Eurozone facing ‘sizeable’ activity hit from trade tensions
The eurozone economy will suffer a “sizeable hit to activity” from the rise in trade tensions, Goldman Sachs warns.
They say today that recent events support their forecast of weak Euro area growth, ongoing disinflation and continued sequential interest rate cuts by the European Central Bank.
Goldman say:
First, we expect a sizeable hit to activity from the ongoing rise in trade tensions.
While the Euro area might benefit slightly from trade diversion associated with any US tariffs on Canada and Mexico, President Trump has reiterated his plan to also raise tariffs on the EU.
They predict that “elevated trade policy uncertainty” will weigh on growth in coming months, mainly via lower investment and confidence.
“Trade diversion” refers to the possibility that manufacturers in countries facing new US tariffs decide to sell their goods in Europe rather than the US.
Goldman also warn that the eurozone labour market is slowing, with unemployment ticking up in France and Italy, and wages cooling.
Key events
Oil price falls after tariffs delayed
The oil price has fallen back today, amid relief that the US delayed tariffs on Canada – which sends most of its oil exports across its southern border – and Mexico.
The US crude oil price has dropped by 2.25% to $71.53 per barrel, while Brent crude is down 1.4%. Both benchmarks rose yesterday as the markets anticipated that a trade war would cause supply disruption.
Today’s falls may also reflect concerns that the new US-China tariffs will weaken economic growth.
Razan Hilal, market analyst at City Index, says “bearish sentiment dominates crude oil,” adding:
Crude oil dipped below $72 following a short-lived rally on tariff concerns. The next key support levels to watch are $69.50 and $66.
A deeper decline could signal the start of a more extended bearish trend.
Shares in gambling group Entain have jumped by 8% after its US sports betting arm, BetMGM, announced it expects to make a profit this year.
BetMGM, joint owned by Entain and MGM Resorts, told shareholders that it expects the 2025 financial year to be EBITDA positive, with net revenue of $2.4bn to $2.5bn.
In a financial update, BetMGM also reports it made a loss of $244m in 2024.
Adam Greenblatt, chief executive officer of BetMGM, says:
“2024 was a year of investment and rebuilding of momentum for BetMGM.
Our successful strategic refinement saw BetMGM exit the year with encouraging run rates across our key metrics and Q4 EBITDA trend towards breakeven on a normalized basis. Our leading iGaming business continues to grow strongly and deliver attractive returns.
The financial markets are calmer today than during yesterday’s gyrations, and Jefferies’ analyst Brad Bechtel suspects some complacency is setting in.
Bechtel writes:
The dust settled a bit on the tariff noise with the Mexican and Canadian situations postponed for 30 days. The assumption in markets seems to be that the issue is resolved, and we can all move on but I am not so sure it will be that easy.
The market is also glossing over the reality that the 10% tariffs on China did in fact come into effect as of midnight last night, NY time, and China quickly responded with levies of it’s own. It also announced it was looking into the activities locally of Google.
China’s tone, in terms of headlines and public comments, remains one in which they seem willing to work with Trump and the US while pushing back lightly on the implementation of tariffs. Their response with taxes and tariffs of their own indicate they will push back that way as well.
Another day, another defeat for Saba.
The New York hedge fund has been rebuffed by another UK investment trust, Henderson Opportunities Trust, whose shareholders have rejected a proposal to oust four existing directors and install two Saba representatives.
Henderson reports that 65.36% of the total votes cast were voted against the Resolutions, which is quite unanimous given Saba controlled almost 25% of the companys shares, and 33.66% of votes cast.
Back at parliament, the UK’s national statistician has insisted that data showing high levels of economic inactivity are reliable – despite the well-known problems with the labour force statistics.
Ian Diamond told MPs:
“Please, please, please don’t think I am being complacent. I lie awake at night worrying about this the whole time.”
That data shows around nine million people (corrected!) have dropped out of the labour market due to economic inactivity, including a rise in ill health since the Covid-19 pandemic.
Diamond says the ONS works closely with the data it gets from payrolls and employers, and has found the data “hang up pretty well”, especially when compared to records of benefit claimants and from the NHS.
The copper price has risen today, amid relief that the US delayed import tariffs on Mexican and Canadian goods last night.
Three-month copper on the London Metal Exchange (LME) rose 0.5% to $9,146 a metric ton this morning, Reuters reports
Copper, which is seen as a gauge of global growth prospects, had hit a four-week low yesterday, before Donald Trump suspended the imposition of steep tariffs on Mexico and Canada for a month.
Spotify posts first full year of profitability
Audio streaming company Spotify has reported ‘record profitability’ at the end of last year, and predicted earnings will continue to rise in the current quarter.
In its fourth-quarter results, just released, Spotify says almost all its key performance indicators (KPIs) exceeded guidance and “profitability reached record levels”.
Following price hikes and job cuts over the last year or so, Spotify made an operating profit of €477m in Q4, up from €454m in Q3 and a loss of €75m in Q4 2023.
It expects to grow its operating income to €548m for January-March.
Spotify has also reported:
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Monthly Active Users grew 12% Y/Y to 675 million.
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Subscribers increased 11% Y/Y to 263 million.
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Total Revenue was up 16% Y/Y to €4.2 billion.
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Gross Margin climbed by 555 bps YoY to 32.2%.
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Operating Income rose to €477 million.
The company says it recorded its first full year of profitability in 224
Daniel Ek, Spotify founder & CEO, says:
“I am very excited about 2025 and feel really good about where we are as both a product and as a business.
We will continue to place bets that will drive long term impact, increasing our speed while maintaining the levels of efficiency we achieved last year. It’s this combination that will enable us to build the best and most valuable user experience, grow sustainably and deliver creativity to the world.”
Shares in Spotify have jumped over 8% in pre-market trading.
Spotify, $SPOT, Q4 2024 Results:
🟢 +7.4% Pre-Market ($590.00)📊 Adj. EPS: €1.76 🔴
💰 Revenue: €4.24B 🟢
📈 Net Income: €367M
🔎 Spotify achieved its first full year of operating income profitability, with record free cash flow of €877M in Q4. pic.twitter.com/iVfQsa6PsS— EarningsTime (@Earnings_Time) February 4, 2025
Brazil’s central bank: certain US policies may hit asset prices
Over in Brasilia, Brazil’s central bank has warned that asset prices could be hit by Donald Trump’s policies.
In the minutes of its latest policy meeting, Banco Central do Brasil points out that the value of the Brazilian real could be affected by US economic policies.
It says:
The Committee closely followed the movements of the exchange rate, which has reacted notably to domestic fiscal news, U.S. economic policy news, and the interest rate differential.
The implementation of certain policies in the U.S. may pressure domestic asset prices.
The bank’s monetary policy committee is concerned about the risk of a deanchoring of inflation expectations, which would force tighter monetary policy for longer. A weaker exchange rate could be inflationary.
The head of the Office for National Statistics then called for more cash to help combat falling response rates to its surveys, and to improve the quality of data.
Sir Ian Diamond, ONS chief statistician, said it “routinely” offers people incentives to respond to its surveys and it needs “more resources” to improve rates.
He told the Treasury Committee of MPs that the public body also needs better data sharing between Government departments to support its work.
He said:
“Really important is the potential of administrative data to support… and that does require a culture of data sharing in government, one that so many people have commented on as not being in the right place that it should be”.
Diamond also tells MPs that the ONS has increased the incentive it provides to people who take part in its surveys, from £10 to £50 [which I think is paid as a voucher].
Vodafone expects “no real direct impact” from US tariffs
Mark Sweney
Shares in Vodafone slumped almost 7% in early trading making the telecoms company the biggest faller among FTSE100 stocks, after reporting a further slump in performance in its biggest market Germany.
The fall in market value, which more than wiped out gains over the last year, came despite strong results in the group’s other regions including the UK.
Service revenue in Germany fell 6.4% in the company’s third quarter to the end of 2024, a deterioration from the 6.2% recorded in the previous three months.
The company blames the ongoing impact of a change in pay-TV laws in Germany, which prohibits landlords from billing cable TV fees to tenants freeing them up to choose their own TV technology for the first time in decades, as well as “intensifying competitive pressure” in the market.
Margherita Della Valle, the chief executive of Vodafone, said that the impact of the TV law impact is now over in Germany but that it would take several quarters for the “financial drag to wash through”.
However, even excluding the impact of the law change service revenue in Germany declined by 2.6%, with the company losing just over half of the customers affected by the change.
“On top of that the market has been a lot more promotional than usual around Christmas and Black Friday and that is also impacting all players in the market,” she said, as the company re-iterated its full year guidance on profit and free cashflow.
Della Valle said that the prospects of tariffs on the European Union would have “no real direct impact” on Vodafone, which operates in 50 countries but not the US.
Overall, Vodafone group service revenues rose 5.2%, up from 4.2% in the previous quarter, with Della Valle saying that the 70% of its business outside of Germany is performing “exceedingly well”.
In the UK, service revenue rose 7.6% as the company looks ahead to completing its merger with rival operator 3 UK, as Vodafone added 37,000 mobile and 72,000 broadband customers.
ONS: Very, very, very high rise in survey refusals
Britain’s labour market statistics were undermined by a rise in people refusing to take part in the survey, MPs have heard.
The UK’s national statistician, Ian Diamond, has told the Treasury Commmittee that there was a plunge in engagement with the survey after the pandemic.
The labour force survey was suspended in October 2023 when response rates fell. Diamond explains that low response rates have been a challenge since the data series began in the 80s.
The problem became worse after Covid-19, Diamond says. The pandemic forced the ONS to suspend its face-to-face interviews, in which a researcher visited people for a 45-minute interview over their jobs situation, and replaced it with telephone interviews.
But the ONS found that as the UK came out of the pandemic, people didn’t return to being happy to host interviewers.
This led to a steady reduction in response rates, forcing the ONS to suspend the survey in October 2023 because the risk of bias was too high.
Diamond tells MPs is it taking “two times” the effort to arrange an interview as before the pandemic.
The ONS samples the population to choose candidates for an interview, asking them to phone up to arrange an appointment. But under a third of people actually do that.
The ONS is now conducting a “knock-to-nudge” programme, contacting 3,000 people per week to encourage them to take part.
But resistance is high, Diamond explains, saying:
“We’re finding very, very, very high levels of flat refusal compared with pre-pandemic [levels].”
He explains that the ONS doesn’t have a directory of mobile phones, or email addressses, to contact peopel with. All they have is a list of addresses, and landlines to nudge them on.
[Committee chair Meg Hillier asks for a show of hands of which MPs have a landline – less than half the committee appear to have one!].
The committee quizzed Diamond and ONS staff about how long they had known about the problem before October 2023. Diamond said the low response rate had been monitored very closely, but did concede that the ONS’s board felt they hadn’t been made aware of the problem.
Diamond added that, “with the benefit of hindsight”, he would have put fixing the LFS into its own programme, rather than keeping it within its ARIES programme – which addresses the development for economic statistics
Last month, Hillier warned that policymakers risk making “misinformed” decisions because of the defects in the jobs survey.
European markets are slightly lower today, with Germany’s DAX down 0.1%.
The automobile sector are down another 0.6%, on fears that the US will impose tariffs on the EU.
Wall Street is expected to dip into the red when trading resumes in New York, in five hours time.
The Dow Jones industrial average is down 0.2% in the futures market, as is the broader S&P 500 share index, after the US imposed 10% tariffs on China, and Beijing retaliated with its own tariffs.
Eurozone facing ‘sizeable’ activity hit from trade tensions
The eurozone economy will suffer a “sizeable hit to activity” from the rise in trade tensions, Goldman Sachs warns.
They say today that recent events support their forecast of weak Euro area growth, ongoing disinflation and continued sequential interest rate cuts by the European Central Bank.
Goldman say:
First, we expect a sizeable hit to activity from the ongoing rise in trade tensions.
While the Euro area might benefit slightly from trade diversion associated with any US tariffs on Canada and Mexico, President Trump has reiterated his plan to also raise tariffs on the EU.
They predict that “elevated trade policy uncertainty” will weigh on growth in coming months, mainly via lower investment and confidence.
“Trade diversion” refers to the possibility that manufacturers in countries facing new US tariffs decide to sell their goods in Europe rather than the US.
Goldman also warn that the eurozone labour market is slowing, with unemployment ticking up in France and Italy, and wages cooling.
