The FTSE and Wll Street pushed higher on Thursday. (Erik Pendzich)
The FTSE 100 (^FTSE) and European stock markets staged a late recovery on Thursday, after spending most of the day in the red, as traders digested the latest interest rate decision from the European Central Bank (ECB) and news of the US economy performing better than expected.
London's benchmark index closed 0.1% higher, while the CAC (^FCHI) ended 0.05% up in Paris, and the Frankfurt DAX (^GDAXI) was around 0.1% higher.
The US economy expanded more than expected in the fourth quarter of last year, thanks to a resilient jobs market and a boost in consumer spending.
GDP rose at a 3.3% annualised rate, according to the government’s preliminary estimate on Thursday. This beat forecasts of 2.2% growth. Overall in 2023, the economy expanded by 2.5%, its strongest performance since 2021.
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Across the pond, US markets with the Dow (^DJI) up 0.3% by the time of the European close, while the S&P 500 (^GSPC) was up 0.5%, and Nasdaq (^IXIC) once again set new record highs with a rise of 0.7%.
It also came as the ECB's governing council kept interest rates unchanged as widely expected.
The ECB’s rate on its main refinancing operations, which provide the bulk of liquidity to the banking system, was kept on hold at 4.5%, while its deposit rate, which is paid on commercial bank deposits, is at 4%.
The marginal lending facility, which offers overnight credit to banks, is at 4.75%.
The central bank said: "Tight financing conditions are dampening demand, and this is helping to push down inflation."
President Christine Lagarde said during an interview at the World Economic Forum in Davos this month that rates are likely to be cut in the summer.
Money markets currently have the bank cutting rates four times this year in increments of 25bps, starting in June.
"When looking at the economic performance of the euro area, we’ve seen little in the way of growthsince Q3 of 2022, while inflation has also been slowing sharply. Yet for all this economic weakness, a fact which was borne out by yesterday’s flash PMI numbers, especially in the services sector, the ECB has been insistent it is not close to considering a cut in rates, having hiked as recently as last September," said Michael Hewson, chief markets analysts at CMC Markets UK.
"Only as recently as last week we heard from a few governing council members of their concerns about cutting too early, yet when looking at the data, and the fact that the German economy is on its knees, the ECB almost comes across as masochistic in its desire to combat the risks of a return of inflation.
"In a way it’s not hard to understand given that after November headline inflation slowed to 2.4%, it picked up again in December to 2.9%, while core prices slowed to 3.4%."
LIVE COVERAGE IS OVER21 updates
LaToya Harding
Blog wrap and recap
Well that's all from us, thanks as always for following along. Be sure to join us again tomorrow for more.
Here's a quick recap of some of the top headlines from today:
ECB keeps interest rates unchanged
US economy grows faster than expected
Lloyds cuts 1,600 jobs
UK retail sales fall most in three years
UK car production surpasses 1m for first time since COVID
Dr Martens hit by US sales slump
German business confidence declines
Wizz Air slumps as losses widen
LaToya Harding
Lloyds cuts 1,600 jobs
Lloyds Banking Group is slashing around 1,600 jobs as it looks to shift more services online, according to reports.
As part of its revamp, Lloyds also plans to create 830 roles in an expanded "relationship growth" team to understand customers' financial goals and provide services across branches, video meetings and over the phone, a spokesperson told Reuters.
The net result of the changes will be a loss of about 769 roles.
It comes as Barclays also cut thousands of jobs last year, with the majority in the bank’s back office support division.
LaToya Harding
Investors expect bitcoin price to drop, says Deutsche Bank
Over one-third of participants in a Deutsche Bank survey expect the bitcoin price to drop below $20,000. The recent poll also revealed that a majority of respondents expressed concerns about a potential cryptocurrency collapse.
"We conducted a survey among 2,000 consumers in the US, the UK, and Europe, and despite bitcoin prices hovering above $40,000 for several weeks now, over one-third of our respondents still hold the belief that bitcoin prices will dip below $20,000 by the end of this year," said the research analysts who compiled the survey.
The analysts said that survey participants had a high level of uncertainty when considering bitcoin's long-term prospects. "39% of participants believe that it will bitcoin will remain in existence in the coming years, while 42% anticipate its disappearance," the analysts added.
An analysis of the survey results revealed a significant lack of understanding among participants regarding cryptocurrencies in general. "Two-thirds of consumers possess minimal or no understanding of these digital assets," the analysts said.
US growth puts Fed cuts on collision course with presidential election
“US growth may be slowing, but it remains anything but sluggish. Today’s fourth quarter growth number shows that the US economy is not grinding to a halt and any recessionary fears remain on hold for the foreseeable future. That would normally be considered very good news, but the market desires rate cuts and it wants them sooner rather than later," Lindsay James, investment strategist at Quilter Investors, said.
"This puts it on a collision course for the US election. Jerome Powell will be determined not to be seen to meddle in the outcome, however, with Donald Trump in pole position for the Republican nomination, and his expected campaign antics, it might not be long until Powell catches the ire of the former President once again.
“For now, however, the picture remains very uncertain as we hurtle towards the election. Forecasts by economists for US GDP growth in 2024 currently range from 0-3.1%, with the range of expectations for inflation only marginally narrower and wildly different to expectations in early 2023, showing how uncertain the outlook for 2024 remains.”
LaToya Harding
US economy grows faster than expected
Breaking news from across the pond...
The US economy expanded more than expected in the fourth quarter of last year, thanks to a resilient jobs market and a boost in consumer spending.
GDP rose at a 3.3% annualised rate, according to the government’s preliminary estimate on Thursday. This beat forecasts of 2.2% growth.
Overall in 2023, the economy expanded by 2.5%, its strongest performance since 2021.
BoE’s digital pound consultation: Positive Money response
Simon Youel, head of policy and advocacy at research and campaign group Positive Money, said:
“It’s reassuring to see the Bank of England commit to the necessary safeguards to prevent both the Bank and the government from accessing personal data from any future digital pound, and ensure people will still be able to use physical cash for as long as they choose to.
“This should hopefully instil some much-needed trust in a proposed digital pound, which is vital if we want people to maximise the benefits it offers as a public good.
“The huge response to the consultation highlights the importance of a genuinely inclusive national conversation on the future of our money, which is presently facing a rapid privatisation as cash gets replaced by electronic bank money.”
LaToya Harding
BoE undecided on digital pound amid privacy concerns
Governor of the Bank of England, Andrew Bailey. REUTERS/Hannah McKay/Pool/File Photo (REUTERS / Reuters)
The Bank of England has said it is too early to decide whether to introduce a digital pound currency dubbed Britcoin with 2025 being the earliest for a decision.
The Bank of England and the finance ministry said they would launch further consultations, effectively putting the plan for Britcoin on hold.
“No final decision has been made to pursue a digital pound – also called a central bank digital currency (CBDC).
“Work will continue during the design phase exploring its feasibility and potential design choices,” the BoE said in a statement.
The digital pound is a form of central bank digital currency (CBDC). Unlike existing digital payments, a CBDC is created by the central bank.
In the meantime, Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, has commented on what is likely to happen:
We expect Christine Lagarde to hammer home the message that investors are pricing in rate cuts prematurely. It is very likely that she will say that policymakers did not discuss rate cuts, and she might repeat her language from December that the Bank should not “lower its guard”.
might also argue that lower rate expectations were causing financial conditions to loosen too much. Anything but a firm push-back against bets that rates will start to fall in spring would be seen as dovish.
We’ll also be interested to see if she repeats her comment from Davos that a rate cut in “summer” is “likely”.
Note that last year, when discussing the timing of the last hike, ECB policymakers were very particular in pointing out that summer extends from June to September. So a summer cut could mean late in Q3.
LaToya Harding
ECB keeps interest rates unchanged
The European Central Bank’s governing council has kept interest rates unchanged as widely expected.
The ECB’s rate on its main refinancing operations, which provide the bulk of liquidity to the banking system, is at 4.5%.
Its deposit rate, which is paid on commercial bank deposits, is at 4%. The marginal lending facility, which offers overnight credit to banks, is at 4.75%.
LaToya Harding
UK retail sales fall most in three years
UK retail sales dropped at their fastest pace in three years this month, according to the Confederation of British Industry’s (CBI) monthly report.
Sales volumes compared to a year ago fell to -50 in January from -32 in December, the weakest since December 2021 when Britain was lockdown due to the COVID pandemic.
The balance measures the number of retailers who said sales volumes rose minus those who said sales fell.
Martin Sartorius, the CBI’s principal economist, said:
Looking ahead, demand conditions in the sector will remain challenging as higher interest rates continue to feed through to mortgage payments and household incomes.
It comes as official figures last week showed British retailers suffered the biggest decline in sales for almost three years in December, raising the risk that the economy slipped into recession at the end of 2023.
LaToya Harding
UK car production surpasses 1m for first time since COVID
A total of 1,025,474 cars and commercial vehicles were built, an increase of 17% on the previous year, said the Society of Motor Manufacturers and Traders (SMMT).
Battery electric and plug in hybrid along with hybrid vehicles climbed to 346,451 up by 48% on the year before.
"The easing of pandemic-related challenges, from chip shortages to lockdowns, and increasing electrified model production, combined to drive annual output," it added.
Overall, UK car production rose 16.8% in 2023, its best growth rate since 2010, with the total retail value of all models made coming in at more than £50bn.
The bulk of vehicles made in the UK are for export, with the European Union by far its biggest market, taking 60.3% of exports or 430,411 cars.
LaToya Harding
GSK spin-off Haleon offloads Chapstick brand for £400m
Consumer healthcare firm Haleon is set to sell its Chapstick lip balm brand to US private equity firm Yellow Wood Partners in a deal worth $510m (£401m).
It comes in a bid to simplify” its business model.
FTSE-listed Haleon, which was was spun out from GSK in 2022, is set to receive pre-tax cash proceeds of around $430m, as well as a passive minority interest in Yellow Wood’s portfolio company Suave Brands, valued at around $80m.
Cash proceeds from the sale will be used to pay down debt.
It expected the deal to close in the second quarter of this year, “subject to the satisfaction of customary closing conditions”.
LaToya Harding
Halfords hit by mild weather and Christmas slump
Halfords sign. Credit: Maureen McLean/Alamy Live News (Maureen McLean)
Halfords posted weaker-than-expected trading last month, as mild weather and reduced consumer spending hit trading, compared to October and November.
Like-for-like retail motoring sales plunged 15.3%, while overall retail sales were flat in the 13 weeks to 29 December. Cycling and consumer tyres markets performed “significantly worse than anticipated," the group said. Sales of bikes and accessories slid 1.2% in the quarter.
However, in January sales growth returned to better levels as conditions normalised. The bike and car parts retailer still expects full-year profits to remain on track, assuming markets do not weaken further over its final quarter.
The company is cutting costs of £35m this year, more than previously flagged, and announced a partnership with the specialist tyre distributor Bond International.
Graham Stapleton, the chief executive, said:
Trading in Q4 has begun strongly and we remain focused on everything that we can control, with a number of initiatives underway to achieve further efficiencies within the business, as well as investing in areas where we see real opportunities for future growth.
LaToya Harding
Best UK mortgage deals of the week
Mortgage rates continue to fall, providing some relief to UK households and prospective homebuyers, with deals under 4% now available on the market.
The average rate on a two-year fixed deal this week stood at 5.69% while for a five-year deal, rates came down to 5.26%, according to figures from Uswitch.
The big lenders continued to cut mortgage rates as competition between banks heats up and borrowing costs ease.
The exception to this is Santander, as the lender nudged rates up to 0.20 percentage points on some fixed rate products.
"Lenders' margins at the moment are tight, so this increase will be expected," said Elliott Culley, director of Switch Mortgage Finance.
"Borrowers should not panic as its unlikely this will be a trend and overall across the year, predictions are for rates to fall further".
The European Central Bank is likely to leave interest rates unchanged at 4.5% later today.
ECB president Christine Lagarde said during an interview at the World Economic Forum in Davos last week that rates are likely to be cut in the summer.
Money markets currently have the bank cutting rates four times this year in increments of 25bps, starting in June.
Ruslan Lienkha, chief of markets at YouHodler, said:
"Due to the still-elevated inflation, the goal of 2% looks relatively far. Also, there is some risk of seeing even higher inflation soon, particularly because of two external factors: uncertainty in the Chinese economy and tension in the Red Sea, which significantly affects supply chains. These international factors must be taken into consideration as they will also support the inflation level in the EU.
"Based on the above, we do not expect any rate cut soon. At the same time, the ECB has no space for further rate increases as the economy is struggling with the current borrowing cost. Overall, the situation seems fragile as several countries in the union are technically already in recession."
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LaToya Harding
Wizz Air slumps as losses widen
File photo dated 20/07/11 of passengers getting on a Wizz Air plane at Luton Airport. (Steve Parsons, PA Images)
Wizz Air (WIZZ.L)shares plunged as much as 5% as the low cost carrier reported mounting losses amid cancelled flights due to the geopolitical crisis in Israel.
Wizz Air losses widened in the third quarter as the budget carrier grapples with capacity issues tied to engine inspections that have grounded parts of its fleet and the suspension of flights due to the Middle East conflict.
The low-cost carrier reported a loss of €105.4m (£90.20m) in the three months to December, down from a profit of €33.5m the prior year. Operating losses increased by 16%, from €155.5m to €180.4m.
Passenger ticket revenue increased by 19.2% to €553.9m
“Results for 3Q were somewhat disappointing, due to lower-than-expected ancillary revenue,” said analysts at Peel Hunt.
The airline maintained its fiscal 2024 net income expectations after a positive start to its fourth quarter ending March.
Business confidence worsened in Germany this month, according to a business climate index from the Munich-based Ifo Institute.
Europe’s biggest economy remains weak, with the reading falling to 85.2 from 86.3 in December.
Analysts had expected a slight uptick, while an index of current conditions also dropped.
Clemens Fuest, the institute’s president said:
Companies assessed their current situation as worse — their expectations for the months ahead were also once again more pessimistic. The German economy is stuck in recession.
It comes as Germany avoided a technical recession at the end of last year, defined by two or more consecutive quarters of contraction.
In the final quarter of 2023, the economy shrank by 0.3%, compared with the previous quarter, when output flatlined.
But the economy contracted by 0.3% in 2023 and is on track for its first two-year recession since the early 2000s.
OUCH! #Germany has started 2024 on the wrong foot. Germany’s Business Outlook unexpectedly soured at the start of 2024. Ifo expectations index worsened for a 2nd mth, fell to 83.5 in Jan from 84.2 in Dec, wrong-footing analysts who had expected a slight uptick. An index of… pic.twitter.com/PE98cXP2ob
The UK is the safest country to buy a used car, with vehicles less likely to be clocked or damaged than its European neighbours and the United States.
However, Brits are considering buying some of the oldest used cars in the world, with the average vehicle more than 10 years old, while a fifth of second-hand vehicles have a damage record.
According to analysis by vehicle history checking service carVertical, nearly a fifth of cars that Brits considered buying last year had been damaged, and 3% were clocked.
The UK’s second-hand car market scores the best for transparency. Germany, Switzerland and Denmark also ranked highly for their transparent markets, while Ukraine, Latvia and Lithuania are the most risky countries to buy a second-hand car.
Britain's high score can be attributed to its very low number of imports.
Safest country to buy a used car (CarVertical)
LaToya Harding
Dr Martens hit by US sales slump
Dr Martens boots on display in a shop in Camden, London (DB Pictures)
Dr Martens has revealed a hit to its top line in its latest quarter thanks to a poor performance in the US.
But shares in the shoemaker rose 4% on the day as it kept its guidance unchanged, despite revenue falling 21% to £267.1m over the period.
Sales in the Americas were 31% down it said, while in Europe, the Middle East and Africa it declined 15%. In the Asia-Pacific region sales were 8% lower.
Direct to customer sales fell 3% in the three months to the end of December and wholesale revenues tumbled 46%. Overall group revenues were down 18%.
Kenny Wilson, chief executive, said:
Our third-quarter performance is in line with the updated full-year guidance provided in November. Whilst the consumer environment remains challenging, we are taking action to continue to grow our iconic brand and invest in our business.
LaToya Harding
Asian and US stocks
Asian shares rose to a one-week high overnight, getting a lift after China announced a 0.5% cut in the bank reserve requirement rate from 5 February.
The Hang Seng (^HSI) rose 2% in Hong Kong, climbing for a third straight session to take it 9% above Monday’s 15-month trough, while the Shanghai Composite (000001.SS) was 3% higher by the end of the session.
The Nikkei (^N225) rose just 0.03% on the day in Japan amid uncertainty about when the Bank of Japan will move from negative interest rates.
Wall Street was mixed on Wednesday after strong gains for tech stocks helped offset losses.
The Dow (^DJI) finished lower for the second day in succession, while the S&P 500 (^GSPC) and Nasdaq (^IXIC) once again set new record highs, as well as record closes, although closing off the highs of the day as yields edged into positive territory.
"This divergence between the Dow and Russell 2000, both of which closed lower for the second day in succession, and the Nasdaq 100 and S&P500 might be a cause for concern, given how US market gains appear to be being driven by a small cohort of companies share prices," Michael Hewson of CMC markets said.
The yield on benchmark 10-year Treasury bonds rose to 4.17% from 4.14% late on Tuesday.
LaToya Harding
Coming up...
Good morning, and welcome back to our markets live blog! Thanks for joining us.
Keep following along to find out what is moving markets, and happening across the global economy.
Here's a quick look at what's on the agenda for today (it's a busy one)…
7am: Trading updates: WizzAir, Britvic
9am: Germany Ifo business confidence for January
11am: UK CBI retail sales survey for January
1.15pm: ECB interest rate decision
1.30pm: US Durable goods for December
1:30pm: US Initial Jobless Claims and Continuing Claims
1.30pm: US GDP for Q4
1.45pm: ECB press conference
3pm: US new home sales for December
Watch: How does inflation affect interest rates?
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