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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

FTSE 100 near record high amid interest rate cut hopes – as it happened

Andrew Bailey United Kingdom Bank of England GfK Office for National Statistics
A view of the City of London.
A view of the City of London. Photograph: James Manning/PA

I don’t think we’ll see a record high on the FTSE 100 today, alas.

The index is still holding its gains – up 53 points or 0.7% at 7935, just over 100 points away from last year’s all-time intraday high of 8047 points.

A record high would be welcome news for investors in the UK stock market.

But…Alex Wright, portfolio manager of the Fidelity Special Situations Fund and Fidelity Special Values, says there has been “little change in the generally weak sentiment towards UK equities” since the Brexit referendum in 2016.

Wright adds:

The strength of US equities, led by the ‘Magnificent Seven’ tech-related stocks, has continued to dominate the market narrative in the opening months of 2024.

This can be seen in valuation multiples, with the UK trading on an estimated PE multiple of c.11x for 2024, which compares to nearly double that for US equities at over 21x, or even Europe and Japan on c.15x.

Wall Street stocks are in a lacklustre mood today, after a strong week.

The S&P 500 has dipped by 0.1%, with Nike (-8%) dragging on the index, but still on track for its best week this year.

Investors greenlight Trump's billion social media deal

Donald Trump has moved a step closer to collecting a $3bn windfall from his social media firm Truth Social.

Shareholders in Digital World Acquisition Corporation have voted today to approve a merger with Trump Media & Technology Group, the private firm that owns the Truth Social app platform.

Digital World Acquisition is a special purpose acquisition company, or Spac, a vehicle floated on the stock market with the goal of buying another company.

The merger would mean Trump Media would be listed on the market; and at Digital World’s share price this week, it would make Trump’s stake worth $3.3bn.

Digital World shares have risen 140% this year, amid a meme-stock flurry of images urging people to buy its shares.

This has driven its value steadily higher, even though Trump Media has posted sales of less than $5m.

However, Trump wouldn’t be able to cash in shares for six months, meaning the eventual value of his stake could end up being rather lower (or higher! You never really know with meme stocks..)

Updated

Nike shares drop 8% after warning of revenue fall

In New York, shares in Nike have dropped 8% at the start of trading after it issued a weak sales forecast last night.

Nike’s shares have dropped to $92.76, having closed at $100.82 last night.

The selloff somes after Nike told analysts last night it is “prudently planning” for revenue in the first half of fiscal 2025 to fell by a low single-digit amount, reflecting “a subdued macro-outlook around the world.”

According to Reuters, Nike is planning to trim supplies of classic shoes such as its Air Force 1 and Pegasus, as it focuss on reviving its running shoe category.

The warning came after Nike reported a small rise in revenues in the third quarter of its current financial year (ending on 29 February)

John Donahoe, President & CEO of NIKE, Inc, said:

“We are making the necessary adjustments to drive NIKE’s next chapter of growth.

“We’re encouraged by the progress we’ve seen, as we build a multiyear cycle of new innovation, sharpen our brand storytelling and work with our wholesale partners to elevate and grow the marketplace.”

One of Nike’s ‘innovation’s is causing a storm in the UK today, though. It’s being criticised for using a multicoloured St George’s Cross on the new England shirt, instead of the traditional red and white one on the shirt.

Rishi Sunak has said the cross of St George should not be messed with, while Keir Starmer says the new kit should be scrapped.

Nike’s warning that its revenues will fall in the first half of the next financial year has knocked the leisure sector; Shares in UK retailer JD Sport are down 7% today, while Germany’s Puma are down 1.8%.

HSBC has brought forward its expectations for the first cut in UK interest rates to June, having previously expected the first 25 basis cut in August.

It also kept its forecast of one rate cut per quarter from August onwards, which would lower Bank rate to 3.5% by the end of 2025.

Kathleen Brooks, research director at XTB, says:

This shift in rate cut expectations from the Bank of England is like a red flag to a bull, and markets have rallied sharply.

The FTSE 250 has also made strong gains this week, and… is only 400 points away from the record high made in 2021.

Markets are relieved that this month’s central bank policy decisions have not repeated the more hawkish tone of the January meetings, says Raffi Boyadjian, lead investment analyst at XM:

Shares on Wall Street are headed for strong weekly gains following the conclusion of the March central bank meetings that cemented rate cut expectations for 2024. After the European Central Bank paved the way for lower rates at the beginning of the month, the Federal Reserve and Bank of England became the latest this week to not push back on market bets for a series of rate reductions later this year.

The Swiss National Bank went a step further and announced a surprise 25-basis-point cut, becoming the first major central bank to commence with an easing cycle, and even the Bank of Japan’s much-anticipated exit from negative rates turned out to be a dovish hike.

FTSE 100 approaching record high amid rate cut hopes

Britain’s blue-chip share index is climbing towards its alltime high this morning, as hopes build that interest rates will be cut this year.

The FTSE 100 index has jumped by 64 points, or 0.8%, to 7947 points, adding to the 145 points it jumped yesterday – its best day in over a year.

The Footsie has now gained over 4% since the start of March.

It is now just 1.2%, or 100 points, away from the all-time high of 8,047 points set in February 2023.

It’s part of a global stock market rally, which saw Japan’s Nikkei hit record highs this week, and the main US share indices also hit record levels.

The prospect of cuts to UK interest rates this year – hinted at by the Bank of England governor – are cheering traders, as lower borrowing costs should stimulate the economy.

But it’s a wider issue too – the US Federal Reserve lifted markets on Wednesday by sticking to its forecast of three rate cuts this year. Yesterday, Switzerland got the rate cut ball rolling by unexpectedly lowering its policy rate, after its inflation rate fell.

Neil Wilson, analyst at Markets.com, says there is a definite sense that central banks are prepared to tolerate higher inflation and are ready to cut – or already have.

He adds:

Suppressing yields and pushing up inflation has been their stated aim for well over a decade. Now they have it and want to keep it – hiking interest rates into the oblivion of unemployment and recession was never the plan.

Interestingly, the Nikkei rallied despite the Bank of Japan bucking the trend and raising rates this month, out of negative territory.

In the foreign exchange markets, the pound continues to trade at its lowest level since the start of the month, down three quarters of a cent at $1.258.

Russia holds interest rates at 16%

Newsflash: Russia’s central bank has left interest rates on hold, at 16%.

At the end of a busy week for central banks, the Bank of Russia says it maintained borrowing costs as inflationary pressures “gradually ease but remain high”.

It says:

Domestic demand is still outstripping the capabilities to expand the production of goods and services. Labour market tightness has increased again. For the moment, it is premature to judge the pace of future disinflationary trends.

Russian inflation rose to a one-year high of 7.7% in February.

The Bank of Russia says it expects annual inflation will fall to between 4% and 4.5% in 2024, and stabilise close to its 4% target further on.

Aston Martin poaches boss from Bentley

In the car sector, luxury automaker Aston Martin has named Bentley head Adrian Hallmark as its new CEO to replace Amedeo Felisa.

Hallmark becomes the third CEO of Aston Martin since its largest shareholder, Lawrence Stroll, took over the carmaker in 2020.

Hallmark will join Aston Martin by 1 October, with Felisa – who turns 78 in October – staying on until his replacement arrives.

Stroll says:

“When Amedeo was appointed CEO, I spoke of him leading a new phase of growth and development.

Two years on, we have delivered on that promise, as we near completion of our thrilling new product portfolio and move closer to our vision of becoming the world’s most desirable, ultra-luxury British performance brand.”

Shares in Aston Martin are up 1% this morning at 172p, but have dropped by almost a quarter so far this year. Five years ago, they were worth around £25.

Last year, Aston Martin’s pre-tax losses narrowed to £239.8m, from £495m in 2022. On an adjusted EBITDA basis, earnings rose to £305.9m from £190.2m

Bentley, which is owned by Germany’s Volkswagen, make operating profits of €589m (£502m) last year. It has benefitted from the boom in the world’s richest people opt to spend hundreds of thousands of pounds to personalise their vehicles:

Updated

Over in Germany, business morale has picked up.

The IFO institute’s business climate index has risen this month, to 87.8 points, up from 85.5 and higher than expected.

Companies’ expectations were less pessimistic in March, while their assessments of the current business situation also improved.

Ifo president Clemens Fuest says:

“The German economy glimpses light on the horizon.”

The planned merger between Vodafone and Three UK, which would create the UK’s largest mobile phone operator, has been referred to an in-depth investigation by the competition regulator.

The Competition and Markets Authority (CMA) said it intended to refer the deal to a more detailed phase 2 investigation amid concerns that mobile customers could face higher prices and reduced quality.

The merger combines two of the four mobile network operators in the UK and will bring 27 million customers under a single network provider, leapfrogging EE, owned by BT, and Virgin Media O2, owned by Spain’s Telefónica and the US-listed company Liberty Global.

The CMA had already carried out an initial phase 1 investigation looking at whether the deal might lead to a “substantial lessening of competition” and said on Friday it had identified concerns that the transaction could lead to higher prices for customers and lower investment in UK mobile networks.

Shares in pub chain JD Wetherspoon have dropped by 6% this morning, after it revealed sales growth has slowed.

JD reported that like-for-like sales grew by 9.9% in the 26 weeks to 28 January, with pre-tax profits swelling by 682% to £36m, from £4.6m a year before.

But growth since the end of January has slowed, with like-for-like sales up 5.8% in the last seven weeks.

The recovery in sales comes after pandemic restrictions were eased, but Wetherspoon’s chairman Tim Martin remains concerned about Covid-19, telling shareholders:

“Sales continue to improve. In the last 7 weeks, to 17 March 2024, like-for-like sales increased by 5.8%.

The company continues to be concerned about the possibility of further lockdowns and about the efficacy of the government enquiry into the pandemic, which will not be concluded for several years.

Derren Nathan, head of equity research at Hargreaves Lansdown, says today’s results are impressive, but growth has taken a step down.

Nathan explains:

“Pub Chain J D Wetherspoon’s half year results tell a story of an impressive recovery. But the strong operating profit growth reflects the low-base to which this set of numbers were compared to. At under 7%, margins are still pretty thin and there was little in the statement to help see where an improvement might come from. The Group’s been steadily reducing and optimising its footprint and has a good record of outperforming its peers.

A lot of capacity has come out of the market and the hint that there might be potential of about 1,000 pubs compared to a current total of 814, could see the estate start to grow again. That may see the return of dividends kicked further down the road. Location is key and recent openings include the Stargazer at the old Millenium Dome in Greenwich and the Star Light at Heathrow Airport. Overall, returning the estate to growth could be a welcome development. But there’s only so much you can grow if pub numbers remain static, and for now like-for-like growth has taken a step down. 5.8% isn’t awful but if it stays at this level for the rest of the year the market’s likely to be disappointed.”

JD Wetherspoon’s shares are the second-biggest faller on the FTSE 250 index this morning, with investors giving scant appreciation for a 1930% increase in earnings per share in the six months to the end of January.

The weaker pound is helping to push share prices up in London.

The FTSE 100 index of blue-chip shares has risen over 7,900 points for the first time since last April, up 25 points this morning at 7,907.

But, JD Sports shares are weighing on the index. They’re down 3.8% after sportswear maker Nike warned last night that its revenues will shrink slightly in the first half of its 2025 financial year.

Ouch. The pound has now dropped below the $1.26 level, as rate cut expectations weigh on the currency.

Sterling has now hit $1.2582, the lowest since 20 February.

Morgan Stanley predict the Bank of England will cut interest rates by a whole percentage point during 2024, which would bring Base Rate down from 5.25% to 4.25%.

In a research note this morning, following yesterday’s BoE rate decision, they say:

For the first time since September 2021, there were no votes for hikes at an MPC meeting.

The guidance was unchanged, but the minutes offered some interesting (dovish) shifts. We leave our call unchanged – May start, 100bp of cuts this year – but continue to acknowledge the risks of a later move. That said, after today, we have somewhat greater conviction that “later” means June and not August.

The key question, they add, is how many BoE members are very close to voting for a cut already, and how many require more than just one set of data prints to move.

The latter camp almost certainly includes [Catherine] Mann and [Jonathan] Haskel. for example, and [Megan] Greene, too. Indeed, with his term expiring in August, Haskel will almost certainly not vote for a cut in this cycle.

[Mann and Haskel both gave up voting for interest rate rises at this week’s meeting, meaning eight of the nine MPC members voted for no change.]

The pound has dropped to a three-week low this morning, as City traders anticipate cuts to UK interest rates soon.

Sterling has lost half a cent against the US dollar this morning, to trade just above $1.26, the lowest since 1 March, adding to yesterday’s losses.

Updated

Extremely wet February hit in-store sales

The dire wet weather that hit the UK last month hit spending in stores, as consumers avoided getting a soaking on the high street.

Heather Bovill, the ONS’s senior statistician, says:

Many shops told us that an extremely wet February reduced in-store sales.

But with people staying indoors, we saw a boost of 2.1% on the amount spent online.

February was certainly soggy; the south of England had its wettest February on record, in a series going back to 1836, according to Met Office data.

UK retail sales stagnated in February

Just in: retail sales volumes across Great Britain stagnated in February, new data shows.

The Office for National Statistics has reported that sales volumes were flat last month, following the strong 3.6% growth in January, after December’s slump.

That’s slightly stronger than expected, with economists forecasting a 0.3% drop in February.

The ONS says:

Sales volumes in clothing and department stores grew because of new collections but falls in food stores and fuel retailers offset this growth. Meanwhile online sales increased, particularly for clothing retailers, as wet weather affected footfall.

On an annual basis, volumes were 0.4% lower than a year ago, and were 1.3% below their pre-coronavirus (COVID-19) pandemic level in February 2020.

More broadly, sales volumes fell by 0.4% in the three months to February 2024 when compared with the previous three months.

And on an annual basis, retail sales volumes were 1.0% lower than in the quarter to February 2023.

Updated

UK consumers turn positive about their finances

UK consumer confidence stalled in negative territory this month, but people are slightly more positive about their own finances.

The GfK consumer confidence index remained at -21 in March, unchanged from February, amid pessimism over the economic situation.

But households have turned positive about the outlook for their personal finances for the first time in more than two years. GfK’s index of personal finances over the next 12 months rose by two points at +2, which is 23 points higher than this time last year.

Joe Staton, client strategy director at GfK, says the improved Personal Finance measure is encouraging, adding:

This is welcome news given the challenges faced by Britons of fiscal drag, higher costs for fuel, rising council taxes and utilities eroding any increases in wages or other income.

Updated

Introduction: Bank of England’s Andrew Bailey says rate cuts ‘in play’

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

A day after leaving UK interest rates on hold again, the governor of the Bank of England has dropped a hint that cuts are coming.

Andrew Bailey has declared that rate cuts will be “in play” at future meetings of the BoE Monetary Policy Committee amid signs that tighter policy had quelled the risk of a wage-price spiral.

The Bank has been worried for many months that inflationary expectations will become embedded in the economy. But in an upbeat interview with the Financial Times, Bailey says:

“It’s like the Sherlock Holmes dog that doesn’t bark. If the second-round effects don’t come through, that’s good because monetary policy has done its job.

We have an increasingly positive story to tell on that.”

Bailey pointed out that the global shocks that pushed up UK inflation to the highest since the 1970s are now unwinding.

He was speaking after the BoE left interest rates at 5.25%, with two BoE policymakers dropping their calls for even higher borrowing costs. The Monetary Policy Committee voted 8-1, with Swati Dhingra continuing to vote, alone, for a cut in rates.

The financial markets now predict the first cut will come by June, with a cut at the next meeting in May seen as a 23% chance, according to the money markets this morning.

Some economists think the Bank could wait until August to start cutting. At least three quarter-point rate cuts are priced in by the end of the year.

Gabriella Dickens, G7 economist at AXA Investment Managers, says:

A decision of when to ease will be finely balanced between June and August, but on balance we now see the first move as more likely in June. We continue to expect two further 25 basis points (bps) cuts in November and December.

Bailey told the FT that he feels it is “not unreasonable” for the financial markets to expect rate cuts this year.

And, ssked if all the upcoming MPC meetings were live when it comes to possible policy moves, he confirmed:

“All our meetings are in play. We take a fresh decision every time.”

Hopes of global interest rate cuts this year triggered a market rally yesterday – with the UK’s FTSE 100 jumping 1.9% to a near one-year high. Wall Street hit record highs, again.

The agenda

  • 9am GMT: IFO survey of Germany’s business climate

  • 10.30am GMT: Bank of Russia sets interest rates

  • 11am GMT: CBI Industrial Trends survey of UK manufacturing

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