Pound hits two-year high against US dollar; White House ‘pressured’ Facebook on Covid-19 content

Pound hits new two-year high as US awaits rate cuts

The pound has hit its strongest in more than two years against the US dollar as traders remain fixated on the pace of rate cuts from the Federal Reserve.

Sterling rose by 0.2% on Tuesday, but that was enough to push it to a new high against the US dollar. One pound bought $1.3246 at its peak, the highest since March 2022.

The pound fell to near parity with the dollar in September 2022, when Liz Truss and Kwasi Kwarteng unveiled a “mini-budget” that sparked panic in financial markets. Since then, it has recovered.

Sterling rose to a new two-year high against the US dollar on Tuesday. Photograph: Refinitiv

It has risen sharply over the summer in part because of stronger economic growth in the UK, but perhaps more notably because of the Federal Reserve’s signals that it will cut interest rates for the first time since the start of the coronavirus pandemic, after a cycle of tightening that pushed its federal funds rate to a range of between 5.25% and 5.5%.

Currencies tend to appreciate when the home central bank is expected to tighten monetary policy (because assets priced in that currency will yield higher returns for investors). When a central bank is loosening monetary policy – as the Fed is now – the opposite tends to happen.

Fed chair Jerome Powell gave little doubt that the central bank will cut interest rates on 18 September. In a speech last week he said: “The time has come for policy to adjust.”

Key events

Keir Starmer may be warning of pain to come, but the UK economy in 2024 has not been awful – at least if GDP figures are to be believed.

They may well be masking deeper, longer-term problems that could slow productivity growth, but in the short term some traders are clearly convinced of the relative attractions of sterling.

Enrique Díaz-Alvarez, chief financial risk officer at Ebury, a foreign exchange company, said:

The PMI indices of business activity for August provided further proof of the healthy state of the UK economy, with both the manufacturing and service sectors posting numbers consistent with solid and even modestly accelerating growth.

The Bank of England signalled continued cuts, but it kept its cautious tone. We think this opens up a bit of a sweet spot for sterling, as healthy growth is combined with a cautious central bank and what will likely be the highest rates of any G10 economy for at least the next few months.

Pound hits new two-year high as US awaits rate cuts

The pound has hit its strongest in more than two years against the US dollar as traders remain fixated on the pace of rate cuts from the Federal Reserve.

Sterling rose by 0.2% on Tuesday, but that was enough to push it to a new high against the US dollar. One pound bought $1.3246 at its peak, the highest since March 2022.

The pound fell to near parity with the dollar in September 2022, when Liz Truss and Kwasi Kwarteng unveiled a “mini-budget” that sparked panic in financial markets. Since then, it has recovered.

Sterling rose to a new two-year high against the US dollar on Tuesday. Photograph: Refinitiv

Fed chair Jerome Powell gave little doubt that the central bank will cut interest rates on 18 September. In a speech last week he said: “The time has come for policy to adjust.”

British prime minister Sir Keir Starmer delivers a speech in the garden of 10 Downing Street in London on Tuesday. Photograph: Tolga Akmen/EPA

Keir Starmer is readying the county for a “painful” budget – or at least is managing expectations and trying to pin the blame on the previous Conservative government.

In a speech this morning Starmer warned that the government’s forthcoming Budget will be “painful” as he asked the country to “accept short-term pain for long-term good”.

Starmer said those with the “broadest shoulders” will carry the heaviest burden. He stressed that taxes on “working people” – namely national insurance, VAT and income tax – will not be increased in the 30 October budget, but stressed that “things will get worse before they get better”.

You can follow all the reaction to the speech with Andrew Sparrow on the politics live blog:

Hobbycraft sold to retail investor Modella

Modella Capital said it will invest in Hobbycraft stores. Photograph: Hobbycraft/PA

Arts and crafts chain Hobbycraft has been bought by retail investor Modella Capital for an undisclosed sum. Modella said it will invest in Hobbycraft’s stores.

Private equity investor Bridgepoint put the chain up for sale in February. At the time the Sunday Times reported that Bridgepoint was considering taking a steep loss on the sale.

Bridgepoint bought Hobbycraft for £100m in 2010, but was reportedly considering a sale for between £60m and £70m. Bridgepoint had overseen investments that doubled the retailer’s store estate and also included a new warehouse in Burton, Staffordshire, according to Retail Gazette.

Modella was an investor in the UK licensing partner of fashion retailer Ted Baker, which collapsed into administration earlier this year.

Modella Capital managing director Joseph Price said:

Hobbycraft is a business with fantastic potential, boasting a highly experienced management team, truly passionate store colleagues and real authority in a sector on the high street that continues to grow and is set to do so in the future.

We look forward to accelerating the team’s growth strategy through investment in the physical footprint of the group, displaying a real commitment to bricks and mortar retail, and by enhancing the returns generated from their existing sales channels, including their growing online business.

Dominic Jordan, Hobbycraft’s chief executive, said:

We are delighted that Modella Capital is the new owner of this great business. Their deep understanding of the retail sector, shared vision and cultural values, combined with significant reserves of growth capital, make them an ideal partner.

I would also like to thank Bridgepoint for their support and collaboration over the past 14 years. Hobbycraft has evolved into a leading name in the arts and crafts sector and I am confident that, together with Modella Capital, we have a very bright future ahead of us.

Hobbycraft’s pre-tax losses rose to £16.2m for the 12 months ended 19 February, widening from £7.4m a year earlier, even as revenues rose from £203m to £211m, according to ShareCast.

Martin Sartorius, principal economist at the CBI, said:

Retail sales volumes continued to disappoint in the year to August, with contractions also being seen in the wholesale and motor trade sectors. Retailers reported increased caution regarding their investment and hiring plans, which seemed to reflect concerns about persistently weak demand conditions. Although households seem to still be feeling the pinch from the cost-of-living crisis, firms should gradually begin to see some tailwinds from consumers’ rising real incomes.

The sector will want to see measures in the budget this autumn to give certainty to firms and incentivise investment. Reforming business rates, introducing a business tax roadmap, and changing the apprenticeship levy would help businesses to deliver on the government’s ambitions to supercharge the economy.

UK retail sales declined for third month in a row says CBI data

Retail sales fell for a third month in a row, with businesses scaling back hiring and investment plans, according to data just published by the Confederation of British Industry (CBI).

The balance of retailers who said that sales declined in the year to August was 27%, the CBI said. That was better than the 43% who said sales declined in July, but hardly a vote of confidence.

Retailers are less optimistic that things will pick up. A balance of 13% of retailers said they expected the business situation to deteriorate in the next three months, compared with a balance of 2% who had said that things would improve back in May.

Founder and chief executive of Telegram Pavel Durov delivers a keynote speech during the Mobile World Congress in Barcelona, in 2016. Photograph: Albert Gea/Reuters

There is intense scrutiny on social media bosses at the moment. Telegram founder Pavel Durov is one such example: he has been arrested by France as part of investigation on allegedly illicit transactions, child sexual abuse, fraud and the refusal to communicate information to authorities.

Durov left his native Russia and the government took control of the social network, VKontakte, which Durov had made into Russia’s dominant social network. Durov then founded Telegram, which is particularly widely used in Russia and the Middle East – even though the platform is not as secure as some rivals.

You can read about the reasons for his arrest here:

Durov has won support from some notable people who say his arrest is an attack on freedom of speech. Those backers include Elon Musk, the billionaire owner of X, which rivals Telegram in some respects.

Another – perhaps more surprising – supporter: the Kremlin.

In comments reported by Reuters, a spokesperson for the Russian government said that the arrest will be seen as (checks notes) an attempt to restrict freedom of communication unless the accusations are backed up by evidence.

The Kremlin said that it hopes that Durov will be able to organise a legal defence against very serious allegations.

Some of the shine has come off European stock markets. The FTSE 100 is now only up by 0.2%.

London’s benchmark index has not been helped by weakness in the property industry. Developer Berkeley Group is the biggest faller, down 2.7%, while Persimmon, Barratt Developments, Vistry Group and Taylor Wimpey are all down by between 1.9% and 2.3%.

Mark Zuckerberg says White House put pressure on Facebook over Covid-19 content

Meta boss Mark Zuckerberg has said the US government under Joe Biden put pressure on the Facebook social network to “censor certain Covid-19 content” during the coronavirus pandemic.

Zuckerberg said that “senior officials” from the White House “repeatedly pressured our teams for months to censor certain Covid-19 content, including humour and satire”, in a letter to the US House of Representatives’ judiciary committee. He wrote:

I believe the government pressure was wrong, and I regret that we were not more outspoken about it. I also think we made some choices that, with the benefit of hindsight and new information, we wouldn’t make today.

Meta chief executive Mark Zuckerberg speaks during a Senate Judiciary Committee hearing with other social media platform heads on Capitol Hill in Washington in January. Photograph: Susan Walsh/AP

Zuckerberg also said that Facebook “temporarily demoted” a story about the contents of a laptop owned by Hunter Biden, the president’s son, after a warning from the US Federal Bureau of Investigation (FBI) that Russia was preparing a disinformation campaign against the Bidens.

Zuckerberg wrote that it has since become clear that the story was not disinformation, and “in retrospect, we shouldn’t have demoted the story”.

The admissions will probably fuel criticisms of tech companies and the Biden administration by Republicans. They control the judiciary committee, and posted Zuckerberg’s letter on – of all places – the committee’s Facebook page. “Big win for free speech”, the page’s administrators wrote in the post containing the letter.

Zuckerberg also said he would not donate money towards US election infrastructure, after facing criticism from Republicans that similar donations in 2020 benefited the Democratic party.

Airline share prices rise after Ryanair says fare declines will be limited

European airlines have risen across the board after Ryanair boss Michael O’Leary said the worst-case fare falls (from investors’ perspective rather than consumers) had been avoided.

EasyJet gained by 4.3%, Wizz Air gained 7% and British Airways owner International Airlines Group rose by 1.4%. Frankfurt-listed Deutsche Lufthansa and Paris-listed Air France KLM rose by 2.6% and 2% respectively.

A Boeing 737 flown by Ryanair. Boeing has struggled to deliver more 737-Max planes on time. Photograph: Pau Barrena/AFP/Getty Images

Ryanair boss Michael O’Leary has given typically short shrift to plane manufacturer Boeing, saying that relations with the new management are “difficult”.

Boeing is struggling to increase the production rate for its aircraft after another year of crisis. In January a door plug panel blew out from a flight, renewing regulatory scrutiny of the company after years of trying to repair the damage from two fatal crashes in 2018 and 2019 that were caused by design flaws.

Ryanair, the biggest airline in Europe, is one of Boeing’s biggest customers. O’Leary, a tough negotiator, is rarely one to pull his punches.

O’Leary told Reuters in an interview on Tuesday that things with Boeing are “difficult”. The Irish airline was due to receive seven and 10 new aircraft from Boeing in July and August respectively, but will only received ten in total, he said.

Ryanair is working with Boeing’s new management, after Stephanie Pope took over its commercial aviation arm, but “they continue to disappoint us”, O’Leary said.

Ryanair shares rise as O’Leary says fare decreases will be limited to 5%

Ryanair chief executive Michael O’Leary speaks during a press conference in 2023. Photograph: Evelyn Hockstein/Reuters

Ryanair shares have risen after boss Michael O’Leary said that fares will fall by less than 10%, reassuring investors who had feared steeper reductions in prices.

The Irish airline alarmed the aviation industry last month when it warned that fares could drop by more than 10% as it missed analyst estimates for sales.

O’Leary on Tuesday said that he expected a fall of about 5% compared with last year, in an interview with Reuters. That prompted a 4.6% rally in the Dublin-listed airline’s share price, although it remains down by 17% over the course of this year.

The risk of what O’Leary at the time called an “ugly scenario” of double-digit falls in average fares “looks like it has disappeared,” O’Leary said. That suggests that passengers are happier to pay more for flights.

O’Leary said:

While fares were kind of softening during April, May and June, that has leveled out.

Germany is struggling so much because it is facing cyclical headwinds at the same time as deeper structural changes, said Carsten Brzeski, global head of macro at ING, a Dutch investment bank.

He said:

The German economy had started the year with some optimism. First-quarter GDP growth was a positive surprise and confidence indicators improved, giving rise to hopes that the pessimism of the last few years was behind us, and that discussions about whether or not Germany was the “sick man of Europe” could be put to one side. The truth, however, is that GDP growth in the first quarter was driven by the mild winter weather and a downward revision of fourth quarter GDP. Therefore, it was not what we would call a sustainable and healthy growth story.

With disappointing second-quarter growth and almost all confidence sentiment indicators pointing south, the German economy is currently back where it was a year ago: stuck in stagnation as the growth laggard of the entire eurozone.

Still, we are not ready, yet, to give up on at least some optimism for the second half of the year. The highest increase in real wages in more than a decade could still open German consumers’ wallets and there only needs to be a small improvement in industrial orders to bring the long overdue turning of the inventory cycle. Admittedly, hopes of a consumer-driven recovery in the second half of the year got another hit this morning with consumer confidence dropping.

The numbers from Germany’s economy are not very promising, but there may well be some reasons to be hopeful, said Melanie Debono, senior Europe economist at Pantheon Macroeconomics, a consultancy.

There have been worrying signs from business surveys, today’s GDP figures show very weak business investment, and today’s GfK consumer sentiment numbers are not very promising for spending. Yet Debono said it is not all bad.

She said:

The recession in industry [reasserted] itself after signs it may have been fading in previous months. Investment in machinery and equipment will likely remain in the doldrums.

But inventories, we think, are on the cusp of a sustained rebound. We still believe, meanwhile, that consumers’ spending, will rebound on the back of the improvement in real income growth. Today’s other release, showing consumer confidence fell back at the end of the third quarter, bodes ill but these data have only a weak relationship with retail sales and consumers’ spending figures more widely.

On the Paramount bid battle, here is what the various parties had to say.

Edgar Bronfman officially dropped out of the running on Monday evening. Reuters reported that a source said that some of the equity partners had dropped out.

Bronfman said in a statement:

We continue to believe that Paramount Global is an extraordinary company, with an unrivaled collection of marquee brands, assets and people. While there may have been differences, we believe that everyone involved in the sale process is united in the belief that Paramount’s best days are ahead.

Paramount said the deal with Skydance will close in the first half of 2025.

Charles Phillips Jr, chair of Paramount’s special committee, said:

Having thoroughly explored actionable opportunities for Paramount over nearly eight months, our special committee continues to believe that the transaction we have agreed with Skydance delivers immediate value and the potential for continued participation in value creation in a rapidly evolving industry landscape.

The biggest gainer on the FTSE 100 this morning is Bunzl, which distributes packaging, cleaning products and personal protective equipment.

It may not be the most glamorous name on London’s benchmark index, but it has wowed investors this morning with a big upgrade to its profit forecast thanks to higher profitability.

It also said it will buy back shares worth £450m. Frank van Zanten, chief executive of Bunzl, said:

I am very pleased with the performance of the group during the first half of 2024, with strong growth in adjusted operating profit for the period.

London’s FTSE 100 is the pick of Europe’s stock markets this morning, as investors catch up from a bank holiday on Monday.

Most of the other main indices are fairly flat in the opening trades. Here are the opening snaps, via Reuters.

EUROPE’S STOXX 600 UP 0.2%
BRITAIN’S FTSE 100 UP 0.4%
FRANCE’S CAC 40 UP 0.1%; SPAIN’S IBEX FLAT
EURO STOXX INDEX FLAT; EURO ZONE BLUE CHIPS FLAT

German GDP down 0.1%; Bronfman drops Paramount bid

Good morning, and welcome to our live coverage of business, economics and financial markets.

Germany’s economic outlook has worsened as GDP was confirmed to have fallen in the second quarter and consumer sentiment slumped, according to figures published on Tuesday.

GDP fell by 0.1% in the second quarter, confirming the previous estimate, said Destatis, the federal statistics office. GDP in the first quarter of 2024 was up 0.2% on the previous quarter, unrevised from the last reading.

Meanwhile job concerns weighed on German consumer sentiment. GfK’s closely followed index fell to -22 points for September. That was down from a slightly revised -18.6 the month prior and below a forecast by economists polled by Reuters for -18.2.

Ruth Brand, Destatis’s president, said:

After the slight increase in the previous quarter, the German economy slowed down again in spring.

Germany’s economy has narrowly avoided a technical recession for a year and a half, alternating between a contracting economy followed by expansion. Two consecutive quarters of contraction is one commonly used definition of recession.

Germany’s GDP growth rate has narrowly avoided a technical recession since early 2023, alternating between contraction and expansion each quarter. Photograph: Trading Economics

Edgar Bronfman drops bid for Paramount

Media industry veteran Edgar Bronfman has dropped his bid to take over Paramount Global, paving the way for a $28bn (£21bn) deal with Skydance to proceed.

Bronfman, a former Warner Music chief executive, had gathered a consortium of investors to try to gazump Skydance after it last month agreed a merger (described, of course, as a blockbuster) with Paramount. The deal will, if it goes through, sever links with the Redstone family, whose media empire has included Paramount since 1994.

That deal had a “go shop” period in the terms, allowing Paramount to evaluate other offers. Bronfman gathered a consortium to offer $4.3bn and then $6bn to Shari Redstone, who controls the company. However, he failed to come up with the equity to finance the deal, Reuters reported, citing unnamed sources.

Paramount is the company behind classic films such as The Godfather, Titanic and Breakfast at Tiffany’s. It also owns the television network CBS and channels including MTV, Nickelodeon and the UK’s Channel 5.

Skydance, a film production group, is led by the producer David Ellison, the son of Larry Ellison, the tech tycoon who co-founded Oracle.

The agenda

11am BST: UK Confederation of British Industry distributive trades index (August; previous: -43; consensus: -11)
2pm BST: US S&P/Case-Shiller home price index (June; prev.: 6.8% year-on-year; cons.: 6%)