FTSE was higher on Wednesday afternoon as traders awaited the US Fed decision. (Xinhua, Xinhua)
European stock markets spent most of Wednesday muted as UK house prices rose in January and traders awaited the latest interest rate decision from the Federal Reserve.
The FTSE 100 (^FTSE) was trading 0.1% lower by the end of the day in London, while the CAC (^FCHI) lost 0.1% in Paris, slipping from its record high, and the Frankfurt DAX (^GDAXI) was 0.3% down.
“Ricardo Evangelista, senior analyst at ActivTrades, said: “Traders find themselves in a wait-and-see mode in anticipation of the Federal Reserve’s rates announcement and subsequent press conference, both scheduled for later today.
“While the consensus amongst analysts leans towards unchanged interest rates, uncertainties persist regarding the hints that may surface in the policy statement and during the press conference.”
It came as Nationwide’s House Price Index showed there was a slight improvement in the annual rate of house price growth in the UK, from -1.8% in December to -0.2% in January.
Prices ticked up 0.7% to an average of £257,656 as pressures on mortgage rates eased, following an optimistic shift in how investors view the Bank of England’s potential interest rate path, the building society said.
Robert Gardner, Nationwide’s chief economist, said: “While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive.”
Across the pond, US markets were also in the red, with the Nasdaq 100 (^IXIC) sliding back 1.4%, the S&P 500 (^GSPC) 0.8% down by the time of the European close, and the Dow (^DJI) trading flat.
It came as private sector hiring in the US fell more than expected this month. There were 107,000 added jobs in the private sector, according to data from payroll business ADP, a slowdown from a revised 158,000 in December.
Most of the job gains were in service-providing sectors including leisure and hospitality and trade, transport and utilities.
Michael Hewson of CMC Markets said: “Having seen the ECB keep rates on hold last week, today is the turn of the Federal Reserve where we could see the central bank look to put a pin in the idea that a March rate cut is coming. That’s not to say the Fed will rule the idea of rate cuts coming, simply that March is too soon for a data dependant central bank.”
Futures expect 150bps of cuts from the Fed this year.
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Be sure to join us again tomorrow for more – the main focus will be the Bank of England interest rate decision so don’t miss out.
Thanks as always for following along, and have a good evening.
US private sector hiring slows
Private sector hiring in the US fell more than expected this month ahead of the US Federal Reserve’s latest interest rate decision later this evening.
There were 107,000 added jobs in the private sector, according to data from payroll business ADP, a slowdown from a revised 158,000 in December.
Most of the job gains were in service-providing sectors including leisure and hospitality and trade, transport and utilities.
ADP chief economist Nela Richardson said: “Progress on inflation has brightened the economic picture despite a slowdown in hiring and pay.”
⚠️ ADP job changer pay growth at 7.2% YoY – lowest since May ’21. In keeping with lower quits/hire rates – harder for job changers to demand higher pay when there’s churn. But wage growth looks to be settling a bit higher than pre-Covid. Fed won’t (on the margin) like that $USDpic.twitter.com/imZDwAgF7W
Skipton Building Society has reduced mortgage rates on residential and buy-to-let deals by up to 0.46 percentage points. The biggest cut is on the building society’s five-year fix rate buy-to-let loan, which fell from 4.95% to 4.49%.
The lender dropped its five-year fix to 4.31%.
TSB also cut the rates on its various loans by up to 0.85%, while Barclays cut the rate on some of its five-year fixed deals to 4.09% earlier this week.
It comes as the Bank of England’s monetary policy committee is widely expected to keep interest rates on hold at 5.25% tomorrow.
Novo Nordisk shares rise to record high
Novo Nordisk shares have risen as much as 4% today to hit a record high after the Danish drugmaker reported soaring sales of its obesity and diabetes drugs, as well as higher profits.
This pushed the company’s market value passed the $500bn mark, cementing its position as Europe’s most valuable company, ahead of France’s luxury goods group LVMH.
Majority of rental market unaffordable for under-30s
VITA student accommodation high rise block, Cardiff city centre. Taken September 2023 (Nia Bell)
New research by tenancy deposit alternative Zero Deposit has revealed that under-30s face an “almost impossible” task when it comes to current rental affordability, with just 7% of the market classed as affordable when it comes to the cost of a rental deposit coupled with their first month’s rent.
Zero Deposit analysed average monthly rent prices in each of the UK’s 361 local authority areas, and average incomes of each age bracket or renters.
Zero Deposit then looked at what percentage of local authorities were realistic when it came to rental market affordability, based on 50% of the average renter’s monthly income in relation to the combined cost of an upfront five week deposit and the first month’s rent.
The research shows that: –
The cost of rent
The high cost of renting is no secret and currently, the average UK rent comes in at £921 per month. London and the South East have the most expensive regional averages, standing at £1,873 per month and £1,148 per month respectively, while at local authority level, the monthly cost of renting in the City of Westminster is an eye-watering £3,154 – the highest in the UK.
Upfront deposit creates a larger financial obstacle
But it’s not just the high cost of monthly rent that poses a financial obstacle to tenants. There’s also the upfront cost of a deposit to take into account, which stands at £1,063 at five weeks for the average UK rental property.
With this cost often coming within the same month as the first month’s rent is due, that’s a total of £1,913 required for the average UK tenant to secure a rental property.
With the average UK salary coming in at £2,950 per month, the cost of securing a rental property is out of reach for the average UK tenant based on their entire monthly income, let alone a 50% allowance of £1,475.
HMRC property transactions decline
HMRC property transactions data published today showed that there were 80,420 UK residential transactions in December, on a seasonally adjusted basis. This was 18% lower on an annual basis, and 1% lower month-on-month.
Nick Leeming, Chairman of Jackson-Stops, said: “Despite today’s figures showing a subdued final quarter of 2023, a seasonal slowdown is par for the course as celebration and reflection takes priority in December.
“If last year was characterised by greater supply and tentative buyer appetite, the cautious hope is that 2024 will shepherd in a period of greater steadiness and predictability. Buoyed by falling inflation and competitive mortgage rates, a strong response from buyers to renew their searches and push forward with completions should also encourage sellers to return their properties to the market at realistic guide prices.
“On the eve of the Bank of England’s next interest rate decision, the expectation that rates will hold firm is another important piece of the property prosperity puzzle. If the Bank of England opts to err on the side of stability, it will go some way to help the market level out and return to a stable footing both in terms of sales agreed and property prices.
IKEA to open new stores amid strong UK profits
An IKEA store is seen in the hamlet of Hicksville in Nassau County, Long Island, New York. (SOPA Images, SOPA Images Limited)
Profits at IKEA’s UK division more than doubled in the last financial year as looks to open new stores in the country.
The retailer posted sales of £2.46bn for the year to August, up from £2.20bn, while its operating profits surged from £49.6m to £111.2m.
It also saw 19% growth in online sales and a 24% increase in remote sales.
There was also a 48% rise in click and collect purchases while new city stores were announced for London’s Oxford Street and Brighton.
Vodafone leads FTSE fallers
Telecoms giant Vodafone (VOD.L) has led fallers in the FTSE 100 today, dipping as much as 4% after news broke that it had rejected a further merger proposal from the Italian Iliad Group to join up the pair’s Italian businesses.
The merger between Iliad Italia and Vodafone Italia would have seen a 50/50 deal, with Vodafone receiving €6.6bn cash and a €2bn shareholder loan.
The bid represented a €100m increase from the initial proposal last month.
See what other tickers are trending here
All eyes on Fed this evening…
Lindsay James, investment strategist at Quilter Investors, said:
“US job openings came in well ahead of estimates yesterday afternoon but were largely unchanged over the month, demonstrating the labour market remains an important driver of economic growth.
“With consumer confidence also coming in slightly ahead of estimates and hitting a 2-year high, it’s clear that falling inflationary forces are starting to make respondents feel a little more optimistic about the direction of the economy.
“Whether the Federal Reserve agrees will be made clear tonight, as its latest policy setting meeting concludes. The December meeting saw the ‘Santa rally’ shift into a higher gear, as it signalled three rate cuts in the year ahead.
“With the economy showing largely strong data points since then, albeit with the preferred measure of inflation very much on target, the market has cut the likelihood of a first rate cut in March from 73% at the end of 2023 down to 39% now, but this meeting will almost certainly trigger further calibration around the extent and timing of future cuts.”
Pound predicted to hit two-year high
Investors have forecast that the pound (GBPUSD=X) will rally to its highest level against the dollar in two years
According to Goldman Sachs, sterling will hit $1.30 and 84p per euro in the next few months as the US Federal Reserve and European Central Bank begin cutting interest rates, with the Bank of England being slower to do so.
The pound was last down 0.1% against the dollar at $1.2687 but up 0.1% against the euro at 85p.
Isabella Rosenberg said the pound has “benefited considerably from the global disinflation trend and shift toward policy easing”.
Meanwhile, global investment strategist Guillermo Felices said:
“There’s life in the pound. Currencies love a tight monetary policy and loose fiscal policy, and we’re getting a flavour of this in the UK.”
Bank of England expected to leave interest rates on hold
The Bank of England is widely expected to leave interest rates at a 15-year high of 5.25% for a fourth straight month when it meets on Thursday.
The BoE’s Policy Committee will announce its latest decision at noon tomorrow and markets are predicting a 98% chance that interest rates will be held at the highest level since 2008.
Officials at Threadneedle Street have cautioned that it is “too early” to talk about cutting interest rates but, despite a small uptick in December, UK inflation has come in much lower than predicted and now stands at 4%. In November 2022, it peaked at 11.1% amid surging energy prices.
The Bank will be watching other measures of underlying inflation, such as core inflation which strips out the impact of food and energy prices to make their decision.
Microsoft and Alphabet set to slide
Shares in both Microsoft and Alphabet are set to fall in New York today despite solid beats on revenues and profits.
“When your shares are up over 8% year to date in anticipation of a bumper set of earnings numbers then a realistic expectation is that you deliver on those expectations, and that is the challenge facing all of big tech this week,” said Michael Hewson of CMC Markets.
With the share prices of Microsoft and Alphabet both getting January off to a strong start and Microsoft establishing itself as the biggest company in the world, overtaking Apple in the process as $3trn company the expectations management goes into overdrive.
French inflation eases to 3.1%
Inflation in France has eased faster than expected in the year to January at 3.1%, compared to 3.7% in December.
This is according to INSEE, the French statistics office.
Charlotte de Montpellier, senior economist for France and Switzerland at ING, said:
This is clearly a move in the right direction, which should be greeted with relief by the European Central Bank (ECB). On the other hand, the rise in services prices was stronger in January, at 3.2% compared with 3.1% the previous month.
Looking ahead, the leading indicators suggest that inflation in France will continue to fall over the coming months, although not necessarily continuously. In particular, the contribution of energy to inflation is likely to rise again in the coming months, due to a less favourable base effect for petroleum product prices and the end of various government support mechanisms for energy bills.
Ultimately, we expect inflation to remain close to 3% for the first part of the year, before gradually easing towards 2% in the second half and remaining close to that level in 2025. On average over the year, consumer prices index inflation could be close to 2.5%.
How to prepare your pension to live to 100
Recent figures revealed there were over half a million people in the UK aged 90 or over in 2022 and more than 15,000 people aged 100 or more. This number has doubled in 20 years. The ranks of centenarians are still dominated by women, but men are catching up. Twenty years ago, there were 8.2 women over 100 to every man: now it’s 4.5.
It means that despite all the health challenges thrown at us in recent years, we’re defying them all, and men and women are living to a ripe old age. This is largely exceptionally good news. Who doesn’t want to live longer? However, it comes with a sting in the tail.
Despite life expectancy growing, the period of our lives we’re expected to remain healthy for has shrunk since 2015. A baby boy currently has a healthy life expectancy of 63 years, and a baby girl 64 years. It means we need to make plans not just for a longer life, but one where we might not be in brilliant health for a major part of it.
At the same time, because we’re living longer, the government has been increasing the state pension age, and is expected to keep doing so.
Read the full article here
Santander warns falling interest rates will hit profits
Santander posted a 13% rise in annual profits on Wednesday on the back of higher interest rates.
The high street lender saw pre-tax profits of £2.1bn for 2023, up from £1.9bn the year before.
However, it did issue a warning on its profitability this year, with lower net interest margins expected as interest rates are set to fall.
The group also revealed a 36% fall in money set aside for loan losses to £206m, down from £321m in 2022.
Judge blocks $56bn Tesla pay deal
Elon Musk, CEO of Tesla (zz/Michael Germana/STAR MAX/IPx, Associated Press)
A judge in Delaware has annulled a $55.8bn (£44bn) pay deal awarded to Elon Musk in 2018 by electric car company Tesla.
Judge Kathaleen McCormick said the payout was “an unfathomable sum” that was not fair to shareholders. The lawsuit was filed by a shareholder who argued that it was an overpayment.
The pay deal was the biggest ever in corporate history, helping to make Mr Musk one the richest people in the world.
If the decision survives an appeal, the Tesla board will have to come up with a new compensation package for Musk.
“Never incorporate your company in the state of Delaware,” Musk said on X, formerly known as Twitter.
GSK posts better-than-expected profits
GSK’s fourth-quarter profits and sales have beaten expectations thanks to the strong launch of its new RSV vaccine. It also cited with steady demand for its shingles shot and HIV medicines.
Pre-tax profit came in at £6.1bn, up 14% at constant exchange rates, while turnover rose 5% to £30.3bn. Britain’s second-biggest drugmaker made sales of £8.05bn in the final quarter of the year.
Chief executive Emma Walmsley said clear highlights last year were the “exceptional launch of Arexvy (its vaccine for respiratory syncytial virus) and continued progress in our pipeline”. She said:
We are now planning for at least 12 major launches from 2025, with new vaccines and specialty medicines for infectious diseases, HIV, respiratory and oncology.
As a result of this progress and momentum, we expect to deliver another year of meaningful sales and earnings growth in 2024, and we are upgrading our growth outlooks for 2026 and 2031. We remain focused on delivering this potential – and more – to prevent and change the course of disease for millions of people.
UK house prices rise in January
UK house prices were on the up this month, according to Nationwide’s House Price Index, meaning a slight improvement in the annual rate of house price growth from -1.8% in December to -0.2% in January.
Prices ticked up 0.7% to an average of £257,656 as pressures on mortgage rates eased, following an optimistic shift in how investors view the Bank of England’s potential interest rate path, the building society said.
“While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive,” said Robert Gardiner, Nationwide’s chief economist. “The most recent RICS survey suggests the decline in new buyer enquiries has halted, while there are tentative signs of a pickup in the number of properties coming onto the market.”
The Bank of England has raised interest rates to a 15-year high of 5.25% before hitting the pause button for the past few months. Markets believe Threadneedle Street will begin bringing rates down as early as May and 2024 could finish with interest rates at 4%.
Read more here
Coming up…
Good morning and welcome back to our live markets blog. Here we will be covering what’s moving markets and happening across the global economy.
Let’s take a quick look at what’s on the agenda for today…
7:00am: Trading updates: Glaxosmithklein, SSE
7.45am: France inflation for January
8.55am: Germany unemployment for January
12:00pm: US MBA mortgage applications
1pm: Germany inflation for January
7pm: US Federal Reserve interest rate decision
7.30pm: Fed press conference
Watch: How does inflation affect interest rates?
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Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
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