European markets edge higher
On a quiet day of trading - perhaps a relief after the volatility of recent weeks - European markets have mainly ended in positive territory, writes Nick Fletcher. Investors were mainly biding their time ahead of some key economic events later in the week, with the Bank of England’s inflation report and UK unemployment data due on Wednesday, and eurozone GDP on Friday. Positive earnings results - notably from Vodafone - gave some support but Wall Street slipped back after its recent records by the time European markets closed. The final scores showed:
- The FTSE 100 finished 16.15 points or 0.24% higher at 6627.40
- Germany’s Dax added 0.18% to 9369.03
- France’s Cac closed up 0.5% at 4244.10
- Italy’s FTSE MIB dipped 0.02% to 19,255.47
- Spain’s Ibex ended up 0.64% at 10,338.8
On Wall Street the Dow Jones Industrial Average has dipped 6 points or 0.04%.
On that note it’s time to close up for the evening. Thanks for all your comments, and we’ll be back again tomorrow.
It may be Remembrance Day but it’s also Singles Day, the biggest online retailing day in China. And it has been bigger than ever, as we report:
Chinese online retailer Alibaba has already taken more than $9.3bn (£5.85bn) in sales on Tuesday as Singles Day, the country’s biggest online retail event, dwarfs other sales bonanzas around the world such as Black Friday in the US or Christmas in the UK.
The live sales figure on Alibaba’s giant screen at its sprawling Hangzhou campus surged past the 50bn yuan ($8.16bn) mark with two hours left to go, as Chinese and overseas shoppers snapped up heavily discounted items online.
Full story here:
Alibaba’s Singles Day sale in China breaks online records
One of the criticisms of the Royal Mail flotation was that there were some hidden jewels within the business, notably its property assets, which were being sold off on the cheap.
And now the business has put up its Nine Elms site in London up for sale which analysts say could raise £662m, a hefty sum which may rekindle the sale controversy. Our full story is here:
Royal Mail may reap £662m from planned sale of London sorting office
The Dow Jones industrial average has nudged a new high at the start of trading on Wall Street.
The Dow touched 17,624.37 in early deals, the latest in a string of records.
Late lunchtime summary: Payday lenders face axe
Not the liveliest day so far, I’m afraid. Here’s a recap.
Hundreds of payday lenders are expected to be driven out of business by new caps and charges announced by the UK’s Financial Conduct Authority today.
Under the FCA’s new rules, lenders cannot charge more than 0.8% interest per day, or be paid back more than twice the loan amount. Details start here.
FCA chief Martin Wheatley has predicted that only a few high-street lenders will continue in business once the proposals come into force in January.
Industry expert Carl Packman agrees, telling Bloomberg that:
“You will see providers voluntarily leave the market,”
“That’s a consequence of tougher and better regulation.”
And consumer-credit provider Provident Financial has declared that it’s ready to satisfy demand with its own loans (with an APR of 399%, or higher...)
Chancellor George Osborne hailed the news that “absolutely outrageous fees and unacceptable practices” are being dealt with.
But Labour MP Stella Creasy, who has led the fight against payday lenders, warns that “legal loan sharks” are being let off too easily.
She accused the FCA of being too lax:
This year debt charities and the financial watchdog have reported rises in cases involving payday loans causing problems for consumers, showing just how toxic this industry is for many. Today’s announcement means yet again these sharks have slipped through the net.”
In other news...
Vodafone’s shares have soared by 6.5% today, after raising its profit forecasts and reporting a smaller fall in sales than expected.
But the mobile giant also reported double-digit sales declines in Spain and Italy in the last six months, as the weak European economy continues to hit demand.
And the Russia remains under pressure - the ruble has fallen again today, and fashion chain New Look has revealed it is pulling out of the region.
Updated
New Look pulls out of Russia
In other retail news, high street chain New Look announced today that it has pulled out of Russia and Ukraine due to the “political uncertainty” in the region.
Anders Kristiansen, chief executive of New Look, explained:
“All retailers are having an extremely tough time in Russia, not just in clothing.”
The FT have more details.
New Look said in August that it was considering its options in Russia - but such a bold move is a surprise.
Kamel Mellahi, Professor of Strategic Management at Warwick Business School, is struck by how much has changed in a year.
A year ago most key indicators were suggesting that New Look was going to escalate its commitment to the Russian market. Its operations were profitable and therefore it had sufficient financial slack to accelerate its international strategy.
Also, Russia, among other emerging markets, was considered one of its key markets. Most observers were expecting it to increase the number of its stores in Russia.
More importantly there were indicators that it was planning to deepen its commitment to the Russian market by buying out its franchise partner and move to a more committed mode of operation via a joint venture.
Back in the UK, John Lewis has made a decent enough start to the festive trading period.
The high street chain reported that sales rose 5% last week, with turnover rising to £96m in the seven days to Saturday 8 November. More here.
Retailers could use a good Christmas. Figures released overnight showed that sales of autumn clothing have been disappointing, due to the remarkably clement weather.
Warm weather leaves UK retailers with piles of unwanted winter stock
....But, as this chart from the Economist shows, the benefits of the US recovery are not being shared fairly, at all.
Finally, a gobbet of economic news. Just a small one -- American small business optimism rose in October.
More owners said they planned to invest in their companies, and are finding it harder to find qualified applicant for new vacancies, according to the National Federation of Independent Business.
Its Small Business Optimism Index rose by 0.8 points to 96.1, suggesting the US economic recovery continued last month.
It’s an ill wind....The CEO of consumer-credit provider Provident Financial, Peter Crook, expects to benefit from the tight rules on payday loan firms.
He told Bloomberg:
“The FCA’s own research predicts 99 percent of payday lenders will go out of business -- there are over 400 payday loan firms, there will be only four left,”
“That consumer demand to borrow money will still be there and we expect it to migrate to our loans.”
Provident offers loans on longer repayment terms than Wonga, but also imposes interest rates that are massively higher than more orthodox lending.
It’ll lend you £100 for 14 weeks, repayable at £10 per week. An APR of 1,400%!
That APR drops to mere triple digits if you borrow over a longer period...
Updated
Back to the payday loan clampdown announced this morning.
The most unscrupulous lenders will be driven out of business by the new caps on interest rates (0.8% per day), reckons Richard Scrivener, consultant at Bovill, the financial services regulatory consultancy.
“Payday lenders that have predicated their business model on the likelihood that a customer won’t actually pay, allowing them to rack up punitive charges, are now going to find the going very tough.”
Scrivener also reckons that this will make space for international subprime lenders:
“Larger players are already adjusting their business models and the space cleared by the demise of some of the fringe players will create an attractive market.”
Over in Greece, the eKathimerini newspaper is reporting that Athens’ government has been handed a list of targets by its troika of lenders.
Demands include covering a fiscal gap for 2015 that the troika puts at €2.6bn, reducing the number of instalments in which debtors can honour their dues, pushing through a second phase of pension reform and completing an overhaul of the tax administration system.
The troika is also seeking the government’s proposal for an across-the-board wage structure for public sector employees, plans for the restructuring of Greek public utility companies and legislation in view of the liberalization of the natural gas market.
If Greece doesn’t deliver these reforms within four weeks, eurozone finance ministers won’t able to consider whether to provide a precautionary credit line to Greece, at their next Eurogroup meeting on 8th December.
Eurozone expert Yannis Koutsomitis reckons prime minister Antonis Samaras will struggle to get these reforms though parliament, given his narrow majority.
Russian ruble slides again
Back in the financial markets, the Russian ruble has had another bad morning, losing 1.8% against the US dollar.
One dollar now buys 46.6 rubles, up from 45.8 last night.
Yesterday, Russia’s central bank gave up defending the currency, after spending tens of billions of dollars trying to keep the ruble within a trading corridor.
Simon Baptist of the Economist Intelligence Unit reckons the bank took a good decision.
The ruble did rally yesterday, as the central bank also announced plans to limit domestic rouble liquidity - to prevent foreign speculation. But that rally has now reversed.
The ruble has been sliding since the Ukraine crisis sparked tit-for-tat sanctions between Moscow, and Washington and Brussels.
The falling oil price - which hit a new four-year low today - has also hit Russia. This chart suggests the ruble faces more pain.
If payday lenders are driven out of business by today’s caps, can more ethical lenders pick up the slack?
The Labour party has warned that regulators must enforce the new cap on payday lending.
Cathy Jamieson MP, Labour’s shadow financial secretary to the Treasury, has called for today’s proposals to be reviewed by the end of 2015.
She also pledged to hit the industry’s profits if Labour win the next election.
“We want to see more done to promote safer and more ethical forms of lending, and that is why a Labour Government would extend the levy on the profits of payday lenders and use the additional money raised to increase the level of Government funding for alternative credit providers such as credit unions.”
Updated
Back in the financial markets, and Vodafone has driven the European telecoms sector to its highest level since 2008.
Vodafone’s shares are now up 5.6%, on track for their best day this year, after beating revenue forecasts and nudging its profit estimates for this year.
They’re the biggest riser in the FTSE 100 today.
Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers, says Vodafone is making progress in rolling out new services, such as 4G superfast mobile broadband.
However, as flagged up in our opening post, Europe is a sore point....
Hunter says:
The ferocity of competition shows no sign of relenting and there are pockets in Europe such as Germany, Italy and Spain where service revenues continue to decline quite steeply.
Furthermore, net debt has shown an increase given the recent acquisition activity, whilst regulatory overhang and an uncertain European economic outlook provide further causes for concern.
Updated
Payday lenders may vanish within year as result of today’s price cap, one economist warned last night....
So how much of a difference will today’s payday lenders cap make?
An interest rate of 0.8% per day works out at £24 interest on a £100 loan, after a month.
Today, Wonga will charge you £37.15 in interest if you borrow £100 for 30 days, so the FCA’s rules will force that down, a little.
And the proposal to prevent anyone having to repay more than double their loan does offer more protection.
But some customers will be repeatedly borrowing, and repaying, money to and from loan companies over the course of a year.
Financial journalist Paul Lewis has calculated that the annual percentage rate under the FCA’s plans is still around 1,200%.
Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline, says payday lenders are still a major cause of financial angst:
“We hope that these measures [details] will bring an end to the inappropriate lending that we have seen from this industry. However, the FCA will need to be vigilant to ensure that lenders do not simply change their business models to try to evade the rules.
“Calls to National Debtline about payday loans have actually declined slightly from their peak in 2013, but we are still seeing around one in 10 calls relating to this kind of borrowing.
Fiona O’Donnell, Labour MP for East Lothian, agrees that the payday lending cap isn’t tight enough.
Stella Creasy: Payday lending cap is not strong enough
Stella Creasy, who led the charge against the likes of Wonga, is not impressed by the FCA’s new clampdown on payday lenders.
The Walthamstow MP says a cap of 0.8% interest each day is simply too weak, and won’t protect the public from ‘legal loan sharking’.
Here’s her official reaction:
“Today’s news will be welcomed as an early Christmas present for Britain’s legal loansharks. This cap is just £1 lower than their current charges. This is an industry where some firms are making nearly three quarters of a million pounds a week from British customers- such a high cap will do little to tackle these rip off charges.
“We’ve warned regulators this cap needs to be much lower to really change the behaviour of these companies, but today’s announcement shows they are still not listening. Other countries are much stronger at taking on these companies. Borrowers in countries like Japan, Australia, Canada and parts of America all have better protection from being preyed on by these companies, showing what can be done to end legal loan sharking.
“This year debt charities and the financial watchdog have reported rises in cases involving payday loans causing problems for consumers, showing just how toxic this industry is for many. Today’s announcement means yet again these sharks have slipped through the net.”
She’d like you to spread the word....
Updated
George Osborne blasts payday lenders
UK chancellor George Osborne has welcomed the new caps and fees being imposed on payday lenders (details here), and condemned the way they operated in the past.
In a statement, he says:
The Financial Conduct Authority has now confirmed the cap on the total cost of payday loans – not just the interest rate, but also the arrangement fees as well as the penalty fees – that will come into force in the New Year.
This is all part of our long term economic plan to have a banking system that works for hardworking people and make sure some of the absolutely outrageous fees and unacceptable practices are dealt with.”
We should remember, though, that it was opposition MPs such as Stella Creasy, Labour member for Walthamstow, who made payday lenders a hot political issue.
Updated
New rules for payday lenders
The other big news this morning is that UK payday lenders are being hit with new restrictions on how much they can charge for their loans.
The Financial Conduct Authority has declared that interest and fees will be capped at 0.8% a day, lowering the cost for most borrowers. This confirms a proposal made this summer.
It’s the latest stage in Britain’s crackdown on payday lenders, which critics accuse of preying on vulnerable people who can’t get an affordable loan from the banks.
The total cost of a loan will be limited to 100% of the original sum, meaning borrowers won’t be forced to pay more than double their loan. And default fees will be capped at £15.
Martin Wheatley, the FCA’s chief executive, says the new rules “strike the right balance for firms and consumers”.
He argues:
If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers. For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts.
For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.”
Here’s our full story, which will be updated through the day:
FCA’s new payday loan caps set for January 2015
Updated
Vodafone shares jump 4.4% in early trading
Shares in Vodafone have jumped by over 4% at the start of trading, up 9p to 216.9p.
Investors appreciate the news that it has raised its profit forecasts. They had also been braced for a 2.8% drop in organic service revenue; Vodafone actually reported a 1.5% decline.
Vodafone's results show weakness in Europe
Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and the eurozone.
Vodafone has got the morning rolling with a reminder that Europe’s weaker countries remain a tough place to operate.
But the mobile giant has also cheered the City by raising its profit forecasts; good news for millions of small shareholders.
In its latest financial results, Vodafone reports that it suffered “continued revenue declines in Europe”, particularly in areas hit hard by the eurozone crisis.
Service revenue across Europe fell by 7.1% in the six months to the end of September. That included a 13% in service revenues in Italy in the first half of the year, and 12.4% in Spain -- where underlying profits slumped by over 40%.
Here’s the key details:
Vodafone blamed “ongoing pressures from competition, regulation and weak economies” in Europe.
There are signs that the slump may be bottoming out -- revenues in the last three months were ‘only’ down by 9.7% in Italy, and by 9.3% in Spain.
Chief executive Vittorio Colao claims that conditions are improving:
“We have made encouraging progress during the quarter.
There is growing evidence of stabilisation in a number of our European markets, supported by improvements in our commercial execution and very strong demand for data.
And Vodafone has raised its forecast for underlying earnings this year, to between £11.6bn and £11.9bn, from £11.4bn-£11.9bn previously.
But still, the situation in Southern Europe remains concerning, as Bloomberg’s Jonathan Ferro explains.
More to follow....
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