Sterling is down by 0.45% against the US dollar at $1.2689 this morning – a move that would end a 10-day winning streak for the pound.
The pound briefly broke above $1.28 on Wednesday for the first time since 12 March, after the dovish Fed scotched any hopes of interest rates rising any time soon. (Interest rate increases generally make a currency more attractive relative to others.). However, the pound dropped back on Thursday.
The dollar basket, which measures its performance against a broad basket of currencies, is up today, but only after hitting a three-month low. The rush for dollars that characterised the early crisis (and nearly caused a financial crisis to go with the health and economic crises) has now well and truly eased.
Chemicals company Johnson Matthey to cut 2,500 jobs
Another round of big job losses that we missed earlier: chemicals company Johnson Matthey plans to make 2,500 redundancies as it halved its dividend.
The company is a major supplier of material for catalytic converters on cars, amid a major fall in vehicle sales prompted by the coronavirus pandemic.
The cuts will affect 17% of its total workforce.
Johnson Matthey said costs cuts would come from consolidating plants in its clean air division, which accounts for about 60% of sales, and by using better technology to simplify the organisation, Reuters reported.
The company said, however, that it would accelerate its growth strategy by investing £400m in 2021 with a focus on climate change and sustainable technology.
Following automotive OEM (original equipment manufacturers)shutdowns earlier in the year, we are now seeing our customers gradually reopen their plants. However, visibility on the path of recovery remains low.
Russ Mould, investment director at AJ Bell, said:
Johnson Matthey’s decision to cut its dividend – and in the process end a streak of increases that dates back to the late 1980s – means that 48 FTSE 100 firms have now announced some kind of reduction to or suspension of payments to shareholders, compared to 47 that have kept or increased them since the start of the year.
Advisors for Intu have reportedly asked the company’s bondholders for £12m to keep the shopping centres it owns running through an administration process, according to Sky News.
Intu, which owns Manchester’s Trafford Centre and the Metrocentre in Gateshead among 17 UK malls, might not be able to keep running during administration without the injection, Sky News said.
KPMG has been lined up to carry out an administration if Intu fails to agree a deal with investors over its debt repayments.
Lloyds fined £64m for unfair treatment of struggling mortgage customers
Lloyds has been fined £64m by the City watchdog after an investigation found the bank failed treat mortgage customers fairly after they fell into financial difficulty.
The fine is linked to Lloyds’ mishandling of over 526,000 mortgage customers between 2011 and 2015, who have since been reimbursed a combined total of £300m.
The Financial Conduct Authority (FCA) said Lloyds had avoided a higher fine of £91m because it had accepted the regulator’s findings.
The bank’s “systems and procedures for gathering information from mortgage customers in payment difficulties or arrears resulted in the banks’ call handlers not consistently obtaining adequate information to assess customers’ circumstances and affordability”, the FCA said.
Mark Steward, the FCA’s executive director of enforcement and market oversight, said:
Banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations. By not sufficiently understanding their customers’ circumstances the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears, over several years. In some cases, customers were treated unfairly, including vulnerable customers.
Customers should still pay what is owed, but banks are obliged to treat their customers fairly when making new payment arrangements.
Firms should take notice of the action we have taken today to ensure that their own treatment of customers meets our expectations.”
More than 1m British businesses have furloughed at least one employee, according to data from HM Revenue and Customs that covers up to 31 May.
Claims up to that point totalled £17.4bn, HMRC said. The government pays 80% of wages up to £2,500 a month under the scheme.
You can see from the below table which sectors were the biggest claimants, with retail leading the way followed by accommodation and food services. There was also a very large number of manufacturing claims, given its relatively small share of the total economy.
More than a fifth of normal household spending has been prevented by the lockdown, according to interesting new data from the Office for National Statistics (ONS).
In the financial year ending March 2019, UK households spent an average of £182 per week on activities that have since been largely prevented by government guidelines (such as travel, holidays and meals out).
This is equivalent to 22% of a usual weekly budget of £831, money that households could be saving, spending in other areas or using to cover any loss of income.
Britons have been paying back debt at rates unprecedented in recent times – although there is a stark divide between those whose income has not fallen and those who have been badly affected. Figures from the Bank of England show £7.4bn of consumer credit was repaid during the first full month of strict restrictions on business and social life, the largest net repayment since records began in 1993.
And the ONS said that younger households, renters and people living in London were the most vulnerable to a fall in income, because they spend the highest proportion on essentials: food and shelter.
The ONS has also made a handy interactive graphic showing where the average Briton spends her or his money.
(If the below graphic does not function you can try the original post on the ONS website.)
The government is clearly happy with the Unilever decision: business secretary Alok Sharma has said it represents a “vote of confidence” in the UK.
Although given the revolt by major shareholders when Unilever tried to do the reverse move to the Netherlands, it does not appear the company had much choice…
There’s a fair bit of Anglo-Dutch stock market action today. Just Eat Takeaway is headquartered in the Netherlands but its Just Eat arm was founded in the UK. Added to that recipe will be a dash of New York, as it acquires GrubHub for £5.8bn.
The tie-up will give the Netherlands-based Just Eat Takeaway access to the lucrative food delivery market in the US, writes the Guardian’s Joanna Partridge in her full report.
The combined business will be able to serve customers in 25 countries. Along with the US, these include some of the world’s most profitable food delivery markets – the UK, Netherlands and Belgium.
Under the terms of the deal, which will need approval from both sets of shareholders, Grubhub’s shareholders would own 30% of the combined group.
You can read the full report here:
Italian industrial output was not quite as bad as expected in April, according to data just published – but it still suffered an eye-watering monthly fall.
Production in April dropped 19.1% month-on-month, according to the National Institute of Statistics in Italy, better than economists’ expecations of a 24% drop.
However, it still points to a massive recession in the Italian economy, which was the first European country to enter a full lockdown.
Almost an hour into trading and the mood on European stock exchanges is, if anything, bleaker.
The FTSE 100 has lost 2.5% or 158 points to trade at around 6,169 points. There are falls of similar proportions across Europe’s main markets.
More UK job losses from this morning: Heathrow Airport has started a voluntary redundancy scheme as it tries to cut costs.
Heathrow said that passenger numbers in May were down 97% and it was preparing for further declines due to Britain’s quarantine rule, which means that arrivals in the UK must quarantine for two weeks. The move has triggered a big backlash against the government by the airline industry. Via Reuters:
The airport, which has about 7,000 staff, said on Thursday that its employment levels were no longer sustainable and that it had agreed to start voluntary redundancy with unions.
“While we cannot rule out further job reductions, we will continue to explore options to minimise the number of job losses,” Heathrow Chief Executive John Holland-Kaye said in a statement.
The majority of the Centrica job losses will come in the second half of 2020 – in another sign of the difficulties facing the economy as government withdraws its furlough scheme that is paying many workers’ wages.
That said, Centrica was struggling even before the coronavirus pandemic. The Guardian’s Nils Pratley in April wrote:
Everything is going wrong at once. Power usage in the UK has plunged as offices and factories have shut. Bad debts will inevitably rise among small businesses and British Gas consumers.
Ominously, Centrica also said it would seek to “simplify terms and conditions” for those UK employees who do not lose their jobs. The company said:
Centrica has over 80 different employee contracts, each with multiple variants, with many of the agreements dating back over 35 years. We need to modernise these to enable us to best serve the changing expectations of today’s customers while retaining the quality of our services.
Centrica chief executive Chris O’Shea is only three months into the job, having abruptly taken over from Iain Conn as the crisis hit. He said:
I believe that our complex business model hinders the delivery of our strategy and inhibits the relentless focus I want to give to our customers. We have great people, strong brands that are trusted by millions and leading market positions, but the harsh reality is that we have lost over half of our earnings in recent years. Now we must bring focus by modernising and simplifying the way we do business.
I truly regret that these difficult decisions will have to be made and understand the impact on the colleagues who will leave us. However, the changes we are proposing to make are designed to arrest our decline, allow us to focus on our customers and create a sustainable company.
British Gas owner Centrica to cut 5,000 jobs
British Gas owner Centrica has said it plans to cut 5,000 jobs as part of a significant management shake-up.
Over half of the struggling utility copmany’s cuts will be concentrated in management roles, the company has announced.
The company will have fewer customer-facing business units all of which will report directly to the CEO. Three management layers will be removed to create a flatter, less bureaucratic organisation which is closer to, and focused on, the customer. As a result of these changes, around half of the current 40 strong Senior Leadership Team will leave the group by the end of August.
More details to come shortly.
Unilever to merge double structure into single UK PLC
Anglo-Dutch conglomerate Unilever has decided to simplify its corporate structure and move to a single UK entity – potentially ending a long-running saga that has seen it dragged into the Brexit debate.
Unilever, which owns brands such as Marmite, Hellman’s and Magnum, had planned to move its headquarters to the Netherlands two years ago, but backed down after London-based investors revolted. The move would have shunted it off the FTSE 100, a problem for some investment mandates.
The formation of the Britain-based parent, Unilever PLC, will be achieved through a cross-border merger between Unilever PLC and Unilever NV, with shareholders of Unilever NV getting one share of Unilever PLC in exchange for each share held. Share listings will be retained in both countries.
The Dutch media has its own take that will be painful for its government: Volksrant says the move is a “Blow for Rutte”, the prime minister. The Dutch government had tried to lure Unilever to make Amsterdam its main listing.
The FTSE 100 selloff has been worse than feared in the opening minutes: London blue-chip stocks are down by 2.4%.
Germany’s Dax index is down by 2.5%, while France’s Cac 40 has lost 2.1%. There are losses of more than 2% in Italy and Spain as well.
Just Eat Takeaway to buy GrubHub for $7.3bn
Just Eat Takeaway has announced a takeover deal with US-based rival GrubHub for $7.3bn, in a move that will create the world’s largest fast food delivery service outside of China if completed.
The move was a blow to Uber, who had approached GrubHub about a merger with its subsidiary, Uber Eats. However, the deal foundered amid concerns over US regulatory action.
Just Eat only completed a merger with Dutch rival Takeaway in January.
Just Eat Takeaway shares fell by another 1.7% in early trading in London, having fallen by 13% last night when the talks were first revealed.
Federal Reserve pessimism drags down stock markets
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
Stock market indices around the world have tumbled after Federal Reserve chairman Jerome Powell delivered a pessimistic outlook for economic growth and suggested that it would be a long time before the central bank would be able to withdraw support for the economy.
Japan’s Nikkei 225 lost 2.8%, the broader Topix lost 2.2%, and the Hang Seng index in Hong Kong fell by 2%. In mainland China the Shanghia Stock Exchange lost 0.9%.
FTSE 100 futures suggest stocks in London could fall by a steep 1.9% at the opening bell, while Germany’s Dax could lose 2.1%.
The reality check for markets came after Federal Reserve forecasts showed US GDP shrinking by 6.5% this year (an election year!). The Federal Reserve’s rate-setting members’ forecasts suggested that interest rates would remain near zero throughout 2022 – a “strong signal” that it believes the effects of the crisis will be lasting, according to analysts at Deutsche Bank led by Jim Reid, head of thematic research. He said:
The Fed reiterated that it expects to maintain the near-zero fed funds rate until it is confident the economy is on track to achieve the central bank’s dual mandate. […] Powell reinforced this message with the line that they are not even “thinking about thinking about raising rates.”
Despite the crisis, the S&P 500 is still almost at the level it reached at the beginning of the year. In normal times that would indicate that economic prospects were apparently unchanged, a reading that is patently untrue.
The Fed’s dovish tone, suggesting the stimulus will keep coming, initially pushed up stocks last night, but eventually the mood soured.
Seeing as the Fed made it clear they will be keeping rates close to zero for a few years, US stocks were initially pushed up by the announcement, but the bullish move didn’t last
There could be further doses of reality for investors later when the latest US initial unemployment claims come through, showing how many people felt they needed to claim out-of-work benefits.
- 9am BST: Italy industrial production (April)
- 1:30pm BST: US initial jobless claims (week of 6 June)