Graeme Wearden 

Wall Street hits record highs; UK rate cut hint hurts pound – as it happened

BoE governor warns that UK economy may not rebound, as John Lewis and Marks & Spencer issue weak Christmas trading updates
  
  

Mark Carney, Governor of the Bank of England.
Mark Carney, Governor of the Bank of England. Photograph: Kirsty Wigglesworth/POOL/AFP via Getty Images

Closing summary

Time for a recap

  • The pound has weakened, after Bank of England governor Mark Carney suggested UK interest rates could soon be cut if the economy doesn’t pick up speed. Sterling hit a two-week low around $1.303.
  • John Lewis has announced the shock departure of a senior executive, and revealed that profits have shrunk after disappointing Christmas trading at its department stores. Its staff bonus could be cancelled this year, a blow to around 80,000 staff.

  • Marks & Spencer is another Christmas loser, after suffering weak clothing sales. The high street chain overstocked on skinny jeans and also bought too many mince pies

Goodnight! GW

The Carlos Ghosn saga has taken another twist, a day after the business chief-turned-fugitive lashed out at Japan over the fraud case brought against him.

A Lebanese judge has banned Ghosn from leaving Lebanon, after holding a meeting with the former Nissan chief to discuss Interpol’s ‘red notice’, and his trips to Israel in the past (which Lebanon’s citizens aren’t allowed to do).

Japanese officials have also hit back at Ghosn, who yesterday claimed he had been extremely unfairly treated since his arrest on financial misconduct charges 14 months ago.

Masako Mori, Japan’s justice minister, accused Ghosn of making “abstract, unclear or baseless assertions” about the Japanese criminal justice system, and said his mysterious escape late last month was unjustified.

Britain’s FTSE 100 index has closed higher too, up 23 points or 0.3% at 7598.

Retail stocks had a bad day, though, with online grocer Ocado down 4.3%, Kingfisher losing 2.9% and Next dropping by 1.5%.

Marks & Spencer (which recently fell out of the FTSE 250) have slumped by 11% today after their disappointing Christmas results.

Back in the markets, Germany’s DAX index has closed at a two-year high as investor optimism sweeps shares higher.

Oof! The Information Commissioner says that 14 million customers were affected by the security breach at Dixons, even more than we thought.

The ICO also says that thousands of Dixons tills were hacked, and it took nine months before the company realised.

They say:

An ICO investigation found that an attacker installed malware on 5,390 tills at DSG’s Currys PC World and Dixons Travel stores between July 2017 and April 2018, collecting personal data during the nine month period before the attack was detected.

The company’s failure to secure the system allowed unauthorised access to 5.6 million payment card details used in transactions and the personal information of approximately 14 million people, including full names, postcodes, email addresses and failed credit checks from internal servers.

That’s why the ICO has imposed the maximum penalty allowed:

Updated

Dixons fined £500,000 for data protection breach

Back in the UK, consumer electronics firm Dixons Carphone has been fined £500,000 for a data breach.

This is the maximum penalty allowed under the Data Protection Act (since superseded by the GDPR which allows much higher penalties).

The breach occurred in 2018, and affected up to 10m customers.

Dixons CEO Alex Baldock says they’re very sorry about the incident, and also disappointed by the ICOs decision -- which the firm could challenge.

He says:

“We are very sorry for any inconvenience this historic incident caused to our customers. When we found the unauthorised access to data, we promptly launched an investigation, added extra security measures and contained the incident. We duly notified regulators and the police and communicated with all our customers. We have no confirmed evidence of any customers suffering fraud or financial loss as a result.

We have upgraded our detection and response capabilities and, as the ICO acknowledges, we have made significant investment in our Information Security systems and processes.

We are disappointed in some of the ICO’s key findings which we have previously challenged and continue to dispute. We’re studying their conclusions in detail and considering our grounds for appeal.”

Here’s a reminder of how strongly the biggest US tech firms have rallied:

Never wrong for long, eh Donald?

The president has now deleted his tweet about the markets, and replaced it with a new one with 401k spelled correctly.

I guess we’ll never know what a 409k was...

Broker-dealer LPL Financial says stocks are rallying on hopes of a de-escalation in the US-Iran crisis.

The prospect of China and the US signing a preliminary trade deal next week are also helping, they write:

Market participants remain squarely focused on the Mideast this morning.

Consensus seems to be landing on de-escalation, based on the latest developments and statements from the country’s leaders, buoying investor sentiment. That stance is supported by falling WTI crude oil and gold prices on Wednesday.

Though expected, we received confirmation that high-level Chinese trade representatives will sign the phase-one trade agreement on January 15, reportedly at the White House.

Nearly every sector on the broader S&P 500 index is also up today, lifting the index to a record high.

Energy is the only laggard, as oil prices retreat in the face of easing Middle East tensions (for the moment, anyway...).

Trump hails market rally

President Trump has hailed the stock market’s performance, suggesting US savers should be feeling a lot richer.

The Dow Jones industrial average is now up around 60% since Trump won the presidential election in November 2016.

That’s partly due to his tax cuts and moves to encourage US companies to repatriate profits held abroad.

But in his enthusiasm, Trump may have mistyped -- Americans use a 401(k) to save for their retirement, of course.

Wall Street is on track to post its fifth day of gains this year, out of six trading sessions.

That could be a sign that 2020 is going to be a decent 12 months for investors, although its obviously still early days.

Financial companies, consumer stocks and industrial groups are all also rallying today, although tech is the best performer.

Apple is leading the risers on the Dow, up 1.7% at $308 per share.

That’s a new record high, and more than double its value in the last year!

Traders are piling in, after Apple announced record App Store sales over Christmas.

New York stocks hit fresh record highs

Boom! Wall Street has romped to yet another record high, on hopes that the US and Iran have calmed the risk of military conflict.

The S&P 500, the Nasdaq and the Dow Jones Industrial Average have all scaled new peaks.

Here’s the situation:

  • Dow: up 120 points or 0.4% at 28,865
  • S&P 500: up 15 points or 0.5% at 3,268
  • Nasdaq: up 72 points or 0.8% at 9,202 points

Technology stocks are driving higher, a sign that traders are less worried about global conflict and trade wars, and more optimistic about growth prospects this year.

This follows confirmation that no-one was killed by the missiles fired by Iran at US bases in Iraq early yesterday morning.

With Donald Trump claiming yesterday that Iran was “standing down”, investors are hoping that both sides are trying to de-escalate the situation.

Amir Ali Hajizadeh, the head of Iran’s Revolutionary Guards aerospace force, has said earlier today that Tehran’s missile strikes on bases in Iraq were intended to damage the US’ military machine and not kill troops.

He added that Iran wants to drive American troops out of the Middle East, as an “appropriate revenge” for the US killing of Major General Qassem Soleimani.

Two major US retail chains have also struggled over the festive period.

Kohl’s, America’s largest department chain, has reported a 0.2% drop in sales in November and December -- a crucial time for the sector, with Black Friday followed by Christmas. It blames weak sales of women’s clothing.

Earnings are now expected to hit the bottom of its previous guidance.

Rival department store chain JC Penney did even worse, with a 7.5% plunge in sales over the last nine weeks.

My colleague Zoe Wood has dug deeper into Marks & Spencer’s Christmas blues, and discovered that it even botched its mince pie orders, so badly that profitability will be be lowed than hoped.

That’s on top of its bungled move into skinny men’s jeans (see earlier).

Zoe explains:

By comparison, sales in its food halls were up 1.4% as shoppers responded to new ranges and lower prices. Sales rose 4% over the all-important holiday fortnight but the retailer bought too much of seasonal lines such as mince pies, leading to waste – although surplus stock was diverted to local charities, including food banks, via its partnership with the Neighbourly app.

The waste generated by the food business had affected the retailer’s profit margins, which it said would now be at the bottom end of analysts’ expectations. M&S shares, which were relegated from the FTSE 100 index last year, tumbled almost 10% to 198p on Thursday morning.

Mark Carney has also produced two charts today, which show how the UK economy has fared since the EU referendum.

This one shows how growth fell below potential last year, as part of a wider global slowdown.

This one shows how inflation climbed steadily after the pound’s 2016 slump, eroding real wages... just as growth began to lag behind the rest of Europe.

Andy Scott, associate director at financial consultant JCRA, says any interest rate cuts in 2010 could be driven by Brexit fears.

Here’s his take on Mark Carney’s speech this morning:

“We saw in the US last year that the Federal Reserve opted for ‘insurance’ rate cuts due to the headwinds created by the trade war with China. It’s possible to draw some comparisons with the US and UK economies given the very high levels of employment and rising wage growth, but fairly benign inflationary pressures.

One key difference is the pace of growth, with the UK economy only managing around 1% last year while the US grew at 2%. This suggests the Bank of England could justify an ‘insurance’ rate cut due to continued Brexit headwinds which may ease temporarily, but could still turn into a hurricane come December!

“Economic data for January and February will be key in determining whether any other members of the Bank’s MPC join the two who voted to cut rates at the previous two meetings. Unless the economy tips into recession, it seems unlikely that the Bank would opt for a series of rate cuts and/or quantitative easing that would potentially drive Sterling movement lower. Instead, we expect Brexit - specifically the trade negotiations - to continue to be the primary influence on the currency’s movement in 2020, which suggests we could be in for another volatile year!”

Steel jobs at risk in Yorkshire

Breaking: 350 steelmaking jobs are being cut in South Yorkshire and South Wales, in a new year blow to the industry

Liberty Steel announced the redundancies this morning, blaming “challenging market conditions”. It includes 72 jobs lost at a steelworks in Newport, Wales.

Roy Rickhuss, General Secretary of the steelworkers’ union Community, hopes that the company won’t force workers out:

“Today’s announcement shows yet again that challenges remain for the UK’s steel industry and that is why we reiterate our call on government to meet with unions and employers in the industry to discuss action on the outstanding issues which we have been campaigning on for some time, such as energy costs, business rates and procurement.

“We will be sitting down with Liberty Steel to look at their plans in detail and examine the rationale behind these proposals. In the meantime, we recognise that the company has indicated its intention to achieve any reductions through voluntary redundancy – we will be holding them to that commitment.”

Mark Carney has managed to send the pound down to a two-week low.

Sterling hasn’t been as low as $1.302 since 27 December, when City traders were struggling back to work following their Christmas break.

An interest rate cut might infuriate Britain’s savers -- including pensioners -- who have suffered from low rates of return for a decade.

Mary Carney suggests they shouldn’t complain, as they benefit in other ways:

The vast majority of savers who might lose some interest income from lower policy rates stand to gain from increases in asset prices that result from monetary policy stimulus, since only 2% of UK households have material deposit holdings without material financial assets or property wealth.

The problem here, though, is that older people might not want to cash in the equity in their homes or liquidate their share portfolio.

Mark Carney’s dovish comments are pushing sterling down, says CNBC’s Julianna Tatelbaum:

....and boost QE as well

Mark Carney has also declared that the Bank of England could widen its asset-purchase scheme if needed.

That would mean buying up more government debt with new money, on top of the £435bn of gilts already purchased.

He says this is another policy tool, on top of a potential interest rate cut to almost zero (from 0.75% today):

At present, there is sufficient headroom to at least double the August 2016 package of £60 billion asset purchases, a number that will increase with further gilt issuance.

That would deliver the equivalent of around a 100 basis point cut to Bank Rate on top of the near 75 basis points of conventional policy space.

The Bank can also used its ‘forward guidance’ to loosen monetary conditions, Carney adds (basically by promising not to raise interest rates for some time).

Carney: Bank of England could cut rates soon

Newsflash: Outgoing Bank of England governor Mark Carney has hinted that UK interest rates could be cut soon.

Speaking at an inflation targeting conference in London, Carney declared that the BoE could respond “promptly” if the UK economy doesn’t strengthen soon.

He warned that there’s no guarantee that growth will rebound, even though businesses now have more certainty over Brexit. And this means policymakers on the Monetary Policy Committee are split over what to do (two voted for a rate cut last month).

Carney says:

This rebound is not, of course, assured. The economy has been sluggish, slack has been growing, and inflation is below target. Much hinges on the speed with which domestic confidence returns. As is entirely appropriate, there is a debate at the MPC over the relative merits of near term stimulus to reinforce the expected recovery in UK growth and inflation.

And if growth doesn’t revive, the governor adds, there’s a case for acting quickly:

There are downside risks from global growth and the possibility that uncertainties over future trading relationships could remain entrenched. With the relatively limited space to cut Bank Rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response.

Of course, that’s really more of a question for Carney’s successor, Andrew Bailey, who takes over on March 16.

But obviously Carney knows which way the BoE is leaning today... so his comments have knocked more than half a cent off the pound. It’s dropped to $1.302 since Carney spoke, down from $1.308.

More to follow....

High street gift card retailer Card Factory has suffered a poor Christmas.

Shares in the company have slumped by 20% to a record low, after it warned that the festive period was “challenging’.

It blamed political uncertainty, saying:

The general election and weak consumer sentiment ensured that the long-running trend of declining high street footfall was maintained.

This means Card Factory expects profits to drop to £81m to £83m, from £89.4m last year.

I’m not completely convinced that the general election can be blamed -- surely Johnson, Corbyn, Swinson et al were sent a few “good luck” cards?

The broader problem, as we’ve seen from John Lewis too, is that the high street is in serious trouble.

Retail expert Ian Shepherd says Card Factory needs to get its online house in order, fast.

Marks & Spencer shares are continuing to slide, as the City digests today’s Christmas trading.

They’re now down 10.7%. Investors aren’t happy about the latest drop in clothing sales, and M&S’s warning of glitches in food supply and gifting.

M&S in skinny jeans blunder

Marks & Spencer’s Christmas trading woes were partly down to a reckless flirtation with men’s skinny jeans.

The high street chain seems to have ordered too many of these slim-fitting trousers, rather than the more capacious range which some chaps <cough> might prefer (particularly when Christmas dinner is calling).

My colleague Zoe Wood explains:

Clothing sales at M&S stores open more than one year were down 1.7% after an attempt to make its menswear ranges more fashionable – customers told it last year that they were “too old” – backfired.

The revamp involved replacing some regular “relaxed” fit trousers with slim and skinny options but the sartorial leap proved too dramatic for its customer base, with the new lines ending up on its sale rails. The retailer “got the balance wrong”, Rowe admitted.

CEO Steve Rowe also said there was evidence that Britons were thinking more carefully about the quantity and quality of what it buy, even at Christmas, with demand for its women and men’s cashmere jumpers up 15% and 40% respectively.

Another surprise departure: Willie Walsh is quitting as boss of International Airlines Group, the firm behind British Airways.

It’s not a Paula Nicholds-style shock, though -- Walsh had been expected to leave by 2021. But it ends a long stint running BA, including several bruising clashes with staff and a historic pilots strike last year.

What’s the solution to John Lewis’s woes?

Simon Neville of PA reckons it should recruit namesake Dave Lewis, once he departs Tesco.

Lewis certainly has experience of turning a struggling retailer around, but is there a role for him in the Partnership’s new structure? Paula Nicholds new job was “executive director, brand” - rather than actually running the department stores.

Retail analyst Steve Dresser has another theory -- Amazon could buy them!

However, John Lewis’s partnership structure makes such a move very difficult.

Updated

Nice summary from the Daily Mail’s Tom Witherow:

Tesco’s shares have jumped almost 2%, as investors applaud its Christmas trading figures.

Although a 0.1% rise in UK sales isn’t exactly sparkling, it’s a resilient performance in a tough market.

CEO Dave Lewis (who is leaving later this year), suggests the rise in healthier eating boosted sales:

Over the Christmas period we outperformed the market in both volume and value terms, with a strong performance in fresh food. Further improvements in price and quality were complemented by our ‘Festive 5’ vegetable offer and an enthusiastic customer response to our significantly expanded range of plant-based foods

Retail analyst Nick Bubb says Paula Nickolds resignation is a “bombshell”, adding;

It is hard not to link the inexorable profit pressure on John Lewis with the shock news that John Lewis MD Paula Nickolds is to step down…

Losing one senior manager is unfortunate. But shedding two in three months, over a confusing managerial shake-up, is pretty careless of John Lewis -- especially when your chair is leaving.

As Bubb puts it:

Having already lost Waitrose MD Rob Collins and with an unproven Sharon White about to take over from Charlie Mayfield as Executive Chairman, this is not an ideal state of affairs…

Updated

M&S shares fall after 'issues' hurt trading.

Oh dear. Marks & Spencer’s shares have dropped 7.5% in early trading as its latest Christmas results fail to impress the City.

Although like-for-like sales rose by 0.2% in the last quarter of 2019, traders aren’t impressed that clothing and food sales fell by 1.7% on a comparable basis.

CEO Steve Rowe says performance improved, but also blames various operational problems which held M&S back:

As we drive a faster pace of change, disappointing one-off issues - notably waste and supply chain in the Food business, the shape of buy in Menswear and performance in our Gifting categories - held us back from delivering a stronger result.

However, the changes we made earlier in the year in Clothing have arrested the worst of the issues of the first six months and we are progressively building a much stronger team for the future.”

Updated

John Lewis’s poor performance proves that you need more than a cute fire-breathing dragon to succeed at Christmas.

Richard Lim, CEO of Retail Economics, says that trading at the Partnership is tough, and not helped by Black Friday:

“Excitable Edgar did little to fire up Christmas sales with declines across non-food and a woeful performance in the online business which barely showed any signs of growth.

“The later timing of Black Friday may ultimately have been the destructive force at play. Consumers appear to have pulled forward gift purchases to take advantage of deep discounts at the expense of Christmas trading.

“What’s more, in this hyper-competitive industry, their price matching promise is likely to have eroded margins further against the backdrop of rising operating costs.

“Waitrose performed better but continues to undergo a transformation in the business. The shining light was an impressive performance in their online proposition.”

Digging into John Lewis’s Christmas trading figures... it appears that sales of computers, phones and other electronics kit were disappointing.

Tech sales at its department stores fell by 4.0% in the seven weeks to 4 January, while home products fell 3.4%.Beauty products, though, rose by 4.7%.

The company adds:

We saw significant variation in levels of demand with Black Friday sales up 10.0% on the equivalent period last year, followed by more subdued demand in the subsequent weeks.

2019 was a shocker for UK retail

John Lewis isn’t alone in its struggles.

The overall UK high street had a rubbish 2019, with total sales down by 0.1%. That’s the worst result since at least 1995, when the British Retail Consortium started counting the numbers.

Sales slid by 0.9% in November and December -- which is usually a bumper time for retailers.

Helen Dickinson, the chief executive of the BRC, says:

“2019 was the worst year on record and the first year to show an overall decline in retail sales.”

Retail analyst Patrick O’Brien reckons John Lewis has blundered by merging its department store and supermarket management together.

It certainly felt like an odd move when it was announced last autumn, if only because it was cobbled together by outgoing chairman Charlie Mayfield. Now his successor, Sharon White, has to pick up the pieces.

Updated

John Lewis has paid its staff a bonus every year for decades -- it last suspended it during the second world war.

So it would be a serious shock if the Partnership cannot afford to reward its workers this year. Last year it was only worth 3% of basic pay, down from a tasty 18% in 2011.

John Lewis's staff bonus over the decades

Some instant reaction to John Lewis’s Christmas trading:

John Lewis MD quits

Crumbs! Paula Nickolds, the first woman to run John Lewis’s department stores, has quit.

Nickolds, who became John Lewis’s managing director three years ago, appears to have baulked at a management shake-up announced back in October.

She was due to become executive director of brand, heading marketing, service and digital innovation across the group in February.

Instead, she’s resigned -- ending a 25-year stint (Nicholds started as a graduate trainee and worked her way to the top). It creates another headache for incoming chair Dame Sharon White, who starts next month.

John Lewis says:

After some reflection on the responsibilities of her proposed new role, we have decided together that the implementation of the Future Partnership structure in February is the right time for her to move on and she will leave the Partnership with our gratitude and best wishes for the future.

John Lewis struggles on Retail Super Thursday

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Three of Britain’s major retailers are reporting results for the key Christmas period today, and it’s a decidedly mixed picture.

The John Lewis Partnership - which includes Waitrose – has reported a slump in gross sales, down 1.8% year on year in the seven weeks from 17 November to 4 January.

Its department stores fared particularly badly, with sales down 2% on a like-for-like basis.

That wiped away a stronger performance at Waitrose, where online sales increased by 16.7% over the pre-Christmas period.

And in a blow to its workers, John Lewis Partnership is warning that employees may not receive their usual bonus -- which used to be worth several weeks pay.

It warns:

The Partnership Board will meet in February to decide whether it is prudent to pay a Partnership Bonus.

The decision will be influenced by our level of profitability, planned investment and maintaining the strength of our balance sheet.”

Outgoing Chairman Sir Charlie Mayfield warns that earnings at the Partnership will be much weaker than last year:

At the full year, we expect profits in Waitrose & Partners to be broadly in line with last year. In John Lewis & Partners we will reverse the losses incurred in the first half of the year, but profits will be substantially down on last year.

We therefore expect that Partnership profit before exceptionals will be significantly lower than last year.

Supermarket chain Tesco appears to have done better, with a 0.1% rise in like-for-like sales in the UK despite the tough retail climate.

Marks & Spencer has had a mixed time. It has just reported total UK sales for the last 13 weeks of 2019 fell 0.6% (but was up 0.2% on a like-for-like basis).

Total food sales rose by 1.5%, but clothing -- a long-running problem for M&S - slumped by 3.7%.

Homewear group Dunelm and high street chain Card Factory are also reporting results, on a busy morning for retail news.

Also coming up today

After getting into a geopolitical tizzy’s on Wednesday, the markets are calmer today as US-Iran tensions ease a little.

The missile attack launched against two US bases appears to have avoided any casualties - meaning Tehran has responded to the death of general Suleimani without provoking a US retaliation.

This pushed US stocks higher last night, with the Nasdaq hitting another record high.

We also hear from outgoing Bank of England governor Mark Carney today, alongside jobs data from the US and Europe.

The agenda

  • 9.30am GMT: BoE governor Mark Carney speaks at The Future of Inflation Targeting Conference in London
  • 10am GMT: Eurozone unemployment data for November: expected to remain at 7.5%
  • 1.30pm GMT: US weekly jobless figures

Updated

 

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