Closing summary: Recovery optimism tempered by economic blows
Stock markets gained ground in the US and Europe on Wednesday thanks to hopes that lockdowns will ease, allowing economies to stutter to a start again.
However, early gains moderated as the day wore on - illustrating the delicate balance between optimism over reopening and the major costs still to emerge from the pandemic.
The FTSE 100 rose by 0.8% at the time of writing, while the European Stoxx 600 index fell slightly. In the US the S&P 500 rose by 0.6%, but the Nasdaq fell heavily after reports of new taxes on tech firms in the EU.
In the UK data published on Wednesday showed that more than 10m people - a third of the workforce - have received self-employed income support or have been furloughed, underling the deep harms to the economy caused by the coronavirus pandemic.
The cost of the subsidies has mounted to almost £22bn to the Treasury.
Here are some of the other important developements today:
- The European commission unveiled its proposals for a €750bn recovery fund on top of a €1.1tn budget, raising the prospect of a large stimulus for the EU economy.
- The eurozone economy will shrink by at least 8% this year, according to European Central Bank (ECB) president Christine Lagarde.
- BlackRock, the world’s largest investor, is understood to have voted against ExxonMobil directors in protest at the oil company’s lack of action on the climate crisis.
- Shares in Asia fell amid protests in Hong Kong over new Chinese security laws.
- Carmakers Renault and Nissan said they will work together more closely on car development and production as they seek to save money during the pandemic, although they will not pursue a merger.
You can continue to follow our live coverage of coronavirus and political developments across the world:
In our global coverage you can continue to follow any developments in the EU’s extraordinary coronavirus stimulus plan
In the UK, Boris Johnson is to face MPs’ questions on Cummings as the Tory revolt continues
In the US, coronavirus cases are still increasing in two dozen states amid a push to reopen the economy
Thank you as ever for following our live coverage of economics, business and financial markets. Please do join Kalyeena Makortoff tomorrow morning for more of the same. JJ
US stock markets have gained at the opening bell on Wall Street - matching the positivity seen outside of Asia today as investors bet on recovery.
Here are the early moves:
- S&P 500 UP 28.84 POINTS, OR 0.96%, AT 3,020.61 AFTER MARKET OPEN
- DOW JONES UP 350.69 POINTS, OR 1.40%, AT 25,345.80 AFTER MARKET OPEN
- NASDAQ UP 14.73 POINTS, OR 0.16%, AT 9,354.95 AFTER MARKET OPEN
World's largest investor to vote against ExxonMobil on climate grounds
Some interesting news on the climate front ahead of US investor ExxonMobil’s annual meeting: BlackRock, the world’s largest fund manager, will lodge multiple votes against the company because of its failure to make progress on its climate change targets.
BlackRock will vote against the re-election of two directors and in favour of a shareholder motion that proposes splitting the role of chief executive and chairman.
The company manages assets worth $6.9tn (£5.3tn), including large holdings in oil producers such as BP, Shell and ExxonMobil.
It announced at the start of the year that it would divest from holdings related to thermal coal and would focus on sustainability when making investment decisions.
You can read the full report here:
And secondly (but more importantly), there is a lot more detail on the EU’s €750bn recovery fund, helping the euro gain.
Here are some of the details released by the European commission. It is quite a shopping list.
- A new recovery and resilience facility of €560bn will offer financial support for investments and reforms, with €310bn in grants and €250bn available in loans - with aid to be concentrated in the worst affected regions.
- A €55bn top-up of the cohesion policy programmes between now and 2022 under the new REACT-EU initiative targeting places with high youth unemployment.
- Another €40bn for the just transition fund, to help the move towards climate neutrality.
- €15bn for the European agricultural fund for rural development.
- A new solvency support instrument with a budget of €31bn, aiming to support “viable European companies”.
- Upgrade InvestEU, to a level of €15.3bn to mobilise private investment in EU projects.
- A new health programme, EU4Health, to prepare for future health crises with a budget of €9.4bn.
- €2bn more for rescEU, the EU’s crisis fighting fund.
- €94.4bn for Horizon Europe, funding research in health, resilience and the green and digital transitions.
- An extra €16.5bn for external action, including humanitarian aid.
The euro has gained further against the pound: sterling is down by 0.7% for the day, at €1.1153. Against the dollar the pound is also down by 0.3% at $1.2290.
First up: The latest Brexit news may not have helped sterling, with continued tough talk from the UK’s chief negotiator, David Frost.
The prime minister’s spokesman also stood by the government’s line that the transition period will end at 31 December. A trade deal or an extension is needed by the end of June to avoid trade defaulting overnight to World Trade Organisation terms.
Frost said the EU mandate for negotiations agreed by member states would not allow a deal as it currently stands.
With the clock ticking, Frost said talks are at a relatively early stage, and that the Covid-19 illness (that hit the UK and EU governments) had lost them a week or two of time.
The positive mood on the FTSE 100 has strengthened: top riser Melrose has now gained 21%, helping the index to a 1.5% increase at lunchtime in London.
A reminder: Melrose’s GKN aerospace and engineering subsidiary has been hard-hit by the crisis. But the flip side of that is that shares could be sensitive to signs that the damage won’t be as bad.
The same is true of cruise ship operator Carnival, whose shares have now gained 17% today.
Engine manufacturer Rolls-Royce, which is making swingeing job cuts in anticipation of lower demand, has gained 14%. Its outlook could improve if people return to flying sooner rather than later.
Guarantor loans provider Amigo has been forced to disclose a takeover approach after its majority shareholder refused to discuss the potential sale.
Amigo, which has faced criticism over its high-cost loans for generally poorer customers, said an unnamed party had made an offer to buy it for 20.9p per share - less than its price of 22.15p on Wednesday afternoon.
Founder James Benamor’s Richmond Group controls 61% of the company, meaning a sale would be impossible without his consent. Amigo said:
Despite attempts to discuss the Potential Offer with Richmond Group, Amigo has been unable to engage constructively and ascertain Richmond Group’s willingness or not to accept the Potential Offer.
Amigo said it had shown forbearance - relaxing repayment schedules - for 42,000 customers during the lockdown so far. The company had a cash balance of over £115m as of 25 May, it said.
It has also agreed with the regulator to work through a backlog of complaints that have arisen during the course of 2020.
Shops and restaurants are reopening some of their operations, with McDonald’s and Nando’s among the latest companies to make announcements.
John Lewis has said it will start a phased return to high street shopping by reopening two stores in Poole and Kingston upon Thames on 15 June, followed by 11 more three days later, writes the Guardian’s Sarah Butler:
Chancellor Rishi Sunak has also got involved, tweeting that chicken restaurant Nando’s reopening is “the good news we’ve all been waiting for” - although the responses to his message suggest that some people are more focused on the continued fallout from the saga of Dominic Cummings’ repeated breaking of lockdown rules.
You can follow more on the reaction to Cummings’ multiple trips and the extraordinary press conference on the UK coronavirus live blog:
Euro gains as EU nears agreement over recovery fund
The euro has gained ground against the US dollar and the pound as the EU nears agreement over a recovery fund to boost growth after the pandemic.
The euro gained 0.4% against the pound, with one pound worth €1.1183. Against the dollar the euro rose by 0.4% as well, to hit $1.1022.
Reuters cited two sources in saying that the European commission will propose a €1.1tn budget for the EU, alongside a recovery fund worth €500bn in grants and €250bn in loans to boost economic growth.
George Saravelos, global head of forex research at Deutsche Bank, said there were “reasons for optimism” on the outlook for the euro, despite the structural flaws in the eurozone highlighted by the German constitutional court’s ruling that the European Central Bank’s bond buying could breach German law. The analysts said:
First, there has been recent progress on discussions on the reconstruction fund, and our baseline remains we will get an agreement over the summer. Second, thanks to the presence of the ECB in the background, the Italian bond market has been very resilient to negative news and we anticipate a further upscaling of ECB peripheral buying in June.
Finally, the European policy response to labor market distress in particular is superior to the US and likely to lead to lesser employment scarring and a quicker resumption in activity, especially in Northern Europe
In total the coronavirus government support for UK workers has come to £21.8bn, if you add together the money paid for furloughed employees and income support for self-employed workers.
More than 10m British workers have been given some form of income support, if furlough numbers are added to those who have claimed self-employed support*.
That would represent about a third of all workers being given income support, based on pre-lockdown data from the Office for National Statistics showing 33.1m people in employment in the UK.
The total cost of battling the crisis will be much higher, thanks to the loans and grants given to businesses.
The effects on the Exchequer will be even more pronounced because of the drops in income tax and corporation tax paid. At the same time, the government has had to step in to cover public services, with little signs of appetite for spending reductions from chancellor Rishi Sunak.
Economists expect borrowing to remain high relative to GDP for a considerable period, according to a regular poll carried out by the Treasury.
While GDP growth is expected to snap back in 2021, annual borrowing by 2024 will still be close to £100bn, according to the economists’ average expectations.
*This post has been corrected to remove the suggestion furloughed employees could also claim self-employed income support.
More struggles for the British property sector:
British Land, which owns shopping centres including Sheffield’s Meadowhall and Drake Circus in Plymouth, has written down the value of its retail portfolio by more than a quarter due to the impact of the coronavirus.
The government’s implementation of a nationwide lockdown in late March helped push the company, which also owns office properties in London, to a £1.1bn loss for the year to the end of March. This compares with a loss of £320m the previous year.
You can read the full report here:
2.3m self-employed workers claim £6.8bn in income support
HMRC has detailed the number of self-employed people making claims for the Treasury’s latest subsidy scheme. Guardian economics writer Phillip Inman writes:
The self-employment income support scheme (SEISS) forms a major part of the government’s economic rescue plans following the lockdown and was launched on 13 May to help an estimated 3.5m people.
HMRC, which is running the scheme, says it received 2.3m claims with a value of £6.8bn by midnight on 24 May.
The figure marks a slowing of claims since 17 May when the total stood at 2m after only four days of operation.
The number of PAYE staff and contractors furloughed increased to 8.4m by 24 May, up from 8m on 17 May, HMRC said. The tax authority said 1m employers were now using the scheme at a cost to the exchequer of £15bn.
For keen FTSE watchers, the latest reshuffle could be a big one. The top companies will be decided based on market value at the close of business on Tuesday.
EasyJet and Carnival are - perhaps unsurprisingly - most at risk of falling from the blue-chip index, while British Gas owner Centrica and aerospace manufacturer Meggitt are also looking likely, according to handy analysis by AJ Bell.
If there were to be four demotions it would be the most movement since March 2016.
Russ Mould, investment director at investing platform AJ Bell, said:
Despite their latest sharp rallies, easyJet and Carnival are still very likely to lose their FTSE 100 status in the latest quarterly reshuffle, thanks to the even bigger falls seen during the spring as their revenues dwindled to pretty much zero. Centrica and Meggitt also look destined for the drop, as their market capitalisations leave them ranked way below the 110th place cut-off.
Avast, Homeserve, GVC and Convatec look the most likely names to take their places but Kingfisher, Foreign & Colonial Investment Trust, B&M European Value Retail and Direct Line are all jockeying for position and sudden gains in their share prices could yet vault them into the UK’s premier index. The most at risk of demotion then would be ITV and M&G.
The FTSE 100 has accelerated: London’s benchmark share index is now up by 1.2%.
The gains look to be fairly broad-based, with cyclical companies (whose fortunes largely depend on the health of the broader economy) such as banks among the biggest risers.
Melrose, the owner of engineering group GKN, is top of the index, up by 10% - in a sign that some of the companies worst affected by the crisis may be rebounding. Also in that category: Carnival, the second-biggest riser.
The mid-cap FTSE 250 has gained 1.6%.
Ryanair chief executive Michael O’Leary has said the airline could cut fewer than the 3,000 jobs previously announced after some workers agreed pay cuts.
Between 25% and 30% of cabin crew and pilots across Europen have agreed pay cuts, he said, speaking to Irish radio station Newstalk.
However, he said that the company could make up to half of crew and pilots in Dublin redundant, as he tried to put pressure on unions - mirroring disputes across the European aviation sector.
Most planes are still grounded but the Ryanair boss said he was “reasonably confident” the airlien could get 50% to 60% of its seats filled by July after a “big surge” in bookings from the UK and Ireland to Portugal, Spain and Italy. O’Leary expects to fly 75m to 80m passengers this year, against pre-pandemic targets of 150m.
Fast fashion retailer Boohoo has published a fairly detailed rebuttal after shares fell heavily yesterday following a short seller attack.
Hedge fund Shadowfall published a research note saying that the online retailer was exaggerating its cash flow.
Wednesday’s Boohoo statement said:
The group strongly refutes the allegations made in the research note
The company also said it saw a number of opportunities to buy rivals after it raised £197m in a recent share placing.
Christine Lagarde says eurozone economy to shrink by 8% to 12%
The eurozone economy will shrink by at least 8% this year, according to European Central Bank (ECB) president Christine Lagarde.
The had outlined three scenarios for GDP in 2020, but on Wednesday Lagarde said its “mild” scenario, which had output falling by 5%, was already outdated.
Speaking at a European parliament youth event, Lagarde said GDP would be somewhere between the medium and severe scenarios.
Halfords is to fully reopen 53 stores after a successful trial of physical-distancing measures on its shop floors.
The bike and car parts retailer said that the reopenings follow successful tests at its Peterborough and Bristol Cribbs Causeway stores. It will be the first time Halfords customers will be allowed in store since the UK lockdown started on 23 March. Among the sites reopening are Gloucester, Huddersfield, Inverness and North Shields.
The physical-distancing measures being implemented include queuing marshals outside stores, “sneeze screens” for shoppers and staff and customers being asked not to handle or try on products. The decision comes a day after the government said most non-essential retailers could reopen from 15 June.
You can read the full report here:
Corner shops and independent grocers have seen a 63% surge in trade as shoppers turn to local stores during the coronavirus crisis.
Sales at independently owned retailers, many of which trade under brand names such as Spar, Londis and Budgens, soared by more than double the pace of the fastest growing grocery chain, the Co-op, where sales rose 30.6% in the three months to 17 May according to the latest grocery market data from analysts Kantar, writes the Guardian’s Sarah Butler.
Some more info from Kantar:
- Take-home grocery sales grew by 14.3% during the past 12 weeks, the fastest rate since 1994. However, supermarkets will have felt the effect of a reduction in sales of on-the-go meals, snacks and drinks which total £1 billion in normal times.
- Online grocery sales were 75% higher than a year ago, with nearly one in five households placing an order in the most recent four weeks.
Fraser McKevitt of Kantar said:
Shoppers and retailers are now thinking about what the impact of a less restrictive lockdown will be, and a phased re-opening of non-essential retail and the out-of-home food and drink sector will have a significant impact on grocery sales in the coming months.
However, with plans for reopening the hospitality sector still uncertain, we are currently projecting that extra meals, snacks and drinks consumed at home will mean take-home sales at the grocers could be up 12% over the course of 2020 as a whole.
The chief executive of Hammerson has announced he will step down, adding to the troubles of the shopping centre owner that is struggling with the pandemic’s impact on the retail sector.
David Atkins will remain at the struggling property group until spring 2021 as the company searches for a successor.
The company, which owns the Bullring in Birmingham and Brent Cross in London, has been deluged with requests for rent deferrals, cuts or waivers during the coronavirus pandemic.
Atkins, who has been with the company more than a decade, said:
The current environment, exacerbated by the impact of Covid 19, is undoubtedly the most challenging we have faced as a business. I feel now is the right time to search for a new chief executive, a person who can not only lead the business as we emerge from this period, but also into its next chapter.
Renault and Nissan deepen co-operation in recovery plan
Renault, Nissan and Mitsubishi have announced new plans to work together more closely on developing and producing cars, as they seek to move forward with an alliance that was severely dented by the dramatic arrest and flight of Carlos Ghosn.
The new plan for the alliance, of which Ghosn was the architect, will see one of the carmakers leading on each type of vehicle and region where they are seen to be a “leader”, while the others follow.
That will mean less doubling up on costs, long perceived to be a problem in companies that are nominally working together. Industry experts have joked that the electric cars developed by Nissan and Renault had little in common other than door handles - meaning the alliance was effectively bearing expensive development costs twice.
The new plan could see them save costs during the coronavirus pandemic, which has seen carmakers close factories and threatens to severely impact sales for the next year and beyond.
It could also see some factories closing as companies share work. Investment needs for new models could fall by 40% under the scheme, the alliance said.
As expected, European shares have gained at the opening bell.
The FTSE 100 is up by 0.6%, while the more UK-focused FTSE 250 has gained 0.8% in early trades.
The broad European Stoxx 600 has gained 0.2%, with Germany’s Dax and France’s Cac 40 up 0.3% apiece.
Chinese shares held back by Hong Kong tensions but stocks rally elsewhere
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
Global stock markets rallied on Wednesday morning as the improving outlook on lockdown easing for the most part outweighed concerns over China’s imposition of new security laws on Hong Kong.
Shares in the territory fell by 1% and the Shanghai stock market index on mainland China lost about 0.5%, amid signs there could be a repeat of last year’s disruptive protests.
Here’s the Guardian’s report from Hong Kong this morning:
Thousands of armed police have flooded the streets of Hong Kong in an unprecedented show of force to prevent protests against a law criminalising ridicule of China’s national anthem.
At lunchtime rallies police fired pepper bullets into crowds, appearing to hit one reporter, and detained dozens of protesters. Protests have also been fuelled by growing anger at Beijing’s increasing interference in the semi-autonomous city.
Yet despite threats of action against China from President Donald Trump on Tuesday, investors elsewhere appeared to be more interested in signs of potential economic recovery.
In Japan the Topix index gained 1% after reports of new stimulus measures. Stephen Innes, global chief market strategist at online trading platform Axicorp, said:
Stimulus measures are the topic of the day again as Asian bourses are trading up this morning with the Nikkei leading the charges as Japans government looks set to unveil another $1.1tn package helping the Nikkei to gain
European stock markets were expected to gain ground ahead of opening, with FTSE 100 futures indicating shares were set to rise by about 0.6%.
And investors will be keeping an eye on Christine Lagarde this morning for any signs (likely in broad terms) of her thoughts on developments within the eurozone. The European Central Bank president will be answering questions from young people in an event live streamed on social media.
- 8:30am BST: European Central Bank (ECB) president Christine Lagarde Q&A
- 9:30am BST: ECB vice-president Luis de Guindos speeach
- 1:55pm BST: US Redbook retail sales (to 23 May)