White House ‘disappointed’ as Opec+ cuts production by 2m barrels per day – business live

Last modified: 04: 08 PM GMT+0

Oil cartel and allies including Russia make biggest cut in output since the start of the pandemic, despite pressure from the White House

UK prepares for winter blackouts as energy rationing campaign discussed

Another important energy story tonight: Ministers are discussing launching a public information campaign to encourage households to reduce their energy use this winter as fears grow over winter blackouts.

Households could be asked to turn their thermostats down and use their dishwashers and washing machines during the night and at times when energy demand is lower, under plans being discussed between the business department, energy companies and the network operator National Grid.

It is understood officials have discussed using a service run by National Grid that is typically used to alert consumers by a text, phone call or email when their power goes out, to contact households about cutting power use.

The system notifies consumers when it detects an outage and gives timing estimates and confirmation when the power will be restored. Under plans being discussed, consumers could be sent advice on their energy use through the service.

Here’s the full story:

Saudi Arabia’s energy minister, Abdulaziz bin Salman Al Saud, declined to comment on the White House’s ‘disappointment’.

During a press conference in Vienna, Prince Abdulaziz defended Opec+’s record – saying the group had delivered price stability compared to other commodities.

Prince Abdulaziz shows a table which indicates the high volatility in other commodities compared to oil. And said this is because opec plus delivered. #OOTT #opec pic.twitter.com/RDaQ4kOyPa

— Amena Bakr (@Amena__Bakr) October 5, 2022

“Opec plus is here to stay as a moderating force,” said prince Abdulaziz #OOTT #opec

— Amena Bakr (@Amena__Bakr) October 5, 2022

He also denied that Saudi was determined to keep oil above $80 per barrel (he insists there’s no Saudi ‘put’ in the marketplace).

We want a stable market that does not inhibit investment, prince Abdulaziz dismissing the idea that saudi is defending a certain price range #OOTT

— Amena Bakr (@Amena__Bakr) October 5, 2022

President Biden disappointed by 'shortsighted' Opec+ decision

The White House have criticised Opec+’s decision to cut oil output, calling it a ‘short-sighted’ move.

In a statement, National Security Advisor Jake Sullivan and NEC Director Brian Deese say:

The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.

At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices.

The White House adds that president Biden will continue to direct releases from the Strategic Petroleum Reserve “as appropriate” to protect American consumers and promote energy security.

They add:

In light of today’s action, the Biden Administration will also consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices.

Saudi Arabia’s energy minister: “show me where is the act of belligerence” pic.twitter.com/x8vpuDQsdd

— David Sheppard (@OilSheppard) October 5, 2022

Brent crude jumps 2%

Oil prices are rallying after Opec+ ministers decided to cut production by 2 million barrels per day.

Brent crude has jumped 2% to $93.80 per barrel, the higher in almost three weeks.

The Brent crude oil price over the last year
The Brent crude oil price over the last year Photograph: Refinitiv

Opec’s oil production cut could negate the benefits of the US government’s release of oil from its reserves, warns Jamie Maddock, equity research analyst at Quilter Cheviot:

We are currently witnessing a globally coordinated strategic oil reserve release, predominantly from the US, that aims to push the price of oil down and help consumers at a time when inflation has surged and the cost of living has intensified. This is ongoing, but this new cut in supply could mean that the benefits of this programme are negated if this move is fully implemented.

“Furthermore, at the end of the year and into next we have the EU implementing its embargo on Russian oil and oil product shipping insurance. Despite its noble ambitions, this will likely have an impact on output and thus also hit supply at a time when OPEC is cutting and thus pushing prices higher.

Analyst: Opec+ production cut may boost prices

Here’s some expert reaction to Opec’s supply cuts, from Srijan Katyal, Global Head of Strategy & Trading Services at the international brokerage ADSS:

Largest cut & impact on cost of living:

“The 2 million b/d cut is the largest cut since the start of the pandemic. Whilst the market had anticipated a 1 million b/d cut, a further upsurge may be seen in the short term to September highs, boosting oil prices at a time when markets across the world are fighting to reduce energy prices and bring down the cost of living for consumers.”

What this means for Gulf states:

“High oil prices support Gulf states, and Saudi Arabia in particular will be glad to have additional production capacity in reserve given fears that Russian supply could fall sharply due to western sanctions on its oil exports.”

A potential policy shift from OPEC+:

“The shift from OPEC+ to now hold their meetings physically for the first time since the start of the pandemic has also caused speculation that a significant policy shift is in the works. This could be a sign that OPEC+ is systematically reducing production given the decreased demand for oil amid the weakening global economy.”

White House: we need to be less dependent on Opec+

The United States needs to be less dependent on Opec+ and foreign producers of oil, White House spokesman John Kirby says.

He was speaking as the group of oil producers agreed its deepest production cuts since the 2020 Covid-19 pandemic.

Kirby also told Fox News that the cuts meant Opec+ was “adjusting (its) numbers down a little bit” after increasing production over the summer, saying:

“OPEC+ has been saying, telling the world they’re actually producing three and a half million more barrels than they actually are.

So, in some ways this announced decrease really just kind of gets them back into more aligned with actual production.”

Opec+ have also agreed to stop holding monthly meetings to set oil production.

The cartel will now hold its OPEC and non-OPEC Ministerial Meeting (ONOMM) every 6 months,while its Joint Ministerial Monitoring Committee will meet every two months.

OPEC+ confirms cut of 2 million BPD starting in November.

⬇️⬇️⬇️ press release below ⬇️⬇️⬇️ pic.twitter.com/f2XRsI4RRH

— Emma Graham (@themmagraham) October 5, 2022

DECISION: Opec+ agrees to cut oil production by 2m barrels per day

An OPEC flag at today’s OPEC+ meeting in Vienna.
An OPEC flag at today’s OPEC+ meeting in Vienna. Photograph: Lisa Leutner/Reuters

Newsflash: The Opec oil cartel and its allies have agreed to cut oil production by two million barrels per day, in an attempt to push up crude prices.

The cut, agreed at today’s in-person meeting in Vienna, was approved despite pressure from the US government to maintain output.

The group say they took the move ‘in light of the uncertainty that surrounds the global economic and oil market outlooks”.

It’s the deepest production cuts agreed by Opec+ since the 2020 Covid-19 pandemic, and will begin in November.

Opec+, which includes Russia, acted after Brent crude fell as low at $84 per barrel last month, having hit $125/barrel back in June.

The cut is at the top end of expectations ahead of today’s meeting.

As explained earlier, the decision will deliver a real cut of only 880,000 barrels a day, according to Bloomberg calculations, as some Opec countries can’t hit their current quotas.

World oil demand is around 100m barrels per day.

The move will not please the White House. The Biden administration has launched a full-scale pressure campaign in a last-ditch effort to dissuade Middle Eastern allies from dramatically cutting oil production, CNN reported last night.

Updated

Another interesting development: Russia’s deputy PM Alexander Novak has reportedly said that the alliance between Opec and allies such as Russia has been extended to the end of next year:

Russia's Novak: It Was Agreed to Extend OPEC+ Agreement Until the End of 2023 - Interfax Cites Bloomberg.#OOTT

— CN Wire (@Sino_Market) October 5, 2022

Bloomberg: OPEC+ agrees on 2 million-barrel-a-day cut to output limit

OPEC+ has agreed to cut its collective output limit by 2 million barrels per day, delegates have told Bloomberg, as the group seeks to halt a slide in oil prices caused by the weakening global economy.

#OOTTT | #OPEC+ MEETING ENDS - SOURCE

— CN Wire (@Sino_Market) October 5, 2022

Bloomberg points out that 2m bpd cut in Opec+ targets would mean a smaller reduction in practice.

That’s because some members of the cartel are already strugging to hit their output quotas, which had been rising steadily earlier this year as demand had recovered.

A look at what #OPEC+ quota cuts would mean in practice. A reduction of 2m b/d would remove just 880,000 b/d from the market (and have no impact on Russia), according to Bloomberg's calculations, given the extent of members' supply problems. H/T @JLeeEnergy. pic.twitter.com/PxUVcjk481

— Paul Wallace (@PaulWallace123) October 5, 2022

Here’s Bloomberg’s take:

A panel of OPEC+ ministers recommended a cut to the group’s output limits of 2 million barrels day as they seek to halt a slide in oil prices caused by the weakening global economy.

The recommendation from the cartel’s Joint Ministerial Monitoring Committee will be discussed by ministers later on Wednesday before they make a final policy decision, delegates said, asking not to be named because the information is private.

If the full meeting of the Organization of Petroleum Exporting Countries and its allies ratify the proposal, it would have a smaller impact on global supply than the headline number suggests because several countries are already pumping well below their quotas. That means they would already be in compliance with their new limits without having to reduce production.

A reduction of 2 million barrels a day in the group’s output target, shared pro rata, would require just eight countries to reduce actual production and would deliver a real cut of only 880,000 barrels a day, according to Bloomberg calculations based on September output figures.

BREAKING: OPEC+ panel proposes a cut of 2 million barrels a day to its output, as they seek to halt the slide in oil priceshttps://t.co/6Z0k36cBhF pic.twitter.com/3nVe6bZv3x

— Bloomberg Middle East (@middleeast) October 5, 2022

Sounds like the JMMC recommentation of a two million barrel-per-day cut has been accepted…

OPEC+ AGREES OIL OUTPUT CUTS OF 2 MLN BPD - SOURCE - RTRS

— Fabrizio Goria (@FGoria) October 5, 2022

A two million barrel barrel cut to daily oil output could push up oil prices, meaning more expensive fuel, as Raffi Boyadjian, lead investment analyst at XM, explains:

OPEC and its allies that include Russia are widely expected to announce a reduction in output but there are worries about what impact this will have on prices.

The downward trend in oil prices since the start of the summer has brought much needed relief to consumers and businesses around the world amid the cost-of-living crisis.

Anything up to one million barrels a day may not necessarily lead to a significant change in actual production given that many OPEC members are currently unable to meet their quotas. But reports suggest that the cartel is considering cuts as much as two million barrels a day.

Opec+'s JMMC committee backs output cuts of 2m bpd

The Opec+ Joint Ministerial Monitoring Committee has recommended a cut of two million barrels of oil per day, at their meeting in Vienna, Reuters reports.

That’s the equivalent of around 2% of global oil demand.

OPEC+ JMMC AGREES OIL OUTPUT CUTS OF 2 MLN BPD - SOURCES #USOIL pic.twitter.com/SHHRiggQnD

— Markets Radio (@MarketsRadio) October 5, 2022

Reuters has the details:

OPEC+ key ministers, known as the joint ministerial monitoring committee, has agreed oil production cuts of 2 million barrels per day, three OPEC+ sources said.

Now over to the full Opec+ meeting of ministers to decide…

⚡️⚠️📉🛢OPEC+ TO DISCUSS JMMC RECOMMENDATIONS TO REDUCE OIL PRODUCTION BY 2 MILLION B/D - DELEGATE

— Aprajita Choudhary 🦋 (@aprajitanefes) October 5, 2022

In other oil news….Hundreds of offshore workers are to stage a series of strikes after voting in favour of taking industrial action over pay.

The Unite union said more than 300 offshore drilling and contract maintenance workers employed by Archer, Maersk, Transocean and Odfjell backed strike action by 95% in protest at a 5% pay offer.

A series of 48-hour stoppages will be held every second week from October 20, while further stoppages will take place on November 3-4 and 17-18 and on December 1-2 and 15-16.

Unite also warned that the action could escalate to an all-out strike….

Cutting emissions will hit growth, but costs of inaction much higher, says IMF

Vital steps to reduce greenhouse gases by 25% by the end of the decade will lead to lower growth and higher inflation but the costs of inaction would be far greater, the International Monetary Fund has said.

The IMF said decades of procrastination meant what could have been a smooth transition to de-carbonised economies would now be more challenging, and the world had to cut fossil fuel use by a quarter in eight years to have a chance of hitting the global climate change goals set in Paris in 2015.

“Because the energy transition needed to accomplish this has to be rapid, it is bound to involve some costs in the next few years,” the Washington-based fund said in a chapter from its forthcoming half-yearly World Economic Outlook.

IMF officials have estimated growth will be reduced by between 0.15 and 0.25 percentage points a year between now and 2030 while inflation will be between 0.1 and 0.4 points higher.

But the IMF said its central message was:

“that if the right measures are implemented immediately and phased in gradually over the next eight years, the costs will remain manageable and are dwarfed by the innumerable long-term costs of inaction”.

Here’s the full story:

Oman's Minister of Energy and Minerals Salim Al Aufi arriving for today’s 45th Joint Ministerial Monitoring Committee in Vienna.
Oman's Minister of Energy and Minerals Salim Al Aufi arriving for today’s 45th Joint Ministerial Monitoring Committee in Vienna. Photograph: Vladimír Šimíček/AFP/Getty Images

The OPEC+ Joint Ministerial Monitoring Committee meeting is underway in Vienna, to analyse conditions in the oil market.

#OPEC+ JMMC said to have started #oott

— Giovanni Staunovo🛢 (@staunovo) October 5, 2022

It should be followed by the overall OPEC+ ministerial meeting, where a decision to cut, or not to cut, would be taken.

Economic news… American firms took on around 208,000 new staff last month, according to the latest payroll data from ADP.

That’s a little more than forecast, and a rise on August’s 132,000 hires.

$SPY ADP Employment Change (SEP)
Actual: 208K
Expected: 200K
Previous: 132K

— Marco Ða ℂosta (@TraderMarcoCost) October 5, 2022

ADP showed out sized gains in trade & transportation with negative or low growth in our main services sectors and goods producing...Questionable report much like most of our data recently.. $SPY $TLT

— Marco Mazzocco, CFA (@MarcoMNYC) October 5, 2022

Opec+ meeting in Vienna

Over in Vienna, oil ministers from Opec members and their allies are gathering at the cartel’s HQ to set production targets for November.

As flagged in the introduction, they are expected to discuss a big cut in crude output.

#UAE and #Iraq ministers arrived at the #Opec secretariat together on foot ahead of today's JMMC and ministerial meetings. #oott pic.twitter.com/Zz36sxglFf

— Nader Itayim | ‌‌نادر ایتیّم (@ncitayim) October 5, 2022

OPEC+, which includes Russia and Saudi Arabia, could cut between 1 and 2 million barrels a day, according to a Reuters report, although the White House has been pushing its allies not to cut production sharply.

Alexander Novak, Russian deputy prime minister, and Putin's man to handle the OPEC+ relationship, is in Vienna -- a capital of the European Union -- to organize an oil production cut. https://t.co/YVtWtpKWWo

— Javier Blas (@JavierBlas) October 5, 2022

Food for thought...OPEC can cut more/longer than Biden administration can release from SPR. This OPEC meeting a wakeup call for US politicians that energy inflation is going to be STICKY.

— Dan Pickering (@pickeringenergy) October 5, 2022

Updated

Here’s Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, on the muted market reaction to the PM’s speech:

‘’As Prime Minister Liz Truss took to the stage to try and shore up her support among her party and the country, the pound fell further back and government borrowing costs rose slightly.

She may have hoped that her triple promise of growth would have calmed markets further but with nothing new to offer the table, her words have not had the desired effect so far. The pound dipped below $1.14, hovering around $1.135 and 10 year gilt yields lifted a little to whisker under 4%.

Liz Truss bounded to the stage to the lyrics of M People, hoping the title would provide an aura of optimism to her speech. But the words I’m moving on up, you’re moving on out, may not strike the right note for those homeowners worrying about renewing their fixed rate mortgages, given how so many cheap deals have been pulled over the past week.

For now she’s pledged commitment to her Chancellor, and has reiterated support for the independence of the Bank of England, but there was no mention of exactly when the independent forecast of her administration’s slash and spend policies would be made public The report from the Office of Budget Responsibility was expected to be brought forward but question marks still remain over whether this will happen. The speech will do little to quell dissent over worries that public services will bear the brunt of the tax cuts plans.

Ms Truss will still face an uphill struggle though to convince colleagues and voters that reductions in public spending, which will be necessary to fund tax cuts, won’t end up denting productivity over the longer term instead, especially if working families are made poorer.

The rise in mortgage rates will worry the government, as well as mortgage holders (and those hoping to take out a loan):

While Liz Truss was speaking it emerged that average 2-year fixed mortgage has topped 6% for first time in 14 years

What happens to mortgages now is pivotal

Govt is betting inflation and interest rates will begin to fall early next year

But what if they don’t?

— Steven Swinford (@Steven_Swinford) October 5, 2022

Sky: Kwarteng to meet high street bank chiefs amid mortgage market freeze

Sky News are reporting that Kwasi Kwarteng will meet with high street bank chiefs tomorrow to discuss the mortgage market, after hundreds of deals were pulled after the mini-budget.

The chancellor will hold talks on Thursday with executives from lenders including Barclays, Lloyds and NatWest amid “concerns about the impact of recent markets turmoil on home loans provision”, Sky says.

Here’s the story.

Kwarteng to meet high street bank chiefs amid mortgage market freeze https://t.co/mgCxHdANJF

— Sky News (@SkyNews) October 5, 2022

Lenders were forced to drop deals after the turmoil in the bond market, and the sharp increase in expectations for interest rate rises.

Deals have returned, but at much higher rates….

Courtesy of Moneyfacts, after some more rate rises yesterday the average two-year fixed mortgage has ticked over 6% for the first time since November 2008.
Average five-year rate just shy of 6% at 5.97%.

— George Nixon (@George_Nixon97) October 5, 2022

Updated

Not sure the two things are connected but the pound has fallen a bit during and since the @trussliz speech.
Here it is vs $ and €. pic.twitter.com/F4vKJihdN6

— Ed Conway (@EdConwaySky) October 5, 2022

Average two year fixed rate mortgage now tops 6%

UK mortgage rates have continued to rise, hurting those looking to buy a home, or to remortgage.

According to Moneyfacts, the average two-year fixed mortgage has ticked over 6% for the first time since November 2008.

Sky News’s Ed Conway has the details:

NEW:
Moneyfacts says:
- avg 2yr fixed rate mortgage is now up to 6.07% (was 2.25% a year ago)
- avg 5yr rate up to 5.97% (was 2.55% a year ago)
Highest mortgage rates since 2008.
But that’s understating how painful these rates will feel for people (for all the reasons above👆)

— Ed Conway (@EdConwaySky) October 5, 2022

Let’s put this into perspective.
This chart shows you the avg monthly cost of repaying a mortgages (as a % of income)
With mortgage rates at 6%, they go up from 18% to 27%.
Highest mortgage burden since 1989.
This is not a projection: for those fixing mortgages now it’s a reality pic.twitter.com/mbQKOFcARQ

— Ed Conway (@EdConwaySky) October 5, 2022

Updated

After six days of gains, the pound is heading back towards its levels before the mini-budget (against the US dollar):

The pound vs the US dollar since mid-September
The pound-dollar exchange rate since mid-September Photograph: Refinitiv

Sterling has also lost half a eurocent against the euro, down to €1.144.

Brad Bechtel of Jefferies warns that the pound could fall back to $1.10 ‘in a blink of an eye’, given the volatility.

Truss is trying to rally her party around their budget plan and the roll back on the 45% tax rates seemed to a step in the right direction.

The BoE stabilizing the bond market helped the GBP/USD recover all the way back to 1.1500 overnight, and we are back through 1.1400 now. This is probably the sell zone for this pair given how from out of the woods we really are here still.

Truss backs Bank of England independence, but pound slips lower

Prime Minister Liz Truss speaking during the final day of the Conservative Party Conference in Birmingham.
Prime Minister Liz Truss speaking during the final day of the Conservative Party Conference in Birmingham. Photograph: Jeff J Mitchell/Getty Images

Liz Truss has told the Conservative Party conference that its right that the Bank of England sets interest rates indepedently, having questioned the Bank’s performance during her leadership campaign.

On the final day of a troubled conference, Truss signalled to the City that central bank independence was safe, saying:

“It’s right that interest rates are independently set by the Bank of England and that politicians do not decide on this.

“The Chancellor and the [Bank of England] Governor will keep closely coordinating our monetary and fiscal policy, and the Chancellor and I are in complete lockstep on this.”

Back in August, Truss indicated she would review the Bank’s mandate.

Truss also said her government will keep an ‘iron grip’ on the nations finances, following the turmoil sparked by the mini-budget.

In a speech disrupted by Greenpeace activists (with a banner inquiring ‘Who voted for this?’), Truss also pledged to lower the tax burden – two days after scrapping the planned abolition of the 45p highest tax rate.

🇬🇧 #LizTruss's speech to the #ConservativePartyconference is interrupted by protesters shouting: "who voted for fracking?"

Two #Greenpeace protesters are holding a banner with the text "Who voted for this?"

The protesters are escorted out by security ⤵️ pic.twitter.com/f2PThCXPQk

— FRANCE 24 English (@France24_en) October 5, 2022

Truss also says her priorities are ‘growth, growth and growth’ , and pledges to get debt falling as a share of national income.

And she takes a pop at a so-called ‘anti-growth coalition’ including opposition parties, ‘vested interests’ dressed up at think tanks and Extinction Rebellion.

Truss: “I will not allow the anti-growth coalition to hold us back. Labour, Lib Dems, the SNP…vested interests dressed up as think tanks…some of the people we had in the hall earlier.”

— Lewis Goodall (@lewis_goodall) October 5, 2022

The markets don’t seem very impressed ---the pound is down a cent at $1.137, a little lower than before the speech began.

Bond yields are still moving on up this morning too (but still much lower than in last week’s panic).

$GBP making session low now as Truss ramps up rhetoric against the "anti-growth coalition"

— Joumanna Bercetche 🇱🇧 (@CNBCJou) October 5, 2022

Updated

Today’s UK PMI report show Britain’s economy is struggling, say the EY ITEM Club.

EY also warn that the slowdown will intensify in the short term, driven by market volatility, tightening financial conditions, and future rises in interest rates.

Martin Beck, chief economic advisor to the EY ITEM Club, explains:

“Following the Government’s mini-Budget, it is likely that the deterioration in the services and composite PMIs partly reflects financial market volatility turmoil and the recent rise in borrowing costs, along with pre-existing weakness in demand.

The outlook is downbeat, given that the full force of headwinds from elevated inflation, higher interest rates and cost pressures from sterling’s softness have yet to be fully realised.

Liz Truss is about to address the Conservative party conference, and reiterate her determination to change Britain.

The PM will also admit that change will bring “disruption”, and is expected to say:

The scale of the challenge is immense. War in Europe for the first time in a generation. A more uncertain world in the aftermath of Covid. And a global economic crisis.

That is why in Britain we need to do things differently. Whenever there is change, there is disruption. Not everyone will be in favour. But everyone will benefit from the result - a growing economy and a better future. That is what we have a clear plan to deliver.

Our Politics live blog is covering all the action:

The pound has softened further, ahead of the speech, now down almost a cent at $1.1385.

Adam Neumann, co-founder and chief executive officer of WeWork, back in 2018
Adam Neumann, co-founder and chief executive officer of WeWork, back in 2018 Photograph: VCG/Visual China Group/Getty Images

WeWork’s revenues at its UK subsidiaries more than halved last year, its latest accounts reveal.

The embattled office space company, which was founded in 2010 in New York, opened its first UK site in London in 2014. It offers workspaces around the world by the hour, day or month. The office start-up was already struggling well before the pandemic, when investors grew tired of its messianic CEO Adam Neumann, and its lack of profits, and Covid dealt it another blow because many people switched to working from home.

The latest financial results of WeWork International, the UK parent company, published on the Companies House website, provide fresh insight into its financial position. Its 2021 management fee and service income fell sharply to £22.4m from £46.7m as a result of fewer revenues from group companies following the sale of its China business in October 2020 and because of “less trading activity” in other group companies.

Even so, its pretax loss fell to £142m from £246m because of less cost sharing with other group companies, and a near-£30m decline in staff costs. Its wage bill shrank to £42m from nearly £55m, while “termination costs” were a lot less than in 2020, when WeWork laid off thousands of workers globally. Termination costs, i.e. severance packages, fell to almost £500,00 from nearly £7m in 2020.

WeWork’s UK operation employed 415 people last year, compared with 565 the year before. It also managed to reduce admin and other costs, to £27m from over £30m.

The firm said it “began to see an increase in demand in April 2021 followed by in increase in occupancy” and has continued to see an increase in occupancy this year, but says the effects of the pandemic on the economy and its business are “highly uncertain”.

As of last December, loans due to be repaid within five years totalled £574m, compared with £752m the year before.

Updated

Bond news: Britain received solid demand at an auction of a 10-year gilt today – but it paid the highest interest rate at any auction in over a decade.

The sale of £3bn-worth of the 2032 gilt was two-and-half times oversubscribed, with investors showing solid demand for UK debt.

The bonds sold at an average yield of 4.123%, the highest since a 30-year gilts in 2011, Reuters reports (though less than was paid at a syndicated sale of a 30-year green bond last week).

Gilt auction result - much healthier looking than yesterday's.

Sale of £3 billion of 1% gilts due in 2032 received bids worth 2.5x amount sold.

Yield tail of 0.3 bps pic.twitter.com/qqUrzkscfc

— Andy Bruce (@BruceReuters) October 5, 2022

Future expectations amongst UK manufacturing & services firms are down to levels only previously seen at times of extreme stress and economic downturns, the severity of which has in the past been alleviated by central bank policy easing (not on the table now of course). #PMI pic.twitter.com/XqNwZqaNwk

— Chris Williamson (@WilliamsonChris) October 5, 2022

After a strong rally yesterday, Britain’s blue-chip stock index has sunk back into the red.

The FTSE 100 is down 91 points, or 1.3%,to 6995 points with grocery groups Ocado (-4.6%) and Sainsbury (-3.5%) among the top fallers.

Tesco have dropped by 2.5% following this morning’s results.

Updated

Economic worries hit UK businesses last month, reports Tim Moore, economics director at S&P Global Market Intelligence, which compiles the PMI survey:

“September data highlighted an absence of growth in the UK service sector for the first time in 19 months as the energy crisis continued to hit business and consumer spending.

Severe pressure on budgets in the wake of rising inflation, alongside deepening worries about the economic outlook, also led to a reversal in new order volumes for the first time since February 2021.

UK business activity slides by most since early 2021

UK companies suffered the sharpest decline in activity since the lockdowns of January 2021 last month, as the economy weakened.

The closely-watched UK Composite PMI index fell to 49.1 in September, down from 49.6 in August, and further below the 50-point mark showing that activity stagnated.

It’s the lowest reading since January 2021, when the country had entered a lockdown after a surge in Covid-19 infections, but slightly better than the flash reading released on the day of the mini-budget.

Tiny sliver of light: final September #PMI for the UK unexpectedly revised up, from 48.4 to 49.1 (Energy Price Guarantee?), but still signalling #recession.#Euro area (48.1) continues to underperform on this measure, with #Germany (just 45.7) remaining the 'sick man of Europe'. pic.twitter.com/xGeqcz8p69

— Julian Jessop (@julianHjessop) October 5, 2022

The downturn was driven by a considerable fall in manufacturing production, while the services sector stagnated.

Both factories and services companies reported a drop in new business, while confidence dropped for the seventh time in the past eight months. Growth projections for the year ahead are now the weakest since May 2020, largely reflecting a slump of sentiment in the service economy.

Costs kept rising too, with firms juggling escalating energy prices, higher staff wages and supplier price hikes.

Despite the weak pound, exports fell in September for the first time in eight months, with companies blaming Brexit-related trade difficulties and weaker global economic conditions.

Dr John Glen, Chief Economist at the Chartered Institute of Procurement and Supply (CIPS), says:

More evidence of weaknesses in the UK economy appeared last month as the services sector flatlined in September, falling to the no-change mark with fewer orders and higher costs affecting output.

“The new business index was the lowest since February 2021 as domestic consumers had cost-of-living pressures and not hospitality uppermost in their minds. After enjoying rising levels of export orders for eight months in a row, the ongoing effects of Brexit and trade difficulties also reduced overseas enquiries for service companies.

🇬🇧 UK services growth stalled in September, as the Business Activity #PMI slid to 50.0 (Aug: 50.9) to signal the weakest sector performance since Feb '21. Business expectations slid to their lowest since May '20. Read more: https://t.co/2YLh4zYY7u pic.twitter.com/T7G17Sr0bh

— S&P Global PMI™ (@SPGlobalPMI) October 5, 2022

The picture is no better in the eurozone either – where private sector output also fell at sharpest rate since January 2021.

The Eurozone Composite #PMI dropped further below the 50.0 mark in September, hitting a 20-month low of 48.1 (Aug: 48.9). Output across manufacturing and services fell amid high inflation, soaring energy costs and economic uncertainty. Read more: https://t.co/F2WIOKOH1m pic.twitter.com/maPHIdgYr2

— S&P Global PMI™ (@SPGlobalPMI) October 5, 2022

Updated

UK car sales rose last month

New car sales in the UK have picked up compared with last year, but are still a third lower than before the pandemic.

There were 225,269 new cars registered in September, 4.6% more than in 2021, according to the Society of Motor Manufacturers and Traders (SMMT), but still 34.4% less than in September 2019.

225,269 units registered in key ‘new plate’ month – up 4.6% on last September, but -34.4% behind 2019https://t.co/ANPcajU9UG pic.twitter.com/C0Cpoi1cKi

— SMMT (@SMMT) October 5, 2022

Britain’s millionth plug-in electric car was registered last month, with 249,575 joining roads in 2022 alone.

A lovely milestone, but would love to see the number of chargers increasing in line with this... https://t.co/EqieXbEH36

— Emma Haslett (@emmahaslett) October 5, 2022

Here’s the details:

Bumper month for plug-in registrations sees Britain’s millionth plug-in electric car registered, with 249,575 joining roads in 2022 alonehttps://t.co/ANPcajU9UG pic.twitter.com/6TjHHdJUSC

— SMMT (@SMMT) October 5, 2022

Gordon Brown also warned of a “national uprising” if the Government opts not to increase benefits in line with inflation.

The former Labour prime minister told BBC Radio 4’s Today programme it would be “immoral” not to increase benefits alongside inflation, which has soared in recent months to levels unseen in generations.

Mr Brown said a real-terms cut in benefits (which the government hasn’t ruled out) would be “unfair” and “unequal”.

“It’s divisive because we’re not in this together any more. It’s anti-work because 40% of those who would suffer are people on low pay in work. It’s anti-family because five million children would be in poverty.

“And I think most of all, it’s immoral. It’s asking the poor to bear the burden for the crisis that we face in this country and for mistakes that other people have made, and it’s a scar on the soul of our country, it’s a stain on our conscience.”

And here’s Katie Schmuecker of the Joseph Rowntree Foundation:

Talk of benefits bloodbath from @GordonBrown on @BBCr4today

✂️failing to increase benefits with prices (as is usual) would be the single biggest deliberate real terms cut IN HISTORY

❌increasing with earnings rather than prices leaves the bottom 10% another £214 worse off 1/3

— Katie Schmuecker (@KatieSchmuecker) October 5, 2022

Against a backdrop where the the worst off already typically face a £450 gap between rising costs & their income this year - even with the government’s announced support package.

And that’s on the back of a decade of cuts and freezes to social security 2/3

— Katie Schmuecker (@KatieSchmuecker) October 5, 2022

Little wonder people are already 🍽skipping meals
🚿& showers
🔥terrified to put the heating on
💍selling possessions
💳taking on credit to cover bills
🧾missing bill payments

People need certainty not cuts. Benefits must rise with prices in the usual way. End.

— Katie Schmuecker (@KatieSchmuecker) October 5, 2022

Gas prices have dropped back to more normal levels this morning.

The wholesale gas price for next-day delivery has almost halved this morning, to 70p per therm from 130p/therm last night. That’s the lowest level since June.

The pick-up in wind speeds may be reducing demand for gas to fuel power stations.

#Wednesday morning and UK wind farms are generating 15.35GW (59.04% of our #electricity (far more again than any other source. Wind power is essential in addressing the #ClimateCrisis and helping to keep our #energybills lower.#energy #wednesdaythought #pricehike #Ukraine pic.twitter.com/Uw2p9eZptB

— Jonathan Lincoln (@windfarmwarrior) October 5, 2022

Month-ahead gas prices are pricier, though, with the wholesale contract for delivery in November down 3% at 270p per therm.

The BBC’s Faisal Islam has also spotted that UK bond yields are climbing again…

Meanwhile material change in long term bond markets - 30 year bond yield is up 30 basis points to well over 4% in past 24 hours, 4.15% a few moments ago. this is despite fact the Bank of England has offered to buy up these bonds…. That intervention took it down from 5% to 3.6% pic.twitter.com/OfZktUKXJG

— Faisal Islam (@faisalislam) October 5, 2022

Similar on 20 year bond… also being bought up by Bank of England, but 20bps is a noticeable spike. pic.twitter.com/77NLksvl8F

— Faisal Islam (@faisalislam) October 5, 2022

Tesco results: What the analysts say

Tesco’s results are caught between “the jaws of post-pandemic normalisation and the rising cost of living”, says Zoe Gillespie, investment manager at RBC Brewin Dolphin:

Profits have taken a dip and are likely to be at the lower end of guidance this year, as the supermarket looks to align with customers and mitigate the impact of rising prices through a combination of initiatives – such as its Clubcard prices.

On the more positive front though, revenues have seen a marginal increase and cash flow has largely held up to the point where management feel confident enough to hike the dividend.

The drop in profits at Tesco shows that shoppers are feeling the pinch as the cost-of-living crisis takes hold, explains Matt Britzman, equity analyst at Hargreaves Lansdown:

“Supermarkets are no strangers to dealing with cost-of-living pressures, there’s been an all-out price war in the industry for some years now. Amongst the larger players, Tesco’s arguably been one of the standout businesses in the battle against low-cost outfits but pressures on consumer spending can only build for so long before something must give.

That pain’s slowly starting to feed into performance, as shopping behaviours continue to normalise from bumper levels seen over the pandemic and inflation keeps costs high – that’s meant full year profit guidance got a slight downgrade toward the bottom end of the previous range.

Neil Shah, executive director of content and strategy at Edison Group says Tesco’s interim results may put investors on edge.

Despite statutory revenue being up 6.7% since last year, the group’s operating profit declined by 43.6% and its profit before tax slumped 63.9%. Furthermore, adjusted operating profit for the group’s bank division dropped by 6.9% and, in a sign of increasing pressure on consumers, Non-Food sales declined 6%.

As the cost-of-living crisis continues to squeeze household budgets, Tesco has been faced with increased competition with cheaper supermarkets such as Lidl and Aldi. Tesco is therefore determined to compete with Aldi and Lidl’s prices, with the company extending its Aldi price match scheme to over 650 products in April.

Tesco’s CEO Ken Murphy has told reporters that the supermarket chain expects to have enough turkeys and chickens to satisfy the nation’s demands this Christmas.

Murphy also says Tesco isn’t having problems hiring staff for Christmas, and expects to take on 12,500 staff for the festive season.

And he explained that shoppers were trading down to own label products and frozen food, and buying less non-food products as a result of the cost-of-living crisis.

Tesco CEO says do expect to be able to satisfy demand for turkeys and chickens this Christmas

— Peter Hoskins (@PeterHoskinsTV) October 5, 2022

UK curve rising again across all maturities, and implied market pricing back above 5.5% by May 2023: pic.twitter.com/hyCeHT34QF

— BionicBanker (@BrokenBanker) October 5, 2022

UK government bond prices are weakening this morning.

The yield (or interest rate) on two-year gilts has risen back over 4%, having fallen steadily over the last week following the Bank of England’s intervention.

Long-dated debt prices are also lower, pushing up the yield on 30-year UK bonds up to 4.13%, from just under 4% last night. That’s still below last week’s surge – when yields rocketed over 5%.

The pound has dipped back from Tuesday’s two-week high, to around $1.142 (still 10% above its record low nine days ago).

Pound was flirting with $1.15 this morning but not a very positive start for gilts - yields up strongly across the board (with the exception of the 30-year gilt), and by more so than other countries

— Andy Bruce (@BruceReuters) October 5, 2022

Tesco’s fuel sales surged by over 38% in the last six months, due to rising prices and higher demand.

That lifted its revenues from petrol and diesel to £4.28bn, up from just over £3bn a year earlier.

This comes as supermarkets are accused of taking 10p extra in margins on fuel – despite the cost of filling up a car with petrol dropping below £90 for the first time since May.

The RAC said the average price of petrol fell by nearly 7p a litre to 162.89p in September – the sixth-biggest monthly drop since 2000. The fall means the cost of filling a typical 55-litre petrol tank has fallen below £90 for the first time since the start of May.

The motoring group claimed drivers would have enjoyed a further 10p reduction in petrol prices but major retailers instead opted to increase their margins.

Gordon Brown warns of risk of further crises from shadow banking

Former prime minister Gordon Brown

Former UK prime minister Gordon Brown has urged the Bank of England to tighten up its scrutiny of the shadow banking sector.

Speaking on Radio 4’s Today Programme, Brown warned that the crisis in the financial markets is not over, and there could be ‘grave difficulties’ for some companies when interest rates rise.

Specifically, he’s concerned about shadow banking – in which unregulated institutions carry out loans and other financial activities.

Brown warns that the UK faces problems with inflation, potentially problems with liquidity and solvency amongst companies, and the potential for markets to be disfunctional.

He explained:

I would be worried about the shadow banking – that’s the non-bank financial sector in this country. And i would be very careful if I was the Bank of England and make sure that the supervision of that part of the economy is tightened up.

I do fear that as inflation hits, and interest rates rise, there will be a number of companies and organisations that willl be in grave difficulty.

The money markets expect UK interest rates to have more than doubled by next summer, to around 5.5%.

Brown adds that he doesn’t believe the crisis is over, just because the pension funds were rescued last week by the Bank of England’s pledge to spend up to £65bn buying up long-dated UK debt.

Instead, he called for ‘eternal vigilence’ to try to avoid problems escalating again:

I do think there’s got to be eternal vigilance about what has happened to the shadow banking sector.

And I do fear there could be further crises to come.

Tesco is also lifting its pay rates for staff.

From 13 November the basic hourly rate of pay in stores will increase by 20p to £10.30 (or £10.98 in London), making a total 8% increase in pay this year.

The company said it was also freezing prices on more than 1,000 products.

Tesco’s CEO Ken Murphy says the supermarke’s price position got ‘more competitive’ this year:

Customers are seeking out the quality and value of our own brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out.

Retail analyst Steve Dresserman has picked out some key points from Tesco’s results:

Notable step up in own brand sales, including Finest which rose 13%.

Proving that people don't just buy value tier lines in tough times.

It's far too narrow visioned to assume people want to eat low value (both calorific and monetary) meals because things are tight.

— Steve Dresser (@dresserman) October 5, 2022

Online sales remain +50% ahead of pre COVID levels, as volumes normalise, Tesco online share remains at 35.9%.

Whoosh in 400 stores, plan for 800 by year end.

— Steve Dresser (@dresserman) October 5, 2022

Updated

Tesco’s non-food sales dropped by 6% year-on-year in the six months to the end of August.

The supermarket chain says it was competing against strong sales a year ago, when the Covid-19 lockdown led to “exceptionally strong demand”.

But it may also signal that consumers are cutting back where they can.

Non-Food sales in Tesco declined -6%; with cost of living pressure biting.

— Steve Dresser (@dresserman) October 5, 2022

Tesco issues minor profit warning “at bottom end of forecasts” and warns of “significant cost inflation” still to come.

— Louise Cooper CFA (@Louiseaileen70) October 5, 2022

Tesco sees full-year profits at lower end of guidance

Tesco has forecast that its underlying profits will come in at the ‘lower end’ of its previous forecast, due to the cost of living crisis and rising costs.

It says:

Despite ongoing challenges in the market, we are able to maintain our profit guidance within our previous range, albeit towards the lower end.

We therefore expect full year retail adjusted operating profit of between £2.4bn and £2.5bn. Significant uncertainties in the external environment still exist, most notably how consumer behaviour continues to evolve.

Tesco maintain profit guidance at the lower end of their original guidance (£2.4bn-£2.5bn).

— Steve Dresser (@dresserman) October 5, 2022

https://twitter.com/BrokenBanker/status/1577543229788094464

Tesco: customers watching every penny

Tesco has warned that its consumers are facing tough times as the cost of living crisis rages, and its own profits have taken a hit too.

The UK’s largest supermarket chain has reported that pre-tax profits have fallen almost 64% in the first half of its financial year, despite a 6.7% increase in revenues (partly due to the jump in petrol prices).

Achnowledging the squeeze on households, Tesco CEO Ken Murphy says:

“We know our customers are facing a tough time and watching every penny to make ends meet.”

In its latest financial results, just released, Tesco says it saw “significant” cost inflation, with some customers shifting from branded ranges to its own brand goods as they tried to manage household budgets.

Tesco did still grow its like-for-like UK sales by 0.7% year-on-year – lifting them almost 10% above pre-pandemic levels. Various offers, such as its Aldi Price Match and lower prices for Clubcard members, helped ease cost-of-living pressures.

Operating profits dropped 43% year-on-year, in the 26 weeks to 27th August.

Tesco has also been pushing a strategy of lifting prices “a little bit less and a little bit later”, it says, which helped it hold market share.

But Murphy warns that it’s too early to know how households will behave in the months ahead, with inflation now at its highest in around 40 years.

As we look to the second half, cost inflation remains significant, and it is too early to predict how customers will adapt to ongoing changes in the market.

Tesco - unsurprisingly not positive H1 progress in everything at the company, but at least lower debt. "Despite these uncertainties, our priorities are clear. We have the right long-term strategy and we will continue to balance the needs of all of our stakeholders". 9am call pic.twitter.com/yFtdHKFiHn

— Chris Bailey (@Financial_Orbit) October 5, 2022

Updated

Introduction: Opec+ could defy White House with production cut today

OPEC's headquarters in Vienna, Austria.
OPEC's headquarters in Vienna, Austria. Photograph: Lisa Leutner/AP

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

Opec and its allies meet today to discuss whether to make the biggest cut to oil output since the pandemic, despite strong pressure from the White House not to.

The cartel of oil producers led by Saudi Arabia and Russia hold their first in-person meeting since 2020 in Vienna today, to discuss output strategy. And Opec sources have suggested that the group could slash production by as much as 2 million barrels per day.

That would take around 2% of global oil production off the market, in an attempt to prop up crude prices which have been hammered by recession worries.

Opec slashed output back in 2020 when the world went into lockdown, but began reversing those cuts in 2021. Last month it trimmed output by 100,000 barrels per day, but a larger cut is now on the table due to fears of an economic slowdown and demand contraction.

The US government, keen to keen gasoline prices down before November’s mid-term elections, is aghast at this prospect, though.

According to CNN, the Biden administration has launched a full-scale pressure campaign in a last-ditch effort to dissuade Middle Eastern allies from dramatically cutting oil production.

CNN reports:

Some of the draft talking points circulated by the White House to the Treasury Department on Monday that were obtained by CNN framed the prospect of a production cut as a “total disaster” and warned that it could be taken as a “hostile act.”

“It’s important everyone is aware of just how high the stakes are,” said a US official of what was framed as a broad administration effort that is expected to continue in the lead up to the Wednesday OPEC+ meeting.

Saudis and Russians planning big oil production cuts at tomorrow's OPEC meeting. As I wrote two weeks ago, Mohammed bin Salman is friendlier to Putin than Biden: https://t.co/diPQu1R4o7

— Edward Luce (@EdwardGLuce) October 4, 2022

The prospect of Opec cuts lifted Brent cude to a near two-week high of $92 per barrel last night, up from $84/barrel in late September.

That will make it harder to get inflation down towards more normal levels, and could hurt motorists this winter.

Hovering over the OPEC+ meeting in Vienna is an unspoken fact: beyond Russia, many, many member-countries despise the G7 oil price cap. For them, it's a terrible precedent of consumers trying to dictate oil prices. It may or may not influence the talks, but it's there | #OOTT

— Javier Blas (@JavierBlas) October 4, 2022

Also coming up today

Rail services in the UK are being disrupted today by another large-scale strike n the long-running dispute over jobs, pay and conditions.

Members of the drivers’ union Aslef and the Transport Salaried Staffs Association (TSSA), encompassing 12 train operators, will walk out, meaning more chaos for travelers.

Many Conservative party conference attendees are expected to leave Birmingham early to avoid disruptions – rather than catch Liz Truss’s speech.

Investors will be watching, though, with the PM expected to claim that the “disruption” caused by her economic policies will be worth it.

That may no calm nerves in the City over the scale of spending cuts or increased borrowing needed to fund Truss’s unfunded pledges.

10 days ago Kwasi Kwarteng said there was “more to come” on fiscal changes and pound tanked.

Liz Truss will go one step further on Wednesday, telling Tory conference: “Whenever there is change, there is disruption.”

Some Tory MPs questioning the wisdom of her framing.

— Pippa Crerar (@PippaCrerar) October 5, 2022

So are the bond and foreign exchange Mkts

— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) October 5, 2022

There’s no shortage of disruption at the conference either, with the home secretary accusing fellow Tory MPs of a coup against the prime minister, and cabinet ministers in open conflict over the 45p tax U-turn and whether benefits should rise with inflation.

Last night the pound hit a two week high near to $1.15, as it recovers from the turmoil following the mini-budget.

European stock markets are set for a calm open after a strong rally yesterday on both sides of the Atlantic, and in Asia-Pacific markets.

*WHAT HAPPENED OVERNIGHT*

- Equities continued to rally from oversold levels

- SPX +3.06%, Nasdaq +3.34%

- UST 10y -1 bps to 3.63%

- USD continued to retrace on the back of risk-on

- Oil +3.2% to $91.69

- Downside surprise in Sept job openings fueled peak Fed narrative

— Prashant Nair (@_prashantnair) October 5, 2022

America’s S&P 500 posted its best two-day gain in roughly two years.

The agenda

  • 7am BST: German trade balance for August

  • 9am BST: Eurozone service sector PMI for September

  • 9am BST: UK car sales for September

  • 9.30am BST: UK service sector PMI for September

  • 1.15pm BST: ADP index of US private sector employment in September

  • 1.30pm BST: OPEC and non-OPEC Ministerial Meeting begins

  • 3pm BST: US service sector PMI for September

Contributors

Graeme Wearden

The GuardianTramp

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