Virus fears drive US consumer confidence to six-year low

US
Consumers’ perceptions of the state of the US economy have fallen to their lowest level since 2014 Credit: REUTERS/Mike Blake

Blog wrap

Well that's all from us today, here's how things ended in Europe today...

  • European equity markets got off to a bullish start in early trading but those gains eroded in the past few hours.
  • The FTSE 100 closed 1.11pc lower at 6,037.01 while the FTSE 250 shed 0.61pc to 17,577.89.
  • Mining stocks, like Rio Tinto, BHP Group and Anglo American put pressure on the benchmark index as well as BP and Royal Dutch Shell.
  • German investors were cheered by better-than-expected economic data and another rise in the closely-watched Ifo business sentiment indicator.

David Madden of CMC Markets said: The frosty relationship between China and the US has thawed a little as the countries had constructive trade talks. The mildly positive news was one of the reasons behind the strong start to the session, but the impact seems to have largely worn-off.

There is some optimism circulating in relation to a Covid-19 drug too, as AstraZeneca has started initial trials on a potential vaccine, and on a possible treatment. The fact the strong start to the trading session couldn’t be sustained points to an absence of conviction on traders’ part.

It feels like many market participants are sitting on their hands ahead of the Jackson Hole Symposium.    

What to look forward to tomorrow:

  • Interim results: Provident Financial, Polymetal International
  • Economics: BoE chief economist Andy Haldane webinar (UK); consumer confidence (France); durable goods orders (US)

In case you missed it: India quietly cuts Huawei out of telecoms networks

India has quietly moved to strip out Huawei equipment from its telecoms networks amid growing tensions between the world's two most populous countries, my colleague Matthew Field writes.

Officials in New Delhi have been asking telecoms executives to reduce their reliance on kit produced by the Chinese company. However, they have stopped short of a full ban that could further inflame tensions with China after border skirmishes.

China’s Huawei, which has been accused of posing an espionage risk by US officials, has steadily expanded its business in India, where smartphone use and demand for high-speed broadband Internet are soaring. 

But it has found itself at the centre of a growing technology dispute between the US and China that has seen US allies rein in its use. Huawei has always denied any wrongdoing and maintains it is a private company with no links to Beijing. 

Read the full article here

Credit Suisse turns towards digital banking in Switzerland

Credit Suisse, Switzerland's second-biggest bank, said  it would reorientate its domestic services towards digital banking, with a quarter of its Swiss branches to close and hundreds of jobs at risk.

"In the last two years alone, use of online banking at Credit Suisse has grown by approximately 40pc, while the use of mobile banking has more than doubled," the bank said in a statement.

"The Covid-19 crisis has further accelerated these trends. In contrast, the number of visits to branches has been declining for years.

"Credit Suisse will introduce a new digital offering and a future-oriented branch concept at the end of October."

The bank also plans to merge the activities of regional subsidiary Neue Aargauer Bank with those under the Credit Suisse brand to avoid duplication.

Wall Street update

China and the US have provided dealers with much-needed cheer after announcing that top representatives held phone talks on the trade agreement they signed in January.

  • DOW 28154.13 -0.55% 
  • SPX 3428.05 -0.09% 
  • NDX 11628.9 +0.02% 
  • RTY 1562.89 -0.36% 
  • VIX 23.17 +3.58%

Russ Mould of AJ Bell said: "A second strong day on the markets was most welcome news. Driving the latest gains in equities was renewed hope of an amicable trade deal between the US and China.

"While optimism has quickly turned to pessimism on this topic many times in the past, it's encouraging to see the two sides talking rationally again."

James Fisher slides on low energy prices

Marine services firm James Fisher & Sons has said that trading deteriorated in the first half of the year after being hit by lower energy prices and coronavirus disruption.

Shares in the company slipped after it revealed its pre-tax profits fell by 59pc to £7.1 million in the six months to the end of June.

Meanwhile, revenue fell by 10pc to £258.1m for the period after the sharp decline in energy prices, while some renewables projects were also delayed into the second half of the year due to the pandemic.

As a result, it declared an interim dividend of 8p per share, which was 29pc lower than the last year's interim pay-out. The company took a grant of £1.9m from the Government to cover furlough pay.

Market moves

Things have gone from good to bad for the FTSE 100 today, with the blue-chip index gradually sinking into the red. 

Eat Out to Help Out cost £336m in first three weeks

Slightly after the headline claim numbers, the Government has released costs stats on Eat Out to Help Out (see 3:23pm post).

A total of £336m was claimed under the scheme up to midnight on Sunday, working out at about £5.25 a head per meal – fairly below the £10 limit.

US new home sales hit highest level since 2006

Those consumer confidence figures seem have knocked equity markets back, but it’s not all bad news: US new home sales soared last month, hitting their highest level since 2006.

 Sales rose 13.9pc month-on-month, defying economists’ expectations of a 1.8pc rise.

Bloomberg reports:

Sales of new houses have taken off during the pandemic because borrowing costs have never been lower and listings for previously owned homes are in short supply. Shoppers want quarantine comforts, such as backyards and room for offices. And builders are shifting to lower-priced offerings, expanding the pool of potential buyers.

64m meals claimed in first three weeks of Eat Out to Help Out

Britons claimed discounts on more than 64m meals in the first three weeks of the Government’s Eat Out to Help Out scheme, according to the latest statistics released by the Treasury.

There have been 87,000 claims made by companies taking part in the scheme, the Treasury said, without disclosing how much the scheme has cost.

  • Look at my 10:45am and 11:11am posts for more details on the scheme’s popularity.

Chancellor Rishi Sunak said:

This scheme has reminded us how much we love to dine out, and in doing so, how this is helping to protect the jobs of nearly 2 million people who work in hospitality.

US consumer confidence drops to six-year low

US consumer confidence dropped more than expected this month, falling to its lowest level since 2014 as coronavirus continued to batter Americans’ outlook.

 All three of the Conference Board’s gauge lost ground, suggesting the virus is increasingly weighing on perceptions of the state of the country’s economy.

 Lynn Franco, senior director of economic indicators at the Conference Board, said:

Consumers' optimism about the short-term outlook, and their financial prospects, also declined and continues on a downward path. Consumer spending has rebounded in recent months but increasing concerns amongst consumers about the economic outlook and their financial well-being will likely cause spending to cool in the months ahead."

British groups buys Napster for $70m

It kicked off a file sharing revolution that broke record companies' stranglehold on the music industry, before fading from the spotlight to be replaced by big beasts such as iTunes and Spotify.

But download platform Napster never went away - and now it has been sold for $70m (£53m) to an Aim-listed music minnow.

My colleague Chris Johnston reports:

MelodyVR, which specialises in virtual reality experiences of live music events, is buying Napster owner Rhapsody International in a push to expand.

Napster was launched in 1999 but was forced to change its business model after piracy laws made it illegal to share MP3 music files.

It now offers more than 90m licensed songs and has over 3m million users in 34 countries.

MelodyVR, which launched in 2018, streams music gigs on virtual reality headsets that fans pay to watch on its app.

Wall Street opens flat

Wall Street’s open is nothing to write home about, with prices barely changed. The Dow Jones has dipped after last night’s reshuffle announcement (see 8:55am update).

Credit: Bloomberg TV

InfraStrata buys Appledore shipyard 

Boris Johnson during a visit to the Appledore shipyard Credit: BEN BIRCHALL/POOL/AFP via Getty Images

A new player is emerging in the UK maritime sector with InfraStrata buying the shuttered Appledore yard in Devon and aiming to bring in a new era of Brexit-driven British shipbuilding.

My colleague Alan Tovey reports:

The company has paid £7m for Appledore, which was closed down by owner Babcock last after it ran out of work.

The closure meant the loss of 200 jobs at the site, though much of the workforce transferred to other Babcock operations.

Last year InfraStrata paid £6m for Harland & Wolff, buying the northern Irish shipyard which built the Titanic, out of administration.

Aim-listed InfraStrata, which is renaming the Devon business as Harland & Wolff (Appledore), said the acquisition is part of its plan to “re-establish the UK at the forefront of a new generation of shipyards”.

John Wood, chief executive, said the combined businesses would target the defence, commercial, renewables, cruise & ferry and oil & gas maritime sectors, which offer a £6bn pipeline of work over the coming five years.

KFC pauses Finger Lickin’ Good slogan due to virus

KFC has switched up its logo in a reaction to the pandemic Credit: KFC/PA

Publicity stunt time! Fast-food chain KFC has announced it will pause the use of its Finger Lickin’ Good slogan, saying its message “doesn’t quite fit” in the age of coronavirus.

PA reports:

The company has released new images of advertising posters and packaging with the well-known slogan blurred and pixelated.

It said the slogan will return “when the time is right” but it will shift its messaging in the meantime.

The restaurant chain closed its sites temporarily in March as a result of the pandemic but has now reopened the majority of its restaurants with more stringent health and safety policies in place.

“We find ourselves in a unique situation – having an iconic slogan that doesn't quite fit in the current environment,” said Catherine Tan-Gillespie, global chief marketing officer at KFC.

“While we are pausing the use of It’s Finger Lickin’ Good, rest assured the food craved by so many people around the world isn't changing one bit.”

More cuts to come as jobs bloodbath continues

The worst jobs bloodbath in more than a decade struck the retail industry in August as M&S joined the slew of high street strugglers to lay off thousands of workers.

My colleague Tom Rees reports:

Retailers also predicted even sharper declines in employment in the coming months as the furlough scheme is wound down, the Confederation of British Industry’s distributive trades survey warned.

Its quarterly employment gauge, which measures the difference between retailers laying off and hiring workers compared to a year ago, slumped to an 11-year low of minus 45pc in August, down from minus 20pc in May.

The recovery in retail sales also unexpectedly faltered after touching positive territory the previous month. Sales fell back from a 15-month high of plus 4pc in July to minus 6pc this month but grocers, furniture stores and online retailers enjoyed growth.

New housebuilding algorithm brand ‘unfair’

A new algorithm that will decide where homes are built is unfair and will kill off the appeal of town and city living, the Prime Minister has been warned. 

My colleague Marianna Hunt reports:

Under new reforms of planning law, decisions about where housebuilding will take place will be taken out of the hands of local authorities. Instead ministers in Westminster will set an annual target – this year 337,000 – and allocate that among local councils, who must then find the land to meet their target. 

The algorithm that makes these new home allocations will mean more homes built in the countryside and suburbs, which are traditionally Conservative constituencies, and fewer in town and city centres, according to Lichfields, a planning consultancy.

Finablr delays accounts

Finablr lost control of foreign exchange business Travelex as part of a pre-pack administration Credit: AP Photo/Ted S. Warren, File

 Finablr said it will miss the deadline for filing its annual accounts as the crisis at the payments firm deepens. 

My colleague Michael O’Dwyer reports:

It is the latest in a string of setbacks for the firm, which revealed in April that it had discovered $1bn (£760m) of previously undisclosed debt. 

It lost control of Travelex, the foreign exchange business, to creditors earlier this month as part of a pre-pack administration that resulted in the loss of 1,300 jobs in the UK. 

Its founder, BR Shetty, resigned as co-chairman last week as HMRC effectively shut its Xpress Money Services division by suspending its registration. 

Finablr announced in June that it had changed its accounting reference date to Feb 28, giving it until Aug 28 to publish its numbers. 

Households cut spending due to virus – even if earnings are unchanged

British households cut down on spending due to the virus, even in instances where their incomes were unchanged, according to the Bank of England.

Based on its biannual NMG survey, it said:

Workers who were furloughed and self-employed people were most likely to have experienced a reduction in income. Only a small number of those remaining in employment saw their earnings fall.

In contrast, most households, regardless of employment status, reported that they had reduced their spending.

As a result, some households – those whose income had not changed but whose spending had fallen – would have seen their savings rise, leading to an improved financial situation. An important determinant of the shape of the recovery will be if, and when, these households choose to spend these savings.

Ant Group set for mega listing

Chinese billionaire Jack Ma’s Ant Group has filed for simultaneous listings in Hong Kong and Shanghai, in what could be one of the biggest stock market debuts in year.

The group, which is headquarter in Hangzhou, will list at least 10pc of its total capital via new shares, according to listing documents.

Bloomberg has more details:

The crown jewel of the sprawling Alibaba empire, Ant has been accelerating its evolution into an online mall for everything from loans and travel services to food delivery, in a bid to win back shoppers lost to Tencent Holdings.

With data from a billion users of its Alipay app at its back, Ant is pushing broadly into financial services, delivering technology such as artificial intelligence, robo investing and lending platforms.

Sources told the news agency that Ant Group is targeting a valuation of $225bn, based on an IPO of $30bn.

Spending data: the wait begins

Usually, Tuesday means new spending data from the Treasury and HMRC on the Government’s headline coronavirus business support schemes, including the furlough scheme (CJRS) and bounce-back loans scheme.

That changes this week though: from here on, data will only be released on a monthly basis (although Eat Out to Help Out may be an exception – we’ll have to wait and see). 

So, with the next wave of updates on September 22nd, here’s a summary of the data as of last week:

Consumers pay for delays to ‘super sewer’

Delays to London's £5bn “super sewer” may mean higher water bills after the consortium building the Thames Tideway Tunnel revealed that the project will not be completed in the first half of 2024.

My colleague Oliver Gill reports:

A nine-month delay is expected to increase building costs by £233m as a result of coronavirus, the company said. 

Bosses have begun talks with water regulators over recouping some of the costs by increasing customers’ water bills.

Thames Water said that bills would not rise by more than £25 per household annually.

Having started work in 2016, the 25km tunnel from Acton in the west to Abbey Mills in the east was expected to be completed within seven to eight years. The sewer was designed to prevent raw sewage and rainwater flowing into the Thames. 

Signs of a broader pickup?

This day-by-day chart of August’s OpenTable numbers shows the strong effect Eat Out to Help Out has been having:

Interestingly, it also shows that this past Saturday (the 22nd) was the first time since early March that seated diner numbers were up naturally (i.e., without the boost from Eat Out to Help Out).

As this chart shows, the seven-day average (which smooths  in consistencies over weekend dining habits) returned to positive territory earlier this month. The crucial question will be what happens once Eat Out to Help Out ends – will it have encouraged people to head out, or has the financial incentive been doing all the work?

Eat Out to Help Out continues to boost restaurant visits

The latest data from OpenTable suggests seated diner numbers have been continuing to soar as a result of the Treasury’s ‘Eat Out to Help Out’ meal vouchers scheme.

Under the terms of the programme, diners can receive a 50pc discount (to a limit of £10 per head) when they dine out at participating restaurants on Mondays, Tuesdays and Wednesdays this month.

Last Monday, seated diner number were up more than 70pc year-on-year.

There are four days left of the scheme, which is aimed at supporting the hospitality and food industry, and cost £180m in its first two weeks of operations.

One caveat: in July, Pantheon Macroeconomics’ Samuel Tombs noted that the OpenTable numbers may offer too rosy a picture:

OpenTable’s data, however, likely give an overly upbeat steer on the recovery in the restaurants sector. In theory, OpenTable counts seated diner numbers, whether customers have reserved online or have walked in on the spur of the moment. Diners who do not show up – reportedly an increasingly common occurrence – should not be counted.

Market moves

After a strong start this morning, European markets have shed their gains in recent minutes, with the FTSE 100 now trading just above flat.

Co-op Bank plans to close 18 branches

The Co-operative Bank has announced a proposal to close 18 branches and cut 350 jobs. The closures include one branch in the City of London.

The job losses will be focused on middle management and head office roles, the groups said, with the branch closures expected to be completed by the start of December.

Wizz Air plots Gatwick hub – Bloomberg

A Wizz Air Airbus A320 Credit: REUTERS/Andrew Boyers/File Photo

Wizz Air hopes to grow its new base at Gatwick airport from one plane to 20 within a year, its chief executive told Bloomberg.

The news agency reports:

While the hub will open with a lone Airbus SE A321 jet in October, Budapest-based Wizz sees scope to quickly expand it to employ 800 people, an operation that would support a further 4,000 jobs, chief executive officer Jozsef Varadisaid in an interview.

Wizz is seeking to leverage the European airline industry’s lowest cost base to grab market share in London as the coronavirus crisis pushes other carriers to trim their fleets.

Money round-up

Here are some of the day’s top stories from the Telegraph Money team:

German business sentiment rises

German business sentiment rose more than expected across the board this month, according to the latest report from the IfO research institute.

  • Business climate: 92.6 (July: 90.4)
  • Expectations: 97.5 (July: 96.7)
  • Current assessment: 87.9 (July: 84.5)

Those are all slightly higher than economists’ expectations.

Pound rises amid risk-off mood

Sterling has gained ground against the dollar today, amid a generally risk-on mood across markets.

Exxon out in Dow reshuffle

In an interesting sign of the times, ExxonMobil – the world’s biggest company as recently as 2011 – lost its place in the Dow Jones Industrial Average last night during a reshuffle of the 124-year-old stock index.

Bloomberg has more details:

In the biggest reshuffling in seven years, Exxon Mobil, Pfizerand Raytheon Technologies were kicked out of the Dow Jones Industrial Average, making way for Salesforce.com, Amgen and Honeywell International to enter the 124-year old equity gauge a week from today. The actions were prompted when Apple – currently 12pc of the 30-stock index – announced a stock split that reduced the sway of computer and software companies in the price-weighted average.

The Dow has long been an odd index, reflecting a slightly strange set of major companies due to tight rules. It weights members based on share price rather than overall market value, prevented the inclusion of some giant companies such as Amazon, and Google-owner Alphabet – which have fewer shares that are more individually expensive.

That has caused it to underperform to benchmark S&P 500, which better reflects the strong performance of tech groups.

Here’s the index’s new membership:

AstraZeneca begins trial for Covid-19 antibody

Pharma giant AstraZeneca has dosed the first participants in a trial of the catchily-named AZD7442, a combination of two monoclonal antibodies designed to prevent and treat Covid-19.

AZD7442 mimics natural antibodies, and may be able to slow or stop the coronavirus.

The trial of 48 participants will evaluted the treatment’s safety and effectiveness. It is s funded by the Defense Advanced Research Projects Agency, part of the US Department of Defense, and the Biomedical Advanced Research and Development Authority.

It is is tolerated and shows favourable results, it will progress into further trails.

Mene Pangalos, Astra’s executive vice-president for biopharmaceuticals research and development, said:

This trial is an important milestone in the development of our monoclonal antibody combination to prevent or treat Covid-19.

This combination of antibodies, coupled to our proprietary half-life extension technology, has the potential to improve both the effectiveness and durability of use in addition to reducing the likelihood of viral resistance.

Market moves

As expected, European have shrugged off worries over a resurgence in cases to extended their gains from yesterday. The FTSE 100’s lagging slightly behind, feeling some pressure from a rising pound.

Credit: Bloomberg TV

DFS says trading ‘significantly ahead’ of expectations

DFS said sales were ahead of its expectations Credit: Denis Kennedy

Furniture retailer DFS’s shares have jumped sharply at the open, after it reported trading “significantly ahead” of its previous expectations.

In an unexpected trading statement, the group said it has continued to trade strongly since its last update in mid-July, with intake growth over the last six weeks equivalent to £70m in revenues. That’s on top of the “strong” order book it previously announced, with puts it in line for a further £100m in revenues later in the year.

The group said:

We believe that this trading performance reflects a combination of consumers currently spending more on their homes relative to other sectors, latent demand caused by the nationwide lockdown and also a strengthening advantage from our hybrid digital and physical retail offering, which is particularly relevant in this consumer environment. 

It warned of uncertainty ahead, however, cautioning that the strong start to the financial year could be offset but Covid-19 or Brexit, adding:

While positive trading momentum currently remains we do note that some consumers may be bringing forward spending decisions and this may impact trading later in the financial year. 

Despite those worries, DFS said its financial headroom has improved substantially, and said it is “well-positioned to capitalise on opportunities as its markets recover”.

Shore Capital’s Clive Black called the update “very positive”.

Ferrexpo names new chair

Swiss-based iron trading and mining group Ferrexpo has named Lucio Genovese as its new chairman, following the previously-announced retirement of Steve Lucas.

Mr Genovese was already one of the FTSE 250 group’s non-executive directors, and has held roles within the company of its subsidiaries for the last nine years. Its board said:

…having already worked with Mr Genovese, the board is confident he has the required skills and experience to be an effective chairman.

The board is also seeking to appoint a suitable independent non-executive director.

Jim North, its acting chief executive, said:

The board and management of the company would like to thank Steve Lucas for his leadership and guidance over the past four years. Through his extensive experience, he has helped lead the Company to the strong position it is in today. 

Aveva agree to buy OSIsoft for $5bn

Craig Hayman, chief executive of Aveva Credit: Heathcliff O’Malley

Industrial software giant Aveva says it has agreed to buy California-headquartered rival OSIsoft at an enterprise value of $5bn.

The acquisition will be funded through a combination of a rights issue and new debt facilities, the FTSE 100 group said.

It said the deal would combine Aveva and OSIsoft’s “complementary product offerings”,  with a range of possible synergies across the two companies’ large shared client base.

Dr J. Patrick Kennedy, who found OSIsoft in 1980, will remain involved the business in a new role of chairman emeritus.

The deal is expected to be completed “around the end of the year“.

Craig Hayman, Aveva’s chief executive, said:

The acquisition of OSIsoft is perfectly in line with our strategic vision and it will accelerate the enlarged group’s role in the digitisation of the industrial world, which is being driven by a need for sustainability, the industrial internet of things, Cloud, data visualisation and artificial intelligence.

On second thoughts…

German’s second GDP reading showed a slight improvement over the first, although given the scale of the drop it’s rather like having a few extra bricks left standing after the corner of your house collapses.

  • GDP fell a record 9.7pc over the second quarter (down from a first estimate of –10.1pc)
  • It left output down 11.3pc year-on-year (down from a first estimate of 11.7pc)

At almost any other time, a correction of that magnitude would be remarkable, but it’s unlikely to change any investors’ minds on the big point: the scale, and timing, of the country’s recovery. On that front, this morning’s IfO business climate surveys will be a more important indicator.

Agenda: Rally set to continue

Good morning. The rally in European stocks is set to continue this morning on optimism about treatments for coronavirus and signs of progress on trade negotiations.

The US and China spoke about the phase-one trade pact. Both sides see progress and are committed to the success of the agreement, the US Trade Representative said

Meanwhile, pharma group Moderna said it’s near a deal to supply at least 80m vaccine doses to the European Union. President Donald Trump said a treatment based on blood plasma donated by people who’ve recovered from Covid-19 will be expanded.

A second reading for German second quarter GDP figures was also released this morning, with activity slumping 9.7pc for the period. 

5 things to start your day

1) Amigo founder denies plot to launch a rival lender: James Benamor has demanded to be installed as chief executive as he seeks a comeback after resigning as a director for a second time in March.

2) Death of office ‘exaggerated’ as commercial property landlords eye uncertain future: Whether it will endure is among the many questions facing commercial property landlords as they read the runes left by the pandemic and try, like everyone else, to place their bets on what’s coming next.

3) McLaren starts making lightweight chassis in Sheffield: The supercar maker said the lightweight frames will be produced at its Sheffield factory, taking the value of UK-sourced parts in McLaren cars from about 50pc to almost 60pc.

4) Germany set for return to growth, but cannot emerge from crisis alone: German GDP fell by 10.1pc in the second quarter of 2020 – the biggest drop since records began in 1970. Unemployment rose to 4.2pc in June.

5) The future of embattled gold mining group Petropavlovsk was once again thrown in to doubt on Monday when auditor PwC firmly rejected the chance to work with the company following a major boardroom coup this summer.

What happened overnight 

Asian shares were mostly higher on Tuesday as investors hung onto hopes the coronavirus pandemic may come under control as treatments get developed.

"The positive coverage on potential Covid-19 vaccines and treatments opens the door wide open to a rotating carousel of stocks," said Stephen Innes, chief global markets strategist at AxiCorp.

If symptoms of the infection could become as mild as a cough or runny nose during a flu, the economy could return to normal, he added.

Japan's benchmark Nikkei 225 index rose 1.7pc to 23,378.47. South Korea's Kospi gained 1.5pc to 2,364.25. Australia's S&P/ASX 200 added 0.5pc to 6,159.60. Hong Kong's Hang Seng edged down 0.2pc to 25,498.77, while the Shanghai Composite was up 0.2pc at 3,392.49.

Coming up today

Interim results: Apax Global Alpha, Fisher (James) & Sons

Economics: CBI distributive trades survey (UK), Q2 GDP final reading; IFO business climate (Germany); consumer confidence (US)