Closing summary
Blockbuster results from the US chipmaker Nvidia on the back of an AI boom last night have spread cheer in global financial markets. Japan’s traders partied like it was 1989 as the Nikkei hit an all-time closing high, beating the previous record set 34 years ago.
On Wall Street, the Nasdaq jumped 2.4% while the S&P 500 rose 1.6% and hit a record high of 5,051.37. Nvidia shares jumped 15%, adding $260bn to its market value and taking it closer to the $2 trillion mark, to $1.92trn. Other chipmakers and technology companies also rose, such as server component supplier Super Micro Computer, Advanced Micro Devices and the Cambridge-based firm Arm Holdings.
Share indices in Frankfurt, Paris and Milan have gained more than 1% and Europe’s Stoxx 600 is trading close to an all-time high, hit earlier this morning.
Our other main stories:
Thank you for reading. We’ll be back tomorrow. Take care! – JK
Updated
US jobless claims fall unexpectedly
The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting that job growth remained solid in February.
Jobless claims in the United States fell to 201,000 in the week to 17 February after rising by 212,000 in the previous week, and defied expectations of a rise to 218,000.
The strength in the US labour market supported the Federal Reserve’s view that it’s too early to talk about rate cuts, said Fiona Cincotta, senior financial market analyst at City Index.
US private sector growth eases slightly
US companies reported further expansion in activity in February but at a slightly slower pace, with service sector growth easing a tad.
Manufacturing saw an increase in production amid an improvement in supply chains after bad weather in January, according to the flash reading of the S&P Global PMI survey.
Cost pressures eased, with input prices rising at the weakest rate since October 2020, due to lower raw material costs and competitive pricing at suppliers at both manufacturers and service firms.
However, selling prices picked up, driven by the service sector.
Flash US PMI Composite Output Index at 51.4 (January: 52.0). 2-month low.
Flash US Services Business Activity Index at 51.3 (January: 52.5). 3-month low.
Flash US Manufacturing Output Index at 52.3 (January: 49.3). 10-month high.
Flash US Manufacturing PMI at 51.5 (January: 50.7). 17-month high.
Over here, the FTSE 100 index has notched up modest gains of 0.3% to 7,687.
European shares hit an all-time higher earlier. The Dax in Frankfurt has rallied 1.7% while France’s CAC has gained 1.3% and Italy’s FTSE MIB is 1.4% ahead.
Europe’s broad Stoxx 600 is 0.9% higher at 495.56, after touching a record high of 495.81 in early trading.
Nasdaq jumps 2% at the open
The opening bell has rung on Wall Street: the tech-heavy Nasdaq jumped just over 2% at the open to 15,920, an increase of more than 320 points.
The Dow Jones rose nearly 250 points, or 0.6%, to 38,858 while the S&P 500 gained 65 points, or 1.3%, to 5,047.
Shares in the chipmaker Nvidia leapt more than 12% to a record high in early trading, following stellar results last night that spread optimism about the AI boom, and sparked a rally in stock markets around the world. Japan’s Nikkei closed at a new all-time high.
Other chipmakers and tech stocks also rose: shares in the US-listed Cambridge chipmaker Arm rose 10.5% while San Francisco-based Super Micro Computer jumped nearly 18%.
Updated
The eurozone’s annual inflation rate edged lower to 2.8% in January from 2.9% in December, according to figures from Eurostat, the EU’s statistical office, published today.
The main drivers behind inflation were services and food.
ECB more optimistic about inflation outlook but 'patience still needed'
European Central Bank policymakers agreed at their meeting last month that inflation was coming under control but indicated that any talk of interest rate cuts was premature given rapid wage growth, according to minutes of the meeting on 24-25 January in Frankfurt.
In the press conference after the decision was announced to leave borrowing costs unchanged at that time, ECB president Christine Lagarde pushed back against expectations of early rate cuts, pointing to underlying price pressures.
All in all, members signalled that continuity, caution and patience were still needed, since the disinflationary process remained fragile and letting up too early could undo some of the progress made.
While the initial inflation shock had largely reversed, the task that lay ahead was the reversal of second-round effects, which might prove to be more stubborn. At the same time, members expressed increased confidence that inflation would be brought back towards the 2% inflation target in a timely manner.
But policymakers appeared more optimistic about the outlook for inflation for years:
For the first time in many meetings, the risks to reaching the inflation target were seen as broadly balanced or at least becoming more even. At the same time, the view was also expressed that, after several years of significantly overshooting the inflation target, the costs of another overshooting were likely higher than the costs of undershooting.
The ECB governing council next meets on 7 March.
Here is our full story on Indivior.
Indivior, which makes the opioid addiction treatments Suboxone and Sublocade, is sounding out shareholders over plans to move its primary share listing to the US this year in the latest blow to London’s standing as an international financial centre.
Mark Crossley, the Indivior chief executive, said: “We are excited to announce that we are initiating consultations with shareholders on potentially transitioning to a primary listing in the US in 2024 while maintaining a secondary listing in the UK.”
It is the latest in a number of delistings and high-profile IPO snubs to the London Stock Exchange, despite the UK government’s efforts to attract and retain companies in the country.
Last week, the Anglo-German travel company Tui said it would ditch its share listing in London, after shareholders voted overwhelmingly for a sole listing in Frankfurt. The chief financial officer, Mathias Kiep, said there had been a shift in liquidity from London to Frankfurt.
The Cambridge-based chip designer Arm, owned by Japan’s SoftBank, opted to list on New York’s Nasdaq last year along with other tech companies, in a snub to Rishi Sunak’s government which had tried to persuade the company to list in London.
Indivior makes most of its revenue in the US, but the switch in its listing could prove a setback for its British business, which has historically been the home of its pharmaceutical research.
Ex-Sainsbury's boss Justin King appointed Ovo chair
Former Sainsbury’s boss Justin King has been appointed chair by the energy company Ovo, the UK’s fourth biggest supplier of electricity and gas. He will take up the role in March, replacing Stephen Murphy, who is stepping down after nine years with the company.
King also chairs the pan-European lottery group Allwyn’s UK business, which recently took over from Camelot as the operator of the National Lottery, the first time the lottery has changed hands since its launch almost 30 years ago.
King has also held senior roles at Marks & Spencer and Asda.
JPMorgan economist Allan Monks said:
The PMI continues to defy expectations, with the flash for February showing yet another gain in the composite output reading from 52.9 to 53.3. The PMI has over-estimated growth for a while now. Even setting aside the realistic possibility of upward revisions to 2023 GDP, however, the survey has done a somewhat better job of tracking momentum swings.
With the PMI now 4.7 points from its September low and at its highest level since last April, signs that a first-half recovery is taking hold continue to build.
Some reaction to the UK PMI data from economists:
UK composite PMI out to its highest spread over Eurozone equivalent since Q2 2022. Consistent with economic growth picking up at the start of 2024 - albeit from a near-zero base for more than a year. pic.twitter.com/Y3Jph3pr4c
— Simon French (@Frencheconomics) February 22, 2024
UK PMI data point to GDP growth of 0.3% q/q in Q1, high business optimism in the outlook, and only a modest loss of momentum in the MPC's underlying services CPI (chart). I still think sub-2% headline inflation from April enables a June rate cut, but it's far from a done deal. pic.twitter.com/ImwZYOV5FV
— Samuel Tombs (@samueltombs) February 22, 2024
UK #recession worries look overplayed as flash #PMI rises further in February https://t.co/fWnORV0foF pic.twitter.com/vMBzjuPBA8
— Chris Williamson (@WilliamsonChris) February 22, 2024
Updated
Joshua Mahony, chief market analyst at Scope Markets, has looked at the global equity rally. Nasdaq futures have jumped nearly 2%, pointing to a strong open later today.
Nvidia earnings appeared to have given global markets a new lease of life, as a huge surge in earnings brought a collective sigh of relief. Overnight gains for the Nikkei 225 saw the Japanese index surge into a fresh multi-decade high, laying the groundwork for a European session that has seen the DAX push into new highs this morning. With 85% of the S&P 500 having reported earnings, we have seen an impressive 3.2% earnings growth for the fourth quarter thus far.
Nvidia’s number highlighted the company’s ongoing position at the top dog in the AI world, with the forecast of another 230% rise in revenues for Q1 signalling that this train shows no signs of slowing down. This fresh source of revenues for the tech sector comes as an advantageous time, boosting equity markets throughout this period of monetary tightening. Thus, there is a hope that the so-called Magnificent seven can continue to provide a backstop for US markets until we are in a position where the Federal Reserve can drive down rates and spark a fresh bout of economic growth.
Early gains for European currencies have faltered somewhat, following a mixed set of PMI surveys that saw the manufacturing sector recovery take an unwelcome step backwards. In particular, traders will be particularly focusing on the worrying 42.3 manufacturing PMI figure out of Germany, driving the composite economy-wide reading into its eight consecutive contraction. While recent months had brought a glimmer of hope, today’s survey highlights the European Central Bank’s need to step in as soon as possible.
The ‘Magnificent seven’ refers to the US tech giants Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla.
In a research note on Tuesday, Deutsche Bank analysts said that the Magnificent 7′s combined market cap would make it the second-largest country stock exchange in the world.
Of the G20 countries excluding the US, only China and Japan (and the latter, only just) have greater profits when their listed companies are combined.
Updated
Recession may soon be over but lingering price pressures may continue to concern the Bank of England, said Alex Kerr, assistant economist at Capital Economics. Even so, he believes the Bank will start cutting interest rates this summer.
The small rise in the composite activity PMI, from 52.9 in January to 53.3 in February, suggests that the mildest of mild recessions at the end of 2023 may soon be over. This suggests that the risks to our -0.1% q/q forecast for real GDP in Q1 lie to the upside.
The improvement in the composite activity PMI was driven by a rise in the manufacturing output balance from 45.5 to 47.3, which at face value still points to manufacturing output declining by 1.0% 3m/3m. The services activity balance remained unchanged at 54.3… the big picture is that GDP growth remains subdued.
Meanwhile, the shipping disruptions in the Red Sea led to a further lengthening in suppliers’ delivery times. But the manufacturing input prices balance actually decelerated from 52.5 to 52.3. This implies core goods CPI inflation will slow from 2.7% in January to around 0.0% later this year. However, the services output prices balance rose from 57.2 to 58.5, which survey respondents attributed to continued higher labour costs. This is consistent with services CPI inflation easing only gradually from 6.5% in January to just above 5.0% in six months’ time.
This will add to the Bank of England’s unease about lingering domestic price pressures. At the margin this may mean the Bank won’t rush to cut interest rates. But we still think overall CPI inflation will fall below 2.0% in April and that the Bank will be in a position to start cutting rates this summer.
Updated
UK economy puts recession behind it but price pressures remain high
The UK economy has kept up momentum and put the recent recession behind it, but inflation pressures remain high, suggesting the Bank of England will be cautious about cutting interest rates.
Business activity across the UK private sector in February expanded for the fourth consecutive month and at the fastest pace since last May, supported by another strong upturn in the service economy, the latest S&P Global Market Intelligence PMI survey showed.
February data highlighted a solid improvement in customer demand, as signalled by the sharpest rise in new work for nine months. Hopes of a sustained rebound in domestic economic conditions led to the highest level of optimism for the year ahead in two years.
Chris Williamson, chief business economist at S&P Global, said the survey indicates that the economy grew by 0.2% to 0.3% in the first three months of this year, after contracting in the previous two quarters.
Inflationary pressures remained elevated, though, and the rate of input price inflation edged up to its strongest since August, largely due to rising salaries in the service sector.
Manufacturers recorded only a modest rise in their input prices, despite higher shipping costs and worsening supply chain disruptions in the wake of the Red Sea crisis. The latest lengthening of suppliers’ lead times was the greatest recorded since July 2022.
Flash UK PMI Composite Output Index at 53.3 (Jan: 52.9). 9-month high.
Flash UK Services PMI Business Activity Index at 54.3 (Jan: 54.3). Unchanged.
Flash UK Manufacturing Output Index at 47.3 (Jan: 45.5). 3-month high.
Flash UK Manufacturing PMI at 47.1 (Jan: 47.0). 3- month high.
Updated
Eurozone downturn eases in February
The downturn in the eurozone has eased as the service sector stabilised, but price pressures have picked up again, according to a closely-watched survey.
Business activity declined at the slowest rate for eight months in February, according to provisional PMI survey data from Hamburg Commercial Bank, as a stabilisation of output in services offset a further steep downturn in manufacturing.
Business confidence about the year ahead improved, hitting a ten-month high and prompting firms to raise staffing levels at a pace not seen since last July.
By country, a deepening contraction in Germany, where output dropped for an eighth month and at the fastest rate since last October, and sustained output fall in France (the decline was the smallest recorded since France’s downturn began last June) were countered by faster growth in the rest of the region.
Average input costs across the eurozone picked up for a second month to reach the highest level since May, and above the pre-pandemic long-run average. Service sector input cost inflation rose to a nine-month high and prices fell in manufacturing at the slowest rate for 11 months. Selling price inflation also accelerated, up for a fourth month running in February to hit the highest since last May.
HCOB Flash Eurozone Composite PMI Output Index at 48.9 (January: 47.9). 8-month high
HCOB Flash Eurozone Services PMI Business Activity Index at 50.0 (January: 48.4). 7-month high
HCOB Flash Eurozone Manufacturing PMI Output Index at 46.2 (January: 46.6). 2-month low
HCOB Flash Eurozone Manufacturing PMI at 46.1 (January: 46.6). 2-month low
Updated
Drugmaker Indivior plans to move primary share listing to US
Indivior, which makes opioid addiction treatments Suboxone and Sublocade, has started sounding out shareholders over plans to move its primary share listing to the US this year, while maintaining a secondary listing the UK.
Mark Crossley, the chief executive, said:
We are also excited to announce that we are initiating consultations with shareholders on potentially transitioning to a primary listing in the US in 2024 while maintaining a secondary listing in the UK.
This would be a blow to the London Stock Exchange, and the UK government’s efforts to attract and retain companies here.
Indivior reported 21% net revenue growth last year, driven by its Sublocade and Perseris drugs, and expanded its pipeline of potential treatments for substance use disorders. Sublocade is a prescription medicine used in adults to treat moderate to severe addiction to opioid drugs, while Perseris is used to treat schizophrenia in adults.
Last year Indivior, and its former parent, the consumer goods giant Reckitt Benckiser, from which it was spun off in 2014, faced a lawsuit in London’s High Court.
The court threw out the lawsuit over allegedly false marketing of Suboxone in December.
Wirral Council in north-west England had wanted to bring a representative claim on behalf of hundreds of investors based on an alleged scheme to switch the market for Suboxone from tablets, which were about to lose patent protection in the US, to a film that is put under the tongue and dissolves.
Reckitt Benckiser and Indivior have denied the allegations.
Wirral Council argued that when Indivior was indicted in the US in 2019, in one of the few corporate prosecutions related to the US opioid crisis, the news wiped out more than £550m of its market value.
But High Court Judge Michael Green said in a ruling that Wirral may not act as a representative and the claims should be struck out.
Updated
European shares hit all-time high on AI boom
As Japanese traders are partying like it’s 1989, with the Nikkei hitting a record high, European shares have also hit an all-time high. The rally in global shares has been triggered by optimism that the AI boom will continue, following stellar results from US chipmaker Nvidia last night.
Europe’s board Stoxx 600 index rose as high as 495.77 points, surpassing the 495.46 reached in January 2022, up almost 1% on the day.
The FTSE 100 index in London is just 10 points ahead at 7,670, with the aircraft engine maker Rolls-Royce the second-biggest riser, up 7.2%, after annual profits more than doubled and it forecast a further jump in profits this year.
The insurer Beazley is leading gains on the FTSE 100, trading 8.5% higher, after it said in an unscheduled update to the stock market that it will hand shareholders around $300m in a capital return after a strong performance in 2023.
It said its undiscounted combined ratio – a measure of underwriting performance in which a level below 100 indicates a profit – had improved from low-80s to mid-70s last year as a result of better than expected claims.
Analysts at Jefferies said:
Given the strong pricing environment, we expect that a portion of the improving claims experience is underlying (and therefore repeatable), and not just a result of lower catastrophe losses.
The company has also announced a $300m additional capital return, alongside its ordinary dividend. We had estimated a $175m buyback to be announced at the FY23 results. As rates begin to moderate, whilst earnings continue to be supported by strong pricing from recent years, we believe this opens the door for recurring capital returns in future years from Beazley. We currently forecast a $200m buyback per annuam for 2024-25.
Lloyds Banking Group has been forced to put aside £450m for potential fines and compensation for motor finance customers, after the UK regulator opened an investigation into whether consumers had been charged inflated prices for car loans.
The lender, which also owns the Bank of Scotland and Halifax brands, said there was “significant uncertainty” over the extent of any misconduct or loss to customers that could result in penalties or payouts.
It also said it was unclear when the Financial Conduct Authority might complete its investigation, creating further uncertainty for the high street lender. The consumer champion Martin Lewis said last month the investigation could lead to “the new PPI” – a reference to the multibillion-pound payment protection insurance scandal.
However, the charge did not weigh on the bank’s annual pre-tax profits, which rose 57% to £7.5bn compared with £4.8m a year earlier. The bank was helped by a 3% rise in net interest income – which accounts for the difference between what is paid to savers compared with what is charged to loans and mortgage customers – to £13.3bn.
Matt Britzman, equity analyst at Hargreaves Lansdown, said the £450m provision was lower than expected.
Lloyds delivered a decent set of results and a confident medium-term outlook. Stripping out the £450m provision, set aside as a buffer for any incoming charges from the FCA review into motor financing, and profit before tax was a decent beat. That was driven almost entirely by a release of credit impairments back into the profit line with better economic assumptions and a single-name creditor paying back a hefty chunk of debt.
On the FCA review, the £450m provision was less than some had feared but there will be question marks around how Lloyds has come to that figure. Lloyds has been honest in saying the outcome of the review is largely unknown. What we do know is that Lloyds is one of the more exposed banks should the FCA deem there was misconduct and customer loss.
He said there are reasons to be optimistic about UK banks:
UK domestic banks are unloved but there’s reason to be optimistic, especially with valuations sitting where they are. Performance has clearly peaked, but there are several tailwinds yet to play out that could give room for upside beyond current consensus.
Loan default levels remain low and with the return of real wage growth, plus a stabilising housing market, consumers should remain resilient. At the same time, banks are seeing easing conditions in the mortgage market and what looks to be a peak in terms of consumers shifting to higher cost savings accounts. As these tailwinds ease, the power of the structural hedge can come through – think of this like a bond portfolio that’s rolling on to higher yields over the next few years. Lloyds looks well placed to benefit from these improving trends.
Rolls-Royce sees further jump in 2024 profits
More on Rolls-Royce. The company, whose technology powers ships and submarines, as well as making engines for big commercial aircraft, forecast a further jump in 2024 profits. It said cost cutting plans to axe up to 2,500 jobs were “well under way”.
Its chief executive Tufan Erginbilgiç, the former BP executive who took the helm a year ago, said:
We are unlocking our full potential as a high-performing, competitive, resilient, and growing Rolls-Royce.
The company made an underlying operating profit of £1.6bn for 2023, ahead of analysts’ forecasts of £1.4bn and its own guidance of between £1.2bn and £1.4bn, and up from £652m in 2022. For this year, it expects profit to rise by at least 6% to between £1.7bn and £2bn, again ahead of City estimates.
Rolls shares rocketed last year by more than 200%, making it the top performer in the FTSE 100, helped by a profit upgrade in July and an announcement in November that profits could quadruple by 2027.
Rolls plans to sell some of its power systems business, which is set to raise up to £1.5bn in gross proceeds by 2028. It is in advanced discussions to sell the lower power range engines division to Germany’s Deutz, and has decided to exit electrical in the short term. The former relates to diesel engines and engine systems using Daimler technology.
Updated
Introduction: Japan’s Nikkei hits record high; Lloyds and Rolls-Royce profits surge
Good morning, and welcome to our rolling coverage of business, the financial markets and the economy.
Japan’s main stock index has hit an all-time closing high, ahead of the previous record set in 1989, surging on optimism about the AI boom spread by bumper results from the US chipmaker Nvidia.
The Nikkei rose 2.19% to end the day at 39,098.68. On the final trading day of 1989, it had closed at 38,915.87. The 34 years it has taken to regain its footing is a decade longer than it took Wall Street to recoup losses from the 1929 crash and Great Depression.
Tsutomu Yamada, senior market analyst at Abu Kabucom Securities in Tokyo, told Reuters:
For us traders, this markets the arrival of a new era. It feels like the stock market is telling us that we’ve finally escaped from deflation and a new world has opened up.
This morning here in London, we’ve had buoyant figures from Lloyds Banking Group and the aircraft engine maker Rolls-Royce. Lloyds’ annual pre-tax profits jumped 57% to £7.5bn, even though the UK bank put aside £450m for potential fines and compensation for motor finance customers, after the UK regulator opened a probe into whether consumers had been charged inflated prices for car loans. Profits at Rolls-Royce more than doubled last year to £1.6bn.
Last night, after US markets closed, Nvidia beat expectations again and reported sales of $22b.1n for the fourth quarter of last year, up 22% from the quarter before, and an eye popping 265% higher than in the same period the year before. And for the current quarter, it said it will deliver $24bn sales.
The chief executive and company founder Jensen Huang said:
Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations.
Nvidia shares jumped 10% in after hours trading.
Josh Gilbert, market analyst at trading platform eToro, said:
Nvidia reasserted its place in the Magnificent 7 with another blowout quarter showing that AI use cases are exploding, and the AI boom is showing no signs of slowing down.
The big question for investors is, can this continue? Put simply, yes. Nvidia continues to deliver in every way, and its results show there is still plenty of growth ahead. This isn’t just a flash in the pan, nor a bubble, but a business that continues to make serious cash.
Despite the risks from issues in China and ongoing competition, that can pose headwinds moving forward, Nvidia raised its guidance for the next quarter to $24bn in revenue, putting it on track to nearly $100bn in sales over the next year.
Also last night, the US Federal Reserve’s minutes of its last meeting showed that policymakers were not eager to cut interest rates at that meeting, and expressed optimism and caution on inflation. They also modified the post-meeting statement to signal that rate cuts would only occur when the federal open market committee had “greater confidence” that inflation was diminishing.
Stephen Innes, managing partner at SPI Asset Management, said:
Sure, the minutes were a tad outdated, but they certainly skewed much more cautiously than when [Fed president Jerome] Powell told reporters late last month that a March rate cut was still possible, at least in the market’s view.
The Agenda
8.15am-9am GMT: HCOB PMI flash for February for France, Germany, eurozone
9.30am GMT: UK S&P global PMI flash for February
10am GMT: Eurozone inflation for January (forecast: 2.8%)
12.30pm GMT: European Central Bank monetary policy meeting accounts
1.30pm GMT: US Initial jobless claims for week of 17 February
2.45pm GMT: US S&P Global PMI flash for February
Updated
