Time to recap, after a busy day of economic data that showed some cracks developing in the recovery.

US consumer confidence has dropped to a six month low, as rising inflation and Covid-19 cases both hit morale. The Conference Board’s gauge of consumer morale fell to 113.8 points in August, the lowest since February, and sharply down on July’s 125 points.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board, said the pandemic was hitting confidence:

“Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices—resulted in a less favorable view of current economic conditions and short-term growth prospects.

US house prices continued their astonishing run, up by a record-breaking over 18% over the last year.

In the eurozone, has inflation hit a decade high. Consumer prices rose by 3% year-on-year in August, well over the European Central Bank’s 2% target.

Economists predicted the ECB would not be swayed from continuing its pandemic stimulus programme, although the jump in prices - led by energy and industrial goods - could cause some anxiety.

Chiara Zangarelli, European economist at Nomura, says:

Following today’s upside inflation surprise, we are revising up our inflation outlook for the euro area slightly. We now see inflation peaking at 3.5% y-o-y at the end of 2021 and we expect euro area 2022 inflation to rise to 1.6% y-o-y, up from our previous forecast of 1.5%.

Today’s stronger inflation prints will likely add to some market concerns that the rise in euro area inflation could be more protracted than the ECB currently envisages. However, we think the ECB will continue to dismiss the rise in inflation this year as transitory at the September meeting. While headline inflation is rising well above 2%, measures of underlying inflation remain still subdued in the euro area .

In the UK, consumer credit failed to grow in July for the first time since February - suggesting a slowdown in the UK’s recovery from the coronavirus crisis.

Homeowners also made an unusual repayment on their mortgage debts, after a surge in borrowing in June in the rush to benefit from the stamp duty holiday.

China’s recovery stumbled, with factory growth almost flatlining and its service sector falling into contraction. Economists blamed the recent restrictions imposed to fight the pandemic, and an easing of demand in other economies.

Canada’s growth figures also disappointed, with GDP falling unexpectedly by 0.3% in the last quarter. But France’s growth rate was revised a little higher, to +1.1%, while unemployment in Germany dipped again to a pandemic low.

In the markets, the FTSE 100 posted its best month since April, while the Europe-wide Stoxx 600 racked up its seventh monthly rise in a row. Both indices fell around 0.4% today, though.

Shares in Zoom have tumbled over 15% on fears that its growth is slowing as workers return to the office, while UK software firm Blue Prism surged by a third as it holds talks with American private equity firms about a possible offer.

In the commodities world, aluminium hit its highest level in a decade, boosted by strong demand and concerns that China might cut output in an attempt to lower energy use and emissions.

In other news...

Ryanair is expecting to fly more passengers this autumn than in the summer, raising its target for the next three months after a “dramatic recovery in traffic and volumes”.

The UK’s financial watchdog is warning banks to review their potential exposure to financial crime in Afghanistan amid fears of resurgent terrorist activity in the country following the withdrawal of foreign troops.

Nike has given its head office employees in the US a week off to “destress” and recover from the pressures of the Covid-19 pandemic.

Great Britain’s energy regulator has launched a £450m fund aimed at innovative projects that will help the country meet its net zero climate targets.

UK business confidence has hit a four-year high, thanks to growing optimism about the post-Covid recovery, but companies highlighted concerns about staff shortages, which could push up pay in the coming months.

Paramount Pictures, the studio behind the Mission Impossible: 7 film, is suing its insurance company, accusing it of failing to cover the costs of a string of Covid-related production stoppages.

Goodnight. GW

European stocks have posted their seventh monthly rise in a row, although inflation jitters did weigh on the markets.

The Stoxx 600 dropped 0.4% today, but still gained around 2% during August - extending a run of monthly gains that began in February.

The index has surged by 18% so far this year, as the economic rebound, stimulus plans and ultra-loose monetary policy all boost shares.

This is the best run since 2013, when the Stoxx 600 racked up 12 monthly rises in a row (from June 2012 to May 2013).

The UK’s blue-chip stock index has recorded its best month since April, despite dipping back today.

The FTSE 100 index gained around 1.25% during August, bouncing back after a small decline in July.

It’s now gained around 10% so far this year, as vaccine rollouts, the reopening of economies, government spending and central bank stimulus have all lifted asset prices.

The FTSE 100 ended August on the back foot, though, dropping by 28 points or 0.4% today to 7,119.7 points. The energy sector fell 1.5%, while financials lost almost 1%.

Travel stocks also weakened after the EU recommended reinstating restrictions on US travellers because of rising coronavirus infections and hospitalisations. IAG, which owns British Airways, lost 2.5%.

Automation software company Blue Prism has become the latest in a long run of UK companies to attract the interest of private equity.

Blue Prism told shareholders this afternoon it is in talks with American private equity firms TPG Capital and Vista Equity Partners over a possible offer.

There can be no certainty that any offer will be made, nor as to the terms of which any offer would be made, the firm added.

The news sent Blue Prism’s shares surging over 35%, lifting the AIM-listed company’s value to around £1.1bn.

Blue Prism develops software that help automate routine back-office clerical tasks to business customers (a process known as Robotic process automation)

Proactive Investors explains:

Blue Prism is a pioneer in the automation software space: in essence, it makes ‘digital workers’ and provides solutions for enterprises to organise them, to help clients automate their operations.

Back on Wall Street, shares in Zoom have slumped by over 15% after the video conferencing company reported a slowdown in growth last night.

Zoom reported revenue growth of 54% year-on-year in the last quarter -- a punchy performance, but slower than the 191% annual revenue growth in the previous three months.

Investors were also concerned that Zoom predicted sales growth would slow this quarter, to around 31%.

The return of some workers to the office, and competition from rivals such as Microsoft Teams, is putting pressure on Zoom.

So even though earnings beat forecasts, and sales topped $1 billion in a quarter for the first time, the stock is down 15.9% today at $293 dollars, lower than when it started the year.

US consumer confidence has fallen to its lowest level since February, as concerns over the pandemic and rising prices undermine the economic recovery.

The Conference Board’s Consumer Confidence Index has dropped to 113.8 points in August, sharply down on July’s 125.1 (which has been revised lower), and much weaker than expected.

The closely watched survey found that Americans are less optimistic about the current situation, and future economic prospects, due to the jump in Covid-19 cases and the surge in inflation to a 13-year high.

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell to 147.3 from 157.2 last month.

The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 91.4 from 103.8.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board, said the pandemic was hitting confidence:

“Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices—resulted in a less favorable view of current economic conditions and short-term growth prospects.

Spending intentions for homes, autos, and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb. While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead.”

Here are the details:

Present Situation

Consumers’ appraisal of current business conditions declined in August.

• 19.9% of consumers said business conditions are “good,” down from 24.6%.
• 24.0% of consumers said business conditions are “bad,” up from 20.0%.

Consumers’ assessment of the labor market eased.

• 54.6% of consumers said jobs are “plentiful,” down from 55.2%.
• 11.8% of consumers said jobs are “hard to get,” up from 11.1%.

Expectations Six Month Hence

Consumers’ optimism about the short-term business conditions outlook deteriorated in August.

• 22.9% of consumers expect business conditions will improve, down from 30.9%.
• 17.8% expect business conditions to worsen, up from 11.9%.

Consumers were somewhat less optimistic about the short-term labor market outlook.

• 23.0% of consumers expect more jobs to be available in the months ahead, down from 25.5%.
• 18.6% anticipate fewer jobs, up from 17.8%.

Consumers were less upbeat about their short-term financial prospects.

• 17.9% of consumers expect their incomes to increase, down from 20.0%.
• 10.1% expect their incomes will decrease, up from 8.8%.

Nike has given its head office employees in the US a week off to “destress” and recover from the pressures of the Covid-19 pandemic.

The sportswear and trainers brand said workers at its headquarters in Oregon would be “powering down” until Friday, with senior leaders encouraging staff to ignore all work responsibilities to aid their mental health.

“Take the time to unwind, destress and spend time with your loved ones. Do not work,” the Nike senior manager of global marketing science, Matt Marrazzo, said in an open message to staff posted on LinkedIn.

“In a year (or two) unlike any other, taking time for rest and recovery is key to performing well and staying sane.”

He acknowledged that “this past year has been rough”, adding that staff should recognise that “we’re all human” and living through a traumatic event.

The US house price boom continues to rage, with low interest rates and a shortfall of properties helping to make homes less affordable for many Americans.

The price of a single-family US home surged by 18.6% over the last year in June, according to the S&P CoreLogic Case-Shiller index, up from 16.8% in the previous month.

This is the thirteenth consecutive month of accelerating prices, since the first lockdown started driving demand for larger houses away from urban centres.

Prices in 20 key urban markets rocketed by 19.1%, with Phoenix, San Diego, and Seattle reported the highest year-over-year gains. Phoenix led the way with a 29.3% year-over-year price increase, followed by San Diego with a 27.1% increase and Seattle with a 25.0% increase.

On a month-to-month basis, the 20-city composite index rose 1.8% from May, as people continued to take advantage of cheap borrowing - and low availability helped spur prices.

Boston joined Charlotte, Cleveland, Dallas, Denver, and Seattle in recording their all-time highest 12-month house price gains.

Craig J. Lazzara, managing director and global head of index investment strategy at S&P DJI, said the level of price gains, and their consistency across the country, were “extraordinary”.

In June, all 20 cities rose, and all 20 gained more in the 12 months ended in June than they had gained in the 12 months ended in May. Home prices in 19 of our 20 cities (all but Chicago) now stand at all-time highs, as do the National Composite and both the 10- and 20-City indices.

Lazzar added that the move for larger homes away from city centres is also driving the market:

We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. June’s data are consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years.

Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.

Canada’s economy suffered a surprise contraction in the last quarter, as the Covid-19 pandemic hit its recovery.

Canadian GDP shrank by 0.3% during the April-June quarter, Statistics Canada reports (an annualised decline of 1.1%), due to substantial declines in home resale activities and exports.

That’s much worse than expected - economists forecast annualised growth of 2.5% for Q2 (or around +0.6% quarter-on-quarter).

In June alone, the economy grew by 0.7%, after two months of declines.

But Statistics Caanada also predicts GDP fell by 0.4% in July, adding:

The main decreases were in manufacturing, construction and retail trade. The continued easing of public health restrictions initiated in June supported a second strong monthly increase in accommodation and food services.

European stock markets have dropped into the red, as travel stocks are hit by the latest EU moves to tighten up non-essential travel to and from the US.

In London, the FTSE 100 is currently down 40 points or 0.5% at 7107. British Airways parent company IAG (-3.8%) is the top faller.

On the smaller FTSE 250, budget airlines Wizz Air (-3.75%) and easyJet (-1.9%) and cruise operator Carnival (-2.7%) are also in the fallers.

The Stoxx 600 Travel and Leisure index has lost 1%, to a one-week low, with Air France KLM down 1.7% and Deutsche Lufthansa off 2%.

Travel stocks fell after the EU yesterday recommended a pause on all non-essential travel from the US as Covid-19 cases surge.

On Monday the EU removed six countries, including the US, from a Covid “white list” of places whose tourists should be permitted entry without restrictions such as mandatory quarantine.

A majority of EU countries had reopened their borders to Americans in June, in the hope of salvaging the summer tourism season although most required a negative test ahead of travel. The move was not, however, reciprocated by the US.

The US also does not meet the EU’s white list requirement, of having fewer than 75 new cases daily for every 100,000 people over the previous 14 days.

Banks are also lower, with HSBC (-2.7%) and NatWest (-2.1%) in the FTSE 100 fallers, along with oil giant BP (-1.7%), tracking a drop in the price of crude today.

And Bunzl are now down 3.6%, after the multinational distribution firm flagged up supply chain problems in several territories, and a drop in underlining UK earnings.

Today’s UK money and credit data show that, despite the final easing of restrictions, households were not willing to take on new debt faster than they paid off existing debts.

And that casts doubt on a consumer-led recovery as the economy moved into the third quarter, says Karl Thompson, economist at the CEBR, who explains:

“Net consumer credit and mortgage borrowing came to a standstill in July, contrary to consensus expectations of continued borrowing by individuals as the economy entered Q3.

The tapering of the stamp duty holiday contributed to individuals repaying £1.4 billion of mortgage debt in July, compared to the record £17.7 billion borrowed in June.”

Consumer borrowing was also subdued in July, suggesting that the rise in Covid-19 cases has hit the recovery.

The Bank of England reports that households didn’t rack up any additional consumer credit last month, and actually borrowed £42m less than in June. That’s the weakest performance since February, before pandemic restrictions began to be eased.

People made a net repayment of around £100m on their credit cards last month, while ‘other’ forms of borrowing such as car dealership finance and personal loans rose by a net £60m.

The BoE adds:

The annual growth rate for all consumer credit remained weak, decreasing slightly to -2.7% in July from -2.2% in June. The annual growth rates of credit cards and other forms of consumer credit also remained weak at -8.3% and -0.3%, respectively.

Households kept saving too. An extra £7.1bn was deposited with banks and building societies in July - slower than the £8.8bn monthly average in the previous quarter, but still above pre-pandemic averages.

It suggests that consumers turned cautious last month, especially as mortgage borrowing also fell (see last post).

Ruth Gregory of Capital Economics says today’s BoE money and credit figures do little to ease mounting concerns that the resurgence in virus cases in July and the “pingdemic” brought the consumer recovery to a halt.

She told clients:

Overall, today’s release is similar in tone to July’s retail sales data in suggesting that the resurgence in virus cases weighed on the recovery in consumer spending.

As a result, the risks to our view that GDP in July rose by about 0.5% m/m and that monthly GDP will climb back to its pre-pandemic size by October are skewed to the downside.

Back in the UK.... households have made a rare net repayment on their mortgages.

The latest Bank of England money and credit data shows that households collectively paid back £1.4bn more of mortgage debt than they borrowed.

That’s only the second time in the past 10 years that repayments have been bigger than borrowing (it also happened in April 2020, as the first lockdown froze the property market)

The Bank says:

Net repayments are relatively rare, with only one other repayment (in April 2020) in the past decade. The net repayment in July followed record borrowing in June (£17.7 billion), which was probably boosted by the initial tapering off of the stamp duty holiday.

The stamp duty holiday halved in England and Northern Ireland on 30 June, to only cover the first £250,000 of a property, and ended in Wales (it finished in Scotland three months earlier).

The BoE also reports today that mortgage applications fell in July, to 75,200 from 80,300 in June. This is the lowest since July 2020, which also suggests the end of the stamp duty holiday hit demand for loans.

Laura Suter, head of personal finance at AJ Bell, says:

“The nation is waiting to see if the housing market falls off a cliff after the end of the stamp duty holiday. July’s data suggests the market may be slowing, with £1.4bn of net repayments of mortgage debt in the month. This is something that has happened only one other time in the past decade: in April last year during the thick of the pandemic when the housing market was effectively closed. The amount we were all repaying on our mortgages stayed roughly the same as the past year, but the amount we borrowed dropped to £16.5bn – the lowest since June last year.

“However, while mortgage approvals for future purchases fell a bit in July, they are still above pre-pandemic averages – showing signs that the market may remain fairly buoyant. And with the interest rates on mortgage borrowing dropping again, it’s likely that record low rates could keep the market afloat yet.”

Here’s the full story:

This month’s “dramatic move” higher in eurozone inflation to a decade high of 3% probably won’t spur the European Central Bank into changing its monetary policy stance, argues Bert Colijn of ING.

He says today’s data will cause “some sweaty palms” at the ECB, but doesn’t show much evidence of structural high inflation:

The change in last year’s sales period and German VAT increase were the main drivers behind the jump in non-energy industrial goods prices from 0.7 to 2.7%. These effects are temporary and the increase in services inflation was much smaller, from 0.9 to 1.1%. Yes, price pressures are increasing, but August’s dramatic move does overstate the underlying inflation developments.

Headline inflation at 3% has not been seen since 2011. The elevated headline rate was due to the higher core rate and continued year-on-year growth in food as well as energy prices. The latter has been somewhat of a surprise in recent months, related to higher gas prices and continued growth in petrol prices despite Brent oil prices starting to level off. This has the potential to push headline inflation higher towards year end.

Despite the jump in core inflation and the further rise in headline inflation, this is not set to sway the ECB towards a more hawkish stance ahead of the September meeting next week.

But there are still risks that prices will keep pushing higher, Colijn adds:

The one big question mark is around the passthrough of the higher input and transport prices for goods, which has been moderate so far but the price pressures have become abnormal in recent months. The other is whether service sector reopenings will still cause price jumps like we saw for hairdressers after the first wave.

We’re starting to see some evidence of that in restaurants and hotels, but not yet in package holidays. There is some evidence that this effect will start to become more prominent towards the end of the year, so hold tight: inflation has the potential to go higher from here.

Here’s more reaction:

Inflation across the eurozone has surged to its highest level in a decade, as rising costs of energy, goods and services hit households.

Statistics body Eurostat has estimated that euro area annual inflation is expected to be 3.0% in August, up from 2.2% in July.

That’s the highest level since 2011, as inflation moves sharply above the European Central Bank’s target of 2%.

Energy prices had the biggest impact on the cost of living, rising by 15.4% year-on-year in August.

But other prices rose too. Non-energy industrial goods were 2.7% pricier than a year ago, suggesting that the rise in raw materials is now reaching consumers.

Food, alcohol & tobacco prices rose by 2%, while services cost 1.1% more than a year ago.

Core inflation (stripping out energy, food, alcohol & tobacco), rose by 1.6% year-on-year in August, up from 0.7% in July.

The ECB has argued that inflationary pressures will be temporary, due to one-off factors as Europe’s economies reopen after pandemic lockdowns....

...but this jump in inflation could encourage hawks on the ECB’s governing council to push for a slowdown in its pandemic stimulus package.

Unemployment in Germany has hit its lowest level since the first Covid-19 lockdowns, as its labour market continues to recover.

The seasonally-adjusted jobless rate has dropped to 5.5% this month, the Labour Office reports, the lowest since March 2020.

The number of people out of work fell by 53,000 in seasonally adjusted terms to 2.538 million, ahead of the roughly 40,000 fall expected.

That’s encouraging, given the recent rise in Covid-19 cases - and supply chain problems - which has hit business confidence in Germany this month.

The price of aluminium has hit a 10-year high in London this morning thanks to rising global demand for the widely used metal, and output curbs in China.

Reuters has the price details:

Three-month aluminium on the London Metal Exchange advanced as much as 2.9% to $2,726.50 a tonne, its highest since May 2011, before easing to $2,693 a tonne, still up 1.6% at 0753 GMT.

The most-traded October aluminium contract on the Shanghai Futures Exchange closed up 1.2% at 21,390 yuan ($3,311.09) a tonne, hovering near its highest since August 2008 of 21,550 yuan a tonne hit in the previous session.

More here: METALS-London aluminium hits 10-year high on supply concerns

Today’s rally came after China’s Guangxi province, a major metals producer, reportedly decided to curb the output of energy-intensive materials, following pressure from Beijing to cut power usage and emissions.

That has raised fears of alumimium shortages, pushing prices up:

Bloomberg explains:

The moves are in response to Beijing’s campaign to save electricity and cut emissions. China produces around 60% of the world’s aluminum and the concerns around output prompted some of the country’s largest smelters to hold a video call on Monday in which they pledged to ensure supply, and to avoid malicious speculation and irrational price surges.

Aluminum prices have also rallied almost 40% so far this year, due to global demand for metal cans, packaging, construction materials, electric vehicles and aerospace products.

The slowdown in China’s economy this month suggested that high commodity prices are hurting growth.

And as my colleague Philip Inman wrote on Sunday, there are signs that Covid-19 outbreaks are hitting global trade too:

A recovery in global trade during the summer is beginning to wane, according to some early warning signs pointing to the negative effects of widespread Covid-19 outbreaks in the manufacturing centres of east Asia.

A dramatic decline in exports from Taiwan, which makes many of the computer chips used in cars and mobile phones, has combined with temporary port closures and lockdowns in Australia, China and Japan to cut the level of global trade.

The signs of a slowdown sparked a reaction at the weekend from a key member of the oil cartel Opec, who said plans for an expansion of oil output may need to be scrapped.

Kuwait’s oil minister, Mohammad Abdulatif al-Fares, said the 400,000 barrel-per-day increase in oil output agreed by Opec and its allies, a grouping known as Opec+, at previous meetings this year to match rising demand might be reconsidered at its next gathering later this week.

Supply chain problems in the UK, and beyond, are weighing on international distribution and outsourcing group Bunzl.

Bunzl has flagged this morning that shortages of materials and workers are having a knock-on impact, as its customers in the factory and building sectors struggle to find parts and hire staff.

The company reported a 10% drop in underlying earnings in the UK and Ireland in the first half of this year. Demand for Covid-19 related sales dipped back compared with 2020, when Bunzl saw strong demand for cleaning and hygiene, safety and personal protective equipment shipments in the pandemic.

It says:

Revenue in our safety businesses declined significantly during the first half of the year as both manufacturing and construction customers have been slow to return to normal activity whilst at the same time sales of Covid-19 related items reduced. Major infrastructure projects across the UK are several months behind schedule and both labour and materials shortages are limiting a return to normal activity levels in our target sectors.

Our cleaning & hygiene supplies business has also seen a decline in revenues as offices, entertainment venues and travel hubs have remained closed or operating with minimal staff, with many employees working from home.

Bunzl is seeing a pickup in demand from hospitality firms, as lockdown restrictions are lifted:

The pandemic has continued to cause disruption to our foodservice businesses, with lockdowns from January to April and restrictions remaining throughout most of the second quarter. Social distancing rules have resulted in reduced capacities in restaurants and hotels, large numbers of the workforce have been working from home and there have been limits on travel and large-scale events. However, with most restrictions now lifted, the hospitality industry is starting to reopen as we enter the second half of the year. Encouragingly, at the end of the first half, the foodservice business was already in a stronger position than it started the second quarter, although it remains significantly below 2019 levels.

Our healthcare businesses have continued to supply PPE to both hospitals and the NHS direct which has resulted in very strong growth in this sector, although elective surgery remains below normal levels.

Bunzl’s results also highlight the wider tensions in the global economy.

It faced “labour related manufacturer supply chain challenges” in the US, where there are over 10m job vacancies, a record number.

In Australia, Bunzl’s emergency services speciality business experienced some supply chain and shipping delays, while its Mexico division suffered from “country-wide supply chain challenges and product shortages”.

Despite these challenges, Bunzl posted a 12.3% rise in pre-tax profits for the first half of the year, and its outlook for 2021 remains unchanged. Shares have dropped 2.3% in early trading.

Jim Reid of Deutsche Bank says China’s August purchasing manager reports are much weaker than expected:

Overnight in Asia, sentiment has been weighed down by weaker-than-expected August PMIs from China, where the non-manufacturing PMI fell to a contractionary 47.5, which is below the 52.0 reading expected and down from 53.3 in July.

Although the manufacturing reading was relatively resilient at 50.1 (vs. 50.4 last month and 50.2 expected), the composite PMI was below 50 as well as 48.9, which marks the first sub-50 reading since February 2020. A number of factors are behind the slowdown, including the imposition of lockdowns to control the spread of the delta variant, along with flooding in some regions, and the ongoing regulatory changes that have impacted domestic wealth.

Liu Peiqian, China economist at Natwest Markets in Singapore, said services companies had been hit by the latest pandemic restrictions:

“Today’s data again reflected the outsized and asymmetric shock on the service sector from Covid-related restrictions.”

Kyle Rodda of IG says the PMI figures are ‘highly disappointing’, and shows that China’s economy is flying into some headwinds.

The manufacturing survey only missed estimates marginally, printing at 50.1 versus the 50.2 consensus forecast. But the non-manufacturing survey was a true stinker, with the headline number plunging to a contractionary 47.5, down from 53.3 last month and well below the expected 52.1 figure.

Though obviously it doesn’t tell the whole story for China’s economy, the PMIs were the weakest since the COVID-19 collapse of February 2020, and reveal the impact of last month’s Delta outbreak on the country, amidst what’s a clear trend of weakening growth.

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

Worries about China’s economy are rising this morning, after growth across its manufacturing companies all-but-stalled, and its service sector contracted for the first time since the height of the pandemic early last year,

The latest official survey of purchasing managers showed that the Chinese economy cooled in August, as rising raw material costs and the ongoing Covid-19 pandemic hit companies.

China’s manufacturing Purchasing Manager’s Index fell to just 50.1 in August from 50.4 in July, data from the National Bureau of Statistics (NBS) showed this morning. That’s only slightly above the the 50-point mark that separates growth from contraction.

Factories reported that new orders fell this month, with new export demand hitting its lowest in over a year, leading to another month of headcount cuts.

The service sector had a more torrid August - with China’s services PMI tumbling to 47.5 this month from July’s 53.3, into contraction territory.

That’s its weakest reading since early 2020, in the early stages of the pandemic. It shows the services sector shrank this month, as coronavirus restrictions were reimposed and consumers became more cautious.

This pulled the August composite PMI, which measures manufacturing and services activity, down to 48.9 from July’s 52.4.

The data suggests a broadening economic slowdown this month, as China introduced restrictions such as travel restrictions to curb its worst outbreak in months.

NBS statistician Zhao Qinghe said services sector companies, such as catering firms, transport companies, and the accommodation and entertainment industries were most hit by the pandemic:

“This epidemic in multiple provinces and locations was a fairly big shock to the services industry, which is still in recovery.”

The data will increase pressure on Beijing’s policymakers to take new steps to support the economy, analysts say.

Julian Evans-Pritchard, senior China economist at Capital Economics, said China’s economy looks to be ‘coming back to Earth’ following a period of above-trend output after the pandemic.

“The latest surveys suggest that China’s economy contracted [in the] last month as virus disruptions weighed heavily on services activity. Industry also continued to come off the boil as supply-chain bottlenecks worsened and demand softened.

“Most of this weakness should reverse in September. With domestic virus cases now back in the low single digits, many regions have started to relax containment efforts. But we don’t think the latest drop in the PMIs should be entirely shrugged off as a temporary hit from the Delta wave.

“There were signs in the July data of a growing drag from tight credit conditions, which probably extended into August.

European markets are set to open higher, after the US S&P 500 and Nasdaq both hit record highs last night.

Wall Street is relieved that Federal Reserve chair Jerome Powell didn’t announce plans to taper the Fed’s stimulus programme last week.

The agenda

• 8.55am BST: German unemployment report for August
• 9.30am BST: UK mortgage approvals figures and consumer credit figures for July
• 10am BST: Eurozone inflation, flash estimate for August
• 1.30pm BST: Canadian GDP for Q2 2021
• 2pm BST: US house price index for June