Time to wrap up…

The sale of Royal Mail’s parent company to the Czech billionaire Daniel Křetínský has been approved by the UK government after a review under national security laws.

The £3.6bn takeover of International Distribution Services (IDS) – the owner of the 508-year-old Royal Mail – by Křetínský’s EP Group was confirmed on Monday morning.

It will be the first time Royal Mail has been controlled by an overseas owner in its history, which can be traced as far back as 1516 under Henry VIII.

The government will retain a “golden share” in IDS, which means any changes to Royal Mail’s ownership, tax residency or headquarters will need its assent. The Royal Mail brand will also be protected for as long as EP owns the company.

EP has also reached agreement with the Royal Mail’s unions, having offered guarantees on job security, and the corporate governance of the company.

Britain’s private-sector firms are cutting jobs at the fastest pace since the Covid-19 pandemic, as they reacts to the tax rises in October’s budget.

Footfall at UK shops has slowed in the last fortnight, suggesting a poor Christmas in on the cards for shops.

But the picture is brighter in the US, where private sector growth is running at a 33-month high.

Canada’s finance minister Chrystia Freeland has resigned, in an apparent policy clash with prime minister Justin Trudeau over how to response to Donald Trump.

Shares in French broadcaster Canal+ have dropped by 20% after making its market debut in London this morning.

America’s economy is ending the year much stronger than the UK, it seems.

Data firm S&P Global reports that US private sector output growth is running at a 33-month high in December, amid a service sector surge.

Its Flash US PMI composite output index has jumped to 56.6 this month, up from November’s 54.9, which shows the fastest expansion since the reopening of the economy from COVID lockdowns in 2021.

The latest poll of purchasing managers also found that expectations of output in the coming year have hit a two-and-a-half year high, reflecting growing optimism about business conditions under the incoming Trump administration.

Employment also edged higher, up for the first time in five months, as firms expanded workforce numbers amid the brighter outlook.

Encouragingly for US central bankers, firms also reported that inflationary pressures cooled again this month, with the average prices charged for goods and services rising at the slowest rate since June 2020.

But while the service sector appears to be booming, manufacturers are report falling output and higher prices.

Chris Williamson, chief business economist at S&P Global Market Intelligence, explains:

The service sector expansion is helping drive overall growth in the economy to its fastest for nearly three years, consistent with GDP rising at an annualized rate of just over 3% in December.

It’s a different picture in manufacturing, however, where output is falling sharply and at an increased rate, in part due to weak export demand.

Encouragingly, confidence in the 12-month outlook has lifted to a two-and-a-half year high, suggesting the robust economic upturn will persist into the new year and could also become more broad-based by sector. However, some of the high spirits seen after the election in the manufacturing sector have been checked over concerns surrounding tariffs and the potential impact on inflation resulting from the higher cost of imported materials. December saw raw material prices spike sharply higher amid supplier-led price rises and higher shipping costs,

There’s a shake-up in the Canadian government today, where finance minister Chrystia Freeland has resigned.

In a letter posted on X, Freeland reveals that prime minister Justin Trudeau had asked her to relinquish the post for another cabinet position.

Writing to Trudeau, she says the pair have been “at odds over the best path forward for Canada,” explaining:

“On Friday, you told me you no longer want me to serve as your Finance Minister and offered me another position in the Cabinet.

“Upon reflection, I have concluded that the only honest and viable path is for me to resign from the Cabinet.”

Freeland, a former Financial Times and Reuters journalist, goes on to argue that Canada must push back against “America First economic nationalism” being pushed by Donald Trump.

The UK biotech PureTech Health has published positive clinical trial results for its lung fibrosis drug, sending its FTSE 250-listed shares up by more than 6%.

Idiopathic pulmonary fibrosis (IPF) affects more than 230,000 patients in the US and Europe, and there have been no new therapies approved in the past decade. IPF has a median survival time of two to five years. More deadly than many cancers, IPF is a progressive disease where over time, scar tissue spreads throughout the lungs and makes the absorption of oxygen increasingly hard.

Over a six-month intermediate (phase 2) trial, patients on PureTech’s drug deupirfenidone experienced a decline in lung function that was similar to what is expected in healthy older adults over the same time frame, suggesting that deupirfenidone has the potential to stabilise the lung function decline that is the hallmark of IPF, the company said. It added that no other study has shown this at six months. The drug was generally well tolerated.

While there are other treatments, antifibrotics, that are effective, their use is limited by tolerability concerns that contribute to nearly three quarters of people with IPF in the US foregoing treatment.

Chief executive Bharatt Chowrira said that if PureTech could repeat the results in a phase 3 trial, it would “represent a step change in the treatment of IPF”.

PureTech has replaced hydrogen atoms in the pirfenidone (one of the approved therapies for IPF – made by Roche) structure with three heavy hydrogen atoms. This changes how the drug is broken down in the body, and makes it easier to tolerate, it explained.

The Boston-based firm is known for its spinoff companies, including Karuna Therapeutics, which was bought by US drugmaker Bristol Myers Squibb a year ago, and Vedanta Biosciences. Deupirfenidone is PureTech’s only internal drug programme.

PureTech was co-founded by the American entrepreneur Daphne Zohar in 2005 and floated on the London stock exchange in June 2015. It is also listed on the Nasdaq. Zohar left in April to lead Seaport Therapeutics, another PureTech spinoff company.

UK retailers are facing the prospect of ‘bleak’ Christmas trading, after a drop in visits to the high street, retail parks and shopping centres in the last fortnight.

Footfall at retailers over the last two weeks has averaged -3.1% below the same weeks last year according to new data from Rendle Intelligence and Insights. That’s a blow, as Christmas trading in 2023 was not great either.

Diane Wehrle, CEO of Rendle Intelligence and Insights, explains:

The subsequent two weeks trading since Black Friday seems to have been lacklustre at best. Experience has shown that trading plateaus in the week or so following Black Friday, however, a week on week drop in footfall into stores of -9.1% followed by a rise of only +7.5% is exceptionally disappointing.

Particularly as it means that footfall over the last two weeks has averaged -3.1% below the same weeks last year, which was recognised as a pretty disastrous Christmas trading period. Moreover, footfall into stores last week dropped further behind 2023 than the week before (-3.3% last week vs -2.8%) the week before last.”.

But… with Christmas falling on a Wednesday there is a full week and then two additional days left to capture consumer spend.

Wehrle says:

“We might yet see a Super Saturday on 21st December!”

Back to the Royal Mail takeover, where the government has just confirmed it has reaches agreement with Royal Mail’s prospective new owners, and approved EP Group’s takeover.

Business secretary, Jonathan Reynolds says it shows the government is working hand in hand with private sector to improve crucial public services.

Under the deal, the UK has negotiated a ‘Golden Share’ in Royal Mail. This should prevent the headquarters of Royal Mail, or its tax base, being moved abroad without UK government approval.

Reynolds said:

For too many years progress on securing a stable future at Royal Mail has stalled, but from day one we have been committed to providing a secure future for thousands of workers and customers.

Today’s agreement is yet another example of this Government’s commitment to working hand in hand with business to generate reform give respite to people right across the UK, as we are working towards ensuring a financially stable Royal Mail with protected links between communities other providers can’t reach.

I’d like to thank EP Group and Daniel Křetínský for their constructive approach to our discussions and their commitment to protecting this national icon. I look forward to working with them to fix the foundations and ensure Royal Mail continues to deliver for the communities and businesses who rely on it most.

Newsflash: UK companies are cutting jobs at the fastest rate since early in the Covid-19 pandemic, a new survey of British purchasing managers shows.

S&P Global’s latest flash PMI report, just released, shows that staffing numbers are falling in December, for the third month in a row, as firms react to October’s tax-raising budget.

The rate of job shedding across the private sector economy was the fastest for almost four years, led by services companies.

Firms are choosing not to replace voluntary leavers due to rising employment costs, the report says, such as forthcoming increases in employers’ National Insurance contributions and the minimum wage.

The increase in employers’ NICs rates is also leading to cutbacks to working hours and longer-term efforts to restructure workforces, S&P Global says

The PMI report shows that there was marginal growth across the private sector this month; its Composite Output Index was unchanged at 50.5, just over the 50-point mark showing stagnation.

But while the services sector grew, there was another contraction in manufacturing.

Worryingly, business optimism fell to the lowest level since December 2022, largely due to an ongoing slide in service sector confidence.

Chris Williamson, chief business economist at S&P Global Market Intelligence says:

“Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise.

“Economic growth momentum has been lost since the robust expansion seen earlier in the year, as businesses and households have responded negatively to the new Labour government’s downbeat rhetoric and policies. Business confidence has sunk to a two-year low as companies weigh up a tougher outlook for sales alongside rising costs, notably for staff as a result of changes announced in the Budget. The survey’s price gauges are indicating that inflation is turning higher again.

“Firms are responding to the increase in National Insurance contributions and new regulations around staffing with a marked pull-back in hiring, causing employment to fall in December at the fastest rate since the global financial crisis in 2009 if the pandemic is excluded.

“While the December PMI is indicative of the economy more or less stalled in the fourth quarter, the loss of confidence and increased culling of jobs hints at worse to come as we head into the new year. Policymakers at the Bank of England may be cautious about cutting interest rates, however, given the resurgence of inflation being signalled, adding further to downturn risks in 2025.”

Back in the financial markets, France’s risk premium has risen this morning after a surprise credit rating downgrade.

Ratings agency Moody’s surprised Paris on Friday night by lowering its rating on French debt to “Aa3” (its forth-highest rating) from “Aa2”.

Moody’s took the unscheduled move following the collapse of Michel Barnier’s government this month, after MPs refused to accept €60bn of tax hikes and spending cuts in his proposed budget.

Moody’s says:

“Looking ahead, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.

“As a result, we forecast that France’s public finances will be materially weaker over the next three years compared to our October 2024 baseline scenario.”

French bonds are a little weaker this morning, pushing up the yield (or interest rate) on its 10-year debt by around 2 basis points, to 3.05%.

German 10-year bunds are little changed, at a yield of 2.25%, so the gap between Paris and Berlin’s borrowing costs has widened.

Kathleen Brooks, research director at XTB, says:

The move by Moody’s brings it in line with Fitch and S&P, but it highlights the focus on French budget deficits and the risks they pose to bond market stability. French bond yields are a touch higher on Monday, but are generally stable.

This comes after bonds sold off in Europe and in the US last week. The French 10-year bond yield rose 16bps last week, the UK yield rose by 18bps, and the 10-year Treasury yield also rose by 18bps. If we see continued upward pressure on yields, then bond market risk could be front and centre after the New Year.