Newspaper Europe

Low take up of a government-backed 'Kurzarbeit' shortened hours facility points to a "very mild" recession in Germany this winter, the Ifo economic institute said on Wednesday.

In December, the number of workers on shortened hours eased to 186,000 from a seasonally adjusted 188,000 in November, Ifo said, citing estimates it based on data from the Federal Employment Agency.

"The fact that short-time work remains at a low level seems to indicate that the expected winter recession will be very mild," Ifo researcher Sebastian Link said in a statement.

Proactive Investors - Shell PLC) has begun its testing of the Pensacola well which has encountered gas in its targeted reservoir, exploration partner Deltic Energy PLC (LON:DELT) reported.

Deltic, in a statement, noted that Shell had recommended to joint venture partners that a full testing programme should be undertaken to evaluate the commerciality of the Pensacola prospect in the North Sea, and the partners agreed.

"We are very pleased to have encountered hydrocarbons in the Pensacola exploration well at this intermediate stage of well operations,” said Graham Swindells, Deltic's chief executive.

“We now look forward to working with the operator on the well testing programme, and will update the market once that programme is completed."

The testing is expected to take approximately 30 days to complete, Deltic noted.

Sweden is preparing legislation to allow the construction of more nuclear power stations to boost electricity production in the Nordic country and bolster energy security, Prime Minister Ulf Kristersson said on Wednesday.

Kristersson has made expanding nuclear power generation a key goal for his right-wing government, seeking to reverse a process of gradual closures of several reactors in the past couple of decades that has left the country relying more heavily on renewable but sometimes less predictable energy.

The proposed new legislation, which still needs to be passed by parliament, would allow new reactors to be constructed in more places across Sweden and was seen being in place in March next year.

"We have an obvious need for more electricity production in Sweden," Kristersson told a news conference.

"What we are doing today is changing legislation to allow for the construction of more nuclear reactors at more places."

Sainsbury's, Britain's second biggest supermarket group, forecast full-year profit towards the upper end of its previously guided range as it reported a 5.9% rise in underlying sales for the Christmas quarter.

The group, which has a 15.5% share of Britain's grocery market, has previously forecast 2022-23 underlying pre-tax profit of between 630 million pounds and 690 million pounds ($767-$840 million). It made 730 million pounds in 2021-22.

Prior to the update analysts were on average forecasting 644 million pounds, according to a company compiled consensus.

Sainsbury's said total sales over the 16 weeks to Jan. 7, excluding fuel, rose 5.2%, reflecting inflation and "relatively resilient volume trends."

It said grocery sales rose 5.6%, while general merchandise sales increased by a better-than-expected 4.6%.

"Investment in value, innovation, service and product availability delivered stronger volume trends across grocery and general merchandise, particularly at Christmas," said Chief Executive Simon Roberts.

But he said "we remain cautious on the consumer backdrop."

UK consumers face the prospect of an even tighter squeeze on their finances in 2023, with higher taxes and mortgage rates and scaled back government support on household energy bills.

LVMH Chairman and CEO Bernard Arnault tightened his family's grip on the luxury goods empire on Wednesday, putting his daughter Delphine in charge of one of its leading labels, Christian Dior, in a management revamp.

The world's largest luxury group also replaced long-time Louis Vuitton CEO Michael Burke with Pietro Beccari, head of Dior since 2018.

"Both are well respected; logical promotions within the group," said Credit Suisse (SIX:CSGN) analyst Natasha Brilliant.

Delphine Arnault, 47, has worked at Louis Vuitton for the past decade alongside Burke and previously spent a dozen years at Dior.

Burke will continue to work with Bernard Arnault, the company said in a statement.

The move follows the recent appointment of Antoine Arnault, Bernard Arnault's eldest son, to head the family holding company, replacing veteran executive Sidney Toledano.

The tightening of the family's hold on its empire also comes amid a wave of high-profile successions in other fashion companies in Europe.

As part of the management changes, the company is also folding Tiffany into the watches and jewellery division, under management of Stephane Bianchi.

Direct Line is scrapping its final dividend for 2022, it said on Wednesday, after a surge in claims following a bout of severe weather in Britain in December, which pushed the motor and home insurer to an underwriting loss for the year.

Motor insurers performed strongly when the COVID-19 pandemic first hit in 2020, as restrictions meant fewer drivers on the round and fewer accidents.

But inflationary pressures and supply chain issues due to the pandemic and the war in Ukraine have pushed up the cost of repairs.

Britain has also had unexpectedly hot and cold weather spells in the past year, causing issues such as subsidence and burst pipes.

"The Board recognises the importance of the dividend to our shareholders, and continues to take actions to restore balance sheet resilience and dividend capacity as a priority, consistent with our track record of delivering returns for shareholders," CEO Penny James said in a statement.

Direct Line said it expected its 2022 combined operating ratio - a key indicator of underwriting performance in which a level above 100% indicates a loss - to be 102-103%.

It also expected higher motor claims inflation to add two to three percentage points to its 2023 combined operating ratio.

Direct Line in July cut its profitability outlook for the year and delayed the second leg of a share buyback.

"Things have gone from bad to worse," analysts at Jefferies said in a note, adding they expected the axed final dividend to "come as a major shock to the market". They reiterated their hold rating on the stock.

The insurer said it expected total weather claims of around 140 million pounds ($170.30 million) for 2022, well above its original expectation of 73 million pounds.

Gross written premiums in motor insurance fell 2% in the fourth quarter versus the previous year, the insurer said.

Direct Line also said its property investment portfolio had seen a 15% drop in values, equivalent to 45 million pounds.

($1 = 0.8221 pounds)

British cybersecurity company Darktrace (LON:DARK) cut its full-year revenue forecast on Wednesday after prospective customers turned more reluctant to run product trials due to the worsening macro-economic environment.

The company, which listed in April 2021, said it now expected its constant currency annual recurring revenue (ARR) to increase by between 29.0% and 31.5% in the year to end-June, down from its previous forecast of 31% to 34%.

It said ARR in the six months to end-December had increased by at least 36.5% to a minimum of $556.3 million, but there had been a noticeable slowdown in new customer additions recently.

Chief Financial Officer Cathy Graham said profitability had been preserved, helped by operating efficiencies that it would maintain in its second half, resulting in an improvement to its full-year core-earnings margin forecast.

"Clearly, however, the current macro-economic environment is creating challenges to winning new customers, with prospects more reluctant to run product trials and, in regions with historically higher conversion rates, those rates starting to decline," she said in a statement.

European stock markets are expected to open higher Wednesday, as investors gear up for the start in earnest of the region’s quarterly earnings season, with the retail sector in focus.

At 02:00 ET (07:00 GMT), the DAX futures contract in Germany traded 0.3% higher, CAC 40 futures in France climbed 0.2% and the FTSE 100 futures contract in the U.K. rose 0.2%.

European company results kick-off on Wednesday, with the retail sector in particular focus, as J Sainsbury (LON:SBRY) and JD Sports (LON:JD) report quarterly numbers.

The sector is widely expected to have a difficult time coming, with consumer demand set to suffer in 2023 as growth in many European economies slows.

The Bank of England has already confirmed that the U.K. economy is in recession, while the World Bank has cut its forecast for global growth this year to 1.7%, after estimating in June that it would grow at a 3% rate in 2023.

A growth rate of 1.7% would make this year among the weakest years for growth in three decades.

Elsewhere, Swiss chemicals maker Sika (SIX:SIKA) reported a 13.4% increase in full-year sales, as new factory openings and acquisitions helped the company surpass its target of hitting annual sales of CHF 10 billion ($1 = CHF 0.9211) for the first time.

Bayer (ETR:BAYGN) will also be in the spotlight after Bloomberg reported that activist investor Bluebell Capital Partners has built a stake and is pushing for the breakup of the German pharmaceutical and agriculture giant.

The European economic calendar Wednesday includes Spanish industrial production and Italian retail sales, both for November, but most attention this week will be on the U.S. consumer price index report on Thursday.

The report is expected to show December's headline inflation at 6.5% versus 7.1% in November, providing room for the Federal Reserve to slow the pace of its interest rate hikes in February, once more.

Fed chief Jerome Powell made no direct reference in his speech Tuesday to the level of U.S. interest rates, but he did say the U.S. central bank is bracing for political resistance as its attempts to bring down inflation hit growth.

Oil prices fell Wednesday after a sharp increase in U.S. crude and fuel inventories reignited demand worries at the world’s largest consumer.

Data from the industry group American Petroleum Institute, released late Tuesday, showed U.S. crude oil stockpiles jumped by 14.9 million barrels last week, instead of the expected small draw, while there appeared to be a negligible release of oil from the Strategic Petroleum Reserve.

Distillate stocks, which include heating oil and jet fuel, also rose by about 1.1 million barrels.

The official inventory data is due from the U.S. Energy Information Administration later Wednesday, and traders will be looking for confirmation of this surprising release.

By 02:00 ET, U.S. crude futures traded 0.8% lower at $74.50 a barrel, while the Brent contract fell 0.7% to $79.54.

Additionally, gold futures rose 0.5% to $1,886.20/oz, while EUR/USD traded 0.2% higher at 1.0752.

FTSE 100 expected to open higher following gains in the US and Asia with spread betting companies are calling London’s blue chip index up by around 26 points.

US markets enjoyed a positive session as investors took heart from a speech by Federal Reserve chairman, Jerome Powell, which steered clear of rhetoric on interest rates and inflation and as a result didn’t unnerve market sentiment.

At the close the Dow Jones Industrial Average was up 186 points, or 0.56%, to 33,704, the S&P 500 rose 27 points, or 0.7%, to 3,919 and the Nasdaq Composite advanced 107 points, or 1.01%, to 10,743.

Asian equities were largely on the rise. The Shanghai Composite in China was flat in late dealings, but the Hang Seng in Hong Kong was up 1.2% in afternoon trade. The Nikkei 225 added 1.0% in Tokyo, while Sydney's S&P/ASX 200 rose 0.9%.

In London, food retail heavyweight and household name, J Sainsbury PLC will be in the spotlight as it updates on trading. Anecdotal evidence from the likes of Kantar has suggested sales have been strong in the sector. Whether this has translated into profit will be keenly watched.

Another retailer updating on trading is JD Sports Fashion PLC while Barratt Developments PLC (LON:BDEV) will give an indication of the state of play in the housing market following a number of downbeat surveys.

Recruiter, PageGroup PLC (LSE:PAGE), will also be in focus following the profits warning by sector rival, Robert Walters PLC, yesterday.