Time for a quick recap
Factories across the globe have reported a pick-up in activity last month as Covid-19 restrictions eased.
In the UK, output grew at its fastest rate since 2014. But, bosses also slashed jobs at a faster rate – and analysts fear this will increase as Britain’s furlough scheme ends.
German and Italian factories also posted faster growth, but the recovery fizzled out in France and Spain, according to the latest figures from IHS Markit.
China got the day off to a strong start, with the fastest increase in factory activity since 2011. However, firms are a little less optimistic about future prospects, as the Covid-19 pandemic continues.
The coronavirus crisis has also pushed up unemployment in the euro area, and pulled its inflation rate back below zero. Economists predict the European Central Bank could be forced to increase its stimulus programme to drive prices higher.
The prospect of fresh stimulus measures helped to push shares higher in Europe this s morning, with Germany’s DAX currently up 0.5%.
But in London, falling travel company and bank shares have pulled the FTSE 100 index down by 1.3% or 76 points to 5,886, a one-month low.
Shares are also suffering because the pound has hit its highest level in eight months against the US dollar. Broadly, the dollar has sagged to a two-year low as investors anticipate even more monetary stimulus from the Federal Reserve.
But tech shares continue to enjoy a monster rally, with Apple now worth more than the entire FTSE 100 index.
High street visits boosted by discount meal deal
The UK’s Eat Out to Help Out scheme wrapped up last night, after allowing millions of Britons to enjoy a half-price meal.
And the latest figures show that Rishi Sunak’s scheme succeeded in bringing people back to bars and restaurants.
Footfall across all retail destinations throughout the UK rose by 6% last week, new figures from retail Springboard show.
Although visitors numbers are still down year-on-year, they clearly picked up during August.
We still don’t know exactly how many half-price meals were sold under the scheme – a week ago, the total hit 64m.
Diane Wehrle, Insights Director at Springboard explains:
“The last full week of the ‘Eat Out to Help Out’ scheme led to the most positive footfall result of any week so far with increases in all three destination types from the week before, and year on year declines that were the most modest since the start of the lock down.
Not only did the week as a whole yield far more positive results those previously but, given the situation we find ourselves in and the much cooler weather this year, the Bank Holiday weekend proved to be a remarkable success for retail destinations.”
Here’s the details:
- All three destination types benefited from a rise in footfall, with shopping centres seeing an increase of +9.1%, +4.8% in high streets and +5% in retail parks
- The final full week of the ‘Eat Out to Help Out’ scheme led to the most positive footfall result of any week since the start of lock down
- This rise has led to an annual decline of -26.1%, a noticeable improvement on the year on year drop of -30.7% in the week before
- Bank Holiday weekend proved to be a success for all retail destinations with an annual drop of just -11% up to 5pm on Bank Holiday Monday
Hungarian airline Wizz Air have slumped to the bottom of the FTSE 250 leaderboard, after ditching plans to get more planes into service again.
Wizz has scrapped plans to run at 80% capacity next quarter, up from 60%, after Hungary reimposed a ban on overseas visitors following a jump in Covid-19 cases in parts of Europe.
Shares are currently down 9%.
Bloomberg has more details:
The Hungarian carrier will hold at its current 60% level for the period ending in December if stricter measures continue, including in its home country, it said Tuesday in a statement. Further reductions are possible and Wizz could park some of its fleet over winter to save cash, it said.
The setback comes just weeks after Wizz said it would ramp up flights, taking advantage of Europe’s lowest cost base among carriers to grab share. Where other carriers have trimmed their fleets, Wizz has signaled its intention to keep growing, targeting a 20-jet base at London Gatwick airport in the next year.
Here’s our news story on the pick-up in UK mortgage approvals in July….
….. and here’s Dan Leather, real estate partner at lawyers Gowling WLG, on the increase in cash buyers:
“The ‘cash only’ element of this spike supporting property investment as second or rental properties is symbolic of a more enduring lift in the market, as the effects of lockdown come to bear on people’s long-term planning and realisation.
It will be interesting to see how the housebuilding and construction dynamics of the industry are affected by this in the coming months.”
AstraZeneca has expanded an agreement with Oxford Biomedica to scale up production of its potential Covid-19 vaccine, as the race continues to find an effective prevention for the deadly virus.
Under the supply agreement, the Oxford-based cell and gene therapy firm said it would produce tens of millions of doses of AstraZeneca’s potential vaccine, AZD1222, for 18 months, which could be extended by a further 18 months into 2023.
It will be made at the firm’s three manufacturing suites at its new centre, Oxbox, in Oxford. Two of the suites will be ready to use in the next two months, earlier than expected. AstraZeneca will pay Oxford Biomedica £50m under the deal.
Over in Berlin, the government has predicted that the Covid-19 slump won’t be as deep as feared.
Germany now expects its GDP to shrink by 5.8% during 2020. That would still be the worst since the end of the second world war, but an improvement on the previous forecast of a 6.3% slump.
But…. the recovery in 2021 is is expected to be slower – at 4.4%, down from 5.2% previously.
Economy minister Peter Altmaier has hailed the new forecasts, telling reporters that the government’s stimulus programme is working.
Altmaier said (via Reuters)
“Overall, we can say that at least for now, we are dealing with a V-shaped development.”
But…it’s not really a V, as it will take until 2022 for Germany to regain all the growth lost earlier this year.
Back in the markets, the pound continues to rise….and stocks continues to fall.
Sterling is now up three quarters of a cent against the increasingly unloved dollar, at $1.344 – the highest since last December.
That’s bad news for exporters; the FTSE 100 is now down 81 points at 5881, a new one-month low, adding to its earlier losses.
Banks and travel companies are among the big fallers, with mining companies bucking the selloff with small gains thanks to today’s encouraging factory growth reports.
Eurozone unemployment rises to 7.9%
Unemployment across Europe has risen, in another sign of the economic damage caused by Covid-19.
The number of persons unemployed across the European Union by 336,000 in July, statistics body Eurostat reports. It rose by 344,000 within the euro area alone.
That lifts the eurozone unemployment rate to 7.9%, up from 7.7% in June, which is the highest since 2017.
Across the EU, it rose to 7.2% from 7.1%, the highest since 2018.
Eurostat estimates that 15.184 million men and women in the EU, of whom 12.793 million in the euro area, were unemployed in July 2020.
Many European countries brought in job retention schemes to allow companies to temporarily furlough staff rather than lay them off. That clearly hasn’t prevented some job cuts, but we’re not back at the levels seen during the euro debt crisis.
Economists had expected eurozone inflation to drop last month, but it wasn’t forecast to actually turn negative:
Covid-19 drags eurozone back into deflation
Crumbs: The eurozone has fallen back into deflation, as the Covid-19 pandemic hits demand and pushes down energy prices.
Consumer prices in the euro area dropped by 0.2% year-on-year in August, new data from statistics body Eurostat show.
Cheaper energy bills and petrol were a major factor – falling by 7.8% last month compared with August 2019.
Food, alcohol & tobacco prices rose by 1.7%, down from 2% per year in July, while non-energy industrial goods prices were down 0.1%.
Low inflation is obviously a boost to consumers, but it will cause alarm at the European Central Bank. It is already massively expanding its money-printing QE programme in an attempt to push CPI close to 2%….
UK mortgage approvals jump
The UK property market has also strengthened, as more people jumped onto the housing ladder or shimmied up and down it.
Mortgage approvals jumped to 66,300 in July, new Bank of England figures show, up from below 40,000 in June.
Transactions picked up as lockdown measures were lifted, and after chancellor Rishi Sunak temporarily slashed stamp duty.
Housing market analyst Neal Hudson has spotted that many house purchases are ‘cash only’, suggesting a pick-up in property investment:
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says the threat of a no-deal Brexit at the end of the year is also hurting UK manufacturing, despite today’s strong-looking PMI report.
“It seems the sector may be experiencing a ‘V’ shaped recovery with the fastest rate of growth in the manufacturing sector since May 2014.
However, amidst this positivity the elephant in the room remains the poor employment figures. The drop in job numbers in August makes this feel more of a rebalancing strategy than real recovery.
Companies are looking at how to stay in business for the rest of the year as challenges from the pandemic retreat a little only to be replaced by an imminent Brexit.”
Rob Dobson, director at IHS Markit, fears that unemployment across UK manufacturing will surge this autumn – even though factories are growing again.
Companies report that the current bounce is mainly driven by the restarting of manufacturers’ operations and reopening of clients as COVID-19 restrictions continue to be relaxed. Backlogs of work fell at an increased rate, hinting at spare capacity, and the labour market remains worryingly weak, with job losses registered for the seventh straight month. The downturn in employment may have further to run as the government’s furlough scheme is phased out unless demand rises sharply.
Given the fragility of demand and uncertain outlook, both in terms of COVID-19 and Brexit, policymakers may struggle to prevent a ‘surge-then-slump’ scenario from developing.”
UK factories have now been cutting jobs for seven months in a row, Markit reports — with the pace accelerating strongly in August:
Manufacturing employment declined at one of the steepest rates during the past 11 years, with reductions seen across the consumer, intermediate and investment goods industries.
Small, medium and large-sized firms also implemented similarly marked cuts to staff headcounts. Stocks of purchases and finished goods both fell further, as companies looked to control costs and complete business delayed by the lockdown. Input inventories fell despite a modest increase in purchasing activity
Apple overtakes FTSE 100
Here’s one for the history books – Apple is now worth more than every company in the FTSE 100, combined!
After rallying (yet again) yesterday, the world’s most valuable company is now worth over $2.1 trillion, an all-time record.
In contrast the Footsie (which is woefully light on tech stocks) is now worth around £1.5 trillion, or roughly $2 trillion.
While Apple has surged by an astonishing 75% this year, the blue-chip FTSE 100 has lost over 20% of its value since January 1st, in a blow to UK savers and investors.
It’s a powerful example of the impact of the Covid-19 pandemic on the global economy and asset prices, as the lockdown has accelerated the move towards digital.
Banks, travel companies, property firms and retailers have all seen their earning slump, while tech giants have massively benefited from the boom in home-working, video-conferencing, cloud computing.
We saw this last night, when Zoom reported astonishingly strong figures – revenue rose 355% and paying customers were up 450%.
Apple’s shares also got a boost from its stock split. Investors now own four Apple shares for every one they owned last week.
That makes the stock more affordable to small investors (you only need $130 to buy one share, down from nearly $500 last week). Electric carmaker Tesla also split its shares, leading to another surge in its stock.
Stock splits don’t actually make these companies any more valuable, though, but investors do seem to be piling in….
Neil Wilson of Markets.com writes:
Some of the moves in US shares are striking. Apple rose over 3% to $129 after splitting, whilst Tesla shares rocketed 13% on its busiest day ever. Stock splits shouldn’t make a difference, except this time they have. Tesla is up 74% for the month.
Zoom rose almost 23% in after-hours trade after it reported a 355% rise in revenues to $663.5m for the July quarter, smashing forecasts for around $500m. Zoom has proved to be a Covid winner of epic proportions – but shouldn’t we all be going back to the office by now? The UK significantly lags Europe and others in ‘getting back to work’ statistics – this has a huge implication for productivity and for the wider economy.
UK factories keep cutting staff, despite recovery
We also have confirmation that UK factories strengthened last month – but this hasn’t prevented them cutting more staff.
The UK manufacturing PMI has come in at 55.2, showing strong growth, up from 53.3 in July, following the relaxation of lockdown measures.
Output rose at the fastest pace in six years, as purchasing managers across the UK reported that output and new orders rose at solid and accelerated rates.
Manufacturing production rose at the fastest pace since May 2014, reflecting solid expansions across the consumer, intermediate and investment goods sub-sectors. The steepest growth was registered in the intermediate goods category, whereas investment goods producers saw the lowest pace of growth.
That suggests the British economy continued to recover from its worst slump in decades.
But data firm Markit also cautions that firms are still cutting staff – a worrying sign, just as the government starts to wind back its job protection furlough scheme.
The main factors driving production and new orders higher have been the re-opening of manufacturers and their clients following lockdowns and a loosening of other restrictions in place to combat COVID-19.
This has not supported a similar recovery or stabilisation in demand for staff, however, with job losses recorded for the seventh successive month.
at 5.20am EDT