US government shutdown bad for credit rating, Moody’s warns, as pound hits six-month low – business live

Banks including some of Europe’s largest lenders have helped fossil fuel companies to raise more than €1tn (£869bn) from the global bond markets since the Paris climate agreement, according to an investigation by the Guardian and its reporting partners.

In the push to zero carbon Europe’s biggest lenders face growing pressure to limit their financial support for fossil fuel companies through direct loans and other financing facilities.

But analysis of thousands of transactions since 2016, when more than 190 countries agreed at a UN summit in Paris to limit global warming by curbing pollution, has revealed that lenders including Deutsche Bank, HSBC and Barclays have continued to profit from the expansion of oil, gas and coal by supporting the sale of fossil fuel bonds.

The findings have raised concerns among sustainable investment campaigners that banks are continuing to offer “hidden” financial support to energy companies that are responsible for increasing the world’s carbon emissions – even as they pledge publicly to phase out direct lending for new projects.

The Guardian worked alongside other European newspapers and the Dutch platforms Investico and Follow the Money to look in detail at 1,700 bond issues recorded by the financial information provider Bloomberg.

Here’s the full story.

In the property sector, US tech giant Meta has paid £149m to break its lease on a major London development near Regent’s Park.

Commercial property developer British Land told the City this morning that Meta had surrendered its least on 1 Triton Square – one of the two buildings it has leased at Regent’s Place – yesterday, at a cost of £149m.

The move somes as major companies adjust their property needs due to the move towards home working following the Covid-19 pandemic.

Simon Carter, CEO, is looking on the positive side, though, saying:

Meta’s surrender of our building at 1 Triton Square also enables us to accelerate our plans to reposition Regent’s Place as London’s premier Innovation and Life Sciences campus.”

European stock markets have lost more ground this morning, with the Stoxx 600 index down by 0.35% so far.

Germany’s DAX, France’s CAC and Italy’s FTSE MIB indices are all down over 0.4%, while the UK’s FTSE 100 is 12 points (0.17%) higher.

Pierre Veyre, technical analyst at ActivTrades, says investor risk appetite is decreasing – partly due to concerns of a US government shutdown within days.

“All Eurozone benchmarks were in the red shortly after the opening bell, led lower by real estate and consumer cyclical shares, as sentiment stays under pressure by several market drivers.”

“Lingering inflation and higher rates concerns are keeping investors from increasing their exposure to riskier assets, and the prospect of a Federal shutdown in the US next week is also adding pressure to market sentiment. Indeed, a lack of a funding agreement from the US Congress would likely negatively impact the country’s credit rating, according to Moody’s, further denting confidence in the nation’s economic outlook.”

“Stock investors also face another bearish pressure from China as property fears grow following a missed payment from the sector’s giant, Evergrande. This highlights concerns over the management of the property sector’s debt pile and leads to uncertainties about the overall recovery in the second-biggest economy in the world.”

“Dark clouds continue to pile up for investors, and the next batch of macro data is likely to be scrutinised by most to determine where risky assets may go soon.”

Although the pound is weaker today, it’s in better shape than a year ago.

Today is the first anniversary of sterling slumping to a record low against the US dollar, in the aftermath of the mini-budget.

At one point a year ago, the pound fell below $1.04. It’s up around 17% since, at below $1.22 today.

The Hollywood writers and actors strikes have hit sales at Videndum, the UK-based maker of hardware and software for the entertainment industry.

Videndum has reported that revenues fell 24% in the first half of this year, while it made a loss of £50m, down from a £16.4m profit a year earlier.

Videndum blamed ongoing macroeconomic headwinds, destocking by customers, and the US writers’ strike which began in early May.

It told shareholders this morning:

The Group is experiencing significantly more impact from the strikes in H2 2023 than anticipated at the time of its May Update. This is due to the prolonged writers’ strike, the additional impact of the actors’ strike, and the fact that there is less time for a recovery in the current year.

Additionally, the macroeconomic environment remains challenging. We are not yet seeing recovery in the consumer or ICC segments, and retailers are increasingly concerned about interest rates and working capital, and we are therefore still seeing some destocking. This is resulting in worse-than-expected trading conditions.

CEO Stephen Bird says management are focused on tightly managing costs and preserving cash, and adds that the company may need to raise fresh equity.

Videndum’s shares have tumbled by almost a third this morning, to the lowest since early 2010.

The company can trace its history back to 1909, when mechanical engineer William Vinten. began making Kinemacolor projectors for Charles Urban, who produced the world’s first successful motion picture colour system.

There could be a “traumatic” end to September if a US shutdown can’t be averted, says Neil Wilson of Markets.com.

He writes:

Keep your eyes on Washington.

If Republicans have not agreed a short-term funding deal to keep the US government from shutting down on September 30th, we could be in for a traumatic end of the month/quarter.

A full, lengthy shutdown of the US government is “likely” at the end of the month, PIMCO said last week.

Moody’s said a US government shutdown would likely have “an increasingly negative impact on the credit profile”. Are we seeing any of this in the bond market? I don’t know – maybe there is some risk premium being added, but also there is just a general impetus to push yields up – issuance + liquidity mismatch.

UK online fashion retailer Asos has warned that earnings for the last financial year are likely to be at the bottom of expectations, after clothing sales were disrupted by bad weather this summer.

Asos reported that revenues fell 10% in the year to 3 September, and predicted that EBIT (earnings before interest and tax) will come in around the bottom of the guided £40m to £60m range.

José Antonio Ramos Calamonte, Asos’s chief executive officer, said:

Across many of our markets (but most notably the UK), the hot weather drove a strong June and a wet July and August produced a weaker sales result.

Calamonte also told shareholders that his turnaround plan was bearing fruit:

We have reduced our stock balance by c.30%, significantly improved the core profitability of the business and generated cash against a very challenging market backdrop.

Shares in ASOS are down 2% this morning.

Chris Beauchamp, chief market analyst at IG Group, says:

It’s another grim set of numbers on the sales front for ASOS, but the improvement in profitability does offer some hope for the future, suggesting that the actions taken over the last year have borne fruit to an extent.

The poor summer weather hit performance, but these look to be a more solid set of numbers for this fallen titan.

Water companies in England and Wales have been ordered to return £114m to customers through lower bills next year because progress on leakage and sewage spills has been “too slow”.

In its annual water company performance report, the regulator Ofwat said the majority of water and wastewater companies were underperforming ontargets set for 2020 until 2025 to deliver better outcomes, for customers and the environment.

Companies are judged against metrics including pollution incidents, customer service and leakage. This year, no company has been ranked in the “leading” category, and 10 companies are in the “average” category, while seven are “lagging” – Anglian Water, Dŵr Cymru, Southern Water, Thames Water, Yorkshire Water, Bristol Water and South East Water.

More here.

The pound has weakened to a new six-month low against the US dollar this morning.

Sterling has extended its recent selloff, losing almost half a cent this morning to $1.2175, the lowest since mid-March.

The US dollar is at a 10-month high against a basket of currencies, despite – or even because – of the deadlock in Washington DC.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:

Even if it sounds funny, the dollar could profit from safe-haven inflows if the government shutdown drama doesn’t last long. During the last US government shutdown, in 2018 – which was, by the way the longest shutdown since 1970s – the US dollar gained against most major currencies.

Of course, the longer a shutdown lasts, the bigger the impact would be on the economy, and potentially on the US’ credit rating. And the bigger the impact on the US growth and its credit worthiness, the more likely we see the US dollar get – at least a small – hit from another political gong show.

For now, though, don’t pull all your eggs out of the US basket, because, the dollar could well strengthen despite the political shenanigans in the US, and the US stocks could see increased inflows, as well. The last time the US government was shut in 2018, the S&P500 rallied 13%.

US governnment bond prices are coming under more pressure this morning, pushing up the yield (or interest rate) on Treasury bills to the highest since 2007.

Yesterday was “another stormy day” in parts of the financial markets, reports Deutsche Bank strategist Jim Reid, with fresh milestones reached across several different asset classes.

Reid told clients this morning;

Just to give you a sense of what happened: the 10yr Treasury yields rose +10.0bps and closed comfortably above 4.5% for the first time since 2007; 10yr real yields were near 15yr highs; the 10yr bund yield traded above 2.8% for the first time since 2011; the VIX index of volatility flirted with its highest level since May intra-day; the US dollar index hit a YTD high; and European natural gas prices reached their highest level in almost 6 months.

And if that weren’t enough, we remain days away from a potential US government shutdown, unless Congress can agree to pass funding beyond September 30. So a pretty tough backdrop for just about everything.

The risk of a US government shutdown this weekend is one of several potential tail risks nagging away at investors, says Stephen Innes, managing partner at SPI Asset Management.

Innes explains:

Congress faces a critical deadline at the end of September, just days away. They must come to an agreement on government funding by this deadline. Failure to do so could result in the federal government’s partial or complete shutdown. But this has looked somewhat likely since the debt limit deal, given the thin House majority and a lack of consensus on spending levels. Other issues, like aid for Ukraine, funding for Justice Dept. investigations, or border security, could hinder progress, and the US sovereign downgrade could put an extra spotlight on the fiscal situation, adding to the risks.

In contrast to the debt limit, where Congress reached a deal due to the severe potential economic repercussions of an impasse, a government shutdown is viewed as relatively more manageable from a macroeconomic standpoint. However, this very fact, the less severe economic impact of a shutdown, paradoxically increases the likelihood that Congress may fail to take timely action.

Other tail risks include rising oil prices, and the ongoing US Hollywood actors’ strike, Innes adds.

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

The possibility of a US government shutdown is looming over global markets today, and threatening America’s triple-A credit rating.

Overnight, credit rating agency Moody’s warned that dysfunction in Washington DC would reflect negatively on the country’s rating.

Moody’s is the last of the Big Three credit who still gives the US a AAA rating with a stable outlook (the gold standard for credit worthiness).

It warned:

A shutdown would be credit negative for the US sovereign,”

“In particular, it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability.”

There are just a few days left for Capitol Hill to avert a shutdown, by passing a spending bill by 1 October. If that doesn’t happen, the federal government will be left without funding.

That is expected to force hundreds of thousands of federal workers to go without pay and bring a halt to some crucial government services.

Moody’s analyst William Foster told Reuters:

“If there is not an effective fiscal policy response to try to offset those pressures … then the likelihood of that having an increasingly negative impact on the credit profile will be there.

And that could lead to a negative outlook, potentially a downgrade at some point, if those pressures aren’t addressed.”

But there is deadlock in Washington DC, where a group of rightwing Republican members of the House of Representatives are refusing to reach a compromise with their own party’s leadership over a spending bill.

Moody’s predicts that a shutdown would probably be shortlived, and likely not to affect government debt service payments.

But the row is focusing investors’ attention on US creditworthiness, at a time when the interest rates on sovereign bonds are rising on fears that interest rates will stay higher for longer than hoped.

Kyle Rodda, senior financial market analyst at Capital.com, says:

While what these agencies rate most government debt means diddly-squat, it does say something about the dysfunction in the US government….

Moody’s warning is a reminder of the costs of an unstable Government.

Just last month, Fitch downgraded the US government’s top credit rating, blaming the “steady deterioration in standards of governance”, following the row over lifting the US debt ceiling.

Also coming up today

Gatwick, the UK’s second largest airport, is expected to announce details of flights which are being cancelled this week due to a shortage of staff in air traffic control.

Thousands of passengers flying to and from Gatwick this week are expected to suffer disruption, after it imposed an immediate cap on Monday of 800 flights taking off or landing a day.

The airport said it would share the total of 164 cancellations proportionately between airlines until Sunday, with easyJet passengers most likely to be affected given the carrier operates just under half of all Gatwick flights.

People travelling on Friday are most likely to be hit, with 865 flights scheduled to depart.

The agenda

• 8am BST: European Central Bank chief economist Philip Lane speaks at a conference “Monetary Policy Challenges for European Macroeconomies”.

• 2pm BST: US house price index for July

• 3pm BST: US consumer confidence for September