Closing summary: Wall Street follows signs of economic recovery
A central conundrum facing economists and politicians around the world is that we know there is going to be an economic recovery of historic proportions from the coronavirus crisis, but we just don’t know quite when it will come.
US stock markets have already bought the rumour, with the S&P 500 setting new record highs on a daily basis.
Tech stocks helped the index on Thursday, after the Federal Reserve’s emollient tone on raising interest rates gave investors comfort.
In the UK there are signs that the snap back will be dramatic - after all, a big chunk of the pandemic restrictions are due to lift on Monday when non-essential shops reopen. Construction is booming at six-year highs, according to survey data published on Thursday.
Even the European Central Bank is suggesting that there might be upsides. At the same time, it is noticing the clouds to go with the silver linings: chief among them is uncertainty over the path of vaccines and new variants.
Here are some of the other important developments from today:
- Asos reported that profits tripled as the pandemic proved to be a net benefit for the online clothing retailer.
- The chancellor appointed a third woman - ex-Bank of Canada official Carolyn Wilkins - to the Bank of England’s financial policy committee.
- The Co-op will repay nearly £16m in cash claimed under the furlough scheme, but will hang onto £66m in business rates relief.
- Debenhams will briefly reopen 97 stores to sell off remaining stock before it disappears for good.
You can continue to follow our live coverage from around the world:
In the UK, Labour’s Keir Starmer urges Boris Johnson to hold cross-party talks after Belfast rioting
In the US, Joe Biden is to announce executive actions to address gun violence
And in our global coverage, Bangkok warns outbreak could take two months to control and India reports record new cases
Thank you for reading today, and please join me again tomorrow for more live coverage of business, economics and financial markets. JJ
Updated
US stocks open at new record high
The S&P 500 has opened higher to reach a new all-time high, after setting another record high on Wednesday evening.
The US stock market has been buoyed by hopes that the economy will roar back as vaccine programmes start to allow reopening, while government spending plans and loose monetary policy are also helping.
Here are the opening snaps:
- S&P 500 UP 10.94 POINTS, OR 0.27 PERCENT, AT 4,090.89
- NASDAQ UP 104.36 POINTS, OR 0.76 PERCENT, AT 13,793.20
- DOW JONES DOWN 7.50 POINTS, OR 0.02 PERCENT, AT 33,438.76
The FTSE 100 has picked up a little bit more momentum as investors in the US get to their desks - it is turning into a fairly positive day overall for investors in blue-chip UK stocks, up 0.6% on the day.
Stocks are otherwise little changed across Europe’s biggest markets, where the Dax in Germany and the Cac 40 in France are up by 0.1% and 0.4%.
US futures are showing a positive open on Wall Street in a few minutes.
Carolyn Wilkins to join Bank of England's financial policy committee
The chancellor has appointed a former Bank of Canada official to the Bank of England’s financial policy committee (FPC), the body responsible for overseeing the UK’s financial stability.
Carolyn Wilkins will serve a three-year term on the committee, beginning on 21 June 2021, the Treasury announced.
The appointment means three of 13 members of the FPC will be women. 20 people applied for the post, of whom seven were disclosed to be women. Five women and three men were shortlisted for interview.
Her appointment fills the external position previously held by Donald Kohn, a founding member of the committee who stepped down at the end of March 2021.
Wilkins was in charge of the Bank of Canada’s emergency market response to the coronavirus pandemic, and has also served at big international meetings.
Rishi Sunak, the chancellor, said:
The FPC plays a crucial in role in protecting and enhancing the resilience of our financial system. I want to thank Donald Kohn for his tremendous contribution to the FPC’s work over the past ten years. I am pleased to appoint Carolyn Wilkins to the committee - Carolyn has a respected track record built over 20 years at the Bank of Canada and her extensive experience in international financial regulation will be a real asset to the FPC.
About 744,000 people in the US made initial claims for unemployment benefits last week, an increase on the previous week, according to government data.
The rise in claims from 728,000 in the prior week was higher than economists had expected. The consensus forecast had come in at 680,000, according to a Reuters poll.
US Weekly Initial Jobless Claims Report – DOLhttps://t.co/tRHpu7676z pic.twitter.com/XUQUbAu0H5
— LiveSquawk (@LiveSquawk) April 8, 2021
The FTSE 100 has gained a bit of lunchtime momentum: it is now up by about 0.5% to 6,917 points. The FTSE 250 is now up by 0.3% - it was trading flat earlier.
An hour before the Wall Street bell US stock market futures are looking fairly healthy. They point to a gain of 0.3% for the S&P 500 index, but more for tech stocks which are set to gain 0.8%.
The European Central Bank (ECB) is not anywhere close to tightening monetary policy significantly if most analysts are to be believed - they learned that lesson the hard way during the last crisis.
However, the minutes do show some interesting differences of opinion around the path for growth. “Some nuances were expressed,” is how the central bank delicately puts it.
On the one hand growth has been underestimated for the past year, and there are reasons for optimism with Joe Biden’s $2 trillion infrastructure spending plan and the signs of a stronger world economy.
Against that others quibbled that the gains in growth seen in recent quarters might average out in the first quarter of this year. And again that word - uncertainty - looms over everything, but particularly with regards to the vaccine rollout. The minutes said:
Questions were raised as to how realistic it was to assume that containment measures would be reduced as early as the second quarter and it was pointed out that, depending on the further evolution of the pandemic, weakness in activity might continue well into the second quarter and beyond.
Some concern was expressed that the true situation of the business and household sectors would only become apparent once the government support and guarantee schemes in response to the pandemic were phased out.
European Central Bank: Biden growth plan could boost eurozone
European Central Bank policymakers were taken by surprise by the strength of the 2020 economic recovery and expect that big spending by President Joe Biden in the US will boost eurozone growth further, according to minutes from its latest monetary policy meeting.
2020 economic recovery was “faster than expected”, and the “Biden plan” to boost US growth also represented an “upside risk”, the minutes said.
However, the ECB’s minutes also emphasised uncertainty ahead for the eurozone even as economies recover.
While the overall economic situation was seen to improve during 2021, uncertainty surrounding the near-term economic outlook remained, relating in particular to the dynamics of the pandemic and the speed of vaccination campaigns.
Earlier on Thursday ECB president Christine Lagarde said:
Overall, the risks surrounding the euro area growth outlook have become more balanced, although downside risks associated with the pandemic remain in the near term.
Debenhams is to reopen 97 of its high street stores on Monday for a closing down sale to clear stock before they finally shut their doors on 15 May.
The department store, which collapsed last year, said it would be offering up to 70% off fashion and homewares and up to 50% off beauty and fragrance in its final closing down sale.
The stores, in England and Wales, will begin to close their doors on 2 May and the process will be completed 13 days later. Debenhams’ 15 Scottish stores and its flagship shop on London’s Oxford Street will not reopen.
You can read the full story - and the list of stores that will reopen - here:
There could be big changes coming for the global tax system. Reports today suggest that the US has backed a plan for multinationals to pay taxes based on where they make sales.
It would be a huge change - and one for which many tax campaigners will be very keen indeed.
The Financial Times said:
The Biden administration has proposed a new model for taxing multinational corporations, calling for the world’s biggest businesses to pay levies to national governments based on their sales in each country as part of a deal on a global minimum tax.
In documents sent to the 135 countries negotiating international taxation at the OECD in Paris and obtained by the Financial Times on Wednesday, the US Treasury laid out a plan that would apply to the global profits of the very largest companies, including big US technology groups, regardless of their physical presence in a given country.
If allied to a global minimum corporate tax rate it could really put pressure on companies whose business models involve shifting profits to countries with lower rates - such as Ireland or various British crown dependencies - to avoid tax.
The upshot could even be a tantalising incentive for governments to invest rather than following beggar-thy-neighbour policies, said Paul Donovan, chief economist at UBS Global Wealth Management. He said:
If countries do not compete on tax rates, logically they will compete on how efficiently they spend the tax revenues. Countries where spending enhances productivity will outperform countries that spend on vanity projects and outdated infrastructure.
Many challenges lie ahead for a global corporate tax agreement. For years the US effective corporate tax rate was below the headline corporate tax rate, because of loopholes and careful accounting procedures. Global standards will be required to prevent that undermining an agreed minimum tax level.
Rewind a year and the prospect of the FTSE 100 being apparently unaffected by the pandemic and the FTSE 250 hitting record highs was not on the agenda.
Yet that is where we are. The FTSE 100 has edged up today by 0.3%, putting it on track again for its highest close since February 2020. The FTSE 250 is almost unchanged today, but it is at all-time-high levels.
Laith Khalaf, financial analyst at AJ Bell, said:
The fact an index hits a record high is not itself a buying signal, but the attraction of investing in medium-sized companies are plain to see in the long-term performance figures.
Over twenty years, the FTSE 250 has wiped the floor with the big blue chips of the FTSE 100, and indeed those of the much-vaunted [US] S&P 500, which has found itself in so much favour with investors of late. Indeed, the FTSE 250 has been the best performing segment of the main UK market since the turn of the century.
Co-op to repay £16m furlough cash but keep £66m rates relief
The Co-op has said it will return £15.5m of cash it claimed from the government’s furlough scheme, but said it will still not pay back business rates relief.
Other supermarkets have handed back about £2bn in rates relief that was given at the start of the pandemic, before the boost to sales for large supermarkets became clear.
The Co-op’s revenues rose by £600m to £11.5bn during 2020, helping it to make profits before tax of £92m. That was an increase of £25m compared to 2019, even with the extra costs of the pandemic.
The Co-op said its decision to hold onto the rates relief was justified because it has higher costs than other supermarket rivals because of its smaller convenience stores, and also highlighted increased costs in its funerals business.
In a statement on Thursday the Co-op said:
The Co-op took this government support in good faith, not expecting to have to pay the money back and made forward-looking business decisions on that basis.
As a community-based convenience retailer with a large store estate, the Co-op had a disproportionate increase in costs associated with remaining open, as compared to larger supermarket businesses.
The London Stock Exchange Group (LSEG) is looking into an outage at Refinitiv, its newly acquired data company, which has shut down its market data feed.
The problem has left traders and analysts (plus news organisations like Reuters and, ahem, the Guardian) reliant on other sources for market data.
LSEG’s £22bn purchase of Refinitiv from Thomson Reuters only completed at the end of January, and integrating the businesses is a key challenge for the company.
Refinitiv said (via Reuters):
We’re aware of an issue disrupting our service to customers.
We are currently investigating the cause of the issue and working hard to resolve the problem. We apologise to customers for the disruption.
JP Morgan’s boss yesterday wrote that the US economy was approaching a possible “Goldilocks moment”. The same might well be true for UK construction.
Government spending on infrastructure, continued support for house buyers and consumers with money in their pocket appear to be creating auspicious conditions for builders.
Whether that can last beyond the end of the furlough scheme supporting British wages in September remains to be seen.
Max Jones, director in Lloyds Bank’s infrastructure and construction team, said:
Confidence is high among contractors. Little wonder, with infrastructure work boosting order books and enabling firms to plan ahead.
The full effects of the pandemic will likely not hit until later in the year when government support measures are withdrawn, but those in the industry feel well-placed to weather the storm.
The vaccine’s successful rollout so-far should also provide a boost to the commercial segment – the sector’s main laggard – as offices and shops reopen
Steve Plaskitt, a partner at MHA, an accountancy firm, said the chancellor’s spring budget has stoked the fires of the construction industry with policies that will keep house prices higher. He said:
The spring budget was a boon for both house buyers, who stand to benefit from the extension and phased ending of the stamp duty holiday, and house builders, who will hope that the government’s guaranteed support for 95% mortgages until the end of 2022 will drive demand.
The government’s infrastructure spending, such as the £27bn earmarked for roadbuilding, is also impressive and will create much needed stimulus for the industry. Collectively these measures will underpin performance in the sector for the months ahead.
Plaskitt does question whether the pandemic will change longer-term conditions for the industry, including Britons’ apparent affection for high-rise city living and jobs in expensive city-centre office blocks.
There was “robust growth” across UK construction for residential, commercial and civil engineering projects, IHS Markit said.
It was in housebuilding that demand was the hottest - although it was only the fastest output expansion since last July for a housing market that is perennially short of stock.
Yet the readings for civil engineering and commercial construction were both the highest since the second half of 2014.
The industry’s near-complete shutdown at the start of the pandemic (see the massive dip in the below graph) has been counteracted by boom time as builders look forward to a fast recovery.
UK construction activity rises at fastest since 2014
The UK construction industry expanded at the fastest pace in six-and-a-half years in March, according to a closely followed survey.
The construction purchasing managers’ index (PMI) rose to 61.7 in March, up sharply from 53.3 in February, according to data provider IHS Markit.
It was a “surge” in output, said Tim Moore, economics director at IHS Markit. He said:
Total activity expanded to the greatest extent for six-and-a-half years as residential spending remained robust, commercial projects restarted and infrastructure contract awards moved ahead.
Improving confidence among clients in the commercial segment was a key driver of growth, with development activity rebounding in sectors of the economy set to benefit the most from the improving pandemic situation. The increasingly optimistic UK economic outlook has created a halo effect on construction demand and the perceived viability of new projects.
Updated
Looking around markets this morning the positive tone set by the Fed last night appears to be holding up - albeit mildly.
The FTSE 100 is hanging onto early gains: it is up by 0.3% after the first hour of trading at about 6,908 points.
Germany’s Dax has edged up by 0.1%, while shares on the Cac 40 in Paris are up by 0.4%.
Summary
An interesting story this morning on Prosus, a Dutch technology investor. It is not a household name in the UK (although it did try to snap up Just Eat before it merged with Takeaway.com) but it has just made a big move: one of the biggest individual sales of a block of shares ever.
Prosus sold 2% of Tencent Holdings, the Chinese gaming and social media giant that owns WeChat, for $14.7bn (£10.7bn). Bloomberg said the only bigger block sale was the US Treasury department’s sale of shares in the bailed out insurer AIG in 2012.
When companies sell holdings they often try to do so gradually over the stock market to prevent the share price from dropping, but they can also do it in one chunk privately.
Reuters reported the shares were sold at a 5.5% discount to Tencent’s Wednesday close.
Prosus Chair Koos Bekker said:
In our view Tencent is one of the world’s best growth enterprises. Since listing in 2004, it has consistently delivered value. Our belief in Tencent and its management team is steadfast, but we also need to fund continued growth in our core business lines and emerging sectors. Plus create some headroom for acquisitions.
We informed Tencent of our intention, which was understood and supported by them. We commit that we will not sell further Tencent shares for at least the next three years, in line with our long-term belief in the business.
The eurozone construction industry returned to growth for the first time since the start of the pandemic in March, according to a survey that adds to signs that the economic recovery from coronavirus lockdowns is underway.
The construction purchasing managers’ index (PMI) from IHS Markit jumped from 45 points in February to 50.1 in March - just above the 50 mark that indicates the sector is growing.
New orders received by eurozone construction firms returned to growth in for the first time in 13 months in March, IHS Markit said.
Usamah Bhatti, an economist at IHS Markit, said:
Eurozone construction companies reported fractional growth in March, marking for the first increase since the pandemic disrupted activity across the bloc throughout 2020.
Incoming business also expanded in the latest survey period, as the appetite for new construction projects in the eurozone began to return, reportedly in public sector work.
Asos profits triple as pandemic boosts sales
Asos has more than tripled first half profits to a record £113m and raised full year expectations as the online retailer continues to prove to be a major winner during the pandemic.
The company also said that the Topshop, Miss Selfridge and activewear brand HIIT brands, acquired from Sir Philip Green’s Arcadia empire for £330m in February, have been “seamlessly” integrated into its online platform and have seen “great early customer momentum”.
Asos reported a 253% year-on-year increase in pre-tax profits to £106.4m in the six months to 28 February, as total group revenues climbed 24% to £2bn.
Australian government monitoring GFG steel developments
Australia’s government has signalled that it may consider providing financing to mining operations owned by GFG, the metals conglomerate owned by Sanjeev Gupta, which faces further legal action seeking to wind it up.
Gupta’s metals empire has come under intense pressure after its key lender, Greensill Capital, collapsed. Gupta has been scrambling to find new lenders to replace as much as $5bn (£3.6bn) lent by Greensill.
Credit Suisse, the bank which funded Greensill’s loans (and which is facing its own pressures), this week filed to liquidate two of GFG’s Australian businesses. Credit Suisse has already made a similar move in London.
Citibank, acting on behalf of Credit Suisse, applied for courts in New South Wales to wind up Onesteel Manufacturing, which operates the Whyalla steel operation in South Australia, and Tahmoor Coal.
Simon Birmingham, Australia’s finance minister said the government was monitoring developments, with an initial hearing not scheduled until 6 May. Reuters reported that he told ABC radio on Thursday:
Governments are monitoring this situation very closely and indeed doing the type of contingency thinking and planning that that would be prudent in these sorts of circumstances.
He said financing options provided the last time the steelworks moved into administration were being considered.
Our government continues just to make sure we are looking at those examples from the past and being mindful of how we could respond if we need to.
Introduction: Markets gain after Federal Reserve points to longer support
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
The one constant through the coronavirus crisis has been the willingness of the Federal Reserve and other central banks to stand behind markets. They were at it again last night in Washington, with minutes from the latest monetary policy meeting giving the soothing message that support is here to stay.
Stock markets in Europe rose on Thursday in early trading after the Fed said it expected to keep loose monetary policy for “some time” until conditions improve sufficiently. The FTSE rose by 0.3% in opening trades on Thursday morning, while the Stoxx 600 index of big European companies gained 0.4%.
Lael Brainard, a Fed governor, told CNBC that policymakers expect “considerably better outcomes on growth, and employment and inflation” in coming months. “But that is an outlook,” she said. “We are going to have to actually see that in the data,” and with millions of jobs still missing due to the pandemic “we have some distance to go.”
Naeem Aslam, an analyst at Avatrade, an online investing platform, said:
Traders have finally understood that there will be no early exit from loose monetary policy. The US economy needs to recover fully, and it will be some time before that happens.
Markets have appeared to shrug off the latest concerns over the AstraZeneca vaccine. UK regulators recommended not giving that particular vaccine to the under-30s because of a risk - albeit vanishingly rare - of blood clots.
This morning in the UK online clothing retailer Asos has delivered a 253% increase in profits thanks in part to a net benefit from Covid.
Miner Anglo American has said it will demerge its South African thermal coal operations.
The agenda
- 8:30am BST: Eurozone construction purchasing managers’ (PMI) survey (March; previous: 45)
- 9:30am BST: United Kingdom construction purchasing managers’ (PMI) survey (March; previous: 45)
- 12:30pm BST: European Central Bank monetary policy meeting account
- 1:30pm BST: US initial jobless claims (week of 3 April; previous: 719,000; consensus: 680,000)
