Key events
Airline shares fall after Jet2 predicts slower earnings growth
Budget airline Jet2 has spooked the travel industry this morning, by predicting weaker earning growth than expected.
Jet2 told investors that it expects its earnings, on an EBIT basis, to be towards the lower end of the analysts’ consensus range.
It also cautioned that it has “limited visibility” about prospects for this year, as holidaymakers are making bookings later, meaning it still has much of its winter seat capacity still to sell.
Steve Heapy, Jet2’s chief executive officer, says:
“Although we are currently operating in a difficult market, we have a proven business model, a loyal customer base, a flexible approach to capacity management and of course our multi award-winning customer service.
We believe that these factors provide the foundation for a solid financial result this year and for further profitable growth in the years to come.”
Shares in Jet2 tumbled 23% at the start of trading, and are now dow 14%.
Other airlines are suffering too – easyJet have fallen by 4.2%, while British Airways’ parent company IAG has lost 2.3%.
European stock markets have opened calmly too.
In London, the FTSE 100 share index is down by just 3 points (-0.04%) at 9174, following some choppy sessions which saw losses on Tuesday and a partial recovery on Wednesday.
Germany’s DAX dipped by 0.27% at the open in Frankfurt.
Panmure Liberum: UK must show ‘firm hand’ to keep bond yields under control
Signs of calm in the bond market will be warmly welcomed in the UK Treasury.
The jump in Britain’s bond yields risks widening the ‘black hole’ which Rachel Reeves is expected to fill in the autumn budget scheduled for 26 November.
That could mean either spending cuts or tax rises to persuade the Office for Budget Responsibility that the chancellor is keeping within the fiscal rules.
Simon French, chief economist at Panmure Liberum, arugues that UK fiscal and monetary policymakers must demonstrate “a firm hand on the tiller” in the next few weeks, to help sooth UK gilt yields.
He writes:
Coordination of these policymakers will be key, and we are modestly encouraged by Treasury language subtly shifting to the task of controlling inflation.
Saying it though is the easy bit. Making the tough decisions to enable it is far harder.
The jury is out on whether the UK government – and its backbenchers – have the backbone, and the Gilt market knows it.
French also flags that since the government’s Spring Statement earlier this year, the UK’s ten-year yield has been the highest in the G7, “the longest such outlier run in modern market history”:
That suggests that domestic factors, as well as global concerns, have ben pushing up UK bond yields.
Analyst: “The bond market rout could be over”
There is a sense of calm in European and US markets today, reports Kathleen Brooks, research director at XTB, as the recovery in global bond yields on Wednesday helps sentiment.
Brooks writes:
There are signs that the bond market rout could be over. Global government bond sales have been strong this week and have not been impacted by bond market volatility. Added to this, some governments including the UK’s are talking once more about public sector spending cuts, which may boost demand for Gilts in the short term.
Risks are still looming for the bond market, for example, Monday’s confidence vote in the French government. If the government collapses, then French bonds will be in the spotlight. Ahead today, there is a massive $11bn auction of French government debt. We will be watching this closely to gauge demand and to see if political turmoil impacts demand.
That auction is scheduled for 10am UK time….
Trump asks US supreme court to uphold his tariffs
Uncertainty over Donald Trump’s trade wars are another factor hitting bond prices this week.
Last Friday’s court ruling that Trump’s tariffs are illegal has raised the prospect that the White House might have to refund billions of dollars paid by Americans on imported goods, as well as losing out on future revenues.
As the White House has been, ahem, trumpeting the rising income from tariffs, that would be a blow.
The prospect that America might need to borrow even more money to cover for a tariff shortfall could have weighed on bond prices this week, pushing up yields.
Overnight, Trump asked the US Supreme Court to uphold his global tariffs on a fast-track schedule. This means the nine members of the Court will now have the finnal say on whether Trump can raise the US’s effective tariff rate to its highest in around a century.
If the US government loses the case, some of the trade deals struck in recent months could also come unstuck.
Introduction: Relief as Japan’s debt auction proceeds smoothly
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
There are signs that calm may be returning to the global bond market, after Tuesday’s sell-off drove government borrowing costs to multi-year highs.
Earlier today, an auction of 30-year Japanese government bonds proceeded smoothly, helping to support Japan’s debt prices.
Encouragingly for Tokyo, demand for its long-term debt held up pretty well – the bid-to-cover ratio, which measures the amount of bids against the amount of debt on offer, was 3.31, only slightly below the 12-month average of 3.38.
This has helped to push down the yields, or interest rates, on Japan’s debt in the bond market – a relief, after long-term yields hit record highs earlier this week.
Hirofumi Suzuki, a strategist at SMBC, explained:
Given the sharp selloff in the 30-year yesterday, short-covering had been underway from the morning session, and the auction ended up passing smoothly.
“That said, political uncertainty in Japan also continues, so upward pressure on Japanese yields is likely to persist.”
Long-term bonds are under pressure due to concerns about the size of government debt, political obstacles to spending cuts, and structurally higher inflation.
Yesterday, the yields on UK and US long-term debt both fell back, bringing some relief after Britain’s 30-year borrowing costs hit the highest level since 1998.
Bond prices recovered after disappointing US job openings data was released, prompting investors to predict faster interest rate cuts. It showed that for the first time in more than four years, there are fewer open jobs in America than there are job seekers.
Jim Reid, market strategist at Deutsche Bank, explains:
The global bond selloff finally paused for breath yesterday, as weak US data meant investors ramped up their expectations for Fed rate cuts this year.
The main catalyst was the JOLTS report for July, which showed that job openings fell to a 10-month low and exacerbated fears about a labour market slowdown.
The number of job openings fell to an estimated 7.18m at the end of July, down from 7.36m the month before.
Investors will be watching the latest employment data from the US, due later today, for further signs that its labour market is cooling.
The agenda
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9am BST: UK car sales data for August
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9.30am BST: UK construction PMI for August
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12.30pm BST: US Challenger job cuts report
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1.30pm BST: US jobless claims
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1.15pm BST: US ADP private payrolls data
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3pm BST: US service sector PMI
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