Closing summary
The sell-off in global stocks has gathered pace as worries over extended Covid-19 restrictions and the vaccine rollout resurfaced. Oil prices are falling, reversing earlier gains.
- UK’s FTSE down 107 points, or 1.6%, at 6,546
- German’s Dax down 2.49% at 13,525
- France’s CAC down 2.03% at 5,411
- Italy’s FTSE MiB down 1.9% at 21,565
- Nasdaq down 2.09% at 13,341
- S&P 500 down 2% at 3,769
Markets are waiting for the US Federal Reserve decision at the end of its policy meeting at 7pm GMT tonight, followed by a press conference. We are not expecting any change to the Fed’s ultra-loose stance.
Tech giants Apple and Facebook and the electric carmaker Tesla are due to announce their fourth-quarter results after Wall Street closes. Microsoft revealed stellar results last night after the shift to working from home led to a surge in demand for its PCs, Xboxes and cloud services.
Governments and central banks must maintain their pandemic rescue programmes or risk triggering a stock market crash, the International Monetary Fund has said.
A row over coronavirus vaccine shortages in the EU has descended into farce as AstraZeneca denied claims by the European commission that it had pulled out of a crunch meeting over a breakdown in supplies.
And here’s an explainer of the vaccines row.
Boeing’s 737 Max has been cleared to fly again by the European regulator after being grounded for 22 months following two fatal crashes.
Goldman Sachs has cut the pay of its chief executive, David Solomon, by $10m (£7.3m) after the bank was forced to pay billions of dollars to settle an international investigation into its role in the 1MDB scandal.
The Covid-19 pandemic could delay construction of the Hinkley Point C nuclear reactor by six months and raise its costs by £500m, according to its developer.
Thank you for reading. We’ll be back tomorrow -- stay safe! - JK
On Wall Street, stocks are falling, mirroring declines in Europe. The Nasdaq has lost 2%, and the Dow Jones and S&P 500 have fallen 1%. The FTSE 100 in London has also declined 2%.
Michael Pearce, senior US economist at Capital Economics, says:
The weaker 0.2% gain in headline durable goods orders in December was mainly due to ongoing problems among aircraft manufacturers and a drop off in defence orders. The bigger story is the continued strong gains in core orders, which underlines that the recovery in business equipment investment still has plenty of momentum.
With restrictions on international travel tightening in recent weeks, demand for aircraft will remain at very low levels for the foreseeable future. Despite that persistent drag, the continued strength of core orders means that overall durable goods orders and shipments are now back above pre-pandemic levels, reflecting the boost from lower interest rates and the relative resilience of the investment-intensive manufacturing sector.
The latest business surveys suggest that durable goods orders will continue to rise at a rapid pace over the coming months.
In the US, business orders for durable goods such as tools, appliances and new cars rose in December for the eighth month in a row, but by just 0.2%, far less than the 1% forecast by analysts. This was due to a a slump in demand for new airplanes (mainly at Boeing) since the start of the pandemic, which caused a 1% drop in transport orders.
Stripping out transportation, core orders rose by 0.7% – an increase described as “solid” by economists.
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The sell-off continues on the stock markets.
- The FTSE 100 index is down 112 points, or 0.69%, at 6,541
- Germany’s Dax down 2.23% at 13,561
- France’s CAC down 1.85% at 5,418
- Italy’s FTSE MiB down 1.87% at 21,575
Oil prices have also slipped into the red, with Brent crude down 18 cents at $55.76 a barrel, and US crude falling 11 cents to $52.5 a barrel.
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You can read the full global financial stability report here.
IMF warns of share price bubble
Governments and central banks must maintain their pandemic rescue programmes or risk triggering a stock market crash, the International Monetary Fund has said.
Warning that there were legitimate concerns about a share price bubble, the Washington-based organisation said that without continued low interest rates and government subsidies it was possible a “correction’ in stock markets across the world would be the unwelcome result, writes our economics correspondent Phillip Inman.
In a report issued to coincide with the World Economic Forum – held virtually this year because of the pandemic – the IMF said investors had ignored recent data showing major economies slowing as the pandemic persisted through the winter months.
There was also the prospect that vaccination programmes would take longer to roll out, especially across the developing world, forcing governments to maintain restrictions for a longer period.
Financial markets have rebounded since last March and some have soared to fresh highs. Both the Nasdaq and the S&P 500 in the US hit all-time peaks this week.
Josh Mahoney, senior market analyst at the online trading platform IG, reckons the Dow Jones will open 89 points lower, at 30,848. And what can we expect from the Fed tonight?
The Federal Reserve come back into focus today, with traders increasingly looking towards the US for some form of stimulus boost in the coming weeks. Unfortunately, with Biden expected to drive forth his $1.9 trillion stimulus coronavirus support package, we are unlikely to see the Fed turn up the dials at today’s meeting.
A new year brings new voting members for the Fed, with four regional Fed members rotating into a position where their opinion can be better reflected. Key to that voting member rotation is the addition of Atlanta Fed President Raphael Bostic who has already speculated that the Fed might be able to ‘recalibrate’ in ‘fairly short order’ once the recovery gets going.
Despite fears that Bostic could be keen to start the tapering discussion, Powell has been swift to disregard the notion that we will see any form of monetary tightening in the near-future. Nevertheless, markets will keeping a close eye on commentary around this meeting as the promise of a vaccine and fiscal stimulus-led recovery ensures the committee could soon start discussing how their position should change.
The sell-off on European stock markets has gathered pace, ahead of the US Federal Reserve policy decision. In London, mining shares are leading the losers, amid concerns that extended coronavirus lockdowns will hit demand for commodities.
- UK’s FTSE 100 down 0.98%, or 65 points, 6,588
- Germany’s Dax down 1.57% at 13,653
- France’s CAC down 0.95% at 5,471
- Italy’s FTSE MiB down 1.51% at 21,660
Wall Street has been a lot more buoyant than Europe recently, with tech giants such as Microsoft spreading excitement. We’ll be getting quarterly results from Facebook, Tesla and Apple after market close tonight.
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The discount retailer Poundland and its sister chain Dealz are planning to open nearly 100 more stores across Europe as the group shrugs off the difficulties on the high street, writes our retail correspondent Sarah Butler.
The group is planning to open 27 stores in the UK and Ireland and 70 in Span and Poland after reporting an 8.4% rise in revenues in the three months to the end of December. Sales at stores able to trade during the high street lockdowns rose by 4.3% as shoppers picked up homewares and cheap groceries.
Andy Bond, the chief executive of Poundland and Dealz’ parent company Pepco Group which is considering a potential IPO, said the company would not be paying back business rates relief in the UK, despite enjoying strong trading while other stores were forced to close.
He said that Poundland had closed more than 100 of its UK and Irish stores at the height of the lockdown and incurred additional costs to protect staff and customers.
What the government tried to do with business rates relief was to ensure good businesses survive and could grow again. We are doing our part of the bargain. We have managed our business well through this and are investing in the future.
He said Poundland and Dealz were stepping up growth in the UK and Europe because they were “increasingly confident” about the stores’ popularity with shoppers. He added:
Previous economic downturns have provided discount retailers with increased opportunities and confident and brave as we are it is time to put our foot down on the accelerator.
GameStop shares soar after Elon Musk tweet
Back in the US, GameStop has become one the hottest stocks of the year.
The coronavirus pandemic has hit the video games chain hard. Like many retailers, already suffering from the shift to online sales, GameStop is losing money and plans to close 450 stores this year, reports Edward Helmore in New York.
And yet, surprisingly, its share price has soared from $3.25 last April, when the company announced mass closures. Yesterday the share price nearly doubled to $147.98 (up 93%), pumped up again by small investors hoping to ruin Wall Street bets that the price would crash. The company’s stock market valuation jumped to $10.3bn.
A tweet from Tesla boss Elon Musk fired up the share price rally. The shares rocketed a further 125% to $333.50 in pre-market trading today and are on track for a fifth session of gains.
“Gamestonk!!” Musk wrote on Twitter yesterday, merging GameStop’s name and “stocks”, slang for stocks, and linked to Reddit’s Wallstreetbets stock-trading discussion group, where small investors have been promoting GameStop aggressively.
Gamestonk!! https://t.co/RZtkDzAewJ
— Elon Musk (@elonmusk) January 26, 2021
The 37-year-old chain store group is now the focus of a David-and-Goliath battle between an army of small investors and Wall Street that shows no signs of abating and has highlighted some fundamental shifts in investing.
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Here’s our full story on the delays to Hinkley Point. The Covid-19 pandemic could delay construction of the Hinkley Point C nuclear reactor by six months and raise its costs by £500m, according to its developer.
And here’s the story about the surge in sofa sales at ScC.
Over in the US, Amazon is attempting to force workers planning to unionise at an Alabama warehouse to vote in person rather than by mail as it fights off a landmark attempt by its staff to organise, reports Michael Sainato, who writes on civil rights issues for the Miami Times.
Also in America, Goldman Sachs has cut the pay of chief executive David Solomon by slicing $10m (£7.3m) off his annual bonus, after the bank was forced to pay billions of dollars to settle an international investigation into its role in the 1MDB scandal, reports our banking correspondent Kalyeena Makortoff.
The part-time DJ was still granted a $15.5m bonus on top of his $2m annual salary, in light of the investment bank’s bumper performance last year. It left Solomon – who earned $27.5m in 2019 – with a pay packet totalling $17.5m, making him one of the worst-paid banking bosses on Wall Street in 2020.
Solomon’s pay is nearly half the size of the $31.5m package handed to JP Morgan’s chief Jamie Dimon. Morgan Staley’s boss James Gorman surpassed both rivals after receiving $33m.
Morning summary: markets drift lower ahead of Fed
On the markets, the FTSE 100 in London briefly ventured into positive territory, but is now trading lower again, by some 20 points, a 0.32% drop, to 6,632. Germany’s Dax has lost 0.33%, France’s CAC is flat and Italy’s FTSE MiB has shed 0.66%.
Oil prices are still pushing higher after US crude stockpiles unexpectedly dropped last week, and as China, the world’s biggest oil importer, reported the smallest daily rise in new Covid-19 cases in more than two weeks. Brent crude is 55 cents ahead at $56.22 a barrel while US crude has gained 49 cents to $52.87.
German consumer confidence heading into February has declined for a fourth month and to the lowest level since June, according to the research institute GfK.
The main event today is the US Federal Reserve policy decision at 7pm GMT. We are not expecting any change –– the Fed is widely expected to maintain its ultra-loose policy stance with interest rates near zero, and $120bn of bond purchases each month and other liquidity boosting measures.
US tech giants Facebook and Apple and the electric carmaker Tesla will release fourth-quarter results after US markets close. Microsoft revealed last night that it had a blockbuster quarter, as working from home boosted demand for its PCs, cloud services and Xboxes. Sales surged 17% and profits jumped 33% to $15.5bn.
In the UK-EU vaccine wars, AstraZeneca boss Pascal Soriot has done a long interview with the Italian newspaper La Repubblica. He explained the “glitches” during vaccine production in Belgium which have led to lower supply in the EU, and dismissed suggestions that the UK is being unfairly prioritised for Covid-19 vaccine doses.
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It has emerged that Sir Philip Green’s retail empire Arcadia collapsed under the weight of a debt pile of £750m. This is according to reports drawn up by Deloitte, which was appointed as Arcadia’s administrator at the end of November, the Daily Telegraph reported. Topshop and Topman had gross liabilities of more than £550m.
Pandemic could delay Hinkley Point by 6 months
EDF Energy has said that the Covid-19 pandemic could delay construction of the Hinkley Point C nuclear reactor by six months and raise its costs to £23bn, reports our energy correspondent Jillian Ambrose.
The fresh delays are expected to add £500m to the cost of the UK’s first new nuclear power plant in a generation, and delay its first electricity generation to the summer of 2026.
Prior to the coronavirus outbreak Hinkley Point was expected to start up by the end of 2025, at a cost of between £21.5bn to £22.5bn. But EDF Energy warned that the pandemic had caused delays of three months last year, and was expected to lead to similar delays in 2021 too.
“Ten months after it began, we are still facing the full force of the pandemic,” Stuart Crooks, the managing director of Hinkley Point C, said in a video message to employees.
AstraZeneca CEO explains vaccine production 'glitches'
In the UK-EU vaccine wars, it is worth reading this long interview by AstraZeneca chief executive Pascal Soriot with Italian newspaper La Repubblica.
He explains in detail why the amount of vaccine produced by different sites may vary hugely, and that the UK ordered the Covid-19 vaccine (100m doses) from the drugmaker three months before the EU –- as we have also reported.
Essentially, we have cell cultures, big batches, 1000-litre or 2000-litre batches. We have cell cultures inside those batches and we inject them with the virus, the vaccine, if you will. Then those cells produce the vaccine, it’s a biotechnology protection.
Now, some of those batches have very high yield and others have low yield. Particularly in Europe, we had one site with large capacity that experienced yield issues. So it’s essentially a question of when you scale up to the level we are scaling up to - something like this that’s never been done. We are scaling up to hundreds of millions, billions of doses of vaccines at a very high speed.
Soriot has rejected calls to divert doses to the European Union following a breakdown in supply there, saying the UK will come first, in line with AstraZeneca’s contractual obligations.
The UK agreement was reached in June, three months before the European one.
As you could imagine, the UK government said the supply coming out of the UK supply chain would go for the UK first. Basically, that’s how it is.
The European commission did not deny claims on Tuesday that during heated talks EU officials had asked the Anglo-Swedish company to redirect doses made in the UK to make up for problems at a Belgian plant.
In a speech to the World Economic Forum on Tuesday, the president of the European commission, Ursula von der Leyen, made clear her anger at AstraZeneca’s approach, warning the EU “means business”.
The EU and others helped with money to build research capacities and production facilities. Europe invested billions to help develop the world’s first Covid-19 vaccines. To create a truly global common good. And now, the companies must deliver. They must honour their obligations.”
The commission is to release details of a new export register by the end of the week to oblige vaccine suppliers to notify it of exports – with the German government raising the spectre of a block on the movement of doses outside the EU.
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Zoopla: New UK property listings down 12%, house prices at 4-year high
Turning to the UK housing market... the latest Covid-19 surge has shaken the housing market, reducing the flow of new homes being listed for sale by 12% in the first few weeks of 2021, according to the latest data from the property website Zoopla.
The shortage of properties on the market is pushing up prices, with house price growth reaching near four year high at 4.3%.
Richard Donnell, research & insight director at Zoopla, says:
The housing market momentum built up in the second half of 2020 has rolled into early 2021, despite a spike in the pandemic and a third lockdown. Sellers are more cautious however and appear to be waiting for case numbers to drop much further before listing their home, or until we see a return to tier based restrictions.
“The strength of the market in 2020 has eroded the available number of homes for sale and this will mean continued upward pressure on house prices in the short term. The most affordable parts of the UK are recording the highest rate of price growth for 10 years up to 5.4% a year. We still expect house price growth to slow towards 1% by the end of the year.
Private rents in some of the UK’s biggest city centres have fallen by up to 12% in a year but have risen sharply in parts of northern England as some tenants swapped an urban life for the suburbs, smaller towns and villages, writes Rupert Jones.
Here’s a quick round-up of the main news overnight. The rating agency S&P has warned 13 oil and gas companies, including the some of the world’s biggest, that it may downgrade them within weeks because of increasing competition from renewable energy, writes my colleague Ben Butler in Australia.
On notice of a possible downgrade are Australia’s Woodside Petroleum as well as multinationals Chevron, Exxon Mobil, Imperial Oil, Royal Dutch Shell, Shell Energy North America, Canadian Natural Resources, ConocoPhillips and French group Total.
Gordon Brown has called for emergency measures to support businesses in the budget after new research from the London School of Economics warned almost 1m UK companies were at risk of failure in the next three months, writes our economics editor, Larry Elliott.
A sharp fall in cash machine usage last year has prompted a warning that more ATMs could end up being closed or imposing fees, writes Rupert Jones on our Money desk.
Analysts at Shore Capital, Darren Shirley and Clive Black, have looked at the sofa retailer ScC’s results.
At the start of the important winter trading period on Boxing Day, ScS was trading from 57 out of its total 100 stores, with a further 37 forced to closed on the 30th December; with all closed on the 4th January. The stores are reported to have traded strongly whilst open.
Online continues to partially compensate for store closures, increasing by 98% in the period, though most customers appear to want the tactile experience of a store visit ahead of purchasing furniture, and particularly floorings!
Despite this end of period decline, the news on the ScS’ order book is broadly encouraging, sitting at £90.5m on the 26th January (inc. VAT), which is £16.8m higher year-on-year.
Conversely, oil prices have climbed after industry data showed US crude stockpiles fell unexpectedly last week. And China, the world’s second-biggest oil user, has recorded its lowest daily rise in Covid-19 infections (75 new cases) in over a fortnight, sparking hopes that demand for oil will rise.
Brent crude, the global benchmark, has risen 30 cents to $56.25 a barrel, a 0.54% gain, while US crude gained 26 cents to $52.87 a barrel, up 0.49%.
Oil prices hit 11-month highs at the start of the year but the rally appears to have run out of steam. Economists at ING said:
Market participants are now in ‘wait and see’ mode, wanting to see how lockdowns evolve in the coming weeks and months, and how successful countries are in rolling out Covid-19 vaccines.
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And we’re off. Following a better day yesterday, European shares are sliding again.
- UK’s FTSE 100 down 38 points, or 0.6%, at 6,614
- Germany’s Dax down 0.3%
- France’s CAC down 0.2%
- Spain’s Ibex down 0.3%
- Italy’s FTSE MiB down 0.45%
There isn’t much corporate news here in London this morning, apart from ScS, the sofa retailer, reporting surging sales of sofas. My colleague Jo Partridge reports:
Sofa retailer ScS enjoyed surging sales over the last six months, as locked-down consumers opted to spend money on new furniture for their homes.
Gross sales at ScS rose by 13.9% over the 26 weeks to 23 January to reach £182.3m, compared with sales of £160m a year earlier.
However the company, one of the UK’s largest retailers of upholstered furniture and flooring, said it had seen a slump in new orders over the last month, as coronavirus restrictions once again forced its stores to close during its winter sale.
The retailer welcomed a significant increase in new orders in June and July 2020 following the first lockdown, as the majority of its customers chose to wait until stores reopened to try out the firm’s fabric and leather sofas in person before making the decision about which one to buy.
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Introduction: Focus on Fed and tech earnings
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Microsoft released stellar results last night as the Covid-19 pandemic sparked a boom in PC sales and video gaming and drove higher usage of the company’s cloud services. The Xbox and PC maker posted a 17% increase in revenues to $43.1bn between October and December, which beat forecasts. Profits jumped 33% to $15.5bn, sending Microsoft shares to a record high.
Today, Facebook, Tesla and Apple are due to release earnings after Wall Street closes.
Apart from the tech results, the main event is the US Federal Reserve’s policy decision at the end of its two-day meeting – the first in 2021. It is expected to leave policy unchanged and stick to its ultra-loose stance: i.e. near zero interest rates and $120bn of bond purchases every month and other liquidity relief measures to help the Covid-ravaged American economy.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:
And there will certainly be no hint of a policy tightening, or tapering in the foreseeable future, given that the health crisis has not been losing speed with the mutation of the virus and delay in vaccine distributions across the globe. It appears that Joe Biden has been too optimistic about getting anyone who wants vaccinated by the end of spring. It is now said that end-of-summer is a more realistic target, if all goes well with the production and the distribution of doses.
Speaking of that, the unconsidered scarcity in vaccine doses may turn the trade tensions between the US and Europe that emerged under Trump administration into a vaccine war, as Germany now threatens to retaliate over the US trade restrictions by limiting AstraZeneca’s vaccine exports. No one saw that coming.
As such, the latest developments around the vaccine are bad enough to keep the Fed doves in charge.
Consumer confidence in Germany has fallen for a fourth month heading into February, not surprising given that the country is in another coronavirus lockdown. Chancellor Angela Merkel and state leaders agreed last week to extend the lockdown until mid-February.
The GfK research institute said its consumer sentiment index, based on a poll of 2,000 Germans, fell to -15.6 points from a revised -7.5 in January. It is the lowest reading since June. GfK researcher Rolf Bürkl said confidence was likely to remain muted into March.
Asian markets are mostly higher after a choppy session, with Japan’s Nikkei closing 0.31% higher while Hong Kong’s Hang Seng slipped 0.1% and the Australian stock market fell 0.72%. We are expecting a mixed open for European markets.
The World Economic Forum’s annual meeting – digital Davos – continues today. This afternoon there are a series of sessions devoted to discussing net zero and climate change, including one with the former Bank of England governor Mark Carney, now a UN special envoy for climate and finance, and Al Gore, the former US vice president and environmentalist. Carney has also joined the Canadian fund manager Brookfield Asset Management to spearhead environmental and social investing.
WEF sessions:
- 1pm GMT: on Net Zero with Mark Carney and Al Gore
- 3pm GMT: on Climate change with Alok Sharma, president for COP 26, and Shell CEO Ben van Beurden
- 5pm GMT: on Net Zero aviation with UK transport secretary Grant Shapps
- 6pm GMT: Carbon markets with Bill Gates, Mark Carney and Standard Chartered CEO Bill Winters
The Agenda
- 1:30pm GMT: IMF Global Financial Stability Report
- 1:30pm GMT: US Durable goods orders for December (forecast: 0.9%)
- 7:00pm GMT: US Federal Reserve interest rate decision
- 7:30pm GMT: Fed Press conference
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