Graeme Wearden 

Travel shares hit by summer ‘washout’ fears from tighter restrictions – as it happened

Rolling coverage of the latest economic and financial news
  
  

A British Airways airplane taking off from Faro airport in Portugal.
A British Airways airplane taking off from Faro airport in Portugal. Photograph: Pedro Nunes/Reuters

Closing summary

Time to wrap up.

Travel stocks have started the week with chunky falls, on concerns that the summer holiday season will be a washout as tighter restrictions are introduced by some European countries. UK tourists will need to show they are fully vaccinated when visiting Portugal, Malta, and Spain’s Mallorca, Ibiza and neighbouring islands.

Both British Airways parent company IAG (-5.9%) and budget airline easyJet (-5.8%) fell sharply, as analysts warned that the travel industry’s hopes of a good summer were fading.

This pulled Europe’s stock markets lower, with the FTSE 100 ended down 0.9% or 63 points lower at 7072.

Global markets were also overshadowed by rising Covid-19 infections in the Asia-Pacific region, and in South Africa, which have forced governments to introduce new restrictions.

Oil has also dropped back from its highest levels since October 2018, with Brent crude now down 1.8% at $74.80 per barrel.

In New York, the tech-focused Nasdaq hit a fresh record high. But the Dow fell, with Boeing losing 3% after regulators raised fresh concerns over its upcoming 777X jet, which mean it’s unlikely to be certified before 2023.

Here are today’s main stories:

Goodnight. GW

Pharmaceuticals group AstraZeneca finished as the FTSE 100’s top riser, up almost 2%.

AstraZeneca reported this morning that its Forxiga drug has been approved in the EU for the treatment of chronic kidney disease.

Separately, an Oxford University study has found that a ‘mix-and-match’ approach to Covid-19 vaccines can boost the immune response.

If found that receiving a shot of Pfizer’s Covid-19 vaccine four weeks after an AstraZeneca dose produces a strong immune response - higher than giving another dose of AstraZeneca.

The reverse combination also produced high concentrations of antibodies, meaning that all possible vaccination schedules could be used.

Although as the UK has a “stable supply position” there is no reason to change vaccine schedules at this moment in time, says Deputy Chief Medical Officer Professor Jonathan Van-Tam.

Reuters has more details:...

The data provides support for the decision of some European countries that have started offering alternatives to AstraZeneca as a second shot after the vaccine was linked to rare blood clots.

Matthew Snape, the Oxford professor behind the trial, said that the findings could be used to give flexibility to vaccine rollouts, but was not large enough to recommend a broader shift away from clinically approved schedules on its own.

“It’s certainly encouraging that these antibody and T-cell responses look good with the mixed schedules,” he told reporters.

“But I think your default has to stay, unless there’s a very good reason otherwise, to what is proven to work,” he added referring to the same-shot vaccine schedules assessed in clinical trials.

CMC Markets: Travel stocks lose ground again

Shares in European airlines also fell today, with Air France down 4%, Lufthansa losing 3.6% and Ryanair dropping 3%.

That comes alongside the falls in London where IAG fell 5.9%, EasyJet lost 5.8% and TUI shed 5.3%.

Michael Hewson of CMC Markets says it was “another difficult day” for the travel and leisure sector.... with some European countries introducing new restrictions on UK arrivals, and the worrying rise in cases in Asia covered early this morning.

Having seen falls at the end of last week over disappointment over the limited government relaxation of travel restrictions, which saw the addition of Malta, Madeira and the Balearics to the green list. Airlines were also unhappy that the government wasn’t bolder in promising that it would look at dropping quarantine rules for fully vaccinated UK residents returning home from amber list countries.

While airlines and travel companies expressed disappointment over last week’s announcement criticising the government for its cautious approach, the reality is whatever countries the government puts on its green list now matters less than the restrictions being faced by UK passengers when they leave the UK for their destination country.

Airlines can huff and puff all they like, the reality is the UK government could have put a much higher number on its green list, but unless that list is reciprocated then passengers are still going to face pretty significant obstacles to travel, and sadly no amount of complaining about it will change that fact.

We’ve heard this morning that German Chancellor Angela Merkel wants to ban all UK travellers from coming into the EU due to rising Delta variant cases. While this isn’t a view that is shared across Europe, Spain has announced that they want to see a proof of vaccination, or a negative covid test for those who want to go to the islands on the UK’s green list. Portugal is also insisting on certain safeguards, but it’s not just a Europe problem as the Delta variant starts to spread across Asia.

In Australia, the Sydney region has implemented a full two-week lockdown, due to rising cases of Delta. With so few of the population vaccinated it is highly probable this will get extended and unlikely that the borders will reopen quickly. Hong Kong also announced that it would also ban all UK travellers from Thursday this week in a bid to keep the Delta variant out.

This is ultimately where the longer-term problem lies for airlines in Europe, and it appears that markets are slowly waking up to this, with British Airways owner IAG shares falling to four-month lows, as the prospect of a return to its profitable Asia routes diminishes further. Air France-KLM shares are at their lowest levels this year while Lufthansa shares are at five-month lows.

Greggs lifted by sustained sales recovery

UK baker Greggs had a good day, with shares closing 2.9% higher after it reported that its sales recovery was continuing.

Greggs told the City this morning that like-for-like sales at its company-managed shops were still between 1% and 3% ahead of 2019’s levels, despite tougher competition from cafes and restaurants who have been allowed to host customers indoors again since mid-May.

The steak bake, sausage roll, sandwich and drinks company explains:

This level of sustained sales recovery is stronger than we had anticipated and, if it were to continue, would have a materially positive impact on the expected financial result for the year.

All Europe’s main stock indices finished the day lower, pulling the Stoxx 600 down by 0.6%.

Germany’s DAX dipped by 0.35%, while France’s CAC lost nearly 1% and Italy’s FTSE MIB fell 1.1%.

Spain’s IBEX tumbled almost 2%, as travel and leisure stocks were hit by concerns over travel restrictions and Covid-19 cases. Holiday resort operator Melia Hotels dropped 6.4%, airport operator Aena fell 4.1%, and swimming pool firm Fluidra finished 4% lower.

London close: Travel stocks and Burberry drag FTSE 100 down

After a subdued session, Britain’s FTSE 100 index has closed down 63 points at 7073 points, down 0.9%.

Burberry were the top faller on the blue-chip index, slumping by 8.67% or 195p to £20.55, as investors expressed their disappointment about the surprise departure of boss Marco Gobbetti by the end of the year.

Travel stocks also tumbled, after Spain, Portugal and Malta all tightened entry requirements for UK tourists, in a new blow to the sector. British Airways parent group IAG finished down 5.9% at 176p, its lowest level since March.

Rolls-Royce, whose jet servicing business is dependent on airline flying hours, fell 5.6%, hitting their lowest level since mid-May.

Commercial property firm British Land, which has suffered from the move to home-working in the pandemic, fell almost 4%, while Royal Dutch Shell shed 3.6% following the drop in the oil price today.

InterContinental Hotels Group dropped by 3%, as did Premier Inns owner Whitbread.

The FTSE 250 index, which is more UK-focused, dropped by 0.5%, with oil and gas producer Cairn Energy (-6%) leading the fallers.

Budget airlines easyJet (-5.8%) and Wizz Air (-5.4%) were also hit by worries that the summer vacation season faced a washout, along with package holiday firm TUI (-5.3%).

SSP, which owns the Upper Crust and Caffè Ritazza chains, fell almost 5%, as traders anticipated fewer customers at travel hubs. Trainline, which sells tickets for travel in the UK and across Europe, lost almost 4%.

Danni Hewson, AJ Bell financial analyst, says summer holiday hopes are fading.

Summer 2021 was supposed to bring salvation for the UK travel sector as lockdowns were lifted and arms were jabbed. Instead it has brought more confusion and a dawning realisation that a big money booking boost isn’t on the cards.

“Shares in airlines, hotel businesses and travel companies have taken a battering today as investors rush to price in another twist in this long-running saga. Despite a number of popular tourist spots now being on offer to British holiday makers thanks to the government’s updated green list, it is precarious and it won’t mean a great deal if Germany gets its way and UK tourists are banned entry to the whole EU because of a concern over the Delta variant.

“Even if that doesn’t materialise, holiday makers will have to read the small print of their booking after country after green lit country seems to be lining up change requirements. Malta, Spain and now Portugal are changing the goal posts, worried that pennies won’t be the only thing Britons will bring with them.

“Though travel companies have reported a surge in bookings there have also been many stories of would-be-tourists hedging their bets and it’s likely many of those will decide to err on the side of caution and plump for their British booking. There are too many variables, too few certainties. No parent wants to get stranded at an airport with disappointed children or to spend their full holiday stuck in one hotel room.

She also warns that the winding back of the UK’s furlough scheme from July will put more pressure on travel firms, if trading doesn’t pick up.

“With changes to the furlough scheme just days away there will be nervousness within the sector. How far can airlines and travel companies stretch their meagre incomes, how long can they juggle costs, how much extra pressure will the new wage bill add? There are no easy answers and every day seems to bring more questions.”

South African hospitality, grocery retail and gym stocks sank on Monday alongside the rand currency after the government tightened COVID-19 restrictions following the surge in Covid-19 cases.

Reuters has the details:

The travel and leisure index tumbled 7.53% to a one-month low and recorded its biggest daily decline in just over a year, with City Lodge, Tsogo Sun Gaming, Tsogo Sun Hotels and Sun International down between 6.70% and 9.83%.

“Sentiment is very low on these businesses. People get fearful when news flow is bad as it is at the moment,” said Varshan Maharaj, Portfolio Manager at Allan Gray.

Investment firm Brait SE BATJ.J, which holds just under 80% of Virgin Active gyms, fell 6.10%, while wines, spirits and cider producer Distell DGHJ.J slipped 0.69%.

More here: South African hospitality stocks sink as COVID-19 restrictions tightened

Back in the US, Texas factory activity expanded at a faster pace in June, according to business executives surveyed by the Dallas Federal Reserve.

The Dallas Fed’s production index, which tracks manufacturing in the state, has risen by 14 points to 29.4 this month, a reading indicative of strong output growth. Other measures of manufacturing activity also pointed to accelerated growth this month.

Measures of new orders, capacity utilization, shipments and business conditions all rose, as did forecasts for future manufacturing activity. However, the general business activity index dipped a little and bosses were a little more uncertain about the outlook.

Labor market measures showed there was robust growth in employment and work hours, while price and wage pressures accelerated further in June.

In a now familiar tale, both the raw materials prices index and the finished good price index hit record levels - as firms tried to handle the recent surge in costs.

Texas firms also reported a flurry of issues with supply-chain disruptions and difficulties in hiring or recalling workers, as Sam Ro of Axios tweets:

The number of new solar farms planned for the east of England has more than doubled in recent months as farmers decide to swap crops for clean energy.

New solar farm applications for sites across Hertfordshire, Cambridgeshire and Essex in the last five months have climbed to 840 megawatts, or the same as 2m household solar panels.

The solar boom is expected to yield more than double the solar energy capacity that came forward for the east of England in the same months last year, and would be enough to power the equivalent of 400,000 homes with clean energy.

More here:

The departure of Marco Gobbetti as chief executive of Burberry raises the key question of whether Riccardo Tisci, whom Gobbetti appointed creative director soon after he joined, will remain at the luxury fashion brand, my colleague Jess Cartner-Morley writes:

A desire to be closer to his family in Italy was given as the reason behind Gobbetti’s decision to quit Burberry, and Tisci too is thought to have found it difficult to be away from family in Italy for prolonged periods during the pandemic. The designer was a fashion student in London in his teens and has a deep affection for British culture and subculture, but the pull of his homeland remains strong.

Italy has many deep-pocketed luxury brands and a shortage of exciting design talent, so opportunities are likely to present themselves.

While Gobbetti focused on raising price points and elevating Burberry’s luxury status, Tisci worked on keeping Burberry relevant – a huge challenge over the past year, as the pandemic has put the fashion industry on the back foot. The charity partnership with the footballer Marcus Rashford, who starred in a recent advertising campaign, was a symbol of how Burberry successfully positioned itself at the progressive leading edge of culture.

More here:

Oil drops back from 2018 highs

The oil price has dropped back today, after hitting its highest levels in over two and a half years.

Brent crude is down 1% at $75.24 per barrel, having briefly hit $76.60 in early trading - the highest since October 2018.

That’s pulled down shares in BP (-3%) and Royal Dutch Shell (-3.1%) this afternoon.

The Opec+ group are due to meet this week to discuss production levels beyond July, having gradually reduced their output cuts in recent months as demand has picked up.

Ole Hansen, head of commodity strategy at Saxo Bank, says oil producers may be cautious about increasing production significantly, given the rise of the delta variant and uncertainty over whether sanctions on Iran will be lifted soon.

Crude oil trades steady near the highest since 2018 with market participants expecting OPEC+ will keep supplies tight enough to support current levels.

The group meets on Thursday to decide production levels from August and beyond, and the market is currently looking for an increase of 500,000 barrels per day which is less than the increases seen during the past three months. With virus uncertainties due to the highly contagious delta strain and questions about an Iran nuclear deal hanging over the market, the group may opt for caution, hence the current price strength.

Back in London, the FTSE 100 index has dropped further into the red.

It’s now down 55 points, or 0.75%, at 7081 points in afternoon trading.

Travel stocks are still among the fallers (along with Burberry, now down 8% after CEO Marco Gobbetti decided to leave to run Italian luxury goods group Ferragamo).

Aerospace manufacturer Boeing are the top faller on the Dow Jones industrial average, down over 3% in early trading.

Reuters reported yesterday that the US Federal Aviation Administration had told Boeing that its planned 777X jet is not yet ready for a significant certification step. This means the FAA will “realistically” not certify the airplane until mid-to late 2023, they say.

The 777X is a widebody plane, which Boeing says will be the world’s largest and most efficient twin-engine jet.

But regulators have concerns, particularly in light of the software flaws with the 737 MAX, which was grounded after two fatal crashes. The Seattle Times explains:

In a sternly worded letter dated May 13, which was reviewed by The Seattle Times, the FAA warned Boeing it may have to increase the number of test flights planned and that certification realistically is now more than two years out, probably in late 2023.

That could push the jet’s entry into commercial service into early 2024, four years later than originally planned.

The FAA cited a long litany of concerns, including a serious flight control incident during a test flight on Dec. 8, 2020, when the plane experienced an “uncommanded pitch event” — meaning the nose of the aircraft pitched abruptly up or down without input from the pilots.

More here: Citing a serious flight test incident and lack of design maturity, FAA slows Boeing 777X certification

Wall Street open: Nasdaq and S&P 500 hits record high

America’s tech-focused Nasdaq composite index has hit a fresh record high at the start of trading in New York.

Technology stocks are leading the risers on Wall Street, where the broader S&P 500 index also nudged a new peak, before dipping back.

But the Dow, which contains more stocks that benefit from the reopening of economies, is lower, with banks, energy firms and industrial companies lower.

  • Dow: down 159 points or 0.45% at 34,274 points
  • S&P 500: down two points or 0.067% at 4,278 points
  • Nasdaq composite: up 99 points or 0.7% at 14,459 points

Mohamed El-Erian, chief economic advisor to Allianz, has told CNBC that investors are feeling comfortable about the global growth story, and confident that inflation will be transitory, and that central bankers will remain very supportive.

As long as these three themes are reinforced, we still continue to see this positive momentum in the markets, El-Erian told CNBC’s Squawk Box show.

But he also pointed out that there are some worrisome signs, due to the Delta variant - pointing to the Sydney lockdown, Israel re-imposing its mask mandate indoors, and the UK’s launch of pop-up vaccination centres as it battles the pandemic.

El-Erian adds:

“The good news is that vaccination has significantly weakened the link to hospitalizations and deaths. That’s why the economic implications of the Delta variant are not as worrisome as we’ve had in the past.

However, if you’re not vaccinated, then you’re facing higher risk because of delta.”

UK shopper numbers dipped by 0.2% last week, as the less-than-summery weather weighed on retailers.

Research group Springboard reports that footfall in retail parks dropped by 2% in the week beginning Sunday 20th June, whilst in high streets and shopping centres it rose by +0.2% and +0.6%.

That follows a 3.1% drop in footfall in the previous week (to 19th June), when rain hit the UK and kept consumers off the streets.

Overall, retail footfall is still over 25% lower than in 2019, before the pandemic, with high street visits down 32% but retail parks just 5% quieter.

With fewer tourists, and many commuters still at home, it’s no surprise that Central London is worst hit - with footfall down over 53% compared with two years ago, worse than market towns (-25.5%) and coastal towns (-28.2%).

Diane Wehrle, Insights Director at Springboard, says “variable weather” meant there was no pick-up in overall shop visits last week (which will disappoint retailers, given the lost trading during the lockdown).

On the plus side, it seems that the appeal of larger city centres over smaller high streets rebounded last week, following shifts the other way in the previous two weeks.

The lack of uplift in footfall on a week on week basis means that the gap from 2019 widened for the third consecutive week, although footfall remained noticeably higher than in the same week in 2020 which was the second week of trading following the lifting of Lockdown 1.”

Britain’s small businesses are calling on the government for more Covid-19 support, before a ‘flashpoint’ hits companies on Thursday.

The Federation of Small Businesses is concerned that financial support packages will diminish on July 1, when business rates exemptions for retailers and hospitality firms and VAT payment deferrals end.

The furlough scheme also becomes less generous, with firms having to pay 10% of wages of staff temporarily sidelined [currently the government is paying the full 80%].

With the end of lockdown extended beyond 21st June, the FSB says small firms need more help to bridge the gap until they can fully reopen.

FSB national chairman Mike Cherry explains:

“Last year the Government told us that it would do “whatever it takes” to help the 5.9 million sole traders and small businesses on which our recovery will depend.

“The Treasury committed to evolving support measures to ensure they were adequate in the face of what firms were up against.

“But now – after a crushing delay to the reopening road map – the new support measures are limited to those which do not cost the Treasury a penny.

“As a small business owner, I understand the importance of being careful with what I spend. But failing to review support deadlines that were designed with a June unlock date in mind is a false economy.

“Unless the Government acts now, it risks a serious economic flashpoint this Thursday – a moment at which financial support starts to wind down, further trade changes take effect and repayments on emergency loans start to fall due.

“At the very least, HMRC should take a safe harbour approach when they are faced with a small business that has made a mistake or has no cash left – Time To Pay should be promoted and encouraged.

The Resolution Foundation has also warned against ‘dangerous complacency’ about cutting the furlough scheme too early. It says the underlying health of the UK labour market is being overstated, as total hours worked are well below pre-crisis levels and underlying pay growth isn’t as strong as the headline number suggest.

Greensill: watchdog opens investigation into auditors including PwC

Britain’s accounting watchdog has opened investigations into PwC and a smaller rival over audits conducted for Greensill Capital UK and the bank owned by one of its largest borrowers, the metals magnate Sanjeev Gupta.

The Financial Reporting Council’s (FRC) investigations – launched on 15 June but only made public on Monday – add to a growing list of investigations linked to Greensill and its customers, after it fell into administration in March this year.

The regulator revealed on Monday it was looking into work conducted by Saffery Champness, which audited Greensill Capital UK’s accounts between 2014 and 2019, over its audit of Greensill for the year ending 31 December 2019. The FRC is also scrutinising PwC over its audit of the 2019 accounts issued by Wyelands Bank, the lender majority-owned by Gupta, the billionaire boss of beleaguered manufacturer Liberty Steel UK.

Here’s the full story:

Travel shares fall on fears of summer 'washout' from tighter restrictions

Shares in travel and hospitality firms have fallen in London, on fears of a summer “washout” as Spain, Portugal and Malta all tighten their entry requirements on UK tourists.

Airline group IAG, which owns British Airways, have fallen by 4.7% this morning. Budget airline easyJet are down 4%, with Wizz Air off 3.7%, and package holiday firm TUI dropping 3.9%.

Rolls-Royce, which makes and services jet engines, are down 3.1%.

Hotel groups are also lower, with Premier Inns owner Whitbread (-2.3%) and InterContinental Hotels (-2.3%) falling.

Earlier today, Portugal announced that British travellers who are not fully vaccinated against coronavirus must quarantine for 14 days on arrival from today.

Sky News explain:

Anyone travelling to mainland Portugal by air, land or sea will have to prove they have had two doses of a COVID-19 vaccine at least two weeks ago, or have to isolate.

The new rules, introduced by the Portuguese government, come into effect on Monday and will last until at least 11 July.

Spain will demand a negative COVID-19 test or proof of vaccination from British tourists who want to enter Mallorca, Ibiza and other Balearic Islands, Prime Minister Pedro Sanchez said on Monday.

My colleague Sam Jones explains:

The rules – which come into effect in 72 hours, – were announced two days before the Balearics are due to move on to the UK’s green list for quarantine-free travel, and amid growing concerns over what Sánchez called “the negative evolution” of the virus in the UK.

Spain had planned initially to let British visitors enter the country without the need for a negative PCR test, but pressure has been mounting on the central government following rising case numbers in the UK and clusters of cases in Spain that were traced back to an end-of-year school trip to Mallorca.

And on Friday, Malta said that British holidaymakers who are not fully vaccinated against coronavirus will have to quarantine when they arrive on the island from Wednesday - including children aged 12-16.

Today’s falls also follow a report in The Times that Germany will attempt to ban British travellers from the European Union regardless of whether or not they have had a COVID-19 vaccine.

The story says:

Angela Merkel, the German chancellor, wants to designate Britain as a “country of concern” because the Delta variant is so widespread.

The plans will be discussed by senior European and national officials on the EU’s integrated political crisis response committee and will be resisted by Greece, Spain, Cyprus, Malta and Portugal. President Macron of France has backed mandatory quarantine for unvaccinated travellers.

A British government source said that Merkel looked “increasingly isolated”, adding: “A lot of countries will think it’s their own decision and not one to be decided in Berlin.”

Last week, Merkel called for all travellers from the UK to be quarantined wherever they arrive in the EU, due to the rise in cases of the Delta variant.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says hopes of a late summer rebound in business for the travel sector are fading.

“Optimism on the horizon for the travel industry has once again been obscured by dark clouds, as, one by one, European countries bring back in tough quarantine rules.

EU leaders are preparing to meet this week and Germany’s Angela Merkel is hoping to gain approval for a consensus on quarantine to stop the spread of the delta variant. So, it’s looking increasingly likely this summer will be a wash out for the industry after all.

Tour operator TUI in the FTSE 250 sank by 4% in early trading after Portugal re-imposed strict isolation requirements for unvaccinated arrivals. Although some routes are still open for holiday makers who have been double jabbed, that could soon change.

With the rules for children and teenagers also unclear, many families, once hopeful for a holiday, are now putting away their suitcases, settling for a summer of staycations and day trips.

Streeter adds that the ‘ever-changing’ rules regarding foreign travel are making it very hard to plan an overseas holiday:

Already disappointment had been swirling around the industry after the UK government only extended the green list of travel countries with a handful of new destinations. Although a rush of bookings came with the inclusion of Malta, Madeira, Spain’s Balearic Islands and a number of Caribbean islands, Malta’s move to re-impose quarantine on unvaccinated arrivals was a blow.

The ever-changing rules and restrictions mean that trying to plan an overseas holiday has become like a game of snakes and ladders. A relaxation of the rules by one country, is swiftly followed by a tightening in another, leaving travellers at risk of being left isolated in a hotel overseas with only a TV remote control for company.

Updated

Over in Germany, import prices have jumped sharply - partly due to the recovery in oil prices and the jump in commodity prices.

Destatis reports that import prices rose by 1.7% on a monthly basis in May, up from 1.4% in April.

On an annual basis, import prices were 11.8% higher than in May 2020 - when the first wave of the pandemic gripped the global economy. That’s the sharpest year-on-year rise in import prices since October 1981, when prices climbed 13.6 percent, the report says.

Energy imports were almost twice as expensive last month as in May 2020, with oil up 135%.

Metal prices were also much higher, reflecting the pick-up in global demand, Destatis adds:

Compared to May 2020, iron ores (+83.6%), copper (+65.1%), non-ferrous metal ores (+46.6%), plastics in primary forms (+42.9%) and pig iron increased in price, Steel and ferro-alloys (+32.4%) significantly.

The main reason for the sharp rise in iron ore prices is likely to be the continued strong global demand.

Trading on the Hong Kong Stock Exchange was delayed today, after heavy rain forced the morning session to be washed out amid widespread disruption.

Hong Kong Exchanges and Clearing halted morning trading after the weather department issued its first “black rainstorm” warning alert of the year.

Heavy rain led to landslides and severe flooding in some parts of the city, forcing flight delays, and the temporary suspension of public services such as schools and Covid-19 vaccinations.

Trading began in the afternoon after the warning was downgraded, with the Hang Seng index dipping slightly - energy and materials companies dropped, but consumer and healthcare firms were higher.

The South China Morning Post has more details on the storm:

The Observatory issued the black rainstorm warning at 8.20am, later reporting that more than 200mm of rain had fallen on Lantau Island, Lamma Island and the western part of Hong Kong Island as of 12.30pm, with other areas sustaining at least 70mm of rainfall.

A landslide at about 8am on Lantau Island blocked two lanes of traffic, police said, while four other landslides and flooding were reported on Cheung Chau.

Video shared on social media showed a torrent of muddy water spilling from a hillside onto South Lantau Road near Upper Cheung Sha Beach. Flooding also caused the closure of the Tuen Mun Chek Lap Kok Tunnel Road towards Tuen Mun earlier, though it had been fully reopened by 11.41am.

In the New Territories, police attributed a fatal traffic accident to the heavy rains as a bus driver lost control of his vehicle on a wet road in Sheung Shui at about 6.18am.

Burberry shares fall as CEO quits to join Ferragamo

In London, shares in luxury fashion company Burberry have fallen by 6% after it announced that CEO Marco Gobbetti is leaving unexpectedly.

The British fashion brand said Gobbetti – who was charged with turning around the business when he took the reins in 2017 – was leaving to take a job in Italy that would allow him to be closer to his family.

The luxury Italian group Salvatore Ferragamo, famous for making shoes worn by Hollywood stars such as Audrey Hepburn, announced on Monday it had appointed Gobbetti as its new chief executive.

The Burberry chairman, Gerry Murphy, credited the outgoing chief executive with leading the transformation of the brand and business.

Murphy said:

“The board and I are naturally disappointed by Marco’s decision but we understand and fully respect his desire to return to Italy after nearly 20 years abroad.

With the execution of our strategy on track and our outlook unchanged, we are determined to build on Burberry’s strong foundations to accelerate growth and deliver further value for our shareholders.”

Gobbetti, a luxury goods veteran who led brands including Céline, Givenchy and Moschino before joining Burberry, is expected to stay in the role until the end of 2021, giving the company time to find a successor.

The move means the chief executive will lose all of his unvested share awards, which will lapse in full when he leaves Burberry at the end of the year.

Here’s the full story:

Burberry are the top faller on the FTSE 100, which is down 34 points or 0.5% this morning at 7101 points.

European stock markets have also dipped this morning, with the Stoxx 600 down 0.3%.

A gauge of Southeast Asian stocks fell to its lowest level since May 21 today and is almost 7% from a January high, Bloomberg says:

Nations from Malaysia to Thailand are struggling to contain the pandemic, clouding recoveries in their economies. Indonesia reported fresh records in daily cases while Thailand suspended dine-in services for a month at restaurants in Bangkok and nearby provinces.

“The tightening in restrictions in some parts of Southeast Asia to curb rising Covid-19 cases will hurt domestic demand and hold back economic recovery,” said Khoon Goh, head of Asian research in Singapore at Australia & New Zealand Banking Group Ltd.

“Given the need for more policy support, especially on the fiscal side, this is weighing on domestic asset prices in those countries.”

More here: Virus Lockdowns Send Malaysia Stocks Tumbling to Seven-Month Low

Thailand’s stock index dropped to a one-month low today, after new restrictions in Bangkok, and five provinces, were announced.

The measures include a ban on restaurant dine-ins in the capital, 9pm closures of shopping malls, and a ban on gatherings over 20 people.

Construction sites in the six areas will be shut down, and workers’ camps will be sealed off to contain clusters, after Covid-19 cases were detected at the camps (where tens of thousands of building workers live).

Bangkok’s SET Index is down 0.5%, and on track for its eighth consecutive session of losses, as concerns over the economic recovery rise.

Reuters adds:

Further souring sentiment, the Bank of Thailand’s deputy governor said the economy was expected to return to pre-pandemic levels only in the first quarter of 2023, as the tourism sector has been slow to recover.

In Jakarta, the benchmark stock index has fallen 1.4% to its lowest closing level in a month, after Indonesia reported a new daily record for Covid-19 cases yesterday.

AFP has the details:

Indonesia set a new record for daily coronavirus cases on Sunday with more than 21,000, as hospitals are flooded with patients in Jakarta and other Covid-19 hotspots across Southeast Asia’s hardest-hit nation.

The figure brings the country’s tally for the pandemic to more than 2.1 million coronavirus cases with 57,138 deaths.

But the real number is believed to be much higher due to low testing rates for the deadly respiratory illness.

Yesterday, Gemma Holliani Cahya wrote about the terrible situation in Indonesia, where deaths have risen in recent weeks - and the pressure for tighter lockdowns to slow the virus.

President Joko Widodo insists the existing restrictions on public mobility are still the best option so as not to harm the economy, as well as social and political activities.

Health experts have criticised the decision, urging the government to take radical action to save the nation and halt the spread of the virus.

Hermawan Saputra, from the Indonesian Public Health Experts Organisation (IAKMI), has said the crisis has been exacerbated by travel during the Idul Fitri national holiday and the spread of the more contagious Delta variant.

“We are in a very worrying situation. With this condition we recommend regional lockdown,” Hermawan said, to stop the virus spreading to other islands in the archipelago.

Updated

Malaysia’s stock market has fallen to a seven month low, after Prime Minister Muhyiddin Yassin extended the country’s lockdown due to elevated Covid-19 infections.

The FTSE Bursa Malaysia KLCI Index has dropped by 1.2% today, to its lowest level since 10th November (when Pfizer’s Covid-19 vaccine successful trial results sparked a global rally):

The Straits Times has more details of Malaysia’s move:

Malaysia will extend its full lockdown until daily new Covid-19 cases drop below 4,000, and its targets on vaccination and intensive care unit (ICU) bed usage are met, Prime Minister Muhyiddin Yassin said on Sunday (June 27).

The lockdown was originally due to end on Monday, but Malaysia is still averaging above 5,000 cases a day nearly four weeks into the lockdown. It recorded 5,586 new cases and 60 deaths on Sunday.

The country also spent much of May under a more relaxed nationwide lockdown after a drastic spike in cases beginning April this year.

South Africa's rand weakens as restrictions tightened

South Africa’s rand has weakened today, following the two-week tightening of restrictions to try to combat the rise in Covid-19 cases.

The rand has dropped by around 0.7% to 14.24 to the US dollar following president Cyril Ramaphosa’s warning that South Africa faces a “massive resurgence of infections”.

These curbs on gatherings, alcohol sales, dining in restaurants and travel will be assessed in two weeks, to see if they have helped to slow the wave of Covid-19 cases.

Ramaphosa said during his televised address to the nation that the aim is to limit social contacts while preserving the economy.

Analysts at Nedbank wrote in a note that the restrictions are likely to hamper growth, though:

This scenario, although necessary, is likely to hamper an already faltering economy, and the rand is likely to remain under pressure, with any strength in the local unit likely to be met with fresh demand for US dollars.”

More here: REUTERS: South Africa’s rand weakens as government tightens COVID-19 restrictions

Early in June, the rand touched a 28-month high against the dollar, but has fallen back since (partly on worries that America’s central bank would raise interest rates earlier than thought, which pushed up the dollar).

Introduction: Rising Covid-19 cases weigh on recovery hopes

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

Global markets are subdued today amid a worrying rise in Covid-19 cases in the Asia-Pacific region and Africa.

In Australia, outbreaks of the Delta variant have been detected at several locations including Sydney, while South Africa is tightening restrictions after seeing a sharp rise in Covid-19 cases which is threatening to overwhelm its health system.

Other countries are also battling a fresh wave, with Indonesia reporting its biggest daily increase in coronavirus cases on Saturday, putting hospitals in the country under huge pressure. Malaysia is extending its lockdown, and Thailand announced new restrictions in and around Bangkok - including curbs on large gatherings and indoor restaurant dining.

South Africa’s president Cyril Ramaphosa yesterday said all gatherings, indoors and outdoors, would be banned for 14 days, along with the sale of alcohol, dining in restaurants and travel to or from the worst-hit areas of the country. An extended curfew is also being imposed, and schools shut early for holidays.

Ramaphosa warned:

“We have overcome two decisive waves but now we have a new hill to climb, a great challenge, a massive resurgence of infections … a devastating wave.”

The surge is part of a wider devastating resurgence of COVID-19 infections across Africa, which health experts fear will surpass earlier waves, as countries have struggled to vaccinate even a small percentage of the populations.

The rise in Covid-19 cases and restrictions threaten hopes for a strong economic recovery from the shock of the pandemic, as Jeffrey Halley, senior market analyst for Asia Pacific at OANDA, explains:

Malaysia has extended is MCO national lockdown once again. Thailand has tightened restrictions in Bangkok. Jakarta, where I am based, is in a dark place, with cases surging, with that pattern being repeated across Java. In Australia, the Greater Sydney area lockdown was widened, and Darwin also entered a snap lockdown with the trans-Tasman air bubble suspended until the end of tomorrow. Milder restrictions in the Wellington area of New Zealand were all extended

Although much has been made about the vaccine progress in the US, the UK, and Europe, Covid-19 and its new delta variant remain a severe problem for much of the world. Nowhere more so than Asia, with Japan and Taiwan also dealing with persistent virus cases and Singapore subject to still-severe, domestic restrictions.

I have stated before that resurgent Covid-19 posed the largest threat to the post-pandemic economic bounce across Asia. We are not there yet, but if we are at this point this time next month, many economic forecasts will need to be revisited for surgery.

Global markets had hit record highs last week, lifted by the agreement of a $1tn US bipartisan infrastructure package, and hopes that rising inflationary pressures will be temporary.

Traders also have an eye on Friday’s US non-farm payroll, which is expected to show a pick-up in hiring in America this month (up to around 675,000, from 559,000 in May).

The agenda

  • 9.10am BST: ECB board member Fabio Panetta speech on central banks actions during the COVID-19 crisis
  • 3.30pm BST: Dallas Fed Manufacturing Index for June

Updated

 

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