Graeme Wearden 

FTSE 100 hits seven-week high despite slump in UK retail sales and US confidence – as it happened

Rolling coverage of the latest economic and financial news, as UK retailers report cashflow problems and layoffs amid the pandemic
  
  

A near empty High Street in Winchester.
A near empty High Street in Winchester. Photograph: Andrew Matthews/PA

Closing summary

Time for a recap.

European stock markets have hit their highest levels in seven weeks, despite another torrent of bad economic data.

Hopes that the Covid-19 lockdowns will soon ease have lifted shares again today, with Britain’s FTSE 100 gaining almost 2% and solid gains across Europe.

The rally came despite a series of grim reports, that confirmed the world economy is entering a deep recession.

US consumer confidence suffered a record plunge, hitting its lowest level in five years. Americans reported that their current economic situation has worsened dramatically this month, although they’re a little more optimistic about the future than a month ago

UK retailers reported that sales had taken a dive in April, with even grocers saying turnover was lower than a year ago (after a surge in March).

With lockdowns likely to be lifted gradually, UBS forecast that the eurozone recession would be even deeper than first thought.

With energy demand weak, the oil price came under further pressure. The price of a barrel of US crude oil for June delivery is currently down 6.5% at $11.95 per barrel.

Oil giant BP reported that its earnings plunged in the first three months of this year, due to low oil prices. It said Covid-19 was helping to create an unprecedented crisis for the energy industry.

Banking group HSBC also shone a light on the economic cost of the crisis, by putting aside $3bn to cover bad loans - and warning the bill could reach $11bn.

Goodnight. GW

Earlier today, UK’s financial watchdog fired a warning shot at Britain’s banks not to pressure corporate clients to give them work in return for financial assistance in the crisis.

The FCA suspects that some banks have been demanding to take part in lucrative jobs such as share sales, in return for agreeing to emergency loans. Pretty unprofessional if so!

European markets close higher

Europe’s investors have shaken off the latest weak economic data, pushing shares higher across the region.

Trading has just ended, with Britain’s FTSE 100 up 111 points of 1.9% at 5958, a seven-week high.

Lloyds Bank was the top performer today, gaining almost 9% (up to the giddy heights of 33p), followed by JD Sports (up 8.5%). Cruise operator Carnival gained 8%.

The Europe-wide Stoxx 600 index closed 1.5% higher, with all the major indices up.

France’s CAC gained 1.3%, as prime minister Edouard Philippe outlined plans to ease its lockdown from May 11.

Schools will gradually reopen and businesses will be free to resume operations, Philippe told parliament. However, restaurants and cafes will remain closed until at least early June and professional sports, including soccer, will not begin again until the autumn.

Interestingly.... the rally on Wall Street is somewhat fizzling out.

The Dow is now down 0.25%, while the tech-heavy Nasdaq index has dropped by 1%.

Perhaps investors are fretting that today’s slump in consumer confidence doesn’t bode terribly well for the economy this year.

Especially as stocks have already rebounded strongly in recent weeks....

Here’s a neat chart showing the recent divergence between the US stock market and consumer confidence.

We’ll find out in a month’s time whether they’ve converged again - either through a drop in stocks or a rise in confidence.... (or maybe both!)

US economist David Rosenberg feels the plunge in US consumer confidence is rather at odds with the recent stock market rally.

Economist Rupert Seggins feels Americans aren’t nearly anxious enough!

There is one glimmer of hope in the US consumer confidence report -- Americans are a little less pessimistic than a month ago.

The ‘future expectations’ index, which asks people how they feel about the next six months, actually improved to 93.8 from 86.8 in March.

That suggests that the US public may be looking forward to lockdown rules being lifted soon.

But it was more than cancelled out by the record slump in how people feel about the economy right now (the current conditions index, which plunged to 76.4 from 166.7).

Stock markets have actually pushed higher since the US consumer confidence figures were released.

The UK’s FTSE 100 index is now up 124 points or 2% at 5969 points, on track to close at its highest level in seven weeks.

Roughly one in six Americans expect their income to decline over the next six months, today’s consumer confidence report shows.

US consumer confidence plunges

Oof! US consumer confidence has plunged to its lowest level in nearly six years, as the Covid-19 pandemic spooks Americans.

The Conference Board’s Consumer Confidence Index has slumped to 86.9 for April, the lowest since June 2014. That’s down from 120 points in March -- a truly dramatic (but not unsurprising) slide.

The Conference Board’s assessment of the current economic situation fell especially sharply - in response to the surge in jobless claims across America, and the widespread lockdowns of factories and offices.

Updated

Wall Street has hit a near seven-week high at the start of trading, matching the move in London today.

The Dow Jones industrial average has risen by 314 points, or 1.3%, to 24,448, its highest level since Wednesday 11th March (during the worst week of the 2020 crash).

Investors seem to be increasingly optimistic that the lockdowns which have caused such economic pain in recent weeks will ease soon, with the massive central bank money-printing operations likely to support asset prices too.

America’s trade deficit has widened, partly due to a collapse in sales of new cars and industrial equipment to overseas customers.

The Commerce Department has reported that the gap between the goods bought and sold by the US expanded by 7.2% last month to $64.2bn. Although Americans did buy less from abroad, that was more than countered by a drop in exports.

Reuters has the details:

In March, goods imports dropped 2.4% to $191.9 billion after decreasing 2.5% in February.

There were sharp decreases in imports of consumer goods and motor vehicles and parts. Imports of food, industrial supplies and capital goods rose last month.

Exports of goods tumbled 6.7% to $127.6 billion in March. There was a broad decline in exports last month, with shipments of industrial supplies dropping 7.5% and motor vehicles and parts plummeting 17.8%.

The volume of cargo being transported around the world by air tumbled by 15% in March, according to the International Air Transport Association (IATA), less than during the global financial crisis in 2008 when volumes fell by 23%.

Airlines suffering a 30% decline in passenger travel are quickly trying to repurpose passenger aircraft, or bring freight airplanes out of storage in order to fly goods including medical supplies and pharmaceuticals around the world, according to the industry body.

However IATA expects the volume of cargo flown around the world to fall during 2020 as the expected recession reduces consumers’ demand for goods.

Sales at mining and construction equipment maker Caterpillar have been hit hard by the Covid-19 pandemic.

Caterpillar has reported that sales slumped by 21% in the first three months of 2020, as the global economy seized up.

Revenues fell to $10.6bn, down from $13.5bn, due to “lower end user demand”

Profit fell sharply too, from $2.94 per share a year ago to $1.60 per share -- below forecasts of $1.69.

Caterpillar is not providing any full-year 2020 guidance due to uncertainties surrounding the pandemic.

Here’s our news story on April’s retail sales figures:

The recent recovery in stock markets came after central banks and governments launched huge new rescue packages to help businesses and individuals survive the lockdown.

This video explainer runs through the various schemes, and explains the risks....

More gloom: The U.K. economy isn’t expected to return to its pre-coronavirus peak until the end of next year.

The National Institute for Economic and Social Research has predicted that the UK economy will shrink by 30% during the lockdown, and not return to the levels of Q4 2019 until the last quarter of 2021.

Marketwatch has more details.

FTSE 100 hits near seven-week high

Despite all the bad news this morning, Britain’s stock market has just hit its highest level in nearly seven weeks.

The FTSE 100 index of blue-chip shares is rallying hard, up 94 points or 1.6% at 5941 points.

That’s its highest level since Wednesday March 11 (the day before the index suffered its worst day since 1987).

Retail group JD Sports is the top riser, up 8%, followed by Barclays (+7%) and exhibitions group Informa (+7%).

European markets are higher too, with the Stoxx 600 now up 1.5% today. Italy’s FTSE MIB has gained 2.5%.

Investors appear to be wagering that Covid-19 lockdown measures will ease soon, and that companies will recover from this year’s trauma.

Chris Beauchamp, chief market analyst at IG, explains:

“Further gains for the FTSE 100 look odd on a morning when major components like BP and HSBC report poor earnings, but for the most part the gainers in the index are those that will see an upturn in activity as lockdowns ease across most of the globe, if perhaps not yet in the UK.

This continues the theme from yesterday’s session, when it seemed as if the whole world was looking to a post-coronavirus environment, when some semblance of normality may return.”

These charts from the CBI’s ‘distributive trades’ survey show how retail sales slumped this month - both in stores (where open) and online.

UK retailers suffer historic slide in sales

Newflash: UK retailers have suffered their joint-biggest ever fall in sales, after many were forced to shut their doors because of the pandemic.

A survey conducted by the CBI, which represents UK businesses, found that 71% of retailers saw a drop in sales this month, compared to a year ago. Just 16% saw a rise.

That gives a net balance of -55%, matching the previous low in December 2008 (after the financial crisis).

The CBI says:

Retailers reported a steep drop in sales in the year to April – matching the decline in December 2008, marking the joint sharpest fall since the survey began in July 1983.

Two-thirds of retailers reported that the coronavirus is having a significantly negative impact on their domestic sales, with 39% saying they had shutdown completely. Some 44% have temporarily laid off staff, with 8% making permanent job cuts.

Alarmingly, nearly all retailers (96%) reported cash flow difficulties (96%), with a third saying they were struggling to access external finance.

And every sector of retail reported that sales in April were weaker than a year ago.

The CBI says:

  • Every sub-sector reported a negative balance in April, including grocers (balance of -27% from +94%) and specialist food & drinks (-4% from +42%) which both reported strong growth in March.

Rain Newton-Smith, CBI Chief Economist, explains:

“It’s no surprise that the lockdown is hitting retailers hard. Two fifths have shut up shop completely for now. And sales of groceries and other essentials also fell, suggesting households may have been dipping into stockpiles built up prior to the lockdown or tightening their belts more generally as incomes take a hit.

“Although the livelihoods of hundreds of thousands of employees in retail remain at risk, there are encouraging signs that the Government’s Job Retention Scheme is providing genuine relief, with many opting for temporary rather than permanent lay-offs.

“Continued support for retailers to cover their fixed costs will be vital for ensuring that businesses are able to re-open when it’s safe and appropriate to do so.”

The survey took place between 27 March and 15 April. Charts to follow....

Updated

Women and low-paid workers bear brunt of the crisis

A new report from Resolution Foundation shows that women, low-paid workers, younger employees and parents are being hit particularly hard by the Covid-19 pandemic.

They’ve calculated that women make up a majority of ‘key workers’, which means they run a greater risk of exposure to the virus as they’re not isolating. Those key workers are often relatively lowly paid.

The economic impact of the virus isn’t being shared equitably either. If you’re badly paid, or a younger adult, you’re more likely to have lost your job or been furloughed.

Resolution’s report says:

  • Key workers are disproportionately likely to be female, with employed women more than twice as likely to be in this group as employed men.

  • Parents are more likely to be key workers than non-parents, and mothers even more so; 39 per cent of working mothers were key workers before this crisis began, compared to just 27 per cent of the working population as a whole.

  • Workers in shutdown sectors are the lowest paid across the workforce. Typical pay for workers in shutdown sectors is less than half that of those able to work from home – £348 a week compared to £707 a week.

  • Those in shutdown sectors are younger – their average age of 39 is four years below the average age of those who can work from home. Differences are even more pronounced at the very bottom of the age distribution: nearly two in five of every 16-24-year old who works are in these sectors and for those born after 2000 this figure is over than three-fifths.

Resolution make another point that may resonate with older millennials -- the people born in the early 1980s are the most likely to be parents of children under nine. So they may now be trying to juggle home work with home teaching.

It should not be forgotten that this is the same cohort of adults who experienced the sharpest deterioration in cohort-on-cohort pay progress in the aftermath of the financial crisis.

UBS predicts even deeper eurozone recession

UBS has slashed its forecast for the eurozone economy this year, and now sees an even deeper recession.

It now fears that euro area GDP will contract by 6.1% this year, compared with a previous forecast of a 4.5% decline. Italy and Spain will be hardest hit, predicts, given the scale of their lockdowns.

UBS revised its forecasts down due to two factors:

  1. the latest economic surveys, such as the manufacturing and service sector PMIs, have been even more grim than feared

  2. The easing of Covid-19 lockdowns will be more gradual than thought, with economic restrictions will be largely lifted only by end-June.

UBS adds:

We believe the economic damage across European countries will vary according to (a) the length and strictness of the shutdown; (b) the relative exposure to the most affected (services) sectors; and (c) the size of the economic policy response.

We continue to project the largest decline in real GDP in Italy (-7.7%, revised from -5.0%) followed by +4.4% in 2021 (previously +1.9%). We expect Spanish real GDP to decline by 6.9% this year (previously -4.0%) and rise by 4.7% in 2021 (up from 2.5%). We have cut our 2020 GDP projection for Germany to -6% (from -4.7%) and now forecast 4.5% for 2021 (previously 1.8%). We expect French GDP to decline by 6.3% this year (revised from -4.3%), then grow by 3.9% in 2021 (up from 1.9%).

Outside of the Eurozone, we now expect UK GDP to contract by 5.6% in 2020 (-3.9% previously) before rebounding by 4.0% in 2021 (up from 1.5%). For Switzerland, we now project a 4.6% decline this year (down from -3%), followed by +3.9% (2.2% before) in 2021.

Brits most cautious about ending lockdown

A new global survey by Ipsos MORI has found that Britons are particularly reluctant for the Covid-19 lockdown to end before the virus is under control.

Just 22% of people in the UK agreed with the suggestion that the economy and business should be reopened even if the coronavirus was not contained. That’s the lowest out of the 14 major countries surveyed.

Some 70% of people opposed the idea - joint highest, along with Canada.

Conversely, people in China and Russia were keenest to get back to normality even if the outbreak was still running.

Yesterday, Boris Johnson said it was too early to start to lift the UK’s restrictions - this poll suggests the public are comfortable with that.

Gideon Skinner, Head of Political research at Ipsos MORI says:

“Our latest polling across 14 countries show that Britons are the most cautious when it comes to reopening the economy, being the least keen for businesses to reopen if the Coronavirus is not contained.

Furthermore, seven in ten Britons say that they will be nervous about leaving the house after the lockdown eases. These suggest that the turnaround in the economy might not be quite so fast as hoped for.”

BP’s CEO Bernard Looney has warned that the oil giant will start to cut jobs around the world by the end of the year, as it tries to become more competitive.

The FT’s Anjli Raval has the details:

Nicholas Hyett, equity analyst at Hargreaves Lansdown, has dug into BP’s latest results to show how the oil price slump has hurt its finances:

“BP has stuck with its dividend despite the turmoil currently wracking oil markets. However that’s coming at significant cost.

Net debt shot up some $6bn this quarter and the group’s upper gearing limit is rapidly disappearing into the rear-view mirror. Negative free cash flow means the balance sheet would be deteriorating even without the dividend, and with a sizeable expense related to the Gulf of Mexico oil spill expected next quarter, things look set to get worse before they get better.

Some drastic cuts to capital expenditure should help ease the pressure for now, and $32bn of liquidity gives the group some breathing space, but longer term the group needs higher oil prices or lower operating costs, and ideally both. Oil prices are outside the group’s control, and with demand for fuel at BP’s petrol stations down 50% and aviation fuel demand down 80% it’s anyone’s guess how long they will take to normalise. However, operating costs are something the group can influence.

Unemployment in Spain rate has risen, in another sign of the economic pain in Europe

The Spanish jobless rate rose to 14.41% in the first quarter of 2020, up from 13.78% in October-December.

Spain introduced a national lockdown in mid-March, by which time tourism was already suffering from the Covid-19 pandemic.

The US crude oil price is continuing to slide today.

A barrel of West Texas Intermediate for June delivery is now changing hands at just $10.58 per barrel, down $2.2 today. That contract expires in around three weeks - meaning anyone holding it has to actually collect the oil then.

That means we risk a repeat of last week’s turmoil, when the May crude contract turned negative as it neared the expiry point.

David Miller, investment director at Quilter Cheviot, explains:

We have become used to negative interest rates, but negative oil is hard to comprehend. Supply is exceeding demand to such an extent that storage tanks are full. Dumping is unacceptable and so those who own the excess had to pay others to take the nasty black stuff away from them.

There will be casualties, but it is too early to tell at the moment whether these will number countries, oil companies, banks or specialist funds. Suffice to say that this could be the shape of things to come.

Updated

Charlie Kronick, oil finance analyst for Greenpeace UK, isn’t impressed that BP is still paying shareholders a dividend.

He argues that BP should be investing more to fight the climate emergency, not giving shareholders a payout:

“Today as profits tumble BP is shaping the future of the company, but more importantly the future of the climate.

BP and the rest of the oil industry are still running the sector like a pyramid scheme, betting that demand will bounce back from every downturn and high dividends will distract investors from the underlying weaknesses of the business.

“By sticking with a business as usual dividend payout, BP is ignoring the severity of the multiple crises we now face. Given the company’s plunging profits, dividends are not mandatory and can’t take precedence over investment in clean renewable energy crucial to a more resilient climate and economy. Our society’s response to the COVID challenge has been to come together to help each other, but BP continues to prioritise pacifying shareholders over investing where it is really needed.

Updated

Banking giant HSBC has also been hurt badly by Covid-19.

HSBC reported a 48% plunge in pre-tax profits in the last quarter, as it was forced to put $3bn aside to cover bad debts caused by the pandemic.

The bank warned this morning:

“The outlook for world economies in 2020 has substantially worsened in the past two months. The impact and duration of the Covid-19 crisis will likely lead to higher ECL [expected credit losses] and put pressure on revenue due to lower customer activity levels and reduced global interest rates.”

M&S warns of 'highly uncertain' trading conditions

UK high-street chain Marks & Spencer is shoring up its finances, after being hit hard by the Covid-19 lockdown.

M&S has told the City that it probably won’t pay a dividend for the current financial year, which will save £210m.

The company has also persuaded its banks to relax, or remove, some of the conditions on its £1.1bn credit facility. Plus, it has been approved to tap the UK Government’s Covid Corporate Financing Facility (CCFF) -- designed to give liquidity to large companies.

This gives M&S “significant undrawn credit available for the 18 months ahead”.

The firm also warned that the coronavirus lockdown is hurting its business badly:

We are planning for the Clothing & Home business to be severely constrained during lockdown and highly uncertain trading conditions in a prolonged exit period. In the absence of a clear basis for forecasting, our scenario planning and stress tests are based on materially subdued trading for the balance of 2020 in Clothing & Home.

M&S benefits from having a strong food business and the transition to Ocado supply is on track to proceed in September to form a multi-channel food operation. However, Food trading has been adversely affected by lockdown due to the closure of cafes and slowdown in travel and some city centre locations.

Shares in BP have dropped 1.6% at the start of trading, down 5.1p to 308.7p.

That’s despite relief that the firm is paying a dividend, and that its underlying profits were better than feared (although still down sharply, to $791m from $2.35bn a year ago).

As you can see, BP’s headline loss was a whopping $4.4bn. But that’s partly because the value of the oil in its inventories has slumped. The ‘underlying RC’, or replacement cost, figure strips that out.

Why is the underlying RC measure relevant? Because it allows BP to show how well, or badly, its operations performed - without a fluctuating oil price flattering or flattening its results.

BP’s business is in two parts -- one arm finds crude oil and gets it out of the ground, while the other arm refines it for consumers. So a weak oil price is bad for its upstream business (its product is less valuable) but good for the downstream arm (its raw materials cost less).

Of course, a situation of weak oil prices and weak consumer demand is bad for both wings of BP.....

Updated

Some snap reaction to BP’s results:

BP also warns that the coronavirus pandemic makes it very hard to forecast how the oil price will change:

Looking forward, there remains an exceptional level of uncertainty regarding the near-term outlook for prices and product demand, particularly while many economies remain under lockdown.

There is the risk of more sustained consequences depending on the efforts of governments and the public and private sectors to manage the health, economic and financial stability effects of the pandemic.

Despite the slump in oil prices, and profits, BP is still paying a dividend for the last quarter.

Investors will get 10.5 cents per share, a relief when so many other FTSE 100 companies have suspended their dividend.

BP: Oil industry faces extraordinary times

Just in: Oil giant BP has warned that it faces an unprecedented challenge, as it reports a slump in profits.

Bernard Looney, BP’s chief executive officer, told shareholders that the COVID-19 pandemic had helped to create an exceptionally challenged commodity environment.

BP’s latest financial results, just released, show that it made a loss of $4.365bn in the first quarter of this year, down from a profit of $2.9bn a year ago.

On an underlying basis, BP’s replacement cost profit (a better way of measuring oil companies), plunged by two-thirds to $791m (more than the City expected).

That shows the impact of the coronavirus pandemic, and the Saudi-Russia oil price war which also drove prices down this year.

Looney says:

This extraordinary time for the world demands extraordinary responses.

And thankfully we are seeing that just about everywhere we look around the world. Our industry has been hit by supply and demand shocks on a scale never seen before, but that is no excuse to turn inward. BP, like many other companies, is stepping up and extending a helping hand to those in need.

Updated

Introduction: Oil is sliding again

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

The oil price is crashing again, as weak demand leaves producers struggling to find anywhere to store crude.

A barrel of US crude oil for delivery in June now costs you just $11.20 per barrel this morning, down from $12.78 yesterday -- and $60 back in January.

Brent crude, the international benchmark, has sunk by 4% to $19.20 - back towards the 21-year lows struck last week. That’s dampening the mood in the markets today, after solid gains on Monday.

The selloff is fuelling worries that US crude oil prices could fall below zero again, if suppliers become desperate to shift stocks. Traders are looking nervously at Cushing, Oklahoma -- the hub of America’s oil industry -- for signs that its tanks are full to the brim.

As Harry Tchilinguirian, global oil strategist at BNP Paribas in London, told the Reuters Global Oil Forum yesterday:

“The market is very concerned of a repeat of negative pricing as the Cushing storage and delivery hub saturates”

The turbulence has already forced the world’s largest oil-backed exchange traded fund to start ditching all its short-term contracts for oil delivery next month. This move by United States Oil Fund (known as USO) is push the June oil price lower, creating more volatility.

Kyle Rodda of IG explains:

The US Oil Funds decision to dump its entire exposure to the front month WTI Futures contract prompted another sell-off in crude prices, and further concern about global energy demand and supply capacity.

Oil’s woes are also driven by anxiety over the global recession. There’s less cheery optimism about a V-shaped recovery, with more economists accepting that growth is likely to resemble a U, a W, or even the dreaded L.....

New US retail sales figures, US trade and consumer confidence, and Spanish jobless data due today will all help us see how the economy is faring.

The agenda

  • 8am BST: Spanish employment data for Q1 2020
  • 11am BST: CBI distributive sales survey of UK retailers - expected to plunge to -40 from -3
  • 1.30pm BST: US goods trade balance for March
  • 3pm BST: US consumer confidence index for April - expected to plunge to 87.9 from 120
 

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