What to Watch: Morrisons' sales fall, Co-op warns on Brexit, and ECB ahead

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Sales growth at Morrisons has come to an abrupt end. Photo: Keith Mayhew/SOPA Images/LightRocket via Getty Images

Here are the top business, market, and economic stories you should be watching today in the UK, Europe, and abroad:

Morrisons sales fall

Morrisons (MRW.L) has ended its stellar run of sales growth, announcing a 1.9% slump in sales for the three months to 4 August.

The dip is the first fall in sales at the supermarket for 14 quarters, a run of growth stretching back to 2016.

Sales at Morrisons for the six months to 4 August fell by 0.2% on a like-for-like basis. Total sales – including fuel – rose 0.4% to £8.83bn. Pre-tax profits were up 48.5% to £202m.

David Potts, chief executive, said: “We stayed focused on our fix, rebuild and grow strategy, and were pleased to maintain the momentum of the turnaround against strong comparatives last year.

“Sales and profit progress was robust and we again invested in improving our competitiveness for customers.”

Morrisons on Thursday also announced it was extending its partnership with Amazon (AMZN), signing a long-term partnership “over a number of years” to explore “new opportunities”. It also plans to roll out its Amazon Prime Now grocery delivery partnership to new cities.

“This is a good start to UK food retail first half result season,” Bruno Monteyne, a supermarket analyst at Bernstein, wrote in a note to clients. “Doomsday will have to wait another year. We think this set up bodes well for the other grocers in coming weeks.”

Co-op warns on Brexit

The Co-op Group, which operates supermarkets, a funeral business, and offers insurance, has warned that Brexit could disrupt the supply chain for its stores.

“In the event of a “no deal” Brexit there is an increased risk of some disruption to our supply chain,” the group said, “however we will do all we can to protect our customers and members from this impact.”

The warning came as the Co-op Group reported a 12% rise in total sales to £5.4bn in the first half of the year. Pre-tax profit fell by 43% to £25m, in part due to increased investment in digital and marketing.

Steve Murrells, chief executive of the Co-op, said: “We’ve enjoyed another good six months where the strength of our business has led to a further £35m of value being generated for our members and their communities.

“Our food business continues to perform strongly in a highly competitive market and has now recorded 22 consecutive quarters of like-for-like sales growth. As our largest business, it is providing the fuel for our growth in terms of member value and community impact.”

All eyes on ECB

The European Central Bank (ECB) will deliver its latest interest rate decision at 12.45pm UK time today, with a cut to rates widely expected.

“The package today will likely include the first cut in the deposit rate since 2016 at what will be President Draghi’s penultimate meeting in charge,” Deutsche Bank strategist Jim Reid and his team wrote in a note to clients.

“At time of writing, the market is split between seeing a 62.9% likelihood of a 10bp move lower, and a smaller 37.1% likelihood of a larger, 20bp cut.”

The key deposit rate has stood at -0.4% since 2016 but a cut is seen as likely due to stuttering growth in Europe, particularly in the German economy.

ECB president Mario Draghi is also expected to announce a wider package of stimulus measures alongside a rate cut to try and revive growth.

Reid wrote: “Our European economists wrote that they expect the ECB to announce a broad policy easing package, but they think the likelihood of QE being a part of that package have declined, as a result of opposition to new QE from some Governing Council members, along with the risk that further QE which flattens the yield curve would be counterproductive for banks.

“Their view is that there’ll be a 10bp deposit facility rate cut, upgraded forward guidance, and tiering, which would be more positive for banks.”

BAT cuts jobs

British American Tobacco (BATS.L), the cigarette giant behind brands like Lucky Strike and Rothman’s, has announced plans to cut 2,300 jobs.

BAT, which employs 55,000 people worldwide, announced the layoffs on Thursday. It didn’t say where the job cuts would fall geographically but said it would mostly affect management.

About 20% of senior roles at the company are at risk as part of a push to reduce management layers. BAT is now consulting with affected staff.

BAT, which also owns brands like Dunhill and Benson & Hedges, said the redundancies would allow it to focus on the “ever evolving consumer needs” by investing in what it called “next generation” products.

John Lewis loses £25m

John Lewis Partnership has announced a loss of £25m in the first half of the year, as it warned that a no-deal Brexit would have a “significant” negative impact.

John Lewis Partnership, which owns both the department store and supermarket Waitrose, said on Thursday that it made a loss before exceptional charges of £25.9m in the six months to 27 July.

Sir Charlie Mayfield, chairman of the John Lewis Partnership, blamed the slump on having too much retail space and “subdued consumer confidence.”

Mayfield also warned that Brexit would continue to hit performance in the second half of the year and said no-deal would be damaging.

Operation Yellowhammer documents released

Everything that was classed as “Project Fear” — a smear campaign against those who support staying in the European Union — will come true in a no-deal Brexit, according to details of the government’s Operation Yellowhammer contingency plan.

MPs forced the government, which is led by staunch Brexiteer prime minister Boris Johnson, to release documents related to how it predicts a no-deal Brexit will affect the UK and what it will do to prepare for those consequences. It is classed as a series of "reasonable worst case assumptions" if Britain exits the EU without an agreement in place.

The report detailed how food prices will rise, that there will be a reduction in the availability of medical supplies and other essentials, which would also lead to riots and other civil unrest.

Other major issues cited in the report reveal a nightmare scenario for the UK, which will impact the economy, including how some businesses will cease to trade, leading to the growth of a black market.

Gloomy outlook for property

Growing numbers of surveyors expect property sales to keep falling over the next few months in the UK, with the “never-ending Brexit saga” spooking many buyers and sellers.

Expectations of near-term sales dropped from -4% in July to -23% in August in the latest residential market survey by the Royal Institute of Chartered Surveyors, representing the balance of positive and negative opinion.

New instructions to sell, and buyer enquiries, were flat, with demand from buyers tailing off after two months of growing interest in previous surveys.

The survey also showed demand for lettings on the rise, but falling supply as growing numbers of landlords have left the market – driving up rents.

Markets quiet

European markets were quiet ahead of the key ECB announcement later today.

“The main muting factor will be the relative uncertainty surrounding the day’s ECB meeting,” Connor Campbell, a financial analyst at SpreadEx, said.

“Investors are after not only a rate cut, but a new round of the central bank’s asset purchase programme as well. Anything less than that may leave a bitter taste in the market’s mouth, and could cause the boards to turn red this afternoon.”

Britain’s FTSE 100 (^FTSE) was flat, France’s CAC 40 (^FCHI) was flat, Germany’s DAX (^GDAXI) was up by 0.2%, and the Euronext 100 (^N100) was up by 0.2%.

Overnight in Asia, Japan’s Nikkei (^N225) closed up by 0.7%, the Hong Kong Hang Seng Index (^HSI) was down by 0.2%, and China’s Shanghai Composite (000001.SS) closed up by 0.7%.

What to expect in the US

US stocks future are pointing to higher open later today. S&P500 futures (ES=F) were up by 0.2%, Dow Jones futures (YM=F) were up by 0.2%, and Nasdaq futures (NQ=F) were up by 0.4%.

Companies reporting in the US later today include: