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Pound Retreats as Caution Sweeps Global Markets: City Latest - BLOOMBERG

JANUARY 25, 2023

(Bloomberg) -- 4:06 p.m. We’ll wrap up City Latest for today, thanks for tuning in. Come back tomorrow, when we’ll bring you more news and analysis vital to UK markets. Have a good evening. 

3:35 p.m. We’re heading for the close now and the pound has launched a late rally, and is making a break for $1.24. Gilts remain higher, while the FTSE 100 is set for another drop.

But the topic of today’s Spotlight Move is a group of stocks which have had a good day, and are enjoying a great year. Boosted by EasyJet’s earnings today, the FTSE All-Share Travel and Leisure Index is on its way to the best month since late 2020 amid hopes the industry to on course to recover from its Covid-era plunge.

3:04 p.m. We talked earlier about how workers at Amazon in the UK have been on strike today for the first time. Well, Bloomberg TV’s Lizzy Burden has been on the picket line in Coventry to find out why. You can watch her report below.

2:25 p.m. If you want more from John, you can subscribe to his  Money Distilled newsletter for a daily dose of his insights. Here’s his summary of today’s edition:

“I'm not a natural fan of private equity - there's too much jargon, the fees are high, it's all a bit opaque. But right now, it's hard to deny that private equity investment trusts are still pricing in a lot of pain - and given the recent bounce in markets, that could mean they're primed for upside surprises.

In "Good News Watch" I also take a look at some of today's more cheering corporate and economic data which points to prospects for the UK not being quite as bad as the headlines might have you believe.”

Read More:  Private Equity Trusts Still Look Cheap

1:50 p.m. Wondering how to make the most of your UK pension? Join Bloomberg’s John Stepek and Bloomberg Opinion columnists Merry Somerset Webb and Stuart Trow for a Twitter Space discussion at 2 p.m.

1:32 p.m. London real estate has always been beloved by Middle Eastern investors -- so much that in the second half of last year, the number of buyers from the region reached a four-year high.

That's according to property consultant Knight Frank, which noted that buyers took advantage of a slump in the pound. As Tom Bill, head of UK residential research at the firm noted:

“Compared to some parts of the world, buyers from the Middle East have been relatively free to travel to London and take advantage of the weak pound, which has resulted in discounts of more than 40% compared to 2014 when price and currency movements are combined.”

Property investors from the Middle East now rank third behind European and British buyers, with plenty more expected this year. — Stefania Bianchi

Read More: Luxury London Real Estate Draws Most Mideast Buyers in 4 Years

1:08 p.m. EasyJet shares are now up 10% and on course for their biggest gain since March last year following that bullish sales commentary earlier. And peers like Ryanair and British Airways-owner IAG have also jumped.

It's the latest boost for a sector that's outperformed in January having started 2023 still nursing Covid-era losses. Analysts are hopeful that passenger numbers could soon reach pre-pandemic levels, even as an economic downturn takes hold. Four of the five best-performing FTSE 350 stocks this month are airlines.

Still, costs remain a major concern. Companies that were forced to issue debt during the pandemic have faced a surge in servicing charges as interest rates jumped, while wages, airport fees and jet fuel prices have also soared. The question now is whether airlines can keep prices high enough to maintain their margins. —  Joe Easton

12:42 p.m. It’s not just in the UK where traders are bracing for the end of rate hikes. In the US, investors are increasingly hedging the possibility that a rate hike from the Federal Reserve next week could be its last. 

Yet complicating matters is the fact that predicting whether the US will hit a recession is trickier than ever, Bloomberg’s Katia Dmitrieva reports. While there are signs that manufacturing is already in contraction and the housing market is slumping, employment in factories and construction remains elevated. There are also indications that consumers continue to be resilient, despite companies cutting back on costs and staff. 

As Claudia Sahm, a former Fed economist and founder of Sahm Consulting put it: 

“The signals are mixed in a way that we haven’t seen before. People say, ‘Historically when this happens, that happens, and then we go into a recession.’ That’s a good starting place, but that shouldn’t be the end place for the analysis.” 

Read More: Is a US Recession Near? Making the Call Is Trickier Than Ever

12:04 p.m. Sunak is on his feet for his regular PMQs session in Parliament. You can watch it here:

11:53 a.m. National Savings and Investments is increasing the Premium Bonds prize rate to the highest level since the financial crisis. That's good news -- if you're very lucky, relatively wealthy or both.

The prize fund rate will rise to 3.15% from 3%, the fourth increase in the last year after a succession of interest rate hikes from the BOE. Yet the appeal of such products is on the wane for many taxpayers with some standard savings products offering higher interest rates than the prize rate, which in reality is lower for most NS&I savers.

“With average luck, most people will win less than the prize rate,” according to MoneySavingExpert’s guide to premium bonds. The guide also notes its tax advantages are relevant only to those with tens of thousands of pounds of savings. — Irina Anghel

Read More:  Prize Rate for UK Premium Bonds Rises to Highest Since 2008 

11:17 a.m. Time for a check-in with markets now and some of the shine has come off UK assets.

The pound is heading lower, and stocks have also moved into the red, albeit less so then their European peers. Gilts remain higher though, boosted by the prospects of a BOE policy reversal this year.

11:04 a.m.  Here’s Joe Mayes explaining more about the Levelling Up Scorecard, and what it means for the government.

10:50 a.m.  Bloomberg has crunched the numbers on the government’s flagship levelling up pledge and found the gulf between the country’s poorer regions and its capital has widened rather than narrowed even since May.

Bloomberg UK’s Levelling Up Scorecard, updated with data as of December 12, shows that the country’s productivity gap has widened since May and some areas across the North West and South West of England have lost additional ground.

More than three-quarters of constituencies — especially those in the Midlands and North of England — were already behind London and the South East in 2019 and have since fallen even further behind.

Read More:  UK’s Poorer Regions Fall Further Behind in Blow to Sunak’s ‘Levelling Up’ Pledge

10:16 a.m. The UK's independent fiscal watchdog -- the Office for Budget Responsibility -- is set to conclude that the country's falling growth potential means Chancellor of the Exchequer Jeremy Hunt will have less headroom for giveaways in his March budget.

That's according to reporting by the Times, which was confirmed by two officials with knowledge of the forecasts. The OBR will produce the estimates that will help determine how much the chancellor can spend against his self-imposed borrowing rules.

With roughly 250,000 fewer people working today than before the Covid era, the UK is the only leading industrial nation that has yet to recover its pre-pandemic level of output.

9:59 a.m. The signs of a downturn in inflation are also reverberating through traders’ outlooks for future BOE policy.

While investors still expect a half-point hike to 4% from the BOE next month -- and the rate peaking around 4.5% in the summer -- they are already pricing in the prospect of rate cuts later in the year amid speculation officials may need to act to shore up a flagging economy.

Indeed, as Greg Ritchie and James Hirai write, for the first time, money-market wagers now show a quarter-point rate cut is fully priced in by year-end. That possibly implies a rapid reversal in policy from the BOE once rates hit their high point.

If that outlook filters through into the mortgage market too, it might see some cheaper deals start to emerge, bringing relief to homeowners needed to recalibrate their loans this year. 

Read More:  Traders Bet BOE Will Cut Rates This Year as Economy Struggles

9:36 a.m. It's not just the UK grappling with strikes -- Germany and Italy are facing disruptions as workers gather for industrial action.

In Berlin, all passenger flights have been canceled after labor union Verdi rejected pay proposals by the airport's management following three rounds of negotiations. Among the airport’s biggest airlines are EasyJet and Lufthansa.

Meanwhile, Italy is bracing for two days of disruptions after gas station operators across the country started a strike late Tuesday to protest efforts by Prime Minister Giorgia Meloni’s government to counter alleged price gouging by pump operators. The policy requires gas stations to display the average price for gasoline and diesel alongside their own prices, and those that don’t comply are subject to fines.

9:20 a.m. Here’s more on the strikes which are currently going ahead, including at Amazon for the first time today, from Bloomberg TV.

9:05 a.m. As it considers an economy under pressure from industrial action, the Bank of England has narrowly avoided a strike headache of its own, after agreeing to a 3.5% pay rise for its 4,200 staff and a one-off 1% salary top-up this year.

The deal, which does not keep up with inflation but has been accepted by the union representing BOE workers, will include an increase in the overall pay pot that will target lower-paid staff.

The inflation rate of 10.5% in December was more than five times the 2% target set by the BOE, which fears that large pay settlements will feed into higher inflation.

Read more: BOE Heads Off Strike Danger With 3.5% Pay Deal for 4,200 Staff

8:45 a.m. For more on today’s biggest stories, watch the London Rush below, or read the newsletter here.

8:17 a.m. UK markets are open now and we’ve had a surprisingly upbeat start to the day, with the FTSE 100 opening just about in the green despite the global mood of caution.  In the wider FTSE 250, EasyJet is a star performer after its earnings, rising more than 7%, and other airlines are also seeing decent gains. JD Wetherspoon shares are down a tad though.

The pound has also pared some of its losses in the past hour, and UK gilts have opened higher after that inflation data earlier.

8:02 a.m. We also got another round of earnings this morning, and there was news from both EasyJet and Wetherspoons that suggests Brits are continuing to spend on leisure and travel.

EasyJet said strong bookings continued into the second quarter and the crucial summer months and expects to beat the current market profit expectations for the full year, while the pub chain said like-for-like sales in the last 12 weeks were 17.8% higher a year ago. Still they cautioned they were 2% lower than before Covid and warned costs were “far higher than the pre-pandemic period, especially in respect of labour, food, energy and maintenance.”

7:34 a.m. This morning saw an unusual release of standalone factory price data from the ONS, after statisticians put the series on ice last year after methodological errors were uncovered.

The report, covering November and December, showed fuel and raw material costs are rising at their slowest pace in almost a year, providing further evidence that pipeline inflationary pressures are easing. 

7:24 a.m. The caution reigning in global equity markets comes after Microsoft said revenue growth in its Azure cloud-computing business will decelerate in the current period and warned of a further slowdown in corporate software sales. 

Check out other top reads from today’s Five Things newsletter: 

  • The US and Germany are poised to announce they’ll provide their main battle tanks to Ukraine
  • Bond traders are hedging bets that a Federal Reserve rate hike next week may be its last 
  • US Treasury Secretary Janet Yellen advised Congress of an additional accounting maneuver by her department to avert breaching the federal debt limit

7:11 a.m. Good morning and welcome to today’s edition of City Latest. The pound is on the back foot, trading above $1.23, while FTSE 100 futures are pointing to a downbeat open. Stick with us as we bring you more news and analysis vital to UK markets. 

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