- Nicola Sturgeon faces begging Whitehall for extra funds after £3.5bn overspend
- Treasury to earn record £12bn from North Sea even before windfall tax
- FTSE 100 rises 0.2pc as it heads for second weekly gain
- Ambrose Evans-Pritchard: Renewable energy will mint an army of eco-billionaires
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U kraine has issued a demand to the German government that it halts or severely limits gas flows through the Nord Stream 1 pipeline in a bid to hit the Kremlin's energy revenues.
The head of Ukraine's gas system operator argued that the operation of the pipeline was allowed under German law on the basis that it contributes to the strengthening of the security of gas supplies to Europe, but that Russia had violated those principles.
He added that Ukraine was willing and able to provide an alternative transport route to the pipeline, which runs under the Baltic.
Germany has already halted Russia's Nord Stream 2 gas project in response to its invasion of Ukraine.
But analysts warned diverting the remaining shipments through Nord Stream 1 would be a hard sell for Germany and the rest of Europe.
T hat’s all from us today, thank you for following! We shall see you after the weekend but, before you go, have a look at the latest stories from our reporters:
- Tony Blair rallies elite for Macron-style transformation of British politics
- Elon Musk sued by Twitter investors for 'driving down takeover price'
- How midlife 'peakers' are resisting the return to the office
- Nicola Sturgeon faces begging Whitehall for extra funds after £3.5bn overspend
- Treasury to earn record £12bn from North Sea even before windfall tax
HSBC clients query bank on climate
H SBC is facing queries from customers about its commitment to fight climate change after a senior banker downplayed the risks, Reuters reported, with at least one large institutional investor reconsidering whether to employ the bank for a sustainability role.
The investor reportedly plans to seek opinions from consultants on whether HSBC Asset Management should help manage its sustainability funds in the wake of the controversial comments.
Staff inside the bank have also sought reassurances about its policies amid concerns about how HSBC will be perceived by clients.
Stuart Kirk, HSBC's head of responsible investing, was suspended by the bank on Sunday after he took aim at climate activists and said "who cares if Miami is six metres underwater in 100 years?".
US stocks recover
O n the other side of the Atlantic, stocks continued to rebound from a steep sell-off in the recent weeks, with the S&P 500 almost erasing its monthly decline.
Volatility has gripped financial markets this year on fears that hawkish central banks will tip the economy into a recession. Analysts remain split on whether equities have found a bottom.
Morgan Stanley and Bank of America recently said there may be more losses to come. Citigroup strategists recommended stepping back into stocks, particularly in Europe and emerging markets, on their appealing valuations.
"It is fair at this point to start doing some bargain-hunting," Lori Calvasina, head of US equity strategy at RBC Capital Markets, told Bloomberg Television. "If you can get people more comfortable in the fundamental narrative going forward, I think that stocks are cheap enough to buy. Are valuations a reason to buy on their own? No, not yet."
Robinhood reaches settlement of suits over 2020 trading outage
L awyers for Robinhood said they have reached an agreement to resolve litigation by some investors who were blocked from trading shares in high-flying stocks during an outage in March 2020. No details were disclosed.
"Once final details are resolved, and within 60 days of this notice, the parties will file a motion for preliminary approval of the settlement," the attorneys said in a federal court filing.
Multiple investors sued Robinhood in several states, mostly alleging restrictions by the trading platform that amounted to a breach of contract, court records show. Cases in California were consolidated with a federal judge in San Francisco.
The outage was a blow to the Silicon Valley startup, which drew in young, often inexperienced investors with an easy-to-use trading app. Robinhood popularised the zero-commission brokerage and introduced millions of millennials and Gen Zers to financial markets. Critics, including some US lawmakers, say it encourages risky frequent trading by novices.
FTSE 100 inches higher
T he FTSE 100 has inched higher, recording its best weekly showing since mid-March, although oil and gas stocks came under renewed pressure after the UK government’s windfall tax plan this week.
The index rose 0.3pc to close at 7,585, though BP and Shell slipped about 2pc as traders continue digesting Rishi Sunak’s announcement on the new oil and gas levy.
Power generators such as SSE, Centrica and Drax dropped between 1.6pc and 4.2pc, while Harbour Energy , the biggest UK North Sea oil and gas producer, tumbled 10.8pc.
“The big shakedown will be how investors in the UK’s oil and gas majors like BP and Shell will feel about windfall taxes,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
“While not a long-term problem for profits, the incentivisation to invest their profits could see dividends trimmed.”
Victoria’s Secret agrees to finance $8.3m settlement for laid-off Thai workers
T hai workers who were sacked last year from a factory supplying global lingerie brands including Victoria’s Secret will receive $8.3m (£6.6m), in what labour activists say is the biggest settlement of its kind in the global garment industry.
About 1,200 workers were laid off without severance pay and wages owed to them by Brilliant Alliance Thai Global (BAT) after it went bankrupt and shut down its factory in Samut Prakan province in March 2021.
The incident was one of “hundreds of cases of wage theft” that labour activists say took place in the garment industry during the pandemic.
The settlement, financed by Victoria’s Secret in a loan arrangement with BAT’s owner, could set a precedent for global brands to better protect the rights of workers in their supply chains, according to Scott Nova, executive director of the Worker Rights Consortium, an international labour advocacy group.
Rivian in management reshuffle to overcome pains
R ivian is shuffling its executive ranks, including the departure of a top manufacturing executive, in an effort to help the Amazon-backed company overcome growing pains.
The automaker is parting ways with Charly Mwangi, executive vice president of manufacturing engineering, chief R.J. Scaringe said in an internal email viewed by Bloomberg News. Rivian's new chief operations officer will start on June 1.
The reorganisation calls for splitting the commercial business, which includes delivery vans made for Amazon, from the retail side of the company that produces the R1T plug-in pickup truck and R1S sport-utility vehicle.
Rivian has struggled with supply shortages and manufacturing snafus since it began building its new products late last year. The electric vehicle startup was touted as a competitor to Tesla and became the largest initial public offering last year. But its shares have fallen more than 70pc this year as it has suffered a series of miscues.
T hat’s all from me for today – thanks for following! Giulia Bottaro will see you through to the weekend.
Workspace considers sale of some McKay assets
O ffice operator Workspace has said it is considering selling parts of the McKay Securities business it snapped up earlier this month.
Shares in the London-listed business made gains after it told shareholders it could sell McKay’s light industrial assets after receiving “significant interest” from potential suitors.
Earlier in May, Workspace sealed its £272m acquisition of McKay, which previously said its portfolio included nine light industrial sites.
Workspace said it has now received “unsolicited indications of interest” from a number of unnamed parties for the entire portfolio and could use the sale to generate capital.
US consumer sentiment falls to fresh decade low
U S consumer sentiment deteriorated further in late May to a fresh decade low as mounting concerns over inflation clouded the outlook for the economy.
The University of Michigan’s sentiment index decreased to 58.4 from a preliminary reading of 59.1. In April, the gauge stood at 65.2.
Households were particularly gloomy about their short and long-term outlooks for the economy. A gauge of current conditions fell to a 13-year low of 63.3, while future expectations also dropped.
Consumers expect prices to rise 5.3pc over the next year, holding close to a four-decade high. They expect prices to climb at an annual rate of 3pc over the next five to 10 years.
Joanne Hsu, director of the survey, said:
This recent drop was largely driven by continued negative views on current buying conditions for houses and durables, as well as consumers’ future outlook for the economy, primarily due to concerns over inflation.
Treasury to earn record £12bn from North Sea even before windfall tax
R ishi Sunak is to rake in a record £12bn from North Sea oil and gas producers this year, even before the Chancellor's energy windfall tax kicks in, analysis has revealed.
Rachel Millard has the details:
It is the best-ever return from the basin for the Exchequer and higher than the Office for Budget Responsibility estimates of £7.8bn up to April 2023, amid sustained high oil and gas prices, according to the energy industry analysts Wood Mackenzie.
Wood Mackenzie said: "Based on our estimates, under current fiscal terms, the UK upstream looks set to deliver £28bn of corporate profits in 2022, with government 'share' coming in at £12bn. "That would mark the best returns – for both industry and government – since the North Sea's inception, by some distance."
On Thursday the Chancellor bowed to months of pressure and introduced a windfall tax on oil and gas producers to fund support for households struggling with soaring energy bills.
The move takes the tax rate on North Sea oil producers from 40pc to 65pc, lasting until December 2025 unless oil and gas prices return to "normal" levels before then. He said the measure was expected to raise around £5bn in its first year.
P&O Ferry firings ‘bad for whole industry’, says rival
T he fallout from P&O Ferry’s decision to sack 800 workers has been damaging for the whole industry, one of its main rivals has said.
P&O was ordered to halt services on safety grounds after it fired experienced crew to replace them with lower-paid staff.
Carl-Johan Hagman, chief executive of Stena Rederi, said the move threatened to undermine 30 years of progress in improving the image of ferries.
He told Bloomberg: “I don’t think it’s been good for anybody, frankly. We have a better environmental footprint and better predictability and punctuality, then we get these disruptions.
“We would like our ferries to be seen like a tunnel or a bridge in terms of reliability.”
Separately, P&O boss Peter Hebblethwaite defended the mass sackings, telling the BBC that while “difficult” and “unpleasant”, the move should be seen as part of a wider revamp.
Wall Street opens higher as consumer spending grows
W all Street’s main indices have opened higher after data showed strength in consumer spending and signs of peaking inflation, providing relief to investors worried about a sharp slowdown in economic growth.
The S&P 500 rose 0.5pc, while the Dow Jones gained 0.3pc. The tech-heavy Nasdaq jumped 1.1pc.
US spending holds up as consumers dip into savings
U S consumer spending rose in April by the most in three months, indicating households were holding up in the face of persistent price pressures by dipping into savings.
Purchases of goods and services – adjusted for inflation – increased 0.7pc from March, according to the Commerce Department. Both goods and services spending rose in April.
The personal consumption expenditures price index, which the Federal Reserve uses for its inflation target, rose 0.2pc from a month earlier and was up 6.3pc from April 2021. The core PCE price index climbed 0.3pc for a third month.
The figures underscore forecasts for spending to stay healthy during the second quarter as consumers remain backstopped by solid job growth and accumulated savings. The slowdown in inflation during the month partly reflected a drop in fuel prices.
While annual inflation is cooling, it remains three times higher than the Fed's 2pc target and helps explain why policy makers are seen pressing on with half-point hikes in interest rates in coming meetings.
Americans, in the aggregate, still have a lot of savings built up. But that stockpile is going to shrink pretty quickly if they keep saving at such a low rate. (And, as always, remember these are aggregate figures — plenty of people have no savings to speak of.) pic.twitter.com/xwVjELLPtn
— Ben Casselman (@bencasselman) May 27, 2022
Shell hits out at windfall tax
S hell has (finally) issued its response to the windfall tax. Unsurprisingly, it’s not a fan.
A spokesman said:
We understand the worry for millions of people about how high energy costs are challenging their household budgets – and the need for support to help make ends meet.
But at the same time, we must sustain investment in securing supplies of oil and gas the UK needs today, while allocating future spend for the low carbon energies we want to build for the future.
However, in its current form the levy creates uncertainty about the investment climate for North Sea oil and gas for the coming years.
And, longer term, the proposed tax reliefs for investment don't extend to the renewable energy system we want to drive forward in the UK and invest in very substantially.
When making plans for the next decade and beyond, we need certainty.
Reckitt Benckiser gets ‘muted’ interest for $7bn baby formula sale
R eckitt Benckiser is said to be struggling with the sale of its infant nutrition business, with only a small number of private equity firms tabling bids.
Clayton Dubilier & Rice is one of the few suitors that has submitted a non-binding bid, Bloomberg reports. Reckitt asked for offers by late May, with an expected price tag of around $7bn (£5.5bn).
Potential buyers have reportedly been spooked by the ongoing baby formula crisis in the US, where a huge shortage has left some parents struggling to feed their children.
Blackstone, Carlyle Group, KKR and Bain Capital were among the other private equity firms said to be interested in a deal for the business, which owns brands including Enfamil.
Ministers ‘poised to launch’ new £3bn recovery loan scheme
M inisters are said to be preparing to launch a £3bn per year loan guarantee scheme to replace emergency measures brought in to help businesses during the pandemic.
The new Government-backed loans will have tighter requirements for borrowers compared to Covid schemes, through which billions of pounds was lost through fraud, the Financial Times reports.
Under the plans, businesses will be expected to offer personal guarantees for loans administered by banks. The Government guarantee is likely to be set at 70pc of the value of the loan, according to the report.
The policy builds on the existing recovery loan scheme and will run for at least two years.
Tony Blair rallies elite for Macron-style transformation of British politics
S ir Tony Blair is bringing together the political and business elite for a summer summit organised alongside a new centrist group inspired by Emmanuel Macron's En Marche.
Tom Rees has the details:
The former Labour prime minister will hold a "Future of Britain" conference on June 30 that will promote his solutions to help fill a "gaping hole" in British politics.
Organisers want the France’s President Macron and former Labour foreign secretary David Miliband to speak at the event and already have Obama administration economist Larry Summers and former Scottish Tory leader Ruth Davidson on the programme, according to a Politico report.
The conference is being organised by the Tony Blair Institute and the Britain Project, which was set up by a group of centrists in the wake of Boris Johnson's huge victory in the 2019 election and Brexit.
The conference will be hosted by Emily Maitlis and Jon Sopel, who both left the BBC to front a new podcast and radio show for Global earlier this year. Mr Blair will give the keynote speech.
G7 vows to phase out fossil fuels by 2035
G 7 nations have committed to largely end the use of fossil fuels in their electricity sectors by 2035, despite heavy tensions in the power market over Russia’s invasion of Ukraine.
In a statement released following a meeting in Berlin, energy ministers of the G7 said: “We further commit to a goal of achieving predominantly decarbonised electricity sectors by 2035.”
They also plan “concrete and timely steps towards the goal of an eventual phase-out of domestic unabated coal power generation”, as well as ending fossil fuel financing abroad by the end of the year.
US futures push higher ahead of economic data
W all Street is set to open higher as traders gear up for fresh economic data that will likely offer clues on US consumer spending strength amid red-hot inflation.
The Commerce Department’s report is expected to show consumer spending rose 0.7pc in April, easing from a stronger 1.1pc in March.
Another set of numbers is likely to show the core personal consumption expenditures price index gained 0.3pc last month, after climbing at the same pace the previous month.
Wall Street closed higher yesterday after a string of upbeat retail results. That mood was dented by Gap, however, which dropped 19pc in pre-market trading after slashing its forecasts due to weak demand.
Futures tracking the S&P 500 rose 0.3pc, while the Dow Jones was up 0.1pc. The Nasdaq gained 0.5pc.
Gas prices head for weekly loss as Russia supply fears ease
N atural gas prices are heading for their third straight weekly decline as fears over further disruptions to Russian supplies began to wane.
Benchmark European prices fell as much as 4.3pc to hit their lowest level since the start of the war. The UK equivalent gained 1.1pc.
Russian flows are expected to remain stable today, even as flows through a key transit route in Ukraine remain cut off.
Concerns that Russia could cut off Europe in a dispute over rouble payments have also subsided, with European buyers finding ways to meet the demands without breaching sanctions.
Nicola Sturgeon faces begging Whitehall for extra funds after £3.5bn overspend
N icola Sturgeon will be forced to beg Whitehall for further funding after the SNP pledged to overspend in Scotland by £640 per person, economists have said.
Here’s more from Louis Ashworth :
The Scottish Government's spending review on Tuesday is likely to show a £3.5bn black hole in its budget by 2026–27, according to the Institute for Fiscal Studies (IFS).
David Phillips, the think tank's associate director, said the SNP is facing some "very tough decisions" unless the UK Government rides to its rescue with extra funding.
He said: "A series of expensive spending commitments on top of underlying spending pressures mean that the Scottish Government faces a multi-billion budget shortfall over the next four years under current forecasts.
"Because it cannot borrow to fund day-to-day spending except in some limited circumstances, next week's Scottish Spending Review could see the announcement of pretty hefty tax rises or cuts to spending on lower priority services, and even the abandoning of some policy commitments, to bring the budget into balance."
Alternatively, he said, the Scottish Government could "pin its hopes" on further funding – which is "effectively the gamble" the SNP made in its 2021 election manifesto.
Pizza Express poaches former KFC chief as new boss
P izza Express has poached KFC’s former UK boss to take over as its new chief executive.
Paula MacKenzie has over 20 years’ experience in the food and drink sector, also holding senior roles at Diageo, GSK and Innocent.
Ms MacKenzie will lead the popular pizza chain through its expansion as it looks to bounce back after a torrid pandemic that saw it shut dozens of restaurants and cut thousands of job.
Last July the group secured a £335m refinancing after it was taken over by bondholders.
Allan Leighton, chairman of Pizza Express, said:
We are delighted that Paula will join the Pizza Express team as chief executive, she has a terrific track record of performance and importantly is a champion of equality, diversity, and inclusion.
Paula is joining at an exciting time for Pizza Express and will work with our leadership team to drive priorities for growth, including an increased customer focus led by rapid digital transformation.
Boris Johnson: We can’t turn our backs entirely on fossil fuels
B oris Johnson has said he wants to keep North Sea oil and gas flowing to help ease the cost-of-living crisis, as he urged companies to ramp up investment.
The Prime Minister told Bloomberg: “I don’t think we can turn our backs entirely on hydrocarbons. The UK has a flourishing sector in the northeast of Scotland. It’s very important, we’ve got to keep that going.”
The comments highlight how Russia’s war in Ukraine has forced the UK to undermine its own energy transition policy.
The Government is breaking pledges made as host of the Cop26 conference in December by mounting a £5bn tax raid on the oil and gas industry that will subsidise fuel consumption and incentivise more drilling.
In his drive to lower the cost of energy by boosting supply, Johnson also stressed the importance of further investment in green and renewable energy.
He said: “To tackle inflation in the medium term, you’ve got to deal with supply-side issues. So we need the energy companies to be putting some more into hydrocarbons, but we also need the whole country to be investing in more low-carbon energy.”
Bankrupt Sri Lanka turns to Russian oil amid fuel crisis
S ri Lanka has turned to Russian crude oil as it battles with crippling fuel shortages.
Ranil Wickremesinghe, the country’s new prime minister, yesterday said Sri Lanka was down to its last day of petrol. It’s seeking a $500m loan from India amid the worst financial crisis in its independent history.
Sri Lanka has now said its only refinery will receive a shipment of Russian oil tomorrow, allowing it to restart production for the first time in over two months.
It’s the latest Asian nation to accept Russian oil despite the invasion of Ukraine. The war prompted many western countries to shun Putin’s energy, and optimistic energy buyers have capitalised on the sharp fall in prices.
Boris Johnson: UK can avoid a recession
B oris Johnson has insisted the UK can dodge a recession in the month ahead, even as the cost-of-living crisis sets the stage for a “difficult” period.
Despite soaring energy bills and inflation at a four-decade high, the Prime Minister struck a bullish tone of the outlook.
Asked by Bloomberg whether the UK was heading for a recessions, he said: “Not necessarily at all”.
He added: “There are ways forward that are incredibly exciting. If we make sure that we have a proactive approach to talent from abroad… we fix our energy supply issues, we fix issues in the UK labour market.”
It comes a day after the Government bowed to pressure to do more to help households struggling with rising bills.
The Prime Minister added: “We’re going to have a difficult period, and we’ve got to be absolutely clear with people it’s going to be difficult, and the Government cannot solve every problem.
“We can’t cover everybody’s extra cost. But what we can do is make sure that we deal with the underlying causes of inflation, but also keep our economy strong and open to investment.”
KPMG to hire 3,500 UK tech staff
K PMG is looking to hire 3,500 UK engineers, data scientists and designers in the next three years as part of its push into digital services.
Lisa Heneghan at KPMG UK said the investment "signals a significant change in how we operate and serve the organisations we work with".
The company currently has about 15,300 partners and staff in the UK. The new hires will more than double the current 3,000 tech staff.
Disposable income falling by most since 2008, says Asda
B ritish households’ disposable income has fallen by the most since 2008 as surging energy bills and sky-high inflation squeeze budgets.
That’s according to the latest weekly tracker from Asda, which showed weekly household income to spend on non-essentials dropped by £40.38 in April from a year earlier.
That’s the biggest decline since the tracker began, while income has fallen to £205 a week, the lowest since October 2018.
It comes after Rishi Sunak announced plans to provide grants of £650 to more than 8m of the poorest households, funded via a tax on energy firms' windfall profits.
Asda said it has spent more than £90m expanding its range of budget-friendly items – dubbed Just Essentials – and is reducing and locking the price of more than 100 products for the rest of the year.
Stagecoach strikes £20m deal for east London buses
S tagecoach has struck a £20m deal to buy east London bus operations from Kelsian Group.
The travel group said it has entered into binding agreements to purchase the operations, which also include a deport at Lea Interchange, for an initial £10m followed by £1m each year for a decade after the move is completed.
Kelsian’s east London operation operates 11 contracts on behalf of Transport for London, using a fleet of around 150 buses, with an annual turnover of around £38m.
It said the move is “a good strategic fit” alongside Stagecoach’s existing London operations.
Stagecoach added that the new depot will also provide the business with a platform to bid for new contracts in the area.
Martin Griffiths, chief executive of Stagecoach, said:
We have an extensive track record of operating high-quality and profitable bus services on behalf of Transport for London.
This targeted acquisition provides operational and margin improvement opportunities that we have successfully delivered at our other London bus depots.
We look forward to working with TfL to deliver even better bus links to local communities in east London and also helping support the Mayor’s drive to deliver a net zero transport system.
NatWest chairman: Sunak’s support is ‘unusually redestributive’
N atWest’s chairman has branded Rishi Sunak’s new support package “unusually redistributive” for a Conservative Chancellor.
Howard Davies said he was instinctively opposed to windfall taxes, but “cautiously” supported them in this instance, adding it was “absolutely right” to focus on the poorest households.
He told Bloomberg: “I guess in these circumstances, given that it is a highly unusual intervention driven by a war, you probably can define it tightly enough such that other companies won’t fear that he’s coming for them, so I think it’s probably just about okay.”
Mr Davies added that the Chancellor’s new support “should take off some of that pressure and has focused on assistance on the place where it’s really needed”.
Twitter shareholders sue Musk over ‘deflated’ share price
T witter shareholders have filed a lawsuit against Elon Musk, accusing him of engaging in “unlawful conduct” aimed at sowing doubt over his bid to buy the company.
The lawsuit filed in the US District Court for the Northern District of California claims the billionaire Tesla boss has sought to drive down Twitter’s stock price because he wants to walk away from the deal or negotiate a substantially lower purchase price.
San Francisco-based Twitter is also named as a defendant in the lawsuit, which seeks class action status as well as compensation for damages.
Musk last month offered to buy Twitter for $44bn, but later said the deal can’t go forward until the company provides information about how many accounts on the platform are spam or bots.
The lawsuit notes, however, that Musk waived due diligence for his “take it or leave it” offer to buy Twitter. That means he waived his right to look at the company’s non-public finances.
Issa brothers mull dropping out of Boots race
T he billionaire Issa brothers are said to be considering dropping out of the takeover race for Boots due to disagreements over price.
The Issas, who have launched a bid with TDR Capital, baulked at a request by US parent company Walgreens Boots Alliance to increase their offer and are now thinking about walking away, Bloomberg reports.
Walgreens has been looking for a price tag of about £7bn for Boots, although suitors have put its value at closer to £5bn.
The Issas, who own Asda alongside TDR, are said to be open to a compromise on price, suggesting the threat to walk away could be a negotiating tactic.
A consortium of bidders led by Indian billionaire Mukesh Ambani and Apollo Global Management is the other serious party left in the race.
Pound heads for second weekly gain
S terling is close to a one-month high and heading for its second weekly gain, boosted by Rishi Sunak’s large spending plan to help households with rising energy bills.
The market reaction to the £15bn package was initially subdued, but said signs of Government support could lift sentiment towards the pound. The currency was also helped by a broad reversal in the dollar.
The pound ticked up 0.1pc against the dollar to $1.2618 and was on course for a 1pc gain this week. Against the euro, it was marginally higher at 85.06p, but that followed a fall yesterday.
BP to review all North Sea investment
I CYMI – BP last night became the first major energy company to declare it would review investments in light of the Government's new windfall tax.
Rachel Millard has more:
The FTSE 100 oil and gas producer said the tax was a “multi-year” proposal and it would need to “look at the impact” on its North Sea investment plants.
Chief executive Bernard Looney had previously indicated the company’s plans to invest £18bn in the UK would not be affected by an impending raid on profits.
The measures were met with dismay in the sector, despite tax relief on investments. Offshore Energies UK, the trade group, said they were a “backward step” that would deter investment.
The Government bowed to months of pressure on Thursday to act to help households facing soaring energy bills with a raid on producers' profits enjoying surging oil and gas prices.
Energy stocks keep falling as retailers gain
E nergy firms have continued their decline this morning after Rishi Sunak unveiled a windfall tax on oil and gas profits.
Harbour Energy sank to the bottom of the FTSE 100 with a 5.9pc fall. British Gas owner Centrica dropped 4.3pc, while SSE and Drax were down 3.1pc and 2.4pc respectively.
While energy generators won’t be directly affected by the tax, there are fears further measures are to come after the Chancellor said a review into the market was needed.
BP shed 1pc after it said it’s reviewing all North Sea investment in light of the windfall tax. Shell was down 0.5pc.
Meanwhile, there were more gains for retailers as the £15bn package fuelled hopes of higher consumer spending. JD Sports rose as much as 2pc, while Frasers was up 1.9pc and Currys gained 0.5pc.
Is Sunak’s handout a rebate or income support?
H ere’s an interesting point from Sam Freedman at the Institute for Government.
He says the ONS needs to decide how to define the latest support measures – and its choice will directly impact the headline inflation rate.
In practice, it won’t change anything. But Rishi Sunak will no doubt be happy if that inflation figure starts coming down…
Nice little example of how measurement affects politics. ONS need to decide if the £400 off energy bills announced yesterday is a rebate or income support. If former it will bring down inflation as full rise in energy bills won’t be counted.
— Sam Freedman (@Samfr) May 27, 2022
FTSE risers and fallers
A fter treading ground at the open, the FTSE 100 has now dipped into the red.
The blue-chip index is down 0.2pc, but it could still be heading for its best weekly performance since mid-March.
Retailers including Next and Marks & Spencer led yesterday’s gains, as Rishi Sunak’s fresh support spurred hopes of increased consumer spending.
Energy firms SSE and Harbour Energy were the biggest fallers, shedding around 2.5pc each amid concerns they could be targeted with a windfall tax.
But losses were limited by gains for commodity stocks, with Glencore , Rio Tinto and Antofagasta all rising about 1pc as copper and iron ore prices were boosted by a weaker dollar.
The domestically-focused FTSE 250 was trading flat. Moonpig slumped 8pc after it placed shares at a discount.
Russia ships record amount of oil to China and India
C hina and India are buying up record amounts of oil from Russia as the West shuns Putin over the invasion of Ukraine.
Between 74m and 79m Russian barrels were in transit and floating storage over the past week – more than double the 27m barrels just before war started, according to data from Kpler.
Asia overtook Europe as the largest buyer for the first time last month and that gap is set to widen in May.
The figures highlight how the conflict has upended global energy trade, with the UK, US and many EU countries turning their back on Russia, forcing Moscow to look for new buyers in Asia.
China and India have been quick to capitalise on the situation, snapping up millions of barrels at a discount.
EU prepares to ration gas if Putin turns off the taps
T he EU is said to be drawing up plans to ration gas supplies in case the bloc is cut off completely by Putin.
Kadri Simson, the EU’s energy commissioner, said the region was racing to store as much gas as possible and could replace most of Russia’s deliveries this year, but would have to do more if there were any “full disruption” of supplies.
The plans being drawn up would include rationing gas to industry, but households would be spared, the Financial Times reports.
Russia has already cut supplies to Poland, Bulgaria and Finland for refusing to comply with Putin’s demand for payment in roubles.
Ms Simson warned that “any member state” could be next.
China’s industrial profits plunge amid zero-Covid lockdowns
P rofits at Chinese industrial firms dropped last month for the first time in two years as Beijing’s zero-Covid policy disrupted factory production, distribution and sales.
Industrial profits fell 8.5pc in April from a year earlier, marking the worst performance since the early days on the pandemic in April 2020.
Factories have struggled during the latest outbreak, largely due to strict lockdowns in Shanghai. Earlier this month, the government admitted output shrank 2.9pc in April – the worst performance for a single month since 1990.
FTSE 100 treads water
T he FTSE 100 is flat as a pancake at the opening bell, although it’s on track for its strongest week of gains since March.
The blue-chip index opened unchanged at 7,565 points.
IFS: New measures are ‘strikingly progressive’
I t’s worth pointing out that it’s not all criticism from the IFS.
Paul Johnson describes the new measures as “extremely distributive” and “strikingly progressive”, as the support is targeted at the poorest and most vulnerable households.
Yesterday he was conjuring up images of Rishi Sunak as Robin Hood – “taking from high earners and giving to the poor”.
Rishi Sunak: Support will have ‘minimal’ impact on inflation
R ishi Sunak is already out the blocks with his response to inflation worries.
The Chancellor said his latest support package will have a “minimal” impact on price rises, pushing back against criticism that he could fuel inflation further.
Asked on Sky News whether than meant adding one percentage point to inflation, he said “no, much, much less than that”.
He said the support won’t push up prices because the measures were targeted and partially funded be raising new money.
IFS warns over Sunak’s temptation
G ood morning.
All eyes are on Rishi Sunak this morning as we digest the latest measures to help battle the cost-of-living crisis.
Paul Johnson, director of the IFS, has warned there’s a risk inflation could be driven even higher if the Chancellor gives in to the temptation of offering more and more handouts.
He told BBC Radio 4: "In general when you've got very high inflation you need to be very careful about putting more money into the economy.
"I think the biggest risk here is that the Chancellor will be tempted to do this again and again and I think if that happens then we really could be in for a bit of trouble."
It comes after the Chancellor unveiled a £15bn package of measures to help households cope with surging energy bills, which will be funded in part by a windfall tax on oil and gas profits.
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What happened overnight
Hong Kong shares rallied more than 3pc on Friday morning thanks to a surge in tech firms after strong earnings from Alibaba and Baidu. Shanghai, Tokyo, Seoul, Sydney, Singapore, Taipei, Manila, Jakarta and Wellington were also sharply higher.
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