European gas prices could nearly treble this winter and remain higher into summer next year, according to Goldman Sachs, delivering a shock to households and a boost to Vladimir Putin’s efforts to fund his war in Ukraine.
Wholesale gas prices could rise above €100 per megawatt hour in the second half of the year, nearly three times higher than present levels of around €36.
European gas prices have fallen after the continent emerged from winter with gas stocks more than half full and close to record highs for the time of year.
However, Goldman Sachs expects European consumption and liquified natural gas (LNG) demand elsewhere in the world to rebound in the second half of 2023 raising prices on average above €90 per megawatt hour.
In a note to investors, analysts warned that “even if industrial demand remains sluggish this summer, this is not a guarantee that storage will be comfortable throughout winter”.
It said there is “only so much capacity to store gas ahead of heating season”.
Analysts argue that the low prices in the continent at the moment have reduced motivation among households to cut their gas usage, which could fuel the rebound in demand.
Higher gas prices would deliver a boost to Russia, which still supplied nearly a quarter of EU gas imports from January 2022 to November 2022, according to EU data.
Read the latest updates below.
10:34 AM
Deloitte audit of Joules probed by regulators
Regulators have launched an investigation into Deloitte’s audit of a set of accounts for Joules, which was bought out of administration by Next last year.
The Financial Reporting Council said it is examining the work done on the retailer for the year ended May 30, 2021.
It said the investigation will be conducted by its enforcement division.
In December, Next secured a last minute deal to buy Joules, which had collapsed into administration a month earlier.
It saved 100 Joules stores and 1,450 jobs, as well as its head office in Market Harborough, Leicestershire.
A Deloitte UK spokesman said: “We will co-operate fully with the Financial Reporting Council’s investigation and remain committed to the highest standards of audit quality.”
10:14 AM
Travelodge to recruit 400 new staff
Travelodge has announced plans to recruit 400 new staff over the summer at its hotels and head office.
The company said a mixture of full-time and part-time jobs and flexible hours were available, adding they were ideal for parents and students.
Jobs include managers, bar and cleaning staff and receptionists.
Katharine Gourley, Travelodge’s director of people operations, said:
We offer parents flexible working hours to help them work around the school run, so they can raise their family and have a job that allows them to develop a career when the time is right for them.
Students can work in a Travelodge whilst studying at university and then transfer to a different hotel when they return home in the holidays.
10:01 AM
Oil falls amid concerns about China’s recovery
Oil prices have fallen as macro-economic data from China highlighted concerns about the nation’s recovery and energy demand this year.
Brent crude, the international benchmark, and US-produced West Texas Intermediate have both lost 1pc to about $76 and $72 a barrel respectively.
Crude had rallied around 7pc over the previous two sessions amid reduced supplies from Canada.
Trade data showed that China’s overall export growth slowed in April while imports plummeted.
Crude has retreated by about 9pc this year, amid the push and pull of the Federal Reserve’s monetary-tightening campaign, and concerns that the US economy may soon slip into a recession.
09:47 AM
Renters handed 100pc mortgages for first time since 2008
Deposit-free mortgages have returned for the first time since the financial crisis, as lenders help renters onto the property ladder.
My colleague Lauren Almeida has the details:
Skipton Building Society has launched a 100pc mortgage exclusively for renters aged over 21, who will not need a cash deposit to buy their first home.
Instead, potential buyers must pass a credit and affordability check, as well as show evidence of at least 12 months of on-time rent payments.
The Yorkshire-based lender unveiled plans for its 100pc mortgage last month, but has now confirmed the details of the deal, which will come with a five-year fixed rate of 5.49pc.
The monthly mortgage payments cannot be higher than the buyer’s average rent over the most recent six months.
This graph shows how it comes as UK mortgage payments rise sharply as a percentage of take-home pay.
09:33 AM
JD Sports in talks to buy French chain Courir
JD Sports is in exclusive talks to buy French chain Courir for an enterprise value of €520 million (£452.9m) as it further expands in continental Europe, heightening its rivalry with Frasers Group.
The sportswear chain said that it has started negotiations to buy Courir from Equistone Partners Europe for €325m in cash and €195m in assumed debt.
The sale is subject to regulatory approval and requires a consultation process with employee representatives.
JD Sports has been vying with Frasers’s Sports Direct chain to expand more in Europe. Sports Direct was aiming to buy rival French chain Go Sport out of receivership, but lost out to Intersport.
Equistone bought Courir from Go Sport in 2018. The chain has annual sales of €610m and operates in six European countries.
Shares of JD Sports have risen as much as 2.9pc this morning.
09:17 AM
Gas prices fall even as Goldman Sachs expects winter rally
European natural gas prices have fallen today even as Goldman Sachs said it expects a rally later this year.
Gas demand both in Europe and Asia remains weaker than anticipated, suggesting that the price rebound will take longer and be less pronounced than previously expected, the bank said in a note.
The situation should change in the upcoming heating season.
Analysts including Samantha Dart said in the note: “The combination of winter weather risk and potentially declining conservation efforts by households can quickly tighten balances, enough to trigger a sharp rise in winter prices above €100.”
Muted gas usage, coupled with strong inflows of liquefied natural gas and higher-than-normal fuel stockpiles left after the mild winter, have helped to push Europe’s gas prices to the lowest levels since summer 2021.
Dutch front-month futures, the European benchmark, have fallen 0.9pc today toward €36.50 per megawatt hour.
08:44 AM
FTSE 100 flat ahead of US inflation data
The FTSE 100 was flat in early trading as markets reopened after the Coronation Bank Holiday weekend.
The blue-chip FTSE 100 was subdued as investors also waited for the April US consumer price inflation report due later in the week before placing big bets.
IAG gained 1.7pc after Peel Hunt raised the British Airways owner’s rating to “buy” from “hold”.
Britain’s biggest sportswear retailer JD Sports Fashion said it has proposed to acquire France-based sportswear retailer Courir for an enterprise value of €520m (£452.9m). Its shares gained 2.9pc.
Weighing on the commodity-heavy FTSE 100 index, energy stocks dipped 0.5pc as oil prices relinquished some of the strong gains of the previous two sessions ahead of US inflation figures for further cues on Fed’s rate hike path.
US April consumer price inflation is expected to rise 0.4pc, and is due on Wednesday.
The more domestically-focussed FTSE 250 midcap index fell 0.1pc as Direct Line Insurance Group lost 7pc after the motor insurer said 2023 earnings outlook continues to be challenging.
08:24 AM
Nintendo warns Switch sales to slow down this year
Nintendo expects to sell only 15 million units of its Switch console this fiscal year, showing the extent of the slowdown for its six-year-old flagship product.
The Kyoto-based games maker’s guidance falls shy of an average analyst estimate of 15.7m units, which already took into account a deceleration in hardware sales in recent months.
The company also forecast operating income of 450bn yen (£2.bn) this fiscal year, versus the 455.3bn yen average estimate.
Nintendo said it sold 17.9m Switch units in the year to March and reported operating profit of 93.8bn yen for the quarter. Analysts had expected that it would report an operating profit of 83.4bn yen.
The hybrid Switch console, released in 2017, is slowing down more quickly than the company had once anticipated.
President Shuntaro Furukawa has described the holiday season as disappointing, telling analysts that sales were affected by the sluggish global post-Covid reopening and the economic malaise brought about by inflationary pressure.
08:06 AM
Markets open flat
Stock markets were mixed to start the week as investors take a wait-and-see view ahead of US inflation data.
The FTSE 100 is flat at 7,778.67 while the domestically focused FTSE 250 is flat at 19,448.63 as investors take a wait-and-see view ahead of US inflation data.
07:55 AM
Shoppers buying fewer products as prices soar
High inflation continued to support retailers in April but soaring prices meant shoppers bought fewer products during the month.
The latest BRC-KPMG monthly retail sales monitor reported that retail sales grew 5.1pc in April, compared with a 0.3pc decline in the same month last year.
However, the industry experts highlighted that although customers spent more, the volume of items bought by shoppers was lower as inflation continues to weigh on budgets.
The Office for National Statistics said UK inflation hit 10.1pc in March, amid record food and drink inflation at 19.1pc.
The new data showed that retailers said food sales increased by 9.8pc over the three months to April, driven by jumps in price, with sales volumes actually lower for the period.
Meanwhile, non-food stores saw a 1.2pc sales increase over the three-month period to April, amid pressure on fashion retailers.
07:51 AM
Saudi Aramco profits fall but still dwarf rivals
Oil giant Saudi Aramco has announced first-quarter net profit dropped 19.3pc to $31.9bn (£25.3bn) compared to a year earlier after a drop in crude prices.
The result was down from the $39.5bn reported in the same period in 2022, when Russia’s invasion of Ukraine caused oil prices to surge.
However, it is more than three-quarters of the $40.5 billion in combined first-quarter profits reported by the five oil majors: BP and Shell in Britain, ExxonMobil and Chevron in the United States, and TotalEnergies in France.
Saudi Aramco president and chief executive Amin H Nasser said: “We are… moving forward with our capacity expansion, and our long-term outlook remains unchanged.”
He added: “The results reflect Aramco’s continued high reliability, focus on cost and our ability to react to market conditions as we generate strong cash flows and further strengthen the balance sheet.”
Aramco is the jewel of the Saudi economy and the main source of revenue for Crown Prince Mohammed bin Salman’s ambitious economic and social reform programme known as Vision 2030.
07:41 AM
Year ahead ‘challenging,’ warns Direct Line boss
After cautioning about the year ahead for Direct Line, active chief executive Jon Greenwood said:
Trading has been positive over the first quarter with premium growth across motor, home and commercial, and this trend has continued into April.
Our focus continues to be on restoring the capital strength of the group and improving motor margins, where we have made good progress.
Whilst 2023 earnings outlook continues to be challenging, the group has many strengths and we continue to take the actions required to drive business performance.
07:38 AM
Property market ‘is proving more resilient than many thought’
After the latest Halifax data, Jamie Minors, managing director at Norwich-based estate agents Minors & Brady, said:
Though the annual rate of house price growth is near flat, at 0.1pc, the market is not.
With mortgage rates having steadily reduced during 2023 to date and consumer confidence returning after the disastrous mini-Budget, we are seeing strong levels of demand matching good levels of supply.
Unemployment is still very low, so as long as mortgage rates don’t suddenly rise and people keep their jobs, buyers will continue to purchase, resulting in prices holding without further big reductions and a rally upwards in 2024.
As ever, the property market is proving more resilient than many thought.
07:35 AM
Inflation pushes up costs of claims for Direct Line
Insurer Direct Line has cautioned its earnings outlook remains “challenging” due to the soaring cost of claims despite ramping up prices across its motor and home policies.
The group said it was seeing a further impact of the rising cost of motor repairs due to inflation, which is expected to put pressure on earnings this year.
It said it was hiking car cover prices in response, which pushed up average motor renewal premiums by nearly a fifth – 19pc – year-on-year in the first quarter.
This led to a 2.5pc fall in policies in the quarter.
The firm also said it was seeing “significant price increases” across the home insurance market, with its gross written home premium up by 2.1pc.
07:33 AM
House price growth grinds to a halt
Annual house prices growth has ground to a halt, according to Halifax, while prices in the south of England have come under the greatest pressure.
Nationally, average property prices are largely unchanged from this time last year, with the rate of annual house price inflation slowing to 0.1pc, from 1.6pc in March.
House prices fell 0.3pc in April compared to the previous month, following a 0.8pc rise in March.
This meant the average property value in April was £286,896, Halifax said, compared to £287,880 in March.
The four regions of southern England have seen average house prices fall over the last year, with the South East registering the largest dip, down 0.6pc to an average house price of £387,469.
Kim Kinnaird, director at Halifax Mortgages, said: “Cost of living concerns remain real for many households, which will likely continue weigh on sentiment and activity.
“Combined with the impact of higher interest rates gradually feeding through to those re-mortgaging their current fixed-rate deals, we should expect some further downward pressure on house prices over course of this year.”
It comes after figures from rival lender Nationwide indicated that house prices grew for the first time in eight months in April amid signs that mortgage applications are picking up.
The lender said prices rose by 0.5pc compared to the previous month, with the annual rate of price declines also slowing to 2.7pc from a fall of 3.1pc in March.
07:25 AM
Good morning
Halifax’s latest house price index gets the week underway, showing the average UK house price decreased by 0.3pc in April.
This meant the average property value in April was £286,896, Halifax said in its latest house prices index.
5 things to start your day
1) Church of England attacks Shell chief in row over green targets – The clergy’s pension fund will vote to oust Wael Sawan after accusing him of backtracking on climate commitments
2) Cash-strapped Brits buying food near expiry to save money – Nearly 40pc of households bought nearly-expired products in April
3) Staff turn on home working as four in ten say it has negative impact – Home and hybrid working falls out of fashion as workers report increased loneliness
4) Heathrow blames tourist tax for empty shops as M&S chairman slams levy – Criticism of raid on travellers grows as Heathrow says tax is blocking investment
5) Inside Microsoft’s bid to win Silicon Valley’s cut-throat AI race – As fears grow over AI, Big Tech companies are racing to be the first to crack the technology
What happened overnight
Asian stocks were mixed as investors parsed trade data from China, which showed further growth in exports as global demand rebounded.
Benchmarks rose in mainland China and Japan, while dropping in Hong Kong and Australia.
Shares of Chinese brokers surged amid speculation of further policy support for the financial sector.
A call by the country’s regulators on lower commissions for housing sales and rentals also boosted sentiment, driving the shares of developers higher.
China’s Shanghai Composite Index rose 0.4pc while MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3pc, erasing part of Monday’s 0.9pc rally.
Hong Kong’s Hang Seng dropped 0.5pc, while Australia’s benchmark S&P/ASX 200 Index shed 0.2pc and South Korea’s Kospi declined 0.4pc.
Japan’s Nikkei climbed 0.8pc, led by a surge for steelmakers after JFE Holdings forecast higher profit, while its Topix index rose 1.2pc.
