German economy stagnates, to surprise of economists
The German economy did not grow in the first quarter, new data showed on Friday. The figures suggest it could be touch-and-go whether the EU as a whole can avoid a recession.
Gross domestic product was unchanged quarter on quarter in adjusted terms, the federal statistics office said. Germany is the EU’s largest economy, and a key driver of activity across the bloc.
A Reuters poll of analysts had forecast growth of 0.2%.
Growth in the Eurozone was 0% in the final quarter of 2022, but across the whole EU it was negative. That means the EU would be described as being in a technical recession if this quarter’s figure is negative.
Key events
The euro dipped against the US dollar after the German GDP data suggested zero growth in the first quarter, rather than the 0.2% expected by economists.
Here’s the chart of the move this morning:
But earlier inflation data from across Europe suggest that price pressures may be easing. (That would be good news for the European economy, although it could also contribute to a weaker euro because central bankers might slow down interest rate increases.)
🇩🇪 NEW: German economy stagnates in Q1 as GDP comes in 0.0% YoY, disappointing expectations of +0.2% growth.
At same time, regional inflation prints show slowdown in inflationary pressures.
— Julianna Tatelbaum (@CNBCJulianna) April 28, 2023
German economy stagnates, to surprise of economists
The German economy did not grow in the first quarter, new data showed on Friday. The figures suggest it could be touch-and-go whether the EU as a whole can avoid a recession.
Gross domestic product was unchanged quarter on quarter in adjusted terms, the federal statistics office said. Germany is the EU’s largest economy, and a key driver of activity across the bloc.
A Reuters poll of analysts had forecast growth of 0.2%.
Growth in the Eurozone was 0% in the final quarter of 2022, but across the whole EU it was negative. That means the EU would be described as being in a technical recession if this quarter’s figure is negative.
Another company that looks like it will be exiting the London stock market is Numis, a stockbroker listed on the Alternative Investment Market.
It has agreed to a takeover by Deutsche Bank, with the German lender to pay £410m in a deal that will give it better coverage among the UK’s mid-sized companies.
It comes after Deutsche said it was cutting other parts of the bank in order to save money.
The £3.50 per share offer is a nice chunky premium for investors: Numis’s share price has jumped by 70% this morning, from £2.04 yesterday to £3.41. You can see the size of the jump on this share price chart. The (highly professional) mark-up shows where the shares are currently trading. So it’s a premium to where shares were pre-pandemic, but lower than the investment mania of late 2020/early 2021.
Sky News’s Ian King sees the takeover as a “vote of confidence in the City of London”.
Big news here in the City this morning as @Numis has agreed to a takeover by @DeutscheBank valuing it at £410million. The statement is well worth reading – this acquisition looks to be a vote of confidence in the City of London and UK financial services.https://t.co/MKmvH2UII7
— Ian King (@IanKingSky) April 28, 2023
In other news from the London market, there’s another departure from the stock exchange on the cards. The Guardian’s Mark Sweney writes:
Kingspan, the €11bn Irish insulation and building materials group, is to delist from the London Stock Exchange.
The Ireland-based company, whose cladding and insulation products were involved in the Grenfell Tower fire in 2017, said that it intends to terminate its listing in London because of the low volume of share trading.
“The board has reviewed the company’s listing arrangements and notes that current share trading on the London Stock Exchange (LSE) is negligible as a percentage of total trading,” the company said on Friday. “The board, therefore, proposes to delist from the LSE subject to share holder approval and we will provide an update on process in the coming weeks.”
It is not an exodus, but there has been a steady drip, drip of companies leaving the London Stock Exchange in one way or another, for one reason or another. Take Dublin-headquartered building materials group CRH, which is moving its listing to New York. It said it would better reflect its US-dominated earnings.
Then there was plumbing and heating equipment supplier Ferguson, known as Wolseley before it changed its name to the US brand in 2017, and moved its listing from London to New York in May last year.
Mining giant BHP swapped a tricky dual-headed Anglo-Australian corporate structure in 2021, for a single Aussie listing.
And chip designer Arm, Japanese-owned but UK-headquartered, is expected to pursue a listing in the US as well, despite the overtures of Prime Minister Rishi Sunak.
NatWest beats on profits but shares drop as deposits fall
NatWest reported higher-than-expected profits of £1.3bn in the first three months of this year, and said it would be able to navigate a tough economic environment.
Nevertheless, the bank’s share price dropped by 5% in the first minutes of trading as it put aside £70m to cover an increasing number of defaults and the amount of deposits it held dropped by £11bn.
Banks have been helped in the last year by rising interest rates, which allow them to earn higher net interest margins – the difference between the rates they pay on deposits and those they charge on loans. However, they are also having to brace for slowing economies, which could dent their earnings.
Richard Hunter, head of markets at interactive investor, said:
The decline of 2.6% in deposit balances is an area of slight disappointment, relating to market competition and contraction, and showing a marginal shift in customer behaviour.
As with its peers, the shares have been under pressure of late given the wider banking travails and have declined by 11% over the last three months. The rather negative reaction to the numbers in early trade could contain an element of disappointment on customer balances and unchanged outlook guidance.
However, the share price has still managed to post a gain of 14% over the last year, which compares to a rise of 4.3% for the wider FTSE100. The strength and stability of the group is one which has been attracting investors given a generally difficult backdrop, and the market consensus of the shares as a buy is reflects investor belief in the bank’s ability to weather the current economic turbulence.
Alison Rose, NatWest’s chief executive, said the bank is operating during a “period of significant macro disruption and uncertainty”. She said:
As we continue to make progress against our strategic priorities, NatWest Group is well positioned to navigate this challenging operating environment and to deliver sustainable growth and returns by responding to new and emerging trends that are shaping the lives of our customers.
The FTSE 100 has just about eked out a gain in the early trades, but it is being held back by NatWest Group, one of the index’s big banking beasts.
NatWest’s shares are down by 6.7% after its results this morning. More details on that shortly.
More broadly across Europe the Stoxx 600 rose by 0.2%.
Amazon earnings help stock markets but it warns on cloud services growth
Good morning, and welcome to our live coverage of business, economics and financial markets.
Stock market indices in Asia have risen after Amazon last night continued the run of positive US tech profits. Europe and the UK are expected to follow suit.
Futures suggested UK and European stocks were set to open higher, after they dipped on Thursday. French Cac 40 futures were up 0.42%, German DAX futures were up 0.41% and FTSE 100 futures rose 0.33%.
The main tech results overnight came from online retailer Amazon, whose sales and profits both beat investor expectations. Its shares gained ground during normal trading hours.
Nevertheless, there was a hitch that suggested the economic situation is not all rosy, as it said that growth will slow in its hugely lucrative cloud services earnings (running servers centrally that other companies rent). As Reuters explains:
Amazon.com signaled on Thursday its long lofty cloud growth would slow further as its business customers braced for turbulence and clamped down on spending, overshadowing the company’s quarterly sales and profit that topped expectations.
In extended trading, Amazon’s stock initially added about $125bn in value on its upbeat view of consumer sentiment and the [company] holding its own among cloud competitors, only to see the entire gain vanish in a matter of minutes.
Investors are having to constantly negotiate this balance. On the one hand, the current trading situation is not looking too bad. On the other, companies are bracing for a US recession (cf. yesterday’s surprisingly weak US GDP data).
Across the Pacific ocean from the US West Coast, it was a similar story for Sony. The Japanese tech company just posted its record annual profits thanks to a strong performance in its music and computer chips businesses, even as it predicted that profits would dip in the current year.
Naeem Aslam, an analyst at Zaye Capital Markets, a trading consultancy, said:
Traders know that the US economy is experiencing a difficult time, and it is pretty much a given that the Fed is going to increase the interest rate. This means that earnings are going to be adversely influenced further in the coming quarter, and the US economy will face further slowdown.
Nonetheless, it is amazing to see that the US stock indices are still performing relatively well. For instance, the Dow Jones industrial average logged its best percentage gain yesterday since January this year. This means that risk appetite among traders is still extremely strong, despite the fact that there is serious fear about the US banking crisis. This week, we have seen plenty of new information come to light as the US regional banks reported earnings and their deposits depleted further.
Up ahead this morning we have an update on the Eurozone economy.
The agenda
-
9am BST: Germany GDP growth rate (first quarter; previous: 0.4% quarter-on-quarter; consensus: 0.2%)
-
10am BST: Eurozone GDP growth rate (first quarter; prev.: 0%; cons.: 0.2%)
-
1pm BST: Germany inflation rate (April; prev.: 7.4% annual; cons.: 7.3%)