Equity indices were flat or moved lower over the week, although the technology-heavy Nasdaq Composite gained – and even managed to close above 20,000 points on Wednesday for the first time ever. However, a measure of US manufacturing inflation released on Thursday that was higher than expected caused most indices to retreat by the end of the week.
There was bad news for the Labour government, as the UK economy contracted on a month-on-month basis in October. Prime Minister Keir Starmer has pledged to kickstart economic growth in the country and delivering sustained economic growth was a key part of his pre-election platform.
The FTSE 100 was up 0.1% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading 0.3% lower.
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Economics
The UK economy unexpectedly contracted by 0.1% in October, driven by a fall in production. The monthly change in gross domestic product (GDP) was below the 0.1% growth forecast by economists and followed a 0.1% contraction in September. With UK productivity continuing to be a problem, Keir Starmer’s government needs to find new ways to grow the economy: The hunt for UK growth.
UK house prices are forecast to rise by 4% in 2025 according to Rightmove, as mortgage rates fall and as demand remains strong. The home-buyers website predicted that 1.15m homes will change hands. It said changes to stamp duty mean the first quarter is likely to be particularly busy, as buyers rush to complete before the changes come in on 1 April.
The US consumer-price index (CPI) rose in line with market expectations in November, up 2.7% on an annual basis. This was ahead of the Federal Reserve’s (Fed’s) 2% target and represented an acceleration from the prior month. However, a 25-basis-point interest-rate cut by the US central bank remains almost certain at its 18 December meeting. However, the Fed is likely to pause its rate cuts in January – the month that Donald Trump gets inaugurated – as inflationary risks are rising, fuelled by the new president’s proposed policies. His actions, such as raising tariffs that increase the cost of cheap imported goods, mass deportations that make low-skilled workers scarce, and tax cuts that increase an American’s spending power, are all likely to be inflationary.
As expected, the European Central Bank cut interest rates by 25 basis points to 3%.
The US Producer Price Index (PPI), a measurement of average price changes seen by manufacturers, rose 0.4% month on month and 3% annually in November, marking an acceleration from October, when prices increased 0.3% and 2.6%, respectively. This was ahead of a consensus view of 0.2% and put the PPI at its highest level since February 2023. Is the US market due a correction?
Hiring in the US jumped in November, extending a long-running streak of gains that the Fed watches closely when it makes its decisions over interest rate cuts. The report from the Labor Department showed employers added 227,000 jobs, led by healthcare companies, restaurants and bars. It marked a strong rebound from October, when jobs growth dropped sharply amid disruption from major storms and labour strikes.
As expected, the European Central Bank cut interest rates by 25 basis points to 3%. This was the fourth cut this year from the Eurozone’s central bank. The ECB also ditched its reference for the need to keep monetary policy "restrictive", suggesting there are more rate cuts ahead.
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Coffee drinkers may soon see their morning pick-me-up get more expensive, as the price of coffee traded on commodity markets hit its highest level ever. The price of Arabica beans, which account for most global production, topped $3.44 a pound, having jumped more than 80% this year. The cost of Robusta beans hit a fresh record high in September.
Geopolitics
Syrian opposition groups took over Damascus and President Bashar al-Assad fled to Moscow, in a sudden end to his family’s half-century dictatorship. The 13-year-old Syrian civil war united the authoritarian governments of Iran and Russia in support of Assad, but also involved an intricate web of other players, including Kurds, Sunni Arab rebel groups, international jihadist movements, Turkey, and the United States. The rapid departure of President Bashir Assad from Syria has led, so far, to a bloodless revolution. But is there a chance that the rebellion could hit oil markets?
European NATO members are holding talks about increasing the alliance’s target for defence spending to 3% of gross domestic product (GDP) at its annual summit next June partly in anticipation of Donald Trump’s return as US president, the Financial Times reported.
Mark Zuckerberg’s Meta Platforms donated $1m to Donald Trump’s inaugural fund. This marks the first time that the company has donated to a president’s inaugural fund. It comes as the company, together with Zuckerberg, has recently been jockeying to curry favour with Trump, who previously accused the platform of censorship against right-wing voices and threatened to jail the chief executive. Will Trump tariffs threaten my wealth?
FBI director Christopher Wray said he will resign at the end of Joe Biden's term in January, before Donald Trump comes into office. The announcement comes less than two weeks after the president-elect said he intended to nominate loyalist Kash Patel for the job. In a town hall meeting, Mr Wray said that he would be stepping down "after weeks of careful thought".
The Australian government said it will tax large digital platforms and search engines unless they agree to share revenue with Australian news media organisations. The tax would apply from 1 January to tech companies that earn more than A$250m a year in revenue from Australia, assistant treasurer Stephen Jones and communications minister Michelle Rowland said.
Companies
Artificial intelligence chipmaker Nvidia lost $279bn from its market value in one day after China launched an investigation into alleged violations of anti-monopoly laws. This is the latest salvo in an ongoing US-China technology war over the lucrative semiconductor market. Last week, Washington tightened restrictions on sales of certain exports to Chinese companies and no de-escalation is expected after Donald Trump re-enters the White House in January.
There was another blow for the London Stock Exchange (LSE) as equipment hire group Ashtead revealed plans to move its primary market listing to the US. Management said the US was a "natural long-term listing venue" because most of its profit was in North America, along with its bosses, headquarters and most of its employees. Ashtead is the latest of several big companies in recent years to delist from the LSE and the move will be put to a shareholder vote.
There was some positive news for the retail sector as Christmas approaches following an upbeat earnings report from Currys. One of several highlights in the retailer’s upbeat interim results was rising demand for AI laptops – and the chain has a market share of more than 75% in the UK. This bump in demand looks set to continue. Interim adjusted operating profits rose more than 50% in both the UK and Nordic regions and trading since the end of the period in the run up to Christmas has been in line with what was expected.
Close Brothers shares surged after the Supreme Court agreed that it could appeal a landmark ruling on motor finance commissions. In October, the Court of Appeal ruled in favour of British consumers that motor dealers acting as credit brokers owe a fiduciary duty to their customers. The Court of Appeal said at the time: "The dealers were the sellers of the cars, but they were also acting as credit brokers on behalf of the claimants. In the latter role, their task was to search for and offer the customer a finance deal from their panel of lenders which was suitable for their needs and competitive.”
Tullow Oil confirmed it is in preliminary talks with Kosmos Energy about a possible all-share offer for the oil and gas exploration company. Tullow shares have collapsed over the past decade from inclusion in the FTSE 100 index to being a small-cap company. Under UK takeover rules, Kosmos has until 5pm on 9 January to announce a firm intention to make an offer or walk away from the deal.
British American Tobacco shares moved higher after management reiterated that it remained on track to meet its 2024 financial guidance, driven by second-half acceleration from investments in US commercial actions, new category innovations, and inventory adjustments.
Shares in British-Gas-owner Centrica rose after management said it expected full-year profits will be in line with analysts' estimates and beefed up its share buyback programme by £300m. Annual profits are expected to fall sharply due to a £500m one-off recovery of costs from prior periods last year, which made for an extremely tough comparable period.
Shares in SThree plunged after the recruiter posted a slide in net fees and warned that the ongoing challenging market conditions would hit profits.
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