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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Wall Street drops as interest rate rises loom after US inflation hits 7.5% – as it happened

United States Unilever US Federal Reserve United Kingdom FT James Bullard Alan Jope Siemens Credit Suisse Asia
The Dolphin Mall in Miami, Florida.
The Dolphin Mall in Miami, Florida. Photograph: Joe Raedle/Getty Images

Fed's Bullard calls for big rise in interest rates to fight inflation

A late update. Federal Reserve Bank of St. Louis President James Bullard has rattled Wall Street by declaring he supports raising interest rates by a full percentage point by the start of July.

Bullard told Bloomberg TV that today’s jump in US inflation to a 40-year high of 7.5% means the Fed needs to move faster to raise interest rates from their current record low.

“I’d like to see 100 basis points in the bag by July 1.

I was already more hawkish but I have pulled up dramatically what I think the committee should do.”

The report “shows continued inflationary pressure in the U.S.” and “is concerning for me and for the Fed,” Bullard said.

“You have got the highest inflation in 40 years and I think we are going to have to be far more nimble and far more reactive to data.”

Following Bullard’s comments, the markets are now pricing in a 50-basis point hike at the March meeting.

Stocks have been knocked in New York, where the Dow Jones industrial average is now down 476 points or 1.3% at 35,292.

Updated

Closing post

Time to wrap up, after a day dominated by cost pressures, rising prices, and a red hot US inflation print.

Here’s today’s main stories:

Goodnight. GW

Stock have recovered some ground on Wall Street.

The Dow and the Nasdaq are now only down 0.2%, while the S&P 500 is 0.3% lower, as equities shake off their initial losses on the back of the US inflation report.

Bond prices are still under pressures, though, with the yield on 10-year US Treasuries over 2% for the first time since 2019.

Gold, regarded a safe-haven against inflation, has touched a two-week high of $1,838 per ounce.

Sting speaking at the 2019 Juno Awards in London, Ontario, Canada.

In the music world, Sting has sold his back catalogue, featuring hits including Roxanne, Every Breath You Take and Englishman in New York, to Universal Music in a deal thought to be worth up to $300m (£221m).

The 70-year old, who found global fame as a member of the Police in the late 1970s and early 80s before going solo, becomes the latest big name musician to cash in on a long and successful career.

While the details of the deal were not disclosed, the volume and popularity of Sting’s work makes it one of the most valuable back catalogue transactions.

“It felt natural to unite everything in one trusted home,” said the musician, real name Gordon Sumner.

“It is absolutely essential to me that my career’s body of work has a home where it is valued and respected. Not only to connect with longtime fans in new ways but also to introduce my songs to new audiences, musicians and generations.”

As many as 3,000 workers in five of Sanjeev Gupta’s Liberty Steel plants across England face losing their jobs after HM Revenue and Customs filed petitions to wind up their operating companies over unpaid taxes.

Gupta’s GFG Alliance metals empire could be at risk if four Liberty companies fail to reach an agreement with HMRC and other creditors, after a year of struggles after the collapse of Greensill Capital, its main lender.

Unions condemned the move as a devastating blow, saying the plants must be kept open because of Liberty’s strategic importance to the UK economy.

The government has announced an immediate review of fairness in the pig industry supply chain, and has promised to look into pig contracts.

The move comes as the crisis in the sector worsens, with an estimated 200,000 pigs backed up on farms and unable to be taken to slaughter.

Farming minister Victoria Prentis made the announcement following a summit with pig producers on Thursday to discuss ways to solve the continuing crisis in domestic pig production.

FTSE 100 index highest since January 2020

In the City, the FTSE 100 index has closed at a new two-year high.

The blue-chip share index gained 29 points to finish at 7672 points, just slightly below its closing level on 17 January 2020, before the pandemic first knocked stocks.

The FTSE 100 index over the last five years
The FTSE 100 index over the last five years Photograph: Refinitiv

Publishing and events company Informa closed 7.4% higher, after selling its Pharma Intelligence business (see earlier post).

Copper producer Antofagasta (+4.2%) also rallied, while AstraZeneca jumped 3.4% after forecasting higher 2022 sales after posting record revenues in 2021.

Russian steelmaker Evraz led the fallers, down 3%.

The US dollar has now reversed its earlier gains, which has lifted the pound to a three-week high of $1.361.

David Madden, market analyst at Equiti Capita, says:

Volatility in the markets picked up today following the release of the US CPI data, as the reading jumped from 7% to 7.5%, a new 40 year high. Keep in mind that economists were expecting 7.3%. Not only did the headline figure rise, but so did the core metric as it increased to 6% from 5.5%. The core CPI report is a better gauge of underlying demand, and judging by today’s announcement, demand is robust. There was talk the headline inflation reading was being skewed because of rising energy prices, and that fundamental demand is nowhere near as high, but now it is obvious that consumer’s appetite is strong. The lofty inflation readings spurred on speculation the Federal Reserve might hike interest rates several times this year.

As a reaction to the CPI data, the US 10-year yield hit 2%, a level last seen in July 2019. The US dollar jumped following the CPI numbers and it pushed EUR/USD below the 1.1400 mark, but as the dust settled, the greenback retreated and now the euro is up 0.4% versus the dollar. It says a lot about the weakness in the US dollar when it can’t hang onto a gain on a day like today.

How global inflation is hitting living standards across the world

After decades lurking in the shadows, inflation is back. On Amazon, you can find fridge magnets printed with words spoken 40 years ago by Ronald Reagan, before the election that swept him into the White House.

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

Price spirals remain a real fear for many Americans, particularly those who lived through the double-digit inflation suffered under Reagan’s predecessor Jimmy Carter.

But prices are also rising widely, in countries as widespread as Germany, Australia and Pakistan - as well as the UK, of course. Here’s a breakdown of how living standards are being hit:

Alastair George, Chief Investment Strategist at Edison Group, argues that interest rates may not rise as fast as investors fear....

“Today’s US CPI data represents another above-consensus figure with US inflation at 7.5% over the prior 12 months. It is a challenging time to be a central banker, especially as it now seems that policymakers have been too relaxed on inflation over the past six months. However, sharply rising government bond yields represent a pre-tightening of financial conditions well ahead of any official interest rate increases.

‘We believe highly valued growth stocks remain at risk as the monetary tide recedes. However, we would also caution that the sheer quantity of debt within the global economy and the slowing effect of lower asset prices suggests that ultimately US rates may not reach the levels currently feared by investors.”

UK and European bond yields are also rising, as bond prices are hit by the prospect of higher interest rates to fight inflation

The yield, or interest rate, on UK five-year gilts (government debt) has hit its highest since November 2015 at 1.416%

The benchmark 10-year gilt yield has risen to 1.522%, the highest since November 2018.

German 10-year bond yields have hit their highest level since December 2018, at 0.284%.

Biden: inflation creating real stress at the kitchen table

U.S. President Joe Biden has said today’s inflation report is a reminder that the budgets of Americans are under real strain, and that his administration was using “every tool” it has to tackle the issue.

In a statement, Biden says:

“We have been using every tool at our disposal, and while today is a reminder that Americans’ budgets are being stretched in ways that create real stress at the kitchen table, there are also signs that we will make it through this challenge.”

Biden added that forecasters projected that inflation will ease by the end of 2022, and that the fall in new unemployment claims last week (see last post), was a sign of “real progress”

US jobless claims fall as Omicron hit recedes

New unemployment claims across the US fell last week, in a sign that the labor market remains strong despite inflationary pressures.

There were 223,000 new ‘initial claims’ for jobless support in the week to Saturday February 5th, a drop of 16,000, back close to pre-pandemic levels.

Filings for unemployment insurance have fallen for the last few weeks, after jumping in January after the Omicron variant hit the economy, sending Covid-19 cases to record levels and hitting hiring.

Full story: US inflation hits highest level in 40 years in January as prices rise 7.5%

Inflation in the US climbed to its highest level in 40 years in January, with prices rising by 7.5% from a year ago, the Bureau of Labor Statistics reported on Thursday.

The rise in the consumer price index (CPI) survey – which measures the costs of a wide variety of goods – was the largest since February 1982. CPI rose 0.6% from December, higher than expected.

Inflation in America has been driven higher by soaring demand and a lack of supply caused by Covid-19’s global impact on trade.

Price rises for food, electricity, and shelter were the largest contributors to the increase. The food index rose 0.9% in January following a 0.5% increase in December. The energy index also increased 0.9% over the month.

Rising prices have battered Joe Biden’s approval ratings even as the jobs market has roared back from its pandemic slump. The US economy grew at 5.5% last year, the strongest growth rate since 1984, and more than 1.6m new jobs have been added in the last three months.

But with gas prices, food and housing prices still rising, just 37% of Americans approve of how he is handling the economy, according to a poll conducted by Associated Press-NORC Center for Public Affairs Research.

Sandra Holdsworth, Head of Rates UK at Aegon Asset Management, says there will be intense discussion about what the Federal Reserve’s FOMC committee (which sets US interest rates) will do:

“This is another miss for the forecasters. US inflation surprised again on the upside recording a month-on-month increase of 0.6% which now makes the inflation rate over the last twelve months a whopping 7.5% – a level not seen since 1982 and well beyond the experience of most market participants.

“Speculation regarding the outcome of the next FOMC will now run rife.

With inflation at these levels and still not expected to have peaked, it’s hard to argue whether 25 basis points, 50 basis points or even more is the right response from the central bank.”

Updated

The yields on U.S. government bonds have risen, in a signal that the markets are expecting the Federal Reserve to raise interest rates to cool inflation.

The yield on the benchmark 10-year touched 2% for the first time since August 2019, before slipping back to 1.98%, still up on last night’s 1.927%.

Yields move inversely to bond prices fall, and higher yields can signal that investors expect higher inflation and rising interest rates .

Investors are also bracing for the US central bank to start shrinking its $9trn balance sheet. It ballooned after the Fed started buying $120bn of US government debt and mortgage-backed securities each month once the pandemic began. Those purchases are being tapered, and will end early next month.

Stocks have opened lower in New York after January’s hot inflation print.

The S&P 500 index of US stocks has dipped by 0.8%, or 35 points, to 4,551 points.

Many technology stocks are lower, as higher interest rates are bad news for unprofitable but fast-growing tech firms.

But energy companies, materials producers and financial stocks are higher.

The surge in consumer prices is eating into wage growth in the US.

Last week’s US jobs report showed that average hourly earnings increased by 5.7% per year in January. That sounds like a decent pay rise, but it’s more than wiped out by inflation, due to the 7.5% increase in the CPI over the same time.

Although, in January alone, wages did rise by 0.7%, slightly faster than prices.

So with real incomes under pressure, perhaps central bankers don’t need to panic about a wage-price spiral?

Jai Malhi, global market strategist at J.P. Morgan Asset Management, says:

“US inflation has consistently beaten expectations and today’s inflation release saw more of the same. This provides a significant challenge for the Fed as it aims to keep price increases under control while at the same time sustaining the economic expansion.

“High energy prices and supply issues are stoking inflation but these issues should eventually fade. Of greater concern is that wage pressures are building and the central bank will not want to risk a wage price spiral. Looking ahead though, real consumer spending on discretionary goods and services is likely to cool naturally, as higher energy costs begin to bite.

“The bond market is currently suggesting that there is a good chance the Fed will hike rates more than 5 times by the end of the year. While today’s release will be uncomfortable reading for the Fed, the squeeze on real incomes suggests they can perhaps afford to be a little more patient than the market thinks.”

Updated

Could Fed to a 50bp hike in March?

The big question eating away at the markets is whether America’s central bank will decide to raise interest rates by 50 basis points at its next meeting.

The Federal Funds Rate is currently at a record low of 0-0.25%. The Fed is widely expected to start its tightening cycle in March, beginning to unwinding the stimulus introduced when the pandemic hit the economy.

Typically, it might move the rate in quarter-point increments -- but January’s hot inflation report might prompt a faster hike.

Simon Harvey, Head of FX Analysis at Monex Europe says:

Today’s CPI data has only emboldened expectations in short-term interest rate markets that the Fed will conduct a 50bps hike in March, despite February’s CPI data due for release prior to the March meeting.

Underlying inflationary pressures continued to build in America last month, says Andrew Hunter of Capital Economics:

The 0.6% gain in medical care services prices may also have reflected Omicron disruption, and prescription drug prices also saw an unusually large gain. But the acceleration in rent of shelter inflation shows no sign of abating, with owners’ equivalent rent up by 0.4% m/m again and rent of primary residence seeing an even bigger 0.5% gain.

Alongside the 0.7% jump in food away from home prices, this underlines our view that a rapid cyclical acceleration in inflation is underway and, with labour market conditions exceptionally tight, it is unlikely to abate any time soon.

While we still expect more favourable base effects and a partial easing of supply shortages to push core inflation lower this year, this suggests it will remain well above the Fed’s target for some time.

Analysts: Brace for US rate hikes

January’s jump in inflation has sunk hopes that America’s cost of living squeeze might have peaked at the end of last year.

Victoria Scholar, head of Investment at interactive investor, says:

US January consumer prices rose by 7.5%, topping analysts’ expectations for 7.3% year-on-year, driven by rising energy costs, labour shortages and problems with the global supply chain.

Some analysts believed that inflation had already peaked but today’s month-on-month data, rising 0.6% versus consensus 0.4% suggests there was more to go before inflation starts to ease. It looks as though the Fed could be in for around six rate hikes this year, beginning in March.

However the big question is to what to extent the Fed’s limited demand-side focused tools will be able to target the supply side pressures from energy and labour. Some of these supply side pressures however are starting to ease already with an improvement in the global supply chain bottlenecks post pandemic and as workers return to the labour force, capping some of the wage pressures.

Updated

Shelter costs jumped by 4.4% in the last year, today’s inflation report says, as housing costs increased.

That’s a measure of rental prices, or how much a homeowner would have to pay to rent their own property.

User car and trucks were up over 40% in the last year, as supply chain problems producing new vehicles leads to higher demand for used autos.

But overall, the increase in prices is broad-based, with virtually all component of the inflation report showing increases over the past 12 months.

Here are some key moves:

Wall Street futures have turned lower, as traders calculate that January’s sizzling inflation report will lead to faster interest rate increases.

Updated

Food, electricity, and shelter (housing) were the largest contributors to the increase in the cost of living in America last month, says the Bureau of Labor Statistics.

The index of food prices rose by 0.9% in January, and has risen by 7.0% in the last year.

Energy prices rose 0.9% in the month, with an increase in the electricity index being partially offset by declines in the gasoline index and the natural gas index.

Over the last 12 months, energy prices have surged 27%, with gasoline prices up 40% -- hitting drivers, and pushing up transport costs.

At 7.5%, US inflation is now running at the fastest annual rate since February 1982, during Ronald Reagan’s first term in the White House.

That was the era when Fed chair Paul Volcker raised US interest rates dramatically high to squeeze inflation out of the economy, driving up inflation and pushing the US into recession.

Updated

Core inflation (stripping out food and energy) was also higher than forecast, rising by 6% per year in January.

US inflation hits 7.5%

Just in: US inflation has surged to 7.5%, as the cost of living crisis continues to hit households.

The US consumer prices index hit an annual pace of 7.5% in January, up from 7% in December, as the cost of living crisis continues to hurt households.

That’s higher than forecast, and shows that inflationary pressures are continuing to weigh on the US recovery.

In January alone, prices rose by 0.6%, again, higher than forecast.

As well as hurting Americans, it increases the chances that the US Federal Reserve raises interest rates sharply through 2022, as it looks to get a grip on rising prices.

Presenting today’s winter forecasts, European Economic Commissioner Paolo Gentiloni said:

“Multiple headwinds have chilled Europe’s economy this winter: the swift spread of Omicron, a further rise in inflation driven by soaring energy prices and persistent supply-chain disruptions,”

“With these headwinds expected to fade progressively, we project growth to pick up speed again already this spring.”

Updated

Eurozone growth forecasts cut as inflation hits EU economy

The European Commission has cut its growth forecast for this year as the surge in energy prices weighs on growth and drives up inflation, and supply chain problems persist.

In its Winter Forecast, released this morning, the EC predicted that the eurozone would grow by 4.0% in 2022, down from the 4.3% growth forecast last November.

That would be a slowdown on the strong recovery in 2021, when GDP rose an estimated 5.3%.

It then sees the eurozone growing by 2.7% in 2023, up from 2.4% forecast before.

The commission also lifted its forecast for inflation, which is now expected to hit 3.5% this year. That’s sharply higher than its November forecast of 2.2%, and well over the European Central Bank’s target of 2.0%.

The Commission warned that the EU economy entered 2022 “on a weaker note than previously projected”, meaning the recovery will take longer.

Having regained the pre-pandemic output level in summer last year, a moderate slowdown was already expected in the Autumn Forecast. However, since then headwinds to growth have intensified.

After a soft patch, the economic expansion is set to regain pace in the second quarter of this year and remain robust over the forecast horizon.

The resurgence of the pandemic last autumn and the exponential spread of Omicron put renewed strains on healthcare systems and an unprecedented surge of workplace absences in many EU countries, the Commission points out.

Supply chain disruption, and the surge in energy prices, are also hitting production.

Governments across the EU have reinstated restrictions– though generally of a milder or more targeted nature than in previous waves. Persistent logistic and supply bottlenecks, including shortages of semiconductors and some metal commodities, keep weighing on production, as do the elevated prices of energy.

Stronger than expected inflationary pressures weigh on households’ purchasing power. This forecast assumes that the impact on the economy caused by the current wave of infections will be short-lived and that most of the supply bottlenecks will fade in the course of the year.

The EC expects inflationary pressures to moderate towards the end of the year, but it also warns that price rises are broadening,

Compared to the Autumn Forecast, inflation projections have been revised up, as energy prices are now set to remain high for longer and price pressures are broadening to several categories of goods and services.

Updated

Coca-Cola has reported a rise in earnings and revenue that beat Wall Street estimates.

Coca-Cola grew its net revenues by 10% in the last quarter, and by 17% during 2021.

With sales up, net earnings per share grew 26% in 2021, and were up 65% year-on-year in the last quarter.

But the company has also predicted that higher inflation would continue to weigh on its earnings throughout 2022, echoing the message from rival PepsiCo, and from Unilever earlier today.

It says commodity price inflation is likely to be a “mid single-digit percentage headwind” this year.

Updated

Drinks and snacks business PepsiCo is also feeling the impact of higher inflation, and passing some of those costs onto customers.

PepsiCo has just beaten sales forecasts in its latest results, but also warned that it is costing more to make its snacks and drinks, and get them to store shelves.

Reuters has the details:

PepsiCo Inc beat analysts’ estimates for quarterly revenue by more than $1 billion on Thursday, helped by higher prices and robust demand for its snacks and sodas.

The company’s shares rose 1.4% in premarket trading, even as it forecast full-year earnings below estimates, signaling the impact from runaway cost inflation.

PepsiCo, which raised prices on its sodas and snacks in the fall (autumn) and winter, plans more increases this year as costs skyrocket for everything, from aluminum cans to labor and shipping, due to the pandemic and the spread of the Omicron coronavirus variant.

The Lay’s chips maker previously said demand has so far held up better than feared in the face of higher prices, but signs the fastest inflation rise in a generation may not ease soon have triggered worries that consumers may soon cut back on purchases.

PepsiCo forecast organic sales to rise 6% in 2022, slowing from the near 10% growth it saw last year. It expects fiscal 2022 core earnings of $6.67 per share, compared with analysts’ expectations of $6.73, according to IBES data from Refinitiv.

UK economic activity picks up

The UK economic has picked up speed after the Omicron variant hit activity at the end of last year, the latest data from the Office for National Statistics shows.

More people have been visiting shops, with retail footfall up 3% last week, the fourth weekly rise in a row.

Spending on credit and debit cards rose 6 percentage points in the week to 3 February 2022, back up to 96% of pre-pandemic levels.

People have been returning to bars and restaurants too, with seated diner numbers up 6 6 percentage points in the last week.

And in mid-January, approximately 2% of the workforce were estimated to be on sick leave or not working because of coronavirus (COVID-19), this is the lowest figure recorded since early December 2021.

The number of employees estimated to be working from home fell in mid-January to 15%, down from 17% in late December 2021, while spending at Pret A Manger stores has risen as more people return to the office.

Takings at Pret stores
Takings at Pret stores Photograph: ONS

Online job vacancies were up by 3%, as firms continue to look to hire staff.

And painkillers are still in short supply in some stores.

Credit Suisse ends dire year with a loss

A logo of Swiss bank Credit Suisse in Zurich.
A logo of Swiss bank Credit Suisse in Zurich. Photograph: Steffen Schmidt/AP

Swiss bank Credit Suisse has ended a torrid year by posting a steep loss after setting aside more funds to cover legal settlements.

Credit Suisse made a pre-tax loss of 1.586bn Swiss francs (£1.25bn) in the final quarter of 2021,

For the full year, it lost 522m Swiss francs, down from a CHF 3.5bn profit in 2020, after a series of scandals, and took “major litigation provisions” of 1.1bn Swiss francs during the year.

Credit Suisse’s year to forget included the collapse of $10bn of funds invested mainly in loans linked to Greensill, the supply chain bank advised by former Prime Minister David Cameron which imploded.

It also suffered a $5.5bn trading loss through the failure of investment fund Archegos last spring.

The Q4 loss included “major litigation provisions” of CHF436m and a CHF1.6bn goodwill impairment charge on its takeover of US investment bank Donaldson, Lufkin & Jenrette (DLJ) in 2000.

CEO Thomas Gottstein said:

2021 was a very challenging year for Credit Suisse. Our reported financial results were negatively impacted by the Archegos matter, the impairment of goodwill relating to the Donaldson, Lufkin & Jenrette (DLJ) acquisition in 2000 and litigation provisions, as we look to proactively resolve legacy issues.

Looking ahead, Credit Suisse cautioned that 2022 earnings would be weighed down by restructuring and compensation costs, saying:

Compared to the exceptional levels of 1Q21, we have seen a reversion to lower, pre-pandemic levels of business activity, particularly given the monetary tightening that central banks have initiated.

We also expect our Equities revenues to be impacted by the exit from Prime Services. However, after a weak start to the year, we are seeing encouraging signs of improving franchise momentum, including positive net new asset inflows year-to-date in our Wealth Management business.

AstraZeneca forecasts higher 2022 sales and lifts annual dividend

AstraZeneca has forecast higher 2022 sales and lifted its annual dividend for the first time in a decade after beating fourth-quarter profit expectations, but warned the boost from its Covid-19 products would decline.

The Anglo-Swedish drugmaker made almost $4bn (£2.9bn) from its Vaxzevria Covid jab last year, including more than $1bn from Europe and $2.3bn from emerging markets. The jab has not yet been approved by US regulators.

AstraZeneca’s total revenues increased by 41% to $37.4bn last year. In the final quarter, sales rose 62% to $12bn.

Despite the jump in sales, the drugmaker made a loss before tax of $265m (£195m), compared with a profit of $3.9bn the year before, after spending more on product launches, research & development and the acquisition of the rare diseases specialist Alexion. Its R&D spend rose by 62% to $9.7bn.

AstraZeneca’s vaccine sales pale in comparison with Pfizer’s near $37bn (£27.2bn) take from its Covid-19 jab last year, which made it one of the most lucrative products in history and led campaigners to accuse the US drugmaker of “pandemic profiteering”.

More here:

CEO Pascal Soriot has told reporters that it is seeing strong demand for Vaxzevria in Latin America, the Middle East and Asia. The vaccine is receiving a “fantastic welcome” in those regions, he says.

France’s TotalEnergies has become the latest oil giant to report soaring profits on the back of the energy crunch.

Total’s adjusted net income surged fivefold in the last quarter of 2021 to $6.8bn, compared to a year ago. For the full year, they quadrupled to $18.1bn, thanks to the jump in oil and gas prices.

Shareholders will benefit, with Total announcing a $2bn buyback scheme and an increase in dividends.

CEO Patrick Pouyanne says:

“In the fourth quarter, oil prices continued to rise, up 9% compared to the previous quarter, while gas prices in Europe and Asia, driven by increasing demand, hit all-time highs above $30/Mbtu, and sent European power prices to record levels.”

This follows similar bumper results from BP and Shell, which have intensified calls for windfall taxes on these earnings as UK families face painful increases in energy bills.

Tax wealth to pay for ageing UK population, says thinktank

Wealth taxes will be needed to fund a £76bn a year increase in government spending by the end of the decade, caused by an ageing population and more expensive healthcare, a thinktank has said.

The Resolution Foundation said the UK was on course to see the size of the state match that of Germany by 2030, and warned new methods of raising money to pay for higher spending would be needed.

While stressing public spending pressures were nothing new for Britain, the thinktank said previous ways of raising money – such as reducing defence spending and raising national insurance contributions – would no longer be feasible.

Here’s the full story:

Former UK chancellor Alistair Darling says ‘a competent Government with a clear plan’ is needed to steer the country through these big challenges:

Updated

The headquarters of German industrial giant Siemens
The headquarters of German industrial giant Siemens Photograph: Christof Stache/AFP/Getty Images

German industrial giant Siemens has reported a surge in orders, in a sign that demand is picking up across the wider industrial economy.

Orders rose 52% year-on-year to €24.21bn in the last quarter, as Siemens’ customers looked to invest in new equipment and infrastructure as economies emerge from the shock of Covid-19.

Siemens mobility division reported its highest-ever quarterly order intake, which nearly doubled to €5.39bn due to large contract wins. That included a €1.5bn order for high-speed trains and a number of large locomotive orders totaling €0.5bn from Germany, and a €0.3 billion order for a train control system from Norway.

Siemens ‘digital industries’ business saw an “extraordinary order intake”, up 73%, led by strong demand for factory automation and motion control businesses.

This has left Siemens with a €93bn backlog of orders.

Roland Busch, President and Chief Executive Officer of Siemens, says the firm made a very successful start into fiscal 2022.

All our businesses continued their high-value growth. We delivered strong results and increased our earnings per share before purchase price allocation by 20 percent.

Looking ahead, Siemens predicted that there will healthy growth in global GDP, but with slowing momentum, and that the challenges from Covid-19 and supply chain constraints will ease during fiscal 2022.

Updated

UK housebuilder Redrow has lifted its profit forecasts as house prices continue to rise faster than costs.

Redrow reported record revenues in the first half of its financial year, to 2nd January, at £1,052m. Profits rose by £29m to £203m.

With the cost of building materials, wages and energy rising, Redrow expects cost inflation of 6% for the full financial year.

But it has lifted its operating margin back to normal levels of 19.5%, one year earlier than planned, as “House price inflation continues to exceed build cost inflation”.

According to Halifax, average house prices rose by 9.7% in the year to January.

Redrow now expects earnings per share of 92p for the 2024 financial year, up from 90p before.

It has also set aside an extra £10m to cover the cost of fixing the UK’s cladding crisis, after the government said it would make developers pick up the cost.

As we are predominantly a builder of family detached houses, we have only developed a relatively small number of high-rise apartment schemes. However, as a consequence of the widening in scope of buildings concerned and more detailed cost estimates for the work required, we have increased our fire safety provision by £10m to £36m.

Insurance group Prudential says its chief executive will be based in Asia for the first time, after announcing Mike Wells will retire at the end of March this year.

Over his seven-year stint, Wells has pivoted Prudential’s focus to Asia through two strategic demergers -- splitting off its UK and Europe business, M&G, and then demerging its US arm after pressure from activist investors.

Shriti Vadera, Chair of Prudential, says Wells made an “outstanding contribution”, including steering the Group through the unprecedented events of the pandemic.

Given Prudential’s focus on the growth markets of Asia and Africa, the Board has decided with this managed transition of the leadership structure, that the roles of the Group CEO and the Group CFO will be based in Asia, where Prudential’s largest businesses, the Group regulator and the rest of the senior management team are located.

With the strategic positioning of the Group complete, it can now take the next steps in the simplification of its management and operational model.

Data analytics group Relx is now the top faller in London, down 4.75%.

It has warned that it can’t predict when its exhibitions business will return to normal, after reporting solid growth across its operations last year.

Relx, which offers data analytics, AI and risk management tools, reported underlying operating profit growth of 13% last year, with revenues up 7%.

It also predicted above-trend growth in revenue and adjusted operating profit this year, due to strong demand for machine-learning tools and analytics.

But its events business still faces uncertainty, two years after the pandemic forced global lockdown.

The FT has the details:

London-based Relx on Thursday said it hosted 269 in-person events in 2021, compared with a yearly schedule of more than 500 before the pandemic.

However revenue at the business rose 44 per cent from 2020 to £534mn, and it posted a £10mn profit after a £164mn loss the year before.

Chief financial officer Nick Luff called 2021 “somewhat of a recovery year for exhibitions”.

That 13% operating profit growth slightly missed expectations, Reuters points out, weighing on Relx’s shares this morning.

Neil Wilson of Markets.com says Unilever’s €3bn share buyback will not placate investors looking for a stronger strategy:

What do you do after you’ve shown your best hand, and find out no one was that impressed? After being rebuked and scorned over a failed £50bn stab at taking over GSK’s consumer unit, Alan Jope’s answer is to chuck some money down on the table and pass the shoe.

Results from Unilever are decent but the announcement of a €3bn share buyback is not lifting the spirits of investors: shares have dropped 3% in early trading. Nor has the commitment to rule out making any large transformational acquisitions in the near term.

You worry that buybacks are just a screen for a lack of strategy. Investors want to see more of a deliberate attempt to unlock value.

The FTSE 100 share index has hit a fresh two-year high in early trading, with travel companies and mining firms in the risers.

UK publishing and events business Informa has jumped to the top of the FTSE 100 leaderboard, up 5.2%, after announcing the sale of its clinical trial data business, Pharma Intelligence to Warburg Pincus for £1.9bn.

Pharma Intelligence provides specialist intelligence, data, and software for clinical trials, drug development, and regulatory compliance.

It’s used by pharmaceutical companies when developing new products and bringing them to market.

Freetrade senior analyst Dan Lane says Unilever’s margin are being squeezed hard, at a time when CEO Alan Jope and colleagues are also feeling the pressure.

Unilever’s pivot towards its ecommerce channels is paying off. Moving even further into Beauty has also clearly been a shrewd move - the likes of Dove and Vaseline are more than holding up their end of the bargain in the skincare division. But there’s no getting away from those squeezed margins across the board. The prices of raw materials, packaging and distribution are soaring and there’s only so much of that extra cost Unilever can add to a tub of Marmite before consumers skip the spread altogether.

And management competence is now centre stage after the GSK bid debacle. With Nelson Peltz on the shareholder register and Terry Smith making his thoughts known, Jope and co. need to show they aren’t the coasters they’ve been made out to be.

Updated

Today’s results show there’s ‘no quick fix’ to Unilever’s problems, says Richard Hunter, head of markets at interactive investor, after what has increasingly been seen as “doddering progress”.

The spectre of high input cost inflation has been a major challenge for Unilever, he points out, although it did use its pricing power to pass costs onto consumers.

There are signs of recovering growth in some parts of the world, he points out:

[there were] strong performances in the likes of China and India, a creditable performance from the US, although growth in Europe remains lacklustre.

The company is also reflecting the changing nature of doing business with further focus on its e-commerce channel, where growth of 44% has led to the channel now accounting for 13% of total group sales.

The company’s outlook for the year contains elements of both hope and caution, Hunter adds.

The pressure on margins is likely to persist as cost inflation continues for the time being, although once more strong pricing action should lead to further underlying sales growth of between 4.5% and 6.5%.

Some highlights from Unilever’s results.

Its Foods and Refreshment grew its underlying sales by 5.6% -- although nearly half of that (2.7%) was due to price hikes.

Unilever says:

Ice cream grew mid-single-digit, balanced across volume and price. Growth was driven by out-of-home food, with in-home ice cream flat as we lapped double-digit prior year growth. Our Magnum and Ben & Jerry’s brands each grew high single-digit. Food solutions has begun to recover from channel closure in 2020, delivering double-digit growth. In-home food saw low single-digit price led growth, following elevated demand and double-digit growth in 2020.

Our largest food brand Knorr grew high single-digit across in-home and out-of-home channels through innovations such as zero-salt stock cubes and Rinde Mas in Latin America, a plant-based product that extends the yield of meat dishes while adding flavour. Dressings brand Hellmann’s grew double digit for the second year in succession. Our retained tea business grew double-digit.

Home Care underlying sales grew 3.9%, with growth in fabric cleaning. Prices rose 3.1%, but profit margins were squeezed, with Unilever unable to pass on all its higher costs.

Beauty & Personal Care underlying sales grew 3.8% last year, including a 3% rise in prices. There was good growth in skin care, strong sale of Vasoline, and also deodorants as the market continued to recover.

Dove refillable deodorant launched in the US and has been well-received by consumers.

But again inflation, particularly for palm oil, ate into profit margins in the Beauty & Personal Care.

Updated

Unilever shares hit by weaker profit margins

Shares in Unilever have fallen 3.3% in early trading, following its warning that underlying profit margins will fall this year due to the surge in costs (see previous post).

They’re one of the top FTSE 100 fallers, despite Unilever’s attempt to placate investors with a new €3bn share buyback and a pledge to resist M&A deals.

As Bloomberg puts it:

Unilever Plc warned it will take two years to return to the profitability level of 2021 as the worst inflation since the financial crisis erodes the benefits of faster growth.

Unilever expects peak inflation in the first half, when raw material costs are forecast to increase by 2 billion euros ($2.3 billion). The operating margin will narrow by as much as 2.4 percentage points in 2022, Unilever said Thursday, adding it expects the bulk of the margin to come back in 2023 and a full recovery in 2024.

Updated

Unilever predicts price hikes as it faces costs surge

Unilever has also warned that prices will keep rising this year, in a signal that the cost of living squeeze will continue to hit shoppers.

The consumer goods giant says that it expects ‘very high’ cost pressures in the first half of this year - as it wrestles with higher raw material prices, shipping charges and packaging costs.

Unilever says in today annual results that its input costs could surge by at least €3.5bn during 2022.

We currently expect very high input cost inflation in the first half of over €2 billion.

This may moderate in the second half to around €1.5 billion, although there is currently a wide range for this that reflects market uncertainty on the outlook for commodity, freight and packaging costs.

Pricing will “continue to be strong”, with some impact on volume as a result, it predicts.

That’s going to be a blow to household shopping bills this year, as Unilever produces such a range of goods (from food and cleaning products to personal care and ice cream).

But even with price rises, Unilever’s profitability is expected to be squeezed by cost pressures.

Underlying operating margins are forecast to drop to between 16% and 17%, down from 18.4% last year -- suggesting it won’t be able to pass on all those rising costs to consumers.

Updated

Introduction: Unilever rules out major deals after GSK debacle

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

Under-pressure Unilever has ruled out making major takeovers any time soon, and announced a new share buyback up to €3bn, to placate shareholders alarmed by its botched attempt to buy GlaxoSmithKline’s consumer healthcare arm.

The firm behind Marmite, Dove soap, Hellmann’s mayonnaise and Ben & Jerry’s ice-cream told shareholders that it has got the message that it must take a ‘measured’ approach.

Reporting its final results for last year, Alan Jope, Unilever’s chief executive officer, says:

We have engaged extensively with our shareholders in recent weeks and received a strong message that the evolution of our portfolio needs to be measured.

We therefore do not intend to pursue major acquisitions in the foreseeable future and will conduct a share buyback programme of up to €3 billion over the next two years.”

Unilever, which has faced pressure to improve its performance, has also reported its fastest underlying sales growth for nine years - up 4.5% for the full year.

Of that, 1.6% came from volume growth, with prices hiked by 2.9% as Unilever passed on rising costs to customers.

Jope says that inflationary pressures were the main challenge last year, leading to an acceleration of price rises at the end of last year.

The major challenge of 2021 has been the dramatic rise of input costs.

We responded with pricing actions, delivering underlying price growth of 2.9% for the year, accelerating to 4.9% in the fourth quarter, with full year underlying operating margin down 10bps and underlying earnings per share up 5.5%.

Unilever expect underlying sales growth to rise this year, to a range of 4.5% to 6.5%.

Last month Unilever announced it would reorganise around five areas: beauty & wellbeing, personal care, home care, nutrition and ice-cream, with 1,500 jobs being cut.

Activist investor Nelson Peltz has recently built a stake in the troubled FTSE 100 company, and will be pushing for change.

Jope has also received a much-needed show of support from one of Unilever’s largest shareholders, over the attempt to buy GSK’s healthcare brands for £50bn.

Top fund manager Nick Train of Lindsell Train suggested the widespread attacks on him were “unfair”, The Times reports this morning:

“We would have been a lot more disappointed if it [Unilever] had not considered making the acquisition,” he said at Finsbury’s annual meeting.

“That is a rational asset for Unilever to aspire to own. Whether it is practical at this juncture is another matter.”

The agenda

  • 8am GMT: China’s new yuan loans data for January
  • 9.30am GMT: ONS publishes latest data on the pandemic’s impact on the UK economy
  • 1.30pm GMT: US inflation report for January
  • 5pm GMT: Bank of England governor Andrew Bailey’s speech at TheCityUK Annual Dinner to be published

Updated

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