Global stock markets are tumbling, on fears that central banks will start tapering their emergency Covid-19 support packages soon, after the US Federal Reserve said it would start scaling back its asset purchase programme this year – earlier than expected. More details are expected at next week’s central banker symposium in Jackson Hole, Wyoming.
The Fed is currently buying $120bn (£88bn) a month in US government bonds and mortgage-backed securities to keep longer-term interest rates low and the bond markets functioning smoothly amid the Covid pandemic.
The UK’s FTSE 100 was down 2% for much of the day, a decline that wiped almost £50bn off the value of the index, and is now trading 1.4% lower at 7,068, a drop of 100 points. Germany’s Dax has tumbled by 1.6% while France’s CAC slumped 2.2% and Italy’s FTSE MiB is 1.3% lower.
On Wall Street, stocks pared earlier losses but are still down. The Dow Jones and S&P 500 both slipped 0.2% while the Nasdaq lost 0.3%.
The number of Americans applying for first-time jobless benefits has fallen to the lowest level since mid-March 2020 – to 348,000 at the end of last week.
Oil prices have fallen for a sixth day, the longest losing streak since February 2020, on fears of lower demand as Covid cases rise and some countries reintroduce restrictions. Brent crude has tumbled 2.5% to $66.53 a barrel while US crude slumped 2.5% to $63.82 a barrel.
Our other main stories today:
The British Poultry Council has said food producers are facing serious staff shortages because of Brexit as this week’s partial closure of the Nando’s chain threw the spotlight on problems made worse by the fallout from Covid.
The trade association said its members, which include 2 Sisters Food Group – the country’s largest supplier of supermarket chicken, said one in six jobs were unfilled as a result of EU workers leaving the UK after Brexit.
Bingo is back, according to the Mecca owner, Rank, whose venues have outperformed expectations since reopening in May, but pandemic closures pushed annual losses at the group to more than £100m.
Facebook has announced plans to become “water positive” by 2030, restoring more water than the company consumes globally.
The annual pay of FTSE 100 chief executives fell during the pandemic but still equates to what a key worker would earn in a lifetime, according to a report that highlights the UK’s wage divide and the taxpayer support that has kept some companies afloat.
Some of Britain’s leading battery researchers have teamed up to develop prototype solid-state batteries, in the hope that the UK can take a leading role in the next stage of the electric car industry.
The FTSE 100 chemicals company Johnson Matthey, the Glencore-backed battery startup Britishvolt, and Oxford University are among the seven institutions that have signed a memorandum of understanding promising to work together on the technology.
Thank you for reading, and for your comments. Take care -- ‘see you’ tomorrow! - JK
The Conference Board Leading Economic Index for the US increased by 0.9% in July, pointing to strong economic growth in the second half of the year.
to 116.0 (2016 = 100), following a 0.5% rise in June and a 1.2% increase in May.
Ataman Ozyildirim, senior director of economic research at The Conference Board, said:
The US leading economic index registered another large gain in July, with all components contributing positively.
The Leading Index’s overall upward trend, which started with the end of the pandemic-induced recession in April 2020, is consistent with strong economic growth in the second half of the year. While the Delta variant and/or rising inflation fears could create headwinds for the US economy in the near term, we expect real GDP growth for 2021 to reach 6.0% year-over-year, before easing to a still robust 4.0% growth rate for 2022.
US stocks have opened lower:
- Dow Jones down 234 points, or 0.67%, at 34,725
- S&P 500 down 28 points, or 0.6%, at 4,372
- Nasdaq down 84 points, or 0.58%, at 14,441
Over here, the FTSE 100 is now trading 1.5% lower after losing more than 2% earlier. Germany’s Dax has shed 1.7% while France’s CAC has slid 2.3%.
FTSE's 2% drop wipes almost £50bn off the index
The FTSE 100 in London lost more than 2% today, a decline that wiped almost £50bn off the index. Investors are also fretting about the rise in Covid infections around the world. Hargreaves Lansdown says:
- Investors are spooked by the virus once more, compounded by news that the Federal Reserve in the US may be on the brink of reducing its economic support for the US economy.
- The Delta variant of the virus is threatening the reopening of economies and frets over the impact on Chinese demand in particular are hitting hard. Shares in major mining companies that supply the metals and minerals needed to help China build its cities are tumbling, after a 10% fall in the price of iron ore overnight.
- Closer to home, concerns over shortages and bottlenecks in supply chains, affecting everything from automobile manufacturing to food production are also weighing on sentiment.
- Concerns over the fundamentals have been exacerbated by news from the US Federal Reserve that it may soon reduce its efforts to prop up the economy.
Steve Clayton, HL select fund manager, says:
With sentiment getting knocked it is perhaps no surprise to see defensive sectors faring best in a sea of red in the markets today. Shares in utilities and healthcare companies are holding up relatively well, but commodity and energy producers are amongst the worst hit.
If vaccinations can keep the virus from doing its worst, then confidence should improve before too long. Businesses drove a lot of costs out during the pandemic, which bodes well for future profit margins.
While this is good news for the economy, it will add to the case for stimulus withdrawal. Markets have been spooked by the Federal Reserve’s minutes of the last meeting, published last night, which revealed that policymakers plan to start scaling back the asset purchase programme this year – earlier than expected.
More details are expected at next week’s central bank symposium in Jackson Hole.
The last time claims were at this level was mid-March 2020, just as the coronavirus pandemic hit – which sent the US economy into its deepest but briefest recession on record, reports CNBC.
Continuing jobless claims also fell last week, by 79,000 from the week before to 2.82m.
US jobless claims fall to new pandemic low
The number of Americans applying for jobless benefits for the first time has fallen to the lowest level during the pandemic.
The US Labor Department said 348,000 Americans filed for first-time jobless benefits in the week to 14 August, down 29,000 from the prior week. Economists had forecast a drop to 363,000.
Some of Britain’s leading battery researchers have teamed up to develop prototype solid-state batteries, in the hope that the UK can take a leading role in the next stage of the electric car industry, reports my colleague Jasper Jolly.
The FTSE 100 chemicals company Johnson Matthey, the Glencore-backed battery startup Britishvolt, and Oxford University are among the seven institutions that have signed a memorandum of understanding promising to work together on the technology.
Solid-state batteries are considered by many analysts to be the most likely technology to offer significant improvements in range and charging times for electric vehicles. Almost all electric vehicles in production use variations on lithium ion batteries.
In case you’re heading to a Mediterranean village on holiday, beware of braying donkeys and noisy roosters…. The Spanish village of Ribadesella has sprung into action after tourists’ complaints.
But what they came up with, probably fell short of what the grumbling tourists were hoping for: a tongue-in-cheek poster campaign that calls on city slickers to “assume all the risks” of rural life.
“Here we have church bells that ring out regularly, roosters that crow early in the morning and herds of livestock that live nearby and at times carry cowbells that also make noise,” reads the poster put up around the town in recent days.
“If you can’t handle all this, you may not be in the right place,” it adds.
Bingo is back – Rank
Bingo is back according to Mecca owner Rank, whose venues have outperformed expectations since reopening in May, but pandemic closures pushed annual losses at the group to more than £100m, reports our media business correspondent Mark Sweney.
Rank, which owns the Mecca Bingo and Grosvenor Casino brands, said revenues almost halved from £629.7m to £329.6m in the year to the end of June. The company made a £107m pre-tax loss, compared with a £13.4m profit in the previous year.
The group is heavily dependent on its physical venues, which account for four-fifths of total revenues, with the government’s pandemic measures keeping its bingo halls and casinos closed for 59% of its financial year.
“Frankly, we are delighted it is over,” said John O’Reilly, the chief executive of Rank. The company lost £15m a month during closure periods.
However, O’Reilly said that business has bounced back better than expected since re-opening in May, with an additional boost since the further loosening of social distancing restrictions last month.
Britain’s competition watchdog, the Competition and Markets Authority, has confirmed that it will investigate the takeover of the British defence firm Ultra Electronics by a US private equity company, after being asked to do so by the business minister, Kwasi Kwarteng.
Warning that foreign investment “must not threaten national security”, Kwarteng tabled an order in parliament preventing Ultra from disclosing “sensitive information” to Cobham, the defence firm behind the £2.6bn takeover bid. He said Ultra would be prevented from passing on details of the “goods or services it provides to HM Government or HM Armed Forces”, while the CMA examined the deal.
And here’s our story on chicken producers blaming Brexit for staff and supply shortages.
Here’s our full story on today’s sell-off in stock markets, by economics correspondent Richard Partington.
European financial markets have fallen sharply on fears that central banks will start tapering their emergency Covid-19 support packages, despite slowing growth in the world economy.
In London, the FTSE 100 fell by more than 160 points, or about 2.3%, on Thursday morning to trade at about 7,000 as share prices tumbled across the continent after the US Federal Reserve warned it could start cutting back support for the economy this year. Stock markets in Germany, France and Italy were down by more than 2%, while the Ibex in Spain was 1.7% lower.
Fed officials signalled late on Wednesday that the threshold for the US central bank reining in its quantitative easing bond-buying programme could be breached in the final three months of the year, sooner than investors’ anticipated.
McBride hit by driver and material shortages
A major cleaning product company has been hit by shortages of materials and lorry drivers, leading to a 9.7% slump in its share price.
McBride, which makes own-label cleaning products for retailers, from detergents to dishwasher tablets, has issued a major profit warning, and flagged shortages of materials and of Heavy Goods Vehicle drivers, which have driven up its costs.
It is the latest company to be hit by labour shortages, after Nando’s closed 50 restaurants temporarily this week. The head of the British Poultry Council, Richard Griffiths, said this morning that its member companies had up to 16% vacancies, and said the staff shortages were caused by Brexit and tighter immigration rules.
McBride now expects adjusted profit before tax for the financial year 2022 to be 55% to 65% lower than current market expectations for 2021.
Although only 7 weeks into the new financial year, the previously highlighted raw material environment remains extremely challenging both in terms of exceptional price increases and supply availability.
More recently, and in line with the general trading environment experienced by others, the group has also started to experience distribution challenges, particularly in the UK and Germany as a result of the shortage of Heavy Goods Vehicle (HGV) drivers which has impacted upon both transport availability and cost.
The company is raising its own prices, but this is happening later than expected.
Norway’s central bank kept its key interest rate at zero at its August meeting, but still plans to raise it by 25 basis points next month, despite a recent rise in coronavirus infections. The decision was unanimous among its committee members.
Norges Bank would be the first among the G-10 group of developed economies to begin scaling back Covid-driven emergency stimulus measures. New Zealand delayed an expected rate hike on Wednesday after a new Covid outbreak which prompted another national lockdown.
Norges Bank governor Øystein Olsen said:
In the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in September.
A high vaccination rate reduces the need for Covid-related restrictions. Nevertheless, it cannot be ruled out that new virus variants may lead to a retightening of restrictions.
Infections have gone up in Norway in recent weeks as it lifted most of its lockdown measures.
Norges Bank will announce its next rate decision and latest economic forecasts on 23 September. In June, it lifted its economic growth forecast for 2022 to 4.1% from 3.4%. At the time, it said it intended to raise interest rates four times over the next ear, reaching 1% by mid-2022.
Oil prices keep falling, with Brent crude, the global benchmark, heading towards $66 a barrel.
It’s currently down almost $2 at $66.25 a barrel, the lowest levels seen since May, knocked by concerns about weaker demand amid a global rise in Covid cases, a stronger US dollar and a surprise increase in US gasoline inventories.
Both Brent and US crude have declined for six days in a row, the longest losing streak since late February 2020.
Paul Donovan, chief economist at UBS Global Wealth Management, says the Fed minutes were “exciting”. He says the Fed is right to start normalising policy, arguing that “bond buying was not primarily aimed at boosting growth per se; bond buying was aimed at preventing a collapse in growth” and a major cash and credit crisis.
You can listen to his morning audio comment here. Donovan says:
The pattern for scaling back bond purchases is seemingly confirmed—a theoretical framework, then a decision taken in the fourth quarter, then action in the fourth quarter or early 2022. The Fed is scaling back because it is independent, and the motive for buying bonds was to supply needed liquidity. That liquidity is less needed, so bond buying is less needed.
Language matters. It is wrong to characterise this as a loss of stimulus. Failure to provide liquidity would have caused a recession to rival the worst excesses of the gold standard. This was primarily an anti-depressant policy. If the Fed is balancing liquidity supply and demand, a bond tapering should not change growth expectations.
Yesterday’s UK inflation details have a global message—when inflation is based on a narrow number of weird price moves, inflation can reverse quickly and unexpectedly. There was not a general weakening of inflation in the UK. Instead some pandemic-related quirks unwound.
The sell-off on European stock markets is gathering pace.
- UK’s FTSE 100 index down 151 points, or 2.1%, at 7,017
- Germany’s Dax down 260 points, or 1.65%, at 15,704
- France’s CAC down 171 points, or 2.5%, at 6,598
- Italy’s FTSE MiB down 550 points, or 2.1%, at 25,083
US stock futures are pointing to declines of 0.9% to 1% when Wall Street opens this afternoon.
British Poultry Council warns of 16% vacancies at members
The head of the British Poultry Council, Richard Griffiths, was on BBC radio 4’s Today programme this morning, talking about staff shortages caused by Brexit. He said member companies are reporting up to 16% vacancies. He wrote to the Home Secretary earlier this month but hasn’t heard back.
This comes as the restaurant chain Nando’s closed about 50 outlets (more than a tenth of its restaurants) temporarily because it has run out of chicken. It blamed staffing issues at its suppliers’ factories as well as the shortage of HGV lorry drivers that has resulted in gaps on supermarket shelves in recent weeks.
The situation we are seeing is a result of the Brexit issues that have arisen and we are seeing there’s struggles across the supply chain with shortage of labour. We’ve seen a loss of staff across the supply chain, particularly in our member companies.
This is a direct result of the limiting of immigration policies and we are asking the government to ease those, and also look at the skills and development arena as well to try and encourage not just non-UK but also UK workers into the sector.
The poultry council is asking for poultry workers to be eligible for skilled worker visas. Under immigration policy they are not classed as skilled workers, Griffiths said, even though the job they are doing requires “an awful lot of skill”. He denied that if the industry was paying higher wages, it would attract more British workers.
That’s just not the case. We’ve seen over a number of years that the willingness and availability are just not there within the UK workforce. We operate in areas that have generally high employment, so the availability of labour is just not there.
He said the entire supply chain was affected by the staff shortages, including HGV drivers and the hospitality sector.
This is a massive problem that needs addressing across the industry and government needs to acknowledge the problem first.
Away from the markets, the Competition and Markets Authority has told the BBC that it warned government officials of risks to consumers from the rapidly-growing Covid testing industry in April and May.
The competition watchdog said it provided advice and market analysis to officials from the Department of Health and Social Care, and outlined potential market and consumer risks. This comes after the CMA was criticised by its former chairman this week.
Lord Tyrie told the BBC that the situation with PCR testing for travel was a “predictable Covid rip-off,” and that the watchdog had not done enough.
The revelation comes after a barrage of complaints from holidaymakers and travellers wanting to visit family abroad, who have been hit by high PCR test costs. Many have also reported that they did not receive tests, or test results, on time.
Mining and energy stocks lead losses in London
Mining and energy stocks are among the biggest fallers in London this morning, tracking a slump in commodity prices amid signs of a slowdown in the global economic recovery, and worries over the US Federal Reserve’s plans to start pulling back its economic stimulus later this year – which is faster than expected.
Mining giant Anglo American is leading the losses on the FTSE 100, plunging 10.5% while oil group BP has lost nearly 4%, miner Rio Tinto has shed 2.7% and commodity trading and mining company Glencore has dropped 2.6%.
The Chilean miner Antofagasta’s London-listed shares are down 3.8% even though it unveiled soaring half-year profits, as it cut its copper production outlook for this year.
London copper prices dropped below $9,000 for the first time since April, falling as much as 1.4% to $8,913.30.
Richard Hunter, head of markets at interactive investor, explains:
Markets took another glancing blow as the Federal Reserve minutes revealed that tapering is edging ever nearer.
While no date has yet been confirmed, there is an increasing split within its members and it appears increasingly likely that the taper will begin before the end of the year. Alongside some mixed retailer results, the unrest in Afghanistan and an apparently weakening Chinese economy, this has been a week to test the mettle of investors.
US investors have an increasing list of concerns to contend with, as the Delta variant persists in parts of the country, unemployment still remains above pre-pandemic levels and the spectre of inflation looms.
The FTSE 100 is being additionally hampered by the general weakness in commodity prices and a clutch of stocks being marked ex-dividend.
However, he noted that so far this year, the Dow Jones is still ahead by 14.2%, the S&P 500 by 17.1% and the Nasdaq by 12.7%.
European stocks sell off on taper fears
European stocks have plunged at the open. The UK’s FTSE 100 index has tumbled more than 2% to 7,025. Germany’s Dax dropped 1.5%, France’s CAC fell 1.6% and Spain’s Ibex lost 1.45%.
Top chief execs ‘paid more in a year than a UK worker gets in a lifetime’
The annual pay of FTSE 100 chief executives fell during the pandemic but still equates to what a key worker would earn in a lifetime, according to a report that highlights the UK’s wage divide and the taxpayer support that has kept some companies afloat, reports my colleague Rob Davies.
The bosses of companies in the blue-chip share index were paid £2.69m on average in 2020, the High Pay Centre said, with vaccine-maker AstraZeneca’s chief executive, Pascal Soriot, taking top spot thanks to a £15.45m deal.
The average pay figure fell by 17% compared with the £3.25m recorded in 2019 but is still 86 times the £31,000 that an ordinary British worker can expect to earn in a year.
Reuters is reporting that Toyota will reduce its global production for September by 40% from its previous plan, citing Japanese publication The Nikkei.
The rapid spread of the Delta variant in southeast Asia has impacted the company’s ability to procure car parts.
Introduction: Shares hit by Fed taper warning, oil prices extend losing streak
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The minutes from the last US Federal Reserve meeting reveal that, while no firm decisions were made, “most participants… judged that it could be appropriate to start reducing the pace of asset purchases this year”. This means that as the US economy recovers from the Covid crisis, America’s central bank will start pulling back some of the massive economic stimulus it has introduced – earlier than expected.
However, this doesn’t mean that the Fed will raise interest rates more quickly. The minutes show that many officials believe that the Federal Open Market committee (FOMC) should “clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in… the federal funds rate”.
Andrew Hunter, senior US economist at Capital Economics, Hunter doesn’t expect interest rates to be raised until 2023. He explains the Fed’s thinking:
With a growing number of officials now openly discussing the possibility of tapering beginning soon on the back of July’s strong employment report, it looks more likely than not that the wind-down will begin later this year, rather than early next year as we had previously thought.
A final decision won’t be made until the September FOMC meeting at the earliest and will probably depend on another solid rise in payrolls in August, but Fed Chair Jerome Powell could now use his Jackson Hole speech next week to drop a stronger hint that tapering is on the way.
Officials seemingly didn’t come to any firm decisions on the pace or composition of tapering either, but the minutes do at least appear to put to bed the idea that the Fed’s $40bn monthly MBS [mortgage-backed securities] purchases could be reduced quicker than their $80bn of Treasury purchases, with most officials in favour of reducing them at the same rate.
While there is clearly support from some of the more hawkish officials for a relatively quick taper finishing early next year – leaving plenty of scope for rate hikes to potentially begin later in 2022 – the minutes also noted that “several” officials thought that “an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace”. On balance, we still expect the run-down to last 9 months which, if it began within the next few months, would point to a mid-2022 end-date.
James Knightley, chief international economist at ING, says:
The minutes to the July FOMC meeting show a Fed that is pretty split on most things, but recognises that we are getting much closer to the point of tapering. Officials have offered more vocal support in recent days to earlier action and we are pencilling in a September announcement, but it is clear that the Covid resurgence could delay it.
Asian shares fell on the news, with Japan’s Nikkei and the Singapore market both losing 1.1% and Hong Kong’s benchmark shedding 1.8%.
Oil prices are down for a sixth day, the longest losing streak since February 2020, as rising Covid cases sparked fears over slower fuel demand while a surprise increase in US gasoline inventories added to the pressure. Slower growth in China, the world’s biggest oil importer, is weighing on the market in particular.
Brent crude fell as low as $67.10 a barrel, the lowest since late May, and is now trading about a dollar lower at $67.21 a barrel, a 1.5% drop. US crude has lost $1.27 to 64.19 a barrel, a near-2% decline.
Attention will now turn to next week’s Jackson Hole central bank symposium, which should offer further clues about the Fed’s timelines to a slowdown in the pace of monthly asset purchases.
Today’s focus will be on the latest US weekly jobless claims which are expected to come down further to 363,00.
- 1.30pm BST: US Initial jobless claims for week of 14 August (forecast: 363,000)
- 3pm BST: US Conference Board Leading Index for July (forecast: 0.8%)