Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Global manufacturing growth hits 25-month high; US jobless claims fall – as it happened

Skyscrapers in The City of London financial district at sunrise.
Skyscrapers in The City of London financial district at sunrise. Photograph: Hannah McKay/Reuters

Afternoon summary

Time for a quick recap, after a day dominated by employment worries.

Global manufacturing has posted its strongest growth in over two years. Factory bosses across the world reported that new orders and output grew in September.

This lifted the J.P.Morgan Global Manufacturing PMI to 52.3 in September, up from 51.7 in August.

UK factories posted solid growth, with the manufacturing PMI dipping to 54.1 in September, down from August’s two-and-a-half year high of 55.2.

That shows growth...but it didn’t stop firms cutting staff levels again. Industry experts warned that the employment picture has darkened.

The Bank of England’s latest survey of decision makers at UK companies also found they expect employment levels to fall in the coming months.

The US unemployment picture remains troubling too, with 837,000 new jobless claims filed last week.

The pound had a volatile day. It first fell after the EU launched legal proceedings against the UK for infringing the Brexit withdrawal deal, only to then rally on optimistic noises from the Brexit free trade deal talks.

But it has now subsided again, down 0.2% at $1.2882, on concerns that fishing rights are proving troublesome.

UK jet engine maker Rolls-Royce has finally launched a cash call to shore up its battered balance sheet. The firm is raising £2bn from shareholders, £1bn in a bond, plus a £1bn loan from its bankers and £1bn credit from the government.

Rolls-Royce insisted the move would help it rise out the Covid-19 crisis, but shares have ended the day at a 17-year low.

Halfords had a better day, though, surging by 30% after it hiked its profits guidance thanks to strong sales of bicycles in the pandemic.

And in the world of robotic grocers, Ocado has been accused of patent infringement by Norway’s Autostore. The UK firm has hit back, saying it is checking whether Autostore has infringed its patents.

Goodnight. GW

A subdued close in Europe

European stock markets have closed rather weakly, as the early optimism about US stimulus talks waned.

The Stoxx 600 index has close just 0.5 points higher at 361, a gain of 0.15%.

Although France and Italy rallied slightly, Germany’s DAX fell 0.4% after pharmaceuticals firm Bayer posted a profits warning (sending its shares down 12%).

In London, the FTSE 100 has closed 13 points higher at 5,879, up 0.23%. Aerospace engineering firm Melrose gained 4%, with energy company SSE up 3.8%.

But Rolls-Royce has sunk to its lowest closing level in 17 years, tumbling 10% to 116p after announcing a deeply discounted rights issue to shore up its finances.

Less impressively, factories around the globe continued to cut jobs last month (including in the UK, as we learned earlier).

That’s the 10th month of falling manufacturing employment in a row. But the pace did slow, with staffing levels raised in the US and China, but reduced in the eurozone and Japan.

Olya Borichevska, Global Economist at J.P.Morgan, sums up today’s report:

“The global industrial sector continued its recovery in September. While overall the September manufacturing PMIs disappointed, there were a number of positive aspects in the report.

Against a decline in the output index, the new orders PMI and its ratio to finished goods inventory both increased suggesting a near term gain in the output index. Overall we think the recovery should be sustained as the re-opening of economies continues.

The labour market remains subdued, with the level in the employment PMI depressed. That said, pockets of jobs growth raise the possibility that the retrenchment on this front is softening.”

Global manufacturing PMI for September 2020

Brazil’s factories posted the fastest growth last month, followed by India, according to the PMI surveys, while Myanmar and Mexico suffered contractions.

Global factory PMI reports
Global factory PMI reports Photograph: JP Morgan/Markit

World manufacturing growth at two-year high

Growth across the world’s factories hit its highest level in over two years in September, as manufacturing recovered from Covid-19 lockdowns.

That’s according to JP Morgan, which has crunched all the latest manufacturing PMI reports from the UK, eurozone, the US and across Asia. It found that output and new orders both rose for the third successive month, while new export business expanded for the first time in over two years.

This lifted the J.P.Morgan Global Manufacturing PMI to 52.3 in September, up from 51.8, showing faster growth.

They explain:

Faster expansions in the US and the eurozone were partly offset by slower growth in China and the UK and ongoing contraction in Japan. Subsector PMI data signalled that the upturn remained broad-based, with expansions signalled across the consumer, intermediate and investment goods industries.

Growth accelerated to a near ten-year high at investment goods producers, but eased in the other two categories. Underpinning higher production volumes was a further increase in new business. New order intakes rose at the quickest pace in almost two-and-a-half years, boosted by the first increase in international goods trade since August 2018.

Just in: America’s manufacturing posted solid growth last month, two rival surveys have showed.

The Institute of Supply Management’s monthly factory PMI has dropped to 55.4 for September, from 56.0 in August. That shows pretty decent expansion, although slightly slower than a month ago.

IHS Markit’s competing PMI survey show a slightly different story - with the index rising to 53.2 in September, up from 53.1 in August.

That shows the sharpest improvement in operating conditions across the U.S. manufacturing sector since early-2019...although it’s still lower than the ‘flash’ estimate of 53.5 recorded during September.

US factories reported higher demand for plant and machinery, as customers increased their investment spending. With order books busier, firms took on more staff too (unlike in Britain, where they are still cutting employee numbers).

Ah... perhaps we won’t get a stimulus deal today after all:

This has knocked stocks back, with the Dow losing its earlier gains.

The European Medicines Agency, the European regulator, has started its first rolling review of a Covid-19 vaccine: the vaccine that is being developed by the University of Oxford and AstraZeneca.

This means its human medicines committee has started evaluating the first batch of data, although a conclusion can’t be reached yet on safety and effectiveness. To speed up the approval process, the committee will review data as it becomes available from the ongoing clinical studies, before deciding that it has received enough data and that a formal application for approval should be submitted by the company. The vaccine is currently being tested in trials involving up to 60,000 people around the world.

The EMA decided to start a rolling review after preliminary results from non-clinical and early clinical studies suggested that the vaccine triggers the production of antibodies and T cells (cells of the immune system, the body’s natural defences) that target the virus.

Wall Street has opened higher, with the Dow Jones industrial average gaining 223 points or 0.8% to 28,005.

Investors are looking beyond the persistently high US jobless claims, and hoping for a fiscal stimulus deal to be hammered out on Capitol Hill.

Despite America’s high unemployment levels, the country’s housing market remains hot.

House prices at the 20 largest US cities jumped by 3.9% per year in July, up from 3.5% in June, according to the latest S&P CoreLogic Case-Shiller index.

With relatively few homes on the market, prospective buyers are having to compete hard, with record low interest rates making large loans more affordable.

Prices rose fastest in Phoenix (+9.2%), followed by Seattle (+7%) Charlotte (+6%).

Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, explains:

“Prices were particularly strong in the Southeast and West regions, and comparatively weak in the Midwest and Northeast”

Worryingly, there’s been little reduction in the number of new weekly jobless claims during September, despite the drop to 837,000 last week.

That suggests there’s a lot of churn in the US labor market:

Glassdoor senior economist Daniel Zhao fears that America’s labor market is stagnating:

“The latest UI claims report shows UI claims made almost no progress so far in September, unchanged from the end of August. Claims remain stagnant at high levels, which is a difficult reality for millions of workers six months into the pandemic.

Economic recovery propelled by sheer momentum can only go so far amid a pandemic. This stagnation signals enormous ongoing churn underneath the labor market as layoffs continue.”

As this chart shows, the number of Americans on jobless benefit is around three times higher than in March, due to heavy job losses during the pandemic.

US unemployment claims figures
US unemployment claims figures Photograph: Glassdoor

Today’s weekly jobless report is an appetiser for tomorrow’s Non-Farm Payroll, which will show how many jobs were created in September.

Elizabeth Pancotti of Employ America predicts the NFP (the last before the presidential election) could be unimpressive.

Economists predict that the US jobless rate will have dropped from 8.4% to 8.2%, with the employment total rising by 850,000 in September - compared to 1.37 million in August.

Snap reaction to the US jobless figures

Richard Flynn, UK managing director at Charles Schwab, says today’s US jobless report shows a marginal recovery:

“Today’s decline in initial jobless claims shows some sign of improvement in the labour market,, but without extended supplemental unemployment benefits, the outlook for the broader economic recovery and US GDP growth remains highly uncertain.

“While equities have continued to endure another round of volatility, market technicals appear to be improving following the recent correction. Any progress towards a fiscal relief package may also have the potential to act as a bullish catalyst, even if market participants are already expecting it.

Diane Swonk, chief economist at Grant Thornton, says the US jobless claims total is still ‘staggeringly high’.

Gregory Daco of Oxford Economics is also concerned that claims aren’t falling - more than six months after the initial lockdown.

Updated

US initial jobless claims fall

Newsflash: The number of Americans filing new unemployment claims in the last week has fallen, but is still painfully high.

Around 837,000 fresh initial claims for jobless support were filed across the US last week, down from 873,000 in the previous seven days.

That’s a welcome drop, but it still means that more Americans lost their jobs than in any week before the Covid-19 crisis.

The ‘continuing claims’ total (people who have been unemployed for at least a fortnight) also fell, quite sharply, from 12.747 million to 11.767 million.

More details and reaction to follow.....

Ocado has responded to Autostore’s claims of patent infringement -- telling the City that it was unaware of these allegations until today.

Ocado is also vowing to protect its own robotic shopping intellectual property against Autostore.

Here’s the statement:

Ocado Group plc notes the press release from Autostore today. Ocado confirms it has not received any papers in relation to these claims and this is the first we have heard of this new claim. We are not aware of any infringement of any valid Autostore rights and of course we will investigate any claims once we receive further details.

We have multiple patents protecting the use of our systems in grocery and we are investigating whether Autostore has, or intends to infringe those patents. We will always vigorously protect our intellectual property.

Wall Street is on track to rally when trading begins in an hour, as investors hope for progress on a US stimulus package.

The S&P 500 index is 1% higher in the futures market, ahead of fresh talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin.

Craig Erlam, senior market analyst at OANDA Europe says there’s optimism that the gap between the Democratic package ($2.2trn) and the Republicans proposal ($1.5trn) could narrow.

It’s been a very US-centric week so far and that’s unlikely to change, with stimulus talks continuing and Friday’s jobs report being of great interest.

It’s the former that’s getting investors excited over the last 24 hours, with the Democrats and Republicans seemingly edging gradually closer to a deal. The talks have moved at a snails pace and there’s still a significant difference between the packages the two are proposing, but they are heading in the right direction.

The decision to delay a vote in the House on the Democrat proposal, in favour of another day of negotiations with Treasury Secretary Steve Mnuchin is promising. Whether it actually yields anything is another thing but there’s more optimism around a pre-election stimulus package than there was a week ago and that’s obviously great news for investors.

Ocado accused of patent infringement

Ocado’s shares are down 5% today after a Norwegian rival accused the company of stealing the technology behind its robot-powered grocery picking warehouses.

AutoStore has filed patent infringement lawsuits in America and the UK against the FTSE 100-listed online grocery company.

The company wants to stop Ocado selling the so-called Ocado Smart Platform (OSP) to other retailers (this is the hi-tech system uses robots to swarm over a 3D frame called the “grid” to pick shoppers’ orders).

Ocado’s share price has soared over the last three years after it struck its first deal to supply the technology overseas chains. The first deal, with Groupe Casino in France, has been followed by eight others, ranging from Kroger in the US to Aeon in Japan – and hopes of further deal have put the company’s worth on a par with Tesco, the UK’s biggest retailers.

AutoStore is seeking orders barring Ocado from manufacturing, importing, using and selling the OSP which it claims is based on its own robotic platform.

AutoStore is also seeking financial damages. AutoStore chief executive Karl Johan Lier said its “ownership of the technology at the heart of Ocado’s warehousing system is clear”, adding:

“We will not tolerate Ocado’s continued infringement of our intellectual property rights in its effort to boost its growth and attempt to transform itself into a global technology company.”

Ocado’s share price in 2020
Ocado’s share price in 2020 Photograph: Refinitiv

Updated

The pound has just dramatically recovered those early losses, after the FT’s Sebastian Payne tweeted that negotiations on a Brexit free trade deal are making progress.

Sterling has jumped back to $1.2940, on the prospect of a “landing zone” to resolve differences on state aid. Fishing rights, though, seem to be the sticking point.....

(the tunnel is the point at which intensified negotiations take place, once a deal is close)

Getting back to Rolls-Royce... the UK government is playing a vital role in its rescue fundraising, argues Edward Cropley of Reuters Breakingviews.

The pledge, in principle, for an extra £1bn loan from the taxpayer underpins today’s £5bn package - and recognises just how important Rolls-Royce is to the UK economy today.

Cropley writes:

In its darkest hour, Britain turned to Rolls-Royce for salvation. As a developer of the Merlin engine that powered the legendary Spitfire, the 114-year-old firm can claim more credit than most for the Battle of Britain air victory that prevented a Nazi invasion. Eighty years later, in arguably Rolls’ darkest hour, Prime Minister Boris Johnson is returning the favour.

The comparison is apt, and not just because Johnson likes to model himself on wartime leader Winston Churchill. Rolls-Royce engines and technology keep Britain’s nuclear submarine fleet afloat, making it still central to national security. And as the world’s second-largest maker of jet engines, behind General Electric, it is also arguably “too big to fail” at a global level.

Most importantly, the £5bn refinancing unveiled by Chief Executive Warren East on Thursday puts paid to the question of failure due to the mass grounding of airline fleets by Covid-19...

More here.

Halfords has raised its profit guidance for the rest of the year after a surge in bike sales during the pandemic.

The retailer said demand for bikes and cycling products had continued following the end of the peak cycling and summer staycation season, and sales were growing again for its car products and services.

As a result, it now expects half-year profits to top £55m, compared with the £35m to £40m it was predicting last month. Shares jumped 21% after the trading update was published on Thursday morning.

Pound falls as EU launches Brexit legal action

Back in the markets, the pound has weakened after the EU launched legal action against the UK for planning to breach the Brexit withdrawal agreement.

Brussels took action after Boris Johnson failed to respond to demands that he drop elements of the UK’s draft internal market bill that would break international law.

Announcing the move, EC president Ursula von der Leyen said the UK had already failed to live up to its obligations to act in “good faith” (the bill was passed by the House of Commons yesterday, and will now be scrutinised by the Lords).

Brussels’ move knocked the pound down by three-quarters of a cent against the US dollar, to $1.284. It has also lost almost one eurocent, falling to €1.093.

Sterling had rallied earlier this weeks, on hopes of a breakthrough in the free trade talks. This legal action may hurt those talks...although the Telegraph’s James Crisp argues that Europe’s legal wheels turn slowly.

But still, being hauled up for breaking international law isn’t a great look, especially when trying to cut new trade deals across the world. Even leading Brexiteer Nigel Farage thinks the EU have a point!

The Office of National Statistics has reported that 11% of the UK workforce were on furlough as of mid-September, with 85% of businesses currently trading.

That suggests that millions of jobs are vulnerable, as the furlough scheme (in which the government currently pays 70% of wages) ends at the end of October

It will be replaced by a subsidy scheme for workers on reduced hours, in which the government only pays 22% of wages, and employers pay at least 55%.

Bank of England: Unemployment up as furlough support ends

The Bank of England has reported that UK businesses are expecting to cut their workforces, and slash investment.

The BoE’s latest survey of chief financial officers from small, medium and large UK businesses, conduced this month, found that sales are expected to remain weak for many months:

  • Businesses estimated that their sales in 2020 Q3 would be 14% lower than they would otherwise have been because of Covid-19.
    That represents a significant improvement from -30% in Q2. But less recovery was expected over the next two quarters. The impact of Covid-19 on sales was expected to be -14% in 2020 Q4 and -12% in 2021 Q1.
  • Covid-19 was expected to lower employment by 8% in 2020 Q3 and 9% in 2020 Q4, relative to what it would have been.
    After that, the effect on employment was expected to start to fall back to -6% by 2021 Q2. Investment was expected to be 21% lower in 2020 Q3 and to recover gradually after that.

The Decision Maker Panel also found that fewer workers are on furlough this month (firms now have to pay a greater share of the wages, as the scheme winds up this month)

  • The percentage of employees on furlough (still employed but not required to work any hours) continued to fall in September. Businesses reported that 7% of employees were on furlough in September down from 12% in August and a peak of 36% in April.

  • Overall uncertainty remained high. 71% of firms viewed overall economic uncertainty as high or very high in September. That was similar to 70% in the August survey.

Anxiety about Britain’s exit from the EU has also shot up the list of worries:

  • The percentage of businesses reporting that Brexit was in their top-three sources of uncertainty increased from 47% in August to 52% in September. That was the highest level since last December.

  • The September survey also asked businesses how ready they were for potential extra requirements of trading with the EU when the current transition period comes to an end. 4% of businesses reported that they were fully prepared, 43% were ‘as ready as they can be’, 28% said that they were partially prepared, 3% were not at all prepared and 21% did not trade with the EU.

Updated

Eurozone unemployment rises amid Covid-19 woes

The Covid-19 pandemic has also driven up unemployment in the euro area.

Figures just released show that the jobless rate in the euro area rose to 8.1% in August, the fifth monthly rise in a row, up from 8.0% in July.

It also rose in the wider EU, to 7.4% from 7.3%.

Statistics body Eurostat estimates that the unemployment total in the eurozone jumped by 251,000 during August, lifting the total out of work to 13.188m.

Young people are suffering particularly badly from job losses, as companies are forced to shut during the pandemic or see sales slide.

Eurostat says the youth unemployment rate jumped in August:

In August 2020, 3.032 million young persons (under 25) were unemployed in the EU, of whom 2.460 million were in the euro area.

In August 2020, the youth unemployment rate was 17.6% in the EU and 18.1% in the euro area, up from 17.4% and 17.8% respectively in the previous month.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says the employment picture at UK factories has ‘darkened’ - despite manufacturers reporting that activity picked up again last month.

“Manufacturing made solid progress towards recovery in September, with just a minor step back from August’s two-and-a-half-year index high. New pipelines of work increased for the third month in a row and export orders the strongest for almost two years.

The impetus behind this resurgence, lies in the release of delayed projects and more people returning to work but the employment picture overall darkened significantly. Some firms continued to make use of the furlough scheme to retain their workforce, but larger numbers of redundancies this month means we have a wretched end to the third quarter as job numbers fell for the eighth month in a row.

These job cuts are putting strain on supply chains, Brock warned, and could even push up prices in the shops.

Longer delivery times and increased competition for raw materials, caused the highest rate of input price inflation since December 2018. The increase in prices to customers followed closely behind and is set to continue for the remainder of the year.

In spite of these difficulties, the sector’s glass remained half full, and optimism for the year ahead was sustained. Some businesses were using forward buying strategies to build stocks for Christmas and Brexit, which may boost employment levels, but it is anyone’s guess whether more lockdown disruptions derail this hope.”

Rob Dobson, Director at IHS Markit, fears that more manufacturing jobs will be lost once the furlough scheme ends this month, even though companies say activity is rising.

Here’s his take on today’s UK manufacturing PMI report:

“September saw UK manufacturing continue its recovery from the steep COVID-19 induced downturn.

Although rates of expansion in output and new orders lost some of the bounce experienced in August, they remained solid and above the survey’s long-run averages. Export demand is also picking up, as economies across the world restart operations and adjust to COVID-19 restrictions. Business sentiment remained positive as a result, with three-fifths of UK manufacturers forecasting a rise in output over the coming year.

“While the sector is still making positive strides, keep in mind that there remain considerable challenges ahead. This is especially true for the labour market, which saw further job losses and redundancies in September.

The full economic cost incurred by 2020 will likely rise further as governments look to re-introduce some restrictions, job support schemes are tapered and rising numbers of firms start focussing on Brexit as a further cause of uncertainty and disruption during the remainder of the year.”

Here’s the UK factory PMI report:

UK factory PMI to September 2020

UK factories keep growing, and keep cutting staff

UK factories posted solid growth in September too, although not quite as fast as in August.

The UK manufacturing PMI has dipped to 54.1 in September, down from August’s two-and-a-half year high of 55.2. That’s still over the 50 point mark showing stagnation, for the fourth month in a row.

Purchasing managers interviewed for IHS Markit’s survey report that new work rose, as companies reopened their operations and welcomed staff back.

Markit explains that the reopening of the economy over the summer boosted demand:

Solid expansions were seen in the consumer, intermediate and investment goods sectors, with the steepest increase in intermediate goods. Large manufacturers saw the fastest growth and small-sized firms the slowest. Underpinning the ongoing recovery in output volumes was a further increase in new order intakes.

New business rose for the third successive month, reflecting a combination of improving customer demand, rising export orders, signs of recovery in the retail sector and the reopening of schools.

But worryingly, firms also continued to cut their workforce - even though the government’s furlough scheme was still running.

Job losses were registered for the eighth consecutive month in September, although the rate of reduction eased to its lowest since February. Some firms implemented redundancy programs in response to the ongoing economic impact of the COVID-19 pandemic.

Eurozone manufacturing growth strengthened last month

Just in: Eurozone factory growth has hit its strongest level in over two years, led by a recovery in Germany.

The eurozone manufacturing PMI, produced by data firm IHS Markit, has jumped to 53.7 in September, up from 51.7 in August.

Factory bosses across the region reported that output and new orders both rose sharply, supported by a resurgence in exports, as the global economy rebounded from its Covid-19 disruption.

Germany and Italy both reported their fastest factory growth in over two years, with France, Spain, Austria and the Netherlands also seeing growth (with manufacturing PMIs over 50).

Chris Williamson, Chief Business Economist at IHS Markit, says eurozone manufacturing has posted its strongest quarter since the start of 2018.

“The eurozone’s manufacturing recovery gained further momentum in September, rounding off the largest quarterly rise in production since the opening months of 2018.

Order book growth and exports also accelerated, indicating a welcome strengthening of demand. Job losses consequently eased as firms grew more upbeat about prospects for the year ahead, with optimism returning to the highs seen before the trade war escalation in early 2018.

But, the recovery was partly driven by strong demand for German-made investment goods.:

The recovery would have been far more modest without Germany, however, where output has surged especially sharply to account for around half of the region’s overall expansion in September. Germany’s performance contrasted markedly with modest production growth in Spain, slowdowns in Italy and Austria, plus a particularly worrying return to contraction in Ireland.

Here’s our news story on Rolls-Royce’s new funding package:

Rolls-Royce rescue package: what the analysts say

Today’s £5bn package of new equity and bonds, and fresh loans, should help Rolls-Royce handle the “crushing impact” of Covid-19 crisis, says Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown:

The aircraft manufacturer is in a bleak position given the collapse in international air travel. There is little end in sight for the falling demand for new planes and it’s already shed assets and announced mass job losses.

It had considered getting a cash injection from sovereign wealth funds in Singapore and Kuwait, but withdrew from those talks. It will instead raise another £1 billion through the corporate bond market.

The 10 for 3 rights issue, should bolster liquidity and reduce balance sheet leverage and will need to be approved by shareholders at a general meeting on October 27.

Michael Hewson of CMC Markets points out that Rolls-Royce’s existing investors helped to scupper fundraising talks with sovereign wealth funds in Kuwait and Singapore.

Weekend speculation over a heavily discounted rights issue has seen Rolls Royce shares continue to decline this week, with management also reported to be in lengthy talks with a host of sovereign wealth funds. At the end of last week there was also speculation that the Kuwait Investment Office was also mulling a stake, which would have put the UK government in a somewhat tricky situation given it has a veto of sorts over any overseas shareholders.

Rolls Royce clearly needs the cash to shore up its balance sheet, given the sharp drop in revenues it has experienced in the last few months, and which is likely to continue for some time to come. The continued procrastination however is not helping, and last night’s news that it had called off its talks with KIO and Singapore’s sovereign wealth fund closed off another avenue for the business. It’s being reported that the failure of talks was due to opposition from existing shareholders, which is fair enough, but then these existing shareholders need to come up with alternatives or face the breakup of the business. A vote will be held on the deal on 27th October, where shareholders will have the opportunity to either put up or shut up.

Today’s announcement that Rolls Royce will be launching a £1bn bond issue as well as a £2bn 10 for 3 rights issue at a 41% discount to 130p is therefore long overdue, and will hopefully be well received by the same recalcitrant shareholders who were reluctant to dilute their stakes with funds from overseas.

Despite the drag effect from Rolls-Royce, the London stock market has opened higher.

The FTSE 100 index has gained 45 points, or 0.8%, to 5911.

Coca-Cola Hellenic Bottling Company is the top riser, up 3%, after Goldman Sachs raised its recommendation to ‘buy’ from ‘neutral’.

Other European markets are also being lifted by hopes for a US stimulus package, with the Stoxx 600 index up 0.9%.

Today’s talks between Nancy Pelosi and Steven Mnuchin are crucial, says Mohit Kumar of Jefferies:

The focus will would be on the talks between Mnuchin and Pelosi today after Mnuchin put forward a new plan, reported to be $1.62trn (Mnuchin described it as in the neighbourhood of $1.5trn), which is an improvement on the previous Republican stance.

Crucially, the new proposals include increased provisions for state and local aid, which has been a key demand for the Democrats. It is not clear whether the proposal also includes a clause for $400bn of additional stimulus if the COVID situation worsens. The improved Republican offer, though short of the $2.2trillion proposed by the Democrats, has raised market hopes that a deal could be reached on the stimulus.

Rolls-Royce says it has also “agreed commitments” for a new two-year term loan facility of £1bn.

That means today’s total proposed package of new equity and borrowing is worth £5bn (£2bn from shareholders, an upcoming £1bn bond, this new two-year loan, and (RR hopes) a £1bn loan from the UK Export Finance).

Rolls-Royce shares hit near 17-year low

Oof. Shares in Rolls-Royce have slumped to their lowest level since January 2004.

They fell as much as 7% at the start of trading in London, hitting 120p.

Rolls-Royce has now lost over 80% of its value since January, with a current market capitalisation of below £2.5bn.

Rolls-Royce’s share price over the last 20 years
Rolls-Royce’s share price over the last 20 years Photograph: Refinitiv

Under today’s proposed £2bn rights issue, investors will be diluted unless they stump up to buy 10 discounted shares for every three they already own.

The offer is fully underwritten by a group of City banks, meaning they guarantee to buy any shares which aren’t taken up by investors

Updated

Rolls-Royce’s chief executive, Warren East, says the company is taking ‘ decisive and transformative action’ in response to the Covid-19 crisis.

“The sudden and material effect of the COVID-19 pandemic has had a significant impact on the commercial aviation industry, resulting in a sharp deterioration in the financial performance of our Civil Aerospace business and, to a lesser extent, our Power Systems business.

East explains that raising £2bn from shareholders (along with a £1bn bond, and hopefully an extra £1bn loan from the UK government) will improve the company’s resilience.

By raising additional capital now, we will improve our liquidity headroom and reduce our level of balance sheet leverage, while supporting disciplined execution and investment to ensure we maximise value from our existing capabilities.

The strength of our people, brand and global footprint, together with our innovation and technology will support us as we emerge from the COVID-19 pandemic and implement our longer-term strategy, playing a crucial role in the world’s transition towards a net-zero carbon economy.

Rolls-Royce is also hoping to receive more financial support from the UK government, through a new £1bn loan.

It says:

UK Export Finance has indicated that it would, in principle, support an extension of its 80% guarantee of our existing £2bn five year term loan to support a loan amount increase of up to £1bn.

This is subject to completion of the Rights Issue, agreement of terms with lenders and approval of those terms by UK Export Finance and HM Treasury, and there is therefore no guarantee that this increase will take place.

Updated

Rolls-Royce launches £2bn rights issue

A Rolls Royce Trent XWB engine on view on the assembly line at the Rolls Royce factory in Derby.
A Rolls Royce Trent XWB engine on view on the assembly line at the Rolls Royce factory in Derby. Photograph: Paul Ellis/AFP/Getty Images

Rolls-Royce, one of the UK companies worst hit by the Covid-19 pandemic, has announced plans to raise billions of pounds to shore up its balance sheet.

The Derby-based jet engine maker is tapping its shareholders for £2bn through a rights issue (in which investors buy new shares at a discounted price). It is also planning to raise another £1bn through a bond offering.

Pressure has been building on Rolls-Royce ever since the pandemic began, and countries began imposing flight restrictions and quarantine rules. Demand for new engines has slumped as airlines have cancelled orders.

With many planes grounded, RR’s engine servicing business has also had less business.

Rolls-Royce told the City this morning that these new funds will help it through the Covid-19 crisis, and:

  • Improve our liquidity headroom
  • Reduce our level of balance sheet leverage
  • Support disciplined execution and investment to ensure we maximise value from our existing capabilities and pursue disposals in a manner that delivers value, as we position the Group to benefit from new technologies focused on sustainable power.

Updated

Introduction: Stimulus hopes lift markets

Treasury Secretary Steven Mnuchin leaving the Capitol after meeting House Speaker Nancy Pelosi.
Treasury Secretary Steven Mnuchin leaving the Capitol after meeting House Speaker Nancy Pelosi. Photograph: Manuel Balce Ceneta/AP

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

Hopes of a last-ditch stimulus package to nurse the US economy through the Covid-19 crisis are lifting markets this morning, as investors wait to see how the world’s factories fared last month.

After a rough September, European shares should begin October with some gains - Britain’s FTSE 100 is expected to rise around 0.5%.

Last night, US treasury secretary Steven Mnuchin and House of Representatives speaker Nancy Pelosi failed to strike a coronavirus stimulus deal -- but they’ve not given up... and they might be getting closer.

Pelosi postponed a vote on the Democrats’ proposed $2.2tn stimulus package so that talks between the two sides could continue, after Mnuchin indicated the White House might raise its own scheme to $1.5tn.

Hopes of a compromise gave Wall Street a late lift, with the Dow rallying by 1.2%. It also pushed stocks higher in Asia (although not in Japan, where a technical glitch meant trading was abandoned for the day.)

Jingyi Pan, senior market strategist at IG, explains:

Hinging on hopes for the passage of the next US fiscal stimulus package, US equities mostly concluded the quarter on a positive note. US treasury secretary Steven Mnuchin’s latest optimism in working out the next fiscal package served as a ray of sunshine through the clouds, although some doubts cast by the Republican party did find some paring of gains later into the Wednesday session.

The fact of the matter however remains that both sides remain at work in ironing out the details that would add this into the list of things to watch into the end of week. Assuming any middle ground achieved between what had been the higher bound for Republicans at $1.5 trillion and Democrat’s latest $2.2 trillion plan in terms of costs, this could potentially provide the US market with another booster shot. One to watch.

The latest weekly US unemployment figures are expected to show the need for fresh stimulus. Economists predict that around 850,000 people filed new jobless claims last week.

City traders will also be watching latest survey of purchasing managers at factories across the eurozone, the UK and the US. Yesterday’s Chicago PMI showed a sharp jump in activity, but today’s figures are likely to show growth slowed at British manufacturers.

The agenda

  • 9am BST: Eurozone manufacturing PMI for September
  • 9am BST: Italian unemployment rate for August
  • 9.30am BST: UK manufacturing PMI for September
  • 10am BST: Eurozone unemployment rate for August
  • 1.30pm BST: US weekly jobless claims figures
  • 2.45pm BST: US manufacturing PMI for September

Updated

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
49 Times People Ordered From Cheap Websites And The Products Were Hilariously Bad
Online shopping can feel like a gamble. The product photos promise something sleek, stylish, and exactly what you were hoping for but sometimes what arrives at your door tells a completely different story. Recently, people online began sharing the expectation vs. reality moments from their Temu and AliExpress purchases. From…
Bored Panda
Bored Panda
'Love Is Blind' Season 11: Everything We Know
Despite lingering criticism, the Netflix reality hit doesn't seem to be ending anytime soon.
Marie Claire
Marie Claire
Kylie Jenner 'Ozempic Hands' Explained: Plastic Surgeon Reveals Truth Behind Inside 'The Kardashians' Star's Transformation
Kylie Jenner faces renewed 'Ozempic hands' rumours, but a plastic surgeon suggests her slimmer look could be normal weight loss, as the story also revisits her comments on postpartum recovery and the harsh scrutiny of women's bodies online.
International Business Times UK
International Business Times UK
10 Photos of Sarah Tena: Quick Facts About the Model Alleging Timothée Chalamet 'Blindsided' Her
Discover the story of Sarah Tena, the former adult entertainer who claims to have had a secret romance with Timothée Chalamet, sparking global curiosity.
International Business Times UK
International Business Times UK
"I was like, 'Wow, I'm about the same size as this huge animal!'" How a close encounter with wolves, a rough break-up and a Spider-Man director helped Evanescence produce one of their most important singles
Needing a follow-up to one of the biggest albums of the 2000s, Amy Lee wrote some brutally honest lyrics and a classic song to soundtrack them
Metal Hammer
Metal Hammer
‘That is a CLEAR sign not to drink from that’: Chicago woman buys water bottle from Primark. Then she puts it in the dishwasher
Years since the Stanley Cup craze, water bottle tumblers still remain extremely popular. Nearly every retailer has some form of them in various brands, colors, and sizes making them convenient and sustainable. But how durable are they if they run through the dishwasher? If this thought has ever crossed your…
The Mary Sue
The Mary Sue
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.
Download on the AppStore Get it on Google Play