Wall Street slumps amid China trade war fears while pound breaks $1.30 for first time in a year
.July 17, 2024
Wall Street stocks slumped on Wednesday with more than £260bn wiped off the world’s biggest companies amid fears that Joe Biden will launch a trade war against China.
The world’s three largest companies, Microsoft, Apple and Nvidia, all fell between 1% and 6% after trading began in New York
Technology stocks plunged on the back of reports that the Biden administration plans tighter import controls on companies that share chip-making technology with China.
Meanwhile, the FTSE 100 (^FTSE) and European stocks reversed early losses as UK inflation held firm at the Bank of England’s (BoE) 2% target. This has dashed hopes for interest rate cuts at Threadneedle Street’s next meeting in August.
Economists had hoped the figure would fall to 1.9% in the year to June, with the closely-watched services inflation also coming in unchanged at 5.7%.
Core inflation, which strips out volatile food and energy prices, stayed at 3.5%, which was higher than analyst forecasts.
However, sterling hit a fresh year-high against the dollar, above $1.30, on the slightly warmer-than-expected inflation data.
It was also trading at its highest level for nearly two years against the euro, with the euro dropping 0.1% to 83.92p, its lowest since August 2022.
London’s benchmark index was 0.4% higher in afternoon trade.
Germany’s DAX (^GDAXI) was 0.2% down and the CAC (^FCHI) in Paris was 0.2% in the green.
The pan-European STOXX 600 (^STOXX) was down 0.3%.
Wall Street tumbled as declines in major chip and tech stocks were hit by the prospect of fresh US trade restrictions on Chinese chips.
The pound was 0.3% up against the US dollar (GBPUSD=X) at 1.3013.
Kyle Chapman, FX markets analyst at Ballinger Group, said: “The pound is benefitting from moves in the USD rate differential from both sides. Blazing hot services inflation is simply refusing to budge in the UK, and that’s pushing back expectations for rate cuts from the Bank of England.
“In the US, meanwhile, a labour market inflection point and a renewed disinflationary trend have markets now pricing in almost three rate cuts this year. A rebound in growth, although from a low base, has also driven a convergence in the economic prospects of the UK and US economies.
“British politics has become much more supportive for sterling. The new Labour majority represents a break from the instability of the last government, and ministers are saying all the right things about economic growth and closer EU ties. Sterling and UK assets have all traded at a heavy discount since the 2016 referendum, and it really only took a modicum of stability to lift it from its low levels.”
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Live22 updates
US industrial production climbs more than expected
Industrial production in the US rose by 0.6% in June May, better than expected.
Manufacturing output increased by 0.4%, driven by car and aerospace production while industrial production saw a 2.8% jump in utilities output.
Stephen Brown, deputy chief North America economist at Capital Economics, said this industrial strength is unlikely to have continued into July.
“As vehicle sales dropped back in June, it seems unlikely that the rise in motor vehicle production will be repeated. The manufacturing survey indicators continue to paint a gloomy picture of conditions elsewhere, with the ISM manufacturing index at just 48.5 in June.
“Similarly, as temperatures have been closer to their seasonal norms so far this month, utilities output will probably quickly drop back. Overall, it seems likely that some of the strength in industrial production in June will be reversed this month.”
Tech stocks plunge on China trade war fears
More than £260bn has been wiped off the world’s biggest companies today amid fears that Joe Biden will launch a trade war against China.
The world’s three largest companies – Microsoft, Apple and Nvidia – all fell between 1% and 6% after trading began on Wall Street.
Technology stocks plunged on the back of reports that the Biden administration plans tighter import controls on companies that share chip-making technology with China.
Apple is convincing Wall Street it knows how to market AI
While Tim Cook’s first-mover peers were stumbling through botched AI rollouts, boardroom drama, and a public backlash, he waltzed through the door carrying an Apple Intelligence casserole and Wall Street analysts were ready with a drink.
On Monday the company hit an all-time high as Morgan Stanley named Apple a top pick. It raised its price target on an expected mega upgrade cycle driven by Apple’s coming AI platform.
“Apple Intelligence is a clear catalyst to boost iPhone and iPad shipments,” Morgan Stanley analysts wrote.
That Apple’s yet-to-be-released AI tools will be available to only 8% of existing iPhone and iPad users strengthens the case for an abnormally large upgrade cycle, they said. Add in an already enormous user base and a replacement cycle that has stretched to almost five years, and there’s a recipe for a lot of people itching for new devices.
How to find and reclaim lost Child Trust Fund money
Your finances can be incredibly tight when you’re starting out in adult life. The Hargreaves Lansdown Savings & Resilience Barometer shows that, on average, households headed by people aged 20-24 have just £77 left at the end of the month, after covering the essentials.
Yet at the same time, more than 400,000 of these young people could have as much as £2,000 with their name on it — just sitting, waiting to be claimed.
This cash is from Child Trust Funds (CTFs). These were the brainchild of the last Labour government, which gave every child a voucher worth £250 at birth to save or invest. Those on lower incomes were entitled to up to £500, and the oldest children in the scheme also had a top up at the age of seven.
Anyone could also pay extra cash into them at any time — up to an annual limit. The money was locked away until the child turned 18, at which time they were entitled to the nest egg.
Shares in ASML (ASML) dropped over 7% in pre-market trading as the the prospect of more severe US restrictions on its business in China overshadowed better-than-expected second-quarter earnings.
The Dutch group, which supplies semiconductor-making machinery to chip makers, booked €5.57bn ($6.07bn, £4.67bn) in orders in the three months to the end of June, up from €4.50bn a year earlier. Analysts had forecast nearly €5.04bn in orders, according to consensus estimates by Visible Alpha.
Net sales fell 9.5% year-on-year, while net income dropped by 18.7%.
“While there are still uncertainties in the market, primarily driven by the macro environment, we expect industry recovery to continue in the second half of the year,” ASML CEO Christophe Fouquet said in a statement.
Shares dropped after Bloomberg reported that the US is telling allies, including the Netherlands, it may take unilateral action to restrict exports of chip equipment to China if they fail to do so themselves.
Oil prices steady amid falling US inventories
Oil prices held steady on Wednesday as a decline in US oil stockpiles helped offset signs of weakening demand in China.
It came a day after benchmark Brent Crude hit a one-month low. Brent crude oil futures were up just 1 cent, or 0.01%, to $83.74 a barrel while US West Texas Intermediate crude futures were up 10 cents, or 0.12%, at $80.86.
“China’s weaker economic performance and rising expectations for a U.S. interest rate cut over the coming months have counterbalanced each other,” independent oil analyst Gaurav Sharma said.
In the United States, the world’s largest oil producer and consumer, crude oil inventories fell by 4.4 million barrels in the week ended July 12, market sources said, citing data from the American Petroleum Institute.
King’s Speech: UK housing sector
Samuel Hughes, CPS head of housing, said:
“Britain needs a huge increase in housebuilding, focussed in the places where it is needed most, like London and the South East. It is therefore welcome to see the government being ambitious in its proposals, but these are only first steps.
“Only a full suite of reforms across policy and guidance will give the country any chance of seeing a housebuilding boom on the scale we so desperately need.
“The government must also consider how it will mitigate the inevitable pushback from those opposed to new development. Getting opponents on board will require well thought-out policy, careful attention to the choice of sites and incentivising communities to accept new homes in their area.”
Pension Bill makes King’s Speech
A Pension Schemes Bill has been included in The King’s Speech. It aims to tackle the ‘lost pots’ problem by automatically bringing together individual’s deferred small pots into one place.
A standardised test will be introduced that trust-based defined contribution schemes will need to meet to demonstrate they deliver value.
The FCA will ensure the framework also applies to contract-based schemes. These measures are expected to drive consolidation and enable pension assets to be invested more productively.
Pension schemes will be required to offer a retirement income solution or range of solutions, including default investment options, to their members.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown:
“Today’s Pensions Bill heralds positive news for people’s pensions, with simplicity and greater flexibility, something HL has long been calling for.
“Boosting retirement outcomes through a leaner, more efficient system is at its heart. Government estimates that the introduction of these measures could boost the average person’s pension pot by 9% over the course of their career.
“With recent data from HL’s Savings and Resilience Barometer showing only 38% of households are on track for a moderate retirement such changes are vital.”
King’s speech live
King Charles has started unveiling a string of planned new laws under Keir Starmer’s government, including plans to bring train operators into public ownership.
The King said the government will “get Britain building through planning reform as well as encouraging investment” in industry, skills and new technology. On workers’ rights, he referenced new bills that will ban exploitative practices and enhance employment rights.
He also confirmed plans to set up Great British Energy, a new, publicly-owned clean energy company.
The speech – which will begin in earnest after the King’s arrival at 11.20am – will be one of the chunkiest in recent history, second only to 2022 when the government put forward 38 bills.
Blue and pink piggy bank with falling coins – Gender pay gap concept (CalypsoArt)
New research from The Global Payroll Association (GPA), has revealed that the gender pay gap is forecast to close to its lowest ever level of 11.9 by 2025, equivalent to a percentage difference of 13.5% in favour of men.
GPA’s data analysis showed: –
In 2013, the average hourly wage for a male employee was £16.52. In the same year, the average wage for a female employee was £13.36 per hour. This is a difference of £3.16, or 23.7%, which equates to a gender pay gap of 19.1.
In the years since, the gap has gradually closed, and by 2013 it stood at 13.2. This was based on an average hourly wage of £21.31 for men, and £18.49 for women – a difference of £2.82 or 15.3%.
Using this decade of earnings data, GPA has forecasted how the gender pay gap could look by the end of 2024 and then into 2025.
By the end of this year, it is estimated that the year’s average hourly earnings for men will stand at £21.81 while for women it will be £19.11. This will mark a difference of £2.70 or 14.1%, creating a gender pay gap of 12.4.
By 2025, the gap is forecast to have closed even further. Men are estimated to earn an average of £22.30 per hour, compared to women’s average earnings of £19.64. This will mark a difference of £2.66 or 13.5%, marking a gender pay gap of 11.9 in favour of men.
Is a mandatory retirement age good for younger workers or ageist?
Following Labour’s landslide win in the UK general election, the party is set to impose a retirement age of 80 on House of Lords members. The plan, which the party hopes will create a “more representative” body, will eventually also see the remaining hereditary peers phased out.
The proposals have sparked a wider conversation about mandatory retirement in the UK, with some criticising Cambridge University’s “employer justified retirement age” (EJRA) as ageist. Currently, the university’s EJRA sets the retirement age for senior academics at 67.
However, others say it opens up crucial pathways for younger people working in academia, while ensuring new and important voices are heard, alongside older, more experienced staff members.
But is mandatory retirement legal? Will Labour’s plan encourage more businesses to introduce similar rules? And what are the pros and cons for employees and employers?
“Keir Starmer’s announcement that House of Lords peers will be forced to retire once they reach the age of 80 may set the cat amongst the pigeons for employers in the UK who were under the impression that it’s illegal to set a mandatory retirement age at work,” says Andrew Willis, associate director of legal at the HR and employment law firm Croner.
“The reality is it’s not automatically unlawful to set a maximum age on employment which means employers can operate a retirement age,” he explains. “But there is a tricky legal test to pass first because ending someone’s employment purely because of their age would fall foul of age discrimination laws.”
Eurozone inflation headed lower on Wednesday, coming in at 2.5% last month, new data has showed. However, similarly to UK inflation price rises in services remained persistent.
According to Eurostat, the statistical office of the European Union, consumer prices index for the single currency bloc inched down from an upwardly revised 2.6% in May.
Prices were pushed higher in services, which rose 1.84 percentage points, followed by food, alcohol and tobacco, up 0.48 percentage points and non-energy industrial goods, 0.17 percentage points higher.
The lowest annual inflation rates were registered in Finland (0.5%), Italy (0.9%) and Lithuania (1.0%). The highest annual rates were recorded in Belgium (5.4%), Romania (5.3%), Spain and Hungary (both 3.6%).
It comes as the European Central Bank (ECB) is expected to leave interest rates unchanged tomorrow after announcing a cut in June from 4% to 3.75%.
Interest rate cut in doubt
Money markets indicate there is a less than 25% chance of the BoE cutting interest rates next month after inflation held firm at 2%.
Traders have sharply reduced their betting on a lowering of borrowing costs at the next meeting of the Monetary Policy Committee (MPC) on 1 August.
On Tuesday, the chances of a rate cut stood at about 49%, down from 51% at the end of last week.
Also pouring cold water on City predictions, the BoE’s Jonathan Haskel recently said inflation was on course to return above the BoE’s 2% target.
“I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably,” said Haskel, a member of the Bank’s MPC, in a speech at King’s College London on Monday.
Haskel is an external member of the MPC, with his term due to end on 31 August. While some members of the Bank’s nine-strong MPC have pushed for a cut in official borrowing costs over recent months, Haskel has voted to keep rates on hold.
“The playing out of those shocks through the economy, and the continued tight and impaired labour market, means that inflation will remain above target for quite some time,” Haskel said.
Selly Oak, Birmingham, 4th February 2024 – Houses for rent in Selly Oak, Birmingham, England as the UK Housing Market continues to fluctuate. Credit: Stop Press Media/Alamy Live News (Stop Press Media)
The average UK house price has increased at a faster pace in May amid hopes at the time for interest rate cuts.
According to the Office for National Statistics, this came in at a rise of 2.2% to £285,000 in the 12 months to May, up from 1.3% growth in April.
Meanwhile, average UK private rents increased by 8.6% in the 12 months to June, slowing from 8.7% in May.
Marc von Grundherr, director of estate agent Benham and Reeves, said:
“While higher mortgage rates continue to restrict buyer purchasing power at present, it’s only a matter of time before interest rates are cut.
“When this does happen, we expect it to act as a significant shot in the arm to the UK property market and the slow but steady performance of recent months should giveaway to an altogether more active market landscape and a stronger rate of house price appreciation.”
Gold pushes to new record
Gold (GC=F) pushed to a new record of $2,482.42 an ounce on Wednesday, past its previous record of $2,450.07 reached in May, thanks to rate-cut expectations.
It follows a string of positive sessions, during which bullion prices have surged over 6% since the start of the month.
Gold has often done well during times of uncertainty, with ongoing conflicts in the Middle East and the questions swirling around the US presidential election.
Bill Baruch, Blue Line Futures President, said:
“Gold has averaged a 6% return within the first 30 days of a Fed cut. So I think we’re starting to see maybe some of that pulled forward a bit. But with Trump’s probabilities of taking the White House improving, and becoming the favourite, some of the policy we could see is trying to weaken the dollar.
“If that’s the case, gold is priced in US dollars… and that would increase the price. So I think that’s… maybe a tailwind for Bitcoin. But I think it’s also a tailwind for gold right now.”
British millionaire close to buying The Body Shop
Following recent speculation concerning the sale of The Body Shop, a joint statement from the administrators and a consortium led by Auréa which have now entered into an exclusivity agreement, has been released.
It says:
“Following a competitive bidding process, the joint administrators of The Body Shop International have now entered into an exclusivity agreement with a consortium led by Auréa group, with the management team to be led by former Molton Brown CEO Charles Denton.
“While the deal is not yet complete, we believe the combined experience of the consortium, together with the existing management team, represents the best outcome for creditors and will ultimately ensure the long-term success of The Body Shop.
“A period of due diligence will now take place, with the intention to complete the transaction in the coming week.”
The Body Shop fell into administration in February after forecasts for how much funding it would need to keep going proved too low. This led to hundreds of job losses and dozens of store closures across the country.
Nearly 3,000 home sellers enter the market
New research from upfront information platform Home Sale Pack has revealed that nearly 3,000 home sellers entered the housing market in the week following the UK general election.
The research showed: –
In the seven days leading up to the 4 July election, 45,724 sellers put their homes on the market in the UK
In the seven days immediately following the election, the number of sellers entering the market totalled 48,486.
This marks an increase of 6%, equivalent to 2,762, while the combined value of homes hitting the market after election comes to almost £13.8bn.
The most optimistic sellers were in Yorkshire & Humber — in the week preceding the election, 2,733 sellers entered the market in the Yorkshire & Humber region. In the week following the election, 3,011 new sellers listed their homes. This marks the nation’s largest post-election surge of 10.2%.
In the South East, a total of 8,339 post-election sellers marks an increase of 10%, followed by London (9.9%), the South West (8.3%), West Midlands (7.3%), and Scotland (4.2%).
All regions of Britain saw an increase in new sellers following the election. Wales reported the smallest increase of 0.2%, but even this accounts for 2,315 brand new homes hitting the market in a single week.
What drove the beat in services inflation?
Milano, Italia. 13th July, 2024. Concerto del Eras Tour di Taylor Swift presso Stadio San Siro – Sabato 13 Luglio 2024 (Foto Claudio Furlan/Lapresse) Taylor Swift’s Eras Tour concert at San Siro Stadium – Saturday, July 13, 2024 (Photo Claudio Furlan/Lapresse) Credit: LaPresse/Alamy Live News (LaPresse, LaPresse)
Slightly higher rents drove services inflation, as well as airfares coming in a little stronger than expected too.
The main surprise came from hotel prices, with overnight hotel prices jumping by a 8.8% month-on-month. This took overall accommodation prices up 3.3%.
Live music prices were also higher but broadly in line with expectations at 7.5%. While difficult to fully untangle, it’s certainly very possible that some Taylor Swift effects were at play here – and could very well reverse out next month.
However, these were offset by falling clothing prices, with widespread sales driving down their cost.
Meanwhile, the cost of both raw materials and goods leaving factories fell on the month, though factory gate prices remain above where they were a year ago.
Some economists have noted the Taylor Swift effect, likely to have held inflation at 2%.
Laura Suter, director of personal finance at AJ Bell, said:
“Bank of England policymakers may be cursing Taylor Swift, as fans spending on hotel rooms and in restaurants during her Eras tour is likely to be one reason that prices rose in June, meaning that overall inflation flatlined at 2% rather than fell.”
Pound breaks $1.30 for first time in a year
The pound (GBPUSD=X) hit a fresh year-high against the dollar, above $1.30, on the slightly warmer-than-expected inflation data this morning.
It was also trading at its highest level for nearly two years against the euro, with the euro dropping 0.1% to 83.92p, its lowest since August 2022.
Sanjay Raja, chief UK economist at Deutsche Bank, said:
“Today’s inflation data won’t be what the doctor ordered. Markets have pared back expectations of an August rate cut from near 50% to 25%.
What does this mean for the MPC? For the majority of the MPC, today’s inflation report won’t be as encouraging as it may have anticipated. Undoubtedly, today’s services print raises the bar for an August rate cut. But there is a key caveat here. With live music and accommodation prices rising at such speed, the MPC could potentially be minded to look past some of the upside in services inflation.
To be sure, we now think that an August rate cut is finely balanced. A lot will now depend on the strength of the May wage and unemployment data.”
UK inflation unchanged at 2% in June
Undated file photo of a person holding a shopping basket in a supermarket. According to figures from the British Retail Consortium-NielsenIQ Shop Price Index, shop price inflation is showing signs of normalising one year on from its peak. Figures have slowed to 3.4%, its lowest growth since March 2022 and the 12th consecutive drop. Issue date: Tuesday April 30, 2024. (Julien Behal, PA Images)
The UK’s rate of inflation remained unchanged at 2% in June, as the Bank of England (BoE) considers whether to cut interest rates from their current 16-year high next month.
Prices rose at 2% in the year to June, unchanged from May and partly driven by hotel prices going up, the Office for National Statistics said. Financial markets had expected a fall to 1.9% last month.
In a blow to hopes of interest rate cuts, closely watched services inflation, which tracks categories such as hospitality, culture and housing, was unchanged at 5.7% in June, which was higher than economists’ estimates.
The largest upward contribution to inflation came from restaurants and hotels, with prices of hotels rising more than a year ago. The largest downward contribution came from clothing and footwear, with prices of garments falling in June after rising a year ago.
The core rate of inflation, which strips out energy, food, alcohol and tobacco, stayed at 3.5%.
The governor of the Bank of England, Andrew Bailey, stressed last month that policymakers need “to be sure that inflation will stay low”, which is why it decided to hold interest rates at 5.25% “for now”.
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