Closing post
Time for a recap.
UK government bonds are rallying today as the City bets that UK interest rates will fall next year.
The yields, or interest rates, on shorter-dated UK gilts fell, after Bank of England chief economist Huw Pill indicated last night that the central bank could start lowering borowing costs next summer, as markets expect.
The yield on two-year UK bonds, and five-year bonds, both fell to their lowest level since June.
The move came after Pill said last night that market expectations for cuts next summer were not “unreasonable” – while cautioning that the outlook was likely to change over the next nine months .
The money markets are now indicating that UK interest rates will be cut to 4.5% by December 2024, down from 5.25% at present.
🇬🇧 UK 2-YEAR GILT YIELDS DROP MORE THAN 7 BPS ON DAY pic.twitter.com/0xeKvGbaqz
— PiQ (@PiQSuite) November 7, 2023
Falling interest rates could help the UK housing market strengthen.
Prices rose by 1.1% on a monthly basis in October, new figures from Halifax show, helped by a shortage of products. They were still 3.2% lower than a year ago, though.
Fears of weaker demand have also hit the oil price today, with Brent crude dropping 2% to $83.31, the lowest since August.
Fears that the UK is heading for a recession this winter have intensified amid signs Britain’s hard-pressed households are cutting spending as they save for Christmas and higher fuel bills.
Recession fears are on the rise in Germany too, after a disappointing fall in factory output in September.
German industrial production dropped by 1.4% month-on-month in September, which ING said suggested the country could be in a technical recession by the end of this year.
The UK’s cost of living squeeze has eased, with supermarket inflation falling into single-digits for the first time in over a year.
The UK government is planning a ban on the creation of new leasehold houses in England and Wales, through a shake-up of the housing market announced in the King’s speech today.
In the banking sector, UBS has reported a $785m (£637m) quarterly loss, its first in nearly six years, as the Swiss banking group counted the costs of rescuing its rival Credit Suisse earlier this year.
PwC’s chair has defended plans to cut up to 600 jobs rather than cut partner pay amid a slowdown in client demand, saying it was important to offer “competitive” pay packages to senior staff.
Stocks have dipped slightly in New York at the start of trading.
The Dow Jones industrial average is down 40 points, or 0.1%, to 34,055 points.
Energy stocks are sliding, following the drop in the oil price today.
Technology stocks are stronger, though, with the Nasdaq composite index up 0.35%.
Meanwhile in London, mining company shares are also weaker, as commodity prices are hit by growth fears.
PwC’s chair has defended plans to cut up to 600 jobs rather than cut partner pay amid a slowdown in client demand, saying it was important to offer “competitive” pay packages to senior staff.
The accounting and consultancy firm said it was trying to right-size the business after weaker growth, rising costs and a drop in the number of employees quitting on their own accord, in a process usually referred to as natural attrition.
PwC’s own attrition rate has dropped to 10% from 15% in recent months, against a backdrop of falling job vacancies at rival firms and startups.
More here.
The selloff in the oil market today has pushed price of a barrel of US crude down below $80 per barrel.
David Morrison, senior market analyst at Trade Nation, says concerns over weak demand are hitting the oil price:
Without a quick rebound, the next significant target for the bears comes in around $77.50.
Crude prices have been declining steadily since 20th October. Yesterday’s attempted rally petered out later in the day and prices continued to slide overnight. This accelerated following the release of China’s trade surplus, which fell unexpectedly sharply last month. Traders will be paying close attention to China’s CPI and PPI which are released on Thursday. On Sunday Russia and Saudi Arabia confirmed that their respective supply cuts will remain in place, and this briefly supported prices.
Traders still don’t see the current Middle Eastern hostilities spreading out and affecting supply. Instead, it’s the demand side which is the focus, with concerns of economic weakness in China and elsewhere capping prices.
US trade deficit widens
Just in: America’s trade deficit has widened in September, as it imported more goods than a month earlier.
The US trada deficit rose by almost 5% to $61.5bn in September, a $2.9bn increase on the $58.7bn recorded in August.
Imports rose by 2.7%, outpacing the 2.2% rise in exports.
The goods deficit rose by $1.7bn to $86.3bn, while the services surplus fell by $1.2bn to $24.8bn.
Imports of goods increased by $7bn, including a $2bn increase in consumer goods such as mobile phones and other household goods, a $1.9bn rise in automotive vehicles, parts, and engines, and a $1.6bn rise in capital goods (such as computing equipment, industrial machinery and civilian aircraft parts).
#TradeDeficit in September 2023 up 4.9% to $61.5B. #Exports up 2.2% to $261.1B. #Imports up 2.7% to $322.7B (seasonally adjusted). https://t.co/ELorSSXoR6 #CensusEconData pic.twitter.com/vA6ppeyRri
— U.S. Census Bureau (@uscensusbureau) November 7, 2023
The US trade deficit had originally been measured at $58.3bn in August, which was the lowest since late 2020.
Naked Wines shares slump after latest warning
Shares in online drinks business Naked Wines have plunged by a third today, as its pandemic hangover worsened.
Naked issued a rather dire statement to the City this morning, in which it warned that tradinng in the US has been weaker than anticipated.
It has now slashed its revenue forecasts, predicting a fall of between 12% and 16% this financial year (down from an 8%-12% fall previously forecast).
Earnings expectations, on an adjusted EBIT basis, have been cut to £2m-£6m, down from £8m-12m.
Naked says that trading in the UK and Australian markets has been broadly in line with expectations in the last quarter, but trading in the US has been weaker than anticipated.
In particular, the “repeat business” has missed expectations, as the company has struggled to make much money from new customers.
Chief exeutive Nick Devlin is carrying the can, by standing down as CEO so he can focus on running the US business.
Chairman Rowan Gormley, who founded Naked, will become executive chairman while a successor is sought.
Gormley says:
“It is disappointing to be warning of underperformance against a recent forecast. While trading in the UK and Australia has been in line with the Board’s expectations, current trading in the US has fallen well behind, both in terms of sales and margin. Customer attrition remains at historically low levels.
My view is that this shortfall is largely to do with execution, which in turn is largely due to Nick Devlin splitting his time across both the role of CEO and US President.
🍇 Naked Wines plc 🍷
— Alexandru DRAGUT (@alex_dragut) November 7, 2023
US market trading not as strong as expected due to execution😕
Updated guidance for this year:
Revenue expectations down to -12% to -16%
Adjusted EBIT expectations lowered to £2-6m
CEO Nick Devlin stepping down#NakedWines $WINE $WINE.L pic.twitter.com/XXA5Rnfq3A
Shares in Naked have sunk by 35% to 29p today, a record low.
Back in 2021 they peaked above 900p, when the pandemic was driving a boom in internet shopping.
Updated
In the currency markets, the pound has dropped half a cent against the US dollar today.
Sterling has dropped back to $1.2296 against the dollar, falling away from the seven-week high hit yesterday.
The dollar has also strengthened against the euro, after a US central bank policymaker said more work was needed to bring America’s inflation rate down.
Federal Reserve Bank of Minneapolis president Neel Kashkari said yesterday that the U.S. central bank likely has more work ahead of it to control inflation.
Kashkari told Fox News:
“The economy has proved to be really resilient even though we’ve raised interest rates a lot over the past couple of years. That’s good news,.
“We haven’t completely solved the inflation problem. We still have more work ahead of us to get it done.”
The parent firm of Primark has revealed a jump in profits and sales as shoppers continued to shop “enthusiastically” at the fashion chain despite price rises and budget pressures.
Associated British Foods which also runs large grocery, ingredients and agriculture operations, said the backdrop is still “challenging” for consumers but stressed that it has seen inflationary pressure ease over the past year.
ABF reported a 25% rise in pre-tax profits in the year to 16 September, to £1.34bn, with revenues up 16%.
The company says that it posted “significant growth in Group sales driven in large part by pricing actions”.
King Charles: ministers will help bring inflation down to target
Over in parliament, King Charles has told parliament that the government will take”responsible” decisions on spending and borrowing, to help bring inflation down to the UK’s 2% target.
In the first king’s speech in seven decades, Charles outlined the government’s plans for the new parliamentary session, saying:
My ministers will support the Bank of England to return inflation to target by taking responsible decisions on spending and borrowing.
These decisions will help household finances, reduce public sector debt and safeguard the financial security of the country.”
The king has also announced there will be new measure to reform the housing market, saying:
My ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges.
Renters will benefit from stronger security of tenure and better value, while landlords will benefit from reforms to provide certainty that they can regain their properties when needed.
Our Politics Live blog has all the action from Westminster:
Updated
Insolvencies have risen in Germany – in another sign that Europe’s largest economy is struggling.
The Leibniz Institute for Economic Research Halle (IWH) has reported that 1,037 partnerships and corporations in Germany fell into insolvency in October – 44% more than a year ago, and 2% more than in September.
The number of bankruptcies was 12% above the October average for the years 2016 to 2019, reported IWH. They expect the number of insolvencies to rise significantly again in the coming months.
If you haven’t seen enough bad German data today, you can check out the latest insolvency trends below. Notably number of employees is above pre pandemic levels now https://t.co/j7qWgXf33t
— Oliver Rakau (@OliverRakau) November 7, 2023
The prices charged by eurozone producers inched up in September, but were still sharply lower than a year ago.
The eurozone producer prices index shows that prices rose by 0.5% during the month in the euro area, but were 12.4% lower than in September 2022.
The monthly rise was due to more expensive energy products, which rose by 2.2% in September.
But on an annual basis, energy cost 31.3% less than in September 2022, reflecting the fall in the oil and gas prices.
Euro area industrial #ProducerPrices+0.5% in September 2023 over August, -12.4% over September 2022 https://t.co/cuKNsbM8sc pic.twitter.com/gy9nOTj4Ak
— EU_Eurostat (@EU_Eurostat) November 7, 2023
🇪🇺EUROZONE PPI YOY ACTUAL -12.4% (FORECAST -12.5%, PREVIOUS -11.5%)
— Chetta 🐯 (@Chetta_Cheetah) November 7, 2023
🇪🇺EUROZONE PPI MOM ACTUAL 0.5% (FORECAST 0.5%, PREVIOUS 0.6%) $MACRO
Report👇https://t.co/12nUO8gT4N
Back in the bond market, five-year UK government bond prices are also rallying.
This has pulled the yield on five-year gilts down to the lowest since June, at 4.227%.
That’s another sign that City investors are lowering their expectations for UK interest rate levels, with cuts expected to begin next summer.
Ex-NatWest CEO Alison Rose has welcomed an apology from the UK’s information watchdog (see Monday’s blog) after it back-peddled on statements suggesting she had broken privacy rules by discussing Nigel Farage’s bank accounts with a BBC journalist.
Rose’s team lodged a complaint with the Information Commissioner’s Office (ICO) last month, after it originally said Rose had breached data protection laws but would not face any repercussions given that she had already resigned over the controversy.
The ICO on Monday apologised to Rose for suggesting she breached the law, despite the fact that she wasn’t the target of its investigation, and that it had not approached her for a response.
Rose responded on Tuesday, saying:
“The recent publication of the outcome of a complaint from Nigel Farage by the ICO, wrongly stated that I had broken data protection rules. On top of that, I had not even been aware of the existence of the investigation, nor been asked any questions.
The ICO has now acknowledged that they did not find that I breached data protection law. I welcome the clarification and accept the ICO’s apology.
Oil price lowest since August
The oil price, a gauge of global growth prospects, has fallen to its lowest level since late August this morning.
Brent crude has dropped by 2% to $83.50 per barrel. Prices declined after China reported a 6.4% drop in exports, year-on-year, in October, suggesting weak economic demand.
This takes Brent below its levels on 6th October, the day before Hamas’s attack on Israel prompted a jump in energy prices, on fears of supply disruption.
Updated
Fall in Germany factory output raises recession risks
The warning lights are flashing on Germany’s economy again today, as it teeters near recession.
German industrial production dropped by 1.4% month-on-month in September, following a 0.1% drop in August.
On an annual basis, German industrial output was down -3.7% year-on-year.
There is no end in sight for the weakness in German industry, which has become more broad-based in Q3. Hard to pick out any positives.
— Daniel Kral (@DanielKral1) November 7, 2023
German industrial production now a staggering 17% below the trend from 2010s, meaning over a hundred billion Euros in lost output. pic.twitter.com/vflSSx3j9J
Carsten Brzeski, global head of macro at ING, says the “disappointing data release” suggests that Germany is likely to end the year in a technical recession (GDP fell in July-September, so another fall in Q4 would mean a recession).
Brzeski writes:
Germany’s macro horror show continues, and we are almost getting to the point where kids ask their parents where they were the last time Germany produced a series of positive macro data.
Today’s industrial production data is unfortunately no exception to the longer-lasting trend. German industrial production dropped once again in September for the fifth consecutive month.
Die reale #Produktion im Produzierenden Gewerbe ist im September 2023 gegenüber August 2023 voraussichtlich um 1,4 % gesunken. Das war der vierte Rückgang in Folge. Im Quartalsvergleich war sie im 3. Quartal 2023 um 2,1 % niedriger als im 2. Quartal 2023: https://t.co/wqW7nKfej8 pic.twitter.com/IV9FJzswag
— Statistisches Bundesamt (@destatis) November 7, 2023
Brzeski points out that German industrial production is now more than 7% below its pre-pandemic level.
German Industrial Production pic.twitter.com/3odyx4eyvm
— Manish Malhotra (@algotradingdesk) November 7, 2023
Updated
UK government borrowing costs fall as City anticipates 2024 rate cuts
UK government bonds are rallying today, after the Bank of England’s chief economist indicated that interest rates could be cut next year.
With prices rising, the yield (or interest rate) on UK two-year government bonds has fallen to the lowest level since June.
Two-year gilt yields, which are sensitive to interest rate expectations, are down almost 10 basis points at 4.625%, down from 4.723% last night.
🇬🇧 UK 2-YEAR GILT YIELDS DROP MORE THAN 7 BPS ON DAY pic.twitter.com/0xeKvGbaqz
— PiQ (@PiQSuite) November 7, 2023
These two-year bonds are also used to price fixed-term mortgages.
The rally comes after BoE chief economist Huw Pill indicated yesterday that the central bank could start to lower interest rates next summer.
Pill told an online presentation that the pricing in financial markets, indicating the first rate cut could come in mid-2024, “doesn’t seem totally unreasonable, at least to me.”
Pill explained:
“It is at that point you might consider or reassess, if nothing new has happened, where we are going to have to be.”
Today, the financial markets are indicating that Bank rate will have been cut to 4.5% by the end of 2024, down from 5.25% today.
Last week, the Bank’s governor Andrew Bailey insisted it was “much too early” to think about cutting borrowing costs, though.
Average UK mortgage rates have dropped today.
Moneyfacts reports that fixed-term rates for two and five-year loans have both dipped.
They say:
The average 2-year fixed residential mortgage rate today is 6.26%. This is down from an average rate of 6.29% on the previous working day.
The average 5-year fixed residential mortgage rate today is 5.84%. This is down from an average rate of 5.87% on the previous working day.
Updated
Here’s Victoria Scholar, head of investment at interactive investor, on today’s grocery inflation data:
UK Kantar grocery inflation drops into single digits for the first time this year.
In the four weeks to 29th October, grocery inflation hit 9.7%, the lowest level since July 2022 and down from 11% in the previous month. Some prices have been falling year-on-year including for butter, dried pasta, and milk, however most prices are still going up. Although it is moving in the right direction, grocery inflation is still stuck sharply above the headline rate of inflation in the UK, highlighting the squeeze on individuals and families from the rising price of food items.
Supermarkets in the UK have been trying to maintain market share by cutting prices of essential food items this year to lure customers through their doors. They have also been focusing on promotions and loyalty schemes, again to try to boost footfall and prevent consumers from shopping around and trading down to cheaper alternative supermarkets like Aldi and Lidl which are notoriously competitive on price.”
Kantar’s grocery inflation report also shows that supermarkets are offering more promotions to woo shoppers to spend.
Every single UK grocery chain increased the proportion of sales through deals versus last year in October – for only the second time in the last 10 years.
Kantar’s Fraser McKevitt adds:
Consumer spending on promotions has now hit 27.2% of total grocery sales – the highest level we’ve seen since Christmas last year. This is a big gear shift from October 2022 when this figure was less than a quarter.
UK grocery inflation falls into single digits for first time this year
UK grocery price inflation has fallen to single digits for the first time in 16 months, as the cost of living squeeze eases.
Prices across grocers were 9.7% higher than a year ago over the four weeks to October 29, down from the previous month’s 11%, data provider Kantar has reported.
It is the eighth consecutive drop in the rate of price rises since the figure peaked at 17.5% in March, and the first time the figure has fallen below 10% since July last year.
Kantar says the drop to 9.7% is “positive news and something of a watershed”, but they point out that consumers will still be feeling the pinch.
They also found that prices have only fallen, year-on-year, in a small number of major categories including butter, dried pasta and milk.
Fraser McKevitt, head of retail and consumer insight at Kantar, said:
“Retailers continue to look at ways of softening the blow for shoppers and slowing the rate of price rises.
“This has included upping the ante on promotions – every single one of the grocers increased the proportion of sales through deals versus last year, which is something that has only happened on one other occasion in nearly 10 years.
“It’s now been over a year-and-a-half of pinched pockets and people are continuing to respond by trading down on the items they’re putting into their baskets. The gap between own-label and branded goods is at its narrowest since spring last year.”
Grocery price inflation fell for the eighth straight month in Britain as supermarkets compete to pass on easing cost pressures to shoppers https://t.co/UoA8VGo7W3
— Bloomberg UK (@BloombergUK) November 7, 2023
Persimmon reports fall in home completions
House prices are also being supported by a slowdown in housebuilding, leaving buyers with fewer properties to compete for.
Persimmon, one of the UK’s largest housebuilders, has reported this morning that it completed 37% fewer homes in the last quarter, than a year ago.
It completed 1,439 homes in the period from 1 July to 6 November, down from 2,270 a year earlier, it says in a trading update this morning.
For this year as a whole, it expects to complete 9.500 homes, down from 14,868 in 2022.
Housebuilders slowed their construction work as mortgage rose over the last year, dampening demand in the market.
Persimmon says the average selling price in its forward order book has fallen slightly, while it has also been offering more incentives, particularly to buyers in the south.
Dean Finch, Persimmon’s chief executive, explains:
“Trading in the period was in line with expectations and pricing was broadly stable. We are on track to deliver around 9,500 quality new homes in 2023 with operating profit in line with expectations and at an operating margin similar to the first half.
While the near term is likely to remain challenging and we remain disciplined on costs, we continue to position the business for growth when the market recovers, as demonstrated by our further progress on planning in the period.
Updated
Alice Haine, personal finance analyst at investment platform Bestinvest, says the pick-up in house prices is largely driven by sellers remaining cautious about listing their property when they fear they cannot secure the price they want.
Haine adds:
The housing market is likely to remain downbeat going into the new year as the drag effect from the Bank of England’s 14 interest rate hikes between December 2021 to August this year continues to filter through to the mortgage market, with many buyers downsizing the size and value of the home they purchase to meet lenders’ affordability criteria.
The Bank of England’s decision to hold interest rates for the second time in a row last week should help stabilise the housing market.
Nicky Stevenson, managing director at national estate agent group Fine & Country, explains:
“Steady buyer demand has helped to provide a cushion against month-on-month price falls, and the housing market remains in a relatively stable position.
“There are more promising signs ahead thanks to the recent pauses in interest rate rises.
“Many buyers searching for their next home need stability in the mortgage market so they can trust that their affordability won’t change substantially while they’re viewing properties — and the Bank of England has now provided that extra dose of confidence.
Here’s a chart breaking down the UK housing market by region:
Overall, Halifax says, the housing market remains “subdued”, with October seeing the first rise in the cost of a typical UK home since March.
They add:
Despite weakness in overall buyer demand, the first-time buyer market has held up relatively well. Buying a first home remains attractive for many, especially against the backdrop of rental prices increasing.
The latest house price data shows prices for first-time buyers are down -2.4% annually, a notably smaller fall than the market generally (-3.2%), over the past year.
House prices down in last year across UK nations and regions
On an annual basis, house prices fell on an annual basis in all UK nations and regions in October, Halifax says.
The greatest fall was seen in South East England, where prices decreased by -6.0% over the last year (taking the average house price down to £374,066).
In London, prices are down by 4.6% over the last year, putting the average house price in the capital at £524,057 (the highest of any UK region).
In Scotland, prices fell by 0.2% over the last 12 months, while prices in Northern Ireland are down 0.5%, and they dropped by 3.9% in Wales over the last year.
The autumn bounce after a sticky summer saw avg house prices rise 1.1% on Sep in Oct 23 making the avg property worth £281,974. Annually thou all UK nations & reg’s were on avg ⬇️ -3.2, the South East was hit hardest -6% whilst Scotland showed resilience at -0.2% @HalifaxBank pic.twitter.com/Mq8BQUwcpB
— Emma Fildes (@emmafildes) November 7, 2023
Updated
Introduction: Halifax reports rise in house prices
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK house prices rose in October for the first time since March, amid a shortage of properties available, but remain lower than a year ago.
The latest house price index from Halifax shows that the average house price rose by 1.1% in October, following a 0.3% drop in September. That’s the first monthly increase after six consecutive monthly falls from April to September.
That lifted the price of the average house sold to £281,974, an increase of around £3,000 over the month.
But on an annual basis, property prices are now 3.2% lower than a year ago, compared with a 4.5% fall in the year to September, with prices down sharpest in South East England.
This calming of the market comes as mortgage rates have fallen from their peaks last summer, as UK inflation has fallen back.
Kim Kinnaird, director at Halifax Mortgages, explains that a shortage of properties on the market is supporting prices:
“Prospective sellers appear to be taking a cautious attitude, leading to a low supply of homes for sale. This is likely to have strengthened prices in the short-term, rather than prices being driven by buyer demand, which remains weak overall. While many people will have seen their income grow through wage rises, higher interest rates and wider affordability pressures continue to be challenges for buyers.
“Across the medium-term, with financial markets not anticipating a decline in the Bank of England’s Base Rate soon, we expect house prices to fall further overall – with a return to growth from 2025.
“The current picture should continue to be seen in the context of the longer-term house price trend as, on average, prices remain around £40,000 above pre-pandemic levels.”
🇬🇧 UK house prices rise in October for first time since March: Halifax
— PiQ (@PiQSuite) November 7, 2023
Halifax House Price Index (MoM)
Actual: 1.1% 🟢
Expected: 0.2%
Previous: -0.3%
(YoY)
Actual: -3.2%
Previous: -4.5%
(Reuters) - British house prices ended six months of consecutive falls in October,… pic.twitter.com/JVXGhKYcui
Halifax’s report matches the messages from rival lender Nationwide last week; they also reported a surprise increase in house prices in October:
Borrowers could also benefit from a drop in UK interest rates next year.
Last night, the Bank of England’s chief economist, Huw Pill, predicted that rates could start to fall in the middle of 2024.
Also coming up today
Wall Street is digesting the collapse of WeWork, the once high-flying startup which filed for Chapter 11 bankruptcy overnight.
The debt-laden company is entering a restructuring support agreement with stakeholders to drastically reduce its existing borrowing, having struggled to recover from the pandemic.
Investors in the UK will have an eye on parliament, where King Charles will lay out the government’s legislative plans for the new parliament.
We’re expecting a new annual system for awarding oil and gas licences, and moves to prioritise motorists.
The agenda
7am GMT: Halifax house price report
7am GMT: German industrial production
8.30am GMT: Eurozone construction PMI
10am GMT: Eurozone PPI index of producer price
1.30pm GMT: US trade report for September
Updated
