- FTSE 100 in the red as Santa rally proves elusive for European indices.
- Lack of cheer for UK economy as growth revised down.
- Retailers hope last minute shoppers will provide a boost.
- Brent crude rises as President elect Trump sets his sights on the Panama Canal
- Avivia’s early Christmas present as Direct Line deal goes through.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The FTSE 100 has continued on its losing streak, with a Santa rally proving elusive, while European indices are also in less cheery shade red. There’s not much merriment around for the UK’s economic prospects as the latest assessment from the ONS paints a picture of stagnation. Instead of meagre growth of 0.1% the economy stood still between July and September, and that was before the Budget cast another chill, and caused output to shrink in October. The long period of speculation prior to Rachael Reeves announcements is unlikely to have helped, given the rumour mill was running on overdrive. With growth flagging even before the hike in National Insurance contributions comes into effect, it’s likely to make some companies that bit more hesitant about hiking wages or going on recruitment sprees. However, the increase in the minimum wage, and investment pledged by the government should still help to see expansion next year. Even so, given the concern bubbling up round the table at the Bank of England about fragility in the economy, with three members of the monetary policy committee voting for an interest rate cut last week, it does increase the chances of an early Spring rate reduction. Financial markets are pricing in two to three interest rates cuts next year, with bets rising on a move lower in February.
Retailers will be hoping two days of last-minute present buying will help revive fortunes after a distinct lack of lustre for the golden quarter. It’s been tough going for clothing stores in particular, in the UK, with sales falling in November. It’s hoped the cold turn in the weather and late dash for present ideas might finally see winter woollies piled high at counters. The last gasp of Christmas shopping is also likely to help cafes and restaurants which are intertwined with the retail trade.
Brent crude has moved higher, as interest rates speculation and supply fears amid trade rows collide. President-elect Trump has banged his ‘America first’ drum in the direction of Panama, accusing the country of charging exorbitant fees for using its famous canal. His demand that fees are either reduced or the canal returned to US control, is clearly unsettling, given how crucial the passage is for trade routes. With vessels continuing to avoid the Red Sea, another disrupted key route risks adding to supply chain chaos, potentially hurting growth and demand for energy, but also disrupting oil supplies. Oil prices also appear to have been pushed higher as hopes have been revived for monetary policy to be eased that much faster next year, after price rises showed signs of slowing down. The Federal Reserve’s preferred measure of the inflation – the personal consumption expenditures price index, rose 0.1% from October to 2.4% on an annual basis, lower than estimates. There are hopes that the drag effect on the economy, and on demand for energy would be less onerous of interest rates come down that bit more quickly. However, overall the Fed is expected to be on go slow next year.
Aviva and Direct Line have wrapped up a £3.7bn deal, with the terms unchanged from what was floated on the markets earlier this month. With more here’s Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“Christmas has come early for Direct Line investors, as Aviva’s £3.7bn buyout has officially been signed, sealed, and delivered. The festive confirmation has wrapped up what many investors had already baked into expectations, leaving little surprise under the tree.
This deal strikes a balance that seems to deliver value for both parties. Direct Line has been navigating choppy waters, with its market share steadily eroding and a history of missteps from previous management leaving the ship off course. While the new management team has been working to steady the vessel, even they couldn’t deny that Aviva’s offer was the golden ticket they’d struggle to replicate on their own. Though they’ve expressed confidence in their independent strategy, this proposal was simply too compelling to pass up.
For Aviva, the price tag is sitting on the edge of what might be considered a bargain, but the strategic potential could prove to be a real cracker. Acquiring Direct Line cements Aviva’s status as the heavyweight champion in the UK home and motor insurance markets. Beyond bolstering their market dominance, the deal unlocks opportunities to put the Direct Line transformation on the fast track, while capitalizing on the efficiency gains that come with increased scale. It’s a bold move that could turn out to be a gift that keeps on giving.
