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European stocks sank in a sea of red yesterday

   News / 20 May 2022

Published: 20 May 2022
Location: London, UK

By Suzanne Evans, Director, Political Insight


European stocks sank in a sea of red yesterday. Yahoo Finance reports the FTSE 100 dropped 1.9% and the domestically focused FTSE 250 1.6% by close, taking combined market losses of some of Britain's biggest firms to nearly £60bn. France’s CAC fell 1.4%, and the DAX was down 1%. "More than £51bn has been wiped off the value of the FTSE 100 as worries ratchet up about the difficult task central banks face trying to rein in rampant inflation without pushing economies into reverse," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. "The FTSE 250 closed down 1.6%, with daily losses mounting up to more than £7bn. The sell-off comes amid concerns about inflation risks becoming more embedded in the UK economy not just due to high commodity costs but also due to a spiralling upwards of wages as firms continue to fight for talent.’" The FTSE all-share index is up around 69 points this morning, or 1.70%.
 
Business leaders have accused Boris Johnson of squandering a post-Brexit opportunity to slash red tape and taxes. The Telegraph lists executives and Tory donors apparently furious with the Prime Minister for his "awful" and "half-hearted" efforts at reform as inflation surges to a 40-year high and the Bank of England warns the country is on the brink of a prolonged downturn. Michael Spencer, a billionaire City tycoon who has given millions to the Conservative party, said: “So far there has been no rolling back of unwanted and useless Euro regulations and restrictions. It has been an awful, wasted opportunity.” Patrick Dardis, head of the pub chain Young's, criticised the announcement of further support for businesses and promises of tax cuts by Chancellor Rishi Sunak on Friday, saying there was “no detail in it”. "He needs to cut business rates, he needs to reduce VAT permanently. And he probably needs to reconsider the increase proposed on corporation tax," Dardis said. Sir Martin Sorrell, the advertising mogul, said that Britain should have slashed taxes immediately after leaving the European Union, but warned there is now limited scope for cuts as the economy stagnates. An opponent of Brexit before the vote, Sir Martin said: "Given that we made that decision – and I’m not complaining about it, it’s done and dusted – we should have moved to a low-tax economy." He added: “We have the highest tax rates I think for 70 years, and this is under a so-called Conservative Government. It’s much more Blairite probably than Tony Blair and Gordon Brown.” Meanwhile, Tony Danker, head of the CBI, said the Chancellor could improve growth by lowering taxes without stoking further price rises. One former FTSE 100 chief executive accused the Government of a “half-hearted attempt” at leadership since leaving the bloc and warned that time is running out to make Brexit a success. They said: “We have missed the opportunity of Brexit, or we are missing it – it’s never too late [to change]." The newspaper notes that Johnson said during the Brexit campaign that a Leave vote would allow the country to "take back control of taxation", for example offering the freedom to cut fuel bills for the elderly, or motoring costs, but that since becoming Prime Minister he has presided over a multi-billion pound raid by HMRC that has left the country facing its highest tax burden as a percentage of GDP since the 1940s.
 
Chancellor Rishi Sunak and his wife Akshata Murty have made the Sunday Times Rich List for the first time with their joint £730 million fortune.  Last month, it was revealed that Ms Murty had non-dom status, which could have saved her £20 million in taxes on dividends from her shares in Infosys, an Indian IT company founded by her father. She has since agreed to pay UK taxes on her worldwide income.
 
Sajid Javid is under pressure to ban work with a blacklisted Chinese genomics firm BGI Group over concerns it has been used to suppress the country’s Uyghur population. A letter to the Health Secretary, authored by the Liberal Democrat MP Alistair Carmichael, is signed by MPs Nusrat Ghani, Geraint Davies and Layla Moran, peers Lord Alton and Lord Bishop, and Uyghur organisations. BGI won an £11m Covid testing contract last year that expired in November, and does not have any ongoing work with the Government but is part of the National Microbiology Framework, set up to improve diagnostic testing, and has worked with UK universities and the Wellcome Trust charitable foundation. “All of this adds up to a shocking partnership between the UK and a notorious supporter of genocide,” the letter says.
 
Central bank policymakers and other global authorities are exaggerating the financial risks of climate change, a senior HSBC banker in charge of sustainable investments has said. “Unsubstantiated, shrill, partisan, self-serving, apocalyptic warnings are ALWAYS wrong," Stuart Kirk, HSBC's head of responsible investing, wrote on a slide accompanying his presentation at a conference in London yesterday alongside quotations from bodies such as the United Nations and Bank of England warning of the risks. His remarks that drew criticism from climate activists and his employer said his views did not reflect those of HSBC as a whole.
 
Energy infrastructure operator National Grid has posted annual pre-tax profits of £3.1bn, a 16% rise, and claimed it is about to become the largest investor in the transition to a green economy on the FTSE share index. The business will be investing £24bn into green projects to decarbonise energy networks in the UK and elsewhere over the next five years, John Pettigrew, National Grid’s chief executive said, as part of an investment plan worth up to £35bn. “It’s a record level of investment for National Grid, I think it makes us the largest investor in the energy transition in the FTSE,” he added, stressing that “of course we are going to try to do that as efficiently as possible to keep bills down for customers”. In the Queen’s Speech last week, ministers included plans for a new authority that will operate the electricity system, meaning the government will buy National Grid’s Electricity System Operator arm from the company. “We’re really pleased actually,” Pettigrew said. “From our perspective it’s a relatively small part of National Grid, but nonetheless it will have an important role in the energy transition.” The deal should close by 2024.
 
National Grid CEO John Pettigrew has also joined the row over windfall taxes on energy companies, telling The Guardian yesterday that such a move would hit investment in renewables and harm customers.  “A windfall tax is something that I see as a deterrent for investment when we think about the context of the energy transition that we have going on and the level of investment needed to support the climate change targets … and the increasing desire for energy independence. It’s really important that we don’t have deterrents on investment for projects, for technology and for job creation. I would worry about a windfall tax doing that,” he said.
 
Energy storage and clean fuel technology company ITM Power has been awarded a contract by the Department for Business, Energy and Industrial Strategy (BEIS) to expand green hydrogen production. The AIM-traded firm said the contract, won under the BEIS 'Net Zero Innovation Portfolio Low Carbon Hydrogen Supply 2' competition, was to accelerate the commercial deployment of ITM's 5 MW 'Gigastack' platform and its manufacture. ITM said the £9.3m award would enhance the stack's ability to operate under flexible conditions when coupled to renewable energy sources, producing green hydrogen at low cost.
 
The Competition and Markets Authority (CMA) has found that the merger of Veolia and Suez will lead to a loss of competition in waste and water management services, potentially leading to more costly and lower quality services, and in turn to higher council tax bills, as local councils and some businesses would have less choice when procuring key waste and water management services. The two firms are among the largest suppliers of waste management services to councils and businesses. The CMA said it was taking responses from interested parties before issuing a final report by 17 July.
 
Sales of alcohol and tobacco were the main driver behind a surprise rise in overall UK retail sales in April, the BBC says. Sales volumes jumped 1.4% last month, following a fall of 1.2% in March. The Office for National Statistics said off-licences saw a boost in sales last month, which it suggested meant people were staying in to save money.
 
Yesterday Marks and Spencer said it opposed an online sales tax, prompting Sainsbury’s to come out in favour of one. Kevin O’Byrne, chief financial officer for the supermarket group, said: “High business rates on shops is destroying high streets up and down the country. We urgently need fundamental business rates reform. We urge the Government to introduce an online sales tax that funds a reduction in business rates for retailers of all sizes, and levels the playing field between physical and online retailers.” Sainsbury’s is among major retailers, including Tesco and Morrisons, which recently joined the Cut The Shops Tax campaign to demand an overhaul of business rates.
 
Sainsbury’s has pledged to stop selling Russian diesel from all of its 315 petrol stations by the end of the year. The supermarket said it had been working with suppliers to reduce the amount of diesel it sources from Russia but now plans to end its use entirely.
 
Tesco will ban ‘buy-one-get-one-free’ (BOGOF) offers on unhealthy food and drinks in October despite a government decision to delay on such BOGOF offers until 2023 because of the “unprecedented” squeeze on living standards.
 
Iceland is to launch a new discount for shoppers who are over 60. The store said the offer will help older customers through the cost-of-living crisis by giving them 10% off every Tuesday.
 
Domestic repair and emergency services business HomeServe is to be sold to a Canadian alternative investment group in a multibillion-pound takeover deal that will net its founder and his wife almost £500m, The Guardian says. The Walsall-based FTSE 250 company accepted a £12-a-share offer from Brookfield Asset Management on Thursday that values the business at £4.1bn. HomeServe was founded by Richard Harpin as a joint venture with South Staffordshire Water in 1993.
 
Barclays is leading of group of banks backing TDR Capital and the Issa brothers in their bid to buy the Boots chemist chain, Bloomberg says. Zuber and Mohsin Issa submitted the highest offer in the first round and are said to have secured around £4bn in financing. Walgreens Boots Alliance has set an asking price of about £7bn. Indian tycoon Mukesh Ambani is also working on a bid with US private equity firm Apollo Global Management.
 
British manufacturer MS-RT is set to open a new £4 million production facility at Ford Dagenham next month, creating 120 jobs. The vehicle conversion specialist is also creating 50 new jobs at its existing Pontypool site.
 
The system of executive pay is “broken”, the Church of England’s pension board has said, and challenged companies to commit to paying workers the living wage.  Adam Matthews, the Church’s chief responsible investment officer, called out examples of “excessive pay” at large companies in a post on LinkedIn, naming JPMorgan Tesco's, and Persimmon. “As a fund we do not object to senior executives being rewarded fairly...but as colleagues at Norges Bank Investment Management have said this week there are clear examples of corporate greed,” he wrote, adding that he would be inviting the board chairs and chairs of remuneration committees, and meeting with other fund managers, to discuss reforms.
 
The Telegraph says eight banks have been ordered to shift staff out of London by the European Central Bank (ECB) as part of a “Brussels power grab”. The ECB says it has identified 56 groups of traders who should be doing their jobs from within the EU and is now warning of "targeted supervisory action" against the banks, which it did not name, unless they move the jobs to within an EU member state. European rivals have repeatedly sought to lure workers out of London in the wake of the Brexit referendum, but the number of professionals leaving the City has been much smaller than initially predicted, the newspaper says.
 
It seems EU-based Gas importers will be able to open rouble accounts to pay for Russian gas without breaching sanctions. The European Commission previously advised companies against opening a bank account in roubles at Gazprombank to pay for Russian gas, as requested by the Kremlin,but has not explicitly said doing so would breach sanctions in its formal written guidance to governments on the issue.
 
Google is filing for bankruptcy in Russia because the Russian authorities have seized its bank account. The “Russian authorities’ seizure of Google Russia’s bank account has made it untenable for our Russia office to function, including employing and paying Russia-based employees, paying suppliers and vendors, and meeting other financial obligations,” Google said in a statement.
 
McDonald's has found a local buyer for its Russian business after quitting the country because of the war. Alexander Govor, who currently operates 25 McDonald's restaurants in Siberia, will take on the firm's restaurants and staff, operating them under a new brand. The fast food giant did not disclose the sale price, but has warned investors it will take a $1bn + hit from the exit.
 
Canada says it will ban Huawei and ZTE, two of China's biggest telecoms equipment makers, from working on its 5G phone networks.
 
Sri Lanka has defaulted on its debt for the first time in its history. The country is struggling with its worst financial crisis in more than 70 years, having been hit hard by the pandemic, rising energy prices, and populist tax cuts, according to the BBC. A chronic shortage of foreign currency and soaring inflation had led to a severe shortage of medicines, fuel and other essentials. Sri Lanka is seeking to restructure debts of more than $50bn it owes to foreign creditors. In recent weeks, there have been large, sometimes violent, protests against President Gotabaya Rajapaksa and his family due to the growing crisis.


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