- US Federal Reserve expected to call time on QE
- UK mortgage approvals fall to 14-month low
- Workless households down to lowest level since records began
As investors waited for the US Federal Reserve to end its monthly bond buying programme, the mood remained cautious. A small decline on Wall Street as Europe closed took some of the earlier shine off, and disappointing news from Total and Sanofi soured the mood a little. The final scores showed:
The US central banker who popularised the term irrational exhuberence is forecasting the end of QE will cause market turmoil. According to Bloomberg:
Former Federal Reserve Chairman Alan Greenspan said he doesnt think the Fed can unwind years of extraordinary stimulus without causing turmoil in financial markets.
I dont think its possible, Greenspan said during an event today at the Council on Foreign Relations in New York, responding to a question about the likely market impact of the Feds exit.
man whose decision to keep rates too low for too long a decade wreaked mayhem says QE has not worked." http://t.co/UQOkq287qk@WSJmarkets
Ahead of the US Federal Reserve meeting, Capital Economics says that QE will probably be ended but the central banks forward guidance is unlikely to be altered just yet. Meanwhile forthcoming figures are expected to emphasise the disparity between the US and European economies. Capital Economics said:
While the recent market volatility should not have prevented the Fed from announcing an end to its asset purchases at the conclusion of the two-day Federal Open Market Committee meeting, it does mean the Fed is unlikely to alter its forward guidance until Decembers meeting. Most officials agree that they need to alter the phrase that rates will not be raised from near-zero until a considerable time after the asset purchases end, but they are struggling to agree on an alternative form of words. Meanwhile, the Fed may have acknowledged the recent softening in the inflation outlook. This means it will have become a little less likely that the first rate hike will occur before June.
The focus of the markets could soon return to the latest economic data and the large gap that has opened up between the performances of the US and the euro-zone. Figures to be released in the coming days should underline this divergence. Our calculations suggest that US GDP growth slowed only slightly in the third quarter to a still-robust 3.3% annualised, from 4.6% in the second quarter. The largest euro-zone countries will not release their GDP data until mid-November. However, figures released on Wednesday showed that Belgian GDP grew by just 0.2% quarter on quarter in the third quarter (around 0.8% annualised), barely any better than the 0.1% recorded in the second... Spanish GDP [is expected to be] still growing relatively quickly in the third quarter by euro-zone standards, but failing to pick up from the second. And timelier PMI data suggest the gap between the US and the euro-zone has only narrowed a little at the start of the fourth quarter.
Back to Tesco, and its starting to feel like kicking someone when theyre down.
After news of the investigation by the Serious Fraud Office, Moodys is back to put the boot in. The ratings agency has just issued a report suggesting rival Morrisons is better placed than Tesco to narrow the price gap with discounters such as Aldi and Lidl.
We believe that Morrisons has a slightly better risk profile than Tesco, supported by its lower leverage, lower exposure to very large stores and decisive strategy of narrowing the price gap with the discounters such as Aldi and Lidl.
My colleague Angela Monaghan has put together six key charts covering the five year period of the US Federal Reserves $4.5tn quantitative easing programme, expected to be brought to a halt this evening.
Showing the growth of the Feds balance sheet, the effect on equities, the economic recovery, unemployment, bonds and inflation, the report can be found here:
US markets are fairly static, ahead of todays Fed announcement. The Dow Jones is flat at 17,005 points and the S&P equally becalmed at 1,986 points.
The major European markets are all up.
Here is our latest Tesco story, with full background on the supermarkets accounting practices that led it to overstate its profits by £263m.
Criminal investigation launched into Tescos accounting
Tesco has confirmed that the Serious Fraud Office has launched a criminal investigation into its reporting practices.
What is the link between Tesco, the supermarket now facing a criminal investigation over an accounting scandal....
It is clear that our investment in the British company Tesco has performed particularly poorly in the course of the year .
Nobody should expect great drama when the Federal Reserve reveals its hand on financial stimulus later today.
No post-meeting press conference is scheduled. The Fed will simply publish an announcement at 2pm local time (18.00 GMT).
The market is already prepared for a dovish shift in this statement.
Total has reported a fall in profits, as it becomes the latest oil major to be hit by the falling price of crude.
Frances second-largest oil company is on a cost-cutting mission under new chief executive Patrick Pouyanné, who replaced Christophe de Margerie, who died in a plane crash in Moscow earlier this month.
Much of the credit for that [cost cutting] goes to the incoming CEO, who has successfully lowered Total breakeven point in the [downstream] division via his cost reduction initiatives.
Sky News has published the details of their story on the criminal investigation into Tesco. It reports that the Serious Fraud Office could confirm as early as this week that it is opening an inquiry.
The SFO is understood to have notified Tesco of its intention to formally investigate the issue in recent days, and is expected to trigger a stock exchange announcement by the supermarket giant.
The number of people filing for bankruptcy has fallen by 19%, according to the latest official statistics.
Companies are also less likely to go into administration.
Sky News is reporting that the Serious Fraud Office will open a criminal investigation into Tescos profits overstatement.
Not enough women study economics, which could affect how the country is run, according to academics at Southampton university.
Women make up just 27% of economics students, despite being 57% of the undergraduate population in UK universities, according to the researchers.
This under-representation of women in economics degrees could have major implications in policy-making. Economists have an influential role in think tanks, ministries, central banks and international organisations, like the IMF and the World Bank.
Girls are less likely to have A-levels in maths than boys, and this could represent an impediment to applying for an economics degree. However, even among those who have studied maths, females are still less likely to apply for an economics degree than males, suggesting that differences in the choice of A-level subjects cannot explain the whole gap.
Economists have been raking over what the latest Bank of England lending data tells us about the state of the UK economy.
First, business lending
Nevertheless, the underlying trend in net bank lending to businesses is looking better, with an overall increase of £1.33 bn in the third quarter compared to falls of £3.84 bn in the second quarter... Overall, it does appear that underlying credit conditions for businesses are improving which is important for the economys long-term health.
Taking a step back from the regulatory environment, the macroeconomic backdrop is still supportive of a gradual recovery in lending. The economy is growing at a robust pace, and the employment rate continues to rise, which would usually be expected to boost mortgage activity. Furthermore, the threat of an imminent rise in interest rates is receding.
In another sign that the housing market is cooling, UK lenders approved fewer mortgages in September.
The Bank of England said that mortgage approvals for house buying fell to 61,267 in September, down from 64,054 in August - their lowest level since July 2013 and a bigger fall than forecast.
Turmoil in the boardroom at French pharmaceutical giant Sanofi.
The company, Frances second largest, has sacked its chief executive Chris Viehbacher, who had clashed with unions over plans to lay off hundreds of staff.
This creates more uncertainty just after the group published results and outlook figures, which were not reassuring.
The ONS data shows a familiar regional divide in worklessness. The north east of England has the highest proportion of workless households (21.2%), while the south east has the lowest (12.3%).
n 2014, there were 305,000 households in which no adult has ever worked, up 1,000 from a year earlier. The percentage of households, where no one aged 16-64 has ever worked was unchanged at 1.5%.
A helpful graphic from the ONS, showing the employment status of UK households.
In 1996, the earliest point at which a consistent data is available, the percentage of workless households stood at 20.9%. Ten years later in 2006, two years before the economic downturn hit the UK, it had fallen to 17.3%. During the recent economic downturn it rose to a high of 19.2% in 2010. In 2014 it has fallen to 15.9%, the lowest since 1996. Excluding student households this trend remains the same; the workless rate fell from 20.6% in 1996 to 17.1% in 2006 and rose to 18.8% in 2010 before it began falling again, where it is now at 15.5%.
The percentage of households where no adults work has fallen to the lowest level since records began, according to the Office for National Statistics.
The ONS reported that 1.5m children are living in workless households, a fall of 132,000 on last year.
For everyone who enjoys random facts
The Russian rouble has fallen to new all-time lows against the euro and the dollar, as tensions simmer in eastern Ukraine.
Germanys largest lender Deutsche Bank has chalked up a surprise loss, after legal costs reduced its earnings.
The bank lost 92m ($117 million) over June to September, as heavy charges for expected fines and settlements cut into its revenues. The bank faces multiple investigations, from its alleged role in manipulating Libor, misselling mortgage-backed securities in the US and flouting US sanctions against Iran.
Litigation issues have been a major distraction for Anshu Jain and Jürgen Fitschen, the co-chief executives, as they have tried to defend the banks position among global investment banks.
Unseasonably warm weather is making life uncomfortable for the UKs clothing retailers.
Next issued a profits warning this morning, after balmy weather meant it failed to sell enough winter coats and jumpers in September and October.
Whilst a cool August meant that the season started well, this was more than offset by much weaker sales in September and October.
If Next have been mildly discomfited by the amazingly mild October weather, we suspect that the likes of M&S and Debenhams have had bigger problem.
The Bank of England will publish a raft of statistics at 9.30, including the latest data on lending.
Michael Hewson of CMC Markets expects the latest data to provide further data of declining home lending.
In the UK weve also seen evidence of a slowdown in prices, and in lending as well, and this mornings latest credit numbers are likely to reinforce that.
Mortgage approvals in September are expected to have slipped back to 62k from 64.2k, while consumer credit and net lending is also expected to have weakened.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and the business world.
All eyes are on the US Federal Reserve, widely expected to announce the end of its financial stimulus programme later today.
The overall tone of the communique should feel dovish as the Fed counters the implied tightening in monetary conditions resulting from the strong dollar and leans against the potential fallout from the current global growth slowdown and disinflationary impulse.
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