TOP NEWS SUMMARY: OECD and World Bank cut global growth forecasts

Writer,

The following is a summary of top news stories Wednesday.

----------

COMPANIES

----------

Credit Suisse guided for a loss in its second quarter, as the Zurich-based bank continues to face ‘challenging’ market conditions. Credit Suisse listed a slew of reasons for the expected loss in the second quarter, ending June 30, and even called 2022 a ‘transition’ year for the firm. For the first six months of 2021, the lender posted revenue of €12.68 billion, with pretax income plummeting to €56 million. ‘The combination of the current geopolitical situation following Russia's invasion of Ukraine, significant monetary tightening by major central banks in response to the substantial increase in inflation and the unwind of Covid-related stimulus measures have resulted in continued heightened market volatility, weak customer flows and ongoing client deleveraging, notably in the APAC region,’ Credit Suisse explained. In particular, the bank said its Investment Bank saw an ‘uneven performance,’ with ‘low levels of capital markets issuance and the widening in credit spreads’ resulting in a ‘depressed’ performance. As a result, the unit will record a loss in the period.

----------

Aveva said it swung to an annual loss on one-off costs and cautioned on slower growth going forward as the industrial software provider is faced with pressure from wage inflation. For the financial year that ended March 31, revenue surged 45% to £1.19 billion from £820.4 million the year before, but Aveva swung to a pretax loss of £18.6 million from a £34.2 million profit, amid one-offs. Annual adjusted earnings before interest and tax was £365.1 million, up from £354.7 million last year. Aveva declared a final dividend of 24.5 pence per share, up 4.3% from 23.5p paid out in financial 2021. Its total payout for the year amounted to 37.5p per share, up 4.5% from 35.9p. Looking ahead, Aveva said adjusted Ebit for financial 2023 will be hurt by some additional costs. Aveva said revenue growth is expected to be lower in financial 2023 than in 2022 on an organic constant currency basis, and its adjusted Ebit margin is expected to narrow, before resuming growth in 2024. Aveva is 59% owned by France's Schneider Electric.

----------

Melrose Industries said it will launch a £500 million buyback after earlier this week announcing the sale of the final asset belonging to 2016 acquisition Nortek. The industrial turnaround specialist said the £500 million programme kicks off Thursday and will conclude no later than the end of October. Melrose said it has ‘sufficient certainty’ now to begin the repurchase programme. The buyback announcement is slightly belated. In March, Melrose had said it would leave the timing of a capital return ‘under review’, following Russia's invasion of Ukraine. Melrose on Monday said it agreed a $650 million deal to sell its Ergotron business to funds managed by Sterling Group.

----------

Zara-owner Inditex reported a surge in sales in the first quarter as its clothing stores reopened thanks to easing Covid restrictions. In the three months to April 30, net income nearly doubled to €766 million from €423 million. Operating income surged to €1.03 billion from €569 million. Net sales in the first quarter jumped to €6.74 billion from €4.94 billion. Looking ahead to 2024, Inditex expects about a third of its total sales to be online.

----------

Berkeley said it has appointed Michael Dobson as its new non-executive chair, taking up the role after the housebuilder's annual general meeting on September 6. Berkeley said its current chair, Glyn Barker, will step down from the board following Dobson's arrival. Barker was appointed chair in July 2020 for a period of two years to oversee the transition that followed the death of founder Tony Pidgley. Dobson recently stepped down as chair of fund manager Schroders after six years.

----------

MARKETS

----------

Asian stock markets on Wednesday picked up from Wall Street's overnight rally, but European markets have been more cantankerous, while New York also is called to give back some of Tuesday's rise.

International institutions the World Bank and OECD lowered their outlook for global economic growth. While growth came in ahead of expectations in the eurozone in the first quarter, the situation has deteriorated since ‘The outlook for the European economy continues to darken as inflation takes hold on the continent, partially as a result of the war in Ukraine, and with the ECB set to start tightening monetary policy from July onwards,’ said Dan Boardman-Weston at BRI Wealth Management.

The European Central Bank announces its latest monetary policy decision on Thursday, followed by a press conference with President Christine Lagarde. ‘It very much feels like the ECB are behind the curve with raising interest rates and that they're going to be tightening into a slowing economy,’ Boardman-Weston said. ‘The ongoing disruption caused by the war in Ukraine is likely to weigh on growth and boost inflation, which is going to be a tricky task for fiscal and monetary policy to deal with.’

----------

CAC 40: down 0.4% at 6,471.97

DAX 40: down 0.2% at 14,522.08

FTSE 100: down 0.3% at 7,579.92

----------

Hang Seng: closed up 2.2% at 22,014.59

Nikkei 225: closed up 1.0% at 28,234.29

S&P/ASX 200: closed up 0.4% at 7,121.10

----------

DJIA: called down 0.4%

S&P 500: called down 0.4%

Nasdaq Composite: called down 0.2%

----------

EUR: soft at $1.0688 ($1.0692)

GBP: down at $1.2524 ($1.2576)

USD: up at JP¥133.75 (JP¥132.57)

Gold: down at $1,848.65 per ounce ($1,850.60)

Oil (Brent): up at $121.08 a barrel ($120.11)

(currency and commodities changes since previous London equities close)

----------

ECONOMICS AND GENERAL

----------

The OECD warned the world economy will pay a ‘hefty price’ for Russia's invasion of Ukraine as it slashed its 2022 growth forecast and projected higher inflation. In its latest economic outlook, the Organisation for Economic Co-operation & Development said global gross domestic product would grow by 3% in 2022 – down sharply from the 4.5% estimated in December. The OECD also doubled its forecast for inflation among its members – which range from the US to Australia, Japan, and Latin American and European nations – to 8.5%, its highest level since 1988. The OECD cut its growth forecast for the US from 3.7% to 2.5% and that of China, the world's second biggest economy, from 5.1% to 4.4%. The eurozone's GDP is now seen growing by 2.6% instead of 4.3% while the UK's outlook was lowered to 3.6% from 4.7%.

----------

The World Bank also sharply slashed its annual growth forecast for China, warning that Covid disruptions could further slow recovery in the world's second-largest economy. Growth in China is projected to slow to 4.3% in 2022, the World Bank said in a report, marking a steep 0.8 percentage-point drop from the December forecast. The World Bank's forecast adjustment came as concerns grow that China may not meet its official growth target of around 5.5% this year. The World Bank cut its global growth forecast to 2.9%, warning that the world economy risks falling into a harmful period of 1970s-style ‘stagflation’ in the wake of the Russian invasion of Ukraine.

----------

Economic growth in the first quarter in the eurozone came in ahead of expectations, data from Eurostat showed. In the first quarter of 2022, seasonally adjusted gross domestic product increased by 0.6% in the euro area and by 0.7% in the EU compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the EU. In the fourth quarter of 2021, GDP had grown by 0.2% in the euro area and 0.5% in the EU. Market consensus, cited by FXStreet, had seen GDP growth of 0.3% in the euro area. Annually, seasonally adjusted GDP increased by 5.4% in the euro area, again beating forecasts of a 5.1% growth, and by 5.6% in the EU in the first quarter of 2022.

----------

Industrial production in Germany improved in April, data from Destatis showed, but came in behind expectations. In April, production in industry was up by 0.7% on the previous month on a price, seasonally and calendar adjusted basis according to provisional data, which was drastically improved on the 3.7% drop seen in March. Market consensus, cited by FXStreet, had forecast a 1.0% rise for April. Annually, industrial production fell 2.2%.

----------

The UK construction sector saw its slowest expansion since January in May, figures on Wednesday showed, amid a weaker month for the housing sector as consumer confidence continues to suffer. The latest S&P Global-CIPS UK construction purchasing managers' index fell to 56.4 points in May from April's tally of 58.2. While still above the 50.0 no change mark, the figure signals the weakest expansion of construction activity in four months.

----------

UK house prices surged to a fresh record high in May, but growth was showing signs of slowing amid inflationary pressures, according to mortgage lender Halifax. On an annual basis, the Halifax UK house price index rose by 10.5% in May, slowing slightly from 10.8% in April. The house price index increased 1.0% in May month-on-month, easing from a 1.2% rise in April. The average price for a home in the UK stood at a fresh record high of £289,099 in May, up from £261,709 at the same time last year.

----------

UK Chancellor Rishi Sunak has reaffirmed his commitment to cut taxes for business later in the year as the government seeks to get back on track following Monday's bruising Tory confidence vote in Prime Minister Boris Johnson. In a speech to the Onward think tank, Sunak said he would be bringing forward a range of measures in the autumn to incentivise investment, according to extracts released by the Treasury. It follows criticism from groups such as the CBI and Federation of Small Businesses that his cost-of-living support package last month did not include any help for cash-strapped businesses.

----------

UK PM Johnson is to face Parliament on Wednesday for the first time since the damaging revolt by Tory MPs in Monday's confidence vote. Backers of the prime minister can be expected to stage a noisy show of support when he steps up for his weekly Commons questions. But behind the scenes, tensions are running high after 40% of Conservative MPs refused to support him in the vote of confidence.

----------

Japan's economy shrank slightly in the first quarter of 2022, revised data from the Japanese cabinet office showed. Gross domestic product declined 0.1% quarter-on-quarter in the January-March period. This is improved from the first preliminary reading, which had estimated a decline of 0.2%. The reduction followed a modest rebound in the final three months of 2021 that proved short-lived, after Japan put Covid restrictions in place as an outbreak fuelled by the Omicron variant took hold in January. Compared to the same period a year ago, GDP shrank by 0.5%, also improved from the first preliminary reading that had estimated a decline of 1.0%.

----------

US Treasury Secretary Janet Yellen urged lawmakers to approve additional investments in renewable energy and higher taxes on the wealthy, as she defended the administration's efforts to blunt the impact of inflation. ‘I believe there's lot that Congress can do to ease the cost burdens that households are experiencing,’ Yellen told the Senate Finance Committee in the first of two days of testimony on President Joe Biden's budget for the 2023 fiscal year. Besides renewable energy investments – which Yellen said could help address high gasoline prices – the Treasury secretary backed more spending on affordable housing and efforts to rein in pharmaceutical prices. She also highlighted the Biden administration's historically large release of oil from the Strategic Petroleum Reserve to ease prices that drivers are facing at the pump.

----------

Copyright 2022 Alliance News Limited. All Rights Reserved.