Closing summary
We started off the day with Asda’s much-anticipated acquisition of petrol station operator EG Group in a £2.3bn deal that will value the combined group at £10bn.
Elsewhere, it emerged that the Confederation for British Industry had drafted in lawyers to prepare for potential insolvency, with Sky News reporting that it was part of directors seeking advice on their duties in case the lobby group needed to be wound down
And in further bad news for homebuyers, rising interest rate expectations have meant that UK lenders have pulled more than 800 deals off the market.
And to round off the day, we finally saw the value of US chipmaker Nvidia rise above $1tn for the first time as it continues to ride the AI boom.
Here’s a round-up of our other business stories out today:
Thanks for tuning in – we’ll be back tomorrow.
Our full story on Nvidia reaching a valuation of $1tn is now live
BREAKING: Value of US chipmaker Nvidia hits $1tn
Shares in chipmaker Nvidia jumped 4.5% in early trading, taking its value above $1tn (£804bn) for the first time.
Nvidia, whose high-end chips are used to power the datacentres used by the new wave of generative AI products such as ChatGPT, is the first chipmaker to join the trillion-dollar club and is far ahead of its peers.
Taiwan Semiconductor Manufacturing Co Ltd is the next largest chipmaker globally, valued at about $535bn.
The $1tn breach comes after Nvidia’s shares rallied last week, after growing demand for AI processing meant it issued revenue forecasts that surpassed analysts’ expectations by more than 50%.
The rally spilled over into other chipmaker stocks that are also expected to benefit from the AI boom.
Some stocks seen as AI winners – such as semiconductor makers and software developers – have more than doubled in value as traders bet on massive growth in the industry, even as fears mount over waves of job losses as everyday tasks become automated.
A restrictive mortgage market might be here to stay if Goldman Sachs is right in predicting that inflation is unlikely to come back under control until the end of 2025.
The Wall Street bank has said that while commodity prices are starting to cool – a move that could help dampen food price growth – a tight labour market and rising wages could keep UK inflation higher for longer.
Its economists have revised up their forecasts, with annual inflation expected to come in at 3.2% at the end of 2024 (compared to previous predictions of 2.7%).
And as the chart above shows, Goldman’s economists are predicting that CPI won’t come back down to the Bank of England’s 2% target for another two years, at the end of 2025.
In the interim, expect further interest rate hikes, Goldman warns:
Our analysis reinforces our view that resilient growth, a tight labour market, and persistent inflationary pressures will convince the MPC to deliver significant additional tightening.
We maintain our forecast of two further 25bp hikes at the upcoming June and August meetings for a terminal policy rate of 5%, but see risks to our terminal rate forecast as skewed to the upside.
Those further rate hikes could ultimately mean more mortgages being pulled off the shelves by UK lenders.
Updated
UK mortgages: nearly 800 deals pulled amid interest rate fears
Nearly 800 residential and buy-to-let mortgage deals have been pulled during the past few days by UK banks and building societies amid concern surrounding future interest rate rises, new data has revealed.
The figures from the financial data provider Moneyfacts also show rising rates for new fixed-term home loans, which could exceed 5% in the coming weeks after Wednesday’s worse-than-expected inflation figures.
The number of residential mortgage deals on offer has fallen by almost 7% in a week, down from 5,385 deals on 22 May to 5,012 on Tuesday morning – a reduction of 373 products.
In the buy-to-let sector, the volatility has had an even bigger impact, with the number of new landlord mortgages available dropping by more than 14% over the same period from 2,748 deals to 2,343 – a reduction of 405 products.
Meanwhile, Moneyfacts said the average rate on a new two-year fixed mortgage rate had crept up from 5.34% on 22 May to 5.38% on Tuesday morning. At the start of May the average was 5.26%.
In terms of residential mortgage providers, those that had pulled some of their fixed-rate mortgage deals over the past few days included Bank of Ireland UK, Halifax and several building societies.
Aldermore, Foundation Home Loans and the Tipton and Coseley building society are among those that have withdrawn their entire fixed-rate ranges.
You can read the full story here:
The Asda-EG Group deal has more to do with debt management than its owners might care to admit, our retail correspondent Sarah Butler writes.
Asda’s £2.27bn acquisition of sister company EG Group’s UK and Irish petrol forecourts business is billed as its shift into “omnichannel retail”.
The UK’s third biggest supermarket says the move will help spread its wings into convenience store retailing by adding thousands of locations where shoppers can pick up goods bought online, and bringing in the expertise to run small local stores, as well as cafes and takeaways, in Asda.
There is certainly some truth in that tale: Asda has long been searching for a new avenue of growth as the days of opening dozens more big box supermarkets are certainly over.
However, it is clear that the biggest driver of this deal is debt, which has fuelled the fortunes of the two business’s co-owners: the billionaire Issa brothers and private equity firm TDG Capital.
The deal will ease EG’s £7bn debt burden, which has become harder to bear as interest rates around the world have risen.
The sale of the large part of EG’s UK and Irish business will help it pay down debt ahead of some big refinancing deadlines early next year and in 2025.
However, the deal is not such good news for Asda which has taken on £770m of new loans.
Asda will look to raise £1.1bn from the sale of supermarkets, which it will then have to lease back, raising rents at a time when supermarket’s profits are being squeezed by rising costs of energy, labour and food, while consumers are also reining in spending.
Asda’s position as the cheapest in the grocery market has already been usurped by Aldi and Lidl. Meanwhile, Sainsbury’s and Tesco have taken big steps to be more competitive on key items sold by those chains.
This deal will mean that Asda, along with its private equity owned rival Morrisons, will find it ever harder to compete on price. Instead it will become more reliant on tempting shoppers with a wider array of services, such as takeaways and vehicle charging or petrol.
Unilever is the worst performer on the FTSE 100 after its chief financial officer – the once leadership-hopeful Graeme Pitkethly – said he would step down next year.
The CFO will leave at the end of MAy 2024 after more than two decades in the role, having joined the Marmite and Dove soap maker in 2002.
Pikethly was said have been a contender to replace outgoing CEO Alan Jope, who is set to step down from July. However, the company chose non-executive director and former Heinz boss Hein Schumacher for the job.
Unilever shares are currently at the bottom of London’s blue chip index, after falling 2.3%.
Tineke Frikkee, a fund manager at Unilever shareholder Waverton Investment Management, told Reuters:
The timing of Pitkethly’s retirement announcement is maybe not a surprise, as this will give the incoming CEO the opportunity to reshape his leadership team
Eight years as CFO of a multinational is a decent time and retiring in May 2024 should enable a useful handover to a new CFO.
CBI drafts in lawyers over potential insolvency: Sky News
The Confederation of British Industry (CBI) has reportedly drafted in lawyers to prepare for potential insolvency, as the scandal-hit lobby group steels itself for an extraordinary meeting of remaining members next week.
The report by Sky News says that the CBI has hired an as-yet unidentified law firm to provide advice for directors regarding their duties under UK company law, and decision-making about continuing to trade the organisation as a ‘going concern’.
“It is about making sure the board is complying with its obligations at an uncertain time,” a source told Sky News. The broadcaster said the CBI declined to comment.
It comes ahead of a meeting of the CBI’s members next week, where a failed vote on its new mandate could result in the lobby group – which has already been hit by a swathe of membership cancellations – winding up.
More than 50 large businesses, including John Lewis and NatWest, suspended or cancelled their membership last month after the Guardian’s publication of a series of allegations of sexual misconduct.
Those allegations included a woman’s claim that she was raped by a manager during a 2019 summer boat party on the River Thames, and a second allegation that a separate woman was raped by two male colleagues when she worked at an overseas office of the CBI.
The CBI is set to detail plans for a group-wide overhaul under its new director general, Rain Newton-Smith, this Wednesday, in reaction to the scandal.
You can read the Guardian’s ongoing CBI coverage here.
A private jet used by Tesla CEO and Twitter owner Elon Musk has arrived in Beijing, according to a Reuters witness.
The billionaire is expected to meet senior Chinese officials and visit Tesla’s Shanghai plant, as part of his first trip to the country in three years.
It was not clear who Musk would meet from the Chinese government or what issues they would discuss, though reports regarding Musk’s trip to Beijing, and a hopeful meeting with Chinese premier Li Qiang, first emerged in March.
While Reuters said Tesla had not yet confirmed the visit, China’s foreign ministry said in a statement that the government welcomed Musk - and other business leaders - looking to promote “mutually beneficial cooperation.”
The trip comes as Tesla faces intensifying competition from China in the electric vehicles market, There is also some uncertainty about expansion plans for the Shanghai factory complex Musk last visited in early 2020.
ITV shares fall to 5-month low amid Phillip Schofield controversy
Shares in ITV have fallen as much as 1.3% this morning to their lowest level in five months, as the broadcaster deals with the fallout of a scandal involving one of its former stars.
The drop comes on the first day of trading since This Morning star Phillip Schofield quit, having admitted he lied to the broadcaster over a relationship with a younger worker.
Shares have since pared some losses, and are now trading around 0.6% lower at around 71p each.
Hargreaves Lansdown’s Susannah Streeter said investors seemed a “little perturbed by the speculation surrounding the departure of a key presenter and the future of flagship show ‘This Morning’” but that this posed a short- rather than long-term problem for the broadcaster.
Streeter explained:
Although the drama has concentrated minds about the need for consistently popular content in important slots which keeps eyes on screen and advertising revenues returning, this is being viewed as a short-term hiccup rather than a longer-term problem for the company.
Instead, there will be a much closer eye trained on advertising prospects over the longer term given high inflation and the worry that a further ratcheting up in interest rates could push the UK into a recession after all, which could lead to marketing budgets being squeezed.
Asda chairman: We'll still lead on petrol prices after merger
Asda chairman Stuart Rose has said that the grocer will ‘still be the price leader in the UK on petrol’ after the EG Group merger.
Rose made the comments on a conference call with journalists this morning, which is still ongoing.
He explained that the primary driver of the deal is creating a ‘multi-channel retailer’.
Rose also said the group faced no problems in raising private debt for the merger, but that the capital structure of the was ‘absolutely appropriate’.
Full story: Asda confirms £10bn merger with petrol stations group EG
Asda has announced it is to acquire the petrol forecourts and convenience store operations in the UK and Ireland of its sister business, EG Group, in a deal worth £2.27bn, Joanna Partridge writes.
The long-awaited tie-up of the two groups, both owned by the billionaire Issa brothers and the private equity firm TDR Capital, is expected to create a combined business worth about £10bn and will allow the supermarket to expand further into convenience retail.
Under the deal, Asda is buying about 350 petrol station sites and more than 1,000 convenience store locations, meaning the new group will operate about 640 supermarkets, 700 petrol forecourts and 100 convenience stores.
The combined group is expected to serve about 21 million customers every week and will have revenues of nearly £30bn. Both businesses are chaired by the former Marks & Spencer boss Stuart Rose.
Under the deal, EG employees at the sites being sold will transition over to Asda, a move that was criticised in advance by the GMB union, which represents thousands of Asda staff and which called it a bad deal for workers.
My colleague Joanna Partridge notes the union row sparked by the Asda merger.
The GMB union, which represents thousands of Asda workers, has called on the government to block the merger, arguing it will be bad for both consumers and workers.
Nadine Houghton, GMB organiser, is calling for a review of the deal by the Competition and Markets Authority (CMA):
GMB believes this merger requires proper scrutiny from the CMA. We are concerned rising interest rates will leave the debt of the UK’s third largest retailer unsustainable.
GMB’s priority is to protect and improve our members’ jobs and conditions and we believe this merger makes that harder.
You can read the full story here:
Asda’s merger could raise the pressure on its supermarket rivals, but share price reaction this morning suggests investors are not too worried about the near-term impacts.
Susannah Streeter, head of money and markets at Hargreaves Lansdown:
Asda’s further foray into the convenience supermarket sector hasn’t knocked the share price of Sainsbury’s, Tesco and Marks and Spencer, which rose in early trading.
The Issa brothers, who own the company, intend to gobble up a bigger slice of the grocery-on-the-go market, by acquiring EG Group’s UK and Ireland operations.
The idea is that by being super-competitive on petrol, Asda may win more grocery custom from rivals at a time when grocery top-ups are all the rage, rather than dedicated weekly shops.
But while the cost-of-living crisis rages and so many consumers shop frenetically around for the lowest possible price, the search for value may be prioritised over convenience for the foreseeable future.
Stock prices across other grocers rose at the start of trading, but have since eased back:
M&S shares are down 0.3%
Tesco are up 0.7%
Sainsbury’s is down 0.1%
Global search for new Asda group CEO underway after merger
Asda is on the hunt for a new CEO to lead the new £10bn group.
Asda co-owner Mohsin Issa – who also co-owns EG Group - will stay on to help with the integration, but the global search for a new CEO is now on.
Asda said it was looking for someone with the “relevant skills required to lead and grow Asda into the future” but that process is expected to take “several months.”
The supermarket said it will also hire a new set of non-executive directors to its board.
Asda’s tie-up with EG Group will accelerate the supermarket’s shift into the convenience store market.
In the announcement released this morning, Asda said was a “natural next step” for both businesses, and would “open up significant growth opportunities in the growing convenience and foodservice markets”, which are estimated by Euromonitor to be worth around £40bn and £62bn, respectively.
Asda has a nascent foothold in the market, having bought up 119 convenience stores with attached petrol forecourts from the Co-op Group in October.
It has also already converted 166 EG sites into “Asda on the Move” stores, and plans to do the same for the 1,000 food-to-go sites acquired through today’s merger.
Overall, Asda said it would invest more than £150m over the next three years to fund the integration of the two businesses, which are expected to serve around 21 million customers per week.
Asda’s chair, the former M&S boss Stuart Rose, has (as expected) cheered the deal:
Asda’s acquisition of EG UK and Ireland will create a consumer champion like the UK has never seen. Throughout my career in retail – one thing has always been true, that meeting the evolving needs of customers is the route to growth.
This transaction is all about driving growth by bringing Asda’s heritage in value to even more communities and accelerating the growth of its convenience retail business.
A quick check-in on markets at the start of trading this morning.
It’s broadly negative across Europe (barring the more domestically-focused FTSE 250):
FTSE 100 is down 0.2%
FTSE 250 is up 0.18%
Germany’s DAX is down 0.2%
France’s CAC 40 is down 0.4%
Italy’s FTSE MIB is down 0.14%
Spain’s IBEX is up 0.1%
Food inflation in the UK fell in May, lifting hopes that the rapid increase in grocery prices may have reached its peak after keeping the broader consumer prices index painfully high so far this year, my colleague Phillip Inman writes.
After more than a year of sharp increases in the price of food, the British Retail Consortium (BRC) said annual food inflation eased this month from 15.7% to 15.4%, even as the overall rise in shop prices hit a fresh high.
Fresh-food inflation, which has rocketing after spectacular increases in the price of sausages, milk, cheese and eggs, fell from 17.8% to 17.2%
While the decrease in May was modest, the BRC said it indicated that food-price inflation had peaked and was beginning to come down.
The BRC chief executive, Helen Dickinson said the fall in food inflation was offset by an increase in non-food prices despite “consumers benefiting from heavy discounts in footwear as well as books and home entertainment”.
Non-food inflation hit 5.8% in May, up from 5.5% in April and above the three-month average of 5.7%. Overall, retailers increased prices by 9%, up slightly from 8.8% in April, pushing shop price growth to a fresh high.
You can read the full story here:
Updated
Introduction: Asda confirms £10bn merger; shop prices jump 9% in May
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Asda has kicked off what would have otherwise been a quiet morning, with confirmation that it will buy most of EG Group’s UK and Ireland business for £2.3bn.
The deal will see Britain’s third-largest grocer acquire around 350 petrol filling station sites and over 1,000 food-to-go locations from EG Group.
The combined group will be worth an estimated £10bn, with the merged companies making total revenues worth nearly £30bn.
The deal - which is set to be completed by the end of the year – is not expected to trigger any opposition from the competitions watchdog, given that both Asda and EG Group are owned by the Issa brothers – Zuber and Mohsin – and private equity firm TDR Capital.
Meanwhile, retailers, including supermarkets like Asda, raised prices by 9% in May, marking a record high for shop price growth.
That was despite a slight drop in food price inflation, with the British Retail Consortium (BRC) saying annual food inflation eased this month from 15.7% to 15.4%.
Whether those figures will have any sway on government plans for a voluntary cap on essential items such as bread and milk remains to be seen.
And there could be further pain ahead, with many retailers wringing their hands over a new round of post-Brexit border controls, which could reverse the slight decline in food price inflation.
As the BRC chief executive, Helen Dickinson, has warned:
While there is reason to believe that food inflation might be peaking, it is vital that government does not hamper this early progress by piling more costs on to retailers and forcing up the cost of goods even further.
More to come. Stay tuned!
The agenda
10am Eurozone business confidence for May
9:30am UK data showing profitability of UK companies (Oct-Dec 2022)
Updated
