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The following is a summary of top news stories Wednesday.
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COMPANIES
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Co-operative Group has agreed to sell its petrol forecourt business to food retailing peer Asda for an enterprise value of £600 million. The deal includes 129 petrol forecourt sites across the UK, representing 5% of Co-op's total retail estate of 2,564 stores. Asda was bought from Walmart by the Issa brothers and UK-based private equity firm TDR Capital in February last year for £6.8 billion. The Issa brothers, Zuber and Mohsin, made their money through EG Group, a petrol station business that has 6,000 sites in the UK and Europe. Co-op said the proceeds - being cash consideration of £438 million - will be used to reinvest into its core convenience business and pricing, as well as reducing debt. The remainder of the £600 million enterprise value represents IFRS 16 lease liabilities of £162 million.
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Royal Mail workers have walked out on strike again in a bitter dispute over pay, with further industrial action planned. Members of the Communication Workers Union mounted picket lines outside Royal Mail offices across the UK on Wednesday. The union said more than 100,000 workers are involved, making it the biggest strike of the summer. The action follows a walkout last week and there will be further stoppages on Thursday September 8 and Friday September 9. The action is in protest at a 2% pay rise, although the company has said more money is on offer.
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Anglo American said De Beers' seventh rough diamond sales cycle of 2022 amounted to $630 million, down marginally on $638 million in the sixth cycle but up from $522 million in the seventh cycle of 2021. ‘De Beers group rough diamond sales continued at a steady level in the seventh sales cycle of 2022. In line with normal seasonal trends, we anticipate that sales in the next few cycles will be affected by the temporary closure of polishing factories for the Diwali holidays,’ said Chief Executive Bruce Cleaver. Diwali, the Hindu festival of lights, falls on October 24 this year.
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Hewlett-Packard Enterprise reported its third quarter revenue came in ahead of guidance, and sees further growth in the fourth quarter. In the three months to July 31, the Texas-headquartered business software services firm recorded net earnings of $409 million, rising from $392 million the year prior. Diluted earnings per share increased to $0.31 from $0.29. Net revenue was broadly flat at $6.95 billion versus $6.90 billion. Intelligent Edge revenue was up 12% year on year, while High Performance Computing & Artificial Intelligence revenue was up 12%. Compute - the firm's largest unit - revenue was down 3% and Storage revenue fell 2%. Financial Services revenue was down 3%. Looking ahead, HPE reiterated its annual growth outlook, expecting 3% to 4% revenue growth in financial 2022, adjusted for currency. Annual diluted EPS is seen between $1.20 and $1.28. For the fourth quarter, diluted EPS is guided to be between $0.32 and $0.40.
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MARKETS
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European markets started higher on Wednesday but quickly fell back into the red, as eurozone inflation set another new record high. The confirmation that price pressure remained unabated in August puts pressure on the European Central Bank to hike interest rates aggressively at its policy meeting on Thursday next week. The ECB raised its key interest rate by half a percentage point - 50 basis points - in July.
‘The further increases in headline and core inflation in August, and likelihood that they will keep rising, will add to the pressure on the ECB to step up the pace of tightening,’ said Jack Allen-Reynolds, senior Europe economist at Capital Economics. ‘The balance of probabilities is shifting towards a 75bp hike next week.’
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CAC 40: down 1.0% at 6,148.65
DAX 40: down 0.8% at 12,858.70
FTSE 100: down 1.2% at 7,273.39
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Hang Seng: closed marginally higher, up 5.36 points at 19,954.39
Nikkei 225: closed down 0.4% at 28,091.53
S&P/ASX 200: closed down 0.2% at 6,986.80
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DJIA: called down 0.2%
S&P 500: called down 0.1%
Nasdaq Composite: called up 0.1%
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EUR: down at $0.9984 ($1.0022)
GBP: down at $1.1635 ($1.1662)
USD: soft at JP¥138.66 (JP¥138.75)
Gold: down at $1,713.86 per ounce ($1,725.60)
Oil (Brent): down at $97.58 a barrel ($99.99)
(currency and commodities changes since previous London equities close)
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ECONOMICS AND GENERAL
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The annual eurozone inflation rate hit a fresh high of 9.1% in August, beating expectations, data from Eurostat showed. July's inflation rate was 8.9%. August's rate was expected to edge up to 9.0%, according to FXStreet. Core inflation - which strips out energy, food, alcohol and tobacco - accelerated to an annual rate of 4.3% in August from 4.0% in July. A year ago, the rate was 1.6%.
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Inflation in France is estimated to have slowed slightly on an annual basis in August, preliminary figures showed, as the country's economy rebounded in the second quarter. According to statistics agency INSEE, consumer prices in France continued to rise at pace in August, growing by 0.4% from the previous month, edging up from the 0.3% monthly rise in July. Annually, inflation is estimated to have hit 5.8% in August, slowing slightly from 6.1% in July. On a harmonised basis - which allows for comparison across the EU member states - inflation slowed to 6.5% annually, compared to 6.8% reached in July. This is slower than FXStreet-cited market consensus of 6.7%. Industrial inflation quickened in July, with producer prices rising 2.0% month-on-month, compared to a 1.5% rise in June. Annually, producer prices surged 26%, compared to 25% in June.
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INSEE data also showed the French economy staged a comeback in the second quarter, with gross domestic product growing 0.5% from the previous quarter. This compares to the 0.2% quarterly contraction seen in the first quarter.
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Italy's consumer price inflation further accelerated in August, also topping market estimates, figures from national statistics office Istat showed. Consumer prices in Italy increased by 8.4% on an annual basis in August, beating estimates of 8.1%, as cited by FXStreet, and accelerating from 7.9% in the previous month. On a monthly basis, inflation accelerated to 0.8% from 0.4% the month before, beating estimates of a 0.6% increase. Annual core inflation - which excludes energy and fresh food goods - accelerated to 4.4% in August from 4.1% the previous month. Harmonized inflation - which offers a better comparison among the EU countries - was at 0.8% on a monthly basis after deflation of 1.1% in July and at 9.0% on an annual basis from the 8.4% in the previous month.
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The German unemployment rate edged up slightly to 5.5% in August, according to data from the Federal Employment Agency, reflecting the influx of Ukrainian refugees. The unemployment rate was slightly higher than 5.4% reported in July. The agency reported 2.50 million people were unemployed in August, compared to 2.47 million in July, with the figure rising by 28,000 people, compared to a rise of 45,000 in July.
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The price of food in the UK rose at its fastest rate since 2008 in August as pressure from the war in Ukraine continued to push up costs, figures show. Shop price annual inflation surged to 5.1%, up from 4.4% in July, marking a new record since the British Retail Consortium and NielsenIQ index started in 2005. The overall figure was driven by food inflation accelerating to 9.3%, up from 7% last month the highest rate since August 2008 as the war in Ukraine and consequent rise in the price of animal feed, fertiliser, wheat and vegetable oils placed mounting pressure on prices. The annual increase in fresh food prices jumped to 11%, up from 8% in July, with products such as milk and margarine seeing the biggest rises.
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China's factory activity shrank in August for the second month in a row, as the sector was hit by strict zero-Covid restrictions and extreme heat. The purchasing managers' index, a key gauge of manufacturing in the world's second-biggest economy, came in at 49.4, up from July's 49.0 but still below the 50-point mark separating growth from contraction, National Bureau of Statistics data showed. The economy faced ‘unfavourable factors including the epidemic and high temperatures’ this month, NBS senior statistician Zhao Qinghe said in a statement. China's non-manufacturing PMI came in at 52.6 points in August, down from 53.8 in July.
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Japanese consumer confidence improved by more than anticipated in August, figures from the country's Cabinet Office showed, with retail and production data pointing towards a modest recovery in Asia's second-largest economy. The consumer confidence index in August was 32.5 points, rising 2.3 points from 30.2 in July. Figures from the Ministry of Economy, Trade & Industry, meanwhile, showed retail sales improved by 0.8% month-on-month for July, compared to a fall of 1.3% in June. METI also reported industrial production rose 1.0% in July from August, on a seasonally adjusted basis. This follows a 9.2% rise in June.
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The Federal Reserve is committed to bringing soaring US inflation back down to two percent, but that will take ‘a few years,’ a top central banker said. The Fed this year has moved aggressively to raise interest rates to try to rein in price surges that have hit American families, and central bankers, notably Fed chief Jerome Powell, have doused any hopes they would alter course anytime soon. New York Federal Reserve Bank President John Williams echoed Powell's tough comments, saying the benchmark lending rate will have to remain high for some time to bring demand back into line with supply. US annual inflation ebbed slightly in July to a still-painfully high 8.5%, and Williams said the Fed is ‘absolutely committed’ to achieving the two-percent goal. ‘The situation is very challenging. Inflation is very high. The economy has a lot of crosscurrents. I do think it will take a few years, but we're going to get that done,’ Williams said in a discussion with The Wall Street Journal.
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Russian energy giant Gazprom said it would suspend gas supplies to France's main provider Engie from Thursday after it failed to pay for all deliveries made in July. ‘Gazprom Export has notified Engie of a total suspension of gas supplies from September 1, 2022, until the full receipt of the financial sums due for the deliveries,’ Gazprom said in a statement published Tuesday on Telegram. It said a decree signed by Russian President Vladimir Putin in March banned it from exporting gas to a foreign buyer if the client did not make all payments within a time period stipulated in the contract. Gazprom added that as of late Tuesday it had not received all the sums due for deliveries made to Engie in July. Engie declined to comment on Gazprom's announcement when contacted by AFP. The French firm had earlier Tuesday said Gazprom informed it of further and immediate reductions of gas deliveries due to a ‘disagreement between the parties on the implementation of contracts’.
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EU foreign ministers aim to find a solution to a contentious push to ban Russian tourists from the EU on the second day of an informal summit in Prague. ‘In times of war there is no place for tourism, but it doesn't mean that there's no place for any kind of movement,’ Czech Foreign Minister Jan Lipavský said. The idea of restricting Russian tourists entering the EU has emerged recently after countries witnessed Russians arriving for summer holidays via neighbouring EU countries. The Czech Republic, Finland and Estonia, after imposing their own visa restrictions, have pushed for an EU-wide decision and called for a total ban on Russian nationals travelling to the bloc. Germany and France have rejected the proposed blanked ban in a joint position paper circulated to the EU member states and seen by dpa.
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Mikhail Gorbachev, who changed the course of history by triggering the demise of the Soviet Union and was one of the great figures of the 20th century, has died in Moscow aged 91. His death was announced by Russian news agencies, which said Gorbachev had died at a central hospital in Moscow ‘after a serious and long illness’. Gorbachev, in power between 1985 and 1991, helped bring US-Soviet relations out of a deep freeze and was the last surviving Cold War leader. His life was one of the most influential of his times, and his reforms as Soviet leader transformed his country and allowed Eastern Europe to free itself from Soviet rule.
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Tourists will be able to visit Japan from next week on package tours without a guide, Prime Minister Fumio Kishida said, as the country moves to ease strict Covid-19 controls. From September 7, Japan will also raise its daily cap on the number of people allowed to enter the country to 50,000, Kishida told reporters. Japan has kept strict border restrictions in place longer than many other major economies, and only in June began allowing tourists to visit on the condition they came in tour groups accompanied by guides. ‘As international exchange becomes more active worldwide, Japan will join this movement also from the viewpoint of taking advantage of a cheap yen,’ said Kishida, who has himself just recovered from Covid-19.
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Taiwan's Defence Ministry said China's recent military drills had jeopardized the status quo in the Taiwan Strait, vowing to ‘do whatever it takes’ to defend Taiwan. ‘We will continue defending our national security, firmly holding on to the median line, and doing whatever it takes to protect our homes, our families, and our sovereignty,’ ministry spokesperson Li-Fang Sun said. After US House of Representatives Speaker Nancy Pelosi visited Taiwan in early August, the Chinese People's Liberation Army launched military manoeuvres around Taiwan, followed by large-scale maritime and aerial drills.
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