And finally, London’s stock market got a small boost from the slump in the pound today.
The FTSE 100 has just closed seven points higher at 7683, a gain of 0.1%.
That’s a pretty modest gain, but better than elsewhere today - the French and German markets both lost around 0.6%.
Sterling is still weak, though, down 0.75 of a cent today at $1.2993, a ten-month low. The City is still concerned by the drop in retail sales last month.
Fiona Cincotta of City Index explains why the data is a worry:
Whilst hot weather can sometimes encourage consumers to hit the high street, June’s heatwave, combined with the World Cup kept consumers away, resulting in non-food retailers suffering from reduced footfall.
Today’s results are part of a continuing trend. Retailers in general have been under intense pressure over the past 18 months as squeezed consumers hold back on spending in the face of higher prices and sluggish wage growth. Big names such as Marks and Spencer, Mothercare and House of Fraser have been closing stores in order to reduce costs. Meanwhile internet spending, continued to break news records.
That’s all for today. Thanks for reading and commenting. GW
Over in America, the number of people filing new claims for unemployment benefit has hit its lowest level in almost half a century.
The initial claims total fell by 8,000 last week to just 207,000, a level not seen since December 1969.
Paul Ryan, the Republican House Speaker, has hailed the news:
Agree, it happens thanks to the longest streak of job creation on record.
— Aaron Sojourner (@aaronsojourner) July 19, 2018
Check out that trend in initial claims (graph). pic.twitter.com/wFRqTvYybs
Donald Trump has belatedly spotted that Google has been fined (yesterday) by the European Commission for breaking competition rules in the mobile phone sector.
The president reckons it vindicates his criticism of Europe (who he called a ‘foe’ last week).
I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!
— Donald J. Trump (@realDonaldTrump) July 19, 2018
IMF warns against no-deal Brexit
The International Monetary Fund has weighed in on Brexit, warning that both sides would lose out if Britain left the EU without a deal.
The IMF estimate that Britain would suffer the biggest damage, losing 4% of its GDP. But Ireland would be nearly as badly hit, with the EU as a whole losing 1.5% of its economic output.
A timely reminder of the dangers ahead, as negotiators struggle to resolve issues such as the Irish border, and future custom arrangements.
More here:
Royal Mail’s shareholders have given the company a bloody nose.
Around 70% of votes cast by shareholders at today’s the annual meeting were against the resolution on the director’s remuneration report. That’s a major rebellion.
Investors are unhappy that new CEO, Rico Back, has been handed a 17% pay rise compared to previous boss Moya Greene.
BREAKING: shareholder revolt at Royal Mail agm: 70% of votes cast against exec pay arrangements.
— Douglas Fraser (@BBCDouglasF) July 19, 2018
34% vote against re-election of chairman Peter Long:
The director who chairs the pay committee responded:: pic.twitter.com/f9cHyN3vLg
Back on the drop in UK retail sales.... and Paul Mumford at Cavendish Asset Management argues that shops can’t just blame the weather (or the football!):
While hot weather and sporting events have been a great boost for sales of waistcoats, it has clearly diverted shoppers away from some areas of the high street.
Other areas such as convenience stores might have seen an increase in footfall due to ice cream sales and ready-made meals.
It’s all too easy to use the weather as an excuse each time figures aren’t as expected. Whether it’s “too hot” or “too cold”, it seems that some retailers have been unable to find a climate that is “just right” for them this year. Perhaps businesses would be wise to instead understand these figures as a signal of a downward trend, and adapt accordingly
It’s official: Britain’s Gaucho restaurant chain has gone into administration.
Deloitte have taken control of the Argentine-themed group, which employs 1,500 people.
Hundreds of workers are being laid off immediately, as the company’s Cau chain is being closed.
Deloitte has confirmed steak restaurant chain Gaucho has fallen into administration with all 22 Cau restaurants set to close leading to the loss of 540 jobs
— Sky News Breaking (@SkyNewsBreak) July 19, 2018
The remaining jobs could also be lost soon, if a buyer for Gaucho can’t be found.
Comcast abandons Fox hunt
Just in: US media conglomerate Comcast has abandoned its plan to take over rival 21st Century Fox.
In a statement, Comcast says it will focus on its attempt to acquire the broadcaster Sky (which 21CF is also trying to buy.)
This leaves Disney clear to pursue its own deal to buy 21CF. Indeed, Comcast chief Brian Roberts has congratulated Disney on winning the race for Fox:
Brian L. Roberts, Chairman and CEO, Comcast Corporation, said, “I’d like to congratulate Bob Iger and the team at Disney and commend the Murdoch family and Fox for creating such a desirable and respected company."
— Carl Quintanilla (@carlquintanilla) July 19, 2018
However, the Disney-Fox deal could yet be disrupted if Comcast wins the battle to buy Sky (of which Fox owns 39%). Complicated, eh?
Traders sentenced over Euribor rigging
Newsflash: Two former City traders have been sentenced to jail for conspiring to fix the Euribor interbank lending rate.
Reuters has the details:
Former star Deutsche Bank trader Christian Bittar and Philippe Moryoussef, who once worked at Barclays, were sentenced to jail by a London court on Thursday for plotting to rig global interest rates.
The two Frenchmen, friends outside work who went skiing together, were convicted of conspiracy to defraud by dishonestly manipulating the Euro interbank lending rate (Euribor), a benchmark for trillions of financial contracts and loans, between January 2005 and December 2009 for profit.
Bittar, 46, was handed a sentence of five years and four months. Once one of the world’s best-paid traders, he pleaded guilty in March and has been in custody since.
Moryoussef, 50, was sentenced to eight years after a jury unanimously convicted him last week. He did not take part in the trial, having skipped bail and sought refuge in France.
A jury failed to reach a verdict on three other individuals; the Serious Fraud Office said earlier today it will seek a retrial.
Last week, Britain was gripped by Donald Trump’s working visit, including a glitzy dinner at Oxfordshire’s Blenheim Palace.
Some business chiefs stayed away - perhaps nervous of being seen to kowtow to the US president, or simply deterred by his views on migration, protectionism or women’s rights.
But others donned their evening wear to welcome Turmp.
One top UK business leader, Dame Helena Morrissey, has now explained that she took part, because it’s “very important” to engage with the US at this time.
She told Sy News:
We engage with companies that we don’t agree with everything they are doing. It’s important that we engage with politicians and countries, particularly the US, which is such an important trading partner for the UK.”
More here:
Full story: UK retail sales fall despite World Cup and BBQ boost
Here’s my colleague Richard Partington on the retail sales data:
The World Cup and the summer heatwave kept British shoppers away from the high street last month, despite encouraging stronger sales of food, drink and barbecues across the country.
Revealing a surprise fall in retail sales in June, the Office for National Statistics said clothing stores and other non-food retailers suffered from reduced footfall amid the hot weather and football celebrations.
The volume of goods sold across the whole of the retail industry dropped by 0.5% last month compared with May, missing City expectations for a rise of 0.2%. Sales at foods stores edged up 0.1% over the month.
The latest snapshot from the ONS will add further pressure on the Bank of England to delay an expected rise in interest rates next month after weaker readings for growth in workers’ pay and inflation, which unexpectedly stayed at a one-year low in June.
The surprise fall in retail sales triggered a sell-off of the pound, which fell against the dollar to a 10-month low of just below $1.30.
The Financial Times also reckons the much-anticipated August interest rate hike is now in doubt, following June’s weak retail sales figures.
The FT’s Cat Rutter Pooley says:
The pound had been hesitant to test the $1.30 level, despite testing times for Theresa May’s leadership — and her control of the Brexit process — and underwhelming UK inflation data on Wednesday.
The inflation data had already raised questions about the likelihood of the Bank of England being able to raise rates in August, as markets had expected, sending sterling down to $1.3008 on Wednesday before rebounding to $1.3068 at the close.
But disappointing retail sales figures for June — when the current heatwave gripping the UK began — compounded the price growth figures, sending the pound down below $1.30 and suggesting politics and fundamentals are both exerting a weight.
Reuters is reporting that the pound has hit an eight-month low against a basket of rival currencies.
That’s due to June’s weak retail spending (which makes an August interest rate rise less likely) and anxiety over Britain’s exit from the European Union.
Brexit anxiety is on the rise today, after the European Commission warned member states to prepare for the possibility that the UK tumbles out of the EU without a deal.
The pound is also losing ground against the euro, as the drop in retail sales in June disappoints the City.
Sterling is down 0.35 of a eurocent at €1.12, a four-month low, and bobbing around the $1.30 mark against the US dollar.
Updated
The World Cup and the long sunny spell brought cheer to some shops, but gloom to others, says Andrew Westbrook, head of retail at RSM.
He explains:
With record breaking weather and the England team making a stunning start to the World Cup, you might have expected the feelgood factor to translate into bumper retail sales in June but you’d only be half right.
‘Supermarkets appear to have been the big winners with the strongest three-month on three-month growth since May 2001.
‘There’s also evidence that shoppers splashed out on refreshing their summer wardrobes, upgrading their TVs, ordering in food and gambling.
‘However, footfall on the high street was down in June versus last year, resulting in a monthly decline of 0.5 per cent in the quantity bought in non-food stores.
Encouragingly for small retailers, the amount sold by specialist food stores (including butchers and bakers) was up 25.3% in June compared to a year ago.
That follows a slump of 17.8% a year ago, and may be due to the growing popularity of ‘artisan’ outlets.
The warm weather may also have helped here - if people headed to their local butcher for BBQ suppliers or their high street sourdough bakery for picnic treats.
Not even internet spending could save the UK retail sector last month, says Kathleen Brooks, research director of Capital Index.
She writes:
Although retail sales figures can be volatile, there is a growing sense that the UK economy is slowing down sharply, and with the political backdrop deteriorating, the Bank of England needs to have a pretty solid reason for hiking rates when it meets next month.
The details of the report are worth noting. Declines in UK sales last month were broad based with clothing and household goods leading the way. Not even the internet could boost the retail sales figures: non-store retailing saw volumes fall by 1.4%, and the annual rate for non-store or internet sales retreated to 9.8% in June, compared with 16.1% in May.
Today’s retail sales data shows that Brits spent 0.3% more at petrol stations last month -- due to rising fuel prices.
Food spending was flat, while non-food stores suffered a chunky drop in takings.
UK retail sales could remain weak if the Brexit negotiations continue to struggle, warns ING economist James Smith.
Correction in #UK retail sales, but clear 2Q was much better than 1Q (the bar was low...). But once better weather + World cup effect fade, underlying challenges will resurface. Consumers still not confident - and "no deal" chatter will only increase concern about econ situation pic.twitter.com/AhFfAnGmHU
— James Smith (@SmithEconomics) July 19, 2018
Consumer spending has driven UK growth in recent years, but Simon French of Panmure Gordon reckons those days are over...
UK retail sales end Q2 on a mixed note. Volumes up by the largest amount since Q1 2015 at 2.1% YoY but stay-at-home shoppers pared back spending in June. With UK savings ratio near its 60Y low and real wage growth muted the chances of a return to 2015-2017 growth rates are slim pic.twitter.com/g4ZaXwTNcP
— Simon French (@shjfrench) July 19, 2018
Here’s Jeremy Thomson-Cook, chief economist at WorldFirst, on the consumer spending slowdown:
Investors are not willing to back the pound with data disappointing and the political situation becoming even more fractured.
Once again, it may be easy to ascribe such a slip in sales to the recent good weather; the combination of the World Cup and the temptation of a pub garden will have kept the hospitality sub-sector buoyant but elsewhere trade will have been lacklustre.
We expect a bounce back in July especially with the recent news that holidaymakers are staying home as opposed to hitting the beaches of the Med for their weeks off.”
We’ve now learned this week that UK retail sales fell in June, inflation was flat at 2.4%, and wage growth slowed.
Is the Bank of England really going to look at this data and conclude that we need higher borrowing costs?
Until recently, an August rate hike looked likely. Now it’s more of a coin-toss.
Probability of Bank of England raising rates next month now 50-50 after today's weak retail sales data, according to money market pricing. Was 55% yesterday, 80% last week.
— Jamie McGeever (@ReutersJamie) July 19, 2018
The retail spending picture is less gloomy if you look at the last quarter. Sales are up 2.1% in the April-June period, as Britain shook off its winter gloom.
Office for National Statistics senior statistician, Rhian Murphy explains:
“Retail sales grew strongly across the three months to June 2018 as the warm weather encouraged shoppers to buy food and drink for their BBQs.
“However, in June retail sales actually fell back slightly, with continued growth in food sales offset by declining spending in many other shops as consumers stayed away from stores and instead enjoyed the World Cup and the heatwave.”
June’s disappointing retail sales have added to the Brexit anxiety enveloping the pound, says Naeem Aslam of City firm Think Markets:
The pound has come under brutal selling pressure as the retail sales data was extremely bad.
In simple words, the retail data has made the matter worst for the British pound which was already suffering from disappointing inflation number and a tumultuous week of politics.
Pound slides as UK retail sales fall
NEWSFLASH: UK retail sales shrank by 0.5% in June.
This is much weaker than the 0.2% growth the City expected, and dashed hopes that the warm weather and England’s World Cup campaign would boost spending.
The Office for National Statistics says that football fever and the heatwave may actually have kept people out of the shops.
While hot weather and World Cup celebrations increased food store sales, it was suggested by retailers that these factors resulted in a decrease in footfall in non-food stores; which, along with non-store retailing, resulted in a monthly decline of 0.5% in the quantity bought.
This has hit the pound hard -- sterling has fallen by three-quarters of a cent to $1.298, its weakest level since last September.
Brutal selling pressure for #Sterling as the retail sales data was extremely bad pic.twitter.com/lgxmyHz43w
— Naeem Aslam (@NaeemAslam23) July 19, 2018
Khoon Goh, head of Asia research at ANZ Bank, has spotted that China suffered a small capital outflow last month.
Not a serious level, but maybe a sign that some nervous companies or individuals are trying to move money abroad. That might intensify, if the yuan keeps falling....
China's net FX settlement incl forwards showed small outflow of $6bn in June. Cross border net payments in RMB had outflows of another $6.7bn. So far the capital outflow is modest. But considering the extent of #CNY depreciation, outflow pressures will be building. pic.twitter.com/MGmFpdcD6I
— Khoon Goh (@Khoon_Goh) July 19, 2018
Some underwhelming earnings figures are weighing on Europe’s stock markets today.
Advertising giant WPP has fallen almost 4% in London, after its French rival Publicis startled traders by reporting a drop in sales in the last three months.
UK defence firm Babcock are also suffering, with shares down 9%. It lowering its revenue growth target for this year, partly due to delays in British government spending on submarines.
Over in the City, shares in Sports Direct have slumped by almost 10% after it told investors its stake-building in department store chain Debenhams has kocked £85m off its profits.
Laith Khalaf, Senior Analyst at Hargreaves Lansdown, says the curious “strategic investment” has cost SPD dearly.
Sports Direct now owns 29.7% of Debenhams, just under the 30% threshold which would require a formal takeover bid.
The company has a string of such “strategic investments”, which also includes House of Fraser, French Connection and Goals Soccer Centres, and it’s hard to fathom the precise strategy at play here.
Sports Direct is also trying to rebuild its reputation after the exposure of ‘Victorian’ working practices at its warehouse.
CEO Mike Ashley was quick to flag up that SPD has been ranked “among the ten companies with the most improved reputation in the UK”...
China 'urges banks to help the economy'
The Chinese media are reporting that banks are being encouraged to boost lending, and support small firms.
It’s a significant sign that Beijing is taking a more hands-on approach to stimulating the economy; understandably, given the disruption that new US tariffs on Chinese exports could cause.
Royal Bank of Canada have summarised the key points:
- China’s big banks are now being given cash and told to go and lend more/buy corporate bonds amid the sharp contraction in shadow banking
- Local news sources are reporting that the Chinese Banking and Insurance regulator (CSRC) has asked financial institutions to “earnestly implement” plans to help reduce financing costs for small firms (the ones with generally lower credit ratings), saying that big lenders (state banks) should “take the lead”
- China Business News reported the People’s Bank of China plans the use of its medium term lending facility (MLF) to encourage bank loans and investment in lower-rated corporate debt.
These moves help to explain why the yuan is weakening today. China is easing monetary policy, at a time when other central banks are trying to unwind their stimulus programmes or raise interest rates.
As Sue Trinh of RBC puts it:
The Chinese central bank will be buying (more) corporate bonds and China is doing more QE as the rest of the world’s major central banks march toward tightening/policy normalisation.
The selloff is gathering pace, as traders spot that Beijing isn’t intervening to prop its currency up again.
The yuanis now down 0.6% today at 6.7876 per dollar in offshore trading, a new one-year low.
Margaret Yang Yan of CMC Markets says:
“Gravity is doing its job again as monetary policy diverges further between US and China”.
Updated
Gao Qi, foreign exchange strategist at Scotiabank, blames the US-China trade spat for the yuan’s weakness....and predicts it will continue.
“Market concerns resulting from uncertainty such as trade war continue to weigh on sentiment.
Investors will keep pushing the yuan to 6.8 per dollar. The PBOC will step in, if one-sided depreciation pressures are seen.
China’s central bank is deliberately letting the yuan depreciate, says Hannah Anderson of J.P. Morgan Asset Management.
“In contrast to earlier this year, today’s weakness seems to reflect a more explicit policy decision. After signaling it would accept more volatility in the currency, the PBoC has followed up by lowering the daily fixing rate.
Policy makers’ responsiveness to market pressures that have been building all year is encouraging, especially as China’s financial system seeks to become more globally integrated.
She adds that the yuan is likely to keep weakening, given the slowdown in Chinese growth, and the strength of the US dollar.
Updated
The agenda: Yuan hits one-year low; UK retail sales due
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The Chinese yuan has hit a one-year low, as trade war fears continue to loom over the global economy.
The yuan, which is usually closely controlled by Beijing, has slipped to 6.784 against the US dollar in offshore trading.
That suggests that Chinese policymakers are allowing their currency to weaken, in the face of anxiety over the tariffs being imposed by the US.
The yuan has suffered steady losses in recent months - it was trading around 6.3 to the US dollar back in April, before Donald Trump ratcheted up the pressure on Beijing:
Previously, the People’s Bank of China has intervened in the markets to prevent the yuan falling through the 6.7 mark. Not any more, it seems.
The fixing “signals the PBOC is not defending any line in the sand for the exchange rate and is comfortable with gradual yuan depreciation,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore.
The signs of easing are “certainly not supportive to the yuan, and the currency may see another wave of selling pressures ahead.”
A weaker currency will help Chinese exporters to cushion the blow of US tariffs (as it makes their goods more competitive).
But it will also fuel concerns that China may be heading for bumpier times, especially after growth weakened a little in the last three months....
Also coming up today
Retail sales data will show whether UK shops got a much-needed World Cup boost.
Economist predict that takings were 3.5% higher than a year ago in June
Michael Hewson of CMC Markets says:
We’ve had the feelgood factor of an England football team reaching the semi-finals of the World Cup as well as some scorching weather which is likely to have prompted some decent spending on big screen TV’s, clothing, food and drink and gardening paraphernalia.
Consumer giant Unilever and high street retailer Sports Direct are reporting results this morning. Neither look too impressive.
Unilever seems to have missed City forecasts - posting underlying sales growth of 1.9%, vs expectations of 2.2% for the last quarter. It’s cited challenges in several regions, including industrial action in Brazil.
Unilever says ice cream sales are strong...but otherwise H1 results look lacklustre.. truckers' strike in Brazil, deflation in several European countries
— Julia Kollewe (@JuliaKollewe) July 19, 2018
Sports Direct, meanwhile, has reported a 2% drop in “UK Sports Retail revenue” in the last year. Pre-tax profits tumbled by 72% (from £281m to £77m), partly due to buying shares in struggling rival Debenhams.
The agenda:
- 9.30am BST: UK retail sales for June
- 1.30pm BST: US weekly jobless figures
Updated
