Global public debt approaches $100 trillion

Global public debt will exceed $100 trillion by the end of this year unless major economies step up to stabilise borrowing, according to the International Monetary Fund (IMF). UK business and consumer sentiment has fallen ahead of Chancellor Rachel Reeves Budget on 30 October, as people worry about measures needed to fill a so-called ‘black hole’ in Britain’s finances. Labour spinners have been briefing the press that a figure of $40bn may need to be raised.

The third-quarter earnings season is well underway with electric vehicle maker Tesla and UK retail banks Lloyds Banking Group and NatWest posting good numbers. HSBC announced a radical restricting that would see operations split between East and West.

The FTSE 100 was down 1.2% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading 1.8% lower.

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Market Moves

30 October Budget

Consumer confidence in the UK has fallen to its lowest level this year ahead of Labour’s first Budget. According to the latest figures from GfK, the overall index score slipped one point to -21 this month. Three measures declined and two rose compared with September’s announcement, it said. Business confidence is also falling, with the S&P Global flash UK PMI composite output index slipping to an 11-month low of 51.7 amid companies cutting staff numbers for the first time in 2024. Chris Williamson, chief business economist at S&P Global Market Intelligence, said “gloomy government rhetoric and uncertainty ahead of the Budget” had “dampened business confidence and spending”.

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Economics

Global public debt will exceed $100 trillion by the end of this year unless major economies step up to stabilise borrowing, according to the International Monetary Fund (IMF). Debt globally continues to rise, led by China and the US, following the response to the Covid-19 pandemic. The organisation warned that, without significant fiscal adjustments, global debt could approach 100% of gross domestic product (GDP) by the end of the decade, with countries including the UK, Brazil and South Africa also expected to see ongoing debt increases. The report was released as the annual meetings of the International Monetary Fund and World Bank were held in Washington.

In its latest biannual World Economic Outlook, the IMF said it expects UK GDP to expand by 1.1% this year, up from just 0.3% in 2023. In its previous update in July, the group had pencilled in growth of 0.7%. It argued that falling inflation and cuts in interest rates would stimulate domestic demand.

UK government borrowing rose last month to the third-highest September since records began in January 1993. The difference between government spending and the tax take reached £16.6bn, continuing a trend of overshooting official forecasts. The numbers present a challenge for the Treasury at the Budget next week as it has committed to not borrow to fund day-to-day spending. However, there was good news for the Chancellor after HM Revenue & Customs reported an increase in tax receipts between April and September. Gross income and national insurance receipts for the six-month period rose to £406.3bn, up £11.1bn on the same period last year, HMRC said on Tuesday. The figures also showed rises in takings from inheritance tax and capital gains tax.

Geopolitics

Donald Trump's team accused the UK's Labour Party of election interference, as it sends volunteers to campaign for Kamala Harris ahead of the US election next month. Prime Minister Keir Starmer tried to play down the row, telling the BBC Labour has long sent volunteers to US elections.

The BRICS summit being held in Moscow reminds markets of political risks and the challenges for the new US President. Geopolitical fault lines create major tensions.

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Companies

HSBC’s new chief executive, Georges Elhedery, announced a restructuring of the bank, dividing it into four businesses and a new geographical setup that splits operations into east and west. Under the plans, the bank will create separate business units in the UK and Hong Kong. There will also be two other operations: "corporate and institutional banking" and "international wealth and premier banking". Business in these operations will fall into either “Eastern markets”, which includes the Asia-Pacific region and the Middle East, or “Western markets”, covering the UK, continental Europe and the Americas. "The new structure will result in a simpler, more dynamic, and agile organisation as we focus on executing against our strategic priorities, which remain unchanged," Mr Elhedery said.

SAP took the crown as Europe’s most valuable technology company after raising its full-year outlook and posting a bump in cloud revenues. The German enterprise-provider’s shares rose to reach a market cap of €272bn, ahead of chip equipment maker ASML at €265bn. ASML’s shares fell sharply in the previous week after it issued disappointing 2025 guidance.

InterContinental Hotels Group reported a jump in third-quarter revenue per available room (RevPAR), as good business demand and strength in the US and Europe, the Middle East and Africa helped to offset a weaker performance in China. Global RevPAR rose 1.5%, but Greater China saw the important industry metric decline 10.3%. Management redirected its full-year guidance.

Reckitt Benckiser reported marginal like-for-like net revenue growth of 0.4% for the first three quarters of 2024 on Wednesday, though it faced a slight decline of 0.5% in the third quarter. The company said growth in the health and hygiene segments was offset by challenges in the US nutrition business. That business was affected by the continued recovery from a historic competitor supply issue, as well as the impact of a tornado at its Mount Vernon facility in July. Despite the challenges, the maker of Fish dishwasher tablets, Air Wick air fresheners and Nurofen painkillers said it maintained volume momentum in both its hygiene and health divisions, with sequential improvement in market share across both segments.

Advertising giant WPP said that it returned to growth in the third quarter, as it reiterated its outlook for the year. Management said client wins during the quarter included Amazon, Unilever and Henkel. It also pointed to a strong start to the fourth quarter, as it won contracts with Starbucks and Honor.

Lloyds Banking Group reported a slight decline in statutory profits over the third quarter but still managed to beat consensus forecasts. Management reiterated its market guidance for the full year. Statutory profit before tax totalled £1.82bn in the three months to 30 September, down 2% on last year but well ahead of the £1.6bn expected by analysts.

NatWest reported a 25% increase in profits to £1.67bn in the three months to September and upgraded its guidance to the City, buoyed by increased lending and a focus on operational efficiency. Net interest income – the difference what banks earn on loans and pays out on customer deposits and a key profit driver for retail banks – came in at a better-than-expected £2.90bn.

Barratt Redrow highlighted "more stable" market conditions, as it said integration of the two businesses has begun "at pace" and that it expects to deliver cost synergies of at least £90m. The company, which was formed from the £2.5bn merger of Barratt Developments and Redrow, said optimisation of the divisional office network was under way, with collective consultation on five potential divisional closures announced earlier this week. In its first update as a combined business, Barratt Redrow said total home completions for the current financial year are expected to be between 16,600 and 17,200.

The Competition and Markets Authority (CMA) launched a formal probe into Carlsberg’s £3.3bn acquisition of Britvic. The British drinks maker announced in July that it had agreed to be bought by the Danish brewer. The CMA set a deadline of 18 December for its phase 1 decision.

Deutsche Bank raised its loan-loss provisions forecast against the backdrop of a weak German economy. Germany's largest bank increased its bad-debt provision forecast for the second time over the last few months amid the lacklustre domestic economy. Nevertheless, the lender returned to profit in the third quarter and cut reserves for investor lawsuits over its Postbank division.

Following disappointing quarterly delivery numbers and a muted reception to the group’s new Cybertaxi, there was plenty for Tesla bulls in its third-quarter numbers. Following a period of stiff competition in China from BYD and Geely, it looks like margins may have turned the corner. Gross margin was up substantially to 17.1% against market expectations of 14.9%. Adjusted earnings beat market expectations, with revenues slightly ahead. Cash flow beat expectations and the group’s outlook statement was relatively bullish too, predicting growing sales in 2025. After a difficult year for its share price – which is down about 14% so far in 2024 – this is a welcome set of positive results and is just what Tesla (and Elon Musk) needed. The only question is: can it be sustained?

Starbucks suspended its financial guidance as it unexpectedly released results that showed a decline in revenue and a sharp drop in quarterly earnings. The preliminary results, published more than a week ahead of schedule, are the first under new chief executive Brian Niccol, who joined last month. Global comparable store sales fell 7% annually in its fourth quarter as transactions in its US stores fell by a tenth. Business at Starbucks has weakened because customers are balking at the prices of its drinks and the long queues during busy times at stores. The company has also encountered tough competition in China, a market pivotal to its growth.