Ryanair cautious on travel rebound after Omicron disruption; China’s factory growth slows – business live

Inflation has slowed in Spain, but remains painfully high for households

Spanish consumer prices rose by 6% year-on-year in January, statistics body INS reports.

That’s a drop on the 30-year high of 6.5% set in December, but higher than forecast, and triple the European Central Bank’s target of 2%.

Energy prices have been a key factor, as Bloomberg points out:

Spain power prices have been surging since mid-June, having consistently broken new records, driven largely by natural gas prices. This has led to regulatory changes and tax breaks from the government for consumers.

Vodafone is among the FTSE 100 top risers, up 3% this morning, after Europe’s largest activist fund took a stake in the telecoms giant.

Cevian Capital is expected to push Vodafone to overhaul its business and restructure its portfolio, and take a more aggressive approach to consolidation in some markets,

My colleague Gwyn Topham explains:

The Swedish investment firm has built up holdings in Vodafone in recent months, according to sources quoted by Bloomberg, privately piling pressure on the firm to improve its performance.

Shares in the British multinational have almost halved in value since 2018, with investor sentiment apparently declining through a series of acquisitions and sell-offs, amid belief that Vodafone overpaid for assets such as the German cable business it acquired in an €18bn deal that year.

Cevian, which says it is a constructive investor in “overlooked, misunderstood or out-of-favour” firms, has gained prominence in the City after building up a 5% holding in the insurance firm Aviva, and has also owns a significant stake in education publisher Pearson, as well as Swedish telecoms business Ericsson.

Related: Swedish activist investor targets Vodafone over weak performance

European stock markets have opened higher, with Germany’s DAX jumping 1% in early trading.

In London, the FTSE 100 has gained 20 points or 0.3%.

© Provided by The Guardian
European stock markets, open, January 31 2022

It’s been a rocky month, though, with the pan-European Stoxx 600 down 3.6% (although the FTSE 100 has bucked the trend by gaining around 1.5%)

Wall Street has been particularly hit by worries about interest rate rises, with the S&P 500 down 7% in January (with one day to go), its worst month since March 2020.

Richard Hunter, head of markets at interactive investor, says stocks are delicately poised:

Investors are currently grappling with valuation metrics following a strong run over recent years for the main indices, with higher rates not only increasing borrowing costs for companies but also discounting the value of future profits.

At the same time, the latest non-farm payrolls report at the end of the week is expected to show a weaker reading given the rise of the variant in December and a bout of adverse weather, with the current forecast being that around 150000 jobs will have been added.

In the meantime, the main indices have reduced some of their losses in the year to date, although the Dow Jones remains down by 4.4%, the S&P500 by 7% and the Nasdaq by 12%.

Japan’s manufacturers ended 2021 on a low note.

Japan’s factory output shrank by 1% in December, for the first time in three months, a larger fall than expected.

It was pulled down by a decline in output of general-purpose and production machinery, such as chip-making equipment and engines used in manufacturing.

Takeshi Minami, chief economist at Norinchukin Research Institute, suggests the global semiconductor shortages hit demand:

Output especially fell among capital goods makers, probably due to the strong impact from the chip shortages.

“It suggests its impact is widening even though the focus has been on the car industry.”

A second survey of China’s factories released on Sunday also showed that coronavirus outbreaks and lockdowns in China took their toll on factories

A private index measuring activity at factories in China fell to 49.1 in January from December’s 50.9, the weakest since February 2020 in the first wave of the pandemic.

That shows that the sector shrank this month, a gloomier view than the official PMI (see earlier post).

The Caixin/Markit manufacturing Purchasing Managers Index found that companies saw drop in output and new orders during January, at a modest pace.

New export business fell at the quickest pace since May 2020, and supply chain delays worsened. Firms also reported that inflationary pressures increased, with average input costs rising, and their own prices increasing.

© Provided by The Guardian
Caixin survey of China’s factories Photograph: Caixin

Dr. Wang Zhe, Senior Economist at Caixin Insight Group, says the ongoing pandemic hit China’s factory base:

“The Caixin China General Manufacturing PMI fell to 49.1 in January, down from 50.9 the previous month. The index slumped into negative territory for the fourth time since February 2020, with January’s reading being the lowest in 23 months. Over the past month, there were Covid-19 flare-ups in several regions in China, underscoring the downward pressure on the economy.

Both supply and demand in the manufacturing sector weakened. Several regions tightened epidemic control measures following the resurgence, which impacted production and sales of manufactured goods. Both the subindexes for output and total new orders in January fell to their lowest since August. Overseas demand shrank at an even faster pace.

The spread of the omicron variant of Covid-19 overseas dampened China’s external demand, with the gauge for new export orders in January being the lowest in 20 months.

Ryanair is also hoping it may be able to lift fares this summer, pointing out that its rivals have cut capacity in the pandemic.

Reuters explains:

Ryanair Chief Financial Officer Neil Sorahan told Reuters in an interview that the fact so many rivals were cutting capacity compared to pre-COVID levels meant “there absolutely could be upward pressure on fares.”

He added that if Ryanair did need to cut fares to stimulate demand, its relatively large fuel hedging position means it is in a much better position than rivals to do so.

Ryanair has kept expanding, ready to win market share as travel returns. Since April 2021 it has announced 15 new bases and 720 new routes.