FT : Philips device recall leaves sleep apnoea sufferers in distress

Philips device recall leaves sleep apnoea sufferers in distress
Dutch group’s market cap takes €10bn hit after detection of faulty component that patients say worsens their health

In 2015, Welsh entrepreneur James Koash began treatment for sleep apnoea, a condition that causes him to briefly stop breathing hundreds of times when asleep.

To assist his breathing while sleeping, he has used a Royal Philips respiratory device that in June was subject to a vast recall after the Dutch manufacturer detected a faulty component.

The 31-year-old has suffered from inflammations, persistent breathlessness and kidney dysfunction in recent years, forcing him to stand back from running his customer experience consultancy.

“After starting to use the device I kept going back to my doctor saying that not only was my health not improving but many new symptoms had started,” Koash said. “These health issues have ruined my life for several years and I still have no idea when I’ll be able to return to business.”

Koash is one of thousands of patients who believe they may have been harmed by inhaling particles or toxic chemicals that can be released by the sound abatement foam used in about 3.5m Philips continuous positive airway pressure (CPAP) and other machines.

The faulty component has plunged the 130-year-old electronics conglomerate, which has pivoted over the past decade towards focusing on medical technologies, into crisis after it issued a voluntary recall in the US and notified regulators in all other markets.


In late July, the US Food and Drug Administration identified the CPAP devices as a Class I recall, the most serious type, having received more than 1,200 complaints and reports of more than 100 injuries.

The company has put €500m aside for replacements and repairs. But it has suffered a €10bn drop in market cap since first announcing the problem in April, while shares in rivals have soared.

“[Investors] have been fairly traumatised by the Bayer Monsanto situation and the Johnson & Johnson talc litigation,” said Bernstein analyst Lisa Clive, referring to two recent multibillion-dollar payouts emanating from consumer products blamed for causing cancer. “People are looking at those as the doomsday scenarios.”

A wave of class action suits have already been launched against the company in the US. Neil Shouse, lawyer at Shouse Law Group, is representing more than 100 people who claim that Philips’ machines caused problems ranging from mild asthma to lung cancer.

“We think there may be tens of thousands of potential plaintiffs, but some of it is going to depend on what the scientific studies validate about what injuries were caused,” he said.

One large investor said: “The biggest concern is if there’s a conclusion it increases the risk of cancer.”


Frans van Houten, chief executive of Philips, has downplayed the litigation risks. Philips said 10 people reported mild symptoms up to April this year, receiving complaints in 2020 regarding just 0.03 per cent of machines shipped that year.

While unable to rule out that the foam particles may cause cancer, Philips said “we do not have any test results that indicate that the particles are actually carcinogenic”.

Some investors and analysts regard the share price collapse as unjustified. Financial settlements for medtech product defects such as hip and cochlear implants rarely exceed $3bn.

Mark Phelps, chief investment officer of an AllianceBernstein fund that holds a 2 per cent stake in Philips, said: “There’s a very good chance that when we look in the rear view mirror in three years’ time it turns out not to be anywhere near the problem that the market is saying it could be.”

But others have accused Philips of a worrying lack of transparency that has hampered attempts to establish the scale and severity of any harm caused.

“I don’t think we’ve been given enough information to make decisions,” said Joseph Ojile, chief executive of the Clayton Sleep Institute, an independent research institution, arguing that a lack of guidance and clinically relevant information provided to doctors by Philips had made it difficult to calculate the risk to patients.


Speaking to the Financial Times, one NHS consultant estimated that 20 per cent of their sleep apnoea patients had reported distress from symptoms that sufferers believed resulted from use of the device, machine failure or refusal to use the machine.

The consultant said Philips had demonstrated arrogance in failing to address what could be potentially grave consequences for sufferers. “They have been shabby with the NHS. They have abdicated responsibilities. They have left the patients hanging.”

Sufferers of sleep apnoea have described to the FT their anxiety over whether to continue to use a device that could potentially harm them, or to stop using the device and in so doing elevate the risk of heart attacks, high blood pressure and chronic tiredness that can prevent them from working or driving. The UK medicines regulator has recommended their continued use unless otherwise instructed.

In a statement, Philips said that “while our efforts may not be flawless, our colleagues in the UK have been working extremely closely with the local regulator, hospitals, trusts and patients in order to deliver the global repair and replacement program”.

Some investors fear a permanent dent in sales for Philips in a growing market — only a small percentage of the world’s almost 1bn sleep apnoea sufferers have been diagnosed.

Despite shortages of key components such as semiconductors, Mick Farrell, chief executive of California-based rival ResMed, predicted sales growth of $300m to $350m in the current year from July due to “unprecedented demand”.

“ResMed is clearly a beneficiary,” said Phelps, noting that Philips would likely bounce back given that distributors would be reluctant to rely too heavily on one supplier.

Meanwhile, sufferers who cannot afford an alternative must wait until Philips is able to provide repairs and replacement devices, a process that is likely to take a year to complete.

Laurie Kloss in Indianapolis, who reports suffering from swollen eyelids, pressure in the head and a chest full of phlegm, cannot afford a replacement machine. “I’m supposed to wait for an email from Philips and continue to use this machine even though it might kill me,” she said.

WSJ : Biden Says U.S. Will Respond to Kabul Attacks; ‘We Will Hunt You Down’

Biden Says U.S. Will Respond to Kabul Attacks; ‘We Will Hunt You Down’
Deadly blasts Thursday killed U.S. service members, Afghans

WASHINGTON—President Biden said the U.S. would seek retribution for the attacks Thursday in Afghanistan that killed at least 13 American service members and dozens of Afghans and promised to continue evacuation efforts.

“We will not forgive. We will not forget. We will hunt you down and make you pay,” Mr. Biden said during remarks Thursday evening at the White House as an already fraught humanitarian and political crisis worsened.

Mr. Biden faced calls from some lawmakers to extend the mission in Afghanistan, but the president planned to stick with his Aug. 31 withdrawal deadline, according to advisers.

The president said he had instructed his military commanders to develop response plans to the attack, including initiatives to strike assets, leadership and facilities of ISIS-K, the Afghan affiliate of Islamic State, to which the Pentagon attributed Thursday’s deadly explosions.

The U.S. evacuation effort will move forward, Mr. Biden said, though he called the situation on the ground volatile. He said the effort wouldn’t cease, even after troops are withdrawn, until any American who wants to get out was able to. He also said the U.S. would work to extract Afghan allies, but he noted the difficulty of guaranteeing that they all could be evacuated.

The attacks prompted an outpouring of criticism, mostly from Republican lawmakers. House Minority Leader Kevin McCarthy (R., Calif.) said House Speaker Nancy Pelosi (D., Calif.) should call the House back into session for a briefing by the administration and a vote on legislation to prevent the troop withdrawal until every American is out of Afghanistan.

“Mr. President, there is a clear choice before you now: Either rip up the August 31 deadline and defend evacuation routes—by expanding the perimeter around the Kabul airport or by retaking Bagram—or leave our people behind in your retreat,” said Sen. Ben Sasse (R., Neb.). He referred to the air base north of Kabul that the U.S. departed from earlier this summer as part of the withdrawal.

White House press secretary Jen Psaki said the U.S. was sticking with Mr. Biden’s Aug. 31 deadline to withdraw.

Mrs. Pelosi said lawmakers remained concerned about the security and humanitarian situation in Afghanistan, and she called on the administration to continue to brief members. “Congress must continue to be kept closely informed,” she said.

Sen. Maggie Hassan (D., N.H.) said the U.S. must complete its evacuation mission, “regardless of any arbitrary deadlines.”

Marine Corps Gen. Frank McKenzie, commander of the U.S. Central Command, which is responsible for operations in Afghanistan, said the U.S. estimated that about 1,000 Americans remained in Afghanistan.

The initial reports of the first explosion outside Hamid Karzai International Airport emerged as Mr. Biden began a previously scheduled meeting in the Situation Room. A team provided Mr. Biden information on the explosion during that meeting, aides said. The president continued receiving updates throughout the day and was in regular touch with Jake Sullivan, his national security adviser, as well as Defense Secretary Lloyd Austin, Secretary of State Antony Blinken and military commanders, White House officials said.

Vice President Kamala Harris joined Mr. Biden’s Thursday morning briefing virtually during her return to the U.S. following a week-long trip to Southeast Asia. Ms. Harris was scheduled to make a campaign appearance Friday on behalf of California Gov. Gavin Newsom, but her spokeswoman said she would instead return to Washington. Douglas Emhoff, the second gentleman, also canceled planned events in Hawaii following his trip to the Paralympic Games in Tokyo.

Mr. Biden was scheduled to have his first face-to-face meeting with Israeli Prime Minister Naftali Bennett and the president was to meet virtually with governors who have agreed to temporarily house or resettle Afghan refugees. The meeting with Mr. Bennett was reset for Friday and the meeting with governors was canceled.

Hours later, as he appeared in the East Room, Mr. Biden was at times emotional. “We are outraged as well as heartbroken,” he said, noting one of his sons served in Iraq. He called the fallen troops heroes who “engaged in a dangerous, selfless mission to save the lives of others.”

Mr. Biden directed that flags across the country be flown at half-staff in honor of the fallen U.S. troops.

The White House said it was no time for politics, but the developments come during a rough stretch for Mr. Biden. While Americans support ending the war in Afghanistan, his approval rating has declined during the withdrawal, according to recent polling that was conducted before Thursday’s bloodshed. He has also been hurt by rising cases of Covid-19 and concerns about the economy.

The violence in Kabul and renewed fears over terrorism hot spots could distract from the president’s desire to shift his foreign policy focus to competition with China and various concerns about Russia, including cyberattacks. Domestically, he is still pushing for two major spending bills, including roughly $1 trillion in infrastructure that has attracted bipartisan support.

The White House has been frustrated by criticism of the withdrawal and has been emphasizing the scope of the airlift mission in Kabul. “Over 95,000 in 11 days—over 100,000 since we launched the Operation,” Ron Klain, Mr. Biden’s chief of staff, tweeted just after 7 a.m. Thursday about the number of people evacuated from Afghanistan, before reports of the explosions emerged.

The attacks, which also wounded more than a dozen U.S. service members, quickly shifted focus to the threat of terrorism and the chaos that has marked the start of the withdrawal. Mr. Biden has said the pullout was the right thing to do following nearly two decades of war.

The president and senior administration officials have been warning in public and private for days that the airport was a possible target of terrorist attacks from ISIS-K.

Mr. Biden had asked his national security team to come up with contingency plans for staying beyond Aug. 31 but made clear he intended to meet that deadline. “Each day of operations brings added risk to our troops,” he said Tuesday at the White House.

The president warned last week that “any attack on our forces or disruption of our operations at the airport will be met with a swift and forceful response.”

Rank-and-file Republicans erupted at Mr. Biden, accusing him of botching both the planning and execution of the withdrawal despite being warned of the risks, including what they said were recent warnings by his advisers of credible intelligence about imminent threats.

“The president and his team clearly are not up to the task at hand, they are trying to operate inside of a false reality, and the future is likely to only get worse,” said Rep. Lee Zeldin (R., N.Y.), a veteran of the Iraq war.

The attacks came one day after a classified briefing for members of the House Armed Services Committee at which lawmakers were told of what one person familiar with the matter said was a specific, credible threat in Kabul related to ISIS-K. On Wednesday, the U.S. Embassy in Kabul warned Americans to stay away from the airport, calling on U.S. citizens near three airport gates to “leave immediately.”

FT : British Airways plans new low-cost short-haul business at Gatwick

British Airways plans new low-cost short-haul business at Gatwick
Airline looks to shake up routes at UK’s second busiest airport in wake of pandemic effect on travel

British Airways is planning to replace its short-haul operation at Gatwick airport with a new low-cost business, as passenger demand continues to suffer in the pandemic.

The International Airlines Group-owned carrier said on Thursday that it was “working with our unions on proposals for a short-haul operation” at the UK’s second-busiest airport. It declined to comment further. The news was first reported by the Wall Street Journal.

Travel website Headforpoints.com reported on Thursday that BA had emailed staff to say that it was considering “a new operating subsidiary to run alongside our existing long-haul Gatwick operation” that would serve the airport from next summer.

“This was previously a highly competitive market,” the note continued, “but for us to run a sustainable airline in the current environment, we need a competitive operating model.”

It added that the proposed new business would “help us to be both agile and competitive, allowing us to build a sustainable short-haul presence at Gatwick over time”.

It would not be the first time BA has attempted to set up a low-cost airline, should the mooted plans go ahead. In 1998, the company founded Go Fly, which operated flights between London Stansted and Europe before ultimately being bought out by rival easyJet four years later.

Like its competitors, IAG has incurred huge losses over the past 18 months as the pandemic has grounded flights around the world. IAG’s airlines, which also include Aer Lingus and Iberia, flew just 20 per cent of their normal flight schedules in the first quarter, causing revenue to fall 79 per cent, year on year, to €968m.

The group has been hit especially hard compared with many of its main competitors in Europe owing to its heavy exposure to UK and transatlantic travel, with the UK government only last month reopening quarantine-free travel for double-vaccinated travellers from the US.

BA this year moved all of its short-haul flights from Gatwick to Heathrow in response to low demand.

Sean Doyle, BA’s chief executive, last month said the company was “adjusting [its] business model to anticipate what will be a lagging recovery in business”.

FT : high fashion gossip in Milan

Marco Gobbetti: checking out
Burberry chief executive Marco Gobbetti is working out his notice period having in June quit the fashion label to join Italian rival Salvatore Ferragamo. But what shape will his new employer be in by the time he joins? According to gossip around the Milan market, the Ferragamo family has been fielding fresh interest from potential buyers of its majority stake in the business.

FT : Brokers remain bullish as takeover speculation lifts Sainsbury

Brokers remain bullish as takeover speculation lifts Sainsbury
Bidding adieu to London listed grocers

J Sainsbury: word of mouth
Will the bid battle for Wm Morrison turn into a private equity supermarket sweep? Investors seem confident. J Sainsbury surged this week to a multiyear high. So did Marks and Spencer, whose 33 per cent surge through August can only be explained partly by improved trading.

“We do not believe it is fanciful to speculate that there will be no listed UK supermarkets in due course,” said analyst Clive Black of Shore Capital, Morrison’s house broker.

Yet Black gave short shrift to a report that Apollo Global has been weighing up an approach to Sainsbury, calling the tale “not only sensationalist but quite shallow”. Sainsbury shares had surged by as much as 15 per cent on Monday, in spite of silence from both parties and a virtue-signalling insider purchase: Adrian Hennah last week bought 15,000 shares at 290p apiece, his first trade since joining Sainsbury’s board as a non-executive director in April.

Other analysts were more circumspect. Sainsbury’s house broker UBS stuck with a “buy” recommendation even after Sainsbury surged well above a 300p price target on the back of Apollo’s purported interest, briefly hitting a high of 340p. A leveraged buyout still makes sense at current levels and the grocer’s biggest shareholders, Qatar Investment Authority and Czech investor Daniel Kretinsky, are financially motivated so might welcome an exit, it said.

Sellside research will only ever give a partial view into the cliquey world of UK food retail. For its Morrison bid approach Clayton, Dubilier & Rice is using PR firm Teneo. The PR spinner’s deal team includes recent recruit Claire Scicluna, daughter of Sainsbury chair Martin Scicluna, and Philip Gawith, who is the market’s first point of contact for longstanding Teneo client Tesco.

>>> US Close Dow -0.54% S&P -0.58% Nasdaq -0.64% Russell -1.13%

Closing Stock Market Summary

The stock market's rebound momentum was put to a halt on Thursday, with the major indices losing between 0.5% (Dow Jones Industrial Average) and 1.1% (Russell 2000) amid some negative-sounding headlines. Both the S&P 500 (-0.6%) and Nasdaq Composite (-0.6%) snapped five-session winning streaks. 

Namely, Kansas City Fed President George (FOMC voter in 2022), St. Louis Fed President Bullard (FOMC voter in 2022), and Dallas Fed President Kaplan (FOMC voter in 2023) each told CNBC that they prefer the Fed taper asset purchases sooner rather than later. In addition, there were two explosions in Afghanistan that killed at least 12 servicemen, exacerbating the geopolitical uncertainty in the region. 

These events were largely viewed as convenient excuses for the market to slow down its record-setting pursuit. These Fed officials had already issued similar comments before today, and the Afghanistan situation doesn't seem like it will have any impact on the economy. 

Ten of the 11 S&P 500 sectors closed lower, led by energy (-1.5%) as oil prices ($67.35, -0.99, -1.5%) retraced some rebound gains. The heavily-weighted information technology sector (-0.6%) exerted influential pressure on the market with a 0.6% decline, while the real estate sector (+0.1%) was spared from today's selling activity. 

Trading volume was below recent averages once again, with only 638 million shares exchanged at the NYSE. This reduced volume might have contributed to the negative price action. 

On the earnings front, salesforce.com (CRM 267.79, +6.94, +2.7%) helped limit the decline in the Dow after the company reported better-than-expected earnings results and issued upbeat guidance. Snowflake (SNOW 305.26, +21.50, +7.6%) and Williams-Sonoma (WSM 186.68, +15.95, +9.3%) also registered decent earnings-driven gains. 

Conversely, Autodesk (ADSK 310.19, -32.08, -9.4%), Dollar General (DG 225.90, -8.84, -3.8%), Dollar Tree (DLTR 93.48, -12.84, -12.1%), and Burlington Stores (BURL 318.01, -32.14, -9.2%) underwhelmed investors with their earnings results. 

Elsewhere, the Treasury market was more subdued, as investors digested the macro headlines and awaited Fed Chair Powell's Jackson Hole speech tomorrow. The 10-yr yield settled unchanged at 1.34%, and the 2-yr yield settled unchanged at 0.23%. The U.S. Dollar Index increased 0.2% to 93.05. 

The CBOE Volatility Index (18.81, +2.03, +12.1%) jumped two points, as demand for downside protection increased with the negative disposition in the market.

Reviewing Thursday's economic data:

  • The second estimate for Q2 GDP checked in at 6.6% (consensus 6.6%) versus the advance estimate of 6.5% and the GDP Deflator edged up to 6.1% (Briefing.com consensus 6.0%) from the advance estimate of 6.0%.
    • The report's dated nature (we're nearly two-thirds of the way through Q3) and the lack of any meaningful change from the advance estimate have muted its influence.
  • Initial claims for the week ending August 21 increased by 4,000 to 353,000 ( consensus 355,000) while continuing claims for the week ending August 14 decreased by 3,000 to 2.862 million.
    • The key takeaway from the report is the continued firming of the initial claims trend below 400,000, as that remains consistent with an improving labor market that is anticipated to keep improving based on the number of available job openings.

Looking ahead, investors will receive Personal Income, Personal Spending, and PCE Prices for July, the final University of Michigan Index of Consumer Sentiment for August, and Adv. Intl Trade in Goods, Retail Inventories, and Wholesale Inventories for July on Friday. 

  • S&P 500 +19.0% YTD
  • Nasdaq Composite +16.0% YTD
  • Dow Jones Industrial Average +15.1% YTD
  • Russell 2000 +12.1% YTD

>>> US After Hours Summary: GPS +6.5%, WDAY +5.4% higher on earnings; OLLI -13.9

After Hours Summary: GPS +6.5%, WDAY +5.4% higher on earnings; OLLI -13.9%, PTON -6.2%, VMW -6.1%, DELL -3.8%, MRVL -2.9%, HPQ -2.1% lower on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: BILL +12.9%, GPS +6.5%, WDAY +5.4%, RCEL +1.6%, CUBI +0.9% (issues in-line guidance; also authorizes share repurchase plan for up to 10% of shares outstanding)

Companies trading higher in after hours in reaction to news: NNA +41.7% (NMM to combine with NNA), SPRT +14.8% (extends momentum from 41% move on Thursday), MOR +6.2% (MOR and INCY announce European Commission approval of Minjuvi), NXPI +0.4% (approves $2 bln expansion to share repurchase authorization), ZION +0.4% (authorizes up to an additional $200 mln in share repurchases), PLTR +0.4% (PLTR invested $25 mln in FFIE before it went public, according to The Verge)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: RPID -16.2%, OLLI -13.9%, DOMO -8%, PTON -6.2%, VMW -6.1%, DELL -3.8%, MRVL -2.9%, HPQ -2.1%, SNPO -0.5%

Companies trading lower in after hours in reaction to news: NMM -5.6% (NMM to combine with NNA), INCY -1.4% (MOR and INCY announce European Commission approval of Minjuvi), BOLT -1.3% (announces collaboration with Innovent Biologics), WTTR -0.4% (stock offering), FFIE -0.3% (PLTR invested $25 mln in FFIE before it went public, according to The Verge)

>>> What to look at today - 26th of August 2021

Asian stocks fell Thursday on caution about the regulatory outlook in China and a looming Federal Reserve gathering that may provide more clues about its approach to paring stimulus. The dollar rose.
MSCI Inc.’s Asia-Pacific gauge snapped a three-day rally, with Chinese stocks resuming a retreat amid Beijing’s crackdown on private industries. South Korean shares dipped after a central bank rate hike that makes the nation the first major Asian economy to start exiting record-low borrowing costs.
U.S. equity futures declined after the S&P 500 and Nasdaq 100 edged up to records overnight. The 10-year U.S. Treasury yield held an advance. Traders are looking ahead to the Jackson Hole symposium, which may offer fresh insight on how the Fed intends to scale back bond purchases.
US After Hours : ZUO +14%, WSM +13% rise while SLQT -17%, LCI -11% decline on earnings/guidance

Nikkei -0.04% Hang Seng -1.44% CSI -1.38% Shanghai -0.50% Shenzen -0.86%

Eur$ 1.1765 CNH 6.4808 CNY 6.4823 JPY 109.93 GBP 1.3755 CHF 0.9145 RUB 73.9873 TRY 8.3834 WTI$67.86 -0.73% Gold 1,787.80 -0.18% BTC 47,650 -1020 ETH 3,140 -68

S&P -0.10% Nasdaq -0.16% EuroStoxx -0.26% FTSE -0.29% Dax -0.31% SMI -0.16%

Macro :
- Tensions Flare Over $7 Trillion Currency Market’s Trade Dropouts
- China’s Regulatory Crackdown Is Already Hurting the Economy (1)

Keep an eye on :
- ADS GY : Foot Locker and Adidas join list of companies citing COVID-related supply chain challenges in Vietnam heading into the holiday s
- BALN SW : Baloise 1H Profit CHF302.3M Vs. CHF177.7M Y/y
- EN FP : Bouygues 1H Current Oper Income EU471M Vs. Loss EU132.0M Y/y
- CAI AV : CA Immo 1H Net Income EU171.3M Vs. EU44.7M Y/y
- RE FP : Ahlstrom Capital Sells 100% of Destia Shares to Colas SA
- DHER GY : Delivery Hero Loss Widens After Expanding Food Delivery Business
- DBK GY U.S. Probing Deutsche Bank’s DWS Over Sustainability Claims: DJ
- RF FP : Eurazeo in Talks to Sell Seqens Stake to SK Capital, Holders
- FGR FP : Eiffage CEO Says Company Is Interested in Engie’s Equans
- FGR FP : Eiffage 1H Results Beat, While Outlook Positive, Analysts Say
- FIE GY : Fielmann Sees FY Pretax Profit Above EU200M, Saw About EU200M
- GOGL NO : Golden Ocean 2Q Net Income Beats Estimates
- INS GY : Instone Real Estate 2Q Adjusted Revenue EU132.4M Vs. EU79.9M Y/y
- KUD SW : Kudelski 1H Revenue $340.5M Vs. $320.1M Y/y
- LONN SW : Lonza Group Names Philippe Deecke as CFO
- LUNDB SS : Swedish Stock Market Is ‘Well Supported,’ Lundbergs CEO Tells DI
- SALM NO : Salmar 2Q Operating Ebit Misses Estimates
- SWON SW : SoftwareONE 1H Adjusted Ebitda Misses Estimates
- SPSN SW : Swiss Prime 1H Rental Income CHF213.4M Vs. CHF219.9M Y/y
- TC1 GY : Tele Columbus 2Q Ebitda EU53.6M Vs. EU57.1M Y/y
- UBSG SW : UBS Hires Team of Middle East Private Bankers from Credit Suisse
- VLK NA : Van Lanschot Kempen 1H Net Income EU58.3M Vs. EU9.5M Y/y
- VOLAB SS : Veg of Lund Offering Prices at SEK34/Share via Mangold
- VITB SS : Vitec Software Group Offering Prices at SEK460/Share
- VIV FP : Universal Music Sets Out Financial Goals Ahead of Dutch Listing
- VOW3 GY : U.K. Carmakers Besieged by Shortages in Worst July Since 1956
- YIT FH : YIT Says Helsinki City Council Approves EU326m Tramway Project

>>> Europe : Brokers Upgrades & Dongrades26th of August 2021

>>> Up
* Mediclinic Raised to Buy at HSBC; PT 340 pence
* Spectris PT Raised to 4,380 pence from 4,100 pence at Berenberg
* Spirent PT Raised to 340 pence from 310 pence at Berenberg
* Stadler Rail Raised to Overweight at JPMorgan
* Vivendi Raised to Overweight at Barclays; PT 35.50 euros
* Zoom Video Raised to Overweight at Morgan Stanley; PT $400

>>> Down
* Elis Cut to Neutral at Goldman; PT 17.30 euros
* Grand City Properties Cut to Hold at Deutsche Bank; PT 24 euros
* Heidelberger Druck Cut to Hold at Stifel; PT 2.10 euros

>>> Initiation
* Hiscox Reinstated Buy at Goldman; PT 1,100 pence
* Lancashire Reinstated Neutral at Goldman; PT 650 pence
* Mister Spex Rated New Overweight at Barclays; PT 29 euros
* Neoen Rated New Equal-Weight at Morgan Stanley
* Voltalia Rated New Equal-Weight at Morgan Stanley

>>> Call
* Neoen, Voltalia’s Green Growth Already Priced In: Morgan Stanley
* Spectris PT to Street-High at Berenberg on Portfolio Realignment

FT : South Korea becomes first big Asian economy to raise interest rates

South Korea becomes first big Asian economy to raise interest rates
Seoul decides fears over record household debt outweigh surging Covid threat

South Korea has become the first big Asian economy to raise interest rates since the start of the coronavirus pandemic, as record household debt and rocketing property prices outweighed fears over Seoul’s struggle to contain the virus’s Delta variant.

In a closely watched decision on Thursday, the Bank of Korea raised its benchmark rate to 0.75 per cent, increasing the seven-day repurchase rate 25 basis points from a record low of 0.50 per cent.

It marked the country’s first rate rise since September 2018, while interest rates have remained unchanged since the BoK cut them 50 basis points in May last year.

South Korea is on track for gross domestic product growth of 4 per cent this year. The export-led economy has benefited from robust demand for electronics products including computer chips and smartphones, as well as recovering markets for Korean-made ships and cars.

But economic planners in Seoul have grown increasingly concerned that chronic problems in the domestic economy have been masked by the booming export recovery, which helped rescue the country from the depths of a pandemic-induced recession last year.

“Despite today’s hike, financial conditions remain accommodative,” said Lee Ju-yeol, BoK governor. “We are seeing some side effects from the unusually loose conditions of the past year-and-a-half, so we will normalise interest rates in accordance with the economic recovery.”

Alex Holmes, an economist with Capital Economics, expected the BoK to tighten its monetary policy further to rein in financial risks.

“The financial stability issues troubling the BoK continue to build,” he said. “House prices rose by 14.3 per cent year on year in July, the most since 2002. Recent data show that household debt was up by 10.3 per cent year on year in [the second quarter], after posting its largest ever gain in the April-to-June period.”

There are also signs that many self-employed workers in Asia’s fourth-largest economy, who make up almost one-third of the labour force, were under mounting financial pressure after coronavirus restrictions sharply reduced their incomes. 

Economists have warned that despite record government stimulus measures, which have included cash payments, the recovery in consumer spending remained fragile.

The BoK’s move also sparked debate over whether central banks in Asia might soon follow suit earlier than expected.

Mitul Kotecha, an emerging markets strategist at TD Securities, said that while further easing in monetary policy in the region was “unlikely”, most Asian central banks were set to “maintain accommodative bias”.

“Perhaps only India is at risk of hiking in the region in the months ahead, though we think this will only take place in [the first quarter] next year. In contrast, we think the [People’s Bank of China] could cut its RRR in the weeks ahead,” he said, referring to the central bank’s reserve requirement ratio, or the amount of cash Chinese banks must hold as reserves.

Ahead of Thursday’s decision in Seoul, economists were broadly split on the BoK’s decision despite the bank’s signals to resume rate increases, according to Bloomberg and Reuters polls.

The unusual level of uncertainty stemmed from a months-long resurgence of coronavirus cases, which has forced South Korea into its toughest social distancing controls since the start of the pandemic.

Doubts were fanned after New Zealand’s central bank last week delayed its planned interest rate rise after a Covid outbreak sparked a nationwide lockdown.

The Won weakened 0.27 per cent to Won1,170 against the dollar following the central bank’s announcement.