- China's economic slowdown laid bare in GDP figures
- THG founder agrees to relinquish 'golden share'
- UK profit warnings rising
Markets weaken on China concern, interest rate rise fears
European equity markets were weak at the open this morning after Chinese economic data laid bare the continued slow down in its economy. With power shortages hampering economic activity in China GDP in the three months to September rose by just 0.2 per cent, which pulled annualised growth down to 4.9 per cent, from 7.9 per cent in the second quarter of the year. Industrial production slowed during the period while construction activity and property sales fell back - highlighting the potential for meltdown in China’s overheated property sector.
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Meanwhile, the oil price has continued to rise, adding further to inflationary fears stalking the markets. Brent crude hit $86 a barrel in early trading, its highest level since October 2018. Inflation is clearly on the minds of the Bank of England’s Monetary Policy Committee members with the governor Andrew Bailey quoted over the weekend as saying the Bank ‘will have to act’ if inflation indicators remain heightened. Traders are now pricing in an interest rate rise before Christmas, with bond yields rising sharply in reaction this morning - the yield of two year gilts rose to 0.75 per cent, from 0.57 per cent on Friday. GD
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In search of inflation protection
Moulding to give up special share
Matthew Moulding, the founder of ecommerce group THG, is to give up his special 'golden' share that gives him greater control over decisions such as major acquisitions. The Manchester-based group, whose share price plunged 35 per cent last week after a capital markets day presentation aimed at explaining its THG Ingenuity business failed to address concerns raised about the company by short sellers, also said its board will review its corporate governance ahead of seeking a Premium listing on the London Stock Exchange next year.
The company will need to announce, and in some cases seek approval for, related party transactions to achieve the listing, which will make its shares eligible for inclusion in FTSE indexes.
THG’s shares rallied by 9 per cent to £3.15 on the announcement, but have declined sharply since being shorted by Zurich-based PSquared Asset Management in late August and are down 60 per cent so far this year. MF
Read Steve Clapham's analysis of THG's treatment of adjusted earnings in its accounts here.
Profit warnings rise on supply chain strains
The number of companies reporting profit warnings jumped in the third quarter as businesses dealt with surging prices and supply chain snarl-ups.
There were 51 profit warnings issued by UK-listed companies in the three months to September 30, compared with just 19 in the second quarter, EY-Parthenon’s latest Profit Warnings report said.
Despite stronger sales, supply chain issues, rising energy costs and tight labour markets were cited as conditions affecting margins. The withdrawal of the government’s furlough support scheme at the end of the quarter is likely to place further pressure on the businesses still dealing with the fallout from the pandemic.
“Whilst UK profit warning levels remained low during the summer they jumped dramatically back to above-average levels in September, as supply chain and cost stresses cascaded through the economy,” said EY-Parthenon partner Alan Hudson.
“The remainder of the year will reveal those surviving on life support, as the government removes most, but not all, of its props.”
Profit warnings were highest among consumer-facing companies providing staples such as food, drink and household products. More than half of the businesses issuing warnings had a turnover below £100m.
Employers reported “unprecedented” levels of starting pay for both permanent and temporary workers in September, as salaries grew at the fastest rate for 24 years, according to the latest KPMG/REC UK jobs report. Although the end of the furlough scheme is expected to bring thousands of new people to the jobs market, “many do not have the right skills to transfer to the sectors with most demand”, according to KPMG’s head of education, skills and productivity, Claire Warnes. MF
