Key events
Filters BETA
Britain’s FTSE 100 has rallied the start of trading, following Monday’s bank holiday break.
Banks are among the risers, with Barclays (+2.9%), HSBC (+2.5%) and Lloyds (+2.3%) benefitting from expectations that interest rates will keep rising.
That’s helped to lift the Footsie by 55 points, or 0.75%, to 7482, towards the two-month highs earlier this month.
Miners, though, are hit by the drop in metal prices this morning.
Distribution group Bunzl’s shares are down over 3% after its first half earnings report disappointed investors this morning, as Victoria Scholar, head of investment at Interactive Investor, explains:
Although it raised its operating margin outlook, Bunzl is still expected to fall in the full year versus 2021. The supplies distributor enjoyed a boost in demand for its products during the pandemic but has since struggled during the post-covid economic normalisation.
The global geopolitical uncertainty and equity market turmoil weighed on the stock between April and June but since the lows, Bunzl has enjoyed a strong uptrend, rallying by more than 20%. Shares are giving back some of those gains today.
Metal prices have dropped this morning, hit by recession worries and concerns over Covid-19 cases in China.
Benchmark copper prices dropped 3% in London this morning, with nickel falling 4%.
Yesterday, China’s southern city of Shenzhen shut down the world’s largest electronics market and suspended public transport nearby, as a neighborhood-wide lockdown was brought in following a small number of Covid cases.
CNN Business has more details:
Huaqiangbei, a busy shopping area home to thousands of stalls selling computer components, mobile phone parts and microchips, is among three neighborhoods placed under a mandatory four-day lockdown in Futian district, according the district government.
Residents in those neighborhoods are forbidden to leave their homes except for Covid testing, which they are required to undergo daily until Thursday.
The UK government’s short-term borrowing costs surged to their highest level since the financial crisis this morning.
Reuters has the details:
British two-year government bond yields briefly leapt by as much as 25 basis points on Tuesday to their highest since October 2008 at 3.072%, after trading restarted following a UK public holiday when euro zone and U.S. debt had fallen sharply.
At 0710 GMT, the two-year gilt yield had recovered around half its losses and was trading 13 basis points up on the day at 2.953%
UK service sector companies hiked their prices at a record pace in the last three months, the CBI reports.
Services firms also reported that their costs rose at unprecedented rates, leading to a sharp drop in business confidence.
Charlotte Dendy, head of economic surveys at the CBI, said:
“There are slim pickings for those looking for positive signals in the services sector over the last quarter. Just as rising inflation is hurting households and every business sector, the services industry is no different.
Consumer services firms say they’ve already seen a drop in business, while business & professional services companies expect a sharp fall in the next quarter.
Rob Davies
Thousands of pubs face closure without urgent government support to soften the blow from soaring energy bills, the beer industry has warned.
The heads of six of the UK’s largest breweries said tenants were already giving notice, and that jobs are at risk across the sector.
In some cases, pubs are facing a fivefold increase in energy bills, forcing some tenants to quit their leases.
My colleague Rob Davies explains:
Unlike households, businesses do not benefit from a cap on what suppliers can charge for gas and electricity, leaving many firms facing oblivion without state intervention.
In a letter to the government and the Conservative leadership candidates, Liz Truss and Rishi Sunak, the British Beer and Pub Association said mass job losses were inevitable in the absence of help for an industry that employs 940,000 people.
Nick Mackenzie, the chief executive of the 3,100-strong pub chain Greene King, said the energy bill blow had come just as the sector was battling back from the ravages of the Covid-19 lockdowns, which hit hospitality particularly hard and left many with punishing debts.
“While the government has introduced measures to help households cope with this spike in prices, businesses are having to face this alone, and it is only going to get worse come the autumn,” Mackenzie said.
“Without immediate government intervention to support the sector, we could face the prospect of pubs being unable to pay their bills, jobs being lost and beloved locals across the country forced to close their doors, meaning all the good work done to keep pubs open during the pandemic could be wasted.”
Here’s the full story:
A fresh downgrade to British economic forecasts from Goldman Sachs added to the pound’s woes.
In a note published on Monday, Goldman predicted the UK would plunge into a recession in the fourth quarter of 2022, as surging inflation hits household consumption.
Goldman also expects the UK will keep shrinking through next year, forecasting a 0.6% contraction during 2023, a downgrade on its previous forecasts.
Its team of economists said:
“Concerns around cost-of-living pressures in the UK have continued to intensify on the back of the worsening energy crisis.
Real consumption is still likely to decline significantly.”
The recession could be even more severe and protracted if gas prices remained elevated for longer than feared, and if the government provides less fiscal support than Goldman assumed.
Pound hits lowest since March 2020
The pound has dropped to its lowest level in almost two and a half years, hit by recession worries and fears of more large US interest rate rises.
Sterling slipped below $1.1700 for the first time since March 2020 on Monday, as concerns over the UK’s economic outlook mounted. It has now lost over 13% of its value against the dollar since the start of this year.
Soaring energy costs are putting more pressure on Britain’s economy, hammering growth and consumer confidence and pushing businesses closer to collapse.
The likelihood of more Bank of England rate rises isn’t providing much support for sterling, points out Dean Turner of UBS:
“Interestingly, even the lofty expectations for base rates and higher bond yields…have done little to help sterling.
So if, these reverse as I expect, there will be even less reason for investors to hold the currency of a country heading for a recession.”
The pound was also caught up in the market selloff following last Friday’s hard-hitting speech by America’s top central banker.
Federal Reserve chair Jerome Powell reiterated the central bank’s commitment to fighting inflation, despite the pain caused by interest rate hikes, signalling that borrowing costs will keep rising.
That triggered a slump on Wall Street at the end of last week, and further losses yesterday.
Introduction: EU planning energy intervention
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
With Europe’s energy crisis worsening the day, policymakers are stepping up their plans for emergency measures to curb prices as a painful winter approaches.
The European Union is preparing to intervene in the energy market, aiming to dampen soaring power costs by separating electricity costs from the soaring cost of gas.
European Commission president Ursula von der Leyen yesterday that Brussels was working on an “emergency intervention” as well as structural reforms to the power market.
Speaking in Berlin on Monday night, von der Leyen explained:
“We will have to develop an instrument, that will happen in the next days and weeks, which ensures that the gas price will no longer dominate the electricity price.
That could allow cheaper renewable energy to help set electricity prices, von der Leyen aded:
“We’ll have to ensure renewable energies are generated at lower costs, that those costs are transferred to consumers and windfall profits used to help vulnerable households.”
European electricity prices have rocketed to record highs in recent weeks, with German power for next year smashing through the €1,000 per MWh level for the first time:
Under Europe’s current market pricing system, wholesale electricity costs are based on the price of the last unit of energy bought at auction held by member states.
That means that electricity prices in the EU are driven by the “marginal” production capacity at gas power plants, which can be fired up at short notice to meet peak demand.
The Czech Republic, which holds the rotating presidency of the EU, will convene an extraordinary meeting of energy ministers on September 9th.
EU diplomats said the commission could offer a detailed plan as soon as this week, Bloomberg adds.
Von der Leyen’s comments came as the head of Shell warned the energy crisis could last for several years.
Ben van Beurden told a press conference in Norway that:
“It may well be that we will have a number of winters where we have to somehow find solutions,”
Van Beurden said solutions to the energy crisis would have to found through “efficiency savings, through rationing and a very, very quick buildout of alternatives”.
“That this is going to be somehow easy, or over, I think is a fantasy that we should put aside.
Also coming up today
BT and Openreach workers are staging fresh strikes over pay as the summer of industrial unrest across the country continues.
The Bank of England’s latest mortgage appovals data, due this morning, could show a slowdown in home loans last month. Economists predicts a small fall, to below 62,000, from around 63,700.
We also get consumer confidence figures from the US and the eurozone, and the JOLTS report showing how many job vacances are unfilled at American firms.
The agenda
-
9.30am BST: UK mortgage approvals, and consumer credit, for July
-
10am BST: Eurozone consumer, economic and business confidence surveys
-
1pm BST: German flash inflation reading for August
-
2pm BST: US house price index for June
-
3pm BST: US consumer confidence report for August
-
3pm BST: JOLTs survey of US job openings