The 2,000 job cuts announced at Royal Mail today will hit managers, not posties on the streets.
But frontline jobs are also under threat, as my colleague Kalyeena Makortoff explains:
CEO Keith Williams described the job cuts as “regrettable”, adding: “We are committed to conducting the upcoming consultation process carefully and sensitively. We will work closely with our managers and their representatives during this difficult period, including supporting them as they transition into the next stage in their careers.”
While delivery staff were not targeted by the cuts, Royal Mail confirmed there would be a gradual decline in frontline workers as it started to automate the processing of letters and parcels.
Wirecard applies for insolvency proceedings
Newsflash: German payments company Wirecard has applied to open insolvency proceedings, a week after admitting that €1.9bn is missing from its accounts.
In a brief statement, Wirecard says:
The management board of Wirecard AG has decided today to file an application for the opening of insolvency proceedings for Wirecard AG with the competent district court of Munich (Amtsgericht München) due to impending insolvency and over-indebtedness.
It is currently evaluated whether insolvency applications have to be filed for subsidiaries of Wirecard Group.
Wirecard’s technology handles billions of payments between online retailers and customers each year. CEO Markus Braun was arrested on Monday. Last Thursday, Wirecard admitted the money was missing – having previously denied reports in the Financial Times that its sales and profits were being artificially inflated, misleading auditors for many years.
Britain’s stock market has now shrugged off its early losses, driving the FTSE 100 back up towards last night’s close.
Investors seem to be cheered by the ECB’s new offer of euro loans to non-eurozone central banks (see previous post).
ECB launches euro repo lines
The European Central Bank has launched a new facility to protect the financial system from the impact of Covid-19.
It will offer euro loans to central banks outside the euro area, in an attempt to prevent a shortfall of euros in the market.
The new facility, which will let other central bankers swap suitable collateral for euros, will run for a year. It’s basically an attempt to keep the plumbing of the financial system running smoothly while the pandemic plays out.
In a statement, the ECB says:
In response to the coronavirus (COVID-19) crisis, the Governing Council of the European Central Bank (ECB) decided to set up a new backstop facility, called the Eurosystem repo facility for central banks (EUREP), to provide precautionary euro repo lines to central banks outside the euro area.
EUREP addresses possible euro liquidity needs in case of market dysfunction resulting from the COVID-19 shock that might adversely impact the smooth transmission of ECB monetary policy.
Under EUREP, the Eurosystem will provide euro liquidity to a broad set of central banks outside the euro area against adequate collateral, consisting of euro-denominated marketable debt securities issued by euro area central governments and supranational institutions.
This may reassure investors that central banks will continue to do whatever they can to protect the global economy and the financial system, and prop up asset prices.
We have an interest rate thriller in Manila.
The Philippine central bank has unexpectedly cuts interest rates by 50 basis points today, to a new record low of 2.25%.
It’s an attempt to protect its economy from the impact of Covid-19.
Most economists had expected the bank to leave borrowing costs on hold, with some predicting a smaller, 25 basis point cut, according to Reuters data.
European stock markets are all being dragged down by coronavirus jitters.
- Stoxx 600: down 3 points or 0.86% at 354
- German DAX: down 59 points or 0.5% at 12,034
- French CAC: down 49 points or 1% at 4,822
- Italian FTSE MIB: down 187 points or 1% at 18,971
Today’s sell-off means the FTSE 100 index is now flat for June, and down almost 20% this year.
It’s still up almost 6% in the last quarter, though, having clawed back some of the huge losses after the pandemic struck.
The smaller FTSE 250 index, which contains many UK-focused firms, has slumped by 1.8% in early trading.
Companies who suffer badly from Covid-19 lockdowns are among the top fallers.
Travel ticket site Trainline has shed 9%, with cinema group Cineworld down 8% and cruise operator Carnival losing 7.9%.
FTSE 100 drops at the open
As feared, Britain’s stock market has dropped in early trading as anxiety over the pandemic swirls.
The FTSE 100 has fallen by 81 points, or 1.3%, to 6041. That’s the lowest level since Monday 15th June, adding to Wednesday’s 3% slide.
Every stock is down, led by United Utilities (-4%), online estate agent Rightmove (-3.7), and broadcaster ITV (-3%).
Jasper Lawler of London Capital Group reports that City traders are alarmed by the latest developments in the US:
New quarantine rules for travellers from some US states was the tipping point for investor doubts about the impact of rising coronavirus cases. New York, New Jersey and Connecticut will make travellers from California, Florida and Texas quarantine for 14 days.
Royal Mail to cut 2,000 jobs
The unemployment crisis in Britain has just deepened, with the Royal Mail announcing plans to cut 2,000 jobs.
It is blaming the move, in part, on the Covid-19 pandemic.
Keith Williams, interim Executive Chair, told the City:
In recent years, our UK business has not adapted quickly enough to the changes in our marketplace of more parcels and fewer letters. COVID-19 has accelerated those trends, presenting additional challenges.
Royal Mail is now planning a management restructure that will affect around 2,000 people, saving £130m, alongside a £300m cut in Capex spending.
Royal Mail also reported that pre-tax profits fell in the year to 31 March, to £180m from £241m.
Williams is swinging the axe just a month after Royal Mail’s chief executive Rico Back quit with less than two years in the role. Back had battled with the unions over his plan to restructure the business, sending Royal Mail shares down to record lows even before the pandemic began.
Coronavirus fears are also weighing on the oil price today.
US crude has dropped by 0.8% today to $37.70 per barrel, with Brent crude dipping below the $40 mark.
Yesterday the oil price fell sharply after a sharp rise in US energy stocks, suggesting demand for crude was weaker than expected.
The Australian and South Korean stock markets bore the brunt of today’s selloff, both falling by around 2.5%.
Japan’s Nikkei also came under pressure, down 1.2%. China, though, was closed for the Dragon Boat Festival.
Introduction: Second-wave fears dominate
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After heavy losses yesterday, there’s an edgy mood in the markets today as investors are spooked by the sharp rise is Covid-19 cases in the US.
Stocks have fallen sharply in Asia-Pacific already, down from four-month highs, after US authorities reported that new Covid-19 cases are rising at the fastest rate since April.
The possibility of a dreaded second wave of infection knocked 710 points, or 2.7%, off the Dow last night, with transport companies and energy stocks among the big fallers.
My colleagues Amanda Holpuch and Maanvi Singh explain how the situation is deteriorating in parts of the US:
A coronavirus resurgence is wiping out two months of progress in the US and sending infections to dire new levels in southern and western states. Administrators and health experts warned on Wednesday that politicians and a public that, in many cases, is tired of being cooped up are letting a disaster unfold.
While newly-confirmed infections have been declining steadily in early hot spots such as New York and New Jersey, several other states set single-day records this week, including Arizona, California, Mississippi, Nevada, Texas and Oklahoma.
The global picture is that cases worldwide passed 9.4 million on Thursday, and is expected to pass 10 million by the end of the week. At least 480,000 people have died so far.
With cases worldwide rising by one million a week, some investors must be wondering if the markets got ahead of themselves in the last couple of months.
Jim Reid of Deutsche Bank says volatility is back, with a bang.
A plethora of bad news about the virus led to a major sell-off in risk assets yesterday as volatility returned to financial markets once again.
It wasn’t a single bad headline that led to the plunge, but a drip-feed of negative stories that all combined to show increasing signs of a deteriorating situation on the virus, most obviously in the US. In terms of the news there, Florida (the 3rd most populous US state) saw its number of Covid-19 cases rise by 5.3% yesterday, some way above the previous 7-day average of 3.7%, and the number of hospitalisations rose by 256 in the state, the largest increase in a month.
California also saw a record jump in cases, with over 8800 new ones yesterday. This equated to a 4.8% rise – notably above the 2.5% average daily rise over the last week.
The prospect of a new trade war also hit stocks, after the US outlined plans to impose tariffs on $3.1bn of European products such as olives, pastry and cakes, beer, gin and vodka.
So, after plunging 3% or 196 points yesterday, Britain’s FTSE 100 index is expected to dip again this morning.
Later today we’ll discover how strongly retail sales picked up in the UK and US since lockdowns were eased… plus the latest weekly US unemployment report.
- 11am BST: CBI distributive trades survey of UK retail sales in June
- 1.30pm BST: US durable goods sales for May
- 1.30pm BST US weekly jobless figures
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