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What Corporate Britain Can Reveal About the State of the Economy – Financial Post

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Almost two thirds of UK blue-chip companies will update the market over the next three weeks, as earnings season reaches fever pitch. While Square Mile professionals pore over second-quarter details, the reports are also likely to shed light on broader subjects affecting the whole country, from the energy crunch to the cost-of-living crisis, rising interest rates and the threat of an economic slump.

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(Bloomberg) — Almost two thirds of UK blue-chip companies will update the market over the next three weeks, as earnings season reaches fever pitch. While Square Mile professionals pore over second-quarter details, the reports are also likely to shed light on broader subjects affecting the whole country, from the energy crunch to the cost-of-living crisis, rising interest rates and the threat of an economic slump.

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Here are five things to watch.

Airlines and Travel Chaos

For some airlines, the summer’s travel chaos may also be a boon as travel rebounds after two years of lackluster results. Low supply amid a shortage of staff — together with a surge in demand as Covid restrictions end — has driven ticket prices sky high.

Ryanair Holdings Plc, which reports earnings on Monday, is among those to have avoided mass cancellations. The Irish budget carrier has beaten estimates in six of its last 10 fiscal periods. EasyJet Plc is scheduled to report a day later, with British Airways-owner International Consolidated Airlines Group and Air France-KLM disclosing their performance at the end of the week.

But there could be some turbulence. Travel-industry data platform OAG recently estimated that caps on passenger numbers at London Heathrow could result in as much as $550 million in lost revenues.

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Energy Companies and the Crisis

Soaring oil and gas prices following Russia’s invasion of Ukraine have given energy majors an historic boost. Shell Plc is expected to post its largest profits since 2008 on July 28, with BP Plc also predicted to reveal bumper earnings on Aug. 2.

Centrica Plc, the owner of British Gas, reports on the same day as BP. Profits there may spark political grumbling, but with a windfall tax already imposed by the UK government, ministers’ options are limited.

London-listed miner Glencore Plc is expected to report a boost from coal sales on July 29, with the global energy crunch increasing demand for the highly-polluting fuel.

Retail and Inflation

The most intense cost of living crisis in decades has forced people in the UK to tighten their purse strings. The clearest sign of the effect on retailers will come from Next Plc, when it reports earnings Aug. 4. According to Deutsche Bank analyst Adam Cochrane, the sector faces precarious times: “Like in a cartoon, we believe that 2023 earnings forecasts are hanging over a cliff edge.” 

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Meanwhile, Mars Inc. and Kraft Heinz Co. have clashed with supermarkets over price hikes, as grocers also look to undercut suppliers with their cheaper own-brand products. Consumer-goods rivals Unilever Plc and Reckitt Benckiser Group Plc update in the last week of July. 

Tineke Frikkee, head of UK equity research at Waverton Investment, is looking for any indication that shoppers have started “trading down” to lower-priced food. Kantar data shows that sales of branded goods fell 2.4% in the 12 weeks to July 10, while own-brand sales rose 4.1%.

The FTSE’s new £30 billion consumer goods giant, Haleon Plc, will issue its first update on July 27 after being hived off from pharmaceutical behemoth GSK Plc. BT Group Plc and Vodafone Group Plc will report on July 28 and July 25 respectively, shedding light on whether hard-stretched families are trying to cut their telecom bills.  

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Banks, Insurers and Interest Rates

Rising interest rates could spell good news for banks. Lloyds Banking Group Plc kicks off bank reporting on July 27, with NatWest Group Plc unveiling its half-year results two days later (July 29). 

But with the Bank of England pondering a 50 basis-point hike in August, consumer-facing lenders are vulnerable to the economic slowdown. Mortgage spreads for UK banks have narrowed and consumer credit markets may also slow with the economy, Shore Capital analyst Gary Greenwood said in a note. 

Banks with relatively large trading operations, such as Barclays Plc, will hope to have enjoyed a similar boom in revenues to Wall Street’s financial giants, which have benefited from volatility on the markets. Barclays reports on July 28.

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Insurers are facing inflationary pressures of their own through claims. Direct Line Insurance Group Plc and Admiral Group Plc have both signaled profits will come in lower when they report on Aug. 2 and Aug. 10, respectively. 

“Supply chain issues, and wider economic inflation will likely make it difficult to reduce claims inflation levels in the near term,” JP Morgan analyst Kamran Hossain wrote in a note. The costs are already being passed on, according to the Federation of Small Businesses, which said 60% of small firms have seen insurance premiums rising.

Cars and Supply Chains

The global supply chain crunch, triggered by Covid lockdowns and exacerbated by the war in Ukraine, has taken a severe toll on the automobile sector. Amid a persistent shortage of semiconductors, carmakers will be closely-watched for signs that supply chains are opening up. Mercedes-Benz Group AG and Ford Motor Co report on July 27, while Stellantis NV and Volkswagen AG update markets a day later. Even though they aren’t listed in the UK, their reports could give crucial updates on both supply issues and demand in the face of the cost-of-living crisis.

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South Korea’s factory output falls in warning for global economy – Al Jazeera English

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Asia’s fourth-largest economy sees industrial output shrink a worse-than-expected 1.8 percent in August.

South Korea’s factory production fell for a second straight month in August, a warning sign for the global economy as it faces risks from the war in Ukraine to rising interest rates.

Asia’s fourth-largest economy saw industrial output shrink a worse-than-expected 1.8 percent on a seasonally-adjusted monthly basis after falling 1.3 percent in July, government figures showed on Friday.

Compared with the same month a year earlier, factory output rose 1.0 percent, the slowest pace since September 2021.

However, output for the services sector rose 1.5 percent on the month, while retail sales jumped 4.3 percent, the fastest gain since May 2020.

The figures follow a raft of data showing slowing factory output in other major Asian economies, including China, Japan and Taiwan.

China’s factory activity slowed further in September following a decline the previous month, as Beijing’s ultra-strict “zero COVID” policies hit production and sales, according to a private sector survey released on Friday.

South Korea, one of the world’s biggest manufacturers of cars, chips and ships, is seen as a barometer of the health of global trade as its companies span a vast swathe of the world economy.

South Korea’s exports, which account for nearly 40 percent of gross domestic product (GDP), are expected to slow sharply in September, with a survey of economists by the Reuters news agency predicting the slowest growth in nearly two years ahead of the release of official figures next month.

“This is certainly concerning for the domestic and global economy,” Min Joo Kang, senior economist for South Korea and Japan at ING, told Al Jazeera.

“The weaker than expected industrial production was driven by Korea’s main export items such as semiconductors and petrochemicals. This would have a negative impact on GDP for Korea for sure and also suggests global demand weakness. Usually it takes 4-5 quarters for semiconductors to come out of their downward cycle, thus the bottom hasn’t come yet.”

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German Economy Seen Shrinking Next Year Due to Energy Crisis – BNN Bloomberg

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(Bloomberg) — Germany’s economy will likely contract by 0.4% next year due to the impact of the energy crisis, according to the nation’s leading research institutes, who slashed their forecast from April of a 3.1% expansion.

German output will be €160 billion ($154 billion) lower this year and next than projected five months ago partly due to the drastic increase in energy costs, the four institutes predicted Thursday in a twice-yearly report which the government uses as guidance for its own outlook.

“The Russian attack on Ukraine and the resulting crisis on the energy markets are leading to a noticeable slump in the German economy,” said Torsten Schmidt, head of economic research at the RWI Institute and spokesman for the Joint Economic Forecast Project Group.

Germany is one of the countries hardest hit by the energy emergency triggered by the Ukraine war thanks to a reliance on Russian fuel imports built up over decades. Chancellor Olaf Scholz’s ruling coalition is racing to cut back that dependence but Germany still faces a tough winter with the prospect of gas rationing and blackouts.

The government has assembled three packages of aid measures worth nearly €100 billion to offset the impact on households and companies but has also cautioned that it doesn’t have the resources to ease the pain completely.

“Record inflation rates, especially exploding energy prices, are hitting many companies hard,” Martin Wansleben, managing director of the DIHK industry lobby, said Thursday in an emailed statement.

“The consequences are production stops, losses in value creation, the relocation of production abroad and even plant closures,” he added. “The number of companies that either do not receive any energy supply contracts at all or only receive them at extreme prices is currently increasing.”

Although the energy crunch is expected to ease over the medium term, gas prices are likely to remain well above pre-crisis levels, meaning “a permanent loss of prospe­rity for Germany,” the institutes warned.

They cut their growth estimate for this year to 1.4% from 2.7% and said they expect inflation to accelerate in coming months, climbing to an average rate of 8.8% next year — compared with 8.4% this year — before gradually falling back toward 2% in 2024.

Europe’s biggest economy will likely return to growth in 2024, with expansion of 1.9%, the institutes predicted.

The four institutes which compile the twice-yearly forecasts are Munich-Based Ifo, the IfW in Kiel, the IWH in Halle and the Essen-based RWI. The Wifo and the IHS institutes in Vienna also contribute. The government is expected to publish updated economic projections next month.

(Updates with industry lobby comment from sixth paragraph)

©2022 Bloomberg L.P.

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U.S. economy shrinks at 0.6% annual rate in Q2 – Advisor's Edge

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Consumer spending grew at a 2% annual rate, but that gain was offset by a drop in business inventories and housing investment.

The U.S. economy has been sending out mixed signals this year. Gross domestic product, or GDP, went backward in the first half of 2022. But the job market has stayed strong. Employers are adding an average 438,000 jobs a month this year, on pace to be the second-best year for hiring (behind 2021) in government records going back to 1940. Unemployment is at 3.7%, low by historic standards. There are currently about two jobs for every unemployed American.

But the Fed has raised interest rates five times this year — most recently Sept. 21 — to rein in consumer prices, which were up 8.3% in August from a year earlier despite plummeting gasoline prices. Higher borrowing costs raise the risk of a recession and higher unemployment. “We have got to get inflation behind us,” Fed Chair Jerome Powell said last week. “I wish there was a painless way to do that. There isn’t.”

The risk of recession — along with persistently and painfully high prices — poses an obstacle to President Joe Biden’s Democrats as they try to retain control of Congress in November’s midterm elections. However, drops in gasoline prices have improved consumers’ spirits in the past two months.

Thursday’s report was the Commerce Department’s third and final take on second-quarter growth. The first look at the economy’s July-September performance comes out Oct. 27. Economists, on average, expect that GDP returned to growth in the third quarter, expanding at a modest 1.5% annual pace, according to a survey by the data firm FactSet.

Commerce also on Thursday released revised numbers for past years’ GDP. The update showed that the economy performed slightly better in 2020 and 2021 than previously reported. GDP rose 5.9% last year, up from the previously reported 5.7%; and, pounded by the coronavirus pandemic, it shrank 2.8% in 2020, not as bad as the 3.4% previously on record.

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