Typical. After a round of new year prediction punditry that made one think that 2023 could only be bleaker and weaker than 2022, the FTSE 100 index charged off in the opposite direction. It was up 180 points after two hours of trading to a shade over 7,600, enough to bring the all-time high (7,877, in the faraway pre-Ukraine, pre-Covid days of 2018) into view, a prospect that did not feature heavily in most “what to expect” checklists.
By the close, the gain was a more modest 102 points but still out of tune with the general diagnosis that a third of the world would be in recession this year (the IMF) and that the UK’s downturn was likely to be the worst and longest in the G7 (a Financial Times poll of 101 UK economists). Never mistake share price for the real economy, but it’s worth asking the question: is it possible that 2023 could be a tale of muddling through, as opposed to a story of unmitigated financial gloom?
If there is a case for relative optimism, it lies in the demonstration over the holiday period that wholesale energy prices can fall as well as rise. A UK month-ahead gas of 179p a therm still looks horrible against a 10-year average of roughly 50p but it’s a lot better than the terrifying 500p seen back in August. Even a few weeks ago, few would have bet that we would enter 2023 with gas prices lower than before Russia’s invasion of Ukraine.
The real test of Europe’s energy resilience lies ahead, it should be added quickly. Blackouts are still possible this winter and, as virtually every energy analyst points out, the biggest challenge is replenishing storage for next winter without Russian supplies. The current lull in wholesale prices could be highly misleading.
Alternatively, one can see how lower energy prices may start to ease financial pressure on governments and business. The cost of protecting consumers via price caps falls; bills become lower for companies versus what they were expecting. Central banks’ freedom to hold off on interest rate rises also improves if the energy shock is believed to have passed its most shocking phase.
None of which should be taken as a prediction of cheer. The debate is not about the fact of recession – just its severity. But a notable feature of the final few months of 2022 was the number of chief executives in consumer-facing companies who sounded more hopeful about medium-term trading than bald big-picture economic forecasts said they should be.
Retailers’ Christmas reports over the next fortnight could puncture that picture in an instant, by delivering a hard reminder of how far cost-of-living pressures reach up the income spectrum. But, for the time being, the muddle-through thesis is intact. The second half of 2023 should be better than the first, which was about as upbeat as the new year forecasts came. One big swing factor – the price of energy – is currently behaving. A lot hangs on whether it continues to do so.
Tit-for-tat point-scoring at Cineworld must feel irrelevant to many
Recovery in any form is not on the cards for poor old shareholders in Cineworld, however. The once-mighty London-listed cinema group is in chapter 11 bankruptcy protection in the US and financial realities must be spelled out in every utterance to the stock exchange. Any debt restructuring or sale “will result in a very significant dilution of existing equity interests”, according to Tuesday’s announcement, which has been the refrain since September.
So what was the point of the latest statement? Well, it seems that Cineworld has been fuming over its rival AMC Entertainment’s claim to have held talks over cherry-picking a few cinemas in the US and Europe. There were no talks with us, said Cineworld, adding that it “understands” that its ad hoc group of lenders did not talk either. Such is the messy business of chapter 11. Nobody can agree on what constitutes proper talks.
The tit-for-tat point-scoring must feel irrelevant to outside shareholders in Cineworld. Rather than listen to the chief executive Mooky Greidinger’s digressions on AMC, they would surely rather hear an explanation as to why a deal with lenders was not attempted last spring when Cineworld still had a share price that offered some negotiating clout.
Instead, Greidinger gambled on a strong bounce-back in revenues that never quite materialised. For the investors, it doesn’t matter terribly if Cineworld is sold in pieces or as a whole.
