ECB leaves rates at record lows in 2% inflation push; US jobless claims rise – as it happened

Graeme Wearden

from on 2021-07-22 16:13 (#5MF80)

Rolling coverage of the latest economic and financial news

Latest: US jobless claims rose last week
ECB pledges accommodative monetary policy until inflation at 2%
UK factories fear staff and materials shortages amid recovery
BoE deputy governor: inflationary pressures likely temporary
UK to trim its NatWest shareholding
Shares bought during 2008 bailout of Royal Bank of Scotland
Supermarkets struggle to stock shelves as pingdemic' havoc spreads

5.13pm BST

Time to recap.

The European Central Bank has pledged to maintain its record low interest rates until eurozone inflation is firmly at its new 2% target. At its first meeting since its strategy review, the ECB said it would maintain persistently accommodative monetary policy stance" to hit its goals.

4.51pm BST

In the City, the FTSE 100 index has ended 30 points lower at 6968 points, down 0.45% today.

Unilever (-5.9%) dragged the blue-chip index down after warning that rising inflationary pressures were hitting its profit margins, as the cost of raw materials, packaging and transport soars.

European Closing Bell

FTSE 100 -0.46% at 6,966

STOXX 50 +0.78% at 4,058

DAX +0.58% at 15,512

CAC 40 +0.30% at 6,48

IBEX 35 +0.56% at 8,615

MIB +0.45% at 24,787

SMI -0.43% at 11,970

~ @Newsquawk

4.15pm BST

ECB chief Christine Lagarde has flagged that the Delta variant of Covid-19 could hold back Europe's recovery.

Speaking at a press conference after today's monetary policy meeting, she explained that the service sector recovery could be more affected by Delta:

We expect manufacturing to perform strongly even though supply bottlenecks are holding back production in the near term.

The reopening of large parts of the economy is supporting a vigorous bounceback in the services sector, but the Delta variant of the coronavirus could dampen this recovery in services especially."

Our projection from June actually included some assumption that certain containment and lockdown measures would be continued into the third quarter and some of it still remaining during the fourth quarter of 2021.

So it is factored into our projection, and all the elements that we are observing are confirming our projection of the second quarter and for the third quarter."

4.09pm BST

British Gas has more than doubled its profits for the first half of the year after cold weather prompted customers working from home to turn their heating up, and small companies began to reopen for business after Covid-19 lockdowns last year.

Profits at the UK's biggest energy supplier rose to 172m for the first six months of the year, from 78m in the same period last year, even after losing 114,000 home energy customers since the end of last year.

3.34pm BST

Pharmaceuticals news: GSK has announced the head of its consumer healthcare division, Brian McNamara, will lead its new consumer healthcare company, once it's spun off as a separate firm.

#NEWS Brian McNamara has today been named CEO Designate of the new Consumer Healthcare company, which will result from the proposed demerger from GSK.
Find out more: https://t.co/dIzXEbsFky

3.03pm BST

Shares in Chinese ride-hailing giant Didi have dropped by 7% after a report that Beijing is considering harsh penalties on the company -- from a massive fine to even a forced delisting after its IPO last month.

CNBC explains:

Shares of Didi fell more than 7% Thursday, bringing its month-to-date losses to over 24%. Bloomberg News reported Chinese regulators are planning a slew of punishments against Didi, including a fine likely bigger than the record $2.8 billion that Alibaba paid earlier this year.

The penalties could also include suspension of certain operations, delisting or withdrawal of Didi's U.S. shares, the report s

DIDI DROPS 6.1% AS CHINA SAID TO MULL FURTHER PENALTIES - Bbg$DIDI 10.53 - 8.43%

3.00pm BST

The US stock market has opened mixed, as the rise in jobless claims last week dampens the mood.

The Dow has dropped, while the tech-focused Nasdaq is a little higher, suggesting investors are a little less optimistic about the economic rebound.

2.38pm BST

The jump in US jobless claims is partly driven by auto plants temporarily shutting down to retool', explains Pantheon Macroeconomics' Ian Shepherdson:

Don't panic about the "surge" in jobless claims. The seasonal adjustment process right now is shredded by the automakers' retooling shutdowns, because the timing and extent differs from year-to-year. The noise now is greater than the signal; Aug data will be much calmer.

Quick points on jobless claims:
1) The big increase was concentrated in a handful of states
2) The surge in claims seems related to auto plant shutdowns retooling
3) Automakers are temporarily eligible for benefits when manufacturing plants close briefly$SPX $USD

2.16pm BST

Robert Frick, corporate economist at Navy Federal Credit Union, fears that the Delta variant of Covid-19 could lead to fresh job losses in the US.

On today's jobless claims report, he says:

The unexpected bump in claims could be noise in the system, but it's also not hard to see how the rise of the Covid-19 Delta variant could add thousands of layoffs to numbers that already are double what they were pre-Covid.

We should keep a close watch on Covid-19 related layoffs in this fourth wave".

2.10pm BST

The total number of Americans receiving unemployment support has fallen across the US.

That's due to several factors - people find new jobs, exhaust their benefits, or their states end pandemic support early.

US Continuing claims for #unemeployment benefits fell sharply:

1. Improving labor market recovery
2. Many states ending emergency unemployment benefits early (PUA + PEUC + federal $300/week top-up) pic.twitter.com/ZYgpVkWyqo

Continuing #unemployment benefits claims fall in w-e July 3 as many states roll off emergency UI benefits.

3.1mn people on regular benefits (-114k)
5.1mn on PUA (-553k)
4.1mn people on PEUC benefits (-576k)
------------------------
12.6mn claimants (-1.3 million) pic.twitter.com/KKbJv1DL8K

The continuing claims data is lagged so we're only now seeing the first 3 waves of states that discontinued benefits after June 26.

More to come in the next few weeks. pic.twitter.com/sqL0nhw9JF

2.02pm BST

The number of US self-employed workers, freelancers and gig economy workers signing on for unemployment support also rose last week.

There were 110,257 initial claims for Pandemic Unemployment Assistance in the week to Saturday 17 July, up around 14,000 for the week.

Initial claims for #unemployment benefits post disappointing rise back above 400k in w-e Jul 17

Regular claims
419k (SA): +51k
406k (NSA): +14k

32 states
Big in NY offset by
Big in MI, TX, KY, PA, OH

PUA (NSA)
110k: +14k

Total claims: 516k (NSA) w/ flat trend pic.twitter.com/stDT1Wrxos

1.52pm BST

The number of Americans filing new unemployment claims has jumped, in a sign that the labour market remains volatile as the pandemic continues.

There were 419,000 fresh initial claims' for jobless support last week, on a seasonally adjusted basis. That's an increase of more than 50,000 compared with the previous seven days, when there were 368,000.

First time jobless claims rise by 51k to 419K. Increase underscores the week to week noise in the data and is not indicative of any signal of a change in the downward trend of the pace of firings. pic.twitter.com/pbE40thGN8

Not a good jobless claims number. Back up to 419K. More than expected.

Just as many economists/policy makers were hoping the labor market was starting to function more normally, jobless claims surprised on the upside: 419,000 vs 350,000.
While it's a noisy weekly series and the #DeltaVariant may be having an impact, it is nevertheless disappointing.

Third week of regular initial unemployment claims (nsa) rising. Really don't love that, hoping this trend breaks soon. Good that it's not a rapid increase, but still, wrong direction. pic.twitter.com/HfNzTob3XC

1.33pm BST

Market reaction to #ECB: The EUR falling to low of session of 1.1769 against USD while the Dollar index hits lowest level since Jul 19th. Tells you the EURUSD trade is all about what's happening in Frankfurt (!)

1.22pm BST

Here's some early expert reaction to the European Central Bank's new forward guidance, first from Fred Ducrozet of Pictet:

Here it is, the ECB's new forward guidance based on its new symmetric 2% inflation target. Not really shorter or crisper, but key words are "realised" and "durably". pic.twitter.com/2puHwPUopH

A change in style from the ECB but little change in policy substance. Statement that appeases both the doves & hawks.... committing to nothing. ECB's reaction function to inflation is clearer & there's a higher bar to tightening in this cycle. Was known post strategy review $EUR pic.twitter.com/OdfVN3Ha8W

Interesting from the European Central Bank today: having raised its inflation target (admittedly very slightly), the @ecb is now saying that it will overshoot its inflation target: pic.twitter.com/lJ7BIdnH55

Both the Fed and ECB are now 'committing to be irresponsible' and drive inflation persistently above target. Such a promise is not time consistent (ie credible), but that doesnt mean it won't work. My view is that shd help central banks achieve escape velocity from this crisis...

As expected, key words - persistent and tolerant -communicated during the conclusions of the ECB's strategy review remained relevant at today's ECB meeting. The central bank cemented its dovish policy guidance, noting its persistently accommodative policy stance may require policymakers to be tolerant of inflation overshooting its target.

We expect the ECB to maintain its status quo of status low" for the foreseeable future, with rate hikes unlikely to be on the policy agenda until the second half of this decade at the earliest. Looking ahead, we think investor focus will be on the outlook for asset purchases, with the Pandemic Emergency Purchase Program (PEPP) scheduled to end in March 2022.

The ECB indicated after today's governing council meeting that policy support in the euro area will likely persist for longer and potentially also be stronger than previously assumed, as the ECB seeks to deliver on its new symmetric inflation target of 2%. This dovish tilt to the interest rate forward guidance reinforces our overweight stance on European equities and our neutral stance on euro area government bonds, and underpins our New Nominal" investment theme, which describes a more muted response from bond yields in the face of rising inflation than in the past.

Today's dovish move, which will likely be followed by an upward adjustment in QE later this year, was enabled by the ECB's new strategy framework unveiled on July 12. It has been made possible because, contrary to the strategy framework itself, which was agreed unanimously, the policy decisions themselves do not need to be taken by consensus.

1.14pm BST

The euro initially jumped when the ECB decision hit the wires, but is now a little lower.

It's trading around $1.1775, down 0.15% today, as traders digest its pledge to maintain a persistently accommodative monetary policy stance to meet its inflation target".

Ah, the noted up-then-down formation for the euro post ECB pic.twitter.com/0XUqKzv102

Tell me it's ECB day without telling me it's ECB day pic.twitter.com/0jzsJT4tUI

1.09pm BST

Over in Frankfurt, the European Central Bank has left interest rates unchanged at their current record lows, and pledged not to raise them until inflation has stabilised at 2% in the medium term.

The ECB's governing council left its headline borrowing rate at just 0.0%, while banks continue to be charged negative rates (-0.5%) on their deposits left with the ECB.

#BREAKING ECB pledges to keep rates low until inflation hits new 2% target pic.twitter.com/mHY78AEl4x

In support of its symmetric 2% inflation target and in line with its monetary policy strategy, the governing council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.

This may also imply a transitory period in which inflation is moderately above target.

Here's the new ECB forward guidance. https://t.co/E5FulcLvTb

'BREAKING!' The #ECB keeps rates unchanged, will run #PEPP to at least the end of March 2022. PEPP may not be used in full. Ready to adjust all instruments as needed. My first take is that this will not sound dovish enough for some. pic.twitter.com/epZjzwnnhj

12.41pm BST

Some reaction to BoE deputy governor Ben Broadbent's speech:

Significant speech this given how centrist Ben Broadbent has been on MPC. He makes the point that current goods inflation looks temporary but lab mkt will be key to whether domestic inflationary pressures linger. Overall this speech seems more 'wait-and-see' than 'tighten now'. https://t.co/L1byuWsH4I

Overall, not a speech that makes a hawkish tilt against above-target inflation any more likely - and probably reduces chances of an early taper to APF at the August meeting. As I laid out here: https://t.co/0GeA9Xdm8A a divided MPC is (IMHO) no bad thing right now.

12.29pm BST

And here's our news story on the impact of rising costs on food, cleaning and personal care giant Unilever:

12.28pm BST

Here's our Q&A on the UK's product shortages:

12.00pm BST

UK factories have recorded their strongest growth in new orders since the 1970s, but fear that staff shortages and cost pressures will hurt growth.

Manufacturing output volumes continued to grow at the fastest pace on record in the three months to July, matching June's blistering growth, according to the latest healthcheck from the CBI.

UK #manufacturing output volumes grew at the joint-fastest pace on record in the three months to July, according to the latest CBI ITS. Manufacturers expect output to grow at an even quicker pace in the next three months - the strongest growth expectations on record pic.twitter.com/SyLUdq37Dp

Acute staff shortages evident across the economy are biting deeply within manufacturing, with skills in short supply and the number of people isolating climbing steeply.

Businesses have already endured a prolonged period of inhibited demand, so it is vital that government now takes all possible steps to protect this resurgence in activity.

The manufacturing sector continues to face acute cost pressures. Firms reported that average costs growth in the three months to July accelerated to its fastest pace since 1980 pic.twitter.com/APkDGOsU0F

These cost pressures have fed into quicker output price growth, with average domestic and export prices in the last quarter increasing at the fastest rates since 1980 and 2017, respectively pic.twitter.com/WJhoWdAC8G

Some really interesting results from our latest manufacturing survey (plus lots of great time series charts )
Demand surges, supporting hiring, optimism, and investment intentions
Acute cost and price pressures
Supply concerns (materials and skilled labour) rise https://t.co/9Ch5Z8bMQn

11.35am BST

Ben Broadbent, deputy governor of the Bank of England, has predicted that many of the factors pushing up UK inflation will be temporary.

In a speech this morning, Broadbent tried to dampen the idea that the Bank should react to the jump in the cost of living over its 2% target, saying:

Quite a bit of the current rise in inflation is actually coming directly from the higher price of oil, something that is likely to fall away through the early part of 2022.

And, as we've seen, periods of rapid price rises in other traded goods haven't just been temporary - they've often been followed by below-average rates of inflation. So, while we know it's going to go further over the next few months,

I'm not convinced that the current inflation in retail goods prices should in and of itself mean higher inflation 18-24 months ahead, the horizon more relevant for monetary policy.

We know the furlough scheme is being wound down, restoring a significant degree of supply to the labour market. As far as tradable goods are concerned, it's unlikely the pandemic-related shifts in demand will continue if the threat of the illness itself recedes.

They're more likely to narrow (we may already be seeing some signs of that correction in the data).

BoE's Broadbent taking on the challenge laid down by the @LordsEconCom to set out the case for transitory UK inflation. Shipping futures pricing an interesting chart within the speech: https://t.co/GfV8Zs4ain pic.twitter.com/zP6bOcDE6O

What, in view of all this, is the appropriate policy response to the current inflation?

Most of the overshoot relative to target in the latest CPI numbers - more than all of it, on some measures - reflects unusually strong inflation in goods prices. In all likelihood that will also be true of the larger overshoot we're going to see towards the end of this year. And if this was only a story about global goods prices - and depending how confident you were in its transitory nature - I think the answer could well be nothing".

Top Bank of England policy maker, Ben Broadbent - who helps sets interest rates - thinks that much of the upward pressure on prices (inflation) is likely to be short lived. That suggests interest rate rise is off the cards for now as Broadbent's often weather vane for committee.

11.12am BST

Back on the UK government's NatWest share sale plan....

Christopher Thompson of Reuters Breaking Views argues that shrewd timing" could limit taxpayer losses as the Treasury trims its 55% stake.

At the current price of 197 pence, any sales would crystallise hefty losses compared to the average 502 pence per share the government paid to rescue the lender in 2008. Still, the timing is good.

Analysts expect the bank run by Alison Rose to make a 5.6% return on tangible equity this year, roughly half of the expected return for Lloyds Banking Group. Yet NatWest shares trade at 75% of tangible book value per share, only a bit below its larger rival. Taxpayers could get a better deal than feared.

Shrewd timing could limit UK taxpayer losses on state-owned NatWest, writes @CGAThompson https://t.co/mE2LQaSUmg pic.twitter.com/g5wiyhkSbX

10.46am BST

Bankers and advisers are in line for a 275m payday from the proposed takeover of the British supermarket Morrisons, according to newly published documents.

The US private equity firm Fortress aims to take the retailer private by 26 August if it receives shareholder backing for the 6.2bn takeover, a timetable published on Thursday said.

10.25am BST

The ONS have also reported that cybercrime and fraud rose sharply during the pandemic, as criminals took advantage of the move to online shopping.

In its latest crime survey for England and Wales, the ONS shows there were 4.6 million fraud offences in the year ending March 2021, a 24% increase compared with the year ending March 2019.

This included increases in consumer and retail fraud, advance fee fraud and other fraud and may represent fraudsters taking advantage of behaviour changes possibly related to the coronavirus (COVID-19) pandemic, such as increased online shopping and increased savings.

This included victims' details being compromised via large-scale data breaches, and victims' email or social media accounts being compromised, and sometimes used to request money from their contacts.

While there were decreases across a range of individual crime types, particularly theft offences, these were offset by rises in fraud and computer misuse offences, resulting in no change in overall levels of crime.

We've published a release showing the significant impact the #COVID19 pandemic has had on patterns of crime.

Our data shows total crime, excluding fraud and computer misuse offences, decreased by 19% compared with the year ending March 2019 https://t.co/VriMAi20Ws pic.twitter.com/EcVZ3D4Qxe

Despite falls across many crime types, there was a large increase in fraud and computer misuse offences.

Estimates show a 36% increase compared with the ending March 2019 https://t.co/4iP0GSS1Cx

Total police recorded crime excluding fraud and computer misuse decreased by 13%.

The largest decreases in recorded crime were seen during the three-month period that coincided with the first national lockdown (April to June 2020) https://t.co/5bzvg9xncf pic.twitter.com/5RwDf8cetK

Estimates show theft offences have fallen by 20% compared with the year ending March 2019.

These falls were driven by national lockdown restrictions, with non-essential shops and the night-time economy being closed and people spending more time at home https://t.co/dQpFhQE9LW pic.twitter.com/KmETcxsX5q

There were decreases in serious violent crime recorded by the police in the year ending March 2021:

homicide decreased by 16%
the number of offences involving knives or sharp instruments decreased by 15%

https://t.co/R1SwW1npmm pic.twitter.com/KG2ROEnjnB

Billy Gazard from our Centre for Crime and Justice said: (1/3) pic.twitter.com/KRdaTGc2nV

Billy Gazard continued: (2/3) pic.twitter.com/9TTGSW6mu2

Billy Gazard added: (3/3) pic.twitter.com/uuiWdG9uUw

9.58am BST

Consumer spending on credit and debit cards in Britain fell last week, dropping further below its pre-pandemic levels.

Aggregate credit and debit card spending dropped by 5 percentage points from the previous week, to 92% of its February 2020 average level.

The seven-day average number of UK daily flights increased by 6% from the previous week in the week to 18 July 2021, @eurocontrol figures show.

Flight numbers were 37% of the level seen in the equivalent week of 2019 https://t.co/18focdQq9h pic.twitter.com/iYeB6MIjwS

9.32am BST

Consumer goods giant Unilever has warned that soaring costs are hitting its profit margins - and led it to raise its own prices.

We have seen further cost inflation emerge through the second quarter. Cost volatility and the timing of landing price actions create a higher than normal range of likely year end margin outcomes.

We are managing this dynamically and expect to maintain underlying operating margin for 2021 around flat.

#Unilever Q2 sales rise 5% beating estimates.

More consumers cooked at home boosting sales

Surging commodity costs are bringing margins under pressure- full year operating margin forecast was reduced#ULVR 4%#MarketUpdate

RW: 79.32% of retail clients lose money.

Restrictions on daily life continue around the world, impacting channel dynamics, sales mix and consumer behaviour.

Although renewed restrictions in India impacted the market in the second quarter, they were less severe than in the same period last year.

8.57am BST

Shares in NatWest have dropped in early trading, as investors anticipate the UK government selling some of its stake over the next 12 months.

They're down 1.7% at 196.15p.

8.35am BST

Today's share sale announcement raises the prospect that NatWest could be returned to majority private ownership within the year, the Financial Times suggests:

Here's their take:

The UK government is to sell more of its 12.6bn-worth of shares in NatWest Group over the next 12 months as it seeks to return the bank fully to private ownership.

It has appointed Morgan Stanley to manage a measured and orderly" sale of its NatWest shares via a trading plan, according to a statement released on Thursday said.

UK government to cut size of 12.6bn stake in NatWest https://t.co/6cL0Mykvjf

8.31am BST

Sky News points out that extricating the government from NatWest has taken much longer than Lloyds, the other major UK bank rescued in the 2008 crisis.

NatWest's return to the private sector has been a much more protracted affair than that of fellow bailed-out bank Lloyds Banking Group - with the government disposing of its last remaining stake in that bank in 2017.

The Treasury said in March that it was targeting returning the bank to full private ownership in 2026, a year later than previously planned.

Treasury to offload up to 15% of state-backed NatWest over next 12 months https://t.co/S1s3pvJynm

8.19am BST

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

More than a decade after the financial crisis, the UK government is taking another step towards cutting its majority shareholding in NatWest.

Shares will only be sold at a price that represents value for money for taxpayers.

There is cap on the total number of shares that could be sold of 15% of the total number of NatWest Group shares being traded in the market over the 12 month duration of the plan.

Minority government: UK Govt announces it's to sell up to 15% of shares in NatWest, formerly Royal Bank of Scotland, by August next year.
It currently owns 54.7%, down from 82% after the 45bn bail-out in 2008-9.
Share price last night 200p: break even closer to 500p.

UK government launches share sale plan for NatWest https://t.co/EvEdR55RVO pic.twitter.com/6Lnv7D8Fzn

Issues around supply chain have been building for quite some time. We have a structural issue with HGV drivers for a variety of different reasons. The pingdemic has made it even worse. The double pronged problem is that our store workers are now getting pinged as well.

We have over 1,000 who have been pinged and are having to self isolate at home. The result of these two issues combined means that we are starting to see some availability issues and it is increasingly very challenging to keep our shops open, to keep lorries travelling to our shops, to keep food on our shelves and to keep staff in our shops to serve the customers.

Iceland has closed a number of stores because of staff shortages.

Managing Director of Iceland Foods, Richard Walker discusses the impact the pingdemic has had on his business.

He tells @kategarraway and @richardm56 that 'urgent clarity' is required from the government. pic.twitter.com/Wo5PpjmrYn

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