ecb-shocks-markets-with-biggest-interest-rate-rise-in-20-years-–-live-updates

ECB shocks markets with biggest interest rate rise in 20 years – live updates

ECB President Christine Lagarde interest rates negative bond turmoil eurozone inflation - Daniel Roland/Pool via REUTERS/File Photo

ECB President Christine Lagarde interest rates negative bond turmoil eurozone inflation – Daniel Roland/Pool via REUTERS/File Photo

The European Central Bank has shocked markets with a bigger-than-expected interest rate rise that brings to an end the bloc’s long experiment with negative rates.

The central bank raised rates by 50 basis points to 0pc – its biggest rise since 2000 – overriding its previous guidance of a more cautious 25 basis-point increase.

It also hinted at further interest rate rises at future meetings, although it gave no guidance on the size of those increases.

The euro climbed as much as 0.8pc against the dollar following the surprise decision.

The aggressive approach comes as ECB officials grapple with inflation that’s surged to more than four times its 2pc target.

A recent slump in the euro, which dropped to parity with the dollar, also boosts inflation and adds to the case for a bigger rise, even if that hurts economic growth.

The ECB also unveiled a new tool, dubbed the Transmission Protection Instrument, aimed at calming turmoil in the bond market amid concerns about another eurozone debt crisis.

It comes hours after Italian Prime Minister Mario Draghi handed in his resignation, sparking a fresh wave of political chaos across the bloc.

03:17 PMAmazon pushes further into health with $3.5bn One Medical deal

Amazon has snapped up primary care firm One Medical in a $3.49bn (£2.9bn) as the tech giant pushes further into healthcare.

The all-cash deal marks a dramatic expansion of Amazon’s healthcare ambitions and adds brick-and-mortar doctors’ offices to its portfolio.

One Medical is a care provider that offers both telephone health services and options to meet doctors in person at its 182 offices, which are scattered across 25 markets in the US.

Its customers include Airbnb and Google, according to its website.

Neil Lindsay, senior vice president of Amazon Health Services, said: “We think healthcare is high on the list of experiences that need reinvention.”

03:01 PMUK’s biggest gas storage site to reopen by autumn

Rough gas storage site - Centrica

Rough gas storage site – Centrica

After the reopening of the Nord Stream pipeline this morning, there’s another bit of relieving news for energy markets.

Rachel Millard explains:

Britain’s largest gas storage site is a step closer to reopening after regulators approved a new licence, boosting Western efforts to cut reliance on Russian gas.

Centrica has been approved by the North Sea Transition Authority to store gas at the Rough storage site off the coast of Yorkshire, five years after closing it down because it was uneconomic.

There are hopes the facility could be reopened as soon as this autumn, but ministers are still in talks with Centrica about possible financial support to help it reopen. That could see a levy added to consumer bills, deepening the cost of living crisis.

Efforts to reopen the site come amid concern over gas supplies this winter as Russia restricts flows to Europe.

The EU yesterday told member states to cut their gas demand by 15pc in a bid to avoid rationing and blackouts this winter.

Moscow restarted flows through the Nordstream 1 pipeline on Thursday after a shutdown for maintenance, dismissing fears that it would not restart.

The latest figures showed Russian gas was flowing to Germany at about 40pc of capacity between 7am and 8am, roughly the same as before the maintenance work began.

Read Rachel’s full story here

02:52 PMWall Street falls after ECB decision

Meanwhile, the ECB’s big interest rate rise is weighing on Wall Street.

The benchmark S&P 500 fell 0.2pc – its first decline in three days – while the Dow Jones shed 0.5pc. The tech-heavy Nasdaq was the only one to buck the trend, ticking up 0.1pc.

Traders will be weighing up the impact of the interest rate rise on economic growth, as well as the ECB’s prospects for staving off another debt crisis – especially as Italy is plunged into political turmoil.

02:48 PMReaction: Forward guidance is dead in Europe

Charles Hepworth, investment director at GAM, says the ECB may need to deploy its new anti-fragmentation tool soon.

The last time ECB Governor Lagarde gave forward guidance to the markets, she said 0.25pc hike would be appropriate in July.

But it seems forward guidance is now dead in Europe, just as it now is in the US, as the ECB surprised with a rate rise of 0.5pc to bring an end to the negative rate environment that has been in place since 2014.

This is the first rate hike in 11 years, as it finally addresses the inflation dynamic across the Eurozone.

As part of the triage policy against a fragmenting bond market, the ECB announced a new antifragmentation tool – the Transmission Protection Instrument.

This may well need to be deployed soon given the direction of travel in Italian bonds right now following PM Draghi’s resignation this morning.

European bonds are predictably shifting higher in yields across the curves with the Euro catching more of a bid, but the real action is in Italian debt with the 10 year yield rising 0.2pc to 3.57pc – that’s 2.2pc higher than German equivalent debt and now yields more than Greece. Fragmentation?

02:46 PMThat’s a wrap

That’s it folks, Christine Lagarde brings the press conference to an end.

We won’t be hearing from her again in an official capacity until September’s meeting.

02:44 PMLagarde welcomes ‘historic’ moment

Christine Lagarde is asked if this is a historic moment, and she agrees.

She says it’s it’s a gratifying moment for her personally due to the unanimous backing for today’s action.

The ECB chief adds that this will make it easy to communicate.

02:40 PMECB ‘would rather not use’ new tool

Here’s some great equivocation from Christine Lagarde.

She says the ECB would “rather not use” its new emergency tool but “won’t hesitate” if it has to do so.

Some of her colleagues have previously said the very existence of the tool means it won’t have to be use, as it instills so much confidence.

02:31 PMLagarde shrugs off questions about Italy

Unsurprisingly, the ECB boss is getting a lot of questions about Italy after Mario Draghi handed in his resignation this morning.

They’re not getting very far, though, with Ms Lagarde simply saying that the central bank doesn’t take a stance on political matters.

02:28 PMLagarde: ECB ‘very attentive’ to energy crisis

Christine Lagarde has said the ECB is “very attentive” to surging gas prices and the wider energy crisis gripping Europe.

She insists that the baseline case is for no recession in the eurozone this year. But she adds: “Is the outlook clouded? Of course it is.”

02:18 PMEuro gains go into reverse

The euro’s gains have been all but wiped out.

After gaining as much as 0.8pc against the dollar in the aftermath of the interest rate decision, the common currency has pared back its gained to just 0.2pc.

That suggests markets are less than convinced by the ECB’s efforts to tackle the widening gap between bond yields across the bloc.

02:13 PMLagarde: Forward guidance ‘no longer applicable’

It seems the ECB has thrown out all its guidance.

The central bank previously said it would raise rates by 25 basis points at this meeting and by 50 basis points in September. Clearly, it hasn’t stuck to that.

Asked about what this means for the next meeting, Christine Lagarde says the prior guidance on September no longer applies.

Instead, the ECB will take decision on a meeting-by-meeting basis.

She clarifies that this doesn’t mean the ultimate end point has changed… it’s just about how quickly the ECB gets there.

02:11 PMWhen will the TPI be used?

Christine Lagarde is giving a bit more detail on the so-called Transmission Protection Instrument, which is designed to prevent chaos in bond markets.

She says TPI is a programme that is designed to address a specific risk that all eurozone countries can face – i.e. a big spread in bond yields.

All countries are therefore eligible, but Ms Lagarde says the Governing Council will use its discretion for activating it where there are “unwarranted, disorderly” bond market dynamics.

02:04 PMECB ‘unanimous’ on emergency tool

Christine Lagarde says the ECB’s decision on its new emergency tool was unanimous.

That’s a victory for the central bank chief in securing a new way to stem off another eurozone bond crisis.

She adds that this tool allowed the Governing Council to opt for a larger interest rate rise. That’s because it should help to cushion the impact of higher borrowing costs on bond yields across the bloc.

02:00 PMLagarde: Inflation risks have intensified

Christine Lagarde says that the risks to inflation across the eurozone economy have intensified – especially in the short term.

She says price pressures are spreading across more sectors, and inflation is expected to remain “undesirably high for some time”.

The ECB chief warns signs of higher inflation expectations need monitoring and points to the weakness in the euro as a threat.

Still, Ms Lagarde says easing supply troubles and energy prices should help bring inflation back to its 2pc target in the long term.

01:56 PMChristine Lagarde gives press conference

ECB President Christine Lagarde has taken to the stage for a press conference after the big interest rate decision.

01:52 PMReaction: Too little, too late?

Hinesh Patel at Quilter Investors is equally sceptical about the ECB’s actions.

The European Central Bank has at long last joined the rate hike club with this afternoon’s 50 basis-point increase – the first ECB interest rate rise for 11 years.

However, the ECB is pushing on a string with rate hikes that will do little to quell what is predominantly an energy crisis. The ECB has waited far too long relative to the Fed and the Bank of England, thereby creating additional pressure on the EUR which is adding to inflationary pressure.

The stall in industrial activity indicates that this rate hike is likely to have minimal impact. Headline inflation is now creeping into core which will be gravely concerning to the ECB, especially as costs now represent the most pressing problem for corporates in the region – particularly for the likes of Italy.

Inflation is a major issue and will be for some time yet and the balancing act faced by the ECB remains a difficult one. The bloc is faced with inflationary shock combined with ongoing uncertainty driven by the war in Ukraine, but the ECB’s previous inaction means today’s rate hike could well be too little too late.

01:49 PMReaction: No central bank is in a worse position than the ECB

Seema Shah at Principal Global Investors gives this damning assessment of the ECB’s approach to monetary policy so far.

The ECB’s era of negative rates has finally come to an end, and with quite a bang – but it’s not against a backdrop of strong economic growth and certainly not accompanied by celebratory smiles. Quite the contrary.

The ECB is hiking into a drastically slowing economy, facing a severe stagflationary shock that is quite beyond its control, while also facing an Italian political crisis which presents a difficult sovereign risk dilemma.

There is no other developed market Central Bank in a worse position than the ECB.

01:43 PMECB unveils new emergency tool

The ECB has confirmed its approval of a new emergency tool, which it’s calling the Transmission Protection Instrument.

We’ll be listening out for more details on this when we hear from Christine Lagarde, but it’s designed to curb the gap between bond yields in different EU countries as borrowing costs rise.

Italian bond yields extended their rise following the decision, with the 10-year yield last up 20 basis points on the day to 3.7pc – the highest since June 28.

The closely-watched spread to German peers widened briefly to 239 basis points, but was last back to pre-decision levels near 235 basis points.

01:39 PMECB: Further rate rises to come

Here’s the central bank’s own explanation of today’s decision:

The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions.

There’s no detail about how big these future increase will be, however.

01:37 PMReaction: R.I.P forward guidance

It seems the ECB is facing the same criticism that’s dogged the Bank of England in recent months.

Frederik Ducrozet at Pictet Wealth Management tweets laconically: “R.I.P forward guidance.”

It’s a dig at President Christine Lagarde, who previously suggested that rates would rise by just 25 basis points today, with a further jump pencilled in for September.

Mr Ducrozet adds that the ECB needs to preserve its credibility. That’s something we’ve heard said about the Bank of England a lot recently, too…

01:31 PMMoney markets bet on bigger increase in September

Money markets are betting on 60 basis points of interest rate rises at the ECB’s next meeting in September. That’s up from under 50 basis points before today’s decision.

The repricing suggests investors think the ECB will have to get more aggressive to deal with sky-high inflation, which is more than four times over the 2pc target.

01:30 PMECB joins rate hike club

The ECB’s decision marks the first time it’s moved out of negative territory and the biggest jump since 2000.

The decision highlights urgency among policy makers to tackle surging inflation across the bloc, which is being fuelled in part by the escalating energy crisis.

But there’s criticism that the ECB has acted too late. Even today’s double rate rise lags behind the Federal Reserve’s recent 75 basis-point rise.

The rate on the ECB’s main refinancing operations climbed to 0.5pc and on its marginal lending facility to 0.75pc.

In terms of forward guidance, the ECB said future rate hikes “will be appropriate”, while the size of the moves would be “data-dependent”.

01:27 PMEuro spikes as ECB unveils huge rate hike

The euro has hit fresh highs as traders responded to the ECB’s surprisingly aggressive interest rate rise.

The common currency rose 0.6pc against the dollar to 1.0247 as the central bank dragged the bloc out of its era of negative rates.

01:05 PM​HSBC agrees deal to sell Russia business to Expobank

HSBC has reportedly agreed a deal to sell its Russian operations to Expobank, securing the sale shortly before Moscow said it would block such transactions.

A spokesman told Reuters: “Following a strategic review, HSBC has signed an agreement to sell 100pc of its participating interests in HSBC Bank (RR) LLC to Expobank JSC.”

Completion of the deal would represent HSBC’s formal exit from Russia but the bank said the transaction was still subject to regulatory approvals in Russia.

It comes after deputy finance minister Alexei Moiseev said the Kremlin would block the sale of foreign banks’ Russian businesses while Russian banks abroad were also unable to function normally. It is unclear whether this policy could yet scupper HSBC’s plans.

12:52 PMEnergy firm SSE gets windy weather boost

Energy giant SSE has reported better than expected performance after higher wind speeds boosted output of its turbine farms, writes Rachel Millard.

The FTSE 100 company said its renewables output was around 5pc higher than expected in the three months to the end of June “mainly due to weather conditions.”

SSE co-owns and runs the Beatrice wind farms off the Caithness coast, as well as Greater Gabbard off the coast of Suffolk. It is also building several new sites including Dogger Bank off the north-east coast, set to be the world’s largest wind farm.

In a trading statement this morning, SSE said the output of its wind farms and hydropower station rose from 1,722 gigawatt-hours in April-June 2021 to 2,129 gigawatt-hours in the same period this year.

“Performance has slightly exceeded our expectations and further demonstrates the strength and stability provided by SSE’s balanced mix of regulated and market-facing businesses,” bosses added.

12:17 PMRishi Sunak ‘doesn’t plan income tax cuts before autumn 2023’

Rishi Sunak is said to have dismissed the idea of cutting income tax before next autumn 2023 at the earliest if he’s chosen as the next prime minister.

The former Chancellor has repeatedly said he wouldn’t cut taxes until inflation is under control. His conclusion – based on Treasury analysis – is that that won’t happen on a consistent basis until the middle of next year, Bloomberg reports.

Based on the usual timing of Budget statements and the April-April tax year, Mr Sunak’s position could mean any changes might not take effect until Spring 2024, though a faster timeframe is not impossible.

It’s a risky tactic for the leadership hopeful and contrasts starkly with Liz Truss, who has made about £34bn of tax cuts the central pledge of her campaign.

12:09 PMUS futures slip as markets brace for ECB deicion

US futures slipped this morning as markets brace for the first ECB interest rate rise in more than a decade.

Stocks initially pushed higher as Russia resumed gas flows through the Nord Stream pipeline, but sentiment turned negative as traders looked ahead to the ECB meeting.

There’ll also be a focus on the ECB’s promised crisis management tool as widening bond yields spark fears of another eurozone debt crisis.

Futures tracking the S&P 500 dipped 0.2pc, while the Dow Jones shed 0.3pc. The tech-heavy Nasdaq was little changed.

12:02 PMZara owner sees real estate fortune rise to $16bn

Amancio Ortega with daughter Marta - fotopress/Getty Images

Amancio Ortega with daughter Marta – fotopress/Getty Images

The billionaire Spaniard behind the Zara fashion chain has seen his real estate fortune surge over the last year.

Amancio Ortega’s family office enjoyed an 8.4pc increase in the value of its property holdings to €15.3bn (£13bn). That’s similar to the value record prior to the pandemic in 2019.

The 86-year-old Zara founder saw his fortune recover after dividends slumped last year due to Covid. Most of Mr Ortega’s income comes from his 59pc stake in Zara owner Inditex.

Mr Ortega’s wealth has enabled him to build one of the biggest real estate portfolios in the world and has become landlord to some of the world’s largest corporations, including Amazon in Seattle.

His latest deals including the C$1.2bn acquisition of the Royal Bank Plaza in Toronto and an agreement to buy 19 Dutch, a luxury apartment complex in Manhattan.

11:50 AMHSBC unit installs Chinese Communist Party committee

HSBC CCP China communist - ISAAC LAWRENCE / AFP

HSBC CCP China communist – ISAAC LAWRENCE / AFP

HSBC has installed a Chinese Communist Party (CCP) committee for workers in its investment banking unit in the country amid escalating tensions between Beijing and the West.

Patrick Mulholland has the story:

The bank’s subsidiary HSBC Qianhai Securities was set up in 2015 to drive expansion across mainland China and in April the lender raised its stake in the joint venture to 90pc, up from 51pc.

Under Chinese law, companies are required to have CCP committees with three or more employees who are also members of the Chinese Communist party appointed to roles.

They function like a workers’ union but are also a way of installing a party representative within a company’s top ranks, sometimes in a director or management role.

HSBC is believed to be the first foreign finance group to have a CCP committee, in a move likely to have a ripple effect across the financial services industry.

Read Patrick’s full story here

11:34 AMPfizer and Flynn fined £70m for overcharging NHS for epilepsy drugs

Pharmaceutical firms Pfizer and Flynn have been fined almost £70m after they overcharged the NHS for a life-saving epilepsy drug.

The Competition and Markets Authority said the two companies “abused their dominant positions” in the market to charge unfairly high prices over a four-year period.

NHS costs for the phenytoin sodium capsules jumped from £2m in 2012 to £50min 2013 after prices were hiked. The CMA said it has fined Pfizer £63m and Flynn £6.7m.

Pfizer has said it will appeal.

The new fine comes after the firms challenged the CMA’s previous decision of an £84m penalty.

Andrea Coscelli, chief executive of the CMA, said:

Phenytoin is an essential drug relied on daily by thousands of people throughout the UK to prevent life-threatening epileptic seizures.

These firms illegally exploited their dominant positions to charge the NHS excessive prices and make more money for themselves – meaning patients and taxpayers lost out.

Such behaviour will not be tolerated, and the companies must now face the consequences of their illegal action.

11:11 AMRegulators warn airlines to obey rules amid travel chaos

The competition and aviation regulators have warned airlines they have to follow rules on not overselling seats and offering compensation as the summer holiday season is plagued by travel chaos.

The Civil Aviation Authority and Competition and Markets Authority wrote an open letter saying the were monitoring airline practices and passenger experiences.

They warned they’d consider enforcement action if they saw evidence of “consumers continuing to experience these serious problems”.

11:07 AMElon Musk ditches most of Tesla’s Bitcoin

Elon Musk Tesla Bitcoin - Angela Weiss / AFP

Elon Musk Tesla Bitcoin – Angela Weiss / AFP

Elon Musk has claimed “cryptocurrency is a sideshow” as Tesla ditched three quarters of its Bitcoin holdings and the billionaire appeared to cool on digital coins.

Matthew Field has more:

Mr Musk, who previously promised Tesla would never sell its Bitcoin and would take the digital currency as a form of payment, performed the sudden u-turn on a call with investors.

“Cryptocurrency is not something we think about a lot,” he said. “The fundamental goal of Tesla, and the reason we’re doing this, which is my primary motivation here, is to have the day of sustainable energy come sooner. That’s our goal.

“We’re neither here nor there on cryptocurrency.”

The Tesla chief executive said the company had sold its position in Bitcoin due to Covid related shut downs in China, which forced it to pause production at its facility in Shanghai.

Tesla sold 75pc of its coins for $936m, recording an impairment charge of around $106m. At one point, its Bitcoin holdings had been worth more than $2bn.

10:40 AMLong-running Night Tube strikes suspended

Long-running strikes on London’s Night Tube have been suspended, offering relief for the capital’s late-night workers and revellers.

Members of the RMT union have been taking industrial action over weekends in a dispute over shifts.

Nick Dent, London Underground’s director of customer operations, said: “We are pleased that the RMT has suspended their industrial action on Night Tube services.

“This is good news for London and we will continue to work closely with all our trade unions.”

Strikes were planned on Night Tube services on the Central, Victoria, Jubilee, Northern and Piccadilly lines each weekend until December.

TfL said it has run a good service on the Victoria, Jubilee and Northern lines, and also a regular service on the Central line, despite recent strikes.

10:34 AMBT Sport and Sky ‘consulted over freelance rates’

BT Sky sports freelance broadcasters - Michael Regan

BT Sky sports freelance broadcasters – Michael Regan

Staff at BT Sport are said to have consulted with rivals at Sky about pay rates for freelancers in a move that could suggest collusion between the broadcasters.

In an email from July 2018, a senior executive at BT Sport, seen by the Financial Times, wrote: “After consultation with Sky Sports, BT Sport will increase the daily rate . . . by £10 per day to £380.”

The executive was responding to requests for higher pay from freelance EVS operators, who create slow-motion replays and voice tape packages for broadcasters.

It comes after the competition watchdog last week into whether BT, IMG Media, ITV and Sky had fixed the day rates paid to freelancers, saying it had “reasonable grounds” to suspect a breach of competition law.

10:22 AMBlow to M&S as top executive joins Primark owner

A top executive from Marks & Spencer is leaving to join Primark owner Associated British Foods.

Eoin Tonge, currently chief financial and strategy officer at M&S, will replace John Bason as finance director at AB Foods.

Mr Bason, who has worked at AB Foods for 23 years, will become chairman of a newly constituted strategic advisory board and a senior adviser to Primark.

The move is a blow to M&S as Mr Tonge was given an expanded role only a few weeks ago and billed a key part of a top management team of three charged with running M&S following the departure of Steve Rowe.

Mr Tonge was named chief strategy officer, in addition to his finance role, alongside co-chief executives Stuart Machin and Katie Bickerstaffe, who only works four days a week.

Shares in M&S fell 2pc following the announcement, while AB Foods was up 1pc.

10:14 AMTesla’s profits knocked by China factory shutdowns as it sells Bitcoin

Tesla China Bitcoin - TANG KE/ Feature China/Future Publishing

Tesla China Bitcoin – TANG KE/ Feature China/Future Publishing

ICYMI – Tesla has fallen victim to supply chain chaos in China and a damaging bet on Bitcoin, bringing a record run of profits at Elon Musk’s car company to a sudden end.

Here’s more from Matthew Field:

The electric vehicle maker also sold off a chunk of its Bitcoin holdings, the company said on Wednesday, as its bet on the cryptocurrency soured.

Revenues at Tesla dropped by 9pc between the second and first quarter to $16.9bn (£14.1bn), though were still 42pc higher than a year earlier.

Its revenues were down on the record three-month revenues of $18.8bn it posted earlier this year amid supply chain woes and a factory shut down in China due to Covid restrictions.

Telsa said it “faced certain challenges, including limited production and shutdowns in Shanghai for the majority of the quarter” but claimed it “continued to make significant progress across the business during the second quarter of 2022”.

Earlier this month, Tesla reported it had delivered more than 254,000 electric vehicles, down from around 300,000 in the previous quarter.

​Read Matt’s full story here

09:59 AMHeathrow fuel workers halt strike after pay offer

Refuelling workers at Heathrow have called off a strike that was due to begin today.

The Unite union said the walkout was suspended after Aviation Fuel Services made a “sustainably improved offer”. The roughly 50 employees involved will now be given time to consider the proposal.

AFS is a joint venture among fuel companies that supplies fuel to more than 70 airlines, including American Airlines, United Airlines and Emirates.

The threatened strikes were one of a number of disputes that have added to transport chaos across the UK and Europe this eummer.

Earlier this month, British Airways reached an agreement with check-in employees to avoid a strike after the carrier scrapped thousands of flights amid a staffing crisis.

09:46 AMGovernment used P&O Ferries despite condemning sackings

P&O Ferries government MoD - REUTERS/Clodagh Kilcoyne

P&O Ferries government MoD – REUTERS/Clodagh Kilcoyne

The Government has admitted P&O Ferries was used by the military even as ministers condemned the firm for sacking 800 workers without notice.

The Department for Transport cancelled a contract with P&O after conducting a review of government business with P&O in the wake of the sackings in March.

But the Ministry of Defence said it used P&O to support a recent exercise, the BBC reports.

It came after the RMT union said it saw evidence the MoD had bought slots on P&O’s Dover-Calais service.

In March, P&O replaced its sacked staff with foreign agency workers paid less than the minimum wage. Its services were suspended and several of the company’s vessels failed safety inspections before being cleared to resume operating.

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