UK ditches post-Brexit Canada trade talks; Vodafone and Three UK merger under investigation – business live | Trade policy

Will the latest US inflation data be enough to persuade the Federal Reserve that it is time to cut interest rates?

Andrew Hunter, deputy chief US economist at Capital Economics, a consultancy, said:

The December income and spending data confirm that core PCE inflation has been running at an annualised pace in line with the Fed’s 2% target for seven months now. This reiterates the message that there isn’t really any “last mile” of disinflation still to achieve and that, even with real economic growth still resilient, there is plenty of scope for the Fed to start cutting interest rates soon.

US core inflation dropped back in December

Financial markets are saying it’s a toss-up over whether the US Federal Reserve cuts interest rates at its meeting in March.

CME’s Fedwatch tool shows how market participants are betting on interest rate movements to gauge expectations. The below graph shows that for the March meeting the probability of a cut is seen as 49.3%, against 50.7% for the target range for the federal funds rate to stay on hold at between 5.25% and 5.5%.

There is a meeting of the Fed’s rate-setting federal open markets committee (FOMC) next week as well, but almost nobody believes the Fed will move that abruptly.

Economists and traders are gearing up for one of the key data points of this week: the most closely followed gauge of US inflation.

The snappily named core personal consumption expenditures (PCE) index is the measure of inflation that the Federal Reserve references the most when it is weighing up monetary policy. That means that any surprises can roil financial markets.

In November the core PCE inflation fell slightly to 0.1% month-on-month, down from 0.2% in October. The year-on-year reading is expected to dip from 3.2% to 3%, according to a poll of economists.

If that easing of inflationary pressure comes to pass, markets could price in more chance of a rate cut in March.

Bob Savage, head of markets strategy and insights at BNY Mellon, an investment bank, said the core PCE reading was “widely expected to drop to a level to justify the [Federal Reserve] easing in March at 3%, implying 1.9% six-month average annualized, below their target.”

The UK car industry has warned that British carmakers face the prospect of tariffs on exports to Canada after bilateral trade talks between the two countries fell through.

The British industry is able to sell cars to Canadians without tariffs because the two countries agreed to temporarily extend the privileges the UK had as a member of the EU. However, that tariff-free status is due to lapse in April unless the two countries can reach a bilateral deal.

Canada buys 1.3% of UK car exports – fewer than 8,000 cars – meaning it is only a small sliver of trade dominated by the EU and the US. Nevertheless, the prospect of new tariffs can only hurt those carmakers that sell to Canada.

Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, said in a statement to Reuters:

If UK car exports can’t use EU parts and components to avoid additional duties it creates a risk that tariffs, potentially charged on top of luxury goods taxes, could be reintroduced.

Canada is an important market for UK car exports and, given the close ties between our two countries, the suspension of trade talks is especially disappointing and sends a signal that the UK’s world-class automotive products are not welcome in Canada.

Another technology darling (see Intel earlier) that has had a tricky few days is Tesla.

Elon Musk’s electric carmaker slumped by 12% on Thursday after missing analysts’ expectations for revenues in the final quarter of 2023.

The company has started deliveries of its Cypertruck pickup, and it is planning to make a long-teased mass-market model next year. Musk said he was “very excited” about the new model:

This is going to be very profound not just in the design of the vehicle itself but also in the design of the manufacturing system.

However, investors focused more on its profit margins, which have been under pressure as competition in the electric car market increases.

The price of Tesla shares soared during the coronavirus pandemic as huge monetary stimulus combined with a surge in interest in environmentally friendly technology. Yet even Musk warned that the share price was too high in May 2020, before the valuation broke $1tn in 2021 – making it worth more than most of the rest of the car industry combined.

Tesla’s shares were worth less than $55 in May 2020, but were worth $182.6 on Thursday evening, giving the company a market capitalisation of $572bn.

The Conservative peer Michelle Mone and her husband have reportedly had about £75m of assets frozen or restrained by a court order.

The pair face an investigation by the National Crime Agency into alleged medical equipment fraud. The Financial Times reported that the frozen assets included a six-bedroom central London townhouse, a country estate on the Isle of Man, and 15 accounts with Coutts, C Hoare & Co and Goldman Sachs International.

The court order was “a result of a consensual process during which negotiations took place with the CPS”, a spokesperson for Mone and Barrowman told the FT.

“It allows the wider businesses and assets of the Barrowman family to operate normally and free from any restrictions or uncertainties.

“Doug and Michelle did not contest the application and were happy to offer up these assets, which means they can begin the task of proving their innocence more quickly.”

You can read the full story here:

Daily Telegraph chief executive steps down ahead of takeover probe

Mark Sweney

Shares in US chipmaker Intel have slumped in pre-market trading after it revealed a weaker forecast of earnings.

Chipmakers have been flying in recent years as shortages followed by the huge hype over artificial intelligence – which is hungry for processing power – prompted investors to pile into the sector.

Intel was one of the companies that underpinned the rise of the US tech sector to global dominance, but there have been concerns in recent years that it got complacent with its hold on the market for chips in desktop and laptop computers and servers. It largely missed the mobile phone revolution, and much younger rival Nvidia leads in the race to dominate the burgeoning artificial intelligence sector.

Pat Gelsinger, its chief executive, has launched an ambitious and costly effort to make its own cutting-edge chips once more.

Intel’s shares fell by 12% in pre-market trading on Friday.

Lucas Keh, semiconductors analyst at Third Bridge, a research provider, highlighted concerns about its sales of graphics processing units (GPUs) for datacentres, in comments to Reuters:

Although Intel beat estimates, investors’ disappointment in Intel’s datacentre GPU story’s growth can be primarily attributed to the slower-than-expected product delivery and ramp-up.

GPUs are often used alongside central processing units (CPUs), giving abilities that are better suited to artificial intelligence.

The UK’s Competition and Markets Authority said it was inviting views on how the Vodafone/Three merger would affect competition by 9 February.

The phase 1 investigation would need to be completed by 22 March.

The proposed merger has already proved controversial. The Balanced Economy Project, an anti-monopoly campaign group, wrote in the Guardian that it was “a classic monopolisation play that will have classic results – higher prices, stagnant investment, poor service and job cuts”.

The Guardian’s Nils Pratley pointed out in June that you only get one shot at a “four-to-three” consolidation – nobody is knocking down the door to get into the UK’s mature – i.e., not fast-growing – telecoms market.

At the moment the four are Vodafone UK, Three UK, BT/EE and Virgin Media O2. Vodafone and Three argue they are far behind the two leaders, earning well below their cost of capital, and that scale would help them to compete more effectively.

But Unite, one of the UK’s largest unions, said it would be “a terrible deal for Britain”. It believes that mobile network prices would go up by as much as £300 per year if the deal goes through.

Vodafone UK and Three merger to be investigated by competition regulator

There is something of a divergence on European stock markets this morning: while German’s Dax benchmark is still in the negative, down 0.1%, the French and British counterparts are both up by well over 1%.

The FTSE 100 in London has gained 1.1%, with Diageo the biggest gainer. The drinks maker was up 3.9% after French rival Remy Cointreau reported increased sales.

And in France the Cac 40 index (which does not include Remy Cointreau) gained 1.7%.

Part of the gain may be down to Christine Lagarde, the president of the European Central Bank, as markets increased their bets on rate cuts sooner rather than later after comments by her yesterday.

Analysts at Deutsche Bank led by Jim Reid wrote:

ECB President Lagarde struck a more dovish tone than expected, which led investors to dial up the chance of a rate cut as soon as April. So with hopes for a soft landing in the ascendancy, and yet more validation for near-term rate cuts, there was a significant cross-asset rally that saw equities and bonds post gains on both sides of the Atlantic.

Germany’s weak consumer confidence may be one factor holding back the Dax index today, but it is also worth remembering that it is bumping along less than 100 points shy of its all-time record (17,003 points) hit in mid-December. The prospect of rate cuts gets investors excited.

European inflation could fall faster than previously expected according to a survey of EU economists – the flip side of lower output in the bloc’s largest economy.

A survey by the European Central Bank said that headline inflation under the harmonised index of consumer products inflation was expected to decline from 2.4% in 2024 to 2.0% in both 2025 and 2026. Expectations for 2024 were revised down by 0.3 percentage points and those for 2025 by 0.1 percentage points.

The economists pointed to surprise lower inflation readings, lower oil prices and weaker economic activity. GDP growth of 0.6% in 2024, 1.3% in 2025 and 1.4% in 2026 was forecasted on average.

Drop in German consumer confidence prompts fears for recovery

The UK and Canada put in place interim arrangements after Brexit to keep trading terms the same while they negotiated. But the collapse in talks means that the relationship is worse than it was while the UK was part of the EU.

British cheese exporters will be among the sectors which are hit worst, with steeply rising tariffs. Canada’s dairy farmers argue that they should not be made worse off by the UK’s decision to leave the EU. The Canadian Broadcasting Corporation reported:

Representatives from the Dairy Farmers of Canada have argued the UK should be negotiating with the EU to recover its share (15%, based on British population) of the market access Canada handed over to foreign competitors under [trade deal] CETA.

“How is this the Canadian government’s problem to solve?” wrote Jacques Lefebvre, DFC’s CEO, in an email to CBC News.

European stock markets have opened with a mixed picture across the continent, although the UK’s FTSE 100 has jumped.

Here are the opening snaps from Reuters:

• EUROPE’S STOXX 600 UP 0.2%

• BRITAIN’S FTSE 100 UP 0.7%

• FRANCE’S CAC 40 UP 0.5%, SPAIN’S IBEX UP 0.2%

• EURO STOXX INDEX UP 0.1%; EURO ZONE BLUE CHIPS UP 0.1%

• GERMANY’S DAX DOWN 0.1%

British farming lobby welcomes end of Canada trade talks

UK-Canada trade talks break down in beef over cheese