Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Economy

Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Equities

The FT looks ahead to the week’s main events


Posted on November 20, 2016

Hammond delivers first Autumn Statement

Philip Hammond will present his first Autumn Statement on Wednesday in which he has promised to “reset” the government’s fiscal policy, which covers public spending, taxation and borrowing.

The chancellor wants to give himself more “headroom”, he has told colleagues, to deal with any slowdown from Britain’s decision to leave the EU, while there is mounting pressure on the Treasury to help what Whitehall officials are calling the “Jams” (just about managing families).

Inheriting a strong economy, but with weaknesses in tax revenues, Mr Hammond has indicated this is not the time for the government to lose its budgetary discipline. There will be no “splurge” on public spending, he said last month. This caution suggests a statement that is not as revolutionary as first appeared likely when Theresa May became prime minister.

The forecasts from the Office for Budget Responsibility will be weaker than in March in light of economists’ greater pessimism after the Brexit vote, with growth lower both in 2017 and in the medium term, requiring the government to borrow more than planned.

The deficit will not be eliminated by 2019-20 and Mr Hammond will set himself easier budgetary rules to hit. While there will be some new announcements of infrastructure projects in the low single billions of pounds, the overall fiscal stimulus will be small.

Crucially for the chancellor, he is expected to give himself the leeway to raise spending or lower taxes and hence borrow significantly more if the economy performs worse than expected on relatively upbeat projections.

But by the end of the official forecasts, the government will implicitly accept Brexit has a price, even with lower net EU contributions once Britain leaves and this will be counted in the tens of billions of pounds every year.

EU summit in Brussels

Ukrainian leader Petro Poroshenko is in Brussels for his first meeting with EU leaders on Thursday since the election of Donald Trump upended the future of US foreign policy in the region.

The US president-elect has triggered anxiety in Europe, with concern and confusion over how Washington’s policy towards Russia will change.

Mr Trump has given often contradictory answers on issues such as the future of Crimea, the Ukrainian region annexed by Russia in 2014.

Away from security, the future of the association agreement between the EU and Ukraine is still in doubt after Dutch citizens voted against the treaty in April. Diplomats from The Hague and Brussels are still working on a compromise, but with growing calls in the Netherlands to abide by the non-binding referendum time is running out.

Finally, the issue of visa-free travel for Ukrainians will also be raised. EU institutions are in the process of waiving restrictions on Ukrainian travellers, but MEPs from France and Germany, in particular, are dragging their feet.

Economics

Fed offers rates signal

The Federal Reserve will release minutes from its latest policy meeting on Wednesday.

The central bank’s latest statement hinted that it is getting closer to lifting short-term interest rates for the second time since its December 2015 increase, and the record of the meeting will give signals as to how soon the committee wants to see a move.

The Federal Open Market Committee has been divided over how urgent a second move is, but a significant share of Fed policymakers are anxious not to leave it too long given the US is close to full employment and wage growth is starting to pick up.

Stanley Fischer, vice-chair of the Federal Reserve Board, suggested last week that the case for an increase was looking quite strong. The Fed’s next rate-setting meeting is on December 13-14, and markets believe the chances of action at that gathering are more than 80 per cent.

South Africa issues Trump response

South Africa’s central bank will become one of the first in emerging markets to respond to Donald Trump becoming US president-elect on Wednesday after meeting to decide whether the prospect of a stronger US dollar merits raising interest rates.

The Reserve Bank held rates at 7 per cent at its last meeting in September after deciding that inflation from a weaker rand “appears to have moderated somewhat” — signalling an end to a recent series of rate increases.

With South Africa a big commodity exporter, the rand is seen by investors as an easily traded proxy for risk in EMs — where there was a sell-off on Mr Trump’s election because of fears of more US protectionism on trade.

Despite the rand’s exposure, some analysts believe that the Reserve Bank may take the risks of Mr Trump in its stride.

“Even if the post-Trump hit to EMs continues, does the real economy care if the rand weakens and bonds sell off with a threat of some US inflation,” analysts at Renaissance Capital recently asked.

It is “tough to imagine” the central bank will have to raise rates in 2017, while higher US spending on its infrastructure, an apparent priority of Mr Trump, may help South African commodity exports, they added.

Companies

Black Friday fever looms


Black Friday fever in the US last year © AFP

British retailers who have imported the tradition of “Black Friday” — a day of steep discounts tied to a holiday that only Americans mark — will this week try to generate excitement and draw consumers into shops, without giving much away.

“Black Friday is great, so long as you know how to play the smoke and mirrors,” says the finance director of one big retailer, who spoke on condition that neither he nor his employer were identified.

Strict government guidelines prevent shops from touting “discounts” unless the same item has been on sale at a higher price immediately before the promotion began.

They also require disclosures to make clear to consumers how pricing has changed. But that does not prevent retailers from displaying products in far more prominent positions while they are on sale, or from limiting discounts to lines that rarely sell at full price.

Retail executives are watching consumer behaviour for signs of nervousness after Britain’s decision to leave the EU, which has caused a sharp depreciation in sterling and triggered uncertainty over the future relationship between the country and important trading partners.

However, analysts say it will be some months before the expiration of hedging arrangements forces stores to raise their prices.

Thomas Cook’s results

Investors in Thomas Cook will hope that holidaymakers’ fears of global terror attacks have dwindled, as the travel company reports full-year results on Wednesday.

Shares in the company have fallen by a third in the past year, as a spate of terrorist attacks deterred customers from jetting away.

It moved to adapt to the changing preferences of rattled tourists, shifting capacity from Turkey following the July coup, to destinations in Spain, the western Mediterranean and long-haul destinations such as the US, where bookings have risen.

Yet this was not enough to offset the loss of business in previously popular destinations, and summer bookings fell 4 per cent year-on-year.

Despite this, the 175-year-old company has remained bullish in its recent forecasts and, in a September update, it said it expects full-year earnings to be in line with expectations of about £300m.

Before a turbulent 2016, the package holiday company had been steering a turnround, returning to profit in 2015, the first time it recorded gains in five years following a near-collapse in 2011.

The group revealed last week that it is to open a further 14 hotels as part of its own-brand portfolio within the next two years.

ThyssenKrupp investors eye 2017 hint

When ThyssenKrupp publishes its full-year results on Thursday, investors are expected to take only a quick glance at the figures before scrutinising guidance for 2017, the restructuring of management, and any hints of progress in the talks with India’s Tata Steel about merging their European operations.

There is little room for a surprise this year as ThyssenKrupp already cut its outlook, in August, for operating income to a “minimum” of €1.4bn, from between €1.6bn and €1.9bn, following a steep fall in the price of steel that lasted longer than projected.

Analysts expect to see €1.44bn in operating income, reflecting a 12 per cent decline from the prior year, according to Bloomberg estimates.

Michael Shillaker, analyst at Credit Suisse, said the group’s guidance for 2017 is likely to reflect some caution as raw materials prices have been rising faster than steel prices. Analysts are projecting 2017 operating profit of €1.85bn.

He added the market will look closely at the industrial solutions business, which has been suffering a downturn amid what the group calls an “extremely challenging environment”.

United Utilities seeks focus shift

With its shares having been buffeted in recent months by regulatory uncertainty and the bond sell-off after the US election, United Utilities’ results on Wednesday will give the water supplier a chance to move the focus back to trading. Unfortunately, the headlines are unlikely to impress.

Analysts expect United Utilities to report a drop in net income on flat operating profit, as inflation pushes interest charges higher before it feeds through to revenue.

Deutsche Bank forecasts the group to post clean interim operating earnings of £312m, up 1 per cent year on year, and an 8 per cent fall in pre-exceptional profit before tax to £189m. Net debt — about half of which is index-linked — could rise about 6 per cent to £6.3bn.

Beyond the figures, investors will seek guidance on proposals by Ofwat, the water regulator, to adjust cost of debt allowances and encourage residential competition. The shares, however, are likely to remain a hostage to the bond market.