The FTSE 100 (^FTSE) and European stocks gained on Wednesday as traders digested news that UK inflation unexpectedly fell to 2.5% in December.
This was down from 2.6% in November, according to the Office for National Statistics. Economists had expected inflation to stay steady at 2.6%.
Core inflation fell to 3.2% from 3.5%, also a bigger-than-expected drop. City analysts had expected the rate to edge lower to 3.4%.
It comes as welcome news for the Bank of England, whose target is to keep inflation at 2% over the next two years.
Grant Fitzner, ONS economist, said: “Inflation eased very slightly as hotel prices dipped this month but rose a year ago.
“The cost of tobacco was another downward driver, as prices increased by less than this time last year. This was partly offset by the cost of fuel and also second-hand cars, which saw their first annual growth since July 2023.”
UK stocks have come under pressure in recent days from rising bond yields, as investors fret over the likelihood of inflationary policies under Donald Trump’s impending US administration.
Government bond yields have now fallen back after soaring to multi-decade highs over the last week.
London’s benchmark index was almost 0.8% higher in early afternoon trade. Housebuilding stocks surged more than 4% as traders priced in two interest rate cuts by the end of the year in a boost for mortgage borrowers.
Germany’s DAX (^GDAXI) rose 0.9% and the CAC (^FCHI) in Paris was up 0.7%.
The pan-European STOXX 600 (^STOXX) was up 0.8%.
Wall Street is set for a positive start as S&P 500 futures (ES=F), Dow futures (YM=F) and Nasdaq futures (NQ=F) were all in the green.
The pound was flat against the US dollar (GBPUSD=X) at 1.2211.
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A total of 50,523 deals across mergers & acquisitions (M&A), private equity, and venture financing were announced globally during 2024, reflecting a 6.7% year-on-year decline from 54,141 deals announced in 2023.
Despite the overall downturn, certain markets demonstrated resilience, highlighting the nuanced dynamics of the global deal-making landscape, according to GlobalData.
Aurojyoti Bose, lead analyst at GlobalData, said:
An analysis of GlobalData’s deals database revealed that of all the deal types, venture financing deals saw the highest year-on-year decline of 17.2% during 2024 while private equity deal volume fell by 2.1% and the number of M&A deals decreased by only 0.4%.
North America and South and Central America saw their respective deal volume fall by 10.6% and 15.2% YoY in 2024, whereas Europe and Middle East and Africa witnessed decline in deal volume by 6.7% and 4.7%, respectively.
Meanwhile, Asia-Pacific showcased relative resilience compared to other regions with its deal volume registering a much lesser decline of 1.4% during 2024 compared to the previous year.
Average UK house prices increased by 3.3%, to £290,000 in the year to November 2024, this annual growth was up from 3.0% in the 12 months to October.
It was the biggest increase since February 2023, according to the Office for National Statistics. This comes after a downwardly revised 3% annual gain in October.
Meanwhile, private-sector rents continued to rise strongly, up by 9% in December compared with 9.1% in November. Rents climbed the most in London, where they rose by 11.5%.
Average rents increased to £1,369 (9.2%) in England, £777 (8.5%) in Wales and £991 (6.9%) in Scotland, in the 12 months to December
In Northern Ireland, average rents increased by 8.6% in the 12 months to October. In England, rents inflation was highest in London (11.5%) and lowest in Yorkshire and The Humber (5.4%), in the 12 months to December.
The pound (GBPUSD=X) has managed to stem losses, pushing higher at $1.2224 as a UK inflation slowdown pushed traders to increase bets that Bank of England policymakers will cut interest rates at the next Monetary Policy Committee meeting in February.
Prices rose by 2.5% in the year to December, down from 2.6% the month before, the Office for National Statistics (ONS) said. It means prices are still rising but at a slower pace than before.
Financial markets now assign a 74% probability to an interest rate cut at the Bank’s February meeting, up from 62% before the figures were published, a shift which supported under-fire UK government bonds known as gilts.
The UK benchmark 10-year yield dropped six basis points (bps) at 4.82% and the rate sensitive two-year yield own nearly eight bps, outperforming German and US peers, data from Reuters shows.
“The reason for previous sterling sell off was the spike in yields, now that’s reversing it’s relief,” said Kenneth Broux, head of corporate research FX and rates at Société Générale.
The pound was also steady against the euro (GBPEUR=X), trading at €1.1844.
The owner of Royal Mail said it remains on track to return to annual profit after a parcel boost over Christmas.
International Distribution Services (IDS.L) (IDS) said Royal Mail delivered more than 99% of items that were posted on or before the recommended cut off date in time for Christmas.
It saw revenues rise 2.4% in the three months to the end of December, with sales of parcels up 3.2% and a 1.4% rise for letters.
Addressed letters continued to fall by volume, down 7%, however this was offset by stamp price rises.
Parcel sales across the UK by volume remained unchanged, at 334 million, but revenues rose 2.5% to £1.02bn as prices rose, while the division was boosted by a better performance internationally, where revenues jumped 6.6% to £227m.
The performance has kept the group on course to return to adjusted operating profit, before voluntary redundancy costs, in 2024-25 this fiscal year, “despite the difficult market environment”, IDS said.
It comes as its £3.6bn takeover by Czech billionaire Daniel Kretinsky nears completion.
As we sail into the afternoon, here’s a quick look at what’s happening in equity markets this morning…
Rate-sensitive housebuilders were on the rise, with Taylor Wimpey (TW.L), Persimmon (PSN.L), Barratt Redrow (BTRW.L) and Berkeley Group (BKG.L) among the top performers on the FTSE 100.
Unite Group was the standout gainer on the top-flight index, however, after an initiation at ‘buy’ by Goldman Sachs.
DCC (DCC.L) was also in the black after an upgrade to ‘outperform’ at RBC Capital Markets.
Diploma rallied as the distribution group hailed a “strong” first quarter, in line with expectations.
Animal genetics firm Genus (GNS.L) surged as it said it expects full-year adjusted pre-tax profit to be at the top end of the range of market forecasts after a strong first half. Consensus expectations are for a range of between £63m and £67.4m.
Currys (CURY.L) was in the black as the electricals retailer raised full-year profit guidance after reporting a strong performance over Christmas and Black Friday, with a 2% rise in UK underlying sales as consumers bought more laptops and mobile phones.
Recruitment firm Hays (HAS.L) rose despite saying it expects interim pre-exceptional operating profit of £25m, towards the lower end of the consensus range amid subdued trading conditions as net fees fell 12% in the second quarter.
Pub group Mitchells & Butlers (MAB.L), housebuilder Vistry (VTY.L), asset manager Ashmore (ASHM.L) and Just Group (JUST.L) all gained after trading updates.
On the downside, miners Anglo American (AAL.L) and Antofagasta (ANTO.L) were both knocked lower by downgrades to ‘underperform’ at RBC Capital Markets.
More than four in 10 council homes sold under the right to buy scheme are now being rented out by private landlords. Meanwhile, nearly two in five tenants in homes still eligible for right to buy live in poverty, making it unlikely they have the savings or income required to purchase their property.
The Resolution Foundation claims that rather than increase home ownership, for many low-income families the right to buy has instead led to higher housing costs via private rents.
More than 100,000 social homes sold off under Margaret Thatcher’s right to buy scheme have been lost to the private sector since 2015 and an increasing number are now being rented out privately. Figures from the New Economics Foundation revealed that 41% of council homes are now in private hands.
The UK government is clamping down on the right to buy policy but the think-tank warns that the country still has £50bn shortfall in affordable housing to address.
The government’s proposed changes to right to buy include tweaking the discount formula and increasing the number of years tenants must have lived in their homes to qualify for the scheme – from three to 10 years. The public consultation on these reforms closes this Wednesday.
The US markets watchdog has filed a lawsuit against Elon Musk alleging he failed to disclose that he had amassed a stake in Twitter, allowing him to buy shares at “artificially low prices.”
The Securities and Exchange Commission (SEC) lawsuit alleges that the multi-billionaire Tesla (TSLA) boss saved $150m (£123m) in share purchases as a result.
According to SEC rules, investors whose holdings surpass 5% have 10 days to report that they have crossed that threshold. Musk did so 21 days after the purchase, the filing says.
In a social media post, the Tesla CEO called the SEC a “totally broken organisation.”
He also accused the regulator of wasting its time when “there are so many actual crimes that go unpunished.”
“Musk’s violation resulted in substantial economic harm to investors,” the SEC complaint said.
Twitter’s share price rose by more than 27% after Musk made his share purchase public on 4 April 2022, the SEC added.
Germany’s economy has shrunk for a second year in a row, falling 0.2% in 2024 after a 0.3% decline the year before.
This was according to the latest figures from the federal statistics office Destatis.
Manufacturing output dropped by 3% last year, with a marked decline in machinery and equipment, and the automotive sector.
Production also remained low in in energy-intensive industrial branches, including the chemical and metal-working industries.
Construction recorded a 3.8% slump in 2024 as build costs remained high, resulting in fewer residential buildings being built.
By contrast, the modernisation and new construction of roads, railways and pipelines led to an increase in the civil engineering sector.
The service sector was the only bright spot, although it only grew by a modest 0.8%.
Ruth Brand, president of Destatis, said at a press conference held in Berlin:
After the latest inflation figures, shadow chancellor Mel Stride said:
Currys (CURY.L) shares jumped more than 12% in London after the company raised its annual profit outlook and resumed dividend payments.
Underlying sales at the British electricals retailer rose 2% in the UK and Ireland during the key Christmas period, with strong demand for mobiles phones, gaming and computing offsetting weaker TV sales.
In the Nordics region, like-for-like sales were up 1% in the 10 weeks to 4 January.
Alex Baldock, chief executive, said:
He called on the government to look at phasing in the increase in employers’ national insurance contributions (NIC), which is due to come into effect from April, to help soften the blow, as well as to overhaul business rates.
Government bond yields are easing across the UK, eurozone and in the US this morning after the dip in UK inflation.
The yield on the 30-year gilt, as UK government bonds are known, has fallen by nearly 5 basis points to 5.399%, after soaring to to 5.472% on Monday, the highest since 1998.
The 10-year bond yield dropped by 8 basis points to 4.806% after hitting 4.925% last week, the highest since 2008.
The yield on Germany’s 10-year bond, the benchmark for the eurozone, dropped by 2 basis points to 2.597%, after touching a fresh seven-month high of 2.63%.
The pound also reversed earlier losses and gained 0.1% against the dollar on the back of the news.
1.2297 – (0.00%)
As of 13:55:40 GMT. Market open.
Meta (META) is looking to cut around 5% of its global workforce in a bid to drop “low performers faster”.
In a memo to staff, boss Mark Zuckerberg said he had made the decision to speed up the firm’s regular performance-based cuts in anticipation of an “intense year”.
He said the company would “backfill” the roles later in 2025.
The company, which is the owner of Facebook, Instagram and WhatsApp, employs about 72,000 people globally. However, it did not say how the cuts would be distributed around the globe.
Workers in the US who are affected will know by 10 February, according to the memo, the BBC said. Those outside the US will be informed “later”.
Roughly 3,600 people could be affected this move. They will receive “generous severance”, he said.
Today’s inflation figures potentially open the door to interest rate cuts by the Bank of England (BoE) next month.
Financial markets now assign a 74% probability to an interest rate cut at the Bank’s February meeting, up from 62% before the figures were published. The chances briefly surged to 81% as traders digested the news.
Ruth Gregory, deputy chief UK economist at Capital Economics, said:
Meanwhile, Michael Saunders, a former Bank of England policymaker said the inflation figures may pave the way for “slightly more interest rate cuts”.
He told BBC Radio 4’s Today programme:
On the back of the ONS inflation data, chancellor Rachel Reeves said this morning:
The latest inflation figures come amid mounting pressure on the UK’s public finances.
Government borrowing costs reached their highest levels in years, while the pound has also slumped against the dollar, sparking criticism of Reeves’ handling of the economy and her recent tax increases outlined in the budget.
Easing price rises in restaurants and falling hotel prices last month helped the overall inflation rate come down, as did a slowing in tobacco, clothing, and footwear inflation.
ONS chief economist Grant Fitzner said:
Prices at hotels fell by 1.9% between November and December, contributing to the overall decline.
Meanwhile, the cost of dining out at restaurants and cafes rose at a slower pace than in the same period a year ago, further helping to ease inflationary pressure.
The cost of alcohol and tobacco rose at an annual rate of 5.3% in December, down from 6.8% in November. This decline can be attributed to the increase in tobacco duty introduced in November 2023.
Despite the drop in tobacco costs, prices for alcoholic beverages such as wine rose by less than they did the year before, contributing to the slower overall inflation rate.
Food prices, a major component of the inflation basket, continued to rise but at the same pace as the previous month, increasing by 2% in the year to December.
The cost of bread, cereals, and beverages like mineral water, soft drinks, and juices rose at a lower rate or remained unchanged compared to the same period a year earlier.
Air fares rose by 16.2% between November and December, down from the monthly rise of 57.1% a year earlier.
UK inflation unexpectedly fell to 2.5% in December, down from 2.6% in November, according to the Office for National Statistics.
It means prices are still rising but at a slower pace than before.
Meanwhile, core inflation fell to 3.2% from 3.5%, another bigger drop expected as City analysts had expected the rate to edge lower to 3.4%.
It comes as welcome news for the Bank of England, whose target is to keep inflation at 2% over the next two years.
Financial markets now assign a 74% probability to an interest rate cut at the Bank’s February meeting, up from 62% before the figures were published. The chances briefly surged to 81% as traders digested the news.
Global markets treaded water ahead of US consumer inflation data that could potentially shift monetary policy outlook in the US and around the world.
In Asia, the Nikkei (^N225) swung between losses and gains, ending 0.1% down on the day in Japan, while the Hang Seng (^HSI) rose 0.3% in Hong Kong. The Shanghai Composite (000001.SS) was 0.4% lower by the end of the session.
The big movers were the Japanese yen and yields. The dollar fell 0.4% to 157.3 yen as markets now see a 70% chance that the Bank of Japan will raise interest rates in January after its governor Kazuo Ueda said policymakers would discuss such an option next week.
10-year Japanese government bond yields hit 1.255%, the highest since 2011.
US stocks oscillated in a volatile day on Tuesday. Stocks rose initially after official figures showed a smaller than expected increase in producer prices in December, but this failed to materially change expectations for interest rate cuts.
The S&P 500 (^GSPC) rose by 0.1% while the Nasdaq Composite (^IXIC) fell by 0.2% and the Dow Jones Industrial Average (^DJI) rose 0.5%.
The dollar weakened against the euro on Tuesday but stayed near its highest level in more than two years following cooler-than-expected inflation data.
38,444.58 – (-0.08%)
At close: 15:45:02 GMT+9
Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what’s moving markets, and all that’s happening across the global economy.
Here’s a quick look at what’s on the agenda for today:
7am: Trading updates: Currys, Hays, Diploma, Fuller Smith & Turner, Vistry Group
7am: UK Consumer Price Index
9am: International Energy Agency releases monthly oil report
9am: Germany 2024 GDP
12pm: US MBA Mortgage Applications
1.30pm: US inflation for December
3.30pm: US Crude Oil Inventories
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