Business news and markets: as it happened – October 24, 2013

Business news and markets: as it happened – October 24, 2013

Grangemouth: 200 contract workers could lose jobs

16.49 Sky’s man in Scotland James Matthews tweets that contract workers at Grangemouth have been told that up to 200 could lose their jobs.

FTSE 100 closes above 6,700 for first time since May

16.44 The FTSE 100 has finished the day with a modest gain: up 38.7 points, or 0.6pc, at 6,713.18. Lifted by encouraging economic data from China, today’s move marks the first time London’s benchmark index has closed above the 6,700 level since May.

Former Apple CEO mulls BlackBerry bid, say reports

16.27 John Sculley, the ex-Apple boss who famously clashed with co-founder Steve Jobs, is considering a bid for BlackBerry, according to a report in Canadian newspaper the Globe and Mail. Mr. Sculley told the paper he could not comment on the matter, but said he’d “been a long-time BlackBerry fan and user.”

Get ready for third quarter UK GDP

16.19 Tomorrow at 9.30am we’ll hear how much the UK economy grew in the July to September quarter. Economists expect growth to have picked up slightly from the second quarter to reach 0.8pc quarter-on-quarter and 1.5pc year-on-year. Kathleen Brooks, research director of currency trader, notes that the string of strong economic indicators over the last three months could even mean growth surprises on the upside:

• Average service sector PMI (a measure of activity) was 60.3, one of the highest levels since the index began

• Average manufacturing sector PMI was a healthy 56.2, the highest level since late 2010.

• The construction sector also picked up strongly, and the average construction sector PMI was 58.3.

• The consumer ended the quarter with a bang, retail sales rose 2.8% on an annual basis in September.

• 3-month annualised house price growth surged to 6.2% in September, the highest level of growth for three years.

• Comparing June – August 2013 with a year earlier there were 279,000 more people in employment, 40,000 fewer unemployed people and 88,00 fewer people who were economically inactive.

Inflation expectations jump in wake of energy price rise news

15.35 It would appear that the recent slew of news on energy price hikes (today Scottish Power became the fourth Big Six company to announce higher tariffs) and booming house prices is taking its toll on people’s expectations for future inflation.

A YouGov poll of 2,004 people found that the median for inflation expectationsin the year ahead jumped to 3.2pc from 2.5pc in September, the biggest one month jump since the survey began in late 2005. The highest expectations were among those most susceptible to energy price rises – those on lower incomes and older people.

Quote In 2011, it appeared that inflation expectations were being pushed up by high inflation rates, with CPI inflation hitting 5.2% YoY in Sep-11. By contrast, headline CPI inflation is running at just 2.7% YoY now and is unlikely to be the culprit. It is possible that the surge in house prices and recent announcements of energy price hikes are a factor, alongside the general pick-up in the economy. The split shows that inflation expectations for the year ahead have risen the most among people aged 50+years, of lower social grades (a proxy for incomes) and for people outside London and Southern England. All of these are likely to be categories for which energy price hikes bite relatively deeply. These results are bound to worry the BoE, especially in the context of the improving economy. We will monitor closely results in coming months to see if this upturn is sustained.

Drop in Spanish unemployment may not last

15.23 Think tank Open Europe has crunched the latest figures on Spanish unemployment, and question whether the apparently good news could just be a temporary blip. The overall jobless rate fell below 26pc in the third quarter of the year and 39,500 more people have a job than did in the previous three months – but, as the team at Open Europe note, there are two signs that the rise could be explained by the seasonal effect of the busiest months in the tourist industry:

1. the number of self-employed and temporary workers rose, while the number of people on permanent contracts fell

2. employment grew in the services sector but fell in agriculture, industry and construction

They also note that the better-looking employment figures mask a drop in the participation rate- with fewer Spaniards actively looking for jobs, fewer will be counted as “unemployed”. Also, looking at the figures on a seasonally-adjusted basis, the unemployment rate actually increased by 0.21pc.

US jobless claims elevated by government shutdown

15.12 The number of people claiming jobless benefits in the US in the week ending October 19 (week three of the government shutdown) came in higher than expected at 350k. Barclays analyst Cooper Howes explains that while federal employees are not counted in the headline number, contractors and other indirectly affected employees are – meaning a portion of the folk who were put out of a job temporarily during the shutdown will have claimed in that week.

US government shutdown hits manufacturers

14.14 A survey of thousands of US manufacturers indicates that output contracted for the first time in more than four years in October. The fall in output dragged the overall gauge of manufacturing activity – which also includes new orders, employment, backlogs and other measures- to a 12 month low. The economists who compiled the survey said the results suggested that the disruption of the two-week government shutdown and uncertainty over the debt ceiling impasse hit companies hard.

A gauge of manufacturing output fell sharply to 49.5 from a measure of 55.3. This was the first sub-50 reading, which indicates contraction, since 2009. This fall dragged the overall measure of activity to a 12-month low of 51.1, down from September’s 52.8.

Here’s Chris Williamson, chief economist at Markit, which compiled the data:

QuoteThe flash PMI provides the first insight into how business fared against the backdrop of the government shutdown in October, and suggests that the disruptions and uncertainty caused by the crisis hit companies hard. The survey showed the first fall in manufacturing output since the height of the global financial crisis back in September 2009. We can expect GDP growth to have suffered a set-back in the fourth quarter, but it is too early to estimate the extent of the slowdown. It is impossible to disentangle the impact of the shutdown from other factors that might have been at play during the month, so equally impossible to judge the extent to which business might bounce back in November.

The Fed will be equally unsure of the underlying health of the economy, and will no doubt want to see the economic data stabilise, which could take until the end of the year, before making any firm policy decisions.

Scottish Power becomes fourth Big Six firm to hike prices

14.03 Scottish Power has just announced it is putting prices up by 8.6pc. Emily Gosden has more details:

The move comes just two days after the supplier was forced to pay £8.5m in compensation to customers after being found guilty of “serious” rule breaches by mis-selling energy tariffs.

The company warned at the time that “in all likelihood” it would have to raise prices and yesterday said that it had made a €27m loss in the first nine months of the year.

It had blamed the loss on the cost of carrying out the government’s energy efficiency schemes.

The move makes ScottishPower the fourth of the “Big Six” energy suppliers to raise tariffs in recent weeks following increases of more than £100 to an average dual fuel bill by SSE, British Gas and npower.

MPs blast banks for slow redress for missold interest rate swap victims

13.21 More from Harry Wilson, who is listening to the Commons debate.

‘To those who are impatient for the first prosecution under the Bribery Act…watch this space’

13.08 The head of the Serious Fraud Office has denied that the lack of prosecutions under the Bribery Act means that the legislation aimed at catching corporate criminals is not working. James Quinn has more details.

In a speech designed to show the economic crime agency intends to get tough on companies flouting the law, David Green, director general of the SFO, said that there are a number of cases under development and he would bring “the right cases at the time that is right for us.”

The SFO was given major new anti-bribery powers in 2011 in legislation which was designed to herald a US-style crackdown on companies involved in bribery.

It led to fears that the agency would come down hard on companies seen to be flouting rules around areas such as corporate hospitality and facilitation payments, but to date there have been no prosecutions.

Underlining that the SFO has now charged its first offences under the act, he stressed that the act only related to conduct from July 1, 2011 onwards.

“To those who are impatient for the first prosecution under the Bribery Act…watch this space,” Mr Green said.

Is Germany the eurozone’s new liability?

13.01 Eimar Daly, head of market analysis at Monex Europe, notes that the powerhouse economy could be a drag on overall growth while the PIGS pick up the pace.

QuoteEurozone and Germany PMI surveys for October showed that while the peripheral recovery gathers momentum, the regions’ leading economy is threatening to drag the entire economic bloc down.

Recent data has brought yet more evidence of a blossoming recovery in Europe’s PIGS. Spain, for example, exited a nine-quarter run of recession in Q3 and saw its unemployment rate fall for a second consecutive quarter. However, today’s eurozone-wide PMI suggests services activity fell sharply in October, exactly in line with a sharp drop in Germany’s respective index.

While we are yet to receive the regional breakdown of the data, the initial figures certainly imply that faltering growth in the eurozone’s biggest economy is responsible for the region-wide decline.

Germany is feeling the effects of a slowing China and instability in emerging markets. Factory orders have slumped, output data declined and sentiment indicators across the board are showing worrying signs for the eurozone’s leading economy.

While it remains an economic powerhouse, and is sure to weather the next global economic crisis, this turn of fortunes means that Germany is now the one subtracting from eurozone growth.

Shire shares soar after expectation-smashing Q3

12.51 Specialty pharmaceutical company Shire, best known for its ADHD medicine Vyvanse, has posted an annualised 12pc sales rise in its third quarter to $ 1.24bn, beating analyst predictions of £1.2bn in sales. The company’s chief financial officer has also said that analysts will “almost certainly” upgrade 2014 earnings growth forecasts to double digits.

Aberdeen Asset Management shares jump as group confirms Scottish Widows interest

11.53 Aberdeen Asset Management is in focus today: shares in the fund manager have jumped 4.6pc after the group confirmed it is in talks to buy Scottish Widows Investment Partnership from Lloyds. Aberdeen said:

QuoteThe potential acquisition would add further scale and diversity to the company’s product range, thus complementing organic growth, consistent with the board’s strategy. If agreed, the acquisition would be funded through the issuance of new shares in the company to Lloyds and additional deferred payments in cash, conditional on the performance of the partnership over a period of years.

Interest rate misselling debate underway in House of Commons

11.42 Banking editor Harry Wilson is tweeting from inside:

Could FCA ‘kick the crowd out of crowdfunding’?

11.34 That’s the warning from equity-based crowdfunding platform SyndicateRoom, who say that the FCA must not bear down too hard on crowdfunding or assume that small investors are “unsophisticated and naive”.

Here’s Goncalo de Vasconcelos, founder of the crowdfunding platform:

QuoteThere’s a misconception that just because people are investing small amounts, they are somehow unsophisticated and naive. This is a terribly conceited view of what is the first truly democratic form of investment.

The crowdfunding sector is growing fast, and it’s both understandable and encouraging that the FCA is taking an interest. But it shouldn’t choke off such an exciting new form of investment with heavy-handed regulation.

Unite leader ‘optimistic’ on striking deal to save Grangemouth plant

11.04 Ineos, owner of Scottish oil services company Grangemouth, and the Unite union are locked in talks today over a bid to save the company’s doomed petrochemicals plant. Yesterday, Ineos announced that the plant, which employs more than half of Grangemouth’s 1,300-strong workforce, must close after workers rejected a proposal to cut pay. The BBC’s Douglas Fraser is listening to Unite leader Len McCluskey:

Eurozone ‘in no state to be able to withstand a global economic shock’

10.48 Kathleen Brooks, research director at currency traders, notes that the eurozone finds itself in a weak position as fiscal issues in the US and a Chinese cash crunch loom:

QuoteSo what is causing the weakness? Some of the decline in sentiment can be blamed on events the other side of the Atlantic, but overall it suggests that Europe’s recovery is not accelerating, and rather than a V-shape, the currency bloc is experiencing an L-shaped recovery and we could be skirting just above the bread line for some time yet.

Although these are only preliminary numbers and we will get the revisions in a couple of weeks, France still looks like the weakest link, its manufacturing sector experienced its 20th consecutive month of contraction, which is more akin to a weak peripheral economy rather than a “strong” core one. Germany, the jewel in the eurozone’s crown, is also showing a lacklustre pace of growth, and is lagging behind its European neighbours in the UK, where the pace of growth is surprising the Bank of England.

Overall, the composite PMI data may be in expansion territory, but the Eurozone is in no state to be able to withstand a global economic shock. With US fiscal issues unresolved and Chinese money market rates rising once again, threats are swarming on the horizon.

Protestors accuse banks of being in ‘snail race’ to compensate missold interest rate swaps victims

10.32 Campaigners have gathered outside the Houses of Parliament this morning to protest the slow resolution to the missold interest rate swap derivatives victims. LIanna Brinded of the International Business Times has shared this picture from the scene:

Source: Twitter via @LiannaBrinded

FCA outlines plans to regulate crowdfunding

10.10 City regulator the Financial Conduct Authority wants to tighten up rules around crowdfunding, where businesses take small pleges from thousands of people, normally via a website like Kickstarter. At the heart of the new rules is the need to provide more information to would-be investors.

Christopher Woolard, the FCA’s director of policy, risk and research, said:

QuoteConsumers need to be clear on what they’re getting into and what the risks of crowdfunding are. Our rules provide this clarity and extra protection for consumers, balanced by a desire to ensure firms and individuals continue to have access to this innovative source of funding.

Foreign-owned businesses punch well above their weight in UK

09.50 Foreign-owned businesses only accuount for 1pc of UK businesses but they contributed 28pc of ‘gross value added’ – a measure of how much they contribute to the economy, according to figurse from the ONS.

Here’s their snazzy graphic illustrating the stats:

Aberdeen Asset Management eyeing up Scottish Widdows?

09.40 Aberdeen Asset Management shares are 0.7pc lower on talk the fund manager may try to acquire Scottish Widows Investment Partnership from state-backed lender Lloyds in a deal that would see the bank take a stake in Aberdeen. Analysts at Shore Capital did not warm to the idea this morning:

QuoteAccording to Sky News, the proposed deal is still at a preliminary stage, but would involve Aberdeen issuing shares to Lloyds of potentially up to £500m. At the current market cap of the group, that would make Lloyds a c.10pc shareholder of Aberdeen. Such a raise would, by our calculations, dilute earnings by around 9pc and push the FY2014 price-earnings towards 14.2x from where it currently stands at 12.9x.

If the deal were to go ahead, it would be against all recent management rhetoric and, indeed, against market expectations. Aberdeen has a long and successful track record of acquiring rival fund management groups, integrating them and stripping out costs. In this instance, we believe there to be significant potential cost savings within SWIP and, therefore, Aberdeen could well be the winner again here.

However, much of the money at SWIP, as we understand it, commands very low revenue margins (10-15 basis points) and would therefore be dilutive to the overall group blended yield of c.50 basis points, recent performance has been poor within SWIP and clients have been taking money out over recent periods.

Was ist das?

09.29 Spoof Twitter account for Angela Merkel’s mobile phone has tweeted this picture of a younger Chancellor using a device of the time.

Source: Twitter via @MerkelCell

Debenhams biggest faller in FTSE 250

09.15 A cautious outlook statement from Debenhams chief executive Michael Sharp has pulled the department store group down 4.3pc, despite the company reporting in-line full-year profits. Mr Sharp said:

More widely, whilst consumer confidence may be showing signs of improvement, we expect that household incomes will remain under pressure from inflation growing ahead of wages. With this in mind, we remain cautious about the strength and pace of any consumer recovery in 2014 and expect the marketplace to remain highly competitive.

Telecoms testing group Spirent Commuications has cautioned that revenue during its fourth-quarter will be $ 12m lower than forecast, sending its shares down 2.5pc.

Eurozone private sector growth slows as job shedding continues

09.12 A closely-watched gauge of private sector activity in the eurozone shows the pick-up in growth seen in recent months stuttered in October. A survey of thousands of services and manufacturing businesses gave a PMI reading of 51.5 in October. This is lower than September’s 52.2 level but still above the 50 line that divides growth from contraction.

The bloc’s biggest econony, Germany, saw growth slow to a three-month low, while number two economy France registered only a negligible expansion. Still all other eurozone economies registered “modest growth”.

The jobs picture is less rosy, with employment falling for the 22nd consecutive month due to weaker order book growth.

Still Chris Williamson, chief economist at Markit, said slowing growth was not necessarily a sign that the eurozone recovery is in danger:

Quote The dip in the PMI in October is clearly disappointing, but it would be unwise to read too much into one month’s data. It’s too early to say that the recovery is losing momentum. More important is that the survey data have been running in positive territory for four consecutive months now and indicate that the Eurozone economy expanded at a quarterly rate of 0.2pc at the start of the fourth quarter, suggesting an ongoing, albeit sluggish, recovery.

Although modest, the expansion is reassuringly broad-based across the region, reflecting signs of economic recoveries becoming more entrenched in the periphery as well as ongoing expansion in Germany and stabilisation in France.

The dip in the PMI will remind policymakers that a sustainable upturn is by no means assured, and adds confirmation to the ECB’s view that the recovery is slow, uneven and fragile. Attention is likely to be focused on whether the region requires more policy action to boost the recovery rather than on the timing of any withdrawal of stimulus.

RBS good bank/bad bank split unlikely: analyst

09.02 Gary Greenwood at Shore Capital notes that, with minority investors dead set against a split at RBS, as the Financial Times reported this morning, the Treasury is more likely to settle on a compromise such as hiving bad assets into a separate operation within the bank.

Quote [A good bank/bad bank split] would result in toxic assets being transferred into a new bad bank entity at their fair value, triggering potential losses of up to £15bn because the economic value of the assets is currently below their accounting value.

Without additional taxpayer support, which the Government has said it is unwilling to provide and which would also fall foul of EU state aid rules, we think, the burden of shouldering such losses would presumably rest heavily on minority investors.

However, we understand that such a split would also require minority investor support by way of a vote, which seems unlikely to be received in such a scenario. As such, some form of compromise solution seems more likely with incremental toxic assets simply being transferred into an enlarged and separately managed non-core operation within the bank. This would not trigger instant losses, we think, while allowing minority investors to benefit from any potential recovery in the economic value of those assets over time. Shore Capital retains a positive stance on RBS shares.

FTSE 100 edges up in early trade

08.35 The FTSE 100 has moved modestly higher in early trading and is up 24 points, or 0.4pc, at 6,698. WPP, 2.2pc higher, is among the biggest risers, having pleased with its third quarter trading update, but Sports Direct is the heaviest faller on news founder Mike Ashley has sold £106m of shares in the retailer.

Corporate news round-up: Bellwether WPP beats expectations

08.00 Louise Armitstead has digested this morning’s corporate announcements in the City Briefing email.

Just in time for its 200th anniversary, Debenhams has reported a 2.5pc rise in annual revenues to £2.8bn and 2pc growth in like-for-like sales too. The high street stalwart says pre-tax profits are down 2.7pc to £154m but this has beaten analysts expectations. Online sales are up 46.2pc and now represent 13.2pc of group sales. Michael Sharp, chief executive, will hope Debenhams has done enough to put the profits warning earlier this year behind it, but he has warned that he remains “cautious about the strength and pace of any consumer recovery in 2014.”

Sir Martin Sorrell’s WPP has beaten analysts expectations for the sixth time in eight quarters with a 5pc jump in 3Q like-for-like revenues – the market was expecting 4pc. Revenues at the world’s biggest advertising company, which is seen as a litmus test for the health of the UK and global economy, rose 7.4pc to £2.7bn. WPP has appointed Charlene Begley, former head of home and business solutions at General Electric, to its board as non-executive director.

Unilever has reported underlying sales growth of just 3.2pc for the third quarter. The numbers are at the lower end of the 3pc-3.5pc guidance given three weeks ago when the Anglo Dutch owner of Persil, PG Tips and Dove issued its shock profits warning, blaming a slow down in emerging markets.

Unilever profits have taken a hit from slower sales in emerging markets. Photo: Alamy

Stobart Group has reported a jump in half year revenues to £330.2m from £247.4m last year, boosted by £54.5m new automotive revenues. Pre-tax profits are down marginally from £10.5m to £10.4m. Stobart’s new chairman, Iain Ferguson, is strengthening the board already with the appointment of Andrew Wood, the former finance director of BBA Aviation, as senior non-executive director. Bloomsbury, the publisher of Harry Potter books, has reported a 13pc jump in half year revenues to £49.2m and a 33pc jump in pre-tax profits to £1.1m. The publisher has said the successes included MasterChef: the Finalists and The Signature of All Things by Elizabeth Gilbert.

Rolls Royce has won a £22m contract to supply machinery for Samsung Heavy Industry drilling rigs in Korea.

China cash squeeze could hit the SMEs hardest

07.55 Michael van Dulken of Accendo Markets notes that encouraging manufacturing growth figures from China could be short-lived as the central bank’s cash crunch bears down on their ability to borrow:

Quote The money markets situation continues to deteriorate in China with a net PBOC drain of cash from the system in an effort to tighten margins and calm inflation. It has a way to go to get as bad as the squeeze of this summer, but pressure is likely to be felt by the SME businesses that appear so optimistic within the PMI data.

Walmart to open another 110 facilites in China

07.42 Sticking with the far eastern theme, US supermarket giant has announced it will further expand its China operation by opening 110 new stores and distribution centres in the next two years. Walmart already operates more than 400 hypermarkets, Sam’s Club stores and distribution centres across China. The chain also said it had closed 11 stores and will shut as many as 30 others to restructure the business.

Chinese manufacturing rises to seven month high

07.20 China’s manufacturing activity expanded at its strongest pace in seven months in October, adding to evidence the world’s second-largest economy is recovering.

HSBC’s preliminary purchasing managers’ index (PMI) hit 50.9 last month, a significant improvement from September’s 50.2 and the highest since 51.6 in March.

The index tracks manufacturing activity in China’s factories and workshops and is a closely watched gauge of the health of the economy. Any reading above 50 indicates growth.

Fresh fears of China cash crunch as central bank drains liquidity

07.05 China’s money rates spiked overnight as the People’s Bank of China (PBoC) declined to inject cash into the economy for a third day. The Chinese central bank is draining liquidity in an effort to curb the risky credit growth that has seen property prices across the country’s cities overheat. It has withdrawn nearly Rmb100bn (£10bn) in the last two weeks.

The liquidity shortage has seen China’s benchmark seven-day repo rate (the cost of borrowing cash from the central bank) spike further and hit 5pc, its highest in four months.

Back in June, lending between banks in China ground to a near-halt as the PBoC refused to pump more cash into the economy, causing interbank borrowing rates to spike as high as 25pc.

Wei Yao, economist at Societe Generale in Hong Kong, says that the trend is set to continue:

Quote Seeing growth stabilising, policymakers seem to be shifting their focus back to risk management.

Beijing’s municipal government issued a seven-point property tightening policy on Wednesday. Aside from a reiteration of existing policy, the city plans to offer 70 thousand units of below-market-price apartments in the next two years, which is equivalent to nearly 30pc of the housing sales in 2012. Other big cities are likely to follow Beijing’s lead to announce property tightening measures in the coming months.

At the macro level, the People’s Bank of China withdrew nearly 100bn yuan from the interbank market in the past two weeks and as a result, the overnight repo rate is back above 4pc and the 7-day rate close to 5pc. The leadership still intends to develer the economy, which is the main reason behind our call that the secular deceleration trend is far from over.

People’s Bank of China in Beijing. Photo: EPA

Best of the rest

06.55 ScottishPower’s chief corporate officer Keith Anderson has challenged Sir John Major’s call to levy a windfall tax on energy companies, by asking “How do you put a windfall tax on a business which is losing money?” writes The Times.

A growing list of investors in Royal Bank of Scotland are urging George Osborne not to press ahead with mooted plans to split the lender into a good bank and fully separate bad bank, reports the Financial Times.

The Guardian reports analysis that shows London’s economy is doing even better after the banking crash than during the bubble and is racing ahaead of the rest of the UK.

The Independent reports that City watchdog the Financial Conduct Authority will today announce a new crackdown on the crowdfundnig and peer-to-peer lending industry, which is expected to top £1bn by 2016.

Top stories in the Telegraph

06.50 News of the last-ditch efforts by union Unite to save the doomed Grangemouth petrochemicals plant following yesterday’s decision by owner Ineos to close the operation leads our finance page this morning.

Last night, Microsoft brushed off Apple’s move to give away its software, claiming the iWork productivity suite from its rival was “lightweight” and “has never gotten much traction”.

Major energy suppliers have welcomed the Prime Minister’s pledge of an annual review of competition in the market, claiming it would help to restore trust, writes Emily Gosden.

And Ambrose Evans-Pritchard writes that Europe is sliding into a deflationary trap, already causing debt ratios in half a dozen countries to ratchet upwards to the point of no return.

Good morning

06.45 Good morning and welcome to our daily business and markets live blog, your one stop shop for all the breaking business stories of the day.

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