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| UK factories keep cutting jobs; Rolls-Royce launches rights issue – business live | UK factories keep cutting jobs; Rolls-Royce launches rights issue – business live |
| (32 minutes later) | |
| Rolling coverage of the latest economic and financial news, as UK manufacturing recovery continues....but headcounts are still cut | |
| The Covid-19 pandemic has also driven up unemployment in the euro area. | The Covid-19 pandemic has also driven up unemployment in the euro area. |
| Figures just released show that the jobless rate in the euro area rose to 8.1% in August, the fifth monthly rise in a row, up from 8.0% in July. | Figures just released show that the jobless rate in the euro area rose to 8.1% in August, the fifth monthly rise in a row, up from 8.0% in July. |
| It also rose in the wider EU, to 7.4% from 7.3%. | It also rose in the wider EU, to 7.4% from 7.3%. |
| Statistics body Eurostat estimates that the unemployment total in the eurozone jumped by 251,000 during August, lifting the total out of work to 13.188m. | Statistics body Eurostat estimates that the unemployment total in the eurozone jumped by 251,000 during August, lifting the total out of work to 13.188m. |
| Young people are suffering particularly badly from job losses, as companies are forced to shut during the pandemic or see sales slide. | Young people are suffering particularly badly from job losses, as companies are forced to shut during the pandemic or see sales slide. |
| Eurostat says the youth unemployment rate jumped in August: | Eurostat says the youth unemployment rate jumped in August: |
| Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says the employment picture at UK factories has ‘darkened’ - despite manufacturers reporting that activity picked up again last month. | Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says the employment picture at UK factories has ‘darkened’ - despite manufacturers reporting that activity picked up again last month. |
| These job cuts are putting strain on supply chains, Brock warned, and could even push up prices in the shops. | These job cuts are putting strain on supply chains, Brock warned, and could even push up prices in the shops. |
| Rob Dobson, Director at IHS Markit, fears that more manufacturing jobs will be lost once the furlough scheme ends this month, even though companies say activity is rising. | Rob Dobson, Director at IHS Markit, fears that more manufacturing jobs will be lost once the furlough scheme ends this month, even though companies say activity is rising. |
| Here’s his take on today’s UK manufacturing PMI report: | Here’s his take on today’s UK manufacturing PMI report: |
| Here’s the UK factory PMI report: | Here’s the UK factory PMI report: |
| UK factories posted solid growth in September too, although not quite as fast as in August. | UK factories posted solid growth in September too, although not quite as fast as in August. |
| The UK manufacturing PMI has dipped to 54.1 in September, down from August’s two-and-a-half year high of 55.2. That’s still over the 50 point mark showing stagnation, for the fourth month in a row. | The UK manufacturing PMI has dipped to 54.1 in September, down from August’s two-and-a-half year high of 55.2. That’s still over the 50 point mark showing stagnation, for the fourth month in a row. |
| Purchasing managers interviewed for IHS Markit’s survey report that new work rose, as companies reopened their operations and welcomed staff back. | Purchasing managers interviewed for IHS Markit’s survey report that new work rose, as companies reopened their operations and welcomed staff back. |
| Markit explains that the reopening of the economy over the summer boosted demand: | Markit explains that the reopening of the economy over the summer boosted demand: |
| But worryingly, firms also continued to cut their workforce - even though the government’s furlough scheme was still running. | But worryingly, firms also continued to cut their workforce - even though the government’s furlough scheme was still running. |
| Just in: Eurozone factory growth has hit its strongest level in over two years, led by a recovery in Germany. | Just in: Eurozone factory growth has hit its strongest level in over two years, led by a recovery in Germany. |
| The eurozone manufacturing PMI, produced by data firm IHS Markit, has jumped to 53.7 in September, up from 51.7 in August. | The eurozone manufacturing PMI, produced by data firm IHS Markit, has jumped to 53.7 in September, up from 51.7 in August. |
| Factory bosses across the region reported that output and new orders both rose sharply, supported by a resurgence in exports, as the global economy rebounded from its Covid-19 disruption. | Factory bosses across the region reported that output and new orders both rose sharply, supported by a resurgence in exports, as the global economy rebounded from its Covid-19 disruption. |
| Germany and Italy both reported their fastest factory growth in over two years, with France, Spain, Austria and the Netherlands also seeing growth (with manufacturing PMIs over 50). | Germany and Italy both reported their fastest factory growth in over two years, with France, Spain, Austria and the Netherlands also seeing growth (with manufacturing PMIs over 50). |
| Chris Williamson, Chief Business Economist at IHS Markit, says eurozone manufacturing has posted its strongest quarter since the start of 2018. | Chris Williamson, Chief Business Economist at IHS Markit, says eurozone manufacturing has posted its strongest quarter since the start of 2018. |
| But, the recovery was partly driven by strong demand for German-made investment goods.: | But, the recovery was partly driven by strong demand for German-made investment goods.: |
| Here’s our news story on Rolls-Royce’s new funding package: | Here’s our news story on Rolls-Royce’s new funding package: |
| Today’s £5bn package of new equity and bonds, and fresh loans, should help Rolls-Royce handle the “crushing impact” of Covid-19 crisis, says Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown: | Today’s £5bn package of new equity and bonds, and fresh loans, should help Rolls-Royce handle the “crushing impact” of Covid-19 crisis, says Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown: |
| Michael Hewson of CMC Markets points out that Rolls-Royce’s existing investors helped to scupper fundraising talks with sovereign wealth funds in Kuwait and Singapore. | Michael Hewson of CMC Markets points out that Rolls-Royce’s existing investors helped to scupper fundraising talks with sovereign wealth funds in Kuwait and Singapore. |
| Despite the drag effect from Rolls-Royce, the London stock market has opened higher. | Despite the drag effect from Rolls-Royce, the London stock market has opened higher. |
| The FTSE 100 index has gained 45 points, or 0.8%, to 5911. | The FTSE 100 index has gained 45 points, or 0.8%, to 5911. |
| Coca-Cola Hellenic Bottling Company is the top riser, up 3%, after Goldman Sachs raised its recommendation to ‘buy’ from ‘neutral’. | Coca-Cola Hellenic Bottling Company is the top riser, up 3%, after Goldman Sachs raised its recommendation to ‘buy’ from ‘neutral’. |
| Other European markets are also being lifted by hopes for a US stimulus package, with the Stoxx 600 index up 0.9%. | Other European markets are also being lifted by hopes for a US stimulus package, with the Stoxx 600 index up 0.9%. |
| Today’s talks between Nancy Pelosi and Steven Mnuchin are crucial, says Mohit Kumar of Jefferies: | Today’s talks between Nancy Pelosi and Steven Mnuchin are crucial, says Mohit Kumar of Jefferies: |
| Rolls-Royce says it has also “agreed commitments” for a new two-year term loan facility of £1bn. | Rolls-Royce says it has also “agreed commitments” for a new two-year term loan facility of £1bn. |
| That means today’s total proposed package of new equity and borrowing is worth £5bn (£2bn from shareholders, an upcoming £1bn bond, this new two-year loan, and (RR hopes) a £1bn loan from the UK Export Finance). | That means today’s total proposed package of new equity and borrowing is worth £5bn (£2bn from shareholders, an upcoming £1bn bond, this new two-year loan, and (RR hopes) a £1bn loan from the UK Export Finance). |
| Oof. Shares in Rolls-Royce have slumped to their lowest level since January 2004. | Oof. Shares in Rolls-Royce have slumped to their lowest level since January 2004. |
| They fell as much as 7% at the start of trading in London, hitting 120p. | They fell as much as 7% at the start of trading in London, hitting 120p. |
| Rolls-Royce has now lost over 80% of its value since January, with a current market capitalisation of below £2.5bn. | Rolls-Royce has now lost over 80% of its value since January, with a current market capitalisation of below £2.5bn. |
| Under today’s proposed £2bn rights issue, investors will be diluted unless they stump up to buy 10 discounted shares for every three they already own. | Under today’s proposed £2bn rights issue, investors will be diluted unless they stump up to buy 10 discounted shares for every three they already own. |
| The offer is fully underwritten by a group of City banks, meaning they guarantee to buy any shares which aren’t taken up by investors | The offer is fully underwritten by a group of City banks, meaning they guarantee to buy any shares which aren’t taken up by investors |
| Rolls-Royce’s chief executive, Warren East, says the company is taking ‘ decisive and transformative action’ in response to the Covid-19 crisis. | Rolls-Royce’s chief executive, Warren East, says the company is taking ‘ decisive and transformative action’ in response to the Covid-19 crisis. |
| East explains that raising £2bn from shareholders (along with a £1bn bond, and hopefully an extra £1bn loan from the UK government) will improve the company’s resilience. | East explains that raising £2bn from shareholders (along with a £1bn bond, and hopefully an extra £1bn loan from the UK government) will improve the company’s resilience. |
| Rolls-Royce is also hoping to receive more financial support from the UK government, through a new £1bn loan. | Rolls-Royce is also hoping to receive more financial support from the UK government, through a new £1bn loan. |
| It says: | It says: |
| Rolls-Royce, one of the UK companies worst hit by the Covid-19 pandemic, has announced plans to raise billions of pounds to shore up its balance sheet. | Rolls-Royce, one of the UK companies worst hit by the Covid-19 pandemic, has announced plans to raise billions of pounds to shore up its balance sheet. |
| The Derby-based jet engine maker is tapping its shareholders for £2bn through a rights issue (in which investors buy new shares at a discounted price). It is also planning to raise another £1bn through a bond offering. | The Derby-based jet engine maker is tapping its shareholders for £2bn through a rights issue (in which investors buy new shares at a discounted price). It is also planning to raise another £1bn through a bond offering. |
| Pressure has been building on Rolls-Royce ever since the pandemic began, and countries began imposing flight restrictions and quarantine rules. Demand for new engines has slumped as airlines have cancelled orders. | Pressure has been building on Rolls-Royce ever since the pandemic began, and countries began imposing flight restrictions and quarantine rules. Demand for new engines has slumped as airlines have cancelled orders. |
| With many planes grounded, RR’s engine servicing business has also had less business. | With many planes grounded, RR’s engine servicing business has also had less business. |
| Rolls-Royce told the City this morning that these new funds will help it through the Covid-19 crisis, and: | Rolls-Royce told the City this morning that these new funds will help it through the Covid-19 crisis, and: |
| Improve our liquidity headroom | Improve our liquidity headroom |
| Reduce our level of balance sheet leverage | Reduce our level of balance sheet leverage |
| Support disciplined execution and investment to ensure we maximise value from our existing capabilities and pursue disposals in a manner that delivers value, as we position the Group to benefit from new technologies focused on sustainable power. | Support disciplined execution and investment to ensure we maximise value from our existing capabilities and pursue disposals in a manner that delivers value, as we position the Group to benefit from new technologies focused on sustainable power. |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| Hopes of a last-ditch stimulus package to nurse the US economy through the Covid-19 crisis are lifting markets this morning, as investors wait to see how the world’s factories fared last month. | Hopes of a last-ditch stimulus package to nurse the US economy through the Covid-19 crisis are lifting markets this morning, as investors wait to see how the world’s factories fared last month. |
| After a rough September, European shares should begin October with some gains - Britain’s FTSE 100 is expected to rise around 0.5%. | After a rough September, European shares should begin October with some gains - Britain’s FTSE 100 is expected to rise around 0.5%. |
| Last night, US treasury secretary Steven Mnuchin and House of Representatives speaker Nancy Pelosi failed to strike a coronavirus stimulus deal -- but they’ve not given up... and they might be getting closer. | Last night, US treasury secretary Steven Mnuchin and House of Representatives speaker Nancy Pelosi failed to strike a coronavirus stimulus deal -- but they’ve not given up... and they might be getting closer. |
| Pelosi postponed a vote on the Democrats’ proposed $2.2tn stimulus package so that talks between the two sides could continue, after Mnuchin indicated the White House might raise its own scheme to $1.5tn. | Pelosi postponed a vote on the Democrats’ proposed $2.2tn stimulus package so that talks between the two sides could continue, after Mnuchin indicated the White House might raise its own scheme to $1.5tn. |
| Hopes of a compromise gave Wall Street a late lift, with the Dow rallying by 1.2%. It also pushed stocks higher in Asia (although not in Japan, where a technical glitch meant trading was abandoned for the day.) | Hopes of a compromise gave Wall Street a late lift, with the Dow rallying by 1.2%. It also pushed stocks higher in Asia (although not in Japan, where a technical glitch meant trading was abandoned for the day.) |
| Jingyi Pan, senior market strategist at IG, explains: | Jingyi Pan, senior market strategist at IG, explains: |
| The latest weekly US unemployment figures are expected to show the need for fresh stimulus. Economists predict that around 850,000 people filed new jobless claims last week. | The latest weekly US unemployment figures are expected to show the need for fresh stimulus. Economists predict that around 850,000 people filed new jobless claims last week. |
| City traders will also be watching latest survey of purchasing managers at factories across the eurozone, the UK and the US. Yesterday’s Chicago PMI showed a sharp jump in activity, but today’s figures are likely to show growth slowed at British manufacturers. | City traders will also be watching latest survey of purchasing managers at factories across the eurozone, the UK and the US. Yesterday’s Chicago PMI showed a sharp jump in activity, but today’s figures are likely to show growth slowed at British manufacturers. |
| The agenda | The agenda |
| 9am BST: Eurozone manufacturing PMI for September | 9am BST: Eurozone manufacturing PMI for September |
| 9am BST: Italian unemployment rate for August | 9am BST: Italian unemployment rate for August |
| 9.30am BST: UK manufacturing PMI for September | 9.30am BST: UK manufacturing PMI for September |
| 10am BST: Eurozone unemployment rate for August | 10am BST: Eurozone unemployment rate for August |
| 1.30pm BST: US weekly jobless claims figures | 1.30pm BST: US weekly jobless claims figures |
| 2.45pm BST: US manufacturing PMI for September | 2.45pm BST: US manufacturing PMI for September |