Closing summary: US tries to pilot to economic soft landing
The US GDP figures show that the world’s largest economy is still humming. The Federal Reserve must decide if it thinks that inflationary pressures are still present, or if the recent strength will prove to be a peak.
If economic activity has peaked, then the Fed will want to engineer the fabled soft landing: a cooling economy without a recession. That would also help the White House in 2024, an election year.
Richard Flax, chief investment officer at Moneyfarm, a wealth manager, said:
While the GDP growth estimates were revised higher, price indicators were revised lower, with the personal consumption expenditure price indicator rising 2.8% versus a preliminary estimate of 2.9%.
Today’s figures prove that despite the Federal Reserve having raised its benchmark interest rates 11 times since March 2022, the US economy remains resilient, even as inflation has begun to slow. As we move into 2024, the focus will now be on when the Federal Reserve feels comfortable in reducing rates as it tries to pilot the US economy towards a soft landing.
In other business news today:
The competition watchdog is launching an investigation into the baby formula market after finding manufacturers raised prices by 25% in two years and managed to increase profit margins during the cost of living crisis.
The regulator will also investigate the effect on consumers of the rise of loyalty card price cuts amid concerns that they could limit competition and lead to price rises for shoppers not signed up to such marketing schemes.
A group of MPs including the former Conservative party leader Iain Duncan Smith have asked ministers to use national security law to investigate the Barclay family’s proposed deal to give control of the Daily Telegraph to a consortium backed by the United Arab Emirates.
Continued tough action by central banks to tackle stubborn inflation risks tipping Britain and other developed countries into recession next year, the west’s leading economic thinktank has warned.
Saudi Arabia’s sovereign wealth fund has taken a 10% stake in Heathrow for £1bn from the Spanish infrastructure company Ferrovial, which is selling off its holding in Europe’s biggest airport after 17 years.
You can continue to follow the Guardian’s live coverage from around the world:
In the UK, Jeremy Hunt questioned by Treasury committee about autumn statement
In Europe, Turkish foreign minister told Sweden its Nato bid will be ratified ‘within weeks’
In the US, George Santos says he won’t resign from Congress as House expulsion vote looms
In our coverage of the Russia-Ukraine war, the Nato chief warns the west not to underestimate Putin
In our coverage of the Israel-Hamas war, efforts to extend ceasefire continue as deadline nears
Thank you for reading today, and do join Graeme Wearden tomorrow for much more. JJ
It will take more than a few rate hikes to tip up the US economy, if the third-quarter data is any guide.
Lindsay James, an investment strategist at Quilter Investors, said:
Today’s US GDP revision for the third quarter shows an economy that keeps on rolling, despite the continued rate hikes and the risks that were spelled out from the OECD today.
Compared to the second quarter, the US consumer is showing surprising resilience with spending called out by the Bureau of Economic Analysis as boosting the level of growth. Disposable incomes have increased by 0.1% in Q3 – much slower than the 3.5% growth seen in Q2 but nevertheless much better than the contraction pencilled into early Q3 estimates.
James highlighted that the Organisation for Economic Co-operation and Development has predicted a soft landing – avoiding a recession – for the US economy. It raised its forecasts for 2024 from 1% to 1.3%. She said:
The US economy is showing serious resilience in the face of strong economic headwinds. Ultimately this underlines the message from central banks of interest rates being ‘higher for longer’, and it will be some time before the Federal Reserve feels like it is in a position to cut.
The US economy, the world’s largest, grew faster than in any quarter since the end of 2021 in the third quarter.
You can see the story of the US economy since the coronavirus pandemic lockdowns: a huge decline, followed by a huge snap back, and then more than a year of rapid growth thanks to huge government and central bank stimulus.
The early 2022 slowdown is now far behind, but policymakers’ thoughts have turned to how to engineer a “soft landing”: i.e., hoping that the economy will cool without a recession.
It was mainly upward revisions to business investment that pushed US GDP higher than economists had predicted.
There was a big increase in investment in buildings (“structures” in the below table) by businesses, as well as in residential property, according to Liz Ann Sonders, chief investment strategist at Charles Schwab & Co, a broker:
Some major upside revisions for business investment in revised 3Q23 GDP figure … structures and residential up sharply pic.twitter.com/DPpeYKA9JY
— Liz Ann Sonders (@LizAnnSonders) November 29, 2023
The strength of the US economy could worry the Federal Reserve, which is deciding whether to keep rates on hold, according to Charles Hepworth, investment director at GAM Investments. He said:
Revisions higher in business investment and government spending seem to be the bigger needle movers in this GDP release while consumer spending advanced a more modest 3.6%.
Even with this higher growth rate, the consensus seems to still suggest rates have peaked and that may be corroborated in modestly weaker consumer spending. However, the resilience of US growth will continue to worry the Federal Reserve.
US economy grew faster than first thought in third quarter
The US economy grew faster than expected in the third quarter of 2023, according to revised data.
Real gross domestic product (GDP) increased at an annual rate of 5.2% in the third quarter of 2023, according to the second estimate released by the US Bureau of Economic Analysis.
Economists had expected an upward revision from the first estimate of 4.9%, but it was faster than the 5% annualised growth predicted in a poll of economists.
🇺🇸Things look(ed) good
— Gregory Daco (@GregDaco) November 29, 2023
📉Real #GDP Q3 '23
✅+5.2% q/q (+0.3ppt): best since Q4 21
✅+3.0% y/y
🛒Cons +3.6%
🏘️Resid+6.2%
👩💻Biz invest +1.3%
🏢Gov +5.5%
💥Inventory +1.4pt
📦Trade 0pt
GDP🆚2017-19 trend -1.3%
📉PCE #inflation
⤵️Headline 3.4% y/y (-0.5pt)
⤵️Core 3.9% (-0.7pt) pic.twitter.com/3sSVk7AJuQ
Navel-gazing interlude: the Guardian has struck a deal with Sony Pictures Entertainment, the parent of the producers of content including The Crown, Doctor Who and Sex Education, to develop the media group’s content for adaptation to film and TV.
The deal with Guardian Media Group, the parent company of the Guardian and Observer newspapers and international digital businesses, will give SPE exclusive first-look rights to Guardian’s global journalism.
The collaboration agreement spans SPE’s production companies – which include Left Bank Pictures, which made The Crown; Bad Wolf, which produced His Dark Materials; and Eleven, the company behind Sex Education – as well as the US giant’s film division, which includes Columbia, TriStar and 3000.
The Guardian picked up the best documentary short film Academy Award in 2021 for Colette, which told the story of 90-year-old Colette Marin-Catherine, one of the last surviving members of the French resistance.
This followed Black Sheep, which made the Oscar nominations list in the same category in 2019.
We can see it now: “Business Live: The Movie” (starring: Graeme Wearden; featuring: an assortment from the business desk).
Tory MPs raise national security concerns over Telegraph UAE takeover
A group of MPs including the former Conservative party leader Iain Duncan Smith have asked the government to use national security law to investigate the Barclay family’s proposed deal to hand control of the Telegraph to a consortium backed by the United Arab Emirates.
The group of 18 MPs, which also includes Alicia Kearns, chair of the Foreign Affairs Committee, have written to the deputy prime minister, Oliver Dowden, arguing that the proposed deal poses a “very real potential national security threat”.
Under the planned deal, RedBird IMI – a joint venture between the US company RedBird Capital and International Media Investments (IMI) of Abu Dhabi – has agreed to repay the Barclay family’s debts to Lloyds, which seized control of the titles in June.
IMI is the investment vehicle for Sheikh Mansour bin Zayed Al Nahyan, the vice-president of the United Arab Emirates, which also provides most of the funding for Redbird IMI.
The MPs call comes as Lloyds, the Barclay family and RedBird IMI, the Abu Dhabi-backed vehicle, are set to deliver a letter to Lucy Frazer, the culture secretary, giving her 48 hours notice that the £1.16bn loan is ready to be repaid.
Frazer is due to make a decision by Friday on whether to launch a formal investigation involving Ofcom and the competition regulator into the proposed deal on public interest grounds.
Here is the letter from MPs in full:
A number of colleagues and I have written to the Deputy PM about the Telegraph and Spectator potentially passing into majority ownership by the UAE government. pic.twitter.com/6ehJL2Qb74
— Neil O'Brien MP (@NeilDotObrien) November 29, 2023
Updated
The UK’s rail regulator will investigate Network Rail over poor train punctuality and reliability in between Wales and Cornwall and the capital, it said on Wednesday.
The investigation will look at whether the government-owned Network Rail, which manages Great Britain’s tracks, is meeting its legal obligations in Wales and the west of England, the Office and Rail and Road said.
The region under investigation extends from London Paddington to Penzance via Reading, Swindon, Bristol, Exeter and Plymouth in the Western route and transports commuters to key locations such as Cardiff and Swansea in the Wales route. The passenger services are mostly operated by Great Western Railway, Transport for Wales, MTR Crossrail and CrossCountry.
It said it would look at “the effectiveness of the region’s performance improvement plan, whether assets are being managed appropriately and the impact of changes to the rail network on train performance”.
Feras Alshaker, the ORR’s director of performance and planning, said:
While Network Rail has begun making good progress in stabilising performance elsewhere on the network, performance in the Wales & Western region has continued to deteriorate, meaning poor reliability and punctuality for passengers and freight.
Our investigation will take a detailed look at the root causes of the region’s performance issues and will consider wider contributing factors. As part of our work we will convene a roundtable with key players in the region to support Network Rail in taking pragmatic and effective action to improve performance for all the region’s rail users.
British jet engine maker Rolls-Royce wants to raise its profits by charging customers more, but the head of Dubai’s Emirates airline has indicated it may have a fight on its hands.
Emirates Airline president Tim Clark said he told Rolls-Royce of the “need to go back to basics” and “design engines that meet what the client base wants”, in an interview with Reuters.
Rolls-Royce boss Tufan Erginbilgiç on Tuesday laid out plans to quadruple annual operating profits by cutting costs and increasing prices for customers, among them airlines who buy engines and contracts to maintain them from Rolls-Royce.
The engine maker should not be “over-greedy” when it came to charging clients more, Clark said. He has previously criticised Rolls-Royce over problems with parts needing repair sooner than expected
Clark said:
If you have an engine … not performing as it should do, your costs are going to rise. But your ability to extract value from the client is going to fall simply because the client won’t accept non-performance.
It’s a very clear kindergarten understanding of cause and effect. Get your product right, design it to what the client wants, give it that high level of reliability. And yes, paradoxically, you can extract more value for your money for your buck in terms of your investment.
I would say get your engines right … I promise you: you come up with a good engine, and we will talk to you seriously about a sort of maintenance cost, which gives you the kind of returns that you seek without being over-greedy.
At lunchtime in the UK and western Europe markets are fairly flat all around.
The UK’s benchmark FTSE 100 has barely moved, although grocery delivery company Ocado is the top gainer, up 4.8%. (An Ocado director buying shares may have helped.) Trainer retailer JD Sports was the second biggest, up 4.5%.
The FTSE was held back by British banks and financials, however. Standard Chartered and HSBC lost more than 2% apiece.
In Germany the Dax benchmark is up 0.9%, with engineering manufacturer Siemens and semiconductor manufacturer Infineon among the top gainers. France’s Cac 40 has gained 0.4%.
Cop28 president denies plans to use climate talks to discuss oil deals
The president of Cop28 has denied seeing documents suggesting the United Arab Emirates is seeking to discuss oil and gas deals at the UN climate conference.
Sultan Al Jaber is Cop28 president, tasked with overseeing the climate conference, while also being the chief executive of the UAE’s national oil company Adnoc. His dual role has been labelled as “ridiculous” and a big conflict of interest by environmental scientists.
Leaked documents, obtained by the Centre for Climate Reporting (CCR) and seen by the Guardian, showed “talking points” for meetings between the Cop28 president and governments that included offers of working with the UAE’s fossil fuel producer, Adnoc, on new oil and gas extraction.
Jaber told a news conference on Wednesday that he had not seen any of the documents, according to Reuters. They were his first public remarks after the leak, which was first reported by the BBC. He reportedly said:
These allegations are false, not true, incorrect, are not accurate. And it’s an attempt to undermine the work of the COP28 presidency,
I promise you, never ever did I see these talking points that they refer to or that I ever even used such talking points in my discussions.
London Metal Exchange wins victory over cancelled trades
The London Metal Exchange (LME) has won a legal victory in a £450m lawsuit brought by traders over the cancellation of nickel transactions after prices surged at the start of the Ukraine invasion.
Elliott Management, a US hedge fund, and Jane Street Capital, a market maker, sued the LME after it cancelled trades originally made on 8 March. The exchange said the cancellation was meant to avoid disorderly trading, but the traders argued it undermined the integrity of one of the world’s most important commodity trading venues.
London’s high court dismissed the legal challenge in a written ruling published on Wednesday. An Elliott spokesperson said the investor would appeal against the ruling.
The LME’s owner, Hong Kong Exchanges and Clearing, said the LME welcomed the decision.
Elliott said it was “naturally disappointed by the court’s decision and concerned about the precedents that it establishes for market participants in the UK”.
Trades on many exchanges are generally recorded, before the various transactions are “settled” – when the actual money or assets change hands – in batches to be more efficient. That is particularly useful when algorithms can make thousands of orders in a short period of time.
However, during the market turmoil the LME reversed some trades that had not yet been settled, outraging those companies that had thought they had made huge profits.
An Elliott spokesperson said:
This judgment raises fundamental questions for UK market participants, who trade not only on the LME but more broadly on other exchanges, about an absence of trade certainty prior to settlement, and about a lack of effective checks and balances on UK exchanges cancelling or varying trades in ways which may protect just one cohort of traders, or even the exchanges themselves.
We therefore intend to appeal the judgment and will continue to seek redress for the LME’s unprecedented cancellation of trades in March 2022.
The chief executive of HSBC, Noel Quinn, has reportedly warned against bankers using the removal of the UK’s cap on bankers’ bonuses as an opportunity to take more risks.
The Conservative government is hoping to encourage higher growth, and has argued that unleashing the banking sector would help to do that. Kwasi Kwarteng, who was briefly chancellor before provoking market turmoil, claimed removing the cap would spark fresh investment from global banks “here in London, not Paris, not Frankfurt, not New York”.
However, speaking at the Financial Times Global Banking Summit on Wednesday, Quinn said: “I’m not a fan of just unleashing inappropriate amounts of risk-taking.”
UK households increased their borrowing at the fastest rate in five years in October, according to Bank of England data, in a sign of the impact of the rising cost of living.
The annual growth rate for all consumer credit hit 8.1% in October, the highest since October 2018, the Bank said.
Paul Dales, chief UK economist at Capital Economics, a consultancy, said: “Some of this might be because the cost of living crisis has forced some households to borrow to fund necessary spending.”
However, he added that the fact that borrowing was continue to rise “suggests that higher interest rates are yet to significantly crimp unsecured borrowing”.
There were more mortgage approvals for house purchases in October than in any month since July, but they remained below levels hit before the sharp rise in interest rates. The Bank said net mortgage approvals for house purchases rose from 43,700 in September to 47,400 in October.
Dales said:
Looking ahead, as the mortgage rate for existing borrowers has risen by only a third of the rate for new borrowers, a lot of the effects of higher interest rates have yet to be felt.
Parents pay £500 extra for premium baby formula in first year - regulator
Premium baby food costs new parents more than £500 extra in the first year of life, the UK’s Competition and Markets Authority (CMA) has said in its review of allegations of “greedflation” in food.
The regulator is launching an investigation into the infant formula market after saying it was “concerned that suppliers may not have the right incentives to offer infant formula at competitive prices”.
The CMA said the additional cost of a ‘premium’ brand over the own-label alternative, or the cheapest-available brand, is over £500. It said that manufacturers had been able to sustain high profit margins, and raised prices faster than input costs.
The report suggested that there is no real reason to pay that premium: “all infant formula products providing all the nutrients a healthy baby needs, until complementary feeding is introduced.”
The CMA named Danone as the dominant baby formula maker in the report published on Wednesday:
The market for infant formula is highly concentrated, with very limited own-label presence. There is one main manufacturer, Danone, which produces the Aptamil and Cow & Gate brands. Other branded manufacturers have lower shares.
The other baby food makers are Nestle (SMA and Little Steps), HiPP, and Kendamil.
Danone was approached for comment.
Branded baked beans, mayo and infant formula profit hikes contributed to inflation - regulator
Branded food makers contributed to rising inflation by hiking prices on their products more than costs – the practice known as “greedflation” – the UK competition regulator has found. But it won’t be taking action against most manufacturers for now because it found that there was still a competitive market.
The CMA said that the most successful branded products – it named Heinz Beanz, Hellmann’s mayonnaise and Felix cat food – had the ability to raise prices in a way that unbranded products cannot. Those shoppers who stick to well known brands have been hit as their makers took higher profits, the regulator said.
Infant formula, baked beans, pet food and mayonnaise have the highest margins, while poultry and milk have the lowest, the CMA said.
While the choices made by some brands to increase unit profitability may have contributed to inflation, we do not, however, consider that this indicates weak or ineffective competition in manufacturing across the relevant product category (ie including both branded and own-label suppliers).
It used the example of an unnamed baked beans brand (although it only named Heinz elsewhere in the report) to point out just how much more expensive branded goods can be:
In November 2023, one branded tin of baked beans was nearly three times more expensive per 100g than the standard level own-label equivalent, and five times more expensive when compared to the entry-level own-label version.
The CMA found evidence that shoppers are “trading down” in most categories of food where own-brand options are available. Branded baked beans makers have hiked prices by more than 50% over the last two years, but their share of the market has fallen by over 10 percentage points during that time.
However, the regulator said it still has concerns about the infant formula market, which it will examine further. Aldi is the only supermarket that offers own-brand infant formula, so there is much more limited competition.
Halfords says UK market is 'challenging' as bike sales struggle
The share price of Halfords Group has fallen by 18% after the motoring and cycling retailer warned it was seeing signs of a UK consumer slowdown with a “challenging” market for new bikes.
The London-listed company said it had seen volatile trading patterns and “some market softening in our discretionary big-ticket categories, which has been reflected in slower LFL [like-for-like] sales growth.”
The market for bikes in particular was “challenging and below expectations due to well documented consumer environment”, Halfords said.
Investors are on the look-out for any signs of weakening consumer appetite, as rising interest rates add to difficulties for households hard-pressed by inflation.
Halfords still managed to increase its revenues by 14% to £874m in the half year to 29 September compared with the same period last year, but that was mostly thanks to strong growth in its car services business. Retail sales rose by only 3.2%.
Graham Stapleton, Halfords’s chief executive, said:
Despite the challenging and volatile trading environment and slower than expected recovery in some of our markets, we have made a good start to the year, with substantial sales and profit growth, and increased market share across the business. At the same time, we supported our customers through the ongoing cost of living crisis by delivering great value – when they need it most.
In the face of continuing economic uncertainty, we remain fully focused on optimising every element of the business, and I’m particularly pleased with the very strong performance of Autocentres, where we are delivering significantly improved returns. In light of this, we are accelerating capital investment in the garage services operating model and customer experience in 10 towns in the balance of this financial year.
The FTSE 100 index in London has dipped by 0.3% in the opening trades.
Here are the opening snaps from across Europe, via Reuters:
EUROPE’S STOXX 600 FLAT
GERMANY’S DAX UP 0.1%
BRITAIN’S FTSE 100 DOWN 0.3%
FRANCE’S CAC 40 DOWN 0.1%
SPAIN’S IBEX UP 0.5%
EURO STOXX INDEX AND EURO ZONE BLUE CHIPS FLAT
Food brands raised profits with price rises says UK regulator
Good morning, and welcome to our live coverage of business, economics and financial markets.
Food brands in the UK have pushed up their prices by more than costs increased, the UK’s competition regulator has said after examining the sector in response to concerns about “greedflation” adding to the cost of living crisis.
The Competition and Markets Authority (CMA) said that “three-quarters of brands that provided comparable data have increased their unit profitability during the recent period of high food price inflation”, in a report published on Wednesday.
The regulator added that “in most cases, shoppers can find cheaper alternatives”, suggesting it does not have concerns over unfair competition.
However, the regulator said that this was not the case in the baby formula market. It will look at whether “ineffective competition in the baby formula market could be leading to parents paying higher prices”.
It also said it will look at the impact of loyalty scheme pricing by supermarkets.
Sarah Cardell, chief executive of the CMA, said:
Food price inflation has put huge strain on household budgets, so it is vital competition issues aren’t adding to the problem. While in most cases the leading brands have raised prices more than their own cost increases, own label products are generally providing cheaper alternatives.
The picture is different when it comes to baby formula, with little evidence that people are switching to cheaper products and limited own label alternatives. We’re concerned that parents may not always have the right information to make informed choices and that suppliers may not have strong incentives to offer infant formula at competitive prices.
Saudi Arabia buys 10% of London Heathrow airport
Saudi Arabia’s powerful Public Investment Fund (PIF) has paid £1bn for a stake in London’s Heathrow airport, as infrastructure group Ferrovial sells a quarter of the business.
Ferrovial late on Tuesday said it had agreed the sale of a quarter of London Heathrow, which it has owned for 17 years, for £2.4bn.
The Saudi PIF will take 10%, while European private equity group Ardian will buy 15%.
The agenda
9:30am GMT: Bank of England consumer credit (October; previous: £1.39bn; consensus: £1.5bn)
9:30am GMT: Bank of England mortgage approvals (October; prev.: 43,328; cons.: 45,000)
10am GMT: Eurozone economic sentiment (November; prev.: 93.3; cons.: 93.7)
10am GMT: Eurozone consumer confidence (November; prev.: -16.9; cons.: -16.9)
10:30am GMT: Competition and Markets Authority chair at House of Lords committee
1pm GMT: Germany harmonised inflation preliminary year-on-year (November; prev.: 3%; cons.: 2.6%)
1:30pm GMT: US GDP second estimate (Q3; prev.: 4.9% annualised; cons.: 5%)
