FTSE 100 Live: US recession odds higher after economy shrinks, Shell and Centrica profits surge


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Wall Street stocks hold their nerve as earnings season helps balance recession fears

New York stock markets were steady in opening trade as investors took heart from strong corporate earnings even as the odds of a US recession fell.

The S&P 500 opened up steadily at 4,029.85 points after data showed the second consecutive quarterly fall in output, taking the world’s biggest economy into a widely accepted technical definition of recession. But the US government does not recognise it, instead using a different range of measures.

The cautious feel to trade also followed the Federal Reserve’s 0.75% rate hike overnight as policymakers continue to their fight against inflation at a time of economic slowdown. A generally strong earnings season in the US provided some reassurance, although shares in Covid vaccine maker Pfizer fell by over 3% even after it reported record quarterly sales.

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US economy shrinks for second consecutive quarter

The US has entered the widely-accepted technical definition of recession, according to data out today from the Commerce Department.

The figures show the second consecutive quarter in which the size of the economy shrank. Gross domestic product fell by 0.9% year-on-year in the second quarter and was down 0.2% from the first quarter. The decline followed a 1.6% drop in GDP for the first three months of the year.

Economists generally accept two quarters of contraction as the definition of recession, but the US government does not. Instead, the country’s National Bureau of Economic Research uses a range of analysis for its official definition of a recesssion.

Nonetheless, Thursdays figures are a high-profile reminder of the challenges policymakers face in order to help growth while they also fight inflation by raising interest rates. The numbers came out a day after the Federal Reserve lifted rates by 0.75% for the second month in a row.

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Kit Kat producer Nestlé ups first half sales despite inflation-based price rises

FMCG business Nestlé maker of Kit-Kat and Aero has boosted sales by 9.2% in the first half of the year despite introducing “price increases “ across its portfolio of products. 

Sales reached 45.6 billion Swiss Francs (£39 billion) across the six month period from January to June. The figure was up from 41.8 billion Swiss Francs during the same period the year before.

Underlying earnings per share increased by 8.1% and by 7.3% on a reported basis to 2.33 Swiss Francs.

However, the company sounded a note of alarm by highlighting “growing food insecurity” around the world and “heightened climate concerns” following an increase in “unusual weather patterns”. 

Mark Schneider, Nestlé CEO, said: Our local teams implemented price increases in a responsible manner. Volume and product mix were resilient, based on our strong brands, differentiated offerings and leading market positions.

“We limited the impact of unprecedented inflationary pressures and supply chain constraints on our margin development through disciplined cost control and operational efficiencies.”

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Covid vaccine giant Pfizer reports its biggest ever quarterly sales of almost $28 billion

PFIZER, the global drugs giant best known for its Covid-19 vaccine, became the latest big-name from the US to beat forecasts as Wall Street’s earnings season continues to gather pace.

The company powered through forecasts, reporting a total of $27.7 billion in second-quarter sales, a record high. That included almost $9 billion in sales of its Covid vaccine and over $8 billion for an antiviral treatment. The numbers came one day after it announced the start of mid-stage trials of a vaccine for the Omicron Covid sub variant BA2.

It had been reported in the run up to today’s financial results that take-up of Pfizer’s Paxlovid antiviral drug had slowed, as the boom in sales of such treatments cooled in line with the ending of Covid restrictions in much of the world. Paxlovid was, for a while, one of the fastest-selling drugs of all time.

The strong earnings announced today show that demand remains strong as the pandemic fades from the forefront of the news in much of the world.

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Electronics firm DiscoverIE Group lights up FTSE 250 on strong earnings

DISCOVERIE, the bespoke electronics maker, held the top spot on London’s FTSE 250 leaderboard in afternoon trade, helped by forecast-beating first-quarter earnings.

The company has manufacturing facilities in Sri Lanka and said that output there was at expected levels despite the unrest in the country,

Its stock rose by almost 10% to 749p. The rally came after the Guildford-based company said sales were up 27% year-on-year at constant exchange rates, with orders coming in more strongly than expected. DiscoverIE makes application-specific components for industrial clients, a business model that tends to create long-term revenue streams.

Overall, the FTSE 250 was up 98 points at 19,737.84 in early afternoon trade. The FTSE 100 faded from a brighter start on a busy day for earnings to hold steady at 7344.92.

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Virgin wines slump after pandemic growth surge comes to an end

Shares in Virgin Wines fell 7.6% this morning after it posted a downturn in sales, signalling an end to the company’s pandemic growth surge.

The company reported a £4.6 million drop in sales, while an 8% growth in membership of the firm’s ‘WineBank’ subscription scheme was partially offset by an increase in subscription cancellations. WineBank subscribers now represent 81% of consumer sales.

The Norwich-based company increased its market share from 6.1% to 8.4% over the past year, according to data from IBISWorld.

The results mark the company’s first full year of trading following its £110 million IPO on the AIM market in March 2021. Its share price has dropped 67% over the past year.

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Meta revenues fall for the first time as advertising sales dry up

Revenues at Facebook-owner Meta have fallen for the first time as user growth dwindles and advertising revenues dry up.

Sales in the three months to June 2022 fell 1% to $28.8 billion, while profits fell 36% to $6.7 billion. The social media giant said revenues could fall further still, to as low as $26 billion in the next quarter. Monthly active users of Facebook increased just 1% on the previous year.

Meta founder Mark Zuckerberg told investors: “We seem to have entered an economic downturn that will have a broad impact on the digital advertising business.

“It’s always hard to predict how deep or long these cycles will be, but I’d say that the situation seems worse than it did a quarter ago.”

Meta shares have fallen almost 50% since the beginning of 2022.

Read more here

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Barclays takes a hit on trading blunder

BARCLAYS shares took a small hit today after it set aside £1.5 billion to cover a US trading blunder.

That wiped out a surge in trading at its investment banking arm, the jewel in the crown of the UK bank.

A paperwork error saw it sell nearly $18 billion more exchange-traded notes in the US than it intended, an early headache for new CEO CS Venkatakrishnan.

Profits halved to £1 billion in the second quarter due to the trading error and other misconduct provisions.

The shares fell 4p to 153p – they are down 11% this year.

Despite that, the bank is planning to buy back £500 million of its own shares and will pay a 2.5p dividend.

The CEO, known as Venkat, said the bank was “alert to the pressure that the rising cost of living will have on our customers and colleagues. We have a range of measures in place to help and are looking to do more.”

All banks have been hit by a slump in deal making and new share flotations this year. There are fears of big job cuts unless business picks up later this year.

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City Comment: The CWU needs a rethink

CARTOON caricatures of unions leaders – barons! militants! – don’t do much for the national debate. Generally they are neither, they are just trying to do the best for their members in the most trying circumstances.

Cliches about fat cat CEOs are barely any better.

Philip Jansen at BT is – you’ll be shocked – a well-paid guy who was already very rich before he arrived at the telecom giant in 2019.

If the unions leading a two-day strike that starts tomorrow think he is some sort of Dickensian meanie trying to boost profits on the back of struggling staff they have missed their man.

He would be delighted to pay the workers more, much more, if he could justify it, but he has to think about next year and the year after that.

One sort of suspects that Andy Kerr, the telecoms official at the CWU, knows this and secretly thinks the BT pay rise to its staff is decent and uncomplicated.

With talks on a deal stalling last April BT decided to go ahead and just pay everybody an extra £1500 a year.

That might cover the coming increase in their energy bills. Moreover, they are already getting the money even while they down tools.

It’s an important point of principle that they be allowed to withdraw their labour if they feel aggrieved, but one wonders if they might come to regret it.

There are surely worse places to work than BT and if the strikes have a genuine impact, well, that means the company will have fewer customers. Which means it needs fewer staff.

The CWU should rethink this one.

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BT staff poised to strike

BT boss Philip Jansen today expressed his “sadness and disappointment” as unions head out on a two-day strike that starts tomorrow.

The company today returned to revenue growth for the first time in five years, something the City was watching closely, with a 1% rise to £5.1 billion in the first quarter.

But it has been unable to reach accord with 40,000 staff who are members of the Communication Workers Union over pay. They strike tomorrow and Monday amid fears of rolling national strikes across many industries.

All BT staff got a £1500 pay rise last April, worth 5% a year on average and more than that to the lowest paid.

Jansen told the Standard: “I respect their views. But we have offered the biggest pay rise for 20 years. I think it is fair and affordable, it compares really well with almost any company. It compares well with the public sector, with doctors and nurses. I think it is really sad, I’m disappointed.”

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