3.39pm GMT
Wall Street drops The US stock market has dropped, as the selloff in tech stocks yesterday continues to weigh on equities.
The S&P 500 index of US listed companies took an early hit, and is currently down 14 points, or 0.4%, at 4,468 points, taking its losses so far this year over 6%.
Netflix is the top faller, tumbling by 25% after shocking Wall Street by predicting that new subscriber growth will fall to its lowest in over a decade this quarter.
Walt Disney , which runs rival streaming service Disney+, has dropped by over 6%
Related: Netflix’s market value tumbles as it predicts subscriber slowdown
The Nasdaq Composite index sunk deeper into correction territory, down 1.4% at one stage, but it’s now off 0.5%.
Communications, energy and materials are the worst-performing sectors, while consumer staple goods and real estate are higher.
3.24pm GMT
Bank of England’s Mann: we must lean against rising price pressures The Bank of England must lean against inflation pressures and stop expectations of higher price growth from getting entrenched, policymaker Catherine Mann says.
In her first speech as a member of the Monetary Policy Committee, Mann argues that monetary policy needs to ‘temper’ expectations for wage and price increases.
That would prevent them from being embedded in the decision-making of firms and consumers, creating a dangerous wage-price spiral, she says.
The Bank’s regular survey of chief financial officers shows that current price and wage expectations are inconsistent with the UK’s 2% inflation target, she says.If realized in 2022 are likely to keep inflation strong for longer [it is already 5.4%, a three-decade high].
Mann explains that last month’s interest rate rise was part of that process of managing medium-term wage and pricing decisions, saying:
I know that here has been a lot of talk already about the cost-of-living squeeze.And to be clear, it is not my goal to make this worse than it already is – to the contrary, I aim to bring inflation back down to target such that workers can enjoy real wage gains from their labor.
The small Bank Rate rise that I voted for in December was to act on the commitment to the 2% target so as to influence the 2022 strategic decisions that workers, businesses, and asset holders are now making.Changing expectations is the first defence against a reinforcing wage-price dynamic.
The Bank’s monetary policy committee is widely expected to raise interest rates again when it meets early next month.
2.58pm GMT
1.59pm GMT
IMF chief says Fed rate hike could dampen global recovery The head of the International Monetary Fund has warned that interest rate hikes by the Federal Reserve could “throw cold water” on already weak economic recoveries in certain countries.
Speaking on a panel at the Davos Agenda, IMF managing director Kristalina Georgieva warned that the recovery is “losing some momentum.”
Rises in US rates could have significant implications for countries with higher levels of dollar-denominated debt, she explained, meaning it is “hugely important” that the Fed clearly communicates its policy plans to prevent surprises.
The losses across most equity markets in January been driven by concerns that the Fed would hike rates in 2022, probably starting in March, and possible four times before the year is out.
CNBC has the details:
On a panel moderated by CNBC’s Geoff Cutmore, Georgieva said the IMF’s message to countries with high levels of dollar-denominated debt was: “Act now.If you can extend maturities, please do it.If you have currency mismatches, now is the moment to address them.”
The IMF expects the global economic recovery to continue, Georgieva said, but stressed that it was “losing some momentum.”
Updated at 2.30pm GMT
1.38pm GMT
The owner of restaurant chains including Wagamama and Frankie & Benny’s expects full-year profits to hit the top end of its forecast despite a dramatic slowdown in sales last month because of the impact of the spread of the Omicron variant .
The Restaurant Group (TRG), which owns 650 restaurants and pubs and operates 70 concessions mostly in airports, expects adjusted profits for 2021 to be at the top end of its £73m to £79m guidance to investors.
It welcomed the government’s decision to lift plan B restrictions but warned that consumer confidence might take longer to recover.
The company said its performance had been achieved through good cost control and strong trading, with sales at its Wagamama chain up 11% in October and 8% in November compared with pre-pandemic levels.
However, TRG, which owns brands including Garfunkel’s, the Tex-Mex chain Chiquito, Brunning & Price and Coast to Coast, said that sales slowed to only 1% growth in December as Omicron hit.
Related: Wagamama owner TRG expects to rise above the Omicron effect
1.11pm GMT
Peloton is considering workforce cuts and production changes as investors hammered its share price after a report said it was considering halting the manufacture of its exercise bikes because of a slump in demand.
The company’s chief executive, John Foley, said a report by CNBC claiming that it plans to temporarily halt production of its exercise bike and treadmill products was “incomplete, out of context, and not reflective of Peloton’s strategy”.
However, Foley said in the message to Peloton’s 3,200 staff that the company needed to “evaluate” the size of its workforce and indicated that production curbs are on the way as he referred to “resetting” manufacturing.
Related: Peloton hints at cuts after report on fall in demand for exercise bikes
12.42pm GMT
Full story: Retail sales in Great Britain fall as Omicron keeps shoppers away Spending by consumers in Great Britain dropped by almost 4% in December as the arrival of the Omicron variant kept people away from the shops, official figures show .
In a key month for retailers, sales volumes dropped by 3.7% in an across-the-board slump that included food, clothing and footwear, household goods and department stores.
Retailers had seen some Christmas spending brought forward to November when a 1% monthly rise was helped by Black Friday bargains.
Even so, the December fall was much sharper than the 0.6% drop forecast by the financial markets.
Bethany Beckett, a UK analyst at Capital Economics, said:
“The huge 3.7% month-on-month fall in retail sales in December was much bigger than we and the consensus had expected and supports our view that the surge in Omicron Covid-19 cases in the run-up to Christmas may have dragged down GDP by 0.5% month on month, if not more.”
Beckett added that the 4.7% monthly drop in fuel sales was consistent with people staying at home rather than risking a trip to the high street.
Related: Retail sales in Great Britain fall as Omicron keeps shoppers away
11.03am GMT
The UK’s business secretary has urged workers to return to the office, as restrictions brought in to slow Omicron are lifted.
Kwasi Kwarteng told LBC radio that it’s important to return to “some degree of normality,” as the UK tries to live with Covid-19.
Kwarteng said:
“People working in the office do get benefits from working with colleagues, being able to interact directly with them and I want to get back to a sense that, you know, that the pandemic is turning from a pandemic into an endemic.
“It’s something we have to live with.
And if we are going to live with it, I think the sooner we get back to the pre-Covid world the better in terms of workplace practices.
Kwarteng was also grilled about how many of his own department’s staff were back at their desks.Somewhat awkwardly, he didn’t have a precise answer ….
“I would say it’s nearly 50 per cent, but it’s going to increase over the next few days and weeks.
10.20am GMT
Bitcoin has fallen to its lowest level since early August.
The world’s largest cryptocurrency has dropped over 5% today below $39,000, its lowest level in five months, meaning it has tumbled by over 40% from November’s record highs.
Pessimism about riskier assets is hitting crypto, as is yesterday’s news that Russia’s central bank has proposed outlawing all cryptocurrency operations in the country.
John Hardy of Saxo Bank explains:
Bitcoin and Ethereum took a big hit overnight as most of the major cryptocurrencies declined by 8-10%, the night after the Russian central bank’s proposal for a ban on the use and mining of cryptocurrencies on Russian territory.
Russia is among the top three of the biggest global miners of bitcoin.
10.13am GMT
Scott Morrison has taken aim at China for “economic coercion”, foreign interference and cyber attacks in a speech to the Davos World Economic Forum.
Without naming the source of “sharper geopolitical competition”, the Australian prime minister warned of increasing territorial disputes in the Indo-Pacific region and urged an end to protectionist measures directed at Australia.
Australia has been the target of Chinese tariffs on key agricultural exports, such as barley and wheat , due to a long series of grievances including “interference in China’s Xinjiang, Hong Kong and Taiwan affairs” and “spearheading the crusade against China in certain multilateral forums”.
Morrison told the forum that the global strategic environment had “deteriorated” with the world becoming more “fragmented and contested particularly here in the Indo-Pacific which has become the world’s strategic centre of gravity”.
Related: Morrison speaks out against China’s ‘economic coercion’ at Davos
10.02am GMT
Despite today’s falls, the FTSE 100 index is still up almost 2% so far this year, while the US S&P 500 has shed 6% during 2022.
The great flow of capital into US assets (fuelling what Jeremy Grantham sees as a superbubble) has been knocked, partly by expectations of several US interest rate rises this year:
Reuters says:
“In the last two, three years, whether it was stocks, bonds, currencies, you had constant flows into the United States while great uncertainty built and it was the epicentre of the excess liquidity being created.And we’re just turning the movie backwards,” said Mike Kelly global head of multi asset at PineBridge.
He added that while the economy could handle rate hikes, markets might not and they needed to realise “the Fed is no longer your friend”.
9.41am GMT
US market in “super bubble”, warns Grantham Jeremy Grantham, the veteran investment guru, has warned that the US stock market is in a ‘superbubble’, and there would be a historic collapse in stocks as it unwinds.
Grantham argued that the US stock market is in the fourth superbubble of the last hundred years, alongside the great crash of 1929, the dot-com bubble that burst in 2000, and the housing bubble of 2006 that led to the 2008 financial crisis.
In a research note published yesterday, called ‘Let the wild rumpus begin’, Grantham outlined that the current market is showing the same distinct features as those earlier ‘superbubbles’.
Grantham, the co-founder of Boston asset manager GMO , says those features include:
A speculative investor frenzy that generated stories for distant decades, which we have had for well over a year; A penultimate blow-off phase where stock gains accelerate, as we had in 2020; And the ultimate narrowing phase – unique to these few superbubbles – where a decreasing number of very large blue chips go up as riskier and more speculative stocks underperform or even decline, as they did in 1929 and 2000 and as they have done since February 2021.All previous large bubbles have deflated back to their trend levels, Grantham explains.This time, this would mean the S&P 500 index plunging around 45%, back to its trend value of about 2500 points.
Grantham explains:
The bottom line is that in general the bubbles in multiple assets, not just equities, have continued to inflate and therefore the potential pain from a break has increased.
As usually happens, the equity bubble begins to deflate from the riskiest end of the market first – as it has been doing since last February.So, good luck! We’ll all need it.
Grantham is particularly concerned that there are multiple bubbles underway – in real real estate, the US stock market and in bonds, as well as above-trend commodity prices.
What is new this time, and only comparable to Japan in the 1980s, is the extraordinary danger of adding several bubbles together, as we see today with three and a half major asset classes bubbling simultaneously for the first time in history.
When pessimism returns to markets, we face the largest potential markdown of perceived wealth in U.S.
history.
He also cites the growth of meme stocks, and ‘joke’ crypto currency Dogecoin as examples of speculative madness:
The meme stock madness of GME and AMC – two companies in declining industries further decimated by Covid-19 – that managed to rally 120x and 38x, respectively, from their post-pandemic lows to their 2021 highs, driven by message board sentiment, taking GME briefly to 20% of the entire Russell 2000; The dogecoin phase, in which a cryptocurrency conceived as a parody of the crypto craze went up nearly 300x, to a market cap of $90 billion because Elon Musk kept joking about it; and La pièce de résistance: after Hertz (one of 2020’s meme stock stars) saw a quick stock surge from announcing it would purchase a fleet of Teslas, Avis rather plaintively said something like, “Hey dudes, we might buy electric cars too,” and tripled in a day! Grantham warned a year ago that the bull market had matured into an epic bubble.Stocks went on to rally strongly through 2021, led by the US market.
Related: FTSE 100 surges as City guru warns of stock market bubble risk
A year on, Grantham says that bubble advanced to the category of superbubble, one of only three in modern times in U.S.equities, and the potential pain has increased accordingly.
Updated at 9.57am GMT
8.48am GMT
FTSE 100 drops 1% as ‘shockwaves’ hit markets The UK stock market has fallen over 1% at the start of trading, as global equities are hit by weak economic data and concerns over looming interest rate rises.
The blue-chip FTSE 100 index has dropped by 85 points to around 7500 points, the lowest in over a week.
Mining stocks being pulled down by growth concerns after a late slide on Wall Street last night.
Technology-focused investment trust Scottish Mortgage has dropped over 4%, after US tech stocks fell yesterday – even before Netflix missed subscriber forecasts .
Investors are concerned that the US Federal Reserve could hike interest rates several times this year to bring inflation under control, even though Omicron appears to have slowed the recovery from the pandemic.
European markets are all lower, with the pan-European Stoxx 600 index shedding 1.5%.
Victoria Scholar, head of investment at i nteractive investor , explains:
“ Risk-off sentiment and a sell-off on Wall Street are sending shockwaves across global markets with main European bourses shedding more than 1% each on the final trading session of the week.
The FTSE 100 is flirting with critical support at 7,500 with a break below potentially paving the way for further declines.Just a handful of stocks in the UK basket are trading in the green while the miners such as BHP Group, Rio Tinto and Anglo American languish at the bottom.”
Updated at 8.48am GMT
8.46am GMT
Related: Netflix’s market value tumbles as it predicts subscriber slowdown
8.25am GMT
ING: UK retail “shocker” unlikely to throw the Bank of England off course December’s retail sales ‘shocker’ won’t stop the Bank of England raising interest rates next month, predicts ING’s Developed Markets Economist James Smith .
Smith points out that retail sales were strong in the autumn (probably becaus e some people started their Christmas shopping early ).
“The latest UK retail sales figures for December don’t make for pleasant viewing.Sales fell by almost 4% compared to November, even after fuel sales are excluded (which themselves declined due to increased work-from-home).
“But as is often true with the retail data, some perspective is required.Some of this fall is undoubtedly linked to Omicron, given footfall appeared to have been a little lower in the run-up to Christmas.
But a lot of this also looks like a pullback after an unusually strong November and Black Friday.Strong October sales also hinted that consumers did more of their Christmas shopping early relative to past years, given news reports of possible shortages, though this is admittedly harder to prove.
So, an interest rate rise (from 0.25% to 0.5%) in February seems likely, Smith adds:
All in, these latest figures are unlikely to move the needle much for the Bank of England, which looks poised to hike rates again in February.But prospects for a more gradual consumer story are another reason to suspect subsequent rate rises will be more gradual.We expect two rate hikes this year.”
8.21am GMT
The recovery is slowing sharply, warns former Bank of England policymaker Andrew Sentance:
8.18am GMT
Retail sales show impact of inflation Today’s retail sales report also shows the impact of inflation on household budgets.
While sales volumes tumbled by 3.7% in December, consumers only spent 3.1% less than in November.
On an annual basis, people bought 0.9% less stuff than in December 2020, but actually spent 5.7% more than a year before, demonstrating the impact of inflation on consumers.
Oliver Vernon-Harcourt, head of retail at Deloitte , says retailers will be disappointed by December’s sales figures.
Rising inflation will weigh on retail spending this year, he adds:
“ Continued rising inflation will put pressure on both consumer spending and confidence over the coming months.Rising household costs will also prompt some consumers to tighten purse strings, at a time when 72% of UK consumers are already concerned that prices for everyday purchases will go up.
Despite the adaptability shown by the industry throughout the pandemic, retailers will have to navigate not only inflation headwinds, but also manage continued supply chain disruptions and staff shortages.”
8.05am GMT
7.49am GMT
Unhappy Christmas suggests economy shrank in December The huge 3.7% m/m fall in retail sales in December was much bigger than economists expected.
It strongly suggests the UK economy shrank last month, amid the surge in Omicron cases and Plan B restrictions, just after reaching its pre-pandemic levels again in November .
Bethany Beckett of Capital Economics says GDP could have fallen by 0.5% during December, during “a very unhappy Christmas for retailers”.
With encouraging signs that the Omicron outbreak may have turned a corner and the government’s ‘Plan B’ restrictions due to be lifted next week, retail sales may recoup a bit of this fall in January and probably all of it in February and March.
That said, with the UK’s cost of living crisis looming, we expect a weakening in the consumer recovery to dampen retail sales further ahead.For the Bank of England, though, it’s about high inflation not weak activity.
So we still think that interest rates will be raised to 0.50% in early February.
Suren Thiru , head of economics at the British Chambers of Commerce, agrees that there could have been a ‘modest fall’ in GDP last month.
7.40am GMT
Non-food store sales fell 7.1% This chart shows how ‘non-food stores’ across Britain saw a sharp drop in sales, down 7.1% on average:
They’re still 2.3% below their pre-coronavirus levels, while overall retail sales are 2.6% higher than in February 2020.
Updated at 7.46am GMT
7.40am GMT
The 3.7% drop in retail sales volumes in December 2021 is the largest monthly fall since January 2021 (when they fell 8.3% during last year’s lockdown).
7.25am GMT
Retail sales fell ‘across the board’ last month after a strong November, says Heather Bovill, the ONS Deputy Director for Surveys and Economic Indicators:
7.20am GMT
Retail sales in Great Britain fell 3.7% in December Jus t in: Retail sales in Great Britain tumbled last month as the introduction of Covid-19 restrictions hit spending over the crucial Christmas period.
Retail sales volumes fell by 3.7% in December 2021, the Office for National Statistics reports.
Spending fell as shoppers kept away from high streets and shopping centres following the discovery of the Omicron variant, and following a rise in November as some people finished their Christmas shopping early.
Sales at non-food stores, such as department stores, clothes outlets and household goods sellers were hit hard, the ONS says:
Clothing stores and department stores reported a fall of 8.0% and 6.3% over the month and were 7.2% and 10.6% below levels in February 2020.
The volume of household goods stores sales fell by 3.2% in December and were 1.4% below their levels in February 2020.
Some retailers said the the Omicron variant, which increased rapidly during December, had hit shopper visits, the ONS reports.
Sales of petrol and diesel fell by 4.7%, as people were asked to work from home if they could.
Food store sales volumes fell by 1.0% in December 2021; but despite that drop, volumes were 2.0% above levels in February 2020, as people shunned hospitality venues and spent more time at home.
Updated at 8.26am GMT
7.19am GMT
Introduction: Consumer confidence hit by cost of living crisis Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
UK consumer confidence has slumped to its lowest level in almost a year, as people grow more fearful of inflation, fuel bills and interest rate rises.
A closely watched gauge of consumer sentiment, from research company GfK, fell by four points to minus 19 in January, the weakest since last February during the last lockdown.
People are less optimistic about their own financial position, and the wider economic climate, due to rising bills and likely interest rate rises.
Joe Staton , Client Strategy Director, GfK warns that the squeeze will last for months.
“The UK’s financial pulse weakened further this January driven by concerns over personal finances and the general economic situation.
“All five measures are down in January and the picture on the economy is especially bad with an eight-point decrease in how we see the past year and the year to come.Despite some good news about the easing of Covid restrictions, consumers are clearly bracing themselves for surging inflation, rising fuel bills and the prospect of interest rate rises.
“The four-point fall in the major purchase index certainly suggests people are ready to tighten their belts.Will the mood brighten when the latest wave of the pandemic subsides and Covid numbers improve? It seems unlikely because it’s the cost-of-living squeeze that’s worrying us now and this will affect us for months to come.”
Also coming up today Stock markets are edgy, after Netflix warned last night that its subscriber growth would slow substantially in the current quarter.This downbeat forecast sent its share plunging 20% in afterhours trading:
European markets are set to fall by between 1% and 2%:
Bank of England policymaker Catherine Mann will give a speech on inflation, while the final day of ‘virtual Davos’ will hear from Australia’s PM Scott Morrison, ECB chief Christine Lagarde, IMF chief Kristalina Georgieva, and US treasury secretary Janet Yellen.
The agenda World Economic Forum’s Davos Agenda 7am GMT: UK retail sales for December 1pm GMT: Bank of England policy maker Catherine L Mann gives a speech ‘On returning inflation back to target’ 3pm GMT: Eurozone consumer confidence Updated at 7.32am GMT
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