Inflation pressures weigh on US and UK firms; Eurozone economy ‘booming’ – as it happened

Graeme Wearden

from on 2021-06-23 16:56 (#5KDPM)

Thousands of leaseholders should benefit from leasehold changes, says CMA

Latest: US PMI fell this month amid supply problems
Hiring accelerates as UK firms juggle rising demand
But inflation pressures also mount
Lloyds bank closure plan criticised
UK composite PMI dipped in June - has pace of recovery peaked?
Eurozone economy rebounding as pandemic restrictions ease

Earlier:

CMA secures landmark commitments' in leasehold scandal

5.56pm BST

Time to wrap up - here are today's main stories:

5.06pm BST

Back in Europe, stock markets have closed in the red.

Germany's DAX (-1.1%), Spain's IBEX (-1.1%), Italy's FTSE MIB (-0.95%) and France's CAC (-0.9%) all finished lower.

4.35pm BST

US new home sales have dropped to a one-year low.

Purchases of new single-family homes fell 5.9% in May, to an annualised rate of 769,000. April's figures were revised lower too, to 817,000, showing a steeper monthly fall.

New single-family home sales fell from 817,000 units at the annual rate in April to 769,000 units in May, a 12-month low. It was the fourth straight monthly decline, pulling back from January's pace of 993,000 units, which was the strongest pace since December 2006. pic.twitter.com/wqBlUQG5SV

May new home sales incredibly weak at -5.9% vs. +0.2% est. & -7.8% in prior month (revised down from -5.9%); median new home price +18.1% y/y to $374,400; average selling price at $430,600 ... months' supply up to 5.1 vs. 4.6 in prior month pic.twitter.com/0qlU3c0MHF

The median sales prices for new homes jumped to $374,400 in May, a new record and up 18.1% from $317,100 one year ago.

More details on May new home sales. A year ago, 44% of new home sales were priced below $300,000. In May 2021, only 26% of new home sales were priced below $300,000. https://t.co/zxsQw6NLjL

New home sales fall short of expectations, but dropping lumber prices could provide breathing room https://t.co/7s9qb9upka pic.twitter.com/sec3pjEZhK

Shipping bottlenecks and higher input prices have held back homebuilding, contributing to skyrocketing prices for the limited supply of homes available. A silver lining of the report was data showing new-housing inventory continued to increase, though about a third of those homes have yet to be built.

Ian Shepherdson at Pantheon Macroeconomics said the sales drop might be a sign that demand in the suburbs has fallen as Covid-19 fears have faded, going so far as calling the end of the boom. By contrast, Stephen Stanley at Amherst Pierpont Securities calls it mostly an anomaly."

Sales of new U.S. homes dropped unexpectedly in May as elevated home prices and lean inventory constrained purchases https://t.co/GGjNwvU1Ko

4.17pm BST

Today's US PMI report highlights the problems that firms are experiencing hiring staff, says Jai Malhi, Global Market Strategist at J.P. Morgan Asset Management,

Today's US PMIs may have calmed but they continue to point toward a speedy rebound in growth, which has taken place since the vaccine rollout kicked into top gear. PMI levels well above 65 were unlikely to last but today's prints show that the economy may not be at top speed, but is at least progressing nicely.

The key concern for investors has been around inflation and the survey details highlighted ongoing concerns over supply constraints, which have pushed input prices to near record levels. The fall in the employment component of the surveys is shining a light on the continued difficulty in hiring for businesses as they aim to rebuild their workforces, even though some states have ended enhanced unemployment benefits early. If these supply constraints prove to be temporary then perhaps the slight moderation in the PMIs is good news for investors who may have been worrying about the economy overheating and leading to even higher levels of inflation.

3.54pm BST

The US continued to lead the global economic rebound in June, according to flash PMI data from IHS Markit, but also showed signs of growth peaking from May's record expansion. pic.twitter.com/W4LUbTp8Zp

3.53pm BST

The rollicking growth across the US private sector has slowed a little, as manufacturers battle with lengthening supply delays and firms struggle to hire staff.

Growth slowed at both service sector firms and manufacturers this month (but remained a healthy pace), as input costs remain very high, and supply chains creak under high demand.

Manufacturers continued to note rapid increases in raw material and fuel costs, whilst service providers highlighted higher wage bills to attract workers plus greater transportation fees and fuel costs.

Higher costs were commonly passed on to clients through a steep rise in output charges during June. The increase in selling prices was the second sharpest since data collection began in October 2009.

Service providers stated that wage costs and additional transportation fees pushed up cost burdens, which rose at the second-fastest pace on record.

U.S private sector output expanded rapidly again in June, with the flash #PMI registering 63.9 (May: 68.7), as the easing of COVID-19 restrictions boosted new orders. Manufacturing continued to be hampered by supply delays, however. Read more: https://t.co/sCxiV8ShrB pic.twitter.com/JHv07iJS3r

The early PMI indicators point to further impressive growth of the US economy in June, rounding off an unprecedented growth spurt over the second quarter as a whole.

While both output growth and inflows of new orders have come off their peaks in both manufacturing and services, this is as much due to capacity constraints limiting firms' abilities to cope with demand rather than any cooling of the economy.

2.53pm BST

The technology-focused Nasdaq has hit a fresh record high at the start of trading in New York, as investors continue to drive up shares in tech stocks.

The Nasdaq Composite has opened 0.3% higher at 14,296, up 43 points.

Stocks opened slightly higher Wednesday with the Nasdaq building on the previous session's record close. https://t.co/lwqqTS3pN4 pic.twitter.com/TZZ8zVHV0B

NASDAQ COMPOSITE INDEX HITS RECORD HIGH

#Microsoft hits a $2 Trillion market cap.
While it took Microsoft 33 years from its IPO to reach its first $1 trillion in value in 2019, the next trillion only took about two years.
Microsoft Becomes Second US Public Company After #Apple to Join $2 Trillion Club.#Bigtech #Tech pic.twitter.com/tZCCvQ1mRL

Microsoft's market capitalization topped $2 trillion during trading on Tuesday, and closed just $300 million shy of that mark. Its stock on Tuesday climbed 1.1% to $265.51.

The company reached the $2 trillion milestone just over two years after it first passed the $1 trillion market cap mark.

2.34pm BST

The US current account deficit has hit a 14-year high, as America's economy pulled in more imported goods as its recovery gathered speed.

The current account deficit widened by $20.7bn, or 11.8%, to $195.7bn in the first quarter of 2021, up from $175.1bn in the fourth quarter of 2020.

A measure of the nation's debt to other countries surged in the first quarter to the highest level in 14 years largely because of record U.S. trade deficits during the pandemic. The U.S. current-account deficit increased by $20.7 billion to $195.7 billion. https://t.co/kOqto34YfV pic.twitter.com/xPHJvq025g

The increases in both [goods] exports and imports reflected increases in nearly all major categories, led by industrial supplies and materials, primarily petroleum and products, that were partly offset by a decrease in automotive vehicles, parts, and engines.

US current account deficit widened $21bn to $196bn in Q1, or 3.6% of GDP

#Trade deficit widened $16bn to $213bn
Goods deficit: -$15bn as importsfaster than exports
Services surplus: -$1bn

Primary income surplus +$4bn to $50bn

Secondary income deficit: -$1bn to $33bn pic.twitter.com/8HG0hJ0bok

1Q21 current account deficit widened to $195.7 billion vs. $206.2 billion est. & $175.1 billion in prior month (rev from $188.5 billion); now at widest since June 2007 pic.twitter.com/VYzujlqQbQ

2.04pm BST

Thousands of leaseholders will be refunded unfair ground rents and allowed to buy the freehold of their property at a discounted price after a crackdown on property developers by the competition watchdog.

Persimmon Homes and Aviva have agreed to offer the refunds after the Competition and Markets Authority (CMA) uncovered troubling evidence" that leasehold homeowners and prospective buyers were overcharged and misled by the UK's biggest housebuilders.

1.51pm BST

In the US, there was a jump in demand to refinance home loans last week, suggesting houseowners may be anticipating the end of super-low interest rates.

Applications to refinance a home loan rose 3% last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index, while applications for mortgage to purchase a home were only up 1%.

Weekly mortgage refinance demand jumps as some fear the end of super-low rates @CNBC @MBAMortgage https://t.co/UFPYNmHWBS

Mortgage rates increased last week, with the 30-year fixed rate rising to 3.18 percent - the highest level in a month.

MBA: Mortgage Applications Increase in Latest Weekly Survey https://t.co/BC6ADmK5T3 "The seasonally adjusted Purchase Index increased 1 percent from one week earlier." pic.twitter.com/AYsJ1dIGMK

1.22pm BST

Representatives from the UK travel industry, including airline cabin crew and pilots, are holding a day of action to urge ministers to reopen the sector and give more financial support to businesses.

It is now or never for the government to reopen travel and save what is remaining of the summer season, not just for families desperate to get away but the tens of thousands of jobs which rely upon this once thriving sector.

Airlines are at the absolute limit of what they can borrow and without a genuine reopening this summer they will require government support to survive."

Colleagues from @belfastairport are kicking off todays events for the #TravelDayofAction.

It's time to #SpeakUpForTravel. pic.twitter.com/zxMLz8wCWL

Media minister John Whittingdale said he hoped the government would be able to put more countries on the green list of travel restrictions later this week.

Mr Whittingdale told Sky News the list would be reviewed later this week to make revisions to the green list, and I hope that we can put more countries on to it".

12.51pm BST

Unions have criticised Lloyds Banking Group as it announces the closure of 44 more branches across England and Wales this year.

The decision by Lloyds Banking Group (LBG) to further erode its presence within our communities is baffling. The closure of 44 more bank branches will deny our communities of essential services such as access to cash and experienced highly trained staff. A local ATM is not a suitable alternative to a staffed bank branch.

In recent times LBG has spent significant resource to sell its message of Helping Britain Recover'. Unite seriously question how this decision to walk away from local communities promotes this message at a time when the customers will rely on the financial services sector support more than ever.

Closure of 44 more Lloyds branches denies communities essential services such as access to cash and experienced staff - @unitetheunion

The great #bank branch closure continues: Lloyds Banking Group has today announced the closure of 44 more branches, 29 Lloyds Bank and 15 Halifax.

This means that, like many businesses on the high street, we must change for a future where branches will be used in a different way, and visited less often.

We'll continue to invest in our high street presence, as this week we're opening a new concept Bank of Scotland branch in Edinburgh, the only bank to take up residence in the new St James Quarter.

Lloyds Banking Group announces closure of 44 bank branches https://t.co/C0EA3ZLK1w

12.06pm BST

The surge in hiring at UK firms this month is a very encouraging signal, says Dean Turner, Economist at UBS Global Wealth Management:

Although down from their recent peaks, today's PMI figures signal that the recovery in the economy charges ahead.

There were some particularly encouraging signals for hiring, although evidence of price pressures and supply constraints continue to feature in the surveys. Encouragingly, the economy continues to respond positively to the easing of restrictions. The recent delay to the final stage of lifting restrictions shouldn't hamper the recovery in a meaningful way.

12.03pm BST

The dip in the UK composite PMI this month (to 61.7, from 62.9) suggests the pace of economic recovery may be peaking, says Kieran Tompkins of Capital Economics.

If so, the UK's monthly GDP growth rates may slow after hitting 2.3% in April.

The fall in the flash composite PMI from a record high of 62.9 in May to 61.7 in June indicates that the pace of the recovery may have peaked. That suggests the monthly rises in GDP will ease back from the 2.3% m/m gain recorded in April. https://t.co/lJ44i1Nwp6 pic.twitter.com/pomMiAd7Y5

11.49am BST

IHS Markit's Chris Williamson also warns that the surge in UK growth may have peaked (as the composite PMI dipped to 61.7 this month, from May's 62.9, showing slightly slower growth).

Williamson adds that inflation could rise further over the Bank of England's 2% target (it hit 2.1% in May), because firms are seeing input costs, and their own output prices, rising at unprecedented rates.

Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound very sharply from the first quarter's decline.

There are some signs that the rate of expansion appears to have peaked, as both output and new order growth cooled slightly from May's record performances, but full order books and a further loosening of virus-fighting restrictions should nevertheless help ensure growth remains strong as we head through the summer.

11.20am BST

UK composite #PMI dipped in June but remains strong, with growth in #employment still accelerating.

Two caveats:

1. #export orders relatively subdued, especially services (partly #Brexit, but also travel restrictions)

2. #inflation pressures still building (this is global) pic.twitter.com/tkF1KotO4g

11.14am BST

Employment growth at UK companies has surged this month as companies struggle to handle rising demand as the economy emerged from lockdown this spring.

That's according to the latest survey of purchasing managers at UK firms, from data firm Markit.

Although businesses also reported a record increase in employment during June, many firms continued to report a lack of capacity to meet the recent surge in demand, often due to staff and supply shortages.

The survey also found growing evidence of labour shortages feeding through to higher wage costs, which could add to worries that the recent spike in inflation could prove stickier."

Latest Flash UK data signalled a further expansion in business activity with the #PMI at 61.7 in June (May: 62.9). Employment growth hit a record high following a rise in workloads. Meanwhile, price pressures intensified. Read more: https://t.co/3MOaP6TzeA pic.twitter.com/4EwjWSwt94

The month of June offered abundance in terms of rapid growth and new orders along with the highest levels of job creation since 1998 in private sector business. The lockdown lid was lifted on depressed sales and marketplaces buzzed with activity and optimism.

It was only struggling supply chains that constrained further expansion. The manufacturing sector experienced longer delivery times and more shortages for items such as semi-conductors, preventing many businesses from meeting demand. Some supply chain managers increased forward buying activities to beat future delays but only served to add to the lengthening times for their goods.

10.25am BST

The surge in eurozone growth this month shows that Europe's vaccination programme, which has sped up radidly after a slow start, is helping its economy - particularly services sector firms.

Oliver Blackbourn, portfolio manager at Janus Henderson, explains:

Eurozone PMI surveys saw another jump in the services sector as the bloc gears up its reopening in response to the vaccination roll out and declining infections.

While the manufacturing survey has been above 60 since March, the closer-contact services sector has lagged as the eurozone continued to struggle with COVID-19 infections. With the percentage of the population receiving a first jab now approaching 50% in the EU, confidence is clearly returning to the most stricken parts of the eurozone economy.

10.11am BST

European stock markets have dipped this morning, despite the surge in activity at eurozone companies this month.

The Stoxx 600 has dipped 0.15%, with Germany's DAX (-0.45%) and France's CAC (-0.4%) both lower.

The (business activity) data doesn't matter. The only data that matters is inflation," said Keith Temperton, a sales trader at Forte Securities.

It's all about central banks feeding the sugar high to the market and that's not going to end in a hurry, because if it does, everything will crash."

9.50am BST

The eurozone recovery is strengthening, with business growth accelerating at its fastest pace in 15 years this month.

The eurozone economy is booming at a pace not seen for 15 years as businesses report surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms.

Virus containment measures have been eased to the lowest since last September and are set to be reduced further in July to the lowest since the pandemic began.

Eurozone business activity grew at the fastest rate for 15 years in June, as the flash #PMI rose to a post-financial crisis high of 59.2 (May: 57.1). Prices charged rose at a record pace, however, spurring increasing concerns about inflation. Read more: https://t.co/L1mm1C0xge pic.twitter.com/pw9Erf7RGq

Latest flash data for Germany pointed to the strongest rise in business activity in 10 years with the #PMI at 60.4 in June (May: 56.2). Output growth at both services and manufacturing gained momentum while optimism was historically elevated. Read more: https://t.co/K0FARCLIfy pic.twitter.com/mDlcRj2P7F

Flash France #PMI at 57.1 in June (May: 57.0) to signal another strong month of growth in the private sector, with both manufacturing and services experiencing sharp increases in sales as confidence remained high. Read more: https://t.co/EA2oG1sA6n pic.twitter.com/henXQ4ENV8

9.31am BST

AJ Bell investment director Russ Mould says Persimmon has taken a big step forward' by agreeing to let leasehold homeowners buy the freehold at a discounted price (capped at 2,000).

Purchasers of these properties have in some cases been hit by escalating ground rents which have left them heavily out of pocket and struggling to sell homes on as well as claiming they weren't properly informed during the buying process.

Given the support the sector gets from the state-backed initiatives like Help to Buy and the mortgage guarantee scheme, it can't really afford to put a foot wrong and Persimmon's actions will ramp up the pressure on the other names under the CMA's microscope - Countryside Properties, Barratt Developments and Taylor Wimpey."

9.19am BST

Some of the stories of people caught up in the leasehold scandal are quite shocking.

The problem started when developers began selling houses as leasehold that would traditionally have been freehold, with clauses that allow the ground rent to rise dramatically in later years.

Many people have found that this has made their homes unsellable.
In 2016, we wrote about a couple who bought a Taylor Wimpey home on the edge of Dudley, with a leasehold that saw the ground rent double every 10 years. So from paying 250 in 2009, it would rise to 500 per year in 2019 - and reach 8,000 per year in 2059.

8.49am BST

Landmark commitments for leaseholders

The Government asked CMA to investigate unfair practices like doubling ground rents - which have no place in the housing market.

The @CMAgovUK has made major progress in the pursuit of justice for leaseholders. https://t.co/UWx7K0Ab6G

8.41am BST

Housing Secretary Robert Jenrick has welcomed today's agreement:

The Government asked the CMA to conduct this investigation - and I welcome their efforts to bring justice to homeowners affected by unfair practices, such as doubling ground rents, which have no place in our housing market.

This settlement with Aviva and Persimmon is a hugely important step and demonstrates our commitment to support existing leaseholders who may have been mis-sold properties.

8.33am BST

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

Britain's competition watchdog has declared a win for thousands of people caught up in the UK's leasehold scandal.

House builder @PersimmonHomes agrees to let anyone who purchased a long leasehold home since 2000 can buy freehold for max 2000. Deal with @CMAgovUK will also compensate those who have paid more. Expect others to follow rapidly. pic.twitter.com/p2gxmJxaHm

This is a real win for thousands of leaseholders - for too long people have found themselves trapped in homes they can struggle to sell or been faced with unexpectedly high prices to buy their freehold. Now, they can breathe a sigh of relief knowing things are set to change for the better.

It's good that Aviva and Persimmon have responded positively to this investigation, enabling these issues to be fixed for leaseholders. But our work isn't done. We now expect other housing developers and investors to follow the lead of Aviva and Persimmon. If not, they can expect to face legal action.

The head of Britain's second-biggest drugmaker will present a 10-year outlook to shareholders and analysts, under pressure from an aggressive US hedge fund to demonstrate that she is the right person to lead the company beyond its breakup next summer.

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