Time to recap…

France’s stock market has become the least favourite in Europe, according to a poll of fund managers by Bank of America.

Goldman Sachs has warned that a victory for Marine Le Pen’s party in France’s elections would trigger a surge in the national debt.

HSBC’s Swiss private bank failed to conduct proper checks on $300m worth of funds sent between Lebanon and Switzerland during a period of 13 years, Switzerland’s banking regulator has said.

The board of Hargreaves Lansdown is willing to back a takeover offer from a private equity consortium that would value the UK’s largest investment site at £5.4bn.

US retail sales barely rose in May, suggesting that economic activity remained lackluster.

Investment platform Hargreaves Lansdown has received a new takeover proposal from a group of private equity buyers, worth £5.4bn.

This revised proposal follows three previous approaches in recent months from a consortium of CVC Advisers Limited, Nordic Capital and Platinum Ivy of Abu Dhabi.

They are now proposing to pay 1,140p per Hargreaves Lansdown share in cash, up from the 985p/share offer which was rejected in April.

Hargreaves Lansdown board says it is willing to recommend this new proposal unanimously to shareholders, if a firm offer is made, and will provide the consortium with access to carry out due diligence work.

Shares in Hargreaves Lansdown have jumped 5%, to £11.27.

Just in: US retail sales rose more slowly than forecast last month.

Retail and food services sales across the US rose by 0.1% in May, following a downwardly revised 0.2% fall in April.

On an annual basis, retail sales were 2.3% higher than in May 2023, a slowdown on the 2.7% rise recorded in April.

This may indicate that demand across the US weakened last month, with consumers weighed down by high interest rates.

Michael Brown, analyst at Pepperstone, says the report is a further sign that the ‘US exceptionalism’ narrative has likely run its course.

“The May US retail sales report points to further signs of fatigue for the US consumer, with headline sales rising by a meagre 0.1% MoM, up from a downwardly revised 0.2% decline in the prior month.”

France’s national debt could surge higher if Marine Le Pen’s National Rally (RN) party wins an absolute majority in the national assembly elections, Goldman Sachs has warned.

Goldman predicts that, if in power, the far-right would deliver a sizeable fiscal expansion, sending France’s debt-to-GDP ratio up to 120% by 2027.

That highlights why France has turned into the most unloved European equity market (see earlier post).

In contrast, under” “a status quo electoral outcome”, debt would stabilise at 113% of GDP in 2027, Goldman estimates.

And if France is left with a hung parliament that does not allow any political group to pass meaningful tax or spending measures, debt could rise to 116% of GDP.

Goldman points out that political groups have started to outline their economic policy platforms:

On labour market reforms, both the left coalition and the far-right oppose the 2023 pension reform, which raised the retirement age. More recently, however, far-right leader Jordan Bardella stated that revisiting the pension system would not be a “near-term priority” and rather would come at a “later stage.”

On taxes, both the left coalition and the far-right support cutting VAT on energy and food, as well as re-introducing a wealth tax. At the same time, the current government and the centre-right have pledged not to increase taxes on corporates and households.

France has made some progress in lowering its public debt in recent years; in 2023 it was 110.6% of GDP, according to statistics body INSEE, down from 114.9% in 2020.

Goldman also warns that the current “ongoing episode of political uncertainty” could hurt the French fiscal outlook, if it leads to higher borrowing costs for Paris.

Today’s UK insolvency statistics also show there was surge in retail failures this spring.

Wholesale and retail trade insolvencies increased by 27% month-on-month in April to 355, up from 280 in March, and were 30% higher than in April 2023.

We learned a month ago that overall insolvencies rose by 17% in April, but today we have more details (as well as the top-line data for May).

Gordon Thomson, restructuring partner at leading audit, tax and consulting firm RSM UK, says:

“The tough trading environment for the retail sector continues to drag on, resulting in an increase in insolvencies in April. As retailers grapple with high costs, lacklustre consumer demand and too many April showers, they were also hit with an increase in national minimum wage which may have been the final straw for some.

“However, with inflation easing, real wages growing, and interest rates set to come down, this bodes well for consumer confidence and sets the stage for an increase in consumer spending in the second half of the year. For those retailers that have managed to weather the storm thus far, there’s light at the end of the tunnel.

Just in: HSBC’s private bank has been blocked from taking on any politically exposed people as clients in Switzerland, after violating Swiss money laundering regulations.

Swiss financial regulator FINMA has announced that HSBC “seriously violated financial market law” in its handling of high-risk business relationships with two politically exposed people.

HSBC failed to carry out an adequate check of either the origins, purpose or background of the assets involved, FINMA says.

The regulator explains:

The transactions in question were carried out between 2002 and 2015 and amounted to a total of more than $300m.

The funds, which originated from a government institution, were transferred from Lebanon to Switzerland and – generally after a short time – primarily flowed back to other accounts in Lebanon.

FINMA says HSBC closed these business relationships in 2016, but did not file a report with the Money Laundering Reporting Office until 2020.

FINMA has ordered HSBC to review its anti-money laundering aspects, adding:

The bank may not enter into any new business relationships with politically exposed persons until such time as completion of the reviews has been confirmed by the audit agent.

France has turned into the most unloved European equity market, as political uncertainty spooks investors, according to a regular poll from Bank of America.

BofA’s European Fund Manager Survey found that investors have grown gloomier about Europe’s growth prospects, partly due to the looming French elections.

A net 43% of respondents expect stronger European growth over the coming twelve months, down from 61% last month, which was the highest since July 2021.

Enthusiasm has probably been tempered by “rising French political and economic policy uncertainty”, BofA says, along with rising predictions that the US economy will slow and China’s growth will soften.

This gloominess has prompted a rotation into defensive stocks, and out of those which benefit from a cyclical upturn.

BofA adds:

France has turned into investors’ most unloved European equity market, having been the most preferred last month, while Spain is the biggest favourite.

Data from Bloomberg yesterday showed that London had regained its crown as Europe’s biggest stock market from Paris.

Overnight, US electric car maker Fisker filed for bankruptcy protection, and hopes to sell its assets, after struggling to challenge Tesla in the EV market.

Fisker has filed for Chapter 11 protection in the District of Delaware, after failing to find a rescue, three months after suspending all manufacture of its electric vehicles.

Fisker suffered a rapid cash burn as it tried to roll out its Ocean SUV cars in the US and Europe.

A Fisker spokesperson says:

“Fisker has made incredible progress since our founding, bringing the Ocean SUV to market twice as fast as expected in the auto industry and making good on our promises to deliver the most sustainable vehicle in the world.

“We are proud of our achievements, and we have put thousands of Fisker Ocean SUVs in customers’ hands in both North American and Europe. But like other companies in the electric vehicle industry, we have faced various market and macroeconomic headwinds that have impacted our ability to operate efficiently. After evaluating all options for our business, we determined that proceeding with a sale of our assets under Chapter 11 is the most viable path forward for the company.”

Fisker had tried to keep its costs down by using Austrian contract manufacturer, Magna Steyr, to build its car in Graz.

The company was founded by Danish automotive designer Henrik Fisker, who had previously designed luxury cars for BMW, Ford, and Aston Martin, such as BMW’s Z8 roadster and the Aston Martin DB9 and Vantage cars.

Just in: We have confirmation that inflation across the eurozone accelerated last month.

The euro area annual inflation rate was 2.6% in May 2024, up from 2.4% in April, statistics body Eurostat reports – confirming its flash estimate at the end of May.

That takes inflation away from the 2% target set by the European Central Bank, which cut interest rates two weeks ago.

Core inflation, which strips out energy, food, alcohol & tobacco, rose to 2.9% from 2.7% (which also matches the initial estimate).

Investors are now pondering how soon the ECB might cut interest rates for a second time this year. Governing council member Boris Vujcic warned yesterday that an interest rate cut in September would require an improvement in the ECB’s inflation outlook.

Vujcic explained:

“In order to do more, we need to see more.

Any prolongation of the inflation conversion toward the medium-term target weakens the case for an interest-rate cut, and vice versa.”

The number of UK individuals and businesses falling into insolvency has slowed, as pressures from rising costs ease.

Official data shows that 9,266 individuals entered insolvency across England & Wales in May, a 4% drop compared with April (but also 3% more than a year ago).

The Insolvency Service reports there were 604 bankruptcies, 3,716 debt relief orders (DROs) and 4,946 individual voluntary arrangements (IVAs).

DROs are available to those on low incomes, and will freeze, then wipe out, existing debts up to £30,000 on, for example, council tax, rent and energy bills. Their popularity has risen since a £90 fee was scrapped.

Company insolvencies fell by 6% in May, month-on-month, in England and Wales to 2,006, which is 21% lower than in May 2023.

Benjamin Wiles, managing director at Kroll, says the pace of insolvencies seems to be easing:

“Compared to this time last year, we are seeing a pickup in business activity with key indicators showing improving consumer and business confidence. While I think it’s fair to say that we aren’t quite out of the woods, compared to twelve months ago when businesses were managing unpredictable cost inflation and energy bills, it does feel there’s now a lot more certainty for companies to plan.

Interestingly, businesses we speak to are also coming to terms with higher borrowing costs – though there is evidence that some lenders are extending finance rather than restructuring debt.

“Company administrations that we track are up year-on-year, but it does seem the pace of insolvencies are easing. There are some sectors including manufacturing and media and tech, which are continuing to see big increases, but overall it’s now a smaller trickle than a tidal wave.”

The chair of Toyota has been re-elected despite opposition from two prominent shareholder advisors amid a scandal over vehicle testing and falsified emissions data.

Akio Toyoda, grandson of the Japanese carmaker’s founder, is expected to have won a reduced share of votes at the annual shareholder meeting after ISS and Glass Lewis, two companies that recommend how investors should vote, advised a vote against him. The full results of the vote will not be known until Wednesday.

The advisors’ governance concerns centre on Toyota’s Daihatsu subsidiary, which acknowledged problems with its crash safety testing last year. The company also admitted in 2022 that truckmaking subsidiary Hino falsified emissions data.

The backing for Toyoda came after the company made strong profits. It has benefited from strong demand for hybrid electric cars, which combine a petrol engine with a battery. Some analysts are concerned that the company has been slower than rivals in Europe and particularly in China to adopt pure electric vehicle technology, but in the short term the hybrid strategy appears to have paid off in profits.

The vote has also been closely watched by analysts who believe that Japan is starting a new era of more assertive shareholder activism, rather than a compliant investor base which was perceived as rarely challenging business leaders in the past.

Guy Lawson-Johns, equity analyst at Hargreaves Lansdown, an investment platform, said:

Most of the opposition to Toyoda is expected to have come from overseas investors, part of a broader wave of shareholder capitalism hitting Japan.

Kantar reports that take-home grocery sales rose by just 1.0% over the four weeks to 9 June 2024, which is the the slowest increase since June 2022.

That’s partly due to the slowdown in inflation (as prices rose at a slower rate), but also the poor weather in May and June.

Kantar says the sixth wettest spring on record has hurt the grocery sector too, with much less demand for summer items such as suncream. Instead, we’ve been buying more soup!

Kantar’s Fraser McKevitt explains:

We’re not yet reaching for those typical summertime products and are making some purchases you wouldn’t expect in June.

Consumers bought nearly 25% fewer suncare items this month compared with last year, while prepared salads dipped by 11%. On the other hand, warming fresh soup sales jumped by almost 24%.

Newsflash: UK grocery inflation has fallen for the 16th month in a row.

Data firm Kantar reports that supermarket prices are 2.1% higher than a year ago this month, a slowdown on the 2.4% annual rise recorded in early May.

Kantar reports that prices are now falling in nearly one third of the grocery categories it tracks, such as toilet tissues, butter and milk.

This slowdown in price rises should bring some relief to households, who were hit by grocery inflation of 17% in March 2023.

But Fraser McKevitt, head of retail and consumer insight at Kantar, warns that the squeeze on budgets isn’t over.

“The cost-of-living crisis isn’t over – far from it. 22% of households say they’re struggling, meaning that they aren’t able to cover their expenses or are just making ends meet.

“However, there are positive signs that many of us no longer feel the need to restrict our spending quite so much, with lower inflation helping to ease the pressure on people’s pockets.”

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

The hotel sector can be a good gauge of economic confidence, tracking whether people are splashing out for trips away and if firms are stumping up for business trips.

And this morning, Premier Inn owner Whitbread has reported that recent trading in the UK has been “more encouraging”, as it prepares to face union anger over plans to cut 1,500 jobs.

The company says it remains “confident in the full year outlook”, after growing total sales by 1% to £739m, “driven by improved UK trading and continued progress in Germany”.

In its latest financial results, Whitbread reports that sales growth was flat (0%) in the UK for the 13 weeks to 30 May 2024, although it did grow by 15% in Germany (where trading had been weaker).

That 0% figure, though, hides a pick-up after a weak start to the first quarter of Whitbread’s financial year.

The company told shareholders:

Having been 1% behind last year in the first seven weeks, our trading performance strengthened during the remainder of the quarter and accommodation sales recovered to be in line with last year and up 55% versus FY20.

But, on a like-for-like basis, accommodation sales shrank by 2%, along with a 1% drop in food & beverage sales.

Whitbread reports that midweek business demand and peak leisure demand both remain “robust”, however last-minute demand for weekend stays has been “slightly softer”, particularly in London.

Perhaps the post-pandemic surge in trips away has faded?

Back in April, Whitbread reported strong results for the last financial year, including a 13% rise in sales in the year to 29 February.

Whitbread also says net inflation is now expected to be at the lower end of its guidance as a result of “increased cost efficiencies”.

The company, and its shareholders, will feel the wrath of the Unite union later today when they gather for its annual general meeting at its offices in Dunstable, Bedfordshire.

Unite are planning a protest over Whitbread’s plans, announced in April, to cut 1,500 jobs.

The union says Whitbread have refused to consult with them, or answer basic questions on the redundancy process.

Unite general secretary Sharon Graham said:

“Rarely is a company so shameless as to celebrate leaping profits and dividends by announcing mass job cuts.

“But generating runaway profits while trampling workers is business as usual for Whitbread. This is a firm that refuses to pay the real living wage and does not even provide company sick pay for its underpaid and overworked staff.

“Unite will be holding the company to account for its disgraceful race to the bottom behaviour and offering full support to our members impacted by these cruel and unnecessary redundancy plans.”

The agenda

• 8am BST: Kantar’s grocery price inflation

• 10am BST: Eurozone inflation rate for May (final estimate)

• 10am BST: ZEW index of German economic sentiment

• 1pm BST: Unite protest ahead of Whitbread’s AGM

• 1.30pm BST: US retail sales for May

• 2.30pm BST: Whitbread’s AGM begins