Rolling coverage of finance and business news through the day
Bank of England to get power to set loan-to-value caps on mortgages
Summary: New criminal powers to prevent City traders rigging the markets
5.08pm BST
Breaking news tonight: the Chancellor of the Exchequer is to give the Bank of England new powers to control the housing market.
The Bank will be given the powers to cap the size of mortgages relative to borrowers' income and relative to the value of the homes they want to buy.
George Osborne is to give the Bank of England new powers to set a cap on mortgages set as a ratio of income or value.
Osborne to allow BoE to cap loan-to-income plus kick up backside for councils on brownfield sites. Here endeth pre-briefing of #mansionhouse
George Osborne will use his Mansion House speech to give City regulators the power to cap risky mortgage loans in a bid to allay fears of a growing housing bubble.
In a dramatic move, the chancellor plans to allow the Bank of England to limit mortgage loans that could undermine the financial stability of the UK housing market.
Our economic plan has brought stability and security and Im not going to let anything undermine that.
So I am acting against future risks in the housing market by today giving the Bank of England new powers to intervene and control the size of mortgages compared to family incomes and house values and Im also taking new steps so we build many more homes in our towns and cities.
4.59pm BST
A quick recap:
It will make it clear to traders that if you abuse those rules you will end up in prison.
4.42pm BST
With the Brent crude oil price hovering around $112 per barrel, a three-month high, City traders are wondering what impact the Iraq insurgency will have on the economy.
If oil prices move higher, they'll put a brake on economic growth and also drive up inflation, as Chris Beauchamp of IG explains:
Traders have seen the words Iraq and civil war in headlines and duly sent oil prices flying today. So far, the direct impact of the fall of Mosul and Tikrit has been limited in production terms, but it is a situation that will bear close attention.
The longer-term worry is the impact of higher oil prices on inflation readings for major economies it might finally deliver the higher price growth that Mario Draghi wants, but with inflation edging up in the US there will be concerns that CPI growth might get out of hand and force the Federal Reserve to take action.
4.22pm BST
A couple more photos from Athens, showing how riot police treated cleaning staff after the supreme court suspended an earlier ruling that they should get their jobs back.
3.59pm BST
In Greece, the cleaning workers who refused to accept being laid off by the government last year have suffered a defeat in the courts, and at the hands of riot police.
The Greek Supreme Court ruled in favour of the Greek government today, and suspended a ruling from a lower court that the workers -- who were dismissed last year -- should be rehired.
According to reports, at least three women were injured as riot police tried to remove protesting cleaners who had gathered in front of the ministry's entrance after the announcement of the decision.
Shocking video illustrating police brutality in #Greece: Riot policeman beats in the head unarmed woman. Pls RT. https://t.co/qQUiWcjZsY
MTR @Inflammatory_ Mr @Vkikilias [Minister of Public Order] what's you're position abt metal-enhanced gloves? pic.twitter.com/LiHXytUvEs #Greece
Laid-off cleaner protesting for months now, confronting policeman. Guts a whole country doesn't have v @JohnKemmos: pic.twitter.com/ufoJM4lSYc
#greece Laid-off cleaners: today's photo of photojournalist Tat. Bolari outside FinMin TR @Gath___: pic.twitter.com/K8tSl5G8gH #katharistries
3.26pm BST
Now here's a surprise....Portugal's government has turned down the final slice of its bailout, worth 2.6bn, rather than implement new austerity measures.
Portugal has decided to forego the last payment of its international bailout from creditors after the rejection of a series of austerity measures by the country's constitutional court, the finance minister said on Thursday.
"The government thinks that it is not the time to make decisions about substitute measures, a decision which has the consequence that we will not receive the last tranche of the programme," Finance Minister Maria Luis Albuquerque told journalists.
#Portugal decided not to receive last tranche of #bailout, FinMin says no plans to reopen programme - #EC to comment soon #eurozone
3.01pm BST
Twitter's share price is now up 3%, as Wall Street investors digest Ali Rowghani's departure as COO.
Investors now like $TWTR shakeup. Up 3%. 24% bounce from $29.51 low back in early May. Is worst over or will $TWTR slip back towards $30?
2.48pm BST
Shares on Wall Street have dipped in early trading, with the Dow Jones industrial average falling around 0.2%.
But Twitter's shares are bucking the trend, rising by 1%. Shortly before the market opened, its chief operating officer Ali Rowghani announced he was leaving.
Goodbye Twitter. It's been an amazing ride, and I will cherish the memories.
Why Twitters COO had to resign, in one chart http://t.co/FkTfFvoP8w pic.twitter.com/WiTUBnYkaI
2.10pm BST
Torbjorn Kjus, oil analyst at DNB Markets in Norway, also believes the oil price could spike if the situation in Iraq worsens.
Kjus told the WSJ:
"It's purely a fear-factor hitting right now.
"Right now it's $2 up, and it could easily go up more than that based on developments" [such as a move of violence southward].
Oil prices at these levels are going to become problematic in weak economies.
The price of a barrel of Brent crude oil passes US $112 which in these odd times will please the #ECB if sustained #inflation #Iraq
1.56pm BST
Some mixed-looking US economic data has been released, but it's not as bad as it first appeared.
US retail sales rose by just 0.3% in May, just half as much as expected. But April's initial reading of 0.1% has been revised up to a healthier-looking 0.5%.
Ian Shepherdson on retail sales: In one line: Much less disappointing than it appears, thanks to upward revisions.
Decent jobless claims and revised sales = good to meh
1.19pm BST
Perhaps the solution to preventing manipulation of the FX market is simply to stop using a one minute window at 4pm to set the daily currency rates.
Mark Taylor, the dean of Warwick Business School, believes traders would be incapable of influencing a larger window, given the size of the market.
If we really want to make sure the foreign exchange reference rate isnt rigged, we need to remove the incentives to cheat. At the moment the foreign exchange benchmark the daily London 4pm fix is made by taking the average of trades 30 seconds before and after 4pm, so if some large trades worth billions of dollars each are sent through it can move the rate a small amount and that could be worth millions of dollars to the traders.
One solution would be to take away the temptation by taking the average over an hour - so 30 minutes either side of 4pm rather than 30 seconds. Its a simple, workable solution because it would be a lot harder, if not impossible, to move a market as big as the FX market for an hour. Removing the incentive is much better than regulation because of the global, decentralised nature of the foreign exchange market.
1.06pm BST
UK prosecutors are likely to take a "highly aggressive approach" with suspected wrong-doers in the financial markets, once the new criminal powers planned by the government are available.
The number of prosecutions achieved by the regulators with their new powers will be seen as the yardstick of their success. This will put them under a huge amount of pressure to achieve results and almost guarantees a highly aggressive approach.
The SFOs Director, David Green, has said he expects to be judged by the results of the agencys prosecutions of those involved in Libor and now the same will be true for future foreign exchange manipulation.
Yet more criminal sanctions from the UK government suggest a wholesale move towards the US-style of enforcement for financial offences, but it remains difficult to see how such an offence will be proved beyond all doubt. The threat of prison is used with great effect in the US but it is questionable how many convictions will be achieved as a result of this style of enforcement in the UK."
12.44pm BST
George Osborne's plan to bring in new criminal sanctions for market abuse may sound good, but will they work?
The CBI, which represents British businesses, says it's important to send a signal to the City - but more important to actually change its character (a point the Robin Hood campaign made earlier)
Rebuilding trust in banking is critical to underpinning the economic recovery and to the UKs long-term growth, so it makes sense for the regulatory focus to be firmly on conduct.
We need to send out a strong signal against wrongdoing and beefing up regulators tools to combat market abuse will help to do this.
12.11pm BST
Here's a chart showing how the price of Brent crude has jumped to a three-month high this morning of $112 per barrel, driven by the escalating situation in Iraq (see 10.17am for more details).
Cheery stuff. Map of iraq showing Isis gains. pic.twitter.com/uQPQNtVUZq
"I would entirely ascribe this move to the insurrection in the north of Iraq ... The fear is that it will cause a threat to Iraqi oil exports
"If this conflict knocked out Iraq as an exporter, that would have significant impact on prices ... How high could they go? It depends on what happens."
11.41am BST
Vince Cable's warning about Britain's house price boom (see 11.16am) comes as figures published by the Council of Mortgage Lenders showed how borrowers are stretching their salaries to raise enough money to get on the housing ladder.
In April, first-time buyers across the UK took on mortgages that were 3.42 times their salary, and worth 83% of the value of the property they were buying.
Only in December 2013 have first-time buyer income multiples been higher, although as the property market reached its last peak they were up at 3.39 times salary.
The average size of a first-time buyer mortgage reached its highest level on record, rising to £121,500, from £118,750 in March. At the same time the typical income of a first-time buyer household increased to £37,000, from £35,704 in March, which was also the highest average income on record.
The most recent data for London showed first-time buyers were taking out mortgages worth 3.83 times their salaries. Deposits from parents and the fact that buyers in the capital are slightly older, at an average of 32 when they take their first loan, versus 29 across the UK, meant that loan to values in London are lower, at 75%.
11.33am BST
In other news, Intel has lost its appeal against the 1.06bn fine handed down by the EU in 2009 for anti-competitive conduct.
Brussels' competition chief Neelie Kroes insists the chip-maker got its just desserts:
It was never a pleasure to fine companies as EU competition referee, but rules are rules. Am pleased the court upheld our 1bn Intel fine
11.16am BST
Is George Osborne also planning to announce new measures to rein in the housing market, in tonight's Mansion House?
Business secretary Vince Cable appeared to drop some hints this morning, telling Radio 4 listeners that banks must be put under more pressure not to "throw petrol on the fire" of the house price boom.
"Most of us who have been through various housing booms in the past have recognised that a kind of stable level is three or three-and-a-half times
"I was appalled when I discovered that banks were lending five times.
V Cable saying banks should not lend more than 3.5 times income odd: point of Bank of Eng reforms was to remove politics from such decisions
10.38am BST
Back to the UK government's market abuse clampdown.... and campaigners for a fairer tax system don't believe it will change the City's priorities.
David Hillman, spokesperson for the Robin Hood Tax campaign, says:
"It's better late than never for the Government to get a grip on this scandal, which shows once again that our supposedly reformed financial sector is still a law unto itself.
"But while the review may tackle this particular malaise it won't tackle City culture which continues to put a fast buck ahead of its obligations to society.
10.31am BST
The escalating situation in Iraq (see last post) has also driven the cost of US crude oil up this morning.
US crude touched $105.4 per barrel this morning, the first time it's broken above the $105 mark since March. You've got to go back nine months for a higher price.
London-based Brent crude for July delivery surged $1.09, or 1.1%, to $111.04 a barrel. If Brent settles at this point, it will be the highest level for a front-running contract since March 3, when the front-running contract settled at $111.20 a barrel.
Oil prices shot up in March on rising tensions over Russia and the Ukraine.
10.17am BST
Over in the City, the sight of insurgents taking control of Iraqi cities has pushed the oil price up by 1%, to a three month high.
Oil prices are pushing higher off the back of unrest in Iraq and although the situation is some distance from the oil fields, the reality is that a $20/barrel spike in crude prices could well prove sufficient to derail the global economic recovery.
Ultimately with markets so toppy and repeatedly looking for a reason to sell, this could all make a lot of sense.
The apparent unravelling of the post-2003 settlement in Iraq has sent oil prices surging for the second time in a week; a signal of how sensitive investors are to the prospect of higher oil prices that could act as a dramatic drag on global growth.
For now, it seems the selling is confined to the more skittish market participants, but if the index moves much lower the quiet retreat could turn into an increasingly panicky rout.
9.39am BST
With over three trillion pounds worth of foreign exchange trading each day, how could a few rogue City traders possibly rig it?
The key is that benchmarks are calculated at a certain time every day, to give a snapshot of what various assets are worth.
The traders at the bank have to take hedging positions, they place trades in the market, they share some information with colleagues or people at other banks to try and avoid risks around when those trades are completed.
And that's when it all gets tricky - it's that half-hour period. What have they discussed with each other?
Until that were done, it would be impossible to regulate this market completely.
9.08am BST
Full details of the government's markets review are online here.
It explains how the existing law against Libor-rigging would be extended to cover market rates, and also tries to justify opting out of the EU's own market-rigging rules.
9.03am BST
More reaction to the news that the chancellor wants to clean up the City (by mid-2015, anyway)
In a shock move, George Osborne to make criminal activity in the City a crime. After a 12 month consultation.
Apparently "Rigging foreign exchange, bond & commodity markets" is NOT a Criminal Offence Today... No that's for shoplifting & petty theft
8.58am BST
George Osborne will also announce tonight that the UK will opt out of a European directive, which sets out specific rules to make market abuse a criminal offence.
Not for the first time, Britain wants to go it alone (the Treasury argues that this means we can get criminal sanctions in place sooner, but it will also keep the City at arms length from Brussels).
"The key task ... will be ensuring that we have a system that is robust and punishes any wrongdoing while being sensitive to the need to continue to attract global banks and investors to the UK."
8.42am BST
While ITV's Joel Hills is suspicious that the chancellor has at least one eye on the next election, by announcing this new clampdown tonight :
Allegations that traders within banks colluded to manipulate foreign-exchange rates in currency deals are being looked at by the authorities in the UK and abroad. The investigations are ongoing, the outcomes uncertain but the mood in the City is, let's say, "not optimistic".
The Chancellor is expected to say he is acting to protect "the integrity of the City" but some will also see this as an attempt to protect himself from accusations of failure to act should hefty fines start being imposed on banks in the run-up to the general election.
8.34am BST
This is the fourth time that the government has taken aim at the City, says Sky's Mark Kleinman.
In the wake of the Libor-rigging inquiry, which has seen a handful of banks fined with more to come, the Chancellor believes there is further political capital to be generated from trying to stamp out errant behaviour.
His crosshairs are focused on the foreign exchange and commodity markets, where arcane price-setting mechanisms based on cosy huddles of bankers predominate.
Potentially more troubling for the Chancellor is that he will require widespread international backing to impose an effective clampdown on trading practices.
He may find that without it, his latest attempt to regulate the banking sector looks like little more than tinkering around the edges.
8.27am BST
Dr Gerard Lyons, economic advisor to Boris Johnson, has welcome George Osborne's market review.
He's also struck by the change in Britain's approach to the City since the financial crisis struck.
In recent years regulatory pendulum swung from 1 extreme of light regulation before crisis & now continues to head towards other extreme.
Good that #osborne unveiling a fair & effective markets review at #MansionHouse tonight. UK ensuring need for fair open transparent markets.
Scale of daily FX turnout has to raise question why so big? DAILY turnover $5.3 trillion ANNUAL global trade $18 trillion #MansionHouse
Scale of some markets hard to get your head around: outstanding derivates $763 trillion, Daily FX $5.3 TRN. Effective regulation essential.
8.13am BST
Andrea Leadsom, economic secretary to the Treasury, has confirmed this morning that the government is determined to clean up the financial markets.
It will make it clear to traders that if you abuse those rules you will end up in prison.
The problem is there are a small group of people who need to understand that rigging benchmarks is unacceptable.
7.57am BST
Lots of coverage of the chancellor's upcoming Mansion House speech in the papers.
The Independent reckons that Osborne's review could result in long stretches for rogue traders convicted of rigging the markets.
Tougher penalties, including jail sentences of up to seven years, will be extended to other parts of the financial services sector in an attempt to prevent more scandals.
Cathy Jamieson MP, the shadow financial secretary, said: "This review is too little, too late. We pressed ministers to regulate commodities markets and the full array of financial benchmarks back in 2012, but the chancellor failed to act."
With the FCA and other regulators investigating the FX markets amid rigging allegations, Mr Osborne is anxious to show he is taking firm action as an election looms in 2015.
Central to his plans is a new fair and efficient markets review which will be led by Minouche Shafik, the new BoE deputy governor for markets and banking, along with Martin Wheatley, FCA chief, and Charles Roxburgh, director-general, financial services at the Treasury
George Osborne is to reject Brussels efforts to clamp down on rogue bankers and introduce new UK rules designed to criminalize those who manipulate Londons key markets instead.
7.49am BST
Good morning, and welcome to our rolling coverage of the financial markets, the global economy, the eurozone and business.
Criminal offences for manipulating these global markets, which are based in London, will be among measures considered in a year-long review being launched by the chancellor, which was immediately criticised by Labour for being too late.
It follows steps in 2012 to allow prison sentences of up to seven years for anyone involved in rigging the key interest rate benchmark Libor.
"The integrity of the City matters to the economy of Britain.
"Markets here set the interest rates for people's mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy. I am going to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them."
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