Gas crisis forces two UK fertiliser plants to halt work; US retail sales beat forecasts – as it happened

Last modified: 05: 13 PM GMT+0

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And finally, European stock markets have ended the day higher.

In the City, the London stock market finished 11 points higher at 7027 points.

Construction rental group Ashtead led the rises, up 5.2% after saying earnings would be ahead of forecasts in a strong earnings update.

Travel stocks held their gains, with IAG up 3.9% higher.

But mining companies still lagged, with Anglo American down 4.5% and Rio Tinto down 4%.

The wider Stoxx 600 gained 0.44%, with gains in France, Germany, Italy and Spain.

European indices end the session with gains on the day
Spain and Italy lead the way
The major European indices are ending the session with gains on the day.
German DAX, +0.3%
France's CAC, +0.6%
UK's FTSE 100, +0.2%
Spain's Ibex, +1.2%
Italy's FTSE MIB, +0.8%

— Dr.Anirudh Sethi ,PhD (@Iamanirudhsethi) September 16, 2021

On that note, goodnight! GW

Here’s Danni Hewson, AJ Bell financial analyst, on today’s action in the markets:

“The UK’s traffic light system has come in for considerable criticism from both industry bosses and consumers so it’s little wonder the speculation that its about to be scrapped has chimed with investors. IAG, Easy Jet and Wizz Air have all been among the top performers on London markets today. October half term is the next big opportunity for the travel sector and any changes that can make travelling less unsettling and testing less expensive will yield dividends. There are a great many question marks about how far the government will go, particularly when it comes to changing testing requirements but even simplification of the basic go, no go areas will go a long way towards shoring up confidence, particularly amongst families.

“Shortages have had different implications for two big names of the FTSE 250 today, with The Drax Group making gains as energy prices soar and Marks and Spencer dropping back following the news that difficulties in getting products onto shelves in France have forced them to close 11 of their stores. Supply chain complexities are weighing heavily on many UK businesses right now and there are not many company trading updates that don’t include at least a line nodding to further issues on the horizon.

US retail sales surprised on the upside, but the surprise doesn’t seem to have gone down well with Wall Street as a whole although the jump in consumer spend has benefited the likes of American Express and Visa today and retail behemoths Home Depot, Walgreens and Walmart have all made gains. Investors seem to be trying to fathom whether the unexpected jump was a result of an economy running on a full tank or if one off factors, like traditional back to school activity has skewed the curve. Prices and availability will be the watchwords for September as the shortages being highlighted by many British companies in the last few weeks begin to filter through into the data. Tomorrow’s UK retail sales will be given careful consideration to see how UK consumers are adapting to these inflationary times.”

More on the fertiliser crunch:

What will be the next European #ammonia plant domino to fall? Cuts in NW Europe (UK + Netherlands) and Spain (very soon) set to be followed by imminent shutdowns in Ukraine. Suppliers likely to source cargoes in the Americas and send them across the Pond. #gas #ICIS #fertilizer

— Richard Ewing (@ICISRichard) September 16, 2021

“The idea that you slam the brakes on now, and that the market corrects itself in the short run, that is completely unfounded,” says @CBItweets. We're not out of the woods yet - some sectors and parts of the country are still relying on the scheme.https://t.co/95fDAxzfj9

— NEF (@NEF) September 16, 2021

Michael Pearce of Capital Economics is not too impressed by the rise in US retail sales:

Even though the 0.7% rise in headline retail sales in August was much better than expected, the details were far less positive, with big downward revisions to previous months, while the rise in online and grocery store spending, which contrasts with stagnant spending at bars and restaurants, suggesting that Delta fears are playing a key role.

Wall Street has made a mixed start to trading, as traders digest the unexpected jump in US retail sales in August... and the rise in jobless claims last week.

The Dow Jones industrial average gained 29 points, or 0.08%, at the open to 34,843 points.

But the tech-focused Nasdaq dipped by 0.3%, with the broad S&P 500 index slipping by 0.15%.

Write-off the U.S. consumer at your peril.

— Ian Shepherdson (@IanShepherdson) September 16, 2021

🇺🇸Strong #retail sales surprise in August!

🟢Headline⬆️0.7%
🚀Core sales⬆️2.5%

Online +5.3%
Furnit +3.7%
Merch +3.6%
Food +1.8%
Build mat +0.9%
Health +0.2%
Gas +0.2%
Rest & bars +0%
Elect -3.1%
Autos -3.6%

Supply & #Delta weighing on spending mix but spending outlook robust pic.twitter.com/nOZwZ2KAsK

— Gregory Daco (@GregDaco) September 16, 2021

More reaction to the bounce in US retail sales:

The pandemic is the economy, August/Delta edition: Behind the 0.7% rise in retail sales:

--Food service & drinking places flat on the month;
--Nonstore retail (mostly e-commerce) jumps 5.3%;
--Motor vehicle & parts dealers down 3.6% (pandemic-induced supply chain mayhem).

— Bill Adams (@BillAdamsPNC) September 16, 2021

Retail sales rose 0.7% in August compared with July, topping Wall Street expectations.

Furniture & home up 3.7% month over month;
Apparel up 0.1%;
Department stores up 2.4%. pic.twitter.com/zhdsWjN37X

— Lauren Thomas (@laurenthomas) September 16, 2021

US retail sales beat forecasts

US retail sales unexpectedly rose in August as a pickup in purchases across many categories more than made up for weaker demand for cars.

US retail sales jumped by 0.7% in August, the Commerce Department reports, much stronger than the 0.8% fall expected -- as retailers kept shifting stock despite the global supply chain problems.

That follows a downwardly revised 1.8% decline in July, and suggests that demand was more resilient than expected last month (despite the slowdown in hiring in August).

If you exclude motor vehicle and parts, and gasoline sales, then underlying retail sales were 2.0% stronger in August.

Solid beat by retails sales (+2.0% MoM ex auto and gas). Remember consumers' search activity nicely rebounded throughout August! pic.twitter.com/GGr7RpTGEA

— Ben Breitholtz (@benbreitholtz) September 16, 2021

Furniture and home furnishing sales jumped 3.7% in the month, while food and beverage spending was up 1.8%, and general merchandise rose 3.5%.

Retail Sales: always lots of noise & that is evident in the data as is a big back to school impact. Proxy for e-commerce up 5.3%, spending on general merchandise up 3.5%, department stores 2.4%. No change in eating & drinking establishments. MVP down 3.6% & electronics fell 3.1%

— Joseph Brusuelas (@joebrusuelas) September 16, 2021

On an annual basis, total retail and food sales were 15% stronger than in August 2020, when the US was emerging from the first wave of Covid-19.

Over the last year, clothing and clothing accessories stores were up 38.8% compared with August 2020, while gasoline stations were up 35.7%.

U.S. retail sales unexpectedly rose in August as a pickup in purchases across many categories more than offset weaker demand for vehicles https://t.co/nXS14Dx3De

— Bloomberg (@business) September 16, 2021

Marwan Forzley, CEO of payments platform Veem, says:

Retail sales saw a 0.7% increase in August as consumers prepared for an in-person back to school season.

Spurred by a surge in back to school shopping, consumer confidence soared as businesses reopen and normalcy returns, indicating the continuation of an economic recovery. The Delta variant has proved to have little effect on consumers who have continued to dine at restaurants and bars, and are expected to continue this behavior into the Fall.

The approaching holidays also give consumers even more of a reason to spend, giving way to an expected increase next month.

US jobless claims rise

The number of Americans filing new claims for unemployment support has risen by 20,000.

There were 332,000 new ‘initial claims’ for jobless support in the week to September 11th, up from 312,000 in the previous seven days, on a seasonally adjusted basis.

But... the four-week moving average was the lowest since March 2020, when the pandemic hit the US economy, at 335,750.

Unemployment Insurance Weekly Claims

Initial claims were 332,000 for the week ending 9/11 (+20,000).

Insured unemployment was 2,665,000 for the week ending 9/4 (-187,000).https://t.co/ys7Eg5LKAW

— US Labor Department (@USDOL) September 16, 2021

If you strip out seasonal adjustments, the number of initial claims actually fell by over 23,000 to 262,619.

Another 28,456 self-employed and gig economy workers filed claims through the Pandemic Unemployment Assistance programme - a sharp fall. That programme officially wrapped up this month, but people who didn’t claim before can still apply.

NSA UI claims fell last week to 291K (263K UI initial claims NSA + 28K PUA claims). Enhanced UI benefits expired last week and the coming weeks' reports will show that impact as claims in federal programs drop to 0.#joblessclaims 1/ pic.twitter.com/OxuKZGwd7n

— Daniel Zhao (@DanielBZhao) September 16, 2021

Back in the City, the FTSE 100 has lost some of its earlier bounce as mining stocks weaken.

It’s now up just 14 points, or 0.2%, at 7030, with miners showing deeper losses after China pledged to release more metal reserves to ease supply shortage.

Anglo American has now lost 4.2%, with Rio Tinto down 2.3%, following a dip in commodity prices and concern over China’s recovery.

LME update:#Aluminium 2888 -0.36%#Copper 9430 -1.82%#Nickel 19478 -2.35%#Lead 2242 +0.44%#Zinc 3070 -0.21%#Metals #Commodities

— IGSquawk (@IGSquawk) September 16, 2021

UK electricity generation mix, right now (rounded):

Gas: ~59%
Nuclear: ~16%
Imports: ~11%
Biomass: ~6%
Coal: ~3%
Wind: ~3%
Hydro: ~2%
Solar: ~0%

Yes, that's a snapshot. And wind / solar had done a lot more at other times of the year. Still, quite something ahead of #COP26

— Javier Blas (@JavierBlas) September 16, 2021

The European gas price surge isn’t CF Industries’ only problem.

Earlier this month, the company had to declare a force majeure (meaning it couldn’t fulfill orders) at the world’s largest nitrogen facility, in Donaldsonville, Louisiana.

It briefly suspended production at the nitrogen complex because of the approach of Hurricane Ida - a move that sent fertilizer prices soaring.

Bloomberg explained last week:

CF Industries Holdings Inc. said on Sept. 3 that it can’t fill orders from its Donaldsonville, Louisiana, nitrogen complex, which was closed ahead of Hurricane Ida, according to a letter seen by Bloomberg. That’s stoking fears of production losses at a time when supplies are already tight.

Fertilizer prices are already high, and that’s adding to increasing costs for farmers, who are paying more for everything from land and seeds to equipment. The higher costs of production may mean more food inflation is on the way. Global fertilizer costs touched near-decade highs in recent weeks, becoming expensive enough where growers may have to curb purchases.

“Fertilizer prices are soaring after the world’s largest nitrogen facility had to declare a force majeure…The higher costs of production may mean more food inflation is on the way.” https://t.co/hHtq2iXHUQ

— Joe (@Joe_Monterey) September 8, 2021

U.S. Fertilizer Prices Soar as Storms Threaten Main Industry Hub
Added costs come as farmers already see thinner margins
Price hikes for chemicals could add to global food inflation (Bloomberg) pic.twitter.com/3W5jiGSd9M

— Jordan Fife (@JordanFife1) September 15, 2021

CF began restarting production at Donaldsonville a week ago, starting with its ammonia plants.

A shortfall of fertiliser could mean crop yields are weaker -- leading to less produce in the shops.

That would be another blow to struggling supply chains, and could push prices higher.

Fert producer CF Industries Holdings suspends operations at two plants in UK amid unruly gas prices

Pricier gas = less fertilizer = lower yield? And then...

— James Colquhoun (@JamesColquhou10) September 16, 2021

In Egypt, #urea prices have jumped up $35/tonne since yesterday and are now trading at the highest level since May 2012, according to #ICIS data. Buyers in Europe panicking as European producers cut output due to record high #gas prices. Freight is steep too. #Fertilizer

— Deepika Thapliyal (@IcisFertDeepika) September 16, 2021

The number of UK job vacancies surpassed 1 million for the first time in Jun to Aug 2021, a 35.2% increase on the previous quarter. Meanwhile, the number of people on payrolls returned to its pre-pandemic level.

However, these patterns vary by industry https://t.co/XExKFmm39f pic.twitter.com/j6QPBYClN4

— Office for National Statistics (ONS) (@ONS) September 16, 2021

This morning's online vacancies from @ONS and @adzuna: Overall online vacancies are up to 128 (% of Feb 2020). They are 5% from their maximum. Compared with the same week in 2018, the overall vacancy level is up 8%. Recovered from August bank holiday dip. pic.twitter.com/sSq611QuJB

— Paul Bivand (@LWpaulbivand) September 16, 2021

UK firms struggle to recruit new staff amid lack of EU applicants

UK companies have suffered a sharp rise in recruitment problems, with a lack of EU applicants following Brexit partly to blame.

The Office for National Statistics reports that 41% of companies with at least 10 staff said they were struggling to fill vacancies in the two weeks to 5th September, up from 32% in early August.

Across all firms (including the smallest), 13% reported recruitment difficulties late last month, up from 9% in early August.

Hospitality businesses are struggling the most with unfilled roles. Some 30% said that vacancies were more difficult to fill than normal.

UK firms struggle to fill vacancies
UK firms struggle to fill vacancies Photograph: ONS

Tuesday’s jobs report showed that the number of vacancies in the UK hit a record high in August, with over 1m positions unfilled.

The ONS says that “a lack of EU applicants” is contributing to recruitment challenges, particularly in transport and storage -- where the shortage of lorry drivers is hurting UK supply chains.

Businesses reported that “a lack of suitable applicants” was the main reason for being unable to fill vacancies in late August 2021.

A quarter said a reduced number of EU applicants was a factor -- which rose to 46% among transport and storage businesses.

Nearly half of transport and storage companies also blamed “other reasons”, the ONS explains:

The survey question allows multiple responses, so it could be that some businesses are experiencing recruitment challenges because of a lack of EU applicants as well as “other reasons” (which could include border controls, retirements or difficulty in getting an HGV licence at short notice).

Some EU workers have left the labour market during the coronavirus (COVID-19) pandemic. The number of EU nationals employed in the UK fell by 8.7% between January to March 2020 and April to June 2021. Meanwhile, the total number of people in employment fell by 2.4% over the same period.

Industries experiencing recruitment challenges because of reduced EU applicants have also been affected by a fall in EU workers, according to the Business Insights and Conditions Survey (BICS).

In early August, transport and storage and hospitality businesses were the most likely to say they had fewer EU workers than in previous years (7%).

UK firms say shortage of EU workers has caused recruitment problems

Marks & Spencer blames Brexit as it axes 11 French stores

Marks & Spencer has blamed Brexit for forcing the closure of 11 of its French stores because of problems supplying them with fresh and chilled foods.

The UK retail giant said this morning that all 11 franchise stores it operates with partner SFH in France would shut “over the coming months” (confirming reports over the weekend).

It said supply chain problems since Brexit had made it “near impossible” to maintain standards of food supply.

Nine M&S stores run at French travel hubs with Lagardere Travel Retail will continue to operate.

M&S says:

The lengthy and complex export processes now in place following the UK’s exit from the European Union are significantly constraining the supply of fresh and chilled product from the UK into Europe and continuing to impact product availability for customers and the performance of our business in France.”

The stores, which are located mainly on the high streets of Paris, are set to close by the end of the year.

Paul Friston, managing director of M&S International, said:

“M&S has a long history of serving customers in France and this is not a decision we or our partner SFH have taken lightly.

“However, as things stand today, the supply chain complexities in place following the UK’s exit from the European Union, now make it near impossible for us to serve fresh and chilled products to customers to the high standards they expect, resulting in an ongoing impact to the performance of our business.”

Retail giant Marks & Spencer has said it will close 11 of its stores in France due to fresh and chilled food supply issues following Brexit

For more on this and other news visit https://t.co/8OWd2TvLrt

— Sky News Breaking (@SkyNewsBreak) September 16, 2021

And in travel....Ryanair plans to fly an extra 25 million passengers a year by 2026, as the no-frills airline tries to take advantage of the industry’s slow recovery from the coronavirus pandemic.

The Irish airline said it hoped to carry 225 million passengers annually by March 2026, 25 million higher than its previous target of 200 million, as it prepared for its annual meeting in Dublin on Thursday.

Airlines have been among the sectors most affected by the coronavirus pandemic amid extended restrictions on international travel, even as domestic economies including the UK have opened up, and are jostling for position for the recovery.

Ryanair earlier this month said it expected to exceed pre-Covid passenger numbers – 149 million passengers in 2019 – by 2022. It will then expand rapidly as it takes up airport slots vacated by collapsed or struggling rivals. Thursday’s increased forecasts equated to 50% growth over five years, compared with an earlier prediction of 33%.

The expansion will also mean an increase in staff. Ryanair on Tuesday said it would hire 5,000 people, including pilots, cabin crew and engineers, across Europe over the five-year period....

More retail news: Delivery group Yodel is set to face strike action, as 250 of its couriers voted to protest over pay and conditions.

The move may add to disruption caused by lorry driver shortages.

The dispute, which could affect deliveries for Marks & Spencer, Aldi and Very from Yodel’s depots in Hatfield in Hertforshire, Glasgow and Wednesbury in the West Midlands, according to the GMB union, comes as campaigners leverage worker shortages, caused by a mix of Brexit and the Covid-19 pandemic, to fight for better rights. More here.

ICIS: Nitrates supply disruption could hit food supply

Food supplies could be disrupted if Europe’s fertiliser industry is forced to cut output because of the surge in gas prices.

Commodity market experts ICIS (the Independent Commodity Intelligence Services), says the suspension of work at two UK fertiliser plants in Billingham and Ince could have serious consequences, depending how long they are offline for.

ICIS report that:

Supply of the food that we eat could be severely hampered by European halts in output by major fertilizer producers because of record high gas costs.

One major supplier of nitrates to northwest Europe reacted to the news that CF Industries had shut its two facilities in the UK, saying: “That is indeed alarming. I am on a business trip and the phone doesn‘t stop ringing because of the situation.”

Another major supplier of fertilizer to the UK market said: “For sure, this is a mega event. All depends on how long CF will be offline.”

In an already tight market, where the price of ammonium nitrate (AN) and calcium ammonium nitrate (CAN) are already at post 2008-2009 economic crisis highs, this could be severely damaging to the consumer, the farmer and producers of nitrogen fertilizers.

Wholesalers had been delaying purchases for spring 2022 application in the hope that prices would start to come down, but clearly this will no longer be the case, in the near-term at least.

Over the past days, there has been plenty of speculation about Russia producers cutting output or halting production because costs far outweigh the cost of the final product. This includes urea, CAN, AN and urea ammonium nitrate (UAN), all used as fertilizers for a whole host of essential foods consumed.

More here: Nitrates supply disruption could impact food supply

More disruption to an already disruptive food supply chain. Nitrate prices already reacting to production cuts. Could impact on food we eat, livestock, inflation, the farming community and fertilizer producers and consumers. https://t.co/StK37Ga5Xh

— ICIS Julia Meehan (@ICISJulia) September 16, 2021

Supply of the food that we eat could be severely hampered by European halts in output by major fertilizer producers because of record high gas costs.

“That is indeed alarming".
“For sure, this is a mega event".

— ICIS Julia Meehan (@ICISJulia) September 16, 2021

CF has shut its UK plants due to high natural gas prices. The high gas prices will definitely have a knock-on effect on an already tight UAN market.#ICIS #CFIndustries #Billingham #Ince #nitrogen #ammonia #UAN #naturalgas #fertilizer #UK

— Sylvia Traganida (@ICIS_Sylvia) September 16, 2021

#Fertilizer producer CF Industries shuts UK plants on high #gas prices. Ukraine expected to shut down #urea units. #ICIS TTF October ’21 mkt closed at another record high on 15 Sept. Could we see LNG cargoes being diverted to Europe away from Asia? Follow @icis_ruth_liao for more

— Deepika Thapliyal (@IcisFertDeepika) September 16, 2021

Thee closure of two UK fertiliser plants due to high gas prices shows that the global supply crunch could force many energy intensive industries to scale back activity this winter.

The Financial Times has a good take:

CF Industries’ Ince plant has been in operation since 1965, employs 400 people and produces about 1 million tonnes of fertiliser a year, according to the company’s UK website. The Billingham facility has a workforce of 190 people.

“Companies who directly face these prices as a large cost may struggle this winter as there appears to be little sign of these prices slowing down,” said Rajiv Gogna, a partner at LCP Energy Analytics.

The closures are likely to increase pressure on UK ministers and British energy regulator Ofgem to take action to protect industry and households.

Hang Seng ends at 2021 lows

Hong Kong’s stocks have closed at its lowest level this year, as the Evergrande crisis hits shares.

The Hang Seng share index ended 1.5% lower, at its weakest close since November 2020 - just before Pfizer’s successful vaccine trial results sparked a global rally.

Hong Kong’s Hang Seng index over the last 12 months
Hong Kong’s Hang Seng index over the last 12 months Photograph: Refinitiv

Here’s Reuters take:

Emerging market stocks fell 0.8% on Thursday, putting them on course for their worst week in a month on investor fears of contagion from a potential downfall of embattled Chinese property developer Evergrande.

Shares in China’s no. 2 property developer lost 6.4%, taking losses so far this week to near 30%, after it applied to suspend trading of its onshore corporate bonds following another downgrade.

Hong Kong stocks dropped to their lowest this year, and mainland shares gave up more than 1% as other property stocks also sold off.

MSCI’s index of EM shares has fallen every day this week due to China’s increasing business regulations, weak economic data and Evergrande woes.

Given that the impact on China’s credit market has been focused on the property sector and only on those names that have had trouble raising funds, the impact on other sectors as well as broader emerging markets should be limited, said Eugenia Fabon Victorino, head of Asia strategy at SEB in Singapore.

“But it would really depend on how this is resolved. Historically the resolution of defaults in China has been quite fast although there has been a process wherein the domestic stakeholders have a limited fallout,” she said.

“Limiting that will also limit the risk of this becoming a systemic risk... The big banks in China are comfortably above the regulatory capital ratios, and should be able to take the hit.”

Updated

Co-op urges government to help solve supply chain crisis

Back in UK retail, supermarket group the Co-operative has urged the government to do more to solve the shortage of HGV drivers, after swinging to a loss in the first half of the year.

The Co-op reported an underlying pre-tax loss of £15m for the six months to 3rd July, down from a £56m profit a year ago.

This is partly due to “significant costs, impacts on sales and profit erosion” due to product shortages and the ongoing effects of Covid, it said.

The Co-op warned that profits for the full-year will be hit:

The unplanned supply chain challenges and ongoing Covid costs will bring greater levels of uncertainty. This will in turn apply pressure on our prior expected level of profitability for year end.

Chief executive Steve Murrells says the government must intervene to fix the shortage of lorry drivers, telling Reuters that:

“This won’t be solved in isolation, this is a global issue where the supply chain has completely broken down,”

“You can’t solve (a shortage of) 90,000 HGV drivers in isolation, it needs a structural change.”

More here: Solving UK driver shortages needs government help -Co-op CEO

Over to you, Michael Gove....

The prime minister has put Michael Gove in charge of “fixing” Britain’s food supply chains, quipping that he “doesn’t want to have to cancel Christmas again” https://t.co/MO3bOCuwg7

— The Times (@thetimes) September 15, 2021

Many industry bodies have urged the government to add HGV drivers to the shortage occupation list, so EU drivers could be given visas to work in the UK.

⚡️ Europe’s energy crunch has forced a major fertilizer maker to shut down two U.K. plants.

🔹 CF Industries Holdings Inc. said it’s halting operations at its Billingham and Ince manufacturing complexes due to high natural gas priceshttps://t.co/O2b6teML2K

— PiQ (@PriapusIQ) September 16, 2021

⚡️ Knock-on impact klaxon..

“The market will read this as other European producers are likely to shut down, and nitrogen prices will continue to rise on the supply-side shortage,”

— PiQ (@PriapusIQ) September 16, 2021

UK fertiliser plants halt operations amid gas price surge

CF Fertilisers UK Ltd factory is seen next to Frodsham Wind Farm from Helsby Hill, Cheshire
CF Fertilisers UK Ltd factory seen from Helsby Hill, Cheshire. Photograph: Nathan Stirk/Getty Images

The surge in gas prices has forced a major fertiliser producer to halt operations at two UK plants.

CF Industries Holdings announced late last night that it is halting operations at its manufacturing complexes at Billingham, in County Durham, and Ince (just south of the River Mersey) in Cheshire.

The company, which manufacturers hydrogen and nitrogen products, blamed the move on “high natural gas prices”, adding:

The Company does not have an estimate for when production will resume at the facilities.

It’s a sign that the record rally in gas and power prices is threatening to slow the region’s economic recovery -- with UK steel producers also saying they have paused work due to high prices.

Natural gas is a crucial component in the production of fertilisers, as well as being used to power the process, so the surge in wholesale gas prices will have pushed up CF’s feedstock costs.

In the Haber process, manufacturers combine hydrogen (typically from methane) with nitrogen from the air to produce ammonia, which is then converted into ammonium nitrate, for use in fertilisers.

EUROPE'S ENERGY CRUNCH: A leading fertilizer company is shutting down two factories in the UK due to high natural gas prices. The energy crunch is starting to have a real impact in the economy | #CommodityInflation #EuropeanEnergyCrunch Full statement: https://t.co/9rLUH7nkTp pic.twitter.com/COz8nbfYpC

— Javier Blas (@JavierBlas) September 16, 2021

Updated

John Lewis cuts losses to £29m despite costs of store closures

A John Lewis store
A John Lewis store Photograph: Steve Parsons/PA

John Lewis Partnership reduced its losses to £29m in the first half of its financial year, as it benefited from business rates relief, but paid out millions of pounds in redundancy payments and property closure costs.

The group behind John Lewis and Waitrose said it had benefited from £58m of business rates relief and would decide if it would return that to the government by March next year as it faced “significant uncertainty” about trading over the important Christmas period.

Sales for the group rose 6% to almost £5.9bn in the first half to 31 July, despite high street lockdowns and the permanent closure of 16 department stores and several supermarkets. About 300 people left the business in the half year, but the group has previously announced that it is consulting staff on more than 2,500 job cuts.

The group has benefited from its significant investment in online shopping.

Sales at Waitrose rose 2% year on year and were 10% higher than pre-pandemic levels, largely driven by online expansion. John Lewis’s department store sales rose 12%compared with the same period last year, and were 1% better than pre-pandemic levels.

Here’s the full story:

John Lewis: Inflationary pressures likely to persist amid supply chain challenges

Sharon White, the chairman of the John Lewis Partnership, has warned that the company faces ‘significant uncertainty’ as it approaches the crucial Christmas trading period.

Presenting today’s financial results to the group’s staff, or partners, she says:

Traditionally, our profits are skewed to the second half of the year because of the importance of Christmas, especially in John Lewis. As we look ahead, there is significant uncertainty. Like the whole of retail, we are managing global supply chain challenges and labour shortages. We are seeing inflationary pressures, which we expect to persist.

White explains that John Lewis is taking ‘a raft of measures’ so it can deliver a successful Christmas, including recruiting more drivers, and hiring 7,000 temporary staff for the seasonal rush.

But she warns that this winter will be particularly challenging:

Given the back ended nature of our trading year, we do not generally provide an outlook. And this year we face additional uncertainty. Even with the success of the vaccination programme the course of the pandemic this winter is hard to call.

Several factors have driven European power prices dramatically higher in recent weeks, including extremely strong commodity and carbon prices, low gas reserves, stronger global demand, and low wind output.

And analysts fear these factors will not dissipate quickly, meaning the record run in energy prices is not expected to end any time soon.

Stefan Konstantinov, senior analyst at ICIS Energy, a commodity intelligence service, told CNBC that Europe’s gas deficit is “making the market nervous as we approach winter,”

“That is coupled with the very significant competition for LNG supplies from Asia and South America, which is driving gas prices up.”

Europe's energy crisis is making the market nervous. And analysts expect record-high prices to persist https://t.co/4Rv51tNJXn

— CNBC Middle East (@CNBCMiddleEast) September 16, 2021

Travel companies on the smaller FTSE 250 index are also rallying, with budget airline easyJet up 2.6% and cruise operator Carnival gaining 2.2%

European markets have opened higher, after falling yesterday:

🔔 European Opening Bell 🔔

🇬🇧 FTSE 100 up 0.3%

🇪🇺 STOXX 50 up 0.5%

🇪🇺 STOXX 600 up 0.3%

🇩🇪 DAX up 0.4%

🇫🇷 CAC up 0.5%

🇪🇸 IBEX up 0.5%

🇮🇹 MIB up 0.6% pic.twitter.com/gQzfOo5yzU

— PiQ (@PriapusIQ) September 16, 2021

The FTSE 100 index of blue-chip shares in London is up 31 points, or 0.45%, at 7048.

Travel and hospitality shares are among the risers, with airline group IAG up 2%, catering group Compass up 1.9% and hotel operator Whitbread gaining 1.6%. Engineering group Rolls-Royce is the top riser, up 3.5%.

But mining companies are lagging, following the fall in commodity prices today. Anglo American (-1.75%), Rio Tinto (-1.5%) and Antofagasta (-1.35%) are all weaker, with concerns over China’s slowing economy weighing.

Updated

Some metals prices are falling in London today, after China pledged to release more of its reserves to tackle supply shortages.

Li Hui, official from the National Development and Reform Commission, told a briefing that China wants to guide prices back to reasonable levels, to address inbalances between supply and demand.

“Currently, copper, aluminium and zinc prices are still high.”

Those imbalances had driven nickel to an eight-year high this week, with aluminium at a 13-year peak.... but they’re both dipping today.

LME update:#Aluminium 2883 -0.51%#Copper 9489 -1.2%#Nickel 19473 -2.38%#Lead 2230 -0.1%#Zinc 3061 -0.51%#Metals #Commodities

— IGSquawk (@IGSquawk) September 16, 2021

Precious Metals update:#Gold 1785 -0.53%#Silver 2361 -0.99%#Platinum 943 -0.66%#XAUUSD #Commodities

— IGSquawk (@IGSquawk) September 16, 2021

Tobacco firm Philip Morris seals £1.1bn takeover of UK inhaler maker Vectura

The tobacco company Philip Morris International (PMI) has sealed its controversial £1.1bn takeover of the asthma inhaler maker Vectura, after more than half of the target company’s shareholders agreed to sell their stock.

PMI said it had either bought shares, or received acceptances of its offer, reaching just under 75% of the company, well ahead of the 50% it needed.

The offer has become “unconditional”, meaning the remaining shareholders cannot prevent it and can in effect be compelled to sell.

The takeover of a respiratory disease specialist by a cigarette company has sparked outrage among health charities and public health experts around the world.

But the Marlboro maker has argued that its transition away from cigarettes requires it to move into fields such as respiratory medicine, where it already has some expertise.

Jacek Olczak, the chief executive of PMI, said on Thursday:

“We are very excited about the critical role Vectura will play in our Beyond Nicotine strategy and look forward to working with Vectura’s scientists and providing them with the resources and expertise to grow their business to help us achieve our goal of generating at least $1bn in net revenues from Beyond Nicotine products by 2025.”

Vectura investors had been given until 15 September to decide whether to sell to PMI, which claims to have ambitions for a “smoke-free” future, but still generates three-quarters of its revenue from cigarettes.

Under market rules governing takeovers, PMI was not allowed to build its stake by buying shares from investors within the US.

But it was able to buy stock from other international investors to move closer to its 50% target. It said in August that it had gathered 29% of the stock, as it sought to reach 50%.

At that point, which PMI has now reached, reluctant shareholders have little incentive to hold out because PMI would take control of the company anyway. PMI said on Thursday morning that investors could still their shares to it until 30 September.

Sarah Woolnough, the chief executive of Asthma UK and the British Lung Foundation, said:

“Vectura has sold out millions of people with lung disease, and instead prioritised short-term financial gain over the long-term viability of Vectura as a business. Vectura is now owned by a tobacco company, and this could cause considerable problems, such as the firm being excluded from research and clinical networks. It creates perverse incentives for PMI to sell more of its harmful products so they might then profit again through treating smoking-related diseases.

“There’s now a very real risk that Vectura’s deal with big tobacco will lead to the cigarette industry wielding undue influence on UK health policy.”

By accepting a takeover bid from big tobacco firm PMI, Vectura has sold out millions of people living with lung disease & chosen to prioritise short-term financial gain over people’s health. We have written to govt reminding them not to engage with Vectura on p/health policy 🫁🔽 https://t.co/o5Bd1HwE4E

— Sarah Woolnough (@swoolnough) September 16, 2021

Intensifying concern over the impact of a China Evergrande Group default is rippling through the nation’s financial markets, says Bloomberg:

Developers led declines on the Hang Seng China Enterprises Index, with Sunac China Holdings Ltd. sinking 11% and Country Garden Holdings Co. -- the nation’s largest developer by sales -- losing 8%. This week alone the two stocks have fallen more than 20%. In Shanghai, bank stocks are suffering their fastest selloff in seven weeks. China’s junk dollar bonds fell as much as 3 cents on the dollar on Thursday, according to credit traders. Yields at an 18-month high will make it more difficult for issuers to refinance their debt.

“It’s not just the real estate sector -- overall sentiment is quite fragile,” Elizabeth Kwik, Aberdeen Standard Investments Asian equities investment manager, said on Bloomberg Television.

They add that the outlook for Evergrande is “deteriorating by the day”, after its onshore unit halted trading in all bonds today.

🇨🇳 #China | #Evergrande Market Fallout Grows as Local Unit Halts Bond Trading - Bloomberg
*Link: https://t.co/Q17Vr9DgoS pic.twitter.com/NZhyy0VCJS

— Christophe Barraud🛢 (@C_Barraud) September 16, 2021

Evergrande crisis creates 'angsty environment' as Asia markets fall

Hong Kong’s Hang Seng took the biggest hit today, sliding by 2% while China’s SSE Composite and CSI 300 indices are now down over 1% in late trading.

Japan’s Nikkei also felt the ripples, dipping 0.6%, while South Korea’s KOSPI has lost 0.9%

Kyle Rodda of IG says there’s a certain amount of of angst in the markets:

The regional issues very much revolve around continued concerns about growth, China’s crackdown on its private sector, as well the unfolding collapse Chinese property developer Evergrande group, as talks of some sort of restructuring gather steam, after a suspension in the trading of the company’s bonds were announced.

Overall, markets in Asia, and globally at that, remain still in a very angsty environment, with volatility creeping up as calls grow for a perhaps prolonged patch of weak risk sentiment.

Introduction: Evergrande crisis and record energy prices weigh on markets

An exterior view of China Evergrande Centre in Hong Kong.
An exterior view of China Evergrande Centre in Hong Kong. Photograph: Bobby Yip/Reuters

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

The liquidity crisis at Evergrande, China’s second largest property developer, is weighing on the market mood today -- with the surge in energy prices also causing investors growing concerns.

Evergrande, which has total liabilities over $300bn, is scrambling to raise funds as it teeters between a messy meltdown with far-reaching impacts, a managed collapse or a government bailout.

And today, Evergrande’s onshore unit has halted trading in all bonds after a domestic rating cut put it among the country’s riskiest issuers.

Fears over Evergrande’s ability to repay investors have risen in recent weeks, triggered protests and creating anxiety over the implications of a collapse.

Yesterday, Chinese authorities told Evergrande’s major lenders not to expect interest payments due next week on bank loans, taking the cash-strapped developer a step closer to one of the nation’s biggest debt restructurings.

And earlier today, Evergrande’s main unit, Hengda Real Estate Group Co Ltd, applied to suspend trading of its onshore corporate bonds, following credit rating downgrades from rating agencies China Chengxin International (CCXI) and S&P - and increasingly jittery trading.

Evergrande market fallout grows as local unit halts bond trading https://t.co/5D2xXRPx7Q

— Bloomberg Markets (@markets) September 16, 2021

Reuters explain:

Suspension of trade in Hendga’s onshore corporate bonds indicates an increasing likelihood of defaults and restructuring, market participants said.

A bond trader, who declined to be identified, said that the changes in the trading mechanism were likely aimed at limiting participation and curbing volatility.

“Many companies would adjust the trading mechanism of their bonds ahead of default,” he said.

The crisis is knocking shares across the property sector, at a time when China’s housing sector already appears to be slowing.

#Evergrande concerns are rippling through markets this morning after the group's main unit, applied to suspend trading of its onshore bonds following a downgrade.

Shares of Chinese property developers & banks are falling and yields on junk debt spike to the highest since 3/2020 pic.twitter.com/S6vZolOVxr

— Samu Wilhelmsson (@themarketaddict) September 16, 2021

China’s CSI 300 stock index has dropped almost 1% today, with Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA reporting that Evergrande is “weighing on sentiment”.

The Evergrande saga, with its $300 billion of liabilities is reaching an endgame, with EverTeflon running out of non-stick material. I can see the mother of all debt/equity swaps being “encouraged” by the government, but in the meantime, the combination of the toxic cocktail outlined above will weigh on China equities.

As I have said previously, buying the dip is a perilous business right now in China.

Buying energy is becoming a challenging task too, with wholesale prices of gas and electricity surging to record levels in recent days.

The shutdown of one of Britain’s most important power cables importing electricity from France after a fire has added to the UK’s supply crunch and record high market prices.

These record prices are going to drive up energy costs for companies -- eating into profitability -- and also hit consumers in the next year once bills soar in response.

Soaring energy prices may undermine this year’s stock market rally. Worries are growing that a surge in the cost of gas and electricity will pressure net profit margins for European companies that are at the highest since 2008. pic.twitter.com/qVKWUv0s8b

— Jean-Charles GAND (@jeancharlesgand) September 16, 2021

More seriously, these record prices are also forcing some factories to halt operations -- suggesting the energy crisis could hit economic growth, as we’re only just going into the autumn....

🚨🚨 BREAKING 🚨🚨 UK natural gas wholesale prices are ***jumping ~20% today*** to fresh record high as trades brace for more UK gas-fired power station demand after the loss of a key electricity interconnector between UK and France (among other issues) pic.twitter.com/jMpuC9g1S3

— Javier Blas (@JavierBlas) September 15, 2021

UK Steel director general, Gareth Stace, says some steel factories have already been forced to pause operations.

“These extortionate prices are forcing some UK steelmakers to suspend their operations during periods when the cost of energy is quoted in the thousands per megawatt hour; last year, prices were roughly £50 per megawatt hour.

Even with the global steel market as buoyant as it is, these eye-watering prices are making it impossible to profitably make steel at certain times of the day and night.

Jim Reid, Deutsche Bank strategist, told clients this morning that:

There [are] growing concerns in the UK as a cable bringing power in from France was knocked out by a fire, which will put it out of action until at least October 13, possibly into 2022 for full capacity.

Tight supplies that haven’t been replenished as much as expected after a cold winter are partly responsible, but there’s also a lack of coal options as increasing numbers of plants are phased out, and Russia has sent less supplies to Europe than expected.

Investors are also watching for the latest US retail sales figures, which will show whether the Delta variant hit consumer spending in America last month.

European stock markets are expected to open higher, with the FTSE 100 called up 0.2%.

European Opening Calls:#FTSE 7031 +0.20%#DAX 15646 +0.19%#CAC 6603 +0.30%#AEX 796 +0.19%#MIB 25837 +0.29%#IBEX 8657 +0.25%#OMX 2329 +0.19%#STOXX 4158 +0.30%#IGOpeningCall

— IGSquawk (@IGSquawk) September 16, 2021

The agenda

  • 7am BST: Eurozone new car registrations for August
  • 9.30am BST: ONS realtime UK economic indicators
  • 10am BST: Eurozone trace balance for July
  • 1.30pm BST: US weekly jobless figures
  • 1.30pm BST: US retail sales for August

Updated

Contributors

Graeme Wearden

The GuardianTramp

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