A solid end to last week in New York, with the S&P500 up by 1.5 per cent and the Nasdaq more than 2 per cent higher on Friday, has carried over onto European markets today with London shares up more than 1 per cent across the FTSE100, FTSE250 and All Share indices while European bourses were also up strongly despite some rather dispiriting economic data around the continent.
UK economy continues to stall
Latest output figures on the UK economy suggest that we could slip into a technical recession between now and March. Data from the Office for National Statistics show shows monthly GDP grew by 0.2 per cent in July 2022, but there are few near-term catalysts in the offing, even though the services sector remains in positive territory. Kitty Ussher, Chief Economist at the Institute of Directors, said: “Given all the talk of recession, businesses will be reassured to hear that the economy grew in July, at around its long-term trend rate. When looking at the last three months together, it shows the economy flatlining as the impact of higher inflation works its way through the system”. The extent to which this will continue or perhaps head firmly into negative territory is difficult to gauge. Energy remains the chief bugbear, as it is with the rest of Europe, so markets will be trying to get a steer on what Ukraine’s recent successes on the battlefield mean for the conflict and its likely duration.
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Will Trussonomics avert a UK recession?
How bad will a UK recession be?
Receivers move in on Evergrande HK
The Evergrande saga continues to weigh on investor sentiment. It has emerged that the property group’s Hong Kong headquarters has been seized by a lender after Evergrande defaulted on a loan and twice failed to sell the 26-storey Wan Chai office tower, which is valued at roughly $1.2bn (£1.15bn).
In addition to its property sector woes, the world’s second biggest economy has been forced to deal with the impact of severe drought, rising youth unemployment and stalling growth. Official surveys released have revealed that China’s manufacturing industry contracted in August for the first time in three months. Food prices are also steadily increasing, which, along with the rising youth unemployment rate, could lead to civil unrest.
All this has been made worse by Beijing’s fixation with a zero-Covid policy that has triggered lockdowns in some of the nation’s largest conurbations. And though the renminbi has depreciated against the US dollar, an export-led recovery is unlikely given falling aggregate demand in the global economy.
Rupert Soames bids farewell to Serco
Serco (SRP) has announced that Rupert Soames will step down from the board and from his role as chief executive at the end of this year and then retire altogether from the company in September 2023, after nine years at the helm. He will be succeeded by Mark Irwin, current head of Serco’s UK & Europe division. John Rishton, chairman of Serco, said that during the selection process it was clear that “[Irwin’s] deep knowledge of Serco in the UK, Europe and Asia Pacific, as well as his prior experience working in the US and the tremendous results he has delivered for us in all his roles make him the ideal person to lead the group through its next phase of growth”.
A changing of the chairs at DFS
Living room furniture retailer DFS Furniture (DFS) announced that it will have a new chair from November.
Chair Ian Durant will retire and will step down from the board at the company’s AGM on 4 November. He will be replaced by Steve Johnson, a current DFS board member who is an independent non-exec and the head of the remuneration committee.
DFS’ shares were up by 3 per cent in early morning trading. CA
Another supported housing Reit set to float
A new real estate investment trust (Reit) which plans to deliver housing for vulnerable people has announced its intention to float through a £150mn IPO. Independent Living Reit intends to provide specialist supportive housing for adults with learning difficulties, mental health issues or physical disabilities. Independent Living Reit said it has developed its business model – whereby it owns a portfolio of homes which are leased to housing associations – after discussions with the Regulator for Social Housing which has voiced many concerns about financial stability and quality of care from companies using a lease-based model. ML
Australia’s regulator looks at Entain
Gambling company Entain (ENT), which owns Ladbrokes and Coral, is being investigated by Australia’s financial crime agency.
AUSTRAC (Australian Transaction Reports and Analysis Centre) said “the investigation will focus on whether Entain has complied with its obligations” under anti-money laundering and counter-terrorism financing legislation.
This comes after the company was fined £17mn in August by the UK Gambling Commission for social responsibility failures and AML issues. CA
Netflix is getting serious about gaming
Over the weekend, Netflix (US:NFLX) announced plans to create three mobile games in partnership with Ubisoft. The games will expand on previous Ubisoft releases Valiant Hearts, Mighty Quest and Assassin’s Creed and will be “exclusively available on mobile” to Netflix subscribers.
Netflix has already released a few games on mobile, including one based on the Stranger Things TV series. However, this Ubisoft announcement represents a big step up in its ambitions. Assassin’s Creed is a hugely popular franchise and the game is going to be launched in parallel with a new Assassin’s Creed live action TV series.
Netflix is clearly serious about the gaming project. It sees the future of storytelling through both games and TV. Whether it will be able to attract enough gamers for the investment to be worth it is uncertain? Making great games is difficult and there is lots of competition for gamers. Both Apple and Amazon have failed to break into the gaming market in the past. The odds for Netflix are slim. AS
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Netflix and S4 Capital grapple with content issues
Grainger’s share price bumps following rent success
Grainger’s (GRI) share price nudged up 2 per cent after it revealed that it had hit record occupancy for the rental arm of its business. The residential developer said that 98.2 per cent of its rental assets were occupied and that rental income had increased 4.5 per cent in the year to date.
Grainger is transitioning the majority of its business towards a rental model in a bid to become a real estate investment trust (Reit), a status which would make it exempt from corporation tax. Back in May, the company said it hopes to reach that goal “in the next three years”. ML
Lending strike on the way?
There have been concerns recently raised by UK small businesses that a lending famine appears to be taking hold. The FCA recently warned banks to improve their treatment of small businesses after complaints that many banks were not offering basic protections to small businesses such as offering payment schedule plans or identifying vulnerable customers. Indeed, up to a third of small businesses surveyed reckoned that banks would not lend to them anymore on reasonable terms. The question is whether non-traditional financial lending, such as invoice lending or online banking service, can take the place of High Street banks.
According to Sonovate, a payment solutions provider, only around 5 per cent of businesses actively use supply chain finance to cover their short-term lending requirements. What might be at the root of the problem is hard to pinpoint. There is a similar trend reported in the US, where traditionally cash hungry start-up businesses have turned to bank lending, rather than venture capital, to finance growth. Therefore, it could be that banks are simply seeing more profitable lending opportunities, than to traditional small businesses, in an environment where interest rate rises are squeezing venture capital and private equity out of the market. JH
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