Pound highest since August on hopes of slower US rate hikes – business live | Business

Introduction: Pound rallies on hopes of more dovish FedGood morning, and welcome to our rolling coverage of business, the financial markets and the world economy.After a rough year against the US dollar, the pound is ending 2022 with a late spurt.Sterling has hit $1.21 this morning, for the first time since mid-August, lifted by hopes that America’s central bank might slow the pace of its interest rate rises soon.The pound has now clawed back almost 20 cents since hitting its record low in September after the mayhem caused by the now-ditched mini-budget.It has strengthened today, on the news that a “substantial majority” of Federal Reserve officials want to slow the pace of interest rate rises soon.A stronger pound could help cool the UK’s inflation crisis, as it’ll make imported goods like fuel and energy less expensive – although sterling is still down 10% against the dollar this year.The pound vs the US dollar over the last year Photograph: RefinitivMinutes from the Fed’s November meeting, where it hiked its benchmark rate by 75-basis points for the fourth time in a row, suggest that many officials could push for a smaller rise of 0.5 percentage points in December.The Fed has already raised their target rate to to 3.75%-4%, up from 0%-0.25% at he start of the year, as it tried to stamp out elevated inflation. Consumer price inflation has now slowed, and is expected to keep dropping.So with the global economy weakening, officials are wondering whether they can be less aggressive now.As the minutes put it:“A slower pace in these circumstances would better allow the committee to assess progress toward its goals of maximum employment and price stability.Government bonds have also strengthened in recent weeks, as the tough spending cuts and tax rises outlined by chancellor Jeremy Hunt reassured the markets.Sterling and gilts build head of steam – pound hits highest since August vs $ and 3-week high vs euro; 10 and 30-year gilt yields slide to lowest since early Sept pic.twitter.com/1WLXbx1WiB— Mike Dolan (@reutersMikeD) November 23, 2022
The Bank of England is expected to raise its own interest rates by another 50 basis points in December too, from 3% to 3.5%.And a surge in people quitting the British workforce because of ill health or early retirement could force the BoE to further increase interest rates.Chief economist Huw Pill warned last night that the departure of more than half a million workers from the jobs market since the Covid pandemic risked stoking inflationary pressures, long after the shock from sky-high energy prices is likely to fade.But with the UK falling into recession, it may be hard for the pound to climb much higher.Marios Hadjikyriacos, senior investment analyst at XM, says:The latest business surveys suggest the UK economy is already in recession, on pace to contract 0.4% this quarter, which will likely deepen further considering the sharp drop in forward-looking indicators such as new orders.
With the economy rolling over just as the government tightens its belt, it’s difficult to be optimistic on the pound, especially considering its close links to global risk sentiment.The UK central bank may move the pound later, as it holds its Bank of England Watchers’ Conference. Deputy governor Dave Ramsden, chief economist Huw Pill and external MPC maker Catherine Mann are all due to speak.We also get the latest healthcheck on UK factories, and Germany’s business climate, plus results from DIY chain Kingfisher.The agenda
9am GMT: German IFO business climate index for November
9.30am GMT: Latest weekly UK economic activity and social change data
9.45am GMT: BoE deputy governor Dave Ramsden speaks at the Bank of England Watchers’ Conference
11am GMT: CBI industrial trends for November
12.30pm GMT: ECB monetary policy meeting accounts
Updated at 08.05 GMTKey eventsFilters BETAKey events (8)UK (4)US (3)Federal Reserve (3)”Hope is back” as German business morale improvesGerman business morale has improved this month, in a sign that the slump in confidence in Europe’s largest economy may be ending.The IFO Institute’s business climate index, just released, has risen to 86.3, up from 84.5 in October. Although that’s a low level, it shows the outlook has improved.The improved outlook follows unexpected economic growth in the third quarter, with Germany having filled its gas storage tanks to help it through the winter.Carsten Brzeski, ING’s global head of macro, says the data adds to recent glimmers of hope that the German economy might avoid a winter recession.These hopes are built on the back of several government stimulus packages, filled national gas reserves, a better and faster adaption of businesses and households to reduce gas consumption, and hopes that consumers will simply spend away the energy crisis.But there are still several downsides hitting the economy, Brzeski adds:New orders have dropped since February and inventories have started to increase again, a combination that never bodes well for future industrial production.
Despite some relief in global supply chain frictions, early leading indicators from Taiwan and Korea point to a weakening of global trade in the winter. High energy prices are gradually being passed through to consumers, therefore gradually weighing on private consumption.Updated at 09.47 GMTStocks subdued as oil dipsIn the City, stocks have opened cautiously with Wall Street closed for Thanksgiving.The blue-chip FTSE 100 index is flat, while the pan-European Stoxx 600 index is 0.2% higher.Victoria Scholar, head of investment, interactive investor says: “On a quieter than normal day because of the Thanksgiving holiday stateside, European markets have opened tentatively higher except for the FTSE 100, which is trading softer. Vodafone has sunk to the bottom of the UK index after Credit Suisse downgraded the stock to underperform.The oil price has weakened, with Brent crude down half a dollar at $84.86 after China recorded record high Covid infections. Scholar explains:“Oil prices are trading lower after the G7 proposed a price cap on Russian oil that is higher than current market prices, helping to ease concerns about restrictive supply in the market.
Plus, China’s Covid infections hit a record high, also pushing oil prices lower amid expectations of softening demand from the world’s second largest economy. China continues to pursue its aggressive zero tolerance to covid approach, creating a severe headwind for its economic outlook.
To offset this, there are growing expectations that its central bank could cut the reserve requirement ratio (RRR) soon. Lecturers, teachers and Royal Mail staff on strike todayThe UK’s autumn wave of strike action is turning into a winter of discontent.Royal Mail workers, university lecturers and teachers are walking out on strike today, as workers continue to seek better pay deals to protect them from soaring inflation.Picket lines are being mounted outside postal delivery and sorting offices, universities and schools as unions edge closer to co-ordinated industrial action, in one of the biggest walkouts of the year.Around 70,000 members of the University and College Union (UCU) will strike on Thursday and Friday, and again on Wednesday November 30, in a dispute over pay, pensions and contracts.Up to 2.5 million students could face disruption, in what has been billed as the biggest strike in the history of UK higher education. Unions have warned of escalated action in the new year if the row is not resolved.Lecturers and other academic staff have suffered a decade of below-inflation pay rises, with a 3% increase announced in the summer.UCU general secretary Jo Grady said:“University staff are taking the biggest strike action in the history of higher education. They have had enough of falling pay, pension cuts and gig economy working conditions – all whilst vice-chancellors enjoy lottery-win salaries and live it up in their grace and favour mansions.
“Staff are burnt out, but they are fighting back and they will bring the whole sector to a standstill.
“Vice-chancellors only have themselves to blame. Their woeful leadership has led to the biggest vote for strike action ever in our sector.
“Students are standing with staff because they know this can’t go on, and they know that a sector which generates tens of billions of pounds each year from tuition fees can afford to treat its staff fairly.
“Further disruption can be avoided if the concerns of staff are addressed with urgency. But the overpaid vice-chancellors killing our sector should be under no illusion – 70,000 dedicated university workers are ready to take even bigger action in the new year.”Yesterday, unions rejected a pay offer from Royal Mail. As well as striking today and on Friday, they also plan to walk out on 9, 11, 14, 15 and 23 December and on Christmas Eve.Dr Marten’s profit margins booted by strong dollarA pair of Dr Martens classic design boot Photograph: Bailey-Cooper Photography/Stockimo/AlamyBootmaker Dr Martens has been hit by the strength of the dollar this year.Shares in Dr Martens have plunged by over 16% in early trading, after it became the latest retailer to warn that profitability is under pressure.It blamed weaker-than-expected demand – with ‘direct to consumers’ sales growth slower than expected – and the strength of the US dollar this year, as well as continued investments.With the key Christmas trading period ahead, the group now expects core earnings margins for the full year to be between 100 basis points and 250 basis points lower than last year. Revenues in the last six months rose 13%, but pre-tax profits fell 5%.Russell Pointon, director at Edison Group, says:In spite of the economic headwinds plaguing the retail sector, including rising inflation and the cost-of-living crisis, Dr Martens is maintaining its high teens revenue growth for the remainder of the year, however management now expects the EBITDA margin to be 1-2.5 margin points below the prior year given the strength of the US Dollar.Updated at 08.56 GMTHornby hopes for better Christmas Photograph: Stuart Hall/AlamyModel railway maker Hornby has reported that shipping costs have dropped – a sign that supply chain tensions are easing as the economy slows.Last year, Hornby had a bleak Christmas – supply chain problems meant that products only arrived after the Christmas trading period.Lyndon Davies, Hornby executive chairman, says the company is in a stronger position this year.The situation has now greatly eased and shipments from our factories are 40% ahead of last year.
We are still suffering with late departure dates, however, as the shipping industry trims capacity by cancelling sailings. Despite this, although costs are not back to pre-Covid levels, container rates continue to fall.
We have also mitigated potential supply disruptions this Christmas by bringing forward the shipping dates on key product lines, which are already available in our warehouse.Hornby could use a good Christmas. It made a pre-tax loss of £2.9m in the six months to 30 Setpember, compared with a £700,000 loss a year earlier, leaving it with net debt of almost £5m. Photograph: fotorauschen/AlamyHome improvement retailer Kingfisher has seen a surge in demand for energy efficient products, as households try to curb their use of gas and electricity.CEO Thierry Garnier told the City:While the market backdrop remains challenging, DIY sales continue to be supported by new industry trends such as more working from home and a clear step-up in customer investment in energy saving and efficiency. DIFM and trade activity also continues to be well supported by robust pipelines for home improvement work.Kingfisher, which owns the B&Q, Screwfix, TradePoint and Castorama Poland chains, grew like-for-like sales by 0.2% in the last quarter, putting them 15% higher than before the pandemic.Customers have been snapping up items such as smart thermostats, and home insulation.Updated at 08.41 GMTCost of supporting households with energy bills to jumpThe price that the UK government will have to pay to support households with their energy bills is set to increase from January.Regulator Ofgem has lifted its energy price cap, which would have meant households faced average bills of £4,279 from the start of 2023, up from £3,549.However, the government’s support package means average bills will be £2,500 from last month, and rise to £3,000 from April (although there is no cap on the actual bill you could pay).That means winter energy bills support will cost taxpayers around £1,800 per household.Here’s the full story:Updated at 08.34 GMTWeak data = good news for markets.Markets rallied over the last 24 hours, due to weak economic data and the latest Federal Reserve minutes.Investors are dialling back the amount of rate hikes they’re expecting from the Fed over the months ahead, which is good for risk assets – and lifting the pound.As Jim Reid of Deutsche Bank explains, bad news is good news (even if that bad news includes a likely recession).It may seem paradoxical that weak data is being treated as good news by markets, but in large part it’s because the focus is now so heavily on above-target inflation, which has prompted the most aggressive cycle of rate hikes in decades. So signs of slower growth are seen as bringing fewer inflation pressures and hence fewer rate hikes.
On top of that, since a US and Eurozone recession is now the consensus expectation among economists (and leading indicators are increasingly pointing that way too), contractionary data isn’t as likely to be as surprising to markets as it normally is.Updated at 08.04 GMTThe weaker dollar is also pushing up commodity prices, including gold.The gold price has risen to $1,755 per ounce, towards the three-month highs set earlier this month.Tai Wong, a senior trader at Heraeus Precious Metals in New York, says last night’s minutes from the Federal Reserve had cheered markets:“Gold traded higher in a relief rally after the Fed minutes contained no hawkish surprises, and just about confirmed the pace of hikes would drop to 50 bps in December.
“The financial markets are convinced the Fed is overtightening so it is dovishly interpreting the minutes which contains no real surprises given Fed commentary the past two weeks.”Introduction: Pound rallies on hopes of more dovish FedGood morning, and welcome to our rolling coverage of business, the financial markets and the world economy.After a rough year against the US dollar, the pound is ending 2022 with a late spurt.Sterling has hit $1.21 this morning, for the first time since mid-August, lifted by hopes that America’s central bank might slow the pace of its interest rate rises soon.The pound has now clawed back almost 20 cents since hitting its record low in September after the mayhem caused by the now-ditched mini-budget.It has strengthened today, on the news that a “substantial majority” of Federal Reserve officials want to slow the pace of interest rate rises soon.A stronger pound could help cool the UK’s inflation crisis, as it’ll make imported goods like fuel and energy less expensive – although sterling is still down 10% against the dollar this year.The pound vs the US dollar over the last year Photograph: RefinitivMinutes from the Fed’s November meeting, where it hiked its benchmark rate by 75-basis points for the fourth time in a row, suggest that many officials could push for a smaller rise of 0.5 percentage points in December.The Fed has already raised their target rate to to 3.75%-4%, up from 0%-0.25% at he start of the year, as it tried to stamp out elevated inflation. Consumer price inflation has now slowed, and is expected to keep dropping.So with the global economy weakening, officials are wondering whether they can be less aggressive now.As the minutes put it:“A slower pace in these circumstances would better allow the committee to assess progress toward its goals of maximum employment and price stability.Government bonds have also strengthened in recent weeks, as the tough spending cuts and tax rises outlined by chancellor Jeremy Hunt reassured the markets.Sterling and gilts build head of steam – pound hits highest since August vs $ and 3-week high vs euro; 10 and 30-year gilt yields slide to lowest since early Sept pic.twitter.com/1WLXbx1WiB— Mike Dolan (@reutersMikeD) November 23, 2022
The Bank of England is expected to raise its own interest rates by another 50 basis points in December too, from 3% to 3.5%.And a surge in people quitting the British workforce because of ill health or early retirement could force the BoE to further increase interest rates.Chief economist Huw Pill warned last night that the departure of more than half a million workers from the jobs market since the Covid pandemic risked stoking inflationary pressures, long after the shock from sky-high energy prices is likely to fade.But with the UK falling into recession, it may be hard for the pound to climb much higher.Marios Hadjikyriacos, senior investment analyst at XM, says:The latest business surveys suggest the UK economy is already in recession, on pace to contract 0.4% this quarter, which will likely deepen further considering the sharp drop in forward-looking indicators such as new orders.
With the economy rolling over just as the government tightens its belt, it’s difficult to be optimistic on the pound, especially considering its close links to global risk sentiment.The UK central bank may move the pound later, as it holds its Bank of England Watchers’ Conference. Deputy governor Dave Ramsden, chief economist Huw Pill and external MPC maker Catherine Mann are all due to speak.We also get the latest healthcheck on UK factories, and Germany’s business climate, plus results from DIY chain Kingfisher.The agenda
9am GMT: German IFO business climate index for November
9.30am GMT: Latest weekly UK economic activity and social change data
9.45am GMT: BoE deputy governor Dave Ramsden speaks at the Bank of England Watchers’ Conference
11am GMT: CBI industrial trends for November
12.30pm GMT: ECB monetary policy meeting accounts
Updated at 08.05 GMT