Published: 09 October 2023
By Suzanne Evans, Director, Political Insight
The barbaric attacks launched from the Gaza Strip by Hamas on Israel have driven up the price of oil. Brent crude, the international benchmark, has climbed by more than $3 a barrel, or 3.6%. At one point, the oil price was up as much as $4.18, or 4.9%, to $88.76 a barrel. The rise followed last week’s biggest weekly price drop since March. Although Israel does not produce oil, the conflict threatens to disrupt supplies because the Middle Eastern region accounts for almost a third of global supply. Consequently, oil shares are rising this this morning. Major oil producer Iran has denied it helped plan and facilitate Hamas’ brutal attack, in direct contradiction of what a Hamas spokesperson told the BBC. More than 700 Israelis have been killed and a further 400 people have died in Gaza as Israel launches rockets into Gaza in retaliation. Meanwhile, airline shares are falling sharply this morning as carriers cancel flights to and from Tel Aviv - although the airport remains open at present - and avoid airspace over southern Israel. When Russia invaded Ukraine in February 2022, oil prices soared to a high in June of more than $120 a barrel.
The Bank of Israel is to sell up to $30bn (£24.6bn) of foreign currency on the open market “to moderate volatility in the shekel exchange rate and to provide the necessary liquidity for the continued proper functioning of the markets,” it said in a statement. It is the central bank’s first ever sale of foreign exchange. The shekel has fallen 2% to a more than seven-and-a-half year low of 3.92 to the US dollar. The central bank also said it would provide liquidity through SWAP mechanisms in the market of up to $15bn (£12.32bn).
The World Trade Organization (WTO) halved its forecast for global trade growth this year in response to rising interest rates that have dented consumer spending power in the US, Europe and Asia. The 164-member trade body had in April predicted the global trade in goods would grow by 1.7% in 2023, but now says that needs to be scaled back to 0.8%. A strained Chinese property market and the war in Ukraine had also cast a shadow over its outlook, the WTO said, adding that the slowdown covered a range of sectors, but with the exception of cars sales, which have surged to compensate for chronic shortages caused by limited shipments because of covid-related restrictions. The WTO forecast does not cover trade in services; however it said growth was moderating after a strong rebound in international tourism in 2022. Global commercial services trade rose 9% in the first quarter of 2023, down from 19% in the second quarter of 2022, it said.
Meanwhile, separate figures from statistics body Destatis show trade exports by Europe’s largest WTO member, Germany, fell by 1.2% in August, while imports fell by 0.4%, a trade drop that increases the risk Germany will fall back into recession in the third quarter of this year, analysts at ING said. The International Monetary Fund (IMF) and the World Bank are also due to meet shortly and are also expected to downgrade their economic growth forecasts, given that central banks are indicating they will be keep interest rates elevated for longer than expected because of persistent inflation.
Manufacturing trade body Make UK is urging Chancellor Jeremy Hunt to slash taxes on businesses and cut red tape to boost growth and investment, claiming the current system is “not fit for purpose”. A survey conducted by Make UK and accountancy firm RSM found that half of manufacturing companies say tax and regulation is unfavourable, while more than a quarter of those surveyed said it is worse than in China. We need an “urgent MOT” of tax and red tape, Fhaheen Khan, senior economist at Make UK said, adding: “Manufacturers are clear that many aspects of the current tax and regulatory system are not fit for purpose and are failing to promote vital investment in skills, capital and green growth.” Specific measures factory bosses want the Chancellor to take include more generous capital allowances, R&D tax credits, corporation tax cuts and to make permanent the current policy of full expensing. Khan also urged the Chancellor to scrap his Spring Budget to stop government “flip-flopping” on business policy, in a reference to recent U-turns on Net Zero and HS2. “We cannot continue with the current flip-flopping and policy inconsistency if we are to shake the economy out of its current torpor and promote long-term growth,” he said. A government spokesperson told The Telegraph: “We’re making the UK the best place in the world to do business by offering the lowest corporation tax in the G7, a smart regulatory system and a simplified tax system to save firms time and money. Growing the economy is one of our top priorities, which is why we’ve introduced full expensing, an effective £27bn corporation tax cut which results in a 25p tax saving for every pound invested, as well as a new £500m per year R&D scheme system for 20,000 UK SMEs.”
A separate survey has found manufacturing companies are shouldering some of the worst of the ongoing labour shortages, according to the British Chambers of Commerce (BCC). Between July and September, 78% of manufacturing companies reported challenges hiring, second only to the hospitality sector at 79%.
London has seen the highest number of pub closures in England; 46 shut in the first half of the year, according to new figures from Altus Group. Meanwhile, 383 pubs were closed permanently across the whole of the UK within the same six-month period, almost the same number as were closed for good in the whole of 2022.
Metro Bank secured a deal to shore up its beleaguered balance sheet last night. The London-listed bank has agreed a £325m capital raise alongside £600m of debt refinancing which will see Metro Bank bond holders lose between 40% and 45%. Metro has agreed in principle that Colombian billionaire Jaime Gilinski Bacal will lead a £150m equity raise via his investment vehicle Spaldy Investments. The fundraising means Spaldy, already Metro’s largest investor, will increase its stake from 9.2% to 53% if the deal goes through, on a sale which prices shares at 30p each, a heavy discount on Friday’s closing price of 45.25p. The equity raise is conditional on refinancing debt and raising £175m of new regulatory capital. Metro said it was confident it could complete all three parts of the transaction before the end of the year. It is also still in talks about selling a £3bn chunk of its mortgage book. There has been considerable pressure on Metro Bank of late, however this most recent crisis was precipitated when credit ratings agency Fitch placed the challenger bank on “negative” watch for possible downgrades; and because the bank needs to refinance £350m of debt by October next year. Metro Bank was founded in 2010 and was the first new bank to open in the UK in more than 100 years. It now has 2.7m customers and holds about £15bn worth of deposits in 76 branches.
Senior executives at Motor Fuel Group (MFG), the UK’s largest independent petrol station forecourt operator, have been granted a £60m payout by the board for hitting financial targets and on the back of £401.2m in underlying profit in 2022, according to The Times. MFG currently operates around 900 forecourts across the country, under brands including Shell and Esso.
Waitrose is in discussions to sell groceries on Amazon according to newspaper reports. Amazon has recently struck a similar deal with grocer Iceland – the two are currently trialling a same day delivery service for Amazon Prime subscribers in Manchester – and also has agreements with both the Co-op and Morrisons, whereby groceries are sold on its website and delivered from local stores. The Co-op has said previously such sales account for more than 15% of all sales locally. Waitrose, which is owned by the John Lewis Partnership, did have a purchase and delivery deal with Ocado, but cut ties with the firm nearly three years ago. Ocado now delivers groceries from Marks and Spencer. Neither Waitrose or Amazon has commended on the reports.
Mike Ashley's Frasers Group has again upped its stake in fast-fashion retailer Boohoo. A regulatory filing revealed Frasers has bought a further 38m shares in Boohoo for approximately £11.5m, based on Thursday's closing price of 30p. The purchase takes Frasers' stake from 10.42% to 13.44%, a total at current prices of £51.1m.
Phoenix Group, Britain’s largest long-term savings and retirement business, which manages £269bn on behalf of 12m customers, says it now believes gilts offer “good value” relative to other assets. Last year, Phoenix started selling gilts, City AM says, dumping billions of pounds of UK assets amid concerns that the Bank of England had been consistently behind the curve on inflation. However, Mike Eakins, the company’s chief investment officer, says Phoenix is now more confident that interest rates have peaked, hence it was “rotating out of non-GBP credit into gilts”. Rising government bond yields saw the Government’s long-term borrowing costs rise to their highest in 25 years last week.
FTSE 250 thermal processing services group Bodycote has announced it is spending $145m (£119m) on two specialist tech companies and opening a new facility to expand its reach in North America. Bodycote is using existing credit facilities on a cash and debt free basis to buy Lake City HT and Stack Metallurgical Group, and will open a new hot isostatic pressing (HIP) plant serving the Space and Civil Aviation markets at one of its existing sites in greater Los Angeles, which is expected to become operational next year. The company said this will require "only modest investment".
Outgoing John Lewis chair Dame Sharon White will be quizzed on her departure by staff this week. Hers, at just five years, will be the shortest tenure in the employee-owned company’s history. White was a former civil servant and regulator with no retail experience when she took the helm at the firm.
US petroleum giant Exxon Mobil is said to be in advanced discussions to buy Permian shale basin producer Pioneer Natural Resources in a deal valued at roughly $60bn. According to Reuters, citing sources familiar with the matter, the acquisition would mark Exxon's biggest purchase since paying $81bn for Mobil in 1998. Exxon produced about 620,000 barrels of oil equivalent per day in the Permian basin during Q2, while Pioneer withdrew 711,000 barrels in the same period. The potential deal will also likely draw an amount of political and regulatory scrutiny, given that the White House accused Exxon of achieving record profits at the expense of consumers back in February, Sharecast.com said.
America’s Citigroup will sell its China consumer wealth portfolio, including clients, assets under management (AUM) and deposits, to Asia-focused HSBC Holdings Plc. The deal covers total deposits and AUMs of about $3.6bn (£2.96bn) and is expected to close in the first half of 2024. The sale price has not been disclosed.
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