(Alliance News) - The following is a summary of top news stories Friday.
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COMPANIES
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The largest banks operating in the US market have sufficient resources to withstand a severe economic downturn and continue providing financing to American families and firms, the Federal Reserve said Thursday. The Fed subjected 33 banks to its annual "stress test" exercise, to gauge whether they would be able to weather a steep global recession. In the hypothetical crisis, financial markets plummet, commercial real estate and corporate debt markets face substantial strain, US unemployment reaches 10% and the economy contracts by 3.5%. The results "showed that banks continue to have strong capital levels, allowing them to continue lending to households and businesses during a severe recession," the Fed said.
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GSK and Sanofi reported positive results against the Omicron variant of Covid-19 from their vaccine in a placebo-controlled trial. The trial evaluated an adjuvanted bivalent D614 and Beta vaccine candidate. It demonstrated an efficacy of 64.7% against symptomatic Covid-19 and 72% efficacy in Omicron-confirmed symptomatic cases. "Sanofi-GSK's vaccine is the first candidate to demonstrate efficacy in a placebo-controlled trial in an environment of high Omicron variant circulation," the companies noted. "Our vaccine candidate has the potential to make an important contribution to public health as the pandemic evolves further. We are looking forward to the discussions with regulatory authorities with the aim of making our vaccine candidate available later this year," said Roger Connor, president of GSK Vaccines.
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The US Food & Drug Administration said it was ordering all products produced by Juul Labs off the market after finding the vaping giant had failed to address certain safety concerns. The decision, which Juul said it would appeal, clears the way for rival brands to increase their share of the market it once dominated. It is also a blow for tobacco giant Altria Group, maker of Marlboro cigarettes, which acquired a 35% stake in Juul in 2018 to diversify its business strategy in the face of falling smoking rates.
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Barclays said it is buying specialist mortgage lender Kensington Mortgage to take a bigger share of the UK housing market. The deal is worth around GBP2.3 billion, Barclays said. It requires UK regulatory approval and is expected to complete at the end of the fourth quarter or in first quarter of 2023. The London-based bank is buying Kensington Mortgage from companies controlled by funds managed by private equity firms Blackstone Tactical Opportunities Advisors and Sixth Street Partners. Kensington Mortgage's mortgage portfolio stood at GBP1.2 billion as at May 31, split 70% to owner-occupied properties and 30% in buy-to-let residential mortgages.
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The takeover of defence contractor Ultra Electronics by Cobham moved a step further to completion. The UK government on Thursday said it was "minded to accept" remedies to address national security concerns raised by the GBP2.6 billion acquisition of the FTSE 250 defence specialist by former London-listing Cobham. Kwasi Kwarteng, UK business secretary, on Thursday launched a consultation into the undertakings offered by Cobham to acquire Ultra, which makes submarine-hunting equipment as well as control systems for the fleet of Trident submarines that carry the UK's nuclear deterrent. Ultra Electronics said that the proposed undertakings are now subject of public consultation. If the secretary of state's formal approval is received following completion of the consultation, the next key step for the acquisition will be sanction by the court at the scheme court hearing.
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Zurich Insurance has agreed to sell its legacy traditional life insurance back book in Germany to Viridium Holding, a life insurance portfolio manager based in Germany. Zurich said the transaction adds eight percentage points to its Swiss solvency test ratio. The deal includes the transfer of USD20 billion of net reserves, mainly related to annuity and endowment products underwritten more than five years ago. Chief Financial Officer George Quinn said: "This is, perhaps, the most important step in our efforts to reduce the capital intensity of Zurich’s legacy life portfolios and to lower our exposure to interest rates."
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Carmaker Stellantis is investing EUR50 million in the lithium producer Vulcan Energie Ressourcen in Germany, becoming the second-largest shareholder in a company it hopes will help beef up its battery production. The investment is "an important statement by one of the world's largest car manufacturers for the transformation towards sustainable and strategic sourcing of battery materials," said Horst Kreuter, managing director of Vulcan Energie Ressourcen. The Amsterdam-based Stellantis group includes brands such as Peugeot, Opel, Citroen and Fiat. Vulcan produces geothermal energy in Germany's Upper Rhine Plain and plans to produce lithium hydroxide - a key component in electric vehicle batteries - without fossil fuels and in a climate-neutral way.
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BMW has officially opened a new factory fully focused on electric vehicles in Shenyang, northern China. But the Lydia plant, named for a district of Shenyang, can also produce other models, chief production officer Milan Nedeljkovic said on Thursday. Production of the BMW i3, an all-electric mid-size sports sedan for the Chinese market is already under way. Together with the nearby Tiexi and Dadong plants, BMW's production capacity in Shenyang is set to rise to 830,000 vehicles a year. "The expansion of our production presence in China shows that we are preparing for further growth in the world's largest electric car market and are convinced of China's long-term prospects," BMW China CEO Jochen Goller said.
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Eni postponed the listing of its energy transition unit Plenitude, citing tough market conditions. Plenitude was formed in 2017 from the combination of Eni's retail gas and power businesses. Eni announced plans to list the unit in Milan earlier in June. Plenitude's offering includes renewable energy generation, electric vehicle charging and energy services. "Market conditions have deteriorated since Eni and Plenitude announced the intention to float on June 9. While there was strong and widespread investor interest in Plenitude and important support for its strategy, Eni has concluded that the volatility and uncertainty currently affecting the markets require a further phase of monitoring," Eni said.
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British Airways workers based at Heathrow voted to strike in a dispute over pay. Members of the GMB and Unite backed industrial action. The unions said holidaymakers face disruption, warning of a summer of strikes. Workers, including check-in staff, will now decide on strike dates, which the union said were likely to be held during the peak summer holiday period. Downing Street said strike action would add to passengers' "misery" at airports and called for BA to put contingency measures in place. A No 10 spokesman said: "This is obviously a matter for British Airways and the unions and we would strongly encourage both to come together to find a settlement. BA is owned by International Consolidated Airlines Group.
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MARKETS
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Share prices globally were looking to end the week positively, as traders and investors pondered remarks by US Fed Chair Powell in two appearances before legislators. Powell admitted that recession is "a possibility" for the US. "The market took his words to heart," commented Marshall Gittler at BDSwiss. "Even though he didn’t balk at the idea of a 100 [basis points interest rate] hike, the fed funds futures started to price in less tightening in the next year or so and more easing in 2024, presumably on the assumption that the Fed will drive the US into recession and have to loosen again by then."
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CAC 40: up 1.6% at 5,977.34
DAX 40: up 0.6% at 12,993.82
FTSE 100: up 1.3% at 7,107.87
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Hang Seng: closed up 2.1% at 21,719.06
Nikkei 225: closed up 1.2% at 26,491.97
S&P/ASX 200: closed up 0.8% at 6,578.70
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DJIA: called up 0.6%
S&P 500: called up 0.7%
Nasdaq Composite: called up 1.0%
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EUR: up at USD1.0544 (USD1.0517)
GBP: up at USD1.2275 (USD1.2260)
USD: up at JPY134.88 (JPY134.56)
Gold: down at USD1,825.50 per ounce (USD1,837.04)
Oil (Brent): down at USD110.88 a barrel (USD111.15)
(currency and commodities changes since previous London equities close)
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ECONOMICS AND GENERAL
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Japan's core consumer prices jumped 2.1% again in May, the second consecutive monthly jump of a level not seen in seven years, official data showed Friday. The core consumer price index, which excludes fresh food, rose 2.1% year-on-year in May, according to figures released by the internal affairs ministry. The rise follows the same 2.1% increase in April, the first time since March 2015 that the figure breached the 2.0% set by the Bank of Japan as its long-term inflation target. The reading, in line with market expectations, comes after the Japanese central bank last week stuck to its monetary easing policy, even as other central banks raise interest rates to tame inflation.
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Spain's economy grew at a slower pace in the first quarter of 2022, according to data from official statistics agency INE. Gross domestic product grew 0.2% quarter-on-quarter in the first quarter. This is a full two percentage points less growth than Spain recorded in the fourth quarter of last year. In the final quarter of 2021, GDP grew by 2.2%. On an annual basis, however, GDP grew 6.3% in the first quarter of 2022, accelerating from 5.5% in the fourth quarter of 2021.
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Sentiment among consumers in Italy worsened because of a fall in all of its components in June, according to the latest estimate released by national statistics office Istat. The consumer confidence index was down to 98.3 points from 102.7 points in May. The statistics office noted a deterioration across most consumer confidence index components. Expectations on the general economic situation as well as opportunities to build up savings in the future worsened.
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UK retail sales fell in May against a backdrop of rising inflation as households across the country continue to grapple with the cost-of-living crisis, according to figures from the Office for National Statistics. On an annual basis, UK retail sales fell 4.7% in May, easing from a 5.7% decline in April. The latest reading missed the market forecast, cited by FXStreet, for a 4.5% drop. UK retail sales fell 0.5% in May month-on-month, reversing a 0.4% rise in April. The print beat the market estimate of a 0.7% decline. The ONS said the decline in sales volumes over the month was because of food stores, which fell by 1.6%.
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UK consumer confidence has fallen to its lowest level since records began in 1974 as a "stark new economic reality" hits households, figures show. GfK's long-running consumer confidence index dropped one point to minus 41 in June, setting a new record low for a second successive month. Confidence in personal finances over the next 12 months fell three points to minus 28 – 39 points lower than this time last year. Expectations for the general economic situation over the coming year also dropped, by one point to minus 57 – 55 points lower than last June. Joe Staton, from GfK, said: "The consumer mood is currently darker than in the early stages of the Covid pandemic, at the result of the 2016 Brexit referendum, and even the shock of the 2008 global financial crisis, and now there's talk of a looming recession."
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UK Prime Minister Boris Johnson said he will "keep going" after his authority was dealt a series of blows by a double by-election defeat which triggered the resignation of a Cabinet minister. Johnson acknowledged on Friday that losing the former Tory stronghold of Tiverton and Honiton to the Lib Dems as well as surrendering Wakefield to Labour was "tough", but he insisted he was pushing on, and vowed to "listen" to voters. Conservative Party Co-Chair Oliver Dowden quit, saying he and Tory supporters are "distressed and disappointed by recent events", telling Johnson that "someone must take responsibility". Johnson, speaking to broadcasters 4,000 miles away in Rwanda, where he is at a Commonwealth summit, thanked Dowden for his "excellent" service in the role. The prime minister said he would take responsibility, but stressed the cost-of-living crisis was the most important thing for voters, saying it is "true that in mid-term governments post-war lose by-elections".
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EU leaders granted candidate status to Ukraine and Moldova in a strong show of support against Russia's invasion, as the US said it was sending Kyiv more high-precision rocket systems. The West's latest attempts to rally behind Ukraine came as Russia closed in on key cities in the country's embattled east and prompted growing global concerns with restrictions in gas and grain exports. Ukraine's President Volodymyr Zelensky hailed the EU decision on his country and Moldova as "a unique and historic moment", although the two former Soviet republics face a long path before joining the bloc and its benefits of free movement and a common market. "Ukraine's future is within the EU," said Zelensky, who had been working the phones for weeks.
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Germany moved closer to rationing natural gas as it raised the alert level under an emergency plan after Russia slashed supplies to the country. "Gas is now a scarce commodity in Germany," Economy Minister Robert Habeck told reporters at a press conference. Russia was using gas "as a weapon" against Germany in retaliation for the West's support for Ukraine following Moscow's invasion, Habeck said, with the aim of "destroying" European unity. But the Kremlin dismissed Germany's suggestion there were political motives behind the limits to supply as "strange".
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The French government said it aims to have its natural gas reserves at full capacity by autumn as European countries brace for supply cuts from major supplier Russia with the Ukraine war dragging on. "We are ensuring the complete filling of our storage capacities, aiming to be close to 100% by early autumn," Prime Minister Elisabeth Borne said. She added that France will also build a new floating terminal to receive more gas supplies by ship. "We can do without Russian gas," French Energy Transition Minister Agnes Pannier-Runacher said later on BFM Business TV.
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US Federal Reserve Chair Jerome Powell on Thursday downplayed the idea that government pandemic aid was the key factor fuelling US inflation, instead blaming a confluence of global issues including the war in Ukraine. While stimulus spending was a factor, "a great deal of the price increases that you saw were a matter of supply being unable to meet demand" and "when demand hits fixed supply, what happens is prices go up," Powell told lawmakers. US inflation has surged to a 40-year high, picking up speed in recent months as the fallout from Russia's invasion of Ukraine has sent fuel and food prices soaring, with gas at more than USD5 a gallon for the first time – putting strain on American families.
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US senators advanced a bipartisan bill addressing the epidemic of gun violence convulsing the country, approving a narrow package of new firearms restrictions and billions of dollars in mental health and school security funding. The reforms – which are almost certain to be rubber-stamped by the House of Representatives on Friday – fall short of the demands of gun safety advocates and President Joe Biden, but have been hailed as a life-saving breakthrough after almost 30 years of inaction by Congress. The Bipartisan Safer Communities Act, which was backed by all 50 Democratic senators and 15 Republicans, includes enhanced background checks for buyers under the age of 21, USD11 billion in funding for mental health and USD2 billion for school safety programs.
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By Tom Waite; thomaslwaite@alliancenews.com
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