Tesco's UK boss stepping down
Tesco’s UK boss Jason Tarry is to leave the business in March and be replaced by Aldi’s former UK boss Matthew Barnes.
Tarry, 56, who has spent 33 years at Tesco including six heading up the UK business, said it was “the right time for me to move on.”
Tarry has not indicated what he plans to do next. He had been touted as a replacement for David Potts at Morrisons but that slot has now been filled by former Carrefour France boss Rami Baitiéh.
Tarry has also been flagged as a possible new chief executive for Asda, a post which remains vacant, although the business is led by co-own Mohsin Issa.
Full story: US economy grows at fastest pace in nearly two years
The US economy grew at its fastest pace in nearly two years in the third quarter as higher wages from a tight labor market helped to power consumer spending, again defying dire warnings of a recession that have lingered since 2022, my colleague Dominic Rushs reports.
Gross domestic product increased at a 4.9% annualized rate last quarter, the fastest since the fourth quarter of 2021, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of third-quarter GDP growth. Economists polled by Reuters had forecast GDP rising at a 4.3% rate.
Estimates ranged from as low as a 2.5% rate to as high as a 6.0% pace, a wide margin reflecting that some of the input data, including September durable goods orders, goods trade deficit, wholesale and retail inventory numbers were published at the same time as the GDP report.
The economy grew at a 2.1% pace in the April-June quarter and is expanding at a rate well above what Fed officials regard as the non-inflationary growth rate of around 1.8%.
While the robust growth pace notched last quarter is unlikely sustainable, it was testament to the economy’s resilience despite aggressive interest rate hikes from the Federal Reserve. Growth could slow in the fourth quarter because of the United Auto Workers strikes and the resumption of student loan repayments by millions of Americans.
More here:
Closing summary
Time to wrap up…
Here are today’s main stories, first on the ECB rate decision and the strong US growth figures:
And also….
ING: This is the end of the ECB's hiking cycle
Carsten Brzeski, global head of macro at ING, predicts that today’s dovish pause by the ECB will eventually be seen as the end of the hiking cycle.
He told clients that eurozone rates have peaked, unless the eurozone economy “miraculously rebounds”:
After the September meeting, many ECB officials didn’t like the market interpretation of a dovish pause and therefore kept the door to further rate hikes wide open.
If anything, today’s meeting actually further established the concept of a dovish pause. The ECB has never been more worried about the growth outlook and relatively relaxed about potential new inflation waves, stemming from oil prices
With the European Central Bank press conference now over, reaction continues to flood in.
Neil Shah, executive director at Edison Group, predicts today’s vote to hold eurozone interest rates will be followed by similar moves next week in the US and UK.
“A highly-anticipated bellwether decision from the ECB to pause interest rates will no doubt be mirrored by the Bank of England and the Fed next week.
Halting its unprecedented streak of rate increases at four per cent, the ECB’s decision is a direct reaction to concerns over eurozone inflation and a weakening European economy. Indeed, this may signal a new long-term strategy with rates to be set at “sufficiently restrictive levels for as long as necessary”. The ECB must now pivot its defences to protect against a potential recession, an unwelcome challenge as economic volatility looks set to carry on into 2024”
Lagarde: Not going to say we are at peak rates
Christine Lagarde also declined to indicate whether she thought eurozone interest rates have reached their peak yet, saying:
“I’m not going to pass a judgement to say that ‘We are at peak’.
We are data-dependent, and we are going to meeting after meeting assessing on the basis of the three criterias - the inflation outlook, the underlying inflation and the strength of our monetary policy transmission whether or not our interest rates are delivering sufficiently.”
Updated
Christine Lagarde was reminded that she’s almost halfway through her eight-year term at as ECB president – has she any regrets about decisions?
Lagarde insists she has “no regrets”, adding:
“I am not going to sing it to you, but there is a famous French singer that has done that much better than I could ever to do. So no regret.”
She then adds that today’s decision was unanimous.
Christine Lagarde also insisted during today’s press conference in Athens that the decision to leave interest rates on hold was still a ‘meaningful’ action.
Asked about today’s governing council meeting, she says:
There was a general, well-shared assessment of the current situation, the judgment that we have made, and the monetary policy decision that we took, which after 10 different hikes over the last 15 months is for the first time a ‘hold’.
Sometimes inaction is action, and a decision to hold is meaningful.”
Updated
Q: Might your economic forecasts be a little too optimistic, given the vigour of monetary policy transmission and the added uncertainty from the Israel-Hamas war?
Christine Lagarde points out that the ECB will issue new forecasts in December, at its next governing council meeting.
We know for a fact that growth has weakened, she adds, citing recent PMI data [surveys of purchasing managers].
Q: Sweden’s Riksbank (not a eurozone member) has warned it needs 80bn Swedish krona to repair its balance sheet – do you expect any similar capital injections from eurozone central banks?
Christine Lagarde says all the eurozone’s central banks are in different situations, and there is “no one-size-fits-all”.
What I know is that as a euro system and as the ECB we have one mission which is price stability. And we don’t have as a purpose to show profits or to cover losses.
It would be actually wrong if our decisions were guided by our P&L [profit and loss] accounts rather than for pure monetary policy purposes in order to bring inflation back to 2% in the medium term.”
Q: Is the ECB comfortable with the recent widening in the spread between Italian government bond yields and German bond yields?
Lagarde says the ECB’s mission is price stability, defined as 2% inflation.
The best tools to achieve that is by changing interest rates, and holding rates today does not mean that we will never hike again, Lagarde says.
But, she adds:
…..we also have to make sure that there’s proper transmission of our monetary policy throughout the whole euro area and to all countries in the euro area.
“And we have all the adequate tools in order to make sure that that happens.”
Q: Are you confident that the Greek economy can return to normality, to its levels before the debt crisis when it was rated A+ (by credit rating agencies).
Lagarde answers a slightly different question, saying Greece’s economy back above its pre-Covid situation, adding:
Greece compares extremely well with other countries.
She says Greece has shown “phenomenal recovery capacity”, and has achieved a stellar performance.
Q: How much of the impact of your previous interest rate rises has hit the real economy?
Christine Lagarde says the ECB is seeing a “very strong” transmission of its monetary policy in the banking sector, which leads to lower inflation and dampened demand.
She cites recent bank lending data, which showed a decline in demand for borrowing.
“We know there is still more to come,” Lagarde adds, pointing out that monetary policy operates with a lag.
Q: How would you react to a spike in energy costs as a result of conflict in the Middle East? Would you immediately react, or wait for second-round effects?
Lagarde says the ECB is learning lessons from the last energy crisis, and that work is ongoing.
She points out that the eurozone economy is very different than it was before the recent energy shock – inflation has been very high, interest rates are already at the “very high level of 4%”, it has strong employment, which is weakening.
All those factors would be taken into account when assessing how a potential jump in energy costs would hit GDP and inflation.
But, she insists, the ECB’s determination to bring inflation down to 2% is intact.
Q: Are you concerned about the rise in yields on US government bonds [they hit 16-year highs this week]?
Christine Lagarde says this ‘external tightening’ is not directly relevent to the fundamentals of the eurozone economy, but are a tightening factor as they affect long-term rates.
We take this spillover into account, Lagarde explains.
Lagarde: We must stick to our data dependency knitting, not give forward guidance
Q: At what point might the ECB cut interest rates – is it when inflation has fallen to 2%, 2.5% or 3%?
Christine Lagarde says the ECB will be ‘data dependent’ when deciding how long to keep interest rates high, and refuses to give any ‘forward guidance’ about what might trigger a change of policy.
She says:
At this point in our fight against inflation, and after 10 successive hikes, now is not the time for forward guidance. Now is the time to really stick to our data dependency knitting, and we shall do so.
Lagarde adds that the question of when the ECB might cut rates “was not discussed at all”. This debate would be “absolutely premature”, she insists.
Onto questions:
Q: Did the governing council discuss ending the PEPP reinvestment (the reinvestment of bonds acquired under the ECB’s 2020 pandemic emergency purchase programme), or raising bank reserve requirements?
Christine Lagarde says neither of these issues were discussed at this month’s meeting.
Q: What role did the recent weak economic data, and the war in Gaza, play in today’s discussion?
Lagarde says the ECB is monitoring the situation in Israel, and “very attentive” to the economic consequences to the impact it could have, either to energy prices or economic confidence (as flagged in her previous comments).
Geopolitical risks could dampen growth, Lagarde warns
A weaker world economy would weigh on growth in the eurozone, Christine Lagarde warns.
The ECB president singles out the Ukraine war, and the Israel-Hamas war, as key risks, saying:
Russia’s unjustified war against Ukraine, and the tragic conflict triggered by the terrorist attacks on Israel, are key sources of geopolitical risk.
This may result in firms and households becoming less confident and more uncertain about the future, and dampen growth further.
Conversely, Lagarde adds, growth could be faster than expected if the “still-resilient labour market and rising real incomes” mean people and businesses become more confident and spend more, or if the world economy grows faster than expected.
Lagarde points out that core inflation in the eurozone fell to 4.5% last month, from 5.3%.
She credits this fall to improving supply conditions, the pass-through of previous falls in energy prices, and the impact of tighter monetary policy on demand and corporate pricing power.
The ECB president adds that eurozone governments should continue to roll back their support for energy bills, as the energy crisis fades.
Otherwise, Christine Lagarde warns, inflationary pressures will be driven up, requiring even tighter monetary policy (eg, higher interest rates).
Christine Lagarde add that there are signs that Europe’s labour market is weakening, even though the eurozone unemployment rate was a historical low of 6.4% in August.
Fewer new jobs are being created, including in services, consistent with the cooling economy gradually feeding through to employment.
Lagarde: Eurozone economy remains weak
Christine Lagarde then warns that the euro area economy “remains weak”, with manufacturing output continuing to fall.
She tells today’s press conference that subdued foreign demand and tighter financing conditions are “increasingly weighing on investment and consumer spending”.
The services sector is also weakening, she adds, as weaker industrial activity is spilling over into other sectors, plus the boost from reopening after Covid-19 lockdowns is fading, and higher interest rates are also hitting demand.
Lagarde says:
The economy is likely to remain weak for the remainder of this year.
But, as inflation falls further, household real incomes recover, and the demand for euro area exports picks up, the economy should strengthen over the coming years.
ECB president Christine Lagarde begins today’s press conference by confirming that the central bank left interest rates unchanged.
She then reads out the statement released half an hour ago (see earlier post), explaining that recent economic data has confirmed the ECB’s previous assessment of the medium-term inflation outlook, but that inflation is still expected to stay too high for too long.
ECB press conference underway
The European Central Bank is holding a press conference at the Bank of Greece, in Athens, to explain today’s decision to leave interest rates on hold.
Bank of Greece governor Yannis Stournaras starts by pointg out this is the first time in 15 years that Athens has hosted the ECB’s governing council (dating back to before the eurozone debt crisis).
Stournaras (who served as Greece’s finance minister during part of the debt crisis) says:
It has been a rather long time, 15 years, since we last met here…..
We are all now wiser, stronger, closer to each other, better prepared to tackle difficulties, and if I may say so, more European.
Watch the ECB press conference live: President Christine @Lagarde explains today’s monetary policy decisions https://t.co/f42z1eAQoV
— European Central Bank (@ecb) October 26, 2023
US GDP grows faster than expected
Newsflash: America’s economy grew faster than expected last summer, as it fended off fears of a recession.
US GDP expanded at an annualised rate of 4.9% in July-September, higher than the 4.3% expected, and a sharp acceleration on the 2.1% recorded in Q2.
That means GDP grew by just over 1.2% during the third quarter, as the US economy continues to shrug off the impact of higher interest rates.
[Annualised GDP multiplies the quarterly growth by 4, to show how fast GDP would have risen over 12 months].
JUST IN: US GDP soared to a blockbuster 4.9% in Q3. That’s the highest since the end of 2021 and a big uptick from 2.1% in Q2.
— Heather Long (@byHeatherLong) October 26, 2023
Strong consumer spending and gov’t spending drove the growth.
Bottom line: No recession in sight. pic.twitter.com/xRmOFfqIBF
Updated
ECB holds interest rates: What the expects say
Richard Garland, Chief Investment Strategist, Omnis Investments, says the ECB has officially joined the Pause Party of central bankers in wait and watch mode.
Garland explains:
This makes sense - inflation is falling quite sharply and they had signalled last month that the direction of travel for rates will be sideways. Higher for longer is also be a mantra the ECB will be keen to repeat for a while, ensuring their work to date won’t be undone by markets anticipating rate cuts too soon.
Marcus Brookes, chief investment officer at Quilter Investors, argues that something “very unexpected” would need to happen for eurozone interest rates to be raised again, given Europe’s stagnating economy and the fact other central banks have moved into a holding pattern.
Brookes says:
“Following the most aggressive series of rate hikes in its history, the European Central Bank has joined the Federal Reserve and Bank of England in hitting the pause button and assessing exactly what impact its actions are having to date. Eurozone inflation has come down significantly and is expected to moderate further, although it is still some way off target.
“It seems, however, that Christine Lagarde does believe that 4% is the ceiling for rates this time around and should help moderate inflation further, although much of that is out of their control. There remain several risks that may keep inflation stubbornly high including increasing wage growth and the uncertainty in the Middle East which is pushing up energy prices. Going forward, like other central banks it will say the market needs to expect higher interest rates for longer, with the door being left open should we see inflation spike again.
Dean Turner, Chief Eurozone and UK Economist at UBS Global Wealth Management, predicts the first eurozone interest rate cut could come next summer:
Turner says:
‘The decision by the ECB to keep rates on hold was well flagged, and therefore came as no surprise to investors. Although the messaging in the press release remained largely unchanged, with an ongoing emphasis on data dependency, and the need to ensure that inflation returns to target, it seems clear that the rate hiking cycle is over.
Nevertheless, policymakers are rightly focused on the still high levels of inflation in the Eurozone and given some signs that the pace of decline is slowing, they are likely to err on the side of caution when it comes to the next move. It is unlikely that policymakers will feel comfortable enough to cut rates before the summer. We look for the first cut to come at the June 2024 meeting.
Full story: ECB keeps interest rates steady amid eurozone recession fears
The European Central Bank has paused its toughest cycle of interest rate increases since the launch of the euro, amid growing fears over the eurozone economy, judging previous rises are doing enough to tackle inflation, my colleague Richard Partington writes.
In a decision widely expected in financial markets, the ECB left its key policy rates unchanged for the first time in more than a year – halting a round of 10 previous increases in the cost of borrowing.
It comes as concerns grow over the impact of previous increases on European economies, with warnings of a recession in the single-currency area led by a downturn in Germany, where a manufacturing slump saw business activity contract for a fourth straight month in October.
With inflation at more than twice the central bank’s target, economists expect borrowing costs will remain at elevated levels for a prolonged period to cool price growth across the 20-country bloc.
We kept our interest rates unchanged at our latest meeting.
— European Central Bank (@ecb) October 26, 2023
See our monetary policy decisions https://t.co/ZXIUvujlVx pic.twitter.com/F54JWZQ7GD
The EB also says it will take a “data-dependent approach” when setting interest rates.
It explains:
In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
ECB leaves rates unchanged as expected at 4.5% as they continue to follow a data-dependent approach pic.twitter.com/eHQ934zqea
— ADSS (@adssgroup) October 26, 2023
Today’s ECB decision is largely as investors expected – here’s some snap reaction:
As expected, the @ECB left rates unchanged.
— Mohamed A. El-Erian (@elerianm) October 26, 2023
There will be lots of interest in how President @Lagarde deals in her upcoming press conference with the peak rate expectation in #markets -- an expectation that has not responded much, at least as yet, to a rather hawkish tone in the… https://t.co/cMJ1DoVKCG
#monetarypolicy #ECB l At its meeting in Athens today, @ecb Governing Council decided that the 3 key rates would remain unchanged for the moment
— Émilie Vanderhulst 🌻 🇧🇪🇪🇺 (@BirdingBrussels) October 26, 2023
📄 https://t.co/T2udZ3viVI pic.twitter.com/AGBTGK3bgl
ECB: We're determined to get inflation down to 2%
The ECB’s Governing Council adds that it is “determined” to ensure that inflation returns to its 2% medium-term target “in a timely manner”.
It says:
Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.
The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary.
European Central Bank interest rate decision
Newsflash: the European Central Bank has pressed pause on its cycle of interest rate rises.
The ECB’s governing council has voted to leave its benchmark interest rates unchanged, at its latest meeting in Athens today.
This means the ECB’s deposit rate, paid on commercial bank deposits, remains at 4% – the highest since the euro was launched in 1999.
Its main refinancing operations rate, which sets weekly borrowing costs for commercial banks, was left unchanged at 4.5%, while the marginal lending facility rate, offering overnight credit to banks, sticks at 4.75%.
The decision ends, at least for now, a cycle of 10 interest rate rises.
The ECB started raising interest rates for the first time in a decade in July 2022, after the Ukraine war drove up energy and food prices.
Eurozone inflation fell last month to 4.3%, down from 5.2% in August, giving some hope that inflationary pressures were easing.
The decision also comes after new data this week showed the eurozone economy has weakened. A survey of purchasing managers showed the biggest fall in business activity since the start of the Covid-19 pandemic.
Announcing the decision, the ECB says:
The Governing Council today decided to keep the three key ECB interest rates unchanged.
The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.
At the same time, inflation dropped markedly in September, including due to strong base effects, and most measures of underlying inflation have continued to ease. The Governing Council’s past interest rate increases continue to be transmitted forcefully into financing conditions. This is increasingly dampening demand and thereby helps push down inflation.
Updated
Tension is building in the eurozone ahead of the European Central Bank’s interest rate decision, due in half an hour.
As covered in the introduction, economists broadly expect the ECB to leave borrowing costs unchanged at 1.15pm BST today.
But there is considerable interest in what the ECB might say about the path of interest rates in future.
Charalampos Pissouros, senior investment analyst at XM, explains:
When they last met, ECB officials raised interest rates by 25bps, but they signaled that this was probably the last hike in this tightening crusade.
Since then, several officials have argued that inflation could return to their 2% objective even without any additional hikes, while economic data continues to point to a wounded euro area economy. This convinced market participants no more rate increases will be delivered and allowed them to price in around 65bps worth of cuts for next year.
Therefore, the attention will fall on clues and hints on whether policymakers are indeed considering the reduction of interest rates at some point next year, with anything validating this notion having the potential to further hurt the euro.
Hipgnosis shareholders oppose catalogue sales plan
Newsflash: Investors in music rights fund Hipgnosis have staged a shareholder revolt today.
Hipgnosis shareholders have voted against a plan to sell $440m of music rights to a group backed by private equity firm Blackstone at an annual meeting today.
They have also refused to support a Continuation Resolution, which could lead to the fund being wound up. Thirdly, they opposed the re-election of chairman Andrew Sutch, who had already pledged to step down by next year’s AGM.
Hipgnosis says it will now put forward proposals for the reconstruction, reorganisation or winding-up of the Company to Shareholders for their approval within six months, adding:
These proposals may or may not involve winding-up the Company or liquidating all or part of the Company’s existing portfolio of investments.
Hipgnosis had pioneered the idea of buying up the rights to music from top stars, promising a revenue stream from popular back catalogues. It has acquired the rights to songs from artists including Barry Manilow, Blondie, the Red Hot Chili Peppers, Shakira, Metallica and Michael Bublé.
But rising interest rates have hampered its efforts, dampening interest in alternative assts, and prompting it to slash its dividend last week.
Britain’s retail sector remains in “a perilous position” as the festive period approaches, according to the latest survey from the CBI.
Its latest distributive trades survey has found that retail sales fell in the year to October, and at a faster pace than in September.
This marks the sixth month in a row in which annual sales have declined. Sales volumes are expected to continue falling next month, the CBI adds.
Back in the financial markets, Israel’s currency has hit its lowest in over a decade against the US dollar.
The shekel has fallen 0.25% today to 4.07 to the dollar, the weakest since 2012, as traders continue to anticipate a ground invasion in Gaza.
On 6 October, the day before Hamas’s surprise attack on Israel, the shekel had traded at 3.83 to the dollar.
Today’s losses come after Israel said its tanks had taken part in a “targeted raid” overnight in northern Gaza.
Updated
#SiemensEnergy collapse more than 25% the after the company warns of worse-than-expected lossed at wind-turbine division. The company furthermore seek state guarantees from the #German government.
— Saxo (@saxobank) October 26, 2023
Find out more here: https://t.co/YWfbpkqXaf$ENR #stocks pic.twitter.com/B1z6N8BMFz
WirtschaftsWoche: Siemens Energy seeking €15bn of guarantees
Business news weekly WirtschaftsWoche reports that Siemens Energy is seeking up to €15bn of guarantees.
WirtschaftsWoche says the company is proposing that the federal government should guarantee 80% of the first tranche of €10bn, with its banks liable for 20%.
Under the proposal, a second tranche of €5bn would be guaranteed by Siemens AG, which spun off Siemens Energy on the stock exchange three years ago and still holds 25% of its shares.
However, Siemens AG is currently showing little inclination to accept responsibility, WirtschaftsWoche says, citing information from“financial and government circles”.
Updated
A spokesperson for the German economy ministry has confirmed it is in talks with Siemens Energy, describing the discussions as “close and trustworthy”, according to Reuters.
Siemens Energy shares plunge as it seeks government support
Germany’s Siemens Energy are reportedly in talks with the Berlin government to secure billions of euros in state guarantees as it struggles to shore up its troubled wind-turbine unit.
Shares in Siemens Energy have dropped by almost 29%, after news website Der Spiegel reported that the company’s CEO, Christian Bruch, is negotiating with the federal government for several billion euros in guarantees.
This funding would allow Siemens Energy – one of the largest makers of wind turbines -to continue financing new business despite the high losses in the wind turbine business.
According to @DerSpiegel, Siemens Energy, one of the world's largest manufacturers of wind turbines, is in talks with the German government for state guarantees worth billions of dollars (otherwise known as a bail-out) https://t.co/tAm449j2Ww
— Javier Blas (@JavierBlas) October 26, 2023
Siemens Energy has confirmed this morning that it is evaluating various measures to strengthen its balance sheet, and is in “preliminary talks with different stakeholders”, including banking partners and the German government over fore more guarantees which are “necessary to facilitate the anticipated strong growth”.
It also warns that order intake and revenue at its wind business, Siemens Gamesa, are expected to be lower than market expectations for fiscal year 2024, and net losses and cash outflow are expected to be higher than market forecasts.
The company says:
In light of recent media reports regarding talks with the German government, Siemens Energy AG states the following: Siemens Energy financial results for fiscal year 2023 are expected to be fully in line with guidance. The former Gas and Power businesses are expected to continue their excellent performance in fiscal year 2024 and are on track to achieve their mid-term targets (fiscal year 2025). The wind business Siemens Gamesa is working through the quality issues and is addressing the offshore ramp up challenges as announced in the third quarter communication for fiscal year 2023. As Siemens Gamesa is for the time being not concluding new contracts for certain onshore platforms and is applying strict selectivity in the offshore business, order intake and revenue are expected to be lower than market expectations for fiscal year 2024, and net losses and cash outflow are expected to be higher than market forecasts.
The strong growth in order intake, particularly in the former Gas and Power business areas, leads to a rising need of guarantees for long-term projects. Considering this requirement, the Executive Board is evaluating various measures to strengthen the balance sheet of Siemens Energy and is in preliminary talks with different stakeholders, including banking partners and the German government, to ensure access to an increasing volume of guarantees necessary to facilitate the anticipated strong growth.
Updated
Unemployment in Spain has risen, giving the European Central Bank’s policymakers something to ponder as they set interest rates today.
The Spanish jobless rate rose to 11.84% in the third quarter of the year, statistics body INE reports, up from 11.6% in Q2.
Wouter Thierie, economist at ING, suggests the uptick might be caused by seasonal factors.
Thierie says:
The labour market benefited from strong growth in the more labour-intensive service sector, which was underpinned by a strong tourist season. In addition, the labour market is also suffering from a structural supply shock.
For instance, the average number of hours worked per worker is still lower than before the pandemic, which means more labour is needed to cover the same amount of hours. This exerts downward pressure on the unemployment rate.
INE also reports that the number of employed people in Spain increased by 209,100 in the third quarter of 2023, a rise of almost 1%, to 21,265,900, suggesting demand for labour remained robust.
European stock markets are in the red as traders await today’s ECB interest rate decision at lunchtime.
The pan-European Stoxx 600 inded has lost around 1%, with Germany’s DAX down 1.3%.
Shares in Mercedes Benz Group are down over 5% after it reported a 6.8% drop in operating profits, and warned that the electric vehicle market was “brutal” due to a flurry of price cuts.
In London the FTSE 100 is down 62 points, or 0.85%, pulled down by Standard Chartered (now -12.9%), while Unilever are still down almost 3%.
A takeover battle over the owner of Wagamama is brewing.
The Restaurant Group has told the City that the owner of Pizza Express, Wheel Topco, have asked to see financial information so they can decide whether to make a takeover offer for the company.
It told shareholders:
The Board of TRG confirms that it will provide diligence information to Wheel Topco in accordance with its obligations under the Code.
If any proposal is provided by Wheel Topco, the Board of TRG will carefully consider its terms, in conjunction with its advisers.
Restaurant Group has already accepted a £506m takeover offer from the US buyout group Apollo, which values it at 65p per share.
Shares in TRG have risen 1.8% to 67.6p, as traders anticipate a possible bidding battle.
Back in the City, shares in Standard Chartered bank have tumbled over 11% after it missed profit expectations and took a hit on its exposure to China.
Standard Chartered, the Asia Pacific-focused bank, reported that pretax profits more than halved in the last quarter to $633m, down from $1.391bn in Q3 2022.
The drop in profits was mainly caused by a $697m cut to the carrying value of Standard Chartered’s investment in China Bohai Bank.
Its credit impairment charges also rose, including $186m related to the China commercial real estate sector.
CEO Bill Winters says:
We have continued to make strong progress in the third quarter against the five strategic actions outlined last year, delivering a solid set of results.
Wealth Management has continued its recovery with double digit income growth and the Financial Markets performance has been resilient against a strong comparator period.
Updated
European Central Bank chief Christine Lagarde was in upbeat mood last night, ahead of today’s interest rate decision.
Lagarde told a dinner in Athens that Greece has made an impressive comeback from the Covid-19 pandemic.
She said:
Real GDP per capita is now almost 10% above its pre-pandemic level – a much stronger performance than the euro area as a whole. The unemployment rate has also declined steeply, and was 10.9% in August, the lowest level since the end of 2009.
And with a stronger economy, the country has been able to work further through its debt challenge. Greece’s public debt-to-GDP ratio has dropped 35 percentage points from its peak of 206% in 2020, one of the fastest falls in the world.
Two rating agencies recently upgraded Greek government bonds to investment grade status.
The ECB’s Governing Council is in Athens as part of its policy of regularly holding meetings around the eurozone, rather than at its headquarters in Frankfurt.
🇬🇷🇪🇺 Our Governing Council is in Athens for their annual external meeting.
— European Central Bank (@ecb) October 25, 2023
They’ll be discussing how to bring inflation back to our 2% target in a timely manner. pic.twitter.com/GsyK0nYFuA
And here’s Victoria Scholar, head of investment at interactive investor, on Unilever:
Unilever reported underlying sales growth of 5.2%, missing analysts’ expectations. While prices grew by 5.8% actual volumes of goods sold fell by 0.6%. However price growth slowed from 9.4% in the first half of 2023. Its personal care division outperformed with growth up 8% but ice cream lagged, falling by 2.8%. Unilever has named Fernando Fernandez as its new CFO today who will take over from Graeme Pitkethly.
New CEO Hein Schumacher who took to the helm in July said “our performance in recent years has not matched our potential. The quality of our growth, productivity and returns have all under-delivered.” He said the company plans to focus on 30 key brands accounting for 70% of its sales and does not plan to carry out any major acquisitions.
Unilever hopes that Schumacher’s appointment will help the company turn over a new leaf after recent criticisms of ‘profiteering’ from the inflationary environment and the failed £50bn bid for GSK’s consumer healthcare division under former CEO Alan Jope prompting Unilever’s activist investors to fight for a C-suite shake-up.
Shares in Unilever have fallen sharply today echoing a similar performance from rival Reckitt which saw its shares slump yesterday. Unilever is down over 10% in the past six months reflecting the weak consumer backdrop as shoppers trade down to unlabelled, cheaper substitute products.”
Updated
Here’s Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, on Unilever’s results:
This is another drab quarter from Unilever with underlying sales growth being entirely led by higher prices and volume declines accelerating in the quarter. Europe was particularly weak with volumes falling by over 10%, and the percentage of Unilever’s business winning market share on a rolling 12 month-basis fell to a disappointing 38%.
Unilever’s new CEO, Hein Schumacher, recognises that the group could and should be doing better. His ‘Action Plan’, announced today, is designed to reinvigorate performance through more impactful innovation, productivity savings and an improved culture.
Schumacher’s mantra is “fewer things, done better, with greater impact”. This means prioritising the top 30 Power Brands, instilling greater accountability and simplifying the business. For too long, Unilever has been too slow-moving, too complex and too weighed down by too many mediocre brands. A strategy to simplify and refocus on core strengths, perhaps augmented by some non-core brand disposals, feels like the right way to go.
Updated
Shares in Unilever have dropped 2.7% at the start of trading in London.
Matt Britzman, equity analyst at Hargreaves Lansdown, says the 0.6% drop in sales volumes was a little larger than expected.
Britzman says:
It looks like consumers are struggling to justify forking out extra for a tub of Ben & Jerry’s as Ice Cream sales continue to struggle. The group’s strengths in emerging markets continue to shine through, despite a slower recovery than expected in China.
It’s closer to home, in Europe, where price hikes are still in double-digit territory and Personal Care’s the only business unit showing volume growth. It’s hardly the end of the world, results were broadly in line with expectations and full-year guidance remains intact.
Unilever’s newish chief executive, Hein Schumacher, is outlining his action plan to drive growth at the company.
Schumacher, who took over this summer, says:
Unilever is a company of many strengths, including, its category positions, the strength of its brands, its unmatched geographic reach and talented and passionate people.
However, there has been a disconnect between these intrinsic strengths and the quality of our performance. Remedying this underperformance is our top priority and with Unilever’s strong fundamentals and the many opportunities across the five Business Groups, we are confident that we can achieve that.
The plan includes focusing on Unilever’s “30 Power Brands”. which make up 70% of its sales today, and building back its gross profit margins – which were hit by rising costs – through higher productivity.
Unilever has also signed a deal to sell Dollar Shave Club, the men’s grooming brand it acquired for $1bn in 2016 as part of a push into direct sales to consumers.
Unilever is dumping its Dollar Shave Club business to US private equity. Consumer group bought it for $1bn in 2016 in a big and ultimately disastrous bet on direct selling. Big flop.
— Ashley Armstrong (@AArmstrong_says) October 26, 2023
Q3 sales growth continues to be driven by 5.8% price increases as volumes slow
Ice cream sales hit by bad weather
Can it ever be too cold and wet for an ice cream? Apparently it can.
Unilever’s sales volumes of ice cream – such as Magnum and Ben & Jerry’s – fell by 10.1% in the last quarter.
Unilever blames “consumer downtrading and unfavourable weather, particularly in Europe.”
It raised its ice cream prices by 8.2%, meaning underlying sales fell by 2.8% (ie, it sold less, but at higher prices).
Updated
Price rises lift Unilever sales
Price rises continue to boost sales at Unilever, the conglomerate behind Dove soap, Marmite and Magnum ice-cream.
Unilever has reported underlying sales growth of 5.2% for the third quarter of the year, after it hiked its prices again.
Average prices rose by 5.8% year-on-year in the quarter, while sales volumes fell by 0.6% – suggeting some customers have shifted to cheaper brands instead.
That’s a slowdown in price rises – in the first half of 2023, Unilever lifted its prices by 9.4%.
Unilever, which has been passing on its higher costs to consumers, reports that price continued to moderate as inflation eased.
Underlying sales volumes were positive in Unilever’s Beauty & Wellbeing, Personal Care and Home Care while sales volumes fell again in Nutrition and Ice Cream.
Unilever still expects to spend an extra €2bn buying raw materials this year, but hopes to widen its profit margins slightly, saying:
We continue to expect underlying sales growth for the full year to be above 5%, ahead of our multi-year range, with underlying price growth continuing to moderate.
Our expectation for net material inflation (NMI) for 2023 remains unchanged at around €2bn.
We are confident in delivering a modest improvement in underlying operating margin for the full year, reflecting higher gross margin and increased investment behind our brands.
Unilever has also named Fernando Fernandez, currently president of the beauty and wellbeing business, as its new chief financial officer, replacing the retiring Graeme Pitkethly.
Updated
Introduction: ECB interest rate decision and US GDP report coming up
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The European Central Bank could press the pause button on its rate-rise programme today, after hiking interest rates to record levels.
The ECB’s governing council is meeting in Athens to set monetary policy across the eurozone. And many economists predict it will resist pushing interest rates higher, given the recent slowdown in price rises.
Last month, the ECB lifted its deposit rate to 4% – the highest since the euro was launched in 1999.
Since then, inflation across the eurozone has fallen to 4.3% in September, down from 5.2% in August. That’s still over twice the ECB’s target at 2%, but a move in the right direction.
The ECB is about to hit pause on historic rate-hiking campaign https://t.co/Swi89fRyHj via @weberalexander pic.twitter.com/ybIrYWkwvj
— Zoe Schneeweiss (@ZSchneeweiss) October 26, 2023
Julien Lafargue, chief market strategist at Barclays Private Bank, predicts the ECB could keep rates at present levels into 2024, before it starts ease.
Lafargue says:
While progress on the inflation front has been modest, the macro-economic momentum in the eurozone remains challenged - as highlighted by the latest round of PMIs - as geopolitical tensions are posing a further risk.
That said, we would expect the central bank to still convey the idea that cuts aren’t on the table and that it stands ready to act should inflation flare up again.
Looking ahead we think the ECB may keep rates at present levels going into 2024 before it starts easing to accommodate lower growth as well as lower inflation.”
Joost van Leenders, Senior Investment Strategist at Van Lanschot Kempen, says:
After the rate hike in September, the European Central Bank (ECB) said that policy rates are now at sufficiently high levels to bring inflation down to its 2% target – a strong indication that it is done with its current rate hiking cycle.
For inflation to reach the ECB’s target, rates will have to stay at these levels for a while, meaning it is unlikely we will see rates cut in the near future.
Also coming up today
The latest growth data from the US is due today, and likely to confirm that America continues to fend off recession fears.
US GDP is forecast to have grown at an annualised rate of around 4.3% in July-September, more than twice as fast as the 2.1% recorded in April-June.
Such growth would show the strength of US consumer spending, in the face of higher interest rates as the Federal Reserve tries to slow US inflation.
Big 3 days of economic news in the States.
— PMH Capital (@CapitalPmh) October 26, 2023
4.5% for US GDP in Q3 is anticipated.
It's almost unreal given what the equity markets are doing. pic.twitter.com/gX7otVdFm6
And music rights fund Hipgnosis faces a crunch vote on its future, at its AGM today, after it scrapped plans to pay a dividend.
Shareholders will vote on whether to sell a fifth of Hipgnosis’s portfolio for $440m to a Blackstone fund, and whether the company should continue at all.
The agenda
11am BST: CBI’s distributive trades survey of UK retail
1.15pm BST: European Central Bank interest rate decision
1.30pm BST: US Q3 GDP report (first estimate)
1.30pm BST: US weekly jobless report
1.45pm BST: European Central Bank press conference
