Allan Monks, UK economist at JPMorgan Chase, said:
The one thing everyone is looking for at the moment is a sign that there is a slide in business sentiment. In the manufacturing sector in particular the trend doesn’t look encouraging.”
Here’s some reaction to the Asda sales slump, which confirmed its position as the worst-performing of the Big Four supermarkets over the Christmas period, amid a fierce price war.
George Scott, senior analyst at Verdict Retail, has looked at the chain’s problems in detail.
Asda’s now prolonged story of negative like-for-like sales shows that it has not done enough to broaden its appeal beyond price. Indeed news this week that it has asked suppliers for cash contributions to help cover costs of promotions reflects its predicament.
Away from price, Asda has a relatively weak reputation for quality, with its more upmarket Extra Special label needing greater product coverage and marketing communications. While its more functional instore experience sits well with its traditional shoppers, it also needs to do more to improve its staffing levels, adding reasons to visit, if it is to claw back ground from the discounters – Tesco has been leading by example on this front with good effect.”
He noted that Asda had announced some positive steps for this year, including the modernisation of 95 large stores, mostly around layout and merchandising. It also plans to further simplify its head office structure,and has joined the EMD European supermarket alliance, which will give it added buying power and allow it compete more strongly on price.
If it is to improve its outlook Asda however needs to evolve its mainstay food positioning. Indeed its George fashion and home label, which has been performing strongly for some time, has exactly the type of balanced consideration of price and quality which that it needs to aim for in food.”
Asda’s woes worsen
Asda has reported a sharp fall in sales over Christmas as it failed to stem an exodus of shoppers to German discount chains Aldi and Lidl.
The UK supermarket chain, owned by US retail giant Wal-mart, posted a 5.8% decline in like-for-like sales in the 13 weeks to 1 January, marking the sixth quarter of falling sales. It is a steeper fall than the 4.5% and 4.7% declines seen in the previous two quarters.
However, the company stressed that profitability in the quarter remained stable.
European shares have hit a two-week high, helped by gains in technology shares led by France’s Capgemini which reported a 20% rise in full-year profits. The pan-European FTSEurofirst 300 index rose 0.7% to 1304.31.
The FTSE 100 index in London is still down, however. It has slipped 24 points or 0.4%, but is holding above the 6000 mark at 6006.36.
ECB minutes flag up risks to growth outlook
The minutes of the European Central Bank’s January meeting are out. They show that policymakers thought that the eurozone’s modest recovery was continuing but flagged up rising risks to the growth outlook. They also pointed to weak wage growth and other signs that low energy prices could feed through into the price of other goods and services – so-called second-round effects that could keep inflation low.
The ECB’s governing council left interest rates unchanged at the meeting, but its president Mario Draghi dropped heavy hints that it could ease policy at the next meeting on 10 March.
The minutes said:
While incoming information had confirmed the ongoing moderate recovery… downside risks had increased again amid heightened uncertainty about the growth prospects of emerging market economies, volatility in the financial and commodity markets and geopolitical risks.
Inflation had continued to be weaker than expected, mainly owing to the renewed sharp fall in oil prices, but also to persistently subdued underlying price pressures. Weaker than anticipated growth in wages, in conjunction with declining inflation expectations, could also signal increased risks of second-round effects.
After a bit of a wobble earlier on, the rally on European stock markets continues, underpinned by rising oil prices.
London’s leading share index, the FTSE 100, is the only exception, trading down 0.3% or 16 points at 6015.05.
Germany’s Dax is 1.6% ahead, France’s CAC has gained 0.8% while Spain’s Ibex and Italy’s FTSE Mib are just over 1% higher.
Crude oil prices are rising again, adding to yesterday’s 7% leap. Brent crude is up 2.1% at $35.24 a barrel after encouraging comments from Iraq’s oil minister. He said talks would continue between Opec and non-Opec members about how to shore up oil prices, and that producers needed to find a way of restoring “normal” prices.
Here is some reaction to the UK’s poor productivity figures.
TUC general secretary Frances O’Grady said:
For all the good news on rising employment, the UK is still not creating enough quality jobs.
The yawning productivity gap between us and other countries shows how much room there is for us to do better.”
Workplace management firm Condeco Software is calling for more flexible working, saying the impact on productivity is well-documented.
There is increased need to take the potential of flexible working seriously. In research by Vodafone, which surveyed 8,000 global employers and employees, 83% said they had seen an improvement in productivity after introducing flexible working arrangements.
In addition, 61% of respondents said profits had increased. This latest report adds to research suggesting that UK businesses could make productivity gains of £8.1bn by optimising flexible working.
Oil prices push higher on Iraq comments
Oil prices are pushing higher again, with Brent crude rising 2.6% to $35.39 a barrel, after comments from Iraq’s oil minister.
Adel Abdul Mahdi said talks would continue between Opec and non-Opec members about how to shore up oil prices, a day after a meeting aimed at reaching a global pact to freeze production ended inconclusively.
In his first public comments since the meeting between oil ministers from Iran, Iraq, Qatar and Venezuela in Tehran yesterday, the Iraqi oil minister said producers needed to find a way of restoring “normal” prices and that rapprochement between the oil cartel and non-Opec members was a step in the right direction.
Two of the world’s biggest exporters – Opec leader Saudi Arabia and Russia, which is not a member of the cartel – reached a surprise compromise deal earlier this week to freeze output at January levels if other producers join in.
We’ve long known that despite decent economic growth, UK productivity growth isn’t great (why, nobody really knows – it’s called the productivity puzzle).
Official figures now show that productivity gap between Britain and other G-7 countries has widened to the biggest since records began in 1991. The figures underscore the challenge for the chancellor, George Osborne, who has made raising the UK’s poor productivity growth a priority.
For the first time, the ONS has published international comparisons of productivity at a sectoral level. The results show that UK labour productivity trails behind the US in all sub-sectors and particularly in manufacturing.
In financial services, the UK’s comparative productivity has worsened sharply since 2009 and trails France and Italy as well as the US. The UK was 5% more productive than Germany but 6% less productive than France, and 22% less productive than the US between 2010 and 2014.
When looking at manufacturing, the UK was 24% less productive than Germany, 18% behind France and 45% less productive than the USA.
BOE’s Cunliffe: Markets pushing back rate hike bets to 2019 not justified
One of the Bank of England’s deputy governors, Jon Cunliffe, said this morning that the recent shift in market expectations regarding the timing of the first interest rate hike was not justified.
A month ago, financial markets were expecting the first rate hike from the Bank in 2017, but are now pricing in a rise in the second quarter of 2019.
Cunliffe said at an event in Brussels held by the Swiss Finance Council:
I can’t see anything in the economic news that would lead to a shift like that.”
OECD calls for less austerity and more public investment
The OECD has called for its rich-country members to ease up on austerity and collectively agree to spend more on infrastructure projects to boost flagging growth.
Our economics editor Larry Elliott reports:
The Paris-based Organisation for Economic Cooperation and Development expressed concern about the state of the global economy as it cut growth forecasts made three months ago and warned that low interest rates and money creation by central banks were no longer enough for a lasting recovery.
The OECD has in the past supported the deficit-reduction programme taken by the UK chancellor, George Osborne, but believes Britain should now join with other countries in spending more on public investment.
Alastair McCaig, market analyst at online trading firm IG, has sent us his thoughts on the markets.
Early trading in Europe has seen markets creep higher with levels of enthusiasm normally shown by teenagers tidying their rooms. The FTSE has an added disadvantage as Shell, GlaxoSmithKline and AstraZeneca all go ex-dividend, knocking 24 points off the index.
The importance of David Cameron’s negotiations at the EU summit can’t be underestimated, as a failure to get a resolution at this meeting will almost certainly derail a Brexit referendum in June. The IG Brexit binary still indicates a 67% chance that the UK will vote to remain in the EU.
Oil continues to levitate just above the $30 level as traders gauge how likely it is that major oil producers will adhere to the new production cap. It was the turn of Iran and Iraq to discuss production levels yesterday, and although Iran made all the right noises it simultaneously failed to make any promises. Considering it has only just managed to get off an oil embargo list, Iran could be forgiven for being a little reluctant to reduce capacity.”
Japanese prime minister Shinzo Abe said this morning he hopes the Bank of Japan’s move to negative interest rates will support consumer spending and investment.
Speaking at a meeting of government ministers, he added that the government is monitoring moves in financial markets and hopes to cooperate with G-7 countries as needed.
London’s leading share index, the FTSE 100, is still down 0.6%, suffering under the weight of the commodity sector.
Connor Campbell, financial analyst at Spreadex, says:
The FTSE started the day suffering under the weight of its commodity sector. The miners appear to be falling back to the levels they rose from yesterday, arguably harmed by the fact that, whilst at its highest point since last September the Chinese inflation figures from the early hours of the day underperformed the 1.9% expected by analysts, coming in at 1.8%. Add onto that the slowing momentum of Brent Crude and the oil stocks joined in with the losses, leaving the FTSE with little wiggle room this Thursday.
This is despite strong gains from British Gas owner Centrica, up 3.8% to 201.5p, the top riser on the FTSE. Defence contractor BAE Systems was up 2% earlier and is now trading 0.8% higher at 503.5p.
Though Centrica’s better than expected 12% fall in yearly adjusted operating profit to £1.5bn was joined by a 5% fall in revenue to £28bn AND a cut dividend, British Gas’ 31% surge in profit to £574m appeared to be enough for investors, the utility company rising by 3.5% to hit the £2 mark for the first time since the start of February.
And whilst not as explosive as rival Rolls-Royce’s gains last Friday, BAE Systems will likely be pleased with its 2% rise this Thursday, that jump seeing the defence and aerospace firm re-cross the £5 mark after revealing a 2% increase in its final dividend and a £1.3bn increase in sales to £17.9bn, the latter aided by a Saudi Arabian aircraft splurge.
The United Arab Emirates’ energy minister Suhail bin Mohammed al-Mazrouei has given verbal support to plans by Russia and Saudi Arabia to cap production. He said this morning that oil prices are “not suitable” and will force producers to freeze their output.
State news agency WAM quoted him as saying:
Current prices are not suitable… and will force producers to hold production levels and limit investments in the higher cost oil [production].”
Amazon said it would open a new 1m sq ft fulfillment centre in in Coalville, Leicestershire, creating 500 new jobs over three years, as it expands aggressively in the UK and the rest of Europe. The company has started recruiting for a range of positions, from operations managers to engineers, HR and IT roles. The centre will open in the autumn. The move forms part of plans to hire 2,500 people for permanent roles in the UK this year.
The online giant is also pushing ahead with plans for “hundreds” of bookshops in the US, after opening its first bookshop in Seattle recently.
Oil prices continue to climb, after Iran welcomed plans by Russia and Saudi Arabia to cap production, although analysts noted that the move would not lead to any output cuts and Tehran did not commit to reining in its own growing output.
The price of Brent crude, the global benchmark, jumped 7% yesterday. Today, Brent rose more than 1% in early London trading but is now flat at $34.52 a barrel.
Stock markets get off to lacklustre start
Stock markets have got off to a cautious start: The FTSE 100 index is down nearly 40 points, or 0.6%, at 5992.86. The Dax in Frankfurt is 0.15% ahead while the CAC in Paris has edged up 0.1%.
Disappointing corporate results are weighing on European stocks. Shares in food giant Nestlé dropped more than 4% after sales missed forecasts and it admitted it was struggling to raise its prices. It has been hit by the slowdown in emerging markets, and a recall of its popular Maggi noodles in India.
Belgian bank and insurance group KBC also saw its shares fall by 4% after it took an impairment on its operations in Bulgaria and Slovakia.
On the agenda today, a report on the state of the global economy from the Paris-based Organisation for Economic Cooperation and Development is out at 10.00 GMT.
Less than half a million homes in the UK are currently valued at £1m-plus, but a study by high street lender Santander claims this number will rise to more than 1.6m in the next 15 years. You can read the report on property millionaires here (PDF).
By 2030 the UK will be even more starkly divided into the housing wealthy and the housing poor than it is now.”
But Centrica, Britain’s biggest energy supplier, also said adjusted pretax profits for the group had fallen to £1.1bn in 2015 from £1.3bn the previous year, as the falling oil price took its toll. It is axeing 1,000 jobs this year, as part of 4,000 cutbacks by 2020 that were announced last year.
The company is also cutting back investments further, and reduced its dividend by 30% to 12p a share. Following the collapse in wholesale prices, it booked charges of £2.4bn on oil and gas assets and power stations. Here is the full story.
British Gas reports 31% leap in annual profits
On the corporate front, British Gas owner Centrica has reported a leap in annual profits of 31%, to £574m, at its residential supply business.
Our energy editor, Terry Macalister, reports:
The soaring profit comes amid growing calls for the big six suppliers to cut their power bills for customers in line with wholesale prices.
“It is absolutely sickening that British Gas has made bumper profits in a year when there were more winter deaths than at any time this century. We have seen British Gas mercilessly hound hard-up customers even when bills are in dispute,” said a spokeswoman, Ruth London.
Meanwhile, Eurotunnel is claiming €29m (£23m) from the British and French governments for lost revenue caused by refugees trying to get from Calais to the UK. You can read the full story here.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Stock markets have had a decent run this week, after all the recent turmoil. London’s leading share index, the FTSE 100, posted four consecutive daily gains for the first time this year, its best run since November.
Japan’s Nikkei finished 2.3% higher at 16,196.80 while Hong Kong’s Hang Seng rose 2.1% to 19,328.91.
Paul Ashworth, chief US economist at Capital Economics, said the minutes showed Fed policymakers are playing for time.
Despite the increased uncertainty, [Fed] officials seemed content to wait and see whether the tightening of financial conditions was sustained and, if so, whether it would negatively impact on GDP growth. In the immediate aftermath of that January meeting financial conditions tightened even further, with equity prices tumbling and riskier corporate bond spreads widening.
As it stands now, however, the S&P 500 is back at its late January level, the dollar has weakened and, even though junk bond yields have increased, investment-grade corporate bond yields and mortgage rates have actually fallen. The incoming economic data have also improved, with employment, retail sales and manufacturing output recording solid gains in January.
The chances of a March rate hike are still very slim, particularly in light of the most recent comments from Fed officials, but we think the Fed will resume hiking interest rates later this year. By the middle of this year, fears of a collapse in both China and the US should have faded and rising domestic price pressures will be even harder to ignore. We expect the fed funds rate to end this year at between 1.00% and 1.25%.”