Key events
European shares extended gains to hit a fresh record high, buoyed by strong results from brewer Heineken.
The pan-European Stoxx 600 index rose by 0.2% after hitting a record close yesterday. Germany’s Dax also rose by 0.2% to an all-time high of 22,083.
Heineken shares leapt by nearly 12% after the Amsterdam-based brewing giant reported better-than-expected profits, launched a share buyback and predicted more growth this year, bringing cheer to the beverage sector.
Markets are waiting for US inflation data for January, which could have some bearing on the outlook for interest rate cuts in America, and Federal Reserve chair Jerome Powell’s second day of testimony before Congress.
Yesterday, his main comment was that the Fed doesn’t need to be in a hurry to cut rates, and told the Senate banking committee in his semi-annual testimony:
If the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly.
Barratt Redrow shares jump on upbeat outlook
Barratt Redrow, the merged housebuilding group, is the top riser on the FTSE 100 index, with the shares rallying nearly 7% after it released upbeat results.
The index is flat, though, while other European stock markets have recorded modest gains of between 0.2% (Germany, Italy) and 0.4% (France).
Barratt recently took over Redrow to form a company that aims to build 22,000 homes annually in the coming years. In the six months to 29 December, they constructed a total of 6,846 homes, up nearly 11% from a year earlier, and now expect to deliver completions of between 16,800 and 17,200 this year.
David Thomas, chief executive of Barratt Redrow, said:
The integration of Redrow is progressing well and we are on track to deliver at least £100m of cost synergies, £10m ahead of the original target.
As the economic, political and lending environments have stabilised, there has been some recovery in customer demand and we have seen solid reservation activity since the start of January, building a strong forward sales position. As a result, we now expect our full year adjusted profit before tax will be towards the upper end of market expectations.
Investec analyst Aynsley Lammin said the housebuilder’s targets for completions and operating margins “look very realistic and achievable”.
A solid set of interim results with a positive message post the deal and on the medium-term outlook.
Brussels considers temporary gas price cap – report
The European Commission in Brussels is reportedly considering imposing a temporary cap on EU gas prices after they hit record levels.
European natural gas prices rose to the highest levels in more than two years this week, because of low temperatures and a lack of wind that has held back renewable energy generation. They are between three and four times higher than in the US.
Brussels is considering new powers to temporarily limit gas prices as part of discussions about a “clean industrial deal” policy document to be presented next month, the Financial Times reported, citing three people with knowledge of the talks.
The strategy paper is expected to set out ways to shore up the EU’s heavy industries as businesses grapple with challenges including Donald Trump’s new trade tariffs and the EU’s green energy transition.
Talks around mechanisms to cap prices, though still at an early stage, have drawn a backlash from industry groups which warn against damaging “trust” in the European market. Eleven groups including Europex, the association of European energy exchanges, and AFME, the financial markets lobby group, sent a letter to commission president Ursula von der Leyen yesterday, seen by the Financial Times.
It said:
We believe this measure, if announced, could have far-reaching negative consequences for the stability of European energy markets and the security of supply across the continent.
Coca-Cola may use more plastic bottles in US because of Trump tariffs
Coca-Cola has said it may have to sell more of its drinks in plastic bottles in the United States, if Donald Trump’s tariffs raise the cost of aluminium cans.
It follows Trump’s introduction of 25% tariffs on foreign steel and aluminium entering the US, which could push up the prices of canned food and drink.
Coca-Cola’s chief executive, James Quincey, said the company imports aluminium for its drinks cans from Canada, meaning it is looking for ways to mitigate any price rises resulting from the tariffs. He told investors:
As it relates to our strategies around ensuring affordability and ensuring consumer demand, if one package suffers some increase in input costs, we continue to have other packaging offerings that will allow us to compete in the affordability space.
For example, if aluminium cans become more expensive, we can put more emphasis on PET [plastic] bottles, et cetera.
The Coca-Cola boss, however, also sought to play down the potential impact of tariffs on the business, saying that packaging only accounts for a small part of total costs.
I think we’re in danger of exaggerating the impact of the 25% increase in the aluminium price relative to the total system.
It’s not insignificant, but it’s not going to radically change a multibillion dollar U.S. business, and packaging is only a small component of the total cost structure.
Trump imposed tariffs on foreign steel and aluminium imports in 2018 during his first term in office, although many aluminium can makers won exemptions from penalties. This time, he has insisted that the tariffs will be enforced “without exceptions or exemptions”.
Banks to lobby Reeves on hiring foreign talent
When the UK chancellor, Rachel Reeves, meets with the bosses of Britain’s biggest banks later today to discuss the government’s growth agenda, they will use the opportunity to lobby for a relaxation of rules that hamper the hiring of highly-skilled foreign workers.
The meeting is expected to focus on visas, regulation and tax. The City of London has joined others calling for a more open approach to migration to attract foreign talent.
Miles Celic, chief executive of TheCityUK lobby group, told the Financial Times:
The UK is in a contest for high-quality talent.
It’s important to continue to reduce red tape around bringing high-quality individuals to the UK.
This comes at a time when Sir Keir Starmer’s government is under pressure from the right-wing party Reform UK and has promised to cut migration.
Reeves and Jonathan Reynolds, the business secretary, are busy drawing up an industrial strategy covering eight sectors, including financial services, as part of the government’s growth agenda.
Several sectors, from banking to tech and life sciences, want to be able to recruit top talent from abroad. One official told the FT that “there are big issues around skills and visas”.
Last week, the House of Lords science and technology committee said the UK was committing “an act of self harm” that undermines efforts to attract STEM talent to the UK. It said high visa fees and an inflexible immigration system make it hard to attract science students and early career researchers.
They are seeking residencies in other countries, which means the UK could fall behind in fields such as artificial intelligence.
Introduction: Ofwat to investigate Thames Water over environmental clean-up delays
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Ofwat has opened an enforcement case into Thames Water to investigate whether its delayed delivery of environmental clean-ups means that the company has breached its obligations.
Thames Water committed to deliver 812 schemes as part of the water industry national environmental programme between 2020 and 2025.
However, the company alerted Ofwat and the Environment Agency that it will be unlikely to deliver more than 100 of these projects on time, by 31 March.
Lynn Parker, senior director for enforcement at Ofwat, the regulator for England and Wales, said:
Customers have paid for Thames Water to carry out these essential environmental schemes. We take any indication that water companies are not meeting their legal obligations very seriously. Therefore, we have launched an investigation to understand whether the delayed delivery of environmental schemes means that Thames Water has breached its obligations.
If we find reason to act, we will use our full range of powers to hold Thames to account for any failures and will require them to put things right.
The Guardian reported in late December that Thames Water intentionally diverted millions of pounds pledged for environmental clean-ups towards other costs including bonuses and dividends.
Later today, the chancellor Rachel Reeves is due to meet with the bosses of Britain’s biggest banks, including the chief executives of Barclays, HSBC, Nationwide, Lloyds, NatWest and Santander, to discuss the government’s growth ambitions.
And at lunchtime (UK time), we’ll get the latest US inflation figures, which are expected to show price pressures were steady last month at an annual rate of 2.9%, while the core rate (which strips out volatile food and energy costs) is forecast to have dipped to 3.1% from 3.2%.
Economists at Deutsche Bank led by Jim Reid said:
Today’s report is getting a decent amount of attention, in part because last January’s report saw a strong upside surprise, so the fear is we could get another new year uptick that upsets market expectations for the Fed to still cut [interest rates this year.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:
A set of softer-than-expected inflation numbers could help sooth inflation worries and encourage a deeper retreat in the US dollar and a further advance across the major peers. While a stronger-than-expected set of inflation figures could fuel worries, back a further rise in US [bond] yields and the dollar, and weigh on risk appetite.
The Agenda
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10am GMT: European Central Bank member Frank Elderson speech
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1.30pm GMT: US Consumer price index for January (forecast: 2.9%; previous: 2.9%)
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3pm GMT: US Federal Reserve chair Jerome Powell gives testimony
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3pm GMT: Bank of England policymaker Megan Greene speaks at IoD
