Archive forJanuary, 2018

Drop in consumer demand hits UK car manufacturing

Car manufacturing in the UK fell last year for the first time since 2009. According to new figures from the Society of Motor Manufacturers and Traders (SMMT), 1.67 million cars left UK factories in 2017, a decline of 3% compared with the year before. The SMMT says lower demand from UK consumers was the main reason for the fall, although exports also dipped. New investment in the UK motor industry shrank as well, falling to £1.1bn last year, compared with £1.66bn in 2016. Despite the decline last year, manufacturing in the UK remains high by historical standards, having risen steadily in the aftermath of the financial crisis. The number of cars that rolled off the production lines in 2017 was still the second highest since the turn of the century. But the SMMT remains concerned about the effects of falling business and consumer confidence, as well as what it calls confusion over the government’s policy on diesel. Output for the domestic market fell by 9.8%, reflecting a decline in new car sales, which gathered pace towards the end of the year. Overseas demand continued to dominate production, with almost eight in every 10 cars built being sent abroad, more than half of them to the rest of the European Union.

Any Brexit deal will hit UK economy – government paper

The UK economy will grow more slowly outside the European Union, no matter what deal is struck with Brussels, a leaked government document suggests. The BuzzFeed News website reports the Whitehall analysis found growth over the next 15 years could be up to 8% lower than if the UK stayed in the EU. The document is said to look at the likely impact of different scenarios. Government sources say the UK will not be worse off, and its preferred bespoke trade deal option was not analysed. Meanwhile, the international trade secretary Liam Fox has said some fellow Leave campaigners must now accept that they will not achieve their vision of Brexit. Speaking to the Sun newspaper, Mr Fox said: “I know there are always disappointed individuals but they’re going to have to live with disappointment.” Chancellor Philip Hammond last week suggested the UK and EU economies could only move “very modestly” apart after Brexit. His remarks sparked outrage from backers of Leave and reports that the prime minister was struggling to keep her party together.

Carillion tried to ‘wriggle out’ of pension contributions

Carillion “wriggled out” of payments into its company pension schemes as its troubles grew, while it carried on paying shareholder dividends and bosses’ bonuses, say MPs. The Work and Pensions select committee is questioning the way pension investments were managed at the collapsed outsourcing giant. The schemes overall are in deficit. But last year contributions to the pension funds were deferred until 2019, to help shore up the firm’s finances. The committee has published a letter from Robin Ellison, chairman of trustees of Carillion’s DB Pension Scheme, giving an account of the last few years and suggesting they have been left with a funding shortfall of around £990m. The letter shows that pension trustees were “kept in the dark” about the state of Carillion’s finances until late last year, the committee argues, and that dividends and bonuses were paid out at the expense of pension fund contributions. The select committee’s chair, Frank Field said: “It’s clear that Carillion has been trying to wriggle out of its obligations to its pensioners for the last 10 years.” Mr Ellison will appear in person to answer questions from committee members later this week as pressure grows on those involved to explain why the pension funds’ shortfall was allowed to widen sharply as the company’s difficulties worsened.

Walmart signs Japan online grocery deal with Rakuten

Customers will place orders through Rakuten, which will then be fulfilled by the joint venture. The operation – to launch later this year – will replace Walmart’s existing online grocery delivery service in Japan. As part of the deal, Rakuten subsidiary Kobo will sell e-books, audiobooks and e-readers through US Walmart stores. The launch of the new e-commerce business is the US firm’s latest attempt to crack a competitive overseas market, by teaming up with a popular local partner. In 2016, it applied a similar strategy in China, selling its own website to the country’s second largest online retailer JD.com in exchange for a 5% stake in the company.

Forward Diary: 29th January – 2nd February 2018

Company and economic announcements planned for the week commencing 29th January 2018

JP Morgan in new warning on UK job cuts

Jamie Dimon said the US bank had not needed to make drastic cuts on day one after the EU referendum. But he revised his long-term estimate of job losses upwards if Brexit talks failed to produce an outcome close to the current arrangements. Mr Dimon added that such a scenario would harm London as a financial hub. The boss of the US’s most valuable bank had warned in the run-up to the referendum that 4,000 jobs could go if the UK voted to leave the EU. Since then, JP Morgan has revised that estimate down to between 500 and 1,000 jobs, leading many to dismiss his warnings as part of “Project Fear”. In an interview with the BBC at the World Economic Forum in Davos, Mr Dimon acknowledged that on closer analysis, it turned out the bank did not need to make such drastic moves on day one of Brexit.

Trump’s choice Jerome Powell approved as Federal Reserve head

Donald Trump’s choice for the next head of the US central bank – the world’s most powerful economics job – has been approved by US senators. Jerome Powell, a multi-millionaire, was backed in a 84-13 vote as chair of the Federal Reserve with support from Republicans and many Democrats. Mr Powell, who was named as Mr Trump’s nominee in November, is a Republican who is seen to back low interest rates. Janet Yellen, the current Fed chair, will see her term expire in February. She was appointed by President Obama in 2014 and has been the first woman to hold the position. The appointment marks the end of a decades-long tradition that has seen presidents stick with the Federal Reserve chair who was in charge when they took office. Mr Powell has served on the Fed’s board since 2012, and is expected to take over when Ms Yellen leaves her post on 3 February. Among the candidates President Trump was considering, Mr Powell, a 64-year-old lawyer, was seen as a safe choice who would provide continuity for existing US monetary policy, and not rattle markets. He has been supportive of gradual interest rate rises and of the consensus that the Fed should slowly decrease the asset holdings it gathered as part of its efforts to battle the financial crisis.

South Korea bans anonymous cryptocurrency trades

South Korea is banning the use of anonymous bank accounts to make cryptocurrency transactions. The move is aimed at stopping virtual currencies being used for crimes such as money laundering. The regulations will bring the country closer into line with financial rules in other markets. South Korea is believed to be the world’s third-biggest market for trades in Bitcoin and other cryptocurrencies, behind Japan and the US. And its importance in the world of digital currency has meant that decisions made in Seoul can result in large, sudden price swings. The new policy, which had been discussed for some time, will kick in on 30 January. Holders of anonymous cryptocurrency wallets must now link them to bank accounts in their own name, and have their identities confirmed. The requirements are similar to the Know Your Customer anti-crime regulations in the US. Separately, underage investors and foreigners will also be banned from opening cryptocurrency accounts in South Korea. And even stricter measures may be introduced later, with officials earlier this month saying a ban on cryptocurrency trading activities was one step being considered. On Monday, Yonhap reported that the country’s cryptocurrency exchanges would be hit with hefty tax bills in a separate attempt to reign in the sector. Trading is popular among the country’s younger population and demand has seen a 30% premium put on some virtual trades compared to other countries. However, volatility around prices together with the lack of regulation surrounding cryptocurrency trading has led to ongoing concerns among South Korean officials that investors are leaving themselves open to potentially huge losses.

US shutdown: Senators trade blame ahead of Monday vote

US senators are struggling to agree on a bill to fund the government, which is in its second day of shutdown. A Senate session session adjourned late on Sunday and a vote has been postponed to midday (05:30 GMT) on Monday. Democratic and Republican senators have so far traded blame for the shutdown. Democrats want President Trump to negotiate over immigration as part of a budget deal, but Republicans say no deal is possible while federal government services are closed. Mr Trump has called for a simple majority vote to end the impasse. Under Senate rules, the bill needs 60 votes in the 100-member chamber to overcome blocking tactics by opponents. The Republicans currently have 51 senators and would need some Democratic support to pass a budget. But Mr Trump said the “nuclear option” of a simple-majority vote was necessary. The initial vote on a bill to fund the government until 8 February had been scheduled for 01:00 on Monday (06:00 GMT). But it was postponed as Sunday’s session ended. On Monday the closure of many federal services will be felt around the country and hundreds of thousands of federal staff face unpaid leave. The last government shutdown was in 2013, and lasted for 16 days.

HSBC to pay $101.5m to settle currency rigging probe

HSBC has agreed to pay $101.1m (£72.7m) to settle a US criminal investigation into rigged currency transactions. The bank has admitted its traders twice misused confidential information provided to them by clients for its own profit. HSBC, which is Europe’s biggest bank, saw one of its former bankers convicted last year in connection with the probe. A US jury found Mark Johnson guilty of defrauding client Cairn Energy in a 2011 currency trade. The HSBC settlement is made up of a $63.1m criminal penalty and $38.4m in restitution to an unnamed corporate client. Separately it had already settled with Cairn Energy for approximately $8m. As part of the US deal, HSBC has entered into a three-year deferred prosecution agreement (DPA) with the US Department of Justice. The DPA, which would allow HSBC to avoid criminal charges, is pending a review by a US court. The bank said it had agreed to boost its compliance programme and internal controls, as well as to cooperate fully with regulatory and law enforcement authorities.

Forward Diary: 22nd – 26th January 2018

Company and economic announcements planned for the week commencing 22nd January 2018

China’s economy grows by 6.9% in 2017

China’s economy grew by 6.9% in 2017 according to official data – the fastest pace in two years. The figure comfortably beats Beijing’s official growth target of about 6.5%. China is a key driver of the global economy and so the better-than-expected data is likely to cheer investors around the world.But many China watchers are sceptical about the country’s GDP numbers and believe growth is much weaker than the official data suggests. The numbers released on Thursday showed that in the last three months of 2017, the economy grew at an annual rate of 6.8% – slightly higher than analysts had been expecting. A crackdown on risky debt together with an effort to reduce factory pollution dampened growth during the period.

Nestle sells Crunch, Nerds and other US brands to Ferrero for $2.8bn

Nestle is selling its US sweets and chocolate business to Ferrero Group for 2.7bn Swiss Francs ($2.8bn; £2bn). The Swiss food giant said it was offloading brands such as Crunch, Nerds, Runts and Butterfinger to focus on other products. Italy’s Ferrero, which makes Nutella spread, Tic Tac and Ferrero Rocher, will become the US’s third biggest confectionery maker. The deal is expected to go through by March this year. Ferrero said the brands would give it “substantially greater scale” and “a broader offering of high-quality products” for US customers.

Debt fears for poorer households

A third of the lowest-income households in Britain have loans and credit card debts that outstrip the assets they hold, research has found. This debt can become a problem to repay, even if the total amount borrowed is relatively low. The Institute for Fiscal Studies (IFS) analysed official figures to estimate the extent of unmanageable debt. Unsecured borrowing, such as loans, overdrafts and credit cards, has been rising by nearly 10% a year in the UK. The IFS found that a quarter of very low-income households have high debt repayments or are behind on bills or repayments. Helen Barnard, from the Joseph Rowntree Foundation, which commissioned the report, said: “The government, regulators and lenders need to not only look at increasing access to affordable credit, but also at the financial pressures that can lead families to take on debt in order to get by.” The report found that about half of British households have some unsecured debt. Some 43% of this is loans from banks and other financial institutions, with credit and store card debt (25%) and hire purchase debt (21%) the other major contributors. The majority of this debt could be paid off, the report found. “More than 60% of unsecured debt is held by households with above-average incomes, and more than half of households with unsecured debts have more than enough financial assets to pay them off,” it said.

Carillion to go into liquidation

Construction giant Carillion (CLLN.L) is to take steps to go into liquidation, threatening thousands of jobs. The move came after discussions between Carillion, its lenders and the government failed to reach a deal to save the company. However, the government will provide funding to maintain the public services run by Carillion. The firm is involved in major projects like the HS2 high-speed rail line, as well as managing schools and prisons. Carillion is the UK’s second largest construction company and has 43,000 staff worldwide – 20,000 in the UK. It is not clear yet how those staff will be affected. Some of Carillion’s contracts will be taken on by other firms and some could be renationalised.

Government to hold pensions talks with Carillion

The government will meet Carillion and the Pensions Regulator on Friday to discuss the giant services and construction company’s deficit. Carillion, which is one of the government’s biggest contractors, is struggling under £1.5bn of debt, including a pension shortfall of £587m. The company held talks with its lenders and advisers in London on Wednesday. However, no announcement has been made on a business plan to secure its future. Carillion is the UK’s second largest construction company and employs 43,000 people globally. It has been awarded contracts to build part of £56bn High Speed 2 railway, including the first phase of the line which will run between London and Birmingham and is scheduled to open in 2026. Carillion also manages nearly 900 schools, provides services to the NHS and works with National Grid.

South Korea announces Bitcoin ban plan

South Korea is planning a law to ban cryptocurrencies such as Bitcoin being traded through its exchanges. The justice minister said virtual currencies were causing the government “great concern”. Meanwhile, several Seoul cryptocurrency exchanges have been raided this week in a probe into alleged tax evasion. Bitcoin and others lost about 10% of their value on Thursday – but it is hard to gauge how much of that was the result of events in South Korea. Given the low levels of trading and relatively small number of people holding virtual currencies, wild price swings have become the norm, leading to an argument that paying too much attention to price rises and falls is a fairly futile exercise. Digital currencies such as Bitcoin have surged in value over the past year – driving a huge demand. That has led to concerns about gambling addiction as inexperienced investors try to ride the wave. “There are great concerns regarding virtual currencies and the justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges,” said Justice Minister Park Sang-ki. It is understood the department is preparing legislation that would allow the exchanges to be shut down. The crackdown in South Korea by authorities included a raid on the country’s second largest virtual currency operator, Bithumb. “We were asked by the tax officials to disclose paperwork and things yesterday,” an official at the firm told Reuters, requesting anonymity. The government had already said in December that it would apply more scrutiny to the exchanges, including moves to curb anonymous trading.

Forward Diary: 15th – 19th January 2018

Company and economic announcements planned for the week commencing 15th January 2018

Global growth back at pre-crisis levels, says World Bank

The World Bank says global economic growth is likely to speed up this year, after a stronger than expected 2017. The bank’s new forecast is that the world economy will expand by 3.1% this year before slowing slightly. It will be the first time since the financial crisis that growth is operating at its full potential. However, the report warns the upswing will be short term, with gains in improving living standards and reducing poverty levels at risk long term. For the immediate future, the bank sees a reasonably upbeat prospect. The bank’s president Jim Yong Kim said: “The broad-based recovery in global growth is encouraging”. The forecast is better than what the bank was expecting in its previous assessment last June. Among the large economies, the up-rating is especially marked for the eurozone, though the bank still thinks it will slow somewhat this year, but by less than its previous forecast.

Samsung forecasts record profits but misses expectations

Samsung Electronics expects to deliver record profits for the last three months of 2017, but the estimate missed analyst expectations. The world’s biggest memory chip maker forecast operating earnings of 15.1 trillion won ($14.1bn; £10.4bn) – up 64% from a year earlier. But while chip prices boosted margins, a stronger won weighed on the figures. The record guidance comes despite a corruption scandal engulfing top leadership at the South Korean firm. The operating profit forecast is slightly below the 15.9 trillion won estimated by analysts surveyed by Reuters.

Carillion scrambles to stay afloat

Carillion, the troubled services and construction group, will reveal a new business plan this week in a bid to avoid collapse. The company, one of the government’s biggest contractors, has issued a series of profit warnings in recent months. The turmoil has sent its shares tumbling by 90% since July. The HS2 contractor said it was in discussions about ways of reducing debt and obtaining new funding. A business plan due to be presented to creditors and other stakeholders on Wednesday will form the basis of a “proposal to restore Carillion’s balance sheet”, a spokesperson said. The company employs about 43,000 people worldwide and provides services to half the UK’s prisons, as well as hundreds of hospitals and schools. Analysts estimate Carillion has debts including pensions of about £1.5bn, while its market capitalisation is just £81m. However, the company’s banks, which include Santander UK, HSBC and Barclays, are understood to be reluctant to lend it any more cash. That could force Carillion to seek some form of government support if its banks do turn off the cash taps. Given the number of public sector contracts it holds, some analysts think it is “too big to fail” and that ministers may be forced to step in. Last week the Wolverhampton-based company said it was being investigated by the Financial Conduct Authority over the “timeliness and content” of its stock market announcements from December 2016 to July last year. The state date for new chief executive Andrew Davies has been brought forward to 22 January. In September Carillion revealed a huge loss of £1.1bn for the six months to 30 June on revenues that were flat at just under £2.5bn.

UK car sales see first drop for six years

New car sales fell for the first time in six years last year with demand for diesel cars plunging by almost a fifth. In total, there were around 2.5 million cars registered, according to industry body the Society of Motor Manufacturers and Traders (SMMT). The figure was down 5.6% from 2016, while diesel sales fell 17% as higher taxes and pollution fears hit demand. SMMT chief executive Mike Hawes said he expected car sales to continue to drop this year, predicting a 5 to 7% fall. The figures are preliminary, with final numbers for the year due to be published later.

Forward Diary: 8th – 12th January 2018

Company and economic announcements planned for the week commencing 8th January 2018

Rush to fix ‘serious’ computer chip flaws

Tech firms are working to fix bugs that could allow hackers to steal personal data from computer systems. Google researchers said there were “serious security flaws” in chips made by Intel, AMD and ARM, affecting devices which use them. The industry has been aware of the problem for months and hoped to solve it before details were made public. The UK’s National Cyber Security Centre (NCSC) said there was no evidence that the vulnerability had been exploited. Some fixes, in the form of things like software updates, have been introduced or will be available in the next few days, said Intel, which provides chips to about 80% of desktop computers and 90% of laptops worldwide.

US blocks sale of Moneygram to China’s Ant Financial

The US has blocked the $1.2bn (£880m) sale of money transfer firm Moneygram to China’s Ant Financial, the digital payments arm of Alibaba. It is the highest profile Chinese deal to be rejected by Washington since Donald Trump came to power. Regulators overseeing foreign investments in the US had refused to support the takeover, the firms said. The geopolitical environment had “changed considerably” since the merger was announced last year, they added. The collapse is a blow to the ambitions of Alibaba’s billionaire executive chairman Jack Ma, who had promised President Trump that he would create a million US jobs. Alibaba, which owns Ant Financial together with Alibaba executives, saw the US market as a way to expand overseas in the face of fierce domestic competition form the likes of Tencent’s WeChat. But in a joint statement on Tuesday, Ant Financial and Moneygram said they had abandoned the deal “following the inability of the companies to obtain the required approval for the transaction from the Committee on Foreign Investment in the United States, despite extensive efforts to address the Committee’s concerns.” Reports suggest the committee had cited security concerns over the takeover. Moneygram chief executive Alex Holmes said he was “disappointed” by the outcome and noted the “geopolitical environment has changed considerably” in the year since the deal was announced.

Households urged to start saving now for next Christmas

Low-earning households are being urged to start saving money now in time for next Christmas. The debt charity The Money Advice Trust (MAT) is advising consumers who struggle with savings to budget for the year ahead. One idea, it says, is to join a credit union. An internet survey conducted for the MAT also suggests that more people will struggle with their finances this January than was the case last year. Some 16% of people questioned said they were likely – or very likely – to fall behind with their finances in January, as a result of Christmas spending. That amounts to 7.9 million people, the MAT said, and compares with 11% in a similar poll last year. The majority – 68% – said they would cope sufficiently during the month.