Trump tariffs could hit growth

The S&P 500 hit another record high as an anticipated bonfire of regulations when Trump occupies the Oval Office for a second term is likely to boost profits in corporate America. However, investors continued to mull the implications of Trump’s new tariffs, which could cause significant inflation. It was a relatively quiet and truncated week on Wall Street as the country celebrated Thanksgiving.

The FTSE 100 was up 0.1% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading 1.0% ahead.

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FTSE reshuffle

The quarterly reshuffle of the FTSE 100 will be decided based on closing prices on 3 December. Based on current data, Warhammer maker Games Workshop is expected to be promoted to the index for the first time, with St James’s Place and Alliance Trust returning to the blue-chip index after a period of absence. Set to be demoted from London’s main index are discount store B&M, Mike Ashley’s Frasers Group and housebuilder Vistry.

Economics

British retailers' optimism has fallen to a two-year low, according to the Confederation of British Industry (CBI). The industry body said confidence was its weakest since households were hit by surging energy prices and financial markets took fright at former prime minister Liz Truss' fiscal plans. The CBI's quarterly survey of retailers showed their assessment of the business situation dropped to -21 in November from -13 in August, its lowest since a reading of -22 in November 2022.

The Federal Reserve’s favoured inflation metric hit a six-month high in October, indicating that interest rates are not going to rapidly fall in the world’s largest economy. The Commerce Department’s personal consumption expenditures (PCE) index rose 2.3% from October 2023 to last month, matching consensus economist estimates. The core personal consumption expenditures index, which excludes food and energy, climbed 2.8% year-over-year, also meeting forecasts of 2.8%. This is the highest rate since April and significantly above the 2% core PCE target maintained by the Federal Reserve.

Federal Reserve officials indicated broad support for a cautious approach to future interest-rate cuts, as the US economy continues to show strength and inflation slowly cools, according to the minutes of the latest meeting of the rate-setting Federal Open Markets Committee. “Participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2% and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes of its November meeting said. The US central bank lowered its benchmark interest rate by 25 basis points earlier this month, following a bumper 50bp reduction in September. Its last policy meeting of the year will be held on 17-18 December.

Geopolitics

Israel and Hezbollah agreed a ceasefire in the 14-month-old war in Lebanon. US President Joe Biden called it an “historic” moment as he announced the deal from the White House. Israeli prime minister Benjamin Netanyahu endorsed an imminent ceasefire in the country’s war with the Lebanese group after his full cabinet approved the deal on Tuesday evening, despite opposition from his far-right allies. The Hamas group also said it was ready to reach a ceasefire in Gaza after the Hezbollah ceasefire started on Wednesday morning. “This is designed to be a permanent cessation of hostilities,” Mr Biden said. “What is left of Hezbollah and other terrorist organisations will not be allowed, I emphasise, will not be allowed to threaten the security of Israel again.”

US president-elect Donald Trump promised to institute new tariffs on China, Mexico and Canada from the first day of his presidency as he targets illegal immigration drug smuggling. Mr Trump said he would sign an executive order that would put a 25% tariff on all goods imported from Canada and Mexico, with Chinese exports subject to an additional 10% tariff until Beijing cracks down on the illegal export of fentanyl to the US. These three countries account for about 40% of US imported goods.

Read more: What will Donald Trump do? | Trump tariffs explained: what will Trump do?

Clare Lombardelli, a deputy governor of the Bank of England, warned that the imposition of tariffs would impact economic growth in the UK, although it could also contribute to lower inflationary pressures. Ms Lombardelli said that trade barriers would impact productivity growth, while uncertainty about Donald Trump’s plans would weigh on activity in the short-term. “I don’t want to speculate on the specifics, but we know barriers to trade are not a good thing, whether they are tariffs or regulatory or others,” she said in an interview with the Financial Times.

Deutsche Bank warned that these tariffs are likely to push up US inflation. Analysts at the investment bank said that the personal consumption expenditure (PCE) measure of inflation was likely to go above 3% next year based on these tariffs. It is currently 2.3%. This figure is important as it is the measure of inflation that the Federal Reserve uses to set the cost of borrowing. Its target is 2%.

The French government may be about to collapse. Marine Le Pen’s far-right National Rally is threatening to pull the plug on the fragile coalition government led by Prime Minister Michel Barnier over the conservative grandee's plans to rein in the massive French deficit. In a dramatic move, Le Pen gave Barnier until Monday to answer her demands and amend his government's budget plans.

COP29 has now concluded and while there have been some positives, including a finally agreed-upon text and some progress by a handful of countries, it has been one of the more challenging international climate conferences we have witnessed.

Read more: What were the outcomes at COP29?

Companies

Shares in ITV rose following a report that potential acquirers had begun looking at the broadcaster after a prolonged period of share price weakness. It was reported that CVC Capital Partners and a major European broadcaster – thought to be France's Groupe TF1 – were among those which had been starting to study the merits of a potential offer. The report also said that RedBird Capital-owned All3Media and Mediawan, which is backed by the private equity giant KKR, were on the list of potential suitors for the ITV Studios production arm.

Short-haul airline easyJet beat market expectations in its full-year results, with profits boosted by strong growth in its package holiday business. Pre-tax profits at the package holiday operation rose 56% year on year to £190m – coming in £10m ahead of analysts’ consensus. Further growth is expected next year, helping the business to move towards its medium-term target of £1bn of annual pre-tax profits, up from the £610m reported in its latest figures. Long-serving chief executive Johan Lundgren steps down in January, replaced by current chief financial officer Kenton Jarvis.

Auto-catalyst maker Johnson Matthey posted a drop in interim sales and profits, hit by "challenging" macroeconomic conditions. Stripping out disposals, sales fell by 5% and underlying operating profits were down 4% to £154m. The company has been hit by subdued global vehicle sales and low volumes in platinum group metals refining. Nevertheless, management maintained its full-year guidance and said performance would be weighted towards the second half.

The London Stock Exchange suffered another blow after food delivery company Just Eat Takeaway became the latest business to say it will delist from the bourse to cut costs. Just Eat will now only be listed on the Amsterdam stock market, where the company is headquartered and holds its primary listing. Management blamed the “administrative burden, complexity and costs associated with the disclosure and regulatory requirements of maintaining the LSE listing” as its reasons for the decision, as well as low trading volumes.

Luxury car group Aston Martin issued its second profit warning in two months and said it had raised £210m in an equity placing. The luxury car maker is now expecting to post a profit of up to £280m in 2024, below last year's profit of £305.9m. Management said a "minor delay" in deliveries of its ultra-exclusive Valiant models caused the shortfall. When it last issued a warning in September, management said it had been hit by a fall in demand in China, where the economy remains sluggish.

Retailer Pets at Home also issued a profit warning, with management citing a "subdued" market. Pets said retail market growth has been subdued for longer than it expected as consumers have remained cautious in recent months. It’s now planning for current rates of market growth to persist for the rest of the year, lower than its initial forecasts.

Kingfisher shares fell after it lowered the upper end of its guidance to markets. The B&Q owner reduced its annual pre-tax profit guidance to a range of £510m to £540m from the previous £510m to £550m. Management cited the UK and French budgets as specific reasons for slow trading in the third quarter, in which like-for-like sales fell by 1.1%.

Water company Pennon swung to a loss in the first half of the year, as restructuring costs and investments weighed on profits. The results were broadly in line with consensus and prior commentary, although net debt was higher than expected. A reorganisation of the business is underway, with four business units established: Water Services, Wastewater Services, Pennon Power, and Retail Services. All eyes are on 19 December when Ofwat publishes its final determination for the next regulatory cycle (2025-30). As a reminder, business plans for its South West Water and SES units received ‘outstanding’ and ‘good’ ratings from Ofwat in the draft determination.

Caterer Compass Group posted a robust set of full-year figures, with revenues up 10.6% to $42.2bn and underlying operating profit up 16.4% to $2.998bn. Management said growth was a result of a 10.6% increase in organic revenues and net new business growth of 4.2%, which accelerated in the second half of the year.

Product testing and safety group Intertek raised its annual guidance as it reported a 6.6% jump in like-for-like revenue for the four months to 30 October. Management said in a trading statement that it now expects its consumer products division to deliver high-single digit like-for-like revenue growth.