Christine Lagarde and her fellow European Central Bank policymakers are holding crisis talks amid turmoil in eurozone bond markets.
The ECB called an unscheduled meeting of its policy making committee today in response to dramatic recent moves in bond prices.
Officials are discussing a broader crisis strategy to protect the eurozone, as well as whether to use reinvestments of their pandemic emergency programme flexibly as a first defence, Bloomberg reports.
Borrowing costs for countries in the currency area’s periphery are rising worryingly quickly as investors fear that some countries will be unable to handle significant debts as borrowing costs rise.
The ECB is cutting back its purchases of Government bonds under quantitative easing, and is set to raise interest rates from minus 0.5pc up to zero in the coming months.
The widening gap in financial markets between the borrowing cost for the German Government and other nations shows traders becoming more worried about rising risks in the eurozone.
The interest rate on a 10-year Italian Government bond hit 4pc this week, its highest in eight years. It raises the spectre of the sovereign debt and banking crisis that struck in the EU a decade ago.
Bitcoin teeters on brink of $20,000
Bitcoin is on the verge of sinking below $20,000 (£16,500) as cryptocurrency prices continue to fall dramatically on fears about rising inflation and interest rates, writes Gareth Corfield.
Bitcoin declined nearly 9pc to $20,100 in early trade, hovering at a level not seen since December 2020. Then, the digital token was soaring to never-before-seen highs.
Today, cryptocurrencies are trapped in a spiral of decline. Over the last seven days Bitcoin’s price has shrunk by a third, wiping $150bn from its market valuation.
Ethereum, the second-biggest digital currency, is also down 15pc to $1,000 today. The sell-off is being driven by expectations of interest rate rises around the world. The US Federal Reserve is expected to hike rates by the most since 1994 today and the Bank of England is forecast to follow with a raise of its own tomorrow.
Russia cuts gas supplies to Italy
Russia has slashed gas supplies to Italy amid fresh turmoil in European energy markets.
State oil giant Eni said total flows had been reduced by around 15pc. Gazprom didn’t provide any reason for the decision, but it comes amid technical issues on a key pipeline to Europe.
Russia said yesterday it was reducing flows through the Nord Stream pipeline by 40pc as a result of delays to repair works, exacerbating supply concerns on the continent.
Eni is spearheading efforts by Prime Minister Mario Draghi’s Government to reduce Italy’s dependence on Russian gas, partly through its longstanding ties with African producer countries.
ECB to discuss crisis strategy
ECB officials are said to be discussing a broader strategy to protect the eurozone, as well as whether to use reinvestments of their pandemic emergency programme flexibly as a first defence.
The emergency meeting of the Governing Council is examining the central bank’s wider anti-fragmentation approach as it grapples with a sharp rise in Italian bond yields, Bloomberg reports.
The meeting was scheduled to start in Frankfurt at 11am local time (10am BST) and is set to last around two hours.
Global oil supply will struggle to meet demand, warns IEA
Global oil supply will struggle to meet rising demand next year, piling even more pressure on prices.
That’s according to the International Energy Agency, which said a resurgent Chinese economy will bolster consumption, while tighter sanctions on Russia will reduce output.
Producer cartel Opec will need to deplete its spare production capacity to historically low levels to help meet demand, it added.
The grim forecasts suggest there’s little hope of respite from high energy prices in the year ahead. Brent crude has climbed more than 50pc this year to trade at almost $120 a barrel, as supplies fail to satisfy the post-pandemic rebound in demand.
The IEA said:
Global oil supply may struggle to keep pace with demand next year, as tighter sanctions force Russia to shut more wells and a number of producers bump up against capacity constraints.
H&M shares tumble on inflation worries
Shares in H&M tumbled this morning as analysts warned inflation will squeeze margins at the low-cost retailer.
Analysts at Bryan Garnier & Co warned that “fiercer pressure” from higher costs could dent profit margins and more discounting couldn’t be ruled out.
That’s despite H&M reporting a stronger-than-expected increase in revenue to 54.5bn Swedish krona (£4.5bn) in its latest quarter as shoppers returned to the high street after lockdowns.
Analysts at Jefferies said the figures confirmed a post-Covid boost to retailers in Europe. But they added: “Investors will be keen to better understand the extent to which price recovery is offsetting mounting input pressures and rebuilding costs.”
Shares in H&M fell as much as 4.7pc in Stockholm.
Eurozone trade deficit almost doubles as energy costs surge
The eurozone’s trade deficit almost doubles in April as the bloc continued to splash out to import expensive energy.
The area recorded a trade deficit of €32.4bn (£28.1bn), up from €16.4bn the previous month, according to official figures. That followed an already record expansion in March.
The figures reflect the surging value of energy imports as the war in Ukraine drives prices to fresh highs and Europe scrambles to find alternative suppliers to Russia.
Separate data showed industrial production in the 19 countries increased 0.4pc month on month, though it was down 0.5pc on last year.
ECV ‘very open’ to intervene in markets, says Wunsch
The European Central Bank is ready to step in if it considers moves in government bond markets to be unjustified, according to the governor of Belgium’s central bank.
Pierre Wunsch, head of the National Bank of Belgium, told Bloomberg: “Most of us – probably all of us, actually – are very open to doing something if it’s clear enough that there’s a problem of markets overreacting or unwarranted fragmentation.
“But we should be careful not to give too much of an impression to authorities that we will immediately jump to their help in which uncomfortable situation they might find themselves.
“In addition, if you are too specific about a new instrument, there’s a concern that you’re going to lose flexibility. So, we should not over-engineer before knowing what the circumstances are.”
Pound gains but lags euro ahead of ECB summit
Sterling has picked up against the dollar but remains close to a two-year low as markets turn their attention to the Federal Reserve’s interest rate decision tonight.
However, it lagged a rally in the euro, which has gained sharply after the ECB said it will hold an emergency meeting amid turmoil in bond markets.
The pound rose 0.5pc against the dollar to $1.2062. Against the euro it slipped 0.1pc to 87.21p – a 15-month low.
Markets are expecting the Fed to raise interest rates by as much as 75 basis points later today, while traders reckon the Bank of England will opt for a more cautious 25 basis-point increase amid the threat of an economic slowdown.
More reaction: Don’t expect ECB to pull out the bazooka
Claus Vistesenat Pantheon Macroeconomics says he only expects limited action from the ECB.
Instead, he is looking for commentary on the way the funds from maturing bonds held by the ECB are reinvested to hold down borrowing costs, and for any willingness to keep buying bonds even as the headline interest rate goes up, for the sake of managing the turmoil in bond markets.
We don’t expect the ECB to pull out the bazooka today. The hawks will strongly oppose this, and we quite simply doubt that the council has any grasp of what it wants to do, if anything, let alone the unanimity required to announce a new tool.
Reaction: Markets keen to see ECB’s new powers
Holger Schmieding at Berenberg Bank says the ECB has more established powers now than it did back in the debt crisis – so markets will be keen to know how it intends to use them.
With memories of the European debt crisis still fresh, investors are asking how and under what circumstances ECB president Christine Lagarde would deliver on the promise she made in her blog from 23 May to act against ‘excessive fragmentation’ if required after the end of net asset purchases.
Bond turmoil sparks EU debt crisis fears
The latest bond turmoil raises the spectre of the sovereign debt and banking crisis that struck in the EU a decade ago, writes my colleague Tim Wallace.
That crunch was only solved when the ECB’s then-President Mario Draghi, who is now the Prime Minister of Italy, stepped in to promise to do “whatever it takes” to keep borrowing costs under control for the most indebted nations, buying Government bonds and slashing interest rates into negative territory.
This time the squeeze is coming as the ECB cuts back on purchases of Government bonds and inches its way towards raising rates back to zero from minus 0.5pc. It has kept its headline deposit rate in negative territory since 2014.
Other central banks are also tightening policy, with the US Federal Reserve expected to raise its interest rate by 0.75 percentage points this evening, the steepest increase since 1994.
Typically when the Fed raises interest rates, money from around the world heads to the US to benefit from those higher returns, raising borrowing costs in turn for other nations and sending financial markets tumbling.
This also often happens when a recession or downturn strikes, as investors see the US as a relatively safe haven through tough financial times.
Bitcoin crashes to fresh 18-month low
Bitcoin has tumbled to a new 18-month low as the recent sell-off in cryptocurrencies shows no signs of letting up.
The world’s largest cryptocurrency fell as much as 6.3pc to $20,715.69 – its lowest since December 2020.
Bitcoin has lost around 28pc since Friday and more than half of its value this year. Since its record high of $69,000 in November, it has slumped around 70pc.
The recent downturn in the notoriously volatile asset was sparked after crypto exchange Binance temporarily suspended trading in Bitcoin, blaming a technical error.
Celsius, another large lender, halted transactions on Monday, with bosses citing “extreme market conditions”.
It came as crypto company Coinbase announced it was cutting almost one in five staff, with chief executive Brian Armstrong warning that a new “crypto winter” could be imminent.
Harry Potter publisher says Covid reading boom is here to stay
The publisher behind the Harry Potter books has insisted the surge in reading brought on by lockdowns is here to stay.
Bloomsbury reported a 24pc rise in revenue to a record £230m last year, while profit jumped 40pc.
The publisher’s sales and profit are also up significantly on pre-pandemic levels as people continue to buy novels and books related to hobbies and personal interests.
Bloomsbury said the pandemic had converted many people into regular readers and book buyers, even as social lives return to normal.
Nigel Newton, chief executive of Bloomsbury, said:
The pandemic made us all re-evaluate how we spend our time and this has resulted in an increase in sales of books.
The surge in reading, which seemed to be one of the only rays of light in the darkest days of the pandemic, is perhaps now being revealed as permanent.
Gas prices surge as heat wave clashes with supply cuts
Natural gas prices jumped this morning as supply troubles raised concerns about how quickly storage sites could be refilled for next winter.
Benchmark European prices rose as much as 8pc in their third day of gains. The UK equivalent was up just over 3pc.
The market has been beset with difficulties after a fire at a liquefied natural gas facility in the US, which will force the site to stay shut for longer than originally thought.
At the same time, technical issues have cut Russian flows through the Nord Stream pipeline to Germany by about 40pc.
European countries are racing to refill their storage facilities before demand peaks again this winter amid ongoing uncertainty about Russian supplies.
All this comes as a heat wave boosts demand for cooling across the continent
FTSE risers and fallers
The FTSE 100 has made gains in early trading as stocks began to recover after six straight sessions of losses.
The blue-chip index rose 0.5pc, boosted by financial and consumer staple stocks.
Premier Inn owner Whitbread was among the top risers, gaining 3.4pc after it reported higher sales thanks to a recovery in travel.
Consumer goods giant Diageo also gained ground, alongside banking stocks HSBC, Lloyds and Barclays.
The domestically-focused FTSE 250 jumped more than 1pc, led by a 5.3pc rise for WH Smith after it forecast stronger than expected full-year results.
Covid lockdowns weigh on China’s economy
China’s factory output and retail sales remained weak in May as its zero-Covid strategy continued to weigh on economic growth.
Beijing’s ruthless lockdowns to tackle new virus outbreaks has further disrupted supply chains, dented demand and put a dampener on growth.
Retail sales sank 6.7pc in May, according to official statistics. It marked the third straight month of contraction, though this was an improvement from April’s 11.1pc drop.
There was slightly more positivity for industrial production, which rose 0.7pc after falling 2.9pc in April, while the urban unemployment rate ticked down to 5.9pc.
Shanghai has started to emerge from a gruelling two-month lockdown, raising hopes that the worst of the damage is past. Still, it will likely take a while for household consumption to recover as the threat of further measures lingers.
WH Smith and Whitbread get travel recovery boost
Sales at Premier Inn owner Whitbread and WH Smith are back to pre-pandemic levels as Britons return to travel.
Whitbread said hotel occupancy levels in the UK were strong over the first quarter, with comparable accommodation sales more than 21pc higher than the same period before the pandemic.
Its German hotel business is also staging a stronger-than-expected recovery from lockdowns.
WH Smith, which sells books and snacks at major airports and train stations as well as on high streets, said its trading had been so strong over the last quarter that its full-year results should be at the upper end of expectations.
Shares in Whitbread rose 3.4pc, while WH Smith jumped 5.4pc.
Swiss airspace closed after air traffic control meltdown
Travel chaos spread to Switzerland this morning after a technical malfunction in the country’s air traffic control system shut down flights nationwide and left thousands stranded across Europe.
Swiss International Airlines – part of Lufthansa – stood to be worst affected, with the airline warning that no arrivals or departures at Zurich and Geneva were possible, leading short-haul services to be suspended and long-arrivals to divert to airports including Milan, Lyon and Vienna.
Zurich Airport said limited departures and landings were scheduled to resume before midday, adding that check-ins were going ahead as normal.
It’s the latest example of chaos at airports and airlines that has upended travel across Europe in recent weeks.
Staff shortages lingering from the pandemic are the biggest cause of delays and cancellations, while strikes and IT failures have exacerbated the problem.
ECB to hold emergency meeting amid bond sell-off
The European Central Bank will hold an emergency meeting this morning amid concerns over a recent sell-off in government bond markets.
Bond yields have risen sharply since the ECB promised a series of rate hikes last week and the spread between the yields of Germany and more indebted southern nations – particularly Italy – soared to its highest in over two years.
An ECB spokesman said: “The Governing Council will have an ad-hoc meeting on Wednesday to discuss current market conditions.”
Invitations to the meeting were sent out yesterday and some policymakers who were expected to attend a conference in Milan today called off their appearances.
Investors took some comfort from the meeting, which comes on the same day the Federal Reserve is expected to raise interest rates by as much as 75 basis points.
The euro surged over 0.5pc to 1.0487 against the dollar.
FTSE 100 opens higher
The FTSE 100 has pushed higher at the open as markets begin to regain some stability after days of losses.
The blue-chip index rose 0.7pc to 7,237 points.
Arm gets UK boost after job cuts
SoftBank’s about-turn comes after it unveiled plans to cut one in 10 Arm jobs in the UK.
Staff at Arm’s Cambridge headquarters have been prepared to expect 340 to 350 job losses in the UK, around a tenth of its 3,560 British staff, The Telegraph reported last month.
Its chief executive Rene Haas told staff in March that it needed to cut jobs to remain competitive and “stop work that is no longer critical to our future success”.
The losses came despite Arm enjoying record profits and sales in the last year. The company grew annual revenues by a third and profits rose by two thirds to $1bn in its last fiscal year.
UK looks to keep grip on Arm
SoftBank’s plans for a London listing of Arm could be a major coup for the Government, which is under pressure to ensure to tech giant stays on British soil.
Cambridge-based Arm, which was acquired by SoftBank in 2016, was one of the UK’s most important tech firms before the purchase and still has most of its operations here.
The company sells and licenses technology that’s used by semiconductors in everything from smartphones to super computers, and its fate has been closely watched.
SoftBank was forced to abandon its planned $40bn (£30bn) sale of Arm to Nvidia earlier this year after fierce opposition from regulators on national security and competition grounds.
Founder Masayoshi Son has said he now plans to sell a portion of Arm before the end of the company’s financial year next March, with a mooted price tag of around $60bn.
There’s still uncertainty over the exact size and timing of the stock market float. Rishi Sunak has held talks with SoftBank over whether the Government could take a 25.1pc stake in Arm to help drum up support and keep a grip on the company, the Daily Mail reports.
SoftBank to list Arm in London
Britain’s tech sector has been given a welcome boost this morning after it emerged SoftBank is planning to list some of its stake in chip designer Arm in London.
The Japanese conglomerate had been preparing an initial public offering in New York after a $40bn (£30bn) sale to Nvidia was blocked on national security grounds.
But it’s now looking at listing some of its stake in London, Bloomberg reports. That follows pressure from Boris Johnson and campaigning by Chancellor Rishi Sunak to keep the British tech giant based in the UK.
It could be a major coup for the Government, which has faced pressure to prevent Cambridge-based Arm from falling victim to a foreign takeover.
5 things to start your day
1) Helium airships to fly across Spain after British maker lands breakthrough $600m deal Air Nostrum hopes to have its 100-seat vehicle running on its short-haul routes by 2026
2) Forecast blunder leaves students £1,200 worse off New students left with lowest living cost support in seven years thanks to mistake
3) BT boss discussed plan to starve Phones 4U, court told Head of phone company’s consumer arm denies allegations of scheming with rivals to destroy retailer
4) More holiday misery on horizon as airlines ordered to cancel summer flights Industry urged to cut flights they cannot deliver amid severe staff shortages
5) Coinbase cuts 1,100 crypto jobs as Bitcoin plunges 10pc Chief executive Brian Armstrong warns of ‘crypto winter’ as digital currencies slump
What happened overnight
Tokyo stocks opened down in cautious trade ahead of a key US Federal Reserve decision.
The benchmark Nikkei 225 index dropped 0.2pc. Hong Kong shares kicked off with small gains. The Hang Seng Index added 0.2pc.
The Shanghai Composite Index ticked up 0.2pc, while the Shenzhen Composite Index on China’s second exchange was also up 0.2pc.
Coming up today
- Corporate: Whitbread, WHSmith (trading statement)
- Economics: Fed interest rate decision (US), retail sales (US, China), industrial production (EU, China)