Economy Closing summary:
Time to wrap up.
China’s economy has posted its slowest growth in 18 months, prompting the People’s Bank of China to cut a key lending rate for the first time since the early months of the pandemic.
GDP in China expanded by 4% year-on-year in the last quarter of 2021, taking the shine off 8.1% growth in the whole year. Economists said that the domestic economy was suffering from the ongoing pandemic, and the credit crunch in its property sector, with retail spending weakening in December.
The World Economic Forum’s virtual Davos has begun, after the Annual Meeting was delayed due to the pandemic.
China’s Xi Jinping warned that inflation was a growing risk, and expressed fears of economic pain if advanced economies hiked interest rates.
If major economies slam on the brakes or take a U-turn in the monetary policies, there would be serious negative spillovers.”
President Xi also warned of disastrous consequences from a Cold War mentality, at a time when tensions are rising with the West over Tiawan, and threats to national security.
India’s prime minister, Narendra Modi, called for global action on tackling cryptocurrency problems, along with supply chain issues, climate, and inflation.
UN secretary-general António Guterres said that inequality over vaccine rollouts, and an unfair global financial system, was hurting the recovery.
Anthony Fauci, chief medical advisor to President Biden, warned virtual Davos that disinformation spread through social media is undermining the battle against Covid-19.
The online-only event also heard that Moderna hopes to rollout a combined vaccine for flu and Covid-19 by autumn 2023.
Oxfam reported that the 10 richest men in the world have seen their global wealth double to $1.5tn (£1.01tn) since the start of the global pandemic following a surge in share and property prices that has widened the gap between rich and poor.
.. but Unilever slumped by 7% after seeing its £50bn approach to buy GSK’s consumer healthcare operation rejected.
The chairman of Credit Suisse, António Horta-Osório, has resigned after the Swiss bank found that he had broken Covid-19 quarantine laws, with attendance at the Wimbledon tennis tournament thought to be among the allegations.
Here are the other main stories today:
Economy UN’s Guterres demands vaccine equity, financial reform and more emissions action
Back at virtual Davos, UN secretary-general António Guterres has challenged business leaders to:
- Drive equity and fairness
- Reform the global financial system
- Support real climate action
In a special address, Guterres warns that:
The world is emerging from depths of a paralysing economic crisis, but the recovery remains fragile and uneven, amid the lingering pandemic, persistent labour market challenges, ongoing supply chain disruption, rising inflation and looming debt traps, and the geopolitical divide.
He warns that global vaccination rates are falling behind the UN’s targets (which will increase the risk of new variants), saying:
Vaccination rates in high-income countries are, shamefully, seven times higher than in African countries. We need vaccine equity now.
Guterres adds we must prepare for the next pandemic by improving early warning and rapid response plans, strengthening the World Health Organisation, and bolstering local primary healthcare.
Guterres warns that the global financial system should be reformed to work for all countries.
At this critical moment we are setting in stone a lopsided recovery.
Eight out of 10 recovery dollars are being spend in advanced economies, he says, meaning developing countries are at a huge disadvantage, as they experience their slowest growth in a generation.
Emerging economies are suffering higher interest rates and soaring energy and food bills, Guterres says, calling for urgent reforms on debt restructuring
And on the climate emergency, Guterres warns that global emissions are set to soar over levels that would keep global warming within 1.5 degrees:
Economy FTSE 100 closes at two-year high
The UK’s blue-chip share index has closed at its highest levels since January 2020, as China’s move to stimulate its slowing economy boosted markets.
The FTSE 100 index ended the day 68 points higher at 7611 points, up 0.9% today, as it continues to recover from the shock of the pandemic.
It has now gained 3% since the start of this year, after finally recovering its losses since the February 2020 crash.
Housebuilder Taylor Wimpey ended the day as the top riser, up 4.2%, after reporting a strong order book for this year and confirming it plans a share buyback plan.
GlaxoSmithKline closed 4% higher, after rejecting a £50bn offer for its consumer healthcare arm from Unilever — which fell 7% after its failed bid raised questions over its strategy.
Copper producer Antofagasta (+4.2%), commercial property developer Land Securities (+3.2%), pharmaceuticals group AstraZeneca (+2.6%), and consumer goods maker Reckitt Benckiser (+3.2%) were also in the risers.
China’s move to ease monetary policy today, as growth slowed in the last quarter of 2021, gave markets a lift.
David Madden, analyst at Equiti Capital, says:
Stocks in Europe are up on the session as The People’s Bank of China cut the borrowing cost on 700-billion-yuan worth of one-year medium-term lending facility loans to 2.85%. The move by the Chinese central bank comes as it was confirmed the Chinese economy expanded by 4% in the last quarter of 2021, which was a drop off from the 4.9% growth registered in the preceding three months. It was the weakest quarterly growth reading in 18 months. Countries around the world are largely experiencing a cooling in their growth as the post pandemic boom is running out of steam, but it is worth noting that China was already moving down a gear before the pandemic struck. The latest retail sales data from China were disappointing too as the report came in at 1.7% – the lowest in 15 months – it speaks to dwindling consumer appetite.
The FTSE 100 traded above 7600 for the first time in nearly two years. The London market is enjoying a broad rally as banks, construction, energy, pharma and tobacco stocks are up on the day. It is a similar situation in the eurozone as the DAX and the CAC are showing solid gains too. The New York Stock Exchange remains closed today as the US celebrates Martin Luther King Day. Volatility is low as many Americans are on holiday.
The world’s 20 top performing hedge fund managers earned a record $65.4bn ($48bn) profit for their clients in 2021 after bets placed on rising stock markets paid off.
The biggest winner was TCI, the fund run by British billionaire Sir Chris Hohn, which made a gain of $9.5bn last year, according to the annual rankings by LCH Investments.
TCI, which manages about $44bn of assets and is known in the City and on Wall Street as one of the most aggressive activist investors, made a gain of 23.3% in 2021. TCI, which stands for the Children’s Investment fund, has made total gains of $36.5bn since it was set up in 2003.
Hohn, a philanthropist and climate crisis activist, paid himself $152m last year, less than a third of the $475m he received the previous year.
He has pumped more than £4bn into his personal children’s charity and in recent years has taken on a second cause: the climate crisis, promising to use TCI’s $44bn of investments to “force change on companies who refuse to take their environmental emissions seriously”.
Hohn is the single biggest individual donor to Extinction Rebellion (XR), which has staged high-profile climate protests around the world. “Humanity is aggressively destroying the world with climate change and there is an urgent need for us all to wake up to this fact,” he said when he was revealed as XR’s main funder.
Economy Modi: we need global effort on cryptocurrencies
India’s PM Narendra Modi went on to call for a collective global approach to issues facing the world – including supply chain disruption, inflation, and climate change.
He also singles out cryptocurrency as another area where collective, synchronised action is needed, telling the Davos Agenda that:
Given the sort of technology this is based on, decisions taken by any one country are not going to be enough to resolve challenges related to it.
We need to adopt a uniform approach to it.
Late last year, it emerged that India was preparing a bill to regulate cryptocurrencies, which could ban the use of cryptocurrencies as a method of payment in India, and also allow the country’s central bank to launch an official digital currency.
Modi also calls on democratic nations to reform the world’s multinational organisations, so they are better suited to tackling today’s challenges.
Given the global landscape today, the question that also arises, is whether multilateral organisations are able to address the new world order, and new challenges.
When these institutions were created, the situation was quite different.
Today, circumstances have changed, they are very different.
Economy Modi: Invest in India
India’s prime minister Narendra Modi says it is the best time to invest in India, and that the country has given the world a ‘bouquet of hope’.
In a special address to the World Economic Forum, Modi says India wants to become a trusted partner to the world in global supply chains, and is in talks with many countries to agree free trade deals.
Modi cites India’s commitment to deep economic reforms, and the $1.3trn it is investing in digital connectivity infrastructure.
He also points to its pharmaceuticals industry which produced many vaccine doses to fight the pandemic, describing India as ‘pharmacy to the world’, and also its growth in start-ups.
Economy Moderna CEO: Combined flu and Covid vaccine could be available in 2023
Moderna’s chief executive has predicted that a combined booster shot for Covid-19 and flu could be available, in some countries, by the autumn of 2023.
Stéphane Bancel told the panel session at the World Economic Forum’s Davos Agenda that his company is aiming to create a single annual booster.
Bancel explained that:
“Our goal is to be able to have a single annual booster so that we don’t have compliance issues where people don’t want to get two to three shots a winter,”
Instead, they would get one dose which included “a booster for corona, and a booster for flu and RSV (Respiratory syncytial virus) to make sure that people get their vaccines”, Bancel explained.
Q: So how close are we to a vaccine that offers protection against Covid-19 and also flu?
The ‘best case scenario’ is that this combined vaccine would be available in the “fall of ‘23”, Bancel replied.
He cautions that it wouldn’t be available in all countries, but could be available in some countries.
Germany wants to respect jointly agreed fiscal rules as this helps to control inflation, its new finance minister Christian Lindner said on Monday.
Lindner added he expected the “real debate” about the European Union’s fiscal rules (which cover tax and spending) to start in June, Reuters reports:
Speaking to reporters in Brussels before his first Eurogroup meeting with counterparts from other euro zone member states, Lindner said that the fiscal rules of the EU’s Stability and Growth Pact had proven its flexibility during the crisis.
“But now it’s the time to build up fiscal buffers again, we need resilience not only in the private sector, but also in the public sector,” Lindner said. “That’s why I’m very much in favour of reducing sovereign debt.”
Back in the markets, European equities are holding their early gains.
The pan-European Stoxx 600, which has made a jittery start to 2022, is up 0.6% today.
The UK’s FTSE 100 is still on track for a new two-year closing high, up 52 points at 7595 points – and has gained around 2.8% so far this year.
GlaxoSmithKline has eased back in London, but is still leading the risers (+3.3%) after rebuffing Unileve’s £50bn approach to buy its consumer healthcare arm. Unilever is still sliding, down 7%, at the bottom of the FTSE 100 leaderboard.
Today’s investor reaction demonstrates Unilever’s “lack of management credibility” says Chris Beckett, head of equity research at Quilter Cheviot. There are also concerns about the amount of debt the group could take on to finance an acquisition:
“Should Unilever eventually succeed with an offer, an acquisition of this business would be consistent with its stated strategy – increasing exposure to high growth, higher margin health, beauty and hygiene products. GSK’s consumer business currently has strong positions in the toothpaste and vitamin markets so there is certainly a fit there for Unilever.
“However, if the acquisition was financed with circa 80% debt and 20% equity it would be concerning as the company’s debt pile would begin to stack high. In the short term, the acquisition would be far less enhancing to the value of the business than a share buyback of a similar scale. Unilever could control this debt by following through with a subsequent sale of its remaining food businesses. This would be good strategically but materially dilutive.
“Initial investor reaction demonstrates Unilever’s lack of management credibility. Unilever’s management have not demonstrated the ability to consistently grow both sales and margins and as such are now turning to large scale inorganic growth to do so. However, there is not much faith that they will be able to do this with a larger, more diverse range of products. Given vocal investor concern of late and Unilever’s share price reaction this morning, this could prevent a higher offer from materialising.
“Unilever is not an expensive stock trading on 16.5x this year’s expected earnings – a substantial discount to the wider consumer staples category. However input cost pressure and lower disposable income in many markets will make 2022 a difficult year for the company, with GSK’s consumer business or not.”
Unilever has pledged to grow its health, beauty and hygiene business and sell its slower-growing operations. CEO Alan Jope said this morning that GSK Consumer Healthcare would be “a very attractive option” for Unilever but added “it’s not the only option”.
Here’s the full story:
Economy Full story: China warns west against rapid interest rate rise
Central banks should maintain the monetary stimulus or risk “serious economic consequences” from the spillover effects with developing markets bearing the brunt.
In a virtual speech to open the World Economic Forum’s Davos Agenda, the Chinese president, Xi Jinping, said that while global inflation risks were emerging, policymakers should strengthen economic policy coordination and develop policies to prevent the world economy from dipping again.
“We must do everything necessary to clear the shadow of the pandemic and boost economic and social recovery and development,” he said.
“If major economies slam on the brakes or make major U-turns in their monetary policies there will be serious negative spillovers. They would present challenges to global and economic financial stability and developing countries would bear the brunt.”
Economy Fauci warns disinformation is ‘entirely destructive’ to public health fight against Covid-19
Anthony Fauci, chief medical advisor to the President of United States, has warned virtual Davos that disinformation is undermining the battle against Covid-19.
In a World Economic Forum session on the pandemic, Fauci explains that the entire world is facing this disinformation, including in “a very, very disconcerting way in the US”.
It is accompanying a problem where everyone should be pulling together against a common enemy, namely the virus, Fauci explains.
Fauci warned that:
We have disinformation that is entirely destructive to a comprehensive public health endeavour.
I’m not sure how we’re going to counter that, except by getting out as much correct information as we possibly can, and use the social media in a positive way, as opposed to in the somewhat destructive way that it is being used right now.
Fauci also explains that it is too early to say when Covid-19 will become endemic. He says Covid-19 will not be eradicated – pointing out that smallpox is the only infectious disease to be eradicated in man.
But Covid-19 could be controlled – meaning it is present at a level that does not disrupt society.
Fauci also explains that the long-term goal is to develop vaccines that target a commonality among all the real and potential variants, rather than getting into a “whack-a-mole” approach of boosters to every future variant that emerges.
Moderna’s CEO, Stéphane Bancel, explained that scientists are working out how the vaccine should be adjusted for the autumn of 2022:
Annelies Wilder-Smith, professor of emerging infectious diseases at London School of Hygiene and Tropical Medicine, warned there is a ‘high probability’ that we will have another variant.
The question is where, and when, and will it be more or less dangerous than the current variants of concern.
High virus circulation drives the risk of new variants, she explains.
But the hope is that future variants will not become more dangerous. It is likely that the virus will attenuate, so it has high transmissibility but causes less serious disease, Wilder-Smith added.
The Scottish government is in line for a windfall of almost £700m after the largest ever auction of the country’s seabed plots attracted bids from big oil and renewable energy companies hoping to build next generation windfarms.
Crown Estate Scotland will grant permission for oil companies including BP and Shell, renewable energy veterans Scottish Power and SSE, to lease the Scottish seabed to build enough windfarms to power the equivalent of 23m UK homes a year.
The auction awarded seabed permits to 17 windfarm projects, out of more than 70 bidders, which will lay the foundation for companies to develop new wind power farms two-and-a-half times the size of the UK’s existing offshore wind fleet, and equal to Europe’s current combined capacity.
Simon Hodge, the chief executive of Crown Estate Scotland, said the results were “a fantastic vote of confidence” in Scotland’s energy industry, which will deliver almost £700m “straight into the public finances and billions of pounds’ worth of supply chain commitments”.
The Omicron variant knocked UK consumer confidence last month, as people grew less optimistic over the economic outlook.
The latest consumer confidence report from YouGov and the Centre for Economics and Business Research (Cebr) found that:
- Headline consumer confidence declined by -0.5 points in December 2021
- Business activity measures for past month and next 12 months both worsened
- Britons reported that their household finances improved over the past month, but grew more pessimistic about the year ahead
- Home value outlook rose to highest level since May 2017
Back in the UK, Amazon has halted its planned ban on UK-issued Visa credit cards.
The web retailer has dropped plans to stop accepting UK-issued Visa credit cards this week, and says it is working with Visa to resolve a dispute over payment fees.
The company said in an email to customers that:
“The expected change regarding the use of Visa credit cards on Amazon.co.uk will no longer take place on January 19,”
“We are working closely with Visa on a potential solution that will enable customers to continue using their Visa credit cards on Amazon.co.uk.”
Analysts had suggested that a last-minute deal could be reached, and that the row could be a negotiating tactic by Amazon to get Visa to lower its fees.
Economy Covid variants have led to worse global unemployment, says ILO
The outlook for jobs globally this year has worsened markedly since last spring as new variants of the Covid-19 virus have slowed growth and restricted hiring, according to a report from the International Labour Organisation.
In its latest assessment of the state of the labour market, the Geneva-based ILO said unemployment would remain above 2019 levels until at least 2023 and the damage caused by the pandemic would take years to repair.
The ILO said its latest estimates showed there would be the equivalent of 52m fewer jobs globally in 2022 than in the last quarter of 2019, the period immediately before the pandemic struck.
That represents a doubling from the 26m in the organisation’s last labour market update in May 2021.
According to the report, global unemployment will be 207m, a smaller drop from the 214m in 2021 than previously expected and well above the 186m reported in 2019. The ILO said the impact of the pandemic on employment was “significantly” greater than the raw figures suggested, because many people had left the labour force entirely.