Eurozone shrank in last quarter Newsflash: The eurozone economy shrank in the last quarter, a worse result than expected. Eurozone GDP fell by 0.1% in July-September, data just released by Eurostat shows, worse than the stagnation which economists expected. This highlights how Europe’s economy is being held back by high interest rates, the cost of living crisis, and weaker demand from the global economy. The wider European Union grew by 0.1%. Latvia (+0.6%) recorded the highest increase compared to the previous quarter, followed by Belgium (+0.5%) and Spain (+0.3%). The highest declines were recorded in Ireland (-1.8%), Austria (-0.6%) and Czechia (-0.3%). Germany, the eurozone’s largest member, shrank by 0.1% during the quarter. And as we’ve covered this morning, France only grew by 0.1% while Italy’s GDP stagnated. Closing post Time to wrap up…. Here’s our news story on today’s eurozone GDP growth report…. Russia "tightens capital controls on western companies" Russia has reportedly imposed additional currency controls in an attempt to prop up the falling rouble, restricting western companies that sell their Russian assets from taking the proceeds in dollars and euros. International companies that want to exit Russia after its invasion of Ukraine have to sell their assets in roubles under new government restrictions, according to the Financial Times, which cited people familiar with the matter. If they insist on receiving foreign currency for their assets, they face delays or even losses on the sums that can be transferred abroad, the FT reported. In the City, Hotter Shoes owner Unbound Group has warned shareholders it will not be able to release its interim results by the end of today, the deadline under stock market rules. Unbound’s shares have been suspended since 17 July 2023 pending clarification of the Company’s financial position. It has previously missed the deadline of 5th August to publish its latest Annual Report. Unbound admits: It remains unlikely that the Company will be in a position to publish its Annual Report and its Interim Results in the near future. It also says it continues to explore opportunities for “a Transaction”, but these talks remain at an early stage so there is no certainty that it will be completed. Back in July, Drapers reported that industry insiders believe the company has struggled to maintain Hotter Shoes’ proposition after it moved to a marketplace model. Back in the eurozone, disinflation is “well on its way”, declares analysts at ABN Amro. They say this morning’s rapid fall in eurozone inflation, and the drop in GDP in Q3, show price pressures easing. ABN Amro say: To begin with, HICP inflation fell to 2.9% in October, down from 4.3% in September, which was below the consensus and our own forecast. The bulk of the drop was thanks to energy price inflation, which fell to -11.1% from -4.6% on the back of a sharp negative base effect (in October 2022, energy inflation peaked at 41.5%), but the inflation rates of all other main components also declined in October. The inflation rate of food, alcohol and tobacco fell to 7.5%, down from 8.8% in September, services price inflation declined to 4.6% from 4.7% and non-energy industrial goods price inflation fell to 3.5% from 4.1%. Energy price inflation is still influenced by the implementation and unwinding of government support measures after the start of the war in Ukraine. This will continue to impact household energy inflation for the rest of this year and in the first half of 2024. Still, based on recent trends in energy commodity prices, we think that the trough in energy inflation has been reached now, and we expect a rise in the coming months, which could also result in overall inflation temporarily rebounding somewhat in the short term. UK stock market in a ‘doom loop" after rough month for stocks October has been a painful month for shares in UK companies, and there could be worse times ahead for the market. The domestically-focused FTSE 250 index has fallen by over 6% this month, its worst performance since September 2022 (when stocks were hit by the mini-budget chaos). The wider picture for the market is concerning too, with UK investment bank Peel Hunt warning today that Britain’s market for small and medium sized stocks is shrinking rapidly Bloomberg has the details: A lack of initial public offerings, along with a flurry of takeovers by overseas and private equity firms, mean there are more companies leaving the UK market than joining it. The trend is particularly pronounced for the FTSE Small Cap Index, which Peel Hunt says has lost 10% of its members and 20% of its market capitalization this year. “We are currently in a doom loop, where valuations are low, liquidity is reducing, investors are seeing withdrawals and there is little desire to IPO,” Charles Hall, Peel Hunt’s head of research, wrote in a report. “If this continues, the UK could lose a crucial part of its financial ecosystem.” US consumer confidence dips amid recession worries Just in: US consumer confidence has dipped this month, but was higher than expected, as people fret about inflation and conflict in the Middle East. The Conference Board’s Consumer Confidence Index has dropped to 102.6 in October, down from an upwardly revised 104.3 in September, and the third monthly decline in a row. Consumers’ assessment of current business and labor market conditions declined this month, as did their short-term outlook for income, business, and the jobs market. The report says: Consumer fears of an impending recession remain elevated, consistent with the short and shallow economic contraction we anticipate for the first half of 2024. Dana Peterson, chief economist at The Conference Board says consumers are preoccupied with rising prices, particularly grocery and gasoline prices. Consumers also expressed concerns about the political situation and higher interest rates. Worries around war/conflicts also rose, amid the recent turmoil in the Middle East. The decline in consumer confidence was evident across householders aged 35 and up, and not limited to any one income group.” Odey Asset Management to close down Newsflash: Odey Asset Management (OAM) is in the process of winding down, months after its founder was accused of sexual misconduct by junior female members of staff. In a statement on its website, the group says: Odey Asset Management, including Brook Asset Management and Odey Wealth, will be closing. Fund Managers and Funds have moved to new Asset Managers. Some Odey funds, and their managers, have been transferred to other City firms, while others have closed. OAM was thrown into turmoil in June after the Financial Times revealed that 13 women had accused Odey of abuse or harassment over decades. Odey denies the allegations. Earlier this month, it emerged that the group’s wealth management arm was being wound up. Back in the eurozone, the head of France’s central bank has declared that inflation has clearly passed its peak, after falling to 4% this month (see earlier post). Francois Villeroy de Galhau, who is also a policymaker at the European Central Bank, said: “This state of the economy fully justifies the halt to the rate hike sequence decided by the [ECB] Governing Council last Thursday. “Our monetary policy must now be guided by confidence and patience: confidence that we are making firm progress towards bringing inflation down to 2% by 2025; patience in stabilising interest rates at their current level for as long as is still necessary. Asda has completed its buyout of sister business EG Group’s UK petrol forecourts business for £2.07bn, our retail correspondent Sarah Butler writes. The sharp-eyed may notice a £200m drop in the valuation from the deal which involves 356 sites and was first announced this spring between the companies, both owned by the billionaire Issa brothers and UK private equity group TDR Capital. That’s because EG will now be retaining several foodservice brands including Cooplands, its bakery business, and its franchises with Starbucks, KFC, Sbarro, Chaiiwala and Cinnabon. Asda will still be acquiring the Leon fast food business, however, under the deal so expect loaded Mexican fries and vegan sausage muffins to appear in a supermarket near you before long. Asda is also taking on 462 Greggs, Burger King and Subway outlets as franchise agreements from EG. Over in the US, house prices in the 20 largest cities have risen for the sixth month in a row, helped by a shortage of properties on the market. The S&P CoreLogic Case-Shiller 20-city house price index rose 1% month-on-month in August, as compared with the previous month. On a year-over-year basis, home prices in the 20 major metro markets in the U.S. have risen by 2.2%, despite the impact of higher US interest rates on borrowing costs. S&P Dow Jones Indices, who produce the report, say: Chicago led the way for the fourth consecutive month, reporting the highest year-over-year gain among the 20 cities in August. For this month, seven of 20 cities reported lower prices. Rwelve of the 20 cities reported higher prices in the year ending August 2023 versus the year ending July 2023. Nineteen of the 20 cities show a positive trend in year-over-year price acceleration compared to the prior month. Back in the energy sector, BP’s interim chief executive has dismissed speculation the British energy major could become a takeover target. Murray Auchincloss told the Financial Times he wasn’t concerned that BP could be caught up in the wave of consolidation in the oil and gas sector, saying: “I don’t feel vulnerable, in fact I feel quite confident.” Recent multibillion-dollar acquisitions by ExxonMobil and Chevron have sparked predictions there could be further M&A activity in the energy sector. And writing in the Telegraph today, Ben Marlow argues that oil’s next mega-merger should be Shell and BP. Ben writes that BP suddenly looks extremely vulnerable, having lost chief executive Bernard Looney in September over personal relationships with colleagues, adding: There are unmistakable echoes of the Deepwater Horizon crisis when Shell briefly weighed an opportunistic rescue of a company that looked to have been plunged into a death spiral by the exorbitant clean up and legal costs associated with the catastrophic Gulf of Mexico oil spill. In the end, Shell chickened out, concerned that BP’s mounting legal liabilities could prove too big a handicap. It is the deal that keeps getting away. In his memoirs Lord Browne, the former BP chief executive, revealed how management had wanted to merge with Shell in 2004. BP’s shares are down 4% today, after it posted lower-than-expected profits this morning. In the transport sector, the UK government has pulled a screeching u-turn over the controversial, unpopular plans for the mass closure of England’s railway ticket offices The transport secretary, Mark Harper, has announced the “government had asked train operators to withdraw their proposals”. Our transport correspondent Gwyn Topham explains: The move came after a huge public backlash to the cost-cutting proposals, which attracted 750,000 responses in a public consultation, 99% of which were objections, according to the passenger watchdogs managing the survey. Harper announced the decision minutes after the watchdogs, Transport Focus and London TravelWatch, announced that they would formally object to all of the closure proposals. Back in the UK, the number of home sales has dropped by 17% year-on-year. New figures from HM Revenue and Customs (HMRC) show that an estimated 85,610 home sales took place in September 2023. That was also a 1% drop compared with August, as high UK interest rates continue to hit demand. High interest rates, low consumer demand and negative global sentiment are all weighing on the eurozone economy, says Richard Flax, chief investment officer at Moneyfarm. Following this morning’s GDP and inflation reports, Flax says: “Today’s slew of data releases provides a broad overview of the underlying health of the European economy (or the lack thereof). The preliminary reading of the Eurozone CPI has shown headline inflation falling to its lowest levels in over two years, as price pressures continue to ease, primarily with lower energy prices. Headline inflation dropped to 2.9% YoY, well below the 3.1% expected, while core CPI, which strips out volatile food and energy prices, eased to 4.2% (within expectations) from 4.5% previously. “While inflation has eased thanks to the ECB’s aggressive hikes, the central bank’s tightening has also had an impact on the wider economy, with GDP falling by -0.1% in Q3 2023 – worse than the stagnation predicted by economists. In YoY terms, Eurozone GDP is currently growing at +0.1%, but another decline in Q4 would place the region in a technical recession. The high interest rates, low consumer demand and negative global sentiment are certainly weighing on the economy. Germany shrank by 0.1% in Q3, while Ireland, Austria and Czechia clocked bigger declines at -1.8%, -0.6% and -0.3% respectively.” Deutsche Bank’s chief European economist, Mark Wall, points out that underlying inflation in the eurozone is running at twice the ECB’s target, saying: “Euro area inflation dropped more than expected again in October, falling below 3% for the first time since mid-2021. The ECB will hold this news at arm’s length. Core inflation remains above 4%, twice the target level of inflation. The ECB needs to see wage inflation slowing and this could take a further six months.” Pushpin Singh, senior economist at the Centre for Economics and Business Research, warns that growth in the eurozone will be sluggish this year and in 2024. Singh explains: “Today’s Eurostat figures reveal a quarterly contraction in the Eurozone economy for Q3 2023. The currency bloc continues to be affected by elevated inflation and the ECB’s response to higher interest rates, the impacts of which continue to feed through to the economy. The ECB, trying to balance the need to fight inflation with the desire to avoid unnecessary economic harm, opted to pause its monetary tightening campaign at its latest Governing Council meeting last week. Nonetheless, key interest rates in the currency bloc are expected to remain elevated as the ECB looks to stamp out lingering price pressure, and this will likely act as a drag on growth. As such, Cebr forecasts that the Eurozone economy will face sluggish growth over this year and next.” ING: Eurozone recession this year is certainly possible There is a “realistic” prospect that the eurozone falls into a technical recession in the second half of 2023, says ING analyst Bert Colijn. Colijn argues that the 0.1% drop in eurozone GDP in the last quarter is not a meaningful decline, but that there is a broad stagnation in the region. He explains: The drop of 0.1% quarter-on-quarter in eurozone GDP is not very dramatic. It was led by Irish GDP falling by 1.8% – a figure which is often subject to dramatic revisions. Germany experienced a small decline of 0.1%, while Italy stagnated over the quarter. Growth in France and Spain remained positive but still lower than last quarter. All in all, growth continued to trend around zero in the third quarter. While a technical recession is certainly possible in the second half of this year on the back of the third-quarter GDP reading and a weak start to the quarter according to first business surveys, we don’t see too much reason for real alarm so far. It does look like the economic environment is weakening at the moment, but no sharp recession is in sight either. Still, continued economic and geopolitical uncertainty alongside the impact of higher rates on the economy will weigh on economic activity in the coming quarters.