Closing post
Time for a recap.
Economic storm clouds are gathering over Germany again, after growth fell into reverse and inflation rose.
German GDP fell by 0.1% in the second quarter of this year, new economic data shows, putting Europe’s largest economy on the brink of recession.
Analysts warned that Germany is the growth laggard of the eurozone, although Latvia (-1.1%), Sweden (-0.8%) and Hungary (-0.2%) all shrank by more.
ABN Amro explains:
German Q1 GDP undershot expectations, contracting by 0.1% qoq (consensus and our forecast +0.1% qoq) after expanding by 0.2% qoq in Q1
The details will be published late August. For now, Destatis pointed to fixed investment, particularly in transport equipment and buildings as the main drag on GDP growth. Indeed, investment in Germany has been generally weak with the level of investment still lagging 2019 levels by about 4%; this is especially the case for investment in transport equipment such as cars.
Furthermore, investment in buildings declined after being a source of strength in the Q1 GDP reading. This is not a surprise given the continued high level of interest rates, which have depressed demand and activity in the construction sector, particularly housing.
German inflation, on a harmonised basis, rose to 2.6% this month.
The drop in Germany’s GDP took the shine of a solid, unspectacular, growth performance by the wider eurozone, which expanded by 0.3% in April-June.
Spain was a bright light, growing by 0.8%, while France expanded by 0.3% – helped by the sale of a massive cruise ship to Royal Caribbean.
Analysts at Nomura say:
Euro area Q2 2024 GDP grew by 0.3% q-o-q. Core/periphery divergence continues, worsening even, with Germany contracting and Spain materially outperforming.
In other news….
Climate activists have voiced anger after BP beat profit expectations, and hiked its dividend.
Drinks company Diageo has been hit by a slump in demand in Latin America, cancelling out a jump in demand for its no-alcohol Guinness 0.0%.
Bakery chain Greggs has raised some prices, as it passes on the cost of a higher wage bill.
Pfizer has raised its profit guidance, as it shrugged off a drop in revenues from its Covid produces.
London market closes
After falling sharply this morning, London’s blue-chip stocks have clawed their way back, mostly.
The FTSE 100 share index has ended the day down 18 points, or 0.2%, at 8274 points. Standard Chartered led the risers, after announcing its biggest ever share buyback this morning.
But medical device maker Convatec was the top faller, down 5.8%, after missing profit expectations.
The FTSE 250 index of medium-sized companies jumped 0.85%, led by wealth manager St James’s Place (+25%) after it outlined cost-cutting plans.
Moody's puts UK's Southern Water on downgrade warning
Trouble is mounting in the UK water industry, where Moody’s is threatening to downgrade Southern Water to a ‘junk’ rating.
SW (Finance) I PLC (Southern Water) is currently rated at Baa3 – the lowest investment-grade rating. Moody’s has now placed its bonds on review for a possible downgrade.
Moody’s says:
“The review for downgrade reflects our expectation that Ofwat’s draft determination would, if not materially changed... result in severe Outcome Delivery Incentive (ODI) penalties and total expenditure (totex) allowances below the level needed to fund Southern Water’s investment programme.
“Together with an allowed return that falls significantly short of Southern Water’s actual cost of capital, such under-performance may challenge the company’s ability to raise equity finance to maintain leverage at levels consistent with the current rating.”
Southern Water is subject to enforcement monitoring by regulator Ofwat after a record £126m fine in 2019 over “shocking” failures at the company’s sewage treatment sites that polluted rivers and beaches in southern England.
Last week, Moody’s downgraded Thames Water’s credit rating to “junk” status, adding to pressure on the English water company’s finances.
Pfizer raises profit guidance as revenues rise
Pharmaceuticals giant Pfizer has lifted its profit forecast after recording its first rise in revenues since the height of the Covid-19 pandemic.
Pfizer grew its revenues by 2% year-on-year to $13.28bn, despite a drop in revenues from Covid products, as demand for its heart disease drug and its cancer therapy Padcev rise.
David Denton, Pfizer’s chief financial officer and executive vice president, says:
“This was Pfizer’s first quarter of topline revenue growth, on a year-over-year basis, since the fourth quarter of 2022 when our COVID revenues peaked.
The company now expects annual profit to be in the range of $2.45 to $2.65 per share, up from a prior profit forecast of $2.15 to $2.35 per share.
Pfizer also says it’s on track to cut costs by at least $4bn by the end of the year, through its “Cost Realignment Program”.
Microsoft investigating new service outage
Microsoft has said it is investigating reports of users having problems accessing its services, with some reporting being unable to access email and other functions, PA Media reports.
An alert on the technology giant’s service status website said it is looking into a “network infrastructure” issue.
According to website status platform DownDetector, users of Microsoft 365, Microsoft Teams, Xbox Live and players of popular video game Minecraft were among those reporting issues.
The incident comes less than two weeks after a major IT outage knocked global infrastructure including transport and healthcare services offline because a flawed software update from cybersecurity firm CrowdStrike affected Microsoft devices.
On its service status website, Microsoft said:
“We are investigating reports of issues connecting to Microsoft services globally.
“Customers may experience timeouts connecting to Azure services. We have multiple engineering teams engaged to diagnose and resolve the issue. More details will be provided as soon as possible.”
UK auditors BDO and Forvis Mazars have been urged to improve the quality of their audit work.
The Financial Reporting Council (FRC) has today flagged the gap between the Big Four accountancy and BDO and Mazars.
In its Annual Review of Audit Quality, the FRC says 74% of audits were categorised as good or requiring limited improvements. The big firms did well, with Deloitte at 94%, EY 76%, KPMG 89% and PwC 76%.
But, the audit results for BDO have declined from 69% to 38% year on year, while Forvis Mazars’ results also declined from 56% to 44%.
The regulator says:
While inspections are based on a risk-based sample, and should not be extrapolated to all of the audits undertaken by both firms, the results do not meet the FRC’s expectations.
Given their strategic importance to the audit market, both firms must urgently address the causes of these declines and undertake significant audit quality improvement plans which will be closely monitored by the FRC.
US job openings fall
Just in: the number of job openings across the US economy has dropped slightly, as its labour market slackens a little.
There were 8.184m job opportunies in the US at the end of June, down from 8.23m at the end of May, and 941,000 fewer than a year earlier.
The job openings rate held at 4.9 percent in June.
The Bureau of Labor Statistics says:
Job openings increased in accommodation and food services (+120,000) and in state and local government, excluding education (+94,000). The number of job openings decreased in durable goods manufacturing (-88,000) and in federal government (-62,000)
JOLTS 8184k (est 8000k, last 8230k from 8140k)
— Mario Cavaggioni (@CavaggioniMario) July 30, 2024
JOLTS above estimates but partially offset by previous revision, so downtrend still intact.
Quits ratio declined to 2.1 (previous 2.2). confirming normalization in labor market is underway... pic.twitter.com/cYH1wIH9t1
On Wall Street, stocks have made a positive start as trading begins in New York.
The S&P 500 share index has risen by 10 points, or 0.2%, to 5,473 points, while the Dow Jones industrial average has gained 0.4%.
The tech-focused Nasdaq Composite is flat, with cybersecurity firm CrowdStrike losing 7%, as it faces calls for compensation following the IT outage this month that caused millions of computers to crash.
Microsoft users have been reporting more problems today, with an outage affecting Azure network infrastructure customers.
Microsoft’s share are up 0.4%, though, ahead of its latest financial results tonight.
Updated
Oil prices have weakened today, weighed down by worries about demand from China, the world’s largest oil importer.
Brent crude has dropped by 1.35% to $78.70 per barrel, while US crude is 1.1% lower at $74.87.
Joseph Dahrieh, managing principal at brokerage Tickmill, explains:
Slower-than-expected economic growth in China as well as declining oil imports have weighed on sentiment. In addition, the planned removal of part of OPEC+’s production cuts could intensify the bearish sentiment.
Google’s parent company, Alphabet, has responded to the CMA’s probe into its partnership with AI firm Anthropic (see earlier post).
A Google spokesperson said:
“Google is committed to building the most open and innovative AI ecosystem in the world.
“Anthropic is free to use multiple cloud providers and does, and we don’t demand exclusive tech rights.”
US home prices unchanged in May
Over in the US, home prices have stagnated.
US house prices were unchanged in May, according to the Federal Housing Finance Agency, following a 0.3% rise in April.
During May, prices fell by 0.5% in the West North Central division, but gained 0.3% in the New England division.
“US house price movement was flat in May,” said Dr. Anju Vajja, Deputy Director for FHFA’s Division of Research and Statistics, adding:
“The slowdown in U.S. house price appreciation continued in May amid a slight rise in both mortgage rates and housing inventory.”
On an annual basis, house prices rose 5.7% compared with May 2023.
We also have growth figures from Mexico, which are a little weaker than expected.
Mexico’s economy grew by 0.2% quarter-on-quarter in April-June, missing forecasts for 0.3% growth.
The Gross Domestic Product (GDP) in Mexico expanded 0.20 percent in the second quarter of 2024 over the previous quarter.https://t.co/jZz1k45nzz pic.twitter.com/4jZUkPtIDA
— TRADING ECONOMICS (@tEconomics) July 30, 2024
Takeover Panel cold-shoulders 10
The UK’s Takeover Panel has doled out its harshest penalty for a code breach, after a long investigation into the company which once owned boutique hotel chains Malmaison and Hotel du Vin.
The Panel has concluded that ten parties should be “cold-shouldered”, a move which effectively bars them from any takeover-related activity, including buying or selling shares during a live takeover period.
The Panel found that several executives of MWB Group Holdings had acquired shares in the company which, when added to the shares held by a pre-existing concert party, meant they controlled more than half its share capital – which would, if disclosed, force them to make a formal takeover bid.
Omar Faruqui, Director General of the Panel, explains:
“Today’s ruling concludes the most complex investigation in the Panel’s 56-year history. Ten individuals have been cold-shouldered. They misled MWB Group shareholders and the market through a web of sham transactions and false trails stretching across many jurisdictions.
Exposing their deceit and wrong-doing is testament to the skill and determination of the Panel’s enforcement team.”
The ruling, which runs to over 100 pages, is online here.
The Panel also decided that three members of management, including former MWB CEO Richard Balfour-Lynn, should pay compensation to shareholders, and has rejected an appeal from Balfour-Lynn.
It has also publicly censured Andrew Blurton, a joint finance director of MWB at the time of some of the events in question.
MWB entered administration in November 2012 and was liquidated on 15 April 2018.
Updated
The slight increase in German inflation this month (see last post) not only highlights the stickiness of inflation but also suggests that a September rate cut by the European Central Bank is not a done deal, yet, says ING’s Carsten Brzeski
German harmonised inflation rate rises
Another blow for Germany – its inflation rate has risen.
Inflation, on an EU-harmonised basis, rose to 2.6% per year in July, up from 2.5% in June, statistics body Destatis reports.
After stronger than expected inflation from Lander, German CPI came out slightly above expectations:
— Mario Cavaggioni (@CavaggioniMario) July 30, 2024
m/m +0.5% (est +0.4%, last +0.2%)
y/y +2.6% (est +2.5%, last +2.5%)
National CPI:
m/m +0.3% (est +0.3%,last +0.1%)
y/y +2.3% (est +2.2%, last +2.2%) https://t.co/huGQqVBpaO pic.twitter.com/BlNqA5RIpb
Updated
UK's CMA looking into Alphabet's Anthropic partnership
Britain’s competition watchdog has kicked off another probe into the artificial intelligence sector.
The Competition and Markets Authority (CMA) is examining whether Alphabet’s partnership with AI start-up Anthropic has created a “merger situation”, and if so wheter it weakens competition.
This is the latest in a series of moves by the CMA. Earlier this month it began a full investigation into Microsoft’s deal with AI startup Inflection, and in April it began seeking views on Amazon’s investment in Anthropic, which is a leading rival to OpenAI.
Other regulators also have concerns; in January, Alphabet, Amazon and Microsoft received inquiries from the US Federal Trade Commission on their investments and partnerships with Anthropic and OpenAI.
Getting back to today’s eurozone growth figures, Moody’s Analytics economist Ross Cioffi has warned that the outlook for the region for the rest of this year is “precarious”.
Cioffi explains:
Preliminary estimates reported a 0.3% quarter-on-quarter expansion of Eurozone GDP in the second quarter of 2024. Most major economies grew more strongly than we had been expecting, with the notable exception of Germany, which was worse off.
Spain’s second quarter was well-rounded, with solid increases in domestic and foreign demand. France gained from both home and abroad, as well, though only to a minor extent with private consumption on the decline, while Italy was bolstered mostly on domestic demand. In Germany, the weak spot was fixed investments.
The outlook for the Eurozone economy remains precarious for the rest of the year, with modest growth at best, as prices and interest rates remain high, and weak sentiment keep things cool, before picking up steam next year.
UK finance watchdog extends probe into car finance mis-selling
A major probe into whether people overpaid on their car loans has been extended by the UK’s financial watchdog.
The Financial Conduct Authority now expects to set out the next steps in its review into the past use of discretionary commission arrangements (DCAs) in May 2025, having previously aimed to do this by the end of September.
The FCA says:
We’re working hard to understand how DCAs affected the cost of credit for people borrowing money to buy a vehicle. We’re assessing thousands of records spanning 14 years.
The FCA’s investigation centres on the car loans market, and whether commission payments to brokers were too high. Those brokers were able to adjust the interest rates they charged customers, and some received “discretionary commission arrangements”, which meant they were paid more if the interest rate was higher.
The FCA says today that firms involved in our review have engaged constructively with the regulator, but many have struggled to supply data within the requested time.
Another wrinkle is that Barclays Partner Finance has begun judicial review proceedings of the Financial Ombudsman Service’s decision to uphold a complaint relating to its use of a DCA.
Thousands of car loan customers who took out loans before 2021 have been complaining to lenders and brokers.
The FCA says today it could bring in a redress scheme, so it is asking firms to pause complaint handling until 4 December 2025.
Shares in Close Brothers, which has provided motor finance deals, are down around a third since January, when the FCA announced it was investigating the market.
JP Morgan remains bullish on UK stocks
JP Morgan is still bullish on the outlook for the UK stock market.
In a new research note, its analysts say the backdrop for UK equities is “looking favourable”. They cite attractive valuations, improved political clarity and potentially lower bond yields, which all make dividend yields more attractive again.
JP Morgan is maintain its recommendation to remain ‘overweight’ on UK stocks.
They explain:
The elections event risk is behind us, and the new government is likely to provide more fiscal credibility and stability, with focus on domestic agenda, homebuilding and the consumer. Broadly, the beneficiaries stand to be Banks, Homebuilders, Real Estate and Utilities, while on the negative side we have Diversified Financials, E&P and Transportation.
Within the UK, we have a preference for Domestic over Exporters plays, as GBP is firmer, for UK consumer plays, and for Real Estate and Homebuilders - these typically start performing once the rate cuts begin.
In the car world, Tesla is updating the software on more than 1.8 million vehicles in the US to fix a problem that stops unlatched bonnets being detected.
Tesla has started rolling out an over-the-air software update to detect the open bonnet and send a notification to customers, the National Highway Traffic Safety Administration (NHTSA) said today.
If a bonnet, or hood, was not locked properly, it could fully open while a car is being operated, blocking the driver’s view.
Tesla to recall over 1.8 mln US vehicles over hood issue https://t.co/6Q6CFMAygz pic.twitter.com/Ahp4NqHWFE
— Reuters (@Reuters) July 30, 2024
The pound is holding firm on the foreign exchanges this morning, unchanged at $1.286 against the US dollar.
But, sterling could weaken on Thursday if the Bank of England decides to cut interest rates from their current 16-year high.
Matthew Ryan, head of market strategy at global financial services firm Ebury, says:
“The Bank of England’s August policy announcement appears on a knife-edge, and one of the tougher rate decisions to predict for some time. We expect the MPC to deliver a 25 basis point cut on Thursday, albeit the vote on rates appears almost too close to call, and could be evenly split between the hawks and doves.
On balance, we think that we’ve seen enough progress on inflation for those members that were close to voting for a cut in June to shift their allegiance in favour of the doves. There is, however, a high degree of uncertainty surrounding this view, particularly given the lack of communications from MPC members since the June meeting, in part due to the blackout period surrounding the general election.
Currently, the money markets indicate there’s a 59% chance of a rate cut on Thursday.
Ryan adds:
As this is not yet fully priced in, an immediate rate reduction would likely trigger some downside in the pound, albeit an upbeat set of communications, particularly a sizable upward revision to the GDP forecasts, could limit the extent of any sell-off.”
In the UK, the Bank of England has created a new cost benefit analysis panel to provide advice when new rules are proposed for firms and financial market infrastructures.
It is chaired by Laurel Powers-Freeling, who is also the chair of Uber UK.
Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, said:
“Cost benefit analysis is an essential part of policy development, and I’m delighted that we’ve been able to attract such a strong panel to help ensure that we do the best job we can in this vital area.”
S&P cuts Bangladesh's credit rating as curfew and protests hit economy
Away from Europe, credit rating agency S&P has downgraded Bangladesh’s credit ratings to B+ from BB-, nearly two weeks after the government imposed a curfew to quell deadly student protests.
S&P cited a sustained decline in Bangladesh’s foreign exchange reserves, which it says shows there is persistent pressure on the country’s external metrics.
Earlier this month, the Bangladeshi government declared a national curfew and announced plans to deploy the army to tackle the country’s worst unrest in a decade, with AFP reporting that at least 105 people have died in the unrest.
The protests began this month on university campuses as students demanded an end to a quota system that reserves 30% of government jobs for family members of veterans who fought in Bangladesh’s war of independence in 1971.
Those protesting have argued that the policy is unfair and discriminatory as young people struggle for jobs during an economic downturn and instead benefits members of the ruling Awami League party, which is led by the Hasina.
The drop in German GDP in the last quarter is a worry, says Joshua Mahony, chief market analyst at Scope Markets:
The trajectory of the German economy remains a concern for Europe, with the manufacturing powerhouse seeing second quarter growth fall back into negative territory (-0.1%).
Fortunately, things are more stable for the eurozone as a whole, with the latest GDP figure beating expectations to post a second consecutive 0.3% reading in Q2.
CEBR: Eurozone has turned a corner
Pushpin Singh, senior economist at the CEBR think tank, predicts the eurozone’s growth prospects will improve this year:
“Flash estimates from Eurostat indicate that the Eurozone economy grew by 0.3% on the quarter in Q2. This rate was above consensus expectations and matched the corresponding growth rate seen in Q1. The stronger-than-expected growth rate suggests the bloc has turned a corner since the start of the year.
Prospects are likely to improve further throughout the year, driven by recent policy loosening by the European Central Bank and expectations for further interest rate cuts down the line. Cebr expects the Eurozone economy to expand by 0.8% in 2024, up from 2023’s growth figure of 0.4%.”
The eurozone only grew half as quickly as the US in the last quarter.
GDP data last week showed that the US economy grew at a 2.8% annualised rate in the second quarter of 2024, or the equivalent of 0.7% quarterly growth.
Today’s eurozone growth report is “moderate but decent”, says Frederik Engholm, head of Macro & Strategy at Nykredit.
Another moderate but decent GDP print from the eurozone. +0,3% in Q2 (as in Q1). Most notable>> German weakness intact (-0,1%). Germany has stagnated since the covid-crisis, while other major EZ-countries have seen solid growth.
— Frederik Engholm (@FrederikEngholm) July 30, 2024
Weak enough for ECB to cut! #dkøko #dkfinans #ECB pic.twitter.com/SULYCvG4gE
Eurozone grew by 0.3% last quarter
Just in: The eurozone grew by 0.3% in the second quarter of this year, a little faster than expected, despite the economic problems in Germany.
Statistics body Eurostat has just reported that GDP increased by 0.3% in both the euro area and the EU in the April-June quarter, which matches the growth recorded in the first quarter of this year.
Economists had expected growth to slow to 0.2% in Q2, so this is a little better than expected.
Euro area #GDP up by 0.3% in Q2 2024, +0.6% compared with Q2 2023: preliminary flash estimate from #Eurostat https://t.co/0MICWcyK1T pic.twitter.com/wY4c6rHDlx
— EU_Eurostat (@EU_Eurostat) July 30, 2024
Ireland (+1.2%) recorded the highest increase compared to the previous quarter, followed by Lithuania (+0.9%) and Spain (+0.8%), while France grew by 0.3% and Italy and Belgium both expanded by 0.2%.
The highest declines were recorded in Latvia (-1.1%), Sweden (-0.8%) and Hungary (-0.2%), while Germany’s 0.1% fall in GDP also dragged on growth.
Another small positive surprise:
— Mario Cavaggioni (@CavaggioniMario) July 30, 2024
Eurozone GDP q/q +0.3% (est +0.2%, last +0.3%)
Eurozone GDP y/y +0.6% (est +0.5%, last +0.5% from +0.4%) https://t.co/IO4H1aRC34
Updated
ING: Germany is the eurozone's growth laggard
The news that Germany’s GDP shrank in April-June (see 9.20am) shows how hard it will be to escape the cyclical and structural headwinds hitting its economy, says Carsten Brzeski, Global Head of Macro at ING.
He tells clients this morning that the German economy will continue to hover between hope and despair:
With both the US and the Chinese economies losing momentum, along with new trade tensions, there is very little hope for a strong export-driven recovery. Also, weak industrial orders, high inventory levels and precautionary savings are still weighing on the economy. On top of that, the increasing number of insolvencies and individual company announcements of forthcoming job restructurings are still hanging like the Sword of Damocles over the labour market this year.
However, despite a weak start to the second half of the year, don’t rule out potential positive surprises. In fact, extremely weak May data could have been exaggerated due to many public holidays and long weekends. Plus, only a small improvement in industrial order books is needed to get industrial production growing again, admittedly from low levels. The highest increase in real wages in more than a decade should also loosen even German consumers’ traditionally very tight wallets eventually.
All in all, today’s data once again confirms that Germany is the growth laggard of the eurozone. Caught between cyclical and structural headwinds, there is no easy way out of this long stagnation. Nevertheless, a rebound in the second half of the year is still possible, even though it is highly unlikely that it will be a strong one.
Germany’s economic growth in the second quarter was as underwhelming as the country’s medal tally at the Paris Olympics, writes @CarstenBrzeskihttps://t.co/4QnHWMqSZ3
— ING Economics (@ING_Economics) July 30, 2024
Portugal grew by a modest 0.1% in the last quarter, new data shows.
Statistics Portugal reports:
The contribution of domestic demand to quarter-on-quarter rate of change of GDP became positive in the second quarter, with an increase of investment and a slowdown in private consumption. The contribution of net external demand became negative, with exports of goods and services having a nil rate of change.
On an annual basis, Portugal’s economy was 1.5% larger than a year ago.
Italy keeps growing
The picture is better in Italy, though, where the economy continues to grow.
Italian GDP rose by 0.2% in the April-June quarter, the fourth quarter of growth in a row.
Statistics body Istat reports that the services sector grew, while industry, and the agriculture, forestry and fishing sector, dragged on growth.
The Gross Domestic Product (GDP) in Italy expanded 0.20 percent in the second quarter of 2024 over the previous quarter.https://t.co/4KYXd8Q0GK pic.twitter.com/9ZOXe00ww4
— TRADING ECONOMICS (@tEconomics) July 30, 2024
Germany's economy shrinks unexpectedly
Newsflash: Germany’s economy is back on the brink of recession.
Germany’s GDP shrank by 0.1% in the second quarter of this year, new data from statistics body Destatis shows.
That’s a blow to Berlin’s government, which has been hit by an ailing train network, the surge in energy prices after Russia’s invasion of Ukraine, protests by farmers, weaker demand from China, and a rise in support for far-right politicians.
Economists had expected growth of 0.1% in the quarter.
The decline in activity was due to a fall in manufacturing and construction investments.
Destatis reports that “investments in equipment and buildings, adjusted for price, seasonal and calendar effects, in particular decreased” in the last quarter.
The drop in GDP in the last quarter follows 0.2% growth in the first quarter of 2024.
A technical recession is defined as two quartery contractions in a row.
Germany’s surprise GDP contraction casts a shadow over euro-area growth https://t.co/N2zxQFHrjd via @weberalexander @WHorobin @Alemrome pic.twitter.com/60d3pl0PuW
— Zoe Schneeweiss (@ZSchneeweiss) July 30, 2024
This takes the shine off a decent start to today’s eurozone growth data, with both Spain (+0.8%) and France (+0.3%) beating expectations…..
Updated
Here’s our news story on BP’s latest profits:
French finance minister says growth could beat forecasts
France’s finance minister, Bruno le Maire, has predicted that growth could beat the outgoing government’s forecast this year.
He welcomed the better-than-expected 0.3% rise in GDP reported this morning, telling reporters:
“We will probably have growth after all that is better than the 1% forecast in February.
“For two years, France has outperformed; our economic policies work and are giving tangible results.”
France’s stronger-than-expected growth could help the country close the budget deficit, says caretaker Finance Minister Bruno Le Maire https://t.co/V5KKLGRbdN
— Bloomberg (@business) July 30, 2024
How cruise ship boosted French GDP
We flagged earlier that a ship delivery boosted France’s exports in the last quarter.
Reuters is now reporting that the vessel in question is the Utopia of the Seas cruise ship, which was delivered to Royal Caribbean. The ship, which cost over £1bn, helped to lift France’s transport equipment exports by +1.8%, and overall exports by 0.6%.
The Daily Mail recently took a trip on Utopia of the Seas – they report it includes five pools, a zip line, an aqua park, a surf simulator, and an on-board train.
😂🤣 Love this - A cruise ship saved the French GDP data.
— PiQ (@PiQSuite) July 30, 2024
“Foreign trade added 0.2 percentage points to GDP as the delivery of the Utopia of the Seas cruise ship to Royal Caribbean helped exports grow 0.6% while imports stagnated.” https://t.co/VMwzf9OVwu
Greggs raises prices of some items in face of higher staff wage bill
High street bakery chain Greggs is putting up some of its prices, after its pay bill was pushed up by the rise in the minimum wage this year.
Greggs’s CEO Roisin Currie has told the PA news agency that the company has increased the prices of some items on its menu by 5p and 10p in recent weeks, but has kept meal deal prices unchanged.
Currie – who said in March that price rises weren’t planned – says prices were raised to offset higher pay for its 32,000-strong workforce, having raised salaries earlier this year ahead of the increase in the National Living Wage.
She said:
“The biggest inflation cost right now is the increase in the National Living Wage and making sure our employees get the wage increases that are appropriate.
“That puts pressure on the cost increases within the business.”
Updated
Estate agent Foxtons has reported that this month’s general election has had little impact on customer behaviour or market dynamics.
Foxtons says trading in July is in line with expectations, after revenues rose by 11% in the first six months of 2024. Pre-tax profits jumped by almost a quarter, to £7.5m.
Foxtons makes a dramatic 2024 comeback with double-digit revenue and earnings growth driven by the volume of new lettings business, the acquisition of Ludlow Thompson paying off, and sales mkt gains.
— Emma Fildes (@emmafildes) July 30, 2024
Over the first half of the year revenue inc’d 11% across all 3 businesses.
·… pic.twitter.com/UisJcnUWIr
CEO Guy Gittins says:
“The strong momentum we started the year with has continued, with double-digit revenue and earnings growth and our position as London’s largest Lettings and Sales agency reinforced.
“Despite macro headwinds and the election interruption, we continued to outperform the market, delivering strong Sales revenue growth of 28% and market share growth of 30%. Growth was also delivered in Lettings, with a double-digit increase in new business volumes, further bolstered by the acquisitions we made in 2023.
Standard Chartered welcomes "serious" Labour government
Bank CEOs have largely welcomed prime minister Kier Starmer’s government with open arms, cheering the country’s economic trajectory and political stability after years of uncertainty.
And the boss of the London-headquartered but emerging markets-focused lender, Standard Chartered, is no exception.
Bill Winters told journalists this morning that Labour appeared to be a “serious government” that was supportive of business and ready to tackle fiscal challenges that have dogged the UK economy.
He said:
The new Labour Government is a serious government and they’ve set out a series of serious statements and platforms, including what the chancellor said yesterday in terms of addressing some of the fiscal challenges that we know are very present in the country.
The rhetoric during the election period and in the early days of the government has been supportive of business. I think it’s been tempered by realism about the economic challenges and the fiscal challenges that the UK faces.
But I have every confidence that the Chancellor and the rest of the government will pursue their policies in a very thoughtful, open and transparent way. And that’s as much as we could ask.
Winters added that he was “happy” to be headquartered in the UK, which he described as having a robust regulatory environment, a “very stable political environment” and “extraordinarily good rule of law” and corporate governance, adding:
“So there’s certainly nothing that has changed in terms of our views on the attractiveness of the Labour government”.
His comments came as the bank raised its earnings outlook, and announced its largest-ever share buyback worth $1.5bn.
It sent Standard Chartered’s FTSE 100-listed shares up 5.3% at the start of trading.
Shares in drinks giant Diageo have sunk to the bottom of the FTSE 100 leaderboard, down 8%, after reporting a drop in sales and profits.
Diageo, whose brands include Johnnie Walker, Captain Morgan, Guinness, Smirnoff and Baileys, posted a 1.4% drop in reported net sales in the year to the end of June, to $20.3bn.
Pre-tax profits dropped to £5.46bn, from £5.64bn a year earlier.
CEO Debra Crew told shareholders that the last financial year had been a challenging one for Diageo and the wider industry, due to “continued macroeconomic and geopolitical volatility”.
Crew added:
Fiscal 24 was impacted by materially weaker performance in LAC [the Latin America and Caribbean region].
Excluding LAC, organic net sales grew 1.8%, driven by resilient growth in our Africa, Asia Pacific and Europe regions. This offset the decline in North America, which was attributable to a cautious consumer environment and the impact of lapping inventory replenishment in the prior year.
Great Britain was a highlights for Diageo, though – net sales here grew by 5%, thanks to stronger demand for Guinness – including the zero-alcohol Guinness 0.0 drink.
Diageo’s shares are at a four-year low, hitting levels last seen in March 2020, when the Covid-19 pandemic forced pubs, bars and restaurants to close.
Updated
Shares in BP have jumped by 2.6% in early trading, after its profits beat forecasts this morning.
It’s the second-highest riser on the FTSE 100 index, after Standard Chartered bank (+4.8%), which announced its largest-ever share buyback programme this morning after a rise in profits.
Austria has bucked the trend, though, by reporting no growth in the last quarter:
⚠️ AUSTRIAN Q2 PRELIMINARY GDP -0.0% Q/Q VS REVISED +0.2% IN Q1 - WIFO
— PiQ (@PiQSuite) July 30, 2024
Goldilocks in Spain (higher GDP, lower CPI) and horrible stagflation in Austria (higher PPI, no GDP growth). pic.twitter.com/3nH4gZSjxH
— Front End Financier (@just_KarlJ) July 30, 2024
Spain grows by 0.8%
Newsflash: Spain’s economy has also grown faster than expected in the last quarter.
Spanish GDP expanded by a pacy 0.8% in Q2, the National Statistics Institute reports, comfortably beating forecasts of 0.5% growth.
That matches Spain’s growth in January-March.
The Gross Domestic Product (GDP) in Spain expanded 0.80 percent in the second quarter of 2024 over the previous quarter.https://t.co/MUSK1wytp8 pic.twitter.com/vGxCdf6wKE
— TRADING ECONOMICS (@tEconomics) July 30, 2024
On an annual basis, Spain’s economy grew 2.9% over the last year.
The Gross Domestic Product (GDP) in Spain expanded 2.90 percent in the second quarter of 2024 over the same quarter of the previous year.https://t.co/4Kvoi1aell pic.twitter.com/6KYaTeBv55
— TRADING ECONOMICS (@tEconomics) July 30, 2024
Anger over BP's profits
Campaign groups are angered by BP’s latest multi-billion dollar profits.
Global Witness has calculated that BP had paid “a staggering” £11.7bn to shareholders since June 2023 – when the world began a 12-month stint of temperatures 1.5C above the pre-fossil fuel era.
After BP reported an underlying profit of $2.76bn this morning, Alice Harrison, head of Fossil Fuel Campaigns at Global Witness, says:
“As the world faces record-breaking heat, most of us are desperate to see urgent action on the climate crisis. Unfortunately, it’s clear that BP couldn’t care less. While millions of us struggle with high temperatures and high bills, BP are raking in billions of profits, paying out massive dividends, and doubling down on dirty new oil and gas projects.
Big oil companies like BP know their fossil fuel products are behind more deadly heatwaves, storms, and wildfires around the world, but instead of investing in clean energy, they are continuing to profit from people’s misery.
Fossil fuel companies like BP are turning a blind eye to climate breakdown, so now governments must act. Rather than propping up the climate-wrecking fossil fuel industry, we need them to make polluters pay for the damage they have already caused, and steer us towards a cleaner, greener future.”
Warm This Winter spokesperson Fiona Waters points out that BP has recently rowed back on some of its green energy plans:
“BP’s obscene profits today and the fact they have made £38.4bn since the start of the energy crisis shows they’re not interested in turning off their oil and gas cash cow. They have rolled-back on their green pledges that would mean lower bills, an end to energy price shocks and would also help save the planet.”
Chiara Liguori, Oxfam GB’s Senior Climate Justice Policy Advisor, says low-income countries desperately need help to handle the impact of the climate crisis:
“It is inexcusable that BP, one of the world’s most polluting and profitable fossil fuel companies, continues to rake in billions of pounds while low-income countries are in urgent need of funds to tackle the devastating impacts of the climate crisis despite doing the least to cause it.
“The world can no longer afford fossil fuel companies putting short-term profits above people and planet. The costs of inaction are already here with deadly heat waves, wildfires, flooding and drought but it is people living in poverty who are left paying the highest price.
On this morning’s growth figures from France, economist Claus Vistesen of Pantheon Macroeconomics points out that French food consumption fell in the last quarter, while consumption of gas and electricity, and cars, rose.
French Q2 GDP growth coming in above consensus, as we expected, though not really for the reasons we anticipated. The net boost from foreign trade ex inventories looks vulnerable to a reversal and/or revisions. 1/2
— Claus Vistesen (@ClausVistesen) July 30, 2024
Domestically, meanwhile, solid growth in services spending and capex are working hard to keep the ship steady. Autos and energy spending up on the quarter; food spending down sharply, again. Get in them Carrefours and Auchans my French friends! 2/2
— Claus Vistesen (@ClausVistesen) July 30, 2024
WPP appoints former BT boss Philip Jansen as its new chair
Philip Jansen, the former chief executive of BT, has been appointed as the new chairman of advertising giant WPP.
Jansen, who stood down as chief executive of BT in February after almost five years in the role, will join the board of the FTSE-listed WPP in September and formally take over as chair from January.
“Philip brings a valuable blend of experience, from leading technology and consumer goods companies to transforming large, complex organisations and creating significant value for shareholders,” said Angela Ahrendts, senior independent director at WPP.
Jansen, who began his career at Gillette to Ariel maker Procter and Gamble before moving into marketing director roles at Dunlop Slazenger and Telewest, led a BT turnaround strategy that included cutting 55,000 jobs by 2030 and investing £15bn in the nationwide roll out of full fibre broadband and 5G mobile networks.
Earlier this month, Jansen, who took home a bumper £3.7m in pay and bonuses in his lat year at the telecoms company, was linked with a private equity backed takeover bid of British pest control firm Rentokil.
“Technology is changing the face of commerce, media and communications, and I am very excited to join a company at the forefront of this change,” said Jansen.
Over the first half of this year, though, BP’s profits are lower than a year ago.
The oil giant made $5.479bn in January-June, down from $7.552bn in the first six months of 2023.
That follows a drop in Q1 – when earnings shrank to $2.7bn from $5bn a year ago (as we covered in May).
BP raises dividend as second-quarter profit beats expectations
In the energy sector, BP has lifted its dividend after beating profit forecasts for the last quarter.
BP has reported an underlying profit of $2.756bn for the second quarter of the financial year, up from $2.589bn in the same quarter in 2023, and slightly higher than the $2.723bn it earned in Q1.
That beat analyst expectations of $2.6bn.
BP said the profit was due to “an average” performance in gas marketing and trading, lower refining margins, stronger fuels margins and “lower taxation”.
It adds:
The underlying effective tax rate (ETR)* in the quarter was 33% which reflects the impact of the reassessment of the recognition of deferred tax assets.
BP is raising its dividend to eight cents per share, up from 7.27/share.
The oil giant has also announced another share buyback, worth $1.75bn, for the last quarter, as it continues to use spare cash to buy back equity.
Kate Thomson, BP’s chief financial officer, says:
We generated strong operating cash flow in the quarter, which helped reduce net debt to $22.6 billion.
Our decision to increase our dividend by 10%, and extend our buyback programme commitment to 4Q 2024, reflects the confidence we have in our performance and outlook for cash generation.
We are maintaining a disciplined financial frame and remain committed to growing value and returns for bp.
Introduction: France gets Eurozone GDP Day off to a good start
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s eurozone GDP day, when we learn how the countries which share the single currency are faring economically.
And the early news is that France’s economic growth was stronger than expected in the second quarter of this year.
French GDP expanded by 0.3% in the April-June quarter, new data from statistics body INSEE shows, beating expectations for 0.2% growth.
That matches the 0.3% growth recorded across the eurozone’s second-largest economy in the first quarter of the year.
It suggests France’s economy was stronger than expected this spring – before Emmanuel Macron stunned Europe by calling snap parliamentary elections last month.
INSEE reports that domestic demand “picked up slightly”, and added to growth. There was also a “slight rebound” in investment (or gross fixed capital formation).
Household consumption was stable in the quarter, while foreign trade also made a positive contribution to growth.
Exports grew by 0.6%, driven by a rise in transport equipment – which INSEE attributes to the “delivery of a new ship”.
"delivery of a ship" klaxon in the French GDP data ... had a lot of fun with that last time.
— Claus Vistesen (@ClausVistesen) July 30, 2024
INSEE has previously predicted that the Olympic Games’ will lift France’s economic growth in the third quarter of this year
Economists predict that the wider eurozone also grew in the last quarter, by an estimated 0.2%. We’ll find out if they’re right at 10am, after getting growth figures from Italy, Spain and Germany too.
The agenda
8am BST: Spain’s Q2 2024 GDP report
9am BST: Germany’s Q2 2024 GDP report
9am BST: Italy’s Q2 2024 GDP report
10am BST: Eurozone GDP report for Q2 2024
1pm BST: Germany’s inflation rate for July
2pm BST: US house price index for May
3pm BST: US consumer confidence index for July
Updated
