Fed warns of rising risky asset prices, as stocks and bitcoin hit record highs – business live – The Guardian

Primark will not increase its prices despite soaring costs, the boss of its parent firm Associated British Foods has said — although some food prices will rise (as flagged earlier) due to the surge in costs.

PA Media have the details:

George Weston, chief executive of ABF, told the PA news agency that the retailer has seen rising energy and distribution costs but will not pass this on to customers.

“We haven’t increased prices at Primark over the past 10 years and we won’t do so this year,” he said.

“We have currency difference in our favour and there are other areas we have recognised to find cost savings so won’t pass that on.”

However, Mr Weston said the company has already increased some prices across its grocery business, which runs brands including Kingsmill, Twinings and Ryvita.

He told PA: “In food we are having to pass some of the impact on to customers because it’s just too big to absorb.

“Energy prices have shot up, with natural gas trebling. Distribution costs have risen, labour costs have risen – it seems like everything is jumping up right now.”

Associated British Foods also points out that Brexit has “exacerbated” the shortage of lorry drivers in the UK, which is one cause of supply chain problems.

In today’s annual results, it says:

Our businesses are reliant on the availability of skilled HGV drivers.

Whilst there is currently a shortage of drivers in other parts of Europe, the USA and Australia, the situation has been exacerbated in the UK as a result of the EU exit. We continue to work closely with our major carriers and logistics partners to minimise supply chain disruption.

The situation remains fluid and is being closely managed and monitored.

Last month the UK government announced that foreign lorry drivers can make an unlimited number of pick-ups and drop-offs in a fixed period in the UK, to help prevent shortages this Christmas.

ABF also says its businesses were well prepared for the end of the Brexit transition period and it hasn’t seen any material disruption to its supply chains.

But it has seen a small increase in the administrative costs of trading and in limited cases duties related to its trading with the EU.

In the City, shares in Primark’s parent company have surged over 6% after it announced expansion plans, and a special dividend.

But, Associated British Foods is also experiencing supply chain problems, which could push up prices at its food divisions.

Discount clothing chain Primark plans to expand its store estate over the next five years to 530 stores, from 398, and accelerate its expansion into the US, France, Italy and Iberia.

That includes growing its US store estate to around 60 stores, from just 13 at present.

Paul Marchant, CEO Primark, says there is ‘sizeable growth potential’ in the US:

“Six years after we opened our first store in Boston, it’s clear that US customers – from Florida right up to Chicago – are loving the unique Primark offer.

With our current portfolio of 13 stores trading really well, it feels like we’ve established a strong foundation from which to accelerate our expansion in the US market.

Primark has announced three new store locations in the New York region today — City Point in Brooklyn; Roosevelt Field in Garden City, Long Island; and Crossgates Mall in Albany.

In its annual results, ABF also reported that Primark’s like-for-likes sales fell 12% compared to pre-pandemic levels in the last 12 months (to mid-September).

Store closures due to pandemic lockdowns wiped out around £2bn of sales last year.

And it hopes to recover strongly this year and at least recover all those lost sales (unless significant restrictions are reimposed), having seen customers returning to its stores in large numbers since Covid-19 vaccines were rolled out.

George Weston, Chief Executive of Associated British Foods, said:

Although the possibility of further trading restrictions cannot be ruled out, we expect Primark to deliver a much improved margin and profit next year.

We are now intent on expanding our new store pipeline and investing in technology and digital capabilities to continue improving the performance of the business.

But ABF, which also has sugar, grocery, ingredients and agriculture operations, warned that it is “not immune” to supply chain problems, rising raw material costs and higher wages.

And that could force the company to hike its prices:

We are seeing significant cost increases in energy, logistics and commodities in addition to the impact of widely reported port congestion and road freight limitations.

Our businesses are working to offset the impact of these through cost savings. Where necessary, our food businesses will also implement price increases.

ABF also warns that there’s a risk of increased pressure on its supply chains resulting from labour shortages as economies reopen, exacerbated by employee health and safety concerns.

ABF shares have hit a two-month high this morning, up 6.7% to £19.93, the top FTSE 100 riser.

Victoria Scholar, head of investment at interactive investor, says ABF’s upbeat outlook has boosted shares:

Wilfred Daye, the head of the trading platform Securitize Capital, says crypto assets are also benefitting from inflation worries:

“Inflation is a major consideration for investors today, and the younger generation of investors often favours cryptocurrency as a hedge over gold.

In fact, while gold has slid throughout the year, bitcoin and ethereum have more than doubled. Retail investors have played a major role in fuelling this shift and institutional investors are increasingly following suit.”

Another reason behind the surge in ethereum is its recent system upgrade, he said.

Here’s the full story:

Naeem Aslam of Avatrade argues that increased institutional take-up of cryptocurrencies is driving bitcoin and ether higher.

The twitter poll that Elon Musk should sell 10% of his Tesla shares may also be pushing the markets higher, Aslam suggests, [Musk may put some of the proceeds into crypto rather than fiat currencies, as he already owns bitcoin, ether and dogecoin]

Within just a few days of Bitcoin’s last burst to historical highs, on Monday the notorious digital coin was again able to shatter through its ceiling and is currently trading around $67,700. Similarly, Ethereum breaking through the $4.800 barrier is a first for the alt coin.

The recent cryptocurrency rally has been aided by the launch of a Bitcoin-linked ETF in the United States as well as Elon Musk’s weekend Twitter poll.

Solana and Binance Coin have gained nearly 20% in the last week, bringing the total market capitalization of cryptocurrencies to $3 trillion. As evidenced by Bitcoin’s price action, which is now four times what it was at the end of 2020, as investors are becoming more comfortable with the practical use of Bitcoin and companies are working hard to find innovative ways to use blockchain technology, as evidenced by the launch of new coins such as Solana.

But Jeffrey Halley, senior market analyst at OANDA, isn’t as impressed:

The crypto-space looks to be the only “asset class” moving today. Both digital Dutch tulips, Bitcoin and Ether, have hit record highs this morning as the street continues to buy on a positive technical picture, a lower dollar, and Elon Musk’s Twitter account.

I am girding myself for more “institutional experts” appearing on the news wires droning on about becoming “mainstream assets.” Whoever bought the Squid Games tokens probably isn’t feeling the same way.

Richard Partington

Consumers starting their Christmas shopping earlier than usual amid concern over supply chain shortages and rising prices helped to drive a recovery in UK retail sales last month, industry figures show.

The British Retail Consortium said total sales were up 1.3% in October from the same month a year ago, and up 6.3% from the same month in 2019, before Covid-19 tipped the UK into the worst recession for 300 years.

According to the BRC, clothing and footwear sales performed well, as Halloween helped to boost sales of children’s costumes and chocolates. However, global supply chain disruption continued to hold back sales of furniture and electrical items.

Food shops also reported weak growth, with spending dented by the gradual return of consumers to pubs and restaurants after the reopening of the hospitality sector.

Separate figures from Barclaycard showed that overall spending on credit cards grew by 14.2% in October from a year earlier, with particularly strong growth in spending on travel, digital entertainment and subscription services.

More here:

Callie Cox, investment strategist at Ally, points out that Wall Street is on quite a tear:

The Fed also flags concerns that Europe’s recovery could be hit by new variants of Covid-19, saying:

Despite high vaccination rates, the emergence of new variants and a resurgence of COVID-19 infections could weigh on the ongoing recovery in Europe.

Ending stimulus support too early could also “materially hit” economic growth and affect financial stability, it says.

Such a slowdown would stress the European financial system, and lead to knock-on damage to the US economy – through a deterioration in global risk appetite, a pullback in lending from European banks to U.S. businesses and households, strains in dollar funding markets, and losses due to large direct and indirect credit exposures.

The Fed also fears that stresses in China’s real estate sector could strain the Chinese financial system, with possible spillovers to the United States.

In its financial stability report, it cites the heavily indebted Evergrande as an example of the risks.

In China, business and local government debt remain large; the financial sector’s leverage is high, especially at small and medium-sized banks; and real estate valuations are stretched. In this environment, the ongoing regulatory focus on leveraged institutions has the potential to stress some highly indebted corporations, especially in the real estate sector, as exemplified by the recent concerns around China Evergrande Group.

Stresses could, in turn, propagate to the Chinese financial system through spillovers to financial firms, a sudden correction of real estate prices, or a reduction in investor risk appetite. Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States.

Evergrande, which owes over $300bn, avoided default last month with a last-minute payment to lenders. It has been hit by a government measures to cool the housing market, with tighter regulations on developers designed to curb debt, preserve cash, and limit overbuilding.

But the problems go wider. A report last month found that one third of China’s property developers will struggle to repay their debts in the next 12 months

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The surge in risky asset prices this year has made them increasingly susceptible to a tumble if economic growth takes a turn for the worse, the pandemic escalates, or investors lose confidence.

That’s the message from the US Federal Reserve, which is also concerned about the rise of stablecoins which underpin the cryptocurrency market.

In its latest financial stability report, the Fed flagged that prices of risky assets have generally risen further since its previous report six months ago.

Despite concerns about the spread of the Delta variant of the virus that causes COVID-19, asset prices have been supported by increased earnings expectations and low Treasury yields, it says.

In a warning to the markets, they say:

Prices of risky assets generally increased since the previous report, and, in some markets, prices are high compared with expected cash flows. House prices have increased rapidly since May, continuing to outstrip increases in rent. Nevertheless, despite rising housing valuations, little evidence exists of deteriorating credit standards or highly leveraged investment activity in the housing market.

Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.

But are investors heeding the message?

Last night, the US stock market closed at a fresh record high, extending its pandemic rally, as investors continue to shrug off concerns about rising inflation, supply chain problems, and the ongoing pandemic.

And bitcoin has struck a new record high this morning — hitting $68,550 for the first time, as crypto assets continue to surge.

Critics would point out that the Fed’s own policies have helped drive the rally in risky assets.

Since early in the pandemic it has kept interest rates at record lows and pumped $120bn per month into the system through its bond-buying stimulus programme, which it is just starting to wind down.

The Fed’s financial stability report shows concerns over the rise of stablecoins – cryptocurrencies [such as tether] that try to peg their market value to some external reference, such as the US dollar.

The Fed points out that the sector has grown fast, and warns that ‘some stablecoins are vulnerable’

Policymakers are concerned about the consequences if a stablecoin can’t hold its value.

The value of stablecoins outstanding has grown about fivefold over the past 12 months and stood at around $130 billion as of October 2021

Certain stablecoins, including the largest ones, promise to be redeemable at any time at a stable value in U.S. dollars but are, in part, backed by assets that may lose value or become illiquid. If the assets backing a stablecoin fall in value, the issuer may not be able to meet redemptions at the promised stable value.

Also coming up today:

Rolls-Royce is moving ahead with a multibillion pound plan to roll out a new breed of mini nuclear reactors after securing more than £450m from the government and investors.

The engineering firm will set up a venture focused on developing small modular nuclear reactors, or SMRs, in partnership with investors BNF Resources and the US generator Exelon Generation with a joint investment of £195m to fund the plans over the next three years.

On the data front, the latest survey of US producer prices will show whether inflationary pressures are still building in America’s economy.

The ZEW survey of economic confidence will show if German investor confidence has improved, after falling for the last four months.

Central bankers will be busy; the Bank of Canada, Bank of England, Board of Governors of the Federal Reserve System, and European Central Bank are holding a conference on Diversity and Inclusion in Economics, Finance, and Central Banking.

The agenda

• 7am GMT: German trade data for September
• 10am GMT: ZEW index of German economic sentiment
• 1pm GMT: ECB president Christine Lagarde speaks at the 4th ECB Forum on Banking Supervision Forum: “Tomorrow’s banking: navigating change”
• 1.30pm GMT: US PPI index of producer prices released
• 2pm GMT: Fed chair Jerome H. Powell gives opening remarks at the Conference on Diversity and Inclusion in Economics, Finance and Central Banking
• 3.30pm: Bank of England deputy governor Ben Broadbent gives evidence to the EFRA Committee: Labour shortages in the food and farming sector
• 4pm GMT: Bank of England governor Andrew Bailey on a panel on “Central Banks and Inequality”, at the conference on Diversity and Inclusion in Economics, Finance and Central Banking