Key events
Energy bosses meet Grant Shapps amid debate over net zero
The bosses of big energy companies are set to meet Grant Shapps, the energy security secretary, today to discuss the future of net zero as a debate rages over the UK government’s green policies.
The meeting comes just days after the government announced it would grant more than 100 new oil and gas drilling licences off the coast of Scotland. The move was immediately condemned by climate campaigners as sending a “wrecking ball” through the government’s climate pledges.
Executives from the utility companies EDF and SSE and the oil and gas giants Shell and BP are meeting Shapps, who has faced criticism from his own ranks, including former energy minister Chris Skidmore, who said it was “the wrong decision at precisely the wrong time, when the rest of the world is experiencing record heatwaves”.
Shapps told GB News:
I’m meeting today with a bunch of energy companies at No 10 who are going to invest £100bn in renewables, and that’s great.
Here’s more reaction to the US credit downgrade.
Tony Sycamore, analyst at IG, said this would spark a flight to safety among investors.
Risk aversion flows means lower equities and safe haven buying of currencies such as the Japanese Yen and Swiss franc… It will also likely see buying of treasuries.
Stephen Innes, managing partner at SPI Asset Management, said:
Global Funds buy US debt because it’s the safest and most liquid investment option. However, after the rating downgrade on Tuesday, the US bond appeal could tarnish slightly. Still, the significant issue is that the downgrade could negatively affect various funding pipelines, such as mortgage rates and global swaps contracts.
While debt downgrades seldom, if ever, have long legs, investors may pause and let the dust settle before re-entering risk markets. However, within this super market-friendly environment of stable growth and a Fed close to the end of its hiking cycle creating fertile ground for stock gains, its unlikely risk sentiment will wander too far off the soft landing path.
Introduction: Markets fall after US downgrade; Taylor Wimpey warns rising interest rates weakened housing market
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Stock markets have fallen after the rating agency Fitch unexpectedly downgraded the US government’s top credit rating, which sparked an angry response from the White House.
Fitch cut the United States to AA+ from AAA, citing the expected fiscal deterioration over the next three years and “a high and growing general government debt burden,” and an “erosion of governance” due to repeated debt ceiling negotiations that threaten the government’s ability to pay its bills. It’s the second major rating agency after Standard & Poor’s to strip the country of its triple-A rating.
In Asia, Japan’s Nikkei tumbled 2.2% while Hong Kong’s Hang Seng lost 2.1% and the South Korean Kospi slid 1.7%. Yields, or interest rates, on US 10-year government bonds known as Treasuries fell 2 basis points to 4.021% in Tokyo.
The market reaction was relatively muted. On Wall Street, S&P 500 and Nasdaq futures are down around 0.5%.
Economists at Capital Economics said:
The announcement is not a complete surprise given that Fitch hinted at such a move during the recent debt ceiling standoff and had a long-standing negative outlook on its AAA rating. It echoes the decision by Standard and Poor’s to cut its own US rating from AAA to AA+ in the aftermath of the 2011 debt ceiling standoff, which was justified at the time with similar arguments. Moody’s still has the US at Aaa, but has maintained a negative outlook on that rating for more than a decade.
It’s a little strange to be downgrading the US at a time when the economy now appears poised to pull off the seemingly impossible trick of bringing inflation back to target without triggering a recession. Admittedly, even though the economy is operating above potential and the unemployment rate is below 4%, the Federal deficit remains on track to be close to 6% of GDP in the current fiscal year. And interest costs are set to double from 1.4% of GDP in 2021 to 2.8% in 2025.
Here in the UK, the housebuilder Taylor Wimpey has flagged affordability concerns due to higher mortgage rates, as it reported slower sales and rising cancellations. It warned that the Bank of England’s rate hikes had weakened the housing market.
Revenue fell 21% to £1.6bn, dragging profit before tax down 29% to £237.7m in the six months to 2 July.
Jennie Daly, the chief executive, said:
Whilst increased mortgage costs are impacting affordability for our customers, we continue to see strong underlying interest. However, reservations are below the levels we have experienced in recent years.
We saw an encouraging start to the year with demand in the traditionally strong spring selling season recovering from the low levels of Q4 2022 and with mortgage rates reducing from the highs of late 2022.
However, market conditions weakened in the second quarter as the Bank of England responded to higher than expected inflation by increasing the base rate from 4.5% to 5% in June, which drove an increase in the cost of mortgages towards the end of the half.
The average two-year fixed mortgage deal was 6.85% on Tuesday, while the average five-year fixed deal was 6.37%, according to Moneyfacts.
The Agenda
