Banks diverge
The reporting season for the banks got under way with wildly differing results from HSBC and Lloyds Banking. HSBC's diversified global exposure has been held up as a strength and its shares have surged in the past year as commodities and emerging markets have recovered, but weaker income on a statutory basis and one-off costs resulted in a 62 per cent slump in profit. Meanwhile, Lloyds' UK exposure has proved to be a boon and smaller provisions for mis-selling payment protection insurance helped profit double to £4.2bn and enabled the payment of a special dividend. RBS reports on Friday, but ahead of this it informed investors it may no longer sell its Williams & Glyn subsidiary, but could face a further £750m in costs associated with an alternative plan.
Buffett rebuffed
Unilever says no
Kraft Heinz's multibillion-dollar tilt at Anglo-Dutch personal goods and food giant Unilever was over almost before it began, with the US food giant withdrawing its £115bn offer on Monday after Unilever's board dismissed it in rapid fashion saying it had "no merit, strategic or financial". Kraft Heinz, which is 50 per cent owned by a combination of veteran US investor Warren Buffett and Brazilian private equity firm 3G, found the strength of opposition from the Unilever board and the prospect of unpalatable criticism from politicians and unions over job cut fears too much to risk a hostile move. A return to the negotiating table is thought to be unlikely in the short term at least although Unilever has said it is reviewing how to accelerate the delivery of the value in its businesses.
Equity surge goes on
Fresh US highs
Global equities have continued their upwards surge, driven by fresh highs in US indices. The FTSE All World index set a new high on Tuesday 21 February, helped by the fact that US equities account for more than half of this index. After markets over the pond were closed on Monday, US equities resumed their rise on Tuesday, helped by positive earnings figures and hopes for continued US economic improvement. The Dow Jones Industrial Average is heading towards the 21000 level only weeks after breaching 20000 for the first time, while the S&P 500 and Nasdaq also set fresh highs this week.
Borrowing boost
Budget wriggle room?
Better than expected tax revenue in recent months as the UK economy continues its recovery are likely to result in lower than expected borrowing figures for the UK public sector this year. The latest forecasts suggest public sector borrowing of around £56bn this year, well down on the Office for Budget Responsibility's estimate of £68.2m. Some are hoping this will allow Chancellor Philip Hammond to cushion the predicted blow of the new business rate taxation system and also to alleviate pressures on social care and education spending in next month's Budget. But this week he was steadfast in his insistence that any extra spending must be generated by further savings or tax rises as he keeps his powder dry in case of any ructions once Brexit negotiations commence.
House price hiatus
Boom over?
Is the long boom in UK house prices finally running out of steam? Asking price growth in February was 2.3 per cent, down from 3.2 per cent in January - its lowest annual growth rate since April 2013. Month-on-month growth was just 2 per cent, an eight-year low. With inflation rising and interest rates likely to begin a process of 'normalisation' sooner rather than later, uncertainty is certainly creeping into the market for secondary homes. Meanwhile, in the world of new-build, Barratt Developments this week said completions outside London are at their highest since 2008 and profit rose by 8.8 per cent in the six months to December, although its total completions fell. Barratt's margins compared favourably with sector outlier Bovis Homes, which is struggling under the weight of customer complaints and has set aside £7m for compensation and said it will rein in output this year.
Serco stumbles
Outsourcers struggle
Outsourcer Serco's seemingly solid drive to recovery hit a major pothole this week as the company warned that continued political uncertainty is clouding its outlook, sending its shares down sharply in response. As expected, the company posted a 14 per cent drop in trading profit for 2016 after exiting contracts and paring back costs as part of its long-term recovery programme. Of more concern to investors was the warning that margins on many contracts are so thin that the ability to absorb changes or additional demands is compromised and that Brexit and the change of administration in the US had added to uncertainty. Serco's warning adds to the woes suffered by sector peers Interserve and Capita in recent days.
Greek tragedy
Another solution
Greece has flown under the radar in terms of economic news in recent months as Brexit and the Trump presidency have occupied minds. But the Greek economy remains in a state of austerity-driven purgatory. The latest concerns centre on whether Greece's main creditors, the European Union and International Monetary Fund, can agree on terms that will allow Greece to continue to repay its debts and qualify for further debt relief, with a key date for repayments looming in July. The EU, partly for political reasons, has been steadfast in insisting Greece must stick to the original terms of its bailout, while the IMF wants to ease the strictures. Both sides edged closer to a compromise this week, but the result is simply likely to be a repeat of kicking the can down the road a little further.
