Julia Kollewe 

UK retail sales at three-year high, as car production hit by pandemic shortages – as it happened

CBI says retail sales jumped in June, as US inflation picks up and Biden strikes deal on $953bn US infrastructure bill
  
  

Shoppers walk the streets of St Ives, Cornwall.
Shoppers walk the streets of St Ives, Cornwall. Photograph: Daniel Leal-Olivas/AFP/Getty Images

Closing summary

Stocks were given a fillip by Joe Biden announcing yesterday that “we have a deal” on the $953bn infrastructure plan, with $559bn of new spending. The bill has rare bipartisan backing, but still needs to be passed by Congress.

However, while the main Asian markets all rose, trading has been mixed in Europe. The UK’s FTSE 100 is up 0.35% at 7,134 while Germany’s Dax has slipped 0.1% and France’s CAC has lost 0.3%. Italy’s FTSE MiB is up 0.1%.

On Wall Street, the Nasdaq, which along with the S&P 500 closed at a record high yesterday, is flat. The S&P 500 has risen a further 0.28% to 4,278 while the Dow Jones has advanced even more, by 219 points, or 0.6%, to 34,416.

Official figures showed US consumer spending stagnated in June after sharp rises in previous months while a measure of inflation tied to consumer spending rose to 3.9%, the highest since 2008.

UK car production continues to increase, but remains far below pre-pandemic levels, as the recovery is held back by global supply shortages, for example of semiconductors, warned the Society of Motor Manufacturers and Traders.

Sterling edged slower against the euro and the dollar and is on track for its worst month versus the dollar since September, after the Bank of England kept its policy unchanged yesterday, with its main interest rate staying at a record low of 0.1%.

Deutsche Bank strategist Jim Reid says:

Sterling was the worst-performing G-10 currency after the Bank of England pushed back against some of the hawkish speculation that had arisen particularly since the Fed’s shift last week.

Oil is on track for its fifth weekly gain, with investors expecting demand to outstrip supply as economies around the world recover from the Covid crisis. Brent crude is flat at $75.64 a barrel while US crude is up 0.3% at $73.6 a barrel.

Here are our main stories:

British retailers have reported their strongest seasonal sales in more than four years in June, according to the CBI, as the rush back to the high street pushed stock levels to their lowest in 38 years.

Amazon and Google are to be investigated by the UK competition watchdog over concerns the tech companies have not done enough to tackle the widespread problem of fake reviews on their websites.

The private equity firm Clayton, Dubilier & Rice is to increase its offer for UDG Healthcare to £2.7bn after major shareholders in the Dublin-based company opposed the first bid.

The country is facing a summer of food shortages likened to a series of “rolling power cuts” because of a loss of 100,000 lorry drivers due to Covid and Brexit, industry chiefs have warned.

Thank you for reading and have a great weekend. We’ll be back next week. Good-bye! - JK

Updated

US sentiment slips from earlier estimate

Sentiment among US consumers slipped in the second half of June, according to a University of Michigan survey released a few minutes ago.

The final reading was 85.5 in June, down from an earlier estimate of 86.4, and below economists’ expectations. Sentiment was above levels seen in May, though, when the index was at 82.9. It remains well below the 101 level registered in February 2020, before the pandemic hit the US.

Richard Curtin, the chief economist who compiled the survey, said:

All of the June gain was among households with incomes above $100,000, and mainly in the way they judged future economic prospects.

The Bank of England has published its quarterly bulletin, with an interesting article on household debt during the Covid crisis. Here are the main findings.

  • Covid-19 (Covid) has had an unprecedented impact on the UK economy. In the past, economic shocks have been amplified by household debt, as more highly indebted households cut back sharply on their spending or defaulted on their debts.
  • There is little evidence that – so far at least – household debt has amplified the Covid recession. This is likely to reflect the particular nature of the crisis and the unprecedented policy interventions – such as income support and payment deferrals – which have supported household finances.
  • Some households, particularly those with unsecured debt, have reported being in financial difficulty and will be more vulnerable to future shocks. They are less likely to have savings or to have been able to accumulate savings through the pandemic.
  • But household debt may yet play a bigger role in the Covid crisis. This will depend on the evolution of the pandemic and the resulting pace of economic recovery, which remain uncertain. It will also depend on how governments, households, businesses and financial markets respond to these developments.

You can read the paper here.

Wall Street opens higher

Wall Street has opened higher, adding to yesterday’s gains, when the S&P 500 and Nasdaq closed at record highs, buoyed by bipartisan agreement on Joe Biden’s massive infrastructure bill (although it still has to be passed by Congress).

  • Dow Jones up 181 points, or 0.5%, at 34,378
  • S&P 500 up 10 points, or 0.2%, at 4,276
  • Nasdaq up 28 points, or 0.2%, at 14,398

A key measure of inflation, tied to a gauge of consumer spending, that is closely monitored by the Federal Reserve picked up in May, but was as expected. The dollar slipped, as consumer spending in the US stagnated after sharp increases in previous months, fuelled by government cheques.

Updated

US PCE inflation rises

US PCE inflation (personal consumption expenditure), a measure that is closely watched by the US Federal Reserve, has risen to an annual rate of 3.9% in May from 3.6% in April, according to official figures – the highest since 2008.

That’s bang in line with Wall Street forecasts – also core inflation, which strips out volatile food and energy costs. It rose to 3.4% in May, from 3.1% in April, marking the highest rate since 1992.

The figures add to other evidence that inflation is picking up in the United States, but Wall Street futures extended gains slightly after the data, pointing to a higher open in 45 minutes time.

Consumer spending in the US was unchanged in May, a marked cooling after increases of 0.9% in April and 5% in March, when people received cheques from the government under the $1.9 trillion stimulus bill.

Updated

Market summary

A quick look at the markets...

  • UK’s FTSE 100 up 20 points, or 0.29%, at 7,130
  • Germany’s Dax down 19 points, or 0.1%, at 15,570
  • France’s CAC 40 falt at 6,625
  • Italy’s FTSE MiB up 39 points, or 0.15%, at 25,461

Oil prices have slipped slightly, with Brent crude trading 0.1% lower at $75.46 a barrel while US crude is at $73.1 a barrel, down 0.2%. Both settled at their highest levels since October 2018.

Oil is on track for a fifth week of gains, as expectations have grown in the market that demand growth will outstrip supply as economies recover from the pandemic, and that Opec+ producers (the Opec cartel, Russia and others) will be cautious about raising output this summer. They are due to meet on 1 July to discuss further easing of their output cuts from August.

UBS analyst Giovanni Staunovo says:

Oil prices have been supported in recent weeks, benefiting from the ongoing decline in global oil inventories as oil demand continues to grind higher, although unevenly.

The Bank of England kept monetary policy unchanged yesterday, arguing that inflation is transitory and a premature tightening could undermine the recovery. But that was not a view shared by everyone. Andy Haldane, the BoE’s chief economist who leaves this month, voted again to reduce the Bank’s target for bond purchases, citing the “rapidly improving economic outlook, and rising cost and price pressures”.

In this podcast, ING’s senior editor Rebecca Byrne asks developed markets economist James Smith where he stands in the debate and what policymakers are likely to do next.

According to the CBI survey, grocers and shops selling furniture and carpets, hardware and DIY, reported that sales remained above seasonal norms.

Department stores also fared better, with sales now average for the time of year, while clothing stores said sales remained poor for the time of year, but this was to a much lesser extent than last month.

Online sales growth slowed sharply in June, as people preferred to go to the shops. Internet sales rose at the weakest pace since April 2020, and were well below the long-run average.

Updated

Somewhat disappointingly, the Gfk measure of UK consumer confidence was steady at -9 in June, according to a separate survey.

“In one line: Booming, but other indicators suggest that spending has hit a wall,” says Gabriella Dickens, senior UK economist at Pantheon Macroeconomics. She warns that the surge in UK retail sales reported by the CBI won’t last, pointing to the GfK confidence survey and other indicators.

The BoE’s CHAPS data, for instance, showed that the value of credit and debit card transactions in the seven days to June 17 was 9.5% below its February 2020 level, the largest shortfall since the seven days to April 14. Admittedly, the BoE’s data are not seasonally adjusted.

We doubt that retail sales will be sustained at the second quarter’s high level in the second half of this year. After all, households’ real disposable income is set to come under pressure from higher CPI inflation and the withdrawal of the furlough scheme. In addition. households’ demand is set to shift back towards services, from consumer goods, as the economy fully reopens.

The CBI’s survey is consistent with year-over-year growth of official retail sales volumes surging in June, but other indicators are less upbeat and suggest that sales, in fact, have plateaued.

The CBI said the sales for the time of year measure jumped to a four-and-a-half-year high of 23% in June, from -3% in May.

Retailers’ stocks in relation to expected sales sank to their lowest level since records began in August 1983, in another sign of growing demand, and potential inflationary pressures.

The Bank of England is closely monitoring rising inflation, which hit 2.1% in May, above the central bank’s 2% target. It said yesterday that inflation was likely to peak above 3%, but expects this rise to be temporary.

Updated

UK retail sales at three-year high – CBI

British retailers saw sales jump in June as the UK vaccination programme progressed and made shoppers more confident about going out to spend.

The monthly survey from the CBI, Britain’s biggest business lobby group, showed that a measure of the volume of sales rose to 25% from 18% in May, the highest since August 2018.

The percentage balance deducts the number of retailers who reported higher sales from those who posted lower sales.

CBI economist Ben Jones said:

After a generally gloomy 2021 so far, the sun finally shone for retailers in June, with seasonal sales volumes the strongest since November 2016. This was the latest sign that the success of the vaccination programme is feeding through to stronger consumer confidence.

Updated

Labour has commented on the global shortage of supplies in the car industry, such as semiconductors that is holding back the recovery in UK car production, as reported earlier.

Ed Miliband, Labour’s shadow business secretary, said:

These global supply chain issues serve to underline the importance of an effective domestic industrial strategy. To boost the car industry and support jobs, Labour would bring forward ambitious proposals to spark an electric vehicle revolution in every part of the country.

Labour backs our manufacturers and communities with proud histories in the industry, and we would invest in securing the industry’s future. But the Government is asleep at the wheel.

Italian consumer and business confidence improves

In Italy, confidence among consumers and businesses has improved. Its statistics institute Istat said the consumer confidence index rose to 115.1 in June from 110.6 in May. All measures, including perceptions of the current economic climate, personal finances and future prospects improved.

The overall business confidence index improved to 112.8 from 107.3. Manufacturing rose to 114.8 from 110.9, while construction slipped slightly to 153.6 from 153.9.

Optimism has also increased in Germany and France, as reported yesterday, where vaccine campaigns progress and new Covid infections are falling.

Updated

Paul Donovan, chief economist at UBS Global Wealth Management, talks about the massive US infrastructure bill (which still needs to be passed by Congress) in his morning comment, as well as the US income data out later today. You can listen to it here.

Here’s a summary:

US President Biden agreed to a fiscal infrastructure package with senators. The headline is a $1 trillion package, although that relies on quite a spin (a large part is continuing existing programs). This is a redistribution more than a stimulus, as it is funded with unspent funds from previous packages (which markets already assumed would be spent), and optimism about tax collection. There is still a question about whether this will pass Congress.

US income data is expected to have fallen in May (the pace of wage growth has been slowing in recent months). That can be offset by spending accumulated savings. The market focus is the associated inflation measure—the PCE deflator. This should be reaching its peak.

Japan has no inflation, but also no deflation. Tokyo consumer price inflation was 0% y/y. Some are suggesting the Olympic Games may add to inflation, but the economic impact of Olympiads is generally much exaggerated.

The EU leaders’ summit revealed some fault lines. The Hungarian government was told it should quit the EU if it did not end its LGBTQ+ persecution. The Hungarian government said it did not want to leave, and would not change the legislation. This is not market moving, but the Hungarian action and the EU response may impact longer-term growth trends.

Updated

CMA to investigate Amazon, Google over fake reviews

Amazon and Google are to be investigated by the UK competition watchdog over concerns the tech companies have not done enough to tackle the widespread problem of fake reviews on their websites.

The Competition and Markets Authority, which began looking at the issue of fake reviews on major platforms two years ago, will now seek to determine whether Amazon and Google may have broken consumer law by not taking sufficient action to protect shoppers from fake reviews.

Several European stock markets have fallen back after posting chunky gains yesterday, although the FTSE 100 index and Italy’s FTSE MiB are clinging on to 0.1% gains.

JD Sports is the biggest riser in London this morning, up 4.7%, after Nike, one of its key partners, reported better-than-expected quarterly revenues and predicted that 2022 revenues would grow by low double digits and break through $50bn, as North America recovers from the pandemic.

Amigo, the struggling subprime lender, has won three months’ breathing space (to late September) by securing more funds from its lenders. However, the funds available have been reduced from £250m to £100m, following the suspension of all new lending at Amigo. So far, it has drawn down £27m. Amigo share rose nearly 12% to 9.2p on the news.

The company said:

Following the recent High Court judgment relating to Amigo’s proposed scheme of arrangement, the board of Amigo has reviewed options with the Financial Conduct Authority and discussions are ongoing. This could result in a revised scheme of arrangement or insolvency.

Earlier this month, the sub-prime lender Amigo decided not to appeal against a high court decision that blocked a scheme to cap customer compensation.

The firm, which charges 49.9% interest and requires borrowers to provide a friend or family member to act as a guarantor, said on 1 June it would “consider all options” and was looking at an alternative scheme to manage the costs of a surge in customer compensation claims.

Updated

Private equity firm to raise offer for UDG Healthcare

The private equity firm Clayton, Dubilier & Rice (CD&R), which made a £5.5bn bid for Morrisons last weekend that was rejected, plans to raise its offer for UDG Healthcare to £2.7bn to clinch a deal, after running into opposition from shareholders.

UDG said the planned £10.80 per share offer would be the private equity firm’s final offer, and that the board planned to recommend the proposal.

UDG shares rose 1.2% to £10.57 on the news.

In May, both companies had agreed a £10.23 per share offer, which valued UDG at £2.6bn – but its biggest shareholder, Allianz Global Investors, said the bid was “opportunistic and significantly undervalues UDG and its prospects” and another major investor, M&G, also blasted the plans.

The activist investor Elliott Management, a New York hedge fund that is also pushing for change at the drugmaker GSK, picked up a 3.1% stake in UDG in May, weeks after the first offer was made.

The FTSE-250 listed company is based in Dublin and provides advisory, communications, commercial, clinical and packaging services to the healthcare industry.

A flurry of takeovers of UK businesses by private equity during the pandemic has raised concerns about “asset stripping” with negative implications for jobs and pensions.

Global shares near all-time high

Global shares are trading near an all-time high. MSCI’s all-country index rose 0.5% to 718.68, close to the record close of 720.23 reached on 15 June.

Investors are hoping that the massive US infrastructure bill, once it is passed, will boost the US economic recovery. The plan is valued at $1.2 trillion over eight years, $579bn of which is new spending.

However, to secure agreement from both parties, president Joe Biden had to sacrifice some of his original ambitions on schools, climate change mitigation and support fro parents and caregivers, as well as tax increases for the rich and corporations.

In Europe, the UK’s FTSE 100, Italy’s FTSE MiB and Spain’s Ibex have opened 0.3% higher, while France’s CAC 40 is flat.

Updated

Introduction: Biden's $953bn infrastructure deal lifts markets

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

Joe Biden’s announcement of a bipartisan agreement on a $953bn infrastructure plan – billed as the largest investment in public transit in American history – has boosted stock markets in the US and Asia. On Wall Street, the S&P 500 and the Nasdaq closed at new record highs of 4,266 and 14,369 respectively.

In Asia, Japan’s Nikkei rose 0.66% while Hong Kong’s Hang Seng climbed 1.4% and the Australian stock market added 0.5%.

Michael Hewson, chief market analyst at CMC Markets UK, says:

Last night’s gains [on Wall Street] were helped by the bipartisan agreement of a $579bn infrastructure bill, much less than the Democrats would have liked, but still a fairly decent addition to all of the other stimulus packages seen in the past six months. The new spending would include money for roads, bridges, rail and public transit, all areas that have been sorely neglected over the years. While the agreement is welcome it still faces a high bar in passing into law given the Democrats narrow majorities on Capitol Hill.

As a consequence of last night’s strong US finish, markets here in Europe look set to open higher, with travel stocks likely to be in focus after the government added Malta, Madeira and the Balearics to the green list, as well as indicating that it would look at dropping quarantine rules for fully vaccinated UK residents returning home from amber list countries later in the summer.

UK ministers have eased travel restrictions for a number of tourist hotspots, adding Malta to the “green list” of countries requiring no quarantine for returning travellers, as well as a handful of Caribbean nations.

UK car production continues to increase, but the recovery is held back by global supply shortages, for example of semiconductors, warned the Society of Motor Manufacturers and Traders. Some 54,962 vehicles left the factory gates in May, up 934% on Covid-wrought May 2020 when production dwindled to 5,314, but still down 52.6% on May 2019.

So far this year UK factories have turned out 429,826 cars, up 105,063 on 2020, but overall output remains down by 22.9% on the same five-month period in 2019.

In Germany, consumer confidence has improved more than expected, following a strong business optimism reading yesterday.

The GfK institute said its consumer sentiment index, based on a survey of 2,000 Germans, rose to -0.3 points, the highest level since August and up from -6.9 the previous month.

Consumers were far more optimistic about their own personal income situation as well as the overall economic prospects. Shoppers’ expectations for the economy hit a 10-year high, reaching 58.4 points. However, Germans’ willingness to make purchases rose only slightly.

The Agenda

  • 9am BST: Italy business and consumer confidence for June
  • 11am BST: UK CBI retail sales
  • 11am BST: France Unemployment benefit claims for May
  • 12pm BST: Bank of England Quarterly Bulletin
  • 1.30pm BST: PCE price index
  • 3pm BST: Michigan Consumer Sentiment final for June

Updated

 

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