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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Turkish lira tumbles; pandemic worries hit European markets – as it happened

Turkish President Recep Tayyip Erdoğan, who has defended recent sharp rate cuts and vowed to succeed in his “economic war of independence”.
Turkish President Recep Tayyip Erdoğan, who has defended recent sharp rate cuts and vowed to succeed in his “economic war of independence”. Photograph: Anadolu Agency/Getty Images

Closing summary

Time to wrap up - here are today’s main stories.

Goodnight. GW

Updated

Ryanair boss Michael O’Leary has warned that European airlines face a slump in Christmas and early summer travel as the spectre of another wave of lockdowns puts people off booking holidays.

“I think we’re in for a fraught period between now and Christmas where it looks like Europe is going to get very nervous again at the worst time of the year when people are making their Christmas travel plans,” he said.

“I think it’s inevitable we will undermine confidence between now and Christmas, and that will disrupt Christmas and New Year when they would normally start booking their summer holidays.”

More here:

European markets hit by pandemic worries

European stock markets have closed solidly in the red, as fears of further lockdowns this winter worry investors.

The pan-European Stoxx 600 index fell 1.3%, its fourth day of falls in a row from last week’s record highs.

The Netherlands’ AEX index shed 1.6%, with Germany’s DAX down 1.1%, as traders wondered whether new curbs could be introduced following Austria’s new lockdown this week.

The UK’s FTSE 100 bucked the trend, though, nudging up up 0.15%. Catering firm Compass led the risers, up 5.6% after reporting strong results.

Energy companies BP and Royal Dutch Shell also gained, as crude prices rose* after the US announced its release of oil stocks (* - which won’t please the White House)

Danni Hewson, AJ Bell financial analyst, sums up the session:

“It’s on a day like today that the FTSE 100’s global outlook really makes a difference to investor sentiment. Whilst concerns about rising COVID cases has wreaked havoc across European markets and with the UK’s more domestically focussed FTSE 250, London’s blue-chip index has remained stubbornly in positive territory. Miners helped keep things buoyant and there was a late surge from oil giants BP and Shell as markets digested President Biden’s moves and concluded they were perhaps more modest than had been anticipated; the price of a barrel of the black stuff rose slightly in reaction.

“Food service giant Compass was the day’s stand out performer as it dangled the carrot that dividends could be back on the menu. It was pummelled during the pandemic but has recovered remarkably well as restrictions relaxed and though revenues are still down the outlook has given investors something to chew over. At the other end of the scale the day hasn’t improved for AO World which warned profits would take a hit this Christmas because of the shortage of games consoles and iPhones.

“That plight is something that US retail giant Better Buy shares and its stock has tumbled after warnings about supply issues. The earnings update also delivered news that the rush to grab Christmas trade by starting Black Friday sales early had, unsurprisingly, hurt profits. What did surprise, and not in a good way, was an update from the CEO that a surge in organised crime had led the company to recruit more security guards. And it’s an issue that many retailers in the US and their staff are having to contend with, and one which could potentially get worse if prices keep going up and supply can’t keep up with demand.

“Generally, US markets struggled but it’s the tech heavy Nasdaq that’s taken the biggest hit today as bond yields rose and markets concluded that a rate rise might be closer today than it had been yesterday. Pandemic darling Zoom’s after hours update only confirmed expectation that a return to some kind of normal for many employees would hit growth. After months of virtual meetings people have been putting their trousers back on and chatting in person. And even though video conferencing will continue to have a major part to play in business and pleasure there are many more competitors nibbling away.”

European stock markets, close of trading, 23 November 2021
European stock markets, close of trading today Photograph: Refinitiv

British supermarket group Asda has appointed Stuart Rose, the former CEO of Marks & Spencer, as its new chairman.

Rose will take up the role on December 1st, said Asda, which is owned by the billionaire brothers Mohsin and Zuber Issa and their private equity partner TDR Capital.

Dame Alison Carnwath, the former Land Securities chair, is also joining as a non-executive director.

Lord Rose says appointing a new CEO for Asda is a priority, after chief executive Roger Burnley stepped down early in the summer following the Issa brothers’ £6.8bn takeover.

I am pleased to be joined on the Board by Dame Alison, who brings rigour and focus to everything she does – and look forward to confirming further non-executive appointments to our Board in the near future.

We are both excited at the prospect of working with Mohsin and Zuber and the wider Asda team as they look to build on Asda’s strong heritage of delivering affordable quality across food, fashion and general merchandise – and of championing customers at every turn. The process to appoint a new Chief Executive Officer for Asda, who has the vision to take this great business forward over the coming years, is a priority for the Board and we will be supporting the shareholders in this process.”

Sky’s Mark Kleinman has an interesting take:

The move will be significant because the duo - who also served on the board of Land Securities together - are both directors of EG Group, the petrol stations giant.

EG’s founders, Mohsin Issa and his brother Zuber, jointly own both that business and Asda with TDR Capital, a London-based private equity firm.

The board appointments could spark speculation that a full merger of EG and Asda is a possibility, although that is not thought to be a short-term option for the shareholders.

Bank of England Governor Andrew Bailey has said he did not believe that stablecoins were likely to evolve into a form of safe, regulated money, leaving central bank digital currencies as a more likely future for electronic payments.

Bailey told lawmakers in the upper house of Britain’s parliament that “we have two choices” surrounding electronic payments:

“Is it going to evolve to some world of (asset-) backed stablecoins which has money-like features which could be regulated? I must say ... I am sceptical about that.

“Or ... is the better contribution, particularly to financial stability, to say the better alternative to that may be a central bank currency of digital form?”

Bailey is testifying to the House of Lords Economic Affairs Committee, as part of its inquiry into the future of digital payments (thanks to Reuters for the quotes).

Earlier this month, the BoE and the Treasury said they would hold a formal consultation next year on whether to move forward on a possible central bank digital currency (CBDC), although it wouldn’t be launched until the second half of this decade at the earliest.

Here are more highlights:

Deputy governor Sir John Cunliffe also spoke about the move towards digital money:

Updated

In the energy world, Bulb customers been reacting to the collapse of their energy supplier yesterday.

Some are dismayed, but a significant number also described how the quality of the firm’s customer service had fallen away in recent months.

Emma, a 32-year-old marketing executive from London, was unhappy at the news administrators had been appointed.

“I’ve been a Bulb customer for nearly four years and have always been incredibly impressed by their customer service and ease of use of their website and app … I dread being taken on by another provider now, as I know the customer experience won’t be as good.”

Rob, a 31-year-old researcher from Yorkshire, who had switched to the firm in part because it offered green electricity, was equally disappointed.

“I’ve always found Bulb to be very good. On the rare occasion I’ve needed to speak to them, customer services has been very good and issues have been resolved quickly.”

However, other readers reported doing battle with the company in recent months after it tried to up their direct debits, seemingly in an attempt to improve its cash position.

Clare, who described herself as an author, wrote:

“Ten days ago they contacted us to say our account was £17 in debit so they were doubling our monthly electricity payment to £230. There was no explanation, justification or right to appeal. I have so many friends whose payments were doubled in the past few weeks that it’s clear that Bulb was using customers as a cash-cow to make up for not being able to secure finance to stay afloat.”

More here:

Tax expert Richard Murphy, meanwhile, has been looking into Bulb’s accounts, which show how it made losses in 2019 and 2020, as its turnover and customer numbers grew.

He concludes that a company with such “a weak balance sheet”, even before recent wholesale energy price rises, shouldn’t have been allowed to grow so large (to become the UK’s 7th-largest supplier, with 1.7m customers.).

Murphy writes:

In itself this appeared to be a crisis that was always in the making.

And, yet again, it has to be said that accounting, accounting standards, accounting regulators, auditors and audit regulation have failed with the tab being picked up by society at large.

Murphy concludes that a persistent belief that markets can deliver better outcomes than any other supply mechanism runs though recent audit failures.

It is abundantly clear that this assumption is wrong, and not just with regard to energy, where Bulb is just the latest of many companies to fail, albeit that it is by some way the largest. That assumption also applies to the supplier of audit services.

Whether the market can now be relied upon to really deliver audit services of the quality that society needs is a question that has to be asked however uncomfortable that might make my own profession and this government feel. It would appear that the time for radical reform has arrived.

Here’s a full explanation of Bulb’s failure, from our energy correspondent Jillian Ambrose:

Updated

A currency exchange shop, in Ankara, Turkey, today.
A currency exchange in Ankara, Turkey, today. Photograph: Burhan Özbilici/AP

Updated

Back to Turkey, and the lira is still suffering a very severe tumble, down around 10% today at around 12.6 lira to the US dollar.

Brad Bechtel of investment bank Jefferies says the currency is in freefall, and thus likely to fall further:

The spark for the move seems to be Erdoğan’s speech in which he declared an ‘economic war of independence’ and praised recent interest rate cuts.

The central bank is a puppet of the government at the moment, inflation is running at 20% year-on-year and you have Erdoğan at the controls, which means that even at 12.75 we are likely not even close to done with this move yet.

The day that’s been coming for months has finally arrived, says Craig Erlam of trading firm OANDA:

Three large rate cuts, the prospect of another next month, a complete disregard for inflation and a spineless Governor that’s happy to be the President’s puppet on an issue in which he clearly has no experience.

The lira has “spiralled out of control”, and the time for desperate measures has finally arrived, Erlam adds:

Unfortunately for Governor Şahap Kavcıoğlu - although entirely deservedly - that will likely mean, either today or some point in the near future, being thrown under the bus.

This is the reality of Erdoğanomics and the results are there for all to see. Sky high inflation and a currency that’s fallen more than 30% against the dollar since the start of September. Another disastrous experiment at blurring the divide between poor politics and weak monetary policy.

US retailer Best Buy has reported that organised theft is hitting its profits.

The American consumer electronics retailer posted a drop in gross profit margins for the last quarter, despite beating analyst estimates for third-quarter sales and profits.

Profit margins were hit, it says, by worsening organised retail crime, alongside a jump in promotional activity and costs associated with its new TotalTech membership program.

CNBC has more details:

Best Buy CEO Corie Barry said Tuesday that rising theft is hitting the company’s profits and could hurt employee retention at a time when the labor market is tight, especially in the retail industry.

She said the retailer has seen a noticeable jump in organized crime, with people coming to stores to steal consumer electronics — and in some cases, bringing a weapon like a gun or a crowbar. She said the company will prioritize the safety of customers and employees, even if that means criminals are running out of the door with thousands of dollars of merchandise.

“These are traumatic experiences and they are happening more and more across the country,” she said on CNBC’s “Squawk on the Street.”

Shares in Best Buy have tumbled by 17% in morning trading.

Over in New York, shares in videoconferencing company Zoom have tumbled by around 15% in early trading after it reported slowing sales growth last night.

After stunning growth early in the pandemic, Zoom may find it harder to maintain the pace as more people return to the office.

Mark Crouch, analyst at investment platform eToro, says:

“The pandemic transformed Zoom from a relatively obscure company in a niche area of the market into one that has become synonymous with business communications. Such was its breakneck growth that ‘to Zoom’ someone has become a widely accepted verb to describe video calling someone.

“However, the problem with runaway successes such as Zoom is that they eventually run out of steam. While the San Jose-based firm beat consensus earnings and revenue growth estimates for its fiscal third quarter, the firm has predicted a dramatic slowdown in growth.

“While revenue grew an impressive 35% year-on-year in Q4, that is significantly slower than the 54% growth reported in the previous quarter – and the firm predicts further slowing now that many companies have adopted its software and bought subscriptions.

Zoom’s shares are now down almost 40% so far this year, but still around three times higher than in January 2020, before the first lockdowns.

The lira has recovered a little of its heavy losses, as Bloomberg reports that president Erdoğan has met with Turkey’s central bank chief.

They say:

Turkish President Recep Tayyip Erdogan has met central bank Governor Sahap Kavcioglu as the lira suffered a massive selloff and plunged to a new record low on Tuesday, according to an official with direct knowledge of the matter.

The official, who didn’t elaborate on what was discussed in the meeting, was speaking on condition of anonymity as it wasn’t officially announced. The bank and the presidency both declined to comment.

The latest collapse in the lira came after Erdogan defended his demands for lower borrowing costs that have driven up prices and frustrated investors.

They complain monetary policy is becoming increasingly irrational and unpredictable in a country where the president’s influence runs deep. While most central banks are talking of tightening policy as the global recovery fuels inflation, Turkey has slashed 4 percentage points off borrowing rates since September.

The lira is now trading at 12.5 to the US dollar, still down 9% today, on track for a record daily low.

Here’s CNBC’s take:

Turkey’s lira crashed to a record low of 13.44 to the dollar on Tuesday, a level once unfathomable and well past what was just last week deemed the “psychological” barrier of 11 to the dollar.

“Insane where the lira is, but it’s a reflection of the insane monetary policy settings Turkey is currently operating under,” Tim Ash, senior emerging markets strategist at Bluebay Asset Management, said in a note in response to the news.

The Financial Times says the Turkish lira has “suffered a historic retreat” after President Recep Tayyip Erdoğan praised last week’s interest rate cut and declared that his country was fighting an “economic war of independence”.

The currency, which is down 45% against the dollar this year, plunged as much as 15% on Tuesday — a drop that eclipsed even Turkey’s currency crisis of 2018 — and broke through the symbolic threshold of 13 to the dollar after Erdogan used a combative speech to expound his vision for the country’s economy.

“It’s like a horror film,” said Enver Erkan, an analyst at the Istanbul-based Terra Investment, adding that it was hard to say how much further the currency would plunge given that policymakers appeared willing to simply let it fall.

“This is the inevitable consequence of Erdogan’s war on rates,” said Uday Patnaik, head of emerging market debt at Legal & General Investment Management.

“The thing that would stop the freefall is some sign of an independent central bank in Turkey. But there’s not much prospect of that. Erdogan’s the type of guy who likes to keep doubling down.”

More here.

Victoria Scholar, head of investment at interactive investor, says the lira’s tumble shows the importance of an independent central bank, and echoes Turkey’s currency crisis three years ago:

The nonsensical dynamics between the lira, inflation and interest rates highlights the importance of an independence central bank with a mandate to keep price rises at bay.

With a president who is heavily against higher interest rates, Turkey is suffering from 20% inflation, making goods and services considerably more expensive for its citizens adding to an already challenging economic backdrop. The lira continues to suffer, slumping by more than 30% against the greenback since the start of the month, setting the stage for its biggest one-day drop since March.

In a speech President Erdogan said Turkey was fighting an ‘economic war of independence’, pressuring the lira, which was already at an all-time low.

Last Thursday Turkey cut its one-week repo rate by one percentage point to 15%, the third cut in a row from 19% at the start of September. The puzzling shift towards looser monetary policy is exacerbating an already troublesome picture for inflation and echoes Turkey’s currency crisis from 2018.”

The Turkish lira was “in freefall” today, says Jason Tuvey, senior emerging markets economist at Capital Economics.

Tuvey warned that the lira faces further losses as policymakers remain ‘defiant’ about the currency’s weakness, following recent interest rate cuts.

The Turkish lira has plunged this morning after President Erdogan signalled yesterday that policymakers have no appetite to respond to the currency’s recent falls by hiking interest rates.

Further falls in the lira are likely to lie in store and we think that it will probably take the emergence of severe strains in the banking sector before policymakers respond with aggressive policy tightening. We aren’t there yet.

The Turkish lira exchange rate
The Turkish lira exchange rate against the US dollar Photograph: Monex Europe

Turkish lira plunges to record low as Erdogan vows victory in ‘economic war’

A money changer holds Turkish lira banknotes at a currency exchange office in Ankara.
A money changer holds Turkish lira banknotes at a currency exchange office in Ankara. Photograph: Cagla Gurdogan/Reuters

The Turkish lira has plunged to a fresh record low today after President Recep Tayyip Erdoğan defended recent interest rate cuts.

The lira has tumbled by over 10% today, hitting 13 lira to the US dollar for the first time, after Erdoğan vowed to win an “economic war of independence”.

That’s down from 9.5 lira/dollar at the start of the month, and around 7 in January.

The lira vs the US dollar this year
The lira vs the US dollar this year (a higher rate shows a weaker lira) Photograph: Refinitiv

The lira went into freefall after Erdoğan last night rejected calls for Turkey to change course.

Erdoğan, a firm critic of high interest rates, insisted the country’s economic policies would focus on investment, production, employment and exports.

“I reject policies that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty.

Last week, Turkey’s central bank cut interest rates from 16% to 15%, under pressure from Erdoğan for lower borrowing costs, even though inflation is now almost 20%.

In October, Erdoğan dismissed three Central Bank of the Republic of Turkey policymakers, two of whom had opposed an earlier rate cut. He also fired central bank chief Naci Agbal back in March, after the CBRT raised rates.

The slump in the lira will make imports more expensive, adding to inflationary pressures.

Ima Sammani, FX market analyst at Monex Europe, says Erdoğan has given a clear signal that recent cuts in interest rates won’t be reversed.

Sammani explains:

For the first time ever, the Turkish lira weakened past the 12.00 level against the dollar after Turkey’s President Recep Tayyip Erdogan defended the CBRT’s policy of lower rates as he prioritises strengthening economic growth and job creation as opposed to slowing down inflation.

This is a stark contrast in tone from the CBRT’s policy statement last week, which outlined that the easing cycle would be reassessed at December’s meeting. For investors, Erdogan’s comments mean one thing: there will be no one there for them when inflation continues to take a toll on their assets.

Given the amount of political pressure that resulted in the CBRT’s decision to cut rates again in November, Erdogan’s comments can largely be seen as abandonment of caution and a sign to markets that the easing cycle is unlikely to end anytime soon. Since last night, the lira weakened by another 8% as Erdogan hammered home the idea that the low rate policy is here to stay. The impact on the lira highlights the little confidence markets have in Governor Kavcioglu’s ability to push back on the political pressure to lower rates, which has been the demise of his predecessors over the past 4 years.

Updated

US to release 50m barrels of oil from reserves

The United States is releasing 50 million barrels of oil from its strategic reserves, in a coordinated attempt to lower the energy costs that have hit the global economy.

The move follows the sharp rise in fuel costs for motorists as crude prices hit multi-year highs last month, with Opec+ resisting pressure to unwind its pandemic production cuts faster.

Associated Press has the details:

The White House on Tuesday said it had ordered 50 million barrels of oil released from the strategic reserve to bring down energy costs, in coordination with other countries including China.

The move is an effort to bring down rising gas prices. Gasoline prices nationwide are averaging about $3.40 a gallon, more than double their price a year ago, according to the American Automobile Association.

The Strategic Petroleum Reserve is an emergency stockpile to preserve access to oil in case of natural disasters, national security issues and other events. Maintained by the Energy Department, the reserves are stored in caverns created in salt domes along the Texas and Louisiana Gulf Coasts. There are roughly 605 million barrels of sweet and sour petroleum in the reserve.

The Biden administration has argued that the supply of oil has not kept pace with demand as the global economy emerged from the pandemic, and the reserve is the right tool to help ease the problem.

The decision comes after weeks of diplomatic negotiations and the release will be taken in parallel other nations including, India, Japan, the Republic of Korea and the United Kingdom, major energy consumers.

The U.S. Department of Energy will make the oil available from the Strategic Petroleum Reserve in two ways; 32 million barrels will be released in the next few months and will return to the reserve in the years ahead, the White House said. Another 18 barrels will be part of a sale of oil that Congress had previously authorized.

White House Press Secretary Jen Psaki said Monday evening that the the White House would also keep tabs on the oil companies, too.

“We will continue to press oil companies who have made record profits and are overseeing what we consider to be price gouging out there when there’s a supply of oil or the price of oil is coming down and the price of gas is not coming down,” Psaki said.

“It does not take an economic expert to know that’s a problem.”

Updated

BoE's Haskel: UK interest rates must rise if labour market stays tight

A Bank of England policymaker has said that UK interest rates will need to rise if the jobs market remains tight, but insisted this would be a ‘feature’ of the recovery, not a bug.

In a speech to the Adam Smith Business School, at the University of Glasgow, Haskel argues a gradual increase in interest rates from their record low of 0.1% would be a return to normal, and would show the UK economy is stronger.

Haskel pointed out that financial markets now expect rates to rise faster than earlier in the pandemic.

Back in October 2020, just before the first successful vaccine trial results from Pfizer, Moderna and AstraZeneca, the market expected negative rates.

Now, investors expect Bank Rate to rise over the coming months, which Haskel says is largely due to the recovery:

In my view, the prospective rise in Bank Rate from its emergency level – whenever that comes - is not a bug, but a feature.

It reflects the success of fiscal, health and science policy in dealing with the worst economic shock in 100 years.

The market-implied path of UK Bank Rate at intervals over the pandemic

The rise in interest rate expectations also follows the surge in inflation to its highest in 13 years, and comments from BoE governor Andrew Bailey that the Bank “will have to act” to curb inflationary pressures.

Today, Haskel points out that much of the rise in inflation is due to outside forces such as energy prices. But he also points to wage pressures, saying:

In my view, if the labour market stays tight, Bank Rate will have to rise.

This tightness is also putting upward pressure on wages, he adds, as firms struggle to hire workers.

From a living standards point of view, this is of course excellent news, but from an inflation point of view this has to be matched by increased productivity and so we have to be vigilant.

The BoE’s monetary policy committee meets again next month, having left interest rates at record lows in November.

Updated

UK property sales halved after stamp duty holiday ended

UK house sales halved in October after the stamp duty tax cut introduced early in the pandemic ended.

New figures from HM Revenue and Customs (HMRC) show there were an estimated 85,090 housing transactions in October, 48.4% lower than in September 2021 and 30% less than a year ago.

HMRC says there was “significant forestalling activity by taxpayers” in September, as homebuyers raced to complete transactions, leading to a cooling in October.

The “impacts from forestalling are particularly evident in England”, it added, where there were 54% fewer house purchases in October than September.

The tax cut on the first £250,000 of a house purchase ended in England and Northern Ireland on 30th September. It had originally covered the first £500,000, before being halved at the end of June (which sparked a record rise in purchases).

The tax break ended in Wales and Scotland earlier this year.

UK residential transactions

Despite the recent sales dip, around 842,250 residential transactions have taken place across the UK during this financial year so far - the highest total in the past decade.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says:

‘Although these numbers are inevitably a little dated as they reflect buying decisions being made several months ago, transactions are always a better indicator of market strength than more volatile house prices.

’They demonstrate clearly the determination of buyers to move, as well as the impact of the stamp duty holiday, and explain why the numbers have reduced so significantly.

‘Looking forward, we are still seeing on the ground plenty of demand and enthusiasm to take advantage of low interest rates while they last but there is some softening in prices, even though the stock shortage remains.

Analysis by property agent Savills today shows that the stamp duty holiday, introduced by chancellor Rishi Sunak, has worked out as £6.4bn tax break for homebuyers in England.

Roughly half the savings went to those who bought properties worth more than £500,000, they say. More here.

Updated

Getir’s deal to acquire high-speed grocery delivery rival Weezy is “a clear symbol of the disruption which has taken place within convenience goods retailing” in the pandemic.

So says Sarah Riding, retail and supply chain partner at the law firm Gowling WLG:

While cost margins are higher for customers using these services, their flexibility around availability and range are something the bigger players should be competing with more readily – it will be interesting to see how this transpires as the sector scrabbles to meet new types of demand.”

Updated

Deal news: The high-speed grocery delivery firm Getir has signed a deal to acquire UK rival Weezy.

A swathe of these ‘ultrafast’ delivery firms have hit the streets in some cities since the first pandemic lockdowns, letting people order a range of groceries such as wine, milk and snacks to their doors in minutes.

Back in June, Getir was valued at more than $7.5bn after raising $550m to fund expansion moves, and recently moved into the US.

It says that today’s deal follows a “rapid expansion plan” which began in London in January 2021.

Now operating in 15 cities and towns including Manchester, Birmingham and Liverpool, the acquisition of Weezy further solidifies Getir’s long-term commitment to the UK market.

George Nott of The Grocer tweets:

UK firms have been hit by the sharpest surge in costs in at least two decades.

Rising wages, and more expensive fuel, energy and raw materials, all pushed up input costs at the fastest rate since data firm IHS Markit started tracking this in January 1998.

Around 63% of UK private sector companies said their average cost burdens had increased this month, while only 1% reported a drop in costs.

Factories passed this onto consumers, with the prices charged by manufacturers increasing at the steepest rate since the index began 20 years ago, the latest PMI survey shows.

But service providers reported a slight slowdown in this ‘output charge inflation’, with some finding their clients were pushing back against price rises.

Markit’s survey of UK purchasing managers also found that customer demand continued to rise sharply in November, with new order growth accelerating to a five-month high.

Although manufacturing growth picked up this month, the sector is still growing slower than the services sector, as factories face severe shortages of materials and staff.

Duncan Brock, group director at CIPS, explains:

“Growth in private sector business continued in November, with a reversal of fortunes between the sectors still evident as services stormed ahead fuelled by consumer spending on hospitality but manufacturing progress was held back by supply chain snags.

Another survey record of rising costs for fuel and wage demands led to the highest inflationary pressures since January 1998 as 63% of supply chain managers paid more for their materials.

Shortages of staff and production stoppages due to a lack of supplies added to frustrations in the manufacturing sector as some machines fell silent.

Covid-19 infections knock eurozone business confidence

Europe’s Covid-19 surge has pushed confidence among European businesses down to its lowest level since January.

The latest survey of purchasing managers from across the eurozone shows that expectations have fallen this month, to a ten-month low.

Ongoing concerns over supply chain issues were exacerbated by growing worries about the impact of further COVID-19 waves, which darkened the outlook for services in particular, says data firm IHS Markit, which compiles the report.

Chris Williamson, chief economist at Markit, warned that the rise in virus cases look set to cause renewed disruptions to the economy in December too, adding:

“Not surprisingly, given the mix of supply delays, soaring costs and renewed COVID-19 worries, business optimism has sunk to the lowest since January, adding to near-term downside risks for the eurozone economy.”

More encouragingly, business activity growth accelerated in November having slipped to a six-month low in October, the survey shows. This lifted the eurozone flash PMI to 55.8, up from 54.2, showing faster growth.

But firms input costs and their average selling prices both rising at record rates. That suggests inflationary pressures are also picking up, squeezing households and firms this winter.

AstraZeneca CEO: Europe's Covid spike could be linked to not using our vaccine in older people

Pascal Soriot, chief executive of AstraZeneca.
Pascal Soriot, chief executive of AstraZeneca. Photograph: Brenda Goh/Reuters

The chief executive of AstraZeneca has said it was possible that the current spike in coronavirus in Europe was linked to governments’ decision not to use the company’s Covid-19 vaccine in older people.

After a German newspaper report that turned out to be false, there was doubt over the effectiveness of AstraZeneca’s vaccine in older people, and several European governments initially chose not to use it in those over 60 or over 65.

Germany, for example, then overturned its earlier verdict and approved the vaccine for the over 65s in March after further studies showed it was safe and effective. Public confidence in the jab was also eroded when a rare link with blood clots emerged.

Public confidence in the jab was eroded, also when a rare link with blood clots emerged.

Pascal Soriot, the AstraZeneca CEO, insisted he had no regrets on the vaccine as the company unveils a £1bn research and development (R&D) centre in Cambridge, the biggest science lab in the UK and the largest investment AstraZeneca has ever made.

Speaking on BBC Radio 4’s Today programme, Soriot explained that Covid-19 vaccines did two things: stimulate an antibody response, and a T-cell response.

“The T-cell response takes a little longer to come in, but it’s actually more durable, it last longer, and the body remembers that longer,” he said.

“Antibodies decline over time....What remains, and is very important, is this T-cell response.

You may be infected but then they come to the rescue and you don’t get hospitalised.”

Soriot added that this might explain why the UK has seen relatively fewer hospitalisations in the current wave of Covid-19:

“In the UK, there was a big pickup in infections but not so many hospitalisations relative to Europe.

In the UK, this vaccine was used to vaccinate older people, whereas in Europe initially people thought the vaccine doesn’t work in older people.

[Explainer: AstraZeneca’s vaccine, developed at Oxford University, used a modified adenovirus with the Covid-19 spike protein to induce an immune response.

Other vaccines, such as Pfizer’s, use mRNA technology with the genetic instructions for the vaccinated person’s own cells to produce the vaccine antigens].

Q: So could there be a link between the rise in cases and hospitalisations in Europe, and the fact that AstraZeneca’s vaccine wasn’t used in older people there?

Soriot replies:

“T-cells do matter and in particular it relates to the durability of the response especially in older people and this vaccine has been shown to stimulate T-cells to a higher degree in older people.

We haven’t seen many hospitalisations in the UK, a lot of infections, for sure. But what matters is: are you severely ill or not? Are you hospitalised or not?

Q: And that could be because the AstraZeneca vaccine was used among older people in the UK?

Soriot says more data is needed to know the answer:

“It could be, but there’s no proof of anything. We need more data to analyse this and get the answer.”

Prince Charles will formally open AstraZeneca’s R&D facility on Tuesday, as the company aims to speed up its development of new pharmaceutical products.

It will house more than 2,200 research scientists, and is one of AZ’s three major R&D centres along with one in the US and one in Gothenburg, Sweden. The Anglo-Swedish drugmaker, Britain’s biggest pharmaceutical firm, invests more than $7bn in R&D globally each year, a large part of which takes place in the UK.

AstraZeneca was one of the few vaccine makers to sell its jab at cost price, but is now signing commercial contracts for next year, in a shift away from its not-for-profit pricing.

Oxford professors Sir Andrew Pollard and Brian Angus have today called on governments with vaccine doses to spare to make every effort to ensure they urgently reach people who are undecided and unvaccinated:

Updated

European stock markets hits three-week low as Covid-19 cases rise

Stock markets across Europe have dropped to their lowest level in three weeks, as fears over pandemic lockdowns increase following the jump in infections.

The pan-European Stoxx 600 index has tumbled 1.5% this morning, on track for its worst day in almost two months.

Europe’s Stoxx 600 index
Europe’s Stoxx 600 index Photograph: Refinitiv

After Austria’s full lockdown, which began on Monday, there are concerns that other European countries such as Germany and the Netherlands could also be forced to implement new restrictions.

Jim Reid, strategist at Deutsche Bank, says the surge in Covid-19 cases in Europe is being watched closely by investors:

The move by Austria back into lockdown has raised questions as to where might be next, and Bloomberg reported that Chancellor Merkel told CDU officials yesterday that the recent surge was worse than anything seen so far, and that additional restrictions would be required.

So the direction of travel all appears to be one way for the time being in terms of European restrictions, and even a number of less-affected countries are still seeing cases move in an upward direction, including France, Italy and the UK. So a key one to watch that’ll have big implications for economies and markets too.

Richard Hunter, Head of Markets at interactive investor, warns that AO World is in “a parlous position” after downgrading its revenue and earnings projections today.

The well-publicised supply chain disruptions have had a severe impact, with a shortage of delivery drivers a particular issue. At the same time, the group’s foray into the German market is not only in the early stages of establishing the brand, but is also being faced by significantly increased competition.

This in turn has necessitated an investment in systems and people (especially drivers) and increased marketing costs in Germany which have driven a bus through previous projections. Adjusted earnings have declined by 84% over the last year, with the figure of £5 million comparing to an estimate from the company itself of between £35 million to £50 million just weeks ago. Net debt has also seen the effects of the investment, now standing at £102 million compared to £21 million a year previous. The resultant loss before tax of £10 million compares to a profit of £18 million in the corresponding period last year.

Nor does the current situation appear to be easing. The company is anticipating poor availability in some categories for the second half as well, alongside ongoing supply issues, an increase in raw material prices and general inflationary pressures. As such, the company is expecting a much softer peak trading period than previously expected, with full-year revenue likely to be flat to minus 5%.

Shares in AO World have tumbled around 27% at the start of trading, after it cut its profit forecasts.

They’ve fallen to their lowest since May 2020, at around 90p, having traded over £4 at the start of this year.

AO World’s share price
AO World’s share price Photograph: Refinitiv

Products such as gaming consoles and mobile phones - which are newer territory for AO than its traditional staples such as washing machines and fridge-freezers - were more likely to be affected by shortages, explains Sky News.

Some early City reaction....

AO World’s chief executive, John Roberts, says the company has tackled some of its supply chain problems, including hiring 500 new drivers to transport goods.

“Our results over this period have inevitably been affected by the constraints and uncertainty seen across our industry. We’ve materially cemented the progress of last year, with a step change in scale and consumer behaviour - and the fundamentals of the business are in place for sustained growth.

“We’re seeing more customers making repeat purchases more frequently across categories. Once they experience the AO Way, they keep coming back. Our outstanding operational capabilities are also being recognised by more and more companies who are now outsourcing their delivery services to us.

“We’re working hard to solve some of the current challenges that our industry is facing. We’ve recruited c.500 new drivers and are working closely with our manufacturer partners so that customers can get what they need.

Introduction: AO World slashes profit forecasts amid supply chain woes

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

Britain’s supply chain crisis continues to hit UK retailers as the crucial Christmas shopping period approaches.

AO World, which sells electrical goods online, has cut its profit forecast for the second time this autumn, blaming the disruption in the global supply chain, rising costs, and problems obtaining some products.

With Black Friday just days away, AO World’s problems highlight the ongoing impact of product shortages, rising prices and problems shipping goods around the world and into the UK’s congested ports.

The company had been a lockdown winner as people shopped from home in the pandemic, boosting AO’s sales of items such as laptops, mobile phones, washing machines and printers.

But today, it tells shareholders that it still faces ‘meaningful’ supply chain challenges.

At the start of our financial year in April, we planned for continued revenue growth and built up our cost base accordingly. However, since then, growth in the UK has been impacted by the nationwide shortage of delivery drivers and the ongoing disruption in the global supply chain, and the German online market has seen significantly increased competition.

As we now look to the second half, we continue to see meaningful supply chain challenges with poor availability in certain categories, particularly in our newer products where we have less scale, experience and leverage. In addition, shipping costs, material input prices and consumer price inflation remain challenging uncertainties.

As a result of these factors, the all-important current peak trading period is significantly softer than we anticipated only eight weeks ago.

AO World now expects to make adjusted profits of between £10m to £20m this year, down from the £35m-£50m forecast eight weeks ago. Group revenues could fall by up to 5% this year, it says.

This is the second warning from AO World in less than two months. At the start of October, the firm slashed its forecasts as supply chain problems hit the company.

AO World also reports that revenues in the first half of the financial year, to 30th September, were 6% higher than the previous year -- and 67% above pre-pandemic levels.

But the firm has made a pre-tax loss of £10m in H1, down from an £18m profit a year before, with adjusted profits shrinking to £5m from £28m a year ago.

AO World’s interim financial results
AO World’s interim financial results Photograph: AO World

Also coming up today

We find out how much damage the supply chain crisis is causing to other companies later today, when the latest ‘flash PMI’ surveys of purchasing managers are released.

They are likely to show that eurozone companies slowed as Covid-19 infections have risen this autumn.

Michael Hewson of CMC Markets explains:

The risk of a slide back into economic contraction is rising with each passing day, and that in itself is feeding into a weaker euro, and while today’s flash PMIs from Germany and France are likely to point to still fairly decent levels of economic activity, they have been heading in the wrong direction for several months now.

In manufacturing both France and German economic activity is expected to slow to 53.1, and 56.9 respectively, while in services we can also expect to see a similar softening to 55.5 for France and 51.5 in Germany.

The UK PMIs are likely to be stronger though, Hewson adds:

The UK, on the other hand by opening up earlier, and seeing infections stay constant at a higher level through the summer, may well have played a blinder in building up a more resilient wall of immunity, along with the booster program, as the weather gets colder. That’s not to say that the strategy might not still go pear-shaped, but in terms of economic activity we haven’t seen the type of drop off being seeing in Europe.

Today’s November flash PMI numbers are expected to see manufacturing slow modestly to 57.3, from 57.8, while services, which saw a decent jump in October to 59.1, from 55.4, is set to fall back to 58.5.

Elsewhere, UK energy supplier Bulb Energy is being placed into an untested bailout process that will rely on public money to manage the biggest collapse yet in the energy crisis.

The company will be handed to a “special administrator” that will have access to government funds to keep it running to supply gas and electricity to its 1.7 million household customers.

The agenda

  • 9am GMT: Eurozone flash PMI survey of manufacturing and services for November
  • 9.30am GMT: UK flash PMI survey of manufacturing and services for November
  • 11am GMT: BoE policymaker Jonathan Haskel gives a talk at the Adam Smith Business School “High inflation now and then”
  • 2.45pm GMT: US flash PMI survey of manufacturing and services for November
  • 3pm: House of Lords Economic Affairs Committee takes evidence on central bank digital currencies (CBDCs) from the Governor of the Bank of England, Andrew Bailey.

Updated

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