Archived article
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The following is a summary of top news stories Wednesday.
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COMPANIES
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Netflix reported a rise in second-quarter earnings, hailing the success of smash hit 'Stranger Things', as the streaming services provider lost fewer subscribers than anticipated. For the three months to June 30, revenue was $7.97 billion, up from $7.34 billion in the second quarter last year. Second quarter net income was $1.44 billion, or $3.20 per diluted share, up from $1.35 billion, or $2.97 diluted EPS last year. The Los Gatos, California-based firm reported 220.7 million paid subscribers as of March end, down from 221.6 million in the first quarter, but up from 209.2 million in the second quarter last year. Crucially, Netflix reported a loss of 970,000 global paid subscribers in the second quarter, having shed 200,000 subscribers in the first quarter. However, this was better than the 2 million loss it had originally guided for.
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China is preparing to hit ride-hailing firm Didi with a fine of more than $1 billion to wrap up a long-running probe, a press report said, boosting investor hopes that the country's tech crackdown is winding down. Didi, once known as China's answer to Uber, has been one of the highest-profile targets of the widespread clampdown on the sector, which saw years of runaway growth and supersized monopolies before regulators stepped in. The fine imposed over Didi's cybersecurity practices would amount to more than 4% of its $27.3 billion total revenue last year and pave the way for its new share listing in Hong Kong, The Wall Street Journal reported. Citing unnamed sources familiar with the matter, the Journal said that once the fine is announced, the government will ease its restrictions on Didi's operations. The firm was prevented from adding new users and its apps were removed from online stores in China by regulators.
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Nidec reported a surge in profit in its first quarter as the company increased sales. In the three months to June 30, the Japanese electric motor manufacturer reported a pretax profit of JP¥56.99 billion, around $412.4 million, up 30% from JP¥43.75 billion a year previous. Net sales grew 21% year-on-year to JP¥540.37 billion from JP¥447.47 billion while earnings per share jumped to JP¥71.50 from JP¥57.14. Nidec added this was a record quarter for sales despite Covid-19 related lockdowns.
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Chilean copper miner Antofagasta lowered its annual production guidance after posting lower output in the first half of 2022, as a drought and a pipeline leak in Chile hurt operations. Copper output in the second quarter of the year fell 6.5% quarter-on-quarter to 129,800 tonnes. For the half-year, it was 26% lower year-on-year at 268,000 tonnes. A leak at the Los Pelambres asset in Chile hurt output. It occurred on May 31 and took until June 26 to be repaired. Copper output guidance for 2022 has been lowered to between 640,000 and 660,000 tonnes, from the previous range of 660,000 tonnes to 690,000 tonnes. Anto noted weaker copper prices, which have been on a downward trend since June. Antofagasta said it received $3.42 per pound of copper in the second quarter, down from $5.05 in the first. In response, the firm pledged to keep a lid on costs.
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abrdn is preparing to sell its private equity arm as part of its ongoing streamlining process, Sky News reported. abrdn has hired investment bankers to find a buyer for the division which manages roughly £14 billion in private equity asset, Sky said. Rothschild has been appointed to oversee the process, Sky said, citing unnamed sources. The sale represents the latest phase of a reshaping of the Edinburgh-based investment company which has been gathering pace under Chief Executive Officer Stephen Bird, who joined the company then known as Standard Life Aberdeen two years ago. abrdn's sale of its private equity funds business is expected to take several months.
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UK Secretary of State for Business, Energy & Industrial Strategy Kwasi Kwarteng announced he has cleared the acquisition of defence contractor Meggitt by Parker-Hannifin. In recent months, Parker-Hannifin, a Cleveland, Ohio-based engineering and aerospace company, had made undertakings to mitigate competition and national security concerns regarding its £6.3 billion takeover of its Coventry, England-based peer. ‘The business secretary has now accepted undertakings from the parties to mitigate national security risks and competition concerns,’ the department said.
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Royal Mail unveiled plans for a name change and said it will consider a separation should its UK arm continue to struggle, while its GLS international distribution unit shines. The FTSE 250 constituent said it will change its name to International Distributions Services PLC. It is a move that reflects the importance of GLS, on which the company said it has become ‘increasingly’ reliant. GLS reported revenue growth during the first quarter ended June, while the eponymous Royal Mail unit saw a double-digit decline. It is that sort of underperformance which may prompt the parent to mull a separation. ‘The board has always maintained that there should be no cross subsidy in the group and recognises the need to address improvements in Royal Mail's performance quickly. In the event that significant change within Royal Mail is not achieved, the board will consider all options to protect the value and prospects of the group, including separation of the two companies,’ the company said.
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MARKETS
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Shares were trading higher in Europe on Wednesday - though not as strongly as had markets in Asia - after a strong close on Wall Street. Market focus was on both technology company earnings in the US and on monetary policy decisions due from the Bank of Japan and European Central Bank on Thursday.
Meanwhile, a record high reading of UK inflation has raised expectations for the next Bank of England interest rate hike, with a 50-basis-point rise considered more likely at the August meeting. ‘We have been saying for a while that it is high time the BoE joins the '50 club', and see it as highly likely that they will finally do so when rate-setters next convene in a couple of weeks' time,’ commented Matthew Ryan, head of market strategy at Ebury. ‘Investors are finally coming around to this view, although with a 50-basis-point hike yet to be fully priced in by swap markets, we think there remains room for a recovery rally in sterling from current levels.’
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CAC 40: up 0.3% at 6,221.18
DAX 40: up 0.3% at 13,348.06
FTSE 100: up 0.3% at 7,318.05
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Hang Seng: closed up 1.1% at 20,890.22
Nikkei 225: closed up 2.7% at 27,680.26
S&P/ASX 200: closed up 1.7% at 6,759.20
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DJIA: called up 0.2%
S&P 500: called up 0.2%
Nasdaq Composite: called up 0.3%
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EUR: soft at $1.0233 ($1.0245)
GBP: down at $1.2007 ($1.2030)
USD: up at JP¥138.23 (JP¥137.77)
Gold: down at $1,707.96 per ounce ($1,714.05)
Oil (Brent): up at $106.33 a barrel ($105.85)
(currency and commodities changes since previous London equities close)
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ECONOMICS AND GENERAL
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China's central bank left its key interest rate unchanged, in line with market expectations. The People's Bank of China held its one-year loan prime rate at 3.7%, while the five-year rate remained at 4.45%. The bank had cut the five-year rate from 4.60% in May.
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The European Commission is set on Wednesday to publish an emergency plan to secure the bloc's gas supplies and avoid a winter crisis amid fears of a total shut-off of Russian deliveries. In the draft plan, subject to change, the commission urges EU member states to continue voluntary measures to reduce gas consumption to avoid a crisis situation. However should two or more EU member states fear an emergency situation due to low supplies, ‘a binding gas demand reduction target would be implemented,’ the draft contingency plan states.
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Russian President Vladimir Putin threatened a further reduction in gas deliveries to Europe through the Nord Stream 1 pipeline Tuesday night, according to news agency TASS. The Nord Stream 1 pipeline has a daily capacity of around 167 million cubic metres of gas. In June, Russia's state energy giant Gazprom reduced that volume to just 67 million cubic metres per day. On top of that, the pipeline is currently closed for annual maintenance, which is due to end on Thursday. Putin said if a gas turbine sent to Canada for repairs isn't returned to Russia soon, the daily volume delivered by Nord Stream 1 could drop to as low as 33 million cubic metres by the end of July. He said this was because of a need to repair ‘another unit,’ according to TASS reports of remarks on the sidelines of a meeting with the leaders of Iran and Turkey in Tehran. Critics have already dismissed the Kremlin's claims that the turbine's delayed return was behind the need to further reduce Russian gas supplies to Germany, Europe's largest economy.
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The German annual producer price index for industrial products increased by 32.7% in June against the previous year, the Federal Statistical Office said. In May, annual producer inflation in Germany had surged to another record high. On an annual basis, the producer price index had risen by 33.6% in May, driven by soaring energy prices. In June, the year-on-year increase was slightly less at 32.7%, but the driver behind the rise remained the same: surging energy prices. These were up 86% compared to June 2021 and by 1.6% compared to May.
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The UK consumer price inflation rate raced to 9.4% in June, beating market forecasts and hitting a series high. The annual pace of price increases accelerated from 9.1% in May and also topped FXStreet-cited market consensus of 9.3%. According to the Office for National Statistics, the June reading was the hottest annual inflation rate in its latest series, which began in 1997. Inflation was last this high in 1982, the ONS added. A year earlier, the inflation rate was 2.5%. There has been an acceleration in annual inflation every month since last October. On a monthly basis, consumer prices rose 0.8% in June, picking up pace from 0.7% in May.
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UK factory gate inflation also hotted up. Producer input prices surged 24% annually in June, accelerating from 22% in May and setting the highest figure since records began in January 1985. Producer output prices rose 17% yearly in June, picking up from 16% in May. June's annual inflation figure was the highest rate since September 1977.
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UK house prices grew at a stronger pace than expected on an annual basis in May. According to the Office for National Statistics, UK house prices advanced 13% yearly in May, accelerating from April's 12% climb. The latest figure beat an FXStreet cited estimate of 11% growth. The average UK house price now stands at £283,000, being £32,000 higher than a year earlier. On a seasonally adjusted basis, house prices climbed 0.9% on-month in May, following a rise of 0.4% in April.
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Bank of England Governor Andrew Bailey mooted a possible 50 basis point interest rate hike next month. At the annual Mansion House speech in the City of London on Tuesday, Bailey said a 50 basis point rise from 1.25% to 1.75% would be one of the options for the Monetary Policy Committee. So far, the UK central bank has opted for smaller interest rate rises, although some of the MPC members have argued for quicker rate rises. ‘A 50 basis point increase will be among the choices on the table when we next meet,’ Bailey said, insisting however: ‘50 basis points is not locked in, and anyone who predicts that is doing so based on their own view.’
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A final vote of Tory members of Parliament on Wednesday will select the two candidates to be put to the UK political party's membership in the race for No 10. Liz Truss and Penny Mordaunt are battling to win over Kemi Badenoch's supporters after she was knocked out of the contest, and face frontrunner Rishi Sunak in the run-off. The Foreign Secretary received a surge in support in the penultimate ballot, putting her within touching distance of Mordaunt as the right of the party appears to be coalescing around her. The momentum of her latest result now puts her favourite to face Sunak in the head-to-head competition to win a ballot of Conservative members, with that result being announced on September 5.
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