Closing post
That’s all for another week – here are today’s main stories:
And do check out our investigation into addiction in the gaming industry:
Have a lovely weekend. GW
FTSE 100's best week since March
Despite an underwhelming day’s trading today, Britain’s blue-chip share index has just posted its best week since the spring.
The FTSE 100 index has gained 2.45% this week, or 177 points, to close at 7,434 points tonight.
Today it lost 5 points, in a rather dreary session.
But its weekly gain is the best since the last week of March.
Stocks have been lifted by optimism that America is winning in its battle against inflation, after the CPI index rose by 3% in the year to June.
That raised the hope that “the Federal Reserve is near to the end of its interest rate hike cycle,” says Danni Hewson, head of financial analysis at AJ Bell.
More than 850 people referred to clinic for video game addicts
More than 850 people have been referred to a clinic for video gaming addicts, as experts warn the UK is not doing enough to tackle gambling-style features in games on mobile phones and consoles, my colleague Rob Davies writes.
The National Centre for Gaming Disorders (NCGD), which had its first patient in 2020, was originally given NHS funding based on seeing just 50 people a year. But the specialist London clinic has been treating 30 people a month since the end of March this year – more than seven times anticipated demand – taking the total to 855.
As Rob explains here, there is no national self-exclusion scheme to bar addicts from computer gaming, as there is gambling, despite the various techniques used to hook gamers and encourage them to spend.
Professor Henrietta Bowden-Jones, director of the National Centre for Gaming Disorders, writes that she has frequently been contacted by relatives of young gamers who were desperate for help.
She explains:
We have now been operating for just over three years and have had about 800 referrals to a clinic that was expected to see no more than 50 patients a year and was funded accordingly by the NHS.
The desperation of the families trying to address the disruption that gaming harms have had on their children is extreme. I was not prepared for what we came across, with violence within the home and refusal to go to school being prominent.
Professor Bowden-Jones adds that the most important lesson is that early intervention, by seeking help before children retreat to their bedrooms and refuse to attend school, is vital to the wellbeing of the family.
Some of the companies whose Gatwick workers will strike later this month and in August have said they will continue to work towards a pay deal.
Phil Lloyd, senior vice-president UK, Menzies Aviation, said:
“Sadly, Unite has rejected our earlier pay increase of 11% for our ground services employees at Gatwick Airport.
“This pay award relates to our 2023 pay review and is in addition to the 10% increase awarded in 2022.
“We are in continued discussions with our airline partners and remain committed to seeking a resolution.
“We have invited Unite to return to the table to continue discussions and hope to be able to reach an agreement which is workable for both the business and our employees.”
“We will continue to work to pursue an agreeable solution to protect service to our airline and airport partners and their customers.”
A spokesperson from DHL Supply Chain said:
“We are disappointed to hear that Unite and its members have voted in favour of industrial action at our Gatwick ground handling operation.
“However, we continue to work closely with Unite to reach a satisfactory conclusion for all parties.”
new data: a huge gain in consumer sentiment per the Univ of Michigan’s measure of consumer confidence -- jumped way more than expected: the largest gain in sentiment *since 2006* pic.twitter.com/Z9bCkTl0Oq
— talmon joseph smith (@talmonsmith) July 14, 2023
US consumer sentiment near two-year high as inflation eases
Subsiding inflation has helped to push US consumer sentiment to the highest level in nearly two years this month.
The University of Michigan’s index of consumer morale has jumped 72.6 this month, the highest reading since September 2021, compared to 64.4 in June.
Consumers grew more optimistic about current economic conditions, and the outlook for the economy, although poorer Americans didn’t share the uptick in morale.
Surveys of Consumers director Joanne Hsu says:
All components of the index improved considerably, led by a 19% surge in long-term business conditions and 16% increase in short-run business conditions. Overall, sentiment climbed for all demographic groups except for lower-income consumers.
UMich Consumer sentiment highest since September 2021 (72.6), here it is broken out by political affiliation: {ECST T CONSSDEM<Go>} pic.twitter.com/16UxzfgQyZ
— Michael McDonough (@M_McDonough) July 14, 2023
The US dollar has weakened this week, on expectations that the Federal Reserve could start cutting interest rates in 2024, after a series of hikes in 2022 and 2023.
Analysts at MUFG Bank explain:
The US dollar suffered significant losses this week as weak CPI and PPI data underline expectations that the Fed’s battle to bring inflation back under control is nearly won.
While expectations remain high that the FOMC will hike this month that hike is likely the last and market participants have increased positioning for rate cuts in 2024.
Pound on track for best week of 2023
Expectations that interest rates will rise faster in the UK than the US in the coming months have put the pound on track for its best week of the year.
Sterling has gained around three cents this week, rising from $1.2836 to a 15-month high over $1.314 earlier today.
That’s the strongest week since November 2022, and a gain of 2.2% against the US dollar since Monday morning.
The dollar has weakened against other major currencies this week. US inflation dropped to just 3% on Wednesday, lower than most other advanced economies, leading to speculation that the US Federal Reserve may raise interest rates for the final time in the current cycle later this month.
But with UK inflation expected to remain over 8% in June, the Bank of England is forecast to raise Bank Rate to 6% by December, from 5% today.
This week’s rally has come despite concerns that the UK economy could have contracted in the second quarter of 2023, after GDP fell by 0.1% in May.
This morning’s warning of a sharp drop in the number of advertised job openings in England (see earlier post) has not, yet, caused wobbles in the market.
The FTSE 100 index of blue-chip shares is up 0.3% today, on track to gain around 2.8% this week after a strong rally on Wednesday. That would be its best week since March.
Haleon CEO: job cuts are "the first of a series of changes"
After the Guardian revealed yesterday that swinging job cuts were underway at GSK spin-off Haleon, its CEO Brian McNamara emailed all staff this afternoon about the layoffs.
He notes that the hundreds of job cuts are just “the first” of a “series of changes” (insiders expect thousands of workers to be made redundant worldwide).
McNamara wrote:
All,
Earlier this year, we announced a three-year productivity programme to transform our ways of working, reduce complexity and make us more cost conscious.
In an ever-changing world, we can’t stand still. We know we need to go beyond and constantly adapt and evolve, so we stay ahead of our competitors and continue to be a leader in consumer health.
When we created Haleon, we did what mattered most and prioritised business continuity so we could deliver for our consumers and customers. But today, we know that life at Haleon can feel complicated and slow. We need to make changes to our organisation so we can operate with speed and agility.
This week, we began to make changes to how we are organised. Colleagues who are impacted have already been informed and you’ll hear more from leaders in the coming weeks, allowing for consultation periods in some markets.
We know that change is unsettling, particularly when accompanied by media coverage which can create more anxiety and raise more questions. The changes we are proposing have not been made lightly. I do believe, however, that they are critical for our company to set us up for success for years to come. I can assure you that all changes have been well considered and will be thoughtfully implemented. They are the first of a series of changes across our business that we will make to improve how we perform and enable more growth.
Thank you.
Brian.
Updated
Over in Westminster, the government is trying to avoid being drawn into the pay row between Unite and the four Gatwick service providers that has led to the strikes announced today, my colleague Aubrey Allegretti reports.
Rishi Sunak’s spokesperson told reporters it was “not for me to dictate to private companies what pay they set their staff” and added it was up to the businesses involved to decide “what is appropriate”.
They pointed out that private sector wages had risen by between 5-7% over the past year - in line with the offers made to public sector workers on Thursday.
The strikes scheduled at Gatwick later this month, and in August, are just one of several possible causes of disruption this summer.
At Birmingham Airport, for example, around 100 security officers and terminal technicians will begin continuous strike action from July 18. That could lead to flight delays, the Unite union has said,
There is also industrial action planned or already underway across Europe, as this factbox from Reuters shows:
EUROCONTROL
One of the Eurocontrol trade unions has announced a six-month period when industrial action could take place in the Network Manager Operations Centre, which oversees traffic across the European airspace, the pan-European organisation said on July 7. The union has not set specific dates for a strike.
BELGIUM
Ryanair pilots in Belgium will strike on July 15-16 in demand of higher wages and better working conditions, their union said on July 7. The strike could affect around 140 flights from Charleroi airport, but it is yet unclear how many pilots will join and how many flights will need to be cancelled.
FRANCE
Repeated air traffic control (ATC) strikes in France, related to President Emmanuel Macron’s plan to raise pension age, have led to delays and limited flights across the country, causing more air space congestion in Europe.
Ryanair, which has asked the European Commission to protect overflights from strike disruption, cancelled more than 900 flights in June mainly due to French ATC strikes.
ITALY
Multiple unions have called a nationwide airport staff strike on July 15 related to talks for a new collective contract. Air traffic controllers, baggage handlers and check-in personnel along with Italian pilots of Vueling will walk out between 10 a.m and 6 p.m. local time. Malta Air pilots and flight attendants will join them from noon for four hours.
Talking to Italian media, Transport Minister Matteo Salvini said the companies and workers would meet the following week to continue negotiations.
Air traffic control company ENAV has confirmed there will be no strikes in the Italian air transport sector between July 27 and Sept. 5 due to a summer exemption provided for in the industry regulations.
PORTUGAL
Easyjet cancelled 350 flights arriving to or departing from Portugal ahead of a cabin staff strike on July 21-25, the SNPVAC union of civil aviation flight personnel said. It will be the union’s third strike since the beginning of the year.
SPAIN
Pilots at Iberia Regional Air Nostrum, who had been striking every Monday and Friday since Feb. 27, went on a daily indefinite strike from June 6 amid a pay dispute. As of July 14, Iberia said on its website some flight routes could be affected.
Updated
Back at Gatwick, easyJet has said further talks between its ground handler DHL and Unite were taking place next week.
With eight days of strike action looming, EasyJet says:
“We urge them to reach an agreement as soon as possible.”
PMorgan Chase & Co. and Wells Fargo & Co. both beat analyst expectations for second-quarter earnings on Friday, helped by rising interest rates and strong trading revenue.
— Christopher de Chalain (@ChrisDechalain) July 14, 2023
JPMorgan's earnings per share of $2.73 beat analysts' estimates of $2.68, while Wells Fargo's earnings per… pic.twitter.com/elJzu1V7Gw
Another US bank, Wells Fargo, has also benefited from the rise in interest rates hitting consumers.
Wells Fargo has reported a 57% rise in second quarter profits, as it earned more from customer interest payments. The bank has also raised its annual forecast for net interest income (NII).
Chief Executive Officer Charlie Scharf explains:
“We reported solid results in the second quarter, with net income of $4.9 billion and revenue of $20.5 billion. Our strong net interest income continued to benefit from higher interest rates, and we remained focused on controlling expenses.
But, like JP Morgan, Wells Fargo has set aside more money to cover bad debts.
Its allowance for credit losses has risen by $949m, primarily for commercial real estate office loans, as well as for higher credit card loan balances.
The jump in profits at JP Morgan in the last quarter highlights how higher interest rates are good for bank profitability.
Chris Beauchamp, chief market analyst at IG Group, explains:
JPMorgan’s numbers have demonstrated the overwhelming strength of big banks over their smaller competitors, after it unveiled a 67% surge in profits for Q2.
Higher interest rates will continue to drive strong performance, it added. This looks like a very healthy set of numbers, and will boost hopes that earnings have begun to recover, something that might drive further stock gains in the second half of the year.
JP Morgan's Dimon warns of risks, after lifting credit loss provisions
Just in: Wall Street giant JP Morgan has set aside more funds to cover potential losses from customers defaulting on their debts as high inflation and interest rates hit consumers.
In its second-quarter financial results, just released, JP Morgan has increased its provision for credit losses to almost $2.9bn, up from $1.1bn in the second quarter of 2022.
The increase is partly due to JP Morgan having rescued regional lender First Republic earlier this year. It set aside $1.2bn to cover credit losses at First Republic – so exclude that, and the provision was $1.7bn.
JP Morgan also reported a $2.7bn “bargain purchase gain” on its takeover of First Republic at the start of May, after the second-biggest bank failure in US history.
Overall, net income rose to $14.4bn in the quarter, or 67% higher than a year ago.
CEO Jamie Dimon said the US economy continues to be resilient, but warns of several risks:
Consumers are slowly using up their cash buffers, core inflation has been stubbornly high (increasing the risk that interest rates go higher, and stay higher for longer), quantitative tightening of this scale has never occurred, fiscal deficits are large, and the war in Ukraine continues, which in addition to the huge humanitarian crisis for Ukrainians, has large potential effects on geopolitics and the global economy.
Recession 'may be imminent' as job vacancies fall
A sharp drop in the number of advertised job openings in England is raising fears that the UK will slip into recession this year.
Bloomberg are reporting that the number of jobs listed with Reed Recruitment in the April-June quarter are down 24.4% year on year, and over 26% lower than before the pandemic in 2019.
Chairman James Reed in the prospects for the UK.
“The alarm bell is sounding a lot louder now than it was, as the labor market is beginning to loosen.
This continued contraction in job postings, which have been falling since this time last year, therefore suggests that a recession may well be imminent.”
Job vacancies have fallen sharply, according to data from Reed recruitment, sparking fears the UK could be headed for a recession
— Bloomberg UK (@BloombergUK) July 14, 2023
Here’s why: https://t.co/BAw5BSDEch pic.twitter.com/0OPOmCQauL
Vacancies are a good gauge of corporate confidence, and whether firms feel demand is strong enough to justify taking on more staff.
On Tuesday, the Office for National Statistics reported that vacancies fell by 85,000 on the quarter to 1,034,000 – just as the cost of living squeeze pressed more people back into the labour market.
Reed’s data is more timely, and “the picture isn’t pretty”, says Bloomberg, adding:
Vacancies on Reed’s platform, adjusted to account for seasonal fluctuations, fell by 16,127 between the first and second quarters of this year — a 10% plunge.
A decline of that scale, if mirrored in the official statistics, historically has been associated with a 0.6% contraction in GDP in the same quarter, said Dan Hanson at Bloomberg Economics. In this case, that would mean a sharp contraction in the quarter that ended on June 30.
More here: England’s Falling Job Advertisements Ring a Recession Alarm
There could be additional strike action at Gatwick this summer too, on top of what’s just been announced.
That’s because Unite is also balloting its members at DHL Gatwick Direct, Red Handling and Wilson James who are employed at Gatwick.
All three ballots will close at the end of the month – if workers vote for industrial action, then strikes in these companies could begin by mid-August.
@unitetheunion is also balloting its members at DHL Gatwick Direct, Red Handling and Wilson James. All three ballots will close on Monday 31 July if workers vote for industrial action, the strikes in these companies could begin by the middle of next month.
— Taj Ali (@Taj_Ali1) July 14, 2023
Updated
The airlines affected by the strikes at Gatwick will include British Airways, Easyjet, Ryanair, TUI, Westjet and Wizz, Unite say.
“Our members at Gatwick Airport undertake incredibly demanding roles and are essential to keeping the airport and airlines working, yet their employers somehow think it is acceptable to pay them a pittance.” @UniteSharon#JobsPayConditionshttps://t.co/vHLc34HGLe
— Unite the union: join a union (@unitetheunion) July 14, 2023
Britain’s cost of living crisis is forcing more people to eat into their savings, according to official data which also shows that renters are at greatest risk of financial vulnerability.
The Office for National Statistics reports that around three in 10 people are using their savings because of the rise in cost of living, up from 25% when previously polled in April.
When asked about the important issues facing the UK today, the most reported issues continue to be:
— Office for National Statistics (ONS) (@ONS) July 14, 2023
🛒Cost of living (92%)
🚑 NHS (88%)
💷 economy (79%)
🌍 climate change and the environment (62%)
The ONS also reports that renters are 4.7 times more likely to experience financial vulnerability compared with those who own their home outright, while mortgage holders are twice as likely.
That difference may be because, on average, renters spend 21% of their disposable income on rent (21%), while mortgage holders spend on averare 16% of their disposable income on their mortgage, ONS research shows.
Today’s report shows that over 4 in 10 renters are finding it difficult to afford their rent payments, compared with almost 3 in 10 (28%) mortgage holders.
And around 1 in 20 of adults reported that in the past two weeks they had ran out of food and had been unable to afford more.
5% of adults said they'd run out of food in the past 2 weeks and couldn't afford more. This was higher in some groups, those:
— Office for National Statistics (ONS) (@ONS) July 14, 2023
▪️ supported by charities (45%)
▪️ lone parents (household with one adult and at least one child) (28%)
▪️ receiving benefits or financial help (21%) pic.twitter.com/UAFe7fCpy8
Gatwick Airport is already suffering major disruption due to air traffic control (ATC) restrictions, PA Media points out.
Strikes, staff shortages and air space closures related to the war in Ukraine mean ATC providers are limiting flight numbers across Europe.
Gatwick is the busiest single-runway airport in the world, but its flight numbers are currently capped at peak times due to the ATC issue.
The problem recently forced easyJet to cancel 1,700 summer flights, mostly from Gatwick.
Gatwick: We'll support airlines with their contingency plans
A Gatwick spokesperson says:
“We are aware of the recent ballot result and will support our airlines with their contingency plans to ensure that flights operate as scheduled.”
Updated
Unite says the majority of the 950 Gatwick staff who will strike this summe are paid below £12.00 an hour, despite undertaking highly demanding and safety critical roles.
It says it has been negotiating on pay with ASC, Menzies Aviation, GGS and DHL Services Ltd since January, but the firms have not made offers that meets the workers’ expectations.
Unite general secretary Sharon Graham said:
“Our members at Gatwick Airport undertake incredibly demanding roles and are essential to keeping the airport and airlines working, yet their employers somehow think it is acceptable to pay them a pittance.
“As part of Unite’s unyielding focus on the jobs, pay and condition of its members the union has drawn a line in the sand and is committed to eradicating the scourge of low pay at the airport.”
London's Gatwick airport faces eight days of strikes over pay
Nearly a thousand workers are set to take eight days of strike action at Gatwick Airport in July and August in a dispute over pay, which unions say will disupt the summer holiday getaway.
The Unite union has announced that 950 staff working for ASC, Menzies Aviation, GGS and DHL Services Ltd will take part in a four-day strike from Friday 28 July to Tuesday 1 August, and a second four-day strike from Friday 4 August to Tuesday 8 August.
All four companies conduct outsourced operations for major airlines, including ground handling, baggage handling and check in agents roles.
Given the scale of the industrial action, disruption, delays and cancellations are inevitable across the airport, Unite says.
Unite regional officer Dominic Rothwell said:
“Strike action will inevitably cause severe delays, disruption and cancellations across Gatwick’s operations but this dispute is entirely of the companies own making.
They have had every opportunity to make our members’ a fair pay offer but have chosen not to do so.”
Updated
Nokia warns on profits as rising inflation hits sales
Finnish telecommunications firm Nokia has cut its sales and profit outlook for the year, warning that rising interest rates are hitting its business.
Nokia cut its sales forecast for this year to between €23.2bn and €24.6bn, down from between €24.6bn-€26.2bn
It also cut its profit margin range to 11.5%-13%, from 11.5%-14% before.
Nokia, which sells telecoms network hardware, software and related services, says the macro-economic environment is leading to weaker demand, saying:
Customer spending plans are increasingly impacted by high inflation and rising interest rates along with some projects now slipping to 2024 – notably in North America.
Some customers are also ‘normalising’ their inventories, following the supply chain disrupion of the past two years, which led to stockpiling.
Shares in Nokia have fallen around 8% in early trading.
Turning from the poverty crisis to luxury goods…. Burberry has reported a bounce in sales in China following its pandemic reopening.
Sales in mainland China jumped 46% in the first quarter of the financial year (the 13 weeks to 1 July).
That helped Burberry to grow its comparable store sales by 18%, with strong sales of ‘heritage rainwear’ (ie raincoats) and leather goods (such as handbags).
It told shareholders:
The Group benefitted from strong underlying growth in EMEIA [Europe, the Middle East, India and and Africa.], South Asia Pacific and Japan as well as the recovery in Mainland China from COVID-19 related lockdowns last year.
But, sales in the America fell by 8%, as consumers cut back.
Burbery says:
Globally, the Americas customer decreased mid-single digit with the decline in locals partially offset by outbound tourist spend.
165 million additional people fell into poverty between 2020 to 2023.
— UN Development (@UNDP) July 14, 2023
In our new policy brief, we call for a Debt-Poverty Pause to mitigate poverty until the multilateral system addresses #debt restructuring at speed and scale. https://t.co/4DkmymHBhq #HLPF pic.twitter.com/mJiQjn5WEZ
Finance ministers from G20 nations are meeting in India next week, where they should discuss measures to tackle poverty, along with reforming the world’s top multilateral institutions and the international debt architecture.
Achim Steiner, UNDP administrator, called the surge in poverty alarming, Reuters reports.
He told journalists.
“What this means is a government that can no longer pay its teachers; a government that can no longer employ doctors and nurses in hospitals, that cannot provide the medicines for rural health centers.”
Updated
The United Nations Development Programme (UNDP) has calculated it would cost around $14bn to lift back out of poverty the extra 165m people since 2020 who are living on less than $3.65 a day.
The solution “is not out of reach for the multilateral system”, they say.
UNDP chief economist George Gray Molina argues that a “Debt-Poverty Pause” would be triggered automatically when a country suffers an economic shock, so it can redirect debt repayment towards financing social expenditures.
Molina says:
“This systemic addition to the international financial architecture should be triggered automatically, to stabilize free-falls when exogenous shocks shrink developing countries’ fiscal space, bloat their debt servicing and throw households into poverty.
This is the beginning of a new adaptive social protection architecture to prepare for a future prone to shocks.”
Updated
UN agency calls for debt pause option as poverty rates rise
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Global finance ministers are being urged to give poor countries debt repayment breaks, to cushion the developing world from the impact of high interest rates.
In a new report, the United Nations is calling for a “Debt-Poverty Pause”, so developing countries can redirect debt repayments toward critical social expenditures.
Such a pause would mitigate poverty, they argue, until the multilateral system can address debt restructuring “at speed and scale”.
The United Nations Development Programme (UNDP) reports that poverty rates in poor countries have surged over the last three years, with another 165 million people now living on less than $3.65-a-day.
These additional poor all live in low and lower-middle-income economies, UNDP says, with the poorest 20% in low-income countries still suffering incomes below their pre-pandemic levels in 2023.
Rising debt servicing costs are making it increasingly harder for countries to support their populations through investments in health, education and social protection, warns Achim Steiner, UNDP Administrator.
Steiner explains:
“Countries that could invest in safety nets over the last three years have prevented a significant number of people from falling into poverty. In highly indebted countries, there is a correlation between high levels of debt, insufficient social spending, and an alarming increase in poverty rates.
Today, 46 countries pay more than 10 percent of their general government revenue on net interest payments.
Steiner warns there is “a human cost” in not acting to restructure developing countries’ sovereign debt, adding:
“We need new mechanisms to anticipate and absorb shocks and make the financial architecture work for the most vulnerable.”
The increase in interest rates over the last year or so has hit developing nations hard, the UNDP explains.
Those escalating borrowing costs, and the stronger dollar, make repaying loans and raising money significantly more expensive for dozens of developing nations.
The average low-income country devotes between twice and three times as much, as a share of their revenue, on servicing interest payments compared with the average high-income country, UNDP say.
Highly indebted developing countries have run out of fiscal space for continued debt-financing, which forces them to cut spending on social protection, says UNDP chief economist George Gray Molina, adding:
In the absence of credible debt relief, these countries are not able to deliver this ‘temporal and targeted’ support.”
Late last month, the World Bank proposed that poor countries should be able to pause their debt repayments if hit by climate disaster.
Yesterday, Britain’s fiscal watchdog warned that the UK’s public finances are in a “very risky” period after a series of shocks, including the Covid pandemic, the war in Ukraine and the cost of living crisis.
The independent Office for Budget Responsibility said national debt could surge to more than 300% of gross domestic product by the 2070s.
The agenda
9.30am BST: ONS report on the impact of increased cost of living on adults across Great Britain
10am BST: Eurozone trade balance for May
3pm BST: University of Michigan survey of US consumer sentiment
