4 September

@SueArthur

4 September

 Good morning,

 This isn’t the kind of news you want to wake up to on a Monday morning

Yesterday, North Korea said it had tested a hydrogen bomb capable of being mounted on a ballistic missile, calling the test a “perfect success”. More frightening this time is that the test was estimated to be about ten times more powerful than previous detonations, and triggered a magnitude-6.3 earthquake. Experts have estimated that the bomb was eight times more powerful that that dropped on Hiroshima.

The move is the latest show of defiance by North Korea to the international community.

All eyes are now on how the US will respond. President Trump has previously promised “fire and fury” if the military action continues. Now, it appears that the US is keeping its options open to a retaliatory attack, after defence secretary Jim Mattis warned North Korea yesterday that any threat to the US or its allies would be met with a “massive military response” that is “both effective and overwhelming”.

What has prompted Kim Jong-un’s increasing display of aggression? The Times suggests that the disarray in the White House has emboldened the North Korean leader. Many analysts believe that the US has no credible military option. Kim looks to be exploiting President Trump’s lack of clarity for as long as it lasts.

News

The Times suggests that Theresa May will use the threat of a cabinet reshuffle to consolidate her position in Downing Street. She was widely expected to be preparing for a reshuffle following the Conservative Party conference next month, but is now thought more likely to delay and have it hanging over Ministers and MPs as part of a strategy to reassert her authority.

As Germany readies to go the polls on 24 September, Angela Merkel and her main rival Martin Schulz clashed over refugee policy in a TV debate on Sunday evening. The Chancellor indicated that Turkey should categorically not become a member of the EU and said she would seek to end the accession talks. Merkel is widely forecast to win at the polls and secure a fourth term, while a flash poll of the TV audience last night indicated that she made a better impression than her rival.

The war of words over Brexit continues, with chief negotiators on both sides echoing messages from last week’s difficult press conference in separate interviews over the weekend. Speaking to the Andrew Marr show on Sunday, UK Brexit secretary David Davis rejected reports that Britain will offer to pay up to £50bn for a divorce bill as “nonsense”. Davis also played down the prospect of Britain beginning trade talks with the EU in October. Meanwhile, Michel Barnier told a conference in Italy on Saturday that he wanted to “educate” Britain about what leaving the EU will mean: "There are extremely serious consequences of leaving the single market and it hasn't been explained to the British people. We intend to teach people… what leaving the single market means."

Business and economy

Novartis chief executive Joe Jimenez will step down early next year, after heading the Swiss pharmaceuticals group for eight years. Current global head of drug development Vas Narasimhan will take his place.

Most economists don’t expect UK interest rates to rise until 2019, according to a BBC survey. The majority of economists think the Monetary Policy Committee will be reluctant to raise interest rates during Brexit negotiations, although inflation is above the official target of 2 per cent.

Sainsbury’s chief executive Mike Coupe has warned that fresh food could be left rotting at the British border if strict customs controls for EU goods are put in place after Brexit. He warned on the consequences of any disruption to established food supply chains.

Markets

The Week ahead

This week sees several corporates reporting as the City starts to get back into gear following a break over the summer.

On Tuesday, outgoing Halfords chief executive Jill McDonald will deliver her final trading update for the retailer, before taking up a new position at Marks and Spencer’s. Investors will be focused on Halford’s revenue and sales numbers after company profits were weakened by the fall in the pound.

We will also see numbers out from several housebuilders during the week.

On Thursday, investors will be focused on the outcome of the European Central Bank’s policy meeting. They will be looking for any signs that the bank is tapering its bond-buying programme.

As the US recovers from storm Harvey, energy markets will be impacted by how quickly US energy plants can recover capacity. The price of petrol touched $2.59 a gallon over the weekend, 10 per cent higher than the week before the storm.

Finals

Dechra Pharmaceuticals

Interims

Amryt Pharma, Curtis Banks Group, Highland Gold Mining, Johnson Service Group, Michelmersh Brick Holdings, Tax Systems 

AGMs

Micro Focus International, Redcentric 

UK Economic Announcements

(09:30) PMI Construction

Int Economic Announcements 

(10:00) Producer Price Index (EU)

Columns of note

Ahead of the Scottish Parliament returning from recess this week, Kevin Pringle looks at areas where there can and should be more cross-party consensus in his Sunday Times column.

The FT’s big read tracks the growing trend towards ethical investing, as investors look for companies that adhere to environmental, social and governance (ESG) standards. The article shows that companies with ESG strategies consistently outperform others, and suggests that the attraction ESG as a concept has for investors is reaching critical mass.

Did you know?

The Queensferry crossing will be officially opened today by her majesty the Queen. At 1.7 miles in length, the structure is the longest three-tower, cable stayed bridge in the world.

Parliamentary highlights

TODAY

House of Commons

In recess until 5th September

House of Lords

In recess until 5th September