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UK recession confirmed

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 28 March 2024.

| 6 min read

Equity markets rallied as the Easter weekend approached following some weakness earlier in the week, ending the first quarter of the year on a positive note. Merger and acquisition activity picked up in the quarter compared with last year. Oil prices declined midweek after an oil industry report pointed to a substantial build in US inventories. However, Brent crude prices are still around $85 a barrel.

US gross domestic products figures are due before the market close on Thursday with personal spending and consumption figures due on Friday.

Over the week, the blue-chip FTSE 100 index was up 1.1% by mid-session on Thursday, with the more UK-focused FTSE 250 trading 0.4% ahead.

Supply chains

The tragic collapse of the Francis Scott Key Bridge after container ship Dali crashed into one of its supports has raised supply issues relating to the Port of Baltimore, the busiest port in the US for car exports and the ninth-busiest overall. Maritime traffic into the port has been suspended “until further notice”. As well as cars, the port is a significant export location for liquified natural gas (LNG), coal and lumber. Nevertheless, Bloomberg reported that a consensus was emerging that it’s going to be a logistical pinch point for some time, but a localised one that shouldn’t derail an otherwise solid US economy, with companies able to adapt.

Economics

The second reading of UK gross domestic product (GDP) for the fourth quarter of last year confirmed that the UK’s economy entered a shallow recession last year. GDP shrank by 0.1% in the third quarter and by 0.3% in the fourth quarter, unchanged from preliminary estimates, the Office for National Statistics said.

Profits at China's industrial groups jumped 10.2% in the first two months from a year earlier.

China's industrial companies posted higher profits in the opening months of the year, reinforcing signs that an economic recovery was gaining traction. Profits at China's industrial groups jumped 10.2% in the first two months from a year earlier, National Bureau of Statistics (NBS) data showed, following a 2.3% profit decline for the whole of 2023.

Price pressures are showing clear signs of easing, but interest rates remain relatively high. When will interest rates go down?

‘Net zero’ changes begin with big business but to meet targets there needs to be a consumer buy-in. Who wants a heat pump?

Geopolitics

Russia has no designs on any Nato country and will not attack Poland, the Baltic states or the Czech Republic – but if the West supplies F-16 fighters to Ukraine then they will be shot down by Russian forces, President Vladimir Putin said. War in Europe and energy markets.

Chinese President Xi Jinping met with American business leaders and academics at Beijing’s Great Hall of the People, as he tries to woo foreign investment back to China after a challenging few years economically.

Company news

The number of large merger & acquisition transactions increased sharply in the first quarter. The number of takeovers worth at least $10bn jumped in the first three months of 2024 compared with year-on-year, driven by large US deals in the energy, technology and financial sectors, according to data from the London Stock Exchange Group. Eleven transactions worth a total of $215bn were struck during the quarter, up from five takeovers worth a combined $100bn in the first three months of 2023.

A bidding war is brewing for packaging company DS Smith after a US-based paper producer put forward a £5.7bn takeover proposal, gatecrashing a deal it had agreed with the British rival Mondi. DS Smith confirmed it was now in talks with International Paper, which is one of the largest paper and pulp companies in the world. The news could lead to a bidding battle between both companies after Mondi agreed its all-share takeover deal in principle on 7 March.

Keysight Technologies has made a counteroffer for Spirent Communications at £1.16bn, outbidding US peer Viavi Solutions which had already agreed to take over the UK telecoms group earlier this month. Spirent said on Thursday it is now recommending a 201.5p-per-share offer from Keysight, which represents a "superior proposition" for shareholders at a 26.5p or 15% premium to Viavi's offer on 5 March.

Apple experienced a significant 33% year-on-year drop in iPhone shipments to China in February, according to data from the China Academy of Information and Communications Technology. This followed a 39% reduction in January. This slump in demand was partly influenced by the Lunar New Year's timing, affecting the overall shipment figures. Apple is facing renewed competition from Huawei, which has made a comeback in the premium segment and after government department banned the use of iPhone for official business.

JD Sports Fashion warned of “challenging” trading conditions after a weak January resulted in flat like-for-like fourth-quarter sales. Nevertheless, the sportswear chain said it expected full-year profits will be within its guidance range of £915m-935m.

Electrical retailer AO World said that full-year adjusted pre-tax profit was set to be "at least" at the top end of the guided range of £28m to £33m. Management said the core business continues to trade positively through the fourth quarter, with AO.com returning to revenue growth as expected.

Insurance consolidator Phoenix Group announced a robust set of results for 2023. Growth was attributed to strong performances in its capital-light pensions and savings business, as well as its retirement solutions business.

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UK recession confirmed

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