Ahead of the European Central Bank’s interest rate decision at 1.15pm GMT, Germany’s 10-year bond yield rose to its highest level since early December.
The central bank is widely expected to leave interest rates unchanged but investors will be looking for any hints on when borrowing costs will start to come down.
The ECB’s deposit rate, which is paid on commercial bank deposits, was last raised in September to 4% – the highest since the euro was launched in 1999. The rate on its main refinancing operations, which provide the bulk of liquidity to the banking system, is at 4.5%. The marginal lending facility, which offers overnight credit to banks, is at 4.75%.
Jeroen Blokland, founder of Blokland Smart Multi-Asset Fund, tweeted:
On the markets, shares are drifting lower while oil prices have risen and the pound is little changed.
The FTSE 100 index is trading 14 points, or 0.2%, lower at 7,513. Germany’s Dax has lost 0.4%, while France’s CAC is down 0.45% and Italy’s FTSE MiB has slid nearly 1% ahead of the European Central Bank’s interest rate decision.
In the oil market, Brent crude, the global benchmark, is $1.07 higher at $81.10 a barrel, a 1.3% gain. US light crude has gained $1.11 to $76.2 a barrel, up 1.5%.
Oil prices rallied after data showed US crude stockpiles fell more than expected last week, and the Chinese central bank’s cut in banks’ reserve requirements (the amount of cash banks must hold in reserve) raised hopes of more economic stimulus to kickstart the economy.
Retail sales across the UK fell at the fastest pace in three years this month, according to an industry survey.
The Confederation of British Industry’s monthly retail sales balance, which measures sales volumes versus a year ago, fell to -50 in January from -32 in December, the weakest since December 2021 when Britain was in a Covid-19 lockdown. The balance measures the number of retailers who said sales volumes rose minus those who said sales fell.
February won’t be much better, the survey suggests. The volume of sales for this time of the year was -47, the lowest reading since May 2020.
Martin Sartorius, the CBI’s principal economist, said:
Looking ahead, demand conditions in the sector will remain challenging as higher interest rates continue to feed through to mortgage payments and household incomes.
Official figures published last week showed British retailers suffered the biggest drop in sales for almost three years in December, raising the risk that the economy slipped into recession late last year.
Domino’s Pizza shares have dived, wiping more than $1.5bn from the company’s market value.
A trifecta of problems facing the international operations of Domino’s Pizza Enterprises sparked a 30% plunge in the share price of the Australian-owned company on Thursday.
Domino’s, which holds the branding rights in several countries of the American pizza chain, disclosed that net profit before tax for the recent six-month period was expected to be between $87m and $90m, down from almost $105m a year earlier.
The shareholder response to the trading update was ruthless. Managing director Don Meij convened a call with analysts and investors, and sought to explain the troubles.
“It’s quite humbling to sit in front of you and to be able to share the disappointing results in part of our business today,” he said on the video conference. “It really shows a rollercoaster.”
Norway’s central bank has kept its benchmark interest rate at 4.5%, as expected, and said the cost of borrowing was likely to stay at that level “for some time ahead”.
The economic prospects for Norway do not appear to have changed materially since December, Norges Bank’s monetary policy committee said.
Norges Bank’s governor Ida Wolden Bache said:
The committee assesses that the policy rate is now sufficiently high to return inflation to target within a reasonable time horizon.
Monetary policy is having a tightening effect, and the economy is cooling down.
At the same time, business costs have increased considerably in recent years, and continued high wage growth and the crown depreciation through 2023 will likely restrain disinflation.
In December, the central bank raised rates in a surprise move, even though inflation had slowed. Norway’s core inflation was 5.5% in December, a 15-month low, down from a peak of 7% last June, but still above the central bank’s 2% target.
Economists are expecting a rate cut between July and September and another one in the final three months of 2024, which would bring the benchmark rate down to 4% by the end of the year.
In the UK, the bike and car parts retailer Halfords said sales in December were much weaker than in October and November. It explained that mild and wet weather affected demand for winter products and brought fewer people into its stores, while cash-strapped customers reined in spending in the run-up to Christmas.
Sales of car products fell 15.3% in December, after averaging 10.2% in October and November on a like-for-like basis (at stores open at least a year). However in January sales growth returned to those levels as conditions normalised, Halfords said.
Group revenues grew by 2% in the 13 weeks to 29 December. However, cycling and consumer tyres were “performing significantly worse than anticipated and have weakened in Q3”. Sales of bikes and accessories slid 1.2% in the quarter.
Halfords said it performed better than the cycling market as a whole, with kids bikes sales up 5% in December. Volumes in the cycling and consumer tyres markets are below pre-pandemic levels by 28% and 14% respectively.
The company is cutting costs of £35m this year, more than previously flagged, and announced a partnership with the specialist tyre distributor Bond International.
Graham Stapleton, the chief executive, said:
Trading in Q4 has begun strongly and we remain focused on everything that we can control, with a number of initiatives underway to achieve further efficiencies within the business, as well as investing in areas where we see real opportunities for future growth.
In German manufacturing, business expectations improved but remained pessimistic. Order books continue to shrink, albeit less rapidly than at the end of the year.
The business climate in the service sector clouded over considerably while in trade, the index fell to its lowest level since October 2022. In construction, the business climate index also continued to slide.
In Germany, business confidence worsened in January, as Europe’s biggest economy remains weak.
The closely watched business climate index from the Munich-based Ifo institute fell to 85.2 from 86.3 in December.
The institute’s president Clemens Fuest said:
Companies assessed their current situation as worse. Their expectations for the months ahead were also once again more pessimistic. The German economy is stuck in recession.
Technically, Germany dodged a recession at the end of last year (defined by two or more consecutive quarters of contraction). In the final quarter of last year, the German economy shrank by 0.3%, compared with the previous quarter, when output flatlined.
But the economy contracted by 0.3% in 2023 and is on track for its first two-year recession since the early 2000s amid the impact of higher energy costs and weaker industrial demand.
The boss of the London estate agents Foxtons, Guy Gittins, hailed a “transformational year” following a turnaround plan, as it reported higher overall revenues and profits, although revenues in its sales business continued to slide.
Sales revenues fell by 14% last year from 2022 while the market slumped by 22%, according to Foxtons. It said it has gone into 2024 with an under-offer pipeline far ahead of last year and expects year-on-year sales revenue growth in the first quarter, and further growth through the year.
Things have improved in recent weeks. The firm explained:
Buyer demand has grown as mortgage rates have begun to normalise, with good levels of growth seen in recent weeks as the first mortgage products are released with rates below 4% since the September 2022 mini-budget. Any sustained reduction in interest rates is expected to spur significant further growth in buyer demand.
Total revenues rose 5% to £147m last year while adjusted operating profit edged higher to £14m from £13.9m.
Gittins, the chief executive, has invested in the lettings business, which makes up 70% of group revenues and grew by 16%, delivering more than £100m revenue for the first time. In bad news for tenants, “rents are expected to stabilise and remain at historically elevated levels.”
Gittins, who returned to Foxtons (where he started his career) in September 2022 after running rival Chestertons, said:
2023 has been a transformational year for Foxtons, following the implementation of a refreshed strategy and operational turnaround plan.
We have delivered a year of market share growth and have ended the year with revenue and adjusted operating profit ahead of market expectations; our operational upgrades and investment in fee earners, training, data and brand, coupled with a return to driving innovation in the industry, are now consistently delivering material benefits to our competitiveness and market positioning, helping us to end 2023 as the UK’s fastest growing large lettings and sales agency brand.
Dr Martens has been hit by lower sales in the US, as cash-strapped consumers refused to splash out for Christmas.
The British bootmaker said sales made directly to customers fell 3% in the three months to the end of December, its third quarter, and wholesale revenues tumbled 46%. Overall group revenues were down 18%.
The company, which was founded in 1960 in Northamptonshire, is still expecting a decline of nearly 10% over the full year (“high single-digit percentage”).
Kenny Wilson, the chief executive, said:
This was driven by a weak USA performance, as expected. Trading in the quarter was volatile and we saw a softer December in line with trends across the industry. Whilst the consumer environment remains challenging, we are taking action to continue to grow our iconic brand and invest in our business.
Labour will use its sold-out business conference next week to unveil the party’s City policy plans, the Guardian can reveal, as it tries to win over hundreds of UK executives before a general election.
More than 500 bosses from across British finance will gather in London on 1 February for the event, where opposition leaders including Sir Keir Starmer, his shadow chancellor, Rachel Reeves, and the shadow business secretary, Jonathan Reynolds, plan to “showcase Labour’s offer to business”.
The party is hoping that the conference – which sold out within two hours in the autumn – will demonstrate its “commitment to work hand in glove with the business community” and will use it as an opportunity to reveal its business policy plans after two major industry reviews.
The Guardian understands that will include Labour’s much-anticipated strategy for the City and will detail how the party plans to harness the strength of the UK’s £275bn financial and professional services sector.
Good morning, and welcome to our rolling coverage of business, the financial market and the world economy.
The next UK government will face the toughest tax and spending decisions in 70 years, according to a leading think tank.
The Institute for Fiscal Studies said a combination of high interest rates and weak growth means whoever wins the general election later this year will find it “more difficult to reduce debt as a fraction of national income than in any parliament since at least the 1950s.”
It warned that Jeremy Hunt’s much-predicted budget tax cuts – he will unveil the budget on 6 March – risk being reversed or paid for by spending cuts, and urged the Conservative and Labour parties to “level” with voters before polling day.
Chinese stocks rallied after a cut in Chinese bank reserve requirements, releasing about a trillian yuan for lending (nearly £111bn). The Shanghai Composite rose 3%, after hitting a four-year low on Monday, and Hong Kong’s Hang Seng was up 2% while Japan’s Nikkei was little changed. Investors have been selling Chinese equities for months, amid worries about the sluggish economy and the country’s property crisis.
The European Central Bank is meeting today and will announce its interest rate decision at lunchtime. It is not expected to change its main interest rate of 4.5%. Minutes from the December meeting showed policymakers were pushing back on aggressive market expectations for rate cuts, and ECB president Christine Lagarde is likely to face questions on their timing during the press conference.
Last week, she said the central bank could cut rates in the summer, during an interview with Bloomberg at the World Economic Forum in Davos.
9am GMT: Germany Ifo business confidence for January
11am GMT: UK CBI retail sales survey for January
1.15pm GMT: ECB interest rate decision (forecast: no change)
1.30pm GMT: US Durable goods for December (forecast: 1.1%)
1.30pm GMT: US GDP for Q4 (forecast: 2%)
1.45pm GMT: ECB press conference
3pm GMT: US New home sales for December