Quilter: Sigh of relief for Labour as UK economy sees growth
The Labour government needs to build on the 0.2% growth reported in August, says Lindsay James, investment strategist at Quilter Investors:
“After two months of stagnant growth, and downward revisions for previous quarters, UK GDP has finally shown some growth, despite the lack of summer sunshine. GDP increased by 0.2% on the month, helping the economy bounce back after a difficult period. While growth remains sluggish and momentum appears to be stalling, this figure will provide a sigh of relief for the new Labour administration after a difficult start to life in government. However, given the mandate it has to deliver economic growth and wealth creation, it will need to build on this progress.
“Despite the UK experiencing better-than-expected growth this year and upward revisions in economic forecasts, the gloom surrounding the economy has been hard to shake. Much of this is due to Labour’s rhetoric as they attribute difficult tax and spending decisions to their predecessors. Additionally, bond yields have risen recently as debt continues to grow and inflationary threats persist. Until there is clarity from this month’s Budget, consumer and business confidence will likely remain muted, delaying any economic boost from these better GDP numbers.
Key events
Closing post
Time to wrap up, after another busy week.
Here’s today’s main stories:
Have a lovely weekend. GW
US consumer sentiment weakens
US consumer sentiment has unexpectedly fallen for the first time in three months.
The University of Michigan’s gauge of consumer morale has dropped to 68.9 this month, down from 70.1 in September.
Although consumers are more optimistic about the jobs market, they’re less happy about the high cost of living, the survey shows.
Inflation expectations have risen, while a measure of consumers’ perception of their current financial situation hit its lowest level since the end of 2022.
“Strong economy”
University of Michigan consumer sentiment falls to a three-month low of 68.9, below 2020 lows and 2019 levels.
The current conditions index falls to 62.7, from 63.3.
The expectations index slumps to 72.9, from 74.4. pic.twitter.com/bqy7SSh3gb— Daniel Lacalle (@dlacalle_IA) October 11, 2024
Bradley Saunders, North America economist at Capital Economics, says:
The trivial fall in the University of Michigan consumer sentiment index in October was likely driven in part by Hurricane Helene, although the fall in the expectations index suggests the mood among households may have soured more generally.
In any case, the poor link between confidence and consumption in recent years means consumption growth may not be as weak as suggested.
Saturday is the 100th day of UK’s new Labour goverment; here, my colleague Larry Elliott looks at how the chancellor has spent that time, preparing – but not yet delivering – her first budget:
Another record high on Wall Street:
Over on Wall Street, stocks have hit a new record high.
The Dow Jones industrial average has touched a fresh intraday peak around 42,664 points, and is currently up around 0.4% today.
DOW TOUCHES INTRADAY RECORD HIGH, LAST UP 0.4%
— First Squawk (@FirstSquawk) October 11, 2024
The broader S&P 500 is up 0.2%, with financial stocks rallying, while the tech-focused Nasdaq is a little lower.
Mark Sweney
The boss of the Post Office has admitted his various attempts to double his pay look “very poor” given so many branch owner-operators are still awaiting compensation over Horizon IT failings.
Nevertheless, speaking to the judge-led inquiry into the scandal on Friday, Nick Read denied ever threatening to resign over his remuneration.
Jason Beer KC, counsel for the public inquiry, asked Read if his personal grievance over his compensation package became such a significant feature of his tenure that it affected his ability to carry out his duties as chief executive.
“No I don’t believe that to be the case,” he said.
“I am very aware of the furore around my pay and remuneration, I am not in any way deaf to that. It looks very poor in light of the many victims still waiting for compensation. I very much regret the furore that exploded and as a consequence of that has been a distraction for everybody.”
Back in the UK, the economic institute NIESR has predicted growth slowed in the last quarter.
Following this morning’s news that the economy expanded by 0.2% in August, NIESR predicts it will also grow by 0.2% in the July-September quarter. That would be a slowdown on the 0.5% growth recorded in Q2.
Looking further ahead, they have an “early forecast” of 0.4% growth in the fourth quarter of 2024.
⚡️The calm before the #Budget: growth awaiting fiscal clarity ⚡️
📊Our latest #GDP Tracker suggests GDP will grow by 0.2% in the third quarter and by 0.4% in the fourth quarter of 2024 📈
Read here in full ⬇️https://t.co/2FGH1F9jSv
— National Institute of Economic and Social Research (@NIESRorg) October 11, 2024
US PPI index eases back as disinflation kicks in
Over in the US, price rises by American producers slowed last month, in an encouraging sign in the battle against inflation.
The Producer Price Index for final demand rose by 1.8% for the 12 months to September, down from 1.9% in the year to August.
On a monthly basis, the PPI index – effectively a measure of wholesale inflation – was unchanged in September; services companies lifted their prices by 0.2%, while goods producers cut theirs by 0.2%.
Core PPI (excluding foods, energy, and trade services) rose by 0.1% during September, and by 3.2% over the last year – down from 3.3% in August.
US September PPI: Further evidence of disinflation and the fact that price stability has returned to the American economy. Finished goods down 0.1% & -0.7% y/y. Finished goods ex food down -0.4% & -2.2% y/y. Finished goods ex energy up 0.4% & 3.1% y/y. US wholesale inflation flat… pic.twitter.com/KyPNGh5aNA
— Joseph Brusuelas (@joebrusuelas) October 11, 2024
German carmaker Volkswagen has reported a drop in sales in the last quarter, driven by weaker demand in China.
In July-September, Volkswagen delivered 2.176m cars, 7.1% down on the 2.343m delivered in the third quarter of 2023.
So far this year, deliveries are down 2.8% at just over 6.5m, including a 4.7% drop in sales of all-electric vehicles (BEVs).
Volkswagen says that, during 2024, growth in North America (+7%) and South America (+15%) was offset by declines in Western Europe (-1%) and particularly in China (-10%).
VW’s sports car brand Porsche posted a 29% nine-month sales drop in China.
BNY clients sell UK debt at fastest pace since mini-budget crisis
Clients at the world’s biggest custodian bank, BNY, sold British government bonds in September at the fastest pace since the gilts crisis in 2022, Reuters reports.
It’s a potential sign of investor nerves ahead of the new Labour government’s budget later this month.
Geoff Yu, senior EMEA market strategist at BNY, told Reuters:
“UK gilt markets recently faced the most concentrated round of selling by UK and international clients since the mini-budget of 2022.”
Citing BNY’s iFlow data, Yu added that custodian clients sold £3.04bn ($3.97 billion) of gilts last month.
As well as anxiety over the budget, investors could also be rethinking their expectations for UK interest rates moves. Gilt yields (the rate of return on the bonds) have risen in recent sessions, seemingly on expectations that other central banks might cut rates faster than the Bank of England).
Yu explains:
“While there can be many reasons for such sales, including changing Bank of England expectations, investor exposures to UK gilts have been reduced heading into the upcoming budget.”
BNY is a custodian of more than $50 trillion of assets for international clients including pension funds, endowments and other asset managers.
Dimon: geopolitical conditions are treacherous and getting worse
JP Morgan chief Jamie Dimon also tells shareholders that the geopolitical situation is ‘getting worse’, while the US economy faces several critical problems.
Presenting today’s financial results, Dimon says:
“We have been closely monitoring the geopolitical situation for some time, and recent events show that conditions are treacherous and getting worse.
There is significant human suffering, and the outcome of these situations could have far-reaching effects on both short-term economic outcomes and more importantly on the course of history.
Additionally, while inflation is slowing and the U.S. economy remains resilient, several critical issues remain, including large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world. While we hope for the best, these events and the prevailing uncertainty demonstrate why we must be prepared for any environment.”
JP Morgan profits drop as bad loan provisions rise
Just in: Profits at Wall Street giant JP Morgan Chase have dropped, as it puts aside more money to cover bad debts.
JP Morgan has just kicked off the US bank reporting season by reporting net income of $12.9bn for the third quarter of 2024. That’s down from $13.15bn a year earlier, and $18.15bn in April-June.
The bank has set aside $3.1bn to cover credit losses, including $2.1bn of bad debts in the quarter and $1bn of reserves to cover future losses.
Revenues grew 6% in the quarter.
Jamie Dimon, Chairman and CEO, says:
“The Firm reported strong underlying business and financial results in the third quarter, generating net income of $12.9 billion and an ROTCE [Return on tangible common equity] of 19%.
In the CIB [investment bank], investment banking fees grew 31%, while Markets revenue was resilient, rising 8%. Payments fees grew by double-digits as investments are fueling organic growth.
In CCB [Consumer & Community Banking], we ranked #1 in U.S. retail deposits for the fourth consecutive year. Card loans increased 11%, and we saw robust acquisition of 2.5 million accounts.
Finally, in AWM [asset and wealth management], asset management fees rose 15%, and long-term net inflows were a record $72 billion.
