ECB rate decision, UK Budget, Adidas results
The FT's Daniel Garrahan previews some of the big stories the Financial Times is watching this week, including an ECB policy announcement, the UK's first post-Brexit Budget and results from sportswear maker Adidas
Written by Martin Arnold, Daniel Garrahan, and Simon Greaves. Filmed by Nicola Stansfield. Produced and edited by Daniel Garrahan
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Here are just some of the big stories the Financial Times is watching in the week ahead. The European Central Bank is expected to further loosen monetary policy in response to the coronavirus outbreak. Rishi Sunak delivers the UK's first post-Brexit Budget just weeks into his new role as chancellor of the exchequer. And how will coronavirus impact Adidas? We'll find out when the sportswear company reports full-year results.
First, to Germany where Christine Lagarde faces a delicate balancing act. On Thursday, she'll announce the European Central Bank's latest monetary policy decision and its updated forecast for the eurozone economy.
At the start of this year the eurozone was already limping along at its slowest rate of growth for seven years. Now economists are slashing their forecasts and warning that the coronavirus disruption may drag the bloc into the first recession since 2013. With eurozone interest rates at a record low of minus 0.5 per cent and 2.6tn euros of bonds sitting on the ECB's balance sheet, Ms Lagarde is widely considered to have less capacity for traditional monetary policy action than most other major central banks.
After the US Federal Reserve announced an emergency cut in its policy rate on Tuesday, the pressure is growing on ECB president Christine Lagarde to come up with something similar of her own. However, it's harder for the ECB than other central banks to cut rates when they're already at a record low of minus 0.5 per cent in the eurozone. And there's a growing debate in Europe about the adverse consequences of having negative rates for such a long period.
Yet, Christine Lagarde will be determined four months into her presidency to prove that she can handle this decisive test and come up with robust action in response to coronavirus that threatens to plunge the eurozone into its first recession since the bloc's sovereign debt crisis in 2012.
Rishi Sunak will deliver the first post-Brexit budget on Wednesday. And it's set to break records as the shortest period any chancellor has been in the job before having to produce a budget. And it's the longest period between budgets since 1900.
Boris Johnson's government cancelled the budget scheduled for November the 6th when the election was called to break the Brexit deadlock in parliament. Even before the outbreak of the coronavirus the UK was on course to run a deficit on the current budget. That's based on the latest Bank of England's economic forecasts and the spending plan set out in the Tory manifesto. The Budget is expected to fulfil some flagship promises in the manifesto such as cutting or abolishing entrepreneurs' relief and capital gains tax and a rise in the threshold for paying national insurance. But the chancellor's immediate attention will be given to measures aimed at reducing the impact of the virus on businesses and keeping public services up and running.
The 2020 Budget was supposed to showcase a new economic vision for the UK. We resume spending in public services and high infrastructure expenditure to level up underperforming regions to improve worker skills and to finance social care. But even before the coronavirus the government was struggling to meet one of its own fiscal rules that's set to have the current budget in balance by 2022-23.
This raised the possibility of measures such as higher taxes on expensive properties and cutting tax relief on pension contributions. Now, the outbreak of the coronavirus has increased the need for targeted measures to help companies which might face cash flow problems, to help workers who might be unable to go to work for some times, and to support health and social services. The virus holds a reduced growth prospect with the economy now expected to expand at its slowest pace since the financial crisis, which leaves little room for big Conservative initiatives.
And finally to Germany where Adidas, the world's second largest maker of sportswear after Nike, reports full-year results on Wednesday. For years, Adidas has been an investor's darling even after the recent market sell-off. Its shares are still up more than 50 per cent over the past three years.
The wider German market was flat. Yet, Adidas in recent weeks has lost speed as China, one of its most profitable and fastest growing markets, was hit by the coronavirus. Citi analysts expect Adidas may also have to give a helping hand to its local distributors.
Among other things it may take back inventories and other additional wholesale discounts. That will not only hit the top line, but could also temporarily inflate costs. The financial impact of the coronavirus outbreak on Adidas will be at the centre of investors' attention on Wednesday.
When Adidas published its full-year results last year, it had to admit to an embarrassing luxury problem. Due to some bungled planning, the company wasn't able to sell as many shoes and apparel as consumers wanted to buy. It lost quite some revenues.
Fast forward one year and Adidas isn't facing a luxury problem but a real one. It has been hit hard by the coronavirus. In China, one of its fastest growing markets, sales are down 85 per cent since the end of January year on year.
And that's what the week ahead looks like from the Financial Times in London.