UK corporates in buoyant mood

UK corporates in buoyant mood

The latest Deloitte survey of UK Chief Financial Officers shows a sharp rise in corporate confidence following the UK general election. For the full survey visit: https://www.deloitte.co.uk/cfosurvey

• The second quarter survey opened five days after the election, on 9 July, and closed on 19 July. Business confidence has increased for the fourth consecutive quarter and is at the highest level since the start of 2023. This is not solely a sentiment story. CFO expectations for their own firm revenues rose to their highest level in two and a half years in July and are running at twice the long-run average. 

• The worries around Brexit, COVID-19, inflation and politics that have weighed on corporate spirits for much of the last eight years seem to be clearing. CFOs’ perceptions of external uncertainty fell to the lowest level in more than eight years in July. The proportion of CFOs who rate financial and economic uncertainty as being ‘high or very high’ is one-third, the lowest since the last peak seen in October 2022 following the mini-budget.

• A more predictable business environment seems to have boosted the spirits of the corporate sector. Corporate risk appetite saw its biggest rise in more than four years in July and the willingness of business to take risk onto their balance sheet is at the highest level since the UK was recovering from the pandemic-induced recession in the spring of 2021. CFOs say they are putting less weight on cost control and building up cash and rather greater weight on introducing new products. 

• Along with reduced uncertainty and an improved outlook for revenues CFOs also report an improvement in credit conditions. CFOs rate credit as being more available than at any time in the last two years. Better credit conditions and strengthening demand seem, in turn, to lie behind a sharp rise in the balance of CFOs expecting to increase their own borrowing over the next 12 months.

• CFOs have entered the second half of the year in a confident mood. Uncertainty has fallen away and revenue prospects have brightened. CFOs have become more willing to take risks onto their balance sheets. The UK corporate sector is gearing up for growth.

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week up 1.6% at 8,286, following other markets up on Friday as benign inflation data from the US increased hopes of early reductions in US interest rates.

Economics

• Early estimates of activity for July from surveys of purchasing managers found that US activity is growing at the fastest rate in 27 months
• The US economy grew by a greater-than-expected 0.7% from the first quarter to the second quarter, as consumer spending and private inventory investment picked up
• Purchasing managers’ data for the euro area suggest activity stalled in July, barely remaining in positive territory as the slump in manufacturing activity deepened
• The influential ifo survey of German businesses suggested a fourth straight month of deteriorating sentiment. The ifo institute commented: “The German economy is stuck in crisis”
• The INSEE measure of French business confidence fell to its lowest level since April 2021 in the wake of an election that delivered a hung parliament
• By contrast, the UK economy seems to be accelerating. The purchasing managers’ survey reports an acceleration of activity growth in the manufacturing and services sectors
• Global demand for shipping is reportedly reaching extraordinary levels as customers in the US and Europe stock up on goods well in advance of the festive season amid fears of supply chain disruption later in the year.  
• There are also suggestions that some US companies are stockpiling goods from China as a hedge against a Trump administration raising US tariffs on Chinese imports
• Investors overwhelmingly expect the US Fed to keep rates on hold when they meet on Wednesday before cutting rates for the first time in mid-September
• US stock markets suffered their worst day in over 18 months as the technology sector, the big driver of stock market returns in recent years, saw further sell-offs
• Investors see about an even chance that the Bank of England will cut interest rates for the first time since March 2020 when it meets on Thursday
• Sterling reached its highest level since the Brexit referendum against a trade-weighted basket of currencies
• The price of copper fell to a three-month low, down 20% from May, amid concerns around Chinese growth
• Shares in a number of luxury goods manufacturers fell last week, also in part due to concerns over weakness in the Chinese economy
• The Chinese central bank cut several key interest rates in an attempt to stimulate the economy while the Chinese government announced higher subsidies for EVs
• China is accelerating stockpiling of fuel and key industrial and agricultural commodities, potential strategic assets in a future conflict, according to The Economist

Business

• Carmakers Stellantis, Ford, Tesla and Nissan announced lower-than-expected results, raising fears of a global downturn in the automotive sector
• The Wall Street Journal reports that investors are concerned that the pricing power carmakers have enjoyed since the pandemic is weakening
• The UK government announced that the new state-owned energy company GB Energy will work with Crown Estate to increase private investment in new offshore wind facilities 
• Airline Ryanair said that it expects airfares to be markedly lower this summer as “frugal” consumers cut back
• The Financial Times reported that UK ports may seek government compensation in the event of a deal to lower trade barriers between the UK and the EU. UK ports have spent significant sums creating post-Brexit border control facilities
• The UK Competition and Markets Authority said that competition in fuel retail was “failing consumers” noting that retail margins on petrol and diesel have significantly increased in recent years

Global and political developments

• On Sunday foreign governments were reportedly seeking to ease tensions between Israel and Hizbollah after an attack on an Israeli town in the Golan Heights killed 12 civilians
• US vice president Kamala Harris secured the support of enough Democratic delegates to win the party’s nomination and has raised $200m in her first week of campaigning
• Former US president Barack Obama endorsed Kamala Harris to be the Democratic presidential nominee
• Robert Jenrick, Tom Tugendhat, Mel Stride, James Cleverly and Kemi Badenoch announced they would run to be the next leader of the UK’s Conservative Party following the resignation of former prime minister Rishi Sunak
• The UK Labour Party suspended seven of its MPs after they rebelled to vote for an SNP amendment to abolish the two-child cap on benefits

And finally… a thieving sea bird dubbed “Steven Seagull” has been barred from a shop in Wkye Regis, Dorset, after purloining over 30 packets of crisps from the store in the last two months. Manager Stuart Harmer was quoted by the BBC as saying, “Trying to explain to the powers that be that I've got stock loss because of a seagull - they think it’s a joke” – taking a tern for the worse