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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 cutRolling coverage of the latest economic and financial news, as UK manufacturing recovery continues....but headcounts are still cut
Back in the markets, the pound has weakened after the EU launched legal action against the UK for planning to breach the Brexit withdrawal agreement.
Brussels took action after Boris Johnson failed to respond to demands that he drop elements of the UK’s draft internal market bill that would break international law.
Announcing the move, EC president Ursula von der Leyen said the UK had already failed to live up to its obligations to act in “good faith” (the bill was passed by the House of Commons yesterday, and will now be scrutinised by the Lords).
Brussels’ move knocked the pound down by three-quarters of a cent against the US dollar, to $1.284. It has also lost almost one eurocent, falling to €1.093.
Sterling had rallied earlier this weeks, on hopes of a breakthrough in the free trade talks. This legal action may hurt those talks...although the Telegraph’s James Crisp argues that Europe’s legal wheels turn slowly.
But still, being hauled up for breaking international law isn’t a great look, especially when trying to cut new trade deals across the world. Even leading Brexiteer Nigel Farage thinks the EU have a point!
The Office of National Statistics has reported that 11% of the UK workforce were on furlough as of mid-September, with 85% of businesses currently trading.
That suggests that millions of jobs are vulnerable, as the furlough scheme (in which the government currently pays 70% of wages) ends at the end of October
It will be replaced by a subsidy scheme for workers on reduced hours, in which the government only pays 22% of wages, and employers pay at least 55%.
The Bank of England has reported that UK businesses are expecting to cut their workforces, and slash investment.
The BoE’s latest survey of chief financial officers from small, medium and large UK businesses, conduced this month, found that sales are expected to remain weak for many months:
Businesses estimated that their sales in 2020 Q3 would be 14% lower than they would otherwise have been because of Covid-19. That represents a significant improvement from -30% in Q2. But less recovery was expected over the next two quarters. The impact of Covid-19 on sales was expected to be -14% in 2020 Q4 and -12% in 2021 Q1.
Covid-19 was expected to lower employment by 8% in 2020 Q3 and 9% in 2020 Q4, relative to what it would have been. After that, the effect on employment was expected to start to fall back to -6% by 2021 Q2. Investment was expected to be 21% lower in 2020 Q3 and to recover gradually after that.
The Decision Maker Panel also found that fewer workers are on furlough this month (firms now have to pay a greater share of the wages, as the scheme winds up this month)
The percentage of employees on furlough (still employed but not required to work any hours) continued to fall in September. Businesses reported that 7% of employees were on furlough in September down from 12% in August and a peak of 36% in April.
Overall uncertainty remained high. 71% of firms viewed overall economic uncertainty as high or very high in September. That was similar to 70% in the August survey.
Anxiety about Britain’s exit from the EU has also shot up the list of worries:
The percentage of businesses reporting that Brexit was in their top-three sources of uncertainty increased from 47% in August to 52% in September. That was the highest level since last December.
The September survey also asked businesses how ready they were for potential extra requirements of trading with the EU when the current transition period comes to an end. 4% of businesses reported that they were fully prepared, 43% were ‘as ready as they can be’, 28% said that they were partially prepared, 3% were not at all prepared and 21% did not trade with the EU.
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 investorsThe 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 headroomImprove our liquidity headroom
Reduce our level of balance sheet leverageReduce 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 agendaThe agenda
9am BST: Eurozone manufacturing PMI for September9am BST: Eurozone manufacturing PMI for September
9am BST: Italian unemployment rate for August9am BST: Italian unemployment rate for August
9.30am BST: UK manufacturing PMI for September9.30am BST: UK manufacturing PMI for September
10am BST: Eurozone unemployment rate for August10am BST: Eurozone unemployment rate for August
1.30pm BST: US weekly jobless claims figures1.30pm BST: US weekly jobless claims figures
2.45pm BST: US manufacturing PMI for September2.45pm BST: US manufacturing PMI for September