- Tech stocks drop as investors shift into other sectors
- Jobless claims at 881,000 as Department of Labor changes adjustment factors
- Final UK PMIs remain elevated, but employers warn of heavy job losses
- European markets open higher as France’s government unveils new stimulus
- Melrose warns of job cuts at GKN
- SSE fined £2m over disclosure failings
- Costa Coffee to axe 1,650 jobs
- Capita shares jump on reported private equity interest
- Robin Pagnamenta: Britain must act fast to prevent a brain drain in quantum computing
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Well that's all from us for today, thanks for following along. Here's a short summary of today's events:
US equities tumbled by the most in almost three months as the rotation away from high-flying tech stocks gained steam, with investors questioning the sustainability of lofty valuations.
The S&P 500 Index retreated from a record high and was set for its biggest drop since June amid declines in Apple, Microsoft, Amazon and Facebook.
The Nasdaq 100 fell more than 5pc at one point, its biggest intraday decline since March.
European stocks erased gains and finished more than 1pc lower.
The euro slumped for a third day on signals the European Central Bank is concerned about its strength. Treasury yields dipped and the dollar rose.
Global equities are pulling back hard from unprecedented highs as investors question the justification for steep valuations as the pandemic rages on.
While data Thursday showed applications for jobless claims fell last week, US investors may need evidence of a fuller economic recovery after a 60pc run-up in the S&P 500 since its March lows.
What to look forward to tomorrow:
Economics: SMMT car registrations, construction PMI (UK); nonmanufacturing orders (Germany); non-farm payrolls, unemployment, average earnings (US)
Vix index climbs
The Vix index, known as Wall Street's "fear gauge", which uses options to derive an estimate of the future choppiness of the S&P 500 stocks benchmark, is currently up more than 14pc.
However, Briefing.com analyst Patrick O'Hare said the pullback in equities was not the result of fears for the economy, but mostly due to an inevitable reconsideration about excessive valuations following the surge in recent weeks.
"Let's not kid ourselves with the idea that worries about Covid, the election, diplomatic tension with China, or the fiscal cliff are the basis for this morning's weakness," O'Hare wrote in a morning note.
"The basis for this morning's weakness is the realization that things are getting carried away in terms of trend exuberance and that some profit taking is in order."
Dollar extends rebound
EUR/USD and GBP/USD are in the red because of the push higher in the greenback. The dollar closed up on Tuesday and Wednesday and it is higher again today.
Earlier in the week, EUR/USD hit a 28 month high, and the pound hit its highest level versus the dollar since December 2019, so a pullback is not surprising.
The US dollar is also gaining ground versus the Australian dollar and the Canadian dollar as weaker metal and commodity prices are holding back the ‘commodity currencies’.
Facebook bans Indian politician over hate speech
Facebook has banned a politician from India’s ruling party over alleged hate speech on the social media service after facing strong condemnation over its inaction and handling of similar posts.
Raja Singh, a member of the Bharatiya Janata Party led by incumbent prime minister Narendra Modi, was blocked from Facebook over posts in which he suggested Rohingya refugees in the country should be shot and incited hate towards Muslims.
The ban marks a significant move by Facebook in India, its largest market with over 300m users and a country where it has faced a growing political storm from critics who have accused it in the past of failing to take down extremist posts to protect its business.
On Wednesday, Ajit Mohan, the head of the Silicon Valley giant’s India division, faced a series of questions from a parliamentary committee over reports in the Wall Street Journal that Facebook refused to apply its policy on hate speech to posts from BJP politicians.
FTSE slips to 3-month low
The FTSE 100 finished 1.52pc lower today to 5,850.86, its lowest close since mid-May, while the FTSE 250 dipped 1.38pc to 17,459.69.
European equity markets were enjoying a rally earlier in the session on the back of hopes regarding a Covid-19 vaccine, but the painful move lower in the US has weighed on indices on this side of the Atlantic.
'Traders are turning their back on tech stocks'
Tech stocks have enjoyed a bullish run of late , however, today traders are turning their backs on them.
David Madden of CMC Markets says:
Tesla shares are in the red. The stock closed lower in the past two sessions. It was reported that Baillie Gifford, an investment management group, trimmed their stake to below 5pc, from 6.32pc. The fund decided to cut its shareholding in the auto-maker because the recent bullish move inflated its exposure to the stock.
Smartsheet shares are offside today in the wake of the earnings miss that was announced last night. The second quarter loss per share was 22 cents, while the consensus estimate was for a loss per share of 16 cents. Revenue jumped by 41pc to $91.2m and that topped the $86.6m forecast. It is worth noting the stock briefly set an intra-day record high yesterday in advance of the figures, so traders had high hopes ahead of the announcement.
NVIDIA, Intel and Micron are all in the red on the back of the news that China will develop its own semiconductors. The Trump administration is applying pressure to the Chinese government by limiting the access that Chinese companies have to chips, so the Beijing administration is keen to become self-sufficient.
NCC warns of 'compliance' debt after rush to home-working
Cybersecurity giant NCC has said companies might have accumulated a "compliance debt" as they rushed their staff to work from home during the Covid-19 pandemic, neglecting the usual procedures.
PA has the details...
NCC said it and others in the cybersecurity industry are likely to benefit from this as firms start to "pay down" the debt by bringing in consultants after the fact.
While speed had forced some companies to delay cyber work, others did it because of squeezed budgets during the pandemic.
NCC said pre-tax profit increased 7.3pc to £19.1m on revenue of £263.7m in the 12 months ended May 31.
Nasdaq suffers worst drop since March
The Nasdaq has fallen as much as 5pc today, its worst fall since March, weighed down by weakness in the technology sector, while the dollar continued its bounce from more than two-year lows.
Here's how Wall Street is looking at the moment...
- DOW 28321.61 -2.68%
- SPX 3457.61 -3.44%
- NDX 11781.6 -5.14%
- RTY 1543.02 -3.09%
- VIX 31.08 +16.97%
Nasdaq suffers worst drop since June
Tech stocks are taking a real beating on Wall Street, with the tech-heavy Nasdaq falling more than 2pc on its worst day since late June. It’s been closing at repeated records highs in recent days, but it looks like some investors are now looking for an opportunity to balance their portfolios.
Here’s a reminder of the day’s top stories:
- Working from home fades as most staff commuted at least once last week: Just one in five workers are still exclusively working from home as most people went to their office, factory or other place of employment at least once last week.
- Costa Coffee to axe 1,650 jobs: Around 1,650 Costa Coffee baristas are facing redundancy after the cafe chain said it did not know when trading might return to pre-coronavirus levels.
- France unleashes €100bn stimulus to kick-start flagging economy: France plans to spend €100bn to pull its economy out of a deep coronavirus-induced slump, signalling renewed efforts by President Emmanuel Macron to push through a pro-business reform agenda.
- SSE handed £2m fine for hiding 'inside' information: Energy supplier SSE has been fined more than £2m by the industry watchdog for failing to announce inside information that could have influenced the price of wholesale electricity.
- Melrose warns of substantial aviation job cuts as losses widen: Melrose has warned of significant job losses at its GKN Aerospace division as the turnaround investor swung deeper into the red in the second half.
- Amazon to hire 7,000 more workers across the UK: Amazon plans to hire another 7,000 new workers in the UK this year in a move branded as “a clear vote of confidence” in the country by Business Secretary Alok Sharma.
IATA: Airlines and airports agree Europe-wide winter slot waiver
European airlines and airports have agreed to extend the slot waiver through the winter period, according to IATA, and have called on the European Commission to implement it.
The "use-it-or-lose-it" slot rule forces incumbents to relinquish landing slots if they fail to use them 80pc of the time, but this has been suspended due to the pandemic.
Claims under pandemic programme rise
Alongside the headline jobless figures, claims for the US’s pandemic unemployment assistance programme, aimed at helping people who are not typically eligible for regular unemployment aid, rose from 607.8k in the previous week to 759.5k.
Overall, that means about 1.6m people may have found themselves out of work last week.
US jobless claims at 881k amid new counting method
Just in: 881,000 Americans made initial applications for unemployment benefit last week – the lowest level since the onset of the crisis.
However, the figures reflect a change to the way the Department of Labor calculates seasonal adjustments to claim levels, so may not be comparable with previous weeks (it is not yet clear how much of a difference the adjustment will make)
As it explained at the last release:
Seasonal adjustment factors can be either multiplicative or additive. A multiplicative seasonal effect is assumed to be proportional to the level of the series. A sudden large increase in the level of the series will be accompanied by a proportionally large seasonal effect. In contrast, an additive seasonal effect is assumed to be unaffected by the level of the series. In times of relative economic stability, the multiplicative option is generally preferred over the additive option.
However, in the presence of a large level shift in a time series, multiplicative seasonal adjustment factors can result in systematic over- or under-adjustment of the series; in such cases, additive seasonal adjustment factors are preferred since they tend to more accurately track seasonal fluctuations in the series and have smaller revisions.
Prior to September 2020, the seasonally adjusted unemployment insurance claims series used multiplicative seasonal adjustment factors. Starting in September Bureau of Labor Statistics staff, who provide the seasonal adjustment factors, specified these series as additive.
Continuing claims fell to 13.3m:
Full report: ONS virus impact stats
My colleague Tim Wallace has a full report on this morning’s Covid-19 stats from the ONS. He writes:
The number of workers on furlough fell again, with around one in 10 private sector employees still paid to stay at home under the job retention scheme.
This is down by two-thirds from a peak of more than three in 10 in May, and equates to around 2.4m people.
Analysts at Capital Economics estimate that the reopening of schools in England this week, following those in Scotland last month, could boost GDP by as much as 5pc. This is because output will rise in the education sector, and more parents will be able to work while their children are in the classroom.
Gem Diamonds takes revenue hit
Southern Africa-focused diamond producer Gem Diamonds’ revenues fell 24pc to $69.5m [£52m] over the half year as coronavirus forced mine closures.
My colleague Rachel Millard reports:
The miner, which owns the Letseng diamond mine in Lesotho and the Ghaghoo mine in Botswana, cut salaries and other costs to help it through the temporary suspension of Letseng, but pre-tax profit from continuing operations fell from $18m to $2.5m.
The business expects global rough diamond supply to decrease from 141m carats in 2019 to 110m carats in 2020 due to industry-wide mine closures and other coronavirus-related disruption.
Gem, led by chief executive Clifford Elphick, has been boosted in recent weeks by the announcements of two major diamond finds in Letseng - 442-carat and 233-carat - among the largest finds this year globally.
The company has introduced strict coronavirus protection measures across its sites. It said two employees from Letseng have died while in quarantine, but these had not yet been confirmed by the Lesotho authorities as Covid-19-related deaths.
Costa says 1,650 jobs at risk
Cafe chain Costa has said 1,650 staff are at risk of redundancy as it looks to cut costs amid continued uncertainty over when trade will fully recover following the pandemic.
It told staff on Thursday that it has started consultations which could impact more than a 10th of roles.
The move comes a week after rival Pret A Manger revealed it was slashing 2,800 roles as part of a restructure of its UK business.
Costa closed nearly all of its 2,700 UK stores for six weeks during the pandemic but had now reopened around 2,400 sites.
The Coca Cola-owned chain said trade is “returning” after being boosted by the Government's VAT reduction on food and non-alcoholic drinks and the recent Eat Out to Help Out scheme.
However, it said the proposed job cuts had been driven by “high levels of uncertainty as to when trade will recover to pre-Covid levels”.
Capita says it has not received offer from CVC
Outsourcer has released a statement following this morning’s conflicting reports (see 10:37am and 8:34am posts) over possible private equity interest.
In a brief statement, the group said:
Capita confirms that it has not received an offer from CVC to acquire Capita.
It shares are still solidly higher.
Amazon to hire 7,000 UK workers
Amazon plans to hire another 7,000 new workers in the UK this year in a move branded as “a clear vote of confidence” in the country by Business Secretary Alok Sharma.
My colleague Hannah Boland reports:
The US online retail giant said the new permanent roles would include engineering, HR and IT positions, as well as fulfillment roles at its new packing sites in Darlington, Durham and Sutton-in-Ashfield.
It said this year, it had already filled 3,000 posts and expected to fill another 7,000 by the end of the year. This would take the total UK workforce of the retail giant to more than 40,000 workers.
Many of those who had taken on temporary posts during the Covid-19 pandemic would now be able to transition into more permanent positions, Amazon said.
It would also be creating more than 20,000 seasonal positions in the UK ahead of the busy Christmas period.
Revolution Bars hails ‘Eat Out to Help Out’ boost
Revolution Bars Group has credited the chancellor’s Eat Out to Help Out scheme for boosting sales to almost double their normal rate in the first half of the week in August.
My colleague Rhiannon Curry reports:
Overall trading since the company reopened its bars on July 6 had been ahead of the board’s expectations, it said, with sales figures at 72.5pc of last year.
But Monday to Wednesday trading in August in particular boomed thanks to Rishi Sunak’s discount scheme. “EOTHO has been a big success in the last four weeks driving Monday to Wednesday comparable venue sales to 188.4pc of last year,” the company said.
Revolution’s own forecasts for reopening had suggested that venues would only achieve around 55pc of normal sales in August, and then show marginal improvement in September and October.
Last week the group announced last week that it would be continuing to run the EOTHO discount out of its own pocket until at least the end of this month.
Rob Pitcher, chief executive, said he was pleased with the performance but that the company was keen for the government to address issues regarding commercial rent arrears and support for late-night venues, which remain closed.
CVC has no plans for Capita takeover – Reuters
A twist: Reuters reports, citing a source, that private equity group CVC Capital Partners has no plans to launch a wholesale takeover of oursourcer Capita (see 8:34am post), and is only looking at “specific units”.
Capita has reached out to CVC and other buyout funds to solicit bids for its Education Software Solutions (ESS) unit which was put up for sale in June, the source said.
Here are some of the day’s top stories from the Telegraph Money team:
- ‘I ignored every rule of investing’: how the Telegraph Money team is faring at Fantasy Fund Manager: Alongside readers, the Telegraph Money team has been fighting it out to get to the top.
- Crunch time for London landlords who could face £90,000 capital gains tax bills: Many London landlords would have to pay almost £90,000 when selling their properties under the Treasury’s proposed changes to capital gains tax.
- Money Makeover: ‘I’m 63 – is £370k enough to retire on?’
Job postings remain depressed
Figures produced by the ONS in conjunction with job listings site Adzuna show that adverts for positions remain well below their 2019 levels. The healthcare and social care bracket is the only comparative bright spot.
The ONS said:
Online job adverts increased in over two-thirds of the Adzuna categories, but most categories saw only small changes in online job adverts compared with the previous week.
Proportion travelling to work edges higher
The proportion of adults travelling to work edged slightly higher last week, with 57pc heading into their workplace, while the number working from home exclusively dipped slightly.
Thoward the end of the period covered, the Government began its push to get more people back into offices.
The figures are part of the ONS’s latest release of faster indicators on the economic impact of Covid-19.
The stats agency also found:
- Over half (54pc) of businesses that had not permanently ceased trading said they were owed outstanding invoice payments as a result of the coronavirus (COVID-19) pandemic
- Between 21 and 28 August, total online job adverts remained around 55% of their 2019 average for a fourth consecutive week
- In the week commencing 24 August, overall footfall increased to over three-quarters of its value the same day a year ago
- Between 24 and 30 August, counts of cars, pedestrians and cyclists in London and the North East returned to around their pre-lockdown levels
‘Steep’ job cuts continue – key takeaways
Here are some key points from IHS Markit’s report on today’s finalised PMIs:
- Despite the improvement in business conditions since the start of [the pandemic], latest data indicated a setback for employment numbers. The rate of job shedding across the service sector was the steepest since May.
- Latest data also pointed to the sharpest increase in new work since December 2016. Service providers noted pent up demand across the housing market, rising spending as a result of the UK government’s Eat Out to Help Out scheme and a gradual recovery in demand for business services from the low point seen during April.
- Companies reporting a sustained decline in new work generally cited restrictions on international travel, ongoing global economic uncertainty due to the pandemic and falling export sales.
Composite (services and manufacturing)
- Strong output growth reflected positive contributions from both the manufacturing and service sectors in August.
- The latest Composite PMI data nonetheless signalled another steep decline in private sector employment, with the rate of job shedding the fastest since May.
- Business optimism across the private sector as a whole weakened in August, with confidence easing from the fivemonth high seen during July. Mirroring the trend recorded throughout the pandemic, manufacturers remain more likely to anticipate growth in the year ahead than companies operating in the service economy.
PMIs hit multi-year highs
The UK’s services and composite PMIs came in at their highest levels since 2015 and 2014 respectively, indicating the fastest monthly increase in activity since then.
- Services: 58.8
- Composite: 59.1
Both readings are slightly lower than the preliminary estimates, suggesting that the pace of expansion may have slowed towards the end of last month.
IHS Markit, which gathered the data, said:
UK service providers reported another rise in business activity during August, with the rate of expansion accelerating to its fastest for over five years. Higher levels of output were primarily attributed to the reopening of the UK economy after the lockdown period in the second quarter of 2020. Survey respondents often commented on a strong recovery in domestic consumer spending.
European activity continues to rise
Final PMI readings for the whole eurozone came in slightly strong than indicated by the earlier ‘flash’ readings.
- Services: 50.5
- Composite: 51.9
IHS Markit, which gathered the data, said:
There was a divergence in performance in activity by sector during August. Manufacturing output rose markedly and at the fastest pace since April 2018. Although service sector activity also rose for a second month in succession, the rate of growth eased sharply and was only marginal.
Underpinned by a strong performance in its manufacturing sector, Germany was the bestperforming country during August, although overall growth was a little softer than the previous month. Ireland and France also recorded gains in activity although, in the case of the latter, the rate of expansion was much slower than in July.
Italy and Spain’s service recoveries stall
Finalised service-sector purchasing managers’ index data is rolling in from across the continent, including first readings for August for Spain and Italy.
The figures show France and Germany’s service sectors both reported improving activity, clearing the no-change threshold of 50. Meanwhile, Spain and Italy both recorded sub-zero readings: suggesting, in theory, that activity slowed compared to July.
Here are the readings:
- Services: 47.7
- Composite (a a weighted balance of services and manufacturing): 48.4
- Services: 47.1
- Composite: 49.5
- Services: 51.5
- Composite: 51.6
- Services: 52.5
- Composite: 54.4
Capita shares jump on report of private equity interest
Shares in Capita have jumped this morning, following a report in the Daily Mail that European private equity giant CVC Partners is eyeing the group.
The troubled FTSE 250 outsourcer – whose share price has fallen more than 80 per cent this year – is in CVC Capital Partners’s cross hairs.
But CVC, one of Europe’s largest private equity businesses which has previously owned Formula One and Legoland operator Merlin Entertainments, could face competition from a rival predator.
The interest could spark a bidding war for one of Britain’s biggest employers.
Capita, which collects TV licence for the BBC and operates the charging system for London’s congestion zone, employs around 45,000 staff in the UK alone.
SSE fined £2m over disclosure failings
Energy regulator Ofgem has fined supplier SSE £2.06m after the company failed to publish information about the future availability of its generation capacity in a “timely manner”.
The watchdog said the breach was “likely to have had a significant effect on forward wholesale electricity prices”.
It said SSE had made the wrong decision about whether it was in possession of the inside information required. It added:
The £2.06m fine, the first relating to the publication of inside information in energy markets in GB and the EU, sends a strong message to SSE, and other wholesale energy market participants, about the importance of fully complying with REMIT rules.
Under the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT), ‘inside information’ is information which is likely to significantly affect the price of wholesale energy. Market participants must publish inside information in an ‘effective and timely’ manner.
It relates to agreements reached between SSE and National Grid, in which SSE agreed to provide some power capability from generating units site it had previously said were likely to close.
Those units had combined capacity equivalent to 3pc of Great Britain’s peak electricity demand, which could have affected wholesale prices. Despite that, SSE failed to make a rompt public announcement, which Ofgem said was “likely this led to some market participants paying more for wholesale electricity than they should have”.
Watches of Switzerland chair to step down
Luxury watch retailer Watches of Switzerland says its chair Dennis Millard intends not to seek re-election to its board at its upcoming annual general meeting.
He will continue in the role until the close of the AGM on October 14th, and will be available until December to facilitate his successor’s handover.
The FTSE 250 group has launched a search for a new chair, with consultants Spencer Stuart appointed to lead the search.
Brian Duffy, its chief executive, said:
I would like to thank Dennis for his direction and guidance as our Group transitioned into public ownership. Both the IPO and the demands of listed company status were new to me and my team and Dennis's counsel and advice, delivered with a firm hand and a fair degree of charm, were invaluable.
Melrose slumps to heavy loss amid virus downturn
Industrial turnaround specialist Melrose sunk deeper into the red as coronavirus battered the global automotive and aviation sectors.
The FTSE 100 group posted a £560m loss before tax for the first half, worse than the £131m loss it registered for the same period in 2019.
Its dividend has been scrapped, with management saying it was “no appropriate” to make a payout at this point. Melrose is attempting to make around £100m in savings overall.
It warned of further job cuts at its Redditch-based subsidiary GKN, which makes aerospace components.
Consultations are already well underway with employees and unions worldwide and regrettably a significant reduction in the worldwide workforce is inevitable in the second half of the year. We will report further on this at the year end when substantial progress on this restructuring will have been made.
Justin Dowley, its chair, said:
These are extraordinary times which we have addressed with rigorous cash management and decisive restructuring actions; recently, and encouragingly, we have started to see trading improving in some key end markets.
Agenda: Stocks set to climb
Good morning. European equities are set to climb after France unveiled a €100bn stimulus package to revive the ailing economy.
The plan will plough €35bn into making the euro zone’s second biggest economy more competitive, it will also spend €30bn on more environmentally friendly energies and €25bn on supporting jobs.
The plan, dubbed “France Relaunch,” includes wage subsidies, tax cuts for businesses and funding for environmental projects.
It will aim to address longer term problems for the French economy, including weak investment and job creation, shifting the country away from crisis spending of the Covid era.
5 things to start your day
1) The numbers don't bode well for a mass return to the office: But Britain’s biggest business group the CBI has warned that city centres will become “ghost towns” without millions of commuters to keep tills ringing in coffee shops, nail bars and dry cleaners. The sandwich chain Pret a Manger has already cut nearly 3,000 jobs.
2) Speedy Wifi and green space have climbed up the priority list for property buyers, as lockdown has shaken up what Britons want from their homes. A new survey by Ipsos MORI found that 49pc of people said a fast, reliable internet connection and being near green spaces have become more important to their choice of home.
3) Consumers may foot the bill for gas plants under green push: Under government proposals, fees would be paid to help ensure the financial viability of privately developed gas or other thermal power plants with carbon capture units attached.
4) Britain’s nuclear industry faces sharp U-turn: Covid-19 has upended the world. The New Normal is a 10-part series looking at the dramatic ramifications it has had for the world of economics and business. This final article looks at the energy sector, where a fall-out with China has led to a rethink on future power generation.
5) The FBI is allegedly examining the deaths of two men who worked for a former FTSE 100 mining company at the centre of a long-running probe into allegations of corruption. James Bethel, 44, and Gerrit Strydom, 45, were found dead in their separate motel rooms while on holiday together in the US in May 2015.
What happened overnight
Asian equities started strong on Thursday as a sustained recovery in China's services sector and the prospect of additional US stimulus whetted risk appetite, while the dollar pared gains.
MSCI's broadest index of Asia-Pacific shares outside of Japan climbed 0.5pc, clocking its third straight session of gains to hover near a recent 2-1/2-year high.
Australia's S&P/ASX 200 rose 0.9pc and Japan's Nikkei added 1.3pc. Hong Kong's Hang Seng index was up 0.2pc while China's blue-chip index was 0.35pc higher.
E-mini futures for the S&P 500 were barely changed.
Coming up today
Interim results: Melrose, The Restaurant Group
Economics: Final services PMI (UK, eurozone, Germany, France, Spain, Italy, US); jobless claims, trade balance (US)