July 5, 2020

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Global markets post best quarter in a decade as China’s factories strengthen – business live

UK housebuilder Redrow has sent a shiver through the property sector this morning, as it warned that profits will be badly hit the coronavirus outbreak.

Redrow told shareholders that it is scaling back its operations in London. Following the lockdown, there is more demand for houses with space to work inside, and nice places to visit near.

So, the company is focusing more on regional development, and less in the capital.

It says:


Recent studies have highlighted that the Covid-19 pandemic has shifted home movers’ priorities. In particular, there is a desire for more inside and outside space, wanting to live closer to green spaces and having better home workspace. Redrow’s reputation for placemaking and its award winning Heritage product ideally position the business to meet these changing customer priorities.

Following a review of our divisional businesses, we have decided to scale-back our operations in London to focus on the Colindale Gardens development [in North West London] and continue to target the Group’s future growth on the higher returning regional businesses and the Heritage product.

The costs and related significant impairments associated with scaling-back the London business will be provided for in the June 2020 accounts. As a consequence of the impact of Covid-19 and making these provisions the profit for 2020 will be substantially below 2019.

Redrow has also found that the new social-distancing rules mean it takes longer to build houses, and also longer to hand them over to customers. This has lengthened its build times, and will continue to drag on its output.

Shares in Redrow have dropped 4% this morning, towards the bottom of the FTSE 250 leaderboard.

Louisa Clarence-Smith
(@LouisaClarence)

💥Redrow has issued a profit warning and announced plan to scale back housebuilding in London to focus on regions
-Says it will return furlough money given group’s resilient cashflow
-Annual home sales and turnover down 37% and 36%
-Urges gov to extend current Help to Buy scheme

June 30, 2020

Shaun Richards
(@notayesmansecon)

This will create panic at the Bank of England https://t.co/pgbFgNYJVK

June 30, 2020

Here’s our economics editor Larry Elliott on today’s UK GDP figures:


Britain’s economy contracted 2.2% in the first three months of 2020 – its sharpest decline in more than 40 years – as the immediate impact from the Covid-19 pandemic provided an even more severe hit to output than first thought.

Fresh data from the Office for National Statistics showed that gross domestic product fell 6.9% in March, even though the government-imposed lockdown only came into force with nine days left of the month.

Original estimates the ONS had shown that the economy shrank 2% in the first quarter as a whole and 5.8% in March….

The coronavirus slump has forced energy giant Royal Dutch Shell to slash up to $22bn off the value of its assets.

Shell told the City this morning that it has lowered its long-term outlook on oil and gas prices. As a result it will record a post-tax, non-cash impairment charges of between $15bn to $22bn in the second quarter.

The company


Given the impact of COVID-19 and the ongoing challenging commodity price environment, Shell continues to adapt to ensure the business remains resilient.

Brent crude is currently changing hands at around $40 per barrel, down from around $65 back in January.

The astonishing 18% surge in global stock prices since March may show that investors have got ahead of themselves.

Many companies have scrapped their earnings guidance, as they simply don’t know how many goods or services they’ll sell this year. It all depends on the progress in combating Covid-19, which is still accelerating worldwide.

Neil Wilson of Markets.com thinks we could see a “short, sharp pullback” soon:


Valuations still look too high and based on a far-too-optimistic view of an earnings rebound in 2021 and does not account for permanent productivity and demand destruction. Of course stimulus is making a big difference here, but risk assets are exposed if we see the pandemic get worse from here. World Health Organisation boss Tedros said the worst is yet to come. Cases across states like Arizona, Texas and Florida continue to surge and look to be completely out of control. A short, sharp pullback is a very real possibility.

Nevertheless, it’s been a solid month and an exceptionally strong quarter. US equities have enjoyed their best quarter in 20 years, whilst stocks in Europe have fared pretty well too as investors participated in the rebound off the March lows. It’s mirrored elsewhere in risk assets – copper is up a fifth, but is slightly weaker for the year. For instance, the S&P 500 is up 18% QTD, but down 5% YTD. The FTSE 100 is up almost 10% QTD, but down over 17% YTD.


Neil Wilson
(@marketsneil)

a game of two halves #DAX pic.twitter.com/LZ8NyjJMaZ

June 30, 2020


Neil Wilson
(@marketsneil)

similar story for SPX pic.twitter.com/khtDHgrC0I

June 30, 2020

Britain’s FTSE 100 has dipped 30 points, or 0.5%, at the start of trading – but is still on track for its best quarter since the financial crisis.

UK household spending slumped at a record pace in January-March, the ONS adds:


Households’ consumption spending decreased £9.5 billion (negative 2.7%) in Quarter 1 2020, the largest quarterly fall in nominal household spending of this type ever recorded; there were large falls in expenditure on motor vehicles, restaurants and hotels, and clothing and footwear.

Britain’s economy suffered an even more bruising blow from Covid-19 than previously thought.

UK GDP shrank 2.2% in the first quarter of 2020, according to updated figures from The Office for National Statistics. That’s down from a previous estimate of a 2% decline — and is the joint-worst quarter since Margaret Thatcher was settling into Downing Street.

The ONS says:

  • UK gross domestic product (GDP) in volume terms fell 2.2% in Quarter 1 (Jan to Mar) 2020, revised downwards 0.2 percentage points from the first quarterly estimate; this is now the joint largest fall in UK GDP since Quarter 3 (July to Sept) 1979.
  • When compared with the same quarter a year ago, UK GDP decreased 1.7% in Quarter 1 2020, a downward revision of 0.1 percentage points from the previous estimate.
  • This release captures the first direct effects of the coronavirus (COVID-19) pandemic, and the government measures taken to reduce transmission of the virus.
  • The services, production and construction sectors provided a negative contribution to growth in the output approach to GDP in Quarter 1 2020; with services output falling a record 2.3% in the latest quarter.

Daniel Moss
(@DanielGMoss)

$GBPUSD continuing to slide after UK Q1 #GDP dropped the most since 1979

The British economy shrinking 2.2% vs market expectations of a 2% contraction in the first quarter of 2020 #UK pic.twitter.com/g32chD4giQ

June 30, 2020

Global stock markets have enjoyed a sizzling quarter, even as the death toll from Covid-19 has marched higher and economies have fallen deep into recession.

World equities have surged 18% between the start of April and the end of June, according to MSCI’s All Country World Index. That’s its biggest advance in 11 years, and the second best quarter in at least two decades.

It means stocks have recovered some, but not all, of the heavy losses suffered during the crash in the first quarter of the year.


MSCI All Country World Index


MSCI All Country World Index Photograph: Refinitiv

The financial markets have clearly already priced in a recovery, helped huge stimulus packages, record low interest rates, and a generous flurry of money-printing the world’s central banks.

As Bloomberg puts it:


Investors are weighing better economic figures against a continued increase in virus cases. Following a stronger-than-forecast U.S. pending home sales figures Monday, China Tuesday reported improving purchasing-manager indexes for both manufacturing and services.

The MSCI All Country World Index is up about 18% this quarter, the biggest advance in 11 years — on the heels of the worst quarter since 2008. The rebound comes even as deaths from the virus surpass 500,000 and confirmed cases exceed 10 million, with the World Health Organization warning the worst is yet to come.

“It’s not clear what trajectory coronavirus is heading,” Tom Lee, co-founder and head of research at Fundstrat Global Advisors, said on Bloomberg TV. “But I also think because we’re into quarter-end, there’s been some re-balancing. So I’m kind of in the camp that any weakness is short-lived. I would think July is going to be a strong month for stocks.”

Economists and traders are cheered the news that China’s factories posted growth this month, despite the ongoing pandemic.

Iris Pang of ING says today’s manufacturing and non-manufacturing PMIs both send a positive signal for the economy. Can it be sustained?


Demand for materials and products for the development of advanced technology, the real estate market and infrastructure projects support growing manufacturing activity.

The foreign orders PMI at 42.6 in June confirms that external demand remains weak. We believe that the ongoing Covid-19 situation in the US and Europe will keep the pressure on export orders in the coming months. External demand weakness is putting pressure on some manufacturers, especially small factories, of which the sub-index PMI fell to 48.9 in June from 50.8 a month ago. This confirms our view that small manufacturers continue to struggle to get export orders.

Here’s Stephen Innes of Axicorp:


The better-than-expected China PMI lends further weight to the argument that a global cyclical recovery is well underway.

And Jim Reid of Deutsche Bank:


Encouragingly, there was a broad improvement in the details for the manufacturing PMI with output, new orders and new export orders all rising from last month.

ACEMAXX ANALYTICS
(@acemaxx)

China factory outlook is brighter in June as recovery continues: PMI index rose to 50.9 from 50.6 a month earlier. The non-manufacturing PMI rose to 54.4; readings above 50 indicate improving conditions from prev. month, chart @BloombergQuint https://t.co/Q0aCzWMslz pic.twitter.com/1uiB0JmFSS

June 30, 2020


An employee works on production line for wind turbines at a plant of China Construction Equipment and Engineering in Nanjing, Jiangsu Province of China.


An employee works on production line for wind turbines at a plant of China Construction Equipment and Engineering in Nanjing, Jiangsu Province of China. Photograph: VCG/Getty Images

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

Some upbeat economic news from China is cheering investors on the final day of June, boosting optimism that the world economy is turning the corner.

China’s factories grew at a slightly faster pace this month, according to China’s National Bureau of Statistics. Its Purchasing Manager’s Index has risen to 50.9 from 50.4 in May (anything over 50 indicates growth).

It’s the fourth month of (modest) growth in a row, as China emerged from the lockdown imposed to curb the spread of Covid-19 in January and February.

Chinese manufacturers reported that supply and demand are starting to pick up, leading to more new orders. However, new export orders are still down, meaning factories are still shedding jobs.

In a statement, NBS official Zhao Qinghe said there was still much uncertainty about the economic outlook, with small Chinese companies finding conditions particularly tough.

Tom Orlik
(@TomOrlik)

China PMI comes in at 50.9 in June.

That’s a positive reading, but only just.

Based on the PMI’s, China’s recovery is steady but unspectacular. pic.twitter.com/tGU4t8PQfV

June 30, 2020

Services companies also strengthened, with the official non-manufacturing PMI rising to 54.4 in June from 53.6 in May. That’s the best reading of the year.

Julian Evans-Pritchard, senior China economist at Capital Economics, explain:


“The latest survey data suggest that economic growth accelerated in June thanks to a faster recovery in manufacturing and services, alongside continued strength in construction activity,

The recovery should remain robust in the coming months as strong infrastructure spending offsets external weakness.”

MacroMarketsDaily
(@macro_daily)

ICYMI: There were further modest signs of recovery in China this month, with the official NBS non-manufacturing PMI rising to a 7-month high of 54.4 in June, while the manufacturing PMI edged higher to 50.9 pic.twitter.com/MZoBNNUd3Q

June 30, 2020

Following an unexpected surge in US home sales on Monday, this may bolster hopes that the world economy may be gingerly emerging from the coronavirus slump.

European stock markets are expected to rise a little this morning, at the end of one of the strongest quarters in decades.

By my reckoning, the FTSE 100 has gained almost 10% since the start of April – its best quarter since 2010. Europe’s Stoxx 600 has rallied over 12% during the quarter – the best since 2015, while Wall Street has enjoyed its strongest gains since 1998.

Astonishing, really, given the world is still gripped the Covid-19 pandemic. Clearly the unprecedented stimulus from central banks has reassured investors, even though a V-shaped recovery looks rather unlikely.

And most markets are still deep in the red for the year, due to the crash in February and March.

IGSquawk
(@IGSquawk)

European Opening Calls:#FTSE 6235 +0.15%#DAX 12271 +0.32%#CAC 4959 +0.26%#AEX 562 +0.38%#MIB 19477 +0.15%#IBEX 7288 +0.13%#OMX 1676 +0.27%#STOXX 3238 +0.19%#IGOpeningCall

June 30, 2020

The agenda

  • 10am BST: Eurozone core inflation for June – expected to remain at 0.8%
  • 11am BST: Bank of England chief economist Andy Haldane speaks about the economic impact of Covid-19
  • 1.30pm BST: Canadian GDP for April – expected to shrink 13
  • 2pm BST: S&P/Case-Shiller index of US home prices
  • 5.30pm BST: US treasury secretary Steven Mnuchin and Fed chair Jay Powell appear before Congressional committee on financial services

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