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| Friday January 27 2017 |
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By Callum Jones
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Markets snap: The Nikkei edged up 0.3 per cent this morning, at 19,467.40 points. The FTSE 100, which closed at 7,161.49 last night, is forecast to open about 15 points higher. At 7.22am, Brent crude was at $56.25a barrel and the pound was trading at $1.2544 against the dollar and at €1.1757 against the euro. For the latest on the markets follow me on Twitter: @CallumIJones
Good morning: Tesco and Booker Group have announced a £3.7 billion merger, creating what they call Britain's “leading food business”. The blue-chip supermarket group and mid-cap wholesale operator say that the move will create significant opportunities for synergies and allow them to “delight consumers with better availability of quality food”. The agreement values Booker at 205.3p a share, a premium of 12 per cent on its 183.1 closing price last night. “This merger with Booker will further enhance Tesco's growth prospects by creating the UK's leading food business with combined expertise in retail, wholesale, supply chain and digital,” Dave Lewis, Tesco’s chief executive, said this morning. Charles Wilson, who stunned the market a decade ago by leaving Marks & Spencer to take charge of Booker, argues that the tie-up “offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders”.
Elsewhere, BT has posted a 37 per cent fall in third-quarter pre-tax profits to £526 million. Since the company issued its £530 million warning on Tuesday, after what Gavin Patterson, its chief executive, described as “unacceptable practices” within its Italian division, its shares have slipped more than 21 per cent on the FTSE 100. Mr Patterson was not available to speak with the press earlier this week. We can add another question to the list he faces today: how did BT fail to spot financial irregularities in BT Italia when carrying out an in-depth review four years ago? Alex Ralph reports that BT’s audit and risk committee led reviews into specific markets, including Italy, which the committee was satisfied “served to enhance our understanding of BT’s overall control environment”.
It has not been a quiet week in the telecommunications sector. Yesterday it emerged that Verizon and Charter Communications were exploring a near-$300 billion merger.
The world's largest wealth manager UBS is starting 2017 with a spring in its step, despite posting a 47 per cent fall in full-year net profit last year. “Although macroeconomic uncertainty, geopolitical tensions and divisive politics continue to affect client sentiment and transaction volumes, we have begun to observe improved investor confidence, primarily in the US, which may benefit our wealth management businesses,"the bank said.
“Sometimes opposites attract,” Theresa May remarked yesterday when looking ahead to her first meeting with the US president later. Donald Trump also briefly mentioned the sit-down in Philadelphia, telling Republican leaders that the prime minister wants to “talk trade, so I’ll have to handle it myself”. He is right: should Mrs May return home with any substantial commitments from the White House, it would be a big boost for Britain as it embarks upon the process of leaving the European Union. All eyes will be on the pair’s joint press conference, which is slated to begin at about 6pm UK time.
We will also learn how the US economy fared in the fourth quarter later, after the Office for National Statistics revealed yesterday that the UK expanded by 0.6 per cent in the final three months of 2016. Economists are expecting Q4 US GDP to come in at 2.1 per cent, down from 3.5 per cent in the previous quarter.
In London, Alliance Trust has announced that it has agreed to buy almost a fifth of its shares back from the activist investor Elliott International, its largest shareholder.
And finally: if you get a chance, do have a listen to our latest podcast. Philip Aldrick, our economics editor, Katherine Griffiths, our banking editor, and Sam Coates, our deputy political editor, joined Robert Miller to discuss the outlook for UK interest rates, Britain's place in the new US trading order and when the Treasury will sell its bank stakes.
Thanks for reading. Martin Strydom will be in your inboxes at lunchtime, before Richard Fletcher returns to the helm on Monday. In the meantime, visit thetimes.co.uk/business to keep up to date. Have a great weekend.
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| Callum Jones |
| Markets Reporter |
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Ten things you need to know
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1 Britain grew at the fastest pace of all G7 nations last year and the economy did not skip a beat after the Brexit vote. UK GDP expanded by 0.6 per cent in the final three months of 2016, the same rate of growth as in the previous two quarters, making a mockery the Treasury’s pre-referendum warning that the country would have slipped into recession by now.
2 The UK tax authorities collected £1 billion less from the 6,500 richest people in Britain six years after they gave them their own “customer relationship managers”, a report by the public accounts committee claims.
3 New British nuclear power stations were in jeopardy last night after the government said that it would withdraw from Euratom, a Europe-wide nuclear co-operation organisation.
4 Imperial Brands, one of the world’s biggest tobacco manufacturers, has caved in to mounting shareholder pressure by scrapping plans to give its chief executive a pay packet worth as much as £8.5 million. The company said it was no longer putting the remuneration policy to a vote.
5 British retail sales fell unexpectedly this month, driven by a sharp drop among grocers. The CBI said that 23 per cent of retailers saw sales volumes rise compared with a year ago, while 32 per cent said they had fallen, giving a balance of -8 per cent. This was down from +35 per cent in December, the biggest one-month drop since the monthly survey began in 1983.
6 The number of mortgages approved rose to a nine-month high in December and consumers’ appetite for credit showed no signs of abating. The British Bankers’ Association said that banks approved 43,228 mortgages last month, an increase on 41,003 in November and slightly higher than the 43,104 that were approved in December 2015.
7 Sky is to offer all its television channels via broadband, in addition to satellite dishes, as it continues a long-term drive towards making its content available anytime, anywhere, on all platforms.
8 Ivan Menezes, the boss of Diageo, claimed that the maker of Johnnie Walker and Guinness was on target to become one of the world’s best performing consumer goods companies after half-year results showed further signs of a turnaround.
9 Royal Dutch Shell cannot be sued in the UKover oil spills from its pipelines in Nigeria, a High Court judge has ruled in a crucial test case for the energy group and other multinationals.
10 Ford took a $200 million hit to its finances by cancelling a new plant in Mexico amid demands from President Trump to build more cars in the US. The charge helped to push it to a fourth-quarter loss of $800 million.
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Read the full update
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Editor’s picks
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What is Britain’s economic model, Ed Conway wonders. According to statistics we are a nation where domestic workers including nannies and cleaners have contributed more to the past two years’ economic growth than the entire finance and manufacturing sectors put together. In reality, he says, to claim that anyone can codify one of the world’s biggest economies with a £1.8 trillion national income into a single model, is deeply naive.
We should not get too puritanical about what Alison Cooper, chief executive of the cigarette maker Imperial Brands, does for a living, writes Alistair Osborne. She is not the only FTSE 100 boss peddling stuff harmful to your health. You can do yourself quite a bit of damage with the products of Diageo. Or any number of food groups, if you restrict your diet to cake.
Margaret Thatcher once remarked that “power is like being a lady: if you have to tell people you are, you aren’t”, says Sathnam Sanghera. Fast forward to 2017 and Donald Trump is demonstrating that being smart is the same: if you feel the need to gloat about your intelligence, you probably don’t have a great deal of it. Indeed, the more the president of the US bangs on about being clever, the less convincing it sounds.
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| Market Snap |
The FTSE 100 slipped 2.94 points, or 0.04 per cent, yesterday to 7,161.49. The broader FTSE 250, however, ticked up by 9.31 points, or 0.05 per cent, to 18,142.66. More on yesterday's market action here.
On Wall Street, the Dow Jones industrial average held above the 20,000 level breached on Wednesday for another record close after rising 32.40 points, or 0.2 per cent, to 20,100.91, as US companies continued to report solid earnings. The S&P 500 hit a new intra-day high before paring gains to close down 1.69 points, or 0.1 per cent, at 2,269.68, while the tech-heavy Nasdaq finished flat in percentage terms, or down 1.16 points, at 5,655.18. About 6.7 billion shares changed hands compared with the recent daily average of 6.5 billion.
Sterling slipped off a six-week high against the US dollar in London yesterday, down 0.3 per cent to $1.259, despite better-than-expected GDP figures for the final quarter of 2016 as traders remained cautious before Theresa May’s meeting with Donald Trump. Against the euro, the pound was 0.2 per cent higher at €1.177.
Oil prices rose strongly yesterday despite evidence that US stockpiles rose by 2.8 million barrels last week to top 488 million barrels. In New York, Brent crude for March settlement rose 2 per cent to $56.09 a barrel.
The market did not like Whitbread’s third quarter trading update a bit, says Tempus, and there are a few negatives in it. Aside from that, the Premier Inn and Costa coffee shops operator has had a good run so some profit-taking was probably inevitable. Unilever, too, did not please with its final figures, and the fourth quarter showed a definite slowdown because of difficult conditions in India and Brazil. Renishaw shares are always volatile, even more so of late after two contrasting financial years, but there are strong signs of an improvement at the halfway stage. Read on here for more about the Tempus share tips of the day.
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Read the full story
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The day’s front pages
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The Times
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The new wave of British nuclear power stations was in jeopardy after the government announced that it would pull out of a Europe-wide nuclear co-operation organisation. Ministers sneaked out the news that the UK would leave the European Atomic Energy Community, known as Euratom, within the notes accompanying the bill published yesterday to trigger Article 50, the process for leaving the European Union.
One of the world's biggest tobacco companies caved in to shareholders yesterday, scrapping plans to pay its chief executive up to £8.5 million. Imperial Brands said that it was no longer putting the remuneration policy to a vote at next Wednesday's annual investor meeting.
Verizon, one of the world's largest telecoms companies, and Charter Communications are exploring a near-$300 billion merger to create the largest telecommunications company in the world, it emerged yesterday. The companies have hired advisers to explore a potential deal, a banking source said.
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Read the full update
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The Wall Street Journal
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Johnson & Johnson agreed to acquire Actelion for $30 billion, in an unusual deal that will also spin out the Swiss biotech company’s drug discovery operations. The deal, the largest in J& J’s history and announced by both companies yesterday, ends weeks of seesaw negotiations.
Elections in France, Germany and the Netherlands offer a calendar of concerns for European investors in 2017, creating some tempting trades for hedge funds and other investors. Since the UK voted to exit from the European Union, investors have fretted about the possibility of spreading anti-EU sentiment, calling the future of the bloc into question. But some hedge-fund managers have bought the euro or European stocks to benefit if these worries proved misplaced.
Publicis Groupe tapped Arthur Sadoun, the advertising giant’s 45-year-old creative chief, yesterday to replace longtime chief executive Maurice Lévy, part of a succession plan to steady a firm buffeted by massive changes in consumer behaviour and technology.
Google parent Alphabet reported an 8.3 per cent increase in fourth-quarter profit, largely driven by the sustained shift to mobile, but it fell short of analysts’ expectations on a higher-than-expected tax adjustment.
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Read the full update
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Financial Times
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The British economy was the fastest growing among the G7 nations last year and is not showing any sign of the slowdown many experts predicted would follow the Brexit vote. Philip Hammond, the chancellor, welcomed the figures and said he believed there were signs of a positive effect from sterling’s depreciation on demand for British exports. Expansion was driven by the service sector, which grew 0.8 per cent.
Donald Trump’s election has doubled the value of an energy company owned by the billionaire investor Carl Icahn, who was appointed special adviser to the president on regulatory reform. CVR Energy shares have surged on the expectation that the new administration will ease environmental rules, including a federal biofuel mandate criticised by Mr Icahn that costs CVR more than $200 million a year.
Royal Bank of Scotland warned that it faced “substantial” further costs to cover looming multibillion-dollar penalties for mis-selling of toxic mortgage securities even as it revealed that it had set aside $3.8 billion to help to cover the expected fine. The state-backed lender said it had earmarked the funds at the end of last year as it prepared for a fine from the US Department of Justice.
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Read the full update
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The Daily Telegraph
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Supermarket price wars will limit the strain on household budgets this year, the Chancellor said yesterday, as official figures cemented the UK's position as the fastest-growing major advanced economy in 2016. Philip Hammond said the "incredible market share war" between supermarkets over the past few years would help to curb price rises and support consumer confidence, as he signalled that growth in 2017 could outpace official forecasts.
BT is at risk of having its credit rating cut over fears that the heavy blow to profits from its accounting scandal in Italy and a slump in big contracts will slow effort to reduce its debt pile. The ratings agency Moody's has changed its outlook on BT from stable to negative in the wake of the company's profit warning earlier this week.
Tata Steel UK's pension fund is set to be spun off in a move that will ring-fence the business from future financial burdens flowing from the retirement scheme. Steel workers' unions are advising their members to vote for a deal that would close the £15 billion scheme to future accruals, with members getting smaller payouts.
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Read the full update
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The Sun
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The TSB bank boss Paul Pester’s pay almost tripled to £3.67 million last year as his bonus grew tenfold. The package, hidden in company accounts, came as it raved about a 12.5 per cent bonus for typical staff members, the same as last year.
The head of the City watchdog said in a speech in Germany last night that free trade would make every country stronger. Andrew Bailey, chief executive of the Financial Conduct Authority, urged countries to back open markets.
The luxury shoe brand Jimmy Choo trampled the competition in 2016 thanks to growing sales of its gear for men. Sales at the British firm were up 15 per cent at £364 million over the year.
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Read the full update
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callum.jones@thetimes.co.uk
@CallumIJones
