German inflation falls to 4.5%; UK home sellers increase discounts; mortgage rates ease – business live

Italian government bond prices are also weakening, pushing the gap between Italy and Germany’s bond yields wider:

The FT attributes the move to the Italian government raising its fiscal deficit targets and cutting its growth forecast for this year and next, meaning higher budget deficits than expected.

Government bond prices have been sliding today, in a selloff that has gripped the European and US markets.

The drop in prices has pushed up the yield, or interest rates, on these bonds, as investors anticipate that interest rates will stay high for longer than hoped.

UK 30-year bond yields, for example, have risen by 16 basis points to 4.948%, up from 4.779% last night, to the highest level since the market panic after Liz Truss’s mini-budget a year ago.

It’s Party Conference season in the UK, when the main political parties gather with their supporters for a few days of debate and discussion with their grassroots faithful.

And new data commissioned by Bibby Financial Services shows that small businesses have litttle confidence in UK political parties. Nearly one in four (22%) SMEs are unable to identify the political party that best serves their needs.

The survey also shows “a clear shift to the left” with 33% of SMEs saying that the Labour Party best serves their needs, compared to just 26% choosing the Conservative Party.

They add:

● Ahead of next year’s General Election, economic growth and job creation (71%) are the most critical issue for small businesses, followed by tax policies and incentives (68%) and access to affordable financing and loans (46%).

● In terms of specific measures or reforms that the next government could make in 2024, tax incentives is the most popular policy SMEs would like to see (65%), followed by access to low interest loans or grants for business expansion and job creation (57%). Post Brexit, SMEs would also like to see streamlined and simplified regulatory processes put in place, to help navigate compliance requirements (29%).

The John Lewis Partnership is considering raising as much as £150 million by selling and leasing back a dozen of its Waitrose supermarkets, Bloomberg are reporting.

The move comes as the strugging retailer seeks more capital, after it warned this month it will take two years longer to achieve its turnaround goals.

Bloomberg says:

The marketing of the stores will begin next week and mostly includes supermarkets in the south of England with 20-year inflation-linked leases, said the people, asking not to be identified as the information isn’t yet public.

CBRE is acting as agent for the partnership, which owns the upmarket grocer and the John Lewis department store chain, they said, adding that there’s no certainty a deal will take place.

The number of Americans filing new claims for unemployment support remains low by historic standards, despite a small last week.

New data from the US Labor Department shows there were 204,000 new initial claims filed last week, an increase of 2,000 from the previous week.

That’s lower than expected, though, as the US jobs market appears to remain robust despite higher interest rates.

New data has confirmed that the US economy expanded at an annual rate of 2.1% in the second quarter of 2023.

Economists had expected a small rise, to 2.2%. However, upward revisions to nonresidential fixed investment, exports, and inventory investment were wiped out by a downward revision to consumer spending.

John Leiper, chief investment oficer at Titan Asset Management, says interest rate increases have hit consumer spending:

“No major changes to the headline GDP number, in line with last quarter and slightly below expectations. The key data reading for me is Q2 personal consumption which came in noticeably below expectations and the prior reading. It also marks the lowest rate of increase since Q2 2020.

This data follows the weaker than expected consumer confidence report on Tuesday and contributes to a growing sense that the consumer, responsible for much of the US economy’s recent resilience, is starting to buckle under the weight of prior monetary tightening.”

This fall in German inflation may hearten the European Central Bank that its monetary tightening programme is working.

Earlier this month the ECB lifted eurozone interest rates to record highs, pushing up its deposit rate for the 10th consecutive time, to 4%.

German inflation falls to lowest since February 2022

Investors are poised for the latet German inflation data, due in just a few minutes.

But there’s already been encouraging news – inflation in the western German state of North Rhine Westphalia fell to 4.2% this month from 5.8% in August, data released this morning shows.

That is “a huge move that will give the ECB confidence that its decision to all but declare an end to the tightening cycle a couple of weeks ago was correct,” says Craig Erlam, senior market analyst at OANDA.

Eurozone economic sentiment has fallen for a fifth consecutive month, new data shows, adding to concerns over Europe’s economy.

Optimism in services, retail and amongst consumers slipped, but there was a pick-up among industrial companies, according to the European Commission’s monthly survey.

The economic sentiment index fell to 93.3 points in September, down from 93.6 in August, but higher than economists expected.

Spending on petrol and diesel fell in the last week, as motorists were hit by higher prices at the pumps.

The Office for National Statistics has reported that debit card spending on “automotive fuel” fell by 3 percentage points in the week to 24 September 2023.

That is the fourth week-on-week decrease in a row,

That came as average fuel prices increased by 2 percentage points in the week to 17 September 2023, the ninth consecutive week-on-week increase.

Today’s drop in average five-year fixed mortgage rates below 6% shows that the crisis in the market is “turning the corner”, says Myron Jobson, senior personal finance analyst at interactive investor:

“Average mortgage rates continue to pare back from lofty heights seen in July following sizeable falls in inflation, which could mean that interest rates might not peak as high as feared. This is a confidence booster for those looking to take out a mortgage soon.

The latest fall in rates is another sign that the mortgage crisis which has stopped many from participating in the property market this year is turning a corner. The metrics used to price fixed-rate deals give lenders the green light to lower the cost of fixed-rate mortgages in anticipation of a future where borrowing costs will be reduced. The burning question is, how low will mortgage rates go and how fast will they fall?

“While the positive news on the mortgage front is welcome, the property market remains in a state of flux. Would-be buyers and homeowners alike still face much higher monthly repayments than previous years – and a return of ultra-low mortgage rates aren’t forthcoming. Falls in mortgage cost could also keep house prices elevated.”

The owner of discount retailer Poundland has lowered its profit outlook for the second time in less than three weeks.

Pepco Group blamed an “increasingly challenging” trading environment in its core markets of Central and Eastern Europe.

Executive chairman Andy Bond told analysts that a promotion of “Barbie” merchandise helped deliver good underlying sales growth in July, like-for-like sales in the main Pepco business were negative in August and further deteriorated in September.

Bond also blamed a loss of focus from management. He took over running the company earlier this month after CEO Trevor Masters resigned.

The UK’s FTSE 100 index is also falling today, down 50 points or 0.65% at 7544 points.

Housebuilder Barratt (-6.2%) are the top faller, while gambling groups Entain and Flutter are also in the fallers following 888 Holdings cutting its full-year guidance this morning.

The pound, though, is finally rallying after six days of losses – it’s up half a cent at $1.219, up from six-months lows yesterday.

European stock markets hit six-month low

A group of Germany’s leading economic institutes are predicting that its economy will shrink this year as high interest rates and inflation weigh on growth.

Five economic institutes now estimate that German GDP will contract by 0.6% during 2023, down from their spring forecast of 0.3% growth.

They estimate that the economy will contract by 0.4% in the July-September quarter, followed by 0.2% growth in Q4.

Germany’s economy stagnated in Q2, having shrunk for the previous two quarters.

Oliver Holtemoeller, head of the macroeconomics department at the Halle Institute for Economic Research (IWH), explains:

“The most important reason for this revision is that industry and private consumption are recovering more slowly than we expected in spring.

Growth of 1.3% is expected in 2024, rising to 1.5% in 2025.

UK 5-year mortgage rate drops below 6%, first time since July