Graeme Wearden 

Bank of England governor ‘very uneasy’ about inflation amid ‘tight’ labour market – as it happened

Rolling coverage of the latest economic and financial news, as Bank of England policymakers testify to the Treasury committee
  
  

The Bank of England on a clear sunny day in London
The Bank of England on a clear sunny day in London Photograph: Thomas Krych/SOPA Images/REX/Shutterstock

Closing summary

Time to wrap up -- here’s today’s main stories.

Andrew Bailey, governor of the Bank of England, has told MPs that he’s ‘very uneasy’ about the UK’s inflation situation, in comments that suggests he could vote for an interest rate rise soon.

Testifying to the Treasury Committee, Bailey said this month’s vote to leave interest rates on hold was a ‘very close call’,

He warned that the labour market looks ‘tight’, and pointed to anecdotal evidence that the end of the UK’s furlough scheme had generated little additional unemployment so far.

He said:

“The labour market looks tight, that’s the big issue at the moment.”

Bailey explained that he wants to see the impact of ending the furlough scheme on unemployment before deciding to raise interest rates, but reminded MPs about its inflation mandate:

We are in the price stability business.

The governor, and colleagues, insisted we’re not facing a return to the inflation and wage-price spirals of the 1970s.

But with Bailey insisting that all meetings are in play, could a pre-Christmas rate hike be looming?....

A Guardian audit has uncovered that 28s MPs – 19 Conservative and the rest Labour – have taken almost £225,000 in wages and freebies from the gambling industry since August 2020.

Oil giant Shell has announced plans to shift its tax residency and its head office from the Netherlands to the UK.

The move has royally irked the Dutch government -- and prompted a last-ditch push to scrap a dividend tax, that has been cited by energy group as reason for planned UK move.

The price of diesel has hit an average price of £1.50 per litre at UK forecourts for the first time, pushing up driving costs for motorists, and transport costs for businesses.

Low wind speeds have pushed UK peak hour power prices to the second highest level for at least three years today.

Shares in Tesla have slid again, and are 20% off their peak last month after Elon Musk’s share sale plan spooked Wall Street.

Japan’s economy has shrunk by more than expected in the last quarter, putting pressure on Tokyo to push through a major stimulus programme.

China’s property market has cooled, with prices, construction activity and investment all falling.

Manufacturing conditions in New York state have improved, although firms are less optimistic.

Microflats, in which kitchen equipment, beds, tables, sofas and bookshelves are all crammed into a tiny space, are on the rise as Britons try to find a place of their own amid the property boom:

Milk alternative maker Oatly has warned that production and distribution problems hit sales by $7m over the summer despite a surge in demand for its products. Shares have slumped over 20% after Oatly cut its revenue guidance for the year, citing Covid-19 sales disruption and the UK’s lorry driver shortages.

More than 300,000 workers in the UK got a pay rise from Monday as the charity behind the voluntary real living wage raises the minimum hourly rate amid growing fears over a squeeze on household incomes this winter.

The US private equity group Bain Capital has insisted that LV= customers will “receive significant financial benefits” as it tried to counter growing concerns over its proposed £530m takeover of the mutual insurer.

The outsourcing company Serco said has profits will be higher than expected in 2021 owing to greater demand from the UK government for its Covid-19 services, including test and trace.

Cineworld’s box office revenues surpassed pre-pandemic levels at its cinemas in the UK and Ireland last month as blockbusters such as No Time to Die, Dune and Venom draw film fans back to the big screen.

Weak EU vehicle emissions targets could allow Europe’s biggest carmakers to produce millions more petrol and diesel cars than necessary up to 2030 in a “wasted decade” for cutting carbon pollution, a new report shows.

And here’s a breakdown of how the UK’s food shortages may affect Christmas:

Goodnight. GW

Updated

The billionaire hedge fund manager Bill Ackman will today attempt to convince New York’s powerful Landmarks Preservation Commission to allow him to build a “flying saucer” penthouse on top of a historic apartment building in the Upper West Side overlooking Central Park.

Ackman, a Harvard-educated activist investor who famously made $2.6bn (£2.2bn) profit in a single day betting on the financial impact of coronavirus during the early days of the pandemic, has been engaged in a years-long public relations battle with his merely millionaire neighbours to garner support for his planned Norman Foster-designed two-storey penthouse that has been described as a “temple to a titan”.

He successfully won the backing of Manhattan Community Board 7 (CB7) for the plan atop the 120-year-old building last week, and will seek the approval of the Landmarks Preservation Commission on Tuesday.

The penthouse at 6-16 West 77th Street, which is designed by Foster + Partners, would replace a pink stucco 17th-floor penthouse that Ackman and his partner the scientist Neri Oxman bought for $22.5m in 2017.

The apartment was previously owned by feminist and gender politics author Nancy Friday. The author, who died in 2017, had over the years purchased four neighbouring units in the building and cobbled them together to create the unusual 13 room apartment.

More here.

Almost £225,000 in wages and freebies taken from gambling industry by 28 MPs

Twenty eight MPs – 19 Conservative and the rest Labour – have taken almost £225,000 in wages and freebies from the gambling industry since August 2020, a Guardian audit has uncovered.

My colleague Rob Davies has the story:

On 7 July, the Conservative MP for Blackpool South, Scott Benton, took his seat at Wembley to watch England take on Denmark in the semi-final of Euro 2020, courtesy of the Ladbrokes Coral owner, Entain, a freebie worth £3,457.

Less than four hours earlier, Benton had warned parliament that a review of betting laws, widely expected to result in tougher regulation, must not be driven by anti-gambling “ideology”.

He called for casinos to be allowed more slot machines, adding that many people would be “concerned” about the Gambling Commission’s plans for affordability checks on people betting online and in person, a measure intended to prevent ruinous losses.

Days earlier he had enjoyed another day out, at Ascot, courtesy of the Betting & Gaming Council (BGC) trade body. In total, he accepted hospitality worth £7,495 during a gambling-funded summer of sport.

More here.

In the City, the FTSE 100 ended the day little changed, while European markets hit new record highs (again).

The blue-chip index of London-listed shares finished just four points higher at 7352 points.

Mining stocks were among the fallers, countering a rally in heavyweight members such as Royal Dutch Shell (up 2.1%) and AstraZeneca (+1.9%).

France’s CAC, Germany’s DAX and the pan-European Stoxx 600 all hit new peaks.

Investors were cheered that ECB president Christine Lagarde told MEPs that Europe’s inflation spike would face next year.

So while it will be higher and longer than once thought, tightening monetary policy now would hit the economy just as price growth starts to moderate on its own, she explained:

“At a time when purchasing power is already being squeezed by higher energy and fuel bills, an undue tightening of financing conditions is not desirable, and would represent an unwarranted headwind for the recovery,”

Tesla shares slide again

Shares in Tesla are falling again, as the prospect of Elon Musk cutting his stake in the carmaker continues to unnerve Wall Street.

Tesla’s stock is down around 4.4% at around $990 this session.

That means its fallen around 20% from its record high last month - set just before Musk asked Twitter users whether he should sell 10% of his stake.

That sale is now underway, with Musk having sold several billion worth of shares in the last week or so.

Musk hasn’t yet sold 10% of his stock, but the billionaire faces a huge tax bill this year if he exercises stock options which would otherwise expire, so could need to keep selling.

Musk appeared to hint over the weekend that he could be planning further sales, in an unedifying taunt at Democratic senator Bernie Sanders.

My colleague in New York, Martin Pengelly, explains:

Elon Musk waded into yet another Twitter controversy on Sunday, the Tesla owner and world’s richest person responding to a tweet about taxes from Senator Bernie Sanders by writing: “I keep forgetting that you’re still alive.”

Sanders, 80, wrote: “We must demand that the extremely wealthy pay their fair share. Period.”

Musk, 50, is also the owner of SpaceX and has a personal worth estimated at around $271bn, making him by some counts the richest person ever.

He also tweeted: “Want me to sell more stock, Bernie? Just say the word …”

Sanders did not immediately respond. Melissa Byrne, a progressive activist and former Sanders staffer, tweeted: “Folks, quit buying Tesla. Don’t reward abusive men.”

Over in the US, manufacturing conditions in the New York region have strengthened, despite the ongoing supply chain problems and rising energy price.

Manufacturing activity grew swiftly in New York State, according to November’s Empire State Manufacturing Survey - a closely-watched gauge of US factories.

However, optimism dipped, with firms less optimistic about the six-month outlook than in October.

The index rose sharply to 30.9 from 19.8 points, showing an improvement in general business conditions index.

The New York Fed, which produces the report, explains.

New orders and shipments posted substantial increases, and unfilled orders rose.

Delivery times were significantly longer. Employment grew at its fastest pace on record, and the average workweek increased. The prices paid index held near its record high, and the prices received index reached a new peak. Firms planned significant increases in capital and technology spending.

Looking ahead, firms remained optimistic that conditions would improve over the next six months, though optimism dipped.

Back in the energy sector, low wind speeds have pushed peak hour power prices to the second highest level for at least three years today.

This drop in wind speeds has forced Britain’s grid to increase its reliance on gas-fired power plants and draw on coal generation.

The FT has the details:

Calm weather this year has exacerbated the energy price crisis in the UK, as gas-fired power stations have had to pick up the slack from wind farms. Energy demand has surged as countries open up from pandemic restrictions, which together with lower supplies from Russia to western Europe, has sent wholesale gas prices soaring.

Power prices in the UK for the peak evening period between 5pm and 6pm on Monday surpassed £2,000 per megawatt hour, only the second time they have exceeded that level in recent years.

This was still below the levels reached at the height of the gas price crisis in mid-September, when they hit £2,500/MWh, according to the energy consultancy Cornwall Insight, whose records date back to 2018.

Low wind speeds were the main driver behind Monday’s price spike, although expectations of a pick-up in wind generation on Tuesday should push them back down to similar levels seen in recent weeks, analysts said.

More here: UK peak power prices rise to second highest level since 2018

The Treasury committee hearing has outlined the split between Bank of England policymakers, over when to start raising interest rates from their current record low of 0.1%.

The hawkish Michael Saunders told MPs that if the Bank waits too long, it risks having to tighten policy more sharply.

“The risk of delaying too long is that then, if and when interest rates do have to rise, they go up a little faster and potentially a little further... and also that inflation expectations, particularly among households and businesses, might drift up a little further.”

But the Bank’s new chief economist, Huw Pill, points out that hiking too soon risks damaging the economy (which still hasn’t recovered all the output lost to Covid-19).

“I recognise, on the one hand, some of Michael’s arguments that if we don’t act there is a danger that inflation achieves some self-sustaining momentum that we will have to resist down the road.

But equally I think that if we act prematurely there is a danger that we derail some of the recovery which is still in some respects quite fragile.”

Pill was one of seven MPC members who voted to leave interest rates on hold this month.

More from the governor:

Onto the ‘unreliable boyfriend’ question -- did BoE governor Andrew Bailey lead investors astray with hawkish talk ahead of November’s meeting?

Bailey say he never gave an unconditional pledge to raise interest rates, when he talked about the need to act if the Bank saw a risk to medium-term inflation expectations.

He explains that he was concerned about the perception that the bank wasn’t focused on inflation, and wanted to remind people about its framework.

Bailey also adds that all MPC meetings are in play.

Bailey says the vast majority of market participants took the view that November’s decision was a very close call -- citing a poll of 45 market economists who were split 23-22.

But there were some institutions who took very big positions in the lead-up to the meeting, and through the autumn.

Some of them have lost out. Some of them have gained, I think. Some feel better than others.

Bailey adds that there is a very high level of uncertainty in the economy, so it would be hazardous to commit to the timing of any rate rises.

The point I was making in October was about our framework. Don’t forget what our framework is, it’s about inflation.

We are in the price stability business.

MPC member Michael Saunders weighs in too - insisting there is no risk of a wage-price spiral in the UK.

Saunders, who voted to raise interest rates this month (but was outvoted), is asked where he disagrees with BoE governor Andrew Bailey,

Saunders politically replies that he agrees with the governor (sat to his left) on several points.

Talk of a return to the 70s is completely misplaced.

The economy has changed materially since then - and another fundamental change is that the UK now has an independent central bank with a clear remit and effective policy tools, Saunders says.

But... the labour market is tight, with widespread skill shortages. Average underlying pay growth is slightly above pre-pandemic pace, and pay growth for new hires is picking up.

So Saunders thought the chances of further generalised pick-up in pay growth is sufficiently high that the Bank should start withdrawing some of its stimulus now.

Monetary Policy Committee member Catherine Mann makes an important point too - will firms see strong sales growth next year which allows them to pass on costs, such as wages, through higher prices?

Mann explains that consumers will spend more of their disposable income on energy and food next year. That could limit their ability to continue spending on goods (which has been an important factor driving up inflation), and services.

And that would make it harder for firms to fully pass on any cost increases themselves, Mann explains to the Treasury Committee.

So she sees a potential softness in firms’ pricing power, which “puts a damper” on medium-term inflation prospects.

BoE governor plays down 1970s comparisons

Andrew Bailey also plays down comparisons with the 1970s.

He points out that structure of the labour market is very different than the 70s, and that inflation was a persistent problem throughout that decade.

Bailey tells the Treasury Committee that companies are finding it very hard to recruit, and are having to pay higher wages to fill vacancies - though this isn’t feeding through to the rest of the workforce.

Bailey says:

Companies are having to pay up to recruit people. That doesn’t necessarily translate at the moment into paying their existing staff more.

The BoE governor warns, though, that while employers can live with different pay levels for a while, eventually staff start to realise what’s going on.

They can work these thing out, so you get that pressure.

We’re not seeing that at the moment, but we could do.

Bank of England governor 'very uneasy' about inflation situation amid two-sided risks

Andrew Bailey, governor of the Bank of England, has told MPs that he’s ‘very uneasy’ about the UK’s inflation situation, as supply chain bottlenecks hit the recovery.

Bailey is testifying to the Treasury Committee about this month’s interest rate decision, where the BoE left borrowing cost unchanged.

Asked how uneasy he feels about the MPC’s decision to leave Bank Rate at 0.1%, Bailey replies:

I am very uneasy about the inflation situation.

It is not, of course, where we want it to be, to have inflation above target.

Inflation was 3.1% in September, above the Bank’s 2% target. It is expected to keep climbing and hit 5% by next April.

But on the decision itself, Bailey says it was a very close call for him personally to vote to leave rates on hold (it was a 7-2 split, despite many investors expecting a hike).

The UK economy faces much more “two-sided risks” than before, Bailey explains - with weaker growth on one side, and rising inflation on the other.

Growth has started to flatten out -- partly because the UK is approaching the point where it has recovered the output lost in the pandemic.

But there are also supply-side effects. We are now seeing supply bottlenecks really weighing on growth, and have been seeing that since the summer, Bailey explains, adding:

Against that, inflation has picked up further, and the largest single reason why....is in the energy price sector.

But it’s also evidently coming from traded global goods prices as well. These bottlenecks are in there as well.

Bailey explains that the rebalancing of demand, from goods back to services, following pandemic lockdowns has not happened as rapidly as expected, which is putting strain on supply chains and pushing inflation higher.

Those things ought to be temporary, and indeed look to be temporary, Bailey adds, pointing out that monetary policy can’t fix such problems (raising interest rates doesn’t create more natural gas or computer chips).

Bailey also points out that the “big issue at the moment” is that the labour market looks tight, with a risk that it leads to wage inflation, and higher medium-term inflation expectations.

But the real puzzle is what happened when the furlough scheme wrapped up at the end of September. There were more people using the scheme at the end than the Bank expected, Bailey says.

The anecdotes suggest that the transition out of furlough hasn’t lifted unemployment, but we don’t know yet, Bailey explains.

So while it was a “finely balanced decision”, Bailey favoured keeping rates on hold this month. By December’s meeting, the Bank will have seen two unemployment reports (starting tomorrow) which should show how the labour market has fared after furlough.

Bailey is appearing with chief economist Huw Pill, and external Monetary Policy Committee members Catherine Mann and Michael Saunders.

The UK’s stock market has been lagging the rest of Europe today.

The FTSE 100 has gained just 2 points, or 0.04%, to 7350 points.

Discount retailer B&M are the top fallers, down over 4% after being downgraded by RBC and Goldman Sachs today.

Mining companies are also among the fallers, with Glencore down 2%. Reuters points out that last weekend’s international agreement to reduce coal use dragged miners’ shares lower, even though the language was watered down at the last minute -- from “phasing out” coal to merely “phasing down”.

The pan-European Stoxx 600 index has hit a fresh record high.

Investors may be reassured by data showing that China’s retail sales and industrial output growth beat forecasts - even though its property sector continued to slow.

Oatly shares tumbles after supply chain problems and pandemic hit sales growth

Ouch. Alt-milk producer Oatly has cut its sales forecasts after a slew of problems, sending its shares sliding in pre-market trading.

The plant-based dairy company warned that revenues would be lower than previously expected this financial year, due to supply chain problems and the impact of the pandemic.

It blamed slower European sales, the UK’s lorry driver shortages, a ‘quality issue’ at a production site, logistical problems in the US and pandemic restrictions in Asia.

Oatly reported a 49.2% increase in revenues in the last quarter, to $171.1m - missing forecasts.

It lost approximately $3m in revenue through “temporary mechanical and automation issues” at its production facility in Ogden, Utah, and another $3m through foodservice location closures in Asia.

The truck driver shortage in the United Kingdom, which delayed distribution of Oatly’s products, knocked an estimated $1m off revenues, it adds.

It now expects to revenue this financial year to exceed $635m, down from the $690m+ it had forecast in August.

Toni Petersson, Oatly’s CEO, explains:

In EMEA, we are starting to build supply to meet consumer demand, but the pace at which we expected to increase revenue in new and existing retailers and to open new markets is slower than we anticipated as we navigate a dynamic COVID operating environment.

We believe this is primarily a timing issue and in the first half of 2022, we expect to have an increased share of shelf space at retail given our strong velocities and current supply levels.

In the Americas, we are pleased with the weekly production output improvements at our Ogden, Utah facility to-date in the fourth quarter, as we navigate a challenging supply chain environment.

Finally, in Asia strict public health measures remain in effect due to an increase in cases of the COVID-19 Delta-variant.

Oatly also flags that it is currently investigating a quality issue at one of its production facilities that will probably result in the destruction of inventory and corresponding lost sales in the EMEA region.

Shares in Oatly have sunk 14% in pre-market trading, to around $10.20.

They floated on the Nasdaq stock exchange at $17 per share back in May, and quickly jumped to $28 by June.

But shareholders have already taken a bath since, as the stock has fallen back, even before today.

Updated

Although UK fuel prices are at record levels, crude oil prices have dipped to their lowest in over a week.

Brent crude has slid by 1.5% to $80.91 per barrel, away from the three-year high over $86/barrel set last month.

US crude is also at its lowest since 5th November, at $79.57 per barrel, as pressure mounts on president Joe Biden to tap America’s emergency petroleum reserves to lower rising gasoline prices.

On Saturday, Senate Majority Leader Chuck Schumer told reporters that America needs “immediate relief at the gas pump and the place to look is the Strategic Petroleum Reserve”.

The White House has also been pushing the OPEC+ group to speed up its production increases (they’re currently adding 400,000 barrels per day more each month).

Bjarne Schieldrop, chief commodities analyst at Nordic corporate bank SEB, predicts that reviving OPEC+ and US oil production will shift the global market balance into surplus in 2022, sending Brent crude oil back down towards $60/barrel.

“The current oil price weakness is due to rising Covid-19 infection rates and the associated concerns for global oil demand on the back of lockdowns or restrictions.

Another bearish element is the slowdown in China, where steel production, as well as steel, iron ore and coal prices have fallen like a rock over recent weeks. Several OPEC+ countries are struggling to lift production along with the rising cap.

“Possible releases of oil from US strategic petroleum reserves (SPR) are blamed for the price decline. However, we are not convinced that this the key reason for crude oil’s recent weaknesses. While the year-on-year (YoY) rise in the oil price is huge, it comes from a very low level when Brent crude traded at $37/barrel on 30 October 2020. The long-term ‘normal’ price of Brent crude is $60/barrel with a typical standard deviation of $20/barrel.

The current oil price is not much more than one standard deviation out from its ‘normal’ level. As such, it sounds almost ridiculous to dig into US SPR reserves at this level.

Diesel hits 150p/litre for first time

Back in the energy sector, diesel has hit an average price of £1.50 per litre at UK forecourts for the first time.

Motoring body the AA reports that diesel rose as high as 150.50p a litre on Saturday, on average. Petrol also hit a new record, touching 146.53p.

That takes prices further above the previous highs set in April 2012, when diesel had peaked at 147.93p while petrol had topped out at 142.48p.

Luke Bosdet, the AA’s fuel price spokesman, warns that the increase could push up prices for consumers, as well as hitting diesel drivers directly.

“Diesel setting a record of £1.50 a litre isn’t just yet another milestone along a bleak road of pump price increases this year. As the workhorse fuel for deliveries and craftspeople who drive to customers, it will likely usher in even higher costs for goods and services.

Many bigger businesses have insulated themselves against higher fuel costs with a system of surcharges on deliveries. If pump prices go up, their customers pay a percentage more for deliveries, and that gets passed on to the consumer.”

“However, smaller businesses, particularly in rural areas, have little choice but to charge shoppers and clients directly. That strains customer relations and potentially puts jobs and contracts in jeopardy.”

The AA attributes the increase to the surge in crude oil prices (which hit multi-year highs this autumn)

Increased demand for heating oil (which comes from the same part of the barrel as diesel) has also pushed up forecourt prices, following the surge in gas prices.

Other factors that have made the diesel price even worse are the rising cost of biofuel, which makes up 10% of the fuel, and a weaker £1, they add.

Updated

Poultry bosses have sought to reassure shoppers that there will “definitely” be enough turkeys for Christmas despite industry pressures meaning less variety than usual.

The British Poultry Council (BPC) has pledged that Christmas dinners will be able to go ahead as planned as staffing pressures have eased, PA Media reports.

The trade body told the BBC that the release of 5,500 visas in September for the sector to recruit more foreign workers has helped ease production problems caused by a shortage of staff.

It said it believes that between 2,500 and 3,000 of these visas have so far been issued and thinks this will be enough to avoid disruption.

Richard Griffiths, chief executive of the BPC, said:

“It’ll get us over the line.

“We’ve been able to streamline products and reduce the variety, so that helps with the overall volume.

“There will be a focus on whole birds and very simple crowns and roasts.”

He added that there will be a bird for “everyone who wants one” despite the reductions in choice.

Last Saturday my colleague Joanna Partridge wrote about the struggle that faced the turkey industry this year - and the push for visas for seasonal poultry workers.

This weekend, 15 temporary staff are flying to the UK from Poland to spend six weeks at the processing plant run by Michael Bailey and his brother David, which is gearing up to process 2,000 birds a day. But the firm will have to make do with five fewer workers than usual.

Bailey, who not only processes poultry but farms turkeys too, and is chair of the National Farmers’ Union’s turkey group, reported receiving his first inquiries from local butchers in September.

“I have never known it like this,” he said of the business he has worked in all his life. “It’s quite weird to have people ringing up, saying: ‘You’ve got my birds, haven’t you?’

Last week, frozen turkeys topped the list of food items in short supply at UK shops, after a surge of demand from worried shoppers.

Serco expects bigger profits thanks to Covid test-and-trace work

The outsourcing company Serco said has profits will be higher than expected in 2021 owing to greater demand from the UK government for its Covid-19 services, including test and trace.

Serco raised its full-year revenue guidance from £4.3bn to £4.4bn on Monday, helping underlying profits rise to at least £225m, up from previous forecasts of £200m.

The Hampshire-based company said the uplift could be explained by the fact the volume of its Covid-related work in the UK and Australia “has been higher and continued for longer than we anticipated”.

Serco runs large parts of the UK’s largely privatised test-and-trace service, which is labelled NHS test and trace. The firm runs a fifth of Covid-19 testing sites and half the tier 3 contact tracers, who are mostly required to phone the contacts of people who have tested positive.

That work was extended in June, when the company won a £322m contract to keep Covid-19 test centres running in England and Northern Ireland for another 12 months, with an option to add another six more.

In an update on Monday, Serco said immigration-related contracts, particularly in the UK and Australia, had performed better than expected, as had healthcare insurance services in the US after Joe Biden’s administration extended the enrolment period for registering for subsidised health insurance coverage until mid-August.... More here.

Cineworld gets James Bond boost as UK and Ireland revenues exceed pre-pandemic levels

Cineworld’s revenues surged past pre-pandemic levels at its cinemas in the UK and Ireland last month, as blockbusters from James Bond: No Time to Die to Venom draw film fans back to the big screen.

The world’s second-largest cinema operator, which owns the Cineworld and Picturehouse chains in the UK and Regal Theatres in the US, said that box office and concession revenues at its UK and Irish operation in October were 27% higher than in the same month in pre-pandemic 2019.

Shares in Cineworld climbed more than 13% in early trading on Monday, making the company the biggest riser among FTSE 250 stocks, as investors cheered the news of a recovery in the Covid-battered cinema industry.

Cineworld said that the recovery has been fuelled by the return of Hollywood blockbusters to the big screen including Black Widow, James Bond: No Time to Die, Dune, Venom and SHang-Chi and the Legend of the Ten Rings.

Over the weekend NTTD, Daniel Craig’s final outing as super spy 007, passed £90m at the UK & Irish box office, only the fifth film to ever pass that mark.

“There are real grounds for optimism in our industry,” said Mooky Greidinger, chief executive of Cineworld.

“We are thrilled to see audiences returning in significant numbers. Our partnerships with studios are as strong as ever and [there is] an incredible movie slate to come.”

The chain said that upcoming major film releases it expects to perform well at the box office, assuming there is no “deterioration in the Covid-19 situation”, include Spider-Man: No Way Home, Sing 2, Ghostbusters: Afterlife and The Matrix Resurrections.

Across its global operations, which encompass 752 sites in 10 countries, total group revenues in October hit 90% of pre-pandemic levels. Cineworld, which reported a record $3bn loss in 2020, said that last month it managed to return to positive cashflow in “an important milestone in the company’s recovery”.

However, analysts at AJ Bell that warned that Cineworld should be cautious about seeking to raise ticket prices to try and bolster their battered finances.

“We know the company has been trying to strip out costs, but it also has inflationary pressures and oodles of debt that needs repaying,” said Russ Mould, investment director at AJ Bell.

“Now is not the time to push through big ticket price hikes. Not only are family finances under pressure from higher energy, fuel and food bills, but cinema operators also need to use cheaper prices as a way of attracting anyone still on the fence about wanting to spend two hours in a confined space with a load of strangers.”

Full story: Shell to move HQ and tax home from Netherlands to UK

Shell is planning to scrap its dual share system and strike “Royal Dutch” from its name as it prepares to move its tax residence from the Netherlands to the UK, my colleague Kalyeena Makortoff reports:

The move, which was welcomed by the UK government, will mean relocating its chief executive, Ben van Beurden, and its chief financial officer, Jessica Uhl, to London, where the company’s board meetings will be held.

Shell will no longer meet the Dutch conditions to qualify for the “royal” designation as a result of the shift in tax home, resulting in a name change that will be put to a shareholder vote next month, alongside the broader plans to simplify the company’s structure.

The firm also intends to scrap a dual share structure that divides stock into A and B classes, though it will continue to trade in the Amsterdam, London and New York markets.

The energy company said the decision would “increase the speed and flexibility of capital and portfolio actions”.

However, the Dutch economic affairs and climate minister, Stef Blok, said he was “unpleasantly surprised” by the move, adding that officials were in talks with Shell about the consequences this would pose for the company’s sustainability strategy.

The move comes months after a court in the Netherlands ruled in May that Shell had to reduce its emissions by 45% by 2030, compared with 2019 levels. The landmark case, which was brought by environmental groups and more than 17,000 Dutch citizens, applies only in the Netherlands. Shell confirmed in July it would appeal against the ruling.

More here.

Stuart Joyner, specialist sales at finance brokers Redburn, says Shell’s move is a ‘clear post Brexit win’ for the UK:

“Royal Dutch Shell has this morning announced a welcome proposal to unify the company’s A and B share structure. The company plans a shareholder vote on December 10 to approve its plan.

It will allow faster buybacks and bring Shell’s tax residency into line with its country of incorporation in the United Kingdom, where it will hold board and executive committee meetings, and base senior management. This is a clear post Brexit win for the UK. It is unclear what leaving the Netherlands will mean for the Dutch litigation process given sizeable operations will remain.

Furthermore activist investor Third Point has reportedly built a large position in Shell and is pushing for the breakup of the company, both to unlock shareholder value and to accelerate investment in renewables and other carbon reduction technologies.”

The environmental group that won the landmark Dutch lawsuit against Royal Dutch Shell, which ordered the oil major to reduce its CO2 emissions, says shifting the company’s HQ to the UK will not impact its case.

Milieudefensie, or Friends of the Earth Netherlands, said in a statement that it could allow further cases to be brought against Shell:

“This news has no negative consequences for Milieudefensie’s climate case against Shell.

Rather, moving to the United Kingdom opens up a new front, including for future cases.”

(thanks to Reuters for the quote).

Shell’s move to the UK could help it fight the landmark court ruling that it must almost halve its carbon emissions by 2030, according to analysts at investment bank Jefferies.

They say:

Dutch Court case. We believe that a clearer separation from the Netherlands could also have positive implications for the Milieudefensie case on Shell’s carbon emissions as it would make it harder to claim that the Dutch Court has jurisdiction.

At its 3Q results [last month], Shell introduced a new Scope 1 & 2 target of -50% emissions by 2030, greater than the 45% Scope 1 & 2 reduction called for by Milieudefensie, but the group also is pressuring Shell to reduce Scope 3 emissions by 45% by 2030.

Scope 3 emissions cover activities from assets not owned or controlled by the reporting organization. In Shell’s case, that make up 90% of its total emissions, from the energy products it sells.

Shell’s plan is to reduce the carbon intensity of the energy products it sells by 20% by 2030, by 45% by 2035, and by 100% by 2050.

Jefferies also argue that restructuring Shell’s share structure will increase its ability to buy back shares.

Shell’s A-class shares are up 2% this morning, while its B-class are 1.6% higher, among the top risers on the FTSE 100.

Dutch government 'unpleasantly surprised' by Shell HQ move to Britain

Shell’s plan has not gone down well in the Netherlands, though, as Reuters reports:

The Dutch government said on Monday it was “unpleasantly surprised” by news that Royal Dutch Shell PLC is planning to move its headquarters to London from The Hague.

“The Cabinet regrets to the utmost that Shell wants to move its head office to the United Kingdom,” Economic Affairs and Climate Minister Stef Blok said.

“We are in a dialogue with the management of Shell over the consequences of this plan for jobs, crucial investment decisions and sustainability.”

They also explain why Shell wants to simplify its dual-class share structure:

While the Netherlands withholds a 15% tax on dividends for Dutch-domiciled companies, Britain does not have such a tax.

Under Shell’s dual class share system, holders of the “A” shares receive normal dividends and are subject to the tax. However payments for “B” shares are distributed through a “Dividend Access Mechanism” that essentially sees them streamed through a trust registered on the Channel Island Jersey, avoiding the Dutch withholding tax.

Though the arrangement was approved by Dutch tax authorities in a confidential deal, its legality under European Union law was doubted by some tax experts.

Updated

The UK’s business and energy secretary, Kwasi Kwarteng, has welcomed Shell’s plan:

Shell to shift tax residency to UK and drop 'Royal Dutch' in shake-up

Royal Dutch Shell is planning to shift its tax residency from the Netherlands to the UK as part of a significant shake-up.

The oil giant is also planning to move its headquarters to the UK, relocating its CEO, Ben van Beurden, and CFO, Jessica Uhl, along with its board meetings.

Under the plan it will also ditch its dual share structure, and rename itself Shell plc, dropping its ‘Royal Dutch’ identity as part of the shift.

Shell says the move will strengthen its competitiveness. It also claims it will help it achieve its climate goals --- although it lost a landmark Dutch court case over its emissions earlier this year.

Announcing the plan this morning, Shell’s chair, Sir Andrew Mackenzie, said:

“At a time of unprecedented change for the industry, it’s even more important that we have an increased ability to accelerate the transition to a lower-carbon global energy system.

A simpler structure will enable Shell to speed up the delivery of its Powering Progress strategy, while creating value for our shareholders, customers and wider society.”

The proposal, which needs shareholder approval at a meeting next month, would:

  • Establish a single line of shares to eliminate the complexity of Shell’s A/B share structure.
  • Move Shell’s tax residence from the Netherlands to the UK, to align its tax residence with its country of incorporation
  • Relocate its chief executive and chief financial officer from the Netherlands to the UK, and also shift its Board and Executive Committee meetings.

The plan comes just a few weeks after activist hedge fund Third Point called for Shell to split itself into “multiple standalone companies”, including a “legacy” arm focused on oil and gas.

It also follows a landmark court ruling in the Netherlands earlier this year, which said that Shell must cut its CO2 emissions by 45% by 2030 compared to 2019 levels.

A court in the Hague ruled in May that Shell has an obligation to cut its carbon emissions under both Dutch law and the European convention on human rights, and that the company had known for “a long time” about the damage caused by carbon emissions.

Shell said in July it would appeal the ruling:

On the name change, Shell says it probably won’t qualify to called ‘Royal Dutch’ once the shift takes place:

Carrying the Royal designation has been a source of immense pride and honour for Shell for more than 130 years. However, the company anticipates it will no longer meet the conditions for using the designation following the proposed change.

In a video message today, Mackenzie insists the simplification will have “no impact” on legal proceedings related to the Dutch court ruling, and that Shell is ‘rising to meet the court’s challenge’, with a new absolute emission-reduction target.

Shell’s chair Sir Andrew Mackenzie, explaining today’s proposals

Last month Shell set a target of halving its carbon emissions by the end of the decade.

However, climate campaigners said it was “tokenism” because it only applied to Shell own operations, such as extracting oil and transporting fuel to forecourts, not the use of its oil and gas by transport, homes and industry.

Updated

China's property slowdown: Media reaction

China’s deepening home slump piled pressure on authorities to stabilize the market, argues Bloomberg, which says:

The figures may add to speculation that regulators will consider easing their clampdown on leverage in the real estate industry as the property downturn risks derailing China’s economic recovery.

A liquidity crisis at industry giant China Evergrande Group is spreading to its competitors, which are struggling to refinance their debts, particularly in the offshore junk dollar bond market.

Falling prices may dissuade homebuyers concerned about the value of their assets, making it harder for developers to sell properties and generate much-needed cash, they add:

Last month’s drop in prices, which excludes state-subsidized housing, deepened from 0.08% in September. Home values in the secondary market fell 0.32%, the largest decline since February 2015.

The FT is concerned that the property slowdown and mounting distress at real estate developers is threatening China’s economic outlook

They say:

Tommy Wu, an economist at Oxford Economics, a research group, pointed to a 24 per cent decline in residential sales in October year-on-year, and suggested the real estate downturn was “weighing on industry” at a time when economic momentum remained weak.

“We think that China’s property downturn will be significant but contained, due to a low stock of unsold housing, room for policy easing, continuing urbanisation and significant income growth,” he said.

Reuters points out that tougher regulations on new borrowing since the summer of last year have squeezed developers financially, and made it harder to push through new projects

Prices of new homes dropped 0.2% on average last month from September, according to Reuters calculations of data released by the National Bureau of Statistics (NBS) on Monday, the first decline since March 2015.

In the resale market, prices slumped in all but six of the 70 major cities tracked by the bureau.

China housing market woes deepen as prices and sales fall again

China’s home slump has accelerated, with prices falling in October, sales down, construction output weaker and investment in new properties dropping.

New-home prices in 70 of China’s biggest cities slid by 0.25% during October, having already dropped in September for the first time in six years, casting a shadow over the country’s economic outlook.

Sales of new homes fell by over 22%, Reuters calculations showed, as demand weakened. That’s the fourth straight decline and the lowest this year.

That’s a blow to developers, who have already been hurt by Beijing’s efforts to cool the housing market.

New construction starts plunged around 33% year-on-year in October, extending the 13.5% fall in September. Overall investment by developers in projects dropped 5.4%, worse than the 3.5% a month earlier, analysis of data from the National Bureau of Statistics shows.

The figures show the impact of the recent efforts to rein in property speculation, including tougher regulations on new borrowing by developers to fund construction.

The crisis at China’s indebted property giant Evergrande has also hit sentiment in the sector, as it has wobbled on the edge of default.

Other developers are also struggling, with a recent reports suggesting that one in three will struggle to repay their debts in the next 12 month.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, wrote in a note Monday (via Bloomberg).

“The slowdown in the property sector is the key risk for the macro outlook in the next few quarters,”

The news hit shares of Chinese developers, with the CSI Real Estate Index sliding 4% today.

Updated

Introduction: Japan's economy shrinks, hit by supply chain troubles

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

The Covid-19 pandemic and supply chain disruption is continuing to hamper the global economic recovery, with Japan and Thailand’s economies both contracting in the last quarter.

Japan’s economy shrank by 0.8% in the third quarter of this year, new figures show, a deeper fall than expected as global supply disruptions hit exports and business spending plans.

The rise in Covid-19 cases this summer, which led to emergency soft lockdown measures in Tokyo and other regions, also hurt the recovery. Private consumption fell 1.1% during the quarter.

Capital expenditure by companies slumped by 3.8%, with some manufacturers such as carmakers struggling to obtain raw materials and parts.

The contraction suggests that the world’s third-largest economy is being hit harder than expected by production bottlenecks, which continue to grip the global economy.

Economists had only expected Japan’s GDP to fall by 0.2% during the quarter.

As Takeshi Minami, chief economist at Norinchukin Research Institute, put it

“The contraction was far bigger than expected due to supply-chain constraints, which hit car output and capital spending hard.”

Economists predict that Japan’s economy will return to growth this quarter. But the sharp fall in Q3 GDP could also spur prime minister Fumio Kishida to unveil a significant stimulus package soon.

Alvin Tan of RBC Capital Markets says:

Japan’s Q3 GDP was weaker-than-expected at -3% q/q annualised, which should provide added impetus for the proposed fiscal stimulus package. A package of over ¥40 trillion is reportedly being considered.

Thailand’s economy has also been hit by Covid-19 curbs this summer, which hit its tourism sector.

Thailand’s GDP shrank by 1.1% during the third quarter of the year - which is actually rather better than the 2.5% contraction which economists were bracing for. It left the economy 0.3% smaller than a year ago.

Exports in the third quarter grew 15.7% from a year earlier, but private consumption fall by 3.2%, hit by pandemic restrictions.

Again, there are hopes of a recovery in Q4, as Covid-19 cases fall, restrictions are being lifted and the vaccine rollout speeds up.

Danucha Pichayanan, the head of Thailand’s National Economic and Social Development Council, told a news conference that economic indicators pointed to improving conditions - and that domestic consumption, public spending and tourism will drive growth in 2022.

“If there are no more outbreaks, the fourth quarter will definitely be better than the third.

Also coming up today

The Bank of England governor, Andrew Bailey, is testifying to MPs on the Treasury Committee this afternoon, along with chief economist Huw Pill,and external MPC members Michael Saunders and Dr Catherine Mann.

They’ll discuss the Bank’s decision to leave interest rates on hold this month, and its forecast for inflation to hit 5% next year, and are likely to also cover the UK’s labour market, price and wage rises, and the outlook for the economy.

We’ll also hear from European Central Bank chief Christine Lagarde, when she appears before MEPs on the economic and monetary affairs committee this morning

European markets are expected to open slightly lower, with anxiety over inflation weighing on stocks after US consumer confidence hit a 10-year low on Friday.

The agenda

  • 10am GMT: Eurozone trade balance for September
  • 10am GMT: ECB president Christine Lagarde testifies to the European Parliament’s Committee on Economic and Monetary Affairs.
  • 2.30pm GMT: Bank of England policymakers testify to the Treasury Committee
 

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