Headlines

By Jonathan Cable

LONDON (Reuters) – A downturn in business activity across the euro zone deepened in September, according to a survey which showed the economy was likely entering a recession as consumers rein in spending amid a cost of living crisis.

Manufacturers were particularly hard hit by high energy costs after Russia’s invasion of Ukraine sent gas prices rocketing, while the bloc’s dominant services industry suffered as consumers stayed at home to save money.

S&P Global’s flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, fell to 48.2 in September from 48.9 in August, as expected by a Reuters poll.

“The third decline in a row for the euro zone PMI indicates business activity has been contracting throughout the quarter. This confirms our view a recession could have already started,” said Bert Colijn at ING.

A Reuters poll earlier this month gave a 60% chance of a recession in the euro zone within a year.

The downturn in German business activity deepened as higher energy costs hit Europe’s largest economy and companies saw a drop in new business, data showed.

However, in France activity was higher than expected although its PMI showed the euro zone’s second biggest economy was still struggling as a modest rebound in services offset a slump in the manufacturing industry.

“It’s possible German GDP fell in Q3 whereas France’s economy eked out a small expansion, consistent with our view Germany will suffer more than most over the coming quarters as high energy costs weigh on energy-intensive industry as well as household budgets,” said Jack Allen-Reynolds at Capital Economics.

The euro, German government bond yields and stocks all fell after the PMI data.

In Britain, outside the European Union, the economy worsened as firms battled soaring costs and faltering demand, hammering home the rising risk of recession there too. In a bid to spur growth, new UK finance minister Kwasi Kwarteng on Friday was detailing close to 200 billion pounds ($223.2 billion) of tax cuts, energy subsidies and planning reforms.

PRICE PRESSURES

Overall demand in the euro zone fell to its lowest since November 2020, when the continent was suffering a second wave of COVID-19 infections. The new business PMI fell to 46.0 from 46.9.

The euro zone services PMI fell to 48.9 from 49.8, its second month sub-50 and the lowest reading since February 2021. The Reuters poll had predicted a more modest fall to 49.0.

With prices on the rise again and demand falling, optimism about the coming 12 months waned. The business expectations index fell to 53.8 from 56.6, its lowest since May 2020.

Manufacturers also had a worse month than predicted. Their PMI sank to 48.5 from 49.6, compared to the 48.7 forecast in the Reuters poll and the lowest since June 2020. An index measuring output, which feeds into the composite PMI, nudged down to 46.2 from 46.5.

Likely of concern to the European Central Bank, which raised its key interest rates by 75 basis points earlier in September to try and tame inflation running in August at over four times its target, the survey showed prices had risen faster this month.

Both the input and output manufacturing prices indexes reversed a downward trend and rose. The input price index reached a three-month high of 76.4 from 71.7.

($1 = 0.8962 pounds)

(Reporting by Jonathan Cable; Editing by Susan Fenton)

ROME (Reuters) – Italy votes in a national election on Sunday that could herald its most right-wing government since World War Two, led by its first woman prime minister.

The vote was called after infighting brought down Prime Minister Mario Draghi’s national unity government in July.

WHO WILL WIN?

Polls are not published in the two weeks before the vote. Before then they had consistently shown that a rightist coalition led by the nationalist Brothers of Italy party and also involving the League party and Forza Italia was on course for a clear victory.

Brothers of Italy leader Giorgia Meloni would be the likely choice for prime minister as head of the main coalition party.

There has been speculation during the poll blackout that the League has fallen back while support for the left-leaning 5-Star Movement has risen.

WHAT WILL BE DECISIVE?

Brothers of Italy has seen a surge in its support after it remained outside Draghi’s government. The League, led by Matteo Salvini, and Silvio Berlusconi’s Forza Italia were both part of the government and their support has slipped.

The right has been helped by divisions in the centre-left where attempts by the main Democratic Party (PD) to form a broad electoral alliance fell apart.

That has left three main groups in the centre or centre-left fighting for votes – the PD and its allies; the centrist Azione party and its Italia Viva partner; and finally 5-Star.

Italy’s electoral system favours groups able to form broad alliances, likely amplifying the right-wing bloc’s victory.

WHAT ARE THE MAIN ISSUES FOR VOTERS?

As in other European countries, the cost of living crisis has overshadowed other concerns such as immigration, pensions and public services.

The conservative alliance has called for tax cuts across the board to help Italians cope with rising prices, while the PD wants tax reductions to be targeted towards lower income groups.

5-Star has championed a popular “citizens’ wage” poverty relief scheme it introduced while in government.

Meloni has voiced her support for Western policy against Russia after it invaded in Ukraine. Salvini has called for the European Union to shield Italians from the economic side-effects of sanctions imposed on Russia over the invasion.

Berlusconi sparked controversy on Friday when he defended Putin, saying he was “pushed” into the war on Ukraine and only wanted to install a government of “decent people” in Kyiv.

WHO ARE THE KEY PLAYERS?

Meloni, 45. A former youth minister, she has energised her party, which has post-fascist roots and is set to see its share of the vote leap to around 25% from only 4% at the last election in 2018.

Salvini, 49. An abrasive former interior minister, who takes a hard line on immigration but has made a series of political blunders over the past three years and has been eclipsed by Meloni.

Berlusconi, 85. A former prime minister has shrugged off ill health and scandal to remain a major player in the rightist alliance, even if his Forza Italia is the junior partner now among its three main parties.

Enrico Letta, 56. PD leader, and another former prime minister. His failure to build a stable coalition of centre-left parties has left him facing political defeat.

Giuseppe Conte, 58. Leader of the 5-Star Movement. Prime minister from 2018-21, he provoked anger when his party withdrew support for Draghi’s government in July, sparking divisions that led to the early election.

WHEN IS VOTING?

Polls are open from 0700 to 2300 local time (0500-2100 GMT).

Almost 51 million Italians are eligible to vote, of whom 4.7 million live abroad.

Voters will be electing a slimmed-down parliament with the number of seats in the lower house cut to 400 from 630, while the Senate goes to 200 seats from 315.

WHAT TO WATCH FOR?

The first hurdle for the rightist alliance will be to gain a majority in both houses. That appeared to be a near-certainty when the last polls were taken but a recovery in support for the 5-Star Movement in the south could make it more difficult to achieve in the upper house, the Senate.

A majority of more than two-thirds would clear the way for parliament to make changes to the constitution without putting them to a referendum.

Parliamentarians elected in foreign constituencies could swing the balance in a tight contest — there are eight such seats up for grabs in the lower house and four in the Senate.

WHAT HAPPENS NEXT?

Coalition formation in Italy is notoriously slow, but the prospect of a more clear-cut result means there is unlikely to be a repeat of 2018 when it took almost three months.

The new parliament will convene on Oct. 13. After that date, President Sergio Mattarella can start consultations with party leaders to discuss the new government.

(Writing by Keith Weir; Editing by Crispian Balmer, Mark Heinrich and Toby Chopra)

LONDON (Reuters) – Four in five UK households saw their disposable income decrease in August compared to the same month last year, as rising living costs continue to outstrip wage growth, UK supermarket group Asda said on Friday.

Confidence levels among Britain’s consumers are at record lows as they struggle with the accelerating cost of living. Wages are failing to keep pace with inflation that was 9.9% in August.

The Asda Income Tracker showed that despite annual wage growth of 5.5% in the three months to the end of July, 80% of UK households were worse off in real terms in August due to an 11.8% increase in spending on essentials such as rent, mortgage payments, fuel, groceries, and transport costs.

The tracker showed average household disposable income fell by 32.32 pounds ($36.14) a week in August.

Low-income households continue to be disproportionately affected by the cost-of-living crisis, the data showed.

These families, who account for 20% of UK households, had “negative disposable income” in August, resulting in a shortfall of 60 pounds per week between what they earned and what they needed to spend on essentials.

Separately on Friday, market research firm GfK said British consumer confidence slid this month to its lowest level since records began in the mid-1970s, with scant sign of any boost from Prime Minister Liz Truss’s announcement of additional support for households.

($1 = 0.8944 pounds)

(Reporting by James Davey; editing by William James)

LONDON (Reuters) – Credit Suisse shares dropped to a record low on Friday after a Reuters report said the company is looking to raise fresh cash.

Credit Suisse has started sounding out investors for a capital hike for the fourth time in seven years as it attempts a radical overhaul of its investment bank, which could include exiting the U.S. market, two sources told Reuters.

Shares in Credit Suisse fell over 7% in early trade to a record low of 4.26 francs.

Including Friday’s move, shares are down over 50% this year and are on track for their worst yearly performance since 2008.

(Reporting by Samuel Indyk; Editing by Dhara Ranasinghe)

PARIS (Reuters) -Societe Generale, which is seeking a new chief executive, said on Friday two senior female executives would be stepping down before the end of the year.

France’s third-biggest listed bank said Chief Risk Officer Sadia Ricke would leave on Nov. 30 and Caroline Guillaumin, the head of human resources and communication, would quit on Dec. 15.

Ricke, a SocGen veteran, will become group chief risk officer of Asia and Africa-focused bank Standard Chartered, the London-based bank said in a separate statement. She will join on Feb. 1, replacing Mark Smith, who retires at the end of this year.

Ricke joined Societe Generale in 1994 and held a series of senior positions within the corporate and investment banking division before being appointed as chief risk officer last year.

Guillaumin, who has been at SocGen since 2010, will pursue a new career outside the banking sector, SocGen said, adding the successors to the two executives would be announced at a later date.

In May, Chief Executive Frederic Oudea said he would step down next year after running the lender for 15 years.

A decision on a new chief executive is expected next month, with the head of the bank’s retail networks, Sebastien Proto, and investment banking chief Slawomir Krupa seen as the leading internal candidates.

(Reporting by Dominique Vidalon and Silvia Aloisi, editing by Kirsten Donovan)

By Summer Zhen

HONG KONG (Reuters) – Swiss private bank Union Bancaire Privée (UBP) is back in Chinese markets, its chief investment officer said, making its way back to the world’s second-largest economy after withdrawing last year.

UBP has more than $150 billion of assets. It returned to China in August after having exited all positions in Chinese equities and credit by the third quarter of 2021, Norman Villamin, CIO of wealth management, told Reuters.

“We went from zero to neutral,” Villamin said.

While many institutional investors have reduced exposure to China since 2019 amid a regulatory crackdown on tech giants, a deterioration in Sino-U.S. relations and strict zero-COVID policies, UBP is among the few that is re-allocating to the country.

Villamin said UBP saw some “hope” that there would be more stimulus measures ahead of and after the Communist Party Congress in October.

“If some of the COVID restrictions start to ease, even if it is gradual, at least we’re moving in the right direction,” Villamin said.

UBP deemed an underweight exposure in China “tactically risky”, he added.

“China has gone through a recession, while Europe is in the midst of recession, and the U.S. is likely entering a recession in 2023,” Villamin said.

UBP has however only bought China A-shares, which is the domestic sector, and is avoiding companies that might have exposure to geopolitical issues.

Chinese markets have been facing unprecedented challenges this year, with both the CSI 300 index and Hang Seng Index down over 20% each, while hedge funds that invest in Greater China are seeing their biggest net fund outflows in at least 15 years.

UBP believes China is slowly poised to recover although it will not be a smooth sailing. Some deep-seated problems, such as the real estate debt crisis, will take a long time to resolve.

“We think (China’s) objective on property is to shrink the sector as a share of the overall economy to wind down the amount of leverage in the sector,” said Villamin.

“We don’t see a lot of growth opportunities there.”

(Corrects second paragraph to say the bank exited positions in all Chinese equities, not just mainland-listed equities)

(Reporting by Summer Zhen; Editing by Stephen Coates)

MADRID (Reuters) -Spanish GDP grew faster in the second quarter than originally estimated, compared with the prior quarter, reflecting a healthy Easter rebound from the winter months and a more robust export rise, data from the National Statistics Institute showed on Friday.

INE upgraded quarterly growth in the period to 1.5% from an original 1.1% while the year-on-year growth figure was revised to 6.8% from 6.3%, after it recalculated the GDP historical series in 2020 and 2021.

INE also revised down first quarter data to a 0.2% quarterly contraction from 0.2% growth, although annual growth was revised upward to 6.7% from 6.3%.

Economy Minister Nadia Calvino attributed the first quarter contraction to “the impact of the pandemic, transport walkouts and the start of Russia’s war in Ukraine”.

The strong upward revision makes it likelier for economic growth to reach the government’s 4.3% target for the full year, despite high inflation – above 10% – and signs of an economic slowdown that started to emerge after the summer.

Growth in the second quarter was supported by external demand, with year-on-year export growth of more than 23%.

The hotel, catering and construction industries performed solidly in the second quarter, after slowing for months due to restrictions during the latest COVID-19 outbreaks between Christmas and early 2022.

(Reporting by Marta Serafinko and Belén Carreño; Editing by Inti Landauro and Edmund Klamann)

(Reuters) -British online furniture retailer Made.com said on Friday it would cut jobs, conduct a strategic review, including a formal sale process, and withdraw its full year forecast due to “challenging” market conditions.

Made.com would cut back costs by laying off staff within the next few weeks, it said in a statement. It didn’t immediately disclose the number of employees that would be laid off.

The company, which made its London market debut in June last year, said it has had to sell goods on discount to slash inventories, which hurt margins and cash position.

(Reporting by Amna Karimi in Bengaluru; Editing by Dhanya Ann Thoppil)

LONDON (Reuters) – Economic growth will help to pay for Britain’s plans to maintain government spending while it cuts taxes, a cabinet minister said on Friday ahead of a major fiscal announcement.

Asked by Sky News if his view last year that some tax increases would be needed to repair government finances still applied, Clarke said: “No, because what you’re doing now is that you’re going for growth…”

“The critical thing is we need to get the economy growing so that, frankly, the economic growth trajectory outstrips that of our debt.”

(Reporting by Andy Bruce; Editing by Kate Holton)