Lunchtime summary
A quick roundup of what’s happened so far today:
- China cuts tariffs on 1,717 US goods worth billions of dollars, helping to boost market confidence amid the coronavirus outbreak
- European shares hit a new record high in the wake of the announcement
- But Royal Mail shares fell to a new record low after warning it may not be able to meet its three year targets, and said 2020 would be a “challenging year”
- Carmaker Toyota raised its profit forecasts – but hasn’t factored the impact of the coronavirus into its earnings projections
- The UK government launched a consultation on Britain’s post-Brexit tariff schedules. There are plans to remove levies on products that are used by key manufacturing industries and those where the UK has no domestic production
- Twitter shares jumped in pre-market trading after ite quarterly revenues breached $1bn for the first time
Twitter logs $1bn in quarterly revenue for the first time
Twitter shares are up 6% in pre-market trading after releasing fourth quarter and annual earnings figures for 2019.
Some highlights:
- Revenue was up 14% at $3.46bn, year-on-year
- Fourth quarter revenue also pushed past the $1bn mark for the first time
- Annual net income increased to $1.47bn, up from $1.21bn a year earlier
The company also said it’s continuing to expand and will grow headcount by 20% or more in 2020. They ended the year with 4,800 employees so that would be roughly 960 new staff.
Twitter tops expectations with first $1 billion quarterly revenue, but outlook lags https://t.co/RCdAFGnKmz by @eculliford $TWTR pic.twitter.com/3BZMAydI4w
— Reuters (@Reuters) February 6, 2020
Updated
The FTSE 100 is still holding above 7,500 (at least by 13 points or so).
It’s being helped in part by the weaker pound which is down 0.3% against both the euro and US dollar.
The FCA’s letter to investment platforms CEOs can be read in full here.
The Financial Conduct Authority has written to CEOs of investment platforms, warning that they must be “impartial” when putting together Best Buy lists for customers.
The “Dear CEO” letter touches on a number of issues including conflicts of interest:
If not appropriately identified and managed, conflicts of interest can lead to customers receiving poor value for money and / or products and services that are unsuitable for their needs.
We expect you to identify all potential conflicts of interest and to have processes in place to effectively manage them.
Firms operating Best Buy lists must construct them impartially and manage conflicts e.g. preference for funds offering discounts over formal and objective criteria, lack of independence of research teams and associated governance.
Processes for clear selection, monitoring and deselection of funds on lists should be documented, understood and followed.
You may remember how much criticism Hargreaves Lansdown attracted for having listed Neil Woodford’s flagship Equity Income Fund on its Wealth 50 list of favourite investments, despite concerns about the size of his investments in smaller and unlisted companies, which are harder to sell. Hargreaves said in the months later said it was aware of the fund’s underperformance but kept it on the list in the hope it would bounce back.
The Woodford Equity Income Fund is now being liquidated, but the whole debacle has focused minds on regulation of the fund industry and investment platforms that promote them to retail investors.
A quick catch-up on Christine Lagarde, who was speaking in the European parliament. Nothing ground-breaking.
The European Central Bank boss said that growth remains modest but there are tentative signs of stabilisation, even if the coronavirus outbreak in China clouds the horizon, she said.
ViaReuters: The ECB has maintained ultra-easy policies for years to boost growth and Lagarde said this support was still needed to shield the currency bloc from global headwinds.
While uncertainties surrounding the global economic environment remain elevated, those related to trade tensions between the United States and China are receding.
The Scottish government’s budget will take place after midday, and will be led by Kate Forbes, the Scottish public finance minister.
She replaces Derek Mackay, who resigned this morning as finance minister over texts to a 16-year-old boy.
At mid-morning the European stock rally has lost some of its momentum.
The FTSE 100 and the mid-cap FTSE 250 are both up by about 0.2%, while Germany’s Dax and France’s Cac 40 have gained about 0.6% apiece.
That has weighted down the Euro Stoxx 600, which has fallen back from the record highs.
Some good news for 70,000 customers of Nationwide, the UK’s largest building society, which has failed to warn customers of impending charges for the second time in six months.
Nationwide will pay back £900,000 to 70,000 customers after it failed to warn them about unarranged overdrafts, breaching banking rules. It did send text alerts, but these did not contain a warning that customers would be charged.
The majority of customers will be refunded by 27th March, with the rest completed by 29th May, according to a letter sent out by the Competition and Markets Authority.
Trade wonk news: the government has launched its consultation on Britain’s post-Brexit tariff schedules, with plans to remove levies on products that are used by key manufacturing industries and those where the UK has no domestic production.
The four-week consultation (to close on 5 March) will likely be the target of intense lobbying, as manufacturing industries in particular try to secure cheaper materials and components.
The new tariff schedule will kick in on 1 January 2021, confirming a move away from the EU’s common external tariff, the Department for International Trade said.
Among the plans outlined in a brief consultation document are removing “nuisance” tariffs of less than 2.5%, having standardised bands, as well as the industry-specific cuts.
And watch out on the farming front: there are plans for “steps towards agricultural tariffs that are applied as single percentages”.
As an independent trading nation, we will have a new UK Most Favoured Nation (MFN) tariff schedule which will enter into force on 1st January 2021.
— Liz Truss (@trussliz) February 6, 2020
The UK Global Tariff will be simpler and suit 🇬🇧 priorities.
Contribute here👇https://t.co/29YENHsJMG
And that oil price data for you: Brent crude futures have gained 0.6% to reach $55.60 per barrel – although they have retreated somewhat from the levels above $56.50 hit in the early morning.
The price of futures for West Texas Intermediate, the North American benchmark, have held on to more of their gains: one option will set you back $51.39, a gain of 1.3% for Thursday.
Oil prices have continued to rally from lows hit earlier in the week, as investors weigh whether the hit to demand has been fully priced in, and producers near agreement on output cuts.
A meeting of Opec as well as Russia could result in a deal today to cut back on production, sustaining prices, Reuters reports:
An Opec+ technical committee may reach consensus on Thursday on the need to further cut oil output by at least 500,000 barrels per day in response to the coronavirus’ impact on energy demand and global economic growth, two sources told Reuters.
The so-called JTC panel has extended its meeting for a third day into Thursday after Russia voiced its opposition to a deeper supply cut and was instead suggesting an extension of current cuts.
Talks between experts from OPEC and its allies spilled into an unprecedented third day. Maybe I’m over thinking it but perhaps their trying to buy time to stabilise price as rest of market is rallying. Whilst meeting is on people will be reluctant to be sat in a short position pic.twitter.com/ez2qOBnriH
— Anthony Cheung (@AWMCheung) February 6, 2020
Carmaker Toyota has bucked the recent trend and raised its profits forecasts – but the Japanese carmaker acknowledged that coronavirus had not yet been factored in on its earnings.
Toyota raised its annual operating profit forecast by 4.2% on favourable currency rates and better-than-expected vehicle sales, despite warning that there would be an impact on sales for the world’s second largest carmaker.
Carmakers are among the hardest-hit companies because Wuhan, the city where the outbreak is believed to have originated, is a key automotive hub. Supply chains stretching around the world have been affected, and sales are expected to fall off a cliff until the epidemic stops.
Toyota operating officer Masayoshi Shirayanagi told a news conference (via Reuters):
We are looking very closely at inventories of components which are made in China and used in other countries, including Japan, and at the possibility of alternative production.
*Refresh your page to see a correction to a previous post.
Derek Mackay, Scotland’s finance secretary, has resigned only hours before he was due to deliver next year’s budget after revelations that he texted a 16-year-old boy.
Quite a scoop from the Scottish Sun, which published a long list of text messages Mackay, 42, sent the teenager, calling him “cute”, discussing his new haircut and inviting him to dinner and to accompany him to a parliamentary event as his guest.
We’ll bring any updates we can about what will happen to that budget. You can read the full story here:
Updated
Royal Mail shares hit record low after warning of 'challenging' year
Another bad day in the torrid tale of Royal Mail since privatisation: shares hit a new record low after it warned that 2020 will be “challenging”. It’s down by 8%.
Royal Mail said its outlook for the next fiscal year is “challenging” and the threat of a strike in late 2019 hurt parcel revenue growth during the Christmas period as customers opted to use other carriers.
Unless we are able to make significant progress in delivering our transformation plan, our ability to meet the year three targets of our Journey 2024 plan will be compromised.
Last May, it pledged to invest £1.8bn in a five-year turnaround plan as it tries to adapt to a world reliant on online parcel deliveries, amid declining use of letters.
Today’s low was 168.05p for a share, compared to a 330p float price back in 2013. The privatisation was criticised for not achieving a good enough price for the taxpayer, with shares hitting 632p at one point. Since that high in 2018 the decline has been a precipitous 72%.
*This post has been corrected. Royal Mail’s float price was 330p, not 420p as previously stated. Shares opened at 420p on its first day of trading. Apologies for the error. JJ
Updated
European shares hit new record high
And European shares follow their Asian counterparts in rising, setting a new record for the Euro Stoxx 600 index.
The index, which tracks the largest companies in the UK and European stock exchanges
The FTSE 100 is up 0.6% in the very opening exchanges, with no standout individual performers. The FTSE 250 has gained 0.7%.
France’s Cac 40 gained 0.8% at the open, while Germany’s Dax gained 0.7%.
China cuts tariffs on goods worth billions of dollars
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
China has said it would halve additional tariffs levied against 1,717 US goods last year, in a move that has boosted markets in Asia that have been under pressure since the start of the coronavirus outbreak.
The products benefiting are part of $75bn of goods on which China imposed tariffs worth between 5% and 10% in September as part of a tit-for-tat trade war with the Trump administration.
Analysts said that the tariff cut is partly a move by Beijing to boost confidence amid an outbreak that has disrupted businesses in China’s core manufacturing regions and hit investor sentiment. 560 deaths had been reported so far on Thursday morning in China.
And the reaction was strong on Asian markets, with the CSI 300 index, which measures the biggest stocks on Shanghai and Shenzhen exchanges, rising by 1.86%. The Shanghai Stock Exchange Composite index rose by 1.72%, stocks in Hong Kong rose by 2.4%, and the Japanese Topix index gained 2%.
Risk-on mood in global markets has stepped up a gear as worst of coronavirus fears seems being behind us. US politics, solid econ data & China tariff cuts announcement fire up mood. Global stocks now back within 1% of ATH. Bonds lower w/US 10y at 1.66%. Gold 1558, Bitcoin $9.7k. pic.twitter.com/Eyn5VbwK1u
— Holger Zschaepitz (@Schuldensuehner) February 6, 2020
The tariff cuts, that will come into effect on 14 February, Valentine’s Day, come after the signing of a Phase 1 trade deal that brought a truce to a bruising trade war between the world’s two largest economies.
Analysts at Deutsche Bank led by Craig Nicol said:
It shouldn’t be surprising news as this comes after both nations had agreed in Phase 1 negotiations that they would reduce tariffs on each other’s goods as part of the deal
Deutsche Bank’s forecasters predict Chinese GDP growth will be 5.8% this year, 0.3 percentage points lower than previously forecast. The virus will also knock 0.2 percentage points off global GDP this year, they estimate.
Elsewhere, German factory orders slumped much more than expected in December.
Data published this morning showed that orders declined by 2.1%, compared to the 0.6% rise expected by economists. And of course this is before the effects of the coronavirus outbreak, which is almost certain to dent the profits of major exporters such as Germany’s premium carmakers who sell a large proportion of their products to China.
The implications are not pretty for carmakers anywhere, in fact. For instance, it comes at just the wrong time for struggling Aston Martin, even after a bailout deal was agreed...
The agenda
- 8am GMT: European Central Bank speech by Christine Lagarde
- 9am GMT: European Central Bank economic bulletin
Updated
