Closing summary
Time to wrap up.
Stocks are rising on both sides of the Atlantic, hitting fresh record highs, despite the US government shutdown. The S&P 500 and the Nasdaq rose to new peaks at the open.
The pan-European Stoxx 600 rose by 0.7% to an all-time high, led by gains in Germany and France, with the Dax up 1.5% and the CAC 1.4% ahead. The FTSE 100 index in London is unchanged, after closing at record high yesterday.
Thames Water may not fully comply with rules on pollution of England’s waterways for as long as 15 years, according to a new plan by creditors who are scrambling to avoid the utility being forced into government administration.
Tesco has warned of an intensifying price battle in the run-up to Christmas amid “pressure on household budgets” but upped its full-year profit expectations by £100m after it grabbed market share and drew in more shoppers by keeping a lid on inflation this summer.
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Thank you for reading. We’ll be back tomorrow. Take care! – JK
Returning to our earlier story:
Tesco has warned of an intensifying price battle in the run-up to Christmas amid “pressure on household budgets” but upped its full-year profit expectations by £100m after it grabbed market share and drew in more shoppers by keeping a lid on inflation this summer.
The UK’s biggest retailer said it expected to make annual profits of up to £3.1bn, up from a previous maximum of £3bn, as it said efforts to cut the price of 6,500 items by an average 9% had “worked better” than it predicted. The company said its rate of inflation was “well behind” the latest headline rate for groceries of 4.9% set out by the analysts Worldpanel, formerly known as Kantar.
Referring to comments by Asda in March that it would invest “a pretty significant war chest” in cutting prices, Ken Murphy, the chief executive of Tesco, said:
Some of our competitors went pretty strong on their statement of intent at the start of the year and have acted on that. It doesn’t feel that rational. We have invested in price to maintain our momentum and we are anticipating the second half could be more intensive not less.
Wall Street indices hit record highs at the open
Shares are up on Wall Street, taking the benchmark S&P 500 and the tech-heavy Nasdaq to fresh all-time highs.
Investors shrugged off the US government shutdown, and took heart from weaker jobs data that have cemented expectations of two more interest cuts this year.
The S&P 500 rose by 20 points or 0.3% to 6,731 while the Nasdaq Composite climbed by 130 points, or 0.6%, to 22,885.
In Europe, shares are also rallying, boosted by chipmakers and healthcare stocks, with the pan-European Stoxx 600 hitting a new record.
Updated
Tesla beats forecasts for Q3 deliveries
Just in: Tesla has smashed Wall Street expectations for car deliveries in the last quarter.
The electric carmaker has reported it delivered 497,099 vehicles in the third quarter, up 7.4% from 462,890 a year earlier. Analysts had expected about 443,919 vehicles for the July–September period.
Tesla reported:
In the third quarter, we produced over 447,000 vehicles, delivered over 497,000 vehicles and deployed 12.5 GWh of energy storage products – a record for both deliveries and deployments.
Those record deliveries comes despite persistently weaker sales in the European Union this year, where some buyers appear to have been put off by Elon Musk’s support for Donald Trump, before the two men fell out earlier this year.
Analysts, however, are expecting a sales slump in the October-December period following the unusual sales boost in the latest quarter, Reuters reports.
Thames Water may not fully comply with rules on pollution of England’s waterways for as long as 15 years, according to a new plan by creditors who are scrambling to avoid the utility being forced into government administration.
The creditors who in effect own Thames Water have said they will commit to paying fines for pollution, as well as writing off more of their loans and investing more in the company, in new proposals published on Thursday (see opening blogpost for details)
However, the creditors also said that “a full return to legal, regulatory and environmental compliance” under their plan would not be completed until at least the 2035-2040 period, raising the prospect of sewage levels above legal limits in some places for at least a decade.
They will argue for further leniency on fines from the regulator, Ofwat, during that period, and that it will be impossible for the company to make upgrades across London and south-east England more quickly because of the scale of the work needed after years of neglect.
More here:
US company hiring plans weakest since 2009
Newflash: US companies have been cutting back on hiring plans too, with workers facing a recruitment slowdown on both sides of the Atlantic.
US companies’ hiring plans have deteriorated to their lowest level since the aftermath of the financial crisis, new data from recruitment and coaching firm Challenger, Gray & Christmas shows.
They have found that so far this year, US employers have announced plans to create almost 205,000 jobs, which is 58% less than the 483,590 announced hiring plans in the first nine months of 2024.
Most of this drop is due to a low number of seasonal hiring announcements, indicating that US companies are reluctant to take on more staff in the current economic environment.
Andy Challenger, senior vice president and labor expert for Challenger, Gray & Christmas, says:
“Right now, we’re dealing with a stagnating labor market, cost increases, and a transformative new technology. With rate cuts on the way, we may see some stabilizing in the job market in the fourth quarter, but other factors could keep employers planning layoffs or holding off hiring.
Challenger, Gray & Christmas also report that US companies have announced 946,426 job cuts, the highest year-to-date figure since 2020 when 2,082,262 were announced.
“It’s very likely job cut plans are going to surpass a million for the first time since 2020 and for the ninth time in our series,” Andy Challenger warns.
Updated
Another day, another rising gold price.
The spot price of gold is up 0.5% today at $3,883 per ounce, close to the record high of $3,895 set yesterday.
Many of these factors may well remain relevant in Q4, keeping the gold outlook positive.
Demand for safe-haven assets, geopolitical tensions, worries about the US economy and a weakening dollar have all pushed up gold – up over 45% so far this year.
Fawad Razaqzada, market analyst at City Index and FOREX.com, reckons it has further to rise, putting the $4,000/oz mark in sight:
On major source of support for gold has been central bank demand. According to the World Gold Council’s latest survey, an overwhelming majority of central banks plan to expand reserves, with none expecting to reduce holdings despite record prices. This is not just portfolio tinkering. With conflicts persisting in Europe and the Middle East, and with US–China relations still strained, many central banks probably view gold as an essential hedge against geopolitical risk. Nearly three-quarters of respondents also anticipate a decline in the dollar’s share of reserves, a shift that leaves gold as the natural beneficiary.
There is little doubt that gold’s gains have been accelerated because of a weaker US dollar. The greenback has endured one of its poorest years since the early 2000s. By the end of September, the Dollar Index (DXY) was down around 10%. If it finishes the year around these levels, it would mark its weakest performance against major peers since 2003 when the DXY slipped nearly 15%. Much of this year’s weakness is linked to tariffs induced fears of stagflation and a broader sense that America’s economic dominance is being challenged. The trend of de-dollarisation, whereby foreign investors diversify away from US assets, has also gathered pace. For gold, which is priced in dollars, the slide has been an undeniable tailwind, making the metal more attractive for buyers across other currencies.
Another primary driver behind gold’s big gains has been the Federal Reserve cutting interest rates this year. After a lengthy pause, it resumed trimming rates in September as labour market weakness outweighed concerns over inflation, with the central bank indicating that there may be two more cuts to come in Q4. As a result, bond yields fell. Lower yields make non-interest-bearing assets such as gold relatively more appealing.
Updated
On the pharma front, Reuters has this.
Pharmaceutical executives are getting near-daily calls from staff at the White House – including chief of staff Susie Wiles, and senior figures at agencies like health & human services and the US commerce department, two sources told the news agency.
The drugmaker Eli Lilly was asked to produce more insulin; Pfizer was asked to produce more of its top-selling cancer drug Ibrance and its cholesterol drug Lipitor; and London-based AstraZeneca to consider a new headquarters in the US, according to two sources.
Eurozone unemployment rate ticks up to 6.3%
In the eurozone, the unemployment rate ticked up last month.
The jobless rate increased from 6.2% in July to 6.3% in August, according to data from Eurostat, the EU’s statistical office.
While the number of unemployed people was 11,000 higher than in July, it was 15,000 lower than in August last year, and 136,000 lower than in June. That puts this uptick into perspective.
Bert Colijn, chief economist, Netherlands at ING, said:
Employment expectations have steadily weakened over recent years, which means that job growth is under pressure. In September, the Employment Expectations Index by the European Commission ticked down to the lowest level since 2021. Manufacturers are becoming less negative about hiring prospects, but the service sector saw solid job prospects falter last month.
And businesses are pushing for productivity gains as wages have increased significantly over recent years. Yet despite all of that, the labour market continues to see unemployment near all-time lows for now.
That said, the job market in the eurozone is also quite divided between the south and north. The south is seeing stronger job growth – especially in the private sector – with more structural declines in unemployment. Weaker economic growth in the north of the eurozone is also reflected in more upward pressure on unemployment. This means that while the average eurozone job market performance is quite strong, weak spots can easily be found right now.
UK firms' hiring plans weakest since 2020, BOE survey says
UK companies’ hiring plans are the weakest since 2020, according to a Bank of England survey.
The survey showed that in the three months to September, businesses expected to keep employment steady over the next 12 months. It is the first time since the three months to November 2020 that firms did not intend to take on more staff.
Policymakers at the central bank hope that a weaker jobs market will bring down wage growth and help lower inflation, which it expects to hit 4% in September, double its target and up from 3.8% in August. Food prices in particular have remained high.
Updated
An auction of £4.5bn of UK 10-year government bonds this morning attracted the weakest demand since May – despite offering the highest 10-year yield since the start of the year.
Investors submitted bids worth 2.78 times the amount on offer of the 4.75% October 2035 gilt, the lowest ratio since an auction on 21 May.
The bond sold at an average yield of 4.769%, the highest for a 10-year gilt since an auction in January.
In financial markets, gilt prices were little changed, leaving the yield on the 10-year benchmark gilt flat at 4.71%.
Joshua Mahony, chief markets analyst at Scope Markets, has looked at the financial markets.
The broader question now is how long the US government shutdown drags on and how sentiment responds as it stretches into the coming weeks. A White House memo has warned that the economy loses around $15bn in GDP for each week the government remains shut, a sizeable headwind if the deadlock lingers.
For now, vice-president JD Vance has struck a confident tone, saying he does not expect a prolonged shutdown. But House speaker Mike Johnson has been less committal, remarking that “we all have different views” on how long it might last. Notably, White House budget director Russell Vought is said to be preparing to move quickly in dismissing federal workers, putting pressure on the Democrats to draw a line under this impasse.
Despite the risks, the mood in equity markets remains constructive. Traders are buying dips rather than retreating, while the pharmaceutical sector has been leading the gains thanks to the Pfizer deal that sees the removal of tariffs in exchange for lower drug prices.
With the jobless claims data likely to be off the table thanks to the ongoing shutdown, traders will instead focus on the challenger jobs cuts data release. With the Trump administration seemingly utilising the current shutdown as a means to lay of Federal workers, the weakness we are seeing the US jobs data could see a fresh source of weakness for the month ahead.
The dollar continues to fall, down by 0.15% against a basket of major currencies, taking it close to a one-week low. Poor jobs data yesterday (the ADP national employment report) boosted expectations that the US Federal Reserve will cut interest rates twice more this year.
Updated
Perky Maxwell House viral ad takes on housing crisis as ‘Maxwell Apartment’
Housing in the US has become so unaffordable that a coffee company has based a viral marketing campaign on the idea that almost nobody can afford to buy a house.
Maxwell House coffee, a 133-year-old brand, recently launched a marketing campaign rebranding themselves as “Maxwell Apartment Coffee”.
“Maxwell House? In this economy?” a narrator asks in a video ad, promising that Maxwell Apartment is “the same affordable coffee you love, now with an even more affordable name”.
The company is also offering a year’s supply of its coffee for “under $40” on Amazon, though supplies of this “12-month lease” of pre-ground coffee are apparently limited.
Europe’s air safety at risk amid cost-cutting and staff pressures, study warns
Pilots and cabin crew at European airlines feel increasingly under pressure to work long hours and hide signs of tiredness at the expense of safety, according to a major study.
Cost cutting and profit chasing at airlines has “systemically weakened” safety, and many exhausted employees feel too intimidated to challenge management decisions, the research by Ghent University in Belgium found.
The study, which involved 6,900 workers, also found concerns among cabin crew who reported feeling pushed into making onboard sales of perfumes and alcohol, presenting a conflict with their role in keeping passengers safe and well.
The report found that the Covid pandemic had accelerated a decline in working conditions.
Researchers said a generation of senior pilots had left the industry, replaced by younger, cheaper and more flexible workers who were more likely to accept precarious contracts that weaken their ability to uphold standards.
Here’s our full story on Thames Water:
The creditors in control of Thames Water have said they will commit to paying fines for pollution, as well as writing off more of their loans and investing more in the company, in new proposals to try to avoid the utility being forced into government administration.
The controlling group of financial institutions, under the new London & Valley Water holding company, has been locked in talks for months with the regulator Ofwat since May over acceptable terms for the hugely complex restructuring of Britain’s biggest water company.
Thames Water has been crippled by huge debts built up over two decades by owners who have been criticised for paying out dividends without investing enough in its leaking pipes and malfunctioning treatment works.
The new plan, which is not yet legally binding, is aimed at finding a way forward that is acceptable to Ofwat and to the Labour government, including the newly installed environment secretary, Emma Reynolds.
The alternative to a creditor-led turnaround plan is a special administration regime (SAR), under which the water company would come under temporary government control to impose debt write-offs and find a buyer. The government has been keen to avoid SAR, claiming that it would cost too much – although any costs would be recouped in the eventual sale – and fearing calls for permanent nationalisation from MPs.
The creditors are also desperate to avoid SAR, as it would probably result in steeper debt write-offs. London & Valley Water said on Thursday that the investors would write off about £4bn of their loans, compared with about £3.2bn offered in May. Senior sources at Ofwat had previously expressed concerns that the level of debt write-off proposed by the creditors was not sufficient. Junior creditors will have their entire £1bn debt written off, as before.
European shares hit record high, lifted by chipmakers, healthcare stocks
Despite the US government shutdown, stocks have been hitting new all-time highs on the back of a rally in chip-related companies and healthcare shares.
The pan-European Stoxx 600 index rose by 0.7% to a new intra-day high of 568.5 points, with Germany and France leading gains, with the Dax and the CAC both more than 1% ahead.
Technology stocks rose by nearly 2.4%, tracking gains on Wall Street, and after South Korea’s Samsung Electronics and SK Hynix signed letters of intent to supply memory ships for OpenAI’s data centres.
Dutch chipmakers ASML and ASM International both jumped by more than 4%.
Healthcare stocks rose by as much as 1%, extending yesterday’s rally, after Pfizer’s deal with the US government raised hopes that it could serve as a model for other drugs companies. The New York-based firm agreed to cut its medicine prices by up to 85% and to sell directly to the American public, and was given a three-year grace period from Donald Trump’s threatened 100% tariffs on branded drugs.
Shares in AstraZeneca, Britain’s biggest drugmaker, surged by more than 11% yesterday, lifting its market value to over £192bn. That meant it overtook HSBC again, and reclaimed the crown as the most valuable company listed in London. Today, AstraZeneca shares are up by 0.1%.
The FTSE 100 index in London is up slightly at 9,451. It closed at a new peak of 9,446 points yesterday, extending its gains for this year to around 15%.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said:
London’s blue-chip index is on a prescription for success, extending all-time highs after yesterday’s dose of pharma strength led to the FTSE 100’s best session since July. Pharma stocks were the standout, racing higher on news that Pfizer struck a deal with the US administration to slash drug prices and bypass tariffs. The move provided long-awaited clarity on pricing and lifted hopes that others could follow. Today’s big results come from Tesco, where the grocery giant is proving that every little helps as it battles hard against tough competition.
The S&P 500 and Nasdaq 100 closed at fresh all-time highs as investors shrugged off Washington gridlock and focused on softer labour data that reinforced expectations for Fed rate cuts. ADP’s surprise decline pushed odds of an October cut near 100%, sending short-dated Treasuries higher while equities drew support from easing policy bets and optimism ahead of earnings season. Markets will likely give the shutdown a week or two of leeway before any cracks start to show.
Updated
Another water company, Pennon Group, has appointed Affinity Water boss Keith Haslett as its new chief executive, bringing in an industry veteran to steer the company through its transformation.
Haslett will replace Susan Davy, who has led Pennon since 2020.
Haslett, a chartered civil engineer, has run Affinity since January 2023 and also held senior executive roles at Northumbrian Water Group and United Utilities, where he led large-scale water and wastewater operations.
Pennon’s South West Water received a £24m penalty from Ofwat in July for illegal sewage discharges into the environment from its wastewater treatment works. The industry as a whole is struggling with high debts and pollution, and is under pressure to invest more in infrastructure.
Updated
The consortium of investors, including Aberdeen Investments, the US hedge funds Elliott and Silverpoint Capital and California-based PIMCO, has submitted its proposal to the water regulator Ofwat today.
Ofwat will now assess the proposal, the group said,
with the aim of reaching alignment as quickly as possible this autumn given the urgent need to stabilise Thames Water and begin to deliver long-term performance improvement.
For a year and a half, Thames has been at the heart of a scandal in Britain’s water industry, with the company fined more than £100m for sewage spills while its debts of more than £20bn have left it teetering on the brink of financial collapse.
Introduction: Thames Water creditors propose new rescue plan; Tesco ups profit outlook despite pressure on household budgets
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Thames Water’s creditors have put forward a new rescue plan with £5.4bn funding for the beleaguered water company, under which outstanding fines for sewage spills will be paid and no dividends will be paid to shareholders.
Thames Water is labouring under huge debts built up over two decades by owners who have been criticised for paying out dividends without investing enough in its leaking pipes and malfunctioning treatment works.
A consortium of investors who hold much of the company’s debts, called London & Valley Water, have been locked in negotiations with the regulator Ofwat for months. The group said £12.5bn of debt will be written off, in what is expected to be the largest-ever loss on a UK infrastructure investment.
Within this, class A investors will write off £4bn of their loans – a quarter of all class A debt – compared with £3.2bn offered in May.
The creditors also said they would invest about £150m more in new equity capital than previously suggested, taking the total to £3.15bn.
Existing equity, previously valued at £5bn, will be cancelled. No dividends will be paid during the turnaround period. The plan, which is not yet legally binding, includes £5.4bn in committed capital, which will support £20.5bn of strategically targeted investment and operational expenditure over the next five years.
The group said the new plan is “the fastest and most reliable route” to turn Thames around, to avoid putting the UK’s largest water company, which serves 16 million consumers, into a form of temporary nationalisation.
Mike McTighe, the proposed future chair of Thames under the terms of the plan, said:
There is a huge amount of work to be done to turn around Thames Water and deliver the improved service and environmental outcomes that customers and local communities deserve.
From day one, we will inject billions in new investment, strengthen Thames Water’s balance sheet, transform the company for thousands of hard-working frontline staff and begin the delivery of an operational turnaround that puts 16 million customers and the environment first.
Tesco, Britain’s biggest retailer, has raised its profit outlook after sales were boosted by an unusually hot summer, despite pressure on household budgets.
Tesco said it had won market share from rivals, but highlighted rising competition and “continued pressure on household budgets”. It said it had reduced prices on 6,500 products, with an average reduction of 9%.
The supermarket chain’s UK like-for-like sales rose by 4.9% in the first half of the year, while across the group like-for-like sales (at outlets open at least a year) climbed by 4.3%. Overall revenues rose by 5.1% to £33.1bn. However, profit before tax fell by 6.3% to £1.3bn.
Tesco now expects to make an adjusted operating profit of between £2.9bn and £3.1bn this year, up from between £2.7bn and £3bn previously.
Ken Murphy, the chief executive, said:
Competitive intensity remains elevated. However, in the first half, a better-than-expected customer response to our actions and the benefit of an extended period of good weather have helped offset the cost of our investments.
The Agenda
10am BST: Eurozone unemployment rate for August
Updated
