Right, time to wrap up with a quick summary
Relief that the UK-EU trade talks didn’t blow up yesterday means the pound is still stronger tonight, up over a cent at $1.334, and up half a eurocent at €1.0974.
That’s someway off those earlier highs, with the UK government trying to dampen optimism that a deal is close.
Europe, though, says a deal could come within days.... although again, no guarantees.
Fears of the economic damage of no-deal persist today, with S&P Global signalling that the UK’s credit rating could come under pressure if services companies and goods manufacturers lose access to key European markets for a prolonged period.
The former boss of Siemens has warned that Brexit will hit the British economy like a “slow puncture”, with disruption to business lasting at least six months even if a trade deal is reached.
Business leaders have warned that more jobs will be lost across hospitality firms as London is moved into tier 3 restrictions.
A worldwide outage at Google has caused chaos for millions of users, with Gmail, Google Calendar, YouTube and Google Classroom all affected.
UK racing game producer Codemasters is the centre of a bid battle, with Electronic Arts crashing into Take-Two’s takeover plans.
The government is restarting talks with EDF on its plan to build a nuclear reactor in Suffolk C....
...and outlined proposals to automatically move households using standard energy tariffs to buy their gas and electricity onto cheaper bills.
Tens of thousands of hospitality firms in other parts of the country under tier 3 restrictions are already closed, of course, ahead of London’s move.
My colleague Rob Davies explains:
In a move described as “another nail in the coffin” by the pubs trade body, at least 15,489 venues in the capital, as well as parts of Essex and Hertfordshire, will be moved into tier 3 from Wednesday.
They will join a list of 35,742 that are already effectively closed in areas such as Greater Manchester, Kent, the east Midlands and parts of Yorkshire. The change means more than 53% of English hospitality venues will be unable to offer anything except takeaway and delivery.
Here’s Rob’s full story:
After a bright start, the UK stock market lost some of its zip by the close.
The FTSE 100 has ended the day down 14 points or 0.23% at 6531.
Brexit-sensitive UK companies did rally, with retailers Next (+5.6%) and JD Sports (+5.1%), banks Lloyds (+4.8%) and NatEest (+4.9%) and housebuilders Persimmon (+4.9%) and Taylor Wimpey (+4.1%) among the risers.
But AstraZeneca ended the day down 5.7%, as traders reacted to its $39bn (£29bn) takeover of the US rare diseases specialist Alexion, at a hefty premium.
Oil giants BP and Royal Dutch Shell also fell around 2%, after the oil price dropped back this afternoon.
But, the UK-focused FTSE 250 index ended the day 0.7% higher at 19,764, suggesting optimism over Brexit hasn’t faded.
It’s also notable that online grocer Ocado had a good day, jumping by 4.6% by the close.
David Madden of CMC Markets reckons it’s linked to the new restrictions introduced in London, which will result in more meals and drinks at home....
Ocado is one of the top performers on the FTSE 100 and that is connected to the fact the London and portions of the south east will endure tougher restrictions from Wednesday.
Nick Mackenzie, CEO at pub chain Greene King, has called for more support for hospitality firms hit by Covid-19 restrictions, as London heads into tier 3.
“Pubs in London have had an incredibly difficult time this year. Without workers and tourists, footfall has been exceptionally low, even when restrictions were lifted. Two lockdowns and a long list of restrictive policies have left the hospitality sector in dire straits.
This week would normally be a bumper week for pubs in the capital, instead, many will have to close their doors yet again, despite a significant amount of investment to ensure safe socialising. What we need from the government now is further support to help hospitality businesses get through to the spring, so that can come out the other side of this crisis and play an important role in helping the economy to bounce back.”
Businesses warn that tier 3 will have 'stark' impact on London
UK business groups are warning that putting the capital into Tier 3 restrictions over the festive period will have a serious impact on its economy.
It means hospitality businesses such as bars, pubs, cafes, restaurants, and social clubs must shut, apart from for takeaways, as must indoor entertainment venues.
Eddie Curzon, CBI London Director, warns that thousands more jobs could be lost:
“Businesses in London understand that rising infection rates must be controlled, and tougher restrictions are necessary to save lives and protect against longer-term economic scarring.
“However, the financial impact of moving London into tier 3 will be stark. Businesses – particularly those in sectors like retail and hospitality – will have been counting on a festive fillip to help mitigate months of hardship, and further restrictions now will come as a devastating blow. Thousands of jobs and livelihoods could be at risk.
“It’s vital that any tightening of measures anywhere across England is shaped by clear evidence, consistently applied, and accompanied by increased support for businesses in the worst-hit sectors. Vaccinations are now underway and offer tangible reasons for optimism in 2021 – the government must do everything possible to help businesses survive until risks recede and trade returns.”
City of London Corporation Policy Chair Catherine McGuinness is urging Londoners to o :
“This is disappointing news and will be a blow to households and businesses across London.
“We urge policymakers to keep the decision under close review, based on the evidence, so that the capital can move back to Tier 2 and gain a semblance of normality as soon as possible.
“It’s also vital that the businesses and hospitality and cultural enterprises which will suffer particularly from this increase in restrictions at a critical time, are given adequate support.
“Hopefully the vaccine roll-out will be a game changer next year, but we have to bring this dreadful virus under control in the meantime, and strongly urge Londoners to continue to act responsibly by complying with the new Tier 3 rules in order to reduce transmission, save lives and protect the NHS.
“As we look to 2021, we urgently need a thriving economy to help pay for the vast amount of support being provided at this time. The City will need clarity on when office workers can return to COVID-secure workplaces. This is vital in order to get as much of the economy operating as possible and protect livelihoods.”
Pound drops back from earlier highs
We mentioned that this week might be volatile... and so it’s turning out.
The pound is now dropping back from its earlier highs, and is now up around one cent at $1.332 -- having been two cents up at lunchtime.
That may suggest that some of the earlier relief rally is fading, even though the EU have sounded more optimistic today.
Downing Street has dampened the mood, by saying the UK still thinks a no-deal Brexit is the most likely outcome of the trade talks (after an earlier briefing to journalists indicated that it was only ‘possible’).
But the pandemic may also be worrying investors, with the UK government confirming that London is being put into the UK’s toughest Covid-19 restrictions, tier 3, along with parts of Essex and Hertfordshire, following a rapid increase in infections.
Health secretary Matt Hancock has also warned MPs that a new variant of Covid-19 may be behind the sudden jump in cases in the capital.
In New York, Wall Street has opened higher thanks to vaccine optimism, stimulus hopes, and some relief that the Brexit talks didn’t blow up yesterday.
Stocks are close to last week’s record highs, after the coronavirus vaccine developed by Pfizer and BioNTech got approval from the US Food and Drug Administration on Saturday.
The Dow Jones industrial average has gained 232 points, or 0.77%, to 30,278.
The S&P 500 has gained 0.85% and the technology-focused Nasdaq is up 1.2%.
No-deal Brexit could hit UK credit rating, says S&P
Credit ratings firm S&P Global has warned the UK’s credit rating could be hit if its economy suffers the economic shock of a no-deal Brexit.
In a research note today, S&P predicted that Britain’s economic recovery would suffer if companies lost access to European markets for a ‘prolonged period’. This could undermining the country’s attractiveness to investors, and put the credit rating under ‘downward pressure’.
But, they also suggest that the consequences of not reaching a deal mean London and Brussels will “strive” to close their disagreements over fishing rights and regulatory alignment.
S&P Global say:
Our sovereign ratings on the UK assume the U.K. and the EU will reach a basic agreement at the end of the transition period. A no-deal scenario would have important implications for the U.K. economy, the country’s ability to attract inflows of capital and labour over time, and its public and external finances, in our opinion.
Our sovereign ratings on the U.K. could come under downward pressure if the economic recovery is significantly weaker than we anticipate, making fiscal consolidation more challenging. This could happen, for instance, if merchandise and services exports from the U.K. lose access to key European markets for a prolonged period.
S&P adds that the UK’s credit rating could also under pressure if overseas investors lost their appetite for financing its current account deficit, putting sterling’s status as a reserve currency comes under pressure.
Typically over $100 billion (about 4% of GDP), the U.K.’s current account deficit is the second largest in the world, in absolute terms, after that of the US.
Any reduction in the appetite of non-residents to finance this deficit, or to roll over the U.K. private sector’s elevated stock of short-term external debt, would also weigh on the U.K.’s growth prospects.
Back in June 2016, S&P downgraded the UK from its top-notch AAA rating after the Brexit vote to AA (the third-highest rating), where it remains today.
Then in December 2019, the agency lifted its outlook on UK debt from negative to stable (meaning a downgrade is less likely) on the grounds that Boris Jonson’s election victory made a no-deal Brexit less likely.
A credit rating downgrade might be politically uncomfortable for the Conservatives, although in a no-deal crisis Downing Street would have many bigger problems.
And there’s no sign yet that investors are losing interest in British gilts. They’re currently trading near record low yields (interest rates), with the Bank of England’s huge QE programme keeping demand up, and borrowing costs down.
After a thoroughly dreadful year, Britain’s pub industry fears that takings could fall as much as 90% this month -- meaning some locals might close for good.
My colleague Rob Davies explains:
December is typically the most lucrative month of the year for the UK’s ailing pub sector, accounting for as much as a quarter of annual profit, thanks to Christmas parties and New Year’s Eve festivities.
However, the British Beer and Pub Association (BBPA) said its forecasts showed pubs would sell 270m fewer pints than usual over the period, with only one in five of the UK’s 47,200 pubs expected to be open.
“I’d be stunned if sales across the industry were any better than 10% or 20% as good as last year,” said Chris Jowsey, the chief executive of Admiral Taverns, which has 1,000 pubs across the UK.
“It’s not unusual for lots of pubs to make anywhere up to 25% of their profit in December. For a lot of smaller pubs it’s really important because it carries you through the lean months of January and February, so it’s a bit of a disaster.”
And if London moves into tier 3, as is looking increasingly likely, pubs in the capital would suffer an even worse hit. Here’s the full story:
Google worldwide outage causes chaos
Hopefully the Brexit negotiations aren’t running over Google today, as the tech giant reels from a worldwide outage that knocked several core services offline.
So if you’ve been unable to access Gmail, Google Calendar, YouTube and Google Classroom in the last hour or so, that’s why....
Our tech editor Alex Hern explains that the problem seems to centre on Google’s authentication system.
Beginning at about 11.50am GMT, the outages appeared to have affected the vast majority of Google’s services, apart from search which operated largely unaffected.
Despite the universal nature of the outages, the company’s automated systems reported no problems for any services for the first 30 minutes of the outage, across both consumer-facing and its cloud tools for developers. At 12.25pm, the company published an update, saying “We’re aware of a problem … affecting a majority of users. The affected users are unable to access [Google services].”
The outage appeared to be related to the company’s authentication tools, which manage how users log in to services run by both Google and third-party developers.
That means that tools that do not work without logging in, such as Gmail and Google Calendar, were unavailable entirely. Third-party services that use Google’s authentication platform continued to be accessible for users who are already logged in, but failed when users tried to sign in or out of the service.
This chart from XM shows how the pound has performed strongly against both the dollar and the euro today:
Raffi Boyadjian, XM’s senior investment analyst, says the UK-EU pledge to go the “extra mile” to get a deal is lifting optimism, even though time is desperately short
Following the disastrous dinner last week between Johnson and von der Leyen that had raised the spectre of an imminent collapse in the talks, sending cable crashing by more than 250 pips [2.5 cents], the two leaders pledged on Sunday to “go the extra mile” to find a solution for the remaining sticking points in the negotiations.
But although the talks were always going to stretch into the 11th hour, the stakes are high on both sides in terms of compromising on their respective red lines. So even at this point where time is running short and there seems to be a strong desire to get an agreement, it’s becoming more and more plausible that a trade deal may only be feasible after the transition period ends on December 31.
Here’s the latest from our Brussels bureau chief, Daniel Boffey,
A post-Brexit trade and security deal could be sealed as early as this week after Boris Johnson made a key concession over the weekend, the EU’s chief negotiator, Michel Barnier, has told the bloc’s ambassadors in Brussels.
Barnier said the prime minister’s acceptance of the need for a treaty-level mechanism to ensure fair competition as regulatory standards diverge over time had unlocked the talks. His comments came despite suggestions from Downing Street that a no-deal exit remains likely.
Barnier said, however, that the negotiations on EU access to British fishing waters had gone backwards. The UK tabled a paper on fisheries on Monday, only to take it off the negotiating table on Thursday, he claimed.
Barnier also outlined three possible scenarios:
- a deal struck by the end of this week allowing for ratification by the European parliament on 28 December;
- a breakdown in the talks;
- or agreement being found at the end of the year and the deal being “provisionally applied” to avoid a no-deal exit, with MEPs giving their consent in 2021.
Pound posts strong gains amid Brexit optimism
After a strong morning, the pound is currently on track for its best day since October... and it could yet be the best since the March market chaos.
Sterling is currently up nearly two cents against the dollar at $1.342.
That’s thanks to Brexit optimism, and a broad dollar selloff that has pushed the greenback to its lowest level since April 2018.
It last jumped by two cents on 21 October -- the day when Brexit talks restarted after being suspended for almost a week after the UK demanded a “fundamental” change in approach from the EU. That was its best day since the pandemic.
Today’s gains do show there is more hope, with Michel Barnier reporting that “some progress” in the talks, but “substantial gaps still need to be bridged”.
Against the euro, the pound is currently up 1.1 eurocents at €1.103 - again, the best since 21 October.
Michel Barnier has tweeted that the next few days are ‘important’ if a deal is to be reached in time, and that fisheries and the level playing field remain the key obstacles.
Our Politic liveblog points out that the transition period was originally meant to last 21 months (under Theresa May’s original withdrawal agreement), but then Brexit was delayed from March 2019 to January 2020.
That meant there was just 11 months to reach a deal which would normally take years, and the UK passed up the opportunity to extend the deadline to give more time.
Codemasters, the UK software developer behind the successful F1 and Dirt racing games, knows all about close battles, clashes and last-minute victories (no, this isn’t about Brexit...).
This time, Codemasters is the prize, with US games giant Electronic Arts sweeping in with a £945m bid to take control of the company.
EA’s intervention has pushed US firm Take-Two Interactive into second place in the chase. Take-Two had previously bid £759m for Codemasters; that offer is no longer being recommended, with Codemasters accepting EA’s offer instead.
The computer game industry has benefitted from the lockdown, and sparked new interest in online game such as motor racing when the actual sport was suspended.
My colleague Julia Kollewe has more details:
Codemasters is one of the oldest British video game studios and was founded by the brothers Richard and David Darling in Southam in Warwickshire in October 1986. The then schoolboys started a Spectrum games company from home, and had a big hit with Richard’s BMX Simulator on the Commodore 64. The brothers sold their last remaining stake in 2007.
There has been a flurry of dealmaking this year in the gaming industry, including Microsoft’s $7.5bn acquisition of ZeniMax in September. Satya Nadella, the chief executive of the tech giant, which makes Xbox consoles, has described gaming as “the most expansive category in the entertainment industry”.