Graeme Wearden 

Apple shares drop after coronavirus warning; Jaguar Land Rover faces parts shortage – business live

Rolling coverage of the latest economic and financial news
  
  

An electronic stock board showing Japan’s Nikkei 225 index at a securities firm in Tokyo today
An electronic stock board showing Japan’s Nikkei 225 index at a securities firm in Tokyo today Photograph: Eugene Hoshiko/AP

Finally, here’s our latest story on the coronavirus’s growing impact on the global economy:

In New York, shares are drifting lower too following Apple’s warning that it won’t meet its quarterly revenue target on account of the coronavirus crisis in China.

The Dow Jones industrial average is down 0.86% or 252 points at 29,145.

David Madden of CMC Markets says:

The warning from the tech giant spooked traders as it is probably a sign of what is to come from other companies that have exposure to China – which is a very long list.

The health crisis is causing major disruption to businesses in the second-largest economy in the world, so traders are ducking out of equities.

Britain’s FTSE 100 index of top shares has closed 51 points lower at 7,382, a drop of 0.7%.

HSBC led the fallers, down 6.5% after posting lower profits and announcing sweeping job cuts. Miners also had a bad day.

Brazil’s economy is also going to hit by the coronavirus crisis, economists fear, due to its export links to China:

The boss of Tata Motors, JLR’s parent company, also warned that parts from China are in short supply.

Guenter Butschek told reporters:

“We are safe for the month of February and for a good part of March.

Are we fully covered at this point of time for the full month of March? Unfortunately...not.”

Jaguar Land Rover could run out of parts soon

Don’t panic.... but carmaker Jaguar Land Rover’s UK factories could run out of parts from China in a couple of weeks.

According to Reuters, JLR chief executive Ralf Speth has said that Jaguar Land Rover has enough parts from China to maintain its British production for the next two weeks but not beyond that at the moment.

Speth also told reporters that sales were not currently happening in China.

FT: Coronavirus restrictions hit Apple’s biggest iPhone plant

The Financial Times have a great story about Apple’s problems in China, which explains why production levels are much lower than expected.

They’ve learned that Foxconn is struggling to get enough workers onto the iPhone assembly line at its huge factory complex at Zhengzhou, in China’s Henan province.

It’s because workers from outside the city are being forced into a quarantine period, for up to 14 days, to prevent them spreading Covid-19.

That self-quarantine period is taking place in a Foxconn dormitory room, which normally houses eight people! So there aren’t enough to go round.

The FT explains:

The rooms, which usually pack in eight workers, had quickly filled, causing Foxconn to halt the return of additional staff, explained a Zhengzhou-based factory recruiter, who asked not to be named.

“They don’t have enough room,” the recruiter said, adding that workers could now sign up and wait for quarantine availability. “There’s no one snoring. There’s no one bothering you. The internet is finally fast,” said one worker of the comfortable conditions in quarantine.

The seven other bunks in his dorm room — consisting of only wood planks without mattresses — were empty.

More here.

This 2.8% decline knocks around $40bn off Apple’s valuation.

That sounds like a lot, but it means the tech giant is still worth $1.38 trillion, down from $1.42trn.

Apple shares drop

Newsflash: Shares in Apple have fallen by 2.8% at the start of trading on Wall Street.

New York traders are showing concern about last night’s revenue warning. But this fall isn’t as sharp as feared this morning, when Apple was down 5% in Frankfurt.

This suggests there’s some optimism that the coronavirus problems will be short-lived.

Updated

The coronavirus crisis could drag Italy’s economy into a recession this year, fears Capital Economics.

Jack Allen-Reynolds, Senior Europe Economist, told clients that:

After Italy’s economy shrank at the end of last year, it looks set to continue to struggle in 2020. In fact, there is a clear risk that it falls back into recession for the fourth time since 2008.

Allen-Reynolds has spotted that while Italy is only half as dependent on sales to China as Germany, it is MORE reliant on imports from China.

So the closure of Chinese factories could hurt Italian manufacturers, if they can’t get the parts they need to complete their own products.

Last night’s warning from Apple is a wake-up call for investors, writes our economics editor Larry Elliott:

China is a big market for Apple – accounting for around one-sixth of its global revenues – and is the source of most of its products. The coronavirus represents both a demand and a supply shock to the company.

Apple’s statement to investors represented something of a reality check to the financial markets, which have been blithely assuming that the coronavirus would represent only a short-lived hit to China and to the wider global economy. To be sure, Apple says that production will return to normal but stresses that the process is taking longer than expected. This is far more serious than the outbreak of Sars (severe acute respiratory syndrome), and its timing could hardly have been worse....

More here:

Just in. Factories in the New York state have reported their biggest increase in new orders in a year.

The New York Fed’s Empire State business conditions index, just released, rose 8.1 points to 12.9 in February. That’s the best reading since last May - defying forecasts of a drop to 4.0.

The index of new orders rose 15.5 points to 22.1 in February, the highest level in over a year, while the shipments index jumped 10.3 points to 18.9.

This is an encouraging signal for the health of the US economy, at an important moment given the problems in China.

Rupert Harrison of Blackrock tweets:

US tech stocks could be in for a rough day, thanks to Apple.

Chipmakers Qualcomm and Broadcom, who supply technology for the iPhone, are both down around 2% in pre-market trading. Apple’s now off 2.5%.

The wider market is also likely to dip.

Swiss bank UBS have created some neat charts showing how economic activity in China has (understandably) flatlined in recent weeks.

As you can see, coal consumption, property sales and traffic congestion are all much weaker than usual:

Updated

HSBC has revealed it could be forced to take $600m in additional provisions against loan losses if the Coronavirus outbreak isn’t tackled before the middle of 2020.

Reuters has the details:

Chief financial officer Ewan Stevenson said on Tuesday HSBC has modelled several scenarios for the impact of the virus on its business, and in the more extreme of those in which it carries on, the lender would have to assume bad loans rising to that amount.

“There will be revenue impacts which will become progressively more acute if the coronavirus was to continue beyond the next month to six weeks,” Stevenson told analysts on a conference call.

Stevenson had earlier indicated that HSBC would update the markets on the coronavirus impact at the end of April (when Beijing would hope to have the situation firmly under control).

Updated

Back in London, the FTSE 100 has touched a fresh two-week low.

The blue-chip index is down 1.05%, or 78 points, at 7,354. There’s a clear coronavirus impact, with mining companies among the top fallers.

Fashion chain Burberry is down 3.3% too. It’s suffering from Apple’s warning of weak iPhone sales in China, and the cancellation of Chanel’s Beijing show.

Callum D’Ath, senior investment manager at Brewin Dolphin, suggests Apple’s management may be criticised for putting so much reliance on Chinese manufacturing.

He writes:

This is Apple’s second sales warning in 12 months where the company has blamed China-related issues. Previously it was the US/China ‘trade war’ and now it is the Coronavirus. As Apple supposedly has one of the best supply-chain systems in the world coupled with a very big physical presence in China, investors may question the quality of management going forward.

“Looking ahead for Apple, this is probably a transitory impact to numbers as global supply-chain issues will dissipate. In addition, while this is clearly a hardware issue, the jury is still out on whether Apple is a hardware company or successful in transitioning to becoming a high-quality consumer staple company with a growing software business.”

Xi: We can still hit growth targets

China’s president, Xi Jinping, has insisted that the country’s economy won’t be derailed by the coronavirus crisis, and can still hits its growth targets.

Reuters has the details:

China can meet its economic growth target in 2020 despite the impact of the coronavirus outbreak, state television quoted President Xi Jinping as saying on Tuesday.

Xi said the economy remained resilient as efforts to control the outbreak reached a critical stage.

Beijing had been aiming for 6% growth in 2020, before the outbreak began in Wuhan. Many economists have trimmed their forecasts since, but there’s a theory that the economy could bounce back later this year... if the Covid-19 restrictions are relaxed fairly soon.

The coronavirus is the third-biggest ‘tail risk’ keeping fund managers awake at night, according to Bank of America’s monthly survey.

The top worry -- the US presidential election.

Many in the markets expect Donald Trump to be re-elected for a second term. So a progressive Democrat could surprise Wall Street -- with Bernie Sanders and Elizabeth Warren both pledging tighter bank regulation and higher taxes on the wealthiest.

Just in: US supermarket titan Walmart has missed sales and profit expectations, and issued weaker-than-expected earnings forecasts.

Walmart made $1.38 per share in adjusted earnings in the last quarter, shy of forecasts of $1.44. Sales rose by 1.9%, missing forecasts of 2.4%.

It also expects to make between $5 and $5.15 per share in the coming financial year -- Wall Street had expected $5.22 per share.

Walmart says it has NOT included any potential financial hit from the coronavirus -- suggesting it is reacting to a slowdown in its domestic market.

Neil Wilson of Markets.com reckons investors will soon shake off their worries about Apple, even though its shares are having a bad day.

He writes:

Apple says it won’t hit its Q2 revenue guidance of $63-67bn due to the Covid-19 outbreak in China. In warning in this way Apple has neatly summed up the knock to global growth stemming from both reduced output and consumption.

Firstly, how anyone is surprised by this is beyond me. Clearly there is going to be a hit to both output and consumption in the world’s second largest economy and the world’s growth driver. This is bound to hit earnings of companies exposed – Apple being the bellwether.

Most of Apple’s products are made in China, while the country accounts for about 16% of global revenues.

The $4bn spread in the original guidance was already as wide as a barn door, reflecting uncertainty at the time of the Q1 results at the back end of January.

The warning points to the two key ways the outbreak will impact growth. First output: Apple says iPhone supply will be constrained due to a slower ramp in production following the late return following the new year holiday. Two, consumption: demand for all products in China has been sharply hit.

Apple warned about China a little over a year ago and after the stock initially sold off, investors soon shrugged it off. I’d anticipate a similar reaction to this

Apple’s share are down over 3% in pre-market trading in New York, as early-bird traders prepare to head to Wall Street.

This chart from Bloomberg TV shows why the turmoil in China is bad for Apple’s revenues - meaning it will miss sales targets this quarter.

But Apple’s stock is still nearly double its level last year:

Chanel cancels Beijing fashion show

Chanel has cancelled a fashion show scheduled for May in Beijing, due to coronavirus angst - another sign of the economic cost of the crisis.

The French fashion house said last night:

“Considering the current situation and following the guidance of Chinese authorities, Chanel has decided to postpone its project of a replica of the Paris – 31 Rue Cambon 2019/20 Métiers d’art collection in May in Beijing to a later and more appropriate moment.”

Chanel added that the “health and well-being of its teams and clients” are its primary concern at this time.

The AFP newswire has more details:

The “31 Rue Cambon” show was first held in Paris in December, inspired by the studio and workshop of founder Coco Chanel. The decor was created by the film director Sofia Coppola.

Scores of similar events have already been cancelled in China, and beyond - with Barcelona’s Mobile World Congress being cancelled last week.

Coronavirus hits German confidence: what the experts say

CNBC’s Julianna Tatelbaum says the slump in German investor confidence is much worse than expected -- as sign that the coronavirus is causing real alarm:

Hopes of green shoots in Germany are turning into brown weeds, warns Katharina Utermöhl of Allianz:

But Aila Mihr of Danske Bank argues that the impact is ‘muted’ so far:

ZEW president Achim Wambach says:

“The feared negative effects of the coronavirus epidemic in China on world trade have been causing a considerable decline of the indicator of economic sentiment for Germany.

Expectations regarding the development of the export-intensive sectors of the economy have dropped particularly sharply.”

German investor confidence hit by coronavirus

NEWSFLASH: German investor confidence has taken a nosedive, hit by coronavirus turmoil and recession fears.

The ZEW Institute’s measure of German economic sentiment has tumbled to just 8.7, down from January’s 26.7 (which was a four-year high).

It blamed the “negative effects” of the coronavirus outbreak in China - with export-intensive sectors of the German economy particularly affected. Recent weak economic data has also hurt -- with German GDP stagnating in the final three months of last year.

ZEW’s current conditions measures slumped to -15.7, from -9.5, in a clear indication that the economy is under pressure....

Apple shares still under cosh

Back in the markets, Apple’s shares are still under pressure in Frankfurt.

The tech giant is down around 3.66%, so it’s clawed back a BIT of its early selloff.

But that still suggests Wall Street is going to see some heavy selling later today.

On the upside, Apple’s shares have been on a huge tear recently - soaring by 86% in 2019. So one day’s losses shouldn’t hurt.....

UK Budget still on for 11 March

Newsflash: Britain’s new chancellor, Rishi Sunak, has squashed fears that the budget could be delayed following the shock departure of his predecessor, Sajid Javid.

It’s still on for 11 March, he just tweeted:

Here’s some reaction to today’s jobs report from the Resolution Foundation think tank:

And from Pawel Adrjan of jobs site Indeed.com:

Good news! Pay in Britain has finally hit its pre-crisis levels, once you adjust for inflation and strip out bonuses.

That’s according to today’s unemployment report, which says:

Real regular pay increased by 1.8% to £474 between December 2018 and December 2019.

This was the first time that real regular pay exceeded the pre-downturn peak of £473 recorded in March 2008. However, the annual rate of growth of both total and regular pay slowed down in recent months.

UK employment hits new high, but wage growth slows

NEWSFLASH: Britain’s employment rate has hit a new record high, but wage growth has slowed.

The Office for National Statistics has reported that the UK employment rate rose to 76.5% in the October-December quarter-- up from 76.1% in the previous quarter.

The jobless rate remained at 3.8%, its lowest since Harold Wilson’s Labour government of 1974.

There are more vacancies too --some 810,000 in the last three months, up from 807,000 in the previous quarter.

But there’s bad news too -- average basic earnings growth fell to 3.2% per year, from 3.4%.

Total pay (including bonuses) only rose by 2.9%, down from 3.2% a month ago.

That’s a blow, but it’s compensated by the fact that inflation dropped to a three-year low in January.

Most major European stock markets are in the red today, as investors digest the implications of Apple’s revenue warning last night.

Russ Mould of stockbroker AJ Bell says the markets have been “far too complacent” about the impact of the coronavirus on China’s manufacturing industry, and global supply chains.

If factories are closed, are running at partial capacity, or are struggling to get raw materials to make goods, then it is no wonder that supplies will be disrupted.

“Apple’s retail stores will have also been affected by the health incident in China and surrounding areas in Asia as there will have been fewer people shopping.

“Companies try to avoid tying up cash by having large stockpiles, even though that would help them to continue operating as normal at such times of supply chain disruption. Instead, they prefer to have the smallest amount of inventory possible in the hope that the supply chain always runs smoothly. That leaves little room for error, as Apple has now discovered.

Germany’s DAX index has dropped 0.75% in early trading, losing 105 points to 13,678.

Industrial groups are leading the fallers, hit by fresh concerns about China’s economy and the impact of Covid-19.

Semiconductor-maker Infineon Technologies, another iPhone supplier, are down 2%. Carmaker Daimler has lost 1.9%, with tire manufacturer Continental off 1.4% and cement producer Heidelberg down 1.3%.

Oil, a handy barometer of economic optimism, is falling too.

Brent crude has shed 1.6% to $56.73 per barrel, down $1 overnight.

Tech companies aren’t the only ones suffering.

Shares in small UK manufacturer Tekmar have plunged by almost 40%, after it warned that the coronavirus is hurting business.

Tekmar makes protective coverings for subsea cables, such as power links to wind farms and oil rigs.

It told the City this morning:

“China’s necessary and prudent response to the outbreak of the coronavirus, including the restriction of travel in the country, is affecting the Group’s performance materially in a number of ways.

Cardiff-based iPhone supplier IQE have slumped 6% in early trading -- another casualty of last night’s warning.

Apple shares plunge 5% in Frankfurt, wiping out $70bn

Over in Frankfurt, shares in Apple are taking a thumping in early trading.

Apple’s stock is down 5% at €285, as European traders react to last night’s warning that revenue targets will be missed.

Apple is worth around $1.4 trillion dollars. So this fall would wipe around $70bn off its market capitalisation!

We’ll see if Apple’s New York-listed shares take a similar plunge when Wall Street opens in six hours time.

Updated

Shares in STMicroelectronics, who also supply chips to Apple for the iPhone, are down 2.5%.

Overall, tech stocks are the worst-performing sector across Europe this morning - down some 1.3%.

European tech companies are being buffeted at the start of trading, thanks to Apple’s warning last night.

Anglo-German chip designer Dialog Semiconductor has plunged 6%, It supplies various technology for the iPhone, including power management systems.

Another iPhone supplier, AMS, are down 4.5%. It provides optical sensor systems used in the 3D facial recognition features on iPhones.

London stocks fall at the open

Oof! Britain’s FTSE 100 index has fallen 1%, or 72 points, at the start of trading to 7362.

That’s a two-week low, as Apple’s virus warning sends a shiver through the City of London.

HSBC is the biggest faller, after reporting a 33% drop in profits earlier today and outlining plans to shrink its investment bank.

Mining stocks are among the fallers, reflecting worries that the global economy will suffer from the outbreak. Anglo American, BHP Billiton and Glencore have all lost at least 1.5% -- with BHP’s warning about exports to China not helping the mood either...

Updated

Banking giant HSBC has added its voice to the growing chorus of concerns over the coronavirus.

HSBC’s interim chief executive, Noel Quinn said there had been significant disruption for staff, suppliers and customers, particularly in mainland China and Hong Kong.

Speaking after announcing a tumble in profits, Quinn said:

“Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China..

“Longer term, it is also possible that we may see revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains. We continue to monitor the situation closely.”

BHP: Coronavirus crisis could hurt commodity demand

Mining giant BHP Billiton has also warned that the coronavirus is threatening its operations.

BHP told shareholders that it will revise down its expectations for economic and commodity demand unless the outbreak is “demonstrably well contained within the March quarter”.

The company added that it expects a net loss in demand for oil in the near term, due to the coronavirus disease.

Overnight data has confirmed that Chinese imports of iron ore have fallen in the last week:

Britain’s accountancy watchdog has warned UK companies not to be shy about spelling out the impact of coronavirus on their businesses.

The Financial Reporting Council said in a statement.

“We encourage companies to consider carefully what disclosures they might need to include in their year-end accounts relating to these events.”

So if you’ve been expanding in China, or rely on a Wuhan factory for parts, you’d better mention it now.....

Here’s the damage in the Asia-Pacific markets today, after Apple became the highest profile market victim of the virus impact so far.

  • Japan’s Nikkei: down 329 points, or 1.4%, at 23,193
  • China’s CSI 300: down 19 points or 0.5% at 4,057
  • Hong Kong’s Hang Seng: 394 points or 1.4% at 27,568
  • South Korea’s KOSPI: down 5 points or 1.6% at 297

Updated

South Korea: Coronavirus has created economic emergency

South Korea has warned it faces an economic ‘emergency’ from the coronavirus, in another sign that the outbreak is causing deeper damage to the global economy.

President Moon Jae-in told a cabinet meeting in Seoul that the economy is in an emergency situation, and needs stimulus to lift domestic demand.

Moon also called for “all possible measures” to support South Korea’s economy, fuelling speculation that his government could launch a stimulus package soon.

He told cabinet ministers:

“We should take every possible measure we can think of...

The current situation is more serious than we thought . . . we need to take emergency steps in this time of emergency.”

South Korea’s tourism sector is suffering from the travel restrictions in China, while its high-tech industry will suffer supply chain problems from the closure of Chinese factories.

Apple revenue warning spooks markets

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Alarm bells are ringing in the markets this morning after Apple warned it won’t hit key financial targets, due to the escalating coronavirus crisis.

Late last night, the tech giant admitted that it will fail to reach sales targets set just last month -- the clearest sign yet that Covid-19 is having a serious impact on the global economy.

Apple warned that coronavirus is hurting both supplies, and demand.

Chinese factories are taking longer than expected to ramp up their iPhone production levels, having been closed for an extended period after the Lunar New Year due to the virus. This means it will have fewer iPhones available for sale around the world.

It warned:

“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated.

As a result, we do not expect to meet the revenue guidance we provided for the March quarter.”

That’s being compounded by retail closures across China. Given the health emergency, fewer Chinese consumers are venturing out to buy phones even if their local store is open. That’s a blow to Apple, as China provides a sixth of Apple’s revenue.

It warned:

All of our stores in China and many of our partner stores have been closed.

Additionally, stores that are open have been operating at reduced hours and with very low customer traffic. We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can.”

Apple insists that the disruption is only temporary. But clearly the situation has deteriorated sharply in the last few weeks.

And if Apple are suffering, surely other companies -- including its own suppliers -- will be struggling too? On Monday, airline group Cathay Pacific issued its own warning, and we could easily see more today.

Asian investors have reacted swiftly, by hammering the sell button . The Chinese, Japanese and Hong Kong stock indices have all fallen, and European markets are likely to follow.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says Apple have put the markets on edge:

Even though Apple’s manufacturing partner facilities resumed activity last week, China hasn’t managed to get back to a normal rhythm just yet, and the latter could take a couple of more weeks, if not months.

The risk appetite remains fragile and gains in equity markets remain vulnerable to coronavirus related news.

Also coming up today

Banking giant HSBC has reported a 33% plunge in profits this morning, and shocked staff by suggesting it will cut 35,000 jobs as part of a radical overhaul (more on that shortly).

Speaking of jobs.... the latest UK unemployment report is due this morning. It’s likely to show that wage growth slowed in the final quarter of 2019, as nervous companies held back from pay rises.

But the jobless rate could remain at its lowest level since the mid 1970s.

The agenda

  • 9.30am: UK unemployment figures; jobless rate expected to stick at 3.8%
  • 10am: ZEW survey of eurozone economic confidence

Updated

 

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