Politics dominates markets

The French government collapsed, South Korean President Yoon Suk Yeol faces impeachment following the imposition of martial law and Donald Trump helped propel Bitcoin over the $100,000 level after nominating cryptocurrency friendly Paul Atkins to head the nation’s top financial market regulator. Markets keenly awaited a US jobs report due out later on Friday, known to be watched by the Federal Reserve in its interest rate deliberations.

The FTSE 100 was +0.7% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading +1.4%.

Will inheritance tax changes mean bumper Christmas gifts?

Five financial gift ideas for the festive season

Should you save or invest when interest rates are higher?

Should you invest in Bitcoin?

Over the last couple of weeks, some market watchers have become worried about US equity valuations and concerns about a potential market correction have gathered pace. Is the US market due a correction?

FTSE reshuffle

Index provider FTSE Russell confirmed that Alliance Witan, Games Workshop and St James’s Place will be joining the FTSE 100 index following the latest quarterly review. In the rebalance, B&M European Value Retail, Frasers and Vistry will be demoted from the blue-chip index and enter the FTSE 250.

Companies to be promoted to the FTSE 250 are Deliveroo, Diversified Energy Company, Ferrexpo and Oxford Nanopore Technologies. Demoted from the mid-cap index are Ceres Power Holdings, Close Brothers Group, PureTech Health and PZ Cussons.

The changes will be implemented at the close of business on Friday, 20 December.

Economics

Global economic activity is expected to accelerate next year, according to the Organisation for Economic Cooperation and Development (OECD). It qualified this statement by noting that geopolitical instability and protectionist moves by governments threaten to disrupt the path of disinflation and weaken the growth outlook. In its biannual Economic Outlook, the OECD forecast that global gross domestic product (GDP) would expand by 3.3% in 2025 and 2026, following an estimated 3.2% increase in 2024. The OECD had previously pencilled in growth holding steady at 3.2% in 2025.

In an interview with the Financial Times, Bank of England Governor Andrew Bailey said he expected that there will be four UK rate cuts in 2025 as inflationary pressures ease. UK inflation has fallen far from a peak of 11.1% in late 2022, with price growth coming in at 2.3% in October, slightly above the official 2% target.

UK companies expect 2025 to get off to a poor start, weighed down by rising labour costs and weak sentiment. According to the latest Confederation of British Industry (CBI) Growth Indicator, private sector companies expect activity to fall in the three months to February 2025, with a weighted balance of -10. It is the first time this year growth expectations have been negative.

The key Christmas trading season for retailers has kicked off with a whimper rather than a bang. According to the BRC-KPMG retail sales monitor, total retail sales fell by 3.3% year-on-year in November, compared with annual growth of 2.6% in November 2023. That’s mainly because the figures did not include Black Friday this year, which has moved into the December figures this year. Nevertheless, Helen Dickinson, chief executive of the British Retail Consortium, accepted it was “undoubtedly a bad start to the festive season.”

A survey showed activity in the UK services sector was close to stalling in November, with growth easing to its slowest in more than a year. S&P Global’s services Purchasing Managers Index (PMI) its business activity index fell to 50.8 from 52.0 in October. This was the slowest rate of growth since the current phase of expansion began in November 2023. A reading above 50.0 indicates expansion, while a reading below signals contraction. Many service sector companies cited heightened economic uncertainty and concerns about tax-raising measures announced in the Autumn Budget. The survey also showed that business optimism dropped to its lowest level since December 2022.

UK house prices grew at the fastest annual rate in two years in November and are approaching a record high, according to the latest survey from Nationwide. The mortgage lender said the price of a typical UK home rose by 3.7% last month on a year-on-year basis, with the acceleration in house price growth "surprising, since affordability remains stretched by historic standards". House prices rose by 1.2% between October and November, Nationwide said, the biggest month-on-month increase since March 2022. The average UK property now costs £268,144, close to the record high of £273,751 reached in August 2022.

The Eurozone economy slipped into contraction in November, according to the Hamburg Commercial Bank Eurozone composite PMI output index. The index had recovered to reach the neutral 50.0 benchmark in October but fell back to 48.3 in November – a 10-month low. Within the survey, the manufacturing PMI output index fell to 45.1 from 45.8 in October. However, the biggest drag came from the services sector, with the PMI business activity index sliding from 51.6 to 49.5. It is the first time the index has posted below 50.0 since January.

The Federal Reserve said in its latest Beige Book survey released that US economic activity increased slightly in November after little change in preceding months, and US businesses grew more upbeat about demand prospects.

Growth in China’s services sector eased in November, according to the Caixin services purchasing managers’ index. It fell to 51.5 from 52.0 in October, coming in below expectations for a reading of 52.5. The survey also showed that the new business sub-index fell to 51.8 in November from 52.1 a month earlier.

Market Movers:

Abass Owainati, Charles Stanley’s Head of Asset Allocation, talks to Erica Whyte about political events worldwide and what this means for markets.

US politics

President-elect Donald Trump delivered on his pre-election promise to run a crypto-friendly administration by nominating Paul Atkins to head the Securities and Exchange Commission. The cryptocurrency friendly Mr Atkins will head the nation’s top financial market regulator, succeeding Gary Gensler, a widely reviled figure in the digital currency community for his many efforts to clamp down on the market. On his social media site Truth Social, Mr Trump said: “He also recognizes that digital assets & other innovations are crucial to Making America Greater than Ever Before.” The nomination helped the price of Bitcoin to cross the $100,000 level for the first time.

Mr Trump said he intends to block Japan’s Nippon Steel’s $14.9bn bid for US Steel adding fuel to concerns about a global trade war under the incoming administration. The deal has faced criticism from the United Steelworkers union as well as several lawmakers, who view the deal as a threat to national security, job security and workers’ pensions. Joe Biden and the vice-president, Kamala Harris, have also expressed their opposition for the deal.

Donald Trump’s return to a ‘drill baby, drill’ energy independence strategy is a challenge to net-zero policies. Donald Trump and ‘net zero’.

Donald Trump will once again use tariffs a significant policy tool after his inauguration as US president in January. Will his actions impact my savings and investments?

Geopolitics

South Korea’s President Yoon Suk Yeol is facing impeachment for sending heavily armed soldiers into Seoul’s streets following a declaration of martial law reminiscent of the country’s past military dictatorships. Impeachment proceedings against Mr Yoon were started hours after parliament unanimously voted to cancel martial law, forcing the president to lift his order about six hours after it began. The vote would need support by two-thirds of the National Assembly to advance to the Constitutional Court, which would decide whether to remove him from office. Martial law was introduced because Mr Yoon said “anti-state” forces were plotting rebellion and he accused the main opposition parties of supporting the country’s rival, North Korea. Mr Yoon has struggled to get his agenda through parliament – and he faces a series of corruption scandals involving him and his wife.

The French government collapsed after prime minister Michel Barnier lost a vote of no-confidence in his government. Mr Barnier used special powers to force through a social security budget on Monday. President Emmanuel Macron will need to appoint a new prime minister, but it will be challenging given that parliament will remain divided between three mutually-loathing political blocs.

Russian President Vladimir Putin is using Ukraine as a “testing ground for experimental missiles” and is “not interested in peace”, NATO secretary general Mark Rutte warned. Mr Rutte made the remarks as foreign ministers from the alliance's 32 members gathered in Brussels for a two-day meeting. In a letter to NATO members ahead of the meeting, Ukrainian foreign minister Andrii Sybiha said his country would not settle for anything less than NATO membership to guarantee its future security.

US Secretary of State Antony Blinken said the ceasefire in Lebanon was "holding" despite a series of incidents between Israel and Iran-backed militants Hezbollah. Both Israel and Hezbollah face accusations of having breached the truce that took effect last Wednesday.

Energy

Oil prices fell after OPEC+ delayed its planned output increase by three months to April 2025. The oil cartel plus allies including Russia had planned to start unwinding cuts from October 2024, but slowing global demand and booming production outside of the group forced it to postpone the plans.

The lifespan of four UK nuclear power stations has been extended to help bridge a gap before the delayed Hinkley Point nuclear station starts up. The owner of Britain’s nuclear plants, the French energy company EDF, said it had once again agreed to extend the lifetime of its reactors to “boost energy security and reduce dependence on imported gas”. Torness, in East Lothian, and its sister site Heysham 2, in Lancashire, will continue generating for an extra two years until 2030. Two other sites – Hartlepool and Heysham 1 – will continue for an extra year until 2027.

One in four cars sold in the UK last month was electric, but sales registrations were driven by steep discounting. Electric car sales grew in November for the eleventh consecutive month, according to the Society of Motor Manufacturers and Traders (SMMT) as carmakers raced to meet tough targets. Manufacturers gave "massive" discounts worth around £4bn on electric vehicles (EVs), the SMMT said. Some firms are expected to miss the government's electric vehicle (EV) sales targets this year and could face fines, but flexibilities in the rules mean they could be avoided.

Companies

Insurance company Direct Line has accepted an improved offer from its bigger rival Aviva, in a deal valuing the business at £3.6bn. The offer is worth 275p a share. Line’s board, led by the chair, Danuta Gray, rejected Aviva’s first approach last month, saying it was “highly opportunistic” and “substantially” undervalued the business. The board accepted Aviva’s third offer.

The merger between Vodafone and Three has been approved by the competition regulator, creating the UK's biggest mobile network with 27 million customers. The £16.5bn deal was approved under the condition that both companies invest billions in the country's 5G network and certain mobile tariffs and data for at least three years to protect new and existing customers from "short-term" price rises. The Competition and Markets Authority (CMA) had previously been concerned that the merger could drive up people's phone bills.

It wasn’t a great week for Mike Ashley and Frasers Group. The company was demoted from the FTSE 100 – and it also issued a full-year profit warning, reducing its guidance for adjusted pre-tax profits to the range of £550m to £600m from the prior £575m-£625m. The company blamed weak consumer confidence leading up to and following Labour’s Budget in October. Changes in National Insurance contributions for businesses announced by Chancellor Rachel Reeves also mean an additional £50m of costs for the group next year.

Management at Legal & General maintained its profit guidance for the full year and hinted at more returns for shareholders than previously announced in a review of its Institutional Retirement division. The group also said it was making "good progress" against its refreshed strategy and financial targets announced in June, which set out a vision for a simplified business structure and enhanced shareholder returns.

An activist investor in Rio Tinto has told the mining giant to scrap its primary London listing and focus on Australia. Palliser Capital called on? the group to drop its “outdated” dual-listing structure in London and Sydney. Rio Tinto shares would still trade in London under Palliser’s plans, but as part of a secondary listing.

NatWest chief executive Paul Thwaite said the bank is on a “fast trajectory to private ownership”, with the government likely to fully exit its stake within the first half of 2025. The Treasury spent nearly £46bn to bail out NatWest, then known as Royal Bank of Scotland (RBS), at the height of the financial crisis. The resulting nationalisation left taxpayers owning about 84% of the lender. A rapid sell-off – and share buy-backs by NatWest – over the past year has cut the remaining public stake in NatWest from 38% in December 2023 to just under 11% today.

Tesla chief executive Elon Musk's record-breaking $56bn pay award will not be reinstated, a judge has ruled. The decision in the Delaware court comes despite it being approved by shareholders and directors in the summer. Judge Kathaleen McCormick upheld her previous decision from January, in which she argued that board members were too heavily influenced by Mr Musk. Tesla vowed to appeal against the ruling, saying it was "wrong". "Shareholders should control company votes, not judges," Mr Musk said on his social media platform X.

Shares in Stellantis slumped after the shock resignation of chief executive Carlos Tavares over the weekend. Stellantis, which makes the Jeep, Fiat, Vauxhall and Peugeot vehicle marques?, hopes to find a replacement in the first half of 2025. The company has been plagued by falling sales and growing inventories in North America. It issued a profit warning alongside its 2024 full-year results.

Shares in the luxury retailer Watches of Switzerland rose despite pre-tax profits falling by almost 40% in the first half of the year. Management said there had been a “strong start” to the third quarter ahead of the crucial festive season and hopes that the slump in luxury goods demand that has hit the wider sector may be starting to ease.

Paper and packaging group DS Smith posted a slide in half-year earnings, hit by "challenging" market conditions, including weaker prices and higher costs. However, the main driver of share-price performance remains the pending takeover by US-listed DS Smith which posted [LH1] a slide in half-year earnings on Thursday, hit by "challenging" market conditions, including weaker prices and higher costs. This is likely to be DS Smith’s last update as a standalone entity before the transaction closes.