Spanish inflation almost halves; signs of ‘green shoots’ in UK economy– business live

Key events

Spain’s stock market is rallying pretty strongly today, as traders cheer the drop in Spanish inflation this month.

The Spanish IBEX index has jumped by 1.6% this. morning, outperforming the rest of Europe (which continues to rally this morning).

Across Europe, Germany’s DAX and France’s CAC 40 have both gained around 1%, while the UK’s FTSE 100 is still at a two-week high (up 0.65% at 7,612).

Chris Beauchamp, chief market analyst at IG, says:

“Spain’s CPI is a welcome bit of news really, and seems to have provided markets with another reason for a rally.”

Back in the UK, British Airways has warned customers there could be delays over the next 10 days, due to strike action.

BA say they expect “some delays”, due to industrial action being taken by Heathrow Airport staff from 31 March to April 9.

The Unite union said this week that two groups of Heathrow security officers will strike from 31 March – 9 April. The airport will remain open and operational, though.

Falling inflation does not mean that prices are falling, of course, simply that they are rising less quickly.

As it’s now over a year since Russia’s invasion of Ukraine, we are starting to catch up with the surge in energy and food prices last year.

Alfonso Peccatiello, author and former head of fixed income portfolio management at ING Deutschland, points out that these ‘base effects’ mean inflation will appear to be ‘falling off a cliff’ – even if prices are actually settling at a higher plateau.

But core inflation may remain sticky, as BoE policymaker Catherine Mann warned last night (see opening post).

Spanish inflation falls: what the experts say

Neil Wilson of Markets.com warns that inflation has not been slain, despite Spain’s headline CPI index dropping to 3.3% from 6%.

He writes:

Is the dragon slayed? Well, not quite....we can see the headline rate collapsing due to the base effects of energy prices.

It’s less optimistic when you look at the stickiness of core inflation – underlying inflation fell marginally to 7.5%. And the yellow line here shows a clear upward trend.

Wouter Thierie, economist at ING, predicts headline inflation will cool further in the coming months, as energy prices drop. The significant decrease in agricultural commodity prices should feed through to food prices in the shops too.

Thierie writes:

Spanish inflation cooled in March, according to Spain’s statistics office INE. Headline inflation stood at 3.3% year-on-year, down from 6% in February. The HICP came in at 3.1% year-on-year, down from 6% in February.

The decline in headline inflation was mainly due to the fall in gas and electricity prices this month, after the sharp rise in the same month last year.

Also encouraging is that core inflation fell slightly to 7.5% from 7.6% in February, the first drop in 23 months. This shows that despite the sharp fall in headline inflation, inflationary pressures in the economy remain very high, but it is also a sign that the pass-through of higher energy prices into higher consumer prices is starting to lose strength. Moreover, pressures on global supply chains have further eased in recent months to pre-pandemic levels, which is also dampening inflation.

Four bankers who helped Putin's friend set up Swiss bank account convicted

Four bankers who helped a close friend of Vladimir Putin move millions of francs through Swiss bank accounts have been convicted of lacking diligence in financial transactions.

Reuters has the details, from Zurich:

The four were found guilty on Thursday of helping Sergey Roldugin, a concert cellist who has been dubbed “Putin’s wallet” by the Swiss government.

The executives - three Russians and one Swiss - helped Roldugin, who is godfather to Putin’s eldest daughter Maria, deposit millions of francs in Swiss bank accounts between 2014 and 2016.

The men, who cannot be identified under Swiss reporting restrictions, were found guilty at a hearing at Zurich District Court and were given suspended fines (updated).

The case highlights how people like Roldugin were used as “strawmen”, the indictment seen by Reuters said, a way to hide the true owners of money.

In Switzerland, banks are obliged to reject or terminate business relationships if there are doubts about the identity of the contracting party.

Spanish inflation plummets

Inflation in Spain has tumbled, as energy prices slide.

Consumer price inflation across Spain dropped to 3.3% in March, the lowest level since August 2021, down from 6.0% in February.

On a EU-harmonised basis, Spanish inflation dropped to 3.1%.

In contrast, inflation in the UK was recorded at 10.4% in February

Spain’s government had helped to cushion the rising cost of living by cutting the VAT rate on energy, and scrapping VAT on basic food items, such as bread, cheese and vegetables, and halving it to 5% on oil and pasta.

Spain’s National Statistics Institute said the drop was mainly because electricity and fuel prices decreased this month, having increased in March 2022.

But core inflation, which strips out volatile fresh food and energy prices, only fell slightly to 7.5% year-on-year, down from 7.6% in February.

British music brand Marshall bought by Zound Industries

Jimi Hendrix, at the Summer Of Love Festival, Monterey Pop Festival Photograph: Education Images/Universal Images Group/Getty Images

The British family-owned company behind Marshall amplifiers is being bought by a Swedish maker of Bluetooth speakers.

Marshall, founded by Jim Marshall in London in the 1960s, is being acquired by Zound Industries to create a new business, called Marshall Group.

Zound, which has been selling Marshall-branded speakers and headphones since 2010, says the deal will create “the most exciting audio tech powerhouse”.

Henri de Bodinat, Chairman of Zound Industries, says:

With this game-changing deal, Marshall Group will become the main challenger in our industry and the most exciting alternative to traditional players, bringing even greater innovation and value to clients, employees, and investors alike.”

De Bodinat will chair the new Marshall Group, while the Marshall Family will be the largest shareholders, owning 24% of the new business.

Jim Marshall, who died in 2012, posing with one of his products at the 'Musikmesse' in Frankfurt March 13, 2002. Photograph: Ralph Orlowski/REUTERS

The Marshall shop in London sold musical equipment to young rock musicians such as Pete Townshend and John Entwistle of the Who. Jim Marshall – known as the “Father of Loud” – then moved into building amplifiers with his son Terry.

Marshall went to build large speaker cabinets, such as the 4x12” cabinets, after Townshend demanded a louder sound. They then went international in 1966, when Jimi Hendrix used them at a gig.

Swedish tech entrepreneur Konrad Bergström, who helped arrange the deal, says:

Spinal Tap features one of cinema’s most iconic scenes when Nigel shows off how his Marshall guitar amplifier can turn ‘up to eleven’, but what we are announcing today is no parody: Marshall Group is going to go beyond established rules and limits and define a new sonic lifestyle category. We are going to Live Loud!”

Drax shares slump after carbon-capture project rejected

Shares of British power generator Drax have tumbled almost 10% after its carbon-capture project failed to be selected by the UK government.

Drax’s carbon-capture scheme was not selected for the country’s Track-1 programme, the Department for Energy Security & Net Zero said. Instead, the government will continue to engage over the project.

Drax runs a biomass and coal fuelled power station, near Selby in North Yorkshire. Last week it paused a planned £2bn investment in “bioenergy with carbon capture and storage” (BECCS) technology at the site, saying it needed a “firm commitment” from the government first.

Analysts at RBC Europe say today’s decision not to put Drax into Track 1 is a surprise, given the company’s importance to security of supply in the UK.

RBS add:

The UK government has announced the Track 1 project negotiation list this morning, with Drax not selected as a Track 1 project in the government’s decision. Within the East Coast Cluster, Track 1 projects selected were Net Zero Teesside Power, bpH2Teesside and Teesside Hydrogen CO2 Capture. The government noted the following:

“We are also announcing the conclusion of the power BECCS project assessment process. Both projects which made submissions, Drax Power Ltd and Lynemouth Power Ltd, met the minimum criteria for deliverability by 2027. These projects have not been selected for deployment in Track 1 but the department will engage further with these projects following the assessment outcome. Track 1 is not the extent of our ambition and the government remains committed to achieving 5Mtpa of engineered greenhouse gas removals by 2030.”

Shares in Drax have dropped to 527p, down 8%, the lowest since last November.

European stock markets highest since SVB crisis began

European stock markets have hit their highest level since the collapse of Silicon Valley Bank, as fears over the banking sector ebb.

The Stoxx 600 index of European companies has risen 0.7% this morning to 453.69 points, the highest since March 10th – the day when SVB failed.

In London, the FTSE 100 index of blue-chip stocks has climbed to a two-week high – up 40 points or 0.5% at 7,604 points. Real estate, utilities and mining stocks are leading the risers.

The markets suffered several days of heavy falls after SVB failed, but a degree of calm has now returned – helped by the rescue of Credit Suisse by UBS.

Another day without any unwelcome banking surprises has cheered investors, says Richard Hunter, head of markets at interactive investor:

Technology shares were a particular area of buying interest and have seen gains in anticipation of hopes that the interest rate hiking cycle may be nearing its end. In addition, chipmaker Micron saw its shares rise by over 7% after stating that inventory issues were now improving. The rosy outlook statement added fuel to the fire of optimists, who read the news as being indicative that the overall economy was holding up, given that the company’s chips are used in a wide variety of industries. In terms of the main indices, the Nasdaq has been the stand-out performer and currently stands ahead by 14% in the year to date.

Elsewhere, remarks to Congress by the US bank regulator appeared to lay the blame for the Silicon Valley Bank collapse at the door of the banking supervisors and their failure to spot the stresses, as opposed to a more systemic weakness within the system. While sentiment currently remains on something of a knife-edge, no news will continue to be good news in terms of any further banking shocks. The so-called fear gauge, or volatility index, also returned to early March levels as a further indication of investor relief that the worst may have passed.

Electricity generator SSE has hiked its profit forecasts, again.

SSE now expcts to make 160 pence per share in the 2022-23 financial year, up from previous guidance of more than 150 pence/share.

It credits the upgrade to a “continued strong performance” from its flexible generation plant as it supported the security of UK energy supplies.

Finance director Gregor Alexander said:

As we progress our ambitious net zero acceleration programme, we are investing more than we make in profits into the infrastructure society needs for a more secure, affordable and clean energy system. Our balanced business model has performed well in a volatile year, helping to ensure security of supply.

At the same time, we are progressing multiple projects and adding to our pipeline as we deliver on our net zero-focused electricity infrastructure strategy. This strong performance leaves us well positioned to continue our significant investment programme and we will update the market with more detail in May.”

Shares in SSE are among the top rises in early trading, up by 2.3%. It had already raised its profit forecasts in January, helped by higher energy prices.

Mobile network giant Vodafone is planning to cut about 1,300 full-time jobs in Germany, its regional boss Philippe Rogge has told the Handelsblatt newsaper.

In his first public comments since becoming Vodafone Germany CEO in July, Rogge indicated that administrative and management positions will predominantly be affected by the cutbacks.

This would be about 6.3% of Vodadfone’s 14,230 workforce in Europe’s largest economy.

Victoria Scholar, head of investment at interactive investor, points out that other jobs are being cut across Vodafone, too:

Earlier in March Vodafone said it was planning to slash 1,000 roles in Italy and in January the Financial Times reported that several hundred positions would be let go mostly in London.

In February, Vodafone reported weakness in Germany, its biggest market with service revenue in Europe down 1.1% in the third quarter. Interim CEO Margherita Della Valle said it is ‘simply not good enough’.

In November Vodafone cut its annual profit forecast and announced a €1bn cost-cutting strategy. At the end of 2022, Nick Read stepped down as CEO following a sharp slide in Vodafone’s shares under his four-year period as leader.

Vodafone has been in talks with Three UK over a potential merger to combine networks in Britain, Scholar adds:

The CFO of Hutchinson’s Three UK Darren Purkis said discussions ‘are moving in the right direction.’

Vodafone has been grappling with pressure on its share price, which is hovering near 2002 lows, a weakening economic backdrop with rampant inflation and rising energy bills as well as uncertainty in the C-suite following the CEO’s departure last year. Plus talks over its merger with Three UK are dragging on, adding to the sense of unease.

However, its share price fall has caught the attention of some opportunistic investors with John Malone from Liberty Global, an investor in ITV and Virgin Media O2, snapping up a 4.92% stake in Vodafone amid the belief that the stock is undervalued. French billionaire Xavier Niel also bought a 2.5% stake last September.”

Blackstone's Schwarzman: banks not in crisis

The head of asset manager giant Blackstone has played down concerns over the banking sector, blaming new technology for the speed of the bank runs we’ve seen this month.

Speaking to Bloomberg, Schwarzman said he expects most US banks to withstand the current industry turmoil, which he blames on the after-effects of the pandemic and technology rather than a wave of bad loans.

Schwarzman explained:

“The banking system is not in any type of conventional crisis. We have just an interim issue with interest rates being up and we have a deposit issue caused by technology. And these are both solvable problems for the vast number of banks.”

He also pointed to the use of mobile phone apps, which let people communicate their concerns and also to withdraw money electronically, rather than having to queue at a branch.

This was a factor in the rapid collapse of Silicon Valley Bank, which the Bank of England governor compared to the high-speed failure of Barings Bank 30 years ago.

Schwarzman says:

“This crisis was caused by people on iPhones and other devices, hearing on social media that some bank might be in trouble.

They responded with huge withdrawals in a very short period of time, collapsing the bank.”

UK car production rises, helped by exports to EU

UK car production rose by over 13% last month, in a signal that the auto industry is recovering from supply chain shortages.

The number of cars built in UK factories rose to 69,707 last month, about 8,050 more than the same month a year ago, the Society of Motor Manufacturers and Traders (SMMT) reports this morning.

Problems sourcing semiconductors had been hurting car production since early in 2021, but those problem seem to now be easing.

Production for both home markets rose by over 20%, while output for overseas markets rose by 11.5%.

Shipments to the EU rose by 6.5%, offsetting a 19.9% drop in car production for the US and 21.6% fall for China, which the SMMT says provides “further evidence of the need for continued free trade across the Channel”.

February’s growth in UK car production signposts an industry on the road to recovery, says Mike Hawes, SMMT chief executive, adding:

The fundamentals of the sector are strong; a highly skilled workforce, engineering excellence, a sector that is embracing new electrified vehicle manufacturing and wide ranging capabilities in the EV supply chain.

To take advantage of global opportunities, however, we must scale up at pace and make the UK the most attractive destination for automotive investment by addressing trading and fiscal costs and delivering low carbon, affordable energy.”

Introduction: UK firms see signs of 'green shoots'

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

There are signs of ‘green shoots’ in the UK economy, with firms more confident about the country’s economic prospects after a tough winter.

British businesses expect a return to growth in the next three months for the first time since shortly after Russia’s invasion of Ukraine, according to the latest poll from the CBI released today.

The monthly business survey found a net majority of +5% of firms expect growth in private sector activity in April-to-June. This is the first time there have been positive expectations for growth since April 2022.

The CBI also reports that activity fell slightly in the three months to March, the eighth ‘rolling quarter’ in a row in which the private sector has shrunk.

Manufacturers are most optimistic, with a balance of +12% predicting a recovery in output, while service sector firms see a small uptick.

Alpesh Paleja, CBI Lead Economist, warns that the UK is ‘skirting stagnation’ rather than growing strongly:

“It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need.

“While the chancellor has set out an ambitious plan to deliver growth in his spring budget, there’s broad recognition that the UK still faces considerable economic headwinds.

Paleja cautions, though, that ”Inflation remains stubbornly high”, and will continue to pressure household budgets.

Last week, Bank of England governor Andrew Bailey warned firms to that continuing to lift prices would drive up inflation and lead to higher interest rates.

The annual rate of UK inflation rose to 10.4% last month, but is expected to drop sharply through this year (as we catch up with price hikes in 2022).

But, BoE policymaker Catherine Mann is concerned that core inflation will remain too high, making it harder to bring CPI inflation down to the 2% target.

Last night, Mann told the National Association for Business Economics that persistent underlying inflation will make it hard to set monetary policy this year.

Mann said:

“Gas prices in particular are on the down slope, and that type of dynamic is going to be very important in driving headline inflation down.

But, she added:

“Core goods and services are trending up ... It is going to make it very difficult to do our job.”

The financial markets currently indicate there is a 58% chance that the Bank raises rates at its next meeting, in early May. It has already raised them to 4.25% this month, a 14-year high.

The government is announcing an updated net zero and energy security strategy today, on what was originally going to be billed ‘Green Day’. Instead, we’re getting a new net zero strategy, with a focus on oil and gas development, alongside renewable energy.

The UK government will defy scientific doubts to place a massive bet on technology to capture and store carbon dioxide in undersea caverns, to help expand oil and gas in the North Sea.

Grant Shapps, the energy and net zero secretary, will on Thursday unveil the ‘powering up Britain’ strategy, with carbon capture and storage (CCS) at its heart, during a visit to a nuclear fusion development facility in Oxford.

Hundreds of the UK’s leading scientists are urging Rishi Sunak to halt the licensing of new oil and gas developments in the UK, ahead of the announcement.

On the economic front, we get Germany’s inflation report for March, an economic bulletin from the European Central Bank, and updated US GDP data for the last quarter of 2022.

European stock markets are set to open a little higher:

• 9am BST: ECB’s economic bulletin published

• 9.30am BST: Realtime UK economic and business activity data

• 10am BST: Eurozone consumer and business confidence

• 1pm BST: German inflation rate for March

• 1.30pm BST: US Q4 2022 GDP report (final estimate)

• 1.30pm BST: US weekly jobless claims