Closing post
And finally…. France’s stock market has ended a choppy week, deep in the red.
The CAC 40 stock index fell 2.7% today, taking its losses this week to over 6%, as worries over the upcoming national assembly elections revive market memories of the UK budget rout of 2022.
The premium charged for lending to France, over Germany, remains at a seven-year high too (see earlier post for details).
As Bob Savage of BNY Mellon puts it:
The biggest story of the week is in France post the EU parliamentary vote and the Macron snap election call.
The spread between German and French bonds is up 27 basis points in the week back to 2017 highs – trading 95bps today. The FinMin LeMaire warns of a financial crisis.
More here:
And here’s the rest of today’s business news:
Both th US dollar and the gold price have rallied today.
The dollar is up agains tthe euro and the pound, while gold has gained around 1% to $2,320 per ounce.
Fawad Razaqzada, market analyst at City Index and FOREX.com, explains:
The dollar’s strength came primarily because of a weaker euro, which tumbled to below the $1.07 handle amid ongoing political turmoil in France – something which also hurt European indices and undermined other risk-sensitive currencies.
Europe’s mainland indices were showing losses of 1.5% to 3.2%. The resulting risk-off trade further boosted the appeal of the precious metal as the spread between French and German 10-year government bonds continued to widen.
The chairman of Tesco told investors today he had “no difficulty” defending the £10m pay packet awarded to CEO Ken Murphy.
Gerry Murphy (no relation) told today’s AGM:
“I have no difficulty in defending Ken’s absolute level of pay given the complexity (and) scale of the business, but also particularly its performance.
“We do recruit from time to time at very senior levels from the global market and frankly we just have to be competitive with that market.”
Supermarket sandwich supplier issues recall amid UK E coli outbreak
The sandwich maker Greencore, which supplies big supermarkets including Tesco, is one of a number of companies recalling products after being potentially linked to a recent UK outbreak of E coli that caused dozens of people to be hospitalised.
It is understood that the company, which also supplies Asda and Sainsbury’s, is recalling thousands of items, including at least 30 different sandwiches and wraps containing a certain variety of salad leaf linked to the outbreak identified this month by the UK Health Security Agency (UKHSA).
The other manufacturers issuing recalls have yet to be identified as investigations are ongoing into exactly which products have been affected.
Sources said the items being recalled were not believed to contain E coli, as the batch of leaves affected has now been used up, but customers and retailers are being asked to return the items as a precaution.
Reuters: Equinor suspends UK North Sea Rosebank sale ahead of UK elections
Norwegian energy giant Equinor has suspended efforts to sell a stake in the giant Rosebank oil development in the UK North Sea due to fiscal uncertainty ahead of next month’s general election, sources close to the matter have told Reuters.
In its manifesto, the Labour Party has pledged not to issue new licences to explore new fields in the North Sea, arguing that more drilling there would not cut bills and would accelerate the climate crisis.
The Conservatives, though, are pledging to conduct annual licensing rounds of oil and gas production in the North Sea.
Updated
Just in: US consumers are gloomier than expected this month, according to the University of Michigan’s latest sentiment report, just released.
*MICHIGAN PRELIM. JUNE CONSUMER SENTIMENT FALLS TO 65.6; EST 72
— Michael Brown (@MrMBrown) June 14, 2024
*MICHIGAN PRELIM. JUNE CONSUMER SENTIMENT LOWEST SINCE NOV.
*MICHIGAN YEAR-AHEAD INFLATION EXPECTATIONS UNCHANGED AT 3.3%
*MICHIGAN 5-10 YR INFLATION EXPECTATIONS RISE TO 3.1%
Surveys of Consumers director Joanne Hsu says:
Sentiment is currently about 31% above the trough seen in June 2022 amid the escalation in inflation.
Assessments of personal finances dipped, due to modestly rising concerns over high prices as well as weakening incomes. Overall, consumers perceive few changes in the economy from May.
Back in the UK, Tesco’s shareholders have approved all the resolutions at its AGM today.
Just 6.5% of votes were cast against the remuneration report, vs 93.5% in favour, despite the concerns over CEO Ken Murphy’s £10m pay packet (see opening post).
European markets remain on the back foot today, says Joshua Mahony, chief market analyst at Scope Markets.
Soaring borrowing costs are already hitting the French government, as the perceived risk attached to a potential victory for the Far Right pushed the cost of sovereign debt higher.
Comments from the French Finance minister over the potential financial crisis could be a potential warning sign to the electorate, but it also sends a message to the market which has clearly been heard.
Updated
Defense stocks have been hit by the rise in support for the far right in Europe, Reuters reports.
Shares in Rheinmetall, which makes artillery shells and military vehicles, are down almost 5% today, while the UK’s BAE Systems are down 2.8%.
Reuters reports that ODDO BHF analyst Yann Derocles has suggested that Chancellor Olaf Scholz’ Social Democratic Party’s poor performance in the recent European elections weaken his position, making the governing coalition’s negotiations over the defence budget more difficult.
Updated
The anxiety in European stock markets today extends beyond Paris.
Italy’s FTSE MIB has had a rough day too, down 2.7%, while Germany’s DAX has dropped by 1.2%.
In London, though, the FTSE 100 is basically flat.
This week’s share selloff puts France at risk of losing its crown as the largest equity market in Europe, reports Bloomberg.
They add:
The euro is the worst-performing major currency this week against the dollar.
French finance minister warned of financial crisis if far right wins election
French finance minister Bruno Le Maire added to the jitters in the markets today, by warning of the risk of a financial crisis if the far right were to win snap elections in the coming weeks.
Le Maire told franceinfo radio early this morning that:
“When I look at the far right, I see a program that is made of lies,”
And he urged voters instead to back President Emmanuel Macron’s centrist party’s candidates.
Marine Le Pen’s National Rally (RN) party has promised to cut electricity prices, and lower the VAT on petrol, and increase public spending on services such as health.
Updated
Could France face Liz Truss-style market panic?
Ouch. The selloff in Paris is gathering pace, sending the Cac40 index down by 2.3% today.
Politicial uncertainty is hurting stocks, with investors anxious that Emmanual Macron’s centrists could lose badly in the upcoming parliamentary elections, spelling the end of pro-growth reforms.
Holger Schmieding, chief economist at Berenberg bank, suggests the consequences could be more wide-ranging, and suggests three potential scenarios:
France ends up with a hung parliament in which neither the far right nor the united left nor Macron’s centrists call the shots. Amid gridlock, not much would get done, but no major reforms might be reversed either. The required fiscal consolidation would become even more difficult. At the EU level, further progress towards capital markets union, common defence projects, EU enlargement and other initiatives may stall. That would be unfortunate, but probably just about bearable.
Marine Le Pen and her allies can determine the shape of the next government, and of fiscal and economic policies. However, if Le Pen then focusses on her main goal, winning the 2027 presidential election, she might still choose to not rock the boat too badly, concentrating on some signature policies (eg being tough on immigration) rather than on expensive or disruptive promises. If so, the result may be close to the first scenario: no more reform progress, but only a few damaging reversals.
However, if Le Pen calls the shots in parliament and pursues major parts of her expensive fiscal and protectionist “France first” agenda, the result could be a Liz Truss-style financial crisis. At the moment, we rate this as a serious risk, not as a forecast.
Updated
Sterling on track for best week of year against the euro
It’s also been a strong week for the pound against the euro.
Sterling is on track for its biggest weekly gain against the euro in nearly seven months on Friday, up almost 1% since Monday morning. That would be the best performance since the last week of November 2023.
The pound is trading at €1.1887
Franco-German borrowing spread hits seven-year high
The gap between French and German borrowing costs has blown out to its highest level in seven years this morning.
Investors are piling into safe-haven German debt today, amid anxiety over the French parliamentary elections.
French bond prices tumbled on Monday, after president Macron called snap elections. There’s been a modest recovery since, but not enough to repair the damage.
In contrast, German bund prices are rising today, which pushes down the yield (or interst rates on the bond).
So, while German 10-year bunds are trading at a yield of 2.37% today, the French equivalent is 3.25%.
Ad this chart shows, this is the biggest gap between Paris and Berlin’s borrowing costs since 2017.
Jim Reid, strategist at Deutsche Bank, explains:
For reference, the last time it was this wide in 2017 came just before the first round of the presidential election that year, when Macron came first and set up a run-off in the second round against Marine Le Pen. Then spreads tightened again after Macron’s first-round win, as markets moved to price in a strong likelihood of a Macron presidency.
The real concern unfolding is an outright election victory for Marine Le Pen’s RN party in the parliamentary elections, and a move away from the EU’s fiscal rules, says Chris Weston, Head of Research at Pepperstone.
If there was fresh fiscal indiscipline (spending rises or tax cuts), France’s credit rating could be in focus once again.
Weston explains:
It is also worth considering that Le Pen is unlikely to go too hard on unfunded spending measures, as a blowout in the deficit could be taken in a similar light to the disastrous Liz Truss budget in 2022 and result in bond yields on French debt spiking, which would increase interest costs at a time when debt/GDP is looking like it might head towards 140% by 2040.
It would also almost certainly lead to ratings agency Moody’s cutting France’s sovereign credit rating, joining Fitch and S&P who have already done so.
Updated
A bad week for French stock market
Over in Paris, shares are falling again today as political uncertainty continues to hit the French stock market.
The Cac40 index of the largest companies listed in Paris has fallen by 1.7% so far today, taking its losses this week over 5%.
Stocks have been hit by Emmanual Macron’s shock decision last Sunday to all snap parliamentary elections, which could lead to a win for the far-right National Rally (RN).
Investors fear there could be “policymaking paralysis” if RN held a majority in parliament, leading to a “cohabitation” scenario in which the President is from a different political party to the Prime Minister.
The BoE’s latest Inflation Attitudes Survey also found a small drop in inflation expectations – although prices are still expected to rise faster than its 2% target.
The survey shows the public expects inflation of 2.8% next year (vs 3.0% one quarter ago) and 2.6% in two years (vs 2.8% one quarter ago).
Professor Costas Milas, of the management school at University of Liverpool, tells us these are “very disappointing data on public inflation expectations”.
He explains:
These expectations matter because they set the tone for wage increases and therefore impact on future inflation. The BoE sets interest rates with the aim of hitting the 2% target two years ahead.
From the Chart below, the correlation between the Bank’s base rate and public expectations of inflation two years ahead is only 0.16. Today’s data are quite disappointing and definitely point to no interest rate action this month, to say the least...
Public: Cut UK interest rates to help the economy
The UK public are increasingly keen for the Bank of England to lower interest rates to help the economy.
The BoE’s latest Inflation Attitudes Survey, released this morning, shows that 42% of people polled thought it would be best for the economy for borrowing costs to come down.
That’s a small increase on February’s 41%, and – Reuters points out – the highest reading since 2008. In contrast, 10% of people thought higher rates would help the economy.
When asked what would be ‘best for you personally’, 24% of respondents said it would be better for them if interest rates were to ‘go up’, up from 23% in February, 31% of respondents said it would be better for them if interest rates were to ‘go down’, down from 32% in February 2024.
Shondaland CEO opens London trading as Bridgerton 'boosts UK economy'
The CEO of the firm behind Netflix hit Bridgerton has opened trading at London Stock Exchange today.
Shonda Rhimes is in the City, to mark the return of Bridgerton to UK TV screens – with Netflix claiming that the Regency-style drama (now on its third season) has boosted the UK economy by £275m.
Bridgerton, which is produced by Rhimes’s company Shondaland, has supported 5,000 local businesses over the past five years, Netflix reports. The show has been filmed at many beautiful locations across the UK.
Rhimes says:
The Bridgerton universe occupies a special space in culture, resonating with young and old alike, creating conversation, starting trends and influencing everything from baby names to weddings.
“The shows have also had a seismic impact on the UK economy, boosting it by a quarter of a billion pounds over the last five years and supporting thousands of jobs and businesses.
“It is clear that the business of art and culture can make a huge economic contribution to local communities. I could not be prouder.”
Julia Hoggett, chief executive of the London Stock Exchange, said she was “thrilled to celebrate the significant economic and cultural impact” of the film and creative industries in the UK.
Updated
Shares in Tesco have jumped 1.9% this morning, to the top of the FTSE 100 leaderboard.
Traders seem pleased with its Q1 results this morning, in which the company reiterates its guidance for the full year. That includes making retail adjusted operating profit of at least £2.8bn this year, slightly higher than the £2.76bn in 2023/24.
Chris Beckett, head of equity research at Quilter Cheviot, says:
Tesco has reiterated its guidance for flat profits, but we see this as somewhat conservative. Management is doing well, while private equity owned supermarkets – Asda and Morrisons – struggle as priorities are very different.
Tesco has a good opportunity to take advantage of these trends especially as inflation continues to ease and disposable incomes recover.”
Updated
In the City, shares in UK housebuilder Crest Nicholson have jumped over 9% after it rebuffed a takeover approach from rival Bellway.
Crest told shareholders this morning that Bellway’s £650m all-share takeover offer “significantly undervalued” the group, and it had rejected it last month.
Bellway’s proposal implies a value of 253p per Crest share, or almost 19% above last night’s closing price of 213p.
This morning, Crest has jumped to 232p.
Last night, Bellway declared there is “compelling strategic and financial rationale” for combining the two businesses.
Bellway’s shares are down 3% this morning, which will reduce the value of its bid.
Crest Nicholson knocked back Bellway’s revised preliminary proposal to a possible all-share offer for the company. This second, unsolicited, attempt was deemed to “significantly undervalued Crest Nicholson and its future standalone prospects and was not in the best interests of… pic.twitter.com/bTNg4AS8Z9
— Emma Fildes (@emmafildes) June 14, 2024
Updated
The defence for Ken Murphy’s £10m pay packet is that he’s doing a good job running Tesco, and has earned the bonuses that helped to double his take-home pay.
Today’s Q1 results from Tesco could bolster that argument, given it is adding to its market share.
John Moore, senior investment manager at wealth manager RBC Brewin Dolphin, says:
“Tesco is a strong business that only appears to be getting stronger. This latest set of positive results should stand the supermarket giant in good stead to achieve its target of £70 billion in revenue this year and, importantly, this is helping the bottom line.
Market share is growing faster than competitors and it continues to hold the top – or bottom – spot on price. Simplification of the business is a major part of the success story, with the decision to sell Tesco Bank and reduce the share count through buybacks allowing for additional focus and investment in the core business – a stark contrast to other supermarkets such as Asda and Morrisons which are not in a position to do the same.”
Tesco CEO Ken Murphy has also told reporters that the supermarket chain expects a gentle improvement in consumer sentiment in Britain, and sees food inflation in the low single digits for the rest of the year
Murphy explained:
“Our sense is that there is a gentle improvement, ongoing improvement in customer sentiment.”
Murphy is also looking for ‘stability and consistency’ from any new UK government (here’s hoping, Ken!), and says he’s not “unduly worried” by the employment measures in the Labour Party’s manifesto,
Tesco: we're growing faster than rivals
Getting back to Tesco, it has also reported a jump in sales this morning.
In its financial results for the first quarter of the financial year, Tesco says UK like-for-like sales rose by 4.6% in the three months to 26 May.
Tesco says it is growing its UK market share faster than all its “key competitors”, with food sales up 5% in the quarter.
CEO Ken Murphy (he of the controversial £10m pay packet) says:
“We’ve continued to build momentum in the business, with strong volume growth across the UK, Republic of Ireland and Central Europe supported by easing inflation.
We continue to be the cheapest full-line grocer and are the most competitive we’ve ever been, with our value, product quality and service driving better brand perception and customer satisfaction
Tulipshare: Tesla’s future cannot be predicated on 'erratic' Musk
Not all Tesla shareholders will share Musk’s jubilation, though.
Some, including Norway’s $1.6 trillion sovereign wealth fund and Californian pension fund CalPERS, had said they would vote against the pay deal.
And impact fund Tulipshare is disappointed that its proposal to tie CEO Elon Musk’s compensation to ESG performance was not accepted.
Antoine Argouges, CEO and founder of Tulipshare, says he is “deeply concerned” that Musk’s pay deal was reapproved.
“Once again, Tesla has chosen to bypass shareholder concerns at this year’s annual general meeting (AGM). Although Tulipshare did not secure majority shareholder support for our proposal to link CEO Elon Musk’s pay package to the company’s environmental, social, and governance (ESG) performance, we remain committed to our engagement with Tesla.
“As a shareholder, I am deeply concerned that Musk’s compensation package has been reinstated. I see this move as shortsighted and one that will have detrimental consequences for Tesla’s future. It is imperative for the longevity of the company that Musk’s compensation be tied not only to financial performance indicators but also to ESG metrics, as our resolution suggested. Tesla’s future cannot be predicated on Musk’s erratic behavior and decision-making alone; there must be safeguards put in place to ensure the company’s long term financial stability and sustainability efforts. Musk should not be rewarded for declining earnings. Tesla’s situation has changed from 2018 and the CEO’s compensation package must reflect that.
“Tesla’s poor handling of environmental, social, and governance issues has attracted notable criticism in recent years. In 2021, the National Labor Relations Board revealed that Tesla violated federal labor laws by terminating a union activist. Dozens of workers have also sued the company, alleging that Tesla enables a culture of racism and sexual harassment. Furthermore, Tesla has been battling allegations of child labor in its supply chains for years, as well as alleged improper hazardous waste handling, poor right to repair policies and its failure to develop a low-carbon strategy.
Legal experts are cautioning that it is not clear if the Delaware court that blocked the Musk pay deal will accept the re-vote and allow the company to restore the pay package.
Mathieu Shapiro, a managing partner at law firm Obermayer Rebmann Maxwell & Hippel, argued (via the BBC):
“The vote changes nothing.
It only offers Tesla opportunities to try to use the vote to obtain a better decision going forward.”
Elon Musk owes his shareholder victory, in part, to the army of small investors who own Tesla stock.
Many were vocal in their support for his huge pay deal – in which Musk earned 12 different tranches of stock options after hitting revenue and market targets, and growing the Tesla share price (it’s up 1,100% over the last five years).
One, Alexandra Merz, had told fellow investors:
Your votes will help to remedy a true injustice. And it’s just the beginning. Don’t mess with Tesla Retail Shareholders.
Thank you.
— Ale𝕏andra Merz (@TeslaBoomerMama) June 13, 2024
Thank you to each and every one who voted.
And to those who still can't, you will be able next time. I will do everything in my power to help.
Your votes will help to remedy a true injustice. And it's just the beginning.
Don't mess with Tesla Retail Shareholders ❣️ pic.twitter.com/T6la80aGhO
Merz also credited Tesla chair Robyn Denholm, who had warned that Musk might step back from the company if he lost the payout.
We did it, @robyndenholm
— Ale𝕏andra Merz (@TeslaBoomerMama) June 13, 2024
You did the heavy lifting, and we did the voting. pic.twitter.com/kufHbYdIOg
Musk: Vox Populi, Vox Dei
Elon Musk is in jubilant mood after winning a victory last night over his pay deal currently valued at around $46bn.
After shareholders reapproved the mega package, Musk posted a photo of a cake, on with “Vox Populi, Vox Dei”, and a heart, has been written.
Tesla’s CEO says he’s sending it to Delaware – where a judge had blocked the payout back in January, prompting Thursday’s fresh vote to approve it (again).
Sending this cake to Delaware as a parting gift 😘 pic.twitter.com/uLKE7LDSCW
— Elon Musk (@elonmusk) June 14, 2024
The voice of the people may well be the voice of God, but whether the Almighty would approve of a near-$50bn pay deal is quite another matter.
Musk hailed his shareholders last night, telling a crowd of investors at the Tesla factory in Austin, Texas:
“We have the most awesome shareholder base. Hot damn, I love you guys.”
Investors also approved a second resolution, to reincorporate the electric-vehicle maker in Texas.
Back in January, a Delaware judge ruled that Tesla’s board could not be considered independent from Musk’s influence and that the process of drawing up the pay package had been illegitimate.
Last night’s vote could serve as a rebuttal to the judge’s ruling that struck down the award – making it easier for Tesla’s board to argue that shareholders were properly informed about the payment package, and the board members’ ties to Musk, before casting their votes.
Introduction: Tesco to face fire over CEO's £10m pay package
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Pay packets are in the spotlight today.
While Elon Musk celebrates Tesla shareholders voting to approve his multibillion dollar pay packet, UK supermarket chain Tesco will face criticism over its CEO’s wage deal today.
Tesco must justify Ken Murphy’s £10m pay package at its AGM later today, with responsible investment NGO ShareAction planning to questioning why Murphy’s pay should double when contracted workers at its supermarket are poorly paid.
Although Tesco’s store workers get the voluntary Real Living Wage (which is higher than the minimum wage), ShareAction say contracted staff – such as cleaners and security – don’t
Dan Howard, Head of Good Work at ShareAction, explains:
“In a world where Tesco are making a £2.3 billion profit a year, paying those who keep the stores safe and clean the real Living Wage shouldn’t have to be asked for – it should be automatic.
“Unfortunately, Tesco are dragging their feet on taking the right steps to pay its third-party contracted staff the living wage.
“Failing to recognise the financial hardship many of those who work for Tesco have faced during the cost-of-living crisis will damage Tesco’s reputation with both shareholders and customers.”
We learned last month that Murphy’s pay had swelled from below £5m to £10m, due to bonus payouts.
It means Murphy now earns more than 430 times the average pay at Tesco, up from a multiple of 197 in the previous year.
The payout was blasted by the Unite trade union in May; they called it “a slap in the face” to millions of struggling households who paid for it through higher food bills.
ShareAction is urging major supermarkets including Tesco to accredit as Living Wage employers, which would mean all staff including third-party contractors would be guaranteed the real Living Wage on an ongoing basis, and to set out a timeline for doing this.
Tesco will face questions over Murphy’s pay, and other aspects of the business, at its AGM which begins at 11.30am at its Welwyn Garden City campus.
The agenda
10am BST: Eurozone trade data for April
9am BST: Superdry AGM
11.30am BST: Tesco AGM
3pm BST: University of Michigan’s US consumer sentiment index
