Closing post
Time to wrap up… here’s today’s main stories so far:
Cocoa and coffee prices at new record
The price of cocoa has hit a new record high today, pushed up by escalating worries over shrinking supplies due to crop failures in west Africa.
The London cocoa price hit £9,477 per ton today, as industry data showed a drop in production.
“Grindings” — beans processed by the industry to eventually be turned into chocolate — fell by 2.5% in the first three months of the year. That could show that weaker production is resulting in fewer beans reaching the market.
Coffee also hit new highs, with the robusta coffee price climbing to a record $4,292 per ton.
Gareth Redmond-King, head of international programme at the Energy and Climate Intelligence Unit (ECIU) says:
“The cost of our morning coffee is soaring as climate change hits crops in Brazil and Vietnam. The UK imported a billion pounds worth of coffee in 2023; just over half in raw coffee beans, and the rest as roasted coffee.
“But 97% of all coffee globally is grown in countries vulnerable to climate impacts. More than half the coffee beans we imported last year came from Brazil and Vietnam - worth £198m and £87m respectively. Between them they also supply half the beans imported by EU nations to make roasted coffee we also import.
Back in Washington, the IMF is warning Asia’s central banks not to follow the US Federal reserve too closely.
The Fund’s advice is that Asian central banks should focus on domestic inflation and avoid tying their policy decisions too closely to anticipated moves by the U.S. Federal Reserve.
Otherwise, it fears, central banks could undermine price stability in their own countries by following the Fed too closely.
The IMF’s staff analysis showed that U.S. interest rates have a “strong and immediate” impact on Asian financial conditions and exchange rates, Krishna Srinivasan, director of the lender’s Asia and Pacific department, said today.
Srinivasan explained:
“Expectations about Fed easing have fluctuated in recent months, driven by factors that are unrelated to Asian price stability needs.
“We recommend Asian central banks to focus on domestic inflation, and avoid making their policy decisions overly dependent on anticipated moves by the Federal Reserve.
Predictions that the Fed will not cut interest rates as soon, or as sharply, as expected have pushed up the US dollar against Asia-Pacific currencies such as the yen (which has hit a 30-year low) and the won.
New jobless claims data today has shown that the US labour market remains in good shape.
The number of Americans filing new claims for unemployment benefits was unchanged at 212,000, last week, which is a historically low level.
That suggests the increase in migration identified by Kristalina Georgieva today is not leading to an increase in unemployment.
Job market remains tight. Compared to history the unemployed are finding jobs at a healthy pace. US initial #jobless claims were unchanged at 212k (3k better than consensus) while 1wk lagged Continuing Claims came in 2k higher than 1,812k (6k better than consensus). Somewhat odd… pic.twitter.com/wbHYeXeTyh
— Macro84 (@macro84) April 18, 2024
Georgieva also says that the Middle East conflict has led to a growth downgrade for the region.
Gaza’s economy has been wiped out, she warns, while the West Bank has been severely impacted.
IMF’s Georgieva says Ukraine needs $42 billion in budgetary support this year
Ukraine needs $42bn of budget support this year as it continues to resist Russia’s invasion, IMF chief Kristalina Georgieva says.
Georgieva also told reporters in Washington that global support for Ukraine remains firm, and that the war needs to end; it is both a human tragedy and a drag on global growth prospects, she says.
Kristalina Georgieva also warned that the twenties has already been a turbulent decade, in which the global economy was hit by multiple shocks— including the Covid-19 pandemic, a cost-of-living crisis, war and conflict, and climate disasters.
.@KGeorgieva: The world has grappled with multiple shocks—the pandemic, a cost-of-living crisis, war and conflict, and climate disasters. The twenties has already been a turbulent decade. pic.twitter.com/4nmHeqvqqX
— IMFLive (@IMFLive) April 18, 2024
International Monetary Fund chief Kristalina Georgieva also called for China to boost domestic demand for goods and services, including health care.
This, she told reporters in Washington, would help bolster its growth prospects.
Georgieva today’s news conference that China needed to give consumers more confidence and more things to buy and get the social safety nets to work more effectively.
She said the world’s second largest economy also needed to resolve problems in its property sector, which would help restore consumer confidence.
Georgieva: Migration over US border is boosting its economy
Over in Washington, IMF managing director Kristalina Georgieva has said that the high levels of migration across the US border is helping America’s economy to outpace Europe.
Asked why the US economy has performed better than Europe, at the Fund’s annnual meeting in Washington today, Georgieva cited three factors that distinguish the US.
First, the force of innovation – in the US it’s easier to turn innovative ideas into business development and then scaled up into successful businesses. There’s still “work to be done” to unleash innovation in Europe, she says, citing the costs of patents in Europe vs the US.
The second factor, Georgieva says, is the influx of workers into the US, which makes it easier for firms to find staff and puts downward pressure on wages.
[That spike in migration to unprecedented levels at the southern border is a major political issue, and likely to dominate the presidential election this autumn].
Georgieva explains:
Second, the US is benefitting from abundant labour coming across the border.
It creates a domestic political problem, and not everyone who crosses the border adds positively to the economy.
But that labour supply also gives to the US another comparative advantage; wages are not pushing up, because there is no strong pressure because of a lack of labor on wage growth.
The third factor in the US’s favour is that it has benefitted from more favourable energy prices than Europe, where natural gas prices soared after Russia’s invasion of Ukraine in 2022.
Georgieva also reveals that the issue of productivity dominates her thinking; she says:
I wake up in the middle the night and think, how we can help our members lift their productivity?
Updated
Steve Dukes, CEO at Confused.com, says:
“While the cost of car insurance may have dropped at the beginning of this year, customers are still paying historically high prices for their car insurance. Premiums are still more expensive year-on-year, so as an industry, there’s still an important role to play in helping customers to understand where they could be saving money.”
Today’s report also highlights that the deployment of vehicles with advanced technology will put upward pressure on premiums (as high-tech cars are more expensive to fix).
Today’s report shows that the South West of England continues to be the cheapest region for car insurance, with average premiums now costing £606.
But Inner London was the most expensive region with average prices at £1501, even though car insurance premiums here fell by £106 in the last three months.
UK car insurance prices finally fall
The surge in UK car insurance premiums may finally be fading, bringing some relief to squeezed motorists.
Data published by Confused.com and insurance broker WTW shows that comprehensive car insurance premiums fell fallen by 5% (£54) during the last three months, with UK motorists now paying £941 on average.
Although that’s a quarterly fall, it’s still an awful lot more than a year ago. In Q1 2023, the average premium was £657, meaning they’re still 43% higher than a year ago!
Tim Rourke, UK head of P&C pricing, product, claims and underwriting at WTW, says:
“After a series of record highs in 2023 took car insurance premiums into uncharted territory, the latest pricing data suggests the relentless rise in prices may finally be turning a corner.”
We reported last month that UK car insurance premiums jumped by 34% in 2023, as motor insurers more than passed on the rising cost of claims.
Updated
Morgan Stanley has pushed back their forecast for the first Bank of England interest rate cut to June, from May, following yesterday’s inflation report.
They expect the BoE to cutting in June (as opposed to May previously) and to deliver 75 basis points of cuts this year (three quarter-point cuts, in June, August, November).
They also argue that March’s inflation report, showing the CPI index fell to 3.2% from 3.4% in February, doesn’t change “the fundamental picture” that price pressures are subsiding.
They add:
Given Governor Bailey’s comments at the IMF following the pay and inflation data, we think that the core of the MPC likely agrees with our initial take – these data should not fundamentally alter one’s stance on the economic outlook.
BP executive shake-up puts low carbon ambitions in spotlight
Fresh questions over BP’s low carbon ambitions have emerged today with a major shakeup of the oil company’s executive team, including the resignation of its gas and renewables boss.
BP’s head of natural gas and low carbon energy, Anja-Isabel Dotzenrath, will step down after just over two years after she joined the company to spearhead the green agenda set out by BP’s former boss Bernard Looney.
The new CEO, Murray Auchincloss, said she will be replaced by BP “lifer” William Lin who joined the company almost three decades ago and currently serves as head of the company’s regions, corporates & solutions division.
At the same time BP’s head of innovation and technology, Leigh-Ann Russell, will also leave to take up an external job opportunity, the company said.
Auchincloss set out his plans for a smaller leadership team as he aims to simplify BP’s management structure in a cost-cutting drive which will reportedly include cutting over a tenth of the workforce in its electric vehicle charging business and pulling out of several markets.
He said earlier this year that BP’s destination was unchanged but that it would get there as a much simpler and more pragmatic company, and at the pace that society demands.
Giacomo Romeo, an analyst at Jefferies, said that the shakeup confirmed its view that we could see more changes around BP’s strategy for low carbon businesses as the company seeks a more “pragmatic approach” to the energy transition.
In a memo to staff, Dotzenrath said:
“After a rewarding career of over 30 years in energy, I am at a point where I need to devote more time to my family.”
“I firmly believe we have the right asset footprint and pipeline, partnerships, financial strength and most importantly the right team to deliver.”
Germany 'set to avoid winter recession'
Germany’s central bank is hopeful that Europe’s largest member will avoid falling into recession, after a pick-up in activity at the start of this year.
The Bundesbank has predicted this morning that the German economy probably expanded in the first quarter, thanks to an unexpected boost from industry and construction.
The Bundesbank had previously predicted that GDP would shrink in the first three months of 2024, which would have put Germany into a technical recession (two quarterly contractions in a row), after it shrank in Q4 2023.
But today, the Bundesbank declares that Germany’s economic situation has brightened somewhat, meaning there may have been a slight increase in growth in Q1 2024.
It warns, though, that the outlook remains poor, saying:
“There is still no evidence of sustained improvement for the German economy.
Demand for industrial products from Germany and abroad remains weak and continues to decline.”
The German economy is set to avoid a winter recession thanks to a pick-up in manufacturing, rising exports and surging construction at the start of the year, the Bundesbank says https://t.co/OGthlbPy4S
— Bloomberg (@business) April 18, 2024
UK companies trimmed their job adverts last week.
The total number of online job adverts on 12 April 2024 decreased by 2% when compared with the previous week, the Office for National Statistics reports today. That left the total 19% lower than a year ago.
Figures from @Adzuna show the total number of online job adverts on 12 April 2024 decreased by 2% when compared with the previous week 💻
— Office for National Statistics (ONS) (@ONS) April 18, 2024
This was 19% below the level seen for the equivalent period of 2023. pic.twitter.com/NckN6gMPdN
Brent crude slips back towards $86/barrel
The oil price has eased to its lowest level since the start of April.
Brent crude is down 0.7% today at $86.66 per barrel, adding to a heavy drop yesterday.
Last Friday, Brent traded as high as $92 per barrel, as investors braced for Iran to take military action against Israel.
Joshua Mahony, chief market analyst at Scope Markets, says the slump in oil prices is helping to lift sentiment in the markets today, adding:
The risk of an escalation between Israel and Iran appears to be easing with each passing day, while yesterday’s fourth consecutive weekly gain for US crude inventories has signalled an oversupply despite a recent decline in US output.
Yesterday’s smaller-than-expected fall in the UK’s inflation rate hasn’t had any immediate impact on the mortgage market.
Moneyfacts have reported that average borrowing rates are unchanged this morning, saying:
The average 2-year fixed residential mortgage rate today is 5.81%. This is unchanged from the previous working day.
The average 5-year fixed residential mortgage rate today is 5.39%. This is unchanged from the previous working day.
The money markets this morning are pricing in a high chance that there are two cuts to UK interest rates this year, bringing Bank rate down to 4.75% in December from 5.25% today.
Home furnishings group Dunelm has dampened the mood in the City a little today, by warning that consumer spending “remains under pressure”.
Dunelm reported a 3% rise in total sales in the first quarter of this year, driven by increased volumes, even though both the homewares and furniture markets remained “challenging”.
It added
Trading conditions have continued to be volatile with March in particular seeing softer levels of demand.
Dunelm shares are down almost 3% this morning, even though the company reported an increase in its profit margins as costs fall.
The embattled British music royalties investment fund Hipgnosis, which owns the rights to songs by artists from Beyoncé to Neil Young, has agreed to a $1.4bn (£1.1bn) takeover by a music and theatrical rights rival after months of turmoil over the company’s structure and leadership.
The Concord Chorus deal, which offers Hipgnosis shareholders a 32% premium to Thursday’s share price at $1.16 a share, could put an end to uncertainty over the FTSE 250 firm’s future.
The London-listed company, which offers investors the chance to make money from the royalties of tracks by artists such as Shakira, Barry Manilow, Red Hot Chili Peppers and Blondie, had launched a strategic review last year to assess its business options, including a potential sale, after a revolt by shareholders over a planned catalogue sell-off and its business plans.
FT: Thames Water could benefit from a spell of public ownership
The Financial Times’ Lex column argues today that it could make sense to put Thames Water into a special administration.
A swift demise is better than a slow one. That would certainly be true for Thames Water.
A period of temporary public stewardship is generally framed as a worst-case scenario in discussions about the future of Britain’s biggest privatised water utility. But putting Thames Water into a special administration regime — and quickly — would have its benefits.
To be clear, a scenario where Thames is run temporarily by a special administrator on behalf of the UK government remains, at present, hypothetical.
Lex warns that if Thames can’t raise new equity, it would have to slash costs, meaning its already-poor service levels would deteriorate further. Alternatively, a special administration might limit fallout for other utilities and provide a chance to tackle its unwieldy structure, they say.
This might not be popular with Thames’s bondholders, Lex adds, as they could be forced to take a haircut, but investors in other water companies might approve, as it could stop the crisis spreading.
More here: Thames Water could benefit from a spell of public ownership
Thames Water could benefit from a spell of public ownership https://t.co/rmzKJHloGh | opinion
— Financial Times (@FT) April 18, 2024
A special administration could be triggered by the secretary of state or Ofwat.
Oxford professor Dieter Helm has argued it would be wise to “grasp the opportunity” provided by a special administration, and push through “a fundamental re-set” of Thames.
In an excellent analysis last month, Professor Helm wrote that Thames Water’s complex ownership should be straightened out, and it should be completely separated from parent company Kemble.
Not sure why people have so many questions about the Thames Water/Kemble bond default. Seems simple to me?
— Tracy Alloway (@tracyalloway) April 5, 2024
(Diagram via JPMorgan) pic.twitter.com/SpQjUbL9B9
He also suggests the company is simply too large, and could be split into “London Water”; and “Greater Thames Water”, and that the sewerage and water operations “can and should” be separated into different businesses, which would improve management focus.
Last month, the Liberal Democrats called for Thames Water should be put into special administration by the government and reformed as a public benefit company.
Prof Helm says the government is reluctant to press the special administration button in the Thames Water case comes from a fear of upsetting foreign investors.
He explained:
The UK has got itself into a position of relying on the kindness of strangers to allow its citizens to live beyond their means, and for almost all financing of investment across the economy.
There are two reasons for this exposed state of affairs: net saving (after capital depreciation) has been negative for over a decade; and the current account of the balance of payments is in serious deficit, with imports exceeding exports. UK investment is largely foreign investment; and the trade deficit requires a capital inflow to offset the current-account deficit.
Is Thames Water sustainable? Perhaps, but only by putting it in special administration and breaking it up.
— Prof Dieter Helm CBE (@Dieter_Helm) March 7, 2024
Read my latest paper here:https://t.co/9OUH9aAV1Q#thesustainableeconomy pic.twitter.com/GX3onQtjLM
In the property sector, London estate agent Foxtons’ has reported a strong start to the year.
Sales revenue grew by 17% in the first quarter of 2024, to £9.5m, as the agency took a larger share of the market.
CEO Guy Gittins explains:
We entered the second quarter with the highest value under-offer Sales pipeline since the 2016 Brexit vote, giving us optimism for the rest of the year.
Lettings revenue rose by 5% in the quarter to £24.0m. Foxtons reports that rental prices have “stabilised” as supply and demand of tenancies has normalised.
Foxtons makes a dramatic 2024 comeback - their first quarter revenue results showing a 9% growth spurt across all business segments to £35.7m. Leaving expectations high for Q2 2024
— Emma Fildes (@emmafildes) April 18, 2024
- Lettings revenue ⬆️ 5% in the quarter to £24.0m
- Sales revenue ⬆️ 17% in the quarter to £9.5m… pic.twitter.com/sgy4jY4xRT
Water campaigner Feargal Sharkey is urging environment secretary Steve Barclay to ‘do your job’ and put Thames Water out of its misery…..
"Thames Water seeks new debt funding for rescue."
— Feargal Sharkey (@Feargal_Sharkey) April 18, 2024
Can someone please just put @thameswater out of its misery. @SteveBarclay for God's sake man do your job. Save us from even more needless headlines about this nonsense. Do your job.https://t.co/CeDal73cSD
"Thames Water customers shouldn’t pay for its mistakes, says Jeremy Hunt."
— Feargal Sharkey (@Feargal_Sharkey) April 18, 2024
Nor should @SouthernWater's customers, nor @AnglianWater's customers, nor @YorkshireWater's customers, nor @AffinityWater's customers, nor @stwater's customers, and on, and on...https://t.co/DPk0guIBMX
EasyJet narrows winter losses despite Middle East turmoil
Budget airline easyJet has narrowed its losses, despite losing revenue from cancelling flights to Israel and Jordon last winter.
EasyJet reported this morning that its losses for the six months to the end of March have fallen by over £50m, to between £340m and £360m.
The airline says it grew capacity where demand was strongest. It also benefitted from the early timing of Easter this year, which led to more demand for flights in March.
Shares in easyJet have jumped 4% in early trading, to the top of the FTSE 100 leaderboard.
Johan Lundgren, CEO of easyJet, argues the airline is well set up operationally for this summer season, saying:
The importance that consumers place on travel coupled with easyJet’s trusted brand has driven good demand for our flights and holidays. Our growth and focus on productivity have reduced winter losses by more than £50 million.
“We have further enhanced our network with the launch of new bases in Alicante and Birmingham providing greater choice for consumers across Europe
EasyJet also lost around £40m due to the conflict in the Middle East, after it paused flights to Israel and nearby Jordan for safety reasons after the 7th October attacks.
It faces further lost business in the months ahead, after suspending flights to Tel Aviv for the next six months earlier this week.
Updated
European electric car sales take a tumble
Sales of electric cars across the European Union tumbled by over 11% last month, new figures show, in the latest sign that demand for battery-powered vehicles is ebbing in favour of hybrid cars.
The European Automobile Manufacturers Association (ACEA) reported this morning that new car registrations fell for the first time this year in March, dropping by 5.2% to around one million units.
The timing of the Easter holidays negatively impacted sales, ACEA says, including in the EU’s four largest countries – Germany (‑6.2%), Spain (-4.7%), Italy (-3.7%), and France (-1.5%).
Battery-electric car registrations declined by 11.3% to 134,397 units, meaning its market share shrank from 13.9% a year ago to 13% today.
In contrast, hybrid-electric car registrations rose by 12.6%.
There was also a drop in sales of internal combustion engine-powered cars; petrol sales decreased by 10.2%, while diesel registrations shrank by 18.5%.
🚨 BREAKING 🚨
— ACEA (@ACEA_auto) April 18, 2024
📊 🚗 European car sales figures for March are fresh off the press!
📈 Year-on-year new EU car sales decreased by 5.2%. This marks the first decline in car sales of the year
🔋 The #batteryelectric market share slipped to a 13% share from last year’s 13.9%
⛽… pic.twitter.com/EK4ON7Vnky
Iran oil exports hit 6-year high as west prepares sanctions
In the energy sector, Iran is exporting more oil than at any time for the past six years, new data shows.
Data company Vortexa has reported that Tehran sold an average of 1.56mn barrels a day during the first three months of the year, almost all of it to China. That’s its highest level since the third quarter of 2018.
This is giving Iran’s economy a $35bn-a-year boost, the Financial Times reports this morning, at a time when Western governments are drawing up fresh sanctions following Iran’s drone and missile attack against Israel last weekend.
Iran’s oil sector is already under sanctions, but it was still the world’s second largest source of supply growth in 2023.
Earlier this week US treasury secretary Janet Yellen said the Biden administration was poised to take “additional sanctions action against Iran in the coming days”, adding that there may be “more to do” on Tehran’s oil trade.
Vortexa’s data shows how this could be a challenge.
As Fernando Ferreira, head of geopolitical risk service at the Rapidan Energy Group in the US, put it to the FT:
“The Iranians have mastered the art of sanctions circumvention.
“If the Biden administration is really going to have an impact, it has to shift the focus to China.”
UPDATE:
— Andrew Neil (@afneil) April 18, 2024
Iran exported 1.56m barrels a day during the first three months of the year, almost all of it to China and its highest level since the third quarter of 2018. Iran will make $35 billion from oil exports this year.
As US and EU look at renewing/tightening sanctions… https://t.co/LynqXfQIzq
Introduction: Hunt says Thames Water customers shouldn't pick up the tab for its mistakes
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Thames Water must sort out its own financial problems, chancellor Jeremy Hunt has declared, as the future of the trouble water company hangs in the balance.
Speaking in Washington last night, Hunt told reporters that the government would never insure investors against poor decisions.
During a visit to Washington for the spring meetings of the IMF and World Bank, the chancellor said:
“It would be completely wrong for Thames Water customers to pick up the tab for bad decisions by Thames Water’s owners and managers.”
Hunt’s comments come as Thames Water prepares to tap the debt markets in an attempt to fund a rescue plan and repair its finances.
Its board is expected to meet today to rubber-stamp a revised five-year spending plan, which could be released tomorrow; it would then approach lenders to fund the proposals in the coming days.
The Guardian reported last weekend that Thames Water – which has debts of £14bn - has just six weeks to convince its regulator that it has a viable survival plan for its business.
Although it could have enough cash to survive for about 15 months, insiders and investors fear that it must move quickly to strike a deal with its watchdog to stave off insolvency.
Its parent company, Kemble Water Finance, missed an interest payment earlier this month, after its investors abandoned plans to provide £500m of emergency funding in a row with the water regulator. Thames has been pushing Ofwat to let it raise bills by 40%.
Hunt said the government was prepared for “all possible outcomes”, but also denied that the UK’s reputation as a destination for international investment would suffer if Thames Water fell into administration.
The chancellor argues that markets need to work properly, saying:
“Of course we want to attract investment into the UK but we do that on the basis of laws and making sure we have transparent regulation and people are able to get very good returns.”
The agenda
7am BST: EU car sales for March
10am BST: Eurozone construction output for February
1.30pm BST: US weekly jobless data
