What to watch: EU deal, HMRC probe Ladbrokes owner, UBS bad loan fears

·Finance and policy reporter
·4 min read
Flags of Europe or European Flag is the symbol of Council of Europe CoE and The European Union EU as seen with National flags of European Nations in Forum Europa Building at the Belgian capital Brussels. The EU flag was designed by Arsène Heitz and Paul M. G. Lévy. Brussels, Belgium - February 21, 2020 (Photo by Nicolas Economou/NurPhoto via Getty Images)
EU leaders reached what they dubbed an 'historic' deal on a stimulus package on Tuesday. Photo: Nicolas Economou/NurPhoto via Getty Images)

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

EU rescue deal: Historic but ‘relatively small’

European markets surged on Tuesday, after EU leaders reached what they dubbed an “historic” deal on a stimulus package in the early hours of the morning.

The pan-European STOXX 600 index was up 1.1%, and Germany’s DAX (^GDAXI) was trading 1.9% higher. France’s CAC 40 (^FCHI) rose 1.3% and the FTSE 100 (^FTSE) in Britain gained 0.7%.

A summit in Brussels dragged on into a fifth day as the leaders of 27 states negotiated over the terms of a €750bn (£683bn, $859bn) recovery fund, paid for through joint borrowing. The stimulus is aimed at reviving European economies from the worst recession in decades, and is split into loans and grants.

But several analysts struck a cautious tone. ING economists said the fund and wider EU budget were “relatively small” given the scale of the crisis, cash will only reach real economies “not much before mid-2021,” and other EU investment plans had been cut.

READ MORE: EU leaders agree ‘historic’ €750bn stimulus deal

Michael Hewson, chief market analyst at CMC Markets UK, noted it still needed approval by EU member parliaments, and called it a “sticking plaster on a dysfunctional monetary union.”

“Even if all the funds are made available, the money will be nowhere near enough to compensate for the billions of euros of lost tax revenue, that has pushed southern European countries even deeper into their fiscal black holes,” he said.

But joint debt issuance for the first time “can be construed as a baby step towards wider fiscal integration,” he added.

Hopes for coronavirus vaccine trials and the EU stimulus also supported Asian stocks overnight. Stocks in Shanghai (^SSEC) rose 0.2%, Japan’s Nikkei (^N225) gained 0.7% and the Hang Seng (^HSI) index in Hong Kong closed 1.9% higher.

Ladbrokes owner faces HMRC probe

Shares in Ladbrokes and Coral owner GVC plunged 9.4% on Tuesday, after it confirmed UK tax authorities had begun an investigation into the company.

HMRC ordered GVC Holdings (UK) Limited, a subsidiary of the company, to produce information over its former Turkish-facing online gambling arm, which it sold in 2017.

GVC said in a statement on Tuesday it understood the probe was into “a number of former third party suppliers” over the processing of payments.

But it said it had been told by HMRC on Monday that officials were now also investigating “potential corporate offending” by part of the GVC group.

It said it was “surprised” by this and “disappointed” HMRC did not give further details. But it said HMRC did refer to a clause in UK bribery law, which relates to commercial organisations’ failure to prevent bribery.

GVC said its UK subsidiary “continues to co-operate fully with HMRC regarding the provision of information.”

Fastest growth on record for supermarkets starts to slow

Supermarkets enjoyed record growth in sales during lockdown, new data shows, with the market expanding at its fastest rate since records began.

The supermarket sector grew by 16.9% between mid-April and mid-July, market research firm Kantar said on Tuesday, marking the fastest growth since Kantar began monitoring the industry in 1994.

Shoppers spent a record £31.6bn ($40bn) in the 12 weeks to 12 July, Kantar said. Frozen food sales jumped by 22% as Brits stocked their freezers for lockdown and alcohol sales also rocketed.

“Some consumers are slowly resuming their pre-Covid routines and shopping habits,” Fraser McKevitt, head of retail and consumer insight at Kantar, said in a statement.

“This meant year-on-year supermarket sales growth decelerated in the most recent four weeks to 14.6%, down from 18.9% in June.”

UBS profits take a hit as it braces for loan losses

Profit at Swiss banking giant UBS (UBSG.SW) fell in the second quarter of 2020, pushed lower by provisions to deal with an expected surge in credit losses.

UBS said in a statement on Tuesday that pre-tax profit was $1.2bn (£930m) in the second quarter, down 10% on last year. Net profit fell 11%. Income across the bank fell 1.7% to $7.4bn.

The bank saw strong profit growth at its investment bank and asset management business but was dragged down by its consumer and corporate banking arm, which braced for a surge in bad loans due to the COVID-19 pandemic.

The bank set aside $272m in the quarter to cover bad lending, including $127m reflecting updated global economic forecasts. It means UBS has now set aside over half a billion dollars to cover expected losses over the last six months.

Without the credit loss provisions in the second quarter, pre-tax profit would have risen by 5%.

What to expect in the US

US futures were also pointing to a mixed open. S&P 500 futures (ES=F) and Dow Jones futures (YM=F) were up 0.7%, while Nasdaq futures (NQ=F) were up 0.9% at around 5am eastern time.

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