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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

US inflation rate falls to 5.0%; BoE’s Andrew Bailey doesn’t see ‘systemic banking crisis’ – as it happened

Elon Musk Twitter Inc. United States International Monetary Fund
US consumer inflation slowed in March, lessening the pressure on the Federal Reserve to maintain its aggressive posture to cool the economy.
US consumer inflation slowed in March, lessening the pressure on the Federal Reserve to maintain its aggressive posture to cool the economy. Photograph: Yuki Iwamura/AFP/Getty Images

Closing summary

Time for a quick recap

US inflation has cooled, bolstering hopes that the Federal Reserve might slow, or even pause, its interest rate rises.

Consumer prices rise by 5% in the year to March, the slowest rate in almost two years, helped by falling energy prices and cheaper gasoline.

However, annual core inflation rose to 5.6%, compared with February’s 5.5%.

Bank of England governor Andrew Bailey has told an audience in Washington DC that “I don’t believe we face a systemic banking crisis”, as policymakers gather for the Spring Meeting of the IMF and the World Bank.

Bailey told the Institute of International Finance that the BoE had not altered its monetary policy, a hint that interest rate rises could continue despite the wobbles in the banking sector.

He said:

The post crisis reforms to bank regulation have worked. Today I do not believe we face a systemic banking crisis. When I look at the UK banks, they are well capitalised, liquid and able to serve their customers and support the economy.

Bailey also pointed out that banks are more vulnerable to panicky customers withdrawing their money in the digital age, as shown by Silicon Valley Bank.

And he suggested regulators should take another look at how much protection they extend to depositors at smaller UK banks.

Warren Buffett, meanwhile, has predicted there could be more bank failures down the road, but believes depositors should not worry about losing their money.

The IMF has predicted that Britain’s national debt will continue to climb over the next five years, putting at risk one of Rishi Sunak’s key pledges to voters.

A leaked recording has suggested that World Bank staff were apparently told to give preferential treatment to the son of a high-ranking Trump administration official after the US Treasury threw its support behind a $13bn (£10bn) funding increase for the organisation.

Elon Musk has revealed that Twitter is now “roughly breaking even”, in an interview with the BBC in which he said his pain level from running the site had been “extremely high”…. and insisted his dog was now acting as CEO.

Musk also said Twitter will change the BBC’s label of “government-funded media” after the broadcaster objected.

An ad campaign by Etihad Airways trumpeting its approach to “sustainable aviation” has been banned by the UK advertising watchdog, which ruled it was misleading consumers over the environmental impact of flying.

The music industry is urging streaming platforms not to let artificial intelligence use copyrighted songs for training, in the latest of a run of arguments over intellectual property that threaten to derail the generative AI sector’s explosive growth.

Upmarket cinema chain Everyman has returned to profit, as the allure of luxury sofa seating and a menu including parsley and garlic dough balls and hot honey halloumi helped attract customers.

Demand for paper money has fallen to its lowest level in more than 20 years as consumers switch to card and contactless payments, the world’s largest commercial printer of banknotes has said.

World Bank staff were told to give special treatment to son of Trump official

World Bank staff were apparently told to give preferential treatment to the son of a high-ranking Trump administration official after the US Treasury threw its support behind a $13bn (£10bn) funding increase for the organisation, a leaked recording suggests.

Shared with the Guardian by a whistleblower, the recording of a 2018 staff meeting suggests colleagues were encouraged by a senior manager to curry favour with the son of David Malpass, who is now president of the World Bank but at the time was serving in the US Treasury under Donald Trump.

During the recording, which has left the Washington-based organisation facing questions over standards of governance, staff refer to 22-year-old Robert Malpass as a “prince” and “important little fellow”, who could go “running to daddy” if things went wrong.

Campaigners said the case could undermine the World Bank’s mission, which includes combating the erosion of public trust in civic institutions by promoting good governance.

Staff were apparently told Robert was the son of the undersecretary of the US Treasury, which had played a “beneficial” role in helping the World Bank secure an endorsement for the multibillion-dollar capital injection.

The recordings also suggest it may not have been the first time the international development bank had hired a family member of an important global figure. “Remember we had a ‘prince’ before … that is a subject for happy hour,” a staff member is heard saying.

The World Bank said it could not confirm the contents of the recording, but added it was “both false and absurd” to suggest that there was any connection between an entry-level hire and the multibillion-dollar capital increase.

More here:

A fair point:

Over in Ottawa the Bank of Canada has left interest rates on hold.

The BoC voted to hold its target for the overnight rate at 4.5%, with the Bank Rate at 4.75% and the deposit rate at 4.5%. The Bank is also continuing its policy of quantitative tightening.

The BoC took the decision after Canadian CPI inflation eased to 5.2% in February, and the Bank’s preferred measures of core inflation were just under 5%.

It says:

Inflation in many countries is easing in the face of lower energy prices, normalizing global supply chains, and tighter monetary policy.

At the same time, labour markets remain tight and measures of core inflation in many advanced economies suggest persistent price pressures, especially for services.

Updated

Andrew Bailey’s comments indicate that the next UK interest rate decision will be determined by the path of inflation, rather than concerns over financial stability.

Professor Costas Milas, of the Management School at University of Liverpool, explains:

Andrew Bailey confirms, in his speech today, that “financial stability continues to mean that monetary policy takes into account financial conditions”. This suggests, as I have shown in my academic paper (joint with Chris Martin) published by The Journal of Financial Stability that the MPC takes into account financial conditions in addition to inflation developments when setting UK interest rates.

The latest reading of financial stress conditions in the UK suggests that financial stress, on the 11th of April, was notably lower than its early/mid March reading (when the Silicon Valley Bank and Credit Suisse events dominated the news).

Therefore, the Bank’s MPC should be cautiously confident that a banking crisis has been averted (at least for now). Consequently, MPC members should decide on the next interest rate move in early May largely based on next week’s CPI inflation reading which should hopefully show a significant drop in inflation from its current 10.4% reading…

Back in Washington DC, Bank of England governor Andrew Bailey said the UK’s central bank was pondering whether deposit protection should be beefed up, at smaller banks.

He told the IIF:

The US authorities have announced a review of their deposit insurance system.

In the UK, the Bank is also considering improvements to our approach to depositor pay-outs for smaller banks which do not have Eligible Liabilities. Our work has thus far focused on the speed of pay-outs. Going further and considering increasing deposit protection limits could have cost implications for the banking sector as a whole. As with all things relating to bank resolution, there is no free lunch.

Warren Buffett says we’re not through with bank failures, but don't panic

Billionaire investor Warren Buffett has predicted there could be more bank failures down the road, but believes depositors should not ever be worried.

Speaking to CNBC today, Buffett predicted depositors would be protected – as happened when the government guaranteed all deposits at Silicon Valley Bank last month.

Buffett says:

“We’re not over bank failures, but depositors haven’t had a crisis.

Banks go bust. But depositors aren’t going to be hurt.”

Buffett, known as the The “Oracle of Omaha”, also said that the recent failures had shown some of the “dumb” things that banks do. That included mismatched assets and liabilities and questionable accounting.

“Bankers have been tempted to do that forever,” Buffett said.

“Accounting procedures have driven some bankers to do some things that have helped their current earnings a little bit and caused the recurring temptation to do get a little bit bigger spread on record, a little more than earnings.”

More here.

Updated

Bailey: Financial instability must not knock monetary policy off course

BoE governor Andrew Bailey also insisted today that the Bank would not be knocked off course from tackling inflation due to financial instability.

In his speech to the IIF today, he says:

What we have not done – and should not do – is in any sense aim off our preferred setting of monetary policy because of financial instability. That has not happened.

Bank of England governor Andrew Bailey then warns that the non-bank world can transmit risk into the bank world, and other parts of the core of the financial system, like central counterparties.

Consequently, the relative focus of the BoE’s financial stability work has shifted to the risks posed by non-bank financial institutions (NBFIs), he says.

He cites several recent crises such as the near meltdown of UK pensions last autumn, and the suspension of nickel trading in London last year after prices surged.

Bailey says:

Moreover, we have seen a common theme running through incidents that have occurred – the dash for cash in 2020, the Archegos Collapse, the LDI pension fund issue, the nickel metals case – namely that for firms to understand and respond to the full risk implications they would have had to observe and respond to a much larger picture of risks than they did observe, and from that came potentially larger risks.

Bailey: Unbacked crypto is not money

Bank of England governor Andrew Bailey then warns that stable coins – cryptocurrencies pegged to the value of other assets – must be regulated as inside money, ie bank deposits, and have the same characteristics.

Some stablecoins, such as tether which is designed to be worth $1, say they are fully backed by reserves.

Bailey tells the IIF that crypto, in its unbacked form, is not money – something buyers should remember.

For money to fulfil its function as a means of payment it requires stability of value. This is clearly not true of unbacked crypto. It could be a bet, a highly speculative investment or a collectible, but note that it has no intrinsic value, so buyer be very aware.

More interesting is the creation of so-called ‘stable coins’ or digital currency, which purport at least to be money as a means of payment. But, as we have seen, they do not have assured value, and in the work we have done at the Bank of England we have concluded that the public should expect assured value in digital money, and confidence in this is needed to underpin financial stability.

For stable coins to function as money they will need to have the characteristics of, and be regulated as, inside money.

Bailey: May need to rethink liquidity protection after SVB collapse

Turning to the banking crisis, Andrew Bailey indicates that regulators may need to rethink how much cash banks are forced to set aside, after the failure of several lenders in the last few weeks.

Bailey tells the Institute of International Finance that the failure of Silicon Valley Bank showed how quickly bank runs can take place today:

We can’t assume that, going forwards, the current answer on the total size of liquidity protection is the correct one. We saw with Silicon Valley Bank that with the technology we have today – both in terms of communication and speed of access to bank account – runs can go further much more quickly.

This must beg the question of what are appropriate and desired liquidity buffers that create the time needed to take action to solve the problem.

Andrew Bailey then turns to the task of unwinding the stimulus measures taken after the financial crisis, and the pandemic.

Bailey explains that many central banks, including the Bank of England, arenow implementing Quantitative Tightening (QT), the reversal of the Quantitative Easing (QE) under which it bought over £800bn of government bonds.

Bailey says, though, that the BoE won’t shrink its balance sheed to pre-crisis levels.

He tells the Institute of International Finance:

Both sides of the central bank balance sheet matter for our dual objectives of monetary and financial stability. What is less often said is that post financial crisis, irrespective of QE, a larger central bank balance sheet would have been needed to restore the safe stock of reserves and liquidity buffers.

It follows, therefore, that we will not shrink central bank balance sheets to what they were pre-crisis. But at the moment we don’t know with any precision where that level of reserves will be, or what the composition of the assets backing those reserves will be.

BoE governor Andrew Bailey: We're not facing a systemic banking crisis

Over in Washington DC, the governor of the Bank of England is speaking at the Institute of International Finance.

Andrew Bailey begins his speech by reminding his audience of the recent collapse of several banks, including Silicon Valley Bank a month ago, saying:

In recent weeks, we have seen the crystallisation of problems in a few parts of the banking sector.

This is against a background of a necessary sharp tightening in monetary policy to bring down inflation from levels that are much too high. All of this has to be set against the most serious global pandemic for at least a century and the most serious war in Europe since 1945.

But Bailey insists that the reforms to bank regulation brought in after the 2008 financial crisis “have worked”.

The BoE governor insists UK banks are strong:

Today I do not believe we face a systemic banking crisis. When I look at the UK banks, they are well capitalised, liquid and able to serve their customers and support the economy.

Although US inflation has fallen, at 5% it is still more than double the Federal Reserve’s target of 2%.

So it could be too early for the Fed to ease up on its tightening of monetary policy.

Here’s some reaction:

US inflation falls, what the experts say

There were some encouraging signs in March’s US CPI inflation report, including the first evidence that housing cost inflation is slowing, says Paul Ashworth, chief North America economist at Capital Economics.

However, Ashworth points out that core prices still increased by 0.4% m/m which, on an annualised basis, is close to 5%.

Ashworth told clients:

Core prices still increased by 0.4% m/m, even though both rent and owners’ equivalent rent increased by a more modest 0.5% m/m, down from 0.7% gains in February.

That is the first real sign that the moderation in alternative measures of newly signed rent agreements is finally feeding through into the CPI shelter measures that are based on surveys of all existing rent agreements.

Hugh Gimber, global market strategist at JP Morgan Asset Management, argues that the case for the Federal Reserve to hit pause on rate hikes is strengthening.

Gimber explains:

With supply chain pressures easing and energy prices stabilising, the greatest inflationary pressures are now focused in two of the most backward-looking components of the inflation basket – namely shelter and core services ex-shelter.

These two components contributed over 80% of today’s headline inflation number, and more timely indicators point to a slowdown in both elements ahead. For the shelter component, house prices and new rental agreements have already rolled over which should weigh on shelter inflation over the coming months. Core services ex-shelter is very closely linked to wage growth, and the jobs data last week also offered further evidence that the labour market is starting to cool.

Erik Norland, senior economist at CME Group, reports that the odds of another US interest rate increase in May have dropped.

Norland says:

US CPI came in close to expectations with the ex-food and energy (core) number exactly at consensus, +0.4% month-on-month and +5.6% year-over-year. The headline number came in 0.1% below consensus at +0.1% month-on-month and +5.0% year-over-year. The core number should be of concern for anyone hoping for easier monetary policy. U.S. core CPI has increased by either 0.4% or 0.5% for each of the past four months, suggesting that core inflation continues to run at close to a 5.5% annualized pace.

Nevertheless, 2Y US Treasuries jumped in price, sending their yields lower by 16bps relative to their levels before the release. Going into today’s U.S. CPI number, CME Fed Watch tool showed a 74% chance of a 25bps Fed rate hike on May 3rd. In the minutes after the meeting, traders in Fed Funds Futures downgraded the changes for another 25bps rate hike to around 60-65%.

Updated

US dollar hits one-week low after inflation report

The dollar has dropped in the international currency markets, after headline US inflation fell by more than expected last month.

The dollar has lost almost half a percent, as traders digest the fall in the annual consumer prices index to 5% in March.

The slowdown in inflation could encourage the US Federal Reserve to ease up on its interest rate increases (although the Fed won’t like the annual rise in core inflation).

The pound is up around 0.2% against the dollar today at $1.245.

Updated

Here’s the Washington Post’s Heather Long with a breakdown of what’s driving US inflation:

In a relief to struggling families, some food prices fell across the US last month.

Overall, the food at home index fell 0.3% over the month, the first decline in that index since September 2020.

Three of the six major grocery store food group indexes decreased over the month. The index for meats, poultry, fish, and eggs decreased 1.4% in March, due to a 10.9% drop in egg prices.

The fruits and vegetables index declined 1.3% over the month, and the dairy and related products index decreased 0.1%.

But, on an annual basis, food to consume at home cost 8.4% more than a year ago.

US rental inflation does seem to be easing, though, despite the rise in shelter costs over the last year.

The index for rent and the index for owners’ equivalent rent both rose 0.5% in March following larger increases in the previous month, the BLS says.

Motor fuel prices fell last month, the inflation report shows:

The energy index fell 3.5% in March after decreasing 0.6% in February.

The gasoline index decreased 4.6% in March, following a 1.0% increase in the previous month.

The shelter index, which tracks US housing costs, has risen by 8.2% over the last year, the inflation report shows.

That accounts for over 60% of the 5.6% increase in core inflation (excluding food and energy) over the last year.

On a monthly basis, US core inflation rose by around 0.4% in March, a slight slowdown on the 0.5% rise in February.

Here’s some snap analysis from Frederik Dukrozet, head of macroeconomic research at Pictet Wealth Management:

Indexes which increased in March include shelter (housing costs), motor vehicle insurance, airline fares, household furnishings and operations, and new vehicles, the inflation report says.

The index for medical care and the index for used cars and trucks were among those that decreased over the month.

US inflation rate falls to 5.0%

Newsflash: Inflation across the United States has slowed, and by more than expected.

The US consumer prices index rose by 5.0% in the year to March, lower than the forecasts for around 5.2%.

This is the lowest level of annual US inflation in almost two years.

It’s down from 6% in the year to February, showing that inflationary pressures continued to ease.

In March alone, consumer prices rose by 0.1%, a slowdown on the 0.4% recorded in February, the U.S. Bureau of Labor Statistics reports.

The fall was due to cheaper energy costs, the BLS says:

The index for shelter was by far the largest contributor to the monthly all items increase. This more than offset a decline in the energy index, which decreased 3.5 percent over the month as all major energy component indexes declined. The food index was unchanged in March with the food at home index falling 0.3 percent.

Core inflation, though, has risen to 5.6% per year, up from 5.5% in February.

The IMF also predicts that national debt in China and the US will rise over the coming years.

That trend means public debt is higher and growing faster than projected before the Covid-19 pandemic, the Fund says.

Vitor Gaspar, director of the IMF’s Fiscal Affairs Department, explains:

In the United States, public debt to GDP is projected to increase by almost 3 percentage points of GDP per year from 2024, about twice the pace projected before the pandemic.

By 2028 the United States’ public debt ratio is projected to exceed 135 percent of GDP, surpassing the pandemic peak. For China, the public debt to GDP ratio is projected to increase continuously to reach 105 percent in 2028.

Updated

UK national debt will continue to rise over next five years, says IMF

Britain’s national debt will continue to climb over the next five years, putting at risk one of Rishi Sunak’s key pledges to voters, according to an International Monetary Fund study.

The IMF said the cost of subsidies to consumers faced with rocketing energy bills meant repair of the UK’s Covid-battered public finances was taking longer than in other developed countries, our economics editor Larry Elliott reports from Washington DC.

In its Fiscal Monitor – one of its three flagship reports – the Washington-based body said it expected overall UK national debt to keep rising over the next five years. Public debt is forecast to increase steadily from 103% of the economy’s annual output, or gross domestic product (GDP), in 2022 to 113% by 2028.

Net debt – which strips out financial assets owned by the government – is also forecast to rise, from just under 92% of GDP in 2022 to just over 101% in 2027 and 2028.

Sunak promised to reduce debt as a share of GDP over an unspecified period earlier this year as he laid out five targets by which voters should judge his government. The others relate to inflation, growth, NHS waiting lists and stopping small boat crossings.

The UK’s independent forecaster the Office for Budget Responsibility – which uses a slightly different methodology to the IMF – said Sunak was just about on course to get debt on a downward path within five years. In its budget forecast last month, the OBR said the national debt would peak at just under 95% of GDP in 2026-27 and fall by 0.2 percentage points the following year.

More here:

Updated

US inflation, a preamble

European stock markets are holding their earlier gains, as tension builds ahead of the latest estimate of US inflation, due at 1.30pm UK time or 8.30am EST.

Economists predict that US inflation eased last month, with the consumer prices index forecast to have dropped to around 5.2% in the year to March, from 6% in February.

But core inflation could be stickier – it’s expected to have risen to 5.6% from 5.5%.

On a monthly basis, consumer prices are expected to have increased 0.2% in March alone.

Goldman Sachs trader John Flood has predicted that his week’s lull in the US stock market will be broken by the inflation data, in around 30 minutes time.

He reckoned the S&P 500 could drop at least 2% if the year-over-year inflation rate came in above the previous reading of 6% …

Updated

The Labour Party are launching a five-point plan today to “revitalise local high streets”, and warning that “thousands of pubs, shops and bank branches” have closed.

The plan includes launching a “Police Efficiency and Collaboration Programme” to combat anti-social behaviour, and cutting business rates for small businesses on the high street “paid for by properly taxing online giants”.

Labour is also promising “tough new laws to stamp out late payments and make sure more money gets to high street firms” and give councils “strong new powers to bring empty shops on their high streets back into use”.

And to help cut energy bills, Labour said it would introduce vouchers for energy efficiency measures including “double glazing at a local cinema, a new heat pump in a cafe or an electric vehicle for a takeaway”.

Tesco has cut the price of milk for the first time since May 2020, Reuters reports.

The move, by Britain’s biggest supermarket group, could be a welcome early sign that the surge in food inflation may abate in the coming months.

Here’s the details:

Tesco, which has a 27% share of Britain’s grocery market, said on Wednesday it was reducing the price of a four-pint carton of milk from £1.65 to £1.55, two pints from £1.30 to £1.25 and a pint from 95p to 90p.

‘We’ve seen some cost price deflation for milk across the market in recent times, and we want to take this opportunity to pass that reduction on to customers,’ Tesco UK CEO Jason Tarry said.

He said the price cut would not affect the price Tesco pays its milk farmers.

Rising food prices have been driving up UK inflation for months. Whole milk costs 34.4% more than a year ago, according to February’s inflation data.

Updated

Meanwhile in the US, demand for mortgages rose last week as the cost of borrowing eased.

Mortgage applications increased 5.3% last week, according to data from the Mortgage Bankers Association. This was driven by an 8% rise in applications to purchase a home, while refinancing requests flat.

The increase in demand came as the average interest rates on fixed-term loans fell, as the US jobs market slowed – which could encourage the US Federal Reserve to slow its interest rate increases.

Mike Fratantoni, MBA’s chief economist, explains:

Incoming data last week showed that the job market is beginning to slow, which led to the 30-year fixed rate decreasing to 6.30 percent – the lowest level in two months.

Prospective homebuyers this year have been quite sensitive to any drop in mortgage rates, and that played out last week with purchase applications increasing by 8 percent.

Updated

Thousands of UK households have a decision to make ahead of a bumper remortgaging deadline, Bloomberg UK reports today.

Borrowers have a dilemma – whether to lock in a pricier fixed-rate deal or bet on a Bank of England rate cut.

Bloomberg explains:

As many as 56,220 two-year fixed-rate mortgages are due to expire in September, according to data from industry body UK Finance. That’s on the back of a flurry of sales in September 2021 when homebuyers were racing to complete deals before a stamp duty holiday ended.

Mortgage holders can typically secure new deals up to six months before their fixed-rate loans expire. Since January, as many as 71,100 households have been shopping for deals ahead of another crowded deadline in June, tied to a separate sales rush in 2021.

More here: Britain’s Remortgaging Pain Is Only Getting Started

UK Base Rate is currently 4.25%, and the markets expect the Bank of England to raise it again to 4.5% in May… and keep it there until at least the end of the year.

Holidaymakers have been warned to look out for fraudsters advertising bogus travel deals and exploiting passport delays, PA Media reports.

The Chartered Trading Standards Institute (CTSI) warned that scammers were using increasingly sophisticated and convincing methods to dupe potential travellers into paying for non-existent holidays and services.

These included “entirely fabricated” social media ads featuring attractive pictures of holiday cottages and hotels accompanied by “too good to be true” prices.

By the time holidaymakers realised that the pictures and prices were fake, scammers had taken their money and disappeared, the CTSI warned.

In many cases scammers told their victims to pay by cash, via bank transfer or through services such as Western Union, which were difficult to trace and non-refundable.

Often victims did not realise they had been scammed until they arrived at the airport to find their flight reservation did not exist, or at a hotel to discover there was no record of their booking.

FTSE 100 hits one-month high

Britain’s blue-chip share index has risen to a one-month high this morning.

The FTSE 100 has gained 0.6% or 46 points to 7,831, the highest since 10th March – the day in which Silicon Valley Bank collapsed.

It’s on track for its fourth daily rise in a row, and the 10th in the last 11 sessions.

The upcoming US inflation figures are the key thing dominating the agenda today, says Russ Mould, investment director at AJ Bell.

Mould explains:

Markets have recently taken the view that the Fed needs to ensure stability in the financial system following the banking crisis. That means easing back on rate hikes which could topple the economy.

However, the reason why rates have been going up so fast over the past 12 months is down to rising inflation, so today’s update on the cost of living in March will still matter to the Fed and its monetary policy. The consensus forecast is a 5.6% rise in core inflation year on year, up slightly on February’s 5.5% reading.

Updated

British homes sales recovered to within a whisker of pre-pandemic levels in March, data from property website Rightmove shows.

According to Rightmove, the number of sales agreed between sellers and buyers returned to pre-pandemic level last month, for the first time since September.

Sales were just 1% lower last month than in March 2019 as borrowing costs edged down from their leap after the September ‘mini-budget’.

That suggests the housing market is recovering from the turmoil last autumn.

Rightmove’s property expert Tim Bannister said:

The market is remaining surprisingly robust given the economic headwinds that have affected movers over the last six months.

While the market is by no means at the exceptional level it has been over the last couple of years, it is a positive sign for agents that sales at a national level are being agreed at the same rate as the last more normal market of 2019, though there are regional differences across Great Britain.

Updated

European markets rally

European stock markets are rallying this morning, as investors put last month’s banking crisis behind them.

In Paris, the CAC 40 index of leading French shares has hit a record high, despite the ongoing protests against president Macron’s pension changes.

Shares are picking up ahead of the next US inflation report, due at 1.30pm UK time.

Pierre Veyret, technical analyst at ActivTrades, says:

Investor appetite for risk continues to rise, pushing the STOXX-50 index towards a new annual high and the French CAC-40 to a new historical summit, mostly led by energy, utilities, real estate and luxury shares.

Traders remain remarkably positive despite recession worries, inflation fears and the prospect of dented corporate profits for the next earning season starting on Friday.

Germany’s DAX has gained 0.3%, on track to close at a one-year high.

Updated

Video: Elon Musk interview

Updated

Demand for cinema trips picked up last year as pandemic restrictions were lifted, boutique operator Everyman Media Group reports this morning

Everyman, which runs 38 venues across the UK, told shareholders today that its revenues swelled to £78.8m in 2022, up from £49m in 2021, with admissions rising to 3.4 million from 2 million.

It made an operating profit of £402,000 for the year, up from a £2.2m operating loss in 2021.

The cinema industry had been hit by a drought of blockbusters last year, before the Christmas release of mega-sequels to Avatar and Black Panther.

But Alex Scrimgeour, CEO of Everyman Media Group PLC, insists 2022 saw “a return to business as usual”.

Everyman opened cinemas in Edinburgh and Egham in 2022, and are planning new openings in Durham, Salisbury, Northallerton, Plymouth, Marlow and Bury St Edmunds in the second half of 2023.

Scrimgeour says:

Supported by an increasingly strong pipeline of new releases, commitment to the theatrical window from studios and new investment from streamers in films for theatrical release, we view our prospects with increasing confidence.

Moving through 2023 and beyond, the Everyman proposition feels as relevant as ever.

Retail spending figures this week showed that people are cutting back on nights out, spending less in restaurants but more on streaming and pay TV subscriptions.

Updated

The chief of Holiday Inn owner InterContinental Hotels Group has warned that the UK stock market is “not a very attractive place” for listed companies, at a time when several companies are favouring New York over the City of London.

Keith Barr, chief executive of IHG, has told the Financial Times that the authorities to get on the “front foot” to arrest further decline.

While Barr stressed that “there’s no clamouring” for a switch in listing from shareholders, he argues the FTSE needs to tempt back investment from pension and insurance funds to improve liquidity and ease governance rules compared with the US.

The FTSE 100 over the last two decades
The FTSE 100 over the last two decades Photograph: Refinitiv

The FT explains:

Several shareholders in the group, which has been listed in London since it demerged from pubs business Mitchells & Butlers two decades ago, asked at an investor roadshow last month whether it had any plans to switch its primary listing to the US, IHG chief executive Keith Barr told the Financial Times.

The group has a secondary listing in New York. “When we listed, there was probably no reason to even think about listing in the US for our primary listing because the FTSE was the FTSE and it was incredibly liquid . . . but things have changed,” said Barr.

Last month, building materials group CRH said it plans to move its primary stock market listing to the US from London.

The Cambridge-based chip designer Arm is pursuing a US-only listing this year too.

The deeper pool of capital in the US is attractive to groups looking for growth.

Updated

Banknote maker De La Rue issues profits warning as demand for cash falls

Shares in banknote maker De La Rue have tumbled to a record low this morning, after it issued a profits warning due to a drop in demand for cash.

De La Rue told shareholders that its full year adjusted operating profits, for the 12 months to 25 March, are likely to be a mid-single digit percentage below market expectations.

It told shareholders that demand for banknotes was at the lowest in at least two decades, following the move to cashless payments, saying:

The downturn in Currency, impacting both De La Rue and the wider industry, is causing a significant degree of uncertainty in terms of outlook for FY24.

The demand for banknotes has been at the lowest levels for over 20 years, resulting in a low order book going into FY24.

Shares in De La Rue have plunged 32% to 34p.

De La Rue's share price

Victoria Scholar, head of investment at interactive investor, says De La Rue needs ‘drastic change’ after some tough years:

The British currency and passport maker has been suffering from weak demand for banknotes which is languishing at a 20-year low.

Activist investor Crystal Amber Funds recently said the group’s turnaround plan announced three years ago is failing ‘by every measure’ and the company is ‘failing to control’ various fees paid out. The activist has also been trying to remove Kev Loosemore as chairman but he survived a vote in December.

In recent years, De La Rue has struggled with the lost contract to print blue British passports, increased costs, supply chain woes and a structural decline in demand for physical cash amid the rise of contactless payments and digital banking.

Shares in De La Rue have plunged today, bringing its one-year loss to over 65% and its 5-year loss to nearly 92%. Drastic change is needed in order for De La Rue to convince shareholders of a rosier outlook.”

Twitter’s role is to be a realtime “immediate source of truth that you can count on”, Elon Musk said, and one that gets more accurate with time as people comment on particular things.

“If Twitter is the best source of truth, we will succeed,” Musk told the BBC. But “if we are not the best source of truth, we will fail”.

Musk says he wouldn’t take $44bn for Twitter if someone came in and offered his purchase price today. But he then indicated that it depends on who it was.

Musk said:

If I was confident that they would rigorously pursue the truth then I guess I would be glad to hand it off to someone else.

Musk, the world’s second richest man, insisted “I don’t care about the money, really”.

But he did seem briefly flummoxed at the suggestion that, if money wasn’t actually important, he could hand Twitter to someone else who could do a good job of running it.

Updated

Many advertisers paused work with Twitter over concerns about Musk’s approach to content and moderation, after his takeover last autumn.

But Musk insists that advertising has picked up again, telling the BBC:

I think almost all of them [who left] have either come back or said they were going to come back. There’s very few exceptions.

Depending on how things go, if current trends continue, we could be… cash flow positive this quarter if things keep going well.

Updated

Elon Musk also revealed that he sometimes sleeps in the Twitter office, using a couch in a library “that no one goes to”.

And in a curious moment in the interview, he insisted that his dog Floki, a Shiba Inu, was the CEO of the social media company.

Musk said:

I’m not the CEO of Twitter. My dog is the CEO of Twitter.

Last December, Twitter users voted that Musk should stand down, and in February Musk joked that Floki was now running things.

Updated

Musk also said the legacy verified blue ticks on Twitter will be removed by next week (as part of his push to persuade users to pay for Twitter Blue).

He criticised media groups who said they won’t pay for blue ticks, arguing:

It’s a small amount of money, so I don’t know what their problem is.

Several celebrities and media organisations have said they will not pay for a subscription, amid concerns that fake accounts or parody accounts will find it easier to impersonate them.

Updated

During the interview, Musk defended the sacking of around three quarters of Twitter’s staff after his takeover last year.

He said Twitter would have gone bankrupt if he hadn’t cut costs immediately, claiming the company had “four months to live”.

This is not a caring/uncaring situation. If the whole ship sinks then nobody’s got a job.

Twitter has about 1,500 employees now, Musk said, a sharp decline from “just under 8,000 staff members” before the takeover.

Updated

Musk also said Twitter will update the BBC’s “government-funded media” tag after the broadcaster objected to the label.

The BBC contacted Twitter last week after the designation was attached to the main @BBC account.

In an interview with the BBC on Tuesday, Mr Musk said he has the “utmost respect” for the organisation, adding:

“We want (the tag) as truthful and accurate as possible – we’re adjusting the label to (the BBC being) publicly funded – we’ll try to be accurate.”

More here:

Introduction: Elon Musk tells BBC that Twitter is roughly breaking even

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Elon Musk has revealed Twitter is “roughly breaking even”, saying advertisers are returning after many quit following his takeover of the social media site.

In an interview with the BBC, on Twitter Spaces, Musk also said the criticism he’s faced recently has been “rough”.

Asked if he had any regrets after buying Twitter for $44bn last year, Musk said the pain level of Twitter has been “extremely high”, and that owning the company hasn’t been “some sort of party”.

Musk said:

So, it’s been really quite a stressful situation, for the last several months. Not an easy one.

He said that “of course” many mistakes had been made along the way, but argued that “all’s well that ends well”.

As Musk put it:

I feel like we’re headed to a good place. We’re roughly break-even, I think we’re trending towards being cashflow positive very soon, literally in a matter of months.

The advertisers are returning.

Musk, who cut almost half of Twitter’s workforce last autumn, said cutting the workforce had not been easy.

He said the company has made improvements to its recommended tweets, following feedback after Twitter made its recommendation algorithm open source.

Overall I think the trend is very good.

Musk also opened up about why, in February, he had tweeted that he wouldn’t wish the pain of running Twitter on anyone.

Musk said he had been “under constant attack”, which hurt as he doesn’t have “a stone-cold heart”.

If you’re under constant criticism and attack, and that gets fed to you non-stop, including through Twitter, it’s rough.

But it’s important to get negative feedback, he added. Musk says he doesn’t turn off replies, and doesn’t block anyone on Twitter either.

So I get a lot of negative feedback.

Also coming up today

Investors are awaiting the latest US inflation data today, which may show that the cost of living squeeze eased last month.

The US consumer prices index is expected to have risen by 5.2% in the year to March, down from 6% in February. A sharp fall could encourage the US Federal Reserve to end its interest rate increases, which would be welcomed by traders.

The IMF will release its Fiscal Monitor, assessing public finances at countries around the world, today, after yesterday predicting the UK’s economy will shrink this year.

The agenda

  • Noon: US weekly mortgage applications

  • 1pm BST: IMF publishes its Fiscal Monitor

  • 1.30pm BST: US inflation report released

  • 2pm BST: Bank of England governor Andrew Bailey speaks on ‘The shifting risk landscape’ at the Institute of International Finance in Washington DC

  • 3pm BST: Bank of Canada’s interest rate decision

  • 7pm BST: Federal Reserve’s FOMC releases minutes of its last meeting

Updated

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