Bond market sell-off drives up government borrowing costs; China’s currency hits 16-month low on tariff fears – business live

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Britain’s FTSE 100 share index has inched higher in early trading, up 15 points (0.2%) at 8260 points.

Banks, whose profits benefit from higher interest rates, are among the risers, while building firms – who benefit from lower borrowing costs – are dropping.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:

‘Inflation concerns have stoked fresh wariness on the markets, with worries that a pressure cooker of prices increases is heating up again. The FTSE 100 has opened slightly higher but gains are likely to be held back as investors assess data indicating that interest rates may have to stay higher for longer.

Indices in Asia also traded lower after a sharp slide in stocks on Wall Street. Cold buckets of caution have been thrown around as multiple data points indicate that higher inflation is becoming persistent.

Flutter's profits hit by run of winning favourites

San Francisco 49ers quarterback Brock Purdy and Detroit Lions defensive tackle Chris Smith during their NFL game last month. Photograph: Terry Schmitt/UPI/REX/Shutterstock

Shares in gambling firm Flutter have dropped in early trading after its profits were hit by a run of winning bets by customers on US sporting events.

Flutter told shareholders that the 2024/2025 NFL season to date has been “the most customer friendly since the launch of online sports betting”, with the highest rate of favorites winning in nearly 20 years.

This run of “very unfavorable US sports results” knocked $260m off Flutter’s profits, on an adjusted EBITDA basis, from November 12 to the end of the year. It had now lowered its revenue and profit guidance for the year.

In the NFL, 77% of favourites won in the fourth quarter of 2024, leading to payouts to customers. It also suffered from games being higher scoring than expected.

Flutter says it lost $74m on the Detroit Lions’ 40-34 win over the San Francisco at the end of 2024.

Flutter shares are down 2.5% in London, and rival Entain have dropped 1.2%.

Britain’s National Energy System Operator has asked electricity generators to make more power available this evening, after spotting that the market could get tight.

NESO has isssued an electricity margin notice for between 4pm and 7pm today, to address a margin shortfall of 1,700 megawatts compared with the amount of power it would like to be available.

In a market notice this morning, NESO says:

“We would like a greater safety cushion (margin) between power demand and available supply.

It does not signal that blackouts are imminent or that there is not enough generation to meet current demand.”

German factory orders drop

Germany’s struggling economy has suffered another blow, with new data this morning showing a drop in manufacturing orders.

German factory orders tumbled by 5.4% month-on-month in November, statistics body Destatis reported, and were 1.7% lower than a year ago.

The fall suggests Germany’s economy may slide into “a light winter recession” says Carsten Brzeski, global head of macro at ING, adding:

In fact, notwithstanding some more technical rebounds, there is still no trend reversal in sight for the German industry. It’s bottoming out at best.

At the same time, disappointing retail sales suggest that the rebound in private consumption in the third quarter is unlikely to continue in the fourth quarter. Unless Christmas shopping brings a positive surprise, private consumption is set to drop, and ongoing political and policy uncertainty combined with re-accelerating inflation make any substantial rebound in consumption unlikely.

China’s currency hits 16-month low on Trump tariff fears

Anxiety that Donald Trump could trigger a trade war once he is reinstalled as US president have hit the Chinese currency today.

The yuan dipped to 7.3316 to the US dollar in trading today, its weakest level since September 2023, and below the daily ‘fix’ set by Beijing which dictates the levels where the yuan can trade.

The currency came under pressure after Donald Trump denied a newspaper report that said his aides were exploring tariff plans that would only cover critical imports.

Trump had previously indicated he could impose tariffs of 60% on Chinese goods into the US, which woud disrupt trade flows.

Wang Tao, chief China economist at UBS, explains:

The yuan is expected to face depreciation pressure, not only from tariff hikes but also from a significantly stronger dollar.

Despite these challenges, we believe the government is determined and capable of managing a relatively moderate depreciation.”

Introduction: Bond market angst as yields rise

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

There are worrying rumblings in the bond markets, alarming investors and creating headaches for finance ministers including the UK’s Rachel Reeves.

The yields, or interest rates, on sovereign debt from the US, the UK and some eurozone countries has been rising in recent weeks, as bond prices have fallen.

Earlier this week, the yield on US 30-year Treasuries rose to its highest level in over a year, and yesterday the yield on 10-year Treasuries climbed six basis points to 4.69% – spooking Wall Street and prompting stocks to slide.

US Treasuries have been weakening as traders lose faith that central banks will cut interest rates as quickly as hoped. Strong data showing a surprise jump in job vacancies at US companies, and rising price pressures in the services sector, added to those worries on Tuesday.

UK debt has aso fallen out of favour with investors, on fears that economic growth will be weaker than expected.

This has pushed up Britain’s borrowing costs, with the yield on 30-year UK gilts hitting 5.242% on Tuesday, the highest in 27 years, and above the peak reached after Liz Truss’s mini-budget in 2022 sparked turmoil in financial markets, to hit the highest level in 27 years.

That eats into Reeves’s fiscal headroom and could force the chancellor to make fresh cuts to public spending to avoid breaking her own fiscal rules.

It also fuelled expectations that the UK could need more tax raises to finance its debt.

Jim Reid of Deutsche Bank explains:

The problem for the UK government is that with yields where they currently are, they are close to breaching their own fiscal rules and as such may require additional tax rises.

Donald Trump also gave investors a jolt yesterday, with a speech in which he didn’t rule out taking Greenland and the Panama Canal by force.

That may be a taste of the turbulent four years ahead, as Chris Weston, head of research at brokerage Pepperstone, explains:

Trump covered thoughts on Greenland, the Panama Canal, Mexico, Canada, the hostage situation in Gaza, Ukraine and tax and immigration policy. For the neutrals in the market, his views, if he is to be credible on the myriads of hard-hitting polices, further raise the prospect of market players navigating fast-moving, headline-driven markets. And where such an unconventional and hawkish approach is something that will soon lose its shock factor.

Whether Trump’s views impacted markets is unclear, but the totality of the speech won’t have done risk any favours, and the buyers (of risk) simply moved aside, and allowed those exiting long risk (equity etc), amid a pick in short positioning, to move prices lower with increased ease.

The agenda

• 7am GMT: German factory orders for November

• 10am GMT: Lords Financial Services Regulation Committee hearing with Bank of England’s Sam Woods

• 10am GMT: Eurozone consumer and economic confidence data for December

• 1.15pm BST: US ADP private payroll data, plus jobless claims at 1.30pm

• 1.30pm BST: US weekly jobless claims

• 7pm BST: Federal Reserve releases the minutes of its latest FOMC meeting