Live Blog

July 25, 2014, 7:30am

Markets are expected to open flat as they await the arrival of key economic data today which is likely to point to the weak recovery across the region.

Retail sales in the UK are expected to drop slightly as are Eurozone PMI figures.

Uncertainty around Russia and Ukraine also remains a concern for investors.

Corporate news

Daily Mail owner DMGT reported a 2 per cent rise in revenue driven by its b2b business.

Drinks giant SABMiller beat analyst expectations with a 6 per cent rise in revenue for the three months to June.

Kingfisher has bought French DIY company Mr Bricolage but also reported a fall in sales.

Unilever sales growth is softer than expected despite recent product launches.

Data in focus

  • 9.30am: UK retail sales
  • 9.00am: Eurozone PMI
  • 2:45pm: US PMI
Bskyb logo on building
July 25, 2014, 7:17am

BSkyB has announced a long-awaited £5.3bn deal to acquire European pay TV operators Sky Deutschland and Sky Italia from Rupert Murdoch’s 21st Century Fox, creating one of the biggest pay TV operators in Europe

BSkyB has offered 6.75 per share for 21st Century Fox’s majority stake in Sky Deutschland.

For Sky Italia it will pay £2bn in cash and transfer its stake in National Geographic at a value of £380m to 21st Century Fox.

The deal was announced as the broadcaster published full year results which saw pre-tax profits fall six per cent to £1.2bn.

RBS
July 25, 2014, 7:14am

State-backed bank RBS has today cautioned investors on the level of returns it expects to make.

In a regulatory filing the bank's chief executive, Ross McEwan, said that the lender is "actively managing down a slate of significant legacy issues".

Sounding a note of caution, McEwan said that RBS faces "significant conduct and litigation issues which will likely hit our profits going forward".

RBS today revealed that it expects to have made profit before tax of £2.652bn in the half year ended 30 June, up from £1.374bn in the same period last year. That includes £191m from the sale of the bank's remaining interest in Direct Line.

The strong preliminary profit figures saw RBS release its results today, earlier than had been planned. The lender also expects to have seen operating profit at £2.601bn in the first half of 2014, up from £708m in the first half of 2013.

"I am pleased we have had two good quarters," said McEwan, "but no one should get ahead of themselves here - there are bumps in the road ahead of us". Investors in the bank have already endured a rough ride in the last 12 months.

Jeff Bezos behind Amzon logo
July 24, 2014, 9:53pm

More of the same from Amazon, as it continues its tradition of favouring growth over profits.

The e-commerce giant has just announced a loss of $126m, or $0.27 per share for the three months to the end of June, coming in significantly below Wall Street estimates of a $0.15 per share loss.

The second quarter has seen a significant widening of the company's losses compared to the same period last year, during which the company posted a loss of $7m, or $0.02 per share.

This is despite Amazon's revenue recording a 23 per cent jump, climbing to $19.3bn from $15.7bn in the same period last year.

The revenue is exactly in line with what analysts were anticipating and constitutes an increase of 23 per cent year-on-year.

But are investors starting to get impatient?

The retailer's share price, which is often highly volatile in reaction to earnings reports given how little information the company releases about its strategic plans, has taken a dive on the latest results, tumbling almost 10 per cent in after hours trading. 

As an indication of how explosive Amazon's stock is in the follow up to earnings, it averages a 9.5 per cent move either way, according to figures from Bespoke.

These latest results come amid a lively period for the Seattle-based company as owner Jeff Bezos continues to prioritise growth in a host of different areas as it looks to dominate, well, seemigly everything.

To say that Amazon has had a busy 2014 would be quite the understatement. So far this year, the huge online retailer has announced a file sharing device aimed at corporate clients, an ebook subscription service with over 600,000 ebooks and audiobooks available at a fixed price of $9.99, a streaming device for video and games, a music streaming service for its US Prime users and of course its foray into the crowded and highly competitive smartphone market with the launch of the Amazon Fire.

Investors have traditionally been willing to forgive narrow profits or even losses based on the view that Amazon is simply ploughing its continuously increasing revenue back into development, with top line growth the focus for now.

But with the firm indicating it may report more losses in the next quarter and given the struggles that the stock has had in 2014, already down 10 per cent this year before today's losses, are investors beginning to feel increasingly worried with the numbers coming out of Seattle?

In line with past quarterly reports, the company did not break down specific numbers for particular aspects of its business, including the lucrative Amazon Web Services (AWS), its cloud computing service. But analysis of Amazon’s “other” revenue for North America, which includes AWS, has shown that the growth of the cloud business slowed.

The growth rate dipped from an increase of 60 per cent in the first quarter on the same period last year, to 38 per cent in the three months to June compared to 2013's second quarter. This is likely down to a price war with other providers entering the cloud computing market and bringing about increased competition in the sector.

As the company prepares to launch its Fire smartphone in the US on Friday, potentially the heavy investment in several new business lines announced over the last few months will again buy Bezos and Amazon some breathing room.

But the steep slide in the share price perhaps implies that patience among shareholders may be running a little thin at the moment. 

The value for July 25, 2014 on the chart shows how the stock has performed in after hours trading after the closing bell on July 24. 

Starbucks logo
July 24, 2014, 9:30pm

Global coffee giant Starbucks topped Wall Street expectations once again.

The Seattle coffee chain reported earnings per share of $0.67 for the quarter ended in June, compared to $0.66 forecast by analysts. 

Starbucks, which has stores in 63 countries and over 200 stores in London, said revenue rose by more than 10 per cent to reach $4.15 billion, against $4.14 billion expected.

Profits surged 22 per cent to $513m as same-store sales increased by six per cent globally, with Asia and the United States its best performing markets. 

But the largest coffee chain has demonstrated its continuing ability to attract customers to its shops for products other than coffee. A new roll out of breakfast and lunch sandwiches in its US shops to attract people beyond the morning rush-hour has given sales a boost, as did a new tea blend called Oprah chai, designed and promoted by television presenter Oprah Winfrey and launched in April this year.

The results represented "another quarter of outstanding operating performance in which each of our segments contributed to record results", according to chief executive Howard Schultz.

This is the fifth consecutive three-month period that earnings have matched or topped Wall Street's earnings targets, but more importantly perhaps given Starbucks' recent announcement of an impending price hike in some drinks offered in its US shops for the first time in four years, the outlook for next year was positive.

In its earnings report for the second quarter, Starbucks forecast that sales will shoot up by 10 per cent in its next financial year beginning in October, taking an optimistic view of the price increase, which the company said would affect only one fifth of its customers in the country. The company will also raise prices on its own brand of packaged coffee on sale in supermarkets and other retail stores.

Earnings per share for the next year will climb approximately 15 to 20 per cent, the firm anticipates. 

Earlier this year, Starbucks announced that it was moving its European head office to London before the end of 2014, meaning it will pay more tax in the UK.

The company had come under fire from British lawmakers for its low tax contributions in the country. The relocation of its European HQ comes after it abandoned its agreement with the authorities in the Netherlands that gave the company the ability to reduce its tax liability by having its European subsidiaries pay large royalties to the Dutch unit for using the Starbucks brand.

Facebook logo
July 24, 2014, 8:15pm

It wasn't that long ago that Facebook's stock was on a downward spiral, as investors questioned the social network's ability to make money with an increasing number of people logged in via their mobile devices.

What a difference two years makes in the world of social media and tech stocks.

Today, Facebook shares surpassed $76, a record high and double their value when the company went public in 2012. 

That saw the company's market capitalisation jump to around $192.3bn, meaning that Facebook is now worth more than Coca Cola, Disney and Bank of America and ranked among the top twenty companies in the S&P 500 Index. 

This surge came on the back off some pretty impressive quarterly results the California-based firm released yesterday, demonstrating that its revenue from mobile advertising was booming. 

Following its botched IPO, all the more messy given the hype that surrounded it, shareholders punished Facebook in successive quarters. The concerns were over how the company could cope and continue growing its profit at a time when its users were shifting from desktop to mobile, meaning Facebook could command less for ads, the cornerstone of its business model. 

But yesterday's numbers from Facebook show how well Mark Zuckerberg has adapted the social network to cater to an increasingly mobile-driven base and maintain both profit growth.

Mobile advertising revenue represented 62 per cent of Facebook's ad revenue for the three months to June this year, up from 41 per cent from the same period in 2013.

Add to this the fact that those who access the social media site exclusively via a mobile device were up by 58m to 399m, which means that almost one in three Facebook active users were mobile-only users, it seems like the firm is doing more than adapting - it's flourishing. 

Blanchard IMF
July 24, 2014, 7:30pm

Ahead of gross domestic product (GDP) second quarter estimates on Friday, which are expected to show that the British economy has surpassed its 2008 peak, the UK has received another boost in the form of an IMF forecast upgrade. 

The Washington-based fund, which pulled no punches in its criticism of the government's austerity programme last year, has given the UK economy its fifth consecutive upward revision in its summer update of its World Economic Outlook forecasts

That puts Britain on course to grow more than any other major economy in the world and highlights the optimism surrounding the recovery 15 months on from the IMF's chief economist Olivier Blanchard said that the  risk for Britain of "having no growth, or very little growth, for a long time is very high".

But it's not just Britain that received an uplift from the IMF's projections. 

Spain has also been given some positive news on the day its unemployment rate fell to its lowest level in two years, the largest quarterly increase in the number of people employed since the second quarter of 2005.

Forecasts for Japan have also been revised upwards to 1.6 per cent, reflecting "the effects of Abenomics, and stronger domestic demand, including investment", according to the fund, highlighting though that significant challenges do remain. 

Germany also sees a 0.2 per cent upgrade from its April forecast. 

Elsewhere though the figures make depressing reading. The global economy is set to grow 3.4 per cent, 0.3 per cent less than anticipated in the IMF's spring outlook. Forecasts for the Eurozone area stayed at 1.1 per cent, while growth estimates for India and sub-Saharan Africa were also kept flat. 

All other countries in the report have seen their growth downgraded however.

Advanced economies are still confronted with high levels of public and private debt, according to the IMF, "which act as brakes on the recovery".

"These brakes are coming off, but at different rates across countries", says Blanchard.

US growth estimates were slashed 1.1 per cent, overshadowed by the surprise weather-related 2.9 per cent contraction in the country's economy in the first quarter of the year that caught economists off guard. US economic growth in 2014 will likely be at its weakest pace since the Great Recession ended based on the International Monetary Fund's estimates. 

However the IMF expects this to have just a temporary effect. 

Perhaps a little more worrying is the depressing picture coming from the emerging markets, whose economies are slowing down from pre-crisis growth rates.

According to Blanchard, in a blog post summarising the report, emerging economies "have to address some of their underlying structural problems, and take on structural reforms" while at the same time having "to deal with the implications of monetary policy normalisation in the US".

Other than the US, which is seen as more of a one-off downgrade, the IMF's largest downward revision relative to the April forecast is for Russia.

Moscow has seen revised growth for 2014 from 1.3 per cent to 0.2 percent and a similar cut for 2015 from 2.3 per cent to just one percent.

"This reflects mainly a deterioration of business confidence, which has been aggravated by geopolitical tensions. The result has led to large capital outflows, and a near freeze in investment decisions," Blanchard concluded. 

Nokia 920
July 24, 2014, 6:03pm

Nokia has surprised the market by posting better than expected second quarter results, just days after announcing half of its staff would lose their jobs.

The Finnish company was recently bought by Microsoft, who announced plans to cut half of the staff from Nokia's mobile phone division. 

Investors were impressed by a leaner operation, shown by an increase in operating margin from 7.7 to 11 per cent of sales reflected in an operating profit of €281m.

The impact of the positive results was to push Nokia's shares on the New York Stock Exchange up 7.7 per cent at pixel time. Shares listed in Helsinki were up as much as eight percent, trading at €6.23. 

Shares in the company have been much boosted over the last year, ever since Microsoft agreed to buy the ailing giant for £4.6bn in early September 2013.

 

General Motors
July 24, 2014, 5:49pm
Detroit-based General Motors (GM) has announced that it is making six more recalls involving 717,949 vehicles. This means that it has now recalled almost 29m vehicles this year.
 
The recall is expected to cost the car manufacturer $1.2bn (£700m) in repairs. 
 
Most of the recalls have been because of faulty ignition switches, but GM has confirmed a range of issues, including loose bolts and potentially incomplete welding on some seat hooks. 
 
This high number of recalls follows a trend started last year, when automakers recalled 22m GM vehicles.
 
Amid criticism that it has been reacting slowly to the issue, GM has said that it is “enhancing” its approach to safety. 
 
In a statement released by the company,  Jeff Boyer, vice president global vehicle safety at GM, said "We are bringing greater rigor and discipline to our analysis and decision making. If we identify an issue - large or small - that might affect the safety of our customers, we will act decisively."
 
IMF
July 24, 2014, 4:41pm

The International Monetary fund has slashed its global growth forecast to 3.4 per cent, down 0.3 per cent on its April estimates, following weak economic data from the United States and emerging economies. 

The surprise fall in US gross domestic product for the first three months of the year, which plunged 2.9 per cent year on year, and limp figures from BRIC countries such as China and Brazil, are likely to mark another discouraging year for global economic growth. 

US growth has been downgraded by 1.1 per cent  is now projected at 1.7 per cent for 2014, rising to three percent in 2015.

In its quarterly report, the IMF warned that only some of the factors leading to the reduction were temporary, and said warned that the risk of economic stagnation was high unless countries acted to boost growth through deeper reforms, such as infrastructure investment and modifying tax legislation. 

"Global growth could be weaker for longer, given the lack of robust momentum in advanced economies despite very low interest rates and the easing of other brakes to the recovery. In some major emerging market economies, the negative growth effects of supply-side constraints and the tightening of financial conditions over the past year could be more protracted," the Washington-based institution said.

The fund also warned that increased geopolitical risks could hurt the global economy, by pushing oil prices sharply higher.

IMF boss Christine Lagarde had last week cautioned that financial markets were "perhaps too upbeat" on the recovery and warned of high unemployment and high debt in Europe potentially dragging down investment and damaging future growth prospects, especially in light of geopolitical risks.

The UK gets another upgrade

But the UK received a boost in the update, as the IMF expects it to be the fastest growing advanced economy this year, as the institution continues to believe in the country's economic revival. This will come as a boost to Chancellor George Osbourne just a day before new GDP figures are expected to show gross domestic product has surpassed its 2008 peak.

The IMF expects that the UK economy will grow 3.2 per cent in 2014, 0.4 per cent higher than the previous estimate. The upgrade means that the UK economy is set to grow at almost twice the pace of the US, which is expected to rise by 1.7 per cent and three times that of the Eurozone, predicted to be 1.1 per cent.

The UK economy is expected to grow 2.7 per cent in 2015, an upgrade of 0.2 per cent on the April projection.

The latest upward revision for the UK economy, the fifth consecutive upgrade from the fund, came just a year after it issued a stark warning to the government that it was "playing with fire" and suggested it loosen its austerity programme. In April last year, the IMF's chief economist Olivier Blanchard said that the risk for Britain of "having no growth, or very little growth, for a long time is very high" should the government fail to change course. 

Emerging markets

Emerging markets face different challenges. Growth is now expected to decrease 4.6 per cent in 2014 before rising to 5.2 per cent in 2015. 

In China domestic demand has been weaker than expected as the government moves to damped credit growth and the real estate market continues to stabilise. The government has also announced a mini-stimulus programme, investing in infrastructure and offering tax relief to small and medium businesses.

This has contributed to stronger than expected manufacturing and, despite the IMF predicting growth 0.1 percentage points below the Chinese government's target of 7.5 per cent, a renewed confidence that the target may yet be met.

Russia on the other hand faces harsh sanctions on the back of the recent conflict in Ukraine, dampening demand. The future projections for the former superpower depend in no small part on its relations with the US and the EU. 

India's new president Narendra Modi was brought in on his business-friendly reputation but faces a period of weaker growth as the buoyant post-election business sentiment is offset by a bad monsoon season for agriculture.

Other emerging markets faced threats from weaker external demand as growth in the US and China continues to decelerate and Europe remains weak. 

Pages