US inflation at 13-year high; Opec+ urged to pump more; Meggitt takeover battle lifts FTSE 250 to new peak – as it happened

Graeme Wearden

from on 2021-08-11 17:28 (#5N6D9)

Rolling coverage of the latest economic and financial news, as UK mid-cap index hits new peak and blue-chip FTSE 100 closes at 18-month high

Latest: US rival tries to gatecrash Meggitt takeover
Economist: US is now past peak inflation
US CPI sticks at 13-year high of 5.4%...but core inflation slows
Prices rose 0.5% during July, down from June's 0.9%
White House urges Opec oil cartel to pump more

Earlier:

6.26pm BST

Time to recap.

Stock markets have rallied again amid signs that America's inflation surge may have peaked, with the White House piling pressure on the Opec cartel to get its oil pumps working faster.

European markets close with records, 5 indices hit all-time highs:

STOXX Europe +0.42%
FTSE 100 +0.83%
DAX 30 +0.35%
CAC 40 +0.55%
FTSE MIB 30 +0.98%

Dow Jones also hits record +0.52% https://t.co/CiGCpRoDob pic.twitter.com/14JebvpIME

The investing world was looking at the US CPI data for a lead on likely Fed policy and market direction but it came out bang in line with expectations at the headline level.

The focus will be on re-opening sensitive sectors to give a feel for how much of the upward pressure is transitory. For now, though, prices continue to rise, driven largely by supply constraints. Overall, however, inflation climbed at a more moderate pace, which will give the Fed's current view some support."

Inflation remains high at 5.4% (y/y), but the encouraging sign is monthly gains cooled in several areas

Used car prices had lowest gain since Feb. Airfare and laundry machines fell a bit in July vs June (though prices remain high)

Overall CPI
July gain: 0.5%
June 0.9%
May 0.6%

Owners' equivalent rent up 0.3% monthly for three consecutive months. If it continued at that rate for a full year, it would mean a component that accounts for ~24 percent of CPI rising at a 3.66% annual rate.

A couple of US CPI takeaways.
- Gasoline continues to rise. Clear why Biden wants to drive down prices
- Used vehicle inflation posted lowest price growth since Feb (0.2%). Excl. energy, used vehicles the only other double digit gainer YoY
- New vehicles continue to rise pic.twitter.com/GYCRC640Iu

At a critical moment in the global recovery, this is simply not enough,"

Gas prices have been climbing as people have jumped back in their cars and when you look at pressure points for July it's right up there. And while a big chunk of the inflation basket hikes have come from expected avenues like airfares, hotels and used car sales, keeping a lid on household costs will be vital going forward.

Two days ago, the #IPCC told us to begin reducing emissions right now so that we have a chance of a livable future beyond 2050.

Today, @POTUS wants OPEC to produce more oil to stabilize the current economic energy market, decreasing the likelihood of that livable future. https://t.co/m5qkB32KRq

FULL STATEMENT: The White House urges OPEC+ to pump more oil (above and beyond the current 400,000 b/d monthly hikes the cartel is already implementing) | #OOTT pic.twitter.com/qnWA1l7Pnt

5.24pm BST

John Lewis is to open a 1m sq ft warehouse in Milton Keynes that will employ 500 people as it tries to meet surging demand for online shopping.

The new facility at Fenny Lock, which it has leased from Tesco for 11 years, will be John Lewis's second biggest distribution centre after nearby Magna Park.

4.50pm BST

The UK-focused FTSE 250 index of medium-sized companies has closed at a new record high - with Meggitt leading the way.

The domestically focused FTSE 250 has closed nearly 185 points higher at over 23,756 points, up 0.8% today.

FTSE 100 just about at new post-covid crash highs pic.twitter.com/Lvd6aZJo01

Amongst the outperformers has been Spirax-Sarco Engineering who have seen a decent jump in H1 revenues to 643.7m due to increased demand for its steam products. An increase in operating margins to 23.9% has helped drive a 41% increase in profits before tax to 150m.

Admiral shares moved higher after the insurer saw a 76% rise in group profits before tax to 482.2m in the first half of the year, raising its interim dividend by 63% to 115p per share. Profits were boosted by the sale of its Penguin Portals business, which included Confused.com, as well as lower claims payouts.

4.27pm BST

President Biden's council of economic advisors has welcomed the slowdown in monthly US inflation in July, but warned that supply chain problems remain:

Inflation as measured by CPI increased 0.5% month-over-month in July-at expectations and below June's rate of 0.9%. The deceleration largely reflected a lessening of price pressures from the motor vehicle sector. 1/ pic.twitter.com/JSqXgtsDFB

Core inflation-without food/energy-rose 0.3% month-over-month-below expectations and well below June's rate of 0.9%. 2/

Year-over-year, headline inflation rose by 5.4% while core inflation rose by 4.3%. While both measures had been accelerating in recent months, year-over-year growth did not accelerate for either measure this month. 3/

Used cars, new cars, auto parts, and car rentals together made up about 27 percent of core month-over-month inflation, down from about 54 percent on average in April, May, and June. 4/ pic.twitter.com/esZGRvYXN7

Prices of pandemic-affected services rose again this month and contributed 9 basis points to the core inflation increase in July, relative to 11 basis points in June. The index of pandemic-affected services is now above its pre-pandemic level. 5/ pic.twitter.com/1Z7ZEgfnru

One month does not make a trend (monthly inflation slowed in May before rebounding in June), and we know supply constraints persist in various sectors. However, July's deceleration is encouraging. 7/

We know that the recovery from the pandemic will not be linear. The Council of Economic Advisers will continue to monitor the data as they come in. /end

4.08pm BST

Back in the UK, the takeover of defence and aerospace technology firm Meggitt has taken a twist.

US firm Transdigm Group is trying to gatecrash Meggitt's agreed takeover by American firm Parker-Hannifin, by proposing to pay 900p per share for the Coventry-based firm.

The directors of Meggitt continue to recommend unanimously the offer by Parker to Meggitt shareholders announced on 2 August 2021 and intend to include that recommendation in the Scheme Document expected to be sent to Meggitt shareholders in the week commencing 16 August 2021.

The Board of Meggitt believes Parker's offer continues to represent an attractive proposition for Meggitt's shareholders and for its broader stakeholders, including its employees, pension schemes and customers, together with HM Government, for the long-term.

More August M&A in the UK: Engineer Meggitt, which last week accepted a 7bn offer from US rival Parker-Hannafin, now says it's received a higher bid from TransDigm.https://t.co/AzS06rcssl pic.twitter.com/hTORFECK4u

2.59pm BST

The US stock market has opened at a new record high, as investors welcome signs that inflation across America may have peaked.

Although the headline annual inflation rate remained at a 13-year high of 5.4%, investors are relieved that core inflation eased (up 0.3% m/m), and that monthly price pressures moderated (with CPI up 0.5% during July, from 0.9% in June).

Stocks opened with modest gains Wednesday, with the Dow Jones Industrial Average and the S&P 500 hitting intraday records, after U.S. data showed inflation moderated but still ran hot in July.https://t.co/bITtfP0Q2s pic.twitter.com/Y8B1xoAoaM

This is the validation stocks were look for that the extraordinary levels of inflation in recent months were anomalous and driven by outliers. It should be well received."

2.46pm BST

Jason Furman, who was Barack Obama's top economic advisor, suggests the inflation report is not capturing, yet, the increase in shelter costs.

Finally, some shoes have yet to drop. Rent was really low again this month (+0.2%) and owner's equivalent rent also low (+0.3%). Overall shelter is below trend and likely to rise faster. This would be huge for the CPI and large for the PCE. pic.twitter.com/s0GC6OT1Rn

Housing costs in CPI represent a weighted average of all rents paid across all urban areas. There has been a huge mix shift from COVID migrations and shelter inflation on balance is picking up more gradually and with a lag relative to spot market measures. pic.twitter.com/A4RjSG1wFu

2.33pm BST

Tom Kremer, senior fund manager at Quintet Private Bank (the parent company of Brown Shipley), says companies have been passing on their higher costs onto consumers.

But he also spies signs that inflation is normalising, after the economic shock of the pandemic:

US consumer prices rose at a more moderate pace in July, up 0.5% from June, with the core measure coming in somewhat lower than expected at 0.3% month-on-month. As in previous months, the majority of the increase can be ascribed to Covid-sensitive goods and services, which still face a range of supply disruptions and bottlenecks.

Given that consumers appear relatively less price sensitive for the moment, retailers have been able to pass on higher input costs. Though with excess savings declining and the reopening-led surge in demand abating, we expect spending habits to normalize in coming months.

2.29pm BST

Housing costs continued to rise last month, putting more pressure on households.

Shelter, a vital component of the inflation basket, was up 0.4% in July, and accounted for over half of the monthly increase in core inflation.

Meme inflation components (e.g. used cars) are starting to cool, but still plenty of upward pressure on prices. CPI for shelter (one-third of CPI basket) is still accelerating & inflation overall remains quite hot. pic.twitter.com/7ve68Rkt4K

There are signs that some of the inflation related to supply-chain bottlenecks and the reopening of the economy is easing. Used cars which had increased 10.5% in June only rose 0.2% in July, while airline fares actually fell 0.1% in the month. With 60% of the annual inflation figure coming from just a fifth of the inflation basket including restaurants, energy, used cars and transport - this lends credence to the argument that much of the pickup in prices will prove temporary.

However, while a good amount of inflation can be attributed to these temporary factors, there are signs that underlying price pressures that could prove more persistent continue to build. The shelter component that tends to move in long cycles and accounts for a third of the inflation basket rose to 2.8% year on year.

2.18pm BST

On an annual basis, US gasoline prices are almost 42% higher than in July 2020.

Car rentals are 73.5% higher, despite that 4.6% monthly drop.

Here's where inflation is running high:

Car rental 73.5% (y/y)
Gas 41.8
Used cars 41.7
Hotels 24.1
Airfare 19
Utility gas 19
Dresses 18.8
Wash machines 17.9
Pork roast 13.7
Moving 13.3
Bacon 11.1
Steaks 10.7
TVs 9.9
Fish 8.5
Sports equip 7.2
New cars 6.4
Rent (OER) 2.4

2.11pm BST

The inflation report also shows that truck and rental prices fell by 4.6% last month, after jumping 5.2% in June.

That could bolster hopes that the surge in inflation will be transitory....

Score one for the inflation is transitory' camp, w/used car prices up just 0.2%, airfares dipping 0.1%, auto insurance falling 2.8% & car/truck rental prices plunging 4.6% since last month.

2.10pm BST

Economists are encouraged that US inflation rate dipped on a monthly basis last month, to 0.5% from June's red-hot 0.9%.

Greg Daco of Oxford Economics tweets that America's economy is now passed peak inflation, even though annual inflation was the highest since August 2008.

"#Inflation has peaked"#CPI moderate +0.5% in July
Core CPI +0.3% (less than expected)
Food +0.7%
Energy 1.6%

Goods: New cars (+1.7%), used cars (only +0.2%), apparel flat.

Services: Shelter (+0.4) w/ hotels (+6.8%), restaurants (+0.8%), but car rental & airfare pic.twitter.com/S6ORDPrqsu

Headline CPI #inflation flat at 5.4% y/y in July: highest since Aug '08

Core #CPI inflation *cooled* 0.2ppt to 4.3%: still highest since early 90s

While we should expect some #inflation stickiness into year-end, we're now past peak inflation pic.twitter.com/ihRlSOgNKc

The reopening surge in inflation is waning--prices are normalizing pic.twitter.com/uJlVOgxeeX

2.03pm BST

1.57pm BST

The annual rate of US inflation remained at a 13-year high last month, with gasoline prices one factor pushing up the cost of living.

The US Consumer Prices Index rose by 0.5% in July, down from June's 0.9%, the U.S. Bureau of Labor Statistics reports, as supply chain problems and strong demand as the economy reopens continues to push up the cost of living.

BREAKING! US #inflation 'steady' at 5.4%, slightly higher than expected. Core #CPI at 4.3%. pic.twitter.com/VEQ6XhZ3sW

The food index increased 0.7 percent in July as five of the major grocery store food group indexes rose, and the food away from home index increased 0.8 percent.

The energy index rose 1.6 percent in July, as the gasoline index increased 2.4 percent and other energy component indexes also rose.

Consumer prices rose 0.5% in July, slowing from the 0.9% gain seen in June, which was the highest in three years. Food and energy costs rose 0.7% and 1.6%, respectively, for the month, with gasoline prices up 2.4%. pic.twitter.com/eapbXSGk8T

1.30pm BST

As Bloomberg's Javier Blas points out, pumping more oil hardly squares with the urgent need to tackle the climate crisis caused by burning fossil fuels....

REALPOLITIK: I don't know you, but I'm really confused. I thought the Biden administration was pro-environment. But here the White House is asking OPEC+ to produce more oil so Americans can burn more (cheap) fossil fuels | #OOTT https://t.co/YkTrgucT1z

1.20pm BST

The Biden administration is also calling on the Federal Trade Commission to monitor the U.S. gasoline market" and address any illegal conduct that might be contributing to price increases for consumers at the pump.", according to CNBC.

CNBC says:

The letter from the National Economic Council to the FTC urges the regulatory body to look into the factors contributing to the rise in gas prices in an effort to ensure that consumers aren't footing an unfair bill.

With its suite of tools to monitor industry prices, review merger-and-acquisition activity, conduct market studies, and investigate market manipulation and anti-competitive practices, the FTC is well placed to lead the effort to evaluate what is happening in the U.S. gasoline market and take any necessary steps to address illegal conduct," the letter said.

1.14pm BST

The US government is calling on the Opec group, and their allies, to boost oil production amid worries that rising energy prices are weighing on the recovery.

National Security Adviser Jake Sullivan said the Organization of the Petroleum Exporting Countries should to move faster to restore global supply of petroleum to pre-pandemic levels, to combat rising fuel prices.

Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery,"

At a critical moment in the global recovery, this is simply not enough."

Competitive energy markets will ensure reliable and stable energy supplies, and Opec+ must do more to support the recovery."

FULL STATEMENT: The White House urges OPEC+ to pump more oil (above and beyond the current 400,000 b/d monthly hikes the cartel is already implementing) | #OOTT pic.twitter.com/qnWA1l7Pnt

12.31pm BST

In the US, meanwhile, mortgage applications have risen as borrowers look to take advantage of low rates, with housing supply still short.

The Mortgage Bankers Association (MBA) reports that total mortgage application volumes rose by 2.8% last week, having fallen by 1.7% in the previous seven days.

Mortgage Application in the United States increased by 2.80 percent in the week ending August 6 of 2021 over the previous week. https://t.co/fmhyqvEcHy pic.twitter.com/hkyfwmmHnN

MBA Mortgage Applications
Composite Index: +2.8% vs. -1.7% the previous week.
Purchase Index: +1.8% vs. -2% the previous week.
Refinance Index: +3.2% vs. +9% the previous week
30-year mortgage rate remains at 2.99% vs. 2.97%.

Homeowners continue to respond to lower rates, with refinance activity climbing to the highest level since February 2021,"

With low for-sale inventory keeping home price appreciation in many markets at record highs, the jump in FHA purchase applications is potentially a sign that more first-time buyers are finding purchase options despite the high prices."

MBA: Mortgage Applications Increase in Latest Weekly Survey https://t.co/lNSCu9GkUn pic.twitter.com/XkmjGWii0u

Weekly mortgage demand hints at return of the first-time homebuyer https://t.co/y56rRuTSUl

11.48am BST

Housing news: Winchester has claimed the title of the UK's least affordable place to buy a house, from Oxford (which has held the dubious award for several years).

A home in Winchester will set buyers back an average 630,432 - the highest in the country and up 8% on 2020, while average earnings are 45,059.

Price growth in Winchester was far outstripping the rest of the UK in relation to wages, Halifax said. Its analysis of 61 cities in the year to June shows that the average home costs 8.1 times average earnings, up from 7.5 times last year. The ratio has increased for eight years.

Winchester is least affordable UK city to buy a home https://t.co/IWHhjNR67g

11.31am BST

The competition watchdog has sided with Great Britain's energy regulator after an industry rebellion over a clampdown on the returns energy network companies can make at the expense of customer bills.

The Competition and Markets Authority (CMA) received multiple appeals from energy companies, including National Grid and Scottish Power, earlier this year after Ofgem set out plans to limit their returns on investing in the UK's gas pipes and electrical cables.

11.03am BST

2020 was a rough year for UK manufacturers... although pharmaceuticals firms - and toilet paper makers - boosted their sales during the pandemic.

New data from the Office for National Statistics show that the total value of UK manufacturers' product sales fell 10.8% last year, to 358.7bn.

The total value of UK manufacturers' product sales was 358.7bn in 2020.

This was a fall of 10.8% compared with 402.2bn in 2019.

https://t.co/RGz0hOpsUC

10.42am BST

Over in China, new bank loans fell more sharply than expected in July, to a nine-month low, Reuters reports.

Chinese banks extended 1.08 trillion yuan (120bn) in new yuan loans in July, figures from the People's Bank of China (PBOC) show.

China Data:

M2 Money Supply YY: 8.3% vs. Exp. 8.7% (Prev. 8.6%)

New Yuan Loans: 1080B vs. Exp. 1200.0B (Prev. 2120.0B)

Outstanding Loan Growth: 12.3% vs. Exp. 12.3% (Prev. 12.3%)

~ @Newsquawk

China New Yuan Loans at CNY1080B https://t.co/5hRKALnctv pic.twitter.com/jYzmrXtOPP

10.18am BST

Deliveroo doubled the number of orders from customers to 149m in the first six months of the year as the appetite for takeaways continued to grow despite the reopening of bars and restaurants.

I think his view was: the stock's undervalued, I'm gonna start buying, and I know the space super well.

This is in my view just a financial investment."

10.06am BST

The drop in travel during Covid-19 lockdowns may have hurt Heathrow, but it's proved to be profitable for insurance companies.

Insurer Admiral has reported a 76% jump in profits for the first half of 2021, compared to a year ago, It's partly due to lower levels of claims frequency' -- as fewer motorists on the roads led to fewer accidents.

By and large, we've done the right things more often and a bit earlier than most.

This included adjusting pricing ahead of the market in the UK to reflect shifting pandemic-related claims trends and providing more self-service and digital options to our customers. These actions have rewarded us with double digit growth in policy numbers in the UK and in international insurance, whilst operating in very competitive markets.

Shareholders are being richly rewarded with record dividend payments and Admiral's strong financial position gives it lots of options while it works out what route it wants to take next.

The road ahead could be a little bumpier for Admiral as the artificially lower levels of traffic and collisions driven by Covid restrictions starts to unwind, however the company has clearly demonstrated its ability to steer the right course."

9.30am BST

Cybersecurity company Avast are the top riser on the FTSE 100, up 3.3%, after the Prague-based firm agreed to be taken over by US rival NortonLifeLock last night.

At a time when global cyber threats are growing, yet cyber safety penetration remains very low, together with NortonLifeLock, we will be able to accelerate our shared vision of providing holistic cyber protection for consumers around the globe.

9.15am BST

In the City, the FTSE 100 index has hit its highest level in eight weeks this morning.

The blue-chip stock index is has gained 28 points to 7189, up 0.4% today.

There is a lot of optimism among investors and traders as the Senate passed the highly anticipated infrastructure bill worth $1 trillion.

8.46am BST

8.42am BST

Heathrow also flagged up that U.S. carrier JetBlue starts flying a new route between New York's JFK airport and London this week.

Heathrow says the move will further increase its transatlantic offering', despite the presidential proclamation that currently bans non-Americans from visiting the US from the UK, and the European Union.

We are hopeful over the next two or three months, as we get on the right side of the Delta variant increases we have seen, we can revisit that and we can welcome Brits and Europeans to the States again.

The carrier is using a narrow-bodied Airbus A321 on the route and aims to lure business passengers from American Airlines, British Airways, Delta and Virgin Atlantic.

Heathrow, formerly the busiest airport in Europe, has had its best (or least bad) month since March 2020.
The hub is still 80% down on pre-pandemic passenger numbers and 17th busiest in Europe. Yet compared with other UK airports, Heathrow is doing well.https://t.co/1Ytkloqeju

8.14am BST

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

The UK's travel recovery has begun, according to Heathrow Airport, which has reported its busiest month since the pandemic began -- despite barriers to travel' remaining.

The relaxation in rules has provided a much-needed boost to the UK travel industry, and enabled people across Britain to look forward to a more normal summer reuniting with family and friends abroad.

July was Heathrow's busiest month since March 2020 with 1.5 million passengers, up 74% on a year ago, but for a more reliable comparison traffic remained 81% down on July 2019. The proportion of passengers on a domestic flight has increased from 6% in July 2019 to 11% this July. pic.twitter.com/iNVaoK2gqZ

The travel recovery has started, Britain's Heathrow Airport says https://t.co/aMUb83ePo6 pic.twitter.com/95RJ0nAkGy

With fully vaccinated US visitors now able to travel to the UK without the need to quarantine, the joint UK/US travel taskforce must capitalise on the UK's world-leading vaccine rollout and reach a reciprocal agreement for fully vaccinated UK travellers.

Finally, some blue skies are on the horizon, as travel and trade routes slowly reopen. The job though is far from complete. Government must now capitalise on the vaccine dividend and seize the opportunity to replace expensive PCR tests with more affordable lateral flow tests.

This will ensure travel remains attainable for hardworking Brits, desperate for well-earned getaways and keen to reunite with loved ones before the summer travel window closes."

Similar tests for day 2 and 8 after return to England listed on the government's website can cost more than 300 or as little as 20. On average, prices in the UK are 75, compared with about 40 in France and Greece.

Health secretary Sajid Javid wrote to the Competition and Markets Authority last Friday asking the body to help stamp out exploitative behaviour" and unfair practices" among the 400-plus firms which offer the tests and he said the government was determined to take action.

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