The FTSE 100 (^FTSE) suffered its worst day of trading since July, dropping by as much as 2% during the day, after higher than expected inflation data from the UK and EU. Wall Street also followed suit in New York.
London's benchmark index closed 1.5%, extending losses for a third straight session and hitting a one-and-a-half-month low. On the bloc, the CAC (^FCHI) lost 1.1% in Paris, and the Frankfurt DAX (^GDAXI) was 0.9% down.
The annual rate of price rises in Britain increased from 3.9% in November and was higher than the 3.8% that had been predicted by economists. The increase in the annual rate was largely the result of a government increase in tobacco duty, after the government announced higher taxes in the autumn statement.
Tobacco prices saw an annual increase of 16% last month, while alcohol had a smaller rise at 9.6%. This was partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year.
"While the economic data this week is likely to be a key bellwether for the timing of when the Bank of England might look at starting to reduce the base rate, the key test for markets won’t be on whether we see a further slowdown in inflation at the end of last year, but how much of a rebound we see in the January numbers," Michael Hewson of CMC Markets said.
"Whatever markets might look to price as far as rate cuts are concerned the fact that wages are still trending above 6% is likely to stay the Bank of England’s hand when it comes to looking at rate cuts when they meet in just over a fortnight."
He added: "It’s also important to remember that at the last rate meeting 3 members voted for a further 25bps rate hike.
"While a further slowdown in the headline rate is likely to prompt a change of heart when it comes to calling for a rate hike, it will take more than a further slowdown in the headline rate for these 3 MPC members to do a complete 180 about turn and push for a rate cut."
The pound (GBPUSD=X) edged up on the back of the news which also kept London's benchmark index under pressure.
It came as ECB president Christine Lagarde has pushed back against rate bet cuts as early as March, saying that central bank will likely lower borrowing costs in summer. Eurozone inflation rose to 2.9% in December as food prices rose and support for high energy bills ended in some countries.
“Equities slid significantly lower in Europe on Wednesday as hawkish narrative from central banks and geopolitical uncertainties kept market sentiment under pressure," Pierre Veyret, technical analyst at ActivTrades, said.
“The sell-off continues across a wide range of assets, including bonds and stocks, as investors moved to decrease their exposure as uncertainty rises and markets become less predictable.
"ECB President Christine Lagarde echoed the hawkish stance previously brought by other Fed and ECB officials earlier this week, saying hopes of rapid rate cuts were a “distraction” and reaffirming there was no urgency in turning to a dovish approach.”
Across the pond, the S&P 500 (^GSPC) slipped 0.5% by the time of the European close, unable to lift the mood after a break for Martin Luther King Day. Meanwhile, the tech-heavy Nasdaq (^IXIC) was 0.8% down and the Dow Jones (^DJI) was trading flat.
It comes as the US Federal Reserve set to meet in two weeks’ time.
LIVE COVERAGE IS OVER16 updates
LaToya Harding
Blog close and recap...
Well that's all we have time for today. Thanks for following along. Be sure to join us again tomorrow when we will be back for more.
Here's a quick recap of some of the top stories from today...
UK inflation rises to 4% in year to December
FTSE suffers worst trading day since July
ECB likely to cut rates in summer
Wizz Air to pay customers more than £1m
UK house prices fall by £6,000 on average
US retail sales increase more than expected in December
Have a good evening all!
LaToya Harding
US retail sales increase more than expected in December
US retail sales have risen by more than expected in December as consumers purchased more motor vehicles and retailers offered a variation of discounts.
According to the Commerce Department’s Census Bureau, retail sales rose 0.6% last month.
It came as US industrial production also beat expectations in December thanks to growth in manufacturing and mining.
Production rose by 0.1% during the month, up slightly from November, when revised figures now show no growth.
LaToya Harding
FTSE suffers worst trading day since July
The FTSE 100 has suffered its worst day of trading since July, dropping by as much as 2% in after higher than expected inflation data from the UK and EU.
However, Julian Jessop, an economist at the Institute of Economic Affairs, said it was important to recognise “the big picture” that inflation would fall.
“Inflation is still likely to fall to the two per cent target in April and the markets will continue to price in large rate cuts later in the year. Inflation is still lower than the Bank of England’s forecasts, which predicted an average rate of 4.6 per cent in 2023 Q4 and 4.4 per cent in 2024 Q1.
“Higher inflation in December was partly driven by a few temporary factors, including changes in tobacco duties, air fares, and several components of ‘recreation and culture’. In the meantime, the labour market continues to cool and growth in both the money supply and credit are still weak.”
LaToya Harding
Shadow chancellor says Britain has huge potential
Rachel Reeves said during Davos day two that the UK has "huge potential", as she continues her whistle-stop tour of Davos today.
The shadow chancellor said:
"We are determined to get economic growth in the UK off the floor, to get us growing again, and that requires a partnership between government and business to unlock investment, and bring jobs and prosperity to the UK.
"And that’s what I’m determined to do. I know the inheritance is going to be tough, if we do indeed have the chance to form the next government, but I’m an optimist about Britain. Huge potential. We’ve just got to tap it."
LaToya Harding
Wall Street set to open lower
We have an hour to go until the opening bell in New York so let's have a look at how things are shaping up across the pond...
S&P 500 futures (ES=F) are down 0.4%, Dow futures (YM=F) have also lost 0.4%, and Nasdaq futures (NQ=F) are 0.5% lower.
LaToya Harding
What does the latest inflation reading mean for the BoE?
Andrew Bailey, Governor of the Bank of England, during the Bank of England Monetary Policy Report Press Conference, at the Bank of England, London. Picture date: Wednesday December 6, 2023. (Hannah McKay, PA Images)
"Today’s UK inflation numbers serve to reinforce the challenge facing the Bank of England in returning inflation to target and show that the process is unlikely to be linear, with markets pushing back the timing of the first cut to the middle of the summer," Michael Hewson, chief market analyst at CMC Markets UK, said.
"Q1 was never a realistic probability even if you believe, as some do, that we could see UK inflation fall to the Bank of England’s target of 2% by the beginning of Q2. Even if that were to happen, we would have no certainty of that until May when the April data is released which means the possibility of a May cut is ambitious.
"The only debate now is not whether we see rate cuts this year, it is when we see rate cuts, which means as far as mortgage rates are concerned there is unlikely to be much of a short-term effect to today’s inflation numbers.
"As far as mortgage rates are concerned the destination hasn’t changed, rates are heading down, the discussion that markets are having is over timing, and today the already remote prospect of an early rate cut diminished further, pushing both sterling and UK yields higher."
Threadneedle Street is set to announce the latest projections for the UK economy in 2024 in just over two weeks' time.
Today's economic data will mean that they are likely to remind the markets of the "Table Mountain" approach outlined by chief economist Huw Pill at the end of last year, and that while rates will come down eventually it may take longer than people would like.
LaToya Harding
Private rental prices rise
Private rental prices paid by tenants in the UK rose by 6.2% in the 12 months to December 2023.
Wales that saw the biggest annual increase in rents, with prices rising 7.1% over the year to December, down only slightly from the 7.3% rise in rents in the year to November. In Scotland, rents rose 6.2% over 2023 and England registered a 6.1% increase.
Private rental prices in London increased by 6.8% in the year to December 2023, down slightly from a record-high rise of 6.9% in the 12 months to November 2023.
Property values fell by 2.1% over the 12 months to November to reach £285,000 on average, according to the Office for National Statistics (ONS), the biggest drop since 2011.
London was the region with the biggest annual decrease, with prices in the capital falling 6%.
House prices typically fell across the year in England and Wales, but increased in Scotland and Northern Ireland.
Average house prices over the 12 months to November 2023 fell 2.9% in England to £302,000 and dropped 2.4% in Wales to £213,000.
The typical property value increased in Scotland to £194,000, which represents a 2.2% annual rise.
Average house prices increased by 2.1% annually in Northern Ireland to £180,000.
Within England, the North East recorded a 0.4% drop, the smallest decrease in average house prices in the 12 months to November.
The average UK house price was £285,000 in November 2023 💷
Regulators have asked Wizz Air (WIZZ.L) to pay out more than £1.2m to passengers in a row over cancelled flights and delays.
The Civil Aviation Authority (CAA) took action against the low-cost airline amid concerns over the high volume complaints, and its failure to meet passenger rights obligations.
More than 25,000 claims made by passengers were re-examined by the regulator, resulting in additional payments made in around 6,000 cases.
The Hungarian airline has also improved the way it handles claims, such as introducing an automated refund process.
Shares fell as much as 4% on the day in London.
"This is good news for passengers and our concerns have been validated by the outcome of our actions," Paul Smith, consumer director at the UK Civil Aviation Authority, said.
“While we welcome the steps taken by Wizz Air after falling short in its treatment of disrupted passengers, airlines should routinely look after passengers and uphold their rights when flights are delayed and cancelled.
“Passengers have every right to expect their claims to be resolved quickly, efficiently and in line with the regulations. These outcomes will now provide Wizz Air’s passengers with a better experience.”
LaToya Harding
Can you still make money by switching current accounts?
Maidenhead, Berkshire, UK. 15th December, 2023. A Nationwide Building Society branch in Maidenhead, Berkshire. Yesterday the Bank of England decided to hold rates at 5.25% which is good news for both mortgage holders and savers. The base rate is predicted to drop to 4% during 2024. Credit: Maureen McLean/Alamy Live News (Maureen McLean)
The brief current account switching bonus drought has ended, with the launch of two new deals. It’s great news for those whose banks are falling short, who fancy making over £100 without too much effort.
It’s also a positive sign that these deals aren’t set to vanish overnight, something that was far more likely when there was only one deal left on the market.
Switching current accounts has been a nice little earner for the past year, with a host of banks offering generous cash bonuses if you’re prepared to make a move. However, in recent months, most of these deals have been quietly withdrawn.
The second day of the World Economic Forum’s Annual Meeting is currently under way...
This morning, Christine Lagarde, president of the European Central Bank (ECB) said that the bank is likely to cut interest rates in the summer.
Interviewed at Bloomberg House in Davos, she was asked if there could be majority support for such a move, given that several policymakers have signalled that timing.
“I would say it’s likely too,” Lagarde said. “But I have to be reserved, because we are also saying that we are data dependent, and that there is still a level of uncertainty and some indicators that are not anchored at the level where we would like to see them.”
Financial markets are now betting to 140 basis points by year end — equivalent to five quarter-point moves, with a 60% chance of a sixth.
LaToya Harding
Total number of crypto users to jump by 25% in 2024
According to data by AltIndex.com, the number of people using cryptocurrencies as a payment method or investment hit 670 million last year. This figure is expected to jump by a further 25% and hit over 830 million in 2024.
"After a brutal 2022, which spooked investors and wiped hundreds of billions of dollars from the market, the 2023 price rally rebuilt confidence in crypto, drawing more crypto users than ever," it said.
"During 2023 alone, the number of crypto users jumped by a massive 57% year-over-year and hit 670.5 million globally. Statistics show the global crypto user base will continue growing in 2024, although slower than in previous years.
"Statista expects around 160 million people to flock to crypto this year, pushing the total number of users in the market to a whopping 833.7 million, almost 15 times more than just five years ago. By 2028, the crypto industry is expected to hit a huge new milestone with nearly one billion users worldwide. The global crypto ownership rate will also increase in this period, rising from 10.76% to 12.39%."
It believes that ever fourth crypto user this year will be from India.
LaToya Harding
Asia and US stocks overnight
Asian equities fell sharply last night after new data pointed to patchy recovery in China.
The Hang Seng (^HSI) nosedived 3.7% in Hong Kong, while the Shanghai Composite (000001.SS) was 2.1% down. In Japan, the Nikkei (^N225) fell 0.4% on the day.
It came as China’s economy last year grew at one of its slowest rates in more than three decades thanks to a weak property sector and global instability.
China’s National Bureau of Statistics revealed that gross domestic product expanded 5.pc to hit 126 trillion yuan (£14trn) last year.
Wall Street followed Asia's lead in a disappointing return to trading following a three-day holiday weekend in America.
The S&P 500 (^GSPC) slipped 0.4% during the session, the tech-heavy Nasdaq (^IXIC) was 0.2% down and the Dow Jones (^DJI) fell 0.6%
The US dollar was near a one-month high as traders dialled back bets of early interest rate cuts while the yield on the 10-year Treasury climbed to 4.06% from 3.95% late on Friday.
Yields rose in the bond market as US Federal Reserve official Christopher Waller said in a speech that “policy is set properly” on interest rates.
Following the speech, traders pushed some bets for the Fed’s first rate cut to happen in May instead of March.
LaToya Harding
Chancellor on UK inflation report
Chancellor of the Exchequer Jeremy Hunt (Victoria Jones, PA Images)
The increase in the annual inflation rate was largely the result of a government increase in tobacco duty, after the government announced higher taxes in the autumn statement.
Tobacco prices saw an annual increase of 16% last month, while alcohol had a smaller rise at 9.6%.
Chancellor Jeremy Hunt said this morning:
“As we have seen in the US, France and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it.
“We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”
LaToya Harding
UK inflation rises to 4% in year to December
Well economists were expecting a figure of 3.8% but inflation rose to 4% in the year to December, according to the latest figures from the Office for National Statistics (ONS).
ONS chief economist Grant Fitzner said:
“The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases.
“These were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year.
“Meanwhile, the prices of goods leaving factories are little changed over the last few months, while the costs of raw materials remain lower than a year ago.”
However, the surprise increase might force markets to reprice their bets, with Simon French, the chief economist for stockbroker Panmure Gordon, saying that cuts will now start in August.
In the year to December 2023:
▪️ Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.2%, the same rate as November.
▪️ Consumer Prices Index (CPI) rose by 4.0%, up from 3.9% in November.
On 1 August 2022, Sarah Jacques walked out of her GP surgery in the middle of the day, got into her car and started driving. She drove past her house but didn’t stop, and kept going for another 20 miles until she reached the Sussex coast. There, she turned off the engine, sat in the car, and for the next six hours contemplated ending her life.
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It wasn’t so much a revenge dress as an “I’m loving my life” dress. Amid a host of TV stars who took to the Baftas red carpet on Sunday evening, it was Anita Rani in a sheer, pearl encrusted gown who stole the show.
Yahoo Finance 