20 February 2020 • 4:51pm
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Dow Jones Industrial Average
The global share rally hit a wall on Thursday, as investor nerves took hold following a string of company warnings over the impact of coronavirus. These were the day’s top stories:
Wrap-up: Shares take turn for worse in final minutes
Oof – European shares ended on a bad note, with a sudden surge in sellling-off in the closing minute dragging indices sharply and wiping a smile off the FTSE 100’s face. Here’s how the closing figures looked:
The US has accelerated into even steeper losses – it isn’t clear exactly what’s driving the shift in mood just yet, although the airlines industry has just warned it expects to see the first fall in annual passenger demand in 17 years.
For us, however, it’s time to close down. Thanks for following along today, and please join us again tomorrow for some crucial PMI readings!
Bloomberg: Unicredit boss is contender for HSBC chief executive
Interest story late in the day: Bloomberg reports Jean-Pierre Mustier, chief executive of Italian bank UniCredit, has become one of the main external candidates under consideration to take the reins at HSBC. It reports:
The French executive has been in talks with HSBC about the job, according to people familiar with the matter. HSBC’s board is still undecided, and is considering candidates including HSBC’s interim chief, Noel Quinn, one of the people said.
A spokeswoman for Mustier declined to comment as did a spokeswoman for HSBC. HSBC said this week it could take until August to name a replacement to John Flint, who was ousted last year as Chairman Mark Tucker intensified his efforts to revive growth at the lender.
Until recently, it had appeared that the job would go to Quinn, who has led the business since the exit of Flint. But HSBC held back on announcing a new CEO when it presented its strategy update on Feb. 18, a plan that will eliminate 35,000 jobs over the next few years.
- Read more: HSBC plan to axe 35,000 jobs leaves top investors disappointed
Jean Pierre Mustier
Aveva set for downbeat close
Shares in engineering company Aveva Group are set for a painful close after it warned the coronavirus outbreak is weighing on demand in China.
The company said that travel restrictions and office closures were denting sales in the country, which usually accounts for 5pc of its total revenues.
It added that its rental and subscription division was “strong” in the 10 months to January 31, but this was offset by “significantly lower” sales from its initial and perpetual licences and services.
FTSE 100 sole riser
London’s FTSE 100 is the only bright spot across major western equity indices today, chugging along with gains of about 0.3pc. Broadly speaking though, it’s a flat day.
Full report: Victoria’s Secret sold
Victoria’s Secret models at a show in 2018
TIMOTHY A. CLARY/AFP
My colleague Laura Onita has a full report of L Brands’ sale of Victoria’s Secret to Sycamore Partners (see 1:14pm update). She writes:
The move puts its fate in the UK under the microscope as Sycamore could decide to offload it and focus on its US shoppers.
Although the lingerie behemoth was instrumental in defining what sexy was during its peak, helping to empower women, the brand has been slow to adapt beyond padded and push-up bras.
Sales have been faltering and shoppers have often complained the retailer is not keeping us with the times. Last year it was targeted by an activist investor, calling for an overhaul of the business as its market share in the US shrank to 24pc in 2018 from 33pc just two years earlier.
It has not been helped by the fact that Ed Razek, its marketing chef, previously made controversial comments about transgender and plus-size models at a time when most businesses are waxing lyrical about their diversity credentials.
- Read more: Victoria’s Secret taken private
Barclays scraps ‘Big Brother’ software
After its front-page report on Barclays’ “Big brother”-style monitoring of its employees (see 10:40am update), City AM now reports the bank has scrapped the controversial software.
The bank said it was ditching the system in response to “colleague feedback”, the BBC reports, but will not confirm if its removal is permanent.
NEW: Barclays scraps its “big Brother” staff tracking system after @CityAM revealed the bank installed screen-monitoring software last week. https://t.co/CAWGGnPVU8
— Christian May (@ChristianJMay) February 20, 2020
US shares slip
Echoing Europe’s performance, US shares are cooling off record highs slightly today, with minor drops in the face of a fairly neutral run of economic news.
Full report: Morgan Stanley buys E*Trade
My colleague Simon Foy has a full report on Morgan Stanley’s $13bn buyout of E*Trade. He writes:
The deal, which requires approval from regulators, will boost Morgan Stanley’s wealth management business, a unit which chief executive James Gorman has been trying to build up to insulate the bank from weak periods for trading and investment banking.
Mr Gorman said the deal was “an extraordinary growth opportunity for our wealth management business and a leap forward in our wealth management strategy”.
E*Trade offers financial services to small savers and claims 5m clients with assets valued at $360bn. Morgan Stanley will add these to the $2.7tn of assets it manages for its 3m wealthy clients.
The brokerage’s chief executive, Mike Pizzi, will continue to run the business following the merger.
Mr Pizzi said: “By joining Morgan Stanley, we will be able to take our combined offering to the next level and deliver an even more comprehensive suite of wealth management capabilities,” said Mike Pizzi, chief executive of ETrade.”
Suspect that scale, a less volatile revenue stream and an option on the growth of retail #investing had a role in this decision .
Also speaks to general consolidation pressure in a space challenged by lower fees/higher costs–particularly on some mid-size #AssetManagement firms. pic.twitter.com/76ldVIL0aT
— Mohamed A. El-Erian (@elerianm) February 20, 2020
Founded in California in the 1908s, E*Trade helped revolutionise online trading by opening the door to individual investors to invest on Wall Street, avoiding traditional brokers who demanded high fees and often would not work with small investors.
However, its revenue growth has taken a hit in recent years from the emergence of digital upstarts called roboadvisers, falling commissions and lower interest rates.
The E*Trade logo at a branch in San Francisco
Royal Mail unveils new union proposals
British news! The Royal Mail has put forward a proposal to the Communication Workers’ Union including a 6pc pay-rise deal as part of efforts to avoid strikes.
Royal Mail’s Shane O’Riordan said:
Our proposal underlines our commitment to being the best employer in our industry. It maintains our policy of no compulsory redundancies for frontline operational colleagues. We will not become a gig economy employer. We will not introduce zero hours contracts for permanent employees. Nor would we look to outsource Royal Mail’s core operations.
Looks like no response yet from the CWU.
Yesterday, a damning analyst’s note knocked the group’s shares, with Liberum warning the group’s long-term plans looked in peril.
The FTSE 250-listed company has been facing strike threats from workers, adding to its problems as it tackles a downturn in letter-sending.
Full report: Airlines warn on coronavirus
Travel to and from China has been badly hit by the outbreak
My colleague Tom Rees has a full report on today’s warnings over coronavirus from Air France–KLM and Qantas. He writes:
Air France-KLM said the Covid-19 virus has had a severe effect on traveller numbers and could knock profits by as much as €200m (£167m).
China accounted for more than 5pc of the firm’s flights last year and large parts of the country have been on lockdown for weeks as the country fights to control the disease. Air France-KLM has stopped all Chinese operations, but said they could resume from April.
Meanwhile, Qantas predicted the virus would wipe up to A$150m (£77m) off annual profits after it cut flights to Asia by 15pc until at least the end of May.
Beijing cut its benchmark interest rate on Thursday for the first time since October to counter a sharp slowdown taking hold following weeks of lockdowns.
Jobless claims steady
US jobless claims came in a few minutes ago – and landed absolutely in line with expectations, so they’re unlikely to cause much of a shift in sentiment.
Victoria’s Secret sold
Leslie Wexner, right, and his wife Abigail
AP Photo/Jay LaPrete
L Brands, the US fashion retailer, plans to sell a controlling stake in Victoria’s Secret to private equity group Syncamore Partners, for $525m.
Under the deal, Sycamore will control 55pc of the lingerie retailer, with L Brands retaining the remaining 45pc.
Retail mogul Leslie Wexner, the chairman and chief executive officer of Victoria’s Secret, will step down as part of the deal, though he will retain the title of chairman emeritus.
Stefan Kaluzny, Sycamore’s managing director, said:
We have long had great respect and admiration for L Brands and its success in building a world-class portfolio of lingerie and beauty brands
European shares turn downwards
After a mixed, flattish opening, European shares have edged downwards slightly more. It’s looking like a fairly weak session, with US futures pointing to an small drop coming up there as well.
Oanda analyst Craig Erlam said:
The stock market rally appears to be losing a little momentum, with Europe paring gains again and the US poised for small losses on the open.
Investors have a knack of finding some reason to buy the dips though so don’t be surprised if we’re back in record territory in no time. That said, the stuttering rally is coinciding with various companies warnings about the impact of the coronavirus on sales and production which suggests first quarter results will likely have a few nasty surprises.
ECB minutes released
European Central Bank president Christine Lagarde
Just in: Policymakers at the European Central Bank remained cautious over the global economy during their January rate meeting, even while acknowledging the “smoothest” start to a year since 2016, according to minutes released today.
Despite acknowledging some “positive” signs at the start of the year, the ECB’s Governing Council agreed it would “would await further data to see if there were firmer grounds for optimism”.
The meeting took place on January 22nd before coronavirus exploded onto the global scene, so read as a little dated now – ah, for the halycon days when all we had to worry about were PMIs and tensions with Iran.
The minutes say:
The period since the Governing Council’s monetary policy meeting on 11-12 December 2019 had been marked by three major events: the year-end, the geopolitical tensions in the Middle East, and the signing of the “phase-one” trade agreement between the United States and China.
The trade agreement appeared to be the most significant, as it had helped consolidate the general improvement in market sentiment that had gained momentum in early September 2019. Expectations that monetary policy would remain highly accommodative, both in the United States and in the euro area, further supported the improved market sentiment.
They add (my emphasis):
It was pointed out that risks remained tilted to the downside, although they had become less pronounced as some of the uncertainty surrounding international trade was receding. Although a more positive assessment of risks could foster confidence in the upswing and further support positive economic developments, it was cautioned that a more optimistic outlook for the economy needed to be communicated carefully in order not to give rise to a premature tightening of financial conditions.
- You can read them in full here
WSJ: Morgan Stanley’s $13bn deal
Big story coming in from the Wall Street Journal, which says Morgan Stanley will buy E*Trade Financial Corp., in a major shift that suggests the US investment bank will shift to focus on retail customers.
The $13bn deal is expected to be completed during the fourth quarter of 2020.
The Journal reported:
The all-stock takeover, set to be announced Thursday, will combine a Wall Street firm in the late innings of a decadelong turnaround with a discount broker built on the backs of dot-com day traders. It is the biggest takeover by a giant US bank since the 2008 crisis.
E*Trade brings five million retail customers, their $360 billion in assets and an online bank with cheap deposits that Morgan Stanley can funnel into loans.
Morgan Stanley has now confirmed the deal.
Laura Ashley reports ‘disappointing’ first half
Laura Ashley swung to a “disappointing” half-year loss after sales plunged at the troubled retailer.
My colleague Simon Foy reports:
The £4m loss for the six months to December was worse than the £1.5m result for the same period in 2018. Like-for-like sales, which strip out the impact of new store openings, plunged 10.4pc.
Katharine Poulter, Laura Ashley’s chief operating officer, was also appointed as chief executive.
Yesterday, the group announced it had secured a cash lifeline to keep itself afloat, following fears it would run out of money.
- Read more: Losses mount for Laura Ashley
Bank of England Governor Mark Carney presents the new £20 note
Today marks the release of Britain’s new, polymer £20 note, which bears the likeness of artist JMW Turner and has various fancy security features.
The Telegraph Money team has been giving the new note a close inspection. My colleague Adam Williams writes:
The first locations to receive the new £20 note include London, Manchester and Margate, the Kent town which was frequently visited by the painter during his life and that is now home to the Turner Contemporary gallery.
Despite being issued by the Bank of England, the main Edinburgh branch of TSB will have the new notes, while there are further locations in Wales. These notes are expected to be stocked in cash machines throughout the day.
- New £20 note released – these are the branches stocking it today
Some lucky individuals will get their hands on notes with low serial numbers, which apparently are highly sought-after by collectors (in a sense, aren’t we all aspiring banknote collectors?). Adam says “1775, the year of his birth, and 1851, his death, are likely to be highly desirable”.
Naturally, you might be thinking “How do I get my hands on these lucrative lumps of legal tender?”. Well, dear reader, our Money Team have got that covered too:
- The new £20 note launches today – how to spot if yours is worth thousands of pounds
You should subscribe to their newsletter to say thank you:
Finally, if you aren’t cashed out, here’s a history of the £20 note:
- A history of the £20 note and its famous faces, from Shakespeare to Turner
Watchdog warns on growth targets
New Chancellor Rishi Sunak (left) and his predecessor Sajid Javid
Paul Grover for the Telegraph
The Government’s plans to double economic growth would need to reverse the trend across the entire rich world over the past decade or more if it is to work, the UK’s top economic watchdog has warned.
My colleague Tim Wallace reports:
Former Chancellor Sajid Javid aspired to boost GDP growth to about 2.75pc, up from 1.4pc in 2019.
Robert Chote, head of the Office for Budget Responsibility, said this was an ambitious goal.
“When I took over this job [in 2010], the Government thought, and most other people thought, that big old industrial economies grow at 2, 2.5pc, maybe a bit more than that if you are lucky, per year,” he told BBC Radio 4’s Today.
CBI: Manufacturers showing signs of turnaround
A fall in manufacturing output volumes has slowed slightly this month, according to the CBI’s latest industrial trends survey.
The gauge came in with a reading of –18 overall, a little better than expected, with total and export order books hitting their highest level in six months.
Alpesh Paleja, the CBI’s lead economist, said:
It is encouraging to see manufacturers reporting some early signs of a turnaround in activity, but it’s probably still too early to say whether we’ve seen the end of the slowdown in the sector. Notwithstanding improving optimism, the sector is still grappling with longer-term uncertainty over the UK’s future relationship with the EU.
Pantheon Macroecnomics’ Samuel Tombs said the reading was “consistent with falling manufacturing output and a small drop in the [purchasing managers’ index activity gauge”. He added:
The CBI’s survey tentatively suggests that the flash estimate of Markit’s manufacturing PMI – which is more closely-watched by investors – will print slightly below January’s readings (flash: 49.8, final 50.0)
Pound hits lowest level since late November
The pound’s slide has continued, hitting its lowest level against the dollar since late November (just before it started to rise ahead of election day).
Part of that is worries about the pound, but the US dollar’s strength and increasing safe-haven status is also a factor.
Jane Foley, an analyst at RaboBank, said:
The USD accounts for around half of all FX reserves of central banks and half of all of the external assets of non-US countries. Not only does this demonstrate the international importance of the greenback but it is one reason why the USD is perceived by many investors to be a store of value and why it benefits when risk appetite is low.
My 8:59am post incorrectly said Anglo–American has named Natascha Viljoen as its new chief executive officer. In fact, she is becoming CEO of Anglo–American Platinum, its platinum division. Apologies for the error – please refresh the page to see the latest version.
Hays group shares mixed
Hays said the UK election had slowed hiring
It has been a mixed morning so far for recruiter Hays Group, which is up moderately after maintaining its dividend despite a drop in profits.
Shares in the group dropped initially after it reported profits before tax of £95.6m for the six months to the end of December, a decline of 22pc. The drop was driven by a £15m fall in fees, prompted by a slowdown in Germany, the strikes in France, the Australian bushfires and Britain’s election.
Alistair Cox, its chief executive said:
Overall, we have seen a marginally slower New Year ‘return to work’ than prior years. We expect near-term macro conditions to remain difficult and are mindful of continuing uncertainties, including the coronavirus.
While our focus will be on cost management, we also see growth opportunities, for example in the IT sector globally and in the USA, and we will continue to invest in them.
Barclays analysts said recently developments would put “downward pressure” on the group’s full-year results, but said there were “areas of encouragement” in the update, including a slowing rate of decline in Germany and Australia.
What the (other) papers say today
Variety is the spice of life – let’s have a look at what’s leading coverage across the rest of Britain’s financial press.
The Financial Times is leading with a report that the European Commission is drawing up rules to force big tech firms to open up their “troves of data” to smaller rivals. It reports:
In a document outlining a “European strategy for data”, the commission said it would explore “the need for legislative action” to push companies towards sharing and pooling data.
EU regulators are exploring forcing dominant platforms to share their data “under fair, transparent, reasonable, proportionate and/or non-discriminatory conditions”, an official document on the bloc’s digital strategy said. https://t.co/TbOIylZmhD
— Javier Espinoza (@JavierespFT) February 19, 2020
It looks like the paper went to press slightly too early for another big scoop last night: it was the first to report the identity of Swiss bank UBS’s new boss, Ralph Hamers.
City AM says Barclays has drawn criticism from privacy campaigners for installing “Big Brother”-style employee monitoring software on computers in its London offices. It reports:
Introduced as a pilot last week, the technology monitors Barclays workers’ activity on their computers, and in some instances admonishes staff in daily updates to them if they are not deemed to have been active enough — which is described as being in “the zone”.
The Timesand Daily Mail are both leading on hedge fund manager Crispin Odey’s battle with Anglo-American over Sirius Minerals.
- Read more: Odey derides Anglo American offer for Sirius Minerals as a ‘mockery’
The Guardian is leading with yesterday’s higher-than-expected inflation figures.
- Read more: Savers face misery as inflation hits six-month high on rising petrol prices
Reaction: Future looks bright
Here’s more on this morning’s retail figures. Kallum Pickering, senior economist at Berenberg, said the numbers show signs of a “sharp post-election rebound”. He wrote:
So far, the data just show a rebound from Q4 and not yet evidence of a strong gains to come throughout 2020. However, the uptick in spending along with the sharp improvement in household survey data at the start of the year suits our call that real household consumption is on track to recover solidly in Q1 (+0.6pc qoq) after the disappointing 0.1pc gain in Q4 2019.
Economic Intelligence Newsletter
Pantheon Macroeconomics’ Samuel Tombs agreed that “the outlook for growth in households’ disposable incomes remains bright”, adding:
Hiring indicators have picked up since the election, while more workers than in previous years will benefit from April’s 6.2pc increase in the National Living Wage.
Meanwhile, the government’s plans for a big increase in the threshold for national insurance contributions will boost households’ disposable incomes by 0.2pc in April, while benefit payments are set to rise in April in line with inflation for the first time since 2015.
Accordingly, we continue to expect households’ real spending to increase at a solid 0.4pc quarter-on-quarter pace in both Q1 and Q2, enabling GDP growth to exceed the MPC’s timid 0.2pc forecast.
Smith & Nephew soars
A typically-volatile NMC Health is the biggest riser on the FTSE 100 currently, but close on its heels is medical equipment maker Smith & Nephew, shares in which have touched a record high after it posted its best annual sales performance since 2010.
The group’s 2019 revenues rose to $5.14bn from $4.9bn, broadly in line with estimates, following growth of almost a third in its Chinese operations.
City Intelligence Newsletter
Roland Diggelmann, the group’s chief executive, said:
The improved underlying revenue growth of 4.4pc in 2019, the best for several years, has propelled Group sales above $5 billion for the first time in Smith & Nephew’s history. All franchises and regions meaningfully contributed to this record.
The group has seen its growth driven by strong performances in emerging markets such as China. It said the coronavirus outbreak has not disrupted its operations so far, but said it was monitoring the outbreak closely.
UBS analysts said the results were a “slight beat”.
Retail sales: Reaction from Twitter
Customary retail sales health warning – the monthly change figures are very volatile. Yes, January’s 1.6%m/m (ex. fuel) is more than just typical sales volatility, but it is just for one month, so as ever – suggest treating with caution. pic.twitter.com/PeZCSkVBFr
— Rupert Seggins (@Rupert_Seggins) February 20, 2020
#UK #retail sales volumes up decent 0.9% month-on-month in January. First rise since Oct & suggests rise in #consumer confidence since December election has lifted willingness to spend. But past weakness means sales volumes only up 0.8% y/y & still down 0.8% on 3-month/3-month
— Howard Archer (@HowardArcherUK) February 20, 2020
Worth pointing out that, in underlying terms, there has been a notable re-convergence between (weak) retail surveys and (stronger) official data. Some of it is coming from surveys picking up/stabilising, but a lot is also coming from softer y/y ONS retail sales growth pic.twitter.com/pHulqXsIq0
— Alpesh Paleja (@AlpeshPaleja) February 20, 2020
Pound meets data with a shrug
Despite some better-than-expected performance on the high streets in January, the pound has been fairly unmoved.
Reaction: Britons reopen their wallets
Responding to those retail sales figures, Capital Economics’ Paul Dales said “December’s election result gave consumers the confidence to reopen their wallets”. He added:
Admittedly, sales are unlikely to climb at this pace for long as some of it is probably just a catch up from the previous weakness. What’s more, the extremely wet weather and floods will have pushed shopping down the list of priorities in February (apart from for sand bags and wellies).
And the effects of the coronavirus may be hurting sales in areas frequented by Chinese tourists (Bicester Village) and may lead to shortages of some products (clothing, electrical appliances) in March.
UK retail sales improved in January
Retail sales: key findings
Here are the ONS’s key highlights from today’s retail sales data release:
In the three months to January 2020, the quantity bought in the retail sales industry fell by 0.8pc when compared with the previous three months, with declines across all sectors.
Retail volumes increased by 0.9pc in January 2020, recovering from the falls in the previous two months; the increase was mainly because of moderate growth in both food stores (1.7pc) and non-food stores (1.3pc).
Fuel saw a large fall of 5.7pc in the quantity bought in January 2020 when compared with December 2019, which coincides with a rise in fuel prices of 2.3 pence per litre between December and January (consumer price inflation, January 2020).
Online sales as a proportion of all retailing was 19.0pc in January 2020, down from 19.3pc in December 2019.
Here’s how different sectors contributed to the shift:
Apologies, I scrambled my graphs in the previous post – the near-two-year record was for sales excluding fuels – please refresh the page to see the correct graphs and text.
Retail sales jump
UK retail sales (including fuel) jumped by 1.6pc in January, registering the biggest gain since early 2018 as shoppers returned to stores.
The jump ends the worst run for British shops on record.
Sales including fuel also rose more than expected, with a 0.8pc rise:
Pound continues to soften
Sterling has weakened a little today, although it has been paring back some losses in recent minutes. It has been steadily winding down since earlier this week, when it jumped on expectations that the appointment of new Chancellor Rishi Sunak will lead to a substantial loosening of fiscal policy.
Kit Juckes, an analyst at Societe Generale, said:
Despite the uncertainty surrounding the future UK/EU trade deal, Brexit is no longer justifying a market risk premium
Mark Lewis, Moneysupermarket’s chief executive, has announced plans to step down
Shares in Moneysupermarket, the price-comparison website, have jumped after it posted a jump in profits.
Profits before tax at the FTSE 250 group rose from £86.6m to £94.9m, a rise of 10pc. Revenues jumped from £355.6m to £388.4m, a 9pc increase – broadly in line with consensus expectations gathered by the group.
Mark Lewis, the group’s chief executive – who Moneysupermarket yesterday said has announced his intention to step down – said:
It’s good to report the group returned to profit growth and once again helped UK households save over £2bn on their bills.
The group said “exceptional rates of energy switching” had been a key driver of its growth, offset by weakness in its money operations.
Barclays analysts said the results looked “very steady”, adding:
An in-line 2019, reassuringary on current trading and outlookary that sanctions FY consensus are three clear ticks.
Anglo-American names new platinum boss
Mining group Anglo–American has named Natascha Viljoen as the new chief executive officer of its platinum division, alongside full-year results that included a 9pc rise in earnings.
The group’s earnings before interest, taxes, depreciation and amortisation, its preferred headline figure, rose from $9.2bn to $10bn.
Mark Cutifani, its chief executive, said:
We continue building on the fundamental structural and operational improvements we have embedded across our business. The result is founded on high quality, low cost, world class assets.
He paid tribute to four employees who died as a part of the group’s operations in 2019. Referring to its environmental performance, the group said:
While our environmental goals will rely on many of the technologies we are deploying, we are also thinking innovatively to create regional ecosystems of sustainable economic activity, collaborating with appropriate development partners.
Mark Cutifani then denied that this was a reference to BP… “it’s notabout anyone”