Santa rally building in the stock market
A Santa rally may be building in Europe’s financial markets today, despite worries about the economic outlook and political instability in France and Germany.
In London, the FTSE 100 share index has risen to a six-week high this morning, up 56 points or 0.7% at 8369 points.
Budget airline easyJet is the top riser (+4%), after a stock upgrade from UBS, with mining company Antofagasta (+2.3%) and banks Barclays (+1.9%) and NatWest (+1.8%) not far behind.
In Berlin, Germany’s benchmark DAX stock index has broken through the 20,000-point barrier for the first time, despite the recent government collapse that has led to a new election being called for next February.
Paris’s CAC 40 has gained 0.6% today; risers include luxury goods makers Hermes and LVMH, on hopes of more stimulus measures in China.
Europe’s gains follow a strong day on Wall Street, where the S&P 500 and the Nasdaq finished at new all-time closing highs last night.
Kathleen Brooks, research director at XTB, says:
December is Santa rally territory and so far, it’s got off to a good start. European equity markets are a sea of green on Tuesday, and French markets are bouncing back.
For now, the markets are ignoring the geopolitical risks bubbling around the world. The French government is poised to collapse at some point this week, and China has decided to ban the export to the US of some items that can be used for military purposes, including gallium, geranium and other superhard materials.
It will also use implement a stricter screening process for graphite exports to the US, which is a crucial input to produce lithium batteries. It will be interesting to see how Elon Musk reacts to this, and it suggests that the rest of the world will meet President Trump’s war on global trade blow for blow.
French stocks are rallying despite the prospect of Michel Barnier’s government falling this week.
Yesterday, leftwing and far-right parties lodged motions of no confidence after Barnier decided to push through a belt-tightening budget without a vote.
Mujtaba Rahman. managing director of Eurasia Group, reckons Barnier has only a 20% chance of surviving the censure vote on Wednesday afternoon. If his government falls, all Barnier’s unfinished legislation—including the rest of the 2025 budget plan—falls too.
Rahman says:
France now faces its second period of political turmoil in less than five months at a time of gathering international crisis; President Emmanuel Macron will have to appoint a new Prime Minister rapidly—just possibly Barnier again but more likely a stopgap figure—in order to pass emergency tax legislation to keep the French government functioning beyond 1 January.
Key events
Closing post
Time to recap…
The shock news that martial law has been declared in South Korea has rocked its currency, and hit shares in the company’s stocks.
The won has fallen to a two-year low today, as traders react to president Yoon Suk Yeol’s stunning decision to challenge the left-wing parliamentary group that controls the national assembly, by banning political activity.
Shares in South Korean ETFs tumbled, while Samsung’s stock fell over 5% in London.
Here’s the latest:
The worrying news from Seoul took the shine off a rally in European stocks today, where the FTSE 100 is on track for a six-week closing high.
In Germany, the DAX index climbed over the 20,000 point mark for the first time, sparking talk that a Santa Rally may be taking off in Europe.
In London, anti-Barclays protesters have gathered at a banking summit….
….where its former CEO accused the UK government of a “get those fuckers” attitude towards bankers.
Luxury carmaker Jaguar has unveiled its much-anticipated concept electric car, to a better reception than it may have feared.
The boss of the Japanese bank Nomura has apologised and taken a voluntary pay cut after a former employee was charged with robbery and attempted murder of a customer.
Labour will miss its manifesto target of building 1.5m homes in England before the end of this parliament without more radical reform to the planning system, the thinktank the Centre for Cities has warned.
The Office for National Statistics has conceded it may not be ready to replace its defective employment survey with a more accurate series until 2027, despite complaints from policymakers about the quality of the existing data.
Exports of British food to the EU have dropped by nearly £3bn a year since Brexit, a trade thinktank has said, with new physical and documentary checks at the border complicating trade.
South Korea vows to make ‘all possible’ support available for markets
South Korea’s finance minister has declared that the government will deploy all possible measures to stabilize financial markets if needed.
Following an emergency meeting with top economic officials in Seoul, Choi Sang-mok said:
“We will mobilize all possible financial and foreign exchange market stabilization measures, including unlimited liquidity injections.”
Bob Diamond: UK’s ‘get those fuckers’ attitude has hurt banks
Back in London, ex-Barclays CEO Bob Diamond says one of the reasons that UK banks are struggling compared to their US counterparts, is that the UK government doled out “biblical justice” in response to the 2008 financial crisis.
This, he says, resulted in a “get those fuckers” attitude towards bankers.
Diamond said the US had a relatively pragmatic response to the crisis, which amounted to three rules: one, that the banks had to repay their government bailouts; two, that they couldn’t repay those government debts until they passed stress tests; and three, until they repaid the government, those banks could not pay bonuses to bankers or dividends to shareholders.
Across the pond, it was a very different story. Diamond told the FT Banking Summit:
“In the UK and in Europe, it was biblical justice: ‘Let’s get those fuckers. Let’s get those banks. Let’s really hurt them’.
“And I think the result of that has been very, very apparent, which is Royal Bank of Scotland is still owned by the government, and Barclays is still under pressure because they didn’t take money from the government. So my view is it was very, very different in the US than it was in the UK and Europe. And I think the US economy has been a beneficiary.”
South Korea’s martial law commander Park An-su has declared that all political activities are banned, and all media will be subject to government monitoring.
The Yonhap News Agency is reporting that members of the national assembly have been banned from entering the building, with the South Korean military having reportedly announced the suspension of all parliamentary activity.
Our liveblog has more details:
Warning of UK power supply crunch tonight cancelled
Jillian Ambrose
Great Britain’s energy generators were called on to ramp up their electricity output after the energy system operator warned that the country faced an energy supply crunch this evening, before dropping the warning.
The National Energy System Operator (Neso) triggered an official warning over Britain’s power supplies shortly after lunchtime on Tuesday, just hours before an expected squeeze on the country’s electricity forecast for 17.30pm (as covered earlier).
It later removed the warning notice saying it had “enough electricity generation to meet demand and continue to operate the system as normal”.
Power supplies were expected to be tight due to a drop in wind power generation which has coincided with higher demand due to the cold snap. In the early afternoon wind power contributed just 7% to the UK’s electricity supplies, while gas-fired power plants made up 55% of all power generation, according to Neso data.
As a result by the early evening Britain’s electricity supplies were expected to be less than 1% above the forecast peak in power demand. This is well below the threshold set out in market rules to operate the power system safely.
Neso raised a red flag weeks after predicting that the risk of winter blackouts in Great Britain had tumbled to its lowest in four years – even after the shutdown of the UK’s last coal plant, thanks to investments in low-carbon electricity sources.
In its winter outlook report Neso said it expects Britain’s winter power supplies to outstrip demand by almost 9% this year in its base case scenario, the greatest margin since the winter of 2019 to 2020.
The capacity market notice is intended to spur generators to step in to sell electricity to the grid at short notice, often for lucrative fees, or encourage companies that use energy to reduce their demand in return for payments.
New York-listed shares in South Korean companies have also dropped.
POSCO, the South Korean steel manufacturer, are down 7% on Wall Street.
Telecoms giant KT Corp are down 3.8% in New York.
South Korean ETFs dropping
Exchange traded funds which track South Korean shares are also falling sharply.
The MSCI South Korea ETF is down 5.1%, while the Franklin FTSE South Korea ETF has dropped by 3.9%.
Samsung’s London-listed depository receipts fall 5.4%
London-listed depository receipts in South Korean tech giant Samsung have tumbled by 5.4%, Reuters reports.
Those depositary receipts are financial instruments that represents shares of a foreign company that are traded on a local stock exchange. It’s a sign that stocks on the South Korean stock market may fall sharply when trading resumes on Wednesday.
The South Korean currency has fallen to as low as 1,430 won to the dollar, the lowest since late October 2022.
That’s a drop of over 1.8% today.
South Korean won hits two-year low after martial law declared
Newsflash: the South Korean won has dropped to a two year low after the country’s president stunned citizens by declarinig martial law is in place.
In an unannounced late night TV broadcast, South Korean President Yoon Suk Yeol declared he would eradicate “shameless pro-North Korean anti-state forces”.
Reuters reports that he did not cite any specific threat from the nuclear-armed North, however, instead focusing on his domestic political opponents instead.
Yoon said he had no choice but to resort to such a measure in order to safeguard free and constitutional order, insisting:
“I declare martial law to protect the free Republic of Korea from the threat of North Korean communist forces, to eradicate the despicable pro-North Korean anti-state forces that are plundering the freedom and happiness of our people, and to protect the free constitutional order.”
Lee Jae-myung, leader of the opposition Democratic Party, which has the majority in parliament, warned in response that “The economy of the Republic of Korea will collapse irretrievably”, adding:
“My fellow citizens, please come to the National Assembly.”
Britain’s energy supply margin could fall below threshold
Britain’s power supply margins could fall below target tonight, partly due to low wind speeds hitting renewable power generation.
The National Energy System Operator has reported that the country’s electricity supply margin could drop below the threshold set out in its capacity market rules by 1730 GMT on Tuesday.
Under the capacity market scheme, generators are paid to make sure power generation is available at times when demand is high.
National Grid’s Electricity System Operator said on its website that expected aggregate capacity was 47,166 megawatts (MW), compared with a transmission demand and operating margin of 46,717 MW.
ESO added:
“No definitive information regarding additional capacity is currently available to the Electricity System Operator.”
Currently, wind is only providing 14.5% of the UK’s power generration, with over half coming from gas.
France’s risk premium against Germany has narrowed today, even though Michel Barnier’s government may collapse tomorrow.
The yield, or interest rate, on 10-year French bonds has dipped very slightly today, to 2.91%, while the yield on the German equivalent has risen slightly, to 2.05%.
That narrows France’s debt premium over Germany, which hit a 12-year high last week.
That’s despite the likelihood that Barnier loses a no-confidence vote tomorrow, over his decision to force the social security budget through parliament.
BBVA CEO still mulling whether to sell TSB
Kalyeena Makortoff
The CEO of BBVA says he has not yet decided whether he will sell UK high street lender TSB if his bank succeeds in its $13bn hostile takeover of rival and TSB owner Sabadell.
Onur Genc told the FT Banking Summit that he was “neutral” about whether to keep TSB in any future combined banking group:
“We have to see once we complete the deal.”
He insisted that his main focus is on bolstering its operations across Spain.
“Local scale is important and that’s why we are doing the deal”
Last week, the European Commission said it did not have any objections to the takeover of Sabadell – the Spanish lender that was created in 1881 by 127 families in Catalonia – after completing a foreign subsidies review.However, the bid still faces a longer antitrust review by Spain’s competition watchdog, the CNMC, that could extend the process well into next year.
A sale of TSB would mark the third major ownership change for the UK bank, which was hived off from Lloyds in 2013 as part of efforts to boost competition following its £20.3bn government bailout in 2008.
TSB returned as a standalone high street bank nearly 20 years after it was snapped up by Lloyds in 1995. Led by chief executive Paul Pester, the new TSB spanned 631 branches and boasted 8,500 staff.
It eventually floated on the UK stock exchange in 2014, but was bought by Sabadell a year later, marking one of the biggest cross-border banking deals since the financial crisis.
Sabadell explored a potential sale of the bank in 2020 but later abandoned those plans, even as it continued to nurse the fallout of a major IT meltdown in 2018.
