Jerome Powell says Fed will relax inflation target

Jerome Powell 
Jerome Powell addressed the Jackson Hole symposium virtually Credit: Daniel Acker/Bloomberg

Wrap-up

Time to wrap up for the day. We started out with some big corporate results, with Jerome Powell riding in to rescue us from those August blog blues. Here are some of the day’s top stories:

  • Fed shakes up policy: Federal reserve chair Jerome Powell said the FOMC has decided to switch up its policy processes – switching its inflation target to an average and softening its line on unemployment.
  • Rolls-Royce plunges to £5.4bn lossRolls-Royce plunged to a £5.4bn half-year loss and said it was “assessing options” to strengthen its balance sheet. 
  • WPP shares rise as it says worst is past: Shares in WPP rose after the ad giant said its trading is improving after swinging to a £2.6bn first-half loss.
  • US economic data continues to improve: US pending homes sales jumped, jobless claims continued to fall, and the country’s second-quarter GDP contraction was revised down on the second reading.

Thanks for following along today! The blog will be back tomorrow morning.

Insurers fear $15bn bill from Hurricane Laura

Hurricane Laura made landfall yesterday Credit: AP Photo/Gerald Herbert

Insurers could be hit with a bill of $15bn (£11.4bn) from the damage caused by Hurricane Laura, which battered Louisiana with winds of 150mph as it made landfall on Wednesday night. 

My colleague Michael O’Dwyer reports:

The industry, which has already been hit by a raft of claims relating to Covid-19, is also bracing for a financial hit from Californian wildfires that have put about 100,000 buildings at risk. 

The hurricane left more than 500,000 homes and businesses without power, mostly in Louisiana and Texas. 

The storm, which matched record wind speeds recorded in 1856, could result in claims of $15bn against insurers, analysts at Wells Fargo said. 

Fires raging on the west coast could cost the industry an additional $2bn to $15bn, analysts from UBS predicted. 

Powell speech: reaction

Here’s some reaction to Jerome Powell’s speech earlier (snap summary in my 15:03pm post).

Pantheon Macroeconomics’ Ian Shepherdson said it could be a long time before the Fed’s overshoot-tolerant policy is put to the test:

The bottom line here is that Mr. Powell and his colleagues have given themselves significantly more room to maintain zero rates and a swollen balance sheet over the next couple of years, as the economy recovers from the Covid shock.

The message here is that after more than a decade of core inflation mostly running below target, the Fed will remain accommodative in order to bring unemployment back down even if inflation rises above the target, provided medium-term expectations remain anchored.

The gamble is that the Fed’s credibility will keep market fears in check if inflation rises. But the question won’t even arise if the huge slack in the labor market keeps labor cost pressures down, which seems a reasonable bet to us. 

Capital Economics’ Paul Ashworth adds that the stage is now set for a change in forward guidance:

Now the Fed has implemented the changes to its policy framework, officials need to decide whether that warrants additional stimulus. From the minutes of the last FOMC meeting, officials appear to be close to agreeing on stronger forward guidance – either calendar- or outcome-based, and we wouldn’t be surprised if those changes are accompanied by a new program of large-scale asset purchases too.

SEB’s Elisabet Kopelman notes that policymakers are still prepared to switch things up:

Powell in his speech added a sentence to highlight that inflation will not be left to run wild. If excessive inflationary pressures were to build or inflation expectations were to ratchet above levels consistent with the goal, the Fed would not hesitate to act.

Market moves

Boeing 737 Max cleared for European test flights

A Boeing 737 Max lands after a test flight at Boeing Field in Seattle in June  Credit: REUTERS/Karen Ducey/File Photo

Europe’s flight safety authority has scheduled the first flight tests for the Boeing 737 Max, which has been grounded worldwide after two deadly crashes revealed design issues with the jet.

My colleagues report:

The European Aviation Safety Agency said it had been working with the US Federal Aviation Administration, which began its own recertification test flights in June, on scheduling its own tests.

“While Boeing still has some final actions to close off, EASA judges the overall maturity of the re-design process is now sufficient to proceed to flight tests,” the agency said. “These are a prerequisite for the European agency to approve the aircraft’s new design.”

The European agency said it hoped to return the plane to service as soon as possible, but only once it was convinced of its safety.

US pending home sales rise

US pending home sales rose 5.9pc in July, beating economists’s expectations for a 2pc rise and pointing to continued strength in the US housing market. 

 Lawrence Yun, chief economist at the National Association of realtors, said:

We are witnessing a true V-shaped sales recovery as homebuyers continue their strong return to the housing market. Home sellers are seeing their homes go under contract in record time, with nine new contracts for every 10 new listings.

Powell finishes

Jerome Powell finished speaking a few minutes ago. Here are the key points:

  • The FOMC has agreed a major revision of its monetary policy strategy, including targeting 2pc inflation as an average only, and allowing unemployment to go below its usual perceived limit
  • Mr Powell gave said inflation overshoots should be “moderate” at most
  • He gave no statement on rates or forward guidance
  • Equities and gold rose, while the dollar softened and treasury yields wobbled and are currently higher

CNBC: TikTok sale to Microsoft could come in next 24 hours

Powell: Covid-hit section of economy will struggle to recover

Mr Powell is emphasising that the US economy was strong when the pandemic first hit, but says the recovery looks strong. He warns however that a section of the economy – those part based on people “getting together”, such as food and entertainment – will take a couple of years to recover. He says the fed will try to focus on helping people in those industries.

Powell: Strengthen jobs market to fight inequality

An interesting point from Mr Powell: pointing to the lessons learned from the Fed Listens events, where policymaker went out to speak to ‘real’ people, he was the best thing the Federal Reserve can do to fight inequality in the US is to ensure there is a strong labour market. He notes, however, that monetary policy can’t work along on this front – Government spending is also needed.

US treasury yields recover

After initially rising in price as Jerome Powell began speaking, US treasuries have recovered, with yields (which move inversely to prices) back at pre-speech levels.

Wall Street opens at record

The S&P 500 has opened at a new record high.

Speech over

Jerome Powell has finished speaking, and University of Michigan provost Susan Collins is now (with horrible audio quality) asking him questions about communication.

Mr Powell says public communication is very important, noting that most people don’t see rising inflation is a good thing. He says the overshoots that he expects to occur will be moderate, and will not occur for long periods of time.

He says that the new guidance is not a “formulaic approach”, but says the FOMC will try to raise inflation above 2pc after period when it has undershot the target average.

European stocks erase losses

European stocks have erased their losses as Mr Powell speaks.

No mention of forward guidance

There’s been no mention of changes to the FOMC’s forward guidance in either Mr Powell’s speech or the statement released by the Fed. It’s likely that will become a key topic of interest at the upcoming FOMC meeting.

Speech appears to put paid to rate hikes

A lot of what Mr Powell is now saying is academic, or covered in the statement released by the Fed. The big takeaway for markets is that it seems clear the Federal Reserve is not going to hike rates any time soon. That boosts equities, but is bad for the dollar (which becomes less lucrative to hold for investors).

Market reaction

There’s been some immediate reaction from markets to Mr Powell’s speech:

  • The dollar weakened
  • Gold has risen
  • US treasury yields have fallen
  • Wall Street equity futures have flipped positive

Significant changes

These are the key changes the FOMC has flagged:

  • On maximum employment, the FOMC emphasized that maximum employment is a broad-based and inclusive goal and reports that its policy decision will be informed by its “assessments of the shortfalls of employment from its maximum level”. The original document referred to “deviations from its maximum level”.
  • On price stability, the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time.” To this end, the revised statement states that "following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time."
  • The updates to the strategy statement explicitly acknowledge the challenges for monetary policy posed by a persistently low interest rate environment. Here in the United States and around the world, monetary policy interest rates are more likely to be constrained by their effective lower-bound than in the past.

Read the update in full

You can read the Federal Open Markets Committee’s full updates to its monetary policy strategy here:

Unemployment stances also changed

Further more, the Federal Reserve has also changed its language on how low it believes US unemployment can be allowed to go.

Bloomberg has the quotes:

In its new statement on longer-run goals, the Fed said its decisions would be informed by its assessment of “shortfalls of employment from its maximum level.” The previous version had referred to “deviations from its maximum level.”

The change takes the emphasis off risks to inflation that could be caused by very low levels of unemployment.

New inflation target

Mr Powell says the Federal Reserve will now seek an inflation target that averages 2pc over time, a more relaxed position that offers space for overshoots. That’s a shift from its previous stance, with had precise target of a sustained 2pc inflation rate.

Powell speaks

Jerome Powell has started speaking, after some minor technical issues (the pitfalls of a virtual symposium).

Immediately, the chair has said that he is going to discuss the Federal Reserve’s monetary policy review, which it started early last year. He had been expected to offer some guidance on the review, but fuller details are more unexpected.

Teeing up

Esther George, president of the Kansas City Fed (which organises the Jackson Hole Economic Policy Symposium), is opening the symposium.

Powell coming up

The Federal Reserve chair is expected to start speaking at 2pm, or shortly thereafter:

See my 11:32am post for what to expect.

UK job postings recover slightly – Indeed

Jack Kennedy from jobs site Indeed tweets:

US GDP revised up slightly

Alongside those jobless figures came the second reading for the US’s second-quarter GDP. It was slightly better than the first, at 9.1pc vs 9.5pc, but is still the worst fall ever recorded:

Another 1m Americans out of work

Just over 1m Americans made initial claims for jobless benefits last week – still massively high by historic standards, but marking a continued downwards trajectory. 

Continuing unemployment claims fell slightly, to 14.5m. 

Porsche pushes on with US launches

Porsche Taycan

Speaking of VW, its luxury marque Porsche plans to press ahead with the launch of new electric models in the US despite sales there falling by a fifth during the coronavirus crisis.

“We haven’t got a plan to postpone anything in [America], and that’s true for other countries as well,” chief executive Oliver Blume tells Joe Miller of the Financial Times.

The new models include the Macan SUV and variants of its Tesla Model S killer the Taycan, including a cheaper base model, although the Taycan Cross Turismo will not go on sale until next year.

Porsche accounts for for more than a quarter of Volkswagen’s profits.

VW boss wants Gates on board

Bill Gates

Volkswagen's boss wants Bill Gates to advise governments on how to cut carbon emissions from transportation and renewed his criticism of Germany’s slow abandonment of coal power.

“You thoroughly understand the CO2 logic of the mobility sector. You know what we have to do and you could and should advise governments how to regulate and what to promote,” Herbert Diess wrote in a LinkedIn post sharing comments from the Microsoft co-founder.

“As you say, it’s not too complicated - electric vehicles wherever possible,” he says in response to a post that Gates this week that says climate change could be more devastating than Covid.

Switching to carbon-free electricity is critical to fighting climate change effectively, Diess adds. “Germany’s target date to exit coal power only by 2038 is for a rich, tech-leading country by far not ambitious enough.”

VW is making the car industry’s biggest push into electric vehicles, investing €33bn over five years to develop the world’s largest fleet of battery-powered vehicles.

Comfy deal

DFS has sold its Sofa Workshop brand to furniture and interiors firm Timothy Oulton. The company, which operates 20 stores and an online retail business, will be rebranded to Sofa Workshop by Timothy Oulton.

DFS said the disposal will cut costs and allow it to focus on its core activities.

Sofa Workshop reported a pre-tax loss of £2.9m for the 48 weeks June 30 2019 and held gross assets of £10.2m.

 

Poker pickup boosts Flutter

Profits at the gambling colossus behind Sky Bet, Betfair and Paddy Power were boosted during lockdown by the popularity of online games such as poker.

My colleague Oliver Gill reports:

Flutter Entertainments, the world’s biggest online gambling operator, announced a spike of more than a third in like-for-like profits. 

Revenue rose 49pc to £1.5bn in the six months to June 30, flattered by the acquisition of Canadian firm Stars Group in May. Comparable sales were 22pc higher.

Boss Peter Jackson said that Flutter’s global footprint meant that it had also been able to benefit from sports betting in countries such as the US and Australia where horse racing had continued throughout the crisis.

“A lot of people did come and play poker,” he said. “But these are people who are spending £10 a week – it is very low levels of expenditure. It is just a big growth in recreational customers.”

Road fuel usage picks up

UK road fuel usage picked up slightly last week, bucking a two-week run of falling demand.

Sales averaged 15,720 litres per petrol stations a day in the week to the 23rd. On one day – Friday 21st – they were above pre-lockdown levels.

Aveva touches record high as climb continues

Shares in industrial software firm Aveva have hit a record high, as it continues to rally following Tuesday’s announcement of it $5bn OSIsoft acquisition.

It has been among the FTSE 100’s top performers three sessions in a row, with analysts continuing to praise the takeover.

Today, HSBC’s Michael Tyndall upgraded the group’s rating to ‘hold’ from ‘reduce’ and upped its price target, saying the deal reduces concerns around the speed at which Aveva’s customers have been adopting digitalised processes.

France says growth will cover cost of Covid-19 recovery package

France will wipe the €100bn (£76bn) cost of its Covid-19 economic recovery package from its debt pile by increasing growth over the next five years, its prime minister has pledged.

My colleague Lizzy Burden reports:

The finances of the eurozone’s second-largest economy were already creaking but Jean Castex said France will inject the equivalent of four percentage points of GDP into its recovery effort, pushing the debt-to-GDP ratio up to almost 121pc. 

Figures from the Office for National Statistics last week showed Britain’s national debt was worth 100.5pc of GDP in July.

"The recovery plan should not weigh on public finances – quite the contrary," Mr Castex said, adding that the money would be pumped into creating jobs, especially for young people, and retraining people who lost their jobs in the recession. 

Jackson Hole: What to expect

Jerome Powell (right) with then-Bank of England governor Mark Carney at last year’s Jackson Hole symposium Credit: David Paul Morris/Bloomberg

It’s very much of a case of all eyes on Jerome Powell, as the US Federal Reserve chair gears up for a highly-anticipated speech at 2pm London time.

Although ‘Jay’ Powell almost certainly won’t be making any formal policy announcements, market watchers will be closely following his comments for signs of the Fed’s current economic assessment, and where its monetary stance might move from here.

Jefferies’ Mohit Kumar has a good overview of what may lie ahead:

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. 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.

Cranking up interest rates is firmly off the table, says Saxo Bank’s Eleanor Creagh, with Mr Powell have firmly ruled them out for now after June’s FOMC meeting. She added:

Despite this, the Jackson Hole speech delivered by Chairman Powell tonight will still be consequential for traders and risk assets alike. With central bank watchers poring over Powell’s every word for confirmation of dovish ramifications and clues on the outcome of the year-plus monetary policy framework review.

This year’s Jackson Hole theme is “Navigating the Decade Ahead: Implications for Monetary Policy.” Although a formal announcement is not expected, Powell may signal where the Committee are placed in terms of changes to monetary policy and their new inflation commitments. Commentary which will be key for the continuation of the speculative met up in risky assets aggressively recouping their Covid-induced losses. And the plunge in real yields supporting precious metals.

MUFG’s Lee Hardman said a dovish tilt (i.e., in favour of looser policy) from the Fed chair could put fresh pressure on the dollar, which has hit multi-year lows in recent weeks:

Market participants’ are now eagerly awaiting the key note speech today from Fed Chair Powell at Jackson Hole to see if he provides fresh impetus for the US dollar sell off after a period of consolidation so far this month…

The overall tone of the comments is expected to be dovish and poses downside risks for the US dollar. However, the potential dovish shift in Fed policy is already well anticipated. 

OneSavings Bank soars as profits rise

Today’s standout mid-cap performer is OneSavings Bank, which has jumped after reporting loan-book growth and a double-digit jump in profit despite heavy impairment costs.

The specialist loans group – which is the parent of Kent Reliance, the buy-to-let lender – reported a 10pc rise in profit before tax to £99.3m for the first six months of 2020, while its loan book grew 2pc to £18.8bn.

Chief executive Andy Golding said:

I am encouraged by the recovery in application volumes for our products since the housing market reopened, which are currently approaching 60pc of pre-Covid-19 lockdown levels on tighter lending criteria and higher pricing. We expect to deliver double digit underlying net loan book growth for the full year, excluding the impact of the structured asset sales in January.

Its underlying losses from impairments stod at £54.4m for the period, which the group said was “predominantly driven by a £42m charge due to the adoption of more severe Covid-19 related macroeconomic scenarios”.

Goodbody’s John Cronin said OneSavings Bank looks like a fairly strong stock pick, adding it has “considerable headroom to cope with any negative shocks in an asset quality context as furlough schemes are tapered”.

Hays shares steady after mixed results

Covid-19 has had a heavy impact on global recruitment Credit: REUTERS/Henry Nicholls

Shares in recruiter Hays are fairly flat today, after the FTSE 250 group reported improving results but decide against paying a dividend.

Its profit before tax for the year ended June 30th fell 63pc to £86.3m, with fees intake “heavily impacted” by Covid-19 in the first half of 2020.

Overall, net fees fell 11pc, to just shy of £1bn – with “pre-election” uncertainties also weighing on its UK operations last year.

Chief executive Alistair Cox said:

Although many uncertainties remain, Group fees have been stable since May and we see modest signs of improvement in [permanent placements].

Barclays’ Paul Sullivan said “little has changed” in terms of the group’s outlook, adding that September is always a “key month” for the recruitment industry. He added:

We believe the small profit beat is reassuring and reduces the risk going into FY21, particularly in the first half, where cost levels are expected to go back to more ‘normalised’ levels as operating and employee costs are brought back into the business and government support schemes are lifted.

Market moves

Things have gone from ‘meh’ to poor on Europe’s stock markets – following a flat start, the continent’s top indices are now all slightly in the red. All eyes remain on Jackson Hole – with Federal Reserve chair Jerome Powell set to speak at 2pm London time.

 The pound is pretty flat, after slight moves in either direction today:

Arts, entertainment and recreation also has highest number of companies still on pause

Part of the reason so many arts, entertainment and recreation staff are still on furlough is that a decent chunk of the industry is still on ice – it had by far the highest proportion of companies tell the ONS that they had temporarily closed or paused trading over the survey period:

 Here are some more of the ONS’s findings:

  • Across all industries, 6pc of the furloughed workforce returned from furlough in the last two weeks.
  • The arts, entertainment and recreation industry, and the accommodation and food service activities industry both had 23pc of their businesses reporting their risk of insolvency was severe to moderate, compared with 11pc across all industries.
  • The arts, entertainment and recreation industry reported the highest percentage of businesses indicating that footfall had decreased, at 76pc, compared with normal expectations for this time of year.

ONS: More than half of arts, entertainment and recreation workers are still on furlough

Over half the arts, entertainment and recreation workforce is still on furlough, months after Britain first went into a lockdown, according to the latest figures from the ONS.

According to the stats agency’s latest survey, which covered late July and early August, 51pc of workers across the industry were off work with reduced pay. Overall, 13pc of the UK workforce was furloughed.

Apportioned by workforce size, less than 1pc of the total workforce had been made redundant across all industries.

Sage says chair Sir Donald Brydon to step down

Sir Donald Brydon Credit: Heathcliff O'Malley

IT group Sage says its chair Sir Donald Brydon has indicated his intention to retire and step down from its board in September next year.

Sir Donald – a City grandee who who last year led a review in the UK’s audit market – will have been the FTSE 100 group’s chairman for nine years when he steps down.

Sage said his exit aligns with its succession planning and good governance practice. It said a process led by senior independent director Drummond Hall to find a successor would be established “in due course”.

Government to pay people on low incomes who have to self-isolate

Health secretary Matt Hancock says the Government will pay people on lows incomes £13 a day if they have to self-isolate.

The new payments will be trialled in Blackburn with Darwen, Pendle and Oldham to ensure the process works. In a statement, the Department from Health and Social Care said:

…eligible individuals who test positive with the virus will receive £130 for their 10-day period of self-isolation. Other members of their household, who have to self-isolate for 14 days, will be entitled to a payment of £182.

Non-household contacts advised to self-isolate through NHS Test and Trace will also be entitled to a payment of up to £182, tailored to the individual length of their isolation period.

The payments will be available to anyone currently receiving either Universal Credit or Working Tax Credit. It will apply to those “in areas with high incidence of Covid-19” – although DHSC did not specify what would qualify for this definition.

Mr Hancock said:

Self-isolating if you have tested positive for Covid-19, or have come into contact with someone who has, remains vital to keeping on top of local outbreaks.

This new payment scheme will help people on low incomes and who are unable to work from home to continue playing their part in the national fight against this virus.

Money round-up

Here are some of the day’s top stories from the Telegraph Money team:

TikTok boss quits amid White House pressure

Mayer only joined TikTok from Disney in May  Credit: Jesse Grant/Getty Images for Disney

TikTok chief executive Kevin Mayer has resigned after less than three months in the role over pressure from the White House to cut the company's ties with China.

My colleague Simon Foy reports:

In a note to employees, Mr Mayer, who previously ran Disney's streaming division, said that changes to TikTok's structure driven by Donald Trump's threat to ban the company have forced him to exit.

“In recent weeks, as the political environment has sharply changed, I have done significant reflection on what the corporate structural changes will require, and what it means for the global role I signed up for," he said.

“Against this backdrop, and as we expect to reach a resolution very soon, it is with a heavy heart that I wanted to let you all know that I have decided to leave the company.”

He will be replaced by US general manager Vanessa Pappas on an interim basis, TikTok said. The move was first reported by the Financial Times.

Ocado poaches Rolls-Royce’s finance boss

Ocado has named Rolls-Royce’s chief financial officer Stephen Dainith as its new finance boss, replacing Duncan Tatton-Brown, who is stepping down for family reasons after eight years.

Mr Tatton-Brown will remain in the CFO role until November 22nd. Ocado said Mr Dainith has “focused on managing a significant turnaround” at Rolls-Royce during his time there. The company added:

His experience internationally and in engineering and manufacturing will be very valuable additions as Ocado continues its growth as a leading technology-led global software and robotics platform business.

Ocado chief executive Tim Steiner said:

Duncan joined us in 2012 when Ocado was a very different business to what it is today. He has made a critical contribution to our growth as a company and the successful execution of our strategy. As importantly, he has been a highly valued colleague to us all and we will miss him.

Following a thorough search and selection process, I am delighted to be welcoming Stephen to Ocado Group. Stephen has a wealth of valuable experience and I am looking forward to working closely with him to drive Ocado forward and take full advantage of the opportunities that we see ahead.

WPP rises as it says worst is past

WPP boss Mark Read Credit: REUTERS/Toby Melville/File Photo

Shares in WPP have risen this morning, after the ad giant said its trading is improving after swinging to a £2.6bn first-half loss.

The FTSE 100 group saw revenues fall 10.2pc and took £2.7bn of impairments during the period, which it attributed to reassessed acquisitions values, the impact of Covid-19 and higher discount rates.

The group said its trading improved during July, suggest the worst part of the virus’ impact has passed.

Chief executive Mark Read said:

Assuming there is no second wave nor major lockdowns, the second quarter is expected to be the toughest period of the year, although we remain cautious on the speed of recovery.

Our strategic transformation remains on track but as COVID-19 accelerates the change in our sector, we are accelerating our plans.

Citi’s Thomas Singlehurst said the “decent” set of results should “settle nerves”. He added:

We think for the stock to really start to recover, however, the group needs to see an inflection in growth in the 2H. Although it is early days, forward looking commentary is encouraging.

The Hut Group plans float

Ecommerce company The Hut Group has announced its intention to float on the London Stock Exchange, according to a filing.

The group – which is headquartered at Manchester Airport – sells a mixture of its own brands, such as Myprotein, and third-party products in the beauty and nutrition categories.

It intends to conduct a free float of at least 20pc of its share capital, at a fixed price that would equate to a £4.5bn pre-money equity value.

The group said it has experienced an acceleration in growth during 2020, with revenue up 36pc to £676m.

Matthew Moulding, its chief executive, said:

Our intention to float THG on the London Stock Exchange reflects the achievements of the past but also our strong belief in the significant potential for THG in the future. THG has enjoyed strong growth since being founded in 2004, employing more than 7,000 people and establishing a track record of consistent delivery for our customers.

Rolls-Royce mulls its options after £5.4bn loss

Rolls-Royce plunged to a £5.4bn half-year loss and said it was "assessing options" to strengthen the balance sheet. 

My colleague Simon Foy reports:

The pre-tax loss for the six months to June included almost £1.5bn of hedge book exchange losses. Revenues sank by a quarter to £5.6bn. 

Underlying free cash flow – a measure of how much money the company has after expenses and a key metric for Rolls – also came in at negative £2.8bn, down from negative £429m for the same period last year. 

The FTSE 100 engineering giant posted a £3.3bn loss on the underlying measure. 

Rolls, which previously hinted at a fundraising, said it was reviewing options to strengthen its balance sheet.

Chief executive Warren East said:

While our actions have helped to secure the group's immediate future, we recognise the material uncertainties resulting from Covid-19 and the need to rebuild our balance sheet for the longer term.

We have identified a number of potential disposals that are expected to generate proceeds of more than £2bn, including ITP Aero and a number of other assets.

Agenda: Europe to open flat 

Good morning. European equities are set to open flat ahead of the virtual Jackson Hole summit of central bankers later today. 

Federal Reserve Chair Jerome Powell is expected to outline a more flexible approach to policy including a shift to targeting an average inflation rate around 2pc that will allow rates to stay super-low for longer.

5 things to start your day 

1) HSBC faces a deepening diplomatic crisis after US Secretary of State Mike Pompeo accused the bank of supporting the sanctioned leaders of a crackdown on dissent in Hong Kong. Mr Pompeo claimed that Chinese officials have bullied HSBC into locking pro-democracy campaigners out of their accounts in the former British colony. 

2) Consumers stay closer to home after bruising year for retail: Even after non-essential shops were allowed to reopen in mid-June, consumers have been hesitant to return en masse, although footfall is beginning to improve. 

3) Japan tries to keep its spluttering car industry on the road: Its annual production hovers at about 9m, making Japan the world’s third-largest producer, with half being exported. Millions more vehicles roll off factory lines at foreign plants owned by Japaneses firms every year. 

4) Making masks compulsory will delay return to the office: Companies are increasingly fearful that new rules on masks could be imposed as they struggle to bring staff back to work – with many company owners concerned it would kill their efforts to restore normality and bring back the daily commute.  

5) Wahaca, the Mexican restaurant chain set up by Masterchef winner Thomasina Miers, is set to shut more than a third of its sites in a bid to shore up cash. The group said 10 of its 28 restaurants will permanently close as rental costs in city centre locations made running them “untenable”.

What happened overnight 

Most markets fell on Thursday ahead of a key policy speech by Federal Reserve chief Jerome Powell, and even a fourth successive record on Wall Street was not enough to stoke a rally.  Hong Kong led losses, dropping one per cent, with HSBC losing more than two percent after Pompeo accused the bank of not standing up to China. Tokyo and Singapore were both down 0.5pc, Shanghai eased 0.2pc and Seoul was off 0.7pc, though Sydney, Taipei and Jakarta squeezed out small gains.

Coming up today

Interim results: Anglo Pacific, Hunting, OneSavings Bank, Rolls-Royce Holdings, WPP

Full-year: Hays, TheWorks

Trading statement: Diploma

Economics: Industrial profits (China); money supply (eurozone); virtual Jackson Hole Economic Policy Symposium begins, Q2 GDP second estimate, jobless claims (US)