Closing summary
The European Central Bank has raised interest rates by 75 basis points, as expected, taking the deposit rate to 1.5%, the highest in over a decade, and signalled further rate hikes in the months to come. The euro fell more than 1% below parity with the dollar and is now down 0.6% at $1.0016.
Shell has paid zero windfall tax in the UK despite making record global profits of nearly $30bn (£26bn) so far this year, prompting calls for the government to overhaul a scheme that was supposed to raise billions to tackle the cost of living crisis.
The UK-headquartered oil company said it had not paid the levy and did not expect to throughout 2022, because its British corporate entity did not make any profits during the quarter in part because of heaving spending on drilling more oil in the North Sea.
Profits at Lloyds Banking Group tumbled 26% in the three months to September as the UK’s largest mortgage lender steeled itself for a potential surge in defaults as it predicted house prices would fall 8% next year.
The drop in profits was much larger than the 9.5% analysts had expected, and was the result of having to put aside an extra £668m amid fears that some loan and mortgage customers could default on their debts.
The US economy grew at a 2.6% annual rate from July through September, snapping two straight quarters of economic contraction and overcoming punishingly high inflation and interest rates.
Our other stories:
More than $65bn (£56bn) has been wiped off the market value of Facebook and Instagram’s owner, Meta, after it reported profits halved during the third quarter of the year as advertisers reined in spending amid the global economic downturn.
The 19% tumble in Meta’s share price during after-hours trading knocked an estimated further $10bn off the personal wealth of the company’s chief executive, Mark Zuckerberg, who founded Facebook while he was at university.
The owner of Marmite, Hellmann’s, Magnum and Ben & Jerry’s ice-cream has warned of further price rises after commodity, labour and energy costs resulted in the biggest quarterly increases in its history.
Unilever said sales revenue rose 10.6% in the three months to September, driven by a 12.5% jump in prices, while the volume of goods sold decreased by 1.6%.
Credit Suisse has disclosed sweeping plans to cut 9,000 jobs and to raise billions of pounds from investors, including from the Saudi National Bank, as part of a company-wide overhaul meant to draw a line under a series of scandals and help it recover from a £3.5bn loss.
The London estate agent Foxtons has flagged a “less certain” sales market, as it reported a 25% rise in third-quarter revenues driven by higher rents and longer contracts for tenants.
One hundred universities in the UK have pledged to divest from fossil fuels, the Guardian can reveal.
This equates to 65% of the country’s higher education sector refusing to make at least some investments in fossil fuel companies, and endowments worth more than £17.6bn now out of reach for the corporations.
Britain’s plan to become a post-Brexit “science and technology superpower” has suffered a significant setback after a fall in research and development investment of almost a fifth since 2014, according to a report.
The Institute for Public Policy Research said the UK’s share of global investment in R&D projects – including in health and life sciences – had fallen sharply from 4.2% eight years ago to 3.4% in 2019 immediately before the Covid pandemic struck.
Global carbon emissions from energy will peak in 2025 thanks to massively increased government spending on clean fuels in response to Russia’s invasion of Ukraine, according to analysis by the world’s leading energy organisation.
Thank you for reading. We’ll be back tomorrow. Take care! – JK
Updated
Wall Street opened higher after the 2.6% rebound in GDP growth in the third quarter helped ease recession worries, but US stocks soon turned negative.
European stocks are flat to slightly slower.
Updated
UK retail sales volumes grew at a solid pace in October following last month’s decline, according to the latest survey from the CBI. Next month, retailers expect sales volumes to fall again, but at a slow pace.
Retail sales volumes grew at a firm rate in the year to October (+18%), recovering from last month’s decline (-20%). Retailers expect sales volumes to fall at a modest pace next month (-9%).
Retail sales were seen as good for the time of year in October (+20%), following slightly disappointing seasonal volumes last month (-7%). Retailers expect that sales will be broadly in line with seasonal norms next month (+2%).
Orders placed upon suppliers were broadly unchanged in the year to October (-1% from -16% in September). Orders are expected to decline at a firm pace next month (-16%).
Retailers viewed stocks in October as “too high” relative to expected sales to the same extent as last month (+8% from +8% in September). Stock positions are expected to ease in November to be broadly “adequate” (+3%).
Martin Sartorius, CBI principal economist, said:
Retail sales volumes recovered to grow at a firm pace this month, but retailers continue to face a challenging operating environment due to rising costs, higher interest rates, and labour shortages.
The government must continue in its efforts to re-establish macroeconomic stability and restore business confidence. Delivering comprehensive reform on business rates and the Apprenticeship Levy would be helpful first steps to encourage business investment through these difficult times.
Here’s our full story on the rebound in US growth in the third quarter.
The US economy grew at a 2.6% annual rate from July through September, snapping two straight quarters of economic contraction and overcoming punishingly high inflation and interest rates.
Thursday’s estimate from the commerce department showed that the nation’s gross domestic product – the broadest gauge of economic output – grew in the third quarter after having shrunk in the first half of 2022. Stronger exports and steady consumer spending, backed by a healthy job market, helped restore growth to the world’s biggest economy.
Still, the outlook for the economy has darkened. The Federal Reserve has aggressively raised interest rates five times this year to fight chronic inflation and is set to do so again next week and in December.
Fed chair Jerome Powell has warned that the Fed’s hikes will bring “pain” in the form of higher unemployment and possibly a recession.
The government’s latest GDP report comes as Americans, worried about inflation and the risk of recession, have begun to vote in midterm elections that will determine whether Joe Biden’s Democratic party retains control of Congress. Inflation has become a signature issue for Republican attacks on the Democrats’ stewardship of the economy.
Earlier, Lagarde called on eurozone governments to ensure support measures to help households cope with rocketing energy bills should be “temporary and targeted at the most vulnerable”. She said:
To limit the risk of fuelling inflation, fiscal support measures to shield the economy from the impact of high energy prices should be temporary and targeted at the most vulnerable.
Policymakers should provide incentives to lower energy consumption and bolster energy supply. At the same time, governments should pursue fiscal policies that show they are committed to gradually bringing down high public debt ratios.
Euro falls through parity with dollar
The euro has fallen further as ECB president Christine Lagarde is speaking, and is now down more than 1% against the euro, falling below parity. It’s at $0.9976.
Banking stocks rose after the central bank changed the terms of one of its Covid-era programmes of loans to lenders.
Viraj Patel, global macro strategist at Vanda Research, told Reuters:
The ECB is living on the edge of a dovish pivot. It’s clear that this is a central bank that wants to front-load rate hikes to control inflation. But they are also wary that they are not in control of a lot of external growth and market factors that can act as a circuit breaker to the hiking cycle.
Updated
You can watch the ECB press conference here.
A long-lasting war in Ukraine remains a serious risk, Lagarde said, and a weakening world economy could act as a drag on growth in the eurozone. Inflation may turn out to be higher than expected due to rises in food, energy and commodity prices.
The ECB hiked interest rates by 75 basis points today as expected, the third hike in a row, and expects to raise borrowing costs further (on a meeting by meeting basis).
It signalled it wants to start reducing its bloated balance sheet; cut a key subsidy to banks; but (surprisingly) made no hint about plans to start winding down its bond holdings after buying up trillions of euros of debt issued by eurozone governments.
Updated
As ECB president Christine Lagarde is reading out her statement at a press conference, Neil Wilson at Markets.com has summed up the “ECB, US data dump”:
ECB – hiked by 75bps in line with consensus but less hawkish tone overall, indicative of fewer rate hikes required to tackle inflation. Traders have pared bets, with key rate now seen peaking below 2.75% next year from 3% before. Euro-dollar offered a touch on the release to back below parity but no major move as yet. ECB is probably too optimistic – staff projections remain overly positive, though moderation in energy pricing seen as a reason to go slower.
US – inflation lower with PCE prices down to +4.2% from +7.3% previously, GDP a bit better rebounding 2.6% in the third quarter, durable goods ex-defence/air weaker down –0.7% vs +0.5% expected.
Stock futures volatile on the updates, rallying on the updates before erasing gains sharply. Stocks looking more and more volatile to large intraday swings as traders try to knit all these strands together into something cohesive and actionable. Meanwhile tech earnings and Meta are the major drag. Cyclicals doing better so Dow outperforming Nasdaq for now.
Updated
US economy rebounds in third quarter
The US economy grew at an annual rate of 2.6% in the third quarter, slightly better than expected.
The “advance” estimate from the Bureau of Economic Analysis showed a rebound from the second quarter’s 0.6% decline. Economists had expected growth of 2.4% in the third quarter.
Top 5 Subcomponent Contributors to US GDP Growth: {ECAN<Go>} pic.twitter.com/4XZPBM5Woe
— Michael McDonough (@M_McDonough) October 27, 2022
The Bank of England is also expected to raise borrowing costs by 75 basis points next week to fight inflation.
Jeremy Batstone Carr, European strategist at wealth manager Raymond James, said:
The European Central Bank is between a rock and a hard place as it looks to control inflation without tanking the economy, and has decided that potentially tipping the region into a recession is a necessary evil in order to control spiralling inflation.
The eurozone is facing challenges that will be familiar to much of the rest of the world, with headline regional inflation running at a year-on-year rate of 10%, five times the target level. In response the ECB has raised its base interest rate by a further 0.75 points as it prioritises its core mandate of ensuring price stability. However, the attempt to cushion the blow to households and businesses from rising costs is likely to create issues elsewhere by imparting a marked downward pressure on economic activity by dramatically increasing the cost of borrowing.
While its US and UK counterparts are acting to reduce of the size of the balance sheet, the ECB is taking a different route and shunning the quantitative tightening path. A bigger priority for the ECB will be the trend in bond yield spreads between the peripheral and core member states. The Bank unveiled its new Transmission Protection Instrument this summer, and even though it has had no cause to use the facility thus far, its mere presence ensures that spreads remain within the boundaries of acceptability. But, as markets face ongoing pressures, the ECB may intervene using this tool to control disorderly dynamics.
The euro has dropped 0.7% versus the dollar to $1.0005 following the ECB’s move.
ECB hikes rates by 75bps as expected. Main rate to 2%, Deposit rate to 1.5%. Expects to raise rate further, Deciding Meeting by Meeting. Drops Language on “next several meetings” No QT yet as ECB to Reinvest App Proceeds in Full for Extended Period. Euro drops on dovish decision. pic.twitter.com/UgvklgFvBo
— Holger Zschaepitz (@Schuldensuehner) October 27, 2022
Some speedy analysis from Carsten Brzeski, global head of macro at ING:
The ECB just announced another jumbo rate hike by 75 basis points, bringing interest rates in the eurozone very close to neutral levels.
Contrary to the rate hike decisions in July and September, the size of today’s rate hike seems to have been uncontested and broadly supported by all ECB members. Next to the expected rate hike, the ECB also announced changes to the current Targeted-Long-Term-Refinancing Operations (TLTRO), in terms of the applied interest rate and earlier repayment dates. Also, the ECB decided to set the remuneration of minimum reserves at the ECB’s deposit facility rate. More details will be released after the press conference.
In slightly more than three months, the ECB has now hiked interest rates by a total of 200bps. It’s the sharpest and most aggressive hiking cycle ever. In the previous two hiking cycles since the start of the monetary union, it took the ECB at least 18 months to hike rates by a total of 200bps.
Today’s rate hike provides further evidence of the extreme paradigm change at the ECB. A year ago, ECB president Christine Lagarde still said at a press conference that “the lady is not tapering”. Now, the ECB has conducted the most aggressive rate hikes in its history, despite a war in Europe, little signs of an overheating economy but rather indications of a looming recession and record high inflation, which is mainly driven by high energy and commodity prices. A couple of years ago, the same ECB but different main characters might have decided differently. The current ECB, however, has woken up very late to the fact that even if inflation is driven by supply-side factors, too high inflation for too long can damage a central bank’s credibility and plant the seeds for unwarranted second-round effects.
At the current juncture of a looming recession and high uncertainty, normalising monetary policy is one thing but moving into restrictive territory is another thing. With today’s rate hike, the ECB has come very close to the point at which normal could become restrictive. At the press conference starting at 2.45pm CET, ECB president Christine Lagarde might provide the first insights into how far the ECB is still willing to go.
The ECB also said:
The governing council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the Asset Purchase Programme for an extended period of time past the date when it started raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.
Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, tweets:
No change to APP reinvestment wording, i.e. no hint at Quantitative Tightening in the statement. A bit surprising as this is no longer consistent with the ECB's monetary stance. pic.twitter.com/P4S1yhSvbK
— Frederik Ducrozet (@fwred) October 27, 2022
Michael McDonough, chief economist at Bloomberg, tweets:
ECB conducts the second 75bps rate hike in its history: {ECAN} pic.twitter.com/Q1LNly3TNk
— Michael McDonough (@M_McDonough) October 27, 2022
ECB hikes rates by 75bps and signals further rises
The European Central Bank has raised interest rates by 75 basis points, as expected, taking the deposit rate to 1.5%, and signalled further rate hikes in the months to come. It said in a statement:
The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. With this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation. The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.
Inflation remains far too high and will stay above the target for an extended period. In September, euro area inflation reached 9.9%. In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation.
We raised interest rates by 0.75 percentage points.
— European Central Bank (@ecb) October 27, 2022
See our latest monetary policy decisions https://t.co/cAhkpSreAB pic.twitter.com/6om7ujR716
Updated
European shares drift lower ahead of ECB rate decision
European stock markets are drifting lower ahead of the European Central Bank’s policy decision, due at 1.15pm BST. The FTSE 100 index in London has turned negative, while the German Dax is down 0.9%, the French index has lost 1% and the Italian market slid 0.8%.
The central bank is widely expected to raise its deposit rate by 75 basis points to 1.5% to combat high inflation. Markets will also be looking for clues to further rate hikes when ECB president Christine Lagarde speaks at a press conference half an hour later.
“We will do what we have to do, which is to continue hiking interest rates in the next several meetings,” ECB chief Christine Lagarde said recently. Finnish central bank chief Olli Rehn echoed this: “There’s a stronger case for front-loading and determined action.”
Neil Wilson, chief market analyst for Markets.com, said:
ECB officials have been warning of self-reinforcing inflation dynamics of late as headline consumer price inflation for the euro area races above 10%. The ECB has raised rates twice in recent months from –0.5% to 0.75% and most think it will deliver a second 75bps hike this week.
Minutes from the September meeting point to growing consensus that the central bank needs to take decisive action to pushing rates to at least neutral, which is estimated at slight above the 1-2% range. This suggests a very strong chance the governing council agree on raising rates by 75bps to 1.5%, with another hike later in the year of 50bps and then a final hike in February.
With a 75bps seemingly certain, the questions around this meeting relate to quantitative tightening, mopping up excess liquidity and the terminal rate. As far as QT goes, it’s probably way too early for the governing council to be actively discussing this – Lagarde has made it clear that rates would need to be at neutral first. If the ECB tops out with hikes in February then it can then look to QT in Q2 2023, perhaps.
Updated
France's TotalEnergies doubles profits to $9.9bn, announces new Russian writedown
France’s TotalEnergies also doubled net profits in the third quarter, to $9.9bn.
This compares with a profit of $4.8bn a year earlier, and $9.8bn in the second quarter.
The French oil company announced a new impairment of $3.1bn related to its Russian assets, adding to $7.6bn of writedowns in the first half of the year. The overall writedown is one of the largest booked by Western companies, albeit below BP’s more than $25bn charge for exiting the country.
However, unlike BP and Shell in London, TotalEnergies has held on to its investments in Russia, including minority stakes in Novatek, Yamal LNG and Arctic LNG 2.
The French firm’s chief executive Patrick Pouyanne said at an investor presentation last month that it was becoming “complex” for Western firms to receive dividends from Russian joint ventures and stake holdings. He said then:
I’m not convinced we will continue to have any flows from Russia in the months to come.
Updated
Shell expects not to pay any windfall tax in 2022 because of North Sea investment relief
Shell said it has not paid any windfall tax despite making record profits so far this year, as the business said it was investing heavily in the North Sea.
The company said that it does not expect to pay any extra tax this year despite the government’s decision in May to put a windfall tax on North Sea oil and gas producers.
Finance chief Sinead Gorman told reporters that the company had done enough over recent months to avoid the tax, which allows companies to obtain tax relief in exchange for investment. She said:
Heavy capex [capital expenditure] has meant that we haven’t had extra tax coming through in this quarter yet.
I do expect to see that extra tax ... to happen quite early in the first quarter of 2023, but we’ll see what plays out with prices as well.
We simply are investing more heavily than we have, and therefore we don’t have profits which we can be taxed against.
The oil giant made a $9.5bn profit in the three months to September, taking profits so far this year to over $30bn. It will hand back money to shareholders by raising its dividend by 15% and a $4bn share buyback.
As explained earlier, the windfall tax announced by then-chancellor Rishi Sunak in May, a 25% energy profits levy, allows companies to get 91p in tax relief for every pound invested in UK energy.
Updated
Credit Suisse to slash 9,000 jobs
Credit Suisse has revealed sweeping plans to slash 9,000 jobs and to raise billions of pounds from investors, including from the Saudi National Bank, as part of a company-wide overhaul meant to draw a line under a series of scandals and help it recover from a fresh £3.5bn loss.
The announcement follows months of speculation over the scale of change set to take place under its new boss Ulrich Körner, who has been tasked with scaling back the investment bank and slashing more than 2.5bn Swiss francs ($2.1bn) in costs.
The overhaul comes as Credit Suisse tries to draw a line under a string of scandals, primarily involving its investment bank. The bank also revealed on Thursday that it had racked up a 4bn Swiss franc loss (£3.5bn) in the third quarter, signalling further financial woes.
The Swiss banking group, which is the country’s second largest bank, said on Thursday that it was already in the process of slashing 2,700 full-time staff, accounting for roughly third of its planned cuts, and a fifth of its 52,000 global employees.
It expects the total staff base to shrink to 43,000 by the end of 2025, through a mix of further job cuts and natural attrition, meaning it will not replace staff when they leave the bank. The lender did not confirm how many of its 5,500 UK staff might be affected by the cuts.
“This is a historic moment for Credit Suisse,” Körner said. “We are radically restructuring the investment bank to help create a new bank that is simpler, more stable and with a more focused business model built around client needs.”
Updated
While Big Oil is doing well, Big Tech is struggling.
More than $65bn has been wiped off the market value of Facebook and Instagram’s owner, Meta, after it reported profits had halved during the third quarter of the year as advertisers rein in spending amid the global economic downturn.
The 19% tumble in Meta’s share price during after-hours trading knocked a further $10bn off the personal wealth of the company’s chief executive, Mark Zuckerberg, who founded Facebook while he was at university.
Zuckerberg, who is Meta’s largest shareholder and who has most of his fortune in the company’s shares, had already seen his net worth plummet by at least $70bn by September this year.
Meta, which owns Facebook and WhatsApp, reported $27.7bn in revenue for the third quarter – higher than analysts’ forecasts – as sales shrank by 4% compared with the same period a year earlier.
It came as the company, which has poured investment into its virtual reality project, the metaverse, warned of weaker trading ahead.
Amid growing competition from TikTok, Meta is also suffering as companies cut back on advertising spending.
Updated
Foxtons flags 'less certain' sales market
The London estate agents Foxtons has flagged a “less certain” sales market, as it reported a 25% rise in third-quarter revenues.
Revenue in the three months to 30 September 2022 rose to £43.8m, while revenue for the first nine months of the year climbed 11% to £109m. Despite “the ongoing macroeconomic and political uncertainty,” Foxtons expects to deliver full-year results ahead of its previous expectations.
Guy Gittins, the new chief executive, said:
I’m delighted to be back at Foxtons and to have met with so many of the talented team since my arrival in September. The business has significant unfulfilled potential and there is a shared understanding and vision of how we can deliver this. I am excited about leading this reset and determined we can get Foxtons back on the front foot.
This quarter has seen continued positive momentum with growth across all areas of the business. Our lettings business performed strongly as we delivered both organic and acquisitive growth. Our investment in sales negotiators, combined with strong buyer demand and a renewed focus on sales intensity has benefitted our sales business.
We enter Q4 with a less certain sales market backdrop, but cost action taken in H1 and our resilient lettings and financial services businesses leave us positioned to weather further macroeconomic and political challenges.
Gittins, who stepped down as Chestertons’ CEO earlier this year, has returned to Foxtons where he worked between 2002 to 2006, rising through the ranks from junior negotiator to sales manager at its south Kensington office.
Updated
The Liberal Democrats said the lack of a proper windfall tax was an insult to families struggling to pay bills. The party’s leader Ed Davey said:
The Conservative government’s refusal to properly tax these eye-watering profits is an insult to families struggling to pay their energy bills.
Even the CEO of Shell has admitted that oil and gas companies should be taxed more to help protect vulnerable households.
It’s time Rishi Sunak introduced a proper windfall tax and used the extra money to support people facing heart-breaking choices this winter.
Innocent families and pensioners should not be left to pick up the bill for this Conservative government wrecking the economy.
TUC: Shell profits are 'obscene' when millions struggle with soaring bills
More reaction to Shell’s £8.1bn profits, made in just three months.
The TUC’s general secretary Frances O’Grady said:
These profits are obscene – especially at a time when millions are struggling with soaring bills.
The government has run out of excuses. It must impose a higher windfall tax on oil and gas companies.
The likes of Shell are treating families like cash machines.
Today is another reminder of why need to bring our energy sector back into public ownership.
Households across Britain are being fleeced.
Unilever raises prices at record pace as sales volumes fall
Unilever has reported better-than-expected quarterly sales after raising its prices at a record pace, by 12.5%.
The consumer giant, which makes Dove soap, Magnum and Ben & Jerry’s ice-cream and Knorr stock cubes, recorded 10.6% underlying sales growth to €15.8bn in the July to September quarter, which was better than the 8% forecast by analysts. It now expects underlying sales growth for the full year to be above 8%. Ice-cream sales sales were strong, and deodorants returned to volume growth.
However, the sales growth was achieved by raising prices, as overall volumes fell by 1.6% in the quarter. Unilever warned of “more negative underlying volume growth” in the final three months of the year.
Chief executive Alan Jope said:
The global macroeconomic outlook remains mixed, and we expect the challenges of high inflation to persist in 2023. The delivery of consistent growth remains our first priority.
Unilever has had a tumultuous year after its failed bid for the consumer health division of GSK at the start of the year, and with activist investor Nelson Peltz joining its board. Jope has announced he will stand down as CEO at the end of 2023.
Chris Beckett, head of equity research at Quilter Cheviot, said:
The long process to replace the CEO continues to hang over the business, which also faces increased pressures on volumes from the cost-of-living crisis as well as currency devaluation increasing the cost of raw materials and feeding into cost pressures next year.
While the decline in sales volumes in Q3 was better than Q2, the business saw absolute falls in Europe and the US as people switch to cheaper products. Growth therefore is mainly driven by price increases and the simple fact is that investors do not value pricing as highly as volume growth. Management expects margin improvement in 2023/24, however the market will take some convincing. Unilever’s margins have been squeezed as the war in Ukraine has pushed up energy costs and the cost of ingredients, and Unilever has not demonstrated the ability to consistently grow both sales and margins in recent years.
While ice-cream sales remain good, it is these types of products that more people may choose to forgo next year. However, in the long-term, Unilever’s stable of brands are likely to remain in demand and therefore we do not view the valuation as expensive.
Rival Reckitt Benckiser, the company behind Dettol cleaning products and Durex condoms, said yesterday that it had raised prices by nearly 10% in the third quarter, as sales volumes declined by 4.6%. Consumer companies’ energy and raw material costs have surged this year following Russia’s invasion of Ukraine, and they are seeking to pass higher costs on to consumers.
Reckitt warned of pressure on consumers globally. Its finance chief Jeff Carr told journalists:
Consumers across the globe are under pressure. Certainly, looking at the outlook, I’m concerned about European consumers over the winter.
Updated
Carbon emissions from energy to peak in 2025 in ‘historic turning point’, says IEA
Global carbon emissions from energy will peak in 2025 thanks to massively increased government spending on clean fuels in response to Russia’s invasion of Ukraine, according to analysis by the world’s leading energy organisation.
The International Energy Agency (IEA) said that government spending on clean energy in response to the crisis would mark a “historic turning point” in the transition away from fossil fuels, in its annual report on global energy.
The invasion of Ukraine has prompted an energy crisis around the world, with global gas prices initially surging. The crisis has caused steep inflation that has made households poorer around the world.
Governments have been scrambling to find other sources of energy. Some analysts have questioned whether fears over energy security could lead to the use of fossil fuels for longer, slowing the world’s race to net zero carbon emissions. Some countries – including the US and the UK under previous prime minister Liz Truss – have pledged to encourage fossil fuel extraction to try to ease prices.
However, Fatih Birol, the IEA’s executive director and one of the world’s most influential energy economists, said the energy crisis caused by Russia’s invasion “is in fact going to accelerate the clean energy transition”.
The IEA said planned investments in green energy in response to the crisis meant that – for the first time – government policies would lead to demand for polluting fossil fuels peaking this decade. The agency cited notable contributions from the US Inflation Reduction Act, the EU’s emissions reduction package, and actions by Japan, South Korea, China and India.
Victoria Scholar, head of investment at the trading platform interactive investor, has looked at the moves in markets this morning:
European markets have opened mostly lower with the FTSE 100 outperforming. Shell is at the top of the UK index thanks to upbeat third quarter earnings, while BP is also rallying in its slipstream. Meanwhile Unilever is in positive territory thanks to its latest results.
Focus turns to the European Central Bank’s rate decision at lunchtime which is expected to announce the second 75 basis point hike in a row as it looks to get to grips with inflation in the eurozone. In the US, investors will be looking for further signs of an economic slowdown stateside with the release of its latest GDP growth figures.
In terms of notable earnings, Credit Suisse has opened down by more than 7% after reporting a major third quarter loss of 4 billion Swiss francs and announcing a strategic overhaul.
Last night, shares in [Facebook owner] Meta plunged almost 20% after-hours on the back of rising costs and the slowest sales growth since its IPO in 2012. Third quarter net income slid by 52%, falling short of analysts’ expectations, while its bet on the metaverse faced scrutiny given its lack of success so far.
Updated
Labour urges 'proper windfall tax' on energy firms
Labour has called for a “proper windfall tax” on energy companies. Ed Miliband, Labour’s shadow climate change and net zero secretary, said:
As millions of families struggle with their energy bills, the fact that Shell recorded the second highest quarterly profits in the company’s history is further proof that we need a proper windfall tax to make the energy companies pay their fair share.
Labour has led the way in calling for a windfall tax on energy companies making bumper profits in this crisis, to help fund our energy price freeze.
Rishi Sunak’s existing plans are a pale imitation of Labour’s windfall tax, and would see billions of pounds of taxpayer money go back into the pockets of oil and gas giants through ludicrous tax breaks.
It tells you everything you need to know about whose side this Conservative government is on that they refuse to back Labour’s proper windfall tax whilst working people, families, and pensioners suffer.
Rachel Reeves, shadow chancellor, tweeted:
12 years of the Tories have led to soaring costs, low growth and falling living standards.
— Rachel Reeves (@RachelReevesMP) October 27, 2022
And yet despite this and booming oil profits, they still refuse to accept Labour’s plan for a proper windfall tax on energy producers to help foot the bill.https://t.co/ZYqbmXEmQf
Updated
Michael Hewson, chief market analyst at CMC Markets UK, said about Shell’s $4bn share buyback:
While this move is likely to please shareholders it is likely to bring down the red mist elsewhere when it comes to what Shell is doing with its excess cash. $18.5bn in share buybacks so far year to date and a 15% rise in dividends indicates where management priorities lie, however as an exercise in PR is likely to invite a firestorm of criticism from the usual suspects, even as Shell’s effective tax rate on UK profits sits at 65%.
As in previous quarters the bulk of its profits have come from its upstream business and integrated gas business, although the gas business suffered on the back of a disappointing performance in its trading unit, with profits seeing a decline of 38% from the numbers we saw in Q2.
Updated
Shell’s renewables and energy solutions business remained in the red in the three months to September, including the value of the group’s commodity hedges. Excluding these, cash profits were $530m, down 48% from the previous quarter due to price volatility and rising operating expenses.
Laura Hoy, equity analyst at Hargreaves Lansdown, said:
With oil prices down from their triple-digit highs this summer, it was inevitable to see big oil’s profits start to thin. However nearly $7bn in profits for the quarter is nothing to sneeze at, and is a far cry from the losses Shell suffered last year. Although the group isn’t printing money at record pace anymore, oil prices are still elevated by historical standards and that means Shell has more than enough to continue boosting shareholder rewards.
Notably, apart from modest contributions from its retail network, Shell’s oil and gas exploration and extraction business is bringing home most of the bacon. This is to be expected, particularly in an environment where oil prices are elevated. Eventually we’d like to see cleaner parts of the business start to make up a bigger slice of the pie. The renewables business has gotten a lot of attention lately given the incoming CEO Wael Sawan was its head, but a quarter-on-quarter decline in profits suggests there’s still a long way to go before this part of the business will make it into the black.
No word yet on how Sawan’s presence will impact the group’s strategy going forward, but that’s something we’d expect to hear more about in the new year once the transition is complete.
Shell leads gains on FTSE 100
Shell shares are the biggest riser on the FTSE 100, up more than 4% after it reported bumper £8.2bn profits for the quarter from July to September, and announced a $4bn share buyback alongside a 15% hike in the dividend. Rival BP is also up, by around 2%.
The FTSE overall has notched up a modest gain of 0.26%, up 17 points at 7,073, while other stock markets in Europe have fallen.
Crude oil prices have also dipped. Brent crude, the global benchmark, is down 0.4% at $95.40 a barrel while US light crude is 0.3% lower at $87.61 a barrel.
The pound has dipped 0.28% to $1.1594 versus the dollar this morning, but remains close to a six-week high. It is trading 0.1% lower against the euro at €1.1518.
On the UK government bond market, yields (or interest rates) are up slightly.
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Shell and other UK energy companies pay 40% tax, compared with the 19% corporation tax other companies pay (this is due to go up to 25% next April).
But only profits made in the UK are taxable, not those generated overseas.
Moreover, the windfall tax announced by then-chancellor Rishi Sunak in May, a 25% energy profits levy, allows companies to get 91p in tax relief for every pound invested in UK energy.
Global Witness: Shell's excess profits could pay for energy bills of 12.5m households
Shell has made £31bn in excess profits over the past twelve months fuelled by rocketing global energy prices, Global Witness, an international NGO, has calculated, while Brits have seen energy bill hikes drive an acute cost of living crisis.
It said the excess profits, made in addition to Shell’s normal, but already high profits, could pay for
The energy bills of 12.5 million British households, or
Almost half of the £68 billion the government needs to help its citizens with high energy bills, or
Heat pumps for 2.1 million UK homes, that would protect families from energy price volatility, or
The energy bills of everyone on universal credit; plus emergency aid for all 19 million Yemeni’s caught in one of the world’s worst humanitarian disasters; plus emergency shelter for all of the victims of Pakistan’s climate crisis caused floods – and still leave £17.1 billion in excess profits for Shell’s shareholders.
Jonathan Gant, fossil fuels campaigner at Global Witness, said:
Life is becoming harder and harder for people in Britain. Pensioners are going cold, children are going to school hungry, and people are scared for what winter will bring. There are no such concerns for Shell’s executives, who will be continuing to enjoy the high life while the rest of us suffer…
As prime minister Rishi Sunak and chancellor Jeremy Hunt look for ways to support their citizens, it should be blindingly obvious that energy firms are sitting on an untapped gold mine. It’s time to stop punishing people for a system they didn’t create and take the money this country desperately needs from the immense profits Shell and other energy companies are enjoying.
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Wael Sawan, head of Shell’s renewables and gas business, will replace Ben van Beurden as chief executive at the start of next year, when van Beurden’s nine-year stint at the helm will end.
Ben Stansfield, environmental affairs partner at law firm Gowling WLG, said Shell had begun to make more investments in renewable energy.
With recent economic concerns, especially within Europe, oil prices have begun to drop and incoming boss, Wael Sawan, will face the challenge of cutting the company’s emissions and shifting to more renewable energy sources.
Investment has been made in this area to diversify its portfolio with renewable energy provider acquisitions in both Nigeria and India. Shell is also obtaining a significant share in an Australian onshore wind, solar and large-scale battery storage facility to help reduce dependency on fossil fuels.
Despite this, Sawan faces significant strategic challenges in order to achieve Shell’s target of becoming a profitable net-zero emissions energy business by 2050.
Here is our full story on Shell:
Shell has reported profits of nearly $9.5bn (£8.2bn) between July and September, more than double the amount it made during the same period a year earlier, as it said it would increase its payments to shareholders.
The oil company continued to benefit from soaring energy prices prompted by Russia’s invasion of Ukraine, but it was not able to match the record $11.5bn profit it earned between April and June, because of weaker refining and gas trading.
Despite this, the FTSE 100 company’s third quarter earnings were higher than the $9bn forecasts by analysts, and were more than double the $4.1bn reported in the same quarter in 2021.
Oil companies’ bumper profits have prompted calls for higher taxes on the sector, and are likely to lead to fresh demands from political parties including Labour, the Liberal Democrats and the Greens, as well as from environmental campaigners, for the new government led by Rishi Sunak to look again at a higher windfall tax on oil companies.
Here is our full story on Lloyds:
Profits at Lloyds Banking Group dropped by more than 25% in the three months to September, as the UK’s “deteriorating” economic outlook forced it to put aside nearly £670m to protect against potential defaults on loans and mortgages.
Lloyds, which owns Halifax and is the country’s largest mortgage lender, said pre-tax profits had tumbled to £1.5bn in the third quarter, down from £2bn during the same period last year. That was larger than the 9.5% fall to £1.8bn that analysts had predicted.
The larger-than-expected drop in profits was despite a rise in interest rates, which have increased the cost of borrowing for loan and mortgage customers but propped up a key revenue stream for banks. Lloyds reported a 19% rise in net interest income, which accounts for the difference between interest earned on loans and paid out for savings, to £3.4bn.
Lloyds said that higher income was “more than offset by the impairment charge in light of the deterioration in the macroeconomic outlook”.
The bank put aside £668m to protect itself against bad loans, fearing some loan and mortgage customers could default on their debts.
That figure more than double the £285m analysts had expected, and compares with the £119m that Lloyds released last year, having originally put aside more money to protect against bad loans during the Covid pandemic.
Lloyds’ chief executive, Charlie Nunn, said that despite the economic outlook, the bank was ready to help borrowers, who have been squeezed by a rise in inflation and a rising borrowing costs.
Greenpeace calls for "proper tax" on energy firms' profits
Greenpeace has called on the government to impose a “proper tax” on energy firms’ profits and to use the money to help struggling households, for example by insulating homes. Its UK’s senior climate advisor Charlie Kronick said:
While Shell continues to bank billions, how many more households need to be forced into fuel poverty before the government wakes up: the only way to address the interlocking cost of living, energy security and climate crises is a street by street rollout of home insulation combined with a massive lift in ambition for renewable energy. These solutions would lower peoples’ bills permanently.
A proper tax on Shell’s reported Q3 $9.5bn profits as well as the billions made in Q1 and Q2 by all the fossil fuel giants would already have generated enough cash to insulate thousands of homes. Responding to the cost of living crisis is well within the government’s control - the question now is, will Rishi and his chancellor finally take responsibility and do something about it?
Shell, Europe’s largest energy company, has raked in more than $30bn in profits in the first nine months of the year, which could revive calls for a further windfall tax.
Rishi Sunak introduced a 25% energy profits levy earlier in the year when he was chancellor, which applies to profits made from extracting oil and gas. The Treasury expects it to raise £5bn this year.
ITV’s business and economics editor Joel Hill tweets:
Shell and Lloyds have both reported very plump profits this morning which will have no doubt caught the eye of the chancellor.
— Joel Hills (@ITVJoel) October 27, 2022
The war in Ukraine and rising interest rates mean energy companies and banks are in clover. And Jeremy Hunt has a hole in the public finances to fill.
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Introduction: Shell profits double to $9.5bn, ECB to hike rates
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
Shell has beaten expectations with a profit of $9.5bn (£8.1bn) in the third quarter and announced plans to raise its dividend and buy back more shares.
The figure was more than double the $4.1bn profit a year earlier, and better than the $9bn forecast by analysts. It was below the record $11.5bn profit the oil and gas giant made in the third quarter, because of weaker refining and gas trading. Shell hailed it as a “robust performance in a turbulent economic environment with lower crude prices and higher gas prices”.
The Anglo-Dutch company plans to boost the dividend by 15% in the fourth quarter, and extended its share repurchasing programme, announcing plans to buy $4bn of stock over the next three months.
Energy companies have benefited from the surge in oil and gas prices since Russia’s invasion of Ukraine on 24 February, although crude oil prices have fallen from highs of $120 a barrel in June to around $95 (for Brent crude, the global benchmark). Natural gas prices have also dropped sharply and are 70% below their peak in late August.
Energy firms’ bumper profits are in stark contrast to the precarious situation households and small businesses find themselves in, struggling with rocketing energy bills.
Shell’s chief executive Ben van Beurden said:
We are delivering robust results at a time of ongoing volatility in global energy markets. We continue to strengthen Shell’s portfolio through disciplined investment and transform the company for a low-carbon future. At the same time we are working closely with governments and customers to address their short and long-term energy needs.
Meanwhile, Lloyds Banking Group has reported a decline in quarterly profits as it prepared for a potential rise in bad loans. Pretax profits dropped 25% to £1.5bn for the three months to September, below the £1.8bn forecast by the City. The lender, which owns Halifax, pointed to the UK’s “deteriorating” economic outlook as it put aside nearly £670m to protect against potential defaults on loans and mortgages.
At lunchtime, the European Central Bank is widely expected to raise borrowing costs again to combat high inflation. The central bank is almost certain to raise its deposit rate by 75 basis points to 1.5%. It is also likely to start reducing its €8.8 trillion balance sheet following years of debt purchases and ultra cheap loans extended to banks.
Analysts at BNP Paribas said:
The ECB is still in catch-up mode. We think there is now a comfortable majority for taking rates into restrictive territory.
The Agenda
11am BST: UK CBI Retail sales for October (previous: -20)
1.15pm BST: European Central Bank interest rate decision((forecast: 75bps rate hike to 1.5%)
1.30pm BST: US GDP for third quarter (forecast: 2.4%, previous: -0..6%)
1.30pm BST: US Durable goods orders for September (forecast: 0.6%, previous: -0.2%)
1.45pm BST: ECB Press conference
3.15pm BST: ECB President Christine Lagarde speech
4.30pm BST: Bank of England Deputy Governor for Prudential Regulation Sam Woods speech
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