Hairdresser Taylor Ferguson cuts Yvonne Smiths hair, his first customer since the country went into lockdown in March, on July 15, 2020 in Glasgow, Scotland. Photograph: Jeff J Mitchell/Getty Images
Hairdresser Taylor Ferguson cuts Yvonne Smiths hair, his first customer since the country went into lockdown in March, on July 15, 2020 in Glasgow, Scotland. Photograph: Jeff J Mitchell/Getty Images
We started the day with some positive news for the high street. The Office for National Statistics reported a 13.9% month-on-month rise in UK retail sales last month, which easily exceeded expectations for an 8% uptick. Even the year-on-year contraction of -1.6% was smaller than forecasts for a -6.4% fall
Eurozone business activity also rose for first time since February, with the composite PMI output index coming in at 54.8, which compared to 48.5 in June and marked the fastest pace of growth for 25 months. Economists polled by Reuters had expected a reading of 51.1
But global stocks fell as, as investors fretted over rising numbers of Covid-19 deaths in the US and the tit-for-tat retaliation in the long-standing spat between the US and China
And with investors retreating to safe havens, spot gold surpassed $1,900 per ounce for the first time since September 2011
Goldman Sachs reached a $3.9bn settlement with Malaysia over the 1MDB scandal. Along with the cash it has already received as part of a recovery programme through the US Department of Justice, the country’s finance ministry said it was set to return $4.5bn to the people of Malaysia
British Airways owner IAG is going to issue a fresh lot of shares by September in an attempt to raise €2.5bn that will help keep it afloat amid the Covid-19 crisis, according to Reuters
That’s all from us today. Stay safe and have a good weekend. –KM
DATA FLASH: US manufacturing and services PMIs for July have come in lower than forecast.
The US services sector contracted in July, with the PMI reading coming in at 49.6. While that’s better than June’s 47.9, it fell short of a Reuters poll which expected a reading of 51.0.
A reading above 50 signals expansion.
Manufacturing PMI came in just shy of expectations. Economists polls by Reuters had forecast 51.5, while the flash reading came in at 51.3. That put the sector in expansion territory and above June’s reading of 49.8.
Wall Street has opened for trading and US stocks have followed European and Asian markets into the red:
Dow is down 0.48%
S&P 500 is down 0.6%
Nasdaq is down 1.5%
A pedestrian walks near the “Fearless Girl” statue in front of the New York Stock Exchange (NYSE) at Wall Street on July 23, 2020 in New York City. Photograph: Michael M Santiago/Getty Images
With investors retreating to safe havens amid another drop in stock prices, spot gold has surpasses $1,900 per ounce for the first time since September 2011.
Gold prices have reached high not seen since 2011. Photograph: Tail1/Refinitiv
NEWSFLASH: British Airways owner IAG is going to issue a fresh lot of shares by September in an attempt to raise €2.5bn that will help keep it afloat amid the Covid-19 crisis, according to Reuters.
The newswire is citing several sources as saying the money will likely be raised through a rights issue, in which new shares will be offered to existing shareholders at a discount.
However, there are other options on the table, including an equity placing and issuance of convertible bonds, the report said.
As experts chew over the UK PMI and retail data, research suggests the hospitality sector is just limping back to life.
Workers in the UK’s hospitality sector are still suffering from a 68.9% drop in shifts being doled out, even after further loosening of lockdown restrictions in England.
And the numbers of shifts offered to staff is increasing at a rate of just 3% per week.
A waitress serves diners in the restaurant at the St Moritz Hotel’s socially distanced restaurant on July 21, 2020 in Wadebridge, England. This is the UK’s first purpose-built socially distanced restaurant. Photograph: Chris Jackson/Getty Images
Research from Wagestream shows that the number of shifts being worked remains 58.3% down in England, where bars and restaurants being able to re-open sooner than Scotland and Wales.
In Scotland, the number of shifts being worked is still down73% since before lockdown, the report shows.
And while the government is hoping that Chancellor Rishi Sunak’s Eat Out to Help Out scheme might support businesses and their workers, it looks like only quarter of the restaurants, cafes and pubs eligible to sign up have done so. (And there’s less than two weeks to go before diners can get their hands on the half-price meals).
More job cut announcements are coming through, but this time from Essex-based banana supplier Winfresh UK.
Winfresh UK has gone into administration. Photograph: Clive Gee/PA
Winfresh UK has gone into administration, putting around 70 jobs at risk, my colleague Zoe Wood writes.
The company supplies bananas, including Fairtrade ones grown by smallholders in the Caribbean, to retailers and catering firms.
The advisory firm Duff & Phelps is handling the process with Michael Lennon, one of the administrators, explaining the company had faced cash flow pressures in a highly competitive UK market.
Lennon said:
As a result the financial position of the company has become untenable.
It is too early to define what the long-term prospects are for the company, but we will explore all the options.
UK private sector business activity grew at the fastest pace in five years this month as the easing of the lockdown brought the economy back to life, the Guardian’s Phillip Inman writes.
After the sharpest contraction in modern history during April, May and June, the economy returned to growth in July as pent-up demand from consumers and business customers led to a jump in sales and began to fill order books.
The IHS Markit flash UK Composite Output Index hit 57.1 – a 61-month high – up from 47.7 in June. A reading above 50 indicates expansion.
Manufacturing production led the way after it surged in July to give an index reading of 59.8 but the industry reported that while factories boosted production, output levels remained below pre-coronavirus levels and employment was likely to remain depressed.
Approximately a third of England’s public leisure centres will remain closed on Saturday as a widespread picture of financial distress among community leisure operators overshadows the long-awaited reopening of gyms and indoor swimming pools, the Guardian’s Zoe Wood writes.
While privately owned chains such as PureGym, David Lloyd and Virgin Active are eager to proceed with opening plans, the charitable trusts behind the country’s 2,116 council-owned sites, are being circumspect as coronavirus restrictions tip their finances into the red.
Jane Parish, the chief executive of Sencio, which runs three leisure centres and a golf course in Kent, said the future of its facilities was hanging in the balance after it ran out of cash during the quarantine period.
“We’ve been losing £100,000 a week of income but have still been incurring costs maintaining our buildings,” she said. “We’ve got no reserves left whatsoever.”
Parish said the need to limit visitor numbers meant Sencio would be making a loss when it opens its centres on 3 August.
Malaysia’s minister of finance Tengku Dato’ Sri Zafrul Aziz said:
This settlement represents assets that rightfully belong to the Malaysian people. We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations.
We are also glad to be able to resolve this outside the court system, which would have cost a lot of time, money and resources.
With this settlement, we will have the return of the monies expedited, and not held up by lengthy and costly court battles and legal process
Motorcyclists pass a 1Malaysia Development Berhad (1MDB) billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia, February 3, 2016. Photograph: Olivia Harris/Reuters
It says that the agreement resolves outstanding charges and claims related to the three bond transactions that Goldman was involved in structuring and arranging for 1MDB.
The ministry said the settlement also represented Goldman’s “acknowledgment of the misconduct of two of its former employees in the broader 1MDB fraudulent and corruption scheme.”
However, it said the settlement will not affect Malaysia’s claims against Jho Low or others related to the 1MDB scandal.
Along with the cash it has already received as part of a recovery programme through the US Department of Justice, the ministry said it was set to return $4.5bn to the people of Malaysia.
“The Government remains committed to recover other outstanding assets,” the statement added.
Goldman Sachs reaches $3.9bn settlement with Malaysia over 1MDB scandal
BREAKING: Goldman Sachs has reached a $3.9bn settlement with Malaysia over the 1MDB scandal.
We’ve confirmed reports that the Wall Street lender’s agreement will mean paying out $2.5bn in cash and a further $1.4bn in assets to linked to the 1MDB bonds.
This comes amid claims that Goldman Sachs allegedly turned a blind eye while $4.5bn was looted from its client, Malaysia’s sovereign wealth fund, 1MDB. The bank was an underwriter and arranger of bond sales for the wealth fund, totalling $6.5bn.
The money was allegedly looted from 1MDB in a fraud said to have involved the former Malaysian prime minister Najib Razak, the Malaysian financier Jho Low, and his associates. The funds were allegedly used to buy everything from yachts to artwork, and fund the production of Hollywood films including The Wolf of Wall Street.
We’re waiting for a formal announcement and will bring you more as we get it.
The owner of British Gas has ended its international expansion plans with the sale of its North American energy supply business for $3.6bn, the Guardian’s energy correspondent Jillian Ambrose writes.
Centrica’s shares soared by more than 22% on Friday after revealing the deal to sell off Direct Energy to US energy giant NRG Energy.
The sale effectively ends Centrica’s international expansion plans, but the multi-billion dollar cash windfall will help to reduce the struggling energy company’s debt pile and help rescue its defined benefit pension scheme.
It is a rare glimmer of good news for Centrica shareholders, weeks after the company revealed plans to cut 5,000 roles from its global workforce after a £1.1bn loss last year.
Centrica’s firt half results, reported today, showed that the company’s earnings before interest, debt and amortisation (Ebitda) fell by 19% to £869m due in part to the impact of the coronavirus, and the loss of 226,000 customers from British Gas.
Some experts are warning that PMIs are not the best way to gauge UK economic strength in the middle of the pandemic.
James Smith, ING’s developed markets economist says that while PMIs are usually helpful in telling us about the level of growth in normal times, all they are telling us now is that the economy is no longer contracting (which we already knew based on May’s GDP data ).
Like other survey-based data, they are calculated by netting out the number of businesses saying conditions are improving against those that say they are worsening. S
o what these latest PMI numbers tell us is that on balance, a higher proportion of firms are seeing things getting better - but it doesn’t tell us much about the magnitude of that improvement.
Commuters wearing face masks walk through the ticket barriers at Waterloo Station in London on June 15, 2020. Photograph: Niklas Halle’n/AFP/Getty Images
However, Smith says there are important red flags in the IHS Markit/CIPS PMI report that one-in-three service firms reported a fall in employment in July, due to higher costs and weaker-than-expected demand.
And that’s before the UK government winds down the furlough scheme by October.
ING says there are also signs from Google Mobility data, Springboard figures, and even OpenTable restaurant reservations that consumers are still hesitant to loosen the pursestrings.
Smith says: we shouldn’t expect the UK economy to grow to pre-Covid levels until at least 2022:
A safety-conscious consumer, as well as the increasing financial challenge posed by rising unemployment, suggest that the overall economic recovery is unlikely to a full ‘V-shape’.
Despite a strong recovery in retail sales during June, we don’t expect the size of the UK economy to return to pre-virus levels until 2022 or later.
Rhys Herbert, senior economist at Lloyds Bank, says today’s wave of data is good news for the UK and provides further confirmation that economic trends are improving.
Herbert says:
Moreover, the economy may be performing slightly better than what we’re seeing here.
The PMIs have so far underestimated the scale of the rebound when compared to the official data. This has been true for manufacturing, a sector that was one of the first to emerge from lockdown and consequently has had the best opportunity to build momentum.
While it’s certainly encouraging to see growth, there are red flags that cast doubt over how long the economy can continue to expand at such a pace, and how much of this is a reflection of the emergence from lockdown only.
The worry continues to be that if businesses or consumers sniff further danger ahead – for example the increased likelihood of a second lockdown – they rein in spending and any nascent recovery stalls.
That’s something the UK economy can ill afford with an end to the furlough scheme looming and the uncertainty of Brexit on the horizon.
The IHS Markit/CIPS report on the UK PMI data says the readings for July are “marked improvement” in business conditions across the UK.
Unsurprisingly, it’s been chalked up to an increased return to work and a phased reopening of the wider UK economy.
Things were a bit shaky on the service sector front, with business capacity still limited and operating costs rising due to coronavirus safety measures. However, manufacturing firms also reported a slow return to output levels seen prior to the pandemic.
Duncan Brock, Group Director at CIPS, said:
Amidst this brightening picture, there were some winners and losers. Some parts of the economy performed better than others, both through luck with being early to reopen and good adaptation in responding to the challenges of the pandemic.
The biggest concern is that staffing levels remained disappointingly low across both sectors, as furlough schemes came to an end and redundancies started to appear.
As firms look to the future with concerns over the strength of the economy and any second wave hampering progress, Brexit looming on the horizon was also a concern that has begun to feature again for a number of businesses.
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