Closing post
Time to wrap up.
The last full trading week of the year has ended on a poor note in London. The FTSE 100 share index lost 2.6% this week, its biggest weekly loss since October 2023.
Fears of a US government shutdown weighed on European markets, along with concerns that central banks may not cut interest rates as fast as hoped.
Trade war fears also grew, after US president-elect Donald Trump warned the EU that it will face trade tariffs on its exports to the US unless its member states buy more American oil and gas.
UK borrowing in November fell to a three-year low, helped by falling debt repayment costs and higher taxes.
The data was seen as an early Christmas present for Rachel Reeves. However, economists are warning that the chancellor’s headroom is being squeezed.
UK retail sales rose by less than expected last month, suggesting consumers remained cautious.
Millions of last-minute Christmas shoppers are expected to spend £3bn over what has been called Super Weekend, with retailers eager to make up lost ground after a “shaky start” to the festive sales season.
Boohoo shareholders have rejected efforts by Sports Direct founder Mike Ashley to get himself appointed to the online fashion firm’s board.
Goodnight (and good luck getting ready for Christmas). GW
FTSE 100 posts biggest one-week fall in over a year
Despite a late mini-recovery, the UK’s FTSE 100 has indeed posted its worst weekly fall in over a year.
The index of blue-chip shares listed in London has recorded a 2.6% drop this week, the biggest one-week decline since October 2023.
Anxiety that central bankers won’t cut interest rates as fast as hoped in 2025, plus concerns that UK inflation is rising as the economy stagnates, weighed on the City this week.
Today, the FTSE 100 lost almost 21 points or 0.26% to end at 8,084 points, with other European markets also lower.
⚠️ EUROPE'S STOXX 600 DOWN 0.8%
— PiQ (@PiQSuite) December 20, 2024
**BRITAIN'S FTSE 100 DOWN 0.2%
**GERMANY'S DAX DOWN 0.3%
**FRANCE'S CAC 40 DOWN 0.1%; SPAIN'S IBEX UP 0.4%
**EURO STOXX INDEX DOWN 0.1%; EURO ZONE BLUE CHIPS DOWN 0.2%
Markets remain worried about the risk of a US government shutdown, after the House of Representatives rejected a Donald Trump-backed budget package:
Trump has posted that he wants any shutdown to happen now, while Joe Biden is president, saying:
If there is going to be a shutdown of government, let it begin now, under the Biden Administration, not after January 20th, under “TRUMP.” This is a Biden problem to solve, but if Republicans can help solve it, they will!
Updated
US consumer sentiment strengthens
US consumer sentiment has risen to its highest level since April this month, after strengthening for five months in a row.
The University of Michigan’s index of consumer sentiment has come in at 74.0 for December, up from November’s 71.8. It was lifted by a sharp increase in the measure of current economic conditions, with Republican voters more optimistic – and Democrats less so.
Surveys of Consumers Director Joanne Hsu says:
Buying conditions exhibited a particularly strong 32% improvement, primarily due to a surge in consumers expecting future price increases for large purchases. The expectations index continued the post-election re-calibration that began last month, climbing for Republicans and declining for Democrats in December.
Importantly, for Independents, expectations were essentially unchanged from the past month or so for personal finances, short-run business conditions, and long-run business conditions. Broadly speaking, consumers believe that the economy has improved considerably as inflation has slowed, but they do not feel that they are thriving; sentiment is currently about midway between the all-time low reached in June 2022 and pre-pandemic readings.
That early selloff in New York didn’t last long, though!
The S&P 500 share index is now in posiive territory, up 0.7% at 5,907 points.
Wall Street opens lower amid shutdown worries
Wall Street has opened in the red, as the risk of a US government shutdown tonight rattles traders.
The S&P 500 share index has dipped by 0.25%, or 15 points, to 5,852 points, while the Nasdaq Composite index of tech shares is down 0.6%.
Charalampos Pissouros, senior market analyst at XM, says Congress’s rejection of the spending bill backed by president-elect Donald Trump has left policymakers with no clear plan to avert a government shutdown tonight.
Pissouros adds:
If lawmakers fail to extend the deadline, the US government will begin a partial shutdown that could cut off paychecks for more than 2 million federal workers. With that in mind and should today’s PCE price data corroborate expectations of further stickiness in US inflation, investors may continue to reduce their risk exposure.
The dollar has dipped on the foreign exchange markets, as traders react to the lower-than-forecast PCE inflation readings for November.
Sterling is up half a cent today, at $1.254, suggesting that cooler-than-expected PCE is reigniting hopes of US interest rate cuts in 2025.
US PCE inflation lower than forecast in November
Just in: The Federal Reserve’s preferred measure of inflation remained unchanged last month, lower than forecast.
The core personal consumption index rose by 2.8% year-over-year in November, data from the US Commerce Department shows. That matches October’s core PCE reading, and was lower than the 2.9% which investors expected.
Headline PCE inflation came in at 2.4%, below estimates of 2.5%, but higher than October’s reading of 2.3%.
On a monthly basis, both core PCE (which excludes food and energy) and headline PCE rose by just 0.1%, below expectations of a 0.2% rise.
Updated
Credit Suisse collapse blamed on 'years of mismanagement'
A long awaited Swiss parliamentary inquiry into Credit Suisse has concluded that the country’s regulator was ineffective in tackling scandals at the banking giant, and that years of mismanagement had put the bank in a “precarious situation” that nearly sparked a global financial crisis.
The 500-page report is the result of an 18-month investigation into the role that Swiss authorities - including FINMA and the Swiss National Bank - played in the eventual collapse of Credit Suisse, which was taken over by UBS in a forced merger during the mini banking crisis of March 2023.
Commenting on FINMA (the Financial Market Supervisory Authority), the report said its supervision:
“Its supervisory activities, while intensive – lacked sufficient impact. Despite numerous enforcement proceedings and warnings issued by FINMA, Credit Suisse continued to be plagued by a series of scandals. The PInC finds it regrettable that FINMA did not opt for a withdrawal of recognition for guarantees of proper business conduct during this period.”
However, overall, it said that the inquiry:
“Does not find any misconduct on the part of the authorities as a causative factor in the Credit Suisse crisis and acknowledges that the authorities prevented a global financial crisis in March 2023.”
Instead, it said the crisis at Credit Suisse was attributed to “years of mismanagement at the bank.”
“Responsibility for the loss of confidence in Credit Suisse and the difficulties that jeopardised its existence in March 2023 lies with its Board of Directors and Executive Board, who had defied numerous interventions by FINMA in the preceding years.”
Credit Suisse had for years been mired in scandals, but panic over its future grew in March 2023 after its largest shareholder, Saudi National Bank, ruled out any extra funding for the Swiss lender despite the growing turmoil. The crisis of confidence first forced Swiss authorities to offer emergency loans, before eventually orchestrating a shotgun takeover by Switzerland’s largest bank, UBS, which bought the lender for a cut price of 3bn Swiss francs.
The report issued a series of recommendations, including a review of emergency planning for systemically important banks in Switzerland, which failed to take into account crises of confidence and market turmoil.
UBS, which now owns the remaining Credit Suisse assets, said:
“The report confirms that the collapse of Credit Suisse was driven by years of strategic errors, mismanagement and reliance on substantial regulatory concessions….UBS supports most of the recommendations made by the Federal Council to strengthen the resilience of the financial center.
Any adjustment to the current regime must be targeted, proportionate and internationally aligned, balancing financial stability and economic impact. This is essential for a strong and competitive UBS and a Swiss financial center that supports our economy.”
British retailers have reported that sales are weakening in the run-up to the Christmas holidays.
The latest data from the Confederation of British Industry shows there has been a “moderate” fall in year-on-year sales volumes during December, and that retailers expect another fall in January.
Retailers reported that sales were “poor” for the time of year, for the seventh month in a row. Sales are set to remain below seasonal norms in January, but to a lesser extent #DTS pic.twitter.com/fgIEIxlGWf
— CBI Economics (@CBI_Economics) December 20, 2024
CBI principal economist Martin Sartorius says:
“Retailers have endured a gloomy festive period.”
“Looking ahead, retailers expect sales to fall again in January, while wholesalers and motor traders are braced for sharper sales declines.”
Retailers reported a moderate fall in annual sales volumes for December in the latest CBI Distributive Trades Survey. The decline is expected to ease slightly in January #DTS pic.twitter.com/02VjAo7Qtb
— CBI Economics (@CBI_Economics) December 20, 2024
Boohoo chair Tim Morris has told the Guardian that shareholders have given “a resounding vote of confidence in our board” at the special meeting which rejected the appointment of Sports Direct founder Mike Ashley to the struggling group’s board (see earlier post).
Morris said 99% of of those that voted - excluding the stake controlled by Ashley’s Frasers Group stake - had chosen to block Ashley’s appointment.
Morris said Boohoo would now “like to get on with running our business” - although it is not clear how Frasers will respond to the vote. Dan Finley, the new chief executive who has already helped Boohoo drive growth at its Debenhams online department store, said he was “really excited about the opportunities ahead”.
Boohoo has said Frasers, which has a 27% stake in the online specialist, could appoint an alternative to Ashley to represent its interest on Boohoo’s board. However, Morris said any candidate would have to meet certain conditions to ensure there was not a conflict of interest given Frasers’ position as a competitor.
Updated
Boohoo shareholders reject Mike Ashley
Boohoo shareholders have voted to block Sports Direct founder Mike Ashley and his associate Mike Lennon from joining its board in a blow to his efforts to wrest control of the struggling online fashion retailer.
Investors representing nearly two-thirds of Bohoo’s stock – almost 64% – voted against appointing the two men at a special meeting called by Ashley on Friday morning.
Dan Finley, the chief executive of Boohoo, said:
“Our Group is a dynamic business, with great brands and extremely talented people, underpinned by best-in-class infrastructure. Since my appointment, I have hit the ground running, taking immediate and decisive actions to maximise and unlock value for all shareholders.
“I am super energised to realise the significant opportunities I see for this business. I continue to believe this group is materially undervalued. Our most important work is ahead of us, and we will drive value for all shareholders.”
Ashley had sought to become chief executive of Boohoo but was blocked by the company from putting that proposal to shareholders.
He offered to he “work collaboratively” with the boss Finley if he won a board post and has convened a further meeting to oust Boohoo’s founder and executive vice-chair, Mahmud Kamani which is set for 21 January.
Ashley has made Boohoo the latest in a long line of targets for his corporate empire. Ashley made his fortune with Sports Direct, but has expanded via a long string of acquisitions of retailers and brands ranging from House of Fraser to Flannels and Evans Cycles under the London-listed Frasers Group.
The Boohoo chair, Tim Morris, has said Ashley and Lennon were “not appropriate candidates to join the board in any circumstances” because of “obvious conflict points”.
Earlier this month, a prominent shareholder advisory firm, Institutional Shareholder Services (ISS), urged Boohoo investors to reject Ashley’s bid for a seat at the meeting on 20 December.
However, Ashley has criticised Kamani for being an “egotistical founder who has an unhealthy grip on the board”. He also said Boohoo was “in desperate need of the guidance I can provide”.
Europe’s STOXX 600 share index is now down 2%, on track for its biggest daily drop since August.
For the last week, the Stoxx 600 has dropped by over 3.7%, which would be its biggest weekly fall since March 2023.
Updated
Bitcoin drops again
Bitcoin is falling for the third day running.
The world’s largest cryptocurrency is down over 3% today at around $94,000 this morning.
Back on Monday, it hit a record high of $108,379.
But it began sliding on Wednesday, the day when Federal Reserve chair Jerome Powell said the US central bank has no desire to be involved in any government effort to stockpile large amounts of bitcoin.
Developments in El Salvador may also have hit bitcoin. Its government reached a financing agreement with the International Monetary Fund, which has said El Salvador should limit its exposure to the cryptocurrency, this week.
But yesterday, El Salvador insisted it would keep buying bitcoin, possibly at an accelerated pace.
Updated
UK food and drink exports slide
UK food and drink exports tumbled by 10.2% in the first nine months of the year, driven by a drop in alcohol sales, according to new data from trade body the Food and Drink Federation.
The EU remains the UK’s largest trading partner for food and drink, but exports to the bloc have fallen by 5.3% so far this year. Post-Brexit administrative burdens for shipments have been blamed for the slump in exports to the EU.
The FDF is calling for a focus on “removing unnecessary paperwork” and targeted export support particularly for small and medium sized businesses to help them clear post-Brexit trade barriers and recover lost trade.
“These figures highlight the challenges that UK food and drink continue to face when selling their products abroad,” said Balwinder Dhoot, director of industry growth and sustainability at the Food and Drink Federation.
Dhoot added:
“This is particularly true for the 12,000 SMEs in our industry, who struggle to overcome the administrative burdens of exporting. Providing more support for these businesses will help the UK strengthen its international trade and maintain its position on the global stage.”
The US is the UK’s third largest export market - with classic British tastes like cups of tea and biscuits proving especially popular - but exports to the US still fell by nearly 8% in the year to the end of September, although the UK still retains a trade surplus with the US.
Russia leaves interest rates on hold at 21%
Newsflash: Russia’s central bank has surprised economists by leaving interest rates on hold.
At their final monetary policy meeting of the year, the Bank of Russia Board of Directors decided to keep the key rate at 21.00% per annum.
Investors had expected a hike to 23%.
But, the Bank of Russia explains that monetary conditions have “tightened more significantly than envisaged” in October when it raised rates to 21%. That, it believes, will be enough to cool credit activity and bring inflation down to its 4% target.
Looking ahead, it adds:
The Bank of Russia will assess the need for a key rate increase at its upcoming meeting taking into account further lending and inflation dynamics.
According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will decline to 4.0% in 2026 and stay at the target further on.
Trump tells Europe to buy more US oil and gas
US president-elect Donald Trump has warned European governments to buy more US energy, or face tariffs on their exports to America.
In a post on his Truth Social site, Trump warned:
“I told the European Union that they must make up their tremendous deficit with the United States by the large scale purchase of our oil and gas.
“Otherwise, it is TARIFFS all the way!!!.”
(whatever happened to ‘jingle all the way’, Donald?).
After the Ukraine war began, Europe couldn’t get enough oil and gas from the US, mind you. According to the US Energy Information Administration, the United States remained the largest liquefied natural gas supplier to Europe in 2023.
The US stock market is set to fall too, as government shutdown fears sweep Wall Street.
⚠ NASDAQ FUTURES DOWN 0.9%, S&P 500 E-MINI FUTURES DOWN 0.6%, DOW FUTURES DOWN 0.4%
— PiQ (@PiQSuite) December 20, 2024
FTSE 100 on track for worst week of the year
London’s stock market is sliding this morning, as investors worry that the US government could shut down tonight in a spending row.
The FTSE 100 index of blue-chip shares has dropped by 55 points, or 0.7%, to 8050 points, with banks among the big fallers.
That means the FTSE 100 has lost 3% of its value this week, the worst weekly drop since August 2023.
European stock markets are also in the red, with Germany’s DAX and France’s CAC 40 both down 1.15%.
The selloff comes as the US government teeters on the brink of a shutdown, after a budget deal backed by President-elect Trump failed to pass Congress last night.
Congress failed to pass a pared-down spending bill, after an earlier bipartisan deal was scuppered by Trump and Elon Musk.
The new bill had included the suspension on the US debt limit fro two years, which would have make it easier for Trump to pass large tax cuts and drive the US national debt even higher.
Government funding is due to expire at midnight on Friday. If Congress fails to extend that deadline, the US government will begin a partial shutdown.
Paul Donovan, chief economist at UBS Global Wealth Management,says:
Absent a deal, the US government starts to shut down tonight. A short-lived shutdown affects government workers, but has limited economic impact.
The longer a shutdown lasts, the more disruptive it is to the US economy. Economic data may not get published in a shutdown (a problem for Federal Reserve Chair Powell with their addiction to data dependency).
UK suffers worst November for car production since 1980
There wasn’t much pre-Christmas cheer in the UK automobile sector last month.
The UK recorded its worst November car production numbers in over 40 years, as manufacturers were hit by amid weak demand both in Britain and across Europe.
Just 64,216 new cars rolled off UK factory lines, the worst performance for any November since 1980. Output for the domestic market fell 56%, while exports were down 21%.
Car manufacturing down in November as sector seeks an easing of cost pressures
— SMMT (@SMMT) December 20, 2024
🚗 production falls -30.1% in November with 64,216 units rolling off factory lines.
📉Output for domestic and export markets decline -56.7% and -21.3% respectively
⚡️Year to date volumes down -12.9%… pic.twitter.com/urIJV2XYbz
Output was also hit by factory disruption as manufacturers transition to mak electric vehicles.
Mike Hawes, SMMT chief executive, says:
While a decline was to be expected given the extensive changes underway at many plants, manufacturing is under pressure at home and abroad, with billions of pounds committed to new technologies, new models and new production tooling.
Government can help by supporting consumers in the transition, fast tracking its Industrial Strategy for advanced manufacturing and, most urgently, reviewing the market regulation which is putting enormous strain on the sector.
Christmas 'comes early' for the Chancellor as borrowing undershoots expectations
“Christmas has come early” for chancellor Rachel Reeves with borrowing undershooting expectations in November (see earlier post).
So says Ruth Gregory, deputy chief UK economist at City consultancy Capital Economics, who told clients:
Not only was borrowing (on the PSNB ex banks measure) of £11.2bn well below the consensus forecast of £13.0bn, but it was £3.4bn lower than in November 2023 and the lowest November borrowing in three years.
The breakdown revealed that £2.4bn higher spending on public sector pay left total current expenditure in the year-to-date £17.7bn higher than at the same stage last year. But due to the recent strength in wage growth and fixed personal tax thresholds, total tax receipts were £3.2bn higher than in November 2023.
But while borrowing has dipped to just over £11bn last month, the recent weakening the economy – and the rise in market interest rates – could make it hard for Reeves to bring the deficit down as quickly as planned.
That raises the chances that extra revenue-raising tax hikes or spending cuts will be required, Gregory says:
Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, also sees little Christmas cheer in the retail sales report:
“The UK consumer appears to be limping towards the finish line in 2024 - retail sales volumes came in slightly below expectations in November, with a good performance from food the only real highlight.
Online sales were weak across the board and there was little Christmas cheer on offer for clothing retailers. The 2.6% decline in clothing sales in November means clothing sales volumes are at their lowest in almost three years. With clothing often the first category consumers cut back on in difficult times, this is not a good omen.
Capital Economics: Little festive cheer for retailers
There’s “little festive cheer for retailers” in today’s sales figures, reports Alex Kerr, UK economist at Capital Economics.
Not only was the rise in sales lower than expected on November, sales are still on course to decline in the October-December period, Kerr explains, adding;
Given that October’s 0.7% m/m (month-on-month) fall in sales volumes appeared to be driven by households spending cautiously ahead of possible tax rises in the Budget and that the Chancellor avoided large personal tax rises, it is somewhat encouraging that sales volumes rebounded in November.
That was helped by the ONS seasonal adjustment capturing the unusually late timing of Black Friday this year.
But the breakdown of sub-sectors was “a mixed bag”, Kerr explains:
Sales volumes in ‘other’ stores and household goods stores rose by 2.5% m/m and 1.1% m/m respectively. And food stores posted a 0.5% m/m gain.
But sales at department stores fell by 0.9% m/m and sales at clothing stores followed October’s 3.5% m/m drop with a further 2.6% m/m decline as households continued to delay spending on winter clothing. And fuel sales fell by 0.7% m/m, probably as petrol pump prices rose by 0.9% m/m.
UK government borrowing drops, to £11.25bn
We also have new data showing a fall in government borrowing.
The UK government borrowed almost £11.25bn last month, the lowest November figure in three years, helped by a rise in tax receipts and a drop in interest payments on the national debt.
The Office for National Statistics (ONS) reports that public sector net borrowing was £3.4bn lower than in November 2023 – lower than the £13bn expected.
Happily for the Treasury, the interest bill on central government debt more than halved to £3bn in November; that’s £4.7bn less than in November 2023 and the lowest November figure for five years.
The drop was due to the recent fall in the RPI inflation measure, which is used to set the interest rate on many government gilts.
ONS deputy director for Public Sector Finances Jessica Barnaby says:
“Borrowing this month was over £3 billion less than this time last year and the lowest November borrowing for three years. Central government tax receipts grew compared with last year, while increased spending on public services and on benefits were offset by lower debt interest payable.”
Introduction: UK retail sales weaker than expected
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
After a disappointing autumn, retail sales across Great Britain have returned to growth – helped by early Black Friday offers.
Retail sales volumes across the country rose by 0.2% month-on-month in November, new data from the Office for National Statistics show – following a 0.7% fall in October when budget uncertainty gripped the economy.
November is a key month in the Golden Quarter for retailers, but these figure aren’t exactly sparkling. While retailers will welcome any pick-up in trading, November’s sales are weaker than expected – economists had forecast a 0.5% rise.
Sales rose at supermarkets and other non-food stores, but there was a drop in takings at clothing retailers.
Neil Birrell, chief investment officer at Premier Miton Investors, says the data suggests consumers are “feeling the pinch in a sluggish economy”.
Birrell adds:
With the Bank of England keeping interest rates on hold [yesterday] and inflation in the system, there are concerns around growth prospects as we go into the new year. Christmas is a key period for retail sales and will give a further clue on short term outlook and may influence the BoE at its next meeting.
Unfortunately, the data doesn’t directly capture what happened on Black Friday, which fell on 29th November – but the ONS has adjusted its data to reflect that.
ONS senior statistician Hannah Finselbach explains:
“Retail sales increased slightly in November following last month’s fall.
“For the first time in three months there was a boost for food store sales, particularly supermarkets. It was also a good month for household goods retailers, most notably furniture shops.
“Clothing store sales dipped sharply once again, as retailers reported tough trading conditions.
“With November’s retail sales survey covering the four weeks to the 23 November, Black Friday itself will fall within December’s figures. However, our figures account for this shift in timing to give us the best picture of what is happening in the shops.”
The agenda
7am GMT: UK retail sales report for November
7am GMT: UK public finances report fro November.
10.30am GMT: Bank of Russia’s interest rate decision
1.30pm GMT: US PCE inflation measure for November
3pm GMT: Universiy of Michigan survey of US consumer confidence 3pm
Updated
