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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK retail sales slump; Goldman hints at Frankfurt move – as it happened

Buchanan Street in Glasgow, Scotland.
Buchanan Street in Glasgow, Scotland. Photograph: Jeff J Mitchell/Getty Images

And finally, here’s Joshua Mahony of IG to sum up th day:

Early losses have been partially erased throughout European equities today, after a sharp Catalonia driven selloff was largely pushed aside, with traders seeing the government’s decision to invoke article 155 as a positive for economic and political stability. While the potential for further Catalan protest means a degree of uncertainty remains, today’s actions have allayed much of the market fears, driving the euro higher throughout the day.

UK consumers continue to experience a tough time of it recently, with pressure from all sides reducing the amount of disposable income available for households. Today’s fall in retail sales comes as no surprise given this week’s inflation data, with CPI rising to 3.0%, paving the way for a continued deterioration in real incomes as the year progresses. With wages failing to keep up with inflation, and many mortgages due to rise in the event of a November rate rise, the continued deterioration in retail sales is a product of an economic squeeze on UK consumers, at a time when confidence remains depleted.

That’s all for tonight. Thanks for reading and commenting. GW

The Catalonian independence struggle has taken another twist today, with the Madrid indicating it will trigger article 155 of Spain’s constitution, a move that would suspend the region’s autonomy.

Here’s our latest report on a saga that is causing tensions in the financial markets.

European stock market close

European markets have closed for the night, with small losses across the board.

The FTSE 100 lost 0.3%, amid worries over the UK retail slowdown and underwhelming results from Unilever this morning.

There were deeper falls on other indices, as Spain’s government moved closer to taking direct control of Catalonia.

It was rather worse 30 years ago.....

A UK government spokesperson has responded to Blankfein....

I’m disappointed they didn’t defend the coded attack on Britain’s weather....

Here’s our news story about Lloyd Blankfein’s Brexit intervention:

America’s jobs market remains in rude health.

Just 222,000 US citizens filed new claims for unemployment benefit last week, new figures show. That’s the lowest since 1973.

It follows a spike as firms were disrupted by the hurricanes that smashed their way through several US states in recent weeks (also causing massive damage in the Caribbean).

The New York Stock Exchange.

Over in New York, Wall Street has opened in the red on the 30th anniversary of Black Monday.

The Dow Jones industrial average is down almost 100 points, or 0.4% - a small dip, after days of record highs.

Apple shares have fallen by 2%, following reports that the tech giant is cutting production of its new iPhone 8.

I agree with Laura...

Here’s Philip Coggan of the Economist on Lloyd Blankfein’s intervention....

Lloyd Blankfein’s tweet about spending a lot more time in Frankfurt has caused a stir at the EU council meeting in Brussels.

Blankfein’s intervention puts more pressure on Theresa May to secure a transition deal, and soon. City firms are expected to activate their contingency plans for a hard Brexit early next year, unless there is progress in the negotiations....

Here’s more reaction to

Blankfein may still be sore about the EU referendum result. Back in January 2016, Goldman Sachs donated hundreds of thousands of pounds to the Britain Stronger in Europe campaign.

Lloyd Blankfein: I'll be in Frankfurt a lot more after Brexit

Lloyd Blankfein, the boss of Goldman Sachs, has dropped a very loud hint that he’ll be moving jobs from the UK to Germany thanks to Brexit.

Blankfein, one of the most powerful bankers in the world, tweets:

Goldman has just leased space in a Frankfurt skyscraper, with room for 800 staff, as it tries to minimise disruption once Britain leaves the EU.

After Brexit, City banks will lose passporting rights to sell services across Europe.

Goldman said two weeks ago that:

“This expanded office space will allow us to grow our operations in Germany to continue serving our clients, as well as provide us with the space to execute on our Brexit contingency plan as needed.”

Updated

Remembering Black Monday

The City likes a good anniversary - a chance for older hands to impress young guns with tales of market mayhem.

And they don’t come much bigger than Black Monday in 1987, when shares crashed around the globe, wiping more than 20% off the Dow Jones.

Here’s a classic front page from the big day:

But for such a big crash, it’s remarkable how quickly shares bounced back (not like the Great Crash of 1929, and the subsequent Great Depression).

The crash may have deterred some people from risking their money in the stock market. But, as this chart shows, you’d have done well if you’d bought shares to years ago (as long as you avoided Japan and Greece...)

So, could it happen again?

Well....some experts have blamed the crash on ‘portfolio insurance’. This was designed to protect investors from being wiped out, but in reality it forced them to sell assets to into a falling market, making the slump worse and worse.

Matt Maley, who worked at Solomon Brothers (in the days of Liar’s Poker), explained more here.

Chris Godding, CIO of investment manager Tilney, argues that the markets work better today, Speaking on Sky News, he cites better controls in the equity markets today, and circuit breakers that would give investors time to evaluate.

However, currency markets don’t have such cushions, so they could be the places to look for the next market panic, bedlam or crash...

Stock markets are marking the 30th anniversary of Black Monday today, by taking a collective bath into the red.

European markets are down almost 1%, and on track for their worst day in seven weeks (which shows how calm things have been recently).

In London, the FTSE 100 is still down around 40 points, with Unilever down 4% after missing sales forecasts this morning.

The Dow Jones industrial average is expected to drop when trading being in New York (at 9.30am local time).

Some traders are blaming Chinese central bank governor Zhou Xiaochuan, who warned today that the markets could suffer a “Minsky moment”.

That means a sudden plunge in asset valuations, following a period of stability which encouraged people to speculate and drive prices unsustainably high.....

Here’s our news story on the UK retail sales gloom:

Britain’s retailers are under the cosh, says Mike Cherry, who chairs the Federation of Small Businesses.

He blames the fall in the pound since the EU referendum, and the lack of clarity over Britain’s future.

“Today’s figures reflect the perfect storm of challenges facing our small retailers. Rising input costs, flagging consumer demand and chronic delays to business rates relief are all weighing on our high streets. A weak pound may be boosting our exporters but it’s proving to be a real drag on spending power.

“Then we have the Brexit element. One in five small employers has EU staff on their books – until these vital workers have concrete guarantees about their right to remain, retailers will be in a perpetual state of uncertainty. This will hamper their ability create new jobs in future.

“Confidence among small retailers has plummeted over the last two quarters. The Chancellor must step in at the Budget. The least he can do is ensure his £435 million package of rates relief measures is fully in place by 22 November.”

Briton’s literally tightened their belts last month, it seems.

Today’s retail sales report shows that the amount of food bought in the shops fell by 1.2% in September, compared to a year ago.

However, the amount spent on food rose by 1.6%, because inflation has driven up prices.

Retail sales details

Today’s retail sales figures make a hat-trick of worrying UK economic data this week.

On Tuesday, inflation jumped to 3% - its highest level in four and a half-years. More expensive food and fuel was partly to blame.

On Wednesday, we learned that earnings are only rising by 2.1%. That means that real wages shrank in the three months to August, despite the jobless rate sticking at a 42-year low.

Laith Khalaf, senior analyst at Hargreaves Lansdown says:

‘September’s retail sales figures show some evidence of belt tightening, with discretionary spending taking a particularly big hit, as shoppers prioritise more essential items as prices rise.

This has given the pound a bit of a bloody nose on the currency markets, with investors scaling back their expectations of a rate rise from the Bank of England.

Retail sales slide: What the economists say

The 0.8% drop in UK retail sales in September shows that the surge in inflation since the Brexit vote is hurting

So argues PwC’s Andrew Sentance. He points out that retail sales growth has fallen sharply this year, to below its long-term average.

Sentance explains:

The underlying trend is towards slower retail growth and we are seeing the weakest rate of increase in the volume of spending for over four years and since the summer of 2013. In the past three months, year-on-year sales volumes were up just 1.5%, compared with around 4% annual growth in the three years 2014 to 2016.

“The main reason for this slowdown is inflation. Prices of goods bought in shops, at petrol stations and online in September were 3.3% up on a year ago, whereas only a year ago they were falling by 1%. This surge in inflation - which mainly reflects the fall in sterling since the EU Referendum vote - is squeezing consumers and holding back the growth of retail spending in volume terms.”

Dennis de Jong, managing director at UFX.com, says Theresa May should be worried....

Evidence is growing to suggest that Britain’s shoppers are keeping wallets in pockets against a backdrop of growing uncertainty.

“Five-year high inflation combined with slow wage growth has consumers feeling the pinch....

Philip Shaw of Investec agrees that UK households are struggling as the cost of living rises.

Howard Archer of EY Item Club says the figures could deter the Bank of England from raising borrowing costs next month:

Updated

Here’s Jeremy Cook, chief economist at WorldFirst, on the retail sales slowdown:

“Uncomfortable questions have been raised about just where UK growth is going to emerge from in Q4. Consumption is the engine of the UK economy and the retail sector, which hammered by a weak pound, tighter margins and customers beset by real wage declines are in the eye of the storm at the moment.

“We will find out in the coming months whether this is consumers holding off on purchases in preparation for Christmas, or whether the Bank of England’s messaging on interest rate rises has been enough to keep some hands in pockets. We can but hope that this weakening sales pattern is also bringing about a slowing of the consumer credit expansion; retail sales in the past have been powered by a ‘buy-now-pay-later’ mentality and we continue to worry about a ‘buy-now-default-later’ reality.”

Given real wages are shrinking, it’s not a surprise that people are buying less stuff in the shops.

Alex Marsh, managing director of Close Brothers Retail Finance, suggests that consumer confidence has dipped - although there are other reasons why shoppers cut back:

“Following the unexpectedly positive uplift in retail sales in August, this month’s figures signal a downturn in consumer confidence as the ONS reports a 0.8% decrease in retail sales last month.

September is a notoriously busy month for those returning to full time education and embarking on graduate jobs, leaving limited time for shopping. This “back to normality” month sees consumers returning to a more reserved level of spending as consumers resume their regular routines and holiday expenditure slows.

City economists had only expected UK retail sales to dip by 0.1% last month, so today’s 0.8% decline is alarming traders.

Annual retail sales growth hits four-year low

The big picture in today’s retail sales report is that growth has slowed significantly over the last three months:

Updated

The pound has fallen by over half a cent against the US dollar, to $1.314.

The news that UK shoppers cut back last month has disappointed the City, as it may signal that the economy is slowing.

UK retail sales volumes shrink

NEWSFLASH: UK retail sales were much weaker than expected last month.

The amount bought across the retail industry shrank by 0.8% during September, a sign that consumers reined in their spending. Non-food stores suffered the biggest decline in takings.

That means that retail sales volumes over the last year have only risen by 1.2%.

The Office for National Statistics also reports that prices in the shops rose by 3.3% over the last year - the biggest jump since March 2012.

The figures also show that people spent 0.5% less in the shops in September than in August [this survey tracks the volume of sales, and the value]

UK retail sales

Kate Davies, ONS Senior Statistician explains:

“September’s retail sales saw a monthly decline of 0.8%, reversing August’s growth. However, there is a continuation of the underlying trend of steady growth in sales volumes following a weak start to the year, and a background of generally rising prices.

These increased costs are reflected in the more rapid growth in the amount spent when compared with the quantity bought.”

UK retail sales

Reaction to follow....

Updated

The New Zealand dollar has more than 1% since the left-leaning Labour Party won the battle to form the next government.

Europe’s stock markets are all falling this morning, failing to take much comfort from China’s growth figures.

Unilever’s sales gloom has helped to pull the FTSE 100 down by 41 points.

European stock markets today
European stock markets today Photograph: Thomson Reuters

Spain’s market is being pulled down by the Catalonia crisis, with signs that Madrid is about to impose direct rule...

The US stock market is also expected to fall, when it opens in five hours time.

Back in the City, shares in consumer giant Unilever have fallen by 3.5% after the company disappointed investors today.

Unilever CEO Paul Polman blamed “poorer weather in Europe and natural disasters in the Americas” for a slowdown in underlying sales growth, to 2.6% in the last three months.

That’s down from 3% earlier this year, and well below forecasts of 3.9% growth.

The company warned:

Overall market conditions have remained challenging. In the markets in which we operate volumes were flat in aggregate. We are seeing some early signs of improving conditions in emerging markets.

Icecream sales came off the boil, apparently:

China’s official growth rate over the last five years is very consistent....

Chinese GDP: snap reaction

Finnish economist Iikka Korhonen suggests that China’s growth rate is suspiciously consistent, despite remarkable volatility in business spending, factory output and retail sales.

Trading Economics flag up that spending on new offices, factories and machinery is slowing.

Bloomberg’s Haidi Lun’s brought her best GIF game to work today....

Financial experts are often sceptical about China’s growth figures, arguing that they could be manipulated by officials to produce a number to Beijing’s liking.

But on face value, today’s Q3 GDP report looks fairly impressive.

Marc Ostwald of ADM Investor Services says the annual growth rate of 6.8% was bang in line with forecasts, and above Beijing’s target of 6.5% growth this year.

Property Sales finally showed some signs of slowing in response to the curbs, and while govt spending on infrastructure and some inventory building were key contributors to growth, it is also increasingly obvious that the Services sector (particularly the tech sector) is increasingly becoming a, if not the, primary driver of growth, i.e. signalling that the economy is actually rebalancing.

China on track to beat growth forecasts

A woman wears traditional headgear during a session on the Yunnan province on the second day of the 19th National Congress of the Communist Party of China of the Great Hall of the People in Beijing.
A woman wears traditional headgear during a session on the Yunnan province on the second day of the 19th National Congress of the Communist Party of China of the Great Hall of the People in Beijing. Photograph: Thomas Peter/Reuters

China’s economy has shrugged off fears of a sharp slowdown, by notching up another quarter of solid growth.

Chinese GDP rose by an annual rate of 6.8% in July to September, new figures from Beijing show.

That’s slightly down on the 6.9% recorded earlier this year, but means China is well on track to beat the official target of growth around 6.5%.

This suggests that Beijing’s drive to puncture property speculation and drain its shadow banking sector aren’t derailing the economy.

The figures come at a good time, as the Chinese communist party is holding its five-yearly congress.

Yesterday, president Xi declared boldly that China was “moving closer to centre stage” in a new era. He spoke about curbing financial risks, encouraging innovation and increasing consumer spending, as China’s economic rebalancing continues.

Xi also hinted that people should stop seeking a quick buck (yen?) in the property market, declaring that:

“Houses are for living, not for speculating.”

A lesson for us all there.....

New figures today also show that China’s fixed-asset investment slowed in September, but retail sales picked up. Industrial output rose by 6.6% per year, up from 6.0%.

The agenda: UK retail sales, political drama...

Shoppers in central London.

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

There’s plenty of economic data and political drama to get our teeth into today.

In the UK, the latest retail sales figures will show whether consumers kept spending last month. Economists predict a 0.1% monthly fall, as people tighten their belts as the cost of living rises.

On an annual basis, retail sales growth is expected to drop to 2.1%, from 2.4% in August.

Following Tuesday’s jump in inflation, and Wednesday’s unemployment figures, this is another important healthcheck on the UK economy. Consumer spending has been a key driver of UK growth recently, so any pull back could be a concern.

RBC Capital Markets say the figures could help determine whether the Bank of England raises interest rates next month:

After a strong August in both value and volume terms, led by non-food stores, the market is looking for somewhat of a pull-back this time in expecting a month-on-month decline in volumes.

Michael Hewson of CMC Markets also expects a small decline in spending:

With Christmas coming it wouldn’t be too much of a surprise if we were to see a pause in the September numbers. Expectations are for a slowdown from August’s 1% rise to no change or a slightly negative reading of -0.1, as Q3 comes to an end.

There’s lots of political drama around the globe today.

New Zealand has a new prime minister, Labour’s Jacinda Ardern, ending several weeks of uncertainty:

It’s deadline day for Catalonia’s leader Carles Puigdemont to decide whether to withdraw his declaration of independence. Madrid could impose direct rule if Puigdemont doesn’t back down.

European leaders are heading to Brussels tonight for a summit where Theresa May hopes to unlock the deadlock in the Brexit negotations. However, there’s little sign that the EU will decide that enough progress has been made over the UK’s divorce bill....

The news bucket is overflowing with corporate news too; consumer goods group Unilever, pest control firm Rentokil, and the London Stock Exchange are all reporting results.

The LSE has also announced that CEO Xavier Rolet is stepping down at the end of next year.

Here’s the agenda

  • 9.10am BST: Ofgem CEO Dermot Nolan speaking at Energy UK conference
  • 9.30am BST: UK retail sales
  • 1.30pm BST: UK weekly jobless figures

Updated

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