Thursday, May 30, 2024

Ireland emerges from technical recession; UK house buyers hit by rise in mortgage payments – business live

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Introduction: Mortgage repayments up 60% since 2021, reports Zoopla

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

A year and a half on from the mini-budget turmoil, UK households are still paying sharply more when they take out a mortgage.

New research from property website Zoopla this morning shows that higher mortgage rates are adding to the affordability pressures on buyers, and dragging on house price inflation.

Zoopla has calculated that the average home buyer taking out a 70% loan to value mortgage now face annual mortgage repayments that are 61% higher today than three years ago (in March 2021) before mortgage rates started to rise.

That’s because mortgage rates are around 4.5% today compared to below 2% in March 2021, meaning average annual mortgage repayments have risen from £7,100 to £11,400.

However, only two-thirds of this increase is driven by higher mortgage rates, with a third down to the fact that house prices are 13% higher than 3 years ago, Zoopla adds.

Londoners (where property prices are highest), face the largest increase, of £7,500 per year.

Buyers in the South West, South East and East of England face paying at least £5,000 per year more.

Across other regions and countries of the UK, the increase is lower, at between £2,350 and £3,900 a year.

Photograph: Zoopla

Mortgage rates had been rising in 2022 as the Bank of England lifted interest rates, and the City anticipated further tightening. But costs then jumped after the unfunded tax cuts in the mini-budget of September 2022 alarmed investors, prompting a selloff in government bonds used to price fixed mortgages.

Liz Truss, though, last week declined to apologise for the sharp rise in interest rates during her time in office, pointing out that mortgage rates have gone up across the world.

But, UK government bond yields (which rise when prices fall) certainly did spike through September 2022:

A Bank of England chart showing the rise in interest rates after the mini-budget of September 2022
A Bank of England chart showing the rise in interest rates after the mini-budget of September 2022 Photograph: Bank of England

Zoopla’s data also shows that house sales volumes are up 12% year on year, in the four weeks to 21 April, putting the market on track for 1.1m sales in 2024, up 10% on last year

But prices dipped by 0.2% month-on-month, while almost two thirds (64%) of all homes are in local markets where prices are lower than a year ago.

A chart showing UK house price changes
Photograph: Zoopla

Factors including higher mortgage rates and stamp duty are behind ongoing price falls across the south of England, Zoopla reckons.

Richard Donnell, executive director at Zoopla, says the market is adjusting to higher borrowing costs; he doesn’t believe prices will start to rise as buyers face much higher mortgage repayments than in the recent past, so sellers should remain realistic.

“The rebound in sales being agreed continues for a fourth month as mortgage rates have fallen, consumer confidence improves and home buyers have much greater choice of homes for sale. The pipeline of sales is growing and we expect 100,000 more people to move home in 2024 than last year.

Also coming up today

Ocado faces a showdown with shareholders at its annual meeting today, over a new pay scheme that could hand boss Tim Steiner a bonus share award of up to £15m.

While in Whitehall, senior officials are worried that Thames Water’s financial collapse could trigger a rise in government borrowing costs not seen since the chaos of the mini-budget.

Officials in the Treasury and the UK’s Debt Management Office fear that, unless the UK’s biggest water company is renationalised as soon as possible, “prolonged uncertainty” about its fate could “damage confidence in UK plc at a sensitive time”….

And in the markets, the FTSE 100 is set to open higher, after its best week since last September.

The agenda

  • 7am BST: Sweden’s GDP report for Q1 2024

  • 8am BST: Spanish inflation report for April

  • 10am BST: Eurozone consumer confidence, and economic & industrial sentiment data for April

  • 11am BST: Ireland’s GDP report for Q1 2024

  • 3.30pm BST: The Dallas Fed manufacturing index

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Key events

Ireland’s return to growth is a sign that tomorrow’s eagerly-awaited eurozone GDP report may bring good news.

Economists predict the eurozone returned to modest growth in Q1 2024, after shrinking slightly in the second half of last year (GDP fell by 0.1% in both Q3 and Q4 2023).

Ireland’s 1.1% growth, and the 0.3% recorded in Belgium this morning, will help that return to growth.

Analysts at Investec said last Friday:

Recent revisions now mean that the Eurozone was in a technical recession in H2, albeit by the slimmest of margins.

Given that economic data at the start of 2024 has been more positive, we expect the Eurozone exited that recession in Q1, with a 0.1% quarterly expansion in output.

Ireland’s economy partially rebounded in the first quarter, a gain that may have helped the euro zone as a whole exit a shallow recession https://t.co/PuXte7ZQaY

— Bloomberg Economics (@economics) April 29, 2024

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Ireland’s technical recession over as GDP rises in Q1 2024

Newsflash: Ireland has escaped a technical recession, after its economy returned to growth this year.

Ireland’s GDP is estimated to have risen by 1.1% quarter-on-quarter in January-March, new data from the Central Statistics Office shows. Growth was driven mainly by an increase in the Information & Communication sector.

That follows a 3.4% tumble in GDP in the final three months of 2023.

Enda Behan, statistician in the National Accounts Data Collection and Quality Division, said:

“In today’s release, GDP is estimated to have expanded by 1.1% in Q1 2024 in volume terms when compared with Q4 2023.

This was driven by an increase in the multinational dominated sector of Information & Communication in Q1 2024. GDP is estimated to have fallen by 0.8% when compared with the same quarter of 2023.

Ireland’s GDP fell in every quarter of last year, shrinking by 3.4% in Q1, 0.1% in Q2 and 2.5% in Q3.

A chart showing Ireland’s GDP Photograph: Central Statistics Office

But….GDP is not a very precise way of measuring the Irish economy, as it is dominated by multinational companies based in the Republic.

Ireland’s government favours another measures, called modified domestic demand, which excludes the large transactions of foreign corporations. Unfortunately we did not have new MDD data today.

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Eurozone economic sentiment weakens

Just in: economic sentiment has fallen marginally in the EU and the euro area, as Europeans fret about their employment prospects.

The Economic Sentiment Indicator declined in the EU (by 0.3 points to 96.2) in April, and by more within the eurozone (where it fell by 0.6 points to 95.6).

The employment expectations gauge fell slightly more sharply.

Confidence among industrial firms, and among services companies, both fell; consumer confidence inched up, but remained in negative territory.

Within individual countries, economic sentiment deteriorated significantly in France (-4.8 points) and more moderately in Italy (-1.3 points), while it improved markedly in Spain (+2.3), Germany (+1.5) and Poland (+1.5).

The ESI remained broadly stable in the Netherlands (rising by 0.3).

A chart showing eurozone economic sentiment Photograph: European Commission

Tomorrow we learn whether the eurozone returned to growth, when GDP data for the first quarter of 2024 is released….

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Belgium’s economy has continued to grow at a modest pace, new data from its central bank shows.

Belgian GDP rose by 0.3% in January-March, the fourth quarter in a row in which a 0.3% expansion was recorded.

Both industry and services grew by 0.3%, while the construction sector shrank by 0.2%.

Photograph: Central bank of Belgium

Sweden’s economy has shrunk for the fourth quarter in a row, leaving it in recession.

Swedish GDP shrank by 0.1% in the first quarter of 2024, Statistics Sweden reported this morning.

Mattias Kain Wyatt, economist at Statistics Sweden, says:

“Swedish economic activity continued to weaken in the first quarter of 2024 with contractions in the months of February and March. This is the fourth consecutive quarter with negative growth.”

Marc Ostwald, chief economist & global strategist at ADM Investor Service, says the data is much weaker than expected.

Sweden’s economy is in a poor run; GDP contracted by 0.8% in April-June 2023, then by 0.3% in July-September 2023, followed by a 0.1% contraction in October-December.

Inflation picks up in some German states

New inflation data today has shown that prices rose in four German states this month.

In Bavaria, the annual inflation rate rose in April to 2.5% from 2.3% in March, in Brandenburg it rose to 3.0% from 2.8%, in Saxony it rose to 2.7% from 2.5%, and in Hesse it rose to 1.9% from 1.6%.

German CPI Bavaria (M/M) Apr: 0.6% (prev 0.4%)
– CPI Bavaria (Y/Y) Apr: 2.5% (prev 2.3%)

— LiveSquawk (@LiveSquawk) April 29, 2024

German CPI Brandenburg (M/M) Apr: 0.6% (prev 0.4%)
– CPI Brandenburg (Y/Y) Apr: 3.0% (prev 2.8%)

— LiveSquawk (@LiveSquawk) April 29, 2024

German CPI Saxony (M/M) Apr: 0.6% (prev 0.4%)
– CPI Saxony (Y/Y) Apr: 2.7% (prev 2.5%)

— LiveSquawk (@LiveSquawk) April 29, 2024

German CPI Hesse (M/M) Apr: 0.6% (prev 0.3%)
– CPI Hesse (Y/Y) Apr: 1.9% (prev 1.6%)

— LiveSquawk (@LiveSquawk) April 29, 2024

Inflation didn’t rise everwhere, though; it was flat at 2.3% in North Rhine-Westphalia, and fell to 2.1% from 2.3% in Baden-Wuerttemberg.

German CPI North Rhine Westphalia (M/M) Apr: 0.4% (prev 0.3%)
– CPI North Rhine Westphalia (Y/Y) Apr: 2.3% (prev 2.3%)

— LiveSquawk (@LiveSquawk) April 29, 2024

German CPI Baden Wuerttemberg (M/M) Apr: 0.3% (prev 0.5%)
– CPI Baden Wuerttemberg (Y/Y) Apr: 2.1% (prev 2.3%)

— LiveSquawk (@LiveSquawk) April 29, 2024

This tees up Germany’s inflation report, due at 1pm today, which is expected to show a rise to 2.3% from 2.2% in March.

German April cpi likely in line with consensus at 2.3%. could maybe round down to 2.2%. Core looks sub-3% to me helped by Easter vola but other bits contributing too. Gas prices up <5% m/m despite VAT hike (few data pts) <– main news if true, will throw of many est. for H2 CPI pic.twitter.com/IZoi9DXBrP

— Oliver Rakau (@OliverRakau) April 29, 2024

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Shares in Dutch medical device maker Philips have surged by a third this morning, after it settled a legal case in the US over its breathing devices, for less than feared.

Philips has agreed to pay $1.1bn to settle all personal injury claims filed in the US over its sleep apnea machines.

The devices were recalled in 2021, over concerns that they used foam which could degrade and become toxic, carrying potential cancer risks.

Philips shares jump more than 30% on US recall settlement news, but the road is long to get back to June 2021 levels, when sleep apnea machine issues were first unveiled pic.twitter.com/qAuc8D5XNL

— IG (@IGcom) April 29, 2024

Lawsuits (see here) have claimed that people who used these devices had developed cancer, lung problems or other injuries due to degraded foam.

Uncertainty over the case had slashed Philips’ market value in the past three years, with forecasts that it could cost around $4bn in a worst-case scenario.

CEO Roy Jakobs told reporters today:

“$1.1 billion is a significant amount, however you put it. This is important to end uncertainty and to provide clarity on our way forward.”

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FTSE 100 starts new week with another record high

The London stock market has begun the new week on the front foot, jumping to a new alltime high.

The FTSE 100 share index jumped by 45 points, or over 0.5%, to a new intraday high of 8185 points.

Prudential are among the top riser, up 3%, after fellow Asia-Pacific insurer AIA Group reported strong results.

UK retailers Frasers are up 3.1% after announcing a new share buyback programme this morning, while Anglo American are also among the risers on speculation that BHP may make a higher bid.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:

‘’Sentiment is upbeat at the start of the week, fuelled by relief that inflationary pressures in the US aren’t as bad as feared, and hopes return that a ceasefire could be negotiated in the Middle East. The FTSE 100 has scaled fresh heights, with another sprint higher in early trade.

April has been a record-breaking month for the blue-chip index, with a glass-half full sentiment dominating. The Footsie has gained more than 11% over the last six months, with super-patient investors finally rewarded by this spurt of growth. The weaker pound against the dollar has been a key player in the power surge, with the greenback gaining ground against a basket of currencies on the latest interest rate expectations.

Investor optimism has been buoyed by a rally on US markets on Friday, and developments in the Middle East. Negotiators from Israel and Hamas expected to meet in Egypt, while US Secretary of State Antony Blinken ups diplomatic efforts at the World Economic Forum in Riyadh, Saudia Arabia.

There’s drama in the foreign exchange market today, with Japan’s yen fluctuating wildly.

The yen hit a new 34-year low, trading at 160 yen to the dollar for the first time since 1990.

But it then rebounded, back to 155 yen/$, stronger than Friday night’s 157 yen/$.

The strength of this recovery has sparked speculation that Toyko may have intervened to support the yen.

This is strange:

At 9:30 PM ET, the Japanese Yen weakened to 160 against the US Dollar for the first time since 1990.

Exactly 2.5 hours after the headlines came out, the ratio just crashed from 160.20 to 156.50.

That’s a ~2.5% swing in one of the biggest currencies in the… pic.twitter.com/yX4YLX7Veh

— The Kobeissi Letter (@KobeissiLetter) April 29, 2024

The yen weakened last Friday after the Bank of Japan kept interest rates on hold, and didn’t provide any sign that it might lift borrowing costs to support the yen.

Robin Brooks, senior fellow at the Brookings Institute, points out that the BoJ is also committed to capping the yield (or interest rate) on government bonds; that makes it harder to take action to support the yen:

The Yen is in free-fall and markets wonder if there’s a red line. There isn’t. The red line that exists is on 10-year JGB yield, which can’t rise as this would cause a fiscal crisis. Japan can’t simultaneously stabilize Yen and cap yields. Japan’s debt put it in a terrible place. pic.twitter.com/27FanuhCiF

— Robin Brooks (@robin_j_brooks) April 28, 2024

Housing market signals “no change” to annual house price inflation from -0.2% in Feb, but seller signals show price reductions reduce down from 82% in Oct 23 to 64% in March 24. This has encouraged buyers to make the most of their move; agreed sales up 12% on last year. However… pic.twitter.com/p2NZFWkXlL

— Emma Fildes (@emmafildes) April 29, 2024

In the City, shares in miner Anglo American have jumped 2.5% at the start of trading, as traders anticipate further takeover drama.

Last Friday, Anglo rejected a £31.1bn approach from larger rival BHP Group, saying it significantly undervalued the miner and its prospects.

Since then, a source has told Reuters that BHP is considering making an improved bid, which could be made in the coming weeks.

Anglo’s shares have risen to £27 this morning, for the first time in just over a year, further above BHP’s initial offer of £25.08 per share.

Elon Musk appears to be flying back from China after a busy, if unexpected, trip to Beijing on Sunday.

A plane linked to Musk has taken off from Beijing, Reuters reported at 6.22am UK time today.

PLANE LINKED TO ELON MUSK TAKES OFF FROM BEIJING, SHOWN HEADED FOR ANCHORAGE, ALASKA – CHINESE FLIGHT TRACKING APP FLIGHT MANAGER #News #Markets #ELON #live

— Capital Hungry (@Capital_Hungry) April 29, 2024

During his trip, Musk held talks with the country’s premier, Li Qiang, and posted:

Honored to meet with Premier Li Qiang.

“We have known each other now for many years, since early Shanghai days.

Over the weekend, Tesla reached a deal with Chinese search giant Baidu for its mapping and navigation functions, which could help the electric car company gain approval for its driver-assistance technology in China.

In another breakthrough, local Chinese authorities removed restrictions on Tesla cars after the company’s China-made vehicles passed the country’s data security requirements. Previously, Teslas had been banned from some government-related properties due to concerns about what data was being collected.

Tesla’s vehicles were not the only ones that passed the data security rules, CNBC points out, adding:

In addition to Tesla’s Model 3 and Model Y, several new energy vehicles from BYD, Lotus, Nezha, Li Auto and Nio passed China’s data security requirements, the China Association of Automobile Manufacturers and the National Computer Network Emergency Response Technical Team/Coordination Center of China said Sunday.

Prices of flats increasing more sharply than other property types, says Halifax

Prices for smaller homes such as flats have been increasing at a faster rate than bigger properties amid affordability constraints, according to lender Halifax this morning.

Halifax reports that the “race for space” that was seen during the coronavirus pandemic has now gone into reverse, with buyers targeting smaller, cheaper homes.

In the year to February, the average price of a flat increased by 2.7%, while the average terraced property value rose by 2.6%, Halifax said.

Prices for semi-detached and detached homes increased at lower rates, rising by 1.7% and 2.0% respectively.

Amanda Bryden, head of Halifax Mortgages, said:

“As interest rates have stabilised and buyers adjust to the new economic reality of owning a home, one way to compensate for higher borrowing costs is to target smaller properties.

“This is especially true among first-time buyers, who have proven to be resilient over recent years, and now account for the largest proportion of homes purchased with a mortgage in almost 30 years.

“We see this reflected in property prices for the first few months of this year, with the value of flats rising most sharply, closing the ‘growth gap’ on bigger properties that’s existed for most of the last four years.”

Knight Frank: house prices are once again under downwards pressure

Zoopla’s calculations showing a rise in mortgage costs come at a time when several mortgage lenders are increasing rates, blaming “market uncertainty”.

The City currently expect just two interest rate cuts this year, less than they expected at the start of 2024, with the first cut fully priced in for September.

Tom Bill, head of UK residential research at estate agents Knight Frank, says

“Housing market activity has rebounded over the last year but the shock of the mini-Budget was still reverberating during the early months of 2023.

The pipeline of sales has grown since Christmas, largely as positivity from January translates into spring listings. Since then, the prospect of the first rate cut since March 2020 has become more remote with each release of economic data, which means mortgage rates have edged back up and house prices are once again under downwards pressure.”

Introduction: Mortgage repayments up 60% since 2021, reports Zoopla

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

A year and a half on from the mini-budget turmoil, UK households are still paying sharply more when they take out a mortgage.

New research from property website Zoopla this morning shows that higher mortgage rates are adding to the affordability pressures on buyers, and dragging on house price inflation.

Zoopla has calculated that the average home buyer taking out a 70% loan to value mortgage now face annual mortgage repayments that are 61% higher today than three years ago (in March 2021) before mortgage rates started to rise.

That’s because mortgage rates are around 4.5% today compared to below 2% in March 2021, meaning average annual mortgage repayments have risen from £7,100 to £11,400.

However, only two-thirds of this increase is driven by higher mortgage rates, with a third down to the fact that house prices are 13% higher than 3 years ago, Zoopla adds.

Londoners (where property prices are highest), face the largest increase, of £7,500 per year.

Buyers in the South West, South East and East of England face paying at least £5,000 per year more.

Across other regions and countries of the UK, the increase is lower, at between £2,350 and £3,900 a year.

Photograph: Zoopla

Mortgage rates had been rising in 2022 as the Bank of England lifted interest rates, and the City anticipated further tightening. But costs then jumped after the unfunded tax cuts in the mini-budget of September 2022 alarmed investors, prompting a selloff in government bonds used to price fixed mortgages.

Liz Truss, though, last week declined to apologise for the sharp rise in interest rates during her time in office, pointing out that mortgage rates have gone up across the world.

But, UK government bond yields (which rise when prices fall) certainly did spike through September 2022:

A Bank of England chart showing the rise in interest rates after the mini-budget of September 2022 Photograph: Bank of England

Zoopla’s data also shows that house sales volumes are up 12% year on year, in the four weeks to 21 April, putting the market on track for 1.1m sales in 2024, up 10% on last year

But prices dipped by 0.2% month-on-month, while almost two thirds (64%) of all homes are in local markets where prices are lower than a year ago.

Photograph: Zoopla

Factors including higher mortgage rates and stamp duty are behind ongoing price falls across the south of England, Zoopla reckons.

Richard Donnell, executive director at Zoopla, says the market is adjusting to higher borrowing costs; he doesn’t believe prices will start to rise as buyers face much higher mortgage repayments than in the recent past, so sellers should remain realistic.

“The rebound in sales being agreed continues for a fourth month as mortgage rates have fallen, consumer confidence improves and home buyers have much greater choice of homes for sale. The pipeline of sales is growing and we expect 100,000 more people to move home in 2024 than last year.

Also coming up today

Ocado faces a showdown with shareholders at its annual meeting today, over a new pay scheme that could hand boss Tim Steiner a bonus share award of up to £15m.

While in Whitehall, senior officials are worried that Thames Water’s financial collapse could trigger a rise in government borrowing costs not seen since the chaos of the mini-budget.

Officials in the Treasury and the UK’s Debt Management Office fear that, unless the UK’s biggest water company is renationalised as soon as possible, “prolonged uncertainty” about its fate could “damage confidence in UK plc at a sensitive time”….

And in the markets, the FTSE 100 is set to open higher, after its best week since last September.

The agenda

  • 7am BST: Sweden’s GDP report for Q1 2024

  • 8am BST: Spanish inflation report for April

  • 10am BST: Eurozone consumer confidence, and economic & industrial sentiment data for April

  • 11am BST: Ireland’s GDP report for Q1 2024

  • 3.30pm BST: The Dallas Fed manufacturing index

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