UK car sales jumped 23.5% in November despite 2023 recession looming – as it happened

Time to wrap up, here’s today’s main stories:

Factory Orders across the US increased by 1% month-on-month in October, the Census Bureau reports.

That’s an acceleration on September’s 0.3% increase, suggesting demand held up pretty well.

The downturn at US companies has accelerated, with services firms reporting a sharper fall in new orders last month, due to weak demand from domestic and foreign clients.

The downturn in foreign client demand was the quickest in two-and-a half years, due to challenging economic conditions in key export markets. This fall in new business knocked service sector output in November, with firms also reporting a slowdown in rising costs.

That pushed the S&P Global US Services PMI Business Activity Index down to 46.2 in November, from 47.8 in October, showing a sharper drop in activity.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, says some companies were forced to cut prices to stimulate sales – which could help fix the US inflation squeeze:

“The survey data are providing a timely signal that the health of the US economy is deteriorating at a marked rate, with malaise spreading across the economy to encompass both manufacturing and services in November.

The survey data are broadly consistent with the US economy contracting in the fourth quarter at an annualized rate of approximately 1%, with the decline gathering momentum as we head towards the end of the year.

There are some small pockets of resilience, notably in the tech and healthcare sectors, but other sectors are reporting falling output amid the rising cost of living, higher interest rates, weaker global demand and reduced confidence. Struggling most of all is the financial services sector, though consumer facing service providers are also seeing a steep fall in demand as households tighten their budgets.

A striking development is the extent to which companies are increasingly reporting a shift towards discounting in order to help stimulate sales, which augurs well for inflation to continue to retrench in the coming months, potentially quite significantly

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Stocks have opened lower in New York.

The Dow Jones industrial average shed 208 points, or 0.6%, to 34,221 points, with the broader S&P 500 index and the tech-focused Nasdaq both down 0.7%.

Fawad Razaqzada, market analyst at City Index and FOREX.com, says investors are focused whether America’s central bank will slow its interest rate rises:

The key focus on investors minds is what kind of a message will the Fed deliver to the market at its highly anticipated rate decision next week.

The markets have concluded that the pace of tightening will slow down to 50 basis points. The Fed is then likely to continue hiking at a slower pace a few more times before pausing to give time for the higher rates to work their way through the economy to create a soft landing and in order to cool inflation.

5 Dec 202209.37 EST

Cold snap poses first test of Britain’s efforts to prevent winter power cuts

Alex Lawson

As the first big snowfall of winter threatens to drop this week, it’s not just the forecasters and road gritters who will be twitchy: Britain’s energy executives and policymakers are on tenterhooks, our energy correspondent Alex Lawson writes.

Many Britons who have held off putting on the heating, afraid of the bulging bills that could follow, may be forced to nudge the thermostat up, putting strain on the country’s power supplies. National Grid has warned that a confluence of scenarios including a cold snap and a cut off of Russian gas to Europe could lead to power cuts. Is this the first piece of that grim jigsaw?

An initial assessment appears far more positive than two months ago. European countries have filled their gas storage facilities more rapidly than expected, meaning UK competition for supplies has reduced.

In fact, Europe’s storage is so full, some tankers carrying liquified natural gas (LNG) have even been idling in European waters, waiting for prices to bounce back. Mother Nature has also played a part: the mild start to winter reduced demand with some bosses reporting consumption has fallen more than 10% on last year.

Here’s Alex’s full analysis:

Cryptocurrency operator Circle Internet Financial has abandoned plans to go public in a $9bn deal through a blank cheque company chaired by former Barclays chief executive Bob Diamond.

Circle has ended its $9 billion deal with special purpose acquisition company (SPAC) Concord Acquisition Corp, nearly ten months after an earlier agreement was amended.

Reuters has more details:

“We are disappointed the proposed transaction timed out, however, becoming a public company remains part of Circle’s core strategy to enhance trust and transparency, which has never been more important,” said Jeremy Allaire, Co-Founder and Chief Executive Officer of Circle.

The company did not elaborate on its plans to go public. Circle is the principal operator of stablecoin USDC and reported a net income of $43 million and nearly $400 million in cash in the third quarter.

The FT says the move ““shows how successive crises have sent a chill through the crypto sector”.

Europe will fall into a recession this winter and growth will not return before spring, European Economy Commissioner Paolo Gentiloni said on Monday.

Gentolini told reporters before a Eurogroup meeting in Brussels that:

“We will have a recession this winter.”

Deliveries of new UK vans fell by a fifth last month.

The UK’s new light commercial vehicle (LCV) market dropped by -22.2% in November, with 24,352 of vans sold during the month, according to the latest data from the Society of Motor Manufacturers and Traders (SMMT).

The SMMT says:

Declines were seen across most of the sector, with deliveries of vans weighing 2.0 tonnes or under recording the largest decline of the month at -70.9%, followed by those of mid-weight vehicles weighing up to 2.5 tonnes, which fell -63.5%.

Sales of battery-powered vans were up almost 15%, though, with 1,974 units registered last month –taking the total EV vans delivered in 2022 to 15,039.

The Chinese fashion retailer Shein has vowed to invest $15m (£12.2m) in improving standards at its supplier factories as it admitted working hours at two sites breached local regulations.

The online brand said an independent investigation, launched after allegations over labour abuse made in a recent UK documentary, had uncovered that employees at two of its Chinese sites were working hours that were longer than allowed.

It found staff at one of the factories were working up to 13-and-a-half-hour days with two to three days off a month, while those at the second site were working up to 12-and-a-half hours a day, with no fixed structure for days off.

5 Dec 202208.29 EST

Full story: UK new car sales rise as industry leaders say recovery ‘within grasp’

Gwyn Topham

Sales of new cars in the UK have grown for the fourth month running, with purely electric vehicles accounting for a fifth of the total.

In the best November for the industry since the start of the coronavirus pandemic, almost 143,000 new vehicles were registered.

Sales for the month were 23.5% higher than last year, and although the overall annual figures to date remain marginally below 2021 levels, industry leaders said it showed “recovery was within their grasp”.

The Society of Motor Manufacturers and Traders (SMMT) said manufacturers were still having to battle an erratic supply of components from around the world, particularly the lack of semiconductor chips, which control vehicles’ electronics.

Moldova’s central bank cut its main interest rate to 20% from 21.5% today, the bank’s governor said via Reuters.

Governor Octavian Armasu announced the rate change at a briefing, where he explained:

“The (National Bank of Moldova) creates more attractive conditions for providing credit to the real economy and population.”

5 Dec 202207.28 EST

BIS warns of financial risks from FX swap loans

Phillip Inman

Global financial markets could suffer a widespread and destabilising collapse following a trend for businesses to reject bank borrowing in favour of loans based on multi-billion dollar foreign exchange deals.

As much as $80n of global debt is hidden from regulators and $2.2tn could be at risk at any one time, “potentially undermining financial stability”, according to the Bank of International Settlements, the Geneva-based organisation that acts as an adviser to the world’s central bankers.

In its 2022 Triennial central bank survey, the BIS said trades worth $2.2tn represents about a third of the sums traded each day, and “a volume 30 times greater than daily global GDP and 14% higher than in early 2019,” highlighting the potential impact of panic selling.

The move to high-value loans based on the value of foreign exchange deals reveals how financial services firms have circumvented the spotlight from regulatory rules brought in since the 2008 financial crash.

To keep tabs on borrowing levels, banks were forced to introduce greater transparency in their reporting of loans and to keep higher levels of capital in reserve to protect against a negative shock.

The BIS said a foreign exchange deal between two parties will have a value that can be used as the basis for a loan. But if one of the parties gets into financial trouble, they could default on the loan, creating a cascading loss of confidence throughout the global financial system.

Claudio Borio, head of the BIS’s economic department, said:

“BIS analysis of the Triennial Survey continues to shed light on some corners of global financial markets that would otherwise go unnoticed.

“There is a staggering volume of off-balance sheet dollar debt that is partly hidden, and foreign-exchange risk settlement risk remains stubbornly high.”

Regulators have recently become worried that major financial markets are at risk of panic-induced collapse as the number of traders willing to buy assets declines when prices tumble.

Without willing buyers when prices begin to fall, markets become caught in a “death spiral”, forcing central banks to act as the buyer of last resort.

Central bankers fear that private financial markets have increasingly allowed risky trading to develop with an effective subsidy from taxpayers, who provide an unofficial financial backstop via government-supported central banks.

The move to use foreign exchange deals as the basis for loans creates a more complex financial system with a higher risk of loans agreements being broken and a freeze on new loans by market participants, the BIS said.

Authors Mathias Drehmann and Vladyslav Sushko, said results obtained from the triennial survey were worrying as they show an increasing amount of foreign exchange (FX) trading was hidden from view.

They said:

“FX trading continues to shift away from multilateral platforms, where price information is available to all participants, towards “less visible” venues.

Less visibility hinders policymakers from appropriately monitoring FX markets.”

The cost of a two-year fixed-rate mortgage has fallen below 6% for the first time in almost nine weeks, as the UK’s home loans crunch eases off.

Bloomberg has the details:

The average two-year fixed-rate mortgage fell to 5.99% Monday, according to Moneyfacts Group Plc. That’s the first time it has dropped below the threshold since Oct. 4 when key home loan rates were spiraling in the aftermath of then-Prime Minister Liz Truss’s mini-budget.

The average five-year fixed-rate deal also fell to 5.78%, after dropping below 6% almost a fortnight ago.

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Thames Water has posted an almost £400m profit for the past six months despite a jump in leaks amid hot summer weather.

The utilities giant said it showed “good progress” in its recent turnaround programme following a series of operational changes, PA Media report.

The firm revealed on Monday that pre-tax profits leapt to £398m for the six months to September 30, swinging from a pre-tax loss of £581m over the same period last year.

It said gains on financial instruments help to boost profitability, offsetting the impact of high inflation.

Thames Water said it witnessed an “exceptionally high level of operational incidents resulting from drought” over the period, after hot summer weather which resulted in hosepipe bans.

It revealed that it saw “deterioration” in water metrics, such as leakage and supply interruption, as a result of the drought conditions across parts of the UK.

Nevertheless, the company reported a 43% reduction in complaints and 29% fall in backlogs for the period.

The pound has risen to its highest in over three months, points out Reuters’ Andy Bruce:

The UK government is set to announce a package aimed at boosting growth in financial services and the City of London on Friday, Bloomberg reports, citing ‘people familiar with the plan’.

They say:

The Treasury is in the process of finalizing the package and has penciled in the end of the week for the announcement, pending sign-off from the Cabinet, one of the people said.

City minister Andrew Griffith had been expected to unveil the reforms, which the government will pitch as securing new opportunities from Brexit by sweeping away unnecessary regulations, before Christmas. Key to that has been a plan to replicate the “Big Bang”, the wave of deregulation in the City in 1986.

It’s unclear how radical any changes to the rules might be, or how much of a difference they will make to London’s competitiveness.

Russia has claimed that the G7 price cap on its oil will not affect its ability to sustain its invasion of Ukraine, but will destabilise global energy markets.

Kremlin spokesman Dmitry Peskov said Russia was preparing its response to Friday’s move by the G7 and allies, which was aimed at squeezing Moscow’s energy revenues and reducing its ability to wage war.

Peskov told reporters that:

“Russia and the Russian economy have the required capacity to fully meet the needs and requirements of the special military operation.

Peskov added that it was “obvious and indisputable that the adoption of these decisions is a step towards destabilising world energy markets”.

Supermarket chain Sainsbury’s is pledging another £50m of price cuts this winter to help customers with the cost of living crisis.

Simon Roberts, chief executive of Sainsbury’s says:

“We really understand that millions of households are having to make really tough decisions this Christmas and our job is to do everything we can to help with the rising costs of living.

We are accelerating our commitment to being the best value, investing a further £50 million in lowering prices and doing everything we can to fight inflation and help our customers enjoy celebrating this year.

We know everyone wants to enjoy a special Christmas meal together which is why we’re keeping inflation at bay and offering Christmas roast dinner for less than £4 per head - cheaper than it was last year.

Sainsbury’s had previously committed £500m on price cuts, as it faced rising pressure from discount rivals Aldi and Lidl, who have gained market share as customers have sought out cheaper food.

November’s PMI surveys suggest UK companies face a gloomy outlook at home and abroad, warns economic forecasters EY ITEM Club.

They say:

1. November’s UK S&P Global/CIPS services Purchasing Managers’ Index (PMI) remained unchanged at 48.8. Activity fell, with a third successive fall in new orders reflecting weak demand at home and abroad. It appears increasingly evident that the UK economy is in recession.
   

2. The weakness in demand is increasingly affecting businesses’ pricing power, with output price inflation cooling despite stronger cost pressures. Overall, it would seem the survey is consistent with the EY ITEM Club prediction that the Monetary Policy Committee (MPC) will shift down to a 50bps rate hike at its December meeting.