Summary
Time for a summary before we close up for the day:
- German data confirmed a sluggish period for Europe’s largest economy, which failed to grow in the final quarter of 2018 but escaped recession because the figure was 0% and not negative.
- Eurozone inflation dipped to 1.4% in January from 1.5% in December, reflecting a sharp deceleration in energy price growth.
- In the UK, there were two pieces of major M&A news. First, Canadian dairy giant Saputo is to buy Dairy Crest in a near £1bn recommended offer. In a second approach, doorstep lender Provident Financial has received a £1.3bn offer from smaller rival Non-Standard Finance.
- The pound fell against the euro and the dollar after an EU official said there would be ‘no Brexit deal in the desert’ when leaders meet at a summit in Egypt next week.
- The latest survey from the CBI showed UK high street sales were flat in February, with the worst hit retailers selling footwear, DIY, and furniture and carpets.
- Markets on both sides of the Atlantic are higher, boosted in part by hopes that the US and China will make progress in trade talks.
That’s all for today. Thanks for all the comments and please join us again on Monday. AM
Wall Street opens higher
The opening bell has rung and here is how it’s looking:
- Dow Jones: +95 points or 0.4% at 25,945
- S&P 500: +8 points or 0.3% at 2,783
- Nasdaq: +22 points or 0.3% at 7,482
Hopes of a breakthrough in US-China trade talk appear to be lifting sentiment (despite no discernible progress as yet).
Unite, the union, says it is seeking an urgent meeting with Saputo, the Canadian dairy giant which is hoping to buy Britain’s Dairy Crest for almost £1bn.
Unite represents workers across Dairy Crest’s UK operations, with the biggest concentration of members at the Davidstow cheese plant in Cornwall.
Sue Pollard, Unite’s national officer for the food industry, says:
Unite is cautiously optimistic that Saputo is seeking to develop Dairy Crest’s operation in the UK over the long-term.
Unite is now seeking an urgent meeting with the senior management at Saputo to receive detailed information about the company’s plans and secure assurances about employment levels and a commitment to maintaining existing plants.
The pound has just dipped below $1.30, down 0.4% against the dollar at $1.2997.
It is down 0.3% against the euro at €1.1469.
European markets are up across the board, with US futures pointing to a higher open for Wall Street.
Connor Campbell, analyst at the spread betting firm Spreadex, gives his take:
The markets perked up as Friday went on, hopeful that a meeting between Donald Trump and China’s Vice Premier Liu He will yield some kind of trade war solution.
Once again crossing 7200, the FTSE climbed more than half a percent, aided in part by a slight dip from sterling. Cold water has been poured on the hopes of Theresa May reaching a new Brexit agreement at this Sunday’s summit in Egypt, dragging the pound down 0.2% against both the euro and the dollar.
Looking to the US and the Dow Jones is aiming for a 100 point increase after the bell. That’d take the Dow back to 25,950, having fallen from 26,000 on Thursday. Trump isn’t set to meet Liu He until 2.30pm US time, so it’ll be interesting to see if the markets can maintain their positive attitude.
More on inflation now, with the price of a first class stamp to rise 3p to 70p from 25 March. The price of a second class stamp will also increase by 3p, to 61p.
Buy now!
Royal Mail to increase price of first-class stamp by 3p to 70p https://t.co/RkriDf58ql
— Guardian Business (@BusinessDesk) February 22, 2019
High street sales flat in February, CBI says
It’s been a slow start to the year for Britain’s retailers, according to the latest survey from the CBI.
Retail sales were flat in February, following zero growth in January, the lobby group said in its latest distributive trades survey of 100 firms.
The worst hit were retailers selling footwear, DIY, and furniture and carpets, where sales volumes fell. Food stores, clothing retailers and online retailers fared better.
Anna Leach, the CBI’s head of economic intelligence, commented:
The high street has seen a slow start to the year, with year-on-year sales volumes unchanged again this month. Although real earnings growth is higher, consumer confidence has been ebbing away, keeping a lid on demand.
Retail investment plans have taken a hit this quarter, falling to their weakest since 2012. Until politicians can agree a deal that commands a majority in parliament, is acceptable to the EU and protects our economy, business despair will deepen. A deal must be negotiated, and no-deal averted.
UK #retail sales volumes were once again flat in the year to February, enough to push the rolling quarterly average to its lowest since September 2016 #DTS https://t.co/PTDhwu8ErG pic.twitter.com/6zassLU1Fv
— CBI Economics (@CBI_Economics) February 22, 2019
Pound falls as Brexit deal hopes fade
The pound is under some pressure this morning after EU sources poured cold water on the idea that Brexit progress would be made at a meeting in Egypt next week.
Reuters is reporting than an unnamed official in Brussels said EU leaders would not clinch a deal with Theresa May during an EU summit with the League of Arab States in Sharm el-Sheikh, scheduled for Sunday and Monday.
“There will be no deal in the desert,” the official said. However, the UK prime minister is expected to meet European council president Donald Tusk on the sidelines of the summit.
The pound is down 0.3% against the dollar at $1.3009, and down 0.2% against the euro at €1.1474.
Here is how inflation compares across Europe, with the lowest rate at 0.5% in Greece, and the highest rate at 3.2% in Romania:
Eurozone inflation dips to 1.4%
Inflation in the eurozone slowed slightly in January as energy price growth slowed sharply.
The headline annual rate fell to 1.4% in January, from 1.5% in December. Energy prices were 2.7% higher in the year to January, compared with 5.5% in the year to December.
However so-called core inflation – which strips out energy prices and unprocessed food - edged higher to 1.2% in January from 1.1% in December.
The FTSE 250, which is a more UK-focused index than the FTSE 100, is also up 0.3% this morning, at 19,297.
This morning’s takeover targets - Dairy Crest and Provident Financial - are both among the top risers, up 13% and 4% respectively.
European markets rise as investors shrug off weak data
Investors across Europe are in a fairly upbeat mood this morning, unfazed by weak data from Germany.
The latest scores:
- FTSE 100: +0.2% at 7,179
- Germany’s DAX: +0.2% at 11,442
- France’s CAC: +0.3% at 5,210
- Italy’s FTSE MIB: +0.2% at 20,245
- Spain’s IBEX: +0.2% at 9,208
- Europe’s STOXX 600: +0.1% at 371
Updated
And here is a chart tracking the performance of Dairy Crest shares in February:
Here is our full story on the Dairy Crest deal:
German business morale falls for sixth month
Confidence among German firms fell for the sixth month in February, as business leaders expect only sluggish growth in Europe’s largest economy.
The closely-watched Ifo business climate index fell to 98.5 from 99.3 in January. It was the weakest since December 2014, and lower than the 99 predicted by economists.
Ifo economists said:
The German economy is experiencing a downturn. There was hope that the weak period we experienced in the second half of 2018 was only temporary but it looks like it will continue.
The institute said the latest survey, combined with other data, suggested the German economy was on course to grow 0.2% in the first quarter.
Doorstep lender Provident Financial receives £1.3bn offer
More M&A news this morning after subprime lender Provident Financial received a £1.3bn offer from its smaller rival, Non-Standard Finance.
If the all-share reverse takeover goes ahead, John van Kuffeler, the founder and chief executive of NSF, would once again be at the helm of Provident - a firm he ran for 22 years until the end of 2013.
The deal values Provident shares at 511p and is backed by Neil Woodford’s Woodford Investment Management, Invesco and Marathon, which together own more than half of Provident and are also major shareholders in NSF.
Last month Provident issued a profits warning, blaming an increase in bad debts at its Vanquis credit card unit.
Announcing the offer, Van Kuffeler said:
This transaction will create a market leader in the non-standard finance sector with a strong position in all four main segments. We have recognised the strong logic and value creation potential of a combination with Provident for some time and hence approached the Provident Board with a proposal in January last year.
That approach was rebuffed and since then Provident has further lost its way. However, NSF has extensive management expertise and experience, and the correct strategy to turn Provident around and release significant value by combining it with our own fast-growing businesses for the benefit of customers, employees and investors. I’m delighted that holders of over 50 per cent. of Provident’s shares have given their support to our proposal today.
Dairy Crest bought by Canadian firm for £975m
Some major corporate news this morning as Dairy Crest, the UK cheese and butter manufacturer, announced it is recommending a £975m offer from Canadian dairy conglomerate Saputo.
Saputo is offering 620p a share in cash ... anyone who bought shares on Friday will be feeling lucky after shares closed at just 476.2p at the end of last week, making the offer price a hefty 30% premium.
Shares closed at 555p last night, and are now up 13% at 625p.
Saputo was founded in 1954, employs about 15,000, and is based in Montreal.
We’ll have a full story soon.
The agenda: German GDP, eurozone inflation, UK retail data
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Germany’s economy came to a standstill in the final quarter of 2018, figures published this morning. Quarterly growth of 0% was confirmed in a second estimate of GDP from the Federal Statistics Office.
Europe’s largest economy narrowly avoided recession after the economy shrank by 0.2% in the third quarter. In the final three months of 2018, higher government spending just about offset a sluggish trade picture.
However, the second estimate provides greater detail and Carsten Brzeski, chief economist at ING in Germany, says that delays to car production caused by tougher emissions testing are masking greater underlying strength.
The GDP components provide interesting insights: the German economy is in a better shape than its current reputation.
In our view, there are two main takeaways from this morning’s data. First, the temporary problems in the car industry mask solid fundamentals across the entire economy and second, the sharp inventory reduction suggests that it will still take some time but eventually the car-related problems should disappear.
It is often said that many Germans can get sidetracked by fast cars. This time around, cars have sidetracked the entire economy. However, in a couple of months, the German economy should be able again to show its true colours.
Later this morning the closely watched German Ifo business climate index and eurozone inflation data will provide the latest clues on the state of the bloc’s economy.
The agenda:
- 9am GMT: Germany’s Ifo business climate index for February
- 10am: Final estimate of eurozone inflation in January
- 11am GMT: The CBI’s distributive trades survey for February will gave the latest insight into how UK retailers are faring
