Signs of recovery, or yet further gloom?

Despite talk of deflation, the word is not mentioned once in the latest Bank of England Inflation Report, said Sunday Telegraph columnist Liam Halligan. In fact, at 2.9%, CPI inflation remains stubbornly above the 2% target.

UP
• The price of oil shot up from under $34 a barrel in February to touch $60 in mid-May thanks to improved confidence in the economy and commodities and a weaker dollar.

• After a four-month shutdown, metal-workers have recommenced pressing panels at the Honda plant in Swindon in preparation for the restart of the assembly line next month.

• Three-month sterling Libor is at its lowest rate ever, 1.38%, and at the lowest premium over Bank Rate since February. It signals greater confidence in the interbank market which should ultimately help corporate lending.

• Peak-to-trough, the FTSE-100 index fell 3,203 points, or 48%, between June 2007 and March 2009. Since then, the index has regained almost 30% of its losses, climbing 916 points or 26% to 4,446.

• Retail sales in the UK were up 0.4% in February, March and April compared with the same period last year, according to the British Retail Consortium. In London, sales were up 5.5%. In April alone, nationwide sales were up 4.6% year-on-year, 5.2% in London.

• UK manufacturers’ optimism and output have both increased slightly, according to BDO Stoy Hayward research.

• Corporates and households are amassing cash at the fastest rate since 2007, causing a surge in the broad money supply measure, M4, regarded as a hopeful signal for future spending and investment.

• Sainsbury’s reported strong demand for own-label products, lifting pre-tax profits 11% on sales up 6%. The full-year dividend was up 10%. Sainsbury’s grew retail space by 4% in 2008-09 and expects to grow another 5% in 2009-10.

• Travel group Thomas Cook reported a larger first-half loss on increased revenue, but increased its dividend, confident that full-year forecasts would be met.

• The government decided it couldn’t wriggle out of a deal to buy Eurofighter Typhoon aircraft, saving up to 16,000 British jobs. The final deal is still being negotiated, however.

• SABMiller said that British drinkers were sticking with expensive brands such as Peroni, which saw UK sales up 40% year-on-year.

• Invensys said it would make its first dividend payout since 2003.

• “Even though the intensity of the US recession appears to have eased in recent weeks, the Federal Reserve signalled it has no intention of pulling back from its aggressive efforts to revive the financial system,” reported the Wall Street Journal Europe.

• The number of first-time buyers granted mortgages in March was up 36% from February, though down 30% on a year ago, the Council of Mortgage Lenders said.

• Housebuilder Redrow announced that it has offloaded enough of its unsold stock to start building again. “No one would claim it is comfortable right now, but it is a lot better than we were led to expect,” said London Evening Standard columnist Anthony Hilton.

• Property developer Nick Leslau has put £20m of his own money into a new investment vehicle and is confident of raising a total of £200m. “[He is] someone who believes the worst is over, who is putting their own money in and, get this, is listing their company on the market,” wrote London Evening Standard columnist Chris Blackhurst.

• Van-maker LDV withdrew its application to go into administration following its acquisition by Malaysian group Weststar. Vehicle production is expected to restart by July.

• Business and consumer confidence in the euro area rose for the first time in two years as a European Commission sentiment index rose from 64.7 in March to 67.2 in April.

• The Eurozone Purchasing Managers’ Index rose to its highest level since before the implosion of financial markets last autumn. In February the index went to a record low, reported Merrill Lynch, though the level of the index is still consistent with recession.

• The European recovery checklist we reported on in our February 2009 issue could only tick one box ­ monetary policy. Now, Merrill Lynch says that monetary conditions have improved and investor confidence turned less negative. Now a business expectations monitor is looking better, raising hopes of more business investment. Industrial orders and purchasing managers’ indices are next on the checklist.

• German exports rose 0.7% in March compared with February, while industrial output was flat as orders stabilised. These statistics were “unexpectedly strong”, the Wall Street Journal Europe reported. Economists are said to be upgrading their GDP forecasts: 2009 Q2 is now not expected to be as bad as Q1 (-3.5%) or Q4 2008
(-2.1%). “The brutal recession of the first quarter is ending but the soft recession is just starting,” said Andreas Rees, an economist at HVB.

• The US trade deficit widened in March for the first time in eight months. The Commerce Department is expected to revise its Q1 GDP estimate from a fall of 6.1% to 5.9%.

• Neither Goldman Sachs nor JP Morgan Chase need extra capital following their stress tests. Both are confident of starting to repay their $10bn and $25bn, respectively, of troubled asset relief program (Tarp) funds.

• The US government is providing $20bn to prop up GMAC, the auto finance and mortgage lender that used to be part of General Motors, to support the car industry and consumer spending.

• Chinese fixed-asset investment rose 34% in March following a 30% gain in February. “China’s ongoing recovery is driven by fixed-asset investment with a focus on infrastructure,” said an economist for Bank of America Securities-Merrill Lynch.

• Newspapers have found stories of unprincipled greed that involve members of Parliament, rather than investment bankers.

DOWN
• Although the Bank of England has raised its inflation forecast (see above), it has cut its growth forecast for next year. The economy is expected to shrink by 3.8% in 2009, but growth in 2010 is now expected to be just 1.1%, cut from 2.3% in the Bank’s last Inflation Report, three months ago.

• FTSE-100 companies have cut their dividends by £15bn so far this year, reported The Sunday Telegraph. Banks have led the way with RBS and HBoS eliminating their payouts, while miners Anglo-American and Xstrata slashed theirs by 65% and 61%, respectively. BT cut its dividend 60% and announced a further 15,000 job cuts.

• House sales are still slow with agencies reporting an average of less than four sales per branch per month. The Nationwide
Building Society’s house price index dropped 0.4% in April after rising 0.9% in March.

• Comet-owner Kesa Electricals said sales fell faster in the first four months of 2009 than at the end of last year.

• InterContinental Hotels reported a 56% drop in Q1 net profits with a 24% drop in revenue. Occupancy rates showed signs of stabilising, but room rates fell under competitive pressure.

• Fujitsu Services, the UK arm of the Japanese group, said it was closing its final salary pension scheme to existing workers ­ the first such closure from a major company in two years, reported City AM.

• ITV said that advertising revenues fell 15% in the first three months of this year, with an 18% fall expected in May and June. “People are leaving it
later and later to book airtime,” said chief operating officer John Cresswell.

• Daily Mail & General Trust saw its credit rating cut to ‘junk’ status by Standard & Poor’s.

• European new car registrations fell 12% in April compared with a year ago despite government initiatives, especially in Germany where registrations were up 19%.

• There were confusing signs from the European Central Bank, which surprised markets by launching a e60bn buyback programme. A cut in policy rates to 1% was accompanied by suggestions it could go lower. Public disagreements between national central bankers “is injecting a lot of uncertainty into the market at a time when it is best not to,” said an economist with Société Générale.

• The US saw its sharpest fall in GDP in 51 years as Q1 GDP fell 6.1% at an annualised rate. House-building continued to deteriorate, business investment plunged and companies destocked. However, this was regarded as likely to put the economy in place for a recovery in Q3.

• Europe’s largest insurer, Allianz, saw profits fall 98% in Q1 and said that markets remained “challenging”.

• Chrysler, which went into Chapter 11 bankruptcy protection at the end of April, is axing a quarter of its dealer network.

• Warren Buffett’s Berkshire Hathaway reported a $1.5bn loss
in the first quarter of the year, with most business units recording losses, apart from insurance.

• Toshiba announced plans to raise $5bn to bolster its balance sheet after reporting record losses.

• Chinese exports fell 22.6% in March following a 17.1% decline in February. “Export demand doesn’t show any signs of turning for the better,” said an economist for the State Information Centre.

• Declining oil revenues are expected to result in a decline in GDP in the Gulf states, the IMF said.