Recession worries hit markets; Morrisons ‘poised to win battle for McColl’s’ – business live | Business


Introduction: China’s export growth weakens to 2020 low as lockdowns bite

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

Recession worries are swirling again this morning as China’s Covid-19 lockdowns, the Ukraine war, and the cost of living crisis all threaten the global recovery.

China’s exports growth has tumbled to a two-year low, as the curbs introduced to battle Covid has hit factory production, disrupted supply chains and weakened domestic demand too.

Exports slowed to 3.9% year-on-year in April, the weakest since June 2020.

A container ship from Japan anchored at the container dock of Shanghai’s Yangshan Port in east China on April 27, 2022.
A container ship from Japan anchored at the container dock of Shanghai’s Yangshan Port in east China on April 27, 2022. Photograph: Chen Jianli/AP

Imports growth was flat (and imports from the US dropped by 1.2%), as cities such as Shanghai were shut down to fight virus outbreaks.

April’s data shows the impact of China’s latest Covid restrictions, including the tight lockdown in Shanghai which have lasted six weeks, disrupting the operations of companies including Tesla and Apple.

#China‘s April trade data reflects Covid-19 lockdown impact on economic activities, but slightly better than expected. Strains on global supply chains and dented domestic consumption remain intact.

– Exports +3.9% YoY vs +2.7% forecast
– Imports flat, 0% YoY vs -3.0% forecast pic.twitter.com/gaJxud8zNU

— Yeap Jun Rong (@Yeap_IG) May 9, 2022

Julian Evans-Pritchard, senior China economist at Capital Economics, says weakening foreign demand hit China’s exports, suggesting rising prices are now hitting consumer spending,

“The sharpest falls were in shipments to the EU and U.S., where high inflation is weighing on real household incomes.

The declines were also especially pronounced in electronics exports which suggest a further unwinding of pandemic-linked demand for Chinese goods.”

Russia continues to be slammed with fresh sanctions over the war in Ukraine, which is now in its 75th day.

Overnight, the UK has announced £1.7bn of fresh sanctions on Russia and Balarus, including hiking tariffs on its lucrative platinum and palladium imports.

Last night, the G7 group of advanced economies pledged to phase out or ban the import of Russian oil, in a “timely and orderly fashion” (so no fixed date yet).

The G7 added:

“We will work together and with our partners to ensure stable and sustainable global energy supplies and affordable prices for consumers.”

Also coming up today

The future of UK convenience store chain McColl could be decided today, as administrators weigh up rival bids from Morrisons and EG Group.

Sky News reported yesterday that Morrisons had lodged an improved offer with McColl’s lenders, which said on Friday it would call in administrators, putting 16,000 jobs at risk.

Michael Saunders, one of the Bank of England’s monetary policy committee members, gives a speech later on ‘taking the right path’, (days after the BoE warned the UK was on a path towards recession).

The agenda

  • 7.45am BST: French trade balance for March
  • Noon BST: Mexican inflation report for April
  • 2pm BST: Bank of England policymaker Michael Saunders speech on ‘Taking the right path’

The oil price has dropped too, on concerns that demand will be hit by China’s lockdowns.

Brent crude has fallen 2% to $110 per barrel, as economic worries trump the G7’s pledge to phase out imports of Russian oil.

Bitcoin lowest since January

Cryptocurrencies are also being hit by the selloff.

Bitcoin has dropped by 8% today to its lowest level since late January, at around $33,300 — around half its value six months ago.

The Bitcoin price over the last year
The Bitcoin price over the last year Photograph: Refinitiv

Saxo’s Strategy Team say:

The week is off to a rocky start as risk aversion continues to hang over global markets after a rally attempt Friday in the US barely managed to avoid new lows for the cycle in the S&P 500.

The tech-heavy Nasdaq 100 index did slip to new lows, however, and is well into bear market territory, down some 25% from the top last November. US dollar strength continues to suggest general liquidity conditions are poor, and risk-sensitive Bitcoin trades near the lows for the year.

A London trading floor.
Photograph: Paul Painter/Alamy

The selloff is gathering more pace, with the FTSE 100 now down 1.4% at a new seven-week low of 7282 points, down 105 points this session.

Mining companies are still among the fallers, such as Glencore (-5.5%) and Rio Tinto (-4.3%) with growth worries also hitting packaging firm DS Smith, and chemicals group Croda.

Neil Wilson of Markets.com says a ‘bearish sentiment’ is hitting stocks, with China’s export slowdown (see opening post) adding to the anxiety.

Asian markets were softer overnight on some weak Chinese data and the broad failure last week to survive the Fed’s rate hike. China export growth slowed to 3.9% in April from a year earlier, compared with the 14.7% a year before.

Lockdowns and the bottleneck at ports means this is probably going to worsen, too. Chinese PPI inflation data this week should be watched closely as a leading indicator for global consumer inflation.

Jasper Jolly

Jasper Jolly

A easyJet cabin
Photograph: PinPep/REX/Shutterstock

EasyJet plans to remove seats in some of its planes this summer as part of a strategy to cut the number of staff it needs.

Employers across the economy have complained of difficulty recruiting staff at the salaries they are willing to pay, and airlines are struggling to meet the increased demand as international travel restarts in earnest after Covid-19 lockdowns.

Airlines are required by law to provide one member of cabin crew for every 50 seats. By removing the final row of six seats on its smallest plane, the A319, easyJet will cut the number of passengers it can carry from 156 to 150, therefore limiting its requirement to three rather than four cabin crew.

Emerging market stocks have dropped to their lowest in 22 months, hit by the strong dollar and fears of a global slowdown.

China’s yuan has dropped to a near 19-month low against the US dollar today.

April’s slowdown in export growth has reinforced concerns that China’s Covid-19 lockdowns across the country are taking a toll on economy.

Kit Juckes of Société Générale says the markets have woken up with quite the hangover:

Chinese trade data saw softness in both imports and exports, which isn’t very surprising under the circumstances but didn’t help risk sentiment at the start of the week. Nor did further Covid restrictions.

The yuan and equity indices fell, and as US Treasury yields continue to edge higher, the bears took charge.

Back in the markets, the US dollar has hit a 20-year high against rival currencies.

China’s Covid lockdowns, accelerating global inflation and the worsening economic outlook have all boosted demand for the US currency as a haven, as Bloomberg explains here.

Higher interest rate rises are also lifting the dollar, with the Federal Reserve committed to a series of half-point rates hikes in coming months (on top of last Wednesday’s 50bp hike).

Eurozone investor morale slumps as Ukraine war pushes Europe towards recesion

Investor morale in the euro zone has tumbled to its lowest level since June 2020 as the Ukraine war pushes Europe towards a recession.

The Sentix index of investor confidence fell to a near two-year low in May, the third monthly drop in a row,

The index dropped to -22.6 in May from -18.0 in April, weaker than expected. Investors were gloomier about the current economic situation, and the economic outlook.

Investor confidence continues to deteriorate in Eurozone amid ongoing conflict in Ukraine and China’s lockdowns:

Eurozone May Sentix investor confidence printed -22.6 vs -20.8 expected

— CITY INDEX (@CityIndex) May 9, 2022

Sentix managing director Manfred Huebner warned that:

The global economy is facing a “perfect storm”.

The report warns that “The recession is becoming visible” in the euro area, as the Ukraine conflict and the sanctions on Russia hit the economy.

Huebner explains:

The sanctions against Russia are having an effect, on enemies and friends alike. Last month, the “first mover” economic index clearly pointed the way towards recession.

At the beginning of May, the downturn deepened further. Europe is hit particularly hard. The overall Eurozone index drops to -22.6 points. And for Germany we report an alltime low in economic expectations. In other words: it’s coming thick and fast.

Full story: Morrisons could beat Asda owners in race to buy McColl’s

Jasper Jolly

Jasper Jolly

Morrisons has reportedly beaten the owners of Asda in the race to buy McColl’s, the struggling convenience store chain that is expected to be put into administration as soon as Monday morning.

The bid from Morrisons is due to be announced as the preferred bidder for McColl’s, despite an improved offer from EG Group, owned by the Issa Brothers, according to Sky News.

McColl’s is to be sold via a pre-pack administration, after the Scotland-based retailer’s lenders declined a request to restructure its debt. That sparked a bid battle for the London-listed company, which employs 16,000 people across 1,100 shops in the UK.

Morrisons, Britain’s fourth biggest grocer, already has a supply agreement with McColl’s, to which it provides a range of products under the Safeway brand. Morrisons was bought out by the US private equity group Clayton, Dubilier & Rice last year.

Sky: Morrisons “has won battle to seize control of McColl’s”

Sky News are reporting that Morrisons has won the battle to seize control of convenience store chain McColl’s, beating petrol forecourts operator EG Group.

Revealed: I’m told that Morrisons has won the battle to seize control of McColl’s Retail Group, one of Britain’s biggest convenience store chains, following a weekend shootout against EG Group, the petrol retailing behemoth part-owned by the billionaire Issa brothers. More soon.

— Mark Kleinman (@MarkKleinmanSky) May 9, 2022

Morrisons tabled a last-gasp counterbid for McColl’s Retail Group over the weekend.

McColl’s announced on Friday that it would call in administrators after rescue talks failed, putting the future of its 1,100 shops and 16,000 staff into doubt.

PA Media has more details:

Forecourt giant EG – whose owners also run supermarket giant Asda – had been favourites to complete a rescue deal for McColl’s.

However, it is understood that both EG and Morrisons both tabled late improved offers prior to the administrators’ Sunday 6pm deadline for offers.

It is understood that EG has bowed to pressure to look after McColl’s pension liabilities, in a move that means that its 2,000 members will avoid a cut of up to 20% to their promised pensions over their lifetimes.

Trustees for the McColl’s pension schemes have called on the Business Secretary Kwasi Kwarteng to do whatever he can to ensure pension scheme members are well protected.

Morrisons’ early approaches had reportedly been rejected by lenders who preferred EG’s offer to instantly repay more than 160 million in debts from McColl’s.

It is believed that Morrisons has now said it will also repay the lenders in cash.

FTSE 100 hits seven-week low

UK stock have fallen further into the red, as anxiety over the economic outlook rise.

The FTSE 100 has touched its lowest level since mid-March, down 55 points or 0.75% at 7,333 points.

The FTSE 100 this year
The FTSE 100 this year Photograph: Refinitiv

Technology investor Scottish Mortgage Investment Trust is the top faller, down 4.5%, as US tech stock continue to be hammered by the prospect of higher interest rates.

Property website Rightmove are down 4% after announcing its chief executive officer, Peter Brooks-Johnson, is stepping down.

Mining stocks are under pressures, with China’s export slowdown threatening demand for commodities.

Victoria Scholar, head of investment at interactive investor, explains:

All the major European bourses are under pressure with the FTSE 100 trading below 7,400, driven by weakness in the miners with stocks like Anglo American, Rio Tinto and Fresnillo trading at the bottom of the basket following China’s softer trade data.

China’s trade sector accounts for around a third of GDP with the slowdown in exports pointing to a deceleration of international demand with sharp declines from the EU and US as inflation and the cost-of-living take their toll.

Meanwhile domestically, China is dealing with the fallout from lockdowns, with factory activity and supply chains under pressure as Beijing pursues its draconian zero covid tolerance mission at the expense of its own economy.

Molten copper flows into molds at a smelting plant of Wuzhou Jinsheng Copper Co Ltd.
Molten copper flows into molds at a smelting plant of Wuzhou Jinsheng Copper Co Ltd. Photograph: VCG/Getty Images

Metal prices have dropped, as the drop in China’s export growth raised worries about future demand.

Reuters has the details:

  • Benchmark three-month copper on the London Metal Exchange (LME) was down 1.8% at $9,250 a tonne, its lowest since December 15.
  • LME aluminium slipped 1.3% to $2,804 a tonne, its lowest since January 4.
  • The most-active June copper contract on the Shanghai Futures Exchange ended daytime trading down 1% at 71,440 yuan ($10,633.17), after dropping to its lowest since March 16.

Wall Street is on track for fresh losses, with the S&P 500 index down 1% in the futures market:

EU could seize Russian reserves to rebuild Ukraine, says top diplomat

European countries should consider seizing Russia’s frozen foreign exchange reserves to help fund the cost of rebuilding Ukraine, the EU’s top diplomat has suggested.

Josep Borrell, the EU’s high representative for foreign policy, told the Financial Times that it would be logical to use Russia’s reserves, $300bn of which were frozen after the Ukraine war began.

Borrell pointed out that the US had taken control of billions of dollars’ worth of assets belonging to the Afghan central bank for humanitarian aid, and to compensate victims of terrorism – so the same principle could apply with Ukraine.

Borrell told the FT:

“I would be very much in favour because it is full of logic.

“We have the money in our pockets, and someone has to explain to me why it is good for the Afghan money and not good for the Russian money.”

But as the FT points out, the idea of seizing Russian foreign exchange reserves would be a dramatic move that would probably alarm other governments with fraught relations with the EU and its partners.

Here’s the full story:

Full story: UK expands import sanctions against Russia and Belarus

Joanna Partridge

Joanna Partridge

The UK government expanded its sanctions against Russia to include punitive import tariffs on Russian precious metals, as well as export bans on certain UK products, to increase economic pressure on Moscow over the invasion of Ukraine, my colleague Joanna Partridge explains.

The new package of restrictions includes £1.4bn of UK import tariffs – border taxes paid by buyers on goods shipped from Russia – that will affect imports of platinum, palladium and other products including chemicals from Russia.

The international trade department said Russia was highly dependent on the UK for exports of the precious metals, which will be subject to additional 35 percentage point tariffs.

The government will also ban the export of more than £250m of goods in sectors where the Russian economy is most dependent on UK products, including key materials like chemicals, plastics, rubber and machinery. More here.

Pound drops to two-year low against dollar

The pound has hit a new two-year low against the US dollar.

Sterling has dropped another half a cent to $1.226, the weakest since June 2020, extending its recent slide against the strengthening dollar.

The pound vs the US dollar
The pound vs the US dollar Photograph: Refinitiv

The pound tumbled last Thursday when the Bank of England predicted the economy would stagnate for two years as the cost of living crisis hit growth.

As John Hardy of Saxo Bank explained last week:

The UK is in the vanguard of economies that are beset with stagflationary risks, having been impacted on the supply side by the spike in energy prices that began even before the war in Ukraine and due to many Brexit-linked labour supply shortages.

The Bank of England said that the UK population is suffering the second largest drop in living standards since 1964.

Cable slide extends into the fourth straight week
The bleeding continues for the pound against the dollar pic.twitter.com/6VD60UKFFh

— Dr.Anirudh Sethi ,PhD (@Iamanirudhsethi) May 9, 2022

European markets have also opened in the red, with the pan-European Stoxx 600 down 0.5%, adding to last Friday’s drop.

The UK’s FTSE 100 slipped at the open, down 0.2%, as China’s lockdowns (and the impact on trade) add to investors’ concerns about a recession.

🔔 European Opening Bell 🔔

🇬🇧 FTSE 100 Down 0.2%

🇪🇺 STOXX 50 Down 0.9%

🇪🇺 STOXX 600 Down 0.5%

🇩🇪 DAX Down 0.4%

🇫🇷 CAC 40 Down 0.8% pic.twitter.com/HFqgetpZ7m

— PiQ  (@PriapusIQ) May 9, 2022

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, says:

“The week has got off to a negative start for the UK’s market, a result of poor sentiment coming from the US and China.

In the US, the trend has been negative for weeks, but had started to look brighter, before comments from the Bank of England at the end of last week about weak economic growth applied the brakes to momentum.

Anxiety is stemming from the Fed’s next moves, with uncertainty creeping in about the scale and speed of interest rate hikes. All this comes at the same time as China grapples with ongoing lockdowns and the prevailing economic storm these entail. We saw Chinese export growth slow to two-year lows in April.

That said, there have been tentative hints that China is stepping away from its blanket zero-Covid policy, which may mean an easing of the very tough conditions in the all-important production lines in the country.

Shares have dropped in most Asia-Pacific markets after China’s export growth hit its lowest since June 2020, early in the lockdown.

Japan’s Nikkei led the selloff, falling 2.5%, while China’s CSI 300 has dropped almost 1%, Australia’s S&P/ASX 200 is down 1.2%, and Souh Korea’s KOSPI is down 1%.

Investors are worried that central bankers will keep raising interest rates to cool inflation even as the world economy slows.

Stephen Innes, managing partner at SPI Asset Management, explains:

Given the unsettled backdrop of the Ukraine War and China’s economic woes, it is challenging for the Fed to aggressively raise interest rates without dropping the US economy into a sinkhole

Introduction: China’s export growth weakens to 2020 low as lockdowns bite

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

Recession worries are swirling again this morning as China’s Covid-19 lockdowns, the Ukraine war, and the cost of living crisis all threaten the global recovery.

China’s exports growth has tumbled to a two-year low, as the curbs introduced to battle Covid has hit factory production, disrupted supply chains and weakened domestic demand too.

Exports slowed to 3.9% year-on-year in April, the weakest since June 2020.

A container ship from Japan anchored at the container dock of Shanghai’s Yangshan Port in east China on April 27, 2022.
A container ship from Japan anchored at the container dock of Shanghai’s Yangshan Port in east China on April 27, 2022. Photograph: Chen Jianli/AP

Imports growth was flat (and imports from the US dropped by 1.2%), as cities such as Shanghai were shut down to fight virus outbreaks.

April’s data shows the impact of China’s latest Covid restrictions, including the tight lockdown in Shanghai which have lasted six weeks, disrupting the operations of companies including Tesla and Apple.

#China‘s April trade data reflects Covid-19 lockdown impact on economic activities, but slightly better than expected. Strains on global supply chains and dented domestic consumption remain intact.

– Exports +3.9% YoY vs +2.7% forecast
– Imports flat, 0% YoY vs -3.0% forecast pic.twitter.com/gaJxud8zNU

— Yeap Jun Rong (@Yeap_IG) May 9, 2022

Julian Evans-Pritchard, senior China economist at Capital Economics, says weakening foreign demand hit China’s exports, suggesting rising prices are now hitting consumer spending,

“The sharpest falls were in shipments to the EU and U.S., where high inflation is weighing on real household incomes.

The declines were also especially pronounced in electronics exports which suggest a further unwinding of pandemic-linked demand for Chinese goods.”

Russia continues to be slammed with fresh sanctions over the war in Ukraine, which is now in its 75th day.

Overnight, the UK has announced £1.7bn of fresh sanctions on Russia and Balarus, including hiking tariffs on its lucrative platinum and palladium imports.

Last night, the G7 group of advanced economies pledged to phase out or ban the import of Russian oil, in a “timely and orderly fashion” (so no fixed date yet).

The G7 added:

“We will work together and with our partners to ensure stable and sustainable global energy supplies and affordable prices for consumers.”

Also coming up today

The future of UK convenience store chain McColl could be decided today, as administrators weigh up rival bids from Morrisons and EG Group.

Sky News reported yesterday that Morrisons had lodged an improved offer with McColl’s lenders, which said on Friday it would call in administrators, putting 16,000 jobs at risk.

Michael Saunders, one of the Bank of England’s monetary policy committee members, gives a speech later on ‘taking the right path’, (days after the BoE warned the UK was on a path towards recession).

The agenda

  • 7.45am BST: French trade balance for March
  • Noon BST: Mexican inflation report for April
  • 2pm BST: Bank of England policymaker Michael Saunders speech on ‘Taking the right path’





Source link

About the author

Divyansh Singh

Talks about #technology #innovation #investing and #business.

View all posts

Leave a Reply

Your email address will not be published. Required fields are marked *