US President Joe Biden economy recession inflation interest rates Federal Reserve – MICHAEL REYNOLDS/EPA-EFE/Shutterstock
FTSE 100 slips 0.2pc into the red amid deluge of results
The US has plunged into recession as soaring inflation hammers the world’s largest economy.
GDP fell 0.9pc in the second quarter, according to the Commerce Department. That came after a 1.6pc decline in the first three months of the year.
The two consecutive quarters of contraction mean the US is now in a technical recession.
Personal consumption, the largest part of the economy, rose 1pc. However, this was a slowdown from the previous period.
It comes as President Joe Biden grapples with surging inflation, which last month hit 9.1pc – a 40-year high.
The Federal Reserve last night confirmed its second 75 basis-point interest rate rise in an effort to keep a lid on soaring prices. However, the move will fuel concerns about a slowdown in the economy.
03:10 PMCheap copies of GSK’s HIV prevention drug could be ready in 2026
GSK has struck a deal to allow low-cost generic versions of its long-acting HIV preventive medicine to be used in the developing world, including sub-Saharan Africa where the virus remains a leading cause of death.
Each year, roughly 1.5m new cases of HIV are recorded globally, most of which occur in resource-limited countries, and disproportionately impact women and adolescent girls.
The deal involves GSK issuing a voluntary licence – so the intellectual property does not get in the way – to the United Nations-backed healthcare organisation, the Medicines Patent Pool (MPP).
Following that, the MPP offers generic manufacturers the opportunity to apply to make copycat versions of the injected drug, cabotegravir, for the 90 countries that represented 70pc of all new HIV cases in 2020.
02:57 PMHanding over
That’s all from me for today – thanks for following! Handing over now to my colleague Giulia Bottaro.
02:47 PM’Crazy’ lack of staff meant we missed out on property boom, says Foxtons boss
The boss of Foxtons has acknowledged the company missed out on booming property markets due to a ‘crazy’ lack of staff.
Helen Cahill has more:
The interim chief executive has pledged to hire more front-line workers to boost sales as it seeks to restore profits that have plunged to just £5.6m last year from £42m in 2014.
Peter Rollings said: “We have a lot of stock both for sale and to let…We have a lot of stock and not enough people to sell it, and as far as I’m concerned that’s a crazy way to be.
“Investment in new negotiators is the key here and that will cost us money obviously, but this sort of business needs investment for the medium term.
“We have to find, retain and make successful great sales people.”
Around a third of businesses are being hampered by staff shortages, according to the Office for National Statistics.
Its research found 35pc of businesses that were not shut down in the pandemic were now experiencing a shortage of workers.
02:35 PMWall Street opens flat after GDP data
Wall Street’s main indices have opened flat after gloomy forecasts from Meta and Qualcomm and data that showed the US has entered a recession.
The S&P 500 opened 0.06pc higher, while the Dow Jones was unchanged and the tech-heavy Nasdaq edged 0.03pc higher.
02:23 PMReaction: Bumpy road ahead for US
Hussain Mehdi at HSBC Asset Management says there’s a bumpy road ahead amid slowing growth and surging inflation.
Although the US economy has entered a technical recession this mainly reflects contributions from trade flows and inventory de-stocking. Underlying activity remains buoyed by a strong labour market and a rotation to services spending.
Nevertheless, growth momentum is undoubtedly weakening amid headwinds such as rapid policy tightening, a significant squeeze in real incomes, and falling confidence.
We see a bumpy road ahead as the Fed attempts to rebalance supply and demand in the economy and an elevated risk of recession in the second half of 2023 as rates push into restrictive territory.
In terms of markets, ongoing Fed tightening and a weakening macro backdrop is likely to constrain performance going into year-end. We remain selective and defensive in our asset class positioning.
For us, a relative preference for US equities over other developed markets continues to make sense, with growth and tech stocks likely to be a major beneficiary of a less hawkish Fed policy stance as inflation cools.
02:08 PMUS jobless claims fall slightly
Separate data just now shows applications for US unemployment insurance fell for the first time in four weeks, but they’re still holding near the highest level since November.
Initial unemployment claims decreased by 5,000 to 256,000 in the week to July 23, according to the Labor Department.
Continuing claims for state benefits fell to 1.36m in the week to July 16.
Jobless claims have generally been rising in recent months and are hovering near the highest since November, coinciding with an increase in job cuts and hiring freezes at high-profile companies in sectors including technology and housing.
Further weakening in what remains a tight labour market is probably on the horizon after the Federal Reserve confirmed another big interest rate rise to tackle surging inflation.
Still, Fed chair Jerome Powell said the labour market remains “extremely tight,” referencing a near-record number of job openings and historically low unemployment.
01:54 PMMore reaction: US not in recession just yet
Seema Shah, chief strategist at Principal Global Investors, says there are some signs of strength in the US economy still.
Policymakers will no doubt be tying themselves in knots trying to explain why the US economy is not in recession.
However, they make a strong point. While two consecutive quarters of negative growth is technically a recession, other timelier economic data are not consistent with recession.
Certainly, with two job openings per unemployed worker and an average 375,000 jobs being added per quarter, the labour market is a picture of strength.
That is not to say the US economy isn’t slowing. With excess savings being whittled down, consumers are being more price sensitive and more deliberate with purchases, while companies are facing greater margin pressures.
Throw in the most aggressive Fed tightening cycle since the 1980s, and a recession in early 2023 is highly likely.
01:48 PMReaction: Outlook for US ‘concerning’
Richard Flynn, managing director at Charles Schwab UK, describes the latest numbers as ‘concerning’.
Today’s announcement is concerning and reflects weaknesses in the stock market and the outlook for corporate profit margins.
The US economy and stock market both struggled in the first half of 2022, as tighter monetary policy, faster inflation, and slower growth dented consumer and business confidence.
The Fed doled out trillions of dollars’ worth of liquidity during the pandemic, boosting the economy. However, it is now aggressively raising interest rates in a bid to control inflation, meaning that liquidity has dried up.
Tightening financial conditions point to a meaningful economic slowdown. Today’s announcement underscores this risk.
01:42 PMUS economy in ‘technical’ recession
The latest GDP figures will make for grim reading in the US.
The 0.9pc slump in the second quarter was driven by the second weakest slump in consumption since 2014, as consumers begin to tighten the purse strings amid soaring inflation.
The two straight quarters of contraction mean the US is now in a technical recession. However, you won’t hear US officials admitting to this.
The US National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators”.
01:19 PMStrike threat hits UK’s biggest container port Felixstowe
Felixstowe port strikes Unite – Chris Ratcliffe/Bloomberg
Staff at the UK’s largest container port have voted in favour of strike action in a dispute over pay, threatening huge disruption across the supply chain.
The dockworkers at Felixstowe join a growing wave of employees, in a range of sectors from rail to telecoms, resorting to industrial action as pay rises fail to keep pace with inflation which is expected to hit double digits in Britain by the end of the year.
The Unite union said workers at the Suffolk hub, which is operated by Hutchison Ports, had been offered a pay increase of 5pc. Hutchison did not immediately respond to a request for comment.
“Strike action would bring Felixstowe to a standstill and would cause major logistical problems for maritime and road haulage transport entering the port,” the union said/
Unite’s regional officer Miles Hubbard said the industrial action would “inevitably create huge disruption across the UK’s supply chain”.
The union did not give specific dates for the strike action, which will take place next month and was supported by 92pc of workers who voted.
Earlier this month Unite said it was also balloting hundreds of dockworkers in Liverpool for possible strike action.
01:00 PMReturn to office dents Nespresso sales
Nespresso sales office – Stefan Wermuth/Bloomberg
Workers returning to offices across Europe have dented demand for Nespresso coffee pods in the region, writes Hannah Boland.
Nespresso sales in Europe slipped in the first six months of the year, with parent company Nestle blaming strong sales last year when much of the continent was stuck at home.
A lockdown-driven boom in at-home coffee drinking pushed Nestle to its fastest quarterly sales growth in a decade last year. That proved tough to match as people began spending less time at home.
Official guidance for remote working only changed in the UK last summer, when the Government said workers should gradually start coming back into city centre offices. Since then, footfall in office hubs has been on the rise. Data compiled by Bloomberg using Pret a Manger figures suggested London City footfall hit 89pc of 2019 levels in May. In London’s West End, they are currently running at 88pc of pre-Covid levels.
Nestle said sales of its coffee capsules globally ticked 1pc higher in the six months to the end of June, but only because of major growth in North America.
Nestle raised prices of the capsules by 4.2pc in the first six months of the year.
12:28 PMRussian economy ‘crippled at every level’ despite Putin’s propaganda
Russia’s economy is being “catastrophically” crippled by Western sanctions according to experts, despite Vladimir Putin’s efforts to hide the damage.
Louis Ashworth has more:
Analysts at Yale looking at “private Russian language and unconventional data sources” say imports have “collapsed” and domestic production “has come to a complete standstill”.
Russia has lost companies representing around two-fifths of its GDP amid an exodus of Western businesses, they claim, undoing about three decades of foreign investment.
The pressures are tipping Mr Putin into “unsustainable, dramatic” fiscal and monetary interventions, the report says, claiming “Kremlin finances are in much, much more dire straits than conventionally understood”.
The report, from Yale’s Chief Executive Leadership Institute, describes itself as “one of the first comprehensive economic analyses” of how Russia’s economy is faring five months on from the invasion of Ukraine.
It belies claims that the West, where many countries are grappling with surging inflation spurred by the conflict, is coming off worse than Russia in the war of economic attrition unleashed by unprecedented sanctions.
12:02 PMUS futures dip as Fed rally stalls
US futures dipped this morning as stocks struggled to hold on to gains after last night’s Fed rally.
Wall Street enjoyed its biggest jump since November 2020 as investors weighed up the prospect of a slower pace of interest rate rises.
Big Tech will be a particular focus with results from Amazon, Apple and Intel. Shares in social media companies fell in pre-market trading after Meta posted its first-ever sales decline.
Futures tracking the S&P 500 fell 0.3pc while the Dow Jones was down 0.2pc. The tech-heavy Nasdaq lost 0.6pc.
11:42 AMLiz Truss commits to £43bn high-speed railway through Red Wall
Liz Truss railway – Ian Forsyth/Getty Images
Liz Truss has committed to spend another £26bn to build a high-speed railway through Red Wall seats, writes Oliver Gill.
The Conservative leadership candidate said she would build Northern Powerhouse Rail in full, marking a major climbdown on Boris Johnson’s piecemeal programme of upgrades.
Northern Powerhouse Rail, dubbed “HS3”, is a £43bn railway running from Liverpool to Hull, stretching down as far as Toton, East Midlands and Leeds in the north.
It was originally designed to link in with the now defunct HS2 eastern spur. Ms Truss has ruled out backtracking on a decision to cancel the £32bn eastern leg to Leeds.
Despite his own leadership commitment to the works, Mr Johnson’s government subsequently downgraded Northern Powerhouse Rail to upgrades that would cost £17bn.
Ms Truss’s commitment to build the programme in full will cost an additional £26bn.
11:21 AMCo-op Bank hands staff £1,000 pay rise
Staff at the Co-operative Bank are to receive a £1,000 pay rise to support them amid the cost-of-living crisis – the latest move to help cash-strapped workers.
The group said around 95pc of its employees will be eligible for the pay rise, which will take effect in September, with only those on the highest salaries not set to benefit.
It comes after the bank already made a one-off cash payment to lower paid staff earlier this year to help them cope with soaring energy, food and fuel bills.
Firms across the banking industry have been handing out cost-of-living payments and salary increases to help struggling workers, including Lloyds Banking Group, Barclays and TSB.
Details of the pay rise were unveiled in the lender’s half-year results showing pre-tax profits rebounded to £61.9m from £21.4m a year earlier, helped by higher interest rates boosting its profit margins.
11:04 AMBT plans another inflation-busting price rise despite cost of living squeeze
BT Philip Jansen – Hollie Adams/Bloomberg
Here’s more on BT’s update this morning, courtesy of my colleague Matthew Field:
BT is pushing ahead with planned broadband price rises estimated at 13pc next spring, in the latest sign that squeeze on household finances will continue long into 2023.
Philip Jansen, the telecoms company’s chief executive, said inflation-linked price rises would “absolutely” go ahead next April, blaming the “very, very challenging” economic environment and rising costs.
Under BT contracts, customers face annual price increases equal to January’s Consumer Price Index plus 3.9pc. Analysts and the Bank of England estimate inflation will run at around 9pc in early 2023 and not begin to fall until later in the year. That would see the cost of BT broadband contracts rise by about 13pc.
The rise would add about £53 per year to the cost of a typical BT Fibre Essential package, its cheapest standard broadband and phone tariff which costs £33.99 per month. The price increases apply across the company’s broadband, EE mobile and BT Sport packages.
Mr Jansen said he was hopeful inflation “would be on the low side”.
10:43 AMRecession fears drive eurozone confidence to 17-month low
Confidence in the eurozone has crashed to its weakest in almost a year and a half as fears of energy shortages haunt consumers and businesses.
A gauge compiled by the European Commission dropped to 99 in July from 103.5 the previous month. That’s well below the level of 102 forecast by economists.
Consumer confidence led the decline, slumping to its lowest level on record as households fret about the outlook. Worries that an economic contraction is on the horizon grew in 11 of the eurozone’s 19 countries – the most since the Covid crisis erupted.
Optimism also dropped among all surveyed sectors, with major decreases in industry and services alongside milder falls in retail and construction.
Europe is on edge as the Kremlin cuts gas supplies to the continent. Inflation also continues to soar, with the ECB’s first interest rate rise in more than a decade fuelling concerns of a recession.
10:25 AMUK probably already in recession, says former BoE official
The UK has probably already tipped into recession and the Bank of England should hold off from further interest rate rises, a former policy maker has said.
Danny Blanchflower, who served on the MPC from 2006 to 2009, said Britain will probably follow other major economies into recession and that unemployment is a bigger threat.
He told the BBC’s Today programme: “The UK in all likelihood is already in recession. The right thing to do is to sit back and wait and watch as the global recession probably spreads.”
The comments come ahead of the Bank of England’s interest rate decision next week. Markets are betting on a 50 basis point rise, which would be the biggest in 27 years.
Mr Blanchflower also criticised the Fed’s decision to boost rates by 75 basis points last night, saying “in all likelihood these actions will generate a recession”.
10:04 AMCentrica: Rough gas storage site could be ready for winter
Britain’s biggest natural gas storage site could be restore in time for winter, in what would be a major boost for supplies as Russia cuts flows.
Centrica, which owns British Gas and the Rough facility, is still hammering out a deal with the Government including subsidies for getting the closed storage site back in operation.
Capacity would be brought back gradually, providing further relief for surging gas prices next winter too.
Chris O’Shea, chief executive of Centrica, said: “Physically it’s possible, but there’s a whole bunch of things that we need to go through and we are working on it right now.
“We are right now doing the engineering to make sure that it can physically happen and we’re doing that at our own cost.”
He added that Centrica will pay to make Rough operational but is seeking longer-term guarantees from the Government on price, such as a contract for difference.
Read more on this story: Britain’s biggest gas storage site on course to reopen by autumn in race to beat Russia
09:45 AMShapps issues Khan with final ultimatum over Tube funding
London Mayor Sadiq Khan TfL – Yui Mok/PA Wire
Grant Shapps has issued Sadiq Khan with a final ultimatum to accept taxpayer funding for the London Underground or leave the capital’s transport authority bankrupt, writes Oliver Gill.
The Transport Secretary last night said he had offered Mr Khan, chairman of Transport for London (TfL), £3.6bn to fund new projects over the coming years.
The offer is likely to fall short of Mr Khan’s wishes for billions of pounds to invest in public transport over the coming decade.
He said that officials are “thoroughly reviewing” Mr Shapps’ offer.
“TfL needs to consider if this draft proposal delivers the funding that is needed to avoid having to make painful cuts to London’s transport network,” Mr Khan added.
“It’s in no-one’s interest to have conditions attached to this funding deal which could damage TfL, unfairly punish Londoners or our economic recovery.”
TfL has received bailouts of around £5bn from Westminster since the start of the pandemic as a steep fall in fare revenue obliterated the authority’s finances.
Mr Khan has repeatedly demanded billions in “long-term funding” that would make TfL viable and negate the need for further short-term funding.
Mr Shapps and Boris Johnson, however, say any funding must come with strings attached.
09:34 AMWind power fund Greencoat quadruples profit
There’s another big winner from the energy crisis this morning, although they’re not such a household name.
Greencoat UK Wind more than quadrupled its profit in the first half of the year thanks to higher power prices.
The FTSE 250 company posted a profit of £551.6m, up from £116.7m. Part of the increase was from higher generation, as well as accounting measures that adjust for expectations of increased power prices in the year ahead.
Greencoat invests in operational wind farms across Britain. The fund aims to have about half its portfolio exposed to market power prices, with the other half on fixed contracts. This allows it to cash in on higher prices.
Wind power is becoming increasingly important in efforts to wean the UK off expensive fossil fuels. But in the meantime, renewable power generators can still benefit from high prices in the power market.
09:27 AMFTSE 100 slips into the red
After an upbeat start to trading, the FTSE 100 has now slipped 0.2pc into the red as investors continue to wade through a deluge of results.
Here’s a look at some of today’s laggards:
Medical manufacturer Smith & Nephew dropped as much as 11pc to the bottom of the blue-chip index after lowering its guidance for profit margins over the full year.
Aveva, the software giant, is down 6.5pc following a trading update that analysts branded “underwhelming”.
Telecoms group Airtel Africa tumbled more than 8pc after it first-quarter revenue fell short of estimates.
Meanwhile, BT slumped 6pc even after it returned to sales growth for the first time in five year, while Barclays shed 1.7pc after taking a huge hit from its trading blunder.
09:22 AMWill Centrica’s boss waive his bonus?
As expected, today’s bumper results for Shell and British Gas owner Centrica are already starting to ruffle some feathers.
Both companies have said they’ll share the spoils with investors, but there are also questions over how well bosses will be remunerated…
09:17 AMMetro Bank aims to break even next year
Metro Bank breakeven – REUTERS/Hannah McKay/File Photo
Metro Bank has said it expects to break even on a monthly basis in the first quarter of next year after it slimmed down its loss in the first half of the year.
Bank profits have been lifted by successive rate hikes by the Bank of England, enabling lenders to make more money on borrowing, despite the threat to the economy posed by rampant inflation.
Metro Bank said its loan growth expectations were higher for the year as it continues to focus on cost controls and revenue and margin growth. Total net loans at the end of June was £12.4bn.
The lender posted a pre-tax loss of £60m for the six months to the end of June, down from a loss of £139m a year earlier.
Metro Bank said it remained cautious about its outlook amid “heightened levels of global insecurity” including the Ukraine conflict.
09:11 AMNational Grid warns Russian gas cut-off would send prices soaring
While energy prices are already sky high, they could get even worse if Putin cuts gas supplies further.
National Grid has warned that Britain will face “knock-on impacts” such as rocketing prices if Russian flows to Europe are interrupted.
The UK only gets around 6pc of its gas imports from Russia – a number the Government has used to play down the risks. But this is the first time the grid operator has openly addressed the threat from Moscow.
In its early outlook for winter, it said: “It is clear that the cessation of flows of gas into Europe could have knock-on impacts, including very high prices.”
09:04 AMITV warns of summer ad slump
ITV Love Island – Casey Durkin/Peacock
ITV has warned of a sharp drop in advertising revenues over the summer, but it’s hoping for a boost later from the World Cup later in the year.
The Love Island and I’m a Celebrity broadcaster posted a 5pc rise in ad revenues in the first half of the year, but is expecting a fall of 9pc in July and 18pc in August as it comes up against last year’s Euros and uncertainty in the wider economy.
Overall, ITV predicts ad revenues will be broadly flat in the nine months to the end of September, while November and December will be pushed higher by the Fifa football tournament.
Its half-year results showed pre-tax profits remained flat at £301m, while operating profits rose 46pc to £228m.
Carolyn McCall, ITV chief executive, said:
Despite the tough comparators of last summer, when the Euros and a rebounding economy drove record advertising revenues, total advertising revenue is expected to be broadly flat in the nine months to the end of September.
We are mindful of the macroeconomic uncertainty; however, we have, for the first time ever in the fourth quarter, the football World Cup to look forward to.
08:58 AMPound nears three-month high against euro
Sterling has inched towards a three-month high against the euro and a one-month high against the dollar amid improved sentiment on markets.
With the Tory leadership contest dragging on and investors waiting for next week’s Bank of England interest rated decision, there have been few domestic drivers for the pound in recent weeks.
Instead, it’s benefited from a weakening dollar and a euro that’s struggling amid fears of gas shortages and a weakening economy.
The pound edged up 0.1pc against the euro to 83.79p, close to the three-month high hit yesterday. Against the dollar it was little changed at $1.2161, close to its recent one-month high.
08:52 AMEDF crashes to €1.3bn loss ahead of nationalisation
EDF France loss nationalisation – REUTERS/Pascal Rossignol/File Photo
While British energy firms are reeling in huge profits, it’s a different story over in France.
EDF has posted an historic loss for the first half of the year as nuclear output slumped in the midst of a severe energy crisis.
The company swung to an adjusted net loss of €1.3bn (£1bn) in the first half, compared to a profit of €3.7bn a year earlier,
The dire figures come as the French state gears up to nationalise the struggling utility by buying the 16pc stake it doesn’t already own.
08:40 AMCMC Markets plummets as it warns on costs
While the wider mood is upbeat this morning, it’s a miserable start to the day for CMC Markets.
The online trading platform slumped as much as 21pc, with analysts warning of a slow start to the year.
The company also warned operating costs will be around 5pc above guidance due to higher staff costs, as well as increased fees and software costs and the impact of the weaker pound.
Analysts at Jefferies said the new cost guidance would imply a 10pc cut to full-year profits.
08:36 AMFTSE risers and fallers
There’s a buoyant mood on the FTSE 100 this morning as investors cheer a string of upbeat results.
The blue-chip index gained 0.2pc to hit seven-week highs as it caught up with an overnight rally on Wall Street.
Some of the optimism mirrored gains for US stocks after the Federal Reserve raised interest rates as expected, but eased some concerns over the pace of rate hikes going forward.
Shell was among the biggest boosts, gaining 1.2pc after posting another quarter of record profits. Anglo American jumped 4.4pc despite reporting a 28pc drop in first-half earnings.
Johnnie Walker maker Diageo rose 0.4pc after its sales climbed.
On the negative end, Barclays shed 2.5pc after its profits slumped by more than expected due to a £1.9bn hit from its huge trading blunder in the US.
The domestically-focused FTSE 250 rose 0.8pc. CMC Markets crashed more than 17pc after it forecast higher operating costs than previously expected.
08:30 AMDiageo tops estimates as drinkers splash out on whiskey
Diageo whiskey price rises – REUTERS/Shamil Zhumatov/File Photo
Drinks giant Diageo has posted a surge in sales as shoppers splashed out on more expensive whiskey despite price rises.