Boeing's new chief executive Ortberg welcomed by financial markets
Boeing’s appointment of Kelly Ortberg appears to have been welcomed by financial markets.
The company’s share price is up 1.5% in early trading on Wednesday even though it published some fairly bleak quarterly results at the same time.
Ortberg beat other contenders such as Stephanie Pope, whose elevation to chief operating officer and endorsement by Calhoun had set off speculation that she was being groomed for the top job.
At the Farnborough air show last week Pope was asked her views repeatedly on what a new chief executive should do. At the time she responded with a knowing smile – perhaps she was aware that she was no longer in the running? But she will play a key role in any turnaround at the manufacturer.
Another contender was former Spirit Aerosystems chief executive Patrick Shanahan.
RBC Capital Markets analyst Ken Herbert said in a note (reported by Reuters):
This is a strong and safe pick. We can appreciate Ortberg’s age may be higher than some investors would have liked to see. However, we believe Ortberg’s reputation at Rockwell Collins and United Technologies/RTX is strong.
In other business news today:
Oil prices have rebounded on Wednesday after Iran promised to avenge the political leader of Hamas who was allegedly killed by Israel.
The Bank of Japan announced an interest rate hike and laid out plans for the ending of massive bond purchases used to stimulate the economy.
Rio Tinto gave welcome news for the London Stock Exchange rejecting investor calls to drop its UK listing and concentrate on Australia.
HSBC is giving a further $4.8bn to shareholders, providing a final parting gift from the outgoing chief executive, Noel Quinn, after a rise in second-quarter profit.
Eurozone prices rose slightly faster than expected in the year to July at an annual rate of 2.6%, in data that could give pause to the European Central Bank (ECB) as it prepares for more rate cuts.
You can continue to follow our live coverage from across the world:
In our coverage of the Middle East crisis, Hamas political leader Ismail Haniyeh killed in Tehran as Iran vows ‘revenge’
In our coverage of the Southport stabbing, the home secretary will ‘look at’ whether EDL should be proscribed group; detectives given more time to question suspect
In UK politics, Angela Rayner defends removing ‘beauty’ requirement from new planning rules for homes
In US politics, Kamala Harris to appear with running mate for first joint event on Tuesday
And of course it is the Paris 2024 Olympics, day five: triathlon and rowing golds for GB and Reilly wins BMX silver
Thank you for reading today. Do join us tomorrow for a rash of industrial results. JJ
There is a fairly wild move in the share price of Metro Bank. It is up more than 30% today after guiding that it expects to return to profit this year.
The UK lender was once seen as a possible challenger to the five dominant high street players, but that promise dissipated after it made serious accounting blunders and missed out on the digital banking revolution. That pushed it into the arms of a billionaire bailout by the Colombian businessman Jaime Gilinski Bacal.
You can see the scale of its troubles in its share price performance over the last year – but also the scale of its share price move today on the bottom right-hand side:
Metro’s positive guidance came despite a fairly unremarkable performance in the second quarter, according to Guardian’s banking correspondent Kalyeena Makortoff:
Metro Bank said it expected to return to profitability in the fourth quarter of this year.
The UK high street challenger Metro Bank released earnings on Wednesday, showing that the lender swung to a pre-tax loss of £33.5m in the first half of the year, having reported a profit of £15.4m a year earlier. It came amid a 22% drop in net interest income, as the bank was forced to pay out more to savers after Metro’s campaign to boost deposits at the end of last year.
It had been trying to make up for an outflow of cash last autumn, when market panic over the state of its balance sheet forced Metro to enter into a £925m rescue deal that left it 53%-owned by the Colombian billionaire Jaime Gilinski Bacal.
Wall Street shares have indeed gained at the opening bell.
Here are the opening snaps, via Reuters:
NASDAQ UP 349.22 POINTS, OR 2.04%, AT 17,496.63.
S&P 500 UP 71.73 POINTS, OR 1.32%, AT 5,508.17
DOW JONES DOWN 5.79 POINTS, OR 0.01 %, AT 40,737.54
Boeing shares are up 1.2% in pre-market trading, but that is actually below the rest of the US stock market, if futures are any guide ahead of the opening within 20 minutes.
The tech-heavy Nasdaq index has sold off in recent weeks as investors start to question the huge hype around AI-related stocks that propelled chip designer Nvidia to briefly become the world’s most valuable company. But futures suggest it is on course for a 2.2% jump at the opening bell on Wall Street.
There are signs – including Samsung’s positivity today – that AI will benefit some companies massively. The question is whether that justifies the astonishing appreciation in share prices over recent months.
The S&P 500 index is due to rise by 2.3% on the opening, while the Dow Jones industrial average (which is not very accurate when gauging Wall Street’s fortunes) is set for only a 0.2% gain.
The early reactions to Boeing’s pick of Kelly Ortberg as chief executive have been positive.
Robert Stallard of Vertical Research Partners, said:
We doubt if Boeing’s pretty awful second quarter results will get that much attention today, with all the focus being on the CEO news.
In our view, Kelly Ortberg is very good hire by Boeing. While he may not be as well known as say Larry Culp (GE) or Dave Gitlin (Carrier), in our experience Kelly was an excellent CEO of Rockwell Collins. What he brings to the party is not only a wealth of aerospace and defence experience, but also a track record of running a company with an excellent corporate culture. Clearly there are a massive number of problems at Boeing, but with Kelly as CEO we think there is at least a chance of fixing them.
Rick Larsen, the lead Democrat on the US House of Representatives’ committee on transportation and infrastructure, welcomed the appointment of an engineer – rather than a finance expert.
I'm encouraged about the announcement of Kelly Ortberg as the new President & CEO of @Boeing. Mr. Ortberg is a mechanical engineer. I hope that means he will ensure that his top message for everyone is building the best airplane means building the safest airplane in the world. https://t.co/zV6W9WlUL8
— Rep. Rick Larsen (@RepRickLarsen) July 31, 2024
Jefferies analysts wrote earlier this week (after industry publication the Air Current reported Ortberg was a serious contender) that Ortberg would be a welcome appointment. The note said, according to Reuters:
During his leadership at Collins he was well liked by employees and direct reports and very personable.
Jefferies said he was a “tough negotiator” dealing with a diverse set of customers and suppliers.
Updated
Boeing has also given more detail on the crisis which Ortberg will have to turn around, reporting a billion-dollar loss for the second quarter of 2024.
The business burned $3.9bn in cash during the quarter, compared to $2.9bn generated in the same quarter last year.
The manufacturer’s troubles became apparent in October 2018 and then March 2019, after two crashes that killed 346 people. The crashes were caused by faulty software, and regulators grounded the entire fleet of Boeing’s 737 Max, its bestselling aircraft.
Ortberg’s predecessor, Dave Calhoun, was tasked with picking up the pieces after the disastrous handling of the crisis by Denis Muilenberg. Yet Calhoun’s efforts to turn around the company were undermined by an incident in January when a door plug panel blew out of an aircraft.
Nobody was hurt, but it revealed yet more problems with Boeing’s manufacturing process. Regulators have limited the production of 737 Max jets until it can show improvements, and the company has admitted criminal charges related to the crashes.
Boeing’s financials have also been dented by poor performance from its defence and space business. Ahead of last week’s Farnborough Air Show, Boeing’s defence boss Ted Colbert said it was “significantly challenged”.
Kelly Ortberg’s ascent to the very top of the US aerospace industry was mostly spent at Rockwell Collins, a producer of avionics systems.
Ortberg started his career in 1983 as an engineer at Texas Instruments, and then joined Rockwell Collins in 1987 as a programme manager, Boeing said.
He rose up the ranks to become president and chief executive in 2013.
Five years later, he led the business through takeovers by United Technologies and RTX, the aerospace and weapons company formerly known as Raytheon. He left RTX in 2021, after serving on its board.
Ortberg also works on the board of Aptiv, a car parts supplier. He has previously chaired the Aerospace Industries Association (AIA), a lobby group.
Updated
Boeing names outsider Kelly Ortberg as new chief executive
Boeing has named aerospace industry veteran Kelly Ortberg as chief executive, giving him the task of turning around the plane manufacturer after years of self-inflicted crisis.
Ortberg will start as chief executive next week on 8 August, succeeding Dave Calhoun after his retirement.
Steven Mollenkopf, chair of the Boeing board, said:
The Board conducted a thorough and extensive search process over the last several months to select the next CEO of Boeing and Kelly has the right skills and experience to lead Boeing in its next chapter. Kelly is an experienced leader who is deeply respected in the aerospace industry, with a well-earned reputation for building strong teams and running complex engineering and manufacturing companies.
The Board would also like to thank Dave Calhoun for his strong leadership at Boeing, first as chair and then as chief executive, when he stepped in to steer the company through the challenges of recent years.
Ortberg said:
I’m extremely honored and humbled to join this iconic company. Boeing has a tremendous and rich history as a leader and pioneer in our industry, and I’m committed to working together with the more than 170,000 dedicated employees of the company to continue that tradition, with safety and quality at the forefront. There is much work to be done, and I’m looking forward to getting started.
Oil prices rebound after Iran vows to avenge killing of Hamas political leader
Oil prices have rebounded by 2.5% on Wednesday after Iran promised to avenge the political leader of Hamas who was allegedly killed by Israel.
Brent crude oil futures prices rose by nearly $2 or 2.5% to reach $80.57, while the North American benchmark, West Texas Intermediate, gained $2.10 or 2.8% to hit $76.83.
Ismail Haniyeh was killed by a strike in Tehran, Iran’s capital. Iran blamed Israel and said it was its duty to avenge the killing. Israel has not commented, although it has previously vowed to destroy Hamas in response to its murder of 1,139 people on 7 October. Israel responded by waging war on Hamas in Gaza, killing an estimated 39,000 people, most of them civilians.
The latest attack has put investors on alert over a possible escalation in the crisis in the Middle East, which could eventually affect oil supplies.
Iran is a major supplier of oil, but its products are embargoed by many Western countries including the USA, while Israel is not a major oil producer. Nevertheless, a conflagration in the Middle East would likely result in oil prices soaring.
However, some analysts have questioned if today’s price jump will last, after weeks of falling prices.
Gaurav Sharma, an independent oil analyst in London, told Reuters:
Overnight developments and elevated geopolitical risk merely provide temporary reprieve for oil benchmarks. Unless oil and gas infrastructure is hit, the latest spike is unlikely to last.
Updated
Bank of Japan hikes rates and signals end of stimulus era
The Bank of Japan is very much at the other end of the monetary policy cycle: it today announced an interest rate hike and laid out plans for the ending of massive bond purchases used to stimulate the economy.
The BoJ’s board on Wednesday raised the overnight call rate target – its benchmark rate – to 0.25%, up from 0-0.1%. Its board voted 7-2 in favour of the hike. It will also slow the monthly pace of bond buying to around JPY3tn (£16bn) by the first quarter of 2026.
The bank’s governor, Kazuo Ueda also struck a hawkish tone that suggests that it really could be the end of Japan’s long-running programme to stimulate inflation. Reuters reported: Ueda “did not rule out another hike this year and stressed the bank’s readiness to keep raising borrowing costs to levels deemed neutral to the economy”:
Wednesday’s hike was the largest since a 25 basis point increase in February 2007, which was the last major policy tightening before a long era of massive monetary stimulus aimed at reflating sluggish consumer demand.
Kit Juckes, a strategist at French bank Société Générale, said:
The BoJ message was clear – they don’t want the yen to go on weakening.
The important part was the BoJ governor’s message, which seems to be that we are in a regime shift for monetary policy, with positive implications for the yen in the short and long term. The caveat is that it’s too early to be sure that stronger wage growth will lead to a sustained rise in inflation, and equally premature to be confident that the economy is on the right path.
The surprise rise in inflation makes a September rate cut from the European Central Bank (ECB) a very close call, according to ING, an investment bank.
Peter Vanden Houte, ING’s chief economist for the eurozone, said:
Looking at today’s data, we would definitely need better inflation figures in August and September to remain on course. This is still possible, since in both the PMI survey and the European Commission’s business and consumer survey, it appears that businesses’ pricing power has started to weaken, now also in services.
The latest data has not given the ECB the certainty it needs to confirm that the inflation battle has been won. That said, survey data still suggests that the downward trend in inflation is likely to continue.
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, said:
Despite the headline re-acceleration, there are details that should be pleasing to the ECB. Excluding-energy, the headline consumer price index contracted month-on-month. Services inflation has slowed from 4.1% to 4.0% year-on-year, which a component that the ECB is very much focused on. Food prices continued to slow and goods prices were still in outright contraction.
Analysing all the data there is still a high likelihood that the ECB will be cutting again at its September meeting.
Daniel Kral of Oxford Economics questions if the small dip in Eurozone services inflation will be enough to persuade the European Central Bank to continue cutting interest rates.
He points out that it has stayed sticky at about 4% during all of 2024. That is not a sign that inflationary pressures are cooling in Europe’s economy.
Small uptick in Eurozone inflation in July due to sticky services prices, energy no longer deflationary and food likely bottoming out.
— Daniel Kral (@DanielKral1) July 31, 2024
Most concerning for @ecb will be services, the most domestically driven component, stuck at ~4% for nine months with momentum heading wrong way. https://t.co/gDPuqVlSZL pic.twitter.com/msgZSAVBqp
But Mario Cavaggioni, a portfolio manager at Fedesa, which manages the Ferrero family fortune, says that he thinks that a downward trend in inflationary pressures is still visible in several European countries.
The trend in Eurozone's countries remains intact: inflation is cooling. Spain/France miss, large part of German increase remains linked to energy/food, something that could reverse in late Q3 (base effects) or will be dampened by weaker HHs demand as unemployment will increase. pic.twitter.com/2dyWc1qxdz
— Mario Cavaggioni (@CavaggioniMario) July 31, 2024
Updated
Eurozone services inflation fell slightly in July, to an annual rate of 4.0%, compared with 4.1% in June. That might be just enough to justify the next interest rate cut when the European Central Bank’s rate-setters meet again in September, say economists.
Franziska Palmas, senior Europe economist at Capital Economics, a consultancy, said:
The small fall in services inflation in July is probably just enough for a September rate cut to remain the base case. But with underlying price pressures still high, the decision will be a close call and will depend on data to be released over the next few weeks, including the August inflation print.
While the fall in services inflation means a rate cut in September is still more likely than not, it is not a done deal. And until services inflation falls more significantly the ECB is likely to continue to ease policy only slowly.
Eurozone inflation rises unexpectedly to 2.6%
Eurozone prices rose slightly faster than expected in the year to July, in data that could give pause to the European Central Bank (ECB) as it prepares for more rate cuts.
Inflation in the bloc rose to a 2.6% annual rate in the year to July, up from 2.5% in June, according to a flash estimate by Eurostat, the EU’s statistics agency.
That was higher than the 2.4% expected by economists, and above the ECB’s 2% target.
If inflationary pressures were seen to be increasing, it would undermine the rationale for further rate cuts by the ECB. It has sought to support the European economy, which is struggling with its largest member, Germany, likely to be in recession.
Rio Tinto rejects calls to abandon London listing
Speaking of Rio Tinto, there is some welcome news for the London Stock Exchange this morning: the miner has rejected investor calls to drop its UK listing and concentrate on Australia.
British fund Palliser Capital had called for the FTSE 100 miner to drop a dual listing structure, arguing that it made it harder for the miner to pursue big mergers.
However, Jakob Stausholm, Rio Tinto’s chief executive, said the company’s board had rejected the idea after discussions, in an interview with the Wall Street Journal. He said:
It’s very clear, though, that it does not make economic sense to unify Rio Tinto. Our conclusion is that it would destroy value.
The London Stock Exchange has been contending with the departure of several of its former big-hitters, and a decline in the overall number of companies seeking to raise funds through share listings. Rio Tinto’s rival BHP departed from the FTSE 100 in 2021 after deciding that a single Australian listing would make more sense.
Rio Tinto reported a 14% rise in profits in the first half thanks to increased copper production, even as its larger iron ore business dipped.
Copper price gains boosts FTSE 100 miners
Mining companies are the main gainers on London’s FTSE 100 index this morning (barring HSBC). They have been helped in particular by a 2% increase in copper prices.
Copper has been under pressure in recent weeks because of questions over demand from the giant Chinese economy, but a softer dollar has helped to push up prices of the metal.
Copper miner Antofagasta duly gained 3.4%, Anglo American gained 3.3%, Glencore was up 2.9% and Rio Tinto rose 2% on Wednesday.
The red metal is one of the key materials for the energy transition because it is used in electrical wires used in everything from electricity generators to wind turbines and electric cars.
The share prices of only six companies on the FTSE 100 have dipped on Wednesday morning. One of the top fallers is pharma company GSK, down 2% after cutting its sales forecast for vaccines.
GSK, formerly GlaxoSmithKline, said it expected “low to mid-single digit” percentage growth in vaccine sales, after previously saying it might hit the “high single digit” realms.
Sheena Berry, healthcare analyst at Quilter Cheviot, said that sales of its Shingrix vaccine for shingles was a “standout disappointment”.
However, there was more positive news on GSK’s other divisions, with upgrades to sales guidance.
Berry said:
Looking ahead, GSK is offering double-digit earnings per share growth for 2024. However, the expiration of a key HIV patent in a few years presents a potential headwind. Business development to enhance the pipeline and product offering remains a clear focus, and the ongoing Zantac litigation continues to be an overhang on the company’s prospects.
Samsung is not the only company that has benefited from computer chip hype. British silicon wafer manufacturer IQE is up 9% this morning after saying it will list its Taiwan subsidiary on the country’s stock exchange.
Taiwan is perhaps the most important global centre for chip-making because of the dominance of Taiwan Semiconductor Manufacturing Company (TSMC) in producing the most advanced chips.
IQE is not involved in that business, but its “epi-wafer” products are used in Apple’s iPhones for facial recognition, Reuters reported.
IQE, which was valued at £284m at yesterday’s close, will sell a minority shareholding in the initial public offering, but it intends to retain control of the subsidiary, IQE Taiwan.
HSBC to pay out $4.8bn to shareholders says outgoing boss
HSBC is giving a further $4.8bn to shareholders, providing a final parting gift from the outgoing chief executive, Noel Quinn, after a rise in second-quarter profit.
The London-headquartered bank said it would buy back another $3bn (£2.3bn) worth of shares from investors, who will receive $1.8bn in fresh dividends.
It will mean Quinn will have paid $34.4bn to shareholders during his final 18 months in post, as part of a strategy that helped fend off calls to break up the bank, led by its top shareholder, China’s Ping An Asset Management.
He will hand the reins to the chief financial officer, Georges Elhedery, who was revealed as his successor earlier this month, in September.
The payouts come after HSBC managed to eke out a 1.5% increase in pre-tax profit to $8.9bn in the second quarter, up from $8.7bn a year earlier. The bank, which makes the bulk of its profits in Asia, benefited from growth in its wealth division and increased demand for investment banking services.
You can read the full story here:
Europe’s stock markets have opened higher on Wednesday.
London’s FTSE 100 has been boosted by the mining contingent and HSBC – more on both of those to come shortly.
Here are the opening snaps, via Reuters:
EUROPE’S STOXX 600 UP 0.6%
BRITAIN’S FTSE 100 UP 0.9%
FRANCE’S CAC 40 UP 1.3%; SPAIN’S IBEX FLAT
EURO STOXX INDEX UP 0.5%; EURO ZONE BLUE CHIPS UP 0.5%
GERMANY’S DAX UP 0.5%
Young Brits abandon broadcast TV; Samsung expects strong AI chip demand
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
Only 48% of British young people watch broadcast television in an average week, the first time that the share has dropped below half, according to new data from regulator Ofcom.
The proportion of those between 16 and 24 years old who tuned into traditional broadcasters has dropped steeply from 76% in 2018, as the use of online video sharing platforms like TikTok and YouTube has surged. Those young people who do watch TV spend 33 minutes a day on it, compared with an average of 1 hour 33 minutes on video-sharing apps and websites – albeit often accessed through the TV.
Children aged between 4 and 15 are also shifting away from broadcast television rapidly. Only 55% watched broadcast TV each week in 2023, compared to 81% in 2018.
The division between different generations’ habits is stark, if not perhaps that surprising: 95% of the over-65s still watch television every week.
Yet overall numbers of viewers of traditional broadcast media have been falling across the generations for several years.
Ian Macrae, Ofcom’s director of market intelligence, said:
Gen Z and Alpha are used to swiping and streaming, not flipping through broadcast TV channels. They crave the flexibility, immediacy and choice that on-demand services offer, spending over three hours a day watching video, but only 20 minutes of live TV. It’s no surprise that the traditional TV is fast becoming a device of choice to watch YouTube.
But while live TV may not have the universal pull it once did, its role in capturing those big moments that bring the nation together remains vital.
The Olympics fortnight is a good time to be making that point. And another sporting event was the biggest of the year so far: the BBC and ITV together averaged 15.1m viewers for the UEFA Euro 2024 men’s final between England and Spain.
Samsung expects strong demand for chips
Who is making the devices used to stream video? One of the most prominent is Samsung. The Korean technology manufacturer has reported a strong rise in profits – although it said that demand for chips for artificial intelligence was a big factor.
Samsung’s profits rose fifteen-fold in the second quarter compared with last year. Operating profit rose to 10.4tn won (£5.8bn) in April-June, up from 670bn won a year earlier, Samsung said.
The company is the world’s largest manufacturer of smartphones, televisions and memory chips. It is the latter that has been behind its recent profit surge – although it is also counting on increased AI features to sell more of its top-end phones.
Share prices of companies with links to artificial intelligence have boomed in recent years as investors try to work out who the big winners will be. Top among those companies have been the chip manufacturers and designers, although some of the enthusiasm appears to have waned in recent weeks. Nvidia, the biggest beneficiary, has fallen by 20% from its peak as something of a bubble has appeared to burst.
Samsung, though, is still positive about AI demand. It said:
In the second half of 2024, AI servers are expected to take up a larger portion of the (memory) market as major cloud service providers and enterprises expand their AI investments.
The agenda
10am BST: Eurozone inflation rate (July; previous: 2.5%; consensus: 2.4%)
1:15pm BST: US ADP employment change (July; prev.: 150,000; cons.: 150,000)
Updated
