Graeme Wearden 

Double-dip fears hit markets; US consumer confidence and UK retail sales drop – as it happened

Rolling coverage of the latest economic and financial news
  
  

The Arena di Verona in Verona, Italy, where bar and restaurants must close early under the latest coronavirus restrictions.
The Arena di Verona in Verona, Italy, where bar and restaurants must close early under the latest coronavirus restrictions. Photograph: Filippo Venezia/EPA

Closing summary

Time for a quick recap

Fears that the Covid-19 pandemic will drag major European economies back into recession this winter have hit stocks across the region today.

In London, the FTSE 100 sunk to its lowest closing point since April, with financial services stocks, and housebuilders leading the fallers.

Retailers also came under pressure, after the CBI reported that retail sales have weakened this month.

Germany’s DAX hit a four-month low, as equities added to Monday’s rout. France’s CAC hit a one-month low, as Paris considers tighter restrictions to slow the pandemic.

The selloff came as Covid-19 cases and deaths continue to climb across Europe, putting pressure on governments to consider national lockdowns again. Economists have warned that the eurozone could suffer a double-dip recession unless the virus is successfully tackled soon.

The crisis has already driven Spanish unemployment up, to over 16% in the last quarter.

In New York, the Dow is slightly lower too, after sliding over 2% yesterday in its worst selloff in a month following a record jump in US Covid-19 cases.

US consumer confidence has fallen this month, which may not bode well for president Trump’s re-election prospects. But durable goods orders did pick up, while house prices were driven higher by a shortage of properties.

The latest corporate results were a mixed bag, with oil giant BP returning to profitability (just) while construction machinery maker Caterpillar saw its earnings halve.

Banking giant HSBC beat City expectations, and promptly hinted that it could start charging UK customers for current accounts.

Shares in HSBC ended the day 3% higher, on hints that it would like to resume dividend payments... too early, perhaps, given the crisis?

Covid-19 continues to hurt the hospitality industry - driving Whitbread to a £725m loss and forcing Revolution to shut six bars.

But on the upside, at least we’re reading more...

Goodnight. GW

Updated

The FTSE 100 hit its six-month closing low shortly after the government reported that a further 367 people have died within 28 days of a positive Covid-19 test

This brings the UK total to 45,365.

It’s the highest daily figure since 27 May, up from 102 on Monday.

German stocks hit four-month low as markets slide

All the major European stock markets have closed sharply lower, with Covid-19 anxiety driving Germany’s DAX to a four-month low.

The Stoxx 600 index has closed down 0.8%, at a one-month low, adding to Monday’s slide.

In Frankfurt, the Dax lost 0.85% to 12,072 points, its weakest point since the last week of June. France’s CAC saw steeper losses, down 1.5% to its lowest point since late September.

David Madden of CMC Markets sums up the day:

European stock markets sold off again as worries about the health crisis have become more entrenched.

Yesterday was a brutal session for equities as the jump in Covid-19 cases in Europe and the US, plus tougher restrictions, hammered traders’ confidence in the markets. Today, things started out on a relatively quiet note, especially for the FTSE 100, but the coronavirus fears resurfaced. US index future pushed lower in advance of the cash trading in New York and that weighed on sentiment on this side of the Atlantic.

FTSE 100 hits six-month closing low

Ouch. Britain’s blue-chip stock index has just hit its lowest closing point in six months, as Covid-19 woes hit stocks again.

The FTSE 100 ended the down 63 points, or 1.1%, at 5,728 points. That’s its lowest close since late April (although it was briefly lower last week).

Investment manager M&G was the top faller, down 7.5%, with financial services groups Prudential and Legal & General both down 5%.

UK housebuilders also had a troubled day, with Persimmon losing 5.5% and Barratt down 4.5%.

Worries about rising Covid-19 cases also hit office builder Land Securities and airline group IAG, who both lost over 4%

The drop in US consumer confidence this month doesn’t bode well for Donald Trump’s chances of re-election...especially with incomes being squeezed and Covid-19 cases on the rise.

So argues James Knightley of ING, who has also spotted that consumer morale weakened in some key states.

There were some interesting moves on the individual state data that could potentially have a bearing on next week’s election.

The numbers can be choppy, but a 20 point drop in Florida, a 21 point fall in Michigan and a 25 point fall in Pennsylvania – key swing states that will determine the outcome of the Presidential election – offer little encouragement for Donald Trump.

The Harry Potter publisher, Bloomsbury, has reported its most profitable first half in more than a decade, after a nation tiring of box sets fuelled a lockdown boom in book sales.

The company furloughed staff as the coronavirus crisis forced the publishing industry to shut down, but has seen a remarkable change in fortune as the pandemic has persisted.

“It is a complete surprise because we had as grim a beginning to the pandemic as everyone else in March when 100% of our customers shut down worldwide,” said Nigel Newton, the chief executive.

“And then we found that early on people showed short attention spans and were watching TV. But then reading reasserted its power and people found they could escape through books, and sales have been booming ever since.”....

Anxiety over the global economy hasn’t prevented another major tech merger.

This time, Advanced Micro Devices has agreed to buy rival Californian chipmaker Xilinx for $35bn. The all-stock transaction taking the value of semiconductor dealmaking to over $100bn this year, according to the FT, which explains:

AMD’s deal, its largest acquisition to date, will boost its ambitions to become a data centre powerhouse and create a combined company with 13,000 engineers and more than $2.7bn in annual research and development spending.

That fall in US consumer confidence hasn’t improved spirits in the markets.

The Dow Jones industrial average is now down 0.5%, or 143 points at 27,542, on top of the 650 points lost on Monday.

Caterpillar is the top Dow faller, down 2.7%, after reporting that profits more than halved in the last quarter (see earlier post). Chipmaker Intel has lost 2.5%.

In London, the FTSE 100 is heading south too - down 50 points at 5741, a drop of 0.8% today. Growth-sensitive stocks such as WPP (-4.3%) and Glencore (-3.5%) are among the fallers.

Updated

US consumer confidence falls

Newsflash: US consumer confidence has dipped this month - with Americans reporting that they are less optimistic about future prospects.

The Conference Board’s index of US consumer morale, just released, has slipped to 100.9 from 101.3 in September.

Although consumers were more positive about their present situation, their expectations have weakened. That indicates that the economic recovery is losing momentum this quarter after a strong summer (and with no stimulus package on the horizon)....

Speaking of fading stimulus hopes.....

US house price inflation hits two-year high

America’s housing market continues to roar away, with strong demand and limited supply overcoming economic weakness and politicla uncertainty.

Prices across the US jumped by 5.7% per year in August, up from 4.8% in July, according to the latest S&P/Case-Shiller index. That’s the strongest gain since July 2018.

House prices in America’s 20-largest cities rose by 5.2% per year, as CNBC explains:

Phoenix, Seattle and San Diego reported the highest annual gains among the 19 cities in August. Phoenix led the way with a 9.9% price increase, followed by Seattle with an 8.5% increase and San Diego with a 7.6% increase.

Chicago, New York City and San Francisco saw the smallest annual home price gains in August.

So much for the Wall Street bounceback.

After its worst day in a month, the Dow Jones industrial average has dipped by another 0.2% or 58 points to 27,626.

The broader S&P 500 is flat, while the tech-focused Nasdaq index is slightly higher.

Ironically, the stronger-than-expected jump in US durable goods orders may have dampened investor’s hopes of a new stimulus package soon.

European stock markets are dropping back into the red again....

Just in: US durable goods sales have defied today’s gloomy tone, by growing faster than forecast.

Sales of long-lasting items like electronics, kitchen appliances, cars and sports equipment jumped by 1.9% last month, up from 0.4% in August.

The rise was partly driven by strong orders for transportation (such as aeroplanes), where orders jumped 4.1%. However, new defence equipment (often a volatile category) tumbled 46% month-on-month.

It may suggest America’s economy grew faster than expected in July-September...

Updated

Caterpillar profits halve

Sales at construction equipment manufacturer Caterpillar have slumped by nearly a quarter in the last three months.

With the pandemic hammering demand for trucks, diggers and excavators, Caterpillar also reports that profits more than halved in the last quarter

The company says:

Caterpillar Inc today announced third-quarter 2020 sales and revenues of $9.9 billion, a 23% decrease compared with $12.8 billion in the third quarter of 2019. The decline was primarily due to lower sales volume driven by lower end-user demand for equipment and services.

Third-quarter 2020 profit per share was $1.22, compared with $2.66 profit per share in the third quarter of 2019. Profit per share in the third quarter of 2020 included pre-tax remeasurement losses of $77 million, or $0.12 per share, resulting from the settlements of pension obligations. Profit per share benefited from lower than expected taxes in the quarter.

Caterpillar’s construction division reported weaker sales in North America, Latin America and Europe, due to lower demand from end-users... and dealers running down their inventories.

Sales picked up in Asia-Pacific, though, “primarily driven by China demand” as its economy recovered from the pandemic.

Updated

European stock markets are fighting back from their earlier lows.

The FTSE 100 is now slightly higher (up 11 points at 5,795), as the futures market signals that Wall Street will open higher. But there are still small losses in France, Italy and Germany today.

Updated

The drop in retail sales this month suggests the latest round of Covid-19 restrictions are hitting consumers, warns Bloomberg.

Retail sales fell at the fastest pace since June this month, a fresh sign that the U.K.’s fragile economic recovery is faltering. Demand at department stores and clothing outlets slumped, while grocery sales flatlined for the first time since the height of the national lockdown, according the Confederation of British Industry.

A bleak outlook among retailers saw them cut orders with suppliers for an 18th month, even as they prepare for the traditionally busy Christmas shopping period.

The CBI also reports a drop in car sales this month:

After three months of rising sales, motor traders reported falling volumes in the year to October (-32%, from +24%). Sales volumes are expected to fall again next month (-16%).

Automobile sales, including second-hand cars, had jumped when forecourts reopened after the lockdown. There are anecdotal reports that people were keen to drive to work, rather than take the bus or train, to avoid Covid-19.

The CBI have tweeted the key points from their latest healthcheck on UK retailers:

UK retail sales fall back as Covid-19 restrictions rise

Just in: UK retail sales have fallen this month, suggesting the economy is losing momentum as Covid-19 cases rises.

The CBI’s latest distributive trades survey shows that a majority of retailers reported that sales were weaker than normal this month, indicating the biggest drop in sales since June.

Non-food retailers, department stores and clothes outlets all reported a fall in sales. But furniture, DIY and recreational goods remained in demand, as Britons prepared for months more disruption from the pandemic.

Worryingly, suppliers to retailers reported a drop in orders, suggesting more weakness ahead.

The CBI reports that:

  • Retail sales fell sharply in the year to October (balance of -23%, from +11%) and are expected to fall at a similar pace next month (-26%).

  • Retail sales volumes were down by 22% relative to ‘normal conditions’, compared to a shortfall of 14% in September.

  • Orders placed on suppliers also fell sharply (balance of -39%, from -14%) and are expected to fall at an even faster rate next month (-48%).

  • Sales were seen as poor for the time of year (balance of -5%, from +4%) and are expected to be broadly average in August (-1%).

Ben Jones, CBI Principal Economist says retailers have suffered from rising anxiety about the pandemic, as more areas have faced tighter restrictions:

“The fall in retail sales in October is a warning sign of a further loss of momentum in the economy as coronavirus cases pick up and restrictions are tightened across many parts of the country.

“It’s no surprise that sales have dipped despite no new direct restrictions on retail in England, as the evidence from earlier in the year suggests consumers become more cautious as case numbers rise.

“With footfall still down by one third, many retailers face a difficult run-up to the all-important Christmas period. It is vital that local authorities use their discretion over the new Tier 2 grant funding to target support in a way that helps keep town and city centres open for business.”

European politicians and officials have been hinting that fresh Covid-19 restrictions will be needed if infection rates continue to climb.

Belgium’s health ministry spokesman Yves Van Laethem told Belgian broadcaster RTBF last night that a decision on returning to lockdown would need to be taken by the end of the week.

“It will be necessary to decide by this weekend if we should go into total lockdown.”

German Finance Minister Olaf Scholz called the jump in coronavirus infections over the past few days “very worrying”, adding that new steps will be needed to halt.

“The additional measures should be targeted, temporary and focussed. And they should be taken as uniformly as possible across Germany and be generally understandable,”

“So far, our country has fared quite well during the coronavirus pandemic and it will be decided in the coming weeks whether it will stay that way. It’s in our hands.”

Hotel operator Whitbread is also suffering badly from the pandemic, despite managing to reopen almost all its UK sites by the end of July.

Whitbread has reported a pre-tax loss of £724.7m for the last six months, down from a profit of nearly £220m a year ago.

The company raised £1bn through a rights issue this year, and has just signed deals for another 15 hotels in Germany.

But the second wave of Covid-19 cases in Europe could threaten its recovery, with 6,000 job cuts already announced last month.

Whitbread, which runs the Premier Inns and Beefeater chains, told shareholders:

Given the fast-changing nature of the COVID-19 environment in which we are operating, and increased levels of local and regional lockdowns, near-term visibility remains limited.

However, as the situation evolves, Premier Inn remains well-placed to capitalise on the enhanced structural growth opportunities that will exist, driving attractive returns on investment in the long-term.

UK bar operator Revolution is closing six sites permanently, due to the slump in sales since tighter restrictions were imposed.

Revolution told shareholders that takings in the last five weeks are just 49.4% of last year’s levels, down from 72.5% in July and August.

Revolution blames the imposition of the 10pm curfew and more recently localised lockdowns in parts of the UK, adding that it expects Christmas to be tough.

Given the latest Government restrictions under which the Group is operating, the Group’s trading outlook is uncertain and based on all the information and commentary available, the Board now anticipates that the important Christmas trading period will be severely compromised and any return to near normal levels will not be possible before next Spring at the very earliest.

As a results, Revolution is launching a company voluntary arrangement (“CVA”) to close six underperforming bars, and cut its rent on seven others.

Here’s our news story on how BP’s earnings have improved as the oil price picked up:

Europe’s stock markets are now at a one-month low, taking their losses for 2020 to 15%.

European equities are extending their losses, with the Stoxx 600 index now down 0.8%.

In Paris, the CAC 40 index is now down 1.5%.

President Emmanuel Macron was scheduled to meet with ministers this morning to discuss the Covid-19 situation, amid speculation that new measures will be introduced to combat the record rise in cases.

News site The Local explains:

Macron will first meet with ministers in the defence council on Tuesday morning, the Elysée said.

Then throughout the day the French Prime Minister Jean Castex will meet with the leaders of opposition political parties and parliamentary groups, followed by a meeting with union leaders on Tuesday evening.

Italy’s FTSE MIB has lost 0.9% this morning, after overnight protests in Turin and Milan against the latest restrictions (including bars and restaurants closing by 6pm, and the closure of public gyms, cinemas and swimming pools).

Here’s our news story on HSBC’s latest results, and its hint that it could start charging for basic banking services (such as current accounts, potentially) in some markets.

Updated

Spanish unemployment jumps over 16%

The Covid-19 pandemic has driven Spain’s unemployment rate higher.

Statistics body INE has reported that the jobless rate jumped to 16.26% in July-September, up from 15.3% in April-June.

The Spanish tourism industry was hurt by the coronavirus this summer, with the UK imposing a 14-day quarantine on people returning from Spain after cases jumped in July.

Reuters points out that the true picture is even worse:

The rate does not include furloughed workers and other people who do not meet certain technical criteria, meaning the true figure is significantly higher.

The number of unemployed people in the country surged by 355,000 from the previous quarter to 3.72 million, marking the biggest quarterly jump since 2012, the data showed.

European open: Stocks down again

European stock markets have opened gingerly after Monday’s selloff, with small losses across the board.

In London, the FTSE 100 is down 15 points or 0.24% at 5,780 - close to its lowest closing point in five months. Although BP and HSBC are among the risers, that’s being cancelled out by falling retailers - with DIY chain Kingfisher losing 2.1%, Next are down 2%.

Recession fears are also hitting mining companies, with Glencore and Anglo American both dipping 1.9% [a double-dip would mean less demand for iron ore, coal, copper, etc].

It’s a similar picture across Europe, with the French, German, Italian and Spanish markets dropping. Traders are anticipating weaker growth (or worse) as governments try to slow the acceleration in Covid-19 cases through new restrictions:

Jim Reid of Deutsche Bank says equities have been hit by the jump in Covid-19 cases in the US, and the fresh restrictions “seemingly building daily in Europe”.

he told clients this morning:

German Chancellor Angela Merkel convened her task force yesterday and it was reported she plans to present a “lockdown light” plan which would see bars, restaurants and public events shut in order to minimise a second wave. Furthermore, shops would remain open and schools would not have to close under the new plan.

Meanwhile, Italy’s new rules went into effect yesterday after Prime Minister Conte approved the government’s plan to limit hours for bars and restaurants as well as shutting down gyms and entertainment venues. Italians have also been asked not to travel under the new restrictions, which are currently in place until November 24.

Meanwhile on top of the national curfew that was set in Spain, the country’s parliament approved an extension of the state of emergency until May 9, in order for the Prime Minister to avoid continually seeking approval to implement further restrictions.

A couple of the City’s largest listed companies are propping up the market this morning.

Banking giant HSBC has jumped 5% to a two-month high at the start of trading, after beating profit forecasts today.

Pre-tax profits fell by a third to $3.1bn (£2.4bn), down from $4.8bn a year ago.

That’s better than analysts had expected, with HSBC predicting smaller-than-forecast losses from bad loans. It’s also promising to shake up its business model - suggesting that it could start charging for certain products...

BP is also among the risers, up 1.4%, after beating expectations in the last quarter.

It made a profit of $86m (on the underlying replacement cost profit method favoured by oil firms), up from a $6.7bn loss three months earlier. [overall, losses narrowed to $450m from $16.8bn]

But.. BP also warned that trading remained tough due to the pandemic:

“The ongoing impacts of the COVID-19 pandemic continue to create a volatile and challenging trading environment. The gradual recovery in oil demand seen since the spring looks set to continue, led by strengthening demand in Asia.

The refining margin outlook remains challenging, given record high inventory levels and a leveling off in demand recovery for gasoline and jet fuel due to COVID-19.”

Anxiety over the Covid-19 pandemic weighed on some Asia-Pacific markets today.

Australia’s S&P/ASX 200 index slumped by 1.7%, while South Korea’s Kospi 200 fell 0.5% and the Hong Kong Hang Seng lost 0.6%.

Fiona Cincotta of Gain Capital said:

Investors are unnerved by the surging number of covid cases which are dampening the economic recovery outlook. News on Monday that talks over a coronavirus relief package have slowed could keep the lid on gains, although House Speaker Nancy Pelosi remains upbeat that an agreement can still be made before the US elections.

Given that talks have been deadlocked for months and that the elections are less than a week away this seems a rather ambitious expectation.

Berenberg; Eurozone will contract again unless Covid-19 cases stabilise

Berenberg Bank has predicted that Europe’s economy could shrink again in the current quarter if tighter measure are imposed to combat the pandemic.

In a new report, they warn that the situation has worsened considerably since late August. Economic stagnation in October-December already looks likely - with near-term risks “ever more tilted to the downside” in the coming weeks.

As the days are getting shorter and colder, the Eurozone and the UK are reporting record numbers of confirmed SARS-CoV-2 infections and a much slower but still serious rise in medical complications and deaths.

In response to renewed restrictions and rising nervousness, forward looking surveys and some concurrent indicators of economic activity have started to come down, ending the rebound that had commenced in May.....

If virus trends do not start to stabilise in early November, the Eurozone economy will likely contract in Q4. If so, however, we would expect the setback to be largely offset by a stronger rebound in 2021.

Ongoing medical progress, the impact of restrictions and – at the latest – the advent of spring should then cause the second wave of infections to subside.

Here are the key points:

  • For the second time, Europe has turned into an epicentre of the Covid-19 pandemic. The partial curfews and other restrictions to contain the spread of the virus are casting a dark shadow over the near-term outlook.

  • In response to the second wave of infections, we have already lowered our call for Eurozone growth in Q4 from 2.8% qoq in August to just 0.5% now. In its impact on annual GDP in 2020 and 2021, this downgrade has been offset by upgrades to Q3 2020 and to our calls for early next year.

  • If the restrictions that have been imposed in recent weeks do not suffice to slow down the spread of the virus by early November, further waves of harsher restrictions would probably cause a temporary contraction in Eurozone GDP in Q4.

  • A more pronounced setback in late 2020 would likely be followed by a stronger rebound in 2021 once the second wave subsides, helped by ongoing medical progress, the impact of restrictions and – at the latest – the advent of spring. This underpins our cautiously positive view on risk markets and the euro for 2021.

Introduction: Double-dip fears on the rise

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

The markets are notably edgy this morning after Wall Street racked up its worst day in over a month.

The Dow fell 2.3%, or 650 points, yesterday - its biggest one-day decline since early September - amid growing concerns that the Covid-19 pandemic could drag the global economy down again.

Investors ditched stocks and scampered for the safety of government bonds after the United States reported a record daily total of cases on Friday (at 84,244), and then nearly surpassed it on Saturday.

default

With the US presidential election just a week away, no agreement on a stimulus page, and Covid-19 cases rising alarmingly fast in Europe, investors have a lot to worry out.

The tighter Covid-19 restrictions imposed across Europe is now hitting visits to cafés, restaurants, retail and other hospitality and leisure venues, raising concerns that the recovery runs out of steam.

Jeffrey Halley, senior market analyst at OANDA, explains:

The surge in Covid-19 cases around the world, notably Europe, has also sapped confidence, increasing fears of a “double-dip” scenario....

America’s recovery could also falter, Halley adds:

Exploding Covid-19 infections across the country could yet dent the American fourth-quarter comeback. Looked at in conjunction with Europe’s situation, there are severe threats to the consumption side of the global recovery.

For all the talk about China, it is essential to remember when America gets Covid-19, the rest of the world gets sent to the isolation facility.

After chunky falls yesterday, European markets are expected to open a little higher.

But today’s docket of economic data could change things - with Spanish unemployment figures this morning, and US durable goods, house-price data and consumer confidence later.

It won’t take much to unnerve the markets, as Stephen Innes, chief global markets strategist at Axi, explains:

It’s risk-off because Covid cases are rising and with curfews across Europe meaning economic dangers now lurk in the dark.

So, with the governments worldwide under pressure to tighten social mobility restrictions after a pick-up in new daily covid-19 cases, an effective vaccine candidate and even a partial stimulus bill and then topped up post-election cannot come quickly enough.

The agenda

  • 8am GMT: Spanish unemployment for Q3 2020: expected to rise to 15.9%, from 15.3%
  • 11am GMT: CBI distributive trades survey of UK retail sales
  • 12.30pm GMT: US durable goods orders for September: expected to rise by 0.5%, from 0.4%
  • 1pm GMT: S&P/Case-Shiller index of US house prices for August
  • 2pm GMT: US consumer confidence figures for Ocober: expected to rise to 102, from 101.8

Updated

 

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