Moody’s cuts China’s credit outlook to negative
Newsflash: Credit rating agency Moody’s has cut its outlook for China’s government bonds to negative, from stable, due to concerns over its rising debts and slowing economy.
Moody’s slashed its outlook due to concerns that Beijing’s government will need to provide fiancial support to “financially-stressed regional and local governments and State-Owned Enterprises”.
This would pose broad downside risks to China’s fiscal, economic and institutional strength, Moody’s says.
Moody’s also warns that China faces “structurally and persistently lower medium-term economic growth”, saying:
Moody’s expects that China’s annual GDP growth will be 4.0% in 2024 and 2025, and average 3.8% from 2026 to 2030, with structural factors including weaker demographics driving a decline in potential growth to around 3.5% by 2030
The agency also points to the “downsizing” taking place in China’s property sector, where many developers such as Evergrande are trying to restructure debts.
The changes in the property sector is “a major structural shift in China’s growth drivers”, and could be a more significant drag to China’s overall economic growth rate than expected, they say.
Moody’s move underscores deepening global concerns about the level of debt in the world’s second-largest economy.
It has maintained China’s credit rating at A1, which is its fifth-highest rating (the top ‘upper medium grade’) and comfortably in ‘investment grade’. But lowering the outlook is a sign that the credit rating could be cut in future.
Key events
Today’s technical problems on the London stock exchange don’t “bode well for the LSE as it isn’t the first time,” according to John Moore, head of trading at Berkeley Capital Wealth Management.
“Investors and traders may lose confidence when they cannot transact, as well as attract attention from the regulator as the issues persists. In this day and age we expect 100% uptime as per major stock indexes globally.”
Mark Sweney
Here’s our news story on Rupert Soames’s appointment as the CBI’s next president:
Revealed: Sellafield nuclear site has leak that could pose risk to public
Sellafield, Europe’s most hazardous nuclear site, has a worsening leak from a huge silo of radioactive waste that could pose a risk to the public, the Guardian can reveal.
Concerns over safety at the crumbling building, as well as cracks in a reservoir of toxic sludge known as B30, have caused diplomatic tensions with countries including the US, Norway and Ireland, which fear Sellafield has failed to get a grip of the problems.
The leak of radioactive liquid from one of the “highest nuclear hazards in the UK” – a decaying building at the vast Cumbrian site known as the Magnox swarf storage Silo (MSSS) – is likely to continue to 2050.
That could have “potentially significant consequences” if it gathers pace, risking contaminating groundwater, according to an official document.
More here, by Anna Isaac and Alex Lawson:
As flagged this morning (see 11.53am), Energy Security Secretary Claire Coutinho MP has written to the Nuclear Decommissioning Authority about the “serious and concerning” allegation.
On the MSSS, Coutinho has asked the NDA what efforts are being taken to speed up the work to stop the leak.
For the second time today, the London Stock Exchange says that the securities caught up in the technical problems “are now in regular trading”.
Back in the City of London, the stock market authorities are making a new attempt to resume trading.
The London Stock Exchange say that impacted instruments are being resumed, after trading in hundreds of small stocks was hit by a second technical glitch.
The LSE started a re-opening auction at 12:20pm.
It adds:
During this period, instrument status will be shown as Halted but customers will be able to manage their orders in the system.
Hopefully this will resolve the second outage of the day, and not be followed by a third….
At least trading in FTSE 100 and FTSE 250 stocks, and overseas stocks, has kept working today.
Coutinho demands answers over Sellafield cybersecurity
Claire Coutinho, the UK’s Secretary of State for Energy Security and Net Zero, has asked Britain’s Nuclear Decommissioning Authority for a full explanation about cybersecurity at Sellafield.
Following the Guardian’s revelation that the nuclear waste and decommissioning site had been hacked by groups linked to Russia and China, Coutinho has asked NDA chief executive David Peattie for a delivery plan and a timeline for how Sellafield will emerge from ‘enhanced regulatory scrutiny’.
Coutinho is also seeking assurances from the NDA that cyber security threats are bring treated with the highest priority, and that threats are recorded and acted upon.
Here’s the letter:
The reports of an alleged cyber attack at Sellafield are deeply concerning. While they have strongly refuted allegations of a successful cyber attack, I have written to the @NDAgovuk for a full explanation.
I will be speaking to the @NDAgovuk and @The_ONR today. pic.twitter.com/q9j1ZpUCjf
— Claire Coutinho MP (@ClaireCoutinho) December 5, 2023
My colleagues Anna Isaac and Alex Lawson reported yesterday that the Office for Nuclear Regulation (ONR) had found cybersecurity “shortfalls” during its inspections of Sellafield, and noted that it had taken “enforcement action” as a result.
They wrote:
The latest annual report from the ONR stated that “improvements are required” from Sellafield and other sites in order to address cybersecurity risks. It also confirmed that the site was in “significantly enhanced attention” for this activity.
Coutinho also told Peattie she has “zero tolerance for bullying or harassment in the workplace”, after our investigation uncovered a toxic workplace culture at Sellafield.
LSE ‘still investigating an issue’
The problems hitting small companies traded on the London Stock Exchange this morning appear to have resurfaced!
The LSE says:
We are still investigating an issue. Currently only FTSE 100, FTSE 250 and IOB securities are available for trading.
Several of the stocks which were frozen earlier seem to be having problems again.
Fevertree has been frozen for 12 minutes, while YouGov, for example, just traded after a half an hour pause.
Deliveroo just traded, too.
Inflation across OECD countries hits two-year low
Back in the global economy, inflation across the world’s richest countries has slowed to a two-year low.
Year-on-year inflation in the OECD, as measured by the Consumer Price Index (CPI), has fallen to 5.6% in October, down from 6.2% in September.
That’s the lowest level since October 2021, before the spike in energy and food prices in 2022 after Russia’s invasion of Ukraine.
The OECD reports that inflation fell in 28 of its members, but rose by at least one percentage point or more in Greece, Czechia, and Costa Rica.
It adds:
Inflation rates were close to zero in Denmark, turning negative in the Netherlands and remained negative in Costa Rica despite its increase.
The OECD also reports that food inflation continued to slow rapidly, dropping to 7.4% in October down from 8.1% in September.
It declined in 32 OECD countries but still exceeded 10% in Turkey, Iceland, Colombia, and the United Kingdom (where it was 10.1% in October).
Rupert Soames isn’t a stranger to taking on a challenge.
Serco was vying for the label of Britain’s most-reviled company when Soames heard it had sacked its CEO, and decided he’d like to do the job.
As my colleague John Collingridge wrote last year:
Soames got the job and joined in early 2014, when Serco was vying for the label of Britain’s most-reviled company. It was in the dock for having overcharged the Ministry of Justice (MoJ) tens of millions of pounds for electronically tagging offenders, some of whom were dead or still in prison; its shares were in freefall; and it was barred from winning new government work.
“I have a horrible habit of walking towards gunfire,” says Soames with a grin, sitting in the central London office of his public relations adviser, wearing his trademark blue shirt embroidered with the words “Serco and proud of it”. (He ordered a batch when he was appointed.)
The new chief executive’s approach combined gusto with a heavy dose of gallows humour. His initial appeal to staff was: “Bring out your dead.” In response, he says, “rather a lot of bodies came flying out”
Rupert Soames to be next CBI president
Newsflash: The CBI has turned to Winston Churchill’s grandson, Rupert Soames, to be its next president.
The CBI has announced that its governance bodies, including the CBI Board, have today approved the nomination of Rupert Soames OBE, to succeed Brian McBride as their president.
The CBI says “a smooth transition” will take place early in the new year, with Soames due to be formally elected by members at the next AGM in June 2024.
Soames has around four decades experience in business. He’s currently the chair of FTSE medical technology manufacturer Smith & Nephew, and is the former CEO of UK government contractor Serco.
When he retired from Serco last year, Soames joked that “it is now time for me to outsource myself”.
The CBI announced in May that McBride would step down early, next January. It accelerated its search for a new president as it also put forward proposals to overhaul its culture after the Guardian revealed a series of sexual misconduct allegations at the business lobby group.
McBride says today:
“I’m pleased to announce that after a robust search process, Rupert Soames will be taking on the role as the next President of the CBI.
“With the CBI back influencing at the highest levels across the UK again, there is no better person to pass the baton to. Rupert’s track record as one of the UK’s longest serving and most successful CEO’s makes him the ideal choice.”
Soames says he is “pleased and honoured” to have been nominated to be the next President of the CBI, adding:
After a decade of disruption and distraction due to Brexit, Covid, inflation and labour shortages, business and government need to work closely together to deliver a prosperous future where economic growth will lift living standards and sustainably fund the UK’s vital public services.
“The CBI is needed more now than at almost any time in its history, and it will be a privilege to lead the organisation in the coming years.”
Here’s a profile of Soames from last year:
As we reported yesterday, the CBI has warned that there is a “material uncertainty” that it can continue operating in the long term after sexual misconduct allegations.
The scandal-hit business lobby group said it was “emerging from an unprecedented situation” that had led to “exceptional costs”, warning there was also “material uncertainty arising from the CBI’s financial performance since the year end”.
The CBI released the warning in its annual accounts published on Monday ahead of its annual general meeting on Wednesday.
The FT points out that trading in drinks maker Fevertree and polling company YouGov was also disrupted by this morning’s technical glitch on the London Stock Exchange.
Both are trading again now, though.
Indeed, the LSE has issued a new status update saying:
“Impacted securities are now in regular trading”
UK services sector returns to growth
Britain’s services sector has returned to growth, according to the latest poll of purchasing managers across the economy.
UK services firms have reported rising demand in November, with a pick-up in export orders from the US and Europe – despite Brexit trade frictions.
But, companies also flagged that elevated borrowing costs were hitting new orders.
Firms also raised their prices at the fastest rate since July, as they passed on risng staff wages and elevated inflationary pressures.
This pushed the UK services PMI up to 50.9, showing growth, up from 49.5 in October (which indicated a contraction).
This helped to lift private sector output for the first time in four months.
Tim Moore, economics director at S&P Global Market Intelligence, says:
“UK service providers moved back into expansion mode during November as stabilising demand conditions helped to lift business activity from its recent malaise. Although only marginal, the upturn in service sector output was the fastest since July and slightly stronger than the earlier ‘flash’ estimate for November.
Staffing numbers also returned to growth, supported by a modest improvement in business activity expectations for the year ahead. “Despite tentative signs of a turnaround in new orders, survey respondents once again commented on a lack of willingness to spend among clients. Many firms noted that low levels of business and consumer confidence, alongside elevated borrowing costs, had constrained sales opportunities in November.
Overseas markets continued to show resilience, with strengthening US demand often cited as a driver of increased new export orders.
The FTSE small cap index was subject to a trading halt during this morning’s outage, Reuters reports.
That affected some 222 stocks, including Tullow Oil, CMC Markets and Marston’s – companies whose market value (or capitalisation) is too low to qualify for the FTSE 100 or 250.
Those three stocks are now trading normally again, after the LSE resumed trading in the affected securities (see 9.59am).
It is the second time LSEG has flagged a disruption to trading in smaller stocks on the London market in less than two months, Reuters adds.
Trading appears to be underway again normally in London.
Shares in Deliveroo and Asos, two of the companies caught up in this morning’s system outage, have both just traded.
Bloomberg reports that this morning’s outage at the London Stock Exchange halted trading in about 2,000 smaller shares on the market.
It’s the third outage in a few months, Bloomberg adds.
But, as flagged at 9.59am, the problem is being resolved, with trading expected to have resumed at 10.15am.
And it didn’t affect shares in blue-chip companies on the FTSE 100, or the smaller members of the FTSE 250.
LSE: Trading is resuming now
Update: The London Stock Exchange says trading will resume this morning, on the stocks affected by today’s outage.
In a status update a few minutes ago, the LSE says:
We are now resuming trading on impacted instruments. Instruments will go into auction at 09:55 with uncrossing beginning at 10:15. All live orders remain on the system.
London Stock Exchange investigating ‘issue’ with trading and information system
The London Stock Exchange is currently investigating an issue impacting its trading/information system.
Currently only FTSE 100, FTSE 250 and IOB (international order book) securities are available for trading, it admits.
*LSE SAYS ONLY FTSE 100, FTSE 250 AND IOB AVAILABLE FOR TRADING
— Michael Brown (@MrMBrown) December 5, 2023
The outage appears to be affecting stocks listed in London, but not part of the blue-chip FTSE 100 or smaller FTSE 250 index.
Deliveroo, for example, hasn’t traded since 9.14am, while a trade on ASOS hasn’t gone through since 9,24am.
Back on 19th October, a similar-sounding system incident halted trading in hundreds of shares on the London Stock Exchange for the final 80 minutes of the day’s session, but (as today) stocks on the FTSE 100 Index, FTSE 250 and international orderbook weren’t affected.
Moody’s: Tech restrictions will hurt China’s manufacturing
In its China rating decision today, Moody’s warns that the trade war over technology being fought with the US will hurt Chinese manufacturing.
Moody’s says:
Restrictions on trade in technology driven by geopolitical tensions will curb the kind of information sharing that is crucial to the rapid development of high-tech manufacturing sectors.
In August, US president Joe Biden banned a range of US high tech investments in China, including in companies developing software to design chips and tools to manufacture them, citing national security risks.
Then in October, the US banned Nvidia from exporting some of its high-end artificial intelligence chips to China as regulators advanced the deadline.
China hit back, restricting exports of gallium and germanium – crucial for chipmaking, and for manufacturing communications equipment and electric vehicles.
China credit default swaps rise after Moody’s cuts rating outlook
The cost of insuring China’s sovereign debt against a default has risen to its highest since mid-November after Moody’s put the country’s credit rating on a “negative outlook” today.
Data from S&P Global Market Intelligence showed 5-year credit default swaps had risen to 63 basis points, which was up 4 bps from Monday’s closing level, Reuters reports.
That’s still a low level, implying little risk of China defaulting, despite Moody’s concerns that Beijing may need to provide support to financially-stressed regional and local governments and state-owned enterprises, and its worries about slow growth and the property sector.
