FTSE 100 falls ahead of crucial Jerome Powell speech – business live | Business

Mark Haefele, chief investment officer, UBS Global Wealth Management, said:

While we expect the Fed to shy away from more radical easing measures, such as explicit controls on government bond yields, we believe Powell will likely outline other dovish measures. These could include a move toward average inflation targeting, giving the central bank more leeway to allow inflation to overshoot the 2% target while keeping rates pegged close to zero.

The classic western Shane was filmed in the Jackson Hole valley, noted Kit Juckes, chief global foreign exchange strategist at Société Générale. The film shows the end of the age of gunslingers, he said:

Maybe the age of the independent, activist central bank head is also coming to an end. Fiscal policy is more powerful and monetary policy needs to work in harmony with it. Monetary policy is being asked to do things (like tackle economic inequality) that it really isn’t suited to. But, here we are, waiting for Jay Powell to turn up at Grafton’s Saloon. He’s already done everything he can, he’s almost out of bullets and he may even have already won the fight, but we have placed our faith in him and desperately want fresh encouragement.

In the Hollywood version Powell wins, stocks surge and the dollar falls, but in reality adjusting the way the Federal Reserve looks at its inflation targets or signalling low rates are here for longer are “small beer”, said Juckes.

The Fed has really been the dominant force in markets since the pandemic started. It laid on trillions of dollars of support for assets in the form of quantitative easing stimulus and opened the dollar taps as demand for the reserve currency rocketed during the panic.

However, there are concerns that it is running out of firepower to stimulate the US economy (which is why central bankers have been so keen for fiscal stimulus since the financial crisis).

Lee Hardman, a currency analyst for MUFG Bank, said:

It has been widely speculated that the Fed will soon strengthen their forward rate guidance in response to the review to signal that rates will remain on hold for much longer into the economic recovery than during past economic cycles. The Fed is expected to signal a greater tolerance for allowing inflation to overshoot their target for a period perhaps through adopting a form of average inflation target.

Another option, which is thought to be under consideration by some in the Federal Reserve (albeit not expected today) is yield curve control. Hardman said:

Another potential focus could be any updated views on the effectiveness of other policy tools such as yield curve control whereby the Fed contemplates capping yields, although recent comments suggest it is unlikely to be implemented at the current juncture.

Yield curve control would require the central bank to buy any government bonds on sale above a certain yield – yields move inversely to prices, so this would mean supporting the price of the government debt.

In contrast to quantitative easing, which aims to keep short-term interest rates down, yield curve control would look at the difference between short- and long-term rates (which usually form a curve on a graph). The thinking is that lowering longer-term borrowing costs will also help to stimulate the economy.

The FTSE 100 has lost further ground this morning – it’s now down by 0.5% – but most investor focus is on what is to come later, when Federal Reserve chair Jerome Powell addresses the virtual Jackson Hole conference.

Bankers usually gather every year at the mountain resort in Wyoming at the invitation of the Kansas City Fed to wax lyrical about monetary policy. This year they are confined to making a glorified video call from their offices.

But although the event will lack dramatic landscapes this year, economists are expecting Powell in particular to offer important signals on the future of US stimulus efforts.

A key point will be whether Powell details an average inflation targeting framework. Mohit Kumar, a managing director for interest rate strategy at Jefferies, a US investment bank, explains it nicely:

Market expectations are for a dovish Powell with the consensus view that Powell would unveil (or strongly hint) at the flexible inflation targeting framework. The new framework would allow for a short term overshoot in inflation above the target, and hence allow the Fed to keep accommodative policies for longer. We expect Powell to broadly outline the Fed’s thinking around inflation targets and the rationale for a shift in the framework but refrain from providing exact details.

The tricky aspect from an investor point of view is that this dovish take is somewhat priced in already: the US dollar has fallen notably this summer as investors anticipate lower interest rates and monetary easing for longer to support the stuttering US economy. Jefferies’ Kumar said:

Given that the consensus view is already on the dovish side, it would be difficult for Powell to beat the current expectations. Risks that the Powell’s tone, though dovish, fails to live up to current market expectations, which could be negative for risk sentiment.

The pandemic caused a surge in online shopping in many major markets, and particularly for groceries that had seemed (oddly) resistant to the trend before then.

But Delivery Hero – a German rival to Anglo-Dutch Just Eat Takeaway, the UK’s Deliveroo and the US’s Uber Eats – clearly thinks it will be a growth area: it announced a $360m (£270m) deal for InstaShop, a grocery delivery company.

The company only operates in the United Arab Emirates, Lebanon, Egypt, Bahrain, and Greece, the home country of the founders, Ioanna Angelidaki and John Tsioris.

The company had only ever raised $7m from investors previously, according to TechCrunch, so it is a huge gain for the founders and early investors – not to mention an eye-catching moment for the Greek tech scene.

One of the big business news stories from earlier this morning was the resignation of the boss of TikTok, the Chinese social network that has found itself at the middle of a geopolitical struggle.

Tik Tok’s chief executive, Kevin Mayer, has quit just months after his appointment, amid a “sharply changed” political environment after Donald Trump accused the platform of threatening national security.

The Financial Times reported on Thursday that the former Disney executive would be replaced in the interim by Vanessa Pappas, the general manager. In a letter to staff, parts of which have been seen by the Guardian, Mayer said he had decided to leave after Trump ordered TikTok’s parent company, ByteDance, to sell its US assets to a US company within 90 days.

You can read the full report from the Guardian’s Helen Davidson here:

The mid-cap FTSE 250 index is mostly flat this morning, but one stock is flying: mortgage specialist OneSavings Bank is up 18%.

The bank said it was “encouraged by the recovery in application volumes for our products since the housing market reopened”, running at about 60% of pre-lockdown levels on tighter lending criteria and higher pricing.

Andy Golding, the bank’s chief executive, said:

We expect to deliver double digit underlying net loan book growth for the full year.

The share price bump has gone at least some way towards making up for recent share price falls – although it’s nowhere near pre-pandemic levels.

John Cronin, banks analyst at Goodbody, a stockbroker, said:

While we are more cautious than consensus on impairments, we still see upside in the name given return on tangible equity delivery and the very strong capital position […] Clearly, OSB has considerable headroom to cope with any negative shocks in an asset quality context as furlough schemes are tapered. We remain positive on the name.

Another data point for investors and central bankers to add to the mix from earlier: an apparently strong rebound from Chinese industry.

China was of course by all indications the source of the coronavirus outbreak, but a very strict lockdown relatively early on has meant that much of its industry has reopened.

This is from the Reuters report:

Profits at China’s industrial firms grew for a third straight month in July and at the fastest pace since June 2018, marking a bright spot in the economy as the manufacturing sector slowly recovers from its coronavirus slump.

Profits at China’s industrial firms grew 19.6% on-year to 589.5 billion yuan ($85.58 billion), the statistics bureau said on Thursday, following an 11.5% increase seen in June, the National Bureau of Statistics (NBS) data showed on Thursday.

The eyes of the oil industry are on the US east coast at the moment to see what will happen with Hurricane Laura and its effect on production, but in the UK there has been another reminder of the chaos in the industry as prices have plunged.

British oil well drilling tools company Hunting has revealed that it has cut 624 jobs during the first half of the year with the closure of multiple sites in the US.

Stock markets have also retreated across Europe after an initial flurry of positivity (in Germany and France at least).

The Euro Stoxx 600 index, which tracks most of the biggest European companies, is down by 0.2%. Germany’s Dax is down by 0.1%, France’s Cac 40 has lost 0.3% and Italy’s FTSE MIB has lost 0.7% in early trading.

Jet engine manufacturer Rolls-Royce is the biggest faller on the FTSE 100 after revealing a £5.4bn loss and a plan to sell assets to shore up its creaking balance sheet.

Shares fell by 6.6% in early trading to approach their lowest point since the financial crisis.

Rolls-Royce has been hit hard by the decline in air travel, which has caused a massive hit to the revenues it earns from servicing jet engines. Total revenues fell by a quarter to £5.8bn in the first half of 2020.

The company is in the middle of its biggest ever restructuring of its civil aviation business. Some 4,000 employees have already left out of an expected 9,000, and the company will close sites in Lancashire and Nottinghamshire. That has been criticised by Unite, the union, after Rolls-Royce said it would move some of the work to Singapore and Germany.

The massive loss included a big £2.6bn write-off related to currency hedging and £1.1bn in other impairments, but its underlying loss before tax was still £3.2bn.

Good morning, and welcome to our live coverage of business, economics and financial markets.

It is the day investors have been looking forward to throughout August: US Federal Reserve chair Jerome Powell will make a much anticipated speech in which he is expected to address the central bank’s future approach to monetary policy.

Market moves have been relatively muted in recent days (with many traders away and corporate activity relatively lower). The FTSE 100 eased in early trading, dropping by 0.1%.

That followed a trading session in Asia that saw MSCI’s broadest index of Asia-Pacific shares outside Japan reach its highest point since August 2018 before dropping back to a 0.1% gain.

US stocks had hit new record highs last night, but now investors are now mostly positioned ahead of the Powell speech, which will also coincide with more detailed second-quarter GDP figures from the US and pandemic-hit initial jobless claims: it could be a bumpy opening on Wall Street later.

Naeem Aslam, chief market analyst at AvaTrade, a trading platform, said:

There is an element of caution among investors as the Fed chairman, Jerome Powell, will deliver a speech on a monetary policy framework later today. Dow Jones and the S&P 500 futures are likely to experience higher volatility on the back of this. The future of the coronavirus stock market rally is highly dependent on the Fed’s monetary policy stance.

Oil market investors will also be closely watching news from the Louisiana coast, where Hurricane Laura has just made landfall. The strength of the hurricane has prompted fears of a large human cost amid the pandemic, and it has also forced a shutdown in oil production that rivals Hurricane Katrina 15 years ago.

Brent crude oil futures prices have edged up this morning to $45.70 per barrel for the North Sea benchmark. Prices for North American benchmark West Texas Intermediate are slightly down to $43.34 per barrel.

The agenda

• 9am BST: Eurozone M3 money supply, July (previous: 9.2%; consensus: 9.2%)
• 1:30pm BST: US GDP second quarter second estimate (prev: -5% annualised; cons: -32.5% annualised)
• 1:30pm BST: US initial jobless claims, week ending 22 August (prev: 1.1m; cons: 1m)
• 2:10pm BST: US Federal Reserve chair Jerome Powell speech