Closing post
Time to wrap up… here are today’s main stories:
The UK economy is ‘limping along’, KPMG has warned, ase high interest rates and policy uncertainty take their toll on global growth.
Germany’s business climate has deteriorated, the Ifo Institute has warned, as Europe’s largest economy teeters near a recession.
US builder sentiment lifted by falling interest rates
Over in the US, the four-month decline in builder confidence has ended, helped by falling borrowing costs and signs that housing conditions are improving heading into 2024.
Builder confidence in the market for newly built single-family homes rose three points to 37 in December, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
NAHB chairman Alicia Huey explains:
“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look.
With the nation facing a considerable housing shortage, boosting new home production is the best way to ease the affordability crisis, expand housing inventory and lower inflation.”
Falling mortgage rates helped end a four-month decline in builder confidence, which rose three points to 37 in December in the NAHB/Wells Fargo Housing Market Index (HMI). Recent data also suggests improving conditions in 2024. https://t.co/g3ocjM41kB #realestate #economics
— NAHB 🏠 (@NAHBhome) December 18, 2023
Oil at two-week high
Brent crude has climbed by 3.75% today, as rising tensions in the Middle East worry traders.
The oil benchmark has risen to $79.39, the highest since December 4th, after BP announced it was pausing oil shipments through the Red Sea.
Ben Barringer, technology analyst at Quilter Cheviot, says the termination of the Figma deal is a blow to Adobe.
Barringer explains:
“Adobe has today ended its proposed acquisition of Figma, having faced significant regulatory scrutiny in relation to the deal and with rulings from the EU Commission and the UK’s Competition and Markets Authority looming. These upcoming decisions had formed a heavy cloud of uncertainty over Adobe, and it has opted to clear the air by terminating the merger.
“The acquisition would have been an expensive move for Adobe, coming in at $20bn due to Figma’s profitability and sales metrics, but the termination will still come as a blow given Figma specialises in collaborative tools for creatives - an area where Adobe already has established but underperforming products.
The acquisition could have placed Adobe in a competitive position, but the regulatory pressures appear to have been too much for it to warrant pushing ahead with the deal. Nonetheless, Adobe remains a robust business and the removal of these regulatory challenges alleviates the uncertainties it was due to face.”
America’s Dow Jones Industrial Average has just touched a fresh record high.
The Dow has hit 37,384.54 for the first time, as stocks continue to rally amid hopes that interest rates have peaked, and will fall in 2024.
Dow builds on record close as final full week of 2023 trading gets into gear https://t.co/ejuQTelMMN
— MarketWatch (@MarketWatch) December 18, 2023
Shares in Adobe have jumped by almost 2% in early US trading, following the cancellation of its $20bn deal to buy Figma.
That suggests investors thought Adobe was overpaying….
While one deal falls, another has been announced.
Nippon Steel has reached a deal to acquire US Steel, the 122-year-old Pittsburgh steelmaker, in a $14.1bn deal.
The price of $55 per share is a 40% premium to US Steel’s closing price.
Shares in US Steel have jumped 26% to $49.50 at the start of trading in New York.
US Steel launched a strategic review in August after receiving several unsolicited offers for a partial or total takeover of the company – that pushed its share price up from $22 to $30 last summer, before it kept climbing through the autumn.
Dylan Field, co-founder and CEO of Figma, says:
“While we’re disappointed in the outcome, I am deeply grateful to everyone who has contributed to this effort and excited to find other ways to innovate on behalf of our respective communities with Adobe.”
After an intense 15 months of review, today Adobe and Figma have decided to end our pending merger, as we no longer see a path toward regulatory approval of the deal.https://t.co/sHuUsW9sR2
— Dylan Field (@zoink) December 18, 2023
Sorry you guys are missing that huge check, but I think this is fantastic news for the design industry.
— Benita (@NirBenita) December 18, 2023
Maybe in a few years you can buy Adobe 😉
I'm not sure regulators would like that either 😂
— Dylan Field (@zoink) December 18, 2023
Adobe and Figma abandon $20bn merger after opposition from regulators
Newsflash: Adobe’s $20bn deal to buy design software company Figma has dramatically collapsed, in the face of opposition from regulators.
Adobe and Figma have mutually agreed to terminate the deal, which was announced on September 2022, after strugging to persuade regulators to approve the merger.
They say that there is no clear path to receive necessary regulatory approvals from the European Commission and the UK Competition and Markets Authority.
Last month, the CMA warned that the deal would harm competition in product design software by bringing two of the main companies in the sector together.
The European Commission also told Adobe in November that it believed the proposed acquisition of Figma may reduce competition in the global markets for the supply of interactive product design software and of other creative design software.
Shantanu Narayen, chair and CEO of Adobe. says both companies “strongly disagree” with the regulators, but have decided it is best to move forward independently.
Narayen adds:
“While Adobe and Figma shared a vision to jointly redefine the future of creativity and productivity, we continue to be well positioned to capitalize on our massive market opportunity and mission to change the world through personalized digital experiences.”
The companies have signed a termination agreement that resolves all outstanding matters from the transaction, including Adobe paying Figma a termination fee, thought to be $1bn.
Adobe $ADBE and Figma just announced they've mutually terminated their merger agreement
— Evan (@StockMKTNewz) December 18, 2023
As a result of the termination, Adobe will be required to pay Figma a reverse termination fee of $1 billion in cash
Adobe had agreed to acquire the Figma product design platform for $20… pic.twitter.com/gwtv0vTqJk
Figma just made a cool $1b in cash from the failed Adobe acquisition in the form a reverse termination fee. https://t.co/fn9odC4p80
— ☜ art (@_artseabra) December 18, 2023
Figma produces a collaborative web application for interface design, allowing teams who are producing user interface and user experience design projects to collaborate together online.
Back in September 2022, The Observer’s John Naughton wrote that the $20bn fee was “way above any rational valuation of Figma”.
He compared the Adobe-Figma deal to Facebook’s acquisition of WhatsApp in 2014 (which took out a potential competitor), adding that “The deal should be challenged, investigated and banned.”
Updated
Back in the UK, mortgage rate have ticked lower again today.
Moneyfacts reports that:
The average 2-year fixed residential mortgage rate today is 5.96%. This is down from an average rate of 5.98% on the previous working day.
The average 5-year fixed residential mortgage rate today is 5.57%. This is down from an average rate of 5.58% on the previous working day.
Here’s our news story on BP’s decision to halt all shipments of oil and gas through the Red Sea…
BP temporarily pauses all transits through Red Sea
BP Plc said it will pause all its oil tanker shipments through the Red Sea.
The move follows an escalation of attacks on merchant shipping being mounted from Yemen’s ports by Houthi forces.
BREAKING: BP to Pause All Oil Tanker Transits Through the Red Sea | #OOTT
— Javier Blas (@JavierBlas) December 18, 2023
In a statement, BP says:
“The safety and security of our people and those working on our behalf is BP’s priority.
“In light of the deteriorating security situation for shipping in the Red Sea, BP has decided to temporarily pause all transits through the Red Sea.”
It emerged over the weekend that the US is preparing to announce the launch of an expanded maritime protection force, to guard shipping in the Red Sea, which is a crucial routes for oil and fuel shipments.
Some shipping firms, including Denmark’s Maersk, have alread paused journeys through the Red Sea until tensions in the Middle East fall.
Suez update: 46 container ships now have diverted around the Cape of Good Hope rather than transiting the Red Sea. pic.twitter.com/4zaTXn3LO1
— Ryan Petersen (@typesfast) December 18, 2023
Hollywood Bowl says minimum wage rise may prompt higher prices
Speaking of wage growth…. the head of bowling chain Hollywood Bowl has warned that the “quite painful” increase in the UK’s minimum wage may force it to raise prices.
Hollywood Bowl CEO Stephen Burns told Radio 4’s Today Proogramme that the near 10% increase in the minimum wage was an “unexpected hit” for the business, as it had expected a smaller rise of around 7.7%.
Burns said the new rate, which begins in April, was “quite painful”. It’s estimated to cost around £1.2m per year.
He added:
“Clearly it’s put a bit of pressure on.
“We have managed to keep our prices pretty low to try and mitigate that but we may need to do something again towards the mid or the end of the year.”
From April, the minimum wage for workers over 23 will increase to £11.44 per hour next April, from £10.42.
Broadbent: Too soon to say wage growth is slowing
Just in: Bank of England deputy governor Ben Broadbent is hinting that the UK’s central bank needs to see a deeper slowdown in wage inflation before it can consider cutting interest rates.
Broadbent is giving a speech to the London Business School, outlining the challenge of settting monetary policy in a time of uncertainty.
That uncertainty covers both the supply side of the economy, and the incoming data showing the state of the economy, Broadbent explains.
And he singles out earnings growth as a key indicator, saying it is too soon to say that wage growth is slowing.
Last week, the latest labour force data showed that wage growth including bonuses fell to 7.2% from 8%.
Broadbent, though, says the Bank’s monetary policy committee will need to see a clearer fall, saying:
One current example is wage growth.
Given the volatility in the official estimates, and the disparity (such as it is) among the various indicators we have, it will probably require a more protracted and clearer decline in these series before the MPC can safely conclude that things are on a firmly downward trend.
In the bond market, UK government debt is strengthening as traders continue to anticipate Bank of England rate cuts next year.
This has pushed down the yield, or interest rate, on 30-year UK gilts, down to 4.13% from from 4.19% on Friday.
Ten-year gilt yields have dropped to 3.65%, down from 3.7%, the lowest since mid-April.
UK gilt yields fall further as investors bet on rate cuts - RTRS https://t.co/5PzDfrPDx6
— iNews24 (@iNews24) December 18, 2023
The deterioration in Ifo’s business sentiment index (see last post) suggests that recent fiscal woes are weighing on the German economy.
Carsten Brzeski, global head of macro at ING, says the recession risk in Germany remains high, not only for 2023 but for 2024 as well.
Brzeski writes:
Today’s Ifo index reading brings the macro year for Germany almost to a close.
It has been another turbulent year in which the economy seems to have been in permanent crisis mode. Supply chain frictions resulting from the pandemic lockdowns and war in Ukraine, an energy crisis, surging inflation, tightening of monetary policy and several structural shortcomings - the list of crises and challenges facing the German economy is long.
This is why some take comfort in the fact that the economy is “only” stuck in stagnation and has avoided a more severe recession. And, indeed, things could have been worse. But this should be no reason for any complacency.
On the contrary, even if the worst of the weakening in sentiment seems to be behind us, the hard economic reality does not look pretty. In fact, the economy seems to be on track for another quarter of contraction in the final quarter of 2023 and even the start of 2024 does not yet look really promising.
The German Ifo index suggests that recent fiscal woes are weighing on German business sentiment and shows that the risk of recession remains high, writes @carstenbrzeskihttps://t.co/suPgossyfd
— ING Economics (@ING_Economics) December 18, 2023
Updated
Sentiment in German business has clouded over
German business morale has worsened in December, according to the latest data from the Ifo institute.
Ifo’s business climate index, just released, shows that companies are less happy about current economic conditions, and also gloomier about the economy outlook.
Ifo’s current situation index has fallen to 88.5 from 89.4 in November, while its gauge of economic expectations declined to 84.3 in December from 85.1 in November.
Ifo says that “sentiment in German business has clouded over”.
Within manufacturing, Ifo says order books are shrinking, while energy-intensive industries are having “a particularly tough time”.
In the services sector, the business climate improved slightly, but future expectations in the restaurants and catering business “took a nosedive”.
Ifo president Clemens Fuest says:
“As the year draws to a close, the German economy remains weak.”
There will be little cheer in the new year for Germany according to the Ifo pic.twitter.com/7M3ej5T1Sm
— MacroMarketsDaily (@macro_daily) December 18, 2023
Games Workshop, the tabletop gaming company, has reached an agreement with Amazon to develop its Warhammer 40,000 game into films and television series.
Games Workshop has told the City that it has granted Amazon exclusive rights to films and television series set within hit franchise Warhammer 40,000, the science-fiction fantasy miniature war game.
Amazon has also taken an option to license equivalent rights in the Warhammer Fantasy universe.
Games Workshop says:
Games Workshop and Amazon will work together for a period of 12 months to agree creative guidelines for the films and television series to be developed by Amazon.
The agreement will only proceed once the creative guidelines are mutually agreed between Games Workshop and Amazon.
The deal comes a year after the two companies first struck a deal to develop Games Workshop’s intellectual property into film and TV productions.
Today’s agreement means Games Workshop and Amazon will work together for 12 months to agree creative guidelines for the films and television series.
It is not expected to have an immediate impact on Games Workshop’s finances, as it is not making any change to its forecast for the current financial year.
Shares in Games Workshop are up 1.8% this morning.
Analysts at investment bank Jefferies say:
A year after announcing its ‘agreement in principle’ with Amazon, GAW has today announced that the deal has been signed to develop 40k into films and TV series.
There will be a 12-month period to agree creative guidelines, but we had always anticipated an extended timeline (up to 3yrs) until 40k actually hits the screens.
Fundamentally, we think the deal offers substantial long-term upside for Warhammer to build its global brand exposure.
UK to introduce carbon levy on imports by 2027
The UK government has announced it will bring in a new import carbon pricing mechanism by 2027.
Under the plan, goods imported from countries with a lower or no carbon price will incur a new levy.
The new carbon border adjustment mechanism (CBAM) is part of the UK’s decarbonisation efforts, and will effectively penalise overseas manufacturers who pay a smaller charge for carbon emissions than UK factories, or none at all.
It will, the government hopes, avoid emissions being displaced from Britain to other countries which have a lower or no carbon price.
Currently, the UK Emissions Trading Scheme puts a price on emitting a tonne of CO₂, similar to the European Union’s own carbon trading scheme.
The CBAM will apply to carbon intensive products in the iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement sectors.
Chancellor Jeremy Hunt says:
“This levy will make sure carbon intensive products from overseas – like steel and ceramics – face a comparable carbon price to those produced in the UK, so that our decarbonisation efforts translate into reductions in global emissions.
“This should give UK industry the confidence to invest in decarbonisation as the world transitions to net zero.”
Earlier this month the head of the International Monetary Fund, Kristalina Georgieva, said putting an implicit price on carbon emissions would generate the vast amounts of cash needed to tackle the climate crisis.
Asia-Pacific markets dip as US rate-cut hopes are dampened
The path of interest rates next year will have a huge impact on economic growth, and the markets, in 2024.
Last Wednesday, the Federal Reserve sparked a share rally after appearing to signal that US interest rates have peaked. That cheered investors, who welcomed the suggestion that the Fed was looking forward to cutting US interest rates in coming months.
But on Friday, Federal Reserve Bank of New York President John Williams pushed back against these expectations, insisting that “we aren’t really talking about rate cuts right now”.
Williams’ comments lifted the dollar at the end of last week.
And today, Asia-Pacific markets are in the red, as some of last week’s rate-cut exuberance deflates.
China’s Shenzhen Composite is down over 1%, while Hong Kong’s Hang Seng has lost 1% and Japan’s Topix is down 0.66%.
Kyle Rodda, senior financial market analyst at capital.com, explains:
The markets sobered up slightly at the end of the week as Fed speakers appeared to push back on the notion of rate cuts next year. The central bank wheeled out New York Fed head John Williams to clarify things, suggesting that the Fed “isn’t really talking about rate cuts” and tabling a March cut is premature.
The Fed’s use of Williams is telling because his commentary a few weeks ago about the case for lowering rates as inflation falls to keep real rates steady fuelled the euphoria about cuts.
The mixed messaging raises the question of whether the Fed has fumbled its communication and potentially scored an unfortunate own goal as financial conditions loosen as a result of the new forward guidance.
Introduction: UK economy limping along and 'vulnerable to shocks'
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s the start of the last working week before Christmas, and investors’ minds in the City are turning to 2024 (unless they’ve clocked off already).
After a turbulent 2023, what will next year bring to the markets, and Britain’s economy, they ponder.
Well, according to KPMG, Britain’s growth in 2024 will be modest, at best.
The accountancy giant’s latest global economic outlook, released this morning, cautions that the UK economy is “limping with a sprained ankle”, at at time when global growth is being held back by high interest rates and policy uncertainty.
KPMG estimates UK GDP will rise by 0.5% in 2024, the same as in 2023, picking up to 1% in 2025.
That’s a small upgrade on their old forecasts, of 0.4% growth in 2023 and 0.3% in 2024. And it’s more optimistic than the Bank of England, which projects zero growth next year.
But it’s still a weak prospect, partly due to high borrowing costs. Even though UK interest rates have been stuck at 5.25% since August, much of the impact is yet to be felt as many households have yet to roll onto new, pricier, mortgage deals.
KPMG explain:
Mortgage rates on new loans have risen by 370 basis points since the end of 2021, reflecting higher policy rates. However, the effective rate on the stock of mortgages has only increased by around 120 basis points, as a large share of mortgages with repayments fixed up to five years has been insulated from the immediate impact of higher rates.
UK unemployment is tipped to rise, from 4.1% this year to 4.7% in 2024, and 4.9% in 2025.
Yael Selfin, chief economist at KPMG UK, says:
“While the UK economy is resilient, it needs to get its mojo back. We expect monetary and fiscal policies to act as a headwind to growth over the next two years, and a sudden revival in productivity is not likely to come to the rescue.
This means that even the expected continuation of positive growth should not be celebrated prematurely, as the outlook is dominated by downside risks.”
Looking globally, KPMG predicts global GDP growth of 2.2% in 2024 – down from 2.6% in 2023, with a return to 2.6% growth anticipated in 2025.
Here are the key points from the report:
Activity has outperformed expectations, but the UK economy remains weak and vulnerable to shocks.
Risks to the UK outlook are skewed to the downside, and stem from a more persistent inflation, delayed impact of monetary policy, and structural weakness of labour supply.
Deceleration in growth in some of the world’s largest economies, coupled with little impetus elsewhere, could see global GDP growth easing slightly in 2024.
Weaker momentum should help push down inflation, with average world inflation expected to halve by 2025.
Also coming up
We’ll hear from Bank of England deputy governor Ben Broadbent this morning, when he gives a speech at London Business School. Last week, the BoE warned that fighting inflation was tougher in the UK than in the eurozone and US.
On the economics front, the latest German IFO business survey will test the temperature of Europe’s largest economy, as it struggles towards 2024.
Michael Hewson, chief market analyst at CMC Markets UK, says:
Given the weak nature of last week’s PMI numbers it would be surprising to see a significant improvement on the November numbers when the current assessment improved slightly to 89.4.
The agenda
9am GMT: IFO Institute’s index of Germany’s business climate
10.30am GMT: Bank of England deputy governor Ben Broadbent speech at London Business School
3pm GMT: NAHB index of US housing market
Updated
