That’s all for today - here’s our main stories:

Goodnight. GW

Talks to secure City of London access to the EU have stalled, Rishi Sunak has confirmed in his first Mansion House speech to financiers, as he set out sweeping reforms designed to help Britain’s finance industry embrace global opportunities after Brexit, my colleague Richard Partington writes:

Addressing a hand-picked gathering of 40 young financial workers at a slimmed-down version of what was, in the days before the pandemic, a landmark annual gathering, the chancellor said a deal on a comprehensive post-Brexit financial services settlement with the EU had not happened.

“Now, we are moving forward, continuing to cooperate on questions of global finance, but each as a sovereign jurisdiction with our own priorities,” he said.

Sunak said Britain would diverge from Brussels’ rules on financial services as he set out a vision for the City.

Suggesting the UK would pivot away from Europe, he said he would build instead on deals such as a partnership on financial services signed with Singapore earlier this week – with plans to grow business in the Indo-Pacific, the US and China.

He also issued a message to Beijing, however, that deeper economic ties would not come at the expense of Britain abandoning its principles.

The annual Mansion House dinner, normally a lavish black tie event at which the City’s leading lights mingle with the ministers of the day, was replaced this year with a low-key breakfast livestreamed on the Treasury’s Twitter account. The gathering was Sunak’s first as chancellor, after the cancellation of last year’s dinner.

Speaking from inside the lord mayor’s residence at Mansion House, said Britain now had the “freedom to do things differently and better, and we intend to use it fully”.

While his predecessors would have stood over banqueting tables laden with wine and port in the building’s neoclassical Egyptian Hall, the teetotal chancellor gave his address at a lectern with a glass of water.

He said a more nuanced relationship was needed while attempting to benefit from the nation’s fast-growing financial services market with assets worth more than £40tn...

Here’s the full story:

Shares in UK hospitality companies, retailers and pub chains rallied today, alongside airlines, on renewed hopes that the lockdown will end on 19 July.

Transport firm FirstGroup (+6.7%), cinema chain Cineworld (+6.3%), casino and bingo hall operator Rank (+5.5%), retail group WH Smiths (+5.2%) and pub chain Mitchells & Butlers (+4.9%) were all among the top risers on the FTSE 250 index -- the smaller share index that contains more UK-companies.

The City seemed to take its cue from Boris Johnson, who told reporters during his visit to Nissan’s Sunderland plant that it looks ‘ever clearer’ that the Covid-19 vaccination programme has broken the link between infection and deaths.

That gives the scope, we think, on the 19th July to go ahead cautiously and irreversibly, Johnson added, and to go back to a world “as close to the status quo” as possible.

As flagged before, the PM also said he was “very confident that the double jabs will be a liberator”, which lifted airlines such as IAG (+3.9%) and easyJet (+2.6%).

Danni Hewson, AJ Bell financial analyst, says:

“It might not have a capital “F”, it might come with a few limitations, but Boris Johnson has promised “freedom day” and it’s coming on July 19^th. Cue a clean sweep of risers across the FTSE 100 and 250 from the Leisure and Travel sectors. The former cheered by the prospect that social distancing might finally stop hampering trade and the latter grabbing onto the PM’s other comment that vaccine passports should allow foreign holidays this summer. There are still a whole of boatload of questions that need answering and we’re promised details within the next few days.

“This outpouring of positivity was needed today as businesses begin to be weaned off government support programmes like furlough. Reading between the lines it’s clear there will still be challenges, not least to the travel companies, but at least they’ve got into the second half of the year on the front foot.

The day began with a boost for UK car making - with Nissan announcing a major expansion of electric vehicle production at its car plant in Sunderland which will create 1,650 new jobs, including a much-needed gigafactory.

Here’s the full story, from Jillian Ambrose and Robyn Vinter:

Nissan has set out plans for a £1bn electric vehicle hub in Sunderland which the Japanese firm says will create 6,000 new jobs at the firm and among its suppliers, safeguarding the future of Britain’s largest car factory as motoring moves away from petrol and diesel.

The plans, which are being underpinned by an estimated £100m in taxpayer funding, include an electric battery plant built by Nissan’s partner Envision, a battery recycling facility, and production of a new all-electric car model.

Boris Johnson billed the investment as a “major vote of confidence in the UK”, after two years of uncertainty surrounding the future of the plant, which produces top-selling models including the Qashqai, Juke and Leaf, 70% of which are exported to mainland Europe. The prime minister said:

“Building on over 30 years of history in the area, this is a pivotal moment in our electric vehicle revolution and securing its future for decades to come.”

Ministers and executives declined to confirm the level of government support. However, of the £1bn cost, Nissan is contributing £423m, which will go towards producing a new-generation all-electric crossover vehicle and creating 900 new jobs.

Envision, which is jointly owned by Nissan and built Europe’s first car battery plant in Sunderland in 2012, will invest £450m in a new 9GWh-capacity gigafactory to deliver electric power packs to Nissan, creating another 750 roles. The government is understood to have contributed the rest of the money. The combined investment is expected to create a further 4,550 jobs in the wider supply chain.

The move to support the new plans in Sunderland secures the future of a plant whose history began in 1986, when the then prime minister Margaret Thatcher persuaded Nissan’s chairman to choose Britain for a new factory....

Here’s the full story:

Over in New York, the S&P 500 index has hit a new record high after America’s jobs market continued to recover.

The number of fresh initial claims for unemployment benefit dropped to 364,000 last week, a new pandemic low, down around 51,000 compared with the previous seven days.

That suggests US firms are holding onto workers as the recovery leaves some struggling to hire staff.

That’s still higher than before Covid-19 (when initial claims were in the low 200,000s) but it’s moving in the right direction.

Initial jobless claims declined 51K last week, falling to a new pandemic low of 364K. While claims are steadily declining, the weekly average in the first half of 2021 was 639K. The weekly average was 1.35 million in 2020 and 218K in 2019. #economy pic.twitter.com/Z9SABJJ53O

— Cetera Investment Management (@ceteraIM) July 1, 2021

The S&P 500 index, a broad measure of the US market, is up 0.4% or 18 points at 4,315 points.

Energy stocks are leading the way (they were up in London too), as the oil price rallied on expectations of rising demand, and that OPEC+ producers might only increase output more slowly than expected in coming months.

OPEC and allies, such as Russia, have been meeting today to discuss whether to ease their output cuts in August - but no decision yet....

OPEC+ Considering Extending Talks One Day: Delegates

UAE Has Asked for New Cuts Baseline in OPEC+ Deal: Delegate#OOTT #OPEC #Oil #EFT

— Salih Yilmaz (@salihenergy) July 1, 2021

UK factories had a strong June, data released this morning showed, with output, new orders and employment growing at close to the fastest pace in the last 30 years.

But industry was still beset by supply-chain and distribution difficulties, as suppliers continue to struggle to meet demand.

Raw material costs surged at a record rate (again), with chemicals, electronics, energy, food products, metals, plastics and timber all costing more. And that led factories to hike their own output costs at the fastest rate since data were first collected in November 1999.

Growth in the UK’s manufacturing sector remained robust in June, with the #PMI at 63.9. Expansions in new orders and output were central to the uptick. However, input costs and selling prices rose at record rates amid supply disruption. Read more: https://t.co/qKybRTD5aZ pic.twitter.com/XTwlcNhVkj

— IHS Markit PMI™ (@IHSMarkitPMI) July 1, 2021

My colleague Philip Inman explains:

Factory costs jumped at a record rate in June, fuelling concerns that goods made in Britain will soar in price in the second half of the year.

Manufacturers paid higher prices for essential components and raw materials than in April and May, when there were also record increases, according to the IHS Markit monthly survey of the industry.

Make UK, the industry lobby group, said its members had held back from increasing prices earlier in the year while they waited to see whether the cost of raw materials and components would continue to rise, but that they were now passing on significant charges to consumers because it was clear the trend was likely to continue for much of the year....

London’s stock market has posted its biggest daily rise in almost two months.

The FTSE 100 has closed nearly 88 points higher at 7,125 points, up 1.25% today - the best session since 5th May.

The weaker pound will have propped up shares in multinationals (it makes their overseas earnings more valuable in sterling terms).

But strong corporate news also helped. High street chain JD Sports rose 5.4% after raising its profit outlook this morning. Primark owner AB Foods jumped 4.8%, after reporting that sales at the clothing chain has been stronger than expected since reopening after the lockdown.

Airline group IAG (+3.9%) and hospitality food business Compass (+3.9%) also led the risers.

Earlier today, prime minister Boris Johnson said he was confident Britons fully vaccinated against COVID-19 would be able to travel abroad this year.

He didn’t rule out letting double-vaccinated travellers from England skip quarantine when they return home from amber list countries later this month, but also warned that “This year will not be like every other year,” so “People shouldn’t expect it will be completely hassle-free.”

Sterling has hit its lowest level since mid-April against the US dollar today.

The pound has fallen half a cent to $1.377, its lowest in almost 11 weeks, after Bank of England governor Andrew Bailey told Mansion House that it was important not to overreact to a rise in inflation, as it was likely to be temporary.

This eased concerns that the BoE could tighten monetary policy soon - a day after departing chief economist Andy Haldane warned that inflation would surge towards 4% this year, forcing a dangerous “handbrake turn” on low interest rates.

The pound also dipped to a two-week low against the euro earlier today, at €1.1604.

Reuters’ Huw Jones has written an excellent factbox on the UK’s proposed shake-up of to City’s capital markets by amending various rules now it has left the EU (some of which I covered before, but this is a comprehensive list).

INSURANCE CAPITAL RULES

The ministry said there is a compelling case to amend insurance capital rules known as Solvency II.

It said there is a strong case to change the “risk margin” and “matching adjustment” rules, and to cut the burden of how insurers calculate their core solvency capital requirement.

The Bank of England has been asked to “model” different options to better understand which combination of changes were needed, with a “comprehensive package of reforms” put out to public consultation in early 2022.

STOCK AND DERIVATIVES TRADING

The ministry set out proposals to reform securities trading rules known as MiFID II, such as a more flexible definition for a trading venue to remove barriers to entry as trading technology advances.

To encourage more smaller companies with a market capitalisation of below 50 million pounds to list, a new category of trading venue with lighter regulatory requirements will be explored.

To minimise the impact of outages at exchanges, there will be consideration of a “playbook” for markets to follow when there is an outage.

Rules for “systematic internalisers” or in-house trading of shares at banks will be simplified to cut costs.

A cap on “dark” or off-exchange trading is to be scrapped.

The so-called share trading obligation, which requires trading of shares to be on a platform recognised by UK regulators, is to be scrapped to allow trading on any UK or overseas venue to “get the best price”.

Proposals are set out to limit the scope of the trading obligation for derivatives.

COMMODITY MARKETS

Currently, regulators impose limits on how much of a commodity any single market participant can hold to avoid price manipulation.

The government is proposing revoking the requirement for position limits to be applied to all exchange traded contracts, and to transfer the setting of position controls from the Financial Conduct Authority to trading venues.

An easing of rules is outlined for units of big energy and other firms where trading in commodity derivatives is “ancillary” and not a core part of the company.

Specific rules for “oil market participants” in commodity derivative markets could be scrapped.

FIXED INCOME TAPE

The ministry wants a “consolidated tape” single feed of all bond prices across trading venues to give investors a snapshot of markets, but prefers a market-led solution to a mandatory tape although both options are being looked at. It is seeking views on potential changes to the law to allow a tape to be created.

PROSPECTUSES

The ministry proposes an overhaul of the information document published by companies wanting to list, to encourage more floats by simplifying the rules and cutting duplication.

It proposes that the two regulatory issues, admissions of securities to stock markets and public offer rules, are dealt with separately in future.

The government proposes removing the rule that it is a criminal offence to request admission to trading prior to a prospectus being published. The Financial Conduct Authority would instead be given new rule-making responsibilities on admissions to trading.

Less stricter rules are proposed on making forward looking statements in prospectuses.

Alternatives are being considered to the requirement for a prospectus when a private company offers securities that are not admitted to a stock exchange. Ideas are being sought for easing the requirement on companies already listed overseas wanting to offer shares in the UK.

The Treasury has also launched a consultation on a review of the UK’s wholesale markets regime, which include plans to diverge from some of the European Union’s landmark financial market regulations.

The consultation argues that some of the EU’s MiFID II regulations impose excessive administrative burdens on City firms, which (it argues) are no longer needed after Brexit.

The government says it intends to amend rules which have not delivered their intended benefits, have led to duplication and excessive administrative burdens for firms, or have stifled innovation.

This overhaul of rules could reduce restrictions on City firms -- but would also see the UK diverging from the EU’s rules, which explains why an equivalence deal now looks so unlikely.

Introducing the consultation, economic secretary to the Treasury John Glen says:

With the development of the EU’s single market, much of our regulatory approach to capital markets was set in Brussels.

Now that we have left the EU, we can tailor our rules more closely to the unique circumstances of the UK, improve standards and make regulation more proportionate.

The consultation suggests removing the share trading obligation (STO), which restricted where City firms can buy and sell some equities (to platforms recognised by UK regulators).

It also proposes repealing the ‘double volume cap’ - a rule that restricts how much trading a firm can do in a dark pool [private trading areas where buyers and sellers can hide their trading intentions].

MiFID II restricts the amount of trading that happens without pre-trade transparency to 4% of all trading in an instrument at a single venue, and 8% across all venues.

The UK is now proposing to remove this DVC. Instead, the FCA would monitor the level of dark trading in markets, and limit it, if it was undermining the efficiency of the price formation process.

[This is an important issue. As Michael Lewis explained in a brilliant expose called Flash Boys, Dark Pools have been exploited by high-frequency traders to make riskless profits by front-running orders sitting in these pools, at the expense of investors.]

Glen argues that removing these rules will make the City more efficient;

Rules such as the share trading obligation, which seek to restrict access to global stock markets, run exactly counter to our principles of openness and competition.

The double volume cap was well-intentioned but has no basis in evidence. We need to tackle failures in market data provision to make it available to all. Many rules around transparency and disclosure serve to reduce price formation while needlessly raising costs.

The UK is also proposing a more tailored regime for bond-trading (or fixed income) and derivatives, arguing that MiFID II has lifted costs while not delivering meaningful transparency.

The government is therefore proposing to significantly reform the transparency regime for fixed income and derivatives markets. These reforms are aimed at making sure only standardised and liquid instruments have to comply with all transparency requirements, and are intended to support price formation and competitive markets.

The government’s “new chapter for financial services” shows that the UK is looking to build closer ties with major emerging economies.

It says the UK will:

Deepen our financial services relationships with the largest emerging markets, including China, India and Brazil. The UK has secured a range of positive liberalising measures and continues to work closely with these markets, including on green finance, fintech, capital markets, insurance and pension reforms. This will ensure UK-based firms are best-placed to take advantage of new opportunities.

On equivalence, the document says the UK will deliver assessments and decisions with jurisdictions “where it is in the UK’s interest”, using a “technical and outcomes based model”.

And with another sign that the UK is looking beyond Europe, it pledges to “set the new global standard for financial services in trade agreements”.

The UK has already set best practice in the agreements concluded with Japan and the EEA European Free Trade Association countries. The government will build on this through ongoing negotiations with the US, Australia and New Zealand, accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and future negotiations with India and other countries.

The failure to (yet) agree a UK-EU financial services equivalence deal will disappoint, although certainly not shock, the City -- at a time when Europe is pressing firms to shift more trading and senior deal makers to EU locations.

The crux of the issue is that UK financial services firms lost their passporting rights when the Brexit transition period concluded at the end of 2020. Passporting was extremely valuable to the City.

It let a firm authorized in one EU or EEA member state trade freely in another other state with minimum further scrutiny - and is the foundation of the EU single market for financial services.

From London, a bank could issue a loan to an EU company, help them raise money in the capital markets, buy foreign currency, or buy protection against moves in interest rates or foreign exchange rates.

Without it, a London bank can only offer much more limited services, unless they shift their operations into the EU, or if an equivalence deal is agreed, which grants direct market access for foreign financial services firms.

The EU did agree to a temporary “equivalence” deal covering central counterparties which lasts until mid-2022, to avoid financial instability post-Brexit.

That was vital for UK’s derivative clearing houses, such as the giant London Clearing House, where trillions of contracts are handled (in euros, dollars, sterling, yen...).

Clearing houses work as intermediaries, between buyers and sellers of financial instruments -- and Brussels has long argued that the trade in euro derivatives should happen in the eurozone.

That sounds fair. The argument against it, though, is that clearing houses work best if they have as much liquidity as possible, and the widest possible view of the market [a client could, for example, be facing a big loss on a dollar-denominated derivative, but an equal profit on a euro-based security].

Back in February, Bank of England governor, Andrew Bailey accused the European Union of trying to poach business from the City in the wake of Brexit, labelling the bloc’s recent activity a “very serious escalation”.

A permanent equivalence deal would help the City keep working with European clients.

But to get it, the UK has to show that its rules are ‘equivalent’ to EU standards -- raising the danger of becoming a ‘rule-taker’ (if Brussels changes its position, London would have to follow). And that could limit the UK’s freedom to set its own path on financial services, as laid out in today’s Roadmap.

Plus, it created uncertainty for City firms, as equivalence can be withdrawn if the two sides diverge, or fall out badly.

Moving euro-denominated clearing operations out of London would be costly and complex, so banks have been reluctant to do it (unlike equities trading, which swiftly shifted to Amsterdam once Brexit meant a ban on EU-based financial institutions trading in London).

Today, Sunak insisted that the UK would “strengthen” its already robust regime for central counterparties, declaring that he could see “no reason of substance” why London can’t keep offering these clearing services to EU countries, and beyond.

But the decision isn’t solely in his hands -- Brussels can continue to pile pressure on firms to move clearing from London to, say, Frankfurt.

Indeed, last month it emerged the European Union was asking financial market participants to suggest legislative changes that would help them transfer clearing in euro derivatives from London to the bloc, and holding workshops with customers of clearing houses about shifting euro interest rate swaps contracts worth trillions of euros from London to Deutsche Boerse.

Reuters: EU quizzes industry over euro clearing as LSE offers olive branch

Back in March, the UK and EU agreed a memorandum of understanding on how to shape rules for banks and financial markets. That MOU looked like a step forward - the two sides agreed they’d work together on “reducing uncertainty” and “identifying potential cross-border implementation issues,” (the FT has more details here).

However, it fell short of the legally binding co-operation arrangement which the UK had hoped for -- and has not, as we learned today, got the two sides to agree an equivalence deal.

Without it -- City banks are likely to look to win more business overseas. It was notable that Sunak singled out the US in his speech today, saying:

The US is already our biggest market, with the UK exporting $28bn of financial services every year.

Our ambition is to deepen regulatory cooperation even further, with our closest ally.

And the chancellor also (as flagged earlier) pushed for the UK to bolster its economic relationship with China, calling for “a mature and balanced relationship,”.

That’s despite concerns over human right and security -- including among some Conservative MPs who have been pushing for a tougher policy on Beijing.

Sunak insists UK must bolster China ties as access to EU markets declines https://t.co/a8qQMHF8iw

— Financial Times (@FT) July 1, 2021

Rishi Sunak has now appeared on Bloomberg TV, and further indicated that talks with the EU over a financial equivalence deal for the City have stalled (as flagged earlier).

Q: You say you plan to use the Brexit freedoms the UK has now secured in full. Have you given up on the idea of achieving equivalence for UK financial services - has that ship sailed?

Sunak says Europe is always going to be a “close partner and ally”, but indicates that the UK has moved on:

“We always going to be constructive in that relationship and remain available to answer any questions that they might have about that process, which we completed some time ago.”

The chancellor says he’s interested in making sure the financial services industry in the UK is something that “we can all be proud about”, as it creates jobs locally and prosperity nationally.

He says the UK now has an ‘exciting agenda’, with today’s roadmap to create a more open, competitive, green and technologically advanced financial service sector.

Q: JP Morgan just opened a six-story trading hub in Paris this week, and the French finance minister said ‘Thank you Brexit”. Are you concerned that London’s position as Europe’s largest financial service hub is being chipped away?

Rishi Sunak insists the London is still the “premier destination” for financial service. He wants to build on its strengths, and make the capital and UK more generally the most advanced and exciting place for financial services in the world.

We speak exclusively to U.K. Chancellor of the Exchequer Rishi Sunak on financial services, green finance, Brexit, and back-to-the-office https://t.co/TDDZZFQaxi pic.twitter.com/Qa4Ycfxc5B

— Bloomberg TV (@BloombergTV) July 1, 2021

But... France certainly has its eye on the City, with president Emmanuel Macron using this week’s “Choose France” summit to pitch Paris as an attractive destination to bankers looking to maintain easy access to the EU.

Bloomberg point out this week that Brexit is ‘chipping away’ at London’s dominance, amid Europe’s long-term push for full capital markets and banking union.

Where do Paris’s own “pull” factors fit into this post-Brexit, post-Covid world?

Its fans tick off a list that’s well-known: A set of tax breaks and reforms rolled out by the Macron administration to make hiring more attractive, a talent pool trained in elite engineering schools and the mix of infrastructure, culture and schools that global cities need to attract high-flyers. JPMorgan isn’t alone: Bank of America Corp. has moved 400 employees to Paris since Brexit.

Less cheery is France’s record as a domestic financial market: HSBC Holdings Plc recently pulled out of French retail banking after a long and painful sale process, and the recent initial public offering of French digital-music company Believe SAS got off to a rough start.

But the real opportunity set is for the euro area as a whole, with more integration of various hubs via a true capital markets union that would bring together the different specifics of each hub, from Amsterdam’s high-speed connections to Germany’s network of small and family businesses.

Rishi Sunak also had good news for UK bankers - he doesn’t intend to whack up taxes on their profits.

He told Mansion House that:

I announced at Budget that we’d review the Bank Surcharge.

Our ongoing conversations have only reinforced my view that the combined tax rate on UK banking profits should not increase significantly from its current level.

I intend to conclude the review as planned later this year.

That surcharge, introduced by George Osborne, is currently 8% on top of the corporate tax rate. The government is reviewing it, worried that its plan to raise corporation tax from 19% to 25% would make UK taxation of banks “uncompetitive”.

Sunak’s comments suggest the Surcharge could be trimmed, to offset some of the rise in corporation tax.

David Barmes, economist at Positive Money, says:

At a time when so many households and small businesses have struggled, banks have continued to profit, pocketing huge amounts from the public purse through the government’s guaranteed loan schemes.

There is no reason why they should be exempt from paying a fairer share of tax on these profits.”

And as flagged overnight, the chancellor also said he wants to make the UK ‘the best place in the world for green finance.’ through NS&I’s world-first Green Savings Bonds, and a green bond later this year.

Sunak said:

We’re issuing the UK’s debut sovereign green bond in September, with the framework published yesterday committing us to the most ambitious approach of any major sovereign.

The UK’s new Green Savings Bonds will let you invest in projects that tackle climate change, improve biodiversity and create green jobs.

During today’s #MansionHouse speech, I talked about how our Green Financing Framework will set out the types of ventures the bonds will fund. pic.twitter.com/6c1c41cq9L

— Rishi Sunak (@RishiSunak) July 1, 2021

Rishi Sunak also told the Mansion House that the UK needs to stay alert to China’s ‘increasing international influence’ -- while also pointing to the economic opportunities on offer.

Too often, the chancellor argues, the debate on China “lacks nuance”:

Some people on both sides argue either that we should sever all ties or focus solely on commercial opportunities at the expense of our values.

Neither position adequately reflects the reality of our relationship with a vast, complex country, with a long history.

The truth is, China is both one of the most important economies in the world and a state with fundamentally different values to ours.

We need a mature and balanced relationship.

That means being eyes wide open about their increasing international influence and continuing to take a principled stand on issues we judge to contravene our values.

After all, principles only matter if they extend beyond our convenience.

But... Sunak also wants the UK and China to cooperate on issues such as health, aging, climate and biodiversity, and points out that its “fast-growing financial services market” has assets over £40trn.

So, he insists, the UK can:

...pursue with confidence an economic relationship with China in a safe, mutually beneficial way without compromising our values or security.

Sunak doesn’t elaborate on that last point - but it’s almost a year since the UK announced that China’s Huawei’s equipment must be stripped out of Britain’s 5G phone networks by 2027, due to security concerns.

Tensions between London and Beijing have also been rising over the crackdown on the pro-democracy movement in Hong Kong, and the abuses against the Uighur population in Xinjiang.

The UK’s attempt to reach a financial services equivalence agreement with the European Union has “not happened”, Rishi Sunak tells financial leaders in his Mansion House speech.

The comments suggest that the talks to achieve an “equivalence” arrangement between the UK and the EU -- where the two sides recognise each others’ financial rules as equivalent to their own -- have stalled.

Instead, the chancellor says, the UK will use its freedom to set its own rules and do things “differently and better”.

In his Mansion House speech, Sunak says:

As I said in parliament in November, our ambition has been to reach a comprehensive set of mutual decisions on financial services equivalence.

That has not happened. Now we are moving forward. Continuing to cooperate on questions of global finances, but each as a sovereign jurisdiction with our own priorities.

We now have the freedom to do things differently and better, and we intend to use it fully.

Sunak then insists the EU will “never have cause” to deny the UK access because of poor regulatory standards.

[Explanation: The U.K.’s financial services industry was largely excluded from the trade deal with the EU, and had been pushing for equivalence rulings so they could get wide-ranging access to the bloc.]

JUST IN: Chancellor Rishi Sunak suggests he has given up on securing financial services equivalence with the EU, emphasizing the U.K.'s freedom to set its own rules after Brexit https://t.co/Bx8Bxi5gaX

— Bloomberg Brexit (@Brexit) July 1, 2021

Sunak then points to clearing houses (where EU have been pushing to move the lucrative euro clearing business from the City, into the eurozone)

Sunak saying the UK already has one of the world’s “most robust regulatory regimes for central counterparties”, and the plan is to strengthen it.

It is also entirely within international norms for like-minded jurisdictions to use each other’s market infrastructure.

I see no reason of substance why the UK cannot or should not continue to provide clearing services for countries in the EU and around the world.

Chancellor at Mansion House: “I see no reason of substance why the UK should not continue to provide clearing services for countries in the EU” - says UK’s principles and values on regulation/ rule of law should reassure

— Faisal Islam (@faisalislam) July 1, 2021

These clearing houses play a crucial role in the financial markets, acting as intermediaries between buyers and sellers of financial instruments.

That including derivatives (such as interest rate swaps, where two parties exchange one stream of interest payments for another), where the market for euro-denominated swaps is huge.

As Politico wrote back in March:

Getting some or all of euro clearing to shift from London would be a major coup for the EU in the Brexit turf war over financial services. But unlike EU share-trading, much of which jumped to Amsterdam at the start of the year, or even derivatives-trading, the Commission can’t just flip a switch and demand that the clearing business moves over.

The sheer volume alone would make that difficult. LCH manages some €46 trillion of notional outstanding euro-denominated interest-rate swaps — equivalent to more than triple the size of the EU’s economy.

In his Mansion House speech, Rishi Sunak says Britain’s financial sector has been a lifeline in the pandemic.

They provided millions of mortgage holidays, billions of pounds of business loans, and frontline staff kept thousands of branches open in the most difficult of circumstances.

He says:

“Financial services don’t just generate prosperity here at home. They give us the economic power to project our values on the global stage.

But in recent decades, he adds, financial services has become emblematic of a broader loss of faith in internationalism.

In the past, it was taken as a given that international cooperation created a fairer and more just world. Support for that view has fragmented.

Now, international cooperation too often seems to be just “warm words”, he suggests, and the benefits of being a global services economy are perceived to flow too narrowly.

This is not irreversible.

International cooperation should “move and inspire people”, the benefits it brings should be seen everywhere, argues Sunak, adding:

Those who believe in international collaboration must do more to explain why it matters, and the benefits it brings.

Bank of England governor Andrew Bailey then insists that the rise in inflation will be temporary - insisting that it’s important not to ‘overreach’ to temporary strong growth and inflation.

The economy is bouncing back rapidly, which is good news. With that has come a rise in inflation, and we expect that rise to continue in the near term as we go through the rest of this year, such that CPI inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices.

I have set out the reasons why we expect this rise in inflation to be a temporary feature of the bounce-back. The reasons for taking this view are well-founded, it is not a vain hope or a matter of whistling in the wind. It is important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions. But it is also important that we watch the outlook for inflation very carefully, which of course we do at all times, particularly for signs of more persistent pressure and for a move of medium term inflation expectations to a higher level.

Yesterday, the departing BoE chief economist Andy Haldane warned that UK inflation will head towards 4% by the end of the year (or double the UK target).

Kwasi Kwarteng, secretary of state for Business, Energy and Industrial Strategy, has said the Nissan announcement is a really positive story - but won’t reveal how much financial support the government is providing.

Speaking on the Today programme this morning, he was asked:

Q: How big a deal is this factory?

Kwarteng says it is a huge deal for a number of reasons. Firstly, it’s the first UK gigafactory.

Secondly, Nissan has been in the UK for 35 years. They came here in 1986. This £1bn commitment means they’re going to be here for a number of decades to come, he suggests.

It’s a really positive story, creating around 1,600 new, well-paid jobs.

Kwarteng also says that a number of years ago, people said Nissan would leave the UK because of Brexit. Instead, they’re committed to investing here.

Q: How much of the £1bn investment are the taxpayer paying?

Kwarteng says the government is in conversations with lots of auto companies who are interested in investing in the UK, and it would be ‘completely irresponsible’ to reveal commercially sensitive matters.

Q: Will you confirm it’s a significant amount of money? People have talked about it being £100m or so.

Kwarteng says it’s no secret that governments across the world are trying to attract a once in a generation opportunity, to build gigafactories and EVs, the vehicles of the future.

We’ve committed some measure of support.

But the billion pounds that they’ve giving far outweighs, and is far in excess, of the amount of support that we provided.

"This is a really positive story for the UK."

Nissan has confirmed plans for a £1bn 'gigafactory' in Sunderland which is set to create more than 1,600 jobs.

Business Minister @KwasiKwarteng tells #KayBurley he's "delighted" by the investment.

More 🚗 https://t.co/7h8kxtr0yP pic.twitter.com/3d1OeAhCgc

— Sky News (@SkyNews) July 1, 2021

Ed Miliband MP, Labour’s Shadow Business Secretary, meanwhile, has warmly welcomed the announcement - and called for more government investment.

Only this week, the SMMT said that the Government was falling behind our competitors and the Faraday Institution estimates we need seven gigafactories by 2040.

“That’s why Labour has said we would increase government investment from £400 million to up to £1.5 billion, part-financing three additional gigafactories by 2025.

“We have so much to be proud of in our automotive sector. But government must substantially accelerate and increase support to win the global race for the future of car production.”

The UK car industry has welcomed Nissan’s move, but warned that the UK will need more gigafactories to hit its electric car targets.

Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, said:

“Today’s announcement of new investment into battery production in Sunderland is great news for the sector, the region and all those employed locally. It also demonstrates the UK automotive industry’s commitment to net zero and that the transition to these new electrified vehicles can be “made In Britain”.

If we are to build one million electric vehicles by 2030, however, we need more such commitments, with at least 60 GWh of gigafactory capacity in this country by the end of the decade.

The future competitiveness of our industry depends on securing these investments but also wider support for manufacturing.

Hawes points out that the UK also needs significant investment in a charging infrastructure to give consumers the confidence to switch to electric vehicles. That means at least 2.3m charging points nationwide before the end of the decade, according to research published by the SMMT this week.

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

Japanese car giant Nissan has unveiled plans for the UK’s first “gigafactory” producing batteries for electric vehicles, in a £1bn investment plan that secures the future of its Sunderland car plant.

The move is a boost for the North East, and the UK’s car industry as it tries to move from internal combustion engine to electric vehicles, in the push towards net zero.

Nissan has announced that will invest £423m in the Sunderland plant, to produce a new-generation all-electric crossover vehicle, creating 750 new jobs.

And its Chinese partner, battery producer Envision-AESC, is spending £450m building a battery factory next door, which will deliver electric power packs to power the vehicles, creating another 900 roles.

Sunderland council is also onboard - leading an £80m plan to create a “microgrid” of solar and wind farms to power the energy-intensive factories, including a dedicated energy storage facility made from second-hand electric car batteries.

The plan is expected to create around 6,000 direct and indirect jobs in the supply chain.

Gigafactories are vital to the move towards electric cars, and earlier this week the UK’s car industry warned that Britain risks being ‘stranded’ unless the government helped boost capacity. The SMMT called for a “binding target” of 60GWh of battery capacity by 2030, to protect the industry’s future:

The first phase of the Sunderland gigafactory will have a capacity of 9 Gigawatt hours, able to produce enough batteries for 100,000 cars a year, but if demand rises sufficiently, Envision may invest a further £1.8bn to expand the new plant to 25GWh by the end of the decade, the Financial Times says.

1,650 new jobs, £1bn investment, another #gigafactory in the #Northeast and a new #EV. Huge news confirmed for the #NorthEast the home of the UKs EV & battery sectors - Nissan announces major UK electric car expansionhttps://t.co/sFtW96x5Nm

— Andrew Clark (@AnAndrewClark) July 1, 2021

Nissan’s plan - merging vehicle and battery production with a renewable power source - is called “EV36Zero”, and chief executive Makoto Uchida says it can be a blueprint for the future of the automotive industry.

He added:

“Our announcement comes out of lengthy discussions, and will accelerate our efforts in Europe to achieve carbon neutrality. The experience and know-how gained through the project will be shared globally.”

Prime minister Boris Jonson called it a pivotal moment:

“Nissan’s announcement to build its new-generation all-electric vehicle in Sunderland, alongside a new gigafactory from Envision AESC, is a major vote of confidence in the UK and our highly-skilled workers in the North East.

“This is a pivotal moment in our electric vehicle revolution and securing its future for decades to come.”

New: @Nissan and Envison announce £1bn investment in new all-electric vehicle and 9GWh battery gigafactory at Sunderland, promising 1,500 new jobs and 4,500 more in supply chain pic.twitter.com/fXK6sjAVhU

— Paul Kelso (@pkelso) July 1, 2021

Reaction to follow...

Also coming up today...

Chancellor Rishi Sunak is expected to promise to make the UK the most “advanced and exciting” financial services hub in the world, and a hub for green finance, when he outlines a roadmap for the sector at the Mansion House later on Thursday.

My colleague Richard Partington explains:

The chancellor is expected to use his first speech to City financiers at the annual Mansion House address to announce details of a £15bn UK programme of government bond issuance, with the proceeds being spent on environmentally friendly projects.

Aiming to turn Britain into a world leader for low-carbon financial services, Sunak will also launch a separate green savings bond for UK consumers, which he will say is to be used to help fund infrastructure schemes and create more green jobs across the UK.

Bank of England governor Andrew Bailey is also speaking.

The OPEC group of oil producers, and allies including Russia, are holding their monthly meeting, where they’ll decide whether to keep relaxing their production curbs by raising oil output in August.

Britain’s retail sector has suffered another blow overnight, with Gap Inc confirming it plans to close all 81 of its stores in the UK and Ireland - which could cost over 1,000 jobs.

Our retail correspondent Sarah Butler writes:

The US retailer said the stores would close between late August and the end of September this year but it would continue to operate its online store in the UK and Ireland. Gap did not confirm the number of jobs that would go but is estimated to have employed at least 20 people in each outlet.

The decision is the result of a strategic review of the San Francisco-based firm’s European operations that began in October last year. Gap said earlier this month that it would close just 19 stores in the UK and Ireland as they came to the end of their lease.

European stock markets are expected to start the new month with gains, with investors awaiting new healthchecks on UK, eurozone and US factories, and the latest weekly US jobless claims -- ahead of tomorrow’s US Non-Farm Payroll report.

European Opening Calls:#FTSE 7068 +0.44%#DAX 15609 +0.50%#CAC 6548 +0.62%#AEX 734 +0.65%#MIB 25244 +0.57%#IBEX 8864 +0.49%#OMX 2274 +0.50%#STOXX 4089 +0.60%#IGOpeningCall

— IGSquawk (@IGSquawk) July 1, 2021

The agenda

• 9am BST: Andrew Bailey: Speech at the Mansion House
• 9.30am BST: UK manufacturing PMI for June
• 10am BST: Eurozone unemployment stats for June
• Noon: OPEC conference begins
• 1.30pm BST: US weekly jobless report