16.28 By the way, the FTSE 100 is on course for its 11th
consecutive month of gains.
16.10 Markets have responded positively to the news that Italy’s new
Prime Minister will focus on growth.
The Italian stock exchange, the FTSE MIB, is up 2.2pc just ahead of
close, following Mr Letta’s speech in Parliament (see 14.46).
Michael Hewson, senior market analyst at CMC Markets said:
The hope is that this won’t be another false dawn as has been often the
case with previous Italian governments.
15.50 Letta mentioned in his speech to Parliament that he will
visit Europe’s leaders this week,. First up he’s off to Berlin tomorrow to
meet German Chancellor Angela Merkel.
The two leaders will hold a joint news conference 4pm (UK time) after
preliminary talks, then continue their discussions over dinner.
The talks should prove very interesting given Letta’s proposals today to push
away from a focus on austerity – of which Merkel is a staunch
supporter – towards more growth policies to boost its economy.
AP’s Brussels correspondent has this take on it:
15.20 Continuing with Letta’s maiden speech as Prime Minister, he said
Italy’s widely condemned electoral law will be changed before the next
national election,
We must solemnly make the commitment that February’s was the last vote
conducted under the current electoral law.
He said it must be replaced with a system that is able to guarantee stable
governments.
He said he would verify his government’s progress on reforms after 18 months
and would “draw the consequences” if his plans had been blocked by
political vetoes.
Italian Premier Enrico Letta delivers his speech during a vote of
confidence to confirm the government, in the lower house of Parliament.
15.08 Back to Italy and more from new Prime Minister
Letta (see 14.46). Still speaking in Parliament, he said that the
country must reform its outdated and inadequate welfare system.
We need a welfare system which is more universal, more focused on young
people and women, extending it to those who are not covered, especially
temporary workers.
He added that he would work with trade unions to find ways to cut
unemployment.
He also announced that the first measure of his government would be to reduce
the salaries of parliamentarians.
14.53 Leaving Italy and heading across the pond now, where stock market
trading is underway but share dealing appears to be as lucklustre in the US
as it is in London. The Dow Jones Industrial Average has added 18
points, or 0.1pc, since trading began, while on this side of the Atlantic,
the benchmark FTSE 100 has risen just 10 points, or 0.2pc.
14.46 And Italy’s Enrico Letta is now speaking in parliament for
the first time since he became Prime Minister.
He said Italy was still in a serious economic situation after more than a
decade of stagnation and the country must focus immediately on reviving its
economy.
Strengthening the justice system and fighting corruption are all part of his
plan to help the recovery. He will also reduce taxes that are weighing on
labour and young people and plans to reform housing tax.
This includes scrapping the unpopular IMU housing tax, a demand of Mr
Berlusconi, which should therefore see Mr Letta gain his support in this
evening’s confidence vote.
The IMU tax was was imposed last year by Mario Monti when he was prime
minister, to help with Italy’s financial crisis, after it had been abolished
in 2008 by Mr Berlusconi.
He said he will also lobby its European partners to obtain more
growth-oriented policies at the EU level.
Later this week he will visit leaders in Brussels, Paris and Berlin to
demonstrate the importance Italy attaches to the EU-wide economic strategy.
We will die of fiscal consolidation alone, growth policies cannot wait any
longer.
Prime Minister Enrico Letta gives his maiden speech to the Italian
parliament.
14.35 As Italy’s new Prime Minister gets ready to speak in parliament
ahead of a confidence vote, the country’s central bank has said bad loans
to Italian companies will continue to rise in coming months, while
overall lending to the private sector continues to contract.
Bad loans in December last year amounted to 7.2 percent of all loans, the Bank
of Italy said in its’ twice yearly Financial Stability Report.
There is an increase above all in bad loans to companies, especially in the
construction sector.
According to leading indicators a further deterioration is underway.
Lending from Italian banks to households and non-financial firms fell by 2.3
percent in March, declining for the eleventh consecutive month after falling
2.6 percent in February, ABI said.
The Bank of Italy said that drop in lending is due to “declining demand
for loans and the tightening of credit conditions on the part of banks,”
as Italy languishes in its longest recession for 20 years.
14.30 On the FTSE 250, shares in the homebuilders have received
a boost from analysts at both Goldman Sachs and Jefferies, who
reckon the Government’s new Help to Buy scheme will help spur a
recovery in house prices. Jefferies expert Anthony Codling said the
initiative is likely to benefit the housing market in the Midlands and the
North the most, and said the scheme could act as a “silver bullet”:
We believe that Help to Buy can be likened to a silver bullet. Mortgage
availability has been the brake on recovery and Help to Buy has the
potential to release that brake.
[...] We estimate that it has the potential to support the purchase of up
to 800,000 homes. Help to Buy is, in our view, the biggest stimulus the UK
housing market has received since the onset of the credit crunch.
Shares in Redrow have climbed 3.1pc, Bellway is up 2.7pc and Persimmon
has advanced 1.9pc.
14.18 Germany has played down criticism it received from France’s
ruling Socialists regarding Chancellor Angela Merkel’s insistence on
austerity, and said it saw cooperation with Paris as “essential”. AFP
reports:
“German-French collaboration is, for us, essential. It comprises a
very broad line-up of topics. For us it is of enormous importance,”
government spokesman Steffen Seibert told a news conference when asked about
the remarks.
Seibert pointed out that the remarks were made in a draft text for the
Socialists’ party conference, adding: “As spokesman for the government,
I don’t comment on statements by parties in other countries.”
“For us it’s not the parties that count, for us government action
counts. The direct cooperation with the French president, with Prime
Minister (Jean-Marc) Ayrault, with the ministers counts,” he said.
“That looks quite different,” he added.
Germany and France may have different views on individual issues but “that
is not so new”, Seibert said, stressing the EU’s two biggest economies
were “completely different countries” with their own economic and
political landscapes.
“But that hasn’t in recent decades and won’t in the future, prevent a
close, friendly cooperation which is good for Germany, good for France and
good for Europe,” he added.
In a draft document on Europe leaked on Friday, President Francois
Hollande’s Socialist Party pilloried Merkel for being “selfish” in
her drive for eurozone austerity to fight Europe’s debt crisis.
It also accused conservative Merkel, who faces elections on September 22,
of being obsessed with “Berlin’s trade balance and her electoral future”.
France and German cooperation is seen as “essential”.
14.06 The extra
charges imposed by low-cost airlines have soared by as much as 67pc
– 24 times the rate of inflation – during the last year, new research has
shown.
The Telegraph’s digital travel editor Oliver Smith reports:
An annual study by TravelSupermarket, the price comparison website,
revealed those carriers whose fees for “optional” services, including
checked luggage and allocated seating, have risen most sharply.
The largest increase in baggage fees was by Thomson. The airline’s charge
has gone up by 47pc since 2012, from £15 per person per flight to £22.
EasyJet’s equivalent fee has increased by a quarter, from £14.50 to £18,
since March 2012, while Ryanair, Flybe and Jet2 have all raised their
baggage fees by at least 10 per cent.
The cost to check in an overweight item of hand luggage has also increased
on several airlines – from £30 to £50 with Monarch (+67pc), from £30 to £40
with Flybe (+33pc), from £35 to £40 with British Airways (+14pc), and from
£130 to £140 with Ryanair (+8pc).
Checked baggage
Overweight hand luggage
Booking fees
Other Ryanair increases
13.53 Over in Spain, Prime Minister Mariano Rajoy has urged the European
Central Bank to change its collateral rules in order to help small
companies access funding at better conditions. Speaking at an event in
Madrid he said:
Things have been done (by the ECB) but it is possible to do more.
For SMEs, by changing the collateral (rules) or by promoting other kinds of
aid and operations through the banks, such as what has already been done in
some countries with the central banks and on which we can still move
forward.
Mariano Rajoy
13.32 Inflation in Germany has slowed to its lowest level in two and a
half years in April.
The cost of living in Germany increased by 1.2pc on a 12-month basis in April,
down from 1.4pc in March, the federal statistics office Destatis calculated
in preliminary data.
On a monthly basis, the consumer price index (CPI) fell by 0.5pc in April from
March.
The last time, the annual inflation rate was this low was in September 2010.
Using the Harmonised Index of Consumer Prices (HICP), the ECB’s inflation
yardstick, the rate of inflation in Germany fell to 1.1pc in April from
1.8pc in March, Destatis said.
The ECB defines price stability as increases in HICP of close to but just
below 2.0pc.
13.16 Europe’s biggest carmaker, Volkswagen AG, has reported
that first-quarter profits at its core brand have halved due to the ongoing
eurozone crisis.
Operating profit at the VW brand, which accounts for over half the German
group’s €46.6bn sales, plunged to €590m, falling 9 percentage points to 25pc
of the group’s total earnings.
The Audi division retained its position as VW’s largest earnings contributor
with €1.31bn in first-quarter earnings, or 56pc of the group total versus
45pc a year earlier. Porsche, which was integrated into VW in August,
generated 24pc of parent-company earnings.
The VW brand’s profit margin tumbled to 2.4pc from 4.1pc in the first three
months of 2012.
“The current environment is definitely a tough challenge for the entire
industry,” Chief Executive Martin Winterkorn said in a statement.
The Audi division retained its position as VW’s largest earnings contributor
with €1.31bn in first-quarter earnings, or 56pc of the group total versus
45pc a year earlier. Porsche, which was integrated into VW in August,
generated 24pc of parent-company earnings.
13.03 More corporate news out, this time from O2
which will pay BT hundreds of millions of pounds to bolster its network
to meet a sharp rise in demand for mobile internet access, expected to
result from the introduction of 4G.
The Telegraph’s Technology and Telecoms editor Christoper Williams
reports:
The deal will intensify speculation that O2 will in turn run a consumer
mobile network for BT.
Monday’s announcement means BT will build and manage new fibre optic “backhaul”
links within the O2 network to carry data to and from its new 4G masts.
The signal is due to be switched on this summer and the deal is understood
to be worth around half a billion pounds over the next 10 years.
O2 said it expects the new technology to more than quintuple demand for
mobile data by 2016. It will offer internet access around 10 times faster
than its existing 3G networks, allowing smartphone and tablet owners to
access data-intensive services such as video streaming without frustrating
delays.
“With the UK’s 4G spectrum auction complete, UK mobile data traffic is
set to grow by more than 400 per cent by 2016,” said Adrian Di Meo,
chief technology officer at O2.
12.52 Despite of the difficulties in the eurozone, there are still
many good reasons to join the single currency, according to European
Central Bank Executive Board member Joerg Asmussen
Emerging economies in central and eastern Europe are among potential
candidates to join the single currency. Asmussen, speaking at an annual
meeting of central and east European bank chiefs, said those countries would
benefit from lower transaction costs and the removal of exchange rate risks,
given that the euro zone was already by far their main trading partner.
“I recognise that, at present, the euro area is not an excellent
advertisement for stability given the difficulties facing a number of its
members,” he said in a speech at the meeting in Berlin. “I also
think it is important not to read too much into the current situation.”
Asmussen said many eastern and central European companies were already
integrated into the euro zone supply chain, another reason they would
benefit from joining the currency bloc.
12.26 The chief executive of Spain’s Santander , the euro zone’s
largest bank, has stepped down today after a prolonged legal battle over
whether he should be barred from banking due to a criminal conviction.
Alfredo Saenz, 70, was convicted in 2009 of filing a false complaint against
shareholders in Santander-owned Banesto bank to pressure them to pay a debt
– in a case that first arose more than a decade ago.
He was later pardoned by then Prime Minister Jose Luis Rodriguez Zapatero, but
Spain’s Supreme Court decided earlier this year to re-instate the conviction
in a case that has dogged the executive for years.
In a fresh twist this month, the Bank of Spain opened new proceedings to
decide Saenz’s fate after the government passed a new law on banking ethics
that could have kept him in post.
Santander said in a statement that Saenz was stepping down voluntarily and
thanked him for his work at the bank, during which time it had quadrupled in
size.
Javier Marin, a 46 year-old Botin confidante who has held several executive
positions within the group, has been named as the bank’s new chief.
The bank’s shares, which have lost 9pc so far this year, were up 1.75pc.
Alfredo Saenz
12.20 And more good news for the property market as a separate report
out today says that five years after the mortgage market froze in the credit
crisis, there are signs
that more first-time buyers are accessing home loans.
The Telegraph’s personal finance reporter Jessica Winch reports:
According
to recent data from the Council of Mortgage Lenders, the number of
first-time buyers increased by 3pc in February, marking the best start to a
year since 2008.
First-time buyers accounted for 43pc of all house purchase loans in
February, the sixth consecutive month that this indicator has been at or
above 40pc.
Mortgage availability is easing for those with modest deposits for the
first time in several years, with lenders lowering rates on a regular basis.
But raising a deposit remains a significant challenge. Savills research has
found that the average first-time buyer deposit nationally is just over
£27,000, which equates to 80pc of average gross wages.
12.14 There has been good news for the property market this
morning.
House
prices rose for the third month in a row in April as market
conditions improved to levels not seen since 2007, a property analyst has
reported.
The Telegraph’s personal finance writer Richard Evans reports:
Property
prices increased by 0.3pc month-on-month across the country, following a
similar uplift in March, with a 0.7pc rise in London driving the rate of
growth, Hometrack found.
It also hinted further improvements might follow after the balance between
supply and demand “turned positive” for the first time in three
years.
Demand from new buyers registering with estate agents in London has grown
three times faster than the rate of homes coming on the market over the last
three months, the study said.
London homes now take just four-and-a-half weeks to sell typically – which
is around half the national average and also the quickest selling time seen
since 2007. Although the strength of the London market continues to
outperform the rest of the country, there are signs that the market is also
picking up elsewhere.
Outside London, the next highest levels of growth were seen in Oxfordshire
and Cambridgeshire, which recorded increases of 0.5pc and 0.4pc
respectively. Across the country, the length of time it takes to sell a home
has been cut from almost 10 weeks in January to nine weeks by April.
12.03 Back among the movers on the FTSE 100, shares in
scientific publisher Reed Elsevier are languishing at the bottom of
the blue-chip index, having fallen 2.3pc after the experts at Citigroup
cut their recommendation on the stock to “neutral” from “buy”
following a strong run in the shares. They suggested investors were less
worried by moves to provide free access to scientific research, known as Open
Access, which in turn had boosted the share price in recent months:
If we look back over the past 6 months, one area where market perceptions
have clearly changed is on structural threats to growth. This is
particularly palpable within [the scientific technical and medical
publications area], where we think there is growing comfort that the move to
open access (of whatever colour) will not fundamentally disintermediate the
commercial publishers like Reed.
11.45 A bit more on the new Italian government, that was sworn
in yesterday but was overshadowed by a lone gunman. The end of two-months of
political turmoil in the eurozone’s third largest economy had led to gains
in European markets.
As the ministers in Italy’s new left-right coalition cabinet were being sworn
in on Sunday, an
unemployed man shot two police officers and a passerby outside the
prime minister’s office in Rome, just a mile from the nearby presidential
palace where the swearing in occurred. Reuters reports:
Officials said the shooting was an isolated incident but it came amid
tensions that have built up in the euro zone’s third largest economy after
almost two years of acute economic and social crisis.
“This is another sign of despair,” said lower house speaker Laura
Boldrini. “Politicians have to come back to providing concrete answers
to people’s needs.”
The country’s new Prime Minister Enrico Letta, who at 46 is one of the
European Union’s youngest prime ministers, is due to speak in parliament
today ahead of a confidence vote at 3pm local time (1pm in UK), in which he
can expect the backing of his own centre-left Democratic Party and former
prime minister Silvio Berlusconi’s centre-right People of Freedom party.
Forced into a coalition with Berlusconi after the centre-left fell short of
the numbers in parliament to govern alone in elections in February, Letta
has pledged to try to restore confidence in the country’s battered political
institutions.
He also has promised to address the poverty worsened by a jobless level
running at more than 40 percent among young people in some areas of the
country and push the European Union away from its fixation with budget
austerity.
With some doubt over whether his government will last a full five-year
term, Letta is expected to try to pass at least a few basic reforms quickly
including a change to Italy’s much criticised electoral laws and a cut in
the size of parliament.
His cabinet, which includes a record seven women and Italy’s first black
minister, was shaped in part as a response to disillusion with political
elites shown in the success of the anti-establishment 5-Star Movement led by
comic Beppe Grillo.
He will need all his diplomatic skill to keep the government on track and
tensions in his forced coalition with the centre-right under control given
the deep suspicion that exists between the rival blocs.
Italian President Giorgio Napolitano, front row, center, poses for a
family photo with Premier Enrico Letta, fifth from left, and his Cabinet at
the end of the swearing in ceremony of the new government at the Quirinale
Presidential Palace, in Rome. (AP Photo/Riccardo De Luca)
You can view more on that shooting in Rome yesterday below:
11.20 On the back of Italy forming a government, the euro has risen
against the dollar in Monday’s trading, but was restrained by
expectations of a rate cut by Europe’s central bank on Thursday.
The single currency was up 0.5pc to $1.3095.
“Investors are trying to balance two risks: a further reduction in
peripheral bond yield spreads which is euro positive, and the prospects of
further easing by the ECB which historically has proven to be euro negative,”
said Valentin Marinov, head of European G10 FX strategy at Citi.
11.01 Confidence may be falling in the eurozone as a whole, but Italy
has just seen strong support from investors in its latest bond auction,
pushing 10-year yields toward the lowest level since October 2010.
Borrowing costs fell sharply in a five and 10-year bond auction this morning,
after the swearing in of a new coalition government ended a two-month
political stalemate and brought fresh hopes to the recession-hit country.
The government raised €3bn in ten-year bonds at a rate of 3.94pc
compared to 4.66pc on March 27 and €3bn in bonds due to mature in 2018 at a
rate of 2.84 pc, compared with 3.65pc at the last similar auction on the
same date.
Italian 10-year bond yields
10.50 Silver miner Fresnillo is among the biggest FTSE 100
risers despite announcing it is placing about 19.6m shares with First Eagle
Investment Management at £11.30, a 2pc discount to Friday’s close of £11.53.
The transaction ensures the company meets new free float requirements
set by FTSE Group. Deutsche Bank analysts reckoned it was a “clean
transaction” and upgraded their recommendation on the shares to “hold”
from “sell”:
The key positive is that this equity issuance is not linked to another
corporate transaction, such as an acquisition.
[...]The challenge for Fresnillo in doing a share placement was always
going to be justifying the additional cash on the balance sheet, given the
already strong net cash position ($613m at end 2012). The recent pull-back
in metal prices (gold and silver), combined with the company’s statement in
their Q1 production results, highlighting the need to review capital spend,
opened the window of opportunity for the placement in our view.
10.44 Some reaction to that fall in eurozone confidence (see
10.15).
Howard Archer, economist at IHS Global Insight says they “intensify
the pressure” on the European Central Bank to cut its bank rate from
0.75pc to 0.5pc.
The further and increased slippage in economic sentiment in April
reinforces our belief that the ECB is more likely than not to cut interest
rates on Thursday. If the ECB does hold fire on interest rates on Thursday,
it is very likely only delaying the inevitable.
The second successive drop in eurozone economic sentiment to a 4-month low
in April fuels concern that the single currency area is headed for yet
another GDP drop in the second quarter of 2013 after almost certainly
suffering a sixth successive drop in the first quarter of 2013.
The drop in sentiment follows on from the purchasing managers reporting
that manufacturing and services activity contracted at an appreciable rate
in April.
10.30 As confidence in the eurozone dips (see 10.15), new
research out today says austerity is having a devastating effect on health
in Europe and North America, driving suicide, depression and infectious
diseases, and reducing access to medicines and care. Reuters reports:
Detailing a decade of research, Oxford University political economist
David Stuckler and Sanjay Basu, an assistant professor of medicine and an
epidemiologist at Stanford University, said their findings show austerity is
seriously bad for health.
In a book to be published this week, the researchers say more than 10,000
suicides and up to a million cases of depression have been diagnosed during
what they call the “Great Recession” and its accompanying
austerity across Europe and North America.
In Greece, moves like cutting HIV prevention budgets have coincided with
rates of the AIDS-causing virus rising by more than 200 percent since 2011 –
driven in part by increasing drug abuse in the context of a 50 percent youth
unemployment rate.
Greece also experienced its first malaria outbreak in decades following
budget cuts to mosquito-spraying programmes.
And more than five million Americans have lost access to healthcare during
the latest recession, they argue, while in Britain, some 10,000 families
have been pushed into homelessness by the government’s austerity budget.
“Our politicians need to take into account the serious – and in some
cases profound – health consequences of economic choices,” said David
Stuckler, a senior researcher at Oxford University and co-author The Body
Economic: Why Austerity Kills
“The harms we have found include HIV and malaria outbreaks, shortages
of essential medicines, lost healthcare access, and an avoidable epidemic of
alcohol abuse, depression and suicide,” he said in a statement. “Austerity
is having a devastating effect.”
10.15 Confidence in the eurozone’s economy fell for a second straight
month in April and by more than expected to hit a four-month low,
strengthening the case for a cut in interest rates this week.
An index of executive and consumer sentiment dropped to 88.6 from 90.1 in
March, according to the European Commission’s latest Business
and Consumer Survey results.
That’s the lowest since December. Economists had forecast a decline to 89.3,
according to the median of 26 estimates in a Bloomberg News survey.
The disappointing data highlights the euro zone’s difficult road out of
recession and the souring of the mood among companies and consumers since
March, after an optimistic start to the year.
The decline in confidence was broad-based among all business sectors, with
services seeing the sharpest drop to a 23-month low of -4.1, driven by “significantly
worsened assessments of the business situation and demand over the past
three month”.
However, consumer confidence increased to 1.2 points, as people’s unemployment
fears eased and expectations concerning households’s future financial
situations better than expected.
In particular, economic sentiment worsened “significantly” in
Germany, Europe’s largest economy, down to -2.3. It also fell in France (-2)
and Italy (-1.9). Spain saw a pickup in confidence, up to +0.9.
Many now expect the European Central Bank to cut interest rates on Thursday to
lower the cost of borrowing and help improve morale.
09.55 The Telegraph’s energy correspondent Emily Gosden
is in Angola and reports that a massive BP oil development off
the coast of the country has come in $4bn (£2.6bn) over budget after being
delayed by a year.
The PSVM project, more than 100 miles offshore, was originally slated to
start producing oil in late 2011 and to cost about $10bn. Instead, it began
production in December last year.
While analysts thought PSVM would cost nearer $12bn, the total is now
expected to be “up over $14bn” once all the wells have been drilled and
connected, Gerry McGurk, BP Angola’s vice president of developments for
disclosed.
BP has a 27pc stake in the project and costs will be divided between it and
its partners.
The development uses a floating production, storage and offloading (FPSO)
vessel, which was converted from a crude oil tanker in Singapore. It
produces oil through water depths of more than 6,500 feet, requiring the
biggest underwater oil-extraction infrastructure in the world.
y
BP’s PSVM floating production storage and offloading (FPSO) oil vessel,
180km off the coast of Angola
09.37 Back in London’s stock market, both construction group Balfour
Beatty and baker Greggs have been hit by profit warnings, with
shares in the former dropping 11.2pc and the latter sliding 8.3pc on the FTSE
250. Rentokil Initial, however, has climbed 5.5pc – the single
best-performing share on the mid-cap index – after announcing it had sold
its troubled parcel delivery division City Link for £1 to private
equity firm Better Capital (see 8.20). Oriel Securities
appeared somewhat disappointed with the sale, which has long been speculated
by the market:
The exit from City Link is a distraction. We had hoped that progress would
have allowed for a disposal for value. At least there hasn’t been a dowry
payment. Nonetheless, it has gone and the market no longer has to spend a
disproportionate amount of time focusing on the progress to turnaround.
There should be relief that this period is over.
09.26 Spain has inflation figures out this morning.
The preliminary data from the National Statistics Institute shows annual
inflation slowed more-than-expected in April as energy costs tumbled in the
recession-hit economy.
Consumer prices over the year to April climbed just 1.5pc, after a 2.6pc
advance the previous month.
When compared to March, prices were up just 0.1pc.
Falling fuel and electricity prices dragged down the annual inflation rate,
which was adjusted to smooth out the impact of seasonal blips, the institute
said.
Spain’s inflation rate shot higher after the government raised the sales tax
in September last year so as to boost revenues and help curb the annual
public deficit.
09.10 Further afield now and it was a quiet session for markets in Asia
with holidays in China and Japan. Over the weekend official data out of the
world’s second largest economy showed a slower reading on Chinese Industrial
Profits growth.
And overnight the International Monetary Fund has lowered its growth
forecast estimate for the Asia-Pacific region from 5.9pc to 5.7pc. The IMF
report said:
While the external risk of severe economic fallout from an acute euro area
crisis has diminished, regional risks are coming into clearer focus.
These include some ongoing buildup of financial imbalances and rising asset
prices, although this has generally not been excessive so far and is
occurring amid still strong corporate and banking sector balance sheets.
Other risks include an unexpected slowdown in China, weaker-than-expected
effects from ongoing stimulus in Japan, or trade disruptions from a natural
disaster or geopolitical tensions.
08.55 Bank of England policymaker Ian McCafferty said that he
was “cautiously optimistic” about Britain’s economy, though
recovery would continue to be difficult.
In a column for Monday’s edition of the Daily
Mail, he wrote:
I see grounds for hope. Some of the forces that have held back recovery
are easing. Supportive policies from the Bank of England are having an
effect. Confidence is creeping up.
In my view, for some time the economy has been healthier than headline
figures suggest.
The BoE’s Monetary Policy Committee, on which McCafferty serves, will meet
next week to consider a quarterly economic forecast update and whether to
restart the central bank’s asset purchase policy.
McCafferty has opposed this, and said in Monday’s article that he was “struck
by the improvement in confidence” in recent months, though he added
that domestic inflation pressures remained subdued.
Bank of England policymaker Ian McCafferty
08.41 The 214-year-old brewer and pubs group, Greene King, has
said it is on
track to meet market expectations for the full year as a successful
Easter helped to offset “extreme” weather conditions during the
second half. The Telegraph’s Nathalie Thomas reports:
In a pre-close trading update on Monday, the group reported robust trading
at its retail division, which includes brands such as Hungry Horse, Old
English Inns and Loch Fyne restaurants, with like-for-like sales up 2.2pc in
the 51 weeks to April 21.
Food sales across Greene King’s businesses grew 2.7pc on a like-for-like
basis, the company said, while sales of its hotel rooms were also 3.1pc
ahead. The company reported a particularly strong performance over Easter
and it sold a record 700,000 meals over the four-day holiday, delivering
like-for-like cover growth of 5.2pc.
Greene King is reducing the size of its “pub partners” business,
which includes its tenanted, franchised and leased pubs, and it has
offloaded 108 sites to reduce the size of its estate to 1,272 during the
past year.
Like-for-like earnings before interest, tax, depreciation and amortisation
(Ebitda) at the pubs partners division was “level” with the
previous year, Greene King said.
08.37 Shares in Aberdeen Asset Management are leading the FTSE
100 higher in early trade, having risen 7.4pc after the fund manager
announced a 25pc jump in first-half revenues to £516m and a 51.4pc surge in
pre-tax profit to £188.2m.
The group, which has benefited from growing demand for riskier assets such as
equities, boosted its interim dividend by 36pc. Here’s what chief executive Martin
Gilbert had to say:
It has been a strong first half to the year with investors’ appetite for
risk assets returning. As a result we have seen healthy net new business
flows which, combined with performance by global markets, has generated
strong growth in our revenue and in profit margins. We remain cautious on
the market outlook but believe our fundamental approach to investing will
continue to serve our clients’ long term needs.
The group also had an encouraging update for investors on share buybacks.
Chairman Roger Cornick said:
We expect our strong balance sheet position and ongoing cash generation to
provide us with surplus capital over time. I have already reiterated the
Board’s objective of growing the dividend progressively. Thereafter, we will
look to distribute available surplus capital to shareholders, after taking
into account a comfortable level of headroom over our required regulatory
capital and after investing in the development of our business, over time.
Share buybacks will be considered provided they are earnings enhancing and
in the interests of shareholders generally.
08.29 In another deal announced overnight, BHP Billiton has sold an
Arizona copper mine and railway to Capstone Mining Corp for $650m. The
mining giant has been looking to off-load non-core assets after it reported
a 58pc drop in half year net profits earlier this year.
08.20 Rentokil Initial has announced that it has sold its struggling
parcel business, City Link, to Jon Moulton’s Better Capital who
snapped it up for the bargain price of £1.
The private equity group has agreed to inject £40m into the parcel group which
has dragged down Rentokil with five years of losses including £26m in 2012
and £31m in 2011.
The rat-catcher and hygiene group, which has said it will take a £40m loss on
the disposal, has also unveiled a 13.1pc drop in first quarter pre-tax
profits to £10.6m. Revenues rose 3.3pc to £645m
08.15 Back to corporate news and Balfour Beatty, the
infrastructure group, has warned that its UK construction business will
deliver “significantly lower profits” in 2013 than outlined
by the management last month.
Andrew McNaughton, chief executive, said he expects the drop to be £50m and
has blamed the “change in procurement trends” which have allowed “customers
to impose increasingly stringent conditions onto contractors.”
08.10 European markets have fallen in early trading on Monday. The CAC
in Paris is down 0.8pc, the DAX in Frankfurt is down 0.2pc, the IBEX
in Madrid is down 0.8pc and the FTSE MIB in Milan is down 0.5pc.
08.05 It’s a flat open for the FTSE 100 in London this morning,
with the benchmark index edging up nine points in early deals, or 0.1pc,
while the mid-cap FTSE 250 has had as stronger start to trading and
has risen 35 points, or 0.3pc. Whether or not the European Central Bank
cuts interest rates this week is once again likely to be a central concern
for traders, according to Peel Hunt strategist Ian Williams:
Investors’ attention is now focused firmly on Thursday’s ECB announcement
and the apparent certainty that a 25 basis-point repo rate cut is on the
way, raises the risk of disappointment. The ECB’s most recent policy moves
have come at times of extreme financial market stress, which is absent at
present. The ECB remains well behind other central banks in the flexibility
of its policy approach, when arguably it has the most to do.
08.00 A look at some corporate news now. This morning Lloyds Banking
Group has agreed to sell its Spanish retail banking business to Banco
Sabadell in exchange for a 1.8pc stake in the Spanish bank.
Under the agreement, Lloyds said Banco Sabadell would hand over shares from
its treasury stock in exchange for Lloyds’ private and retail banking
business in Spain, worth £1.52 billion.
On completion Banco Sabadell will give Lloyds 53.7 million shares from its
treasury holding worth around £72 million, based on its average share price
on April 26, said Lloyds, adding that Sabadell could pay a further £17
million over the next five years dependent on mortgage book margins.
07.57 Heading Down Under now where the economy is starting to slow, but
Aussie PM Julia Gillard has no plans to follow Europe’s “mindless”
austerity program to boost growth.
The Telegraph’s Jonathan Pearlman in Sydney reports:
Australia has abandoned plans to lead the world in bringing budgets back
to surplus after revealing a £8 billion hit to revenue this year as the
economy slows.
However, the country’s Prime Minister Julia Gillard says she will not
follow Europe’s “mindless” austerity program and will push ahead with a new
$20 billion spending on schools and people with disabilities.
After predicting a $1.1 billion surplus, collapsing company profits have
led to a deficit of as much as $19 billion at next month’s budget, which
could risk Australia’s AAA credit rating.
07.48 In more good news for Britain’s economy, as many as 200,000
manufacturing jobs will return to the UK over the next decade,
cutting the trade deficit by a third, as outsourcing becomes increasingly “unattractive”,
according to new research. The Telegraph’s economics editor Philip
Aldrick reports:
Advances in production technologies, as well as rising costs and
regulations abroad, will “fundamentally change” the economics of
manufacturing, a study by the Royal Society for the encouragement of Arts,
Manufactures and Commerce (RSA) found.
“This will mean more will be made at home and exporting will be replaced
with owning or controlling factories in target markets abroad,” it said. For
the UK, the changes is likely to result in jobs that were outsourced
overseas coming home and overseas manufacturers setting up UK factories.
“With a strong vision and purposeful intervention, the decline in
manufacturing employment could be arrested and some increase in
manufacturing employment, of the order of 100,000 to 200,000, could occur
over the coming decade,” the RSA said in its study, conducted with Lloyds
Banking Group.
About 2.5m people are employed in the manufacturing sector, which accounts
for 10.5pc of national economic output.
07.40 A report out by Ernst and Young this morning has shown that it
expects lending to UK businesses to pick up for the first time in four
years, driven by looser money markets and a fall in bad debts. PA
reports:
The Ernst Young (EY) Item Club sees lending to companies in the
UK rising 3pc -or £13 billion – this year to £440 billion, after shrinking
5pc in 2012 to £427 billion.
It expects business lending to surge by 8.5pc to £477 billion in 2014.
It also expects the Government’s recently-revamped Funding for Lending
Scheme (FLS) to encourage lending to small companies and restore confidence
– helping drive the better-than-expected business lending.
The Bank of England and the Treasury last week overhauled the FLS amid
signs the flagship policy is losing its bite and failing to boost credit for
small firms.
The scheme – which incentivises banks and building societies to lend more
to households and businesses – will be opened up to non-bank lenders such as
invoice finance houses and leasing firms.
Lenders will also be given access to more cheap funding in return for
extending loans to smaller firms.
Andy Baldwin, head of financial services in Europe at EY, said: “Behind
the scenes, banking fundamentals have quietly been improving and banks are
now in a better position to be able to provide funds to the wider economy.
“Our analysis suggests the main drivers of banks’ return to lending
will be better access to wholesale funding and a decrease in non-performing
loans, rather than the Funding for Lending Scheme making a material
difference.
“That said, the scheme is making a contribution in shifting emphasis
and encouraging lending expansion across the sector while also helping to
restore confidence and stimulate demand from consumers and SMEs (small and
medium businesses) alike.”
The Item Club expects improving credit conditions and economic growth to
cut bad debt write-downs to £9.3 billion or 0.56pc of total loans this year,
from £11.6 billion in 2012.
It also predicts the Government’s multi-billion pound Help to Buy package
of loans and guarantees will boost the housing market, with transactions
rising by 7.4pc in 2013 and 7.8pc in 2014.
07.30 Also overnight, savers
in the Bank of Cyprus have taken a hit of 37.5pc of their uninsured deposits,
that were converted to equity as part of the island’s €10bn (£8.4bn) rescue
deal.
Denise Roland reports:
The so-called ‘bail-in’ forces savers to foot the bill for the
recapitalisation of Cyprus’ biggest bank, after it was hit by massive losses
from its exposure to debt-crippled Greece.
Bank of Cyprus said it had converted 37.5pc of deposits exceeding €100,000
into “class A” shares, with an additional 22.5pc held as a buffer
for possible conversion in the future.
Another 30pc would be temporarily frozen and held as deposits, the bank
said.
The bail-in is part of attempts by Cyprus to find €13bn – a figure nearly
double the island’s original bill – to shore up its economy. Other measures
include a possible sell-off of the nation’s gold reserves.
07.16 Overnight in Greece, the parliament has voted to adopt a
law providing for the dismissal of 15,000 civil servants by the end of 2014,
as part of austerity measures imposed by the country’s international
creditors. Reuters reports
After heated debate during an emergency session, 168 deputies voted for the
bill, with 123 voting against and one abstaining as the opposition proved
powerless to stop cuts the government insisted were needed to keep the
country afloat.
The new law overturns what had been a guarantee of a job for life for
workers in Greece’s notoriously bloated civil service.
Around 800 people turned up outside the parliament to protest against the
measure in a demonstration called by trade unions.
The bill provides for the dismissal of 15,000 civil servants by the end of
2014, including 4,000 this year, to meet terms set by Athens’s creditors for
billions in bailout loans.
Slashing an unwieldy public service is a condition set by Greece’s
so-called “troika” of creditors — the International Monetary
Fund, European Union and European Central Bank — to unlock loans of €8.8
billion.
The new law will speed dismissal procedures, which previously made it
impossible to sack civil servants and saw the public sector swell over the
years as every new administration brought in its own people.
Employees who have been disciplined for corruption or incompetence and
those working for one of dozens of shuttered government agencies will be the
main targets.
The law, which was written in a single article to force lawmakers to adopt
all its provisions together, also extends weekly working hours for teachers,
opens a number of professions to competition and reduces a controversial
property tax by 15 percent.
Another section creates new payment terms for unpaid taxes, intended to
help the government recover billions of euros owed by indebted companies and
households.
07.10 Looking ahead to what’s happening today, we will be keeping an
eye out for eurozone consumer and business confidence which will be released
a bit later this morning.
There are reports this morning that Europe may accelerate a shift away from
its austerity-first agenda this week as the new Italian government changes
course and a German-Spanish investment pact underscores a renewed focus on
combating record unemployment.
Enrico Letta’s government wraps up two months of political turmoil in Italy
Germany’s finance minister Wolfgang Schaeuble will be in Madrid today and will
hold a joint press conference with his Luis de Guindos, Spain’s economy
minister this afternoon so we will bring you the details of that when it
happens.
There will also be German inflation today.
Enrico Letta.
07.05 And a look at The Telegraph‘s business page. Economics
editor Philip Aldrick reports that growth
has been hit by a “chaotic” strategy on big projects.
Economists have warned that chaotic decision making and lack of vision at
the heart of the Government’s infrastructure plans are harming the economy
and holding back growth. He writes:
The Government’s Infrastructure Plan is dismissed as “simply a long list
of projects requiring huge amounts of money, not a real plan with a
strategic vision and clear priorities” in a new report from the Public
Accounts Committee published on Monday.
The Treasury has identified £310bn of works that need investment, with
£200bn to come from the private sector.
Echoing the MPs’ concerns, the London School of Economics’ Growth
Commission has called for “a new architecture for national infrastructure
decisions to reduce policy uncertainty”.
John Van Reenan, of the Growth Commission, claimed the Government had
simply created a “wish list with no analysis of how they are going to
deliver. It’s pretty chaotic.”
Business groups also called for improvements. John Cridland, CBI
director-general, said: “I have a queue of businesses at my door telling me
the Infrastructure Plan needs speeding up.”
07.00 Now for a look at this morning’s business pages…
The Financial Times reports that UK
ministers are to consider offering communities fracking sweeteners,
by proposing h cheaper energy bills in exchange for dropping opposition to
local fracking projects as part of plans to push ahead with shale-gas
extraction.
The Independent reports that bank
lending is to bounce back as bad debts fall. Experts have claimed
that bank lending to businesses is set to rise for the first time in four
years as risk appetite starts to recover, handing a potential lifeline to
smaller firms and the UK’s growth prospects.
The Guardian is also leading with the story that bank
lending to UK businesses is set to rise in 2013. Lending is expected
to grow by 3% to £440bn this year, and by 8.5% to £447bn in 2014, according
to a report published on Monday by independent forecaster the Ernst
Young ITEM Club.
The Times reports that the victims
of rate swap misselling have claimed that banks may pocket the compensation.
The extraordinary situation has been branded a “huge injustice” by affected
businesses, which claim that the banks have cut them out of the compensation
process by forcing them into administration.
06.55 Good morning and welcome to our new daily business and markets
live blog, your one stop shop for all the breaking business stories of the
day.
Business news and markets: as it happened - April 29, 2013
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