Bailey at Jackson Hole: 'We are not out of firepower'

Andrew Bailey

Markets wrap

That's all for today. Here's a roundup of what happened:

  • At (virtual) Jackson Hole, Andrew Bailey said the Bank was "not out of firepower by any means" as he said "going big and fast" on QE is particularly effective 
  • Japanese stocks fell after Shinzo Abe resigned as PM
  • A rally in the Yen hit the dollar, which, in turn, is boosted the pound
  • The boss of the British Chamber of Commerce has slammed the Government's "scaremongering" over its plans to rush workers back to the office
  • Gatwick crashed to a £321m half-year loss ​
  • Profits at Amigo collapsed as the high-interest lender was forced to allow payment holidays to 47,000 cash strapped customers during the pandemic

Thanks for following and enjoy your bank holiday!

Accounting firms to audit government virus loan schemes

The British Business Bank is launching an audit of its guaranteed business loan schemes to identify lenders that have broken the rules during the pandemic.

My colleague Michael O'Dwyer reports:

Banks have lent £52bn to more than 1.2m businesses since the schemes were introduced. 

The state is providing an 80pc guarantee on amounts borrowed under the Coronavirus Business Interruption Loan Scheme (CBILS) and a full guarantee for loans under the Bounce Bank Loan Scheme (BBLS) for small firms. 

The business bank, which administers the schemes, has asked auditors from firms including some of the Big Four accountants, to review loans handed out by the likes of Barclays and Natwest under state-backed schemes, Bloomberg reported. 

Banks could be fined or face clawbacks if they are found to have given state-backed loans to companies ineligible for the schemes. 

White collar crime experts have warned that the economic crunch coupled with the vast sums of public money injected into the economy through hastily assembled schemes create the perfect conditions for fraudsters. 

UK Finance, a bank industry lobby group, said it was standard practice to audit guaranteed lending schemes and the requirement had been set out in the terms of the CBILS and Bounce Back schemes. 

Something a bit lighter heading into the bank holiday weekend..

Reaction to Bailey's speech

Neil Williams, senior economic sdviser to investment fir Federated Hermes, says:

Governor Bailey’s comments remind us the BoE, wary of ‘squandering’ its ammunition, is still preferring to use QE rather than visibly taking Bank rate into negative territory. But the negative-rate dilemma might be a ‘red herring’. We calculate the BoE is running a true policy rate as low as -6pc, or -7pc in real (inflation-adjusted) terms, when QE is fully taken into account.

Together with other emergency measures, this confirms by far the loosest monetary-and-fiscal stance in 30 years of data, probably post-War, with little correction in 2021. It thus questions the urgency in following the BoJ and ECB onto negative official rates, given we've in effect been running them for a decade.

Sterling treads water 

No big swings.

After a slight dip before Bailey spoke, the pound has recovered some of those losses and is still trading just below $1.33.

Banking system has held up well during crisis, says Bailey 

Bailey's session has just finished. One of his final comments was that the banking system held up well during crisis in its first major challenge since the global financial crisis. 

Wall Street opens in the green 

Meanwhile US stocks have gained for a seventh day as the Fed's new inflation approach rippled through global markets.

Credit: Bloomberg 

Bailey: We'll need a stronger than usual body of evidence before we start to tighten policy 

Bailey says that the Bank has pivoted from focusing on QE to talking about forward guidance on interest rates. 

He says: 

With amount of uncertainty and risks on the downside, we would need a stronger than usual body of evidence on the recovery before we would start to move [to tighten monetary policy]. 

We're not out of firepower by any means, says Bailey

Bailey says the Bank is "not out of firepower by any means", adding that its "box of tools" includes the possibility of negative rates. 

He says that central banks were too cautious about the firepower they had available to fight crises prior to Covid. 

He says:

We are not out of firepower by any means, and to be honest it looks from today’s vantage point that we were too cautious about our remaining firepower pre-Covid. But, hindsight is a wonderful thing when you have it.

Bailey: 'Going big and fast' on QE is particularly effective 

Bailey says if the effects of QE are more powerful in crisis states of the world, we may need to ensure that we have enough headroom in the future to repeat it.

He says:

One conclusion is that it could be preferable, and consistent with setting monetary conditions consistent with the inflation target, to seek to ensure there is sufficient headroom for more potent expansion in central bank balance sheets when needed in the future –to “go big” and “go fast” decisively

Bailey: QE will 'be more long-lived' than previously anticipated 

Via a pretty patchy connection, Bailey is up.

On QE, he says:

Viewed from the depth of the Covid crisis, QE worked effectively. Measuring this effect precisely is of course hard, since we cannot easily identify what the counterfactual would have been in the absence of QE. But QE clearly acted to break a dangerous risk of transmission from severe market stress to the macro-economy, by avoiding a sharp tightening in financial conditions and thus an increase in effective interest rates. 

Standing back from the Covid crisis, and looking at the UK case, there indeed is some evidence that the impact of QE over the past decade has been largest at times of market dysfunction and illiquidity. Of course the available event studies are very few in number. But, if this result proves robust, it suggests that “going big and fast” with QE is particularly effective in these conditions. 

Bailey set to discuss outlook for recovery 

The Bank of England governor is up in just over 10 minutes. Investors will be keen to hear what he has to say about the outlook for the recovery from the pandemic.

The pound is trading just below $1.33 prior to the speech. 

You can watch it here:

Sweden proposes raising limit on public gatherings to 500

Sweden’s national health body has proposed raising the limit on certain public gatherings to 500 from 50, as the coronavirus infection rate begins to stabilise. 

Anders Tegnell, a state epidemiologist, said: "We have made a consultation response following a request from the government."

The agency said the proposal applies to events with numbered seats.

Tegnell also signaled a further increase of the gathering limit was under consideration.

"The outcome will be evaluated after a month or so, to see if you can raise the bar further," he said.

Merkel warns of long road ahead in worsening virus battle 

Chancellor Angela Merkel has warned the pandemic will get worse before it gets better and that the fallout will test Germany’s finances for months if not years to come.

Bloomberg has the details:

The long-time leader of Europe’s biggest economy was short on comforting words, saying that beating the disease hangs on the uncertain pace of developing and disseminating a vaccine -- a process that could take 12 months or more. As the summer draws to a close and people are forced indoors, the situation is likely to get worse, she said during her annual summer address.

“I am firmly convinced that it is a good decision to take on a high degree of debt because anything else would mean we would be in the grip of the pandemic for a lot longer,” Merkel said Friday in Berlin. “In retrospect, I’m happy we didn’t succumb to the sweet poison of borrowing in good times,” giving Germany more resources to fight the crisis now.

The wide-ranging briefing was one of her last summer press conferences before she steps down after 16 years in power following elections next fall. She made it clear that the Covid-19 crisis will dominate the remainder of her political career, opening the event with a personal appeal to Germans in which she thanked them for their sacrifices but warned that more would be needed.

“There are indications that things will become more difficult in coming months,” she said. “It’s serious, unchanged serious. Continue to take it seriously.”

While Merkel has been praised for her handling of the pandemic, cracks have started to appear. She struggled to get state leaders aligned on response measures as infection rates rising again. On Thursday, the chancellor urged Germans to avoid travel to virus-hit areas like the U.S., and warned that restrictions on family gatherings may still come.

Bailey set to speak

Andrew Bailey

Bank of England Governor Andrew Bailey will speak at the virtual Jackson Hole symposium of central bankers just after 2pm UK time today. 

There aren't too many clues about what his speech will focus on, but the economic outlook into 2021 and beyond as well as the prospect of interest rates going negative are two likely topics.  

In the meantime why not refresh your memory on Bailey's rise to the top of the Bank of England with this excellent profile by our economics editor Russell Lynch.  

Gatwick seeks relief on £3.4bn debt pile

Gatwick airport

More on Gatwick: the airport has asked creditors to change the terms on its £3.4bn debt pile to help it recover from the slump in air travel.

The airport wants investors in its debt, including those holding £2.8bn of bonds, to waive covenants and change certain conditions. Gatwick forecasts passenger traffic to be down by up to 70pc this year compared with 2019.

Holders of almost half Gatwick’s debt have indicated that they intend to vote in favor of the proposals by a deadline on September 18, according to the statement.

The airport, majority-owned by French builder Vinci, said on Wednesday that it plans to cut nearly a quarter of its remaining staff after major customers reduced their presence there. Virgin Atlantic has closed its Gatwick base, while British Airways and Norwegian put flights on hold.

Wirecard UK sold

What's left of Wirecard's UK operations are set to be sold.

The failed German payments firm will sell its card technology and associated assets in the UK and transfer client relationships and certain employees to Railsbank.

The managers of Wirecard Card Solutions are presenting a proposal for customer migration and the terms of the asset sale to Railsbank at a meeting on Friday. Migration of customers is expected to take place by November.

Wirecard’s insolvency administrator said last week that a subsidiary of PagSeguro Digital will buy the company’s Latin American business.

Cyber attacks disrupt New Zealand stock market 

New Zealand has enlisted its spooks in the wake of cyber attacks on the Wellington stock market for the fourth consecutive day.

AP has the details:

The attacks have halted trading on the exchange for up to several hours at a time.

Finance minister Grant Robertson said he had asked the Government Communications Security Bureau intelligence agency to help stop the attacks.

"We as a government are treating this very seriously," he said, adding that security concerns prevented him from saying much more.

Neither the exchange operator NZX nor Mr Robertson said if the attackers sought a ransom, as some have speculated.

The security bureau declined to comment and NZX did not respond to requests for comment.

Amigo squeezed as borrowers take payment holidays

More on Amigo from my colleague Michael O'Dwyer. He reports:

Profits at Amigo collapsed as the high-interest lender was forced to allow payment holidays to 47,000 cash strapped customers during the pandemic. 

The Bournemouth-based lender reported a 31.7pc slump in revenues to £49m in the three months to June, which it blamed primarily on customers pausing repayments during the pandemic and on its decision to halt new lending except for key workers. 

Pre-tax profit in the three months to June fell to £1.4m from £22.6m in the same period last year. 

Total customer numbers dropped 5.2pc to below 200,000. The fall contributed to a reduction of almost a quarter in the value of Amigo’s loan book compared with a year ago. 

Nayan Kisnadwala, chief financial officer, said Amigo aimed to restart lending by the end of the year and had enough liquidity to carry on.

He is one of the directors facing removal from the board at a shareholder vote called on Thursday night by Amigo’s founder James Benamor

Mr Benamor said this week he wanted to oust interim chairman Roger Lovering and install himself as chief executive in a move that would see returning boss Glen Crawford become his understudy. 

Mr Crawford has told the board he is not prepared to work for the founder under any circumstances in comments Mr Benamor branded “personally hurtful”.

On Friday Amigo said Mr Benamor's Richmond Group had withdrawn its resolution to remove Mr Crawford as a director.

The shareholder showdown will be the latest episode in a running battle between Mr Benamor and the board of the company he helped lead to a £1.3bn flotation in 2018.

A 13pc share price jump on Friday lifted the ailing lender’s value to £66m. 

BCC attacks government 'scaremongering' on getting back to the office

Read our full report on the BCC criticising the Government's drive to get staff back to the office:

The boss of the British Chamber of Commerce has slammed the Government's "scaremongering" over its plans to rush workers back to the office. 

BCC director Adam Marshall tweeted: "We all want to see a safe return to more workplaces – but the pace and scale will result from mature conversations between employers and employees, not scaremongering."

His criticism came after The Telegraph revealed that Boris Johnson will launch a publicity campaign next week to get Britain back to the office as ministers warned that working from home will make people more "vulnerable" to being sacked.

Mr Marshall contested the idea that working from home will not become a permanent option for some employees, suggesting that footfall in city centres may never recover to pre-crisis levels. 

He said on Twitter: "Businesses have worked hard to build up trust with their people over the last six months. They've learned what works – and what doesn't. 

"Some of the changes they've made will be permanent, and [government] needs to be ready to support city and town centres as they change as a result."

In a further blow to Downing Street's plan to bring life back to Britain's empty offices and eerie city centres, a new study from Cardiff University suggested that half of UK workers want to permanently work remotely, while 90pc want to do so from time to time. 

The study also suggested that home working boosts productivity. 

Prof Alan Felstead at Cardiff said: "Our analysis suggests there will be a major shift away from the traditional workplace, even when social distancing is no longer a requirement.

"What is particularly striking is that many of those who have worked at home during lockdown would like to continue to work in this way, even when social distancing rules do not require them to."

Yen rally hits dollar and boosts sterling 

The rally in the Yen is hammering the dollar, which, in turn, is boosting the pound, which is currently close to a 2-year high at $1.33,

David Madden, market analyst at CMC markets, says:

The US dollar index has come under huge pressure on account of the rally in the Japanese yen – which has been fuelled by the Abe news. It is worth noting the dollar was already drifting lower in advance of the announcement regarding Mr Abe. EUR/USD and GBP/USD have been boosted by the dollar’s demise.

The New European publisher to be sold to private equity firm 

Archant, the newspaper group that publishes The New European, has been sold to private equity firm RCapital. 

Existing shareholders are to be wiped out, including the Colmans family, who own the famous mustard brand, after 175 years of ownership.

The newspaper group has been hit by a general collapse in advertising revenue and pension costs.

Europe fluctuates 

Lots of fluctuation in European equities this morning, with the FTSE now back in positive territory.

Investors will be gearing up for Bank of England governor Andrew Bailey's speech at Jackson Hole at 2pm UK time.

Credit: Bloomberg 

More on the Abe resignation

Shinzo Abe has officially resigned to undergo treatment for a chronic illness, ending his run as the country’s longest serving premier.

Bloomberg has the details on the press conference he just gave: 

“What is most important in politics is to achieve results,” Abe said at a briefing in Tokyo. “I have done everything I can to achieve results in the last seven years and 8 months.”

Japan’s Topix index dropped as much as 1.6pc when the news broke on Friday, while the yen rebounded from losses. Abe spoke for a few minutes Friday ahead of the reports, where he told a meeting of the government’s virus task force his administration has put together a new plan to combat Covid-19 ahead of the winter flu season.

“It was an absolute surprise since it was so sudden,” Tomomi Inada, the party’s deputy secretary general, told reporters. “I hadn’t expected it.”

Abe’s record-setting run brought stability to Japan after a revolving door of six administrations, including a previous stint by the 65-year-old leader. He helped Japan escape from a cycle of deflation, endured a Trump administration that questioned the nation’s only military alliance, and worked to improve ties with its biggest trading partner China, which were at their most hostile in decades when he took office.

Abe is perhaps best known for his plans to revive the flagging economy through unprecedented monetary easing and regulatory reform that was eventually labeled “Abenomics.” He has been seen as a steady hand who has consolidated power during his record run and been able to overcome scandals, including one that came to light in 2017 over questionable government land allocations for schools provided to associates of Abe and his wife Akie.

FTSE retreats into the red 

The FTSE's rally did not last long. The blue-chip index has now followed its European counterparts into the red and is trading below 6,000 points for the first time this week.

Credit: Bloomberg 

BCC says Government is wrong to rush staff back to the office 

The Director of the British Chamber of Commerce has come out swinging this morning against the Government's plans to rush staff back to offices:

Norwegian needs more cash after slumping to £450m loss

Norwegian Air said it would need more cash to survive after sinking to a huge half-year loss.

It budget longhaul carrier posted a net loss of 5.4bn crowns (£450m) for the six months to June - far higher than the 1.4bn loss for the same period last year.

"Norwegian is facing challenging times ahead," the airline said.

Creditors and lessors took control of Norwegian in May with a financial rescue that allowed it to access state-guaranteed loans, with an aim of keeping the airline in business until demand for air travel resumes.

Chief Executive Jacob Schram said it was grateful for a loan guarantee from the Norwegian government, but added: "Given the current market conditions it is not enough to get through this prolonged crisis."

Nordic rival SAS, which is trying to gather support for a 14bn Swedish crown recapitalisation plan, posted a multi-billion crown loss for the three months to July this week.

Europe opens mixed 

The FTSE 100 is bucking the European trend this morning and is in positive territory, while the DAX and the CAC are in the red.

Credit: Bloomberg 

Gatwick crashes to £321m half-year loss

Gatwick Airport swung to a £321m half-year loss as passenger traffic collapsed due to the pandemic. 

Revenue slumped 61.3pc as passenger traffic fell by two-thirds for the six months to the end of June, Gatwick said. 

It comes days after the UK's second largest airport, owned by VINCI Airports and Global Infrastructure Partners, announced it needed to cut 600 jobs to prepare for a smaller travel industry.

Gatwick said 70pc of its staff remain on the Government's furlough scheme, which is set to end in October. 

The airport also warned that passenger numbers will not return to pre-crisis levels for four to five years. 

Earlier this month The Telegraph disclosed that Britain’s second-busiest airport was preparing to keep one of its two terminals shut until next summer and told staff that redundancies were likely.

Gatwick said it had held talks with its banks and bondholders over the impact on its financial covenants.

Chief executive Stewart Wingate said:

Like any other international airport, the negative impact of Covid-19 on our passenger numbers and air traffic at the start of the year was dramatic and, although there are small signs of recovery, it is a trend we expect to continue to see. 

We are going through a proposed company-wide restructuring programme and I want to thank all my staff for their hard work to date whilst we go through this difficult time.  We will emerge a fitter and stronger organisation, best placed to remain flexible and agile in responding to growth opportunities.

Amigo profits slump 83pc

The company behind Amigo Loans has reported a massive drop in profit as the company paused most new lending during the Covid-19 pandemic.

Amigo Holdings made a £3m pre-tax profit in the three months ending June 30, it said on Friday, down more than 83pc on this time last year.

Amigo said it is "on track" to meet a deadline, agreed with the Financial Conduct Authority, to get on top of its complaints backlog.

Amigo finance director Nayan Kisnadwala said:

The whole team at Amigo is focused on addressing our legacy issues and building a sustainable business for the long term.

Operationally we have turned a corner in our handling of complaints.

We are on track to meet the agreement reached with the FCA to resolve our complaints backlog and continue to work with the FCA on its ongoing investigation.

We have adequate liquidity and funding to support our ongoing business activity.

We are updating our lending processes and policies to enable Amigo to restart lending in a prudent manner by the end of 2020.

Agenda: Japanese stocks tumble on reports of Abe departure 

Good morning. Japanese stocks have tumbled following reports that prime minister Shinzo Abe is set to resign due to health reasons.

The country’s benchmark Topix Index fell as much as 1.6pc before paring some losses after Japanese media said Abe would explain his reasons for a resignation at a news conference later Friday.

Meanwhile European stocks are set to open in the green, as investors mull the Federal Reserve's decision to allow inflation to overshoot and encourage a jobs recovery under a new mandate.

5 things to start your day 

1) Walmart has entered the race to buy TikTok at the eleventh hour, forming an anti-Amazon alliance with Microsoft that hopes to use the video app as a way to challenge Jeff Bezos’ online retail empire.

2) British firms are looking to reshore after Covid decimated supply chains: Tom Bouchier, the firm’s UK managing director, says he’s been inundated with enquiries about replacing cheap Chinese labour with automation at home after the standstill in world trade in March. 

3) Three-horse race as National Lottery bidding kicks off: Current operator Camelot is expected to go head-to-head with firms owned by media tycoon Richard Desmond and Czech billionaire Karel Komarek for a 10-year licence starting in 2023 that will generate hundreds of millions of pounds in profit.

4) The Dutch will pay the price for their ‘light touch’ lockdown: A relaxed approach to lockdown in the Netherlands helped preserve the economy, but rising Covid cases and growing unrest spells trouble

5) Federal Reserve chairman Jay Powell has unveiled the biggest policy overhaul for nearly a decade at the US central bank, as he unleashes yet more firepower to fight off the coronavirus crisis. The Fed will seek to stoke up economic growth even if this means price rises spike higher than its inflation target, in a major break with previous guidance.

What happened overnight 

Asian markets were mostly higher overnight after the Federal Reserve said it might keep interest rates low even if inflation rises, in a major overhaul to its strategy.

Shares rose in Japan, South Korea, Shanghai and Hong Kong but fell in Sydney.

Overnight, the S&P 500 ticked 0.2pc higher, further into record territory and closing at 3,484.55, after Federal Reserve chair Jerome Powell said in a speech that it might keep interest rates low to help prop up the pandemic ravaged economy even if inflation rises above its target level of 2pc.

The hoped for change in the Fed's strategy is a huge deal for markets that have been rescued by central banks slashing short-term interest rates and buying all kinds of bonds.

Japan's consumer price index rose 0.3pc in July, the government reported, down from 0.6pc the month before.

Coming up today

Interim results: Amigo, Essentra

Economics: Andrew Bailey, Bank of England Governor, speaks at Jackson Hole (UK/US); business confidence (eurozone); Q2 GDP final reading (France); goods trade balance, personal spending and income (US)