Closing summary
Time to wrap up… here are today’s main stories
Germany is facing a winter recession after its economy shrank in the last quarter.
New official data showed German GDP fell by 0.2% in the October-December period, worse than expected, as the energy crisis and higher interest rates hit growth.
Analysts warned that Germany’s economic outlook is not too rosy, with ING’s Carsten Brzeski saying:
Not falling off the cliff is one thing, staging a strong rebound, however, is a different matter. And there are very few signs pointing to a healthy recovery of the German economy any time soon.
First of all, we shouldn’t forget that fiscal stimulus over the last three years stabilised but did not really boost the economy. Industrial production is still some 5% below what it was before Covid, and GDP only returned to its pre-pandemic level in the third quarter of 2022.
Industrial orders have also weakened since the start of 2022, consumer confidence, despite some recent improvements, is still close to historic lows, and the loss of purchasing power will continue in 2023.
Sweden’s economy also contracted in Q4, by 0.6%, while Belgium managed modest growth of 0.1%. We find out tomorrow how France, Portugal, Italy and the wider eurozone fared…..
Investors are bracing for interest rates in major economies to hit their highest levels in around 15 years this week.
The Bank of England and the European Central Bank are both expected to raise their key interest rates by half-a-percent, while the US Federal Reserve may restrict itself to a quarter-point hike on Wednesday.
Here’s the rest of today’s main stories:
The European Union is to loosen state aid rules on tax credits for renewable energy projects, as it responds to America’s Inflation Reduction Act with its own subsidy support.
European policymakers have been under pressure to respond to the US president Joe Biden’s $369bn (£298bn) IRA, which aims to encourage renewables investment in everything from electric cars to wind turbines.
The European Commission plans to loosen state aid rules to enable investment into production facilities in green industries, according to draft plans.
EU member states are divided over whether to introduce the new rules and how long for, according to the Financial Times, which first reported the plans.
More here:
The president of the European Commission, Ursula von der Leyen, told the World Economic Forum in Davos this month that new law targeting the region’s green industries were being drafted, in a bid to make Europe the home of clean tech and innovation.
Today’s worse-than-expected German growth figures come less than two weeks after chancellor Olaf Scholz said he was convinced Europe’s largest economy would not fall into a recession.
Scholz told Bloomberg TV:
“I’m absolutely convinced that this will not happen that we are going into a recession.
“We showed that we are able to react to a very difficult situation.”
Growth in Texas factory activity slowed in January, according to the Federal Reserve Bank of Dallas’ Texas monthly manufacturing index.
Business executives reported that production slowed this month. This pulled down the Dallas Fed’s production index, a key measure of state manufacturing conditions, down from 9.1 to 0.2, a level suggesting output was flat.
Another mfg survey profile for January, another weak print, this time from the Dallas Fed: "The production index, a key measure of state manufacturing conditions, fell from 9.1 to 0.2, with the near-zero reading suggestive of flat output." https://t.co/envrgoZ9iW pic.twitter.com/Q7bpVCIeUR
— James Picerno (@jpicerno) January 30, 2023
The survey also found that perceptions of broader business conditions continued to worsen in January, while the new orders index was negative for an eighth month in a row, which suggests a continued decrease in demand.
But, factory bosses also reported stronger employment growth and longer workweeks.
And there were signs that inflation eased, with price pressures “generally steady” and wage growth easing slightly in January.
Timo Wollmershäuser of the Ifo Institute think-tank blames the cost of living crisis for pushing Germany into contraction.
Wollmershäuser says (via the FT):
“High rates of inflation have driven the German economy into a winter recession.”
The EY Item Club, the forecasting group, predicts that the Bank of England will deliver better economic news on Thursday, as well as raising interest rates.
They say:
A significant fall in gas prices, lower market interest rate expectations and an economy less weak than expected should cause the Bank of England to dial back on the downbeat economic outlook of its last forecast when it presents new projections on Thursday.
Stubborn core inflation and strong pay growth mean another 50 basis points rise in Bank Rate is likely. But the EY ITEM Club thinks this increase could prove the end of the current rate-rising cycle.
There are good reasons for the Bank of England’s concerns about persistent underlying inflation to ease, they suggest:
Core inflation is probably being held up by the past effect of high energy prices on businesses’ costs. Now that energy prices are falling, underlying inflation should also fall. And the EY ITEM Club expects pay growth to soften as price inflation falls, a weak economy weighs on demand for workers and labour supply is boosted by a reduction in inactivity.
In the bond market, the Bank of England has sold £650m of long-dated UK government debt, or gilts, today.
This is the first auction of bonds with a maturity of more than 20 years from the Bank’s main stockpile built up through its quantitative easing stimulus programme, Reuters points out.
The sale was over-subscribed, with investors submitting bids worth £1.075bn – and the Bank choosing the best offers.
Germany’s slide into recession has begun, fears Robin Brooks, chief economist at the Institute of International Finance, who points to recent weak export data:
Germany's slide into recession has begun. The Q4 '22 GDP fall of -0.2% q/q is modest. It's the underlying picture that's worrying. Germany is one of the world's export champions, but net exports (purple) subtracted from growth for many quarters now. An export champion no more... pic.twitter.com/81Ue5ib20I
— Robin Brooks (@RobinBrooksIIF) January 30, 2023
Wall Street opens lower ahead of Fed decision
The New York stock market has opened, with the main indices in the red as investors brace for Wednesday’s Federal Reserve decision.
The Dow Jones industrial average, which contains 30 large US companies, has dipped by 70 points or 0.2% to 33,907 points.
The broader S&P 500 index has lost 0.6%, with the tech-focused Nasdaq dropping over 1%.
Marios Hadjikyriacos, senior investment analyst at XM, says the markets have priced in a quarter-point rate hike from the Fed – but America’s top central banker, Jerome Powell, could hint at further rate rises to come.
Hadjikyriacos explains:
A massive week lies ahead for investors. Central bank decisions in the United States, Eurozone, and United Kingdom, earnings updates from several Wall Street tech giants, and a heavy dose of economic data releases that include the US employment report all have the capacity to inject volatility into global markets.
All roads lead back to the Fed, which will announce its rate decision on Wednesday. Inflation finally seems to be cooling and leading indicators suggest economic growth is losing steam, but the US labor market remains historically tight and financial conditions have loosened, keeping the risk of a second inflation wave on the table and complicating matters for policymakers.
Markets have fully priced in a 25 basis point rate increase, so the dollar’s reaction will depend mostly on Powell’s commentary. One way to balance these risks would be to accompany the smaller rate hike with strict language, reminding investors that the tightening cycle is not done yet and pushing back against market pricing for rate cuts later this year.
Adani Group, which is fighting claims from a US short-seller alleging the ‘biggest con in corporate history’ has received a boost today from Abu Dhabi-based conglomerate International Holding Company (IHC).
IHC has announced a $400m investment in Adani Enterprise’s fundraising through its subsidiary Green Transmission Investment Holding.
This is IHC’s first investment of 2023, and its second investment in Adani Group. Last year it invested $2bn in three of its green-focused companies.
Syed Basar Shueb, chief executive officer at IHC, says the group sees value in the Adani Enterprises Further Public Offering (FPO).
“Our interest in Adani Group is driven by our confidence and belief in the fundamentals of Adani Enterprises Ltd; we see a strong potential for growth from a long-term perspective and added value to our shareholders.”
Adani Group published a 413-page rebuttal of fraud allegations by Hindenburg Research today, likening the US investment firm’s report last week to an attack on India amid mounting financial pressure on the coal conglomerate.
Ryanair is hiring significant numbers of Ukrainian pilots and cabin crew so that it will be ready to return to the country when the war with Russia ends.
Chief executive Michael O’Leary revealed the move today, after the airline reported a jump in profits for the last quarter of 2022 (see opening post for details).
“We are very committed to returning to Ukraine as soon as it is safe to do so,” said O’Leary (Reuters reports).
O’Leary told analysts:
“We are hiring quite a number of Ukraine pilots and cabin crew specifically so that we can ... restore bases in Ukraine if and when it is safe to do so.”
While everyone is singing goldilocks in Europe GDP in Germany contracted -0.2 QoQ and in Sweden -0.6%.
— Strictly Macro (@StrictlyMacro) January 30, 2023
In Belgium it was up by a whopping 0.1%.
The UK housing market could come under more pressure this week if, as expected, the Bank of England lifts UK base rate from 3.5% to 4% – the highest level since October 2008.
This would be the BoE’s 10th interest rate rise in a row, since it started tightening policy in December 2021, adding to the pressure on homeowners.
UK house prices have already fallen in recent months, according to Halifax and Nationwide.
Berenberg bank predicts UK house prices will fall by around 10% peak to trough, back to their levels in mid-2021.
Kallum Pickering, senior economist at Berenberg, points out that UK house price declines tend to have effects that extend beyond the housing sector, saying:
During the previous two corrections – in the early 1990s and 2008/09 – falling house prices coincided with weakening consumer demand and disinflationary recessions. Will history repeat itself? We think the answer is yes.
Although we doubt the situation will be anything like 2008/09, the early 1990s may provide a useful benchmark.
The UK’s consumer-oriented economy is sensitive to large fluctuations in house prices. A fall in house prices lowers net worth, dampening confidence and the appetite to spend.
The housing correction will contribute towards the UK’s outsized – albeit still mild – recession relative to continental Europe, Pickering predicts:
We expect real GDP growth for the Eurozone to slow from 3.4% in 2022 to 0.3% in 2023 before a gain of 1.5% in 2024. For the UK, however, we expect real GDP to contract by 0.8% in 2023 after a gain of 4.1% in 2022– before snapping back with growth of 1.6% in 2024.
More than 1.4 million UK households are due to renew their fixed-rate mortgages in 2023, the Office for National Statistics said earlier this month.
Andrew Wishart, senior property economist at Capital Economics, says the shift away from floating-rate to fixed-rate mortgages presents risks as well as benefits.
Wishart says:
It will protect homeowners who are lucky enough to have a long time remaining on their fixed rate contract from higher mortgage payments.
But that reduces the potency of monetary policy, raising the risk that interest rates have to be raised further or kept high for longer to compensate.
Property website Zoopla reported this morning that house price growth was flat in the final quarter of last year.
House price growth ground to a standstill in Q4 2022, dragging the annual rate of house price inflation lower to +6.5%. However the gap between asking and achieved prices is now holding at 3% to 4% according to @Zoopla as buyers & sellers find their footing in 2023 pic.twitter.com/VpI4m3dwEl
— Emma Fildes (@emmafildes) January 30, 2023
Updated
Back in the City, shares in gambing group 888 Holdings are now down 27% after it announced the departure of its CEO and the suspension of VIP services in the Middle East following an investigation into suspected money laundering (see earlier post for details).
888 are the top faller on the FTSE 250 index of medium-sized firms, at the lowest level since the pandemic crash of March 2020.
They’re followed by cybersecurity firm Darktrace, which are down 15% today.
Global carbon emissions are expected to fall quicker than previously expected as a result of the war in Ukraine and Joe Biden’s efforts to encourage green investment, BP has said.
The oil and gas company said carbon emissions would fall more rapidly than it forecast a year ago thanks to renewed efforts by countries to pursue greater energy security by supporting domestic, renewable energy supplies.
In its annual energy outlook report, BP said it had reduced forecasts for global emissions in 2030 by 3.7% and by 9.3% in 2050. It expects oil demand to be 5% lower and gas demand to have fallen by 6% by 2035.
The company said deployment of renewables projects would be 5% higher at current rates.
Here’s the full story:
Growth in Belgium slowed to a near-standstill in the final quarter of last year.
Belgium’s gross domestic product (GDP) increased by 0.1% in the fourth quarter from the third quarter, official data shows, which is down on the 0.2% growth in Q3.
The Gross Domestic Product (GDP) in Belgium expanded 0.10 percent in the fourth quarter of 2022 over the previous quarter. https://t.co/t29pGmWe8P pic.twitter.com/S3w0F48OCl
— Trading Economics (@tEconomics) January 30, 2023
On an annual basis, growth slowed to 1.4%, from 1.9% year-on-year in Q3.
The Gross Domestic Product (GDP) in Belgium expanded 1.40 percent in the fourth quarter of 2022 over the same quarter of the previous year. https://t.co/deO6UZmdqN pic.twitter.com/bliIkWkkUj
— Trading Economics (@tEconomics) January 30, 2023
Poland’s economy slowed last year, as Russia’s invasion of Ukraine and a string of rapid interest-rate increases hit growth.
Polish gross domestic product rose by 4.9% during 2022, Statistics Poland reports, which is weaker than the 6.8% rise in GDP during 2021. It’s slightly above forecasts: mst economists surveyed by Bloomberg had predicted a slowdown to 4.8%.
Growth was driven by industrial production, while consumer spending slowed – another sign of the impact of inflation on household consumption.
Poland's GDP grew 4.9% in 2022, according to a preliminary estimate from state statistics office @GUS_STAT.
— Notes from Poland 🇵🇱 (@notesfrompoland) January 30, 2023
That was down from 6.8% in 2021 but slightly above average economists' forecasts of 4.8% for 2022 pic.twitter.com/utBeYDMCQ0
Almost a quarter of UK adults have reported they were occasionally, hardly ever, or never, able to keep comfortably warm last month.
That’s according to new research into the impact of winter pressures from the Office for National Statistics, released this morning.
The impact of winter pressures on adults in Great Britain (22 November to 18 December 2022) ❄️
— Office for National Statistics (ONS) (@ONS) January 30, 2023
24% of adults reported they were occasionally, hardly ever, or never, able to keep comfortably warm in their home.
➡️ https://t.co/h5MLCXFPrf pic.twitter.com/2h0BkjVzSU
The problem was worse for respondents experiencing moderate-to-severe depressive symptoms (44% reported problems keeping warm) and people using prepayment, or “top-up”, meters for energy bills (where 41% struggled).
Earlier this month, Citizens Advice urged ministers to stop the forced installation of prepayment meters after 3.2 million people – the equivalent of one person every 10 seconds – were left with cold and dark homes last year as they ran out of credit.
Hundreds of thousands of customers were switched to prepayment meters, having run up debts with their energy suppliers.
The ONS report also shows the impact of NHS delays on UK workers. Around 1 in 5 (21%) adults reported they were waiting for a hospital appointment, test, or to start receiving medical treatment through the NHS.
Of that group of people waiting for NHS treatment, around 4 in 10 (39%) employed or self-employed adults said the wait had affected their work, including 26% saying they reduced their working hours and 7% went on long-term sick leave.
Almost a quarter (23%) of adults who needed to see a GP in the past month reported not being able to get an appointment, the ONS found.
Barriers experienced by those who needed to make a GP appointment in the past month included:
— Office for National Statistics (ONS) (@ONS) January 30, 2023
📞 offered only a telephone consultation when they wanted a face-to-face appointment (39%)
⌚️ waiting too long (37%)
❌ not able to get an appointment (23%)
➡️ https://t.co/h5MLCXFPrf pic.twitter.com/nDl9YPeFk1
Analysis released this morning shows that more than 1.6 million adults aged 50 and over are unable to work because of long-term sickness.
Updated
Ireland’s economy grew by a pacy 3.5% in the last quarter of 2022, new Central Statistics Office data shows.
It esimates that Gross Domestic Product (GDP) grew by an estimated 3.5% in Quarter 4 (Q4) 2022, when compared with Q3 2022, up from 2.3% growth in the third quarter.
This growth was driven mainly by expansion in the manufacturing sector, the agency says.
GDP for the full year 2022 is estimated to have increased by 12.2%, when compared with 2021.
However, Ireland’s GDP data can be distorted by the presence of many multinationals in the country, including major tech and pharmaceuticals firms.
While Gross Domestic Product measures the value of what is produced in Ireland, another measure - Gross National Product – measures how much of that value stays in the country.
ING: German winter recession remains base case
Recession fears are back after today’s data showed that Germany’s economy shrank by 0.2% quarter-on-quarter in October-December, says ING’s Carsten Brzeski.
A winter recession remains the base case for the German economy, he fears, due to energy supply worries, global trade disruption, the high investment needed for digitalisation and infrastructure, and an increasing lack of skilled workers.
Brzeski also warns that the economic outlook for Europe’s largest economy is “anything but rosy”, telling clients:
Not falling off the cliff is one thing, staging a strong rebound, however, is a different matter. And there are very few signs pointing to a healthy recovery of the German economy any time soon.
First of all, we shouldn’t forget that fiscal stimulus over the last three years stabilised but did not really boost the economy. Industrial production is still some 5% below what it was before Covid, and GDP only returned to its pre-pandemic level in the third quarter of 2022.
Industrial orders have also weakened since the start of 2022, consumer confidence, despite some recent improvements, is still close to historic lows, and the loss of purchasing power will continue in 2023.
Brzeski also warns that like every eurozone economy, the German economy still has to digest the full impact of the European Central Bank’s rate hikes – which could intensify on Thursday when the ECB sets borrowing costs.
He says:
Demand for mortgages has already started to drop and, as in previous hiking cycles, it didn’t take long before the demand for business loans also started to drop.
In short, the German economy will still be highly affected by last year’s crises throughout 2023.
🇩🇪 Germany's economy shrank in the last quarter.
— ING Economics (@ING_Economics) January 30, 2023
We're sticking to our forecast of a winter recession for the eurozone's biggest economy and a very mild recession for the whole of 2023https://t.co/CAZ1bp2Fhr
Updated
JD Sports hit by 'cyber incident'
Back in the UK, JD Sports Fashion Plc has become the latest company to fall victim to a cyber attack.
JD Sports has told the City that a system which contained customer data relating to some online orders placed between November 2018 and October 2020 has been accessed, affecting its JD, Size?, Millets, Blacks, Scotts and MilletSport brands.
The information that may have been accessed consists of the name, billing address, delivery address, email address, phone number, order details and the final four digits of payment cards of approximately 10 million unique customers.
JD is now proactively contacting affected customers, to warn them to be vigilant to the risk of fraud and phishing attacks. This includes being on the look-out for any suspicious or unusual communications purporting to be from JD Sports or any of our group brands, it says.
JD Sports says it does not hold full payment card data and has no reason to believe that account passwords were accessed.
The company is working with “leading cyber security experts”, and in contact with relevant authorities, including the UK’s Information Commissioner’s Office (ICO).
Neil Greenhalgh, chief financial officer of JD Sports, said:
“We want to apologise to those customers who may have been affected by this incident.
We are advising them to be vigilant about potential scam e-mails, calls and texts and providing details on how to report these. We are continuing with a full review of our cyber security in partnership with external specialists following this incident. Protecting the data of our customers is an absolute priority for JD.”
Royal Mail was hit by a ransomware attack by a criminal group earlier this month, which left it unable to send parcels or letters abroad, while The Guardian experienced a ransomware attack in December.
The unexpected fall in German GDP in the last quarter means a recession - commonly defined as two successive quarters of contraction - has become more likely.
Many experts predict the economy will shrink in the first quarter of 2023 as well, Reuters points out.
The economy ministry has said, though, that the situation in Germany is expected to improve from spring onwards.
Good Morning from #Germany where GDP contracted 0.2% in Q4 2022 QoQ, meaning Statistical Office has revised its estimate from stagnation to contraction in Q4, and that makes a #recession more likely. The consensus expects German GDP to contract by 0.5% in Q1 2023 QoQ. pic.twitter.com/0sqju6TeSb
— Holger Zschaepitz (@Schuldensuehner) January 30, 2023
German GDP fell 0.2% in Q4 - halfway into recession
Just in: Germany is on the brink of recession, after its economy contracted in the last quarter of 2022.
German GDP fell by 0.2% in the October-December quarter, statistics body Destatis has reported. That’s worse than expected – economists had forecast that GDP would be flat in the quarter.
German Q4 GDP comes in at -0.2% vs 0% estimates
— Joumanna Nasr Bercetche 🇱🇧 (@CNBCJou) January 30, 2023
Minor contraction. Is this start of protracted or short recession?
Germany’s economy was hit by soaring energy prices at the end of last year, driving up the cost of living. Inflation hit 11.6% in October, as Russia squeezed energy supplies to Europe.
Household spending fell during the quarter, pulling growth down, Destatis explains:
After the German economy held up well in the first three quarters despite difficult conditions, economic output decreased slightly in the fourth quarter of 2022.
In particular, the price-, seasonally and calendar-adjusted private consumer spending, which had supported the German economy in the course of the year to date, was lower than in the previous quarter.
🇩🇪 German Q4 GDP -0.2% QoQ. No details but @destatis_news highlights that private consumption contracted on the quarter.
— Frederik Ducrozet (@fwred) January 30, 2023
The euro area economy has proved more resilient, but certainly not immune to an unprecedented shock to household real income. https://t.co/UlrgmFhsqD
A recession is commonly defined as two successive quarters of contraction, so Germany would be in recession if its GDP shrinks in the current quarter (January-March) as well.
Updated
Investor jitters grow ahead of central bank meetings
Bond prices have rapidly rebounded since the start of the year from last year’s historic sell-off, as markets bet that interest rate rises will slow and, in the case of the US Federal Reserve, even go into reverse, the Financial Times points out.
But some investors have doubts, the FT says, so this week’s central bank decisions could cause jitteriness – as higher interest rates will slow growth.
“I think it’s just a matter of the market kind of waking up to what the macro environment really is, as opposed to what they hope it is,” said Monica Erickson, head of investment grade credit at DoubleLine Capital.
Erickson adds:
“[It] is going to be super difficult again for the Fed to . . . get inflation down to that magical 2 per cent number without putting us into a recession.”
Maureen O’Connor, global head of high-grade debt syndicate at Wells Fargo, said:
“The credit markets are effectively pricing in a no-recession outcome. But that’s not the consensus base case that most economists are forecasting.”
More here.
Central banks prepare to lift interest rates to 15-year highs as investors’ jitters grow - https://t.co/4V2xx5TWzp via @FT
— Katie Martin (@katie_martin_fx) January 30, 2023
Generali Investments: Mounting rifts at central banks this week
There could be splits at the major central banks this week over how high interest rates need to rise to tackle inflation.
Thomas Hempell, head of macro & market research at Generali Investments, predicts that the US Fed will slow its tightening pace with a 25 basis point hike on Wednesday, while the ECB and Bank of England will “will stay the course” by lifting their key rates by 50bp (half a percentage point).
Given still high inflation and the easing in financial conditions, Hempell expect a hawkish tilt for the outlook to prevail. But there could be “mounting rifts over the policy outlook”, he tells clients:
We expect the hawks to still prevail – for now. Most clearly so at the ECB. In a shaky December compromise, some hawks bended to slowing the rate hikes to 50bp in exchange for hawkish forward guidance and a binding commitment to quantitative tightening. Some doves have revoked this truce recently, pushing for smaller hikes after Feb. as headline inflation eased into single digits.
Yet more likely, the ECB will stay the course. Amid high core CPI (up 5.2% in Dec.), economic resilience (we no longer expect a winter recession), rising wages and hawkish pledges by President Lagarde we see the hawks still prevailing. Markets underestimate the terminal rate, which is at 3.5% in our books.
By contrast, as the Fed will (probably) hike by only 25bp, the focus will shift to the number of remaining like-sized hikes its policymakers expect, Hempell adds:
The Fed’s Dec. dots suggest further moves in both March and May. Markets, cheered by moderating inflation and weaker leading indicators, don’t buy this any longer. Dovish FOMC members are stressing more eagerly the Fed’s dual mandate (inflation and employment).
Ultimately, though, led by Chair Powell, the FOMC is still likely to lean towards a steady approach to inflation fighting as fin. conditions have recently eased. So expect the outlook language of “ongoing increases” (plural) to be maintained in the statement.
Updated
Stocks 'on back foot' ahead of central bank meetings this week
As predicted, European stock markets have dropped in early trading as investors brace for interest rates to be hiked to 15-year highs later this week.
The UK’s FTSE 100 index is down 46 points, or 0.6%, at 7719, away from the four-year highs set in mid-January.
Insurance group Legal & General are the top faller, down 2.3%, after announcing that long-serving chief executive Nigel Wilson to retire after more than a decade in the role.
Asia-Pacific-focused financial groups Prudential and Standard Chartered are both down around 2%, followed by retailer Frasers (-2%) and online grocery tech business Ocado (-1.7%).
Germany’s DAX and France’s CAC have both dropped around 0.5%.
Neil Wilson of Markets.com says all eyes are on the Federal Reserve, and what it says about the future path of monetary policy on Wednesday.
Two key things remain unknown – how high and for how long. I don’t think even the Fed knows the answers to these questions at the moment, but it will undoubtedly want to push back against the dovish read the markets have taken.
Stocks are “on the back foot this morning”, he explains, as attention shifts to this week’s Federal Reserve meeting, as well as the European Central Bank and Bank of England meetings on Thursday.
Wilson adds:
Despite the weakness this morning for risk assets, global stock indices are set to close to the month firmly higher. The FTSE 100 is up around 4% this month but lags peers after a much more resilient 2022 than most.
The Nasdaq is up around 11% and the DAX 8% higher in January as investors looked through signs of economic weakness and instead decided that peak inflation was behind.
Updated
Sweden's economy shrank unexpectedly in Q4
Sweden’s economy ended 2022 on a weak note, with the economy shrinking in the last quarter as inflation and the war in Ukraine hit households and businesses.
Preliminary GDP figures from the Swedish Statistics Office this morning shows that gross domestic product (GDP) fell 0.6% in Q4, compared with the previous quarter.
Economists surveyed by Bloomberg had expected an expansion of 0.2%.
Neda Shahbazi, economist at Statistics Sweden, says:
“GDP decreased in December, indicating a weak ending of last year.
The development for 2022 as a whole was however slightly above the historical average seen during the last decades, but this is mainly explained by low economic activity during the first half of 2021 rather than a clear increase in GDP during 2022.
Sweden’s economy unexpectedly contracts as weaker purchasing power erodes consumer spending in the biggest Nordic economy https://t.co/j8RjDC7CDx
— Bloomberg (@business) January 30, 2023
🇸🇪 Sweden in recession according to Q4 GDP. Two points to make:
— Mikael Sarwe (@MikaelSarwe) January 30, 2023
1) It will get much worse
2) I view Sweden as a canary in the global coal mine pic.twitter.com/VtU1yaJlW9
More airline news: loss-making Norwegian airline Flyr has failed to raise the cash it needs from shareholders and other potential investors.
This leaves the airline in a “critical short-term liquidity situation”, Flyr says.
Reuters has the details:
While the board continues to explore “feasible alternatives” to secure its continued operation, the potential solutions could wipe out the remaining value of its existing shareholders, the carrier said in a statement.
Flyr in November said raising cash was vital for the company to survive the upcoming winter season and prepare for a ramp-up in spring and summer of 2023, but it was only able to raise about half the required cash at the time.
The company said it had tried in recent days to secure funding of 330 million Norwegian crowns ($33.27 million) but the effort failed.
“Market conditions and continued uncertainty with regards to airline travel and earnings through 2023 have deterred investors from committing capital for the required period of time,” Flyr said.
Flyr Update:
— Sean M 🌈✈ (@SeanM1997) January 30, 2023
Today's flights are running as normal Flyr informed Oslo Børs on Monday morning that the company has not been successful with its new financing plan. The company is thus in a serious financial situation, and the board will assess
(1/3) pic.twitter.com/fomzWURRP3
whether there are alternatives for continued operation. Monday's flights to Malaga, Alicante and Las Palmas are running as normal. The company has no scheduled flights on Tuesday and information about future flights will be shared as soon
— Sean M 🌈✈ (@SeanM1997) January 30, 2023
(2/3)
as possible on https://t.co/ggl4Ammoez. We fully understand that this situation creates uncertainty among travellers. We ask everyone who has booked travel with us to follow updates directly from Flyr or at https://t.co/ggl4Ammoez.
— Sean M 🌈✈ (@SeanM1997) January 30, 2023
(3/3)
British bookmaker 888 suspends VIP activities in Middle East; CEO steps down
UK gambling firm 888 has announced the departure of its chief executive, and suspended VIP activities in the Middle East.
888 has told the City that Itai Pazner is immediately leaving office as CEO and as a director.
The Group’s non-executive Chair, Lord Mendelsohn, is assuming the position of Executive Chair on an interim basis while the Board searches for a permanent CEO.
888 also announced the suspension of VIP activities in the Middle East region, following an internal compliance review which found that some best practices have not been followed in regard to KYC (Know Your Client) and AML (Anti-Money Laundering) processes there.
While further internal investigations are underway, “the Board has taken the decision to suspend VIP customer accounts in the region, effective immediately”, it says.
Lord Mendelsohn says:
“The Board and I take the Group’s compliance responsibilities incredibly seriously. When we were alerted to issues with some of 888’s VIP customers, the Board took decisive actions.
We will be uncompromising in our approach to compliance as we build a strong and sustainable business.”
Shares in 888 dropped 7.5% at the stock market open….. and were down 12% after 15 minutes trading.
Updated
Unilever names Dutch dairy boss Schumacher as new CEO
Consumer goods giant Unilever has appointed Hein Schumacher to replace Alan Jope as chief executive – a move welcomed by board member and activist shareholder Nelson Peltz.
Schumacher, 51, is currently the chief of Dutch dairy business FrieslandCampina.
He joined Unilever in October last year as non-executive director, and will become CEO from 1st July.
The FTSE 100 company, whose brands include Dove soap, Hellmann’s mayonnaise, Domestos bleach, and Marmite, told the stock market last September that Jope had decided to retire at the end of 2023.
Billionaire activist investor Nelson Peltz, who heads investor Trian Partners, said he strongly supports Hein “as our new CEO and look(s) forward to working closely with him to drive significant sustainable stakeholder value.”
Peltz, who has been pushing for a major shake-up of Unilever’s vast operations, says:
“I first met Hein when I served as a director at the H.J. Heinz Company from 2006 to 2013 and was impressed by his leadership skills and business acumen.
Earlier this month, Jope said Peltz had brought “all kinds of good ideas” to the company since joining the board last May.
Shares in Unilever have risen 0.8% at the start of trading, near the top of the FTSE 100 leaderboard.
Victoria Scholar, head of investment at interactive investor, points out that Unilever’s shares had a tough start to 2023, shedding over 3% compared with a gain for the FTSE 100 of almost 3%.
She says:
Unilever’s outgoing CEO Jope has been at the helm since January 2019, steering the business through the ups and downs of the pandemic. Since his appointment, shares in Unilever are little changed, underperforming other stocks in the sector. Shares jumped when he announced his departure last year, suggesting investors are hungry for a change in leadership. Jope came under heavy criticism during his time as CEO over his failed attempts to acquire GSK’s consumer health business.
While Unilever is in the consumer staples sector, a part of the market that is typically viewed as relatively resilient to an economic downturn, the business is facing challenges from rising costs and the risk that consumers trade down to unbranded, cheaper alternative products. Unilever has been trying to offset cost pressures by increasing prices, but this could dampen demand amid the cost-of-living pressures and can weaken relationships with retailers who are also dealing with already squeezed margins.
Updated
Central banks expected to raise interest rates to 15-year highs this week
European stock markets are expected to open lower, as investors brace for central bank decisions in the UK, eurozone and the US later this week.
These major central banks are expected to raise interest rates to their highest levels since the financial crisis, which could further slow the global economy, as they battle the highest inflation rates seen in decades.
The Bank of England is expected to raise UK interest rates on Thursday, from 3.5% to probably 4%, which would be the highest since autumn 2008. The BoE may also upgrade its growth forecasts.
The European Central Bank is also expected to hike borrowing costs by 50 basis point (half a percent).
The US Federal Reserve makes its decision the night before, and could slow its tightening programme – perhaps lifting US interest rates by another quarter-point.
Stock markets have rallied in recent weeks, lifted by signs that price pressures are easing, and hopes that China’s easing of Covid-19 restrictions may lift the global economy.
Many investors are optimistic that central banks will ease off on interest rate increases, after sharp rises through 2022, as Michael Hewson of CMC Markets explains:
Last week’s sudden surge of exuberance from US markets appears to be being driven by a belief that not only will the US economy avoid a hard landing, but that the Federal Reserve will not only signal another step down in its rate hiking cycle to 25bps but will also signal a pause.
This belief that we could see a pause in the Fed’s rate hiking cycle was given legs last week, when the Bank of Canada signalled that it was doing exactly that to further assess the impact of recent rate hikes on the wider economy.
But, central bankers could spoil the party this week – if they push back against those expectations.
Hewson says:
The strong start to 2023 appears to have given way to a little bit of caution for markets in Europe as we look to this week’s trifecta of central bank meetings, and what sort of outlook is painted by the Federal Reserve, ECB and Bank of England, and more importantly how many more rate hikes can we expect to see after next week.
This caution looks set to translate into a lower open for markets in Europe this morning ahead of Q4 German GDP numbers which are expected to show the economy in Germany ground to a halt.
The UK’s FTSE 100 is expected to drop around 50 points at the open, or 0.6%, to 7717, the futures market suggests.
European Opening Calls:#FTSE 7735 -0.39%#DAX 15097 -0.35%#CAC 7065 -0.46%#AEX 746 -0.67%#MIB 26402 -0.13%#IBEX 9026 -0.38%#OMX 2193 -0.22%#SMI 11302 -0.26%#STOXX 4157 -0.49%#IGOpeningCall
— IGSquawk (@IGSquawk) January 30, 2023
Updated
Airline bankruptcies 'create growth opportunities' for Ryanair
Ryanair says it grew its market share in several key EU markets during the last quarter.
Most notable gains, it says, were in Italy (from 26% to 40%), Poland (27% to 38%), Ireland (49% to 58%) and Spain (21% to 23%).
Overall, Ryanair operated at 12% above its pre-Covid capacity over the last nine months.
Chief Executive Officer Michael O’Leary said in a statement that demand is strong:
With Asian tourists now returning and a strong US dollar encouraging Americans to explore Europe, we’re seeing robust demand for Easter and summer 2023 flights.
Turmoil in the airline industry is an opportunity for Ryanair to keep growing, O’Leary adds:
Over the past 3 years, numerous airlines went bankrupt and many legacy carriers (incl. Alitalia, TAP, SAS and LOT) significantly cut their fleets and passenger capacity, while racking up multi-billion-euro State Aid packages.
These structural capacity reductions have created enormous growth opportunities for Ryanair.
Introduction: ‘Pent-up travel demand’ lifts Ryanair profits
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Strong trading over Christmas and the New Year have helped budget airline Ryanair to triple its profits in the last quarter, compared with pre-Covid levels.
Just two days after UK regional airline Flybe ceased trading and cancelled all its scheduled flights, Ryanair has reported that its profits jumped in the last three months of 2022
Ryanair says “strong pent-up travel demand” over the October half-term holiday and the Christmas/New Year holiday season had stimulated strong traffic and fares across all markets, with “no adverse impact from Covid or the war in Ukraine”.
It has reported a profit-after-tax of €211m in October-December 2022, compared to €88m in the same quarter pre-Covid. A year ago, it made a €96m loss in the quarter, when pandemix restrictions and the Omicron variant hit demand.
During the quarter, traffic jumped 24% to 38.4m passengers – 7% higher than pre-Covid levels, while fares were 14% higher than before the pandemic.
Ryanair expects the current quarter to be loss-making, as Easter falls in April this year. But it is sticking with its recently upgraded forecast of an after-tax profit of between €1.325bn and €1.425bn for the full year to the end of March.
Chief financial officer Neil Sorahan says demand is strong, telling Reuters that:
Bookings are showing no signs of recession at this point in time,”
“We had record bookings in week two and week three of January, very robust demand into Easter and the summer without fare stimulation.
Ryanair posts record after-tax profit for Christmas quarter https://t.co/h2JMwq3aaf pic.twitter.com/iKnzsbWucY
— Reuters UK (@ReutersUK) January 30, 2023
The agenda
9am GMT: German Q4 2022 GDP report
10am GMT: Eurozone consumer and business confidence report for January
3.30pm GMT: Dallas Fed index of US manufacturing for January
