Closing summary: Pound gains as Andrew Bailey strikes more cautious tone on rate cuts
The pound has gained ground in recent days as a gap appears to have opened up between the Bank of England and the Federal Reserve, strategists say.
While Fed chair Jerome Powell said “the time has come” for interest rate cuts, Bank of England governor Andrew Bailey appeared to suggest that the pace in the UK will be slower.
That has helped to lift sterling to its highest level in two years against the US dollar on Tuesday, at $1.3246 at its peak. Interest rate cuts tend to make a currency relatively less attractive for investors looking for higher-yielding assets.
Imogen Bachra, head of economics and markets strategy at NatWest Markets, a bank, said that
He adopted the same fairly cautious tone that we heard in the press conference a few weeks ago. The conclusion is that data is softening enough that the MPC appears comfortable to take its foot off the gas, but not especially quickly and probably not as far or as fast as the market is pricing. The speech itself was quite lengthy, and I think the key paragraph was buried somewhere in the middle (emphasis ours):
“In the UK case, the evidence suggests this may have worked insofar as we are seeing a lower level of inflation persistence than we expected a year ago. But, we need to be cautious because the job is not completed – we are not yet back to target on a sustained basis. Policy setting will need to remain restrictive for sufficiently long until the risks to inflation remaining sustainably around the 2% target in the medium term have dissipated further. The course will therefore be a steady one.”
Derek Halpenny, head of research at MUFG, a Japanese investment bank, said:
There was certainly a more cautious tone to the speech from Bailey in contrast to Fed Chair Powell’s speech. But that is of course understandable. There was a far larger energy price shock in Europe than in the US and the problem in Europe was more supply-, less demand-related.
In other business news today:
The Meta boss, Mark Zuckerberg, has said he regrets bowing to what he claims was pressure from the US government to censor posts about Covid on Facebook and Instagram during the pandemic.
The veteran media executive Edgar Bronfman Jr has abandoned a $6bn (£4.5bn) bid for Paramount Global, clearing the path for the conglomerate’s multibillion-dollar merger with the production group Skydance Media.
More than 40 green groups have called on Ed Miliband to scrap plans to pay billions in subsidies to the Drax power plant in North Yorkshire for it to keep burning wood pellets imported from overseas forests.
Arts and crafts chain Hobbycraft has been bought by retail investor Modella Capital from private equity investor Bridgepoint an undisclosed sum. Modella said it will invest in Hobbycraft’s stores.
European airlines’ share prices rose after Ryanair boss Michael O’Leary said the worst-case fare falls (from investors’ perspective rather than consumers) had been avoided.
Retail sales fell for a third month in a row, with businesses scaling back hiring and investment plans, according to data just published by the Confederation of British Industry (CBI).
You can continue to follow our live coverage from around the world:
Unite union criticises Starmer’s ‘bleak vision of Britain’ as Sunak says warning of ‘painful’ budget lays ground for tax rises
Ukraine claims to have captured 100 settlements in Kursk and almost 600 Russian service personnel
In our coverage of the Middle East crisis, the Israeli military says Gaza hostage rescued in complex operation
Trump campaign attacks Harris over lack of interviews as vice-president rolls out housing plan
Thank you for following the business live blog today. Please do join me tomorrow for more of the same. JJ
Soft drinks maker Britvic is on its way to being slurped up by Danish giant Carlsberg after shareholders voted overwhelmingly for the deal.
Britvic, whose brands include J20, Robinsons and R White’s lemonade, accepted a £3.3bn offer in July after rejecting previous takeover offers from Carlsberg on the grounds that they undervalued the company.
On Tuesday the company said that all the motions it had put to shareholders had passed. The vote to sell to Carlsberg was near unanimous:
Number of votes: For: 165,809,035 (99.69%) Against: 515,673 (0.31%)
US stock markets have indeed dropped back on Tuesday morning.
Here are the opening snaps from Wall Street:
S&P 500 DOWN 12.08 POINTS, OR 0.22%, AT 5,604.76
NASDAQ DOWN 68.61 POINTS, OR 0.39%, AT 17,657.16
DOW JONES DOWN 21.24 POINTS, OR 0.05%, AT 41,219.28
US stock markets are due to drop when markets open in a few minutes’ time.
Futures trades indicate that the S&P 500 benchmark will fall by 0.4%, the tech-focused Nasdaq will fall 0.5%, and the Dow Jones industrial average will drop by 0.3%.
Perhaps the key thing for US equity investors this week is what happens with Nvidia. The hype around artificial intelligence has prompted one of the most astonishing sectoral booms in history. Chip designer Nvidia is the company that has gained the most – and potentially has the most to lose – if demand deflates at all.
Nvidia’s performance has been one of the key drivers of the entire S&P 500 since the release of ChatGPT, the app that first brought large language models to broader public attention.
Rather insane....
— Tracy Shuchart (𝒞𝒽𝒾 ) (@chigrl) August 27, 2024
An Index Transformed, by One App$NVDA Nvidia's weight in the S&P 500 has risen fivefold since ChatGPT launch pic.twitter.com/l0dtc9VFYn
Updated
House prices in the 20 major US metro markets rose by 6.5% year to June, according to the S&P Case-Shiller index.
That was a deceleration compared with last month, but still faster growth than economists polled by Reuters had expected.
Keir Starmer may be warning of pain to come, but the UK economy in 2024 has not been awful – at least if GDP figures are to be believed.
They may well be masking deeper, longer-term problems that could slow productivity growth, but in the short term some traders are clearly convinced of the relative attractions of sterling.
Enrique Díaz-Alvarez, chief financial risk officer at Ebury, a foreign exchange company, said:
The PMI indices of business activity for August provided further proof of the healthy state of the UK economy, with both the manufacturing and service sectors posting numbers consistent with solid and even modestly accelerating growth.
The Bank of England signalled continued cuts, but it kept its cautious tone. We think this opens up a bit of a sweet spot for sterling, as healthy growth is combined with a cautious central bank and what will likely be the highest rates of any G10 economy for at least the next few months.
Pound hits new two-year high as US awaits rate cuts
The pound has hit its strongest in more than two years against the US dollar as traders remain fixated on the pace of rate cuts from the Federal Reserve.
Sterling rose by 0.2% on Tuesday, but that was enough to push it to a new high against the US dollar. One pound bought $1.3246 at its peak, the highest since March 2022.
The pound fell to near parity with the dollar in September 2022, when Liz Truss and Kwasi Kwarteng unveiled a “mini-budget” that sparked panic in financial markets. Since then, it has recovered.
It has risen sharply over the summer in part because of stronger economic growth in the UK, but perhaps more notably because of the Federal Reserve’s signals that it will cut interest rates for the first time since the start of the coronavirus pandemic, after a cycle of tightening that pushed its federal funds rate to a range of between 5.25% and 5.5%.
Currencies tend to appreciate when the home central bank is expected to tighten monetary policy (because assets priced in that currency will yield higher returns for investors). When a central bank is loosening monetary policy – as the Fed is now – the opposite tends to happen.
Fed chair Jerome Powell gave little doubt that the central bank will cut interest rates on 18 September. In a speech last week he said: “The time has come for policy to adjust.”
Keir Starmer is readying the county for a “painful” budget – or at least is managing expectations and trying to pin the blame on the previous Conservative government.
In a speech this morning Starmer warned that the government’s forthcoming Budget will be “painful” as he asked the country to “accept short-term pain for long-term good”.
Starmer said those with the “broadest shoulders” will carry the heaviest burden. He stressed that taxes on “working people” – namely national insurance, VAT and income tax – will not be increased in the 30 October budget, but stressed that “things will get worse before they get better”.
You can follow all the reaction to the speech with Andrew Sparrow on the politics live blog:
Hobbycraft sold to retail investor Modella
Arts and crafts chain Hobbycraft has been bought by retail investor Modella Capital for an undisclosed sum. Modella said it will invest in Hobbycraft’s stores.
Private equity investor Bridgepoint put the chain up for sale in February. At the time the Sunday Times reported that Bridgepoint was considering taking a steep loss on the sale.
Bridgepoint bought Hobbycraft for £100m in 2010, but was reportedly considering a sale for between £60m and £70m. Bridgepoint had overseen investments that doubled the retailer’s store estate and also included a new warehouse in Burton, Staffordshire, according to Retail Gazette.
Modella was an investor in the UK licensing partner of fashion retailer Ted Baker, which collapsed into administration earlier this year.
Modella Capital managing director Joseph Price said:
Hobbycraft is a business with fantastic potential, boasting a highly experienced management team, truly passionate store colleagues and real authority in a sector on the high street that continues to grow and is set to do so in the future.
We look forward to accelerating the team’s growth strategy through investment in the physical footprint of the group, displaying a real commitment to bricks and mortar retail, and by enhancing the returns generated from their existing sales channels, including their growing online business.
Dominic Jordan, Hobbycraft’s chief executive, said:
We are delighted that Modella Capital is the new owner of this great business. Their deep understanding of the retail sector, shared vision and cultural values, combined with significant reserves of growth capital, make them an ideal partner.
I would also like to thank Bridgepoint for their support and collaboration over the past 14 years. Hobbycraft has evolved into a leading name in the arts and crafts sector and I am confident that, together with Modella Capital, we have a very bright future ahead of us.
Hobbycraft’s pre-tax losses rose to £16.2m for the 12 months ended 19 February, widening from £7.4m a year earlier, even as revenues rose from £203m to £211m, according to ShareCast.
Martin Sartorius, principal economist at the CBI, said:
Retail sales volumes continued to disappoint in the year to August, with contractions also being seen in the wholesale and motor trade sectors. Retailers reported increased caution regarding their investment and hiring plans, which seemed to reflect concerns about persistently weak demand conditions. Although households seem to still be feeling the pinch from the cost-of-living crisis, firms should gradually begin to see some tailwinds from consumers’ rising real incomes.
The sector will want to see measures in the budget this autumn to give certainty to firms and incentivise investment. Reforming business rates, introducing a business tax roadmap, and changing the apprenticeship levy would help businesses to deliver on the government’s ambitions to supercharge the economy.
UK retail sales declined for third month in a row says CBI data
Retail sales fell for a third month in a row, with businesses scaling back hiring and investment plans, according to data just published by the Confederation of British Industry (CBI).
The balance of retailers who said that sales declined in the year to August was 27%, the CBI said. That was better than the 43% who said sales declined in July, but hardly a vote of confidence.
Retailers are less optimistic that things will pick up. A balance of 13% of retailers said they expected the business situation to deteriorate in the next three months, compared with a balance of 2% who had said that things would improve back in May.
There is intense scrutiny on social media bosses at the moment. Telegram founder Pavel Durov is one such example: he has been arrested by France as part of investigation on allegedly illicit transactions, child sexual abuse, fraud and the refusal to communicate information to authorities.
Durov left his native Russia and the government took control of the social network, VKontakte, which Durov had made into Russia’s dominant social network. Durov then founded Telegram, which is particularly widely used in Russia and the Middle East – even though the platform is not as secure as some rivals.
You can read about the reasons for his arrest here:
Durov has won support from some notable people who say his arrest is an attack on freedom of speech. Those backers include Elon Musk, the billionaire owner of X, which rivals Telegram in some respects.
Another – perhaps more surprising – supporter: the Kremlin.
In comments reported by Reuters, a spokesperson for the Russian government said that the arrest will be seen as (checks notes) an attempt to restrict freedom of communication unless the accusations are backed up by evidence.
The Kremlin said that it hopes that Durov will be able to organise a legal defence against very serious allegations.
Some of the shine has come off European stock markets. The FTSE 100 is now only up by 0.2%.
London’s benchmark index has not been helped by weakness in the property industry. Developer Berkeley Group is the biggest faller, down 2.7%, while Persimmon, Barratt Developments, Vistry Group and Taylor Wimpey are all down by between 1.9% and 2.3%.
Mark Zuckerberg says White House put pressure on Facebook over Covid-19 content
Meta boss Mark Zuckerberg has said the US government under Joe Biden put pressure on the Facebook social network to “censor certain Covid-19 content” during the coronavirus pandemic.
Zuckerberg said that “senior officials” from the White House “repeatedly pressured our teams for months to censor certain Covid-19 content, including humour and satire”, in a letter to the US House of Representatives’ judiciary committee. He wrote:
I believe the government pressure was wrong, and I regret that we were not more outspoken about it. I also think we made some choices that, with the benefit of hindsight and new information, we wouldn’t make today.
Zuckerberg also said that Facebook “temporarily demoted” a story about the contents of a laptop owned by Hunter Biden, the president’s son, after a warning from the US Federal Bureau of Investigation (FBI) that Russia was preparing a disinformation campaign against the Bidens.
Zuckerberg wrote that it has since become clear that the story was not disinformation, and “in retrospect, we shouldn’t have demoted the story”.
The admissions will probably fuel criticisms of tech companies and the Biden administration by Republicans. They control the judiciary committee, and posted Zuckerberg’s letter on – of all places – the committee’s Facebook page. “Big win for free speech”, the page’s administrators wrote in the post containing the letter.
Zuckerberg also said he would not donate money towards US election infrastructure, after facing criticism from Republicans that similar donations in 2020 benefited the Democratic party.
Updated
Airline share prices rise after Ryanair says fare declines will be limited
European airlines have risen across the board after Ryanair boss Michael O’Leary said the worst-case fare falls (from investors’ perspective rather than consumers) had been avoided.
EasyJet gained by 4.3%, Wizz Air gained 7% and British Airways owner International Airlines Group rose by 1.4%. Frankfurt-listed Deutsche Lufthansa and Paris-listed Air France KLM rose by 2.6% and 2% respectively.
Ryanair boss Michael O’Leary has given typically short shrift to plane manufacturer Boeing, saying that relations with the new management are “difficult”.
Boeing is struggling to increase the production rate for its aircraft after another year of crisis. In January a door plug panel blew out from a flight, renewing regulatory scrutiny of the company after years of trying to repair the damage from two fatal crashes in 2018 and 2019 that were caused by design flaws.
Ryanair, the biggest airline in Europe, is one of Boeing’s biggest customers. O’Leary, a tough negotiator, is rarely one to pull his punches.
O’Leary told Reuters in an interview on Tuesday that things with Boeing are “difficult”. The Irish airline was due to receive seven and 10 new aircraft from Boeing in July and August respectively, but will only received ten in total, he said.
Ryanair is working with Boeing’s new management, after Stephanie Pope took over its commercial aviation arm, but “they continue to disappoint us”, O’Leary said.
Ryanair shares rise as O'Leary says fare decreases will be limited to 5%
Ryanair shares have risen after boss Michael O’Leary said that fares will fall by less than 10%, reassuring investors who had feared steeper reductions in prices.
The Irish airline alarmed the aviation industry last month when it warned that fares could drop by more than 10% as it missed analyst estimates for sales.
O’Leary on Tuesday said that he expected a fall of about 5% compared with last year, in an interview with Reuters. That prompted a 4.6% rally in the Dublin-listed airline’s share price, although it remains down by 17% over the course of this year.
The risk of what O’Leary at the time called an “ugly scenario” of double-digit falls in average fares “looks like it has disappeared,” O’Leary said. That suggests that passengers are happier to pay more for flights.
O’Leary said:
While fares were kind of softening during April, May and June, that has leveled out.
Germany is struggling so much because it is facing cyclical headwinds at the same time as deeper structural changes, said Carsten Brzeski, global head of macro at ING, a Dutch investment bank.
He said:
The German economy had started the year with some optimism. First-quarter GDP growth was a positive surprise and confidence indicators improved, giving rise to hopes that the pessimism of the last few years was behind us, and that discussions about whether or not Germany was the “sick man of Europe” could be put to one side. The truth, however, is that GDP growth in the first quarter was driven by the mild winter weather and a downward revision of fourth quarter GDP. Therefore, it was not what we would call a sustainable and healthy growth story.
With disappointing second-quarter growth and almost all confidence sentiment indicators pointing south, the German economy is currently back where it was a year ago: stuck in stagnation as the growth laggard of the entire eurozone.
Still, we are not ready, yet, to give up on at least some optimism for the second half of the year. The highest increase in real wages in more than a decade could still open German consumers’ wallets and there only needs to be a small improvement in industrial orders to bring the long overdue turning of the inventory cycle. Admittedly, hopes of a consumer-driven recovery in the second half of the year got another hit this morning with consumer confidence dropping.
The numbers from Germany’s economy are not very promising, but there may well be some reasons to be hopeful, said Melanie Debono, senior Europe economist at Pantheon Macroeconomics, a consultancy.
There have been worrying signs from business surveys, today’s GDP figures show very weak business investment, and today’s GfK consumer sentiment numbers are not very promising for spending. Yet Debono said it is not all bad.
She said:
The recession in industry [reasserted] itself after signs it may have been fading in previous months. Investment in machinery and equipment will likely remain in the doldrums.
But inventories, we think, are on the cusp of a sustained rebound. We still believe, meanwhile, that consumers’ spending, will rebound on the back of the improvement in real income growth. Today’s other release, showing consumer confidence fell back at the end of the third quarter, bodes ill but these data have only a weak relationship with retail sales and consumers’ spending figures more widely.
On the Paramount bid battle, here is what the various parties had to say.
Edgar Bronfman officially dropped out of the running on Monday evening. Reuters reported that a source said that some of the equity partners had dropped out.
Bronfman said in a statement:
We continue to believe that Paramount Global is an extraordinary company, with an unrivaled collection of marquee brands, assets and people. While there may have been differences, we believe that everyone involved in the sale process is united in the belief that Paramount’s best days are ahead.
Paramount said the deal with Skydance will close in the first half of 2025.
Charles Phillips Jr, chair of Paramount’s special committee, said:
Having thoroughly explored actionable opportunities for Paramount over nearly eight months, our special committee continues to believe that the transaction we have agreed with Skydance delivers immediate value and the potential for continued participation in value creation in a rapidly evolving industry landscape.
The biggest gainer on the FTSE 100 this morning is Bunzl, which distributes packaging, cleaning products and personal protective equipment.
It may not be the most glamorous name on London’s benchmark index, but it has wowed investors this morning with a big upgrade to its profit forecast thanks to higher profitability.
It also said it will buy back shares worth £450m. Frank van Zanten, chief executive of Bunzl, said:
I am very pleased with the performance of the group during the first half of 2024, with strong growth in adjusted operating profit for the period.
London’s FTSE 100 is the pick of Europe’s stock markets this morning, as investors catch up from a bank holiday on Monday.
Most of the other main indices are fairly flat in the opening trades. Here are the opening snaps, via Reuters.
EUROPE’S STOXX 600 UP 0.2%
BRITAIN’S FTSE 100 UP 0.4%
FRANCE’S CAC 40 UP 0.1%; SPAIN’S IBEX FLAT
EURO STOXX INDEX FLAT; EURO ZONE BLUE CHIPS FLAT
German GDP down 0.1%; Bronfman drops Paramount bid
Good morning, and welcome to our live coverage of business, economics and financial markets.
Germany’s economic outlook has worsened as GDP was confirmed to have fallen in the second quarter and consumer sentiment slumped, according to figures published on Tuesday.
GDP fell by 0.1% in the second quarter, confirming the previous estimate, said Destatis, the federal statistics office. GDP in the first quarter of 2024 was up 0.2% on the previous quarter, unrevised from the last reading.
Meanwhile job concerns weighed on German consumer sentiment. GfK’s closely followed index fell to -22 points for September. That was down from a slightly revised -18.6 the month prior and below a forecast by economists polled by Reuters for -18.2.
Ruth Brand, Destatis’s president, said:
After the slight increase in the previous quarter, the German economy slowed down again in spring.
Germany’s economy has narrowly avoided a technical recession for a year and a half, alternating between a contracting economy followed by expansion. Two consecutive quarters of contraction is one commonly used definition of recession.
Edgar Bronfman drops bid for Paramount
Media industry veteran Edgar Bronfman has dropped his bid to take over Paramount Global, paving the way for a $28bn (£21bn) deal with Skydance to proceed.
Bronfman, a former Warner Music chief executive, had gathered a consortium of investors to try to gazump Skydance after it last month agreed a merger (described, of course, as a blockbuster) with Paramount. The deal will, if it goes through, sever links with the Redstone family, whose media empire has included Paramount since 1994.
That deal had a “go shop” period in the terms, allowing Paramount to evaluate other offers. Bronfman gathered a consortium to offer $4.3bn and then $6bn to Shari Redstone, who controls the company. However, he failed to come up with the equity to finance the deal, Reuters reported, citing unnamed sources.
Paramount is the company behind classic films such as The Godfather, Titanic and Breakfast at Tiffany’s. It also owns the television network CBS and channels including MTV, Nickelodeon and the UK’s Channel 5.
Skydance, a film production group, is led by the producer David Ellison, the son of Larry Ellison, the tech tycoon who co-founded Oracle.
The agenda
11am BST: UK Confederation of British Industry distributive trades index (August; previous: -43; consensus: -11)
2pm BST: US S&P/Case-Shiller home price index (June; prev.: 6.8% year-on-year; cons.: 6%)
