Graeme Wearden 

ECB accelerates bond-buying; UK delays EU import checks; John Lewis store closure warning – as it happened

Rolling coverage of the latest economic and financial news
  
  

The euro sculpture in Frankfurt, Germany, where the European Central Bank’s governing council met.
The euro sculpture in Frankfurt, Germany, where the European Central Bank’s governing council met. Photograph: Michael Probst/AP

Closing summary

Time for a recap:

The European Central Bank has pledged to speed up the pace of its bond buying over the next three months, in an attempt to prevent rising borrowing costs hurting its fragile recovery.

The ECB said it would conduct payments under its pandemic emergency purchase programme (PEPP) sat a “significantly higher pace than during the first months of this year”.

President Christine Lagarde warned that the Covid-19 pandemic was threatening the recovery:

“The rebound in global demand and additional fiscal measures are supporting global and euro area activity. But persistently high rates of coronavirus infection, the spread of virus mutations and the associated extension and tightening of containment measures are weighing on euro area economic activity in the short-term.”

And she pointed to the speed of Europe’s vaccination programmes, which are lagging behind the UK and US.

While the overall economic situation is expected to improve over 2021, there remains uncertainty surrounding the near-term economic outlook, relating in particular to the dynamics of the pandemic and the speed of vaccination campaigns.”

European stock markets closed at one-year highs after the ECB decision, while government bond yields fell back.

The UK is delaying the introduction of import checks on EU goods by six months, as the necessary infrastructure wouldn’t be ready in time.

My colleague Joanna Partridge explains:

Checks were due to be introduced on 1 April and 1 July, but in recent days traders and ports have warned they were not ready, adding that the introduction of processes as originally planned could lead to empty supermarket shelves.

Michael Gove, who runs the Cabinet Office, told the House of Commons on Thursday that government had responded to businesses’ requests for more time and announced what he called a “revised timetable”.

Gove blamed the need for delays on the pandemic, telling MPs the previous timetable was “based on the impacts of the first wave of Covid”, but that government had reviewed deadlines because disruption had been wider and longer-lasting than expected

UK firms welcomed the move, saying it would prevent shortages in the shops. Chris Hunt, partner at law firm Gowling WLG, called it a ‘huge relief’.

But the opposition Labour party said the late u-turn showed “ill-preparedness and incompetence”.

Retail chain John Lewis has warned that some of its stores won’t reopen after the pandemic, having slumped to a £517m loss last year.

John Lewis also confirmed that staff won’t get a bonus this year, and may not get one in a year’s time either.

Chairman Sharon White said:

“It’s been a real economic earthquake. We’ve seen decades worth of change in the space of one year. Shopping habits have changed irreversibly.”

Supermarket chain Morrisons said its profits for 2020 slumped by half, which its chief executive called a badge of honour.

Jet engine maker Rolls-Royce also had a rough 2020, posting a £4bn loss today.

Advertising giant WPP posted a £2.8bn loss, but also predicted a solid recovery this year.

British American Tobacco is taking a 19.9% stake in Canadian cannabis producer Organigram, as it looks to expand its portfolio ‘beyond nicotine’.

Consumer spending in the UK picked up at the start of this month, the ONS reported, but almost a fifth of company workforces are still furloughed.

Shares have rallied to fresh record highs in Wall Street, as president Joe Biden prepares to sign his $1.9trn stimulus package into law. Both the Dow and the S&P 500 hit new peaks.

There was also relief that the number of new jobless claims fell across the US last week, close to the lowest level since the pandemic began.

Goodnight! GW

Back in New York, the S&P 500 has also hit a new alltime high.

Reuters explains:

Mega-cap stocks Apple, Microsoft, Facebook and Tesla gained between 2.2% and 3.6%, recouping losses from a recent pullback and helping the benchmark S&P 500 surpass its Feb. 16 peak of 3,950.43.

European markets hit one-year high after ECB decision

European stock markets have closed at a new one-year high tonight, as the ECB’s decision to pump up its bond-buying programme cheers investors.

The Stoxx 600 index gained nearly 0.5% after the European Central Bank stepped up its efforts to rein in rising European bond yields at its monetary policy meeting today.

Italy’s FTSE MIB index gained over 0.8%, with France’s CAC 0.7% higher and Germany’s DAX up 0.2%.

Matthew Ryan, senior market analyst at financial services company Ebury, says the ECB chief Christine Lagarde sounded dovish today (as we covered earlier)

“Unlike their counterparts at the Federal Reserve, ECB members have grown increasingly vocal of late in their concern for the recent increase in bond yields.”

“In her statement, President Lagarde struck a modestly dovish tone. She noted that persistently high virus numbers and lockdowns would weigh on growth in the short-term and that incoming data pointed to continued economic weakness in Q1. The bloc is now firmly on course to enter into a ‘double-dip’ recession in the first quarter, having contracted in Q4 2020.

In London, the FTSE 100 had a quiet day, closing 11 points higher at 6736.

Gambling firm Flutter was the top riser, jumping 5.5%, with mining company Anglo American up 4.6% and airline group IAG gaining 3%.

The more UK-focused FSTE 250 index had a stronger session, up 0.6%. Top risers included real estates firm Savills, which gained 8% after reporting signs of recovery in the property sector.

Here’s Jack Dromey MP, Labour’s Shadow Cabinet Office Minister, on the UK’s decision to postpone checks on EU imports:

“This chopping and changing of rules by the Government smacks of ill-preparedness and incompetence.

“They have had years to prepare for this but can’t stop missing their own deadlines. It is no wonder that the Trade Secretary herself has warned of chaos.

“The Government need to pull their sleeves up, listen to businesses who have been desperately coming forward with practical solutions, and get this sorted.”

The frenzy of stock market trading linked to “meme stocks” such as GameStop has helped the investing website IG Group attract a record number of traders.

IG, a member of the FTSE 250 index, said it made revenues of £230m in the three months to 28 February, 65% higher than the same period last year.

June Felix, IG’s chief executive, said it had been “one of the busiest periods in IG’s history” as it coped with the influx of new customers drawn by widespread media coverage of the Reddit investing phenomenon.

IG added 40,300 new clients during the quarter, with a total of 230,100 active over the period.

Back in the US, the number of Americans filing new jobless claims has fallen to a four-month low.

There were 712,000 new unemployment claims filed last week, on a seasonally-adjusted basis. That’s the lowest since November, and almost the lowest since the pandemic began.

It’s an encouraging sign for the US labor market. However, once you include self-employed and gig economy workers, the total number of people filing new unemployment benefit claims was around 1.2m.

And more than 20 million people are still on some form of unemployment support, a year into the pandemic.

Over in parliament, chancellor Rishi Sunak is being questioned by MPs on the Treasury committee - and defending the spending plans outlined in last week’s budget:

Our Politics Live blog has more details:

Chris Hunt, partner at law firm Gowling WLG, also says the UK is right to delay border inspections and customs declarations on EU goods for longer (details here).

“Exactly one year on from WHO announcing a global pandemic, this will be a huge relief for UK businesses at a time when the pressure to perform, as well as the barriers that the last year has thrown up, have collectively placed some in a near unsustainable position.

Consolidation, closures and redundancies have been inevitable but the resourcefulness and innovative force of UK business in strengthening supply chain links and quickening its response to distinctive behavioural changes and desires, signifies more opportunity ahead than many would have predicted.”

Dow hits new record high

Back in the markets, the US Dow Jones industrial average has hit a new all-time high in early trading.

The Dow is up 159 points, or 0.5%, at 32,456 points, extending its recent rally.

Optimism that Joe Biden’s $1.9trn stimulus package will drive up growth is boosting stocks on Wall Street, where anxiety over the risks of rising inflation have also fallen.

Aircraft maker Boeing (+4.4%) is the top riser on the Dow, followed by retail group Walgreens Boots (+2%), software giant Salesforce.com (+1.8%) and chemicals company Dow Inc (+1.7%).

The broader S&P 500 index is also rallying, up 29 points or 0.75% at 3,928.

Technology stocks are bouncing back from their recent weakness, with the Nasdaq index surging 1.5% or 206 points to 13,274 points.

UK businesses welcome delays to EU import checks

Some British businesses are heaving a sigh of relief that checks on goods coming into the UK from the EU are now being delayed.

Andrew Opie, Director of Food & Sustainability at the British Retail Consortium, said the move came ‘in the nick of time’

“We are pleased that the Government has listened to us and postponed border checks until the systems and border posts are ready. With many of the key Border Control Posts currently little more than a hole in the ground, the six month easement comes in the nick of time.

Until the infrastructure is in place, with IT systems ready and established processes for checks and paperwork, it would be foolhardy to introduce full requirements for EHC documentation, pre-notification of imports, physical checks and more. We welcome the Government’s decision, which will ultimately reduce the impact on consumers from the 1st April, who might otherwise have seen empty shelves for some products.

Government must not rest on its laurels, and the next six months must be used to establish and communicate the new systems with UK retailers and EU suppliers.”

Adam Marshall, Director General of the BCC, also welcomed the move, but also warns that other problems in the Brexit deal need to be addressed [these delays only help firms importing from Europe, not exporting to Europe, of course]

Marshall says:

“This is a positive step as it recognises what everyone in business has known for weeks now: UK-EU trade has faced, and continues to face, significant disruption and difficulty.

“Ministers are right to delay the implementation of import checks that would slow trade even further - but this can only be a temporary solution.

What businesses want to see is an end to the damaging political rhetoric from both sides, and a focus on improving border flow for the long term. The UK and the EU must get back around the table and thrash out the remaining structural problems in the Trade and Co-operation Agreement.

“For some UK firms, the continued problems with EU trade are threatening their very existence. It should not be the case that companies simply have to give up on importing from, or exporting to, the market next door.”

Updated

Cabinet Office minister Michael Gove has confirmed that the UK is delaying imposing post-Brexit checks on imports from the EU.

Gove says that the government has listened to businesses:

We know now that the disruption caused by COVID has lasted longer and has been deeper than we anticipated. Accordingly, the Government has reviewed these timeframes.

Although we recognise that many in the border industry and many businesses have been investing time and energy to be ready on time, and indeed we in Government were confident of being ready on time, we have listened to businesses who have made a strong case that they need more time to prepare.

As we flagged earlier, customs & sanitary checks are delayed until January, while other paperwork such as animal health certificates now won’t be needed until this October.

Here are the new dates:

  • Pre-notification requirements for Products of Animal Origin (POAO), certain animal by-products (ABP), and High Risk Food Not Of Animal Origin (HRFNAO) will not be required until 1 October 2021. Export Health Certificate requirements for POAO and certain ABP will come into force on the same date.
  • Customs import declarations will still be required, but the option to use the deferred declaration scheme, including submitting supplementary declarations up to six months after the goods have been imported, has been extended to 1 January 2022.
  • Safety and Security Declarations for imports will not be required until 1 January 2022.
  • Physical SPS checks for POAO, certain ABP, and HRFNAO will not be required until 1 January 2022. At that point they will take place at Border Control Posts.
  • Physical SPS checks on high risk plants will take place at Border Control Posts, rather than at the place of destination as now, from 1 January 2022.
  • Pre-notification requirements and documentary checks, including phytosanitary certificates will be required for low risk plants and plant products, and will be introduced from 1 January 2022.
  • From March 2022, checks at Border Control Posts will take place on live animals and low risk plants and plant products.

And here’s some early reaction, from the BBC’s Faisal Islam:

And the FT’s Peter Foster:

Updated

This story, from Monday’s Guardian, explains why the UK is delaying post-Brexit customs checks on imported goods from the EU:

As Joanna Partridge reported:

“It’s obvious not all of the facilities are going to be ready; how much of it will be is still up for debate,” said Richard Ballantyne, chief executive of the trade body British Ports Association (BPA). “Our frustration with government is they are not willing to share what the plan B is.”

With less than four months to go, construction has only just begun at ports including Portsmouth, Purfleet on Thames in Essex, and Killingholme on the Humber.

The National Farmers Union (NFU) is warning that livestock trades could grind to a halt, because no Channel port is planning facilities to check incoming farm animals.

And the location of some inland border checkpoints – such as Holyhead on Anglesey and in south-west Wales to serve the ports of Fishguard and Pembroke – has not even been announced yet, while the Kent site named White Cliffs, where goods arriving at Dover will be inspected, is described as a “muddy field”.

UK to delay customs & sanitary import checks from EU

Breaking away from the European Central Bank, the UK is going to delay the introduction of customs & sanitary (SPS) import checks on EU goods at the border for six months, to 1st January 2022.

My colleague Joanna Partridge has the details:

This moves follows pressure from British ports for a delay, as border checkposts will not be ready for the July deadline, and the construction of inland customs facilities is also behind schedule.

Exports into the EU from the UK have been subject to controls since 1 January (following the end of the free trade deal). but the British government has delay import controls until the summer to give traders time to prepare.

Those checks are due to take place at more than 30 designated border control posts (BCPs), where goods, plants and animals entering from the EU by sea, rail or air can be inspected.

Updated

The ECB has raised its inflation forecasts for this year, and 2022.

Lagarde: Eurozone will probably shrink in Q1

Lagarde warns that eurozone GDP is likely to contract again in the current quarter due to the ongoing pandemic and national lockdowns.

She says:

“Incoming economic data... point to continued economic weakness in the first quarter of 2021, driven by the persistence of the pandemic and the associated containment measures.

As a result, real GDP is likely to contract again in the first quarter of the year.”

That would follow a contraction in Q4 2020.

The ECB’s latest growth forecasts are little changed, with a small upgrade this year, and a small tweak downwards for 2022.

  • 2021: 4% growth, up from 3.9% forecast in December
  • 2022: 4.1% growth, down from 4.2%
  • 2023: 2.1% growth, unchanged

Onto the recent rise in government bond yields, where Christine Lagarde warns that rising market rates post a risk to wider financing conditions.

They could lead to a premature tightening of financial conditions.

She then confirms that the ECB is speeding up the pace of its pandemic bond-buying programme (as announced earlier).

On inflation, Christine Lagarde says underlying pressures remain subdued, with the overall inflation outlook broadly unchanged.

Lagarde: High Covid-19 infection rates, mutations and lockdowns are hurting growth

European Central Bank president Christine Lagarde is holding a press conference now to explain today’s decisions.

Lagarde says the overall economic situation is expected to improve over 2021.

But, there remains uncertainty over the near-term economic outlook, relating in particular to the dynamics of the pandemic, and the speed of vaccination campaigns, she says.

Persistently high rates of coronavirus infections, the spread of virus mutations, and the associated extension and tightening of containment measures are weighing on the eurozone economy in the short term, she adds.

Here’s Vuk Magdelinic, CEO of AI quantitative analytics provider Overbond, on the ECB’s move:

“Lagarde has certainly learned her lesson from a year ago. Looking ahead, it’s clear that rising government bond yields are seen as a threat to a still-weak European economy, with the steps outlined today clearly designed to keep yields down and provide assurance. While longer dated yields have been leading the curve higher and steeper, the hope for now is that European yields across all tenors will see some semblance of stability, as has been apparent thus far this week in the US.

“Looking at Overbond’s COBI-pricing data for credit markets in the region, spreads in all but the BB sector appear reasonably well-behaved, with 10 year BB spreads increasing by 27 bps compared to 4bps for BBB and 3bps for A and AA. Corporate yields currently more or less match the increase in benchmark government yields for the region, and with the economy facing an uncertain outlook, the ECB’s stance on government bonds should keep a lid on major yield moves in credit markets.”

Eurozone bond yields have tumbled after the ECB said it would accelerate the pace of its bond buying pandemic stimulus over the next three months.

Reuters has the details:

Germany’s 10-year yield, the benchmark for the region, extended its fall and was down 4 basis points at 12:55 GMT to its lowest in over a week at -0.36%.

Benchmark 10-year yields in Italy -- among the biggest beneficiaries of ECB bond purchases -- fell 7 basis points to 0.62%, the lowest in over two weeks.

ECB accelerates stimulus: snap reaction

The ECB is speeding up its bond-buying stimulus programme because the eurozone isn’t recovering as fast as other regions, says Neil Birrell, chief investment officer at Premier Miton.

“The ECB left rates unchanged as expected, confirmed the size of the asset purchasing programme and says it will speed up some elements of it. Europe is not bouncing back as fast as other regions and the ECB remains in place to provide the support that is required.

At first glance this looks more dovish than markets were expecting, which reflects the backdrop.”

Ima Sammani, FX market analyst at Monex Europe, says the ECB’s governing council has rallied behind a common message to push bond yields lower:

“The big question for the ECB heading into today’s meeting is whether the Governing Council was going to rally behind a common message in relation to the recent rise in euro-area yields.

That question has been answered with the ECB coming straight out of the block with the announcement that PEPP purchases will be “significantly” ramped up in the coming quarter.”

William De Vijld, chief economist at BNP Paribas, says investors are welcoming the move:

CNBC’s Julianna Tatelbaum has more market reaction:

European government bond yields are falling, after the ECB announced it will speed up its bond purchases:

Viraj Patel of Vanda Research says today’s announcement is more dovish than the markets expected.

ECB to speed up pandemic bond purchases

Over in Frankfurt, the European Central Bank has pledged to speed up its emergency bond purchasing programme.

That follows recent increases in eurozone government bond yields, which raises concerns that rising borrowing costs could hurt the eurozone recovery.

By speeding up the €1.85trn pandemic emergency purchase programme (PEPP), the ECB could keep yields lower.

In a statement following today’s governing council meeting, the ECB explains:

First, the Governing Council will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.

Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.

The ECB has also voted to leave eurozone interest rates at their current record lows.

That means its headline rate is still zero, and eurozone banks will be charged a negative interest rate of -0.5% on their deposits at the ECB, to encourage them to lend.


Reaction to follow!

ECB to speed up pandemic bond purchases

Over in Frankfurt, the European Central Bank has pledged to speed up its emergency bond purchasing programme.

That follows recent increases in eurozone government bond yields, which raises concerns that rising borrowing costs could hurt the eurozone recovery.

By speeding up the €1.85trn pandemic emergency purchase programme (PEPP), the ECB could keep yields lower (yields fall when bond prices rise).

In a statement following today’s governing council meeting, the ECB explains:

First, the Governing Council will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.

Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.

The Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation.

In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy.

The ECB has also voted to leave eurozone interest rates at their current record lows.

That means its headline rate is still zero, and eurozone banks will be charged a negative interest rate of -0.5% on their deposits at the ECB, to encourage them to lend.


Reaction to follow!

Updated

John Lewis is likely to significantly restructure its physical operations, and expand its online offering, predicts Simon Geale, senior vice president for client solutions at retail consultancy Proxima.

“John Lewis results today come as no surprise sadly, and they reveal the deep damage that COVID has wreaked across the UK retail sector. The sharp drop in profits at John Lewis comes against the backdrop of a rapid rise in online retail which has led the company to move swiftly to close stores and implement sweeping redundancies. The silver lining amidst this lies in a hopeful bump as shoppers are welcomed back in April, but the impact of lockdowns on the bottom line are expected to linger for many months to come.

We expect to see major expansion in John Lewis’s online offering over the next year, and this will mean significant restructuring of its physical operation and supply chains are yet to come. Retailers like John Lewis should now be looking closely at their supplier base as a source of cost-saving and a means of reshaping their offering for this new reality.”

John Lewis has also told reporters that its staff, or partners, are unlikely to get a bonus next year either, my colleague Sarah Butler flags up:

We still don’t know which stores might not reopen, but those with lower customer numbers are most at risk, it seems.

Reuters explains:

Britain’s John Lewis Partnership will not re-open a “small number” of department stores when the COVID-19 lockdown ends in areas where it considers there are not enough customers, its department stores head said on Thursday.

“The stores that we find we will probably need to exit are places where our customers aren’t,” John Lewis executive director Pippa Wicks told reporters.

“It’s not about whether it’s a high street or a shopping centre or an out-of-town retail park, it’s about where our customers are living and working. That’s what’s driving our decision making,” she said.

John Lewis chairman Sharon White has told the BBC that the company is “adapting fast” to the changes in retail during the pandemic.

This has been the biggest economic shock, the biggest public health emergency, that any of us have lived through.

You’ve had a decade worth of changes in shopping habits in a year”

Here’s more reaction to John Lewis’s troubles, from ITV’s Joel Hills:

and the Times’s Ashley Armstrong:

BAT takes 19.9% stake in cannabis producer

British American Tobacco has announced a £126m collaboration with Canadian cannabis producer Organigram, as part of its push to expand its portfolio ‘beyond nicotine’.

Under the agreement, a BAT subsidiary is taking a 19.9% stake in Organigram, which produces high-quality medical and recreational cannabis.

Their “strategic R&D collaboration” will focused on research and product development activities of next generation adult cannabis products, with an initial focus on cannabidiol (CBD), BAT says. More here.

Updated

Morrison's hails halving profits as 'badge of honour'

In other retail news, Morrisons’ profits for 2020 slumped by half, which the supermarket’s chief executive described as a badge of honour.

Earnings were hit by the extra costs incurred in “feeding the nation” during the coronavirus crisis, which cancelled out the benefits of higher sales.

The Bradford-based company’s annual pre-tax profit before one-offs fell to £201m on sales of £17.5bn.

David Potts, Morrisons chief executive, pointed to £290m of costs stemming from the pandemic, including covering for worker absence and paying store staff a bonus, coupled with the decision to return £230m of business rates relief.

Potts said:

“I personally wear the halving of profits as a badge of honour.

It’s one thing being asked to keep indoors for most of the year, it is quite another if you haven’t got access to food.

Royal Dutch Shell cut the pay of its chief executive by 42% in 2020, as the oil company’s profits slumped because of the coronavirus pandemic.

Ben van Beurden’s total remuneration for 2020 was €5.8m (£5m), compared with about €10m the year before, the company revealed in its annual report on Thursday.

Shell also announced on Thursday that former BHP chief executive Andrew Mackenzie will take over as its chairman in May. He will replace Chad Holliday, who is stepping down after six years as Shell chairman and more than 10 years as a board director.

More here:

UK consumer spending picked up at the start of the month, even though millions of workers are still furloughed due to the pandemic.

New data from the Office for National Statistics shows that spending based on debit and credit card purchases handled by the UK’s Clearing House Automated Payment System (CHAPS) jumped by 10 percentage points in the week to 4th March.

That lifted spending to around 83% of its average in February 2020, just before the first lockdown.

Spending on ‘staples’ (essential purchases such as food and utilities) is 120% of pre-pandemic levels, due to the lockdowns keeping people at home.

The ONS also reports that nearly a fifth of company workforces were furloughed as of the middle of February, the equivalent of over six million workers.

That’s up from 11% in early December, before the current lockdown began.

It includes more than 60% of the workforce in the arts, entertainment and recreation industry.

Its latest Business insights and impact on the UK economy says:

  • The proportion of businesses’ workforce on furlough leave remains broadly stable at 19%, which equates to approximately 6.2 million employees, in mid-February 2021.

  • 69% of businesses reported that none of their sites were temporarily or permanently closed (in line with the proportion currently trading), whilst the South East and London had the highest percentages of sites temporarily or permanently closed, both at 6%, equating to around 34,000 and 24,000 businesses respectively.

  • Five industries have more than 50% of currently trading businesses experiencing a decrease in turnover compared with what is expected for this time of year.

  • Of all businesses currently trading, 7% are providing regular coronavirus testing to the workforce, and of those businesses 11% of their workforce are being tested.

The oil price has also pushed higher today, with Brent crude up 1.5% at $68.98 per barrel (approaching last week’s 14-month high above $71/b).

Marios Hadjikyriacos, analyst at XM, says the markets are anticipating huge fiscal support from the US government.

In the broader market, serenity prevailed on Wednesday as a subdued US inflation print and a solid 10-year Treasury auction calmed global bond yields, propelling the Dow Jones to a new record high. Rising yields are generally negative for stock markets, so when yields stabilize or pull back like yesterday, equities breathe a sigh of relief.

Adding fuel to the cheerful mood was news that Congress gave final approval to the colossal $1.9 trillion spending bill and that President Biden will now turn his attention to an infrastructure investment package, which might be in the ballpark of $2.5 trillion. Make no mistake, this level of government support is unprecedented. It makes the New Deal look almost like child’s play in percentage of GDP terms.

This could be the new theme in markets. Even if the final figure is watered down as the negotiations unfold, there’s no question that throwing even more money at the problem is going to turbocharge the US economy, especially if that spending is directed at infrastructure that tends to generate a higher ‘multiplier effect’ and positive spillover effects.

Updated

Back in the markets, global stocks have hit a one-week high today as investors shake off their worries about inflation.

MSCI’s All Country World Index has gained 0.5%, as gains in Asia added to the Dow’s record close last night. China’s CSI 300 index has now closed 2.5% higher, with Hong Kong’s Hang Seng up 1.6% and South Korea’s Kospi gaining 1.9%.

European markets are a little higher, with the Stoxx 600 rising 0.2% thanks to gains in Italy.

The UK’s FTSE 100 is flat, though, with housebuilders and banks dipping. Persimmon is down 4.8%, followed by HSBC (-4.5%), while technology-focused Scottish Mortgage Investment Trust is up 3.8% following the recovery in US tech stocks.

Ad giant WPP posts £2.8bn loss

WPP, the world’s largest advertising group, reported a £2.8bn pre-tax loss last year as the pandemic hit its business and triggered a multi-billion write down in the value of some of its ad agencies.

The group, which said it expects to see a “solid recovery” this year, ran up £3.1bn in impairment charges which pushed it to a loss last year.

WPP reported revenues less pass through costs - a key metric closely watched by analysts - of 8.2% last year slightly ahead of consensus.

The advertising group has seen significant improvement since reporting a 15.1% decline in the second quarter, with revenues shrinking by 6.5% in the final three months of 2020.

“WPP’s performance has been remarkably resilient,” said Mark Read, WPP chief executive, adding:

“While revenue was significantly impacted as clients reduced spending, our performance exceeded our own expectations and those of the market throughout the year. While uncertainties remain around the impact of the vaccine roll-out and economic growth, we continue to expect 2021 to be a year of solid recovery.”

WPP raised its full-year dividend by 5.7% to 24p a share, and said it would resume a £620m share buyback plan, as the company’s net debt hit its lowest level in 16 years.

WPP reiterated its guidance for 2021 saying it expected to return to positive organic growth by the second quarter.

Lucy Powell MP, Labour’s Shadow Minister for Business and Consumers, says the news John Lewis could close more stores shows that high street retailers need more help:

“This news is really worrying for John Lewis employees and is yet another blow for our struggling high streets.

“The pandemic has accelerated changes to the way we shop, but the Government continuing to disadvantage bricks and mortar shops over online companies is cranking up the pressure and leading to businesses collapsing that may otherwise have had a bright future as our country recovers.

“Unless the Government puts in place a proper long-term plan for our high streets, including real action to help level the playing field and to ease the weight of debt piling up on businesses, we will see more shops vanishing and our high streets hollowed out.”

Updated

Here’s our news story on Rolls-Royce’s 2020 loss:

Rolls-Royce has reported a loss of £4bn for 2020 as the jet-engine manufacturer’s business was shaken by the coronavirus pandemic.

The FTSE 100 manufacturer revealed it burned through £4.2bn in cash during the year as revenues from servicing passenger aircraft collapsed. It expects to burn through a further £2bn this year...

Full story: John Lewis to close more stores as Covid crisis wipes out profits

John Lewis Partnership has warned it is “not out of the crisis” in the retail sector caused by the Covid-19 pandemic and will not be reopening some stores when lockdown ends, after slumping to a £517m loss for 2020.

The group, which also owns Waitrose, confirmed it would not be paying a bonus to staff for the first time in 67 years.

John Lewis also forecast that its financial results for 2021 would be even worse, due to investment in its online shopping service and other measures in its turnaround plan.

The staff-owned business’s first-ever full-year loss comes after £648m of one-off costs relating to the writedown in value of John Lewis shops amid the shift to online shopping, as well as restructuring and redundancy costs from store closures and head office reorganisation.

Chairman Sharon White said the group would be holding on to government business rates relief and furlough support worth £190m which had “helped to keep us running and avoid more severe restructuring”. White said the group intended to continue claiming business rates relief until June.

The group confirmed some of its stores would not be reopening when lockdown measures are lifted in April.

The group is in discussions with landlords about the future of some shops and final decisions are expected by the end of March.

White said:

“Hard as it is, there is no getting away from the fact that some areas can no longer profitably sustain a John Lewis store.

“We are not out of the crisis yet and the economic environment remains extremely uncertain.”

More here:

Updated

In happier times, John Lewis’s annual results would include a bonus for partners - typically worth many weeks of extra pay.

But there’s no staff bonus this year for the first time in over six decades, as expected, given the £517m loss suffered last year.

White says:

We wish we were in a position to pay a bonus and it has been a very difficult decision not to. The Partnership Board believed that to do so would have held back our ability to protect the business in very difficult times and to lay the foundations to return to sustainable profit.

We are committed to restarting bonus as soon as our profits (before exceptionals) reach £150m on a sustainable basis and our debt ratio is below 4 times, and to paying the voluntary real living wage when profits rise to £200m.

John Lewis has also defended its decision to keep business rates relief - saying the move has helped protect jobs.

It explains that it has received £190m of support from the government - in business rates relief and furlough support (the latter claimed only to July 2020, it says).

In today’s letter to partners, Chairman Sharon White explains:

Government funding has been used for the purpose it was designed for - to protect the business - and was critical to cover the direct operational costs relating to Covid and the substantial hit to trading operating profit. The business rates relief has helped to keep us running and avoid more severe restructuring of the Partnership, which would have put more jobs at risk at a time when the high street is already under pressure. We are not out of the crisis yet and the economic environment remains extremely uncertain.

Therefore, our current intention is to accept the business rates relief made available from April to June, but we will keep this under review.

Late last year, many supermarket chains bowed to pressure and returned almost £2bn of business rates relief, acknowledging that they had kept trading during the lockdowns while non-essential shops closed.

John Lewis, though, has resisted - even though Waitrose also stayed open during the lockdown (while its department stores were forced to shut).

Waitrose grew its trading operating profits by £82m last year, to £1.145bn, as it benefited from the surge of grocery sales in the lockdowns.

However, that was more than wiped out by the closure of the John Lewis Partnership’s department stores, where trading operating profits fell by £180m to £554m.

The group says:

Trading operating profit was significantly challenged as the improvement seen in Waitrose, in part helped by the closure of the hospitality industry, was insufficient to cover the substantial decline in John Lewis as “non-essential” physical retailing closed temporarily.

As this results table shows, the “substantial exceptional costs” of £648m (due to writing down the value of its John Lewis shops, and restructuring and redundancy costs) pull the partnership into the £517m pre-tax loss.

John Lewis says it is taking “very difficult decisions”, pointing out that it has already closed some of its department stores and Waitrose grocery shops.

We entered this year with our financial performance already challenged - profits and Partner bonus having fallen for the past three years. We are having to take very difficult decisions to return the business to a path of sufficient profit of £400m by 2025/26.

Last year we closed eight John Lewis stores and seven Waitrose stores that were loss making, and we are in the process of reducing the cost of our head office by 20%.

And on Brexit, it says...

We have seen limited impact from Brexit so far operationally owing to our advance preparations and the Brexit trade deal. The one area of the business that is temporarily disrupted is deliveries to Northern Ireland and we expect to resume these before the summer.

John Lewis warns of store closures

Just in: UK high street retailer John Lewis has warned that some of its shops are not expected to reopen when the lockdown ends.

In its latest financial results, just released, chair Sharon White says that the group is ‘in discussions’ with landlords, and a final decision will be taken by the end of this month.

White explains:

Hard as it is, there is no getting away from the fact that some areas can no longer profitably sustain a John Lewis store. Regrettably, we do not expect to reopen all our John Lewis shops at the end of lockdown, which will also have implications for our supply chain. We are currently in discussions with landlords and final decisions are expected by the end of March.

Closing a store is one of the hardest decisions we can make as a Partnership. We are acutely sensitive to the impact on our Partners, customers and communities, particularly at a time when retail and our high streets are undergoing major structural change. We will do everything we can to lessen the impact and will continue to provide community funds to support local areas.

Last month, it was reported that John Lewis was considering closing up to 8 of its 42 stores, in response to the impact which Covid-19 has had on the high street.

John Lewis has also reported that it made a pre-tax loss of £517m for the last financial year, to the end of January, down from a pre-tax profit of £146m a year earlier.

The company explains:

In a difficult year, the Partnership recorded a Loss before tax of £(517)m, compared to a Profit before tax of £146m in the previous year. This is the result of substantial exceptional costs of £(648)m, mainly the write down in the value of John Lewis shops owing to the pronounced shift to online, as well as restructuring and redundancy costs from store closures and changes to our head office.

John Lewis shops are now held on our balance sheet at almost half the value they were before this year’s and last year’s write downs. Before the pandemic we judged that £6 in every £10 spent online with John Lewis was driven by our shops. The ratio has fallen to £3 in every £10.

Updated

Rolls-Royce posts 2020 loss

UK aerospace engineer Rolls-Royce has posted a deep loss for 2020, as the pandemic hit the airline industry hard.

Rolls-Royce, which makes and services jet engines, made a pre-tax loss of £2.9bn last year - or nearly £4bn on an underlying pre-tax basis (down from an underlying pre-tax profit of £583m in 2019).

The Derby-based firm also says it has cut 7,000 jobs, out of the 9,000 roles being axed under its restructuring programme.

In total we expect the restructuring to lead to the reduction of at least 9,000 roles by the end of 2022, most of which are in Civil Aerospace. By the end of the year, approximately 7,000 permanent and contractor roles had been removed with a significant proportion achieved through voluntary severance and natural attrition.

Chief executive Warren East says 2020 was an “unprecedented year” (no argument there), forcing the largest restructuring in the company’s recent history.

But, Rolls-Royce also hopes that free cash flow will turn positive during the second half 2021, as the global economy reopens.

East adds:

We have made a good start on our programme of disposals and will continue with this in 2021.

We continue to invest in developing market-leading technology and low carbon opportunities in all our end markets, to create value for our stakeholders and ensure we are well positioned to take advantage of the transition to a lower carbon economy and growing demand for more sustainable power solutions.”

Introduction: US stimulus boost markets as ECB decision awaited

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Global stocks markets continue to push higher, after the US House of Representatives passed Joe Biden’s landmark $1.9trn stimulus package.

The bill, which should be signed tomorrow, aims to stimulate its recovery and lift millions of Americans out of poverty. It could also give the global economy a significant boost.

Biden’s 628-page bill, named the American Rescue Plan, includes provide direct payments of up to $1,400 to most Americans, extends the $300-per-month supplemental unemployment benefits, and direct tens of billions of dollars to expand Covid-19 testing and vaccine distribution.

Jim Reid of Deutsche Bank says:

The direct payments of $1400 to a majority of Americans will be sent out within days of the President’s signature, while the $300/week supplemental unemployment benefits will now be extended to September with no lapse.

Treasury Secretary Yellen was out selling the package, anticipating that the legislation could allow the labour market to recover to full employment by the end of 2022.

Last night the Dow Jones Industrial Average closed at a new record high, also helped by a benign US inflation report.

Overnight, Asia-Pacific stocks have rebounded strongly, with China’s CSI 300 up 2% and Japan’s Nikkei up 0.6%.

The US stimulus package has been widely expected, but confirmation that it has been approved seems to have reassured traders.

David Madden of CMC Markets:

Several hours after the end of European trading, it was announced that Congress backed the $1.9 trillion stimulus plan so it will be passed over to President Biden to sign off. The Dow Jones hit another record high, it closed above 32,000, following the announcement of the relief package.

The bullish sentiment from the US pushed up equity markets in the Far East, in addition to that, European stocks are poised for a positive start.

The UK’s FTSE 100 being called up 0.3%.

The European Central Bank meets to set monetary policy across the eurozone today, as the slow vaccine rollout programme fuels concerns that its recovery is falling behind.

European Central Bank officials will have to decide at their meeting today whether rising government-bond yields across the globe threaten the region’s virus-stricken economy
The ECB will also release its latest economic forecasts, and it emerged yesterday that they’ll take a cautious view about inflation prospects. According to ECB insiders, the new macroeconomic projections will predict that Europeans won’t blow their hoarded savings in a sudden consumption boom when lockdown restrictions ease.

Analysts aren’t expecting any policy changes from the ECB, which will also be pondering the recent rise in eurozone government bond yields.

Naeem Aslam of AvaTrade says:

Today’s most important event is the European Central Bank’s meeting and its decision on monetary policy. No drama is expected as the ECB isn’t anticipated to change its monetary policy’s sailing path. It is highly likely that we may hear the echo of the same message that we had in the RBA and BOC’s monetary policy meetings, and that is: the ECB is likely to play down any qualms around inflation.

The message is likely to say that any surge in inflation is most likely to be temporary, and market players should not expect any change in the monetary policy.

The agenda

  • 12.45pm GMT: European Central Bank interest rate decision
  • 1.30pm GMT: ECB president Christine Lagarde holds news conference
  • 1.30pm GMT: US weekly jobless figures
 

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