Wall Street close
And finally, Wall Street has closed in the green, as investors put inflationary worries behind them...for at least today.
The main indices have all closed higher, despite the jump in US producer price inflation to its highest in over a decade.
- Dow Jones industrial average: up 433 points or 1.3% at 34,021 points
- S&P 500: up 49 points or 1.2% at 4,112 points
- Nasdaq: up 93 points or 0.7% at 13,124 points
That recovers a chunk of the Dow’s losses yesterday, but still leaves the index around 1,000 points off its record high above 35k set back on Monday.
Retailers, financial firms, industrial stocks and big tech firms all strengthened. Traders took a more positive view of the economic recovery, with jobless claims falling to their lowest since March as firms reacted to stronger demand.
But energy companies lagged, as oil was caught up in a wider dip in commodity prices (after a record run).
Bitcoin has tumbled back below the $50,000 mark this afternoon, as Elon Musk’s u-turn on the crypto currency continues to reverberate.
Bitcoin is currently trading around $49,000, meaning it’s lost roughly 10% of its value since last night, when Musk announced Tesla was suspending plans to accept payments, due to the environmental cost of mining.
This isn’t an new problem -- experts have been warning for months that bitcoin’s energy bill was exceeding whole countries. But Musk, whose interest in bitcoin helped push it to record highs over $64,000 recently, seems to have had a change of heart.
Our financial editor Nils Pratley argues that it makes sense, given the clash between bitcoin’s energy use and Tesla’s role as an green pioneer.
True believers weren’t happy about Musk’s U-turn but Tesla’s shareholders ought to be delighted. The founder’s talent for publicity has saved the company a fortune in advertising, but there were clear dangers in tying his personal brand, and Tesla’s, to a single cryptocurrency.
A plunge in the price of the coins would not help his popularity. Being seen to step off the rollercoaster when the price is 25% off its highs but, critically, up massively over 12 months, may prove smart timing.
More importantly, dirty bitcoins and clean Teslas just don’t sit well together. That was also true in February, of course, when Tesla was a buyer of $1.5bn-worth and said it would accept payment in the tokens. Don’t expect Musk or the board to explain the about-turn, but it may be a belated recognition that bitcoin’s dire environmental record was a business risk too far for Tesla. Maverick geniuses can get away with a lot, but hypocrisy tends to take a toll in the end.
Other crypto assets are struggling too, with dogecoin - the meme-coin pushed heavily by Musk - down 12% today at $0.40.
Here’s our round-up of how the Bank of England governor tried to calm inflation worries today, as shares in London staged a partial recovery from this morning’s slump:
Full story: Greensill lobbying leaves your reputation in tatters, Cameron told
David Cameron was on Thursday told that his persistent lobbying of ministers, begging for favours on behalf of the controversial bank he worked for, had “demeaned” the position of the prime minister and left his “reputation in tatters”, my colleague Rupert Neate reports.
The former prime minister was forced to deny that his text message and WhatsApp lobbying campaign on behalf of Greensill Capital was driven by fears that an “opportunity to make a large amount of money was at risk”.
Cameron, who joined Greensill as an adviser and lobbyist exactly two years after he left No 10, repeatedly refused to tell MPs how much money he stood to make from Greensill before the bank collapsed last year.
He told MPs he was paid “a generous amount, far more than I earned as prime minister” but declined to give even a ballpark figure, claiming that his pay was “a private matter”.
Cameron, 56, also refused to state how many shares he had been granted in the bank. He dismissed as “completely absurd” reports that he had boasted to friends that he stood to make £60m from a successful flotation of the supply chain financing firm...
Our economics editor, Larry Elliott, has written about the return of inflationary jitters – and the split between hawkish economists who fear a surge in prices, and doves who think it will only be a temporary phenomenon.
Here’s a flavour:
Not even the most avid hawk is expecting inflation in the UK to get close to the peak of almost 27% reached in 1975, but there are certainly reasons why price pressures will increase in the short term.
A year of lockdown-enforced stop-go means that a considerable pent-up demand is being unleashed. The supply potential of economies has been cut by the pandemic. When demand exceeds supply, prices rise. The fact that inflation was depressed last year by the battering that economies were taking during the first wave of Covid-19 makes the problem look worse than it is.
Responding to the news of higher US inflation, Mark Haefele, chief investment officer at UBS global wealth management, said: “We think it highly likely that the uptick in inflation driving the recent volatility will ultimately prove short-lived. The latest rise in inflation, in our view, reflects year-over-year comparisons, which will fade.”
Even so, central banks have a mandate to ensure price stability and may need to recalibrate when they will need to withdraw stimulus. There will be no sky-high interest rates as there were under Thatcher and Reagan, but even the prospect that they may be thinking about toughening their stance will be enough to keep markets extremely twitchy.
With 90 minutes to go, Wall Street is on track to end a three-day losing streak....
Fund management ‘irretrievably broken’, says star investor
The star technology investor James Anderson took a parting shot at fellow fund managers addicted to the “near pornographic allure” of earnings reports and macroeconomic headlines today, as he claimed the industry was “irretrievably broken”.
The outgoing co-manager of the FTSE 100-listed Scottish Mortgage Investment Trust said his own “greatest failing has been to be insufficiently radical” over the past two decades (despite doubling its value in the last year during the pandemic).
Anderson, who is stepping down in a year’s time, has generated returns of 1,700% for investors in Baillie Gifford’s flagship fund by giving early backing to technology companies such as Tesla, Amazon and China’s Tencent and Alibaba.
Anderson argues that the world of conventional investment management is “irretrievably broken” due to this short-termism, rather than a disciplined focus on long-term change, saying:
It is inherent to the notion of efficient markets that all available information is incorporated in share prices. Only new information matters.
This is used to justify the near pornographic allure of news such as earnings announcements and macroeconomic headlines. In turn this is reinforced by the power of near-term financial incentives.
Here’s the full story:
Back in New York, stocks have dipped slightly but are still holding on to their gains.
The Dow Jones industrial average is still recovering from two days of hefty losses, up 269 points or 0.8% at 33,857 in early afternoon trading on Wall Street.
The fall in US jobless claims, to the lowest since March 2020, seems to be bolstering optimism about America’s recovery, showing that bosses are laying off fewer workers as demand continues to pick up.
US retailers are having a good day, with DIY chain Home Depot (+2%) and hypermarket giant Walmart (+1.5%) in the Dow risers. Financial stocks are also doing well, such as the investment bank JP Morgan (+2%) and the insurance group Travelers (+1.7%).
However, energy firm Chevron is dipping - down 1.5%, as oil prices fall further (US crude is now down 4% at $63.30 per barrel).
But overall, it’s quite a contrast on yesterday, when the Dow had its worst slide since January.
Danni Hewson, financial analyst at AJ Bell, says we should expect more volatility in the markets as investors weigh up the health of the economy.
What a difference a day makes. US markets have mostly brushed off yesterday’s losses and put the box marked “concerns on inflation” under the table for now.
“Wall Street’s rally was just the tonic London markets needed and even the FTSE 100 looked a completely different beast from this morning, by the end of the day it was only 41 points down at 6963 - such a turnaround from earlier you’d be forgiven for wondering if you’d dreamt it. But instability will be the watchword for a while. Investors are having trouble weighing the good economic news from the disconcerting. But despite the uncertainty, deals are being done, jobs are being created and restrictions relaxed even more. Pent up demand is a good thing, it’s just markets don’t want too much of a good thing.”
The governor of the Bank of England has weighed in on inflation, saying he doesn’t think inflationary pressures will last.
Reuters has the details:
The Bank of England does not think that the factors that will push up inflation in the coming months will persist, but it will watch the situation very carefully, Governor Andrew Bailey said on Thursday.
“So the really big question is: ‘Is (higher inflation) going to persist or not?’ Our view is that on the basis of what we’re seeing so far, we don’t think it is,” Bailey said at an event with members of the public organised by the BoE.
As flagged earlier, the Bank’s chief economist, Andy Haldane, is rather more concerned – warning today that rising prices and wages risk turning the economic recovery into a bust:
McDonalds to lift wages
Back in the US, McDonald’s has announced it’s raising hourly wages by around 10% as it tries to hire another 10,000 workers.
The fast food company says the increases will benefit 36,5000 staff at its US company-owned restaurants.
But it won’t directly apply to franchise stores, which make up around 95% of sites and set their own pay.
The increases are being rolled out over the next few month, and will lift the entry-level pay range for crew to at least $11-$17 an hour, and the starting range for shift managers to at least $15-$20 an hour, based on restaurant location.
The move comes as McDonald’s tries to recruit more staff to handle increased demand as the US economy reopens.
Entering into the busy summer season with dining rooms re-opening where it is safe, McDonald’s-owned restaurants are looking to hire 10,000 new employees over the next three months.
But... the move falls short of the $15 minimum wage supported by President Joe Biden, many congressional Democrats and labor activists, points out CNN.
McDonald’s says some restaurants will hit the $15/hour mark this year, but the overall average won’t reach that level until 2024.
Based on this trajectory of the current marketplace, McDonald’s expects the average hourly wage for its company-owned restaurants to increase to $15 an hour in a phased, market-by-market approach. Some restaurants have, or will, reach an average hourly wage of $15 an hour in 2021, and average hourly wages are expected to reach $15 an hour by 2024.
The move also comes as McDonald’s workers plan to strike across 15 cities on May 19th to demand higher wages, of at least $15 per hour.
After a volatile day, the FTSE 100 has closed 41 points lower at 6963 points, a drop of 0.6% today.
That wipes out much of yesterday’s recovery. But it’s still quite a rebound, after the index dropped to a five-week low at one stage this morning.
Wall Street’s rally is helping London stocks rebound from their earlier lows.
The FTSE 100 is now only down 34 points in late trading, or 0.5%, at 6970 points - quite a turnaround from this morning, when it briefly fell around 180 points to a five-week low.
Investment manager M&G is leading the way, up 4.5%, with tech-focused investor Scottish Mortgage Investment Trust gaining 2.2%.
Scottish Mortgage reported its strongest ever returns in the 12 months to 31 March, with with its net asset value more than doubling.
Scottish Mortgage has sold 80% of its shares in Tesla over the past year as the UK’s largest investment trust exited positions in other Silicon Valley stars and boosted its exposure to China.
The electric carmaker was Scottish Mortgage’s fifth-largest holding at the end of March, down from second place a year earlier, after the Baillie Gifford flagship trust took profits on its longtime investment in the company.
Mining giants are still weighing the Footsie down, though, following the drop in commodity prices today.
Michael Hewson of CMC Markets says:
At one point today European markets were down heavily, with the FTSE 100 and DAX hitting five-week lows, as inflation concerns once again weighed on sentiment, however these lows proved to be short-lived, with the rest of the day spent clawing the bulk, or all of the losses back, with the FTSE100 unperforming due to its heavy basic resources weighting, where most of today’s losses have been concentrated.
In an extremely fickle environment markets are continuing to wrestle with the dilemma as to whether the current bout of rising inflation prints is transitory in nature.
US PPI for April only served to reinforce this inflationist narrative, however it is still very difficult to put aside how much base effects are exerting upward pressure on the overall numbers.
The worst performers in the UK market have been energy and basic resources on the back of a slide in energy prices, and base metals prices.
Anglo American, Rio Tinto and Fresnillo are amongst the biggest decliners, along with BP and Royal Dutch Shell, as oil prices slumped on the resumption of the Colonial pipeline.
Each of the 30 stocks on the Dow Jones industrial average is up.
Aerospace manufacturer Boeing (+2.7%) is leading the Dow risers, as the index rebounds from its losses on Tuesday and Wednesday.
DIY chain Home Depot (+2.3%) and investment bank JP Morgan (+2.35%) are close behind.
Technology firms are also rebounding from their recent sharp losses, with Apple (+2.3%) and Microsoft (+2.3%) back in favour.
Wall Street rallies after jobless claims boost
Wall Street has opened sharply higher, defying fears of further falls.
Stocks are bouncing back after two days of heavy losses, with the main indices all rallying, and tech stocks among the risers.
Here’s the situation:
- The Dow Jones industrial average: up 487 points or 1.45% at 34,075 points
- S&P 500: up 59 points or 1.5% at 4,122 points
- Nasdaq Composite: up 204 points or 1.55% at 13,236 points
The mood may has been brightened by today’s fall in US jobless claims, which indicate that American firms are seeing stronger demand.
That may be helping investors shrug off the jump in producer prices last month -- even though it highlights the dilemma facing the Federal Reserve as it wonders how long to maintain its stimulus package.
As Reuters reports:
A surge in commodity prices, labor shortage and much stronger-than-expected consumer prices data this week have stoked inflation concerns that could force the U.S. Federal Reserve to raise interest rates, despite its reassurances that the rise in prices to be temporary.
“All of this comes down to the fact that the market believes that the Fed is going to have to do something sooner than anticipated,” said Victoria Fernandez, chief market strategist at Crossmark.
“Perhaps we’re not in a situation where market has come down and we’re going to stay there for an extended period of time. We’re in a more volatile time period where we could see swings one way or the other.”
Over in politics, David Cameron is being quizzed by MPs over his lobbying for Greensill Capital during the height of the pandemic last year.
My colleague Andrew Sparrow is liveblogging the action here:
US producer prices jump 6.2% year on year
The prices charged by US producers surged last month, in another signal that inflationary pressures are building.
The US producer price index jumped by 0.6% in April alone, following a 1.0% jump in March.
That lifts the annual PPI index up to 6.2% for April, higher than expected, and the biggest increase since the agency started tracking the data in 2010.
Manufacturing prices jumped 0.6% during April, driven by steel prices, along with natural gas, meat and dairy food products.
The Bureau of Labor Statistic says:
A major factor in the April increase in prices for final demand goods was the index for steel mill products, which jumped 18.4%. Prices for beef and veal, pork, residential natural gas, plastic resins and materials, and dairy products also moved higher.
Services prices also rose by 0.6% in the month, with the BLS saying:
Within the index for final demand services in April, prices for portfolio management rose 1.5%. The indexes for airline passenger services; food retailing; fuels and lubricants retailing; physician care; and hardware, building materials, and supplies retailing also moved higher.
It underlines that firms are putting up prices, following the surge in commodity prices and rising demand as pandemic restrictions are eased (as we saw with yesterday’s jump in Consumer Price inflation).
But the sharp annual increase in the PPI also follows the slump in demand in April 2020 during the first wave of the pandemic.
Core PPI inflation, which strips out volatile factors like food and energy, jumped by 0.7% in April and was 4.6% higher than a year ago – the largest advance since 12-month data were first calculated in August 2014.
The drop in new US unemployment claims last week indicates that the labour market is improving, despite the disappointing slowdown in hiring in April (when there were just 266,000 new hires).
So says Daniel Zhao of Glassdoor, on Twitter:
Zhao is also concerned about the impact of some US states withdrawing from expanded unemployment benefits programs early (these states are arguing that the economic emergency is over, and its time to return to work).
The moves, made by officials in Republican-led states, would cut off benefits as early as 12 June.
The aid includes an extra $300 a week paid on top of typical state benefits. The long-term unemployed, as well as self-employed and gig workers, would lose their entitlement to benefits outright.
If you strip out seasonal adjustments, new US jobless claims fell to 487,436 last week, which is also a pandemic low.
AnnElizabeth Konkel of Indeed explains:
But, there were also around 3.7 million people still receiving “continuing claims” (so for at least two weeks).
And overall, nearly 16.9 million Americans were receiving unemployment support at the end of April, the Department of Labor shows:
The 34,000 drop in US jobless claims last week (to 473k, seasonally adjusted) is another sign that fewer companies are laying off staff, as consumer spending strengthens and more firms reopen.
Heidi Shierholz of the Economic Policy Institute says unemployment claims are moving in the right direction, although still too high (especially once you add claims to the PUA, or pandemic unemployment assistance, programme, for self-employed and gig economy workers).
US jobless claims fall to pandemic low.
The number of Americans filing new unemployment claims has fallen to a fresh pandemic low.
Around 473,000 ‘initial claims’ for jobless support were filed last week (to Saturday 8 May), on a seasonally adjusted basis.
That’s the lowest reading since jobless claims surged back in mid-March 2020, in the first wave of Covid-19.
It’s down from 507,000 in the previous week (which has been revised up), showing that US companies are laying off fewer staff as the economy strengthens.
But, it’s still more than double the levels of jobless claims before the pandemic:
The number of people on furlough in the UK has dropped, after lockdown restrictions were eased.
The Office for National Statistics reported this morning that 11% of the workforce were furloughed, in the two weeks to 2 May, down from 13%. That follows the easing of curbs on hospitality and non-essential shops last month.
There was also a notable rise ‘social spending’ last week, suggesting that more people were travelling eating out since pubs and restaurants were allowed to serve outside.
Hospitality firms have also been looking to hiring more staff, ahead of the next easing in England next Monday which will allow people to meet indoors again.
Data from Adzuna shows that on 7 May, UK online job adverts for “catering and hospitality” were at 103% of their average in February 2020. That’s an increase of 46 percentage points since 9 April 2021, the ONS adds, suggesting that hiring is ramping up.
FTSE 100 still in the red
After a tough morning, the London stock market is on track for its second hefty fall this week.
The FTSE 100 index is currently down 1.6% today, or 114 points lower at 6890. That would be lowest close in around three weeks (it earlier hit a five-week low, before rebounding somewhat).
Luxury fashion group Burberry (-7.5%) still leading the fallers after reporting this morning that operating margins will be hit by increased investment, while cutting out discounts in favour of full-price sales will weigh on sales growth.
BT is also in the fallers (-6%) after it reported a 23% drop in annual profits and a fibre-rollout boost. Hargreaves Lansdown are also lower (-5.2%) after flagging that trading volumes have started to fall as pandemic curbs ease.
Mining and energy stocks are also continuing to drop, with Anglo American now down 5.3%, BHP Group down 4.3% and Rio Tinto off 4.5%, following the drop in commodity prices today.
Investors are clearly worried that central banks will take action to cool inflation (even though at least some of the recent prices rises appear transitory).
Sophie Griffiths, market analyst at OANDA, says:
US inflation jumping to its highest level in 13 years has spooked the market, whilst a sell off in commodities is giving the bears more room to run.
Inflation fears have been stalking the market all week and are showing few signs of easing. Whilst some inflation is good for companies and the market, the latest US consumer price data points to the balance moving too far in one direction. US CP1 jumped to 4.2% in April, the highest level since 2008. The data confirmed investors fears of overheating and prompted bets that the Fed could move on rates earlier.
The prospect of tighter monetary policy boosted the US Dollar, which has acted as a drag on commodities. Base metals, which have surged in recent weeks are trading lower, pulling down the heavy weight miners. Falling oil prices are dragging on the oil majors.
After booming in the pandemic, the surge in share trading may be slowing as lockdown restrictions ease.
Hargreaves Lansdown, the investment firm, flagged today that it is starting to see a drop in dealing volumes, saying:
Where daily share dealing volumes settle, as we ease out of lockdown and life returns to more normal, is difficult to say.
Similar to when previous lockdowns have been lifted, we have begun to see a reduction in share dealing volumes in both UK and overseas trades.
Hargreaves Lansdown is still confident of seeing a higher base level of dealing volumes than before Covid-19, though. So far this year, total revenues are up 19% to £532.7m, amid record dealing volumes and client growth.
Like other brokers, Hargreaves Lansdown benefited from the jump in retail trading under lockdown. More younger clients turned to share dealing, with groups such as WallStreetBets driving interest in “meme stocks”, while rising markets delivered strong gains if you managed to buy during last year’s lows.
Alphawave shares slide after IPO
Shares in Canadian chip designer Alphawave IP have slumped by a fifth this morning, after it floated on the London Stock Exchange.
Alphawave, whose semiconductor technology is used in high-speed data networks, sold shares at 410p each, valuing the Toronto-based firm at around £3.1bn.
But they swiftly fell, dropping by around 20% to 326p at present, leaving investors with hefty paper losses.
Alphawave designs high-speed connectivity technology for chips used in areas such as data centres, artificial intelligence, 5G, data networking and self-driving cars.
It licenses this intellectual property to major tech firms – a major growth area, given the demand for faster wireless and the growth of the Internet of Things.
Alphawave chose to float in London rather than New York, despite concerns that Deliveroo’s disastrous IPO could have hurt the City’s appeal to tech firms.
It’s a tricky week to be floating, of course, given the market volatility and the recent move away from tech stocks.
But such a tumble suggests the float may have been priced rather too richly, as Russ Mould, investment director at AJ Bell, says:
The 410p offer price put a £3.1bn price tag on the company – hardly a knock-down sum for a firm which, according to the prospectus, generated $44m in sales, $24m of operating profit and generated $15m in cash from operations.
Granted, Alphawave IP is growing very quickly, but such a valuation prices in a lot of future growth already and does so at a time, again, when investors may be able to buy plenty of cyclical, immediate growth cheaply if we do get a strong, post-pandemic upturn, with the result that they may not feel such a need to pay premium valuations for long-term secular growth well out into the future.
Here’s some more reaction, from Ben Martin of The Times:
And Abhinav Ramnarayan of Reuters:
Andy Haldane warns of inflationary risks from UK's "tennis ball bounce" recovery
Andy Haldane, the outgoing Bank of England chief economist, has predicted that UK growth and inflation will both accelerate this year... meaning that policymakers need to start “tightening the tap” on their stimulus.
Writing in the Daily Mail today, Haldane reiterates his earlier optimism for a strong recovery – saying Britain could bounce back like a tennis ball.
He argues that the UK could outpace international rivals:
In its latest forecasts, the Bank revised down its estimate of peak unemployment from 7.75% to less than 5.5%. It is currently around 5%.
A year from now, it is realistic to expect UK growth to be in double-digits, activity to be comfortably above pre-Covid levels and unemployment to be falling.
Such a tennis ball bounce in the UK economy would put it at the top of the G7 growth league table.
But... Haldane also warns that the Bank of England needs to ensure that this boom does not turn to bust with an unwanted bout of inflation.
Last week, Haldane was a lone voice on the Bank’s MPC committee voting to reduce the size of its bond-buying QE programme.
And today, ahead of his departure next month to run the Royal Society of Arts, he warns:
Inflation inflicts collateral damage on our finances, squeezing the purchasing power of our pay and causing rises in the cost of borrowing.
And experience during the 1970s and 1980s demonstrates that, once out of the bottle, the inflation genie is notoriously difficult to get back in.
By the end of this year, inflation is likely to be above its 2% target, largely due to the temporary effects of higher energy prices.
At that point, the UK economy is likely to be growing rapidly above its potential. This momentum in the economy, if sustained, will put persistent upward pressure on prices, risking a more protracted – and damaging – period of above-target inflation. This is not a risk that can be left to linger if the inflation genie is not, once again, to escape us.
That is why, at last week’s meeting of the Bank’s Monetary Policy Committee, I voted to begin throttling back the degree of support provided to the economy.
To be clear, this is not a case of slamming on the brakes, but rather gently taking our foot off the accelerator.
Other Bank of England policymakers sound less concerned; yesterday, Jonathan Haskel said he was “not that worried about inflation”.
UK government bond yields highest since 2020 'dash for cash'
Concerns about rising inflation are pushing government bond yields higher.
The yield, or interest rate, on 10-year UK gilts has risen to around 0.92% today. That’s its highest level since the market turmoil in March 2020 (when there was a surge of selling to raise funds).
Exclude that ‘dash for cash’, and yields are at their highest level in almost two years.
Yields rise when bond prices fall; so these moves suggests investors are bracing for central banks to slow their bond-buying stimulus packages, or raise interest rates.
British 10-year gilt yields hit their highest in almost two years – excluding a brief surge seen during last year’s “dash for cash” – as investors sold government bonds globally after a jump in US inflation.
Ten-year gilt yields rose as high as 0.919%, up about two basis points on the day, following a climb in other European government bond yields on Thursday.
Twenty-year gilt yields also hit their highest since March 2020 when the coronavirus pandemic crisis began to hit the west.
German bond yields have also extended their recent rally (although the 10-year bund is still trading at a negative yield, around -0.1%).
Wall Street futures suggest we’ll see further losses in New York in a few hours – with Dow futures down 0.6%, and Nasdaq futures down 0.2%.
The oil price has fallen over 2% today, with benchmark Brent crude dropping back to $67.75 per barrel, and US crude down to $64.50.
Marios Hadjikyriacos of XM says ongoing inflation angst is hitting asset prices:
The shock waves continue to reverberate, with futures pointing to another lower open on Wall Street today. And with yields on Treasuries rising as investors dump bonds to shield their portfolios from the inflationary nova, it seems that many players are simply moving to cash.
Even commodities are trading lower, which implies there’s no place to hide for now. Super-loose monetary policy ignited a ‘buy everything’ wave, so perhaps it’s only natural to see a ‘sell everything’ reaction as the days of cheap money slowly draw to an end.
Oil is also being pulled down by the stronger dollar (used to price commodities).
Supply shortage worries should also be easing, after America’s largest fuel pipeline restarted operations nearly a week after a cyber-attack forced it to shut (which pushed up prices of crude and refined petroleum, amid a dash to the pumps)
Commodity prices are weaker today, having soared to record highs recently amid strong demand as the pandemic lifted.
Benchmark iron ore futures in China fell over 7% on Thursday, taking a breather after a remarkable rally.
Copper prices also dipped, having also hit record highs last week.
They’re being pulled down by a strengthening US dollar, which jumped yesterday after US inflation hit its highest since 2008.
Package holiday companies warned over pandemic cancellations
With the holiday season approaching, Britain’s competition watchdog has warned package companies to promptly refund holidaymakers whose trips are cancelled due to the pandemic.
The Competition and Markets Authority (CMA) has written to UK travel firms to remind them of their legal obligations, insisting they ensure refund options are clear and accessible.
The CMA was deluged by complaints last year when the pandemic hit, from people saying they’d been refused refunds when holidays were cancelled, or pressured into taking vouchers instead.
Since March 2020, the CMA has received over 23,000 complaints from consumers about refund issues relating to package holidays that could not go ahead due to the pandemic.
In a clear warning shot, the CMA reminds holiday firms that it will act if companies breaking the law by refusing or delaying refunds this summer.
Under the law:
- holidays cancelled by package holiday companies must be refunded within 14 days under the Package Travel Regulations (PTRs).
- any offer of a refund credit note must be accompanied by the option of a full refund. Customers should be able to exchange their credit note for a refund at any time.
- people have a right to a full refund where they decide to cancel their package because unavoidable and extraordinary circumstances at the destination significantly affect the holiday they have booked or their travel there.
- if the FCDO (Foreign, Commonwealth and Development Office) is advising against travel to the package holiday destination when the consumer is due to leave, that is, in the CMA’s view, strong evidence that these unavoidable and extraordinary circumstances are likely to apply. If the consumer is refused a full refund, the package holiday company should fully explain why it disagrees that the holiday or travel is significantly affected.
Holiday group TUI - one of several major holiday firms investigated by the CMA last year - has given a formal pledge to provide clearer information on refunds upfront to customers whose holidays have been cancelled due to coronavirus.
BT is to create up to 7,000 jobs as it ups the pace of the multibillion-pound rollout of a national next-generation, broadband network to 25m UK premises by 2026.
The telecoms giant, which reported a 23% drop in pre-tax profits to £1.8bn last year as businesses used less of its services during pandemic lockdowns, had previously targeted rolling out full-fibre broadband to 20m premises.
BT said it would consider a joint venture partnership to fund the rollout to the extra 5m homes.
The company has pledged £12bn to address the UK’s status as a global laggard in full-fibre broadband, and fulfil Boris Johnson’s election promise of getting next-generation broadband speeds to all homes in the UK.
Philip Jansen, the chief executive of BT, says:
“BT is already building more full-fibre broadband to homes and businesses than anyone else in the UK.”
“It will get fibre to more people, including in rural communities. And it will help fuel UK economic recovery, with better connectivity and up to 7,000 new jobs.”
Burberry are the top faller in London, down 8%, despite reporting that its sales recovery has accelerated thanks to growing demand in Asia and the US.
The luxury goods maker posted a 10% drop in sales for the 12 months to 27th March, as Covid-19 hit tourism and forced stores to shut.
But sales did recover in the January-March quarter, jumping around 32% compared with a year ago (the early stages of the pandemic). They were just 5% lower than in 2019 even though around 16% of stores were closed.
Burberry, known for its trench coats and distinctive patterned goods, explains:
Within this, full-price sales grew 63% in the quarter (12% versus Q4 FY19) driven by Mainland China, Korea and the U.S.
Adjusted operating profits fell 8% - which retail analyst Nick Bubb says is amazing under the circumstances.
Richard Hunter, head of markets at interactive investor, adds:
“Burberry has not only put a tough year behind it, but has also clearly turned a corner in positioning for strong future growth.
Burberry says it will be reducing markdowns (discounts) in its mainstream stores, as it focuses on full-price sales - which will drag on sales growth.
We will continue to strengthen brand equity by exiting markdowns in mainline stores in FY22. This is a headwind against our comparable store sales growth amounting to a mid-single digit percentage in the full year.
Stocks are down across Europe, amid worries over rising US inflation, with the French CAC and German DAX both dropping around 1.2%.
“Ballooning losses overnight in the US, and a tough session in Asia” are weighing on the markets, says Connor Campbell of SpreadEx,
FTSE 100 slides at the open
London’s stock market has opened in the red, with the FTSE 100 sliding by 1.4%
The blue-chip index dropped by around 100 points at the open, to as low as 6902 points - its lowest level in almost three weeks.
Mining companies and oil producers are among the early fallers, with Rio Tinto down 3.2%, Anglo American losing 2.8%, and Royal Dutch Shell off around 3%.
Introduction: Inflation worries weigh on markets again
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Inflation worries continue to grip the markets today, after US consumer prices jumped much more sharply than expected in April amid supply shortages and rising demand as lockdowns ease.
The news that the Consumer Price Index has climbed 4.2% during the month from a year earlier – the fastest since 2008 – fuelled fears that the US economy could be running too hot.
It triggered Wall Street losses last night, and in Asia-Pacific bourses where shares fell for the third day running.
With government support packages driving consumer spending, and stretched supply chains creating a scramble for raw materials, investors are concerned that the jump in inflation may not be temporary as the Federal Reserve believes.
The Dow fell 681 points, or 1.99%, to notch its single-worst session since January – a day after its biggest fall since February.
The selloff has rippled round the globe again, sending Japan’s Nikkei sliding 2.5% and Australia’s S&P/ASX 200 down almost 1%, adding to losses earlier this week.
London is heading for a lower start too, with the FTSE 100 tipped to fall almost 1%, wiping out yesterday’s mild recovery after Tuesday’s slump.
Some economists, though, point out that US inflation was driven up by one-off factors as the economy emerged from pandemic restrictions, so it could be a temporary spike.
Used car and truck prices, shelter and lodging, airline tickets, recreational activities, car insurance and furniture all pushed CPI higher, as the reopening of businesses created temporary quirks in the data.
New US producer prices data, and weekly jobless claims are due today, which will give new insight into how the world’s largest economy is faring.
It will take time to tell if inflation is transitory or permanent, so this issue is going to loom for months.
Jim Reid of Deutsche Bank predicts regular pockets of volatility as the two sides tussle it out:
It’s dangerous to read too much into one number but the broad strength gives us confidence that this is not just a transitory story. Another buzz word for us has been how this year will be “complicated” for markets especially once reopening happens. This release personifies that thought process.
You may get dull periods but this year is going to be a big battle between the bullishness of mass reopening/stimulus on one hand and the inflationary consequences on the other. Expect regular pockets of vol. I still lean heavily on the inflationary camp but the reality is that the battle is still in the early stages and non-inflationists will still be able to use the transitory argument for several more months yet.
Bitcoin took a tumble overnight, after Elon Musk announced in a tweet that Tesla was suspending vehicle purchases using Bitcoin, citing the environmental impact of mining the cryptocurrency.
Musk added that Tesla would not sell any of the bitcoin it bought earlier this year, and intends to use bitcoin for transactions as soon as mining uses to more sustainable energy.
This sent bitcoin tumbling – from over $54,000 just before Musk’s tweet to below $46,000. It has recovered a little since, to around $51,000 – but still down over 10% over the last 24 hours.
Other cryptos also slid, including ether and dogecoin:
- 1.30pm BST: US weekly jobless claims figures
- 1.30pm BST: US Producer Price Inflation report for April