Pound unmoved by Brexit extension as traders brace for more uncertainty – live updates
We have a full report up on LVMH confirming its offer for jewellery company Tiffany. Here’s an extract:
Accountancy giant EY covered up evidence of smuggling by a gang laundering drug money from the UK, the BBC has reported.
A report ahead of tonight’s Panorama says the audit firm recorded the illegal disguising of gold bars as silver as a case of “documentary irregularities”. It says:
Sales at Boots fell slightly over the year to the end of August amid “challenging” retail conditions.
The beauty and pharmacy chain, which is part of the US-listed Walgreens Boots Alliance, suffered a 2.1pc sales fall, which in pinned on high-street conditions, and a decrease in NHS funding.
Across the group – which includes Walgreens, the US’s second-biggest pharmacy chain – earnings beat estimates, with the company maintaining its short-term estimates but upping its longer-term outlook.
Chief executive Stefano Pessina said:
We are pleased to report fiscal 2019 results in line with our previously stated guidance despite a challenging operating environment.
Among highlights for the fiscal year, Boots pointed to the digitalisation of its Advantage Card, and a 14.4pc increase in web sales.
Boots is in its worst position in decades, facing cuts, staff disquiet and the hangovers from under-investment.
Aston Martin shares sink further as float advisor tells investors to dump shares
Down near the bottom of the FTSE 250 (though not doing quite as badly as Cairn Energy), is Aston Martin Lagonda, shares has seen its share price been gradually eroded since it re-listed last year.
My colleague Alan Tovey reports:
Embattled Aston Martin has suffered a fresh blow, with one of the banks which underwrote the luxury car maker’s disastrous float now advising investors to dump the shares.
Bank of America Merrill Lynch (BAML) cut its rating on Aston from neutral to sell, slashing its target price from 550p to just 400p.
Aston floated a year ago with the shares priced at £19. However, they have since tumbled after shock profit warnings, heavy losses and a bond sale to help fund the launch of the company’s first SUV, the DBX, on which the car maker is effectively betting its future.
BAML analyst Kai Mueller downgraded Aston, saying he “expects no underlying improvement” in the company’s performance.
The analyst also forecast Aston bosses will further downgrade to the company’s performance, with profit margin likely to be reduced, adding they “see significant increase in financial risk”.
Shares in the company are down more than 7pc currently, following the cut:
Tweet: Government could back Lib Dem call for a December 9 General Election
Business Insider’s political editor Adam Bienkov tweets:
The government is set to back the Lib Dem bill for a December 9 election if Boris Johnson loses the Commons vote on an election later.
— Adam Bienkov (@AdamBienkov) October 28, 2019
That’s in line with what we reported earlier – positioning the Lib Dem proposals as a “Plan B” for the PM. The question stands over what extra conditions the Lib Dems could now demand…
Number 10: No decision on Huawei this week
The UK has not yet made a decision on whether to give controversial Chinese telecoms giant Huawei access to the UK’s mobile networks, Number 10 has said.
The Prime Minister’s spokesperson James Slack told reports that a decision is still expected during the autumn, but was not yet ready, following a report in yesterday’s Sunday Times that said the Government was drawing closer to giving the company access to “non-contentious” parts of Britain’s telecoms infrastructure.
The decision is a potential point of contention between the UK and US, where the White House blacklisted Huawei among allegations the company may be effectively spying on US citizens due to Chinese laws that could compel it to share data with Beijing.
Burberry shares climb amid LMVH/Tiffany chatter
Fashion house Burberry is among the biggest risers on a weak-looking FTSE 100 today, up almost 2pc amid speculation over sector rival LMVH’s offer for Tiffany (see 8:50am update).
Clearly, there is some feeling from investors that LMVH’s interest is a sign of strength in the sector, or that the British company could become subject to future M&A interest.
CBI: Retailer stockpiling has hit a record high
Retailers’ stockpiles have hit their highest level on record according to the CBI, amid declining sales and Brexit uncertainty.
The business group said:
The latest spike in stock adequacy (the highest since the survey began in 1983) followed another large peak seen in August. A combination of the proximity to Christmas and ongoing Brexit uncertainty is likely to have driven stocks higher, particularly with retailers stocking seasonal products earlier than usual. Notably, the survey did not show a similar spike in retailing stocks ahead of the previous Brexit deadline in March.
Rain Newton-Smith, its chief economist, said:
Retailers have also had to contend with the looming Brexit deadline, which has partly driven a record spike in stocks. The timing could not be worse: the run-up to Christmas is a crucial time of year for the retail sector, and not knowing where we will be on November 1st is adding more strain to an already beleaguered sector.
Big Four auditors step up fee income despite scandals
Despite a series of scandals hitting the sector over the past couple of years, the Big Four audit firms – Deloitte, EY, KPMG and PwC – managed to increase their fee income as rivals waned.
The Financial Reporting Council, the UK’s audit watchdog, has released its latest report into the audit profession today, detailing a variety of figures including fee income breakdown and growth comparisons.
The FRC found:
- The Big Four firms continued to see an increase (4.7pc) in their “total fee income”; however, the rate of growth has fallen compared to 2016/17. Firms outside the Big Four saw a decline in their total fee income (-8.1pc) compared to a 2.4pc increase in 2016/17
- Fees for non-audit work to audit clients for Big Four and non-Big Four firms experienced a decline by 8.4pc and 2.3pc respectively from 2017 to 2018
- Audit fee income for Big Four firms increased by 1.7pc from 2017 to 2018 compared to 5.7pc from 2016 to 2017. Audit fee income for audit firms outside the Big Four decreased by 6.3pc from 2017 to 2018 compared to a 3.0pc increase from 2016 to 2017
Their data shows that that audit is slowly waning as a proportion of the Big Four’s fee income, as services such as consultancy take up an ever-greater share.
The numbers, which run up to the end of 2018, do not reflect moves taken by some of the accountancy giants to reduce or completely stop the selling of additional advice to audit clients, following criticism from MPs.
The report suggests the Big Four have managed to increase their earnings across most sector, even as their smaller rivals struggle:
Brexit extension: Small businesses ‘trapped by more uncertainty’
Reacting to the EU’s confirmation of a ‘flextension’, the Federation of Small Businesses’ Mike Cherry says:
There will be a collective sigh of relief from small businesses that a no-deal Brexit in three days’ time has been avoided. However, they will find themselves trapped by more uncertainty as Westminster fails to move beyond Brexit.
For many small firms, extensions are doubled-edged swords – yes they safeguard against the damage of a no-deal Brexit but they also prolong uncertainty without actually removing the potential of a no-deal further down the road. A proper transition period remains small firms’ top ask, ideally for two years. This will give small businesses enough time to prepare for whatever changes are to come.
These firms have been starved of certainty, battering down the hatches for a potential no-deal that would have harmed nearly 40 per cent of our members. All this has done is cause them to stop making business decisions. They have stopped hiring staff, they’ve stopped investing and they’ve stopped growing.
He said MPs must use the extended time in a “meaningful way” to end the Brexit deadlock.
Cairn energy shares plunge after it abandons Mexican well
Shares in Cairn Energy are down more than 16pc, on course for their worst day since the height of the financial crisis, after the oil explorer said it was abandoning a well in Mexico.
The FTSE 250 company said of its Atom 1 offshore operations in Mexico:
The objectives were found to be dry and the well will now be permanently plugged and abandoned.
Cairn also said a ruling on its arbitration against India over retrospective taxation was expected by next year, later than expected. It is seeking full restitution for losses of over $1.4bn.
Brexit vote: What lies ahead
The debate on the Government’s attempt to trigger a General Election on December 12 – the proposal under the Fixed-Term Parliament Act – will kick off at 3:30pm, and is expected to finish up by 5pm (at which point MPs will vote), meaning stock markets will be closed by the time we know the results.
The vote is still broadly expected to fail: because a two-thirds majority of MPs (434 to be precise) is needed, support from the Labour Party would be required.
Labour said it was waiting for confirmation of an extension before it could back calls for a new vote, so theoretically could offer its support tonight. However, senior figures within the party have also said they want more assurances that a no-deal Brexit will not be able to occur during the ‘flextension’ period.
Sterling shifts slightly as extension is agreed
The announcement of a confirmed extension has pushed up the pound slightly, but it is being volatile within a very small range and has actually been higher earlier this morning. Traders are likely bracing for further uncertainty.
Extension sets stage for new Westminster showdown
With the EU backing an extension of Article 50 until January 31 – unless a Brexit deal can be agreed by then – the stage is now set for a General Election at some point in December, if Boris Johnson can secure backing from enough MPs.
1. Will the LibDems and SNP still back their own plan for a Dec 9 election, given that it was conditional on Britain not being able to leave EU before Jan 31?
2. Will Labour now back an election, as they said they would once an extension was granted?
— Gordon Rayner (@gordonrayner) October 28, 2019
My colleague Danielle Sheridan reports:
The EU 27 Ambassadors will meet in Brussels from 9am this morning to discuss the extension, although it is possible they will hold off on the green light until tomorrow, in order to see what happens with tonight’s Westminster motion vote.
It is anticipated Mr Johnson will fail to secure the support he needs for a December general election, due to Labour’s lack of support for the proposal.
However the Liberal Democrats and Scottish National Party have offered Mr Johnson a way out of the deadlock.
Let’s focus in on the Liberal Democrats for a second. The big political story of the weekend is that the party – alongside the SNP – has suggested it could back an act of Parliament calling for a December 9 General Election, thereby circumnavigating the “supermajority” needed to trigger a ballot under the Fixed-Term Parliaments Act.
There are several questions that remain (no pun intended) however: no least, whether the Lib Dems would make their support contingent upon certain amendments to the bill, likely to include a second referendum on Brexit itself.
The decision also means that Boris Johnson has almost certainly failed on his signature promise to leave the EU by the end of October.
UK will not be leaving the EU on October 31. Extension granted until Jan 31. This is the third delay to Brexit. Two under Theresa May (March 29, April 12). One under Boris Johnson (‘Do or die’ on Halloween) https://t.co/oZSeJ3fVUv
— Beth Rigby (@BethRigby) October 28, 2019
But expect that we will see the Prime Minister today somewhere, but not actually in a ditch, despite his earlier promises to the contrary
— Laura Kuenssberg (@bbclaurak) October 28, 2019
Tusk: Brexit ‘flextension’ until end of January
Just in from the president of the European Council:
The EU27 has agreed that it will accept the UK’s request for a #Brexit flextension until 31 January 2020. The decision is expected to be formalised through a written procedure.
— Donald Tusk (@eucopresident) October 28, 2019
That is a major announcement ahead of a crunch vote in Parliament later today on a General Election.
How HSBC’s profit before tax has fluctuated
Illustrating just how bad the ‘horror show’ fourth quarter of 2018 was…
HSBC: The five key numbers
These are the most important numbers from HSBC’s third-quarter results:
- Net profit fell 24pc to $2.97bn
- Revenues fell 3.2pc to $13.35bn
- The lender’s return on tangible equity (a measure of how profitable to the bank is) was 6.4pc in the third quarter, versus 10.9pc a year ago
- Profit before tax in Asia rose 4pc to $4.7bn
- Operating expenses rose by 2pc
HSBC shares set for biggest fall since February
Shares in HSBC has fallen as much as 4.2pc this morning, and are currently down about 3.8pc – putting the bank on track for its worst session since February, when trade war pressure pushed it to a set of results labelled a “horror show” by analysts.
The drop that day was a touch over 4pc. If today’s losses surpass that, the next biggest fall was back in February 2017, when the company also revealed a profit slump:
LVMH confirms takeover talks for Tiffany
LVMH Group, the company behind brands including fashion house Louis Vuitton, Hublot watches and Moët & Chandon champagne has confirmed it is in talks to buy iconic US jeweller Tiffany.
The group, owned by Europe’s richest man, Bernard Arnault, said there were no assurances talks would result in an agreement.
Reporting on rumours of a potential sale yesterday, my colleague Russell Lynch wrote:
The billionaire Frenchman wants the company famed for its diamond engagement rings to become another addition to the host of upmarket brands owned by LVMH.
The French luxury giant is understood to have approached Tiffany at the start of October with a $14.5bn offer – a premium of about 30pc at the time.
HSBC: What commentators are saying
Those HSBC results has made a big splash on the markets today. Here’s how market commentators are reacting:
CMC Markets’ Michael Hewson says:
The latest Q3 numbers from the UK’s biggest bank HSBC appear to underline the recent decision by the bank to remove previous CEO John Flint, with the shares dropping sharply on the open, after profits and revenues fell short of expectations in Q3.
Markets.com’s Neil Wilson added:
HSBC profits fell by a quarter because of weakness in Britain, Europe and the US. Asia held up ok. HSBC has well-documented exposure to emerging, especially Asian, economies, but it’s developed markets that are the problem. Profit before tax in Asia was up 4pc with Hong Kong proving remarkably resilient…
…All this leads to interim boss Noel Quinn to speed up plans to ‘remodel’ the business, for which read major cost-cutting and retrenchments. Remember Mr Quinn wants the job full time – he’s going to be aggressive with this
There should be more detailed notes from analysts landing later in the day, after the bank holds a conference call. I’ll bring you some of their thoughts then!
Weak open for Europe
Not a great start for European stock indices, with the FTSE falling amid a big downwards pull from HSBC and pressure from a slightly-stronger pound.
HSBC’s shares are off about 3pc currently:
What’s gone wrong at HSBC?
The problems begin with the lifts, reports Banking Editor Lucy Burton:
The lengthy morning queues inside HSBC’s London headquarters, known by some staff as the “Tower of Doom”, are so frustrating that when the lender’s former investment banking co-head Matthew Westerman joined in 2016 he moved his team to a lower floor partly to avoid the wait.
She took a deep-dive look at the state of Europe’s biggest bank over the weekend, uncovering the staff tensions and strategy disputes that have led to today’s weak results.
HSBC profits plunge
My colleague Simon Foy has a full report on those HSBC reports. He writes:
Net profit fell by nearly a quarter to $3 billion (£2.3bn) and revenue slipped 3.2pc to $13.4 billion, missing City forecasts.
Mr Quinn, who stood in at the top of the bank in August after the shock ousting of John Flint, said parts of the business, especially Asia, “held up well in a challenging environment”. But the performance in Europe and the US “was not acceptable”, he said.
Agenda: Banks under the spotlight over IT failures
Good morning. HSBC has reported a 24pc plunge in net profit for the three months to September as interim boss Noel Quinn branded the bank’s performance in Europe and the US as “not acceptable”.
Elsewhere, the Government will today make a fresh attempt to secure a General Election after MPs rejected the proposed timetable to push through Boris Johnson’s EU Withdrawal Agreement.
5 things to start your day
1) Banks should face a regulatory crackdown and higher industry levies to tackle an “unacceptable” surge in IT failures that have caused chaos for millions of online banking customers, MPs said on Monday.
2) Europe’s richest man, Bernard Arnault, could be rebuffed in his bid to add US jeweller Tiffany to his luxury goods empire.
3) The flagging US economy is a “sick patient” facing a one-in-three chance of recession, experts have warned, as the Federal Reserve prepares to cut interest rates for the third time in four months.
4) Metro Bank has been left more than £2m out of pocket after the collapse of Orla Kiely, the fashion brand favoured by the Duchess of Cambridge and model Alexa Chung.
What happened overnight
Asian shares hit a three-month high after hopes of a US-China trade deal as soon as next month increased.
In early Asian trades, MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.3pc for its third straight day of gains to 518.29, the highest since late July.
Chinese shares were a tad firmer with the blue-chip CSI 300 up 0.2pc. Hong Kong’s Hang Seng index jumped 0.7pc.
Japan’s Nikkei was also upbeat, rising 0.3pc to a decade high.
The gains came after a positive session in the US and European markets on Friday.
US and Chinese officials are “close to finalising” some parts of a trade agreement after high-level telephone discussions on Friday, the US Trade Representative’s office and China’s Commerce Ministry said, with talks to continue.
US President Donald Trump has said he hopes to sign the deal with China’s President Xi Jinping next month at a summit in Chile.
Coming up today
HSBC’s figures for the third quarter will give the City its first insight into how the lender has been affected by the double whammy of global economic headwinds and disruption from protests in its key market of Hong Kong.
“Investors will be looking for the specific impact on HSBC caused by the political unrest in Hong Kong,” said analysts at The Share Centre, and “will also expect a progress report on the cost-cutting exercise through job reductions, and how far they have got with the $1bn share buy-back plan”.
The bank’s shares have had a tough run in recent months and are more than 8pc lower than their level at the start of August, before its chief executive was ousted and it announced plans to slash more than 4,000 jobs as part of a strategic shift.
Trade balance (US)