnson, in response, says he will seek to call an election, most likely to be held in the week of October 14. He has already announced plans to suspend Parliament for a month, beginning next week.
For now, this is where we sign off. Thanks for following along.
The pound has calmed down a bit
Things are looking up - sterling is currently above yesterday's closing level and looks to be pointing upwards.
But we're not seeing the big, volatile swings we had earlier on.
— Joshua Raymond (@Josh_RaymondUK) September 3, 2019
The Ayes have it
MPs have been successful in their bid to take control of the Parliamentary timetable, in an effort to block a no-deal Brexit, by 328-301.
Prime Minister Boris Johnson says he will table a motion for a general election.
Sterling is climbing back towards $1.21.
The vote is underway
The debate has wrapped up and MPs are voting. The pound is still fairly flat at $1.20. We'll soon see if it stays that way.
Conservative anti-Brexit MP Ken Clarke is speaking against a no-deal Brexit, arguing that if Parliament fails to support the motion for MPs to take control of the Parliamentary agenda it will leave a poor legacy.
"If this Parliament doesn't pass this motion I think it will be looked back upon with total derision," he said. "What sort of a Parliament was it, in the middle of this crisis, which said to this new government, this populist government, 'oh yes we quite agree with you, we should not be troubled with this. The executive, as we've just been told, has absolute powers.'"
The pound has remained at $1.20 after briefly breaking the $1.21 mark earlier this evening.
'Just get it over with'?
MPs are going to be debating for another 90 minutes or so, and the pound has fallen below $1.21 once again as Jacob Rees-Mogg wraps up his speech in opposition to efforts to block a no-deal Brexit.
Many people argue that it's uncertainty that is pushing confidence downwards, and the answer is simply to get it over and done with, without a deal - "rip off the Band-Aid", as they say on this side of the pond.
Our columnist Jeremy Warner believes that is a misguided view, and sterling's current difficulties are proof:
The main problem is that Britain’s political situation has come to seem almost completely toxic. A country once renowned for its stability and predictability is increasingly seen as precisely the reverse. Confidence is draining out of the economy accordingly.
Read his analysis, published this evening.
Sterling rises above $1.21 as MPs debate
Good evening. Olivia Rudgard here, taking over from the US for a couple of hours as we continue our watch on the pound.
Sterling has now risen above the $1.21 mark again, having hit historic lows earlier in the day, but there are likely to be more bumps in the road ahead this evening.
MPs are currently debating ahead of a vote due to take place at 9pm to set aside time in the Commons, which would pave the way for a bill designed to block a no-deal Brexit.
Jeremy Corbyn has urged MPs not to allow no-deal to go ahead, while Jacob Rees-Mogg, leader of the House of Commons, has insisted that the proposal is "constitutionally irregular".
Sterling closes in on $1.21
About a dozen or so Tory MP s stood to back Letwin when he called for the emergency debate, opposition MP s even applaud .. mood has to change a lot if govt has any chance of winning
— Laura Kuenssberg (@bbclaurak) September 3, 2019
Many political pundits are predicting that Boris Johnson will lose this evening as sterling settles ahead of a long, noisy evening for the currency.
The pound is closing in on the $1.21 mark against the dollar as the debate in Parliament begins. It is up 0.3pc versus the greenback, a solid recovery from this morning's grim lows.
Steen Jakobsen at Saxo Bank has encapsulated the fatigue many currency traders must be feeling ahead of another turbulent night for British politics. His note to clients this evening is called "Brexit – the Never Ending Story". He says:
"Nothing will change because the division on Brexit not only cuts the major parties in two, but cuts across age groups as well, across income brackets, across identities and even feelings, and across Britain’s electoral districts."
Corbyn or a no-deal Brexit? The City is warming to its bogeyman...
Fears of a no-deal Brexit in the City are so great that investment bankers are even starting to warm to the prospect of a Jeremy Corbyn government as we await tonight's crunch vote.
Our deputy business editor Tim Wallace sent over this report on whether the City is coming around to its bogeyman. Here are a few lines from this fascinating story:
Unlikely as it may seem, he is now seen as the lesser of two evils by analysts at Citibank and Deutsche Bank, respectively American and German titans of the financial system.
“Is Corbyn as bad as no-deal? Perhaps no longer,” said Christian Schulz at Citi.
It is not that the financiers favour the opposition leader’s plans for “higher taxes, tighter labour laws, spending increases and the nationalisation of network industries”, but that this may cause less harm than leaving the EU without a deal.
Sterling slump to get even worse?
If you thought a 9pc slump in four months was bad for sterling, ING's analysts believe it could get even worse.
They believe that the risk of a no-deal Brexit or early election is still "underpriced by the market", meaning that it could sink even further.
ING strategist Petr Krpata has looked at various measures of "sterling stress" before concluding that it could endure another tumble.
He warns that a snap election would be negative for the pound as investors would face the prospect of Boris Johnson running "on the ticket of a divisive stance versus the EU" or a Jeremy Corbyn government. Both are pretty grim.
Blimey! The pound literally reached it's high of the day when Boris Johnson lost his parliamentary majority pic.twitter.com/DlniiQkIiv
— Shehab Khan (@ShehabKhan) September 3, 2019
Sterling steadies ahead of rollercoaster evening
Good afternoon, I will be taking over the live blog for the next few hours as currency traders in the City await tonight's crucial vote with bated breath.
After crashing to a 34-year low this morning, the pound is looking more steady on foreign exchange markets. It has edged back into positive territory against the dollar, helped by its rival being knocked by US recession fears returning.
Sterling is up for now but it will be another long evening of twists and turns on currency markets. It appears British holidaymakers are mulling whether to stick or twist ahead of tonight's vote...
If another 10-20 Tory MPs could defect so I can exchange GBP at a good rate that'd be grand ta xx
— NinjaLikesCheez (@NinjaLikesCheez) September 3, 2019
Spent lunchtime sorting out my holiday money. Probably should have done it before Boris Johnson tanked the pound even further, but hey, I am looking forward to the holiday. ��
— Mae (@AtFruitBat) September 3, 2019
With Brexit battles (and, yes, the pound’s adventures) set to continue into the evening, I’m handing off the live blog to economics correspondent Tom Rees, who will steer you through the storm as we see what impact events in Westminster have on the markets. Thank you to everyone who has followed along so far! — Louis
Round-up: Restaurant Group mothballs US plans for Wagamama, Lego plans store expansion and Tesco sells mortgage business
Away from the fireworks in Westminster, here are some of the afternoon’s biggest corporate stories:
Restaurant Group poised to shelve Wagamama’s America dream amid £100m writedown: The Restaurant Group is poised to shelve plans for Wagamama’s US expansion as it grapples with a £100m writedown of its other restaurant chains at home.
Lego builds on its retail empire with 160 new stores: Toy giant Lego is betting on bricks and mortar despite a fall in profits as it capitalises on the woes of its rivals.
Tesco sells mortgage business to Lloyds Bank for £3.8bn: Tesco Bank will exit the mortgage market by selling its loan portfolio to Lloyds Bank for £3.8bn, after announcing its intention to offload the business earlier this year.
It looks like the pound will swerve a decades-long record low closing price...
...sterling is now back where it stood at the end of the day yesterday.
As a reminder, the Bank of England takes its measurement at 4pm, so as things stand the decade-long lows we saw earlier won’t enter those particular history books.
Here’s footage of Philip Lee’s defection, which occurred after Boris Johnson was speaking.
BREAKING: Utterly extraordinary! Phillip Lee has just crossed the floor in the House of Commons joining the Lib Dem’s.
Boris Johnson’s has now lost his majority. pic.twitter.com/oSAu2YMVrP
— Charlie Proctor (@MonarchyUK) September 3, 2019
Here is his full statement:
After a great deal of thought, I have reached the conclusion that it is no longer possible to serve my constituents’ and country’s best interests as a Conservative Member of Parliament. My letter to the Prime Minister: pic.twitter.com/0QreSbSdwR
— Dr Phillip Lee MP (@DrPhillipLeeMP) September 3, 2019
Pound sheds losses as government loses majority
Scenes in Parliament can best be described as shambolic, but what’s also interesting is what is happening outside: sterling has reversed its losses, and is now flat on the day.
Philip Lee defects to Lib Dems, ending government majority
In a fresh blow for the government, Tory minister Philip Lee has left the Conservatives and joined the Liberal Democrats — meaning Boris Johnson has a working majority of zero (in practice, it is slightly higher).
BREAKING - Philip Lee has joined the Lib Dems, sitting on the opposition benches now
— Jessica Elgot (@jessicaelgot) September 3, 2019
Tory MP Phillip Lee defects to the Lib Dem’s ending Boris Johnson’s majority.
— Sam Coates Sky (@SamCoatesSky) September 3, 2019
Sterling shakes off losses after poor US data
The pound is now down just 0.1pc against the dollar for the session, with the dollar weakening after ISM data showed the US manufacturing sector may have entered a contraction in August.
Spreadex’s Connor Campbell says:
At points striking a sub-$1.20 price last seen in 1985, cable now finds itself down just 0.1pc, aided by an apparent reduction in panic-levels and a notably bad ISM manufacturing reading from the US. Against the euro sterling saw a similar reversal, erasing its early losses to sit effectively unchanged at €1.0995.
Things are far from over, however, and with the Commons vote on a Brexit-delay set to take place at 10pm tonight, Wednesday could see another nasty bout of volatility.
Boris Johnson is currently giving his G7 Summit statement to the House of Commons. Understandably, there’s a fairly raucous atmosphere.
US manufacturing data ‘could leave the US facing self-inflicted recession’
Pantheon Macroeconomics’ Ian Shepherdson has labelled the ISM manufacturing data as “grim”, saying:
Yet again, the moral here is that the regional surveys, many of which were quite positive for August, don’t always capture the national story. This is a grim report, with the headline dipping below 50 for the first time since February 2016, when the crash in oil sector capex hammered manufacturing. This time, the story is China’s slowdown and the trade war, with the latter now the bigger problem, judging by the substantial and widening gap between the ISM new orders index - down to 47.2 from 50.8 - and China’s Caixin manufacturing PMI, which has risen by a couple of points from its January low.
In short, we can find no good news here. The survey is not yet consistent with a steep downturn in the broader economy — manufacturing already has been contracting for two quarters — but another couple of months of declines on this scale would leave the US facing an entirely unnecessary and self-inflicted recession.
US manufacturing sector joins downturn with shock contraction
US manufacturing sector PMI data has come in, and it’s shown a shock contraction, hitting its lowest level since January 2016.
The Institute for Supply Management’s figure for activity in American factories came in at 49.1 against an estimate of 51.3 (a score over 50 indicates growth). That’s quite a miss, and shows an bright spot in the US economy may be starting to dull.
That has hurt the dollar, which ironically is offering a much-needed boost to the pound.
Now US manufacturing PMI slips - the last domino to fall U.S ISM MANUFACTURING NEW ORDERS INDEX (AUG) ACTUAL: 47.2 VS 50.8 PREVIOUS; EST 50.5
U.S ISM MANUFACTURING PMI (AUG) ACTUAL: 49.1 VS 51.2 PREVIOUS; EST 51.2
— Neil Wilson (@marketsneil) September 3, 2019
ISM chair Tim Fiore said:
Respondents expressed slightly more concern about U.S.-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders. Respondents continued to note supply chain adjustments as a result of moving manufacturing from China. Overall, sentiment this month declined and reached its lowest level in 2019
����#US is in a manufacturing recession (just like the rest of the world? Manufacturing is very global!)
Supports our call for further #Fed easing, as FOMC members will likely be concerned about possible spill-over effects to the rest of the economy.$USD weaker, yields lower pic.twitter.com/vCKYip9OOM
— Danske Bank Research (@Danske_Research) September 3, 2019
Ferguson leads FTSE 100 risers after unveiling break-up plan
FTSE 100 plumbing company Ferguson is leading climbers on the blue-chip index, advancing 3.6pc currently, after announcing it would break up its business and review its London listing. My colleague Michael O’Dwyer writes:
Management wants US-focused Ferguson to concentrate solely on its operations across the Atlantic by splitting its UK business, still known as Wolseley, from the rest of the company and giving it a separate stock market listing.
Chief executive John Martin will step down later this year.
You can read his full report here: Ferguson heads for break-up as chief executive steps down
Trump: EU treats US unfairly, China talks are going well
Wall Street just opened, heading sharply down as anticipated. As a reminder, because of Labor Day yesterday, this is the first time US traders have been able to react to the tariffs that kicked in Sunday.
The Dow is down 1.08pc
The S&P 500 is down 0.63pc (its first fall in four session)
The Nasdaq is down 0.5pc
President Donald Trump is on Twitter, defending the state of negotiations between the US and China.
....And then, think what happens to China when I win. Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!
— Donald J. Trump (@realDonaldTrump) September 3, 2019
The President has also repeated his claims that the EU treats the US “unfairly” over trade, apparently rejecting suggestions (I’m not sure whose) that America seek an alliance with with Europe against China.
For all of the “geniuses” out there, many who have been in other administrations and “taken to the cleaners” by China, that want me to get together with the EU and others to go after China Trade practices remember, the EU & all treat us VERY unfairly on Trade also. Will change!
— Donald J. Trump (@realDonaldTrump) September 3, 2019
This is how tariffs currently stand between the world’s two biggest economies:
Deutsche Bank: Early election may be ‘least worst outcome’
Analysts at Deutsche Bank believe the government is likely to suffer a defeat tonight, meaning MPs trying to avert a no-deal Brexit will gain control of the parliamentary order paper and gain the ability to request an extension to Article 50.
The draft legislation that has been put forward will mean the an extension until at least January of next year, or to accept an extension proposed by the EU27 — pending approval by the House of Commons.
The biggest scoop today has been from the Telegraph’s Europe Editor Peter Foster, who reports Boris Johnson aide Dominic Cummings has labelled the negotiations with the EU a “sham”.
EXC: Inside Brexit War Cabinet:
- Dominic Cummings described EU negotiation as "a sham" in internal strategy meetings, per two highly placed sources.
- AG Cox warned Johnson it was "complete fantasy" to think EU would bin backstop 1/threadhttps://t.co/jU8TkvAtow
— Peter Foster (@pmdfoster) September 2, 2019
Here’s his full article: No-deal Brexit looms as leak reveals Dominic Cummings considers EU negotiations a ‘sham’
Number 10 has pushed back strong against Peter’s reporting, but is definitely suffering from a credibility problem.
Downing Street has repeatedly misled journalists (for example, over NHS funding and by claiming the Yellowhammer dossier was old), so its denials now aren't believed. They should have seen that coming. https://t.co/qCf4okCJtq
— Henry Mance (@henrymance) September 3, 2019
Deutsche Bank analysts say:
Should it materialise, we see a pre-31 October election as the least worst of all sce- narios this week, reducing the prospect of a no deal Brexit. This is because, of the three possible outcomes, two are more likely than not to lead to either an orderly Brexit or no Brexit at all.
They see three possible outcomes if an election is called:
A remain coalition government.
A narrow Conservative majority/Brexit coalition.
A large Conservative majority.
Follow the latest political updates here:
Through the wormhole: The pound’s all-time low against the dollar
It’s February. The year is 1985. Margaret Thatcher and Ronald Reagan are in power, Back to the Future is about to come out, Elaine Page and Barbara Dickson are top of the charts.
The pound is at a historic lows against a surging dollar (see 8:17am update), after finding itself suddenly in the crossfire after a punishing day trading for the deutschemark. It hit its lowest ever level as record by the Bank of England on the 25th and 26th of February.
Here’s how the Daily Telegraph front page looked on the 26th:
Here’s how the pound’s fall was covered on the front page...
...and in the business section:
Historic data tends to be less precise, as technology was less sophisticated, but the Bank of England has recorded a rough price of the pound against the dollar each day for decades using the following method:
The data represent indicative middle market (mean of spot buying and selling) rates as observed by the Bank’s Foreign Exchange Desk in the London interbank market around 4pm.
Here’s how the Bank’s figures have looked over time:
HS2 opening faces five-year delay and budget overruns
In the midst of the Brexit turmoil, transport secretary Grant Shapps has released a statement to Parliament that says the cost of phase one of HS2, the high-speed railway between London and Birmingham, will be delayed by up to five years and cost up to £26bn most than anticipated,
The project’s chairman, Allan Cook, has warned that the London to Birmingham branch’s cost has risen from £62bn to between £81bn and £88bn.
In any normal political environment this would be a humongous political story.....
almost feels like someone in the DFT has decided it’s a good day to bury bad news
— Jim Pickard (@PickardJE) September 3, 2019
Mr Shapps said:
I want the House to have the full picture. There is no future in obscuring the true costs of a large infrastructure project - as well as the potential benefit
Round-up: Construction sector faces recession, foreign takeover value surges, GKN to cut 1,000 aerospace jobs
Here are some of the day’s top stories:
Construction industry on brink of recession as new orders dry up: The construction industry is on the brink of recession as building work on homes, business sites and civil engineering projects dried up in August.
Value of foreign takeovers surges to £18.4bn in second quarter: Big-ticket takeovers of UK companies by foreign rivals doubled the value of inward mergers and acquisitions in the three months to June, official figures reveal.
GKN to cut 1,000 aerospace jobs as Melrose steps up turnaround: GKN’s aerospace division is to axe 1,000 jobs, amounting to around 5.5pc of its total workforce, in what the chief executive called a “fundamental transformation” to make it a "coherent" business.
Pound jumps back up as rebel alliance lays out plan to block no-deal
The pound is back in game now, off around 0.35pc currently — just above that significant $1.20 marker. The jump came immediately after anti-no-deal MPs submitted a motion for an emergency debate on Brexit later:
An application for an #emergencydebate on the European Union (Withdrawal) has been submitted. The Speaker will consider it later today. If successful, the debate takes precedence over today's scheduled business under Standing Order 24.https://t.co/mmWOWfREgIpic.twitter.com/vnZFlbNRBA
— UK House of Commons (@HouseofCommons) September 3, 2019
Naturally, that has pushed down the FTSE 100 — which benefits from a weak pound — with the blue-chip index now off about 0.35pc as well.
Everything you need to know about the pound’s fall
The forces pulling at the pound are multi-faceted: though Brexit is indisputably the biggest factor, a strengthening dollar and shaky global economic picture are also contributing to the drop.
Deputy economics editor Tim Wallace has taken a look at the latest drop. He writes:
The latest drop is significant - the pound has fallen firmly out of its recent trading range, and is very much below recent historical levels.
You can read his full report and assessment of the implications here: Why has the pound fallen through $1.20 and where will it go next?
Brexit chaos’s other victim: bond yields
As well as weighing hard on the pound, today’s Brexit wobbles have also hit bond yields, as nervous investors flock towards UK government gilts.
At around the same time sterling touched the bottom, yield on 10-year government bonds hit 0.384pc — their lowest ever value. Here’s how the trend has looked over the past year:
It’s part of a wider picture of chaos across the bond market. Here’s a piece from July by my colleague Tom Rees that explains what’s going on:
Foreign takeovers drive M&A value growth
A softer pound might have one immediate effect: making UK companies a bargain for foreign buyers. My colleague Vinjeru Mkandawire reports:
Big ticket purchases of UK firms by foreign companies have doubled the value of inward mergers and acquisitions during the second quarter of this year, according to data from the Office for National Statistics.
The amount of money spent on foreign takeovers of UK companies hit £18.4bn, up from £7.6bn in the first quarter of 2019. The latest estimates are up from £7.1bn during the same period a year ago.
This is despite a slight drop in the number of inward deals to 126 completed transactions, down from 129 transactions in the previous quarter.
Here’s what those ONS figures look like:
No-deal risk ‘remains the be all and end all for sterling’
Sterling is still balancing on that shelf just under $1.20 — in the absence of big political news, it might stay there until Wall Street kicks in.
Ranko Berich of Monex Europe says:
The fragile support that Boris’s handshake tour of Berlin and Paris created for sterling last week has been obliterated over the last couple of days, as tonight’s crucial vote looms and the US dollar remains well bid among continued concerns over global growth.
There’s no doubt that elevated no-deal risk is the overall driver of the current bout of sterling weakness, but the two-year lows on GBPUSD should be seen in the context of the broad US dollar strength that we are currently seeing elsewhere. The euro has also weakened against the dollar, leaving sterling weakened but not quite at a low for the year on a trade-weighted basis.
No-deal risk remains the be all and end all for sterling. Given that sterling’s fall over the past six months has been driven by an increase in the no-deal risk, from an outside possibility to approximately 50pc chance today, we estimate that the pound is likely to weaken by around a further 7pc if no deal actually happens – taking GBPUSD to around 1.12 and EURGBP to just below parity.
Bring on the Wall (Street)!
In case you were somehow feeling upbeat about markets today, a reminder that US stock indices are preparing to reopen after the long Labor Day weekend.
It looks like they may be preparing to fall out of bed slightly on current numbers, with futures trading suggesting some decently chunky falls. There are, of course, still several hours to go until they open.
If you thought August was bad, history suggests that September is likely to be even worse for Wall Street.
Not only is September the month with the largest average decline, but it is the only month to fall more frequently than it rises.$DJIA$DIA$SPY$SPX$ES_F$QQQ$NQ_F
— Jesse Cohen (@JesseCohenInv) September 3, 2019
Sterling trending downwards again...
The pound has been going steady for an hour of so, but is on a downwards tilt again now. Here’s former Bank of England monetary policy committee member Andrew Sentance:
I have long predicted £ would fall to $1.20 or below and €1.10 or below as the Brexit crisis unfolded this autumn. Well we have now arrived and the big question is how much lower sterling will sink!
— Andrew Sentance (@asentance) September 3, 2019
Economist Ruper Seggins points out that a price under $1.20 at the London close would be the worst in 34 years (nb: currency markets never really close, but the price when equity trades stop is taken as a good yardstick).
Plenty of day left to go, but last time sterling closed below $1.20 according to the Bank of England's data was on 9th April 1985. pic.twitter.com/3mbuc59XTy
— Rupert Seggins (@Rupert_Seggins) September 3, 2019
M&S and Micro Focus set to exit FTSE 100, with Direct Line also in danger
The pound’s tantrum seems to have settled for now, and it’s now sulking at just under $1.20 — about 0.7pc down on the day.
Here’s a look at the day’s other big markets story: Marks & Spencer is in needs-a-miracle territory if it is to avoid relegation from the FTSE 100 during tomorrow’s review, which is based on today’s closing price. I’ve taken a look at the current situation:
The retailer, which has suffered a steady share price erosion as it tackles a mixture of high street pressure and internal issues, faces almost-certain relegation on Wednesday.
The London Stock Exchanged confirmed at the close of trading on Monday that M&S was facing a fall into the mid-cap index.
The drop would remove the high street stalwart from the index after 35 years. It would deal a fresh blow to chairman Archie Norman, a City veteran who has been trying to turn the retailer’s fortunes around.
Here’s my full report: M&S joins Micro Focus in heading for the FTSE 100 trapdoor
And here’s how the the crossover zone between the FTSE 100 and FTSE 250 stood at the end of trading on Friday.
To avoid volatility, shares must have made significant inroads into another index to be shifted. For a movement to occur, either a non-FTSE 100 company must surpass the market cap of the 90th-placed blue-chip or a current FTSE 100 company must drop below the 111th-ranked company by the deadline.
M&S and IT firm Micro Focus appear to be doomed — even with strong results today, they would likely have their places bumped out by Russian metal giant Polymetal and Hikma Pharmaceuticals.
The biggest question mark is actually over who the third faller might be: with engineering firm Meggitt solidly in promotion territory, British gas owner Centrica and insurer Direct Line are scrambling to avoid having their spots taken. Both are down slightly today — with Direct Line currently in the firing line.
Reaction: ‘Construction sector’s downturn is undeniably intensifying’
Reacting to those construction figures, Pantheon Macroeconomics’ Samuel Tombs says:
The construction sector’s downturn is undeniably intensifying. The overall PMI remains consistent with construction output falling by nearly 2.0pc in Q3, building on Q2’s 1.3pc decline. In addition, the new work index fell to just 40.0—its lowest reading since March 2009 — from 44.6 in July. Builders are the least upbeat about the year-ahead outlook since December 2008, though they aren’t cutting jobs yet.
The slump in corporate confidence has taken its toll, with a further fall in the commercial construction index to 42.1, from 43.6, responsible for the decline in the overall PMI. The housing activity index increased to 48.0, from 47.7, while the civil engineering index rose to 44.3, from 43.7
The construction sector, however, could revive quickly if the risk of a no-deal Brexit subsided; commercial clients are putting off projects due to Brexit tail risk, not insufficient funds. In addition, new work in the housing sector should start to pick up again, given that new mortgage rates have fallen over the last six months, fostering demand. This year’s near-6pc increase in public sector gross investment also should continue to underpin the sector.
Pantheon’s chart shows the PMI data points to a worsening construction activity downturn in the third quarter:
Lloyds Bank’s Max Jones says:
After a rise last month, another dip in the reading will do little to clear the uncertainty that prevails. News surrounding potential delays to large infrastructure projects will hit confidence and, should there be any high-profile cancellations, investors will be watching closely for any impact on order books of contractors who have already logged the income.
Construction sector shrinks: New orders fall at worst pace in over ten years
With activity back near its June low, there’s a headline figure for the construction sector: new orders were at their lowest since March 2009. The damage from that could spill forward into the coming months.
Here’s more from the IHS Markit/CIPS report on construction sector PMI data for August. The groups say:
August data pointed to a loss of momentum in the UK construction sector, led by the sharpest reduction in new work since March 2009. Business activity meanwhile declined for the fourth consecutive month and at a slightly steeper rate than in July.
Commercial work was again the worst performing area of activity in August, with survey respondents citing delayed decision-making among clients in response to domestic political uncertainty. At the same time, construction firms indicated that their business expectations for the year ahead weakened sharply since July and were the least upbeat since December 2008.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, adds:
As Brexit creeps closer and confusion still reigns, this will undoubtedly heap more pressure on the UK Government to create much-needed clarity in the market. The commercial sector particularly has been devastated by reluctant clients fearful of taking a wrong turn in a confusing landscape and delaying project starts, resulting in the fastest drop in new orders since March 2009.
Oonly Citigroup, the most pessimistic of 15 groups surveyed by Bloomberg ahead of the figures, predicted a score of 45 — which was also the lowest estimate.
UK construction activity falls again, signalling sector recession
Ouch! Another bit of brutal economic news. Purchasing managers’ index data for the UK construction sector shows activity declined further in August.
IHS Markit gave the building industry a score of 45 for August (where above 50 incidates growth). That’s down from 45.3 in July, and below analysts’ expectations of 45.3.
Coupled with yesterday’s reported contraction in manufacturing, that’s a seriously bad sign for the UK economy, given an overall contraction in the third quarter (the three months to the end of September) would mean Britain has entered a technical recession.
Recession signaled for UK building industry as UK IHS Markit/CIPS #construction#PMI falls to 45.0 in August from 45.3 in July, second lowest since 2009 (only June 2019 was worse) to indicate output will likely fall again Q3 https://t.co/OuOODTSKBCpic.twitter.com/j35SJ3r0X9
— Chris Williamson (@WilliamsonChris) September 3, 2019
What’s happening with sterling: Three key reads
Investment manager Brooks MacDonald’s Edward Park adds:
Regardless of the outcome of this week’s expected political disorder, it is likely that sterling will remain the market’s punching bag for Brexit fears in the short term. The medium and long term path of UK risk assets will also be shaped by the market’s perception of the stability and competence of government economic policy and this means we are unlikely to see a major step down in sterling volatility over the next three parliamentary days.
Gold price shoots up as traders swerve risk
Fears over Brexit look to have driven many traders back towards buying gold — seen as a safe haven during times of economic stress.
Gold is up slightly on the day now, having slumped slightly during overnight trading. It is stuck near six-year highs, but is a bit under the peak it reached during last month’s trade war blow-up.
Sterling pulls back up slightly, stuck in ‘no-win situation’
The pound has pulled back some of its drop in the last few minutes, now down about 0.7pc (the lowest I saw earlier was 0.94pc off). That puts sterling at $1.1984.
It’s possible traders are firming up their positions and bracing for more news, because I can’t see a clear political catalyst.
Spreadex’s Connor Campbell says:
Sterling likely feels it is in a no-win situation, a sentiment expressed in another rough open for the currency this Tuesday.
If the week’s Commons Brexit delay vote fails, then the country remains on track to crash out of the EU without a deal. If it succeeds, then it appears it will trigger a general election on October 14th, the prospective uncertainty of which is enough to turn the pound’s stomach.
Then you get to the potential outcomes of such a snap vote: a Corbyn government, which investors wouldn’t be a fan of; a strengthened hand for the no-deal-chasing Johnson; or another ambiguous muddle that leaves no party with a workable majority.
CMC Markets Michael Hewson adds:
When looked at through a prism of a no deal Brexit, or a possible Corbyn led administration, investors are being forced to take a view on what particular type of poison is going to be the least harmful.
It is also a calculation that MPs will also have to take when they try and push this new EU bill through parliament over the next few days.
A brief throwback...
According to the worry-looking chart on my Bloomberg Terminal, the last time the pound hit a level this low was early April 1985, when ‘Easy Lover’, by Philip Bailey, of Earth, Wind & Fire, and Phil Collins of Genesis was number 1. Here’s a reminder of how that sounded...
The song’s lyrics include:
You’d better forget it
You’ll never get it
She will play around and leave you
Leave you and deceive you
Better forget it
Oh you’ll regret it
No you’ll never change her, so leave it, leave it
Get out quick ’cause seeing is believing
It’s the only way
You’ll ever know
I am not going to offer a Brexit-themed riff on that.
Meanwhile, in Westminster...
Just because it’s a while until the crucial vote on no-deal doesn’t mean MPs have got their heads down. Today is likely to be a desperate scramble, as the Government and the so-called Rebel Alliance try to grab every vote they can.
Over on the Telegraph politics live blog, my colleague Harry Yorke writes:
Boris Johnson will hold a snap general election if Parliament votes to seize control of Brexit from him on Tuesday, as the first Tory rebel announced they will stand down as an MP.
The Prime Minister announced yesterday that there would be a general election on Monday, October 14 if the vote goes against the Government tonight.
And on Tuesday morning, Remainer Justine Greening told the BBC's Today programme that she would quit the Tory party at the next general election to run as an independent MP.
FTSE holds flat as European markets enter the red
The FTSE is flat as a pancake this morning, with sterling’s drop this morning apparently shoring up the blue-chip index against a wider pull-back on European equities that has sent continental bourses into the red. Here’s how things stand:
The pound hit a new low of $1.1959 at about half past eight — as a reminder, that’s the lowest since 1985 if you ignore the micro-second ‘flash crash’ lows of 2016.
Here’s a reminder of what happened back :
What caused the sterling ‘flash crash’ overnight? (from October 2016)
Citi trader exacerbated sterling flash crash (from December 2016)
Drop against euro is more muted
The pound is also down against the euro today, but the losses are slightly more muted, at around 0.5pc off.
The euro has been having a mixed week as economic pressures weigh on Germany, but sterling is still offering a bright spot to the common currency.
We’re still some way off cracking out the record books for pound vs euro again, as a surge in the past three weeks means the euro is decently above recent lows.
Pound in ‘uncharted waters’
Sterling found a new intraday low, of $1.1967, about 10 minutes ago. The question now is how low could it go: Parliament’s clash is set for the evening, meaning there is plenty of time for a further drop.
Markets.com’s Neil Wilson says:
Ignoring the flash crash, we are very much in uncharted waters here. We could feasibly see 1.15 or even 1.10 in the coming weeks if traders decide to move against the pound. Elections are never easy to call — the risk of Corbyn to UK assets is probably greater than a no-deal Brexit, after all. The outlook for sterling may well worsen if there is an election and will certainly deteriorate if it’s a no-deal.
Flashback: When the pound was worth barely a dollar
With the pound hitting an effective 34-year low, here’s for a (very) quick history lesson about its lowest-ever level.
Sterling hit its all-time low against the dollar at the start of 1985, worth just $1.05, following a surge in the dollar’s value amid the impact of Ronald Reagan’s economic policies.
Mr Reagan’s tax cuts and spending rises pushed up interest rates, which led to big inflows of investment to the US — pushing the dollar higher.
That rise created problem for the international markets, leading to the so-called “Plaza Accord” in 1985, when central bankers agreed on policies to help overseas currencies appreciate.
Sterling: The key numbers
Based on intraday figures from Bloomberg, here are the key numbers to know on the pound’s drop.
Today’s low: $1.1971 (7:40am)
[‘Flash crash’ low: $1.1752 (7th October 2016)]
All-time low: $1.05520 (29th March 1985 — a huge dollar climb reaches its zenith)
With London markets about to open, sterling’s weakness may once again light a fire under exporters — the FTSE 100 soared compared to rivals yesterday.
Breaking: Pound hits 34-year non-‘flash crash’ low
Sterling just tanked further, temporarily off 0.85pc on the day. According to Bloomberg’s intraday later, that cut under its January 2017 low, falling as far as $1.1971.
If the ‘flash crash’ of October 2016 — when apparent trading errors led to wild spikes in the pound’s value — is ignored, that is the weakest the pound has been since 1985.
Pound takes a thumping ahead of parliament’s return
Good morning. The pound is at its lowest in two-and-a-half years against the US dollar, fetching just over $1.20.
Traders have taken fright at the growing likelihood of a no-deal Brexit and the possibility of a general election in October.
Sit tight, as we’ll have plenty more on that today with politicians returning to Westminster for a showdown between Prime Minister Boris Johnson and those opposed to no-deal.
5 things to start your day
1) Factories suffer biggest contraction in seven years as sector 'nears recession'. Factories struggled to pull out of a deepening downturn triggered by a global trade war and no-deal Brexit worries. Demand is sinking both in the UK and overseas.
2) Investors question appointing Micro Focus boss as new De La Rue chairman. UK software company Micro Focus had more than £1bn wiped off its value last week after it warned it would miss revenue targets but that has not stopped its chairman taking on a similar role at De La Rue, the struggling banknote maker.
3) The three charts that show Trump is losing the trade war with China. If trade wars are “good and easy to win” then why is Donald Trump starting to lose his battle with China?
4) Eurotunnel is 'ready for Brexit no matter the outcome', says its operator Getlink. But whether Brexit goes smoothly at the Channel Tunnel will depend on how strictly the French government chooses to implement EU border controls according to the Freight Transport Association.
5) August retail sales flatline in 'incredibly disappointing month'. Consumers tightened their belts in the face of continuing political and economic uncertainty. The new figures were released today.
What happened overnight
Asian stocks were mixed overnight as investors waited to see if Chinese and American officials can schedule a planned meeting this month to continue trade talks.
Sterling slumped to its lowest in more than two-and-a-half years with the UK facing a showdown in Parliament over Brexit.
Cash markets for both US stocks and bonds were closed yesterday for the Labor Day holiday. Treasury yields ticked higher and the dollar strengthened.
Elsewhere, crude oil slipped below $55 a barrel amid concerns a hurricane battering the US southeast coast and an economic slowdown from the trade war may dent demand.
Coming up today
We have a smattering of corporate updates today. Investors in the Restaurant Group will get a taste of how its takeover of Wagamama is panning out when the company reveals its interim results.
Full-year results: Craneware
Interims: Gamma Communications, Highland Gold, Impact Healthcare, India Capital Growth Fund, IQE, Restaurant Group, STV
Trading statement: Severfield, DS Smith
Economics: Construction PMI (UK), BRC sales (UK), ISM manufacture and prices paid (US)