Graeme Wearden 

Oil price keeps rising as Iran tensions build – business live

Rolling coverage of the latest economic and financial news, as crude oil prices hit their highest levels since the end of May
  
  

Gas flares from an oil production platform at the Soroush oilfields in the Persian Gulf, south of Tehran.
Gas flares from an oil production platform at the Soroush oilfields in the Persian Gulf, south of Tehran. Photograph: Raheb Homavandi/Reuters

Summary

Time for a quick recap

Tensions between the US and Iran have pushed the oil price up to a new three-week high. Brent crude is now over $65 per barrel, following yesterday’s drone shooting.

US company growth has slowed again this month, according to data firm Markit’s latest PMI reports. Private sector output growth has lost momentum in each month since February, with companies reporting that customers are more nervous.

UK financial regulators have imposed a £45m fine over a notorious banking scandal a decade ago.

Cardiff-based chipmaker IQE has become the latest tech firm to warn that America’s ban on Huawei is hurting the tech sector. IQE’s shares have plunged by a third today, after it issued a profits warning.

US company growth hits three-year low

Newsflash: Growth across America’s private sector has slowed to its slowest pace in three years.

Data firm Markit’s monthly survey of company output has dropped closer to stagnation this month, suggesting the US economy is cooling.

Both service sector companies and manufacturers reported that business conditions became tougher this month, with some clients growing more risk-averse. Factory bosses are bearing the brunt -- with the slowest growth in nearly a decade.

Here are the key findings [50.0 is the boundary between growth and contraction].

  • Flash U.S. Composite Output Index at 50.6 (50.9 in May). 40-month low.
  • Flash U.S. Services Business Activity Index at 50.7 (50.9 in May). 40-month low.
  • Flash U.S. Manufacturing PMI at 50.1 (50.5 in May). 117-month low.
  • Flash U.S. Manufacturing Output Index at 50.2 (50.7 in May). 37-month low.

Chris Williamson, chief business economist at IHS Markit, says the US economy seems to have slowed this quarter, with trade war fears partly to blame:

“Business activity edged closer to stagnation in June, expanding at the slowest rate since February 2016 and rounding off a second quarter in which the survey data point to the pace of economic expansion slipping to 1.4%.

“Recent months have seen a manufacturing-led downturn increasingly infect the service sector. The strong services economy seen earlier in the year has buckled to show barely any expansion in June, recording the second-weakest monthly growth since the global financial crisis.

“Business optimism has also become more subdued, with sentiment about the year ahead down to a new series low amid intensifying worries about tariffs, geopolitical risk and slower economic growth in the months ahead.

Updated

The financial markets are subdued today, as the US-Iran tensions weigh on investors’ minds.

America’s S&P 500 has dipped in early trading, down 4 points or 0.17%, having hit record highs last night.

The tech-focused Nasdaq has shed 0.4%, while the Dow is basically flat.

European markets are also quiet, with the FTSE 100 down slightly. Engineering firms and pharmaceuticals companies are among the top fallers.

Ken Oleluga of City Index sums up the day:

  • Overtones of the trade conflict are, like the unseasonably wet weather in much of Europe right now, difficult to avoid and likely to put a dampener on things. The impact on the broad STOXX 600 gauge was a 0.3% slip a short while ago
  • Stock markets here were already on the lookout for excuses to consolidate their biggest monthly gain since January
  • A report that U.S. President Donald Trump was close to issuing an executive order to force disclosure of health industry prices echoed in European pharma and health shares
  • The simmering and increasingly unpredictable U.S.-Iran stand-off has also chilled the week’s revived cheer. The latest is that Iran says it refrained from downing an aircraft accompanying the U.S. drone it destroyed earlier this week
  • The news sets oil prices on course for their third session gain of the week and biggest weekly gain of the year

Updated

The US and Iran are keeping pressure on each other, by revealing how they could have killed scores of each others citizens (but didn’t).

General Amir Ali Hajizadeh, head of the Islamic Revolutionary Guard’s aerospace force, kicked things off by saying his troops could have shot down a US plane - as well as the spy drone they targeted.

He told a news conference

“At the same moment, another spy aircraft called a P8 was flying close to this drone. That aircraft is manned and has around 35 crew members.

Well, we could have targeted that plane, it was our right to do so, and yes it was American, but we didn’t do it. We hit the unmanned aircraft.”

Donald Trump has now responded, saying America was “cocked and loaded” (?) to retaliate, and could have killed 150 people/

This is keeping the oil price elevated, with Brent crude still over $65/barrel for the first time this month.

Fed's Bullard explains why he wants US rate cut now

America’s central bank is widely expected to cut interest rates next month, but that’s not soon enough for one policymaker.

St. Louis Fed President James Bullard, the only person to vote for a cut on Wednesday, has revealed that he pushed for an “insurance” cut -- but the other nine members of the FOMC committee disagreed.

Bullard cited low inflationary pressures, and signs that growth may be fading, arguing:

“In light of these developments, I believe that lowering the target range for the federal funds rate at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks.

Even if a sharper-than-expected slowdown does not materialize, a rate cut would help promote a more rapid return of inflation and inflation expectations to target.”

Carney warns Facebook over Libra plans

Back in the UK, Bank of England governor Mark Carney has waded back into the Brexit debate -- warning that (brace yourself!), Boris Johnson’s claims about trade aren’t accurate.

Carney also warned Facebook that it will not tolerate financial services that violate privacy or aid terrorists, after the much-anticipated launch of the social network’s Libra cryptocurrency.

The technology, which is controlled by a body brought together by Facebook, has the potential to reach billions of users worldwide, starting a new global payments infrastructure.

Carney said Libra will be closely scrutinised by central banks and regulators across the world, and highlighted concerns around privacy and criminality which he said Facebook would have to address.

Speaking to the BBC on Friday, he said:

“We’re not going to allow a network that comes into place that is a network of criminals and terrorists.”

While many of the details of how the currency will work in practice have yet to be made public, privacy advocates have raised concerns about a company which makes money from advertising profiles of users having detailed access to transaction histories.

Carney echoed some of these concerns. He said: “People need to have the ability to be private and still have access to the [financial] system.”

The currency would have to have the explicit consent of users before data is shared with third parties, Carney said.

He said:

“It has to be the choice of the individual, and it has to be a choice that is a true choice.....Welcome to the world of finance. There is oversight.”

Speaking of oil... a refinery in Philadelphia has caught fire today, following a massive explosion.

Here’s some video from the scene:

Reuters has the details:

A massive fire was burning out of control in Philadelphia at the largest and oldest oil refinery on the U.S. East Coast on Friday morning.

The blaze broke out at the Girard Point section of the 335,000-barrels-per-day Philadelphia Energy Solutions refinery early in the day, the company said, adding that the fire was still burning.

“Refinery emergency response crews and the Philadelphia Fire Department are attempting to bring the fire under control. We are in the process of accounting for all personnel. There were no significant injuries,” a company spokeswoman said.

Congresswoman Mary Gay Scanlon, who represents the area, has tweeted about it too:

Brent crude has now jumped by almost 10% over the last nine days, since two tankers were attacked in the Gulf of Oman.

Updated

Oil hits new three-week highs as Iran tensions build

Back in the markets, the oil price has hit a new three-week high, driven by rising US-Iran tensions and a huge refinery fire.

Brent crude has risen by 1.75% today to $65.57, up another dollar, to its highest levels since the end of May.

US crude oil is also up, gaining 1% to $57.66 per barrel.

Traders are increasingly concerned about the situation in the Middle East, after the New York Times reported that Donald Trump had given initial approval for the US military to launch strikes on Iran in retaliation for Tehran shooting down an American drone, before pulling back at the last minute.

Planes were in the air and ships were reportedly in position last night, but no missiles had been fired when word came to stand down on Thursday night.

Craig Erlam of City firm OANDA explains:

Oil prices are steady again on Friday, following another spike on Thursday which accompanied a broader rally in the stock market.

Rising tensions in the middle east after Iran shot down a US drone over the Strait of Hormuz will likely have also contributed to the large gains, given that a fifth of all oil production passes through there on a daily basis.

Airlines are also concerned - several have decided to avoid flying over the Strait of Hormuz (the ‘pinch point’ south of Iran, between the Persian Gulf and the Gulf of Oman).

The latest UK public finances don’t paint a cheery picture.

Britain borrowed £5.1bn in May, £1.0bn more than in May 2018 and around a billion pounds more than the City expected.

The Office for National Statistics reports that government spending rose by £2.5 billion during the month, outpacing a £1.9bn increase in receipts (income tax revenues rose by £600m, while national insurance brought in an extra £700m).

In another blow, April’s borrowing was revised up from £5.8bn to £6.8bn.

It shows that the government hasn’t made a great start to the current financial year, in which borrowing is already expected to increase compared with 2018-19.

Updated

Victims of the fraud at Bank of Scotland’s Reading branch aren’t impressed by the FCA’s ruling:

Here’s more reaction:

HBOS’s chief executive in 2007, Andy Hornby, was appointed as CEO of The Restaurant Group last month, on a pay package of up to £3.9m per year.

Here’s our news story on the Bank of Scotland fine:

Lloyds Banking Group, which owns HBOS, has welcomed the FCA’s decision - and isn’t disputing the £45.5m fine either.

António Horta-Osório, Chief Executive of Lloyds Banking Group, says lessons have been learned (while also reminding us that the fraud took place before Lloyds rescued HBOS during the financial crisis):

“We take today’s enforcement notice very seriously. 2007-2009 was a dark period in HBOS’s history, prior to its acquisition by Lloyds Banking Group.

I want to apologise once again for the very deep distress caused to the customers affected by the HBOS Reading fraud. The perpetrators of the fraud rightly went to jail for the crimes they committed.

The Group’s management team has been committed to putting things right. In 2017, once clear of our obligations not to prejudice the criminal trial, we launched the Customer Review led by Professor Griggs to provide fair compensation for victims. We have now made offers to all customers in the review and 98% of those offers have been accepted.”

Incidentally, Lloyds would be facing a £65m fine if it hadn’t co-operated with the regulator.

Several of the key figures involved in the Reading fraud have also banned from working in the City.

The regulator says:

The FCA has also today banned four individuals from working in financial services due to their role in the fraud at HBOS Reading. These are Lynden Scourfield, Mark Dobson, Alison Mills and David Mills.

All four were jailed in 2017 over the scandal. Scourfield, a former senior HBOS manager, was sentenced to 11 years and three months in prison after the judge found he had “sold your soul, for sex, for luxury trips with and without your wife – for bling and for swag”.

David Mills, Scourfield’s business associate, was jailed for 15 years, while his wife Alison was sentenced to three-and-a-half years. HBos banker Mark Dobson, 56, received four-and-a-half years.

Updated

Bank of Scotland fined £45.5m over Reading fraud

NEWSFLASH: Britain’s financial watchdog has fined Bank of Scotland more than £45m over the infamous fraud scandal at its HBOS branch in Reading.

The Financial Conduct Authority (FCA) has imposed the penalty on BOS for failing to report its suspicions that fraud may have occurred at the Halifax Bank of Scotland [HBOS] branch.

In a stinging ruling, the FCA says BOS “failed to be open and cooperative” and also failed to disclose information to the regulator.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:

“Bank of Scotland failed to alert the regulator and the police about suspicions of fraud at its Reading branch when those suspicions first became apparent. BOS’s failures caused delays to the investigations by both the FCA and Thames Valley Police.

There is no evidence anyone properly addressed their mind to this matter or its consequences. The result risked substantial prejudice to the interests of justice, delaying scrutiny of the fraud by regulators, the start of criminal proceedings as well as the payment of compensation to customers.”

The FCA says that BOS identified suspicious conduct in the IAR team in early 2007, but did not alert regulators until 2009.

That delay meant that it took much longer for the criminal misconduct at Reading to be discovered.

Hundreds of small businesses lost money - and some even lost their homes -- due to the scam run by a group of bankers at Reading, who illegally took some £245m from the customers to spend on lavish parties, superyachts and sex parties.

The FAC explains:

The Director of the Impaired Asset Team at the Reading branch, Lynden Scourfield, had been sanctioning limits and additional lending facilities beyond the scope of his authority undetected for at least three years. BOS knew by 3 May 2007 that the impact of these breaches would result in substantial losses to BOS.

Over the next two years, on numerous occasions, BOS failed properly to understand and appreciate the significance of the information that it had identified despite clear warning signs that fraud might have occurred. There was insufficient challenge, scrutiny or inquiry across the organisation and from top to bottom. At no stage was all the information that had been identified properly considered. There is also no evidence anyone realised, or even thought about, the consequences of not informing the authorities, including how that might delay proper scrutiny of the misconduct and prejudice the interests of justice.

More to follow....

Updated

Data firm Markit reports that the eurozone private sector is growing at its fastest rate in seven months, lead by a pick-up of growth in France.

Financial services firm Canaccord Genuity has slashed its price target for IQE’s shares to 85p, from 130p.

Its analysts suspect that IQE is suffering from weak demand for iPhones:

“After our Apple analyst’s recent forecast cuts and recent commentary from Broadcom, it is also possible that IQE might be seeing a more muted iPhone supply chain ramp in 2H.”

IQE’s shares, meanwhile, are still languishing at around 44p, some distance from Canaccord’s new price target (and miles below the old one...).

IQE’s warning comes a week after US chipmaking giant Broadcom missed sales forecasts, and slashed its revenue forecasts.

Broadcom’s CEO warned that the Huawei export ban was creating “economic and political uncertainty and reducing visibility for global customers” - a point IQE has echoed today.

Here’s Connor Campbell of City firm SpreadEx on IQE’s gloom:

Though the European indices were reluctant to get out of bed, that’s not to say there weren’t any big moves on Friday morning.

Chipmaker IQE was forced to slash its revenue forecasts for the year by as much as £35 million as it sounded the alarm over the impact the blacklisting of Huawei by the US is having on the tech sector. Investors heard that alarm and ran for the hills, causing the stock to sink as much as 40% after the bell, leaving it at a 28-month nadir of 44.58p.

Mike van Dulken of Accendo Markets sums up the IQE news:

IQE’s warning has rattled the entire European semiconductor sector this morning.

Siltronic are down 2%, Infineon are down 1%, AMS have lost 4%, Dialog are down 1.5%, and STMicro has lost 1.4% (prices via Refinitiv).

Investors are (sensibly) concluding that IQE won’t be the only company suffering from delayed orders and cautious customers, following the sanctions on Huawei last month.

Updated

IQE shares plunge after Huawei warning

IQE’s shares have plunged by more than a third in early trading, as City traders react to its profits warning:

They’ve fallen by 37% to 44p (having hit a low of 41.3p), the lowest levels since March 2017, in a really alarming tumble.

Updated

IQE has also slashed its profit forecasts for this year, telling investors:

Given the reduction in expected revenues, IQE expects to remain profitable in 2019 but with Adjusted Operating Profit margin significantly below the previous guidance of over 10%.

Whilst the company’s cost base is largely fixed in the short-term, IQE is taking steps to reduce costs and avoid non-critical capital expenditure. This includes the acceleration of the assessment of strategic projects to optimise the company’s global manufacturing footprint.

Introduction: Chipmaker warns of Huawei pain

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

America’s decision to blacklist China’s Huawei five weeks ago is having a clear damaging effect on the global tech industry.

So warns Cardiff-based chipmaker IQE in a profits warning this morning. IQE has slashed its sales forecasts for this year, pinning the blame firmly on the White House for putting Huawei on its Entity List - preventing US companies dealing with the Chinese mobile giant.

In a trading update to the City, IQE warned that it is operating in an “increasingly cautious marketplace”, with several customers recently cutting their forecast orders.

IQE may not be a household name, but its advanced silicon and compound semiconductor materials are used around the world.

Its wafers are used in more than two billion wireless chips and more than one billion optoelectronic chips each year -- from smartphones and mobile base stations to satellites, cars and aircraft, and solar panels.

It had previously expected to make revenues of £175m this year -- now it only expects to post £140m to £160m.

Chief executive Dr Drew Nelson, chief executive of IQE, says America’s crackdown on Huawei is having serious consequences:

“These are unprecedented times for the global semiconductor industry as geo-political conditions affect interconnected global supply chains. It is now clear that the impact of Huawei’s addition to the US Bureau of Industry and Security’s Entity List is having far-reaching and long-lasting impacts on global supply chains.

This is a matter outside of IQE’s control but we have responded swiftly to leverage our breadth of relationships and to pursue new sales opportunities.

Reaction to follow....

Also coming up today

Oil is hovering near three-week highs, after Iran shot down a US drone yesterday - sparking reports that president Trump gave initial approval for the military to launch retaliatory strikes.

Data firm Markit will release its flash surveys of purchasing managers in the eurozone and the US, which will show if manufacturers are still struggling from the US-China trade war.

Plus, new UK public finance figures will show how much Britain borrowed to balance the books last month.

Proactive Investors explains:

In April, UK government borrowing came in at £5.8bn, starting off the 2019-20 financial year with nearly the same deficit level as a year ago.

In the 2018-2019 financial year, borrowing came to £23.5bn, slightly worse than the £22.8bn that the Office for Budget Responsibility predicted the March spring statement.

For May, economists expect borrowing to fall to £4.2bn.

The agenda

  • 9am BST: Flash eurozone PMI report for June
  • 9.30am BST: UK public finances for May
  • 2.45pm BST: Flash US PMI report for June

Updated

 

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