Time for a recap

The Covid-19 pandemic, and the pressure to cut carbon emissions, has forced oil giant BP to halve its dividend. Although a blow to shareholders, the move will help the company slash its oil and gas production over the next decade.

Investors took the news calmly, with BP’s shares jumping 6% today after it reported a record loss and outlined its low-carbon plans. Greenpeace gave the plan a cautious welcome.

It’s been another day of jobs misery in the UK, with Pizza Express warning that 1,100 positions could be lost through a restructuring plan. If creditors back the plan, the chain would shut 15% of its 449 restaurants.

Pizza Express hopes to save 9,000 jobs in the UK, but its plight shows the dangers of loading companies with debt....

Electronics firm Dixons Carphone is cutting 800 jobs at its stores, through a management shake-up.

Airline firm easyJet has cheered investors by reporting stronger-than-expected demand for holidays this summer. It now plans to run 40% of capacity, up from a previous 30% target.

Argentina also had a good day, finally agreeing a debt restructuring with its major creditors.

On the economic front, US factory orders and Brazilian industrial production both jumped/

In the markets, gold has hit a new record high over $2,000 per ounce for the first time ever.

Bonds also hit new highs, pushing the yields on US government debt to record lows.

Equities were subdued, though, with the FTSE 100 ending just 3 points higher. While BP surged, drinks firm Diageo dragged the market back after reporting a sales slump.

Demand for Diageo’s beer and spirits were understandably weak during the lockdown, although the Great Britain market held up relatively well....

And TikTok’s future remains unclear tonight, with Apple denying that it’s interested in buying its US arm and Beijing slammed Washington for forcing the company to split.

Goodnight. GW

Just in! Gold has hit $2,000 per ounce for the first time ever:

After a muted session, European stock markets have closed with little drama.

The FTSE 100 finished 3 points higher at 6,036 points, with engineering turnaround firm Melrose the top riser (+9%) and telecoms firm BT gaining 8%.

But Diageo lost over 5.5% after reporting that sales slumped over 8% last year due to the pandemic.

France’s CAC had a decent day, ending 0.3% higher, but Germany’s DAX fell by 0.36%- with chemicals firms Bayer and Covestro both losing 2%.

Generally, it was a quiet session -- with investors keeping a watchful eye on Capitol Hill as US politicians try to agree a new stimulus package.

David Madden of CMC Markets sums up the day:

The past few hours of trading has been muted as there has been little in the way of big macro-economic news to influence sentiment.

The major equity benchmarks of Europe are showing modest gains, while the DAX 30 is underperforming. There were plenty of corporate stories today, but the lack of a deal between Republicans and Democrats in relation to the $1 trillion Covid-19 pandemic package has kept sentiment at bay.

The relationship between the US and China has come under extra pressure as President Trump has banned TikTok in the US, and Microsoft are looking to acquire the group’s US unit. The Chinese government feel the Trump administration is giving a US company the greenlight to pick-off the business.

Dealers are cautious that Beijing will strike back in some shape or form.

The gold price is jumping again today, heading to new all-time highs.

The spot price of bullion has risen by nearly 1% today to $1,995 per ounce.

Gold appears to be benefiting from its reputation as a safe-haven in uncertain times, and as a hedge against inflation (given the surge in money-printing policies in the pandemic).

Ed Moya of OANDA writes:

Gold is catching fire again on stimulus bets, some dollar weakness, and as risky assets get a boost on improving economic data and improving virus outlook.

Gold is now the favorite safe-haven as Treasury yields continue to slide.

Just in: Orders at American factories continued to rise in June, although the recovery did slow a little.

US manufacturing orders jumped by 6.2% month-on-month in June, ahead of forecasts of a 5% rise. That follows a 7.7% jump in May, as factories resumed operations after their spring shutdown.

Here’s some detail and reaction:

Back in the City, oil giant BP is still among the top FTSE 100 riser - up 7% today.

Investors are sanguine about its dividend being halved, and perhaps relieved that it didn’t make a deeper cut or an even larger loss (although the $16.8bn loss in Q2 was a record-breaker).

They may also be encouraged that BP is talking seriously about becoming a low-carbon emitter.

Mel Evans, senior climate campaigner for Greenpeace UK, is encouraged that BP will cut oil and gas production by 40% by 2030:

“BP has woken up to the immediate need to cut carbon emissions this decade. Slashing oil and gas production and investing in renewable energy is what Shell and the rest of the oil industry needs to do for the world to stand a chance of meeting our global climate targets.

BP must go further, and needs to account for or ditch its share in Russian oil company, Rosneft. But this is a necessary and encouraging start.”

Emeritus Professor Brian Scott-Quinn of Henley Business School says BP is right to rein in oil exploration, as it will only result in more ‘stranded assets’ which are eventually written off due to weak demand.

Going green is a much better investment move, he explains:

BP has two choices. The first is to continue to cut costs, cut output from its highest cost fields, cut production manpower and overhead and simply restart paying out the maximum dividend it can in the future by not investing in the future at all.

“Alternatively, it can diversify on a much larger scale by investing more in alternatives –– wind power, green hydrogen production, hydrogen storage and distribution, small modular reactors and other non-oil or gas investment. This would result in its realising the objective it set itself in the year 2000 when it changed the meaning of BP from being British Petroleum to being Beyond Petroleum.

Labour MP Lucy Powell, shadow minister for Business and Consumers, has called on the government to provide more help for struggling companies.

She says the job cuts announced this week at Pizza Express, Hays Travel, DW Sport and Dixons Carphone show that the furlough scheme (in which the government helps pay workers’ wages) should be extended for some sectors.

Powell says:

“The jobs crisis is clearly accelerating with redundancies being announced every day. It’s only Tuesday and just this week we’ve heard of mass redundancies in the hospitality, retail and travel sectors.

“The Government is pulling the rug out from beneath businesses by ending furlough support indiscriminately and prematurely.

“They must end their damaging blanket approach urgently, and target support at the hardest-hit sectors - or be responsible for more people losing their jobs.”

The furlough scheme is due to run until the end of October, with companies offered a £1,000 bonus in January for each employee taken back. But this isn’t preventing companies from announcing job cuts now.

Over in Argentina, the government has finally hammered out a deal to restructure $65bn of its debt.

Following months of talks, the Buenos Aires administration and its biggest creditors have agreed the details of the plan.

This should help Argentina avoid being banned from the international money-raising markets, following its debt default in May.

In a statement, the Argentinian government says:

The Republic of Argentina and representatives of the Ad Hoc Group of Argentine Bondholders, the Argentina Creditor Committee and the Exchange Bondholder Group and certain other significant holders (collectively, the “Supporting Creditors”) today have reached an agreement that will allow members of the creditor groups and such other holders to support Argentina’s debt restructuring proposal and grant Argentina significant debt relief.

More here: Argentina and three creditor groups reach a deal on debt restructuring

The two sides agreed the deal after Argentina altered its previous offer, thus “enhancing the value of the proposal for the creditor community”.

The deal still needs to be voted on by all creditors, but Argentina will hope it has enough support to avoid any holdouts scuppering the plan.

But even then, Argentina’s government faces further debt negotiations.

The FT explains:

Argentina will now enter talks with the IMF after it lent $44bn since a currency crisis in 2018, seeking to delay debt payments coming due in 2021-23, while avoiding harsh austerity measures.

[The deal] will also allow the government to focus on fixing the rest of the economy’s many problems, which include one of the highest inflation rates in the world, capital controls that have led to a heavily overvalued official exchange rate, and a recession that is now well into its third year.

Newsflash: Up to 1,100 jobs are being cut at restaurant group PizzaExpress.

The company has just announced plans to close 15% of its 449 UK restaurants, through a restructuring deal that would see the indebted chain potentially pass from current owner Hony Capital to its lenders.

Under the plan, PizzaExpress’s creditors are agreeing to cut its external debts from £735m to £319m and provide £144m of fresh capital.

That money will help the firm reopen many of its UK stores, the “vast majority of which” were trading profitably before lockdown.

But a swathe of sites will shut in the UK, through a Company Voluntary Arrangement (CVA) with lenders. That insolvency process will allow it to negotiate rent cuts, and quit under-performing sites.

PizzaExpress says it has analysed which of its restaurants are still profitable, given the pandemic has changed working patterns and demand to eat out.

Following this analysis, PizzaExpress will launch a CVA in the UK in the near future. This is intended to improve operational performance by reducing its UK restaurant estate and rental cost base in response to a significantly more challenging trading environment, and is a precondition to the balance sheet restructuring. Although the outcome is yet to be decided, this process may regrettably result in the permanent closure of around 15% of PizzaExpress’ UK restaurants with up to 1,100 jobs at risk.

This decision is a very difficult one; however, against the current unprecedented backdrop, PizzaExpress believes reducing the size of its estate will help it to protect 9,000 jobs.

Shares in BP have jumped to the top of the FTSE 100 leaderboard in early trading, up nearly 6%.

That may be because BP has sugared the dividend pill cut by promising to pay out 60% of surplus cash through share buybacks.

Airline stocks are also rallying, after easyJet announced it will fly more people on holiday this country. IAG, which owns British Airways, are up 5% while easyJet itself has surged 7.7% to the top of the FTSE 250 index.

Diageo, though, has sunk by 6.4% after reporting that slump in sales in the last year

EasyJet is expanding its summer flights schedule, despite fears of a second-wave of Covid-19 cases in Europe.

The budget airline has announced it will fly more flights than previously planned this summer, due to robust demand for holidays.

It now plans to run at 40% capacity, up from 30%, which suggests that some families are shrugging off the risk that governments could impose new quarantines or lockdowns.

EasyJet CEO Johan Lundgren, reports that summer bookings are stronger than expected.

“I am really encouraged that we have seen higher than expected levels of demand with load factor of 84% in July with destinations like Faro and Nice remaining popular with customers.

“Our bookings for the remainder of the summer are performing better than expected and as a result we have decided to expand our schedule over the fourth quarter to fly c.40% of capacity. This increased flying will allow us to connect even more customers to family or friends and to take the breaks they have worked hard for.

Drinks giant Diageo has also been hurt by the pandemic.

Profits at the firm, which makes Johnnie Walker whiskey, Smirnoff vodka, Baileys, and Guinness, have halved in the last financial year.

It has also reported that net sales slumped over 8% in the year to 30 June, as pubs, bars and restaurants across the globe were locked down.

Ivan Menezes, chief executive, sounds like a frustrated football manager as he sums up the last year:

“Fiscal 20 was a year of two halves: after good, consistent performance in the first half of fiscal 20, the outbreak of Covid-19 presented significant challenges for our business, impacting the full year performance.

Through these challenging times we have acted quickly to protect our people and our business, and to support our customers, partners and communities.

The British market held up relatively well:

In Great Britain, net sales declined 4%. Solid first half results were offset by the impact of on-trade closures from March despite an increase in off-trade sales. The impact was further amplified by the cancellation of significant sporting and cultural events. Continued growth in rum and liqueurs were offset by declines in beer, scotch, wine and vodka.

But across continental Europe, net sales slumped 15% (partly because lockdowns came earlier, I suspect). In Ireland, slumped by 20% with pub closures souring the demand for beer.

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

Oil giant BP has given up the fight to protect its prized dividend, as the Covid-19 pandemic drive the oil giant deep into the red.

In a blow to its army of investors, BP has just announced that it will ‘reset’ its shareholder payout at 5.25 cents per share, down from 10.5 cents/share previously.

It’s the first cut in a decade, triggered by the slump in oil prices in 2020 as Covid-19 has hurt demand for oil and gas.

BP had resisted a dividend cut earlier this year, but is now biting the bullet after making a hefty loss in the last three months.

Underlying replacement cost loss for the quarter was $6.7bn, compared with a profit of $2.8bn for the same period a year earlier. It’s reported loss for the quarter was $16.8bn, compared with a profit of $1.8bn for the same period a year earlier.

This whopping loss was mainly due to hefty write-offs, as the energy company adjusts to a future of lower oil prices.

Chopping the dividend will also help BP reinvent itself as a “low carbon energy” provider. Within 10 years, it aims to have increased its annual low carbon investment 10-fold to around $5 billion a year.

BP has also warned that Covid-19 could have a ‘sustained’ and ‘enduring impact’ on the global economy - and thus demand for energy.

It tells the City:

The ongoing severe impacts of the COVID-19 pandemic continue to create a volatile and challenging trading environment.

Looking ahead, the outlook for commodity prices and product demand remains challenging and uncertain.

Global GDP is expected to contract this year by 4-5%.

Global oil demand is expected to be around 8-9 million barrels of oil per day lower than 2019, with OECD oil stocks above their five-year range, and gas markets are likely to remain materially oversupplied. There is also a risk of the pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period.

That should give investors pause, after shares jumped around the globe on Monday amid optimism that the global economy was picking up.

European markets are expected to open a little higher today.

The agenda

• 8am BST: Spanish unemployment figures for July
• 1pm BST: Brazilian industrial production for June
• 3pm BST: US factory orders for June