- UK GDP shrinks by more than expected as high interest rates bite.
- Oil prices dip further amid lower expectations of global demand.
- Stocks on Wall Street creep higher despite data showing core inflation rose in November.
- Federal Reserve widely expected to keep interest rates on hold later.
- Boots owner reported to be mulling a listing of the pharmacy retailer.
- Netflix unveils its ‘most watched’ shows, indicating new dramatic content is king.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The UK economy has accelerated more sharply into reverse, as the pain of interest rates takes an even bigger toll on companies and consumers. An Autumn of adversity has emerged and there is little prospect of a fast turnaround. Output shrank in every sector in October, particularly manufacturing where it fell by 1.1%. Although the mighty Services sector was expected to stay on more of an even keel, it also shrank by 0.2% and construction too suffered a 0.5% contraction. Across the three months, output was flat, with the contraction cancelling out the better-than-expected performance in September. The UK is still mired deep in stagnation territory and a fast rebound looks unlikely, particularly given that interest rates are set to be kept on hold tomorrow, prolonging the pain for borrowers. However, it does increase the likelihood that the Bank of England might cut rates earlier than forecast, although it’s still not likely until the second half of next year, given that wage increases, although slowing, are still strong.
Oil price tumbles
Oil prices have tumbled further, which is set to put pressure on the FTSE 100 in early trade, as traders re-assess levels of global demand heading into 2024. Brent Crude is trading below $73 a barrel, the lowest in six months, as forecasts from US Energy Information Administration came in lower than earlier estimates, with the EIA now expecting oil prices to average around $83 a barrel next year, $10 lower than forecasts. Global growth is expected to slow and although cuts to production by OPEC+ nationals were agreed, totalling 2.2 million barrels a day in the first quarter, those aren’t considered enough given the drop in demand forecast. However, oil producing nations will probably lose patience with lower prices and are likely to keep the supply taps tighter for a longer period, than the initial three months agreed.
Federal Reserve set to press pause again on interest rate hikes.
The latest inflationary snapshot in the US is likely to be partly behind oil’s slide, given that it indicates that the Fed will have to keep interest rates higher for longer, with early cuts more unlikely. Another decision to press pause and hold at their current level looks bolted on later, and chair of the Federal Reserve Jay Powell is likely to try and splash cold water on the optimists hoping for an earlier end to tight monetary policy. Even though the consumer prices number came in higher than expected, with the core reading edging up again month on month, the wave of exuberance on Wall Street has been continuing. Rate cuts are still being eyed up next year, as the economy remains buoyant with expectations of a soft cushion of a landing dominating.
Boots listing in London rumoured
There is speculation that a plan to spin off and list Boots on the London Stock Exchange is back on the table. US based Walgreens Boots Alliance has long been looking to offload the retailer, which is a stalwart of the UK high street. It pulled plans to sell the company 18 months ago as financial markets wobbled, inflation ran rampant and interest rates began to be ratcheted up. But now it seems that with interest rate cuts on the horizon and calm returning, the plan has been dusted down. Instead of a private equity auction, a listing could be on the cards. Boots has been bending the way the retail winds are blowing by reducing the footprint of its bricks and mortar stores amid the shift to online shopping. Although the boom in e-commerce experienced over the pandemic has waned, volumes shifted in virtual baskets have rebased at a higher level since pre-pandemic times. Its strategy of delivering more offers on its own brand products, also seems to have been paying off. But conditions are tough on the high street and Boots still clearly has work to do in its digital transformation, which has included drop shipping of third-party brands direct to customers. The jewel in its beauty crown is the No.7 skincare range, which will shine bright as its credentials are touted around. Consumer awareness of the Boots brand, with its 174-year history, is high in the UK compared to the US, which is why London makes more sense for a listing. If a launch does come, it certainly would come as a big boost for the City, given the drought of IPOs recently and concerns that companies are being lured by the bright lights of Wall Street.
Dramatic content is king at Netflix
New dramatic content is king in the streaming world, and that can’t be clearer from the viewing revelations unveiled by Netflix. Topping the list of the most watched shows around the world in the first half of 2023 was the political thriller ‘The Night Agent’. The move to be more transparent about which shows attracted the most viewers is aimed at shoring up trust among production crews, as it potentially enables writers and actors to demand more money for the most popular shows. The comedy drama, ‘Ginny and Georgia’ came in at number 2, while the South Korean thriller, ‘The Glory’ scooped third spot, demonstrating the might of foreign language films on the platform with non-English content generating a third of all viewing. The buzz around these shows would have helped Netflix add another hefty chunk of subscribers in the third quarter – with the number joining totalling 8.8 million, better than expected. But best-in-class original content, which keeps eyes on screen, does not come cheap. Netflix already spends around $17 billion a year on content, and while for now that hefty budget is reaping rewards, it must keep finding the hits time after time, to stop drift away to the competition.”
