Closing summary: warm winter helps EU avoid recession
It was the winter that never came: Europe rode out the energy crisis thanks to good weather, and the EU has so far avoided a recession that was thought a nailed-on certainty a year ago.
You can read the full report by Larry Elliott, the Guardian’s economics editor, here:
Holger Schmieding, chief economist at Berenberg, an investment bank, said:
The eurozone economy rode out a difficult winter without falling into stagnation or even recession. Despite sky-high energy prices for households and businesses caused by the Putin shock, real GDP expanded by a modest 0.1% quarter-on-quarter in the first quarter. The fading of gas shortage fears, the easing of supply chain pressures and more outdoor construction due to mostly mild weather contributed to a small overall rise in activity.
But there is a real divergence between the performances of different countries in Europe – making the job of the European Central Bank (ECB) harder. Does the central bank keep raising interest rates – adding further to the difficulties of the stuttering German economy – to clamp down on inflation?
Schmieding makes a telling comparison that will be familiar (albeit back-to-front) to watchers of the eurozone crisis of a decade ago. Then the Pigs – Portugal, Italy, Greece and Spain – were a byword for slow growth and consequent social unrest. Now they are steaming ahead.
Judging by today’s data, the periphery has turned into the growth engine of the eurozone, with quarter-on-quarter gains in activity of a whopping 1.6% in Portugal and 0.5% in Italy and Spain.
Recent European inflation data still show consumer prices rising much faster than the 2% a year that is generally considered as monetary stability. That will be enough to persuade the ECB to keep tightening, said Charles Hepworth, investment director, GAM Investments.
The accompanying individual country inflation data keeps pressure on the European Central Bank to remain aggressive on the hiking front at next week’s central bank meeting despite euro-wide growth not that far from flatlining.”
In other business news today:
Richard Sharp has resigned as BBC chair following criticism of his failure to declare a link to a loan to Boris Johnson.
NatWest has reported bumper first-quarter profits on the back of a rise in UK interest rates but said persistently high prices were causing some customers to dip into their savings.
More companies became insolvent during the first quarter of the year than during any first quarter for a decade as they grappled with inflation and rising borrowing costs.
Profits at US oil supermajors Chevron and ExxonMobil have fallen back from their all-time records, but they still did better than expected even as prices fell back.
You can continue to follow our live coverage from around the world:
In the UK, Labour claims Richard Sharp “has caused untold damage” to BBC reputation after chair quits
In the US, Mike Pence interviewed by grand jury investigating Capitol attack
In our coverage of the Russia-Ukraine war, the death toll rises in Uman and Dnipro after most intense Russian strikes in weeks
Thanks for joining us this week for our live coverage of business, economics and financial markets. Please do join us on Tuesday for the first of two consecutive short weeks owing to UK bank holidays. JJ
Checking in an hour ahead of the US stock market open, and it looks like any positive sentiment from this morning’s European open has curdled.
Futures for the Dow Jones industrial average, the Nasdaq and the S&P 500 all show declines of between 0.25% and 0.35% for Wall Street shares.
Italy’s FTSE MIB index is down 2.3%, France’s Cac 40 declined 0.7%, while Germany’s Dax index is down by 0.04%.
The UK’s FTSE 100 is pretty much flat.
German inflation data has not quite delivered the same surprise as the GDP data.
Annual consumer inflation came in at 7.2% in April, down from 7.4% last month and a touch lower than the 7.3% expected by economists – they got the direction correct.
ExxonMobil and Chevron report billions in profits
Profits at US oil supermajors Chevron and ExxonMobil have fallen back from their all-time records, but they still did better than expected even as prices fell back.
Russia’s invasion of Ukraine delivered an historic windfall for oil companies, whose costs barely shifted as prices soared amid global energy market chaos.
US President Joe Biden in the autumn described big oil companies as “war profiteering” as he raised the possibility of imposing a windfall tax. However, the US windfall tax was not introduced, leaving the companies free to keep making bumper profits.
Exxon said it delivered record first quarter earnings of $11.4bn (£9.1bn), while Chevron reported earnings of $6.6bn.
The UK did introduce a windfall tax following sustained pressure on Rishi Sunak when he served as chancellor, as did the EU. Chevron said its results for the quarter included a $130m tax charge related to changes in the energy profits levy in the United Kingdom.
Exxon said it paid $200m in additional European taxes on the energy sector. The Texas-based company is suing the EU in an effort to have the levy scrapped.
UK insolvencies remain near highest since 2009
More companies became insolvent during the first quarter of the year than during any equivalent period for a decade as they grappled with inflation and rising borrowing costs.
There were 5,747 registered company insolvencies, 4% compared to the end of 2022, but 18% higher than the same period last year, according to the government’s Insolvency Service.
The final quarter of 2022 was the only period in more than a decade in which more companies became insolvent.
Energy costs in particular – which surged after Russia’s invasion of Ukraine in 2022 – stymied many businesses such as bars and restaurants just as they were hoping to finally leave behind the effects of the coronavirus pandemic. Insolvencies hit a 13-year high for the full year during 2022.
The numbers suggest that company owners have been running out of patience when hoping for their businesses to recover after the chaos of the pandemic lockdowns, experts said.
Nicky Fisher, president of R3, the insolvency and restructuring trade body, said:
A small dip in overall corporate insolvency levels doesn’t hide the fact that more directors are choosing to shut up shop and more creditors are choosing to chase unpaid debts than 12 months ago. Firms are still struggling as the trading climate remains challenging, and unless the economic picture improves, it’s unlikely numbers will drop in the near future.
Samantha Keen, a UK turnaround and restructuring strategy partner at EY-Parthenon, a consultancy, said:
The significant year-on-year rise in corporate insolvencies has again been driven by creditors’ voluntary liquidations, with business owners calling time on their companies rather than looking at rescue options.
However, there are some reasons to be positive. The latest analysis from the EY ITEM Club spring forecast has found that the UK economy is slowly turning a corner and should avoid recession this year.
NatWest chief executive Alison Rose also commented on the bank’s decision to terminate its membership in the scandal-hit Confederation of British Industry (CBI) lobby group last week.
Rose said she was extremely disappointed when she learned about the allegations against the lobby group, which include multiple claims of alleged harrassment and rape by staff.
And while the CBI is preparing a “root and branch” overhaul to try win back members, it is unclear what tangible changes might convince the bank to rejoin:
We didn’t have any suspicions or any reported incidents. I mean, clearly, the news that has come out has been extremely disappointing, and of great concern, and we have, as you know, withdrawn our membership from the CBI.
I think it’s really important that business has a strong voice... but that it represents the values of business and what business stands for… I think that that’s what we will be looking for. But at this stage, we’ve withdrawn our membership. We’re very disappointed, you know, with the reports that have come out. Clearly, that’s unacceptable behaviour.
Updated
NatWest’s chief executive Alison Rose struck a cautiously optimistic tone during this morning’s media call, but shareholders – still jittery from last month’s mini-banking crisis – seem to be on high alert for any potential red flags.
And they’ve sent shares down 5.6% this morning. Shareholders seem to be focusing on two issues: firstly, the fact that NatWest did not improve its guidance, and secondly, the fact that there has been a drop in deposits.
On guidance, shareholders are potentially premature on their hunt for green shoots. Rose told journalists this morning that while NatWest was seeing very low levels of defaults, and “signs of improving confidence” from businesses, the macro economic environment “remains challenging”. That ongoing uncertainty is likely causing some investors to wring their hands.
Secondly, NatWest reported a near-£20bn drop in deposits. But it’s not the same story as in the US, where the collapse of Silicon Valley Bank caused savers to jump ship to more stable lenders. Around half of the deposit drop at NatWest was linked to its disposal of Ulster Bank in Ireland, and a portion had to do with customers paying year-end taxes in the first quarter, as well as competition.
But investors may be more focused on the fact that some customers have been dipping into their savings as they grapple with price inflation. As Rose explained:
What we are seeing is people are using their cash balances that they built up – and remember, there was a big buffer built up – during Covid… People are starting to use those deposits – in particularly some of the more affluent households – to make decisions about their budgets. So we have seen paying down of debt, [and] we are seeing businesses start to use the cash to…[cover] the impacts of inflation.
But the European economy has undoubtedly done better than the nailed-on recession predicted a few months ago, said Melanie Debono, senior Europe economist at Pantheon Macroeconomics, a consultancy.
She said:
The eurozone economy grew less than implied by the business surveys in the first quarter, though better than would have been expected just a few months ago and in line with the European Central Bank’s latest forecast from March.
Looking ahead, we doubt the first quarter’s rebound in GDP marks the start of a sustained acceleration in growth, and indeed look for growth to remain subdued in the second quarter and the third quarter, as softer bank lending pulls down investment, offsetting the recovery in consumers’ spending and some of the continued boost from net trade.
Deutsche Bank believes there will be zero growth in Germany, Europe’s largest economy, over the course of the year. Germany has been particularly held back by its reliance on energy-intensive industry.
Deutsche’s Stefan Schneider and Marc Schattenberg said:
We continue to expect a shallow recovery during the course of the year, held back by high inflation, the expected US recession in the second half and the increasing impact of recent and further rate hikes.
Updated
Back on the European economy, the early verdict is that everything is not quite rosy, despite the return to growth.
Carsten Brzeski, global head of macro at ING, an investment bank, said:
The eurozone economy carries on along the rim of stagnation. A meagre 0.1% quarter-on-quarter GDP growth in the first quarter with high divergence across member states is better than feared – but clearly no reason to cheer.
More resilient than expected is clearly one label to put on the eurozone’s economic performance. In fact, the eurozone economy has now been able to avoid what a few months ago was probably the best predicted recession ever. The warmer winter weather, lower wholesale energy prices, the reopening of China and fiscal stimulus are the key drivers behind this better-than-expected performance.
The compromise for the eurozone economy will be subdued growth going into 2024.
Neil Birrell, chief investment officer at Premier Miton Investors, said:
The Eurozone economy has been resilient in the face of energy price increases and rate hikes over the past few months, and while growth is slowing, this remained the case in the first quarter.
However, we are still likely to see the ECB press ahead with tighter policy measures when they meet on 4 May. There is nothing in this data set to suggest that the economy is stalling or that inflation is beaten. In fact, the inflation data at country level suggests the opposite.
Richard Sharp resigns as BBC chair
Richard Sharp has resigned as BBC chair after months of negative headlines for the corporation.
Sharp had faced calls to quit because, when applying for the job of BBC chair, he did not disclose his role in helping the then-prime minister Boris Johnson get access to a loan facility, reportedly worth about £800,000.
You can follow the story as it develops further on our politics live blog:
Compared with the same quarter of the previous year, GDP increased by 1.3% in both the eurozone and the EU in the first quarter of 2023, after +1.8% in the eurozone and +1.7% in the EU in the previous quarter.
In the fourth quarter of 2022, GDP had remained stable/stagnated (depending on your worldview) in the eurozone and had decreased by 0.1% in the EU.
The year-on-year growth rates were positive for all countries except for Germany, whcih declined by 0.1% over the year.
European economy grew slower than expected in first quarter
Newsflash: Gross domestic product in the eurozone expanded by 0.1% in the first quarter, below expectations in a Reuters poll of economists for 0.2% growth.
The broader EU economy also grew in the period, by 0.3%, according to Eurostat.
Updated
Ahead of the EU data in a few minutes, here are some thoughts on what Germany’s weaker data might mean.
Franziska Palmas, senior Europe economist at Capital Economics, a consultancy, said:
National GDP data released so far suggest that it is touch and go whether the eurozone economy expanded in the first quarter, though it did avoid a contraction. We expect economic growth to remain very weak in the coming months as the drag from higher interest rates intensifies.
Germany remained the laggard among euro-zone majors, with GDP stagnating. With the outturn for the fourth quarter also revised down from a 0.4% to a 0.5% quarter-on-quarter contraction, that left the economy broadly in line with its pre-pandemic level. (GDP is significantly above that mark in Italy and France).
Overall, the GDP data released so far for the four major economies, as well as Belgium, Ireland and Austria point to euro-zone GDP increasing 0.1% quarter-on-quarter. This would be slightly lower than the consensus and our forecast for a 0.2% q/q expansion.
The euro dipped against the US dollar after the German GDP data suggested zero growth in the first quarter, rather than the 0.2% expected by economists.
Here’s the chart of the move this morning:
But earlier inflation data from across Europe suggest that price pressures may be easing. (That would be good news for the European economy, although it could also contribute to a weaker euro because central bankers might slow down interest rate increases.)
🇩🇪 NEW: German economy stagnates in Q1 as GDP comes in 0.0% YoY, disappointing expectations of +0.2% growth.
— Julianna Tatelbaum (@CNBCJulianna) April 28, 2023
At same time, regional inflation prints show slowdown in inflationary pressures.
German economy stagnates, to surprise of economists
The German economy did not grow in the first quarter, new data showed on Friday. The figures suggest it could be touch-and-go whether the EU as a whole can avoid a recession.
Gross domestic product was unchanged quarter on quarter in adjusted terms, the federal statistics office said. Germany is the EU’s largest economy, and a key driver of activity across the bloc.
A Reuters poll of analysts had forecast growth of 0.2%.
Growth in the Eurozone was 0% in the final quarter of 2022, but across the whole EU it was negative. That means the EU would be described as being in a technical recession if this quarter’s figure is negative.
Another company that looks like it will be exiting the London stock market is Numis, a stockbroker listed on the Alternative Investment Market.
It has agreed to a takeover by Deutsche Bank, with the German lender to pay £410m in a deal that will give it better coverage among the UK’s mid-sized companies.
It comes after Deutsche said it was cutting other parts of the bank in order to save money.
The £3.50 per share offer is a nice chunky premium for investors: Numis’s share price has jumped by 70% this morning, from £2.04 yesterday to £3.41. You can see the size of the jump on this share price chart. The (highly professional) mark-up shows where the shares are currently trading. So it’s a premium to where shares were pre-pandemic, but lower than the investment mania of late 2020/early 2021.
Sky News’s Ian King sees the takeover as a “vote of confidence in the City of London”.
Big news here in the City this morning as @Numis has agreed to a takeover by @DeutscheBank valuing it at £410million. The statement is well worth reading - this acquisition looks to be a vote of confidence in the City of London and UK financial services.https://t.co/MKmvH2UII7
— Ian King (@IanKingSky) April 28, 2023
In other news from the London market, there’s another departure from the stock exchange on the cards. The Guardian’s Mark Sweney writes:
Kingspan, the €11bn Irish insulation and building materials group, is to delist from the London Stock Exchange.
The Ireland-based company, whose cladding and insulation products were involved in the Grenfell Tower fire in 2017, said that it intends to terminate its listing in London because of the low volume of share trading.
“The board has reviewed the company’s listing arrangements and notes that current share trading on the London Stock Exchange (LSE) is negligible as a percentage of total trading,” the company said on Friday. “The board, therefore, proposes to delist from the LSE subject to share holder approval and we will provide an update on process in the coming weeks.”
It is not an exodus, but there has been a steady drip, drip of companies leaving the London Stock Exchange in one way or another, for one reason or another. Take Dublin-headquartered building materials group CRH, which is moving its listing to New York. It said it would better reflect its US-dominated earnings.
Then there was plumbing and heating equipment supplier Ferguson, known as Wolseley before it changed its name to the US brand in 2017, and moved its listing from London to New York in May last year.
Mining giant BHP swapped a tricky dual-headed Anglo-Australian corporate structure in 2021, for a single Aussie listing.
And chip designer Arm, Japanese-owned but UK-headquartered, is expected to pursue a listing in the US as well, despite the overtures of Prime Minister Rishi Sunak.
NatWest beats on profits but shares drop as deposits fall
NatWest reported higher-than-expected profits of £1.3bn in the first three months of this year, and said it would be able to navigate a tough economic environment.
Nevertheless, the bank’s share price dropped by 5% in the first minutes of trading as it put aside £70m to cover an increasing number of defaults and the amount of deposits it held dropped by £11bn.
Banks have been helped in the last year by rising interest rates, which allow them to earn higher net interest margins – the difference between the rates they pay on deposits and those they charge on loans. However, they are also having to brace for slowing economies, which could dent their earnings.
Richard Hunter, head of markets at interactive investor, said:
The decline of 2.6% in deposit balances is an area of slight disappointment, relating to market competition and contraction, and showing a marginal shift in customer behaviour.
As with its peers, the shares have been under pressure of late given the wider banking travails and have declined by 11% over the last three months. The rather negative reaction to the numbers in early trade could contain an element of disappointment on customer balances and unchanged outlook guidance.
However, the share price has still managed to post a gain of 14% over the last year, which compares to a rise of 4.3% for the wider FTSE100. The strength and stability of the group is one which has been attracting investors given a generally difficult backdrop, and the market consensus of the shares as a buy is reflects investor belief in the bank’s ability to weather the current economic turbulence.
Alison Rose, NatWest’s chief executive, said the bank is operating during a “period of significant macro disruption and uncertainty”. She said:
As we continue to make progress against our strategic priorities, NatWest Group is well positioned to navigate this challenging operating environment and to deliver sustainable growth and returns by responding to new and emerging trends that are shaping the lives of our customers.
Updated
The FTSE 100 has just about eked out a gain in the early trades, but it is being held back by NatWest Group, one of the index’s big banking beasts.
NatWest’s shares are down by 6.7% after its results this morning. More details on that shortly.
More broadly across Europe the Stoxx 600 rose by 0.2%.
Amazon earnings help stock markets but it warns on cloud services growth
Good morning, and welcome to our live coverage of business, economics and financial markets.
Stock market indices in Asia have risen after Amazon last night continued the run of positive US tech profits. Europe and the UK are expected to follow suit.
Futures suggested UK and European stocks were set to open higher, after they dipped on Thursday. French Cac 40 futures were up 0.42%, German DAX futures were up 0.41% and FTSE 100 futures rose 0.33%.
The main tech results overnight came from online retailer Amazon, whose sales and profits both beat investor expectations. Its shares gained ground during normal trading hours.
Nevertheless, there was a hitch that suggested the economic situation is not all rosy, as it said that growth will slow in its hugely lucrative cloud services earnings (running servers centrally that other companies rent). As Reuters explains:
Amazon.com signaled on Thursday its long lofty cloud growth would slow further as its business customers braced for turbulence and clamped down on spending, overshadowing the company’s quarterly sales and profit that topped expectations.
In extended trading, Amazon’s stock initially added about $125bn in value on its upbeat view of consumer sentiment and the [company] holding its own among cloud competitors, only to see the entire gain vanish in a matter of minutes.
Investors are having to constantly negotiate this balance. On the one hand, the current trading situation is not looking too bad. On the other, companies are bracing for a US recession (cf. yesterday’s surprisingly weak US GDP data).
Across the Pacific ocean from the US West Coast, it was a similar story for Sony. The Japanese tech company just posted its record annual profits thanks to a strong performance in its music and computer chips businesses, even as it predicted that profits would dip in the current year.
Naeem Aslam, an analyst at Zaye Capital Markets, a trading consultancy, said:
Traders know that the US economy is experiencing a difficult time, and it is pretty much a given that the Fed is going to increase the interest rate. This means that earnings are going to be adversely influenced further in the coming quarter, and the US economy will face further slowdown.
Nonetheless, it is amazing to see that the US stock indices are still performing relatively well. For instance, the Dow Jones industrial average logged its best percentage gain yesterday since January this year. This means that risk appetite among traders is still extremely strong, despite the fact that there is serious fear about the US banking crisis. This week, we have seen plenty of new information come to light as the US regional banks reported earnings and their deposits depleted further.
Up ahead this morning we have an update on the Eurozone economy.
The agenda
9am BST: Germany GDP growth rate (first quarter; previous: 0.4% quarter-on-quarter; consensus: 0.2%)
10am BST: Eurozone GDP growth rate (first quarter; prev.: 0%; cons.: 0.2%)
1pm BST: Germany inflation rate (April; prev.: 7.4% annual; cons.: 7.3%)
Updated
