Tesco warns consumers ‘facing a tough time’; Opec+ to discuss cutting oil output – business live

Tesco has forecast that its underlying profits will come in at the ‘lower end’ of its previous forecast, due to the cost of living crisis and rising costs.

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It says:

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Despite ongoing challenges in the market, we are able to maintain our profit guidance within our previous range, albeit towards the lower end.

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We therefore expect full year retail adjusted operating profit of between £2.4bn and £2.5bn. Significant uncertainties in the external environment still exist, most notably how consumer behaviour continues to evolve.

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Tesco maintain profit guidance at the lower end of their original guidance (£2.4bn-£2.5bn).

— Steve Dresser (@dresserman) October 5, 2022

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Tesco (TSCO LN) headlines mainly positive, with l-f-l sales ahead of expectations, and FCF strong, but FY outlook for earnings towards lower end of range. competing head on with the discounters where possible, this remains a brutal environment: pic.twitter.com/qy0qgm2uDm

— BionicBanker (@BrokenBanker) October 5, 2022

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Tesco has warned that its consumers are facing tough times as the cost of living crisis rages, and its own profits have taken a hit too.

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The UK’s largest supermarket chain has reported that pre-tax profits have fallen almost 64% in the first half of its financial year, despite a 6.7% increase in revenues (partly due to the jump in petrol prices).

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Achnowledging the squeeze on households, Tesco CEO Ken Murphy says:

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“We know our customers are facing a tough time and watching every penny to make ends meet.”

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In its latest financial results, just released, Tesco says it saw “significant” cost inflation, with some customers shifting from branded ranges to its own brand goods as they tried to manage household budgets.

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Tesco did still grow its like-for-like UK sales by 0.7% year-on-year – lifting them almost 10% above pre-pandemic levels. Various offers, such as its Aldi Price Match and lower prices for Clubcard members, helped ease cost-of-living pressures.

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Operating profits dropped 43% year-on-year, in the 26 weeks to 27th August.

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Tesco has also been pushing a strategy of lifting prices “a little bit less and a little bit later”, it says, which helped it hold market share.

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But Murphy warns that it’s too early to know how households will behave in the months ahead, with inflation now at its highest in around 40 years.

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As we look to the second half, cost inflation remains significant, and it is too early to predict how customers will adapt to ongoing changes in the market.

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Tesco – unsurprisingly not positive H1 progress in everything at the company, but at least lower debt. "Despite these uncertainties, our priorities are clear. We have the right long-term strategy and we will continue to balance the needs of all of our stakeholders". 9am call pic.twitter.com/yFtdHKFiHn

— Chris Bailey (@Financial_Orbit) October 5, 2022

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Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

“,”elementId”:”18c45d7c-5be8-42b7-a766-48bfaef236b1″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Opec and its allies meet today to discuss whether to make the biggest cut to oil output since the pandemic, despite strong pressure from the White House not to.

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The cartel of oil producers led by Saudi Arabia and Russia hold their first in-person meeting since 2020 in Vienna today, to discuss output strategy. And Opec sources have suggested that the group could slash production by as much as 2 million barrels per day.

“,”elementId”:”639d5de1-2f01-4c84-bfe8-bda96a89ce95″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

That would take around 2% of global oil production off the market, in an attempt to prop up crude prices which have been hammered by recession worries.

“,”elementId”:”5b1a46c3-2b43-4dec-896c-e84656b5ec6e”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Opec slashed output back in 2020 when the world went into lockdown, but began reversing those cuts in 2021. Last month it trimmed output by 100,000 barrels per day, but a larger cut is now on the table due to fears of an economic slowdown and demand contraction.

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The US government, keen to keen gasoline prices down before November’s mid-term elections, is aghast at this prospect, though.

“,”elementId”:”9039e3a8-588b-447a-aed5-cc047987192c”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

According to CNN, the Biden administration has launched a full-scale pressure campaign in a last-ditch effort to dissuade Middle Eastern allies from dramatically cutting oil production.

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CNN reports:

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n

Some of the draft talking points circulated by the White House to the Treasury Department on Monday that were obtained by CNN framed the prospect of a production cut as a “total disaster” and warned that it could be taken as a “hostile act.”

n

“It’s important everyone is aware of just how high the stakes are,” said a US official of what was framed as a broad administration effort that is expected to continue in the lead up to the Wednesday OPEC+ meeting.

n

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Saudis and Russians planning big oil production cuts at tomorrow's OPEC meeting. As I wrote two weeks ago, Mohammed bin Salman is friendlier to Putin than Biden: https://t.co/diPQu1R4o7

— Edward Luce (@EdwardGLuce) October 4, 2022

n”,”url”:”https://twitter.com/EdwardGLuce/status/1577385523349491712″,”id”:”1577385523349491712″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”2244e37b-77a7-4da9-8e5b-70519ef4e265″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Also Read I have spent a year helping people flee the Taliban: failure is traumatic, success bittersweet | Ruchi Kumar

The prospect of Opec cuts lifted Brent cude to a near two-week high of $92 per barrel last night, up from $84/barrel in late September.

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That will make it harder to get inflation down towards more normal levels, and could hurt motorists this winter.

“,”elementId”:”922f2f1c-d240-4404-9702-702301841cc4″},{“_type”:”model.dotcomrendering.pageElements.TweetBlockElement”,”html”:”

Hovering over the OPEC+ meeting in Vienna is an unspoken fact: beyond Russia, many, many member-countries despise the G7 oil price cap. For them, it's a terrible precedent of consumers trying to dictate oil prices. It may or may not influence the talks, but it's there | #OOTT

— Javier Blas (@JavierBlas) October 4, 2022

n”,”url”:”https://twitter.com/JavierBlas/status/1577347097233440780″,”id”:”1577347097233440780″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”b4ff5835-627d-4289-9eeb-5087a9a871a2″},{“_type”:”model.dotcomrendering.pageElements.SubheadingBlockElement”,”html”:”

Also coming up today

“,”elementId”:”88041d4d-3dda-4d50-8645-fa7891f7ed36″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Rail services in the UK are being disrupted today by another large-scale strike n the long-running dispute over jobs, pay and conditions.

“,”elementId”:”82ded137-ecf2-4798-8d98-6e9badadc27d”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Members of the drivers’ union Aslef and the Transport Salaried Staffs Association (TSSA), encompassing 12 train operators, will walk out, meaning more chaos for travelers.

“,”elementId”:”6547c336-45b1-4100-8619-5cbba8b81eff”},{“_type”:”model.dotcomrendering.pageElements.RichLinkBlockElement”,”url”:”https://www.theguardian.com/business/2022/oct/04/uk-train-drivers-strike-on-wednesday-over-pay-and-conditions”,”text”:”UK train drivers to strike on Wednesday over pay and conditions”,”prefix”:”Related: “,”role”:”thumbnail”,”elementId”:”b0f7cff5-5d1e-4a7d-b86c-3f3f173ef9f2″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Many Conservative party conference attendees are expected to leave Birmingham early to avoid disruptions – rather than catch Liz Truss’s speech.

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Investors will be watching, though, with the PM expected to claim that the “disruption” caused by her economic policies will be worth it.

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That may no calm nerves in the City over the scale of spending cuts or increased borrowing needed to fund Truss’s unfunded pledges.

“,”elementId”:”ef175514-94eb-4e8f-9b46-f2af486997b1″},{“_type”:”model.dotcomrendering.pageElements.TweetBlockElement”,”html”:”

10 days ago Kwasi Kwarteng said there was “more to come” on fiscal changes and pound tanked.

Liz Truss will go one step further on Wednesday, telling Tory conference: “Whenever there is change, there is disruption.”

Some Tory MPs questioning the wisdom of her framing.

— Pippa Crerar (@PippaCrerar) October 5, 2022

n”,”url”:”https://twitter.com/PippaCrerar/status/1577452334174511104″,”id”:”1577452334174511104″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”91452da6-c3e4-4857-98e3-da5f8afea01f”},{“_type”:”model.dotcomrendering.pageElements.TweetBlockElement”,”html”:”

So are the bond and foreign exchange Mkts

— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) October 5, 2022

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There’s no shortage of disruption at the conference either, with the home secretary accusing fellow Tory MPs of a coup against the prime minister, and cabinet ministers in open conflict over the 45p tax U-turn and whether benefits should rise with inflation.

“,”elementId”:”251d168b-881e-4b6d-a2a6-1f43448fc2cc”},{“_type”:”model.dotcomrendering.pageElements.RichLinkBlockElement”,”url”:”https://www.theguardian.com/politics/2022/oct/04/kwasi-kwarteng-fiscal-plan-date-thrown-into-confusion”,”text”:”Truss’s cabinet in open warfare over key policies and coup accusations”,”prefix”:”Related: “,”role”:”thumbnail”,”elementId”:”dd4f897a-3205-4ef7-8817-e67f6257d7a1″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Last night the pound hit a two week high near to $1.15, as it recovers from the turmoil following the mini-budget.

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European stock markets are set for a calm open after a strong rally yesterday on both sides of the Atlantic, and in Asia-Pacific markets.

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*WHAT HAPPENED OVERNIGHT*

– Equities continued to rally from oversold levels

– SPX +3.06%, Nasdaq +3.34%

– UST 10y -1 bps to 3.63%

– USD continued to retrace on the back of risk-on

– Oil +3.2% to $91.69

– Downside surprise in Sept job openings fueled peak Fed narrative

— Prashant Nair (@_prashantnair) October 5, 2022

n”,”url”:”https://twitter.com/_prashantnair/status/1577511289609277440″,”id”:”1577511289609277440″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”22c7795c-5be2-4189-a87a-7d1c9f67ac6a”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

America’s S&P 500 posted its best two-day gain in roughly two years.

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The agenda

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7am BST: German trade balance for August

9am BST: Eurozone service sector PMI for September

9am BST: UK car sales for September

9.30am BST: UK service sector PMI for September

1.15pm BST: ADP index of US private sector employment in September

1.30pm BST: OPEC and non-OPEC Ministerial Meeting begins

3pm BST: US service sector PMI for September

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Key events