UK house prices fall as Covid-19 job losses surge

German stock market suffers outage

European stock markets have made a lacklustre start to the third quarter of 2020.

The UK’s FTSE 100 has gained 12 points, or 0.2%. Surgical devices maker Smith & Nephew is the top riser ( 5%) after reporting that its sales slump eased in June.

France’s CAC has lost 0.15%, with hotel group Accor down 3%.

But traders in Germany have been hit by technical problems at the stock exchange. The Eurex exchange are trying to get systems working right now, after a two-hour outage.

The problems disrupted derivatives trading and stock markets in several Central and Eastern European countries, and prompting Denmark to postpone a bond auction.

Bloomberg explains:


Trading issues on the Eurex Exchange, one of the main platforms for futures products, hampered bond sales in Europe. Prices for German bund futures hadn’t updated since 7:47 a.m. in London, while Denmark postponed a bond auction due to the technical difficulties.

Stock trading in Vienna, Prague, Budapest, Ljubljana and Zagreb was also down, as these venues share Deutsche Boerse’s T7 trading infrastructure. As recently as mid-April, another outage of the T7 system hobbled trading across the same set of Central and Eastern European stock markets.

LiveSquawk
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Deutsche Boerse Expects All Systems Are In Operation Again By 1120 CEST (0920 GMT)

July 1, 2020

IGSquawk
(@IGSquawk)

EUREX planned reopening:

10:00 London Time / 11:00 Frankfurt Time – Pre-Trading

10:25 London Time / 11:25 Frankfurt Time – Opening auction with a minimum duration of 5 minutes

10:30 London Time / 11:30 Frankfurt Time – Continuous Trading

July 1, 2020

Dave Atkinson, UK head of manufacturing at Lloyds Bank, also fears a flood of job losses at UK factories — even if the economy returns to growth.


Manufacturers are now bracing themselves for the second half of the year in the knowledge that a reckoning looms. The winding down of the furlough scheme by the autumn, and lower business levels in a number of subsectors, means more redundancies are likely.

History shows that, sadly, more firms tend to face the risk of failure coming out of recession due to cashflow challenges than going into one. This is compounded by many manufacturers having to manage higher debt levels that they would normally operate with. Understanding and managing the risks of overtrading for businesses of all sizes will be critical.

The sector will need to continue to show resilience, agility and careful planning, to battle through such challenges.”

UK factories keep cutting jobs

The pandemic is forcing Britain’s manufacturers to keep slashing jobs.

Data firm IHS Market reports that employment at UK factories fell for the fifth consecutive month in June.

It says:


Although the rate of decline eased further from April’s record it remained among the steepest registered in the 28-year survey history. There were reports of redundancies, cost control efforts, workforce restructuring and the non-replacement of leavers.

Manufacturers also reported that new orders kept falling in June, although output did rise as more factories returned to work.

This lifted the UK manufacturing PMI to 50.1, just above stagnation.

UK manufacturing PMI to June 2020

Photograph: IHS Markit

Rob Dobson, director at IHS Markit , fears that job losses will accelerate as the UK government winds up its furloughing scheme:


“The main focus is now shifting towards the labour market. Concerns are rising about the potential for marked job losses, especially once the phase out of government support schemes begins. The news on that footing is less positive, with June seeing a further reduction in staffing levels and, although easing sharply since April’s record, the rate of job loss remains among the steepest in the 29-year survey history.

Economic conditions will need to improve markedly across the UK, or some support retained, if the labour market downturn is to avoid becoming more entrenched through the remainder of the year.”

Here’s our news story on the downturn in UK property prices:

UK supermarket chain Sainsbury has reported a surge in sales during the pandemic….and a big jump in costs too.

Grocery sales rose by 10.5% in the last 16 weeks, as consumers stocked up on food supplies when the lockdown began. Online sales doubled, amid the scramble to secure a precious home delivery slot.

Its Argos catalogue division also saw strong demand, with sales up 10.7%. Home delivery sales surged 78% and click and collect sales rose by over 50%.

But clothing demand slumped by a quarter, with much of the population staying at home.

And overall, the profit impact of Covid-19 is expected to be more than £500m, which will be “broadly offset” by business rates relief and stronger grocery sales.

Sainsbury told shareholders:


We believe it is appropriate to remain cautious about the sales trajectory through the remainder of the year given the weather benefit to date and a likely further weakening of consumer spending.It remains impossible to predict the full nature, extent and duration of the impact of COVID-19 on sales and costs.

Our base case scenario continues to underpin an expectation of broadly unchanged Group underlying profit before tax for the full year.

Unemployment rises in Germany

The Covid-19 pandemic has driven unemployment up in Germany, although not by as much as feared.

The Labour Office has reported that an extra 69,000 people were out of work last month. That drives the German jobless rate up to 6.4% in June, from 6.3% in May.

Economists had expected the jobless total to rise by 120,000, pushing the unemployment rate to at least 6.5%.

Germany’s ‘short-time’ state aid scheme, which allows companies to temporarily cut working hours during an economic downturn, appears to to be helping.

LiveSquawk
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German Unemployment Change (000s) Jun: 69.0K (est 120K; prevR 237.0K; prev 238K)

German Unemployment Claims Rate SA Jun: 6.4% (est 6.5%; prev 6.3%)

July 1, 2020

Italy’s factory sector slump also seems to be easing.

Firms reported that output actually rose in June compared to May, as plants were able to reopen. However, new orders kept falling, highlighting the slump in global demand.

Italy Manufacturing PMI rose to 47.5 in June, from 45.4 in May, showing a smaller contraction.

LiveSquawk
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Italian Markit Manufacturing PMI June Report – Markithttps://t.co/l8s3iAzjpc pic.twitter.com/IY16lHO4Tt

July 1, 2020

Updated

Over in Spain, the factory slump appears to be bottoming out.

The latest Spanish manufacturing PMI, which measures activity in the sector, has jumped to 49 for June from 38.3. That’s close to stabilisation.

Factory bosses reported that production and new orders continued to fall in June, but at much slower rates. Many were forced to impose reduced working hour, or cut staff, despite the easing of lockdown measures.

But encouragingly, confidence about the future strengthened and returned to positive territory during June.

IHS Markit PMI™
(@IHSMarkitPMI)

🇪🇸 Spain Manufacturing #PMI up sharply to 49.0 in June (38.3 – May) as the decline in goods production slows markedly. Challenges conditions remain, however, as plants operate below capacity and new workflows remain weak. Read more: https://t.co/OSQRjxNmwg pic.twitter.com/C9z4BScGV5

July 1, 2020

Ryanair is threatening to add to the swathe of job cuts across the travel industry, unless staff agree a pay cut.

Back in May, Ryanair announced it would cut 3,000 pilots and cabin crew positions. This morning, CEO Michael O’Leary declared that some of these cuts could be avoided, if staff agreed lower wages.

He told the BBC that:


“We’ve already announced about 3,500 job losses but we’re engaged in extensive negotiations with our pilots, our cabin crew and we’re asking them to all take pay cuts as an alternative to job losses.

“We’re looking from 20% from the best paid captains, 5% from the lowest paid flight attendants and we think if we can negotiate those pay cuts by agreement, we can avoid most but not all job losses.”

O’Leary, who has taken a 50% pay cut himself, also blasted the government’s “stupid” plan to make people self-quarantine for two weeks when they enter the UK. He told Sky News that these “badly thought-out, badly-implemented policies” were hurting the travel industry during the crucial summer holiday period.

Kay Burley
(@KayBurley)

“We need to get this stupid quarantine lifted.”#RyanAir boss Michael O’Leary criticises the government’s quarantine rules on international travel saying they are causing ‘untold damage’ for the industry and wider British economy. RH #KayBurley pic.twitter.com/8h9URKu1K9

July 1, 2020

Updated

Despite these recent falls, UK houses are still pretty pricey when compared to wages:

Nationwide house prices

Nationwide house prices Photograph: Nationwide

Estate agents: it’s not a crash

Britain’s estate agents are insisting that the property market isn’t about to collapse.

They’re arguing that the 3.2% drop in prices during May and June is a ‘reset’, and that demand will pick up now that the economy is reopening – and house viewings are allowed again.

Lucy Pendleton of estate agents James Pendleton, argues the market is showing resilience, given the scale of the pandemic.


“Prices are down by a whisker annually but what is remarkable is how soft a landing the market has had given the scale of the disaster that has unfolded in the past few months.

“Nationwide’s reading of the situation is totally in line with recent indications that the prices being achieved on the doorstep have slipped to 2% or 3% below asking prices on average.

“June was the first full month of trading since the property market came back to life post-lockdown and these sellers will be those highly motivated to move through necessity. That pool of vendors will shrink rapidly and that could put a floor under prices.

Jonathan Hopper, CEO of Garrington Property Finders, reckons the lockdown will have forced some people to move house — perhaps to a property better suited to home-working:


“So far this is a hard reset for the market rather than a collapse. The gains of the ‘Boris bounce’ seen at the start of the year have been swept away, and the market is transitioning to the ‘new normal’.

“With estate agents across the UK at last able to conduct viewings, both buyers and sellers are feeling their way on price.

“While the full financial impact of the pandemic has yet to feed through into the wider economy, in the property market the mood among buyers is best summed up by the two c’s – caution and curiosity.

“Three months of being cooped up in the same four walls have led many people to consider a move, and to reflect on what they want from their home.

“On the front line, we’ve seen a steady stream of pragmatic buyers who made life-changing decisions during lockdown and are now keen to capitalise on the current softening market.

Here are the key charts from today’s Nationwide house price survey:

UK house price survey, to June 2020

UK house price survey, to June 2020 Photograph: Nationwide

Nationwide house prices

Nationwide house prices Photograph: Nationwide

Here’s our news story on the SSP job cuts:

Introduction: Covid-19 unemployment crisis deepens as SSP cuts jobs

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The economic cost of Covid-19 is mounting, forcing struggling companies to slash jobs even as governments try to unlock their economies without fuelling the virus’s spread.

In the last few minutes, British travel food group SSP has confirmed it is planning to cut up to 5,000 jobs. That would be over half its workforce, as it implements a reorganisation to address the crisis.

The firm, which runs the Upper Crust and Caffè Ritazza outlets at airports and railway stations, has been hurt badly by the slump in travel since the pandemic started. It has concluded that sales will remain very subdued for months — with demand for long-haul flights likely to remain very low for month.

In a grim statement to the stock market, SSP says:


Our expectation is that by the autumn only around 20% of units in the UK will have opened. We have therefore come to the very difficult conclusion that we will need to simplify and reshape our UK business, and we are now starting a collective consultation on a proposed reorganisation.

If the pace of the recovery continues at the current level, this could lead to up to c. 5,000 roles becoming redundant from within the Head Office and UK Operations.

PA Media
(@PA)

#Breaking Upper Crust owner SSP has said up to 5,000 jobs are under threat as it shakes up the group following plunging passenger numbers at railway stations and airports due to the coronavirus pandemic pic.twitter.com/X7og6woHmV

July 1, 2020

That slump forced aerospace giant Airbus to announce 15,000 job cuts last night, including 1,700 in the UK.

As chief executive Guillaume Faury put it:


“Airbus is facing the gravest crisis this industry has ever experienced.”

That crisis is also forcing EasyJet to axe thousands of jobs, but it also runs beyond the travel sector. Furniture chain Harveys and shirt maker TM Lewin both fell into administration on Tuesday, costing 800 jobs – with another 1,300 at risk.

The Covid-19 slump has now hit the UK property sector, with some people much more reluctant to risk taking on a new mortgage – or possibly even to risk visiting properties.

Nationwide building society has reported this morning that prices fell by 0.1% in June, the first annual fall since 2012.

On a monthly basis, UK house prices slid by 1.4% compared with May (when they had shrunk by 1.7%).

Robert Gardner, nationwide’s chief economist, said:


“It is unsurprising that annual house price growth has stalled, given the magnitude of the shock to the economy as a result of the pandemic. Economic output fell by an unprecedented 25% over the course of March and April – almost four times more than during the entire financial crisis.

“Housing market activity also slowed sharply as a result of lockdown measures implemented to control the spread of the virus. While latest data from HMRC showed a slight pick-up in residential property transactions from April’s low, in May they were still 50% lower than the same month in 2019.

“Mortgage activity saw an even more dramatic slowdown –there were only 9,300 approvals for house purchase in May, down from 73,700 in February and 86% lower than in May 2019. However, our ability to generate the house price index has not been impacted to date, as sample sizes have remained sufficiently large (and representative) to generate robust results.

More to follow…

The agenda

  • 8.55am BST: German unemployment count for June – expected to rise by 120,000
  • 9.30am BST: UK manufacturing PMI for June – expected to rise to 50.1, showing a little growth
  • 2pm BST: US manufacturing PMI for June – expected to rise to 49.6, showing a small contraction

Updated

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