- Manufacturing activity gauge shows seventh month of contraction
- Economists warn UK is becoming a “two-speed” economy
- Final result showed slightly improvement on ‘flash’ reading
- Ted Baker calls in law firm to investigate £25m inventory inflation
- Chinese manufacturing scores highest reading since Janaury 2017
- Europe equities rise after downbeat end to last week
- Mark Carney to be special UN envoy on climate change and finance
- Roger Bootle: The pound’s rollercoaster ride will continue even if the Tories triumph
Miners rising on FTSE 100
It’s still a pretty muted picture on the FTSE 100, but the biggest blue-chip risers are among the mining and materials firms, and energy giants Shell and BP.
All the firms stand to benefit from improved conditions in China, but worries after a newly tariff-happy Donald Trump may shake confidence a little.
Responding to Donald Trump’s tariff announcement (see 11:16am update), Brazilian President Jair Bolsonaro has asked journalists to wait for him to discuss the matter with his economics minister before he comments.
He said he has an “open channel” with Donald Trump if needed.
Meanwhile, Mr Trump has tweeted again:
U.S. Markets are up as much as 21% since the announcement of Tariffs on 3/1/2018 - and the U.S. is taking in massive amounts of money (and giving some to our farmers, who have been targeted by China)!— Donald J. Trump (@realDonaldTrump) December 2, 2019
The President’s claim that tariffs have shifted the stock markets is of course, highly dubious (it is doubtful whether they have contributed at all). Meanwhile, the tariffs themselves actually result in higher prices for US buyers.
Markets in reverse
After a strong opening out of the gate today, a reminder of how Donald Trump operates combined with some mixed PMI data has knocked European shares back a little. The FTSE 100 is clinging onto gains, with a slightly weaker pound no doubt helping.
Competition watchdog to probe Google’s $2.6bn Looker takeover
Britain’s competition watchdog will probe Google’s $2.6bn acquisition of cloud computing service Looker amid concerns that it will harm UK companies fighting for a share of the industry, Hasan Chowdhury reports.
The deal, which was announced in June, will be scrutinised by the Competition and Markets Authority in a sign of the increasingly tough stance being taken against Silicon Valley’s tech firms.
Looker, founded in 2012 in California, specialises in data analytics and helps businesses process the vast amounts of data they generate to draw insights faster.
Last month, the company launched a new version of its product which allows the integration of tools such as Slack, the cloud-place messaging service.
Trump to restore tariffs on steel from Brazil and Argentina
US President Donald Trump has announced he will restore US tariffs on steel from Brazil and Argentina, accusing the South American countries of intentionally devaluing their currencies in order to undercut US farmers.
He also called for the US Federal Reserve to cut rates and loosen policy to weaken the dollar, in an effort to combat such alleged efforts.
.....Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen - Fed!— Donald J. Trump (@realDonaldTrump) December 2, 2019
Brazil and Argentina were both put under a quota system instead of tariffs last year, following negotiations. Further relief was then offered on that arrangement.
As I noted last week, the Brazilian real recently hit an all-time low against the dollar.
Just Eat activist says Prosus offer needs £1.5bn boost to be worth looking at
Although things are continuing to wind down as we enter the holiday period, one City saga is bubbling on: Just Eat activist Cat Rock has called for investment giant Prosus to substantially up its bid for the delivery firm.
Cat Rock has been a key player in the saga, which has led to a showdown between company-backed plans to merge with Dutch peer Takeaway.com, and Prosus’s unexpected bid.
The hedge fund, which owns a 2.6pc stake in Just Eat, issued an open letter to other shareholders. Its managing partner Alex Captain said:
While we are pleased that Prosus has bid for Just Eat, we are deeply disappointed with both the level of their offer and their approach to the bidding process.
Instead of offering a fair price for Just Eat, Prosus has made a number of claims about Just Eat and Takeaway.com aimed at convincing shareholders not to support their merger.
He said Prosus’s 710p-per-share offer (which would value Just Eat at £4.9bn) was “not remotely close to our assessment of fair value”, saying 925p was a more appropriate level. That implies a valuation of around £6.4bn, so is a pretty chunky rise.
Cat Rock’s open letter concludes:
Prosus has a strong incentive to convince Just Eat shareholders that Just Eat’s problems are deep, structural, and expensive to fix. As described above, we think these arguments are simply wrong.
As long-term shareholders at Just Eat, it is clear to us that Just Eat is a high-quality business that has suffered from the absence of stable, experienced leadership over the past two and a half years. We think the Takeaway.com merger solves this problem by combining forces with perhaps the most well-run online food delivery company in the world.
Here are the day’s top reports from our Money team:
- The economy is sluggish but the market pays 4pc – why stock pickers are buying into Europe
- Which party to vote for if you’re in your 30s
- ‘We earn a combined £60k and bought our first home in London by 25’
Ocado slips as it issues £500m bond to raise cash
Ocado has been keeping itself in the news lately, with updates three (work)days on the trot.
After a jump on Thursday and a surge on Friday, the grocery/technology group is the biggest faller on the FTSE 100 today after announcing the launch of a new £500m bond to fund its expansion ambitions.
- Read more: Ocado shares soar on Japanese warehouse deal
- Market report: Ocado’s growth mission delivers boost
The bonds, which will carry a coupon of 0.75pc to 1.25pc per year, will be repaid by 2025, the company said. They will be eligible for conversion into shares, which is likely part of why the company’s price has slipped slightly today.
As part of the announcement, the company also updated on sales figures. It said:
In the 13 weeks to 1 December 2019, we expect Retail Revenue growth of 10-11pc, with growth in orders including those for Ocado Zoom slightly higher than Retail Revenue growth.
Ted Baker among 2019’s worst-performing stocks
The fashion retailer has pared its losses somewhat today, but Ted Baker is still among the worst-performing stocks across the All-Share index (the honour of worst faller is held by Metro Bank).
Other big fallers include Amigo, Kier and Sirius Minerals.
Full report: Ted Baker calls in the lawyers over stock inflation
My colleague Simon Foy has a full report on Ted Baker’s stock inflation worries (see 8:23am update). He writes:
The revelation comes after a torrid year for the retailer after twice warning on profits and announcing the departure of its founder and chief executive Ray Kelvin following allegations of inappropriate behaviour.
The PA’s City Editor Simon Neville tweets:
Intriguing story at Ted Baker today. Problem is - the board already knew this was a "significant issue" because it said so in the latest annual report. The board agreed it wasn't significant enough. Now they say it is. Will any non-execs be resigning? https://t.co/ak9rHOlp9K— Simon Neville (@SimonNeville) December 2, 2019
Jobs cuts deepest since 2012
IHS Markit’s findings also that November marked the worst month for jobs cuts in seven years:
November saw manufacturing employment fall for the eighth straight month, with the pace of job losses the steepest since September 2012. Companies linked further cuts to cost reduction efforts, efficiencies, Brexit uncertainty, redundancies, natural wastage and staff restructuring
Reaction: Expect ‘a bleak beginning for the industry in 2020’
Reacting to those PMI figures, the Chartered Institute of Procurement & Supply’s Duncan Brock said:
A heavy sense of inevitability hung around the sector in November as it continued to suffer the effects of a lethal cocktail of Brexit uncertainty, slowing global growth and an impending General Election. These combined to stifle any chance of manufacturing crawling out of the contraction zone, where the sector was stuck for a seventh month in a row.
Supply chain managers cited weakened domestic demand and one of the biggest falls in export orders for seven years as companies unravelled their pre-Brexit stocks and resulting in one of steepest reductions in purchasing since 2013. Inevitably, where new orders fall, jobs are sure to follow and manufacturing employment fell at its fastest pace since September 2012. Firms tried to balance their books by reducing overheads and improving efficiencies quickly, and staff numbers were the casualties.
With this backdrop of pressures, the sector’s performance is unlikely to change any time soon, which means a bleak beginning for the industry in 2020.
Final reading: UK manufacturing’s November activity fall less bad than expected
Just in: The final PMI reading for the UK manufacturing sector in November came in slightly higher than the ‘flash’ reading earlier this month, at a score of 48.9 (where a reading above 50 indicates growth).
That’s a still a slowdown, but suggests the slump was not as bad as feared.
IHS Markit said:
The UK manufacturing downturn continued in November, as businesses responded to the delay to Brexit and a fresh injection of uncertainty from the forthcoming general election. Output, new orders and employment all fell, while destocking activity resumed as firms depleted buffers built-up in advance of the postponed exit date.
The delay to Brexit had a noticeable impact on stock holdings and purchasing activity during November. Finished goods inventories fell at the steepest rate in over two-and-a-half years, while input buying volumes fell to one of the greatest extents since early-2013. These contractions were a marked reversal from the solid increases seen in the lead-up to the October 31st exit date.
Hiscox shares stumble as investors brace for relegation
Shares in Hiscox are slipping this morning, as investors bet the company will lose its spot in the FTSE 100 during this week’s reshuffle calculation.
The insurance company has ended up in the relegation zone after a series of share-price hits chipped its market cap below the threshold for inclusion in the top index. EasyJet will likely take its spot.
For Hiscox, which entered the blue-chip index twelve months, a fall would cap off a torrid few months, in which costs from claims related to Hurricane Dorian and recent wildfires in California forced it to warn it may not return to profitability for two or three years.
The group said this was a “conservative” expectation, “which of course it will aim to exceed”. A double rating cut in early November that knocked prompted a 17pc one-day share price fall may have been the final nail in its coffin.
- Read more: Storm-hit Hiscox heads for FTSE exit
Hargreaves Lansdown’s Nicholas Hyett said weather events had “blown a hole” in Hiscox’s bottom line. “The good news is premiums have continued to grow,” he added, “but that’s unlikely to offset the headwind from increased claims in the short term.”
The quarterly review of the indices will take place based on tomorrow’s closing prices. Any FTSE 100 company that slips to 111th place or below on the all-share index is automatically demoted, while any company outside the blue-chip index that take 90th position or above is automatically added.
Eurozone factory activity scores best reading in three months, but continued slowdown indicated
More purchasing managers’ index activity data, this time the final reading for the Eurozone as a whole. The reading is a mix – on the one hand, a score of 46.9 (where above 50 indicates growth) is the best in three months, but the figure also indicates a slowdown in the sector is continuing.
Data-gatherers IHS Markit said:
At the market groups level, both the intermediate and investment goods sectors remained inside contraction territory during November, although in each case rates of decline were weaker. Operating conditions for consumer goods producers were unchanged compared to October
Its chief economist, Chris Williamson, said:
Although still signalling a steep rate of decline, the manufacturing PMI nonetheless brings some encouraging signals which will fuel speculation that the worst is over for euro area producers, barring any new set-backs (notably in relation to Brexit and trade wars)...
...Perhaps most promising is a marked upturn in business sentiment, particularly in Germany, with optimism about production in the year ahead hitting a five-month high in November. Producers’ renewed optimism in part reflects reduced concerns over trade wars.
Hong Kong retail sales continue to sink
This morning brought fresh poor economic news for Hong Kong, as the financial hub remains wracked by disruption from pro-democracy protesters.
The latest the figures for Hong Kong’s retail sector show sales volumes staggered down 26.2pc in October, compared to the same time last year.
The city is already likely on track for a recession, after a sharp drop in output during the last quarter.
Capco says it will pursue ‘progressive’ dividend policy
London landlord Capital & Counties says it will pursue a “progressive” dividend policy and convert to real-estate investment trust (REIT) status, after its completed the sale of its interests in Earls Court.
The sale, for £425m, will provide initial net proceeds of £156m, with a further £211m to be recieved over the next two years.
In a business update this morning, the company said:
Capco is now positioned as a prime central London property investment business centred around Covent Garden.
The West End offers greater insulation from the well-documented wider retail challenges however it is not immune with certain retailers taking a more conservative view, as a result of broader political and macro-economic uncertainty and occupational cost pressures. Nevertheless, trading performance on the estate remains encouraging with footfall growth and average tenant sales continuing to trend upwards.
Coming up: Final UK manufacturing reading
In just under an hour, we’ll get IHS Markit’s finalised reading for the UK’s manufacturing purchasing managers’ index.
The flash reading released earlier this month gave a score of 48.3, where above 50 indicates growth. Analysts aren’t expecting any change in that reading. Here’s how the latest numbers look:
Ted Baker shares drop as it probes £25m inventory overstatement
Shares in Ted Baker have slipped sharply this morning, after the retailer announced that it had overstated the value of its stock by between £20m and £25m.
The company, which recently slipped out of the FTSE 250, said it had appointed law firm Freshfields Bruckhaus Deringer to carry out a review, and would shortly hire accountants to assist with the process.
Ted Baker said:
The Board believes that any adjustment to inventory value will have no cash impact and will relate to prior years...Ted Baker is committed to ensuring the independent review is completed in an efficient and transparent manner and will update the market as appropriate.
- Read more: Ted Baker woes dent Ray Kelvin’s fortune by £215m
- Questor: catching a falling knife – or the right time to buy into Ted Baker’s recovery? (Worth noting Russ Mould concluded selling the company’s shares would be the best option)
Liberum analysts said the news was “less than ideal”, adding:
In our view, it is indicative to some degree of the very early stage work that the new and highly-regarded CFO, Rachel Osborne, is undertaking.
Europe pushes up
After ending last week in the red, European shares have pulled back up a little today, with moderate gains across the top indices.
Markets.com’s Neil Wilson said:
Markets continue to cling to hopes for a trade deal but increasingly this looks unlikely to be agreed, signed and delivered before year end. Markets though won’t particularly mind – they don’t look in the mood to allow a bit of can-kicking to derail the party, albeit we do see pullbacks along the way on headlines. As long as it can-kicking and not a complete breakdown in the talks, then markets should remain on an even keel.
Here’s how that Chinese manufacturing data looks
CMC Markets’ Michael Hewson said:
This good start for Asia is expected to translate into a similarly positive European open this morning.
Agenda: European markets to start December higher
Good morning. European markets are tipped to open the month in the green following better-than-expected Chinese manufacturing results for November which gave Asian stocks a boost overnight.
The Caixin manufacturing survey for November came in at 51.8, its best reading since January 2017.
Meanwhile, the pound tread water over the weekend to stay above $1.292 despite polls predicting that the gap between the Labour Party and the Conservatives is narrowing as the general election nears.
5 things to start your day
1) High-Speed 2 officials are ploughing ahead with preparations for a £270m station in Birmingham despite the cloud hanging over the future of the rail link. Read why here
2) There have been few elections where the voice of business has seemed so peripheral. It feels as if the needs and interests of UK companies both large and small have been largely ignored by all of the major political parties. Starting today, we begin an eight part series featuring the voice of business from all of the UK's regions and spanning all of the nation's biggest industries. Today, Lucy Burton tests the temperature in the City of London.
3) The Lib Dems want to take a leaf out of California’s book and legalise cannabis. But can it work in Britain? Tech reporter Laurence Dodds looks at what we can learn from the Americans.
4) Boris Johnson’s Brexit deal has given a temporary lift to the nation’s manufacturers but the sector is still facing an “uphill battle” next year, industry body Make UK has warned. Here’s why
5) A fleet of electric scooters and bikes backed by Ford is preparing to take to the streets in a dozen European cities in the latest phase of the car maker’s survival plan for the Uber era.
What happened overnight
Financial markets started December with a risk-on mood in Asia following a better-than-expected reading on Chinese manufacturing that added to evidence the global economy is turning a corner.
Japanese stocks led equity gains across the region, while S&P 500 Index futures edged up. Ten-year Treasury yields climbed to 1.81pc, and their Japanese counterparts ticked up closer toward zero.
Sentiment could still be kept somewhat in check by the continuing lack of closure on a US-China trade deal. China’s Global Times underscored that its government wants tariffs to be rolled back as part of “phase one.”
The so-called official China manufacturing purchasing-manager index exceeded all estimates in a Bloomberg survey, and suggested an acceleration in activity in November. A private gauge released Monday also showed an increase.
Coming up today
The reporting wind-down heading into the Christmas period continues this week, but there are still a handful of interesting companies reporting.
Interim results: Ferroglobe
Economics: Markit manufacturing PMI final reading (UK, US and eurozone), ISM manufacturing (US), Caixin manufacturing PMI (China)