Closing summary
European stock markets are pushing higher on recovery hopes, with bumper results from several major banks including Lloyds Banking Group, Deutsche Bank and Santander, as well as a host of other big names such as Britain’s biggest housebuilder Persimmon and the French drugmaker Sanofi.
Others, including the UK drugmaker GSK and the Duke of Westminster’s property company, Grosvenor Group, have been hit by the pandemic, but are predicting a recovery later this year. Sainsbury’s dived to a £261m loss as it incurred extra pandemic costs, despite strong food sales, but was also optimistic about the outlook.
- UK’s FTSE 100 up 0.4%
- Germany’s Dax up 0.4%
- France’s CAC up 0.6%
- Italy’s FTSE MiB flat
- US’s S&P 500 up 0.15%
- US’s Dow Jones down 0.4%
- US’s Nasdaq flat
Later today, the US Federal Reserve is expected to stick to near-zero interest rates and its massive bond purchases strategy when it concludes its meeting. Also tonight, we’ll be getting quarterly results from Facebook, Apple and Spotify.
Thank you for reading. Good-bye! - JK
US trade deficit at new record high on strong imports
The US trade deficit in goods rose in March to a fresh record high – but because the American economy is recovering faster than other countries.
Data released by the US Census Bureau at lunchtime showed that the trade deficit rose for the third month in a row to $90.6bn. Imports climbed 6.8% to a record $232.6bn in March.
US exports also increased, by 8.7% to $142.1bn, but have been slower to recover than imports because the economies of other countries haven’t recovered as rapidly as the US. The result has been weaker demand for US goods.
On Wall Street, stocks have opened lower after a mixed bag of company earnings from big technology firms Alphabet and Microsoft and downbeat Boeing results.
The Dow Jones lost 124 points, or 0.37%, to 33,860, while the S&P 500 was flat at 4,185 and the Nasdaq lost 7 points to 14,082.
Law firm Mishcon de Rey considers London float by year end
The London law firm Mishcon de Reya, which represented Diana, Princess of Wales, in her divorce in 1995, is considering a stock market listing in London later this year.
The firm said its partners had voted to explore a flotation that would award shares to all staff, and had hired JPMorgan Cazenove to advise on this. The listing could happen as early as the fourth quarter of this year.
Kevin Gold, the executive chairman, said:
I am delighted that the leadership team is mandated to explore a public listing as we look to further develop our offering to clients. It will enable us to invest in talent, our core areas, our allied services, as well as technology and Asia.
I am also proud that my partners have decided to award shares to all staff. It means every single one of our people will have a meaningful stake in our business.”
The law firm expects to report revenues of £188m for the year to 9 April, up from £130m the year before.
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Walmsley suggested that spending on research & development, which she increased in recent years to 15% of revenues, reversing spending cuts by her predecessor Sir Andrew Witty, would stay high, at double-digit increases. By comparison, AstraZeneca boss Pascal Soriot ramped up R&D spending to 30% of revenues at one stage.
There have been suggestions that Elliott, which took a substantial stake in GSK recently, could push for lower spending. More R&D spending is desperately needed to develop new medicines, but Walmsley also pointed out that GSK had got better at stopping projects in development sooner when they fail to show good results.
On a call with journalists, GSK boss Emma Walmsley insisted that she would “lead GSK throughout that successful separation and beyond” – after suggestions that the activist investor Elliott would push for her to lead the consumer healthcare business, rather than the pharmaceuticals company after the planned split next year.
She talked up the consumer health business, whose brands include Sensodyne toothpaste, the anti-inflammatory drug Voltaren and Panadol painkillers, saying it will be “the world’s first dedicated consumer healthcare company” after the spin-off. GSK merged its consumer division with that of Pfizer in a joint venture in 2019.
Asked about her non-scientific background, Walmsley said:
I’m not a scientist; I’m a business leader. I believe that the priorities as the CEO are to set the strategy and I have clearly laid out from day one our priority there as far as R&D prioritisation and productivity, commercial execution, group structure, capital allocation, culture.
Set the strategy, hire the people and included in that has been hiring the best possible R&D leadership in the world. That is what we have been very focused on, so that we can deliver against the priorities that we have.
Updated
GSK expects its pharma, consumer healthcare and vaccines businesses to bounce back in the second half of the year, when countries return to more normality.
We are encouraged by the rate at which Covid-19 vaccinations are being deployed in many countries, particularly the US and UK, which provides support for healthcare systems returning to normal.
As a consequence we remain confident in the underlying demand for our vaccine products, and we expect strong recovery and contribution to growth, notably from Shingrix, in the second half of the year. We continue to expect vaccines revenue for 2021 to grow flat to low-single digits at constant exchange rates.
Assuming healthcare systems and consumer trends approach normality in the second half of the year, we continue to expect pharmaceutical revenue to grow flat to low-single digits at constant exchange rates and consumer healthcare revenue to grow low to mid-single digits excluding brands divested/under review with above market growth.
GSK first-quarter results hit by pandemic
The drugmaker GSK has reported sales of £7.4bn for the first quarter, down 15% at constant exchange rates, broadly in line with City expectations. Pretax profits came in at £1.5bn, down 17% from £1.8bn.
Its vaccine business has been hit by travel restrictions and the focus on giving Covid-19 vaccines, which led to sharp drop in travel jabs and a 47% fall in revenues for its shingles vaccine Shingrix. Last year’s “pantry-loading” of many medicines was not repeated.
The pharma business made nearly £4bn in revenues, down 8%, while the vaccines division generated £1.2bn, down 30%.
Emma Walmsley, the chief executive, says:
Our first quarter results are in line with our expectations and reflect the anticipated impacts of Covid-19. We continue to expect a significant improvement in performance over the remainder of the year and reconfirm our guidance for 2021 and 2022 outlook.
The launch of Cabenuva for HIV and Phase III starts for our RSV [respiratory syncytial virus] vaccine and a new long-acting treatment for severe asthma are key milestones as we continue to strengthen our growth prospects. Separation plans are also well underway and we look forward to sharing our strategy and growth outlook for New GSK with investors in June.
The company will split itself into a consumer health and a pharmaceuticals, HIV and vaccines business next year. Walmsley is under pressure from GSK’s new activist investor, the US hedge fund Elliott, to rebuild the drug pipeline and improve share price performance.
Updated
Danni Hewson, financial analyst at the stockbroker AJ Bell, says today’s company results are pointing to an economic recovery.
Markets are scenting recovery as a bumper crop of results out this morning demonstrates resilience and, in some cases, a full-on return to pre-Covid trading.
Banks including Lloyds Banking Group, Deutsche Bank, Santander and the Co-operative Bank, have reported bumper profits this morning. Britain’s biggest housebuilder Persimmon has also fared well, and Dixons Carphone is shutting its airport shops, with the rest of its business booming.
EU legal case against AstraZeneca begins in Brussels court
Over in Brussels, the European Commission’s legal proceedings against AstraZeneca over vaccine supplies have begun at the Brussels Court of First Instance.
The Commission launched legal action, accusing the Anglo-Swedish drugmaker of failing to fulfil its contract for the supply of Covid-19 vaccines, for not having a “reliable” plan to ensure timely deliveries.
The court proceedings are conducted under an emergency procedure, which means they could be concluded within weeks.
Deliveroo, whose recent stock market flotation was a flop and which is under pressure over the lack of employment rights for its riders, has beefed up its board with the appointment of two new non-executive directors.
Karen Jones, founder of Cafe Rouge, will chair the food delivery firm’s remuneration committee and join the audit committee, and Dominique Reiniche, a French businesswoman who has chaired Coca-Cola Europe since 2013, joins the audit, remuneration and nominations committees.
Saudi Arabia in talks to sell Aramco stake to global energy firm
Saudi Arabia is in talks to sell 1% of the state-backed oil group Saudi Aramco to a “leading global energy company,” the kingdom’s crown prince told a Saudi-owned news channel last night, as he forecast an economic rebound after the coronavirus pandemic.
Bloomberg reported:
The kingdom is looking at the potential sale -- which could be worth about $19bn, based on the company’s market value -- as a way to lock in customer demand for the country’s crude, Crown Prince Mohammed Bin Salman said in a rare interview on a Saudi television channel late Tuesday. While providing few details on which company is involved in the talks, he said the sale could take place in the next two years.
“I don’t want to give any promises about deals finalizing, but there are discussions happening right now about a 1% acquisition by one of the leading energy companies in the world,” Prince Mohammed, the country’s de facto ruler, said. “I cannot mention the name but it’s a huge company. This deal could be very important in strengthening Aramco’s sales in the country where this company resides.”
China is the largest buyer of Saudi Arabian oil. Almost 30% of the kingdom’s crude exports went to the Asian country last month, according to data compiled by Bloomberg. Japan, South Korea and India were the next biggest importers.
Updated
Dixons Carphone has actually closed 35 travel shops at airports, not 24 as we reported earlier. They also have shops in Ireland, Norway and on two P&O cruise ships. Here is our full story:
UK to use NHS app as vaccine proof for travel
The UK plans to use the existing NHS coronavirus app to show that people have received their Covid-19 vaccine for international travel, the transport secretary, Grant Shapps, said today.
It will be the NHS app that is used for people when they book appointments with the NHS... to be able to show that you’ve had a vaccine or that you’ve had testing, and I’mm working internationally with partners across the world, to make sure that that system can be internationally recognised.
He told Sky News that he would be chairing a meeting of G7 transport ministers next week to discuss the plan further.
17 May is the earliest date when international travel for non-essential reasons is set to be allowed by the UK government, as the winter lockdown eases. A traffic light system, based on individual countries’ Covid risk levels, will determine whether travellers need to quarantine and get tested when they arrive in the UK. Shapps said he would set out details early next month.
Updated
Here’s our full story on Sainsbury’s, which has fallen into the red on Covid costs despite booming food sales. The UK’s second-biggest supermarket group plans to open more neighbourhood convenience stores as it assumes that working from home is here to stay.
Simon Roberts, its chief executive, said he expected the return to eating out in pubs and restaurants to put a dampener on sales growth, but he expected more people to work from home at least two or three days a week and this would give a long-term boost to sales in supermarkets, our retail correspondent Sarah Butler reports.
He said Sainsbury’s would be accommodating the shift in behaviour by opening 18 more small neighbourhood supermarkets, which will include clothing and Argos pick-up points, and a further 7 convenience stores. However, the group also expects to close 25 convenience stores in the year ahead as it shifts away from locations which are now less popular, such as city centres.
It’s really clear that the likelihood of people going back to the office five days a week is not what’s going to happen. Our expectation is of a hybrid approach where our convenience estate is well positioned and reflects that change in how customers live, work and shop.
Sainsbury’s has added 400 new outdoor and barbecue products to its ranges as it expects families to meet up outside and Roberts said he expected alcohol sales in supermarkets to continue to be strong, despite the reopening of pubs, as families chose to celebrate at home.
Mahony adds:
Markets are waiting patiently for the latest update from the Federal Reserve today, although they could be disappointed. Despite a resurgence in jobs and inflation data, we are unlikely to see Powell lay the groundwork for any tapering in asset purchases today. Instead, it seems likely that he will stress the need to see sustained above-target inflation and proof of economic strength before they decide to start to reposition towards a less accommodative future.
Lloyds shares rose more than 4% on the surge in profits, making it the biggest riser on the FTSE 100 this morning, while rival NatWest Group is 1.7% higher. Joshua Mahony, senior market analyst at the online trading platform IG, says:
The banks are enjoying a positive morning, with strong Lloyds figures being reflected in the price. That was not necessarily the case for Microsoft overnight however. Looking ahead, traders will be keeping an eye out for the latest Fed rate decision.
European markets are following their Asian counterparts, with tentative gains coming within a period of low volatility.
Lloyds has helped to lift the banking sector in early trade today, with the high-street bank benefitting from the same release of Covid provisions seen in Wall Street this month. The £459m retrieved from the bad debt provisions helped lift profits to an impressive £1.9bn.
While the economic crisis remains ongoing, the release of funds does highlight the success of Rishi Sunak’s policies aimed at limiting the fallout of the pandemic over the past year. By limiting the job and business losses seen over the year, Sunak managed to create an environment where the UK stands ready for a sharp resurgence as restrictions are eased.
The Co-operative Bank has swung to a £7.2m profit between January and March, from a £27m loss a year earlier, and its chief executive Nick Slape hailed a faster-than-expected turnaround, thanks to cost cuts and measures to simplify the business. The bank has welcomed the US investment firms JC Flowers and Bain Capital Credit as new investors.
Metro Bank, one of the ‘challenger banks,’ posted a 17% drop in lending in the first quarter to £12bn. Deposits climbed 13% to £16.4bn as many people were stuck at home during the pandemic and spent less. The dog-friendly highstreet bank said its turnaround was progressing. Daniel Frumkin, the chief executive, explained:
Customer activity dipped in January following the introduction of the third national lockdown in late December, recovering as the quarter progressed and helped by the gradual easing of restrictions in April.
We are also beginning to see progress across our loan book, with strong growth in consumer lending and specialist mortgages as we focus on assets delivering higher risk-adjusted returns.
Updated
In other banking news, Deutsche Bank has reported its best quarterly profits since early 2014. It made a profit before tax of €1.6bn in the first three months of the year.
Santander’s UK arm has also posted strong results, and its executives are cautiously optimistic about the rest of 2021. The bank’s pretax profit rose 61% to £184m, while the Spanish parent group’s profits climbed 43% to €3.8bn, as provisions for potential loan defaults declined. Its underlying performance is the best in in more than a decade.
Santander is looking for a new chief executive for its UK arm, as Nathan Bostock, who has led Santander UK since 2014, will step down towards the end of the year to take on a new role overseeing the group’s investment platforms, reporting to the group’s chair, Ana Botín.
Bostock said:
Although the economic outlook is more positive, market conditions will remain uncertain given the low interest rate environment and the lasting impacts of the pandemic.
Deutsche Bank reports €1.6 bn profit before tax, the best quarterly profit since 1Q2014. This result was driven by revenue growth, a substantial reduction in provision for credit losses, and lower adjusted costs year-on-year. #dbresults 1Q2021 https://t.co/sFPQBKJVLq pic.twitter.com/qZzRC7nnDT
— Deutsche Bank (@DeutscheBank) April 28, 2021
Here is our full story on Lloyds, which reported a £1.9bn pretax profit this morning, as the lender released hundreds of millions of pounds worth of loan loss provisions originally earmarked for potential defaults linked to the coronavirus pandemic.
In other news, motorists could legally allow their cars to “self-drive” on British motorways later this year – but only slowly, the government has announced.
Drivers could soon be allowed to read a newspaper or watch a film via the car’s built-in screen in periods of slow-moving traffic, using automated lane-keeping system (Alks) technology that makes the car stay in lane and a safe distance from other vehicles, our transport correspondent Gwyn Topham reports.
But insurers and motoring organisations said much more work needed to be done to ensure safety, after the Department for Transport confirmed it would pursue plans to allow new models fitted with Alks to drive without the driver’s input.
Meanwhile, stock markets are pushing higher.
- UK’s FTSE 100 index up 0.4% at 6,973
- Germany’s Dax up 0.45% at 15,315
- France’s CAC up 0.3% at 6,292
- Italy’s FTSE MiB flat at 24,480
Crude oil is also higher, with Brent rising 0.18% to $66.54 a barrel while US crude is up 0.2% at $63.07 a barrel.
Persimmon, Britain’s biggest house builder, has made a strong start to the year, with forward sales of £3bn, up from £2.4bn at this stage last year. The company’s average selling price for private homes rose to £252,000 from £244,500. Its private sales rate is well ahead of last year – as expected given the impact of the pandemic – but is also 17% ahead of 2019.
Dean Finch, the chief executive, said:
Persimmon has made a strong start to the year with current forward sales 23% ahead of last year and 11% ahead of the same point in 2019. Our build rates continue at pre-Covid levels and we remain on track to deliver first half volumes approaching those of the first half of 2019.
Demand for newly built homes remains healthy and the group’s sales rates are encouraging.
Like other big house builders, the company has benefited hugely from government initiatives to support the housing market, such as the stamp duty holiday and the help to buy scheme. Today’s strong numbers aside, Persimmon has been embroiled in a scandal over the build quality of its homes and in a row over massive bonuses paid to its former chief executive Jeff Fairburn in 2018.
Ben Nuttall, senior analyst at the investment research firm Third Bridge, said:
The UK’s demand-side policies are great for helping individuals, couples, and families get on the housing ladder. However, according to our experts, whilst a chronic undersupply of UK housing persists, demand-side policies mostly serve to drive up prices, benefitting house builders like Persimmon.
Duke of Westminster's property firm reports loss in 'historically poor' year
The Duke of Westminster’s property firm has reported the first negative return since the global financial crisis and fell into the red, but predicted a strong recovery over the next couple of years.
Grosvenor Group’s posted a loss before tax of £310.8m against a £156.5m profit the year before. Its preferred measure, revenue profit, fell to £25.4m last year from £65.9m. The company blamed the financial support it provided to vulnerable tenants affected by the pandemic, increased bad debt provisions, and delays in a number of sales.
The company, which owns the Liverpool One shopping centre and properties in over 60 cities globally, reported a negative return of -2.9% on its £6.7bn property portfolio versus 2.6% in 2019, reflecting lower valuations of retail assets in the UK, the Americas and Europe due to to the pandemic. Grosvenor has written down the value of its overall portfolio by £400m from 2019.
Mark Preston, the chief executive, said:
Our 2020 financial performance was poor by historical standards, although contextually resilient.
Our teams across the world were quick to act in support of their local communities. In London, we introduced rent waivers for hundreds of retailers, charities and food operators for three months in the first lockdown, while small independent businesses were offered a 50% reduction in their rent across the second and third lockdowns.
We also offered ‘worry-free leases’ for students in Brazil to provide break clauses at no cost when universities had to close... And we made a decision from the outset that we would not transfer our overhead costs to the taxpayer and so did not furlough any of our employees.
Many of these initiatives, combined with increased bad debt provisions and a delay in a number of sales, have inevitably affected our financial performance.
Updated
Dixons Carphone to shut all airport shops
Dixons Carphone has decided to permanently shut all of its Dixons Travel stores in airport, blaming the UK government’s decision to scrap tax-free shopping. Almost all 35 shops are currently closed because of Covid-19 restrictions on international travel, and will not reopen, at airports from Aberdeen to Southend. [number of Dixons Travel stores corrected to 35 from 24]
The move by the Treasury to end tax-free shopping in December was greeted with dismay in the retail sector, and the bosses of major airports such as Heathrow, Gatwick and Birmingham, as well as the heads of large retailers, signed a letter urging the chancellor to reconsider the decision, warning it would put 70,000 jobs in danger.
Updated
Sainsbury's dives to loss despite booming food sales
Sainsbury’s has dived to a £261m loss despite booming food sales, due to extra costs related to the pandemic and the supermarket’s decision to to forgo business rates relief worth £410m offered by the government.
The UK’s second biggest supermarket spent £485m on special bonus payments for staff who worked through the pandemic, extra staff to cover those who were isolating, additional safety measures in stores and pay for vulnerable staff who had to stay at home, reports our retail correspondent Sarah Butler.
Grocery sales rose 7.3%, as online sales more than doubled, in the year to 6 March and general merchandise sales, which include the Argos chain, rose by just over 9%. But Sainsbury’s said total sales remained almost flat at £29bn as drivers put less petrol into their cars during the lockdowns. The company’s hefty pretax loss came after a £255m profit a year before.
Simon Roberts, the chief executive, said:
Like our customers, we are all looking forward to things feeling more normal over the coming months and getting excited about a summer of celebration, but we are also cautious about the economic outlook. While there is much that we cannot predict in the year ahead, we are absolutely focused on delivering for our customers and shareholders.
Updated
In Germany, there are signs that the jobs market is slowly improving. The employment barometer from Munich’s Ifo institute rose to 98.3 points in April from 97.6 points in March. The labour market is slowly making up for some of the job losses from the coronavirus crisis.
Germany’s manufacturing boom is increasingly reflected in companies’ hiring behaviour. Manufacturers of machinery and equipment in particular are looking to take more people on. In the service sector, however, the willingness to hire has not budged from its low level.
While jobs continue to be lost in the hospitality and tourism industries, IT service providers and architectural and engineering firms are adding staff. In trade and in construction, plans for hiring and layoffs currently balance each other out.
Introduction: Lloyds profits soar, markets eye Fed decision
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s a barrage of company results today. Lloyds Banking Group, one of Britain’s big highstreet banks, has reported a £1.9bn pre-tax profit for the first quarter, better than expected and up from £74m a year earlier – an increase of more than 2,000%.
Profits were boosted by the release of £459m of provisions it had set aside for expected loan defaults during the pandemic. It’s the last set of results from chief executive António Horta-Osório, who is leaving after a decade in the job to become chairman of crisis-hit Swiss bank Credit Suisse. HSBC executive Charlie Nunn will take the helm at Lloyds in August.
The US Federal Reserve will announce its latest monetary policy decision tonight and is expected to stick to near-zero interest rates and its massive bond purchases strategy.
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
There are rumours that the Fed could gently start talking about the tapering of its bond purchases, as the US jobs market recovers at an encouraging speed, the economic growth seems robust, and higher inflation is knocking loudly at the door.
But I believe that Jerome Powell will avoid having that taper talk at this month’s meeting, as Joe Biden’s plan to nearly double the capital gains tax should give another shake to the financial market, and stock investors can’t afford being slapped by Biden and by Powell at the same time. One should give in and that’s probably Powell, given how determined Biden moves on with his own policy decisions.
Also, Jerome Powell knows that bringing the taper talk on the table will be the first step in announcing a tighter monetary policy. Therefore, giving a hand would cost Powell a whole arm, because investors will immediately start pricing in the next rate hike. Given the mounting tensions from the capital gains tax front, it’s probably not the right moment to add fuel to fire.
A surge in advertising revenues helped Google’s parent company Alphabet beat Wall Street estimates last night. The tech giant posted 34% growth in first-quarter revenues to $55.3bn and net income of nearly $18bn, or $26.29 earnings per share. It also unveiled a new $50bn stock buyback, driving its share price 5% higher in after-hours trading.
Google Cloud’s revenues topped $4bn in quarterly sales for the first time and the division’s losses shrank to $974m from $1.7bn. Coming after Snap also reported strong ad sales last week, this bodes well for Facebook, which reports quarterly results later today, along with Apple and Spotify.
However, there is mounting regulatory pressure on the group: it faces antitrust suits from the US Department of Justice and two groups of state attorneys general over its search business.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said:
Alphabet has lapped up the rewards from the pandemic like a big cat pouncing on cream. While famous for its start-up culture and offices, this tech giant is, rather unspectacularly, an advertising business. Covid means phenomenal sums of money have shifted to online shopping, so Alphabet’s impenetrable family of digital advertising businesses have seen revenue skyrocket.
The one fly in the ointment where Google is concerned is increased regulation. Alphabet has paid eye-watering amounts in fines in recent memory… Regulators are watching Alphabet like a hawk, and it’s a matter of when, not if, they swoop again. But Alphabet is hardly helpless prey – its mammoth net cash pile means it can stomach a lot. Looking long-term this is something to keep an eye on though, a worst case scenario could see a ceiling placed on revenues and profits.
The big surprise in these results is the boom in Cloud revenues. This is also a long-term growth lever as more customers and businesses will continue to rely on cloud computing in this new accelerated digital age. For now the division is still loss making, setting up the kit of a business on this scale doesn’t come cheap. But if Alphabet can continue to mushroom the cloud’s scale, this business could become a bonified cash cow.
Despite bonanza results from Alphabet & decent numbers from Microsoft, investors have yet to be titivated enough to crack on. Apple, Lloyds, GSK & Sainsbury today. Suggested opening calls indicate vacillation - FTSE +8 @ 6952, DAX +15 @ 15264, CAC +6 @ 6279, DJIA -39 @ 33943
— David Buik (@truemagic68) April 28, 2021
European stock markets are expected to open slightly higher. In Asia, Japan’s Nikkei rose 0.2% while Hong Kong’s Hang Seng gained 0.1% and the Australian stock market closed 0.4% higher.
The agenda
- 7.45am BST: French consumer confidence for April
- 12pm BST: US MBA Mortgage applications for week of 23 April
- 1.30pm BST: US Trade for March
- 7pm BST: US Federal Reserve interest rate decision followed by press conference
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