Closing post
Time to wrap up, here’s today’s main stories:
The London stock market has closed for the evening, with the FTSE 100 down 68 points of 0.85% at 8072, its lowest closing level in three months.
Oil is ending the week with losses; Brent crude has dropped by 2.5% today to $73.68 per barrel.
Fears of disruption from Hurricane Rafael are a factor.
Samer Hasn, senior market analyst at XS.com, cites disappointment about the scale of the latest rescue package from China, this time focused on local government debt.
The renewed decline in oil prices comes as hopes fade over the possibility of providing more support packages for the Chinese economy, which reinforces concerns about the future of demand for crude from its largest importers. The declines also come amid concerns about the effects of Trump’s policies that could weaken the Chinese economy and deepen those concerns.
The Standing Committee of the Chinese Legislative Council, after its meeting that lasted throughout the working days this week, approved a package equivalent to $1.4 trillion as part of a debt swap program. However, the disappointment comes with the lack of disclosure of financial measures to support the economy directly, and the debt swap measures will only push the maturity dates of the debts forward, according to what was reported by the Wall Street Journal, citing economists.
Adding to these disappointments, concerns about China’s economic recovery could intensify if Donald Trump returns to the White House next year.
Updated
US consumer confidence picks up
It didn’t do Kamala Harris much good, of course, but apparently US consumer confidence rose at the start of this month.
The index of consumer sentiment producer by the University of Michigan, and just released, has risen to 73.0 this month, up from 70.5 in October.
Inflation expectations dipped, to the lowest since December 2020, with people anticipating inflation would be 2.6% in a year’s time, down from 2.7% last month.
Univ of Michigan inflation expectations readings. One-year expectations fell to a low of 2.6% while 5-10 year expectations edged up to 3.1%. pic.twitter.com/TfHGVGQH8V
— Kathy Jones (@KathyJones) November 8, 2024
Surveys of Consumers director Joanne Hsu explains:
Heading into the election, consumer sentiment improved for the fourth consecutive month, rising 3.5% to its highest reading in six months. While current conditions were little changed, the expectations index surged across all dimensions, reaching its highest reading since July 2021.
World food prices reach 18-month high in October, UN says
World food prices rose last month to their highest level since April 2023, driven by an increase in the cost of vegetable oils.
The United Nations’ world food price index, which tracks the price changes in various edible commodities, increased by 2% in October to to 127.4 points last month from a revised 124.9 points in September.
The report found that the prices of all food categories rose, apart from meat.
The Vegetable Oil Price Index jumped by 7%, with prices reaching a two-year high, due to higher costs for palm, soy, sunflower and rapeseed oils.
Dairy prices rose 1.9%, which the UN attributes to pricier cheese and butter prices, and seasonally low milk production in Western Europe.
Cereal prices rose by 0.8% in the month, with costs pushed up by “concerns over unfavourable weather conditions affecting winter crop sowing in several major northern hemisphere exporters”
The UN adds:
Additionally, the re-introduction of an unofficial price floor in the Russian Federation and rising tensions in the Black Sea region exerted upward pressure on prices.
Wall Street opens at new peak
The US stock market has hit fresh record highs at the start of trading in New York.
The Dow Jones Industrial Average and the S&P 500 index have both hit record intraday peaks.
The S&P 500 is up 7.7 points or 0.13% at 5,980, putting the 6,000-point mark in sight for the first time.
Investors still seem upbeat about US stocks following Donald Trump’s election win, anticipating deregulation and tax cuts…
Icahn: I've rarely seen a stock market with such extreme valuations
Veteran investor Carl Icahn says he’s not seen such an unbalanced stock market many times before.
Presenting Icahn Enterprises’ third-quarter results today, Icahn says:
“I strongly believe that our portfolio – both for the investment segment and the controlled businesses – has significant opportunities ahead. Rarely have I seen a stock market with such extreme valuations – with some companies trading at unjustifiable premiums and others being massively undervalued.
These undervalued situations have created great opportunities for activists. To take advantage of these opportunities when they occur, we have always maintained a war chest of liquidity.
That “war chest” is currently made up of $2.3bn of cash and cash equivalents.
But Icahn is using some of it to extend his stake in oil refinery business CVR Energy.
He’s also halving the dividend paid to investors in Icahn Enterprises, from $1.00 per depositary unit to $0.50, to help fund the CVR deal and keep that warchest stocked…
Updated
Meanwhile in Canada….. fewer jobs were created last month than expected.
The northerly G7 member added around 15,000 new jobs in October, fewer than the 25,000 which economists expected.
Canada’s employment rate fell 0.1 percentage points to 60.6% and the unemployment rate was unchanged at 6.5%.
Employment rose by 25,000 (+1.8%) in October among male youth aged 15 to 24, while it fell among women aged 55 and older (-15,000; -0.8%), Statistics Canada reports.
Employment in Canada increased by 14.50 in October of 2024.https://t.co/OhsGqO5S47 pic.twitter.com/8XaFSBqKEK
— TRADING ECONOMICS (@tEconomics) November 8, 2024
Notably, the labour force participation rate – which measures the proportion of people either in work or looking for a job – dipped for the fourth month running.
Employment numbers are out for Canada. Another miss on the headline job adds, but a lower participation rate allows the headline unemployment rate to steady at 6.5%.
— Etienne Bordeleau (@Bordeleau_E) November 8, 2024
What really got my attention is the participation rate, which is back to historically low levels.
Not sure we… pic.twitter.com/ayIV3mK1c2
Updated
Bank of England must look past temporary inflation hit from budget, says Huw Pill
Yesterday, the Bank of England showed that it expects Rachel Reeves’s budget to add almost half a percentage point to inflation at its peak in just over two years’ time.
That’s due to measures such as the addition of VAT to private school fees and the £1 increase in the bus fare cap to £3, plus the assumption that the long-running fuel duty-freeze will end (although Reeves extended it last week).
Today, the central bank’s chief economist says it must look beyond the temporary inflation boost from last week’s budget.
Huw Pill has explained that it’s important to focus on anything that might add to longer-term price pressures.
In a briefing to businesses, Pill says:
“To a large extent, we will have to look through and interpret [the measures in the budget] in a way that allows us to have a good sight of these underlying and more persistent components of inflation that really have to be the focus of what’s driving our policy decisions.”
Richard Molyneaux, JLR’s finance chief, also called for changes to the UK’s zero emission vehicle (ZEV) mandate, which threatens fines if carmakers do not sell an increasing proportion of electric cars each year.
He said that while “everyone is aligned to the destination” of shifting to electric cars, weaker growth in electric demand should prompt the UK to re-examine the ZEV mandate.
He said:
It’s clear that it’s going less quickly than hoped. The details of the ZEV mandate, they probably do need to adjust to reflect this reality.
He said the government should shift from “penalisation” through fines towards incentives to make it more attractive for carmakers to make the move.
JLR CEO: Everybody hates taxes and tariffs
The boss of Land Rover manufacturer JLR has said the company is opposed to tariffs, after Donald Trump won the US presidency for the second time promising levies on all goods imports.
Adrian Mardell, JLR’s chief executive, said that the company would be “resilient” if tariffs were increased, although he added that he was hopeful that future policy “isn’t quite what it’s being said today”.
The British carmaker, which is owned by Indian conglomerate Tata, exported 95,000 cars to the US in the year to March, more than a quarter of all the cars it produced. Those exports would face a 10% tariff if Trump follows through on a repeated pledge to impose a “baseline tariff” on all goods.
Mardell expressed his objection to increased taxes on business during the UK budget, as well as the prospect of “potentially even more significant” changes ahead in response to a question about Trump.
Speaking as JLR unveiled a profitable quarter to September (see earlier post), he said:
Everybody hates taxes and tariffs. This is the environment we are in. Of course all of us would dislike an environment where we go into larger tariffs.
The company said it was too early to say whether it would raise prices or seek to start producing vehicles within the US if tariffs were imposed.
Shares in UK retailers fall as sector counts cost of NICs tax rise
Shares in UK retailers have dropped this morning, as they continue to count the cost of last week’s budget.
Marks & Spencer (-4.5%), JD Sports (-2.7%) and Tesco (-2.5%) are all among the fallers on the FTSE 100 today, pulling it down to a three-month low.
On the smaller FTSE 250 index, bakery chain Greggs (-6.8%) and pub group Mitchells & Butler (-6.7%) are also weakening.
Companies across the economy have been adding up the cost of Rachel Reeves’s decision to lower the earnings threshold at which employers start paying national insurance contributions from £9,100 to £5,000, and increase the rate from 13.8% to 15.0%.
M&S said it faced a £60m bill, while Sainsbury’s is facing a £140m cost.
It’s not just retailers, of course; BT said the measures in the budget would cost it £100m. while Serco flagged a £20m bill this morning.
And supermarket chain Asda has just warned that it also faces a £100m bill from tax changes in last week’s Budget, which could lead to higher prices.
As the Bank of England explained yesterday, there are four ways that companies can deal with the increase in NICS contributions. They could raise prices, they could swallow the cost through lower profits or becoming more efficient, they could raise wages by less than otherwise, or they could cut staff.
Asda’s chairman Lord Stuart Rose has called the increase in employer taxes is “a big burden for business to carry”.
Rose says it is likely to lead to higher prices in the shops:
“We are a very efficient industry, as retailers. We will do everything we can to mitigate this cost.
“But of course, you can’t deny it will probably be inflationary to some degree. We’re just working through the details of that now… We’re looking at the impact.”
Updated
Serco predicts £20m hit from Budget NICs changes
Prison contractor Serco is also among the stock market fallers, after being hit by a double-whammy of bad news.
Serco told shareholders this morning that it had failed to retain a key contract with the Australian Government’s Department of Home Affairs to provide onshore immigration detention facilities and services for detainees held there.
Ths contract will run out on 10 December. Had Serco won it again, it would have bene worth £165m of revenue in 2025 and £18m of underlying operating profit.
Serco also reported that the UK government’s changes to employer national insurance contributions will cost it around £20m per year.
Shares are down 10%, at the bottom of the FTSE 250 index of medium-sized companies.
Updated
FTSE 100 at three- month low
Britain’s stock market has dropped to its lowest level since the market wobble this summer.
The blue-chip FTSE 100 share index is down 72 points today, or -0.9%, at 8068 points. That’s the lowest since 8th August, and the index’s fourth daily fall in a row.
Miners are still among the top fallers, reflecting concerns that China’s latest stimulus measure isn’t beefier.
Housebuilder Vistry is now down almost 20% after it issued a second profit warning in as many months and said cost overruns on building projects were worse than previously thought.
UK supermarket chains Tesco (-2.9%) and Sainsbury’s (-2.5%) are also among the fallers; yesterday, Sainsbury’s warned that it will face a £140m bill from changes to employer national insurance contributions [NICs].
Updated
Aluminium shortages dent JLR profits
Land Rover maker JLR has reported a 10% year-on-year drop in quarterly profits after shortages of aluminium held back production.
Sales dropped by 6% to £6.5bn in the quarter ending in September compared with a year earlier, while profit before tax - excluding some one-off items - was £398m, the company said today.
Despite the supply chain difficulties, it marked two years of profits for Britain’s largest automotive employer, which has undergone a turnaround programme to try to earn more money from each car it makes.
Those efforts appear to have paid off as JLR has avoided the steep fall in profits experienced by several manufacturing rivals. Stellantis and Nissan this week announced thousands of job losses, but JLR said that it was continuing with a £500m investment in upgrading its factory at Halewood, Merseyside.
The company said the aluminium shortage was only temporary, and that it still expected to make revenues of £30bn this year.
Adrian Mardell, JLR’s chief executive, said the company was still seeing “strong global demand for our products”. JLR has been slower than rivals to switch to electric production, which could make it difficult to meet emissions targets, but has meant it is much less exposed to slowing growth in demand for electric cars.
Mardell said:
JLR has delivered a resilient performance in [the second financial quarter], resulting in a 25% increase in first half profits year-on-year. Our teams responded brilliantly to the aluminium supply shortages we experienced in the quarter, so we could deliver as many orders as possible to clients.
Back in the UK, the government has been told it could offer its own low-cost baby formula under a brand such as the NHS to combat the high prices and lack of choice in the market.
The Competition and Markets Authority (CMA) said another “backstop” measure could be for the government to regulate and set a price or profit-margin cap on retailers as a way to bring prices down for parents more quickly.
The potential measures formed part of the CMA’s interim report on the infant formula market after the watchdog identified that a lack of competition in the market had led to soaring prices, taking advantage of an ingrained belief among parents that higher cost equates to better quality for their children.
The CMA report set out a number of potential recommendations including extending the ban on the advertising of infant formula to follow-on formula, or going as far as “prohibiting all brand-related advertising”.
We’ve had a lot of stimulus moves from China in recent weeks, culminating with today’s £1tn plan to bail out local governments... which Kathleen Brooks, research director at XTB, says is a disappointment.
Brooks says:
The bulk of the stimulus is linked to local government. Beijing has agreed to raise the debt ceiling from local governments to 35.5 trillion yuan, which will allow them to swap ‘hidden debt’ to the tune of 6 trillion yuan. There is also another 4 trillion yuan of special 5-year bonds that will be available to local government.
The news has fallen flat with financial markets. Chinese stocks are lower, the CSI 300 is down more than 1%, and European stocks are lower across the board. The S&P 500 is expected to open above the key 6,000 level, which is a further sign of American exceptionalism and the US’s immunity to the rest of the world’s woes. There is a risk off tone to markets today, bond yields are lower across the board and oil and some industrial metals are also lower today.
The problem with China’s stimulus measures is that they are not stimulus. They are essentially a debt swap to shore up local government’s finances. The market reaction shows that traders do not see these measures as boosting consumption, and instead they are designed to stop a financial crisis domestically in China.
The Chinese Ministry of Finance’s announcement today of 10 trillion yuan of new measures to alleviate local government debt issues (see earlier post) is a “decisive move to address local government debt woes”, says Lynn Song, chief economist for Greater China at ING.
Song says the plan will free up local governments to drive “forceful” fiscal policy for Beijing:
Other than the obvious impact of addressing short-term debt risks, arguably the most important aspect is that it will free up local governments to once again implement stimulus measures where appropriate and necessary. These measures will likely take time to roll out, but today’s moves at least set the foundation for further fiscal stimulus rollout. Indeed, the press conference also signalled that China would be implementing a more “forceful fiscal policy” next year.
Though it was not explicitly addressed, it is likely that local governments and SOEs will play a large role in the moves to stabilise the property market in the future.
We anticipate there will be direct acquisitions of unsold homes to coordinate with the earlier PBOC [central bank] policies to expand the re-lending programme to banks.
Mining companies listed in London, who are sensitive to China’s growth prospects, are among the fallers on the stock market this morning.
Copper producer Antofagasta are down almost 5%, followed by Rio Tinto (-3.9%) and Anglo American (-3.6%).
AJ Bell investment director Russ Mould says:
“After a hectic week investors had more to digest in the form of further Chinese stimulus but what has been announced so far doesn’t seem to be moving the needle and the risks to China from a second Trump presidency are now overshadowing efforts to get the economy moving. The question on investors’ lips will be whether this encourages Beijing to unveil a bolder package of measures.
“Asian stocks sputtered overnight and the UK-listed miners who are reliant on China for much of their demand were also on the back foot.
Yesterday’s cut to UK interest rates doesn’t seem to have yet filtered through to borrowers.
Data provider Moneyfacts reports that the average rate on two-year loans is unchanged this morning, while the five-year equivalent is slightly higher:
The average 2-year fixed residential mortgage rate today is 5.42%. This is unchanged from the previous working day.
The average 5-year fixed residential mortgage rate today is 5.14%. This is up from 5.13% the previous working day.
China’s currency, the renmimbi, weakened after Beijing announced its new 10 trillion yuan package to refinance local government debt.
The renmimbi is down 0.3% at 7.168 to the US dollar.
That may suggest that this morning’s announcement is seen as underwhelming; though there’s no suggestion that this is the end of Beijing’s efforts….
Don’t get disappointed yet. What I have experienced on China is that they keep sequence seriously.
— Alex (@AleRodjfnfo) November 8, 2024
We gonna wait more
On Wednesday, after the US election, the renmimbi tumbled from 7.09 to 7.21, before recovering a little.
Updated
China unveils £1trn package to shore up local government borrowing
Back in China, a 10 trillion yuan (£1trn) program to refinance local government debt has been reportedly rolled out.
It’s a sign that Beijing is taking steps to support its economy, before Donald Trump takes office.
According to the Xinhua News Agency, Chinese lawmakers have approved a State Council bill to raise the ceiling on local government debt by 6 trillion yuan (about £650bn).
This will allow local officials to swap hidden debt for newly issued bonds.
Local governments will also be able to tap another 4 trillion yuan (£430bn) set aside for new special local bonds for the same purpose.
The move could cut systemic risks in the Chinese economy.
Finance minister Lan Fo’an told a briefing the plan was:
A major policy decision taking into consideration international and domestic development environments, the need to ensure the stable economic and fiscal operation, and the actual development situation of local governments.
Updated
At the other end of the FTSE 100, housebuilder Vistry have tumbled 15% after its build cost crisis deepened.
Vistry told shareholders this morning that the review into cost errors at its South Division shows the problem is worse than expected.
Vistry has added £50m to its total estimate of the impact to its profits over the next three years, taking the total to £165m.
Its review into the problems shows that “insufficient management capability, non-compliant commercial forecasting processes and poor divisional culture” led to the company’s staff messing up costings.
In the City, shares in British Airways’ parent company have jumped over 7% after it reported strong results this morning.
IAG are leading the FTSE 100 risers after posting a 7.9% increase in revenue in the third quarter of the year, with operating profits up 15.4% to just over €2bn.
Luis Gallego, IAG Chief Executive Officer, says:
“We achieved a very strong financial performance in Q3 2024, with a 15.4% increase in operating profit compared to the same period last year and improving our margin to 21.6%. This is due to the effectiveness of our strategy and Group-wide transformation.
“We are also delivering on our commitment to provide sustainable returns for shareholders. “Demand remains strong across our airlines and we expect a good final quarter of 2024 financially.”
More tariffs, less red tape: what Trump will mean for key global industries
Investors have also been digesting the consequences of a second Trump term.
The discussion around what trades work best with a Trump administration centers on three points, Bob Savage, head of markets strategy and insights at BNY, told clients:
Tax cuts = higher deficits. Trump policy shifts from the current government will revolve around taxes – expected to be lower thereby increasing the government deficits and borrowing needs.
Tariffs = inflation. Investors also fear the role of tariffs as they are expected to disrupt global trade and supply chains as they did in 2016-2020 with risk of inflation and less investment.
Deregulation = more lending. The markets also see Trump pushing for less regulation by government – leading to easier lending as capital requirements drop, along with more pressure on the FOMC to ease.
Governor of the Bank of England Andrew Bailey is concerned that new tariffs could cause a ‘fracturing of the world economy’.
Speaking to LBC’s Tonight with Andrew Marr yesterday, after cutting UK interest rates, Bailey explained that growth would suffer:
‘What I would call fragmentation of the world economy, the world economy sort of breaking up is not a good thing, it’s a bad thing… Tariffs is one of the things that can cause that sort of fracturing of the world economy…
Open trade really stimulates growth. Adam Smith taught us this, open trade is good for growth. Now, there are risks attached to it, and we have seen those risks, so there are obviously risks. We saw it with the impact of the Ukraine War, that if you’re overly dependent on one part of the world for something, obviously, if it gets disrupted, that can have a bad effect.
So, diversification, spreading your sources of things, and trade is sensible and good. But if the world becomes more closed the cost of trade goes up – protectionism, that’s not a good thing.’
Wang Dong, a professor of international relations at Peking University, has warned that “Trump 2.0 is likely to be more destructive than the 2017 version.”
In a pre-election interview with Chinese media, Wang said:
“Compared with his first term in office in 2017, Trump’s views in his second campaign in 2024 have not changed much, but the domestic situation and international environment have changed dramatically … during the Trump 2.0 period, China and the United States are likely to have constant friction and conflict”.
Here’s our new analysis of how China is preparing for the return of Donald Trump:
Introduction: China warns US no winners in trade wars
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Two days after the US election result, countries around the world are digesting what impact Trump 2.0 will have on their economies – especially if the president-elect kicks off a trade war.
China would obviously be in the firing line, given Donald Trump’s suggestion he could slap a 60% tariff on Chinese imports at the US border.
And with that in mind, presumably, China’s ambassador to the United States has warned that there are no winners in tariff or trade wars.
Ambassador Xie Feng also warned against wars over science, technology or industry, in a speech at a U.S.-China Business Council dinner on Thursday seen by Reuters.
Xie encouraged U.S. companies to invest and operate in China, and said he was looking forward to strengthening dialogue and cooperation on global challenges such as climate change and artificial intelligence.
Striking a concilliatory pose, Xie argued for the merits of partnership:
“China and the United States can achieve many great and good things through cooperation, and the list of cooperation should be stretched longer and longer.”
“The more success stories of mutually beneficial cooperation, the better.”
“Cooperation”, though, wasn’t top of the agenda during Trump 1.0; in 2018, Washington imposed trade sanctions on China, including restrictions on investment and tariffs, prompting tit-for-tat retaliation from Beijing.
This time round, China’s president Xi is presiding over a far worse domestic economy; if Trump imposes new tariffs, analysts reckon it could affect $500bn worth of Chinese goods.
ING’s global head of macro, Carsten Brzeski, predicts that the Trump administration will initally focus on domestic policy, including immigration and extending/expanding tax cuts, before turning to trade issues….
Brzeski told clients:
We think the earliest timing for tariffs to be implemented is the third quarter of 2025. China would likely be impacted first, with a gradual series of tariffs introduced on different products from other countries coming in later.
Tariffs would be a blow for US consumers – already reeling from the global spike in inflation in 2022 and 2023 – as they’ll be passed on by importers.
Last night, America’s top central banker said the US economy was performing well, with stronger growth than other major economies, falling inflation and a solid jobs market.
Jerome Powell also insisted he would not resign if Trump asked him to leave his role, following reports that some of the president-elect’s advisors would like Powell to resign.
Asked it he would quit if asked by Trump, Powell responded with a blunt “no”. Powell also said the White House demoting Fed governors from their leadership roles is “not permitted under the law”.
BREAKING: Federal Reserve Chairman Jerome Powell just defiantly told a reporter that If Trump tries to fire him, he can't.
— Brian Krassenstein (@krassenstein) November 7, 2024
Powell is right.
Reporter: Do you believe the president has the power to fire or demote you?
Powell: Not permitted under the law. NOT PERMITTED UNDE… pic.twitter.com/V1yz6EfGRF
The agenda
7.45am GMT: French trade data for September
9am GMT: UN’s monthly food price index
1.30pm GMT: Canadian non-farm payroll report for October
3pm GMT: University of Michigan US consumer confidence index
